An Act to reform the income tax laws
PL 91-172 (H.R.13270), enacted 12/30/1969

83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
487 
SEC. 642. (a) Amounts, as determined by the Secretary of Defense , Procurement 
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funds, rescission. 
and approved by the Director ot the Bureau oi the Budget, of any 
appropriations of the Department of Defense available for procure-
ment (except Shipbuilding and Conversion, Navy) which (1) will 
remain unobligated as of the close of any fiscal year for which esti-
mates are submitted and (2) which have been available for obligation 
for three or more fiscal years, shall be proposed for rescission. 
(b) Amounts, as determined by the Secretary of Defense and ^ ndl'^'^re^cission 
approved by the Director of the Bureau of the Buaget, of any appro- "" s, rescission, 
priations of the Department of Defense available for Shipbuilding 
which (1) will remain unobligated as of the close of any fiscal year 
for which estimates are submitted and (2) which have been available 
for obligation for five or more fiscal years, shall be proposed for 
rescission. 
(c) Amounts, as determined by the Secretary of Defense and . Research and 
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developmenl: 
approved by the Director oi the Bureau ot the Budget, ot any funds, rescission. 
appropriations of the Department of Defense available for research, 
development, test and evaluation (except Emergency Fund, Defense) 
which (1) will remain unobligated as of the close of any fiscal year for 
which estimates are submitted and (2) which have been available for 
obligation for two or more fiscal years, shall be proposed for rescission. 
SEC. 643. In line with the expressed intention of the President of ^^1^^°^ °^ '^'^®'' 
the United States, none of the funds appropriated by this Act shall 
introduction o
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be used to finance the introduction of American ground combat troops combat troops, 
into Laos or Thailand. 
prohibition. 
This Act may be cited as the "Department of Defense Appropria- 
^''°'^* ""^' 
tion Act, 1970." 
Approved December 29, 1969. 
Public Law 91-172 
AN ACT 
December 30, 1969 
To reform the income tax laws. 
— [ H . R. i3270] 
Be it enacted by the Senate and House of Representatives 
of the 
United States of America in Congress assembled, 
SECTION 1. SHORT TITLE, ETC. 
(a) SHORT TITLE.—This Act may be cited as the "Tax Eeform Act 
of 1969". 
(b) TABLE OF CONTENTS.— 
Tax Reform Act 
of 1969. 
488 
PUBLIC L
A
W 91-172-DEC. 30, 1969 
[83 STAT. 
TITLE I—TAX EXEMPT ORGANIZATIONS 
Subtitle A—Private Foundations 
Sec. 101. Private foundations. 
Subtitle B—Other Tax Exempt Organizations 
Sec. 121. Tax on unrelated business income. 
TITLE II—INDIVIDUAL DEDUCTIONS 
Subtitle A—Charitable Contributions 
Sec. 201. Charitable contributions. 
Subtitle B—Farm Losses, Etc. 
Sec. 211. Gain from disposition of property used in farming where 
farm losses offset nonfarm income. 
Sec. 212. Livestock. 
Sec. 213. Deductions attributable to activities not engaged in for 
profit. 
Sec. 214. Gain from disposition of farm land. 
Sec. 215. Crop insurance proceeds. 
Sec. 216. Capitalization of costs of planting and developing citrus 
groves. 
Subtitle C—Interest 
Sec. 221. Interest. 
Subtitle D—Moving Expenses 
Sec. 231. Moving expenses. 
TITLE III—MINIMUM TAX; ADJUSTMENTS PRIMARILY 
AFFECTING INDIVIDUALS 
Subtitle A—Minimum Tax 
Sec. 301. Minimum tax for tax preferences. 
Subtitle B—^Income Averaging 
Sec. 311. Income averaging. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
489 
Subtitle C—Eestricted Property 
Sec. 321. Eestricted property. 
Subtitle D—Accumulation Trusts, Multiple Trusts, Etc. 
Sec. 331. Treatment of excess distributions by trusts. 
Sec. 332. Trust income for benefit of a spouse. 
TITLE IV—ADJUSTMENTS PRIMARILY AFFECTING COR-
PORATIONS 
Subtitle A—^Multiple Corporations 
Sec. 401. Multiple corporations. 
Subtitle B—Debt-Financed Corporate Acquisitions and Related 
Problems 
Sec. 411. Interest on indebtedness incurred by corporation to acquire 
stock or assets of another corporation. 
Sec. 412. Installment method. 
Sec. 413. Bonds and other evidences of indebtedness. 
Sec. 414. Limitation on deduction of bond premium on repurchase. 
Sec. 415. Treatment of certain corporate interests as stock or 
indebtedness. 
Subtitle C—Stock Dividends 
Sec. 421. Stock dividends. 
Subtitle D—Financial Institutions 
Sec. 431. Reserve for losses on loans; net operating loss carrybacks. 
Sec. 432. Mutual savings banks, etc. 
Sec. 433. Treatment of bonds, etc., held hj financial institutions. 
Sec. 434. Limitation on deduction for dividends received by mutual 
savings banks, etc. 
Sec. 435. Foreign deposits in United States banks. 
Subtitle E—Depreciation Allowed Regulated Industries; Earnings 
and Profits Adjustment for Depreciation 
Sec. 441. Public utility property. 
Sec. 442. Effect on earnings and profits. 
TITLE V—ADJUSTMENTS AFFECTING INDIVIDUALS 
AND CORPORATIONS 
Subtitle A—Natural Resources 
Sec. 501. Percentage depletion rates. 
Sec. 602. Treatment processes in the case of oil shale. 
Sec. 503. Mineral i)roduction payments. 
Sec. 504. Exploration expenditures. 
Sec. 505. Continental shelf areas. 
Sec. 506. Foreign tax credit with respect to certain foreign mineral 
income. 
490 
PUBLIC L
A
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[83 STAT. 
Subtitle B—Capital Gains and Losses 
Sec. 511. Increase in alternative capital gains tax. 
Sec. 512. Capital losses of corporations. 
Sec. 513. Capital losses of individuals. 
Sec. 514. Letters, memorandums, etc. 
Sec. 515. Total distributions from qualified pension, etc., plans. 
Sec. 516. Other changes in capital gains treatment. 
Subtitle C—Real Estate Depreciation 
Sec. 521. Depreciation of real estate. 
Subtitle D—Subchapter S Corporations 
Sec. 531. Qualified pension, etc., plans of small business corporations. 
TITLE VI—STATE AND LOCAL OBLIGATIONS 
Sec. 601. Arbitrage bonds. 
TITLE VII—EXTENSION OF TAX SURCHARGE AND 
EXCISE 
TAXES; TERMINATION 
OF 
INVESTMENT 
CREDIT 
Sec. 701. Extension of tax surcharge. 
Sec. 702. Continuation of excise taxes on conmiunication services and 
on automobiles. 
Sec. 703. Termination of investment credit. 
Sec. 704. Amortization of pollution control facilities. 
Sec. 705. Amortization of railroad rolling stock and right-of-way 
improvements. 
Sec. 706. Expenditures in connection with certain railroad rolling 
stock. 
Sec. 707. Amortization of certain coal mine safety equipment. 
TITLE VIII—ADJUSTMENT OF TAX BURDEN FOR 
INDIVIDUALS 
Sec. 801. Personal exemptions. 
Sec. 802. Low income allowance; increase in standard deduction. 
Sec. 803. Tax rates for single individuals and heads of household; 
optional tax. 
Sec. 804. Fifty-percent maximum rate on earned income. 
Sec. 805. Collection of income tax at source on wages. 
TITLE IX—MISCELLANEOUS PROVISIONS 
Subtitle A—Miscellaneous Income Tax Provisions 
Sec. 901. Exclusion of additional living expenses. 
Sec. 902. Deductibilityof treble damage payments, 
fines 
and penalties, 
etc. 
Sec. 903. Accrued vacation pay. 
Sec. 904. Deduction of recoveries of antitrust damages, etc. 
Sec. 905. Corporations using appreciated property to redeem their 
own stock. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
491 
Sec. 906. Keasonable accumulations by corporations. 
Sec. 907. Insurance companies. 
Sec. 908. Certain unit investment trusts. 
Sec. 909. Foreign corporations not availed of to reduce taxes. 
Sec. 910. Sales of certain low-income housing projects. 
Sec. 911. Per-unit retain allocations. 
Sec. 912. Foster children. 
Sec. 913. Cooperative housing corporations. 
Sec. 914. Personal holding company dividends. 
Sec. 915. Eeplacement of property involuntarily converted within a 
2-year period. 
Sec. 916. Change in reporting income on installment basis. 
Sec. 917. Recognition of gain in certain liquidations. 
Subtitle B—Miscellaneous Excise Tax Provisions 
Sec. 931, Concretemixers. 
Sec. 932. Constructive sale price. 
Subtitle C—Miscellaneous Administrative Provisions 
Sec. 941. Filing requirements. 
Sec. 942. Computation of tax by Internal Revenue Service. 
Sec. 943. Failure to make timely payment or deposit of tax. 
Sec. 944. Declarations of estimated tax by farmers. 
Sec. 945. Portion of salary, wages, or other income exempt from levy. 
Sec. 946. Interest and penalties in case of certain taxable years. 
Subtitle D—United States Tax Court 
Sec. 951. Status of Tax Court. 
Sec. 952. Appointment; term of office. 
Sec. 953. Salary. 
Sec. 954. Retirement. 
Sec. 955. Survivors. 
Sec. 956. Powers. 
Sec. 957. Tax disputes involving $1,000 or less. 
Sec. 958. Commissioners. 
Sec. 959. Notice of appeal. 
Sec. 960. Conforming amendments. 
Sec. 961. Continuation of status. 
Sec. 962. Effective dates. 
TITLE X—INCREASE IN SOCIAL SECURITY BENEFITS 
Sec. 1001. Short title. 
Sec. 1002. Increase in old-age, survivors, and disability insurance 
benefits. 
Sec. 1003. Increase in benefits for certain individuals age 72 and over. 
Sec. 1004. Maximum amount of a wife's or husband's insurance 
benefit. 
Sec. 1005. Allocation to disability insurance trust fund. 
Sec. 1006. Disregarding of retroactive payment of OASDI benefit 
increase. 
i 
Sec. 1007. Disregarding of income of OASDI recipients in determin-
ing need for public assistance, 
(c) AMENDMENT OF 1954 CODE.—Except as otherwise expressly pro-
vided, 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. 
of'^rll^*; ^: 
68A Stat. 163. 
26 u s e 501-
Post, p. 498. 
492 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
TITLE I—TAX EXEMPT ORGANIZATIONS 
Subtitle A—Private Foundations 
SEC. 101. PRIVATE FOUNDATIONS. 
(a) I N GENERAL.—Subchapter F of chapter 1 (relating to exempt 
org-anizations) is amended by redesignating parts II, I I I , and I V as 
526" """""' 
parts I I I , IV, and V, respectively, and by inserting after part I the 
following new part: 
"PART II—PRIVATE FOUNDATIONS 
"Sec. 507. Termination of private foundation status. 
"Sec. 508. Special rules with respect to section 501 (c) (3) organizations. 
"Sec. 509. Private foundation defined. 
"SEC. 507. TERMINATION OF PRIVATE FOUNDATION STATUS. 
"(a) GENERAL RULE.—Except as provided in subsection (b), the 
status of any organization as a private foundation shall be terminated 
only if— 
"(1) such organization notifies the Secretary or his delegate (at 
such time and in such manner as the Secretary or his delegate may 
by regulations prescribe) of its intent to accomplish such termina-
tion, or 
"(2) (A) with respect to such organization, there have been 
either willful repeated acts (or failures to act), or a willful and 
flagrant act (or failure to act), giving rise to liability for tax 
under chapter 42, and 
"(B) the Secretary or his delegate notifies such organization 
that, by reason of subparagraph (A), such organization is liable 
for the tax imposed by subsection (c), 
and either such organization pays the tax imposed by subsection (c) 
(or any portion not abated under subsection (g)) or the entire amount 
of such tax is abated under subsection (g). 
"(b) SPECIAL EULES.— 
"(1) TRANSFER TO, OR OPERATION AS, PUBLIC CHARITY.—The 
status as a private foundation of any organization, with respect 
to which there have not been either willful repeated acts (or 
failures to act) or a willful and flagrant act (or failure to act) 
giving rise to liability for tax under chapter 42, shall be ter-
minated if— 
" (A) such organization distributes all of its net assets to 
one or more organizations described in section 170(b)(1) 
Post, p. 550. 
^^^ 
(other than in clauses (vii) and (viii)) each of which 
has been in existence and so described for a continuous period 
of at least 60 calendar months immediately preceding such 
distribution, or 
"(B) (i) such organization meets the requirements of 
paragraph (1), (2), or (3) of section 509(a) by the end of 
the 12-month period beginning with its first taxable year 
which begins after December 31, 1969, or for a continuous 
period of 60 calendar months beginning with the first day 
of any taxable year which begins after December 31, 1969, 
"(ii) such organization notifies the Secretary or his dele-
gate (in such manner as the Secretary or his delegate may 
by regulations prescribe) before the commencement of such 
12-month or 60-month period (or before the 90th day after 
the day on which regulations first prescribed under this 
subsection become final) that it is terminating its private 
foundation status, and 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
493 
"(iii) such organization establishes to the satisfaction of 
the Secretary or his delegate (in such manner as the Secre-
tary or his delegate may by regulations prescribe) imme-
diately after the expiration of such 12-month or 60-month 
period that such organization has complied with clause (i). 
If an organization gives notice under subparagraph (B) (ii) of 
the commencement of a 60-month period and such organization 
fails to meet the requirements of paragraph (1), (2), or (3) of 
section 509(a) for the entire 60-month period, this part and chap-
ter 42 shall not apply to such organization for any taxable year 
^°^'' P- '*-'^' 
within such 60-month period for which it does meet such require-
ments. 
" (2) TRANSFEREE FOUNDATIONS.—For purposes of this part, in 
the case of a transfer of assets of any private foundation to another 
private foundation pursuant to any liquidation, merger, redemp-
tion, recapitalization, or other adjustment, organization, or reor-
ganization, the transferee foundation shall not be treated as a 
newly created organization. 
"(c) IMPOSITION OF TAX.—There is hereby imposed on each organi-
zation which is referred to in subsection (a) a tax equal to the lower 
of— 
"(1) the amount which the private foundation substantiates 
by adequate records or other corroborating evidence as the aggre-
gate tax benefit resulting from the section 501(c)(3) status 
ae'us^c'soi^^' 
of such foundation, or 
" (2) the value of the net assets of such foundation. 
"(d) AGGREGATE TAX BENEFIT.— 
"(1) I N GENERAL.—For purposes of subsection (c), the aggre-
gate tax benefit resulting from the section 501 (c) (3) status of any 
private foundation is the sum of— 
"(A) the aggregate increases in tax under chapters 1, 11, 
and 12 (or the corresponding provisions of prior law) which 
26 use i, 2001, 
would have been imposed with respect to all substantial con- ^^°^' 
tributors to the foundation if deductions for all contribu-
tions made by such contributors to the foundation after 
February 28,1913, had been disallowed, and 
"(B) the aggregate increases in tax under chapter 1 (or the 
corresponding provisions of prior law) which would have 
been imposed with respect to the income of the private foun-
dation for taxable years beginning after December 31, 1912, 
if (i) it had not been exempt from tax under section 501(a) 
(or the corresponding provisions of prior law), and (ii) in 
the case of a trust, deductions under section 642(c) (or the 
corresponding provisions of prior law) had been limited to 
20 percent of the taxable income of the trust (computed 
without the benefit of section 642(c) but with the benefit 
ofsectionl70(b)(l)(A.)),and 
_ 
_ 
Pos^ p. 550. 
"(C) interest on the increases in tax determined under sub-
paragraphs (A) and (B) from the first date on which each 
such increase would have been due and payable to the date 
on which the organization ceases to be a private foundation. 
"(2) SUBSTANTIAL CONTRIBUTOR.— 
"(A) DEFINITION.—For purposes of paragraph (1), the 
term 'substantial contributor' means any person who con-
tributed or beq^ueathed an aggregate amount of more than 
$5,000 to the private foundation, if such amount is more than 
2 percent of the total contributions and bequests received by 
the foundation before the close of the taxable year of the 
Post, p. 558. 
494 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
foundation in which the contribution or bequest is received 
by the foundation from such person. In the case of a trust, 
the term 'substantial contributor' also means the creator of 
the trust. 
"(B) SPECIAL RULES.—For purposes of 
subparagraph 
"(i) each contribution or bequest shall be valued at 
fair market value on the date it was received, 
"(ii) in the case of a foundation which is in existence 
on October 9, 1969, all contributions and bequests re-
ceived on or before such date shall be treated (except 
for purposes of clause (i)) as if received on such date, 
"(iii) an individual shall be treated as making all 
contributions and bequests made by his spouse, and 
"(iv) any person who is a substantial contributor on 
any date shall remain a substantial contributor for all 
subsequent periods. 
"(3) EEGULATIONS.—For purposes of tjiis section, the determi-
nation as to whether and to what extent there would have been any 
increase in tax shall be made in accordance with regulations pre-
scribed by the Secretary or his delegate. 
"(e) VALUE OF ASSETS.—For purposes of subsection 
(c), the 
value of the net assets shall be determined at whichever time such value 
is higher: (1) the first day on which action is taken by the organiza-
tion which culminates in its ceasing to be a private foundation, or 
(2) the date on which it ceases to be a private foundation. 
"(f) 
LIABILITY IN CASE OF TRANSFERS OF ASSETS FROM PRIVATE 
FOUNDATION.—For purposes of determining liability for the tax 
imposed by subsection (c) in the case of assets transferred by the pri-
vate foundation, such tax shall be deemed to have been imposed on the 
first day on which action is taken by the organization which cul-
minates in its ceasing to be a private foundation. 
"(g) ABATEMENT OF TAXES.—The Secretary or his delegate may 
abate the unpaid portion of the assessment of any tax imposed by sub-
section (c), or any liability in respect thereof, if— 
"(1) the private foundation distributes all of its net assets to 
Post, p. 550. 
one or more organizations described in section 170(b)(1)(A) 
(other than in clauses (vii) and (viii)) each of which has been in 
existence and so described for a continuous period of at least 60 
calendar months, or 
Post. p. 523. 
"(2) following the notification prescribed in section 6104(c) 
to the appropriate State officer, such State officer within one year 
notifies the Secretary or his delegate, in such manner as the Secre-
tary or his delegate may by regulations prescribe, that corrective 
action has been initiated pursuant to State law to insure that the 
assets of such private foundation are preserved for such charitable 
26'uscr5'oi^^" 
^^ other purposes specified in section 501 (c) (3) as may be ordered 
or approved by a court of competent jurisdiction, and upon 
completion of the corrective action, the Secretary or his delegate 
receives certification from the appropriate State officer that such 
action has resulted in such preservation of assets. 
"SEC. 508. SPECIAL RULES WITH RESPECT TO SECTION 501(c)(3) ORGA-
NIZATIONS. 
"(a) 
NEW ORGANIZATIONS MUST NOTIFY SECRETARY THAT THEY 
ARE 
APPLYING FOR EECOGNITION OF SECTION 501(c)(3) STATUS.— 
Except as provided in subsection (c), an organization organized after 
October 9, 1969, shall not be treated as an organization described in 
section 501(c) (3)— 
68A Stat. 163. 
26 use 501. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC.30, 1969 
495 
"(1) unless it has given notice to the Secretary or his delegate, 
in such manner as the Secretary or his delegate may by regulations 
prescribe, that it is applying for recognition of such status, or 
"(2) for any period before the giving of such notice, if such 
notice is given after the time prescribed by the Secretary or his 
delegate by regulations for giving notice under this subsection. 
For purposes of paragraph (2), the time prescribed for giving notice 
imder this subsection shall not expire before the 90th day after the day 
on which regulations first prescribed under this subsection become final. 
"(b) 
PRESUMPTION THAT ORGANIZATIONS ARE PRIVATE FOUNDA-
TIONS.—Except as provided in subsection (c), any organization (in-
cluding an organization in existence on October 9, 1969) which is 
described in section 501 (c) (3) and which does not notify the Secretary 
or his delegate, at such time and in such manner as the Secretary or his 
delegate may by regulations prescribe, that it is not a private founda-
tion shall be presumed to be a private foundation. The time prescribed 
for giving notice under this subsection shall not expire before the 90th 
day after the day on which regulations first prescribed under this 
subsection become final. 
"(c) EXCEPTIONS.— 
"(1) MANDATORY EXCEPTIONS.—Subsections (a) and (b) shall 
not apply to— 
''(A) churches, their integrated auxiliaries, and conven-
tions or associations of churches, or 
"(B) any organization which is not a private foundation 
(as denned in section 509 (a)) and the gross receipts of which 
in each taxable year are normally not more than $5,000. 
"(2) EXCEPTIONS BY REGULATIONS.—The Secretary or his dele-
gate may by regulations exempt (to the extent and subject to such 
conditions as Taa,y be prescribed in such regulations) from the pro-
visions of subsection (a) or (b) or both— 
"(A) educational organizations which normally maintain 
a regular faculty and curriculum and normally have a regu-
larly enrolled body of pupils or students in attendance at the 
place where their educational activities are regularly carried 
on; and 
"(B) any other class of organizations with respect to which 
the Secretary or his delegate determines that full compliance 
with the provisions of subsections (a) and (b) is not necessary 
to the efficient administration of the provisions of this title 
relating to private foundations. 
"(d) 
DISALLOWANCE or CERTAIN CHARITABLE, ETC.. DEDUCTIONS.— 
"(1) 
GIFT OR BEQUEST TO ORGANIZATIONS SUBJECT TO SECTION 
507(c) TAX.—No gift or bequest made to an organization upon 
which the tax provided by section 507(c) has been imposed shall 
be allowed as a deduction under section 170,545 (b) (2), 556 (b) (2), 
642 (c). 2055,2106 (a) (2), or 2522, if such gift or bequest is made— ^^^^"^^^^^f-
"(A) by any person after notification is made under sec- ^
2
^
6 us^^fy^o, 
tion 507(a), or 
545,556. 642! 
"(B) by a substantial contributor (as defined in section 2055, 2106, 2522. 
507(d) (2)) in his taxable year which includes the first day on 
which action is taken by such organization which culminates 
in the imposition of tax under section 507(c) and any subse-
quent taxable year. 
"(2) 
GIFT OR BEQUEST TO TAXABLE PRIVATE FOUNDATION, SECTION 
4947 TRUST, ETC.—NO gift or bequest made to an organization 
shall be allowed as a deduction under section 170, 545(b)(2), 
556(b)(2), 642(c), 2055, 2106(aj(2), or 2522, if such gift or 
bequest is made 
Post, p. 507. 
Post, p. 511. 
Post, p. 513. 
496 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
" (A) to a private foundation or a trust described in section 
ost,p. 517. 
4947 in a taxable year for which it fails to meet the require-
ments of subsection (e) (determined without regard to sub-
section (e)(2) (B) and (C)), or 
"(B) to any organization in a period for which it is not 
26^sc^'5o\^^* 
treated as an organization described in section 501(c) (3) by 
reason of subsection (a). 
"(3) EXCEPTION.—Paragraph (1) shall not apply if the entire 
IL 
amount of the unpaid portion of the tax imposed by section 507 (c) 
is abated by the Secretary or his delegate under section 507(g). 
"(e) 
GOVERNING INSTRUMENTS.— 
" (1) GENERAL RULE.—A private foundation shall not be exempt 
from taxation under section 501(a) unless its governing instru-
ment includes provisions the effects of which are— 
" (A) to require its income for each taxable year to be dis-
tributed at such time and in such manner as not to subject the 
Post, p. 502. 
foundation to tax under section 4942, and 
"(B) to prohibit the foundation from engaging in any act of 
Post, p. 500. 
self-dealing (as defined in section 4941(d)), from retaining 
any excess business holdings (as defined in section 4943(c)), 
from making any investments in such manner as to subject the 
foundation to tax under section 4944, and from making any 
taxable expenditures (as defined in section 4945(d)). 
"(2) 
SPECIAL RULES FOR EXISTING PRIVATE FOUNDATIONS.— 
In the case of any organization organized before January 1,1970, 
paragraph (1) shall not apply— 
"(A) to any taxable year beginning before January 1, 
1972, 
' • 
"(B) to any period after December 31, 1971, during the 
pendency of any judicial proceeding begun before January 1, 
1972, by the private foundation which is necessary to reform, 
i I 
or to excuse such foundation from compliance with, its gov-
erning instrument or any other instrument in order to meet 
the requirements of paragraph (1), and 
"(G) to any period after the termination of any judicial 
proceeding described in subparagraph (B) during which its 
governing instrument or any other instrument does not per-
mit it to meet the requirements of paragraph (1). 
"SEC. 509. PRIVATE FOUNDATION DEFINED. 
"(a) GENERAL RULE.—For purposes of this title, the term 'private 
foundation' means a domestic or foreign organization described in sec-
tion 501(c) (3) other than— 
Post, p. 550. 
ii(^i^ g^j^ organization described in section 170(b) (1) (A) (other 
than in clauses (vii) and (viii)); 
" (2) an organization which— 
,; 
" (^) normally receives more than one-third of its support 
in each taxable year from any combination of— 
"(1) gifts, grants, contributions, or membership fees, 
'^ 
"(ii) gross receipts from admissions, sales of merchan-
dise, performance of services, or furnishing of facilities, 
in an activity which is not an unrelated trade or business 
54^°^'' ^^' ^'*^' 
(within the meaning of section 513), not including such 
receipts from any person, or from any bureau or similar 
agency of a governmental unit (as described in section 
Post. p. 553. 
170(c)(1)), in any taxable year to the extent such 
receipts exceed the greater of $5,000 or 1 percent of the 
organization's support in such taxable year, 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
497 
Post, p. 515. 
from persons other than disqualified persons (as defined in 
section 4946) with respect to the organization, from govern-
mental units described m section 170 (c) (1), or from organiza-
tions described in section 170 (b) (1) (A) (other than in clauses 
^°s(, p. 550. 
(vii) and (viii)), and 
"(B) normally receives not more than one-third of its sup-
port in each taxable year from gross investment income (as 
defined in subsection (e)) ; 
"(3) an organization which— 
"(A) IS organized, and at all times thereafter is operated, 
exclusively for the benefit of, to perform the functions of, or to 
carry out the purposes of one or more specified organizations 
described in paragraph (1) or (2), 
"(B) is operated, supervised, or controlled by or in con-
nection with one or more organizations described in paragraph 
(1) or (2),and 
"(C) is not controlled directly or indirectly by one or more 
disqualified persons (as defined in section 4946) other than 
foundation managers and other than one or more organiza-
tions described in paragraph (1) or (2) ; and 
"(4) an organization which is organized and operated exclu-
sively for testing for public safety. 
For purposes of paragraph (3), an organization described in para-
graph (2) shall be deemed to include an organization described in sec-
tion 501(c) (4), (5), or (6) which would be described in paragraph 
26'usc^*5o\^^' 
(2) if it were an organization described in section 501(c) (3). 
"(b) CONTINUATION OF PRIVATE FOUNDATION STATUS.—For pur-
poses of this title, if an organization is a private foundation (within 
the meaning of subsection (a)) on October 9,1969, or becomes a private 
foundation on any subsequent date, such organization shall be treated 
as a private foundation for all periods after October 9, 1969, or after 
such subsequent daite, unless its status as such is terminated under sec-
tion 507. 
"(c) STATUS or ORGANIZATION AFTER TERMINATION OF PRIVATE 
FOUNDATION STATUS.—For purposes of this part, an organization the 
status of which as a private foundation is terminated under section 507 
shall (except as provided in section 507(b)(2)) be treated as an 
organization created on the day after the date of such termination. 
"(d) DEFINITION OF SUPPORT.—For purposes of this part and chap-
ter 42, the term 'support' includes (but is not limited to)— 
^°^'' P- '^^S. 
"(1) gifts, grants, contributions, or membership fees, 
"(2) gross receipts from admissions, sales of merchandise, per-
formance of services, or furnishing of facilities in any activity 
which is not an unrelated trade or business (within the meaning 
of section 513), 
54^°^''^^ 
"(3) net income from unrelated business activities, whether or 
not such activities are carried on regularly as a trade or business, 
"(4) gross investment income (as defined in subsection (e)), 
"(5) tax revenues levied for the benefit of an organization and 
either paid to or expended on behalf of such organization, and 
"(6) the value of services or facilities (exclusive of services or 
facilities generally furnished to the public without charge) fur-
nished by a governmental unit referred to in section 170(c) (1) 
to an organization without charge. 
Such term does not include any gain from the sale or other disposition 
of property which would be considered as gain from the sale or 
exchange of a capital asset, or the value of exemption from any 
Federal, State, or local tax or any similar benefit. 
541, 
Post, p. 536. 
4931 
498 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"(e) DEFINITION or GROSS INVESTMENT INCOME.—For purposes of 
subsection (d), the term 'gross investment income' means the gross 
amount of income from interest, dividends, rents, and royalties, but 
not including any such income to the extent included in computing the 
tax imposed by section 511." 
(b) AMENDMENT OF SUBTITLE D.—Subtitle D (relating to miscel-
2
^
6 use 4001- 
laneous excise taxes) is amended by adding at the end thereof the 
following new chapter: 
"CHAPTER 42.—PRIVATE FOUNDATIONS 
"Sec. 4940. Excise tax based on investment income. 
"Sec. 4941. Taxes on self-dealing. 
"Sec. 4942. Taxes on failure to distribute income. 
"Sec. 4943. Taxes on excess business holdings. 
"Sec. 4944. Taxes on investments which jeopardize charitable purpose. 
"Sec. 4945. Taxes on taxable expenditures. 
"Sec. 4946. Definitions and special rules. 
"Sec. 4947. Application of taxes to certain nonexempt trusts. 
"Sec. 4948. Application of taxes and denial of exemption with respect to certain 
foreign organizations. 
"SEC. 4940. EXCISE TAX BASED ON INVESTMENT INCOME. 
''(a) TAX-EXEMPT FOUNDATIONS.—There is hereby imposed on each 
private foundation which is exempt from taxation under section 501 
26^s'c^5o\^^' 
^^) ^^^ *^^ taxable year, with respect to the carrying on of its activi-
ties, a tax equal to 4 percent of the net investment income of such 
foundation for the taxable year. 
"'(b) TAXABLE FOUNDATIONS.—There is hereby imposed on each 
private foundation which is not exempt from taxation under section 
501(a) for the taxable year, with respect to the carrying on of its 
activities, a tax equal to— 
"(1) the amount (if any) by which the sum of (A) the tax 
imposed under subsection (a) (computed as if such subsection 
applied to such private foundation for the taxable year), plus 
(B) the amount of the tax which would have been imposed under 
section 511 for the taxable year if such private foundation had 
been exempt from taxation under section 501(a), exceeds 
"(2) the tax imposed under subtitle A on such private foun-
dation for the taxable year. 
"(c) NET INVESTMENT INCOME DEFINED.— 
"(1) I N GENERAL.—For purposes of subsection (a), the net 
investment income is the amount by which (A) the sum of the 
gross investment income and the net capital gain exceeds (B) 
the deductions allowed by paragraph (3). Except to the extent 
inconsistent with the provisions of this section, net investment 
income shall be determined under the principles of subtitle A. 
"(2) GROSS INVESTMENT INCOME.—For purposes of paragraph 
(1), the term 'gross investment income' means the gross amount of 
income from interest, dividends, rents, and royalties, but not in-
cluding any such income to the extent included in computing the 
tax imposed by section 511. 
"(3) 
DEDUCTIONS.— 
"(A) I N GENERAL.—For purposes of paragraph (1), there 
shall be allowed as a deduction all the ordinary and necessary 
expenses paid or incurred for the production or collection of 
gross investment income or for the management, conservation, 
or maintenance of property held for the production of such 
income, determined with the modifications set forth in sub-
paragraph (B). 
26 u s e 1-1563. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
499 
"(B) MODIFICATIONS.—^For purposes of 
subparagraph 
( A ) -
"(i) The deduction provided by section 167 shall be ^J^^°^*' P^' ^^^' 
allowed, but only on the basis of the straight line method 
of depreciation. 
"(ii) The deduction for depletion provided by section 
611 shall be allowed, but such deduction shall be deter- 
esA stat, 207. 
mined without regard to section 613 (relating to percent- 
^^ ^^^ ^'^^' 
age depletion). 
Post, p. 629. 
"(4:) CAPITAL GAINS AND LOSSES.—For purposes of paragraph 
(1) in determining net capital gain— 
"(A) There shall be taken into account only gains and 
losses from the sale or other disposition of property used for 
the production of interest, dividends, rents, and royalties, and 
property used for the production of income included in com-
putmg the tax imposed by section 511 (except to" the extent 
^osf, p. sse. 
gain or loss from the sale or other disposition of such property 
is taken into account for purposes of such tax). 
"(B) The basis for determinmg gain in the case of property 
held by the private foundation on December 31, 1969, and 
continuously thereafter to the date of its disposition shall be 
deemed to be not less than the fair market value of such prop-
erty on December 31, 1969. 
"(C) Losses from sales or other dispositions of property 
shall be allowed only to the extent of gams from such sales or 
other dispositions, and there shall be no capital loss carryovers. 
"(5) TAX-EXEMPT INCOME.—For purposes of this section, net 
investment income shall be determined by applying section 103 
Post. p. sse. 
(relating to interest on certain governmental obligations) and 
section 265 (relating to expenses and interest relating to tax- ^^l^f^l): 
^^' 
exempt income). 
"SEC. 4941. TAXES ON SELF-DEALING. 
"(a) INITIAL TAXES.— 
" (1) O N SELF-DEALER.—There is hereby imposed a tax on each 
act of self-dealing between a disqualified person and a private 
foundation. The rate of tax shall be equal to 5 percent of the 
amount involved with respect to the act of self-dealing for each 
year (or part thereof) in the taxable period. The tax imposed by 
this paragraph shall be paid by any disqualified person (other 
than a foundation manager acting only as such) who participates 
in the act of self-dealing. In the case of a government official (as 
defined in section 4946(c)), a tax shall be imposed by this para-
graph only if such disqualified person participates in the act of 
self-dealing knowing that it is such an act. 
"(2) O N FOUNDATION MANAGER.—In any case in which a tax is 
imposed by paragraph (1), there is hereby imposed on the partici-
pation of any foundation manager in an act of self-dealing be-
tween a disqualified person and a private foundation, knowing that 
it is such an act, a tax equal to 21/1 percent of the amount involved 
with respect to the act of self-dealing for each year (or part 
thereof) in the taxable period, unless such participation is not 
willful and is due to reasonable cause. The tax imposed by this 
paragraph shall be paid by any foundation manager who partici-
pated in the act of self-dealing. 
78 Stat. 56. 
500 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"(b) ADDITIONAL TAXES.— 
"(1) O N SELF-DEALER.—In any case in which an initial tax is 
imposed by subsection (a) (1) on an act of self-dealing by a dis-
qualified person with a private foundation and the act is not cor-
rected within the correction period, there is hereby imposed a tax 
equal to 200 percent of the amount involved. The tax imposed by 
this paragraph shall be paid by any disqualified person (other 
than a foundation manager acting only as such) who participated 
in the act of self-dealing. 
"(2) O N FOUNDATION MANAGER.—In any case in which an addi-
tional tax is imposed by paragraph (1), if a foundation manager 
refused to agree to part or all of the correction, there is hereby 
imposed a tax equal to 50 percent of the amount involved. The 
tax imposed by this paragraph shall be paid by any foundation 
manager who refused to agree to part or all of the correction. 
" (c) SPECIAL KULES.—For purposes of subsections (a) and (b) — 
"(1) JOINT AND SEVERAL LIABILITY.—If more than one person 
is liable under any paragraph of subsection (a) or (b) with respect 
to any one act of self-dealing, all such persons shall be jointly and 
severally liable under such paragraph with respect to such act. 
"(2) $10,000 LIMIT FOR MANAGEMENT.—With respect to any one 
act of self-dealing, the maximum amount of the tax imposed by 
subsection (a) (2) shall not exceed $10,000, and the maximum 
amount of the tax imposed by subsection (b) (2) shall not exceed 
$10,000. 
"(d) SELF-DEALING.— 
"(1) I N GENERAL.—For purposes of this section, the term 
'self-dealing' means any direct or indirect— 
"(A) sale or exchange, or leasing, of property between a 
private foundation and a disqualified person; 
"(B) lending of money or other extension of credit between 
a private foundation and a disqualified person; 
"(C) furnishing of goods, services, or facilities between a 
private foundation and a disqualified person; 
"(D) payment of compensation (or payment or reimburse-
ment of expenses) by a private foundation to a disqualified 
person; 
"(E) transfer to, or use by or for the benefit of, a disquali-
fied person of the income or assets of a private foundation; 
and 
"(F) agreement by a private foundation to make any pay-
ment of money or other property to a government official (as 
defined in section 4946(c)), other than an agreement to 
employ such individual for any period after the termination 
of his government service if such individual is terminating his 
government service within a 90-day period. 
"(2) SPECIAL RULES.—For purposes of paragraph (1) — 
"(A) the transfer of real or personal property by a dis-
qualified person to a private foundation shall be treated as 
a sale or exchange if the property is subject to a mortgage or 
similar lien which the foundation assumes or if it is subject to 
a mortgage or similar lien which a disqualified person placed 
on the property within the 10-year period ending on the date 
of the transfer ; 
"(B) the lending of money by a disqualified person to a 
private foundation shall not be an act of self-dealing if the 
loan is without interest or other charge and if the proceeds 
of the loan are used exclusively for purposes specified in 
"rusc'soK"- 
section 501(c) (3); 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
501 
"(C) the furnishing of goods, services, or facilities by a 
disqualified person to a private foundation shall not be an act 
of self-dealing if the furnishing is without charge and if the 
goods, services, or facilities so furnished are used exclusively 
for purposes specified in section 501 (c) (3) ; 
68A stat. lea. 
"(D) the furnishing of goods, services, or facilities by a 
'' ' 
private foundation to a disqualified person shall not be an act 
of self-dealing if such furnishing is made on a basis no more 
favorable than that on which such goods, services, or facilities 
are made available to the general public; 
"(E) except in the case of a government official (as defined 
in section 4946(c)), the payment of compensation (and the 
payment or reimbursement of expenses) by a private founda-
tion to a disqualified person for personal services which are 
reasonable and necessary to carrying out the exempt purpose 
of the private foundation shall not be an act of self-dealing 
if the compensation (or payment or reimbursement) is not 
excessive; 
"(F) any transaction between a private foundation and a 
corporation which is a disqualified person (as defined in 
section 4946(a)), pursuant to any liquidation, merger, re-
demption, recapitalization, or other corporate adjustment, 
organization, or reorganization, shall not be an act of self-
dealing if all of the securities of the same class as that held 
by the foundation are subject to the same terms and such 
terms provide for receipt by the foundation of no less than 
fair market value; and 
"(G) in the case of a government official (as defined in 
section 4946(c)), paragraph (1) shall in addition not apply 
to— 
"(i) prizes and awards which are subject to the provi-
sions of section 74(b), if the recipients of such prizes 
and awards are selected from the general public, 
"(ii) scholarships and fellowship grants which are 
subject to the provisions of section 117(a) and are to be 
used for study at an educational institution described in 
section 151(e) (4), 
"(iii) any annuity or other payment (forming part of 
a stock-bonus, pension, or profit-sharing plan) by a trust 
which is a qualified trust under section 401, 
"(iv) any annuity or other payment under a plan 
which meets the requirements of section 404(a) (2), 
"(v) any contribution or gift (other than a contribu-
tion or gift of money) to, or services or facilities made 
available to, any such individual, if the aggregate value 
of such contributions, gifts, services, and facilities to, or 
made available to, such individual during any calendar 
year does not exceed $25, 
"(vi) any payment made under chapter 41 of title 5, 
United States Code, or 
_ 
_ 
fulc'iiot 
" (vii) any payment or reimbursement of traveling ex- 41 is. 
penses for travel solely from one point in the United 
States to another point in the United States, but only if 
such payment or reimbursement does not exceed the ac-
tual cost of the transportation involved plus an amount 
for all other traveling expenses not in excess of 125 per-
cent of the maximum amount payable under section 
5702(a) of title 5, United States Code, for like travel 
^"'^' p- '^o-
by employees of the United States. 
31-100
0 - 7 0 - 3 4
502 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"(e) OTHER DEFINITIONS.—For purposes of this section— 
"(1) TAXABLE PERIOD.—The term 'taxable period' means, with 
respect to any act of self-dealing, the period beginning with the 
date on which the act of self-dealing occurs and ending on which-
ever of the following is the earlier: (A) the date of mailing of 
a notice of deficiency with respect to the tax imposed by sub-
68A Stat. 770. 
sectiou (a) (1) under section 6212, or (B) the date on which cor-
2
6 use 6212. 
rection of the act of self-dealing is completed. 
"(2) AMOUNT INVOLVED.—The term 'amount involved' means, 
with respect to any act of self-dealing, the greater of the amount 
of money and the fair market value of the other property given 
or the amount of money and the fair market value of the other 
property received; except that, in the case of services described 
in subsection (d) (2) (E), the amount involved shall be only the 
excess compensation. For purposes of the preceding sentence, the 
fair market value— 
"(A) in the case of the taxes imposed by subsection (a), 
shall be determined as of the date on which the act of self-
dealing occurs; and 
"(B) in the case of the taxes imposed by subsection (b), 
shall be the highest fair market value during the correction 
period. 
"(3) CORRECTION.—The terms 'correction' and 'correct' mean, 
with respect to any act of self-dealing, undoing the transaction 
to the extent possible, but in any case placing the private founda-
tion in a financial position not worse than that in which it would 
be if the disqualified person were dealing under the highest 
fiduciary 
standards. 
" (4) CORRECTION PERIOD.—The term 'correction period' means, 
with respect to any act of self-dealing, the period beginning with 
the date on which the act of self-dealing occurs and ending 90 
days after the date of mailing of a notice of deficiency with respect 
to the tax imposed by subsection (b) (1) under section 6212, 
extended by— 
"(A) any period in which a deficiency cannot be assessed 
26 use 6213. 
under section 6213 (a), and 
"(B) any other period which the Secretary or his delegate 
determines is reasonable and necessary to bring about correc-
tion of the act of self-dealing. 
"SEC. 4942. TAXES ON FAILURE TO DISTRIBUTE INCOME. 
"(a) INITIAL TAX.—There is hereby imposed on the undistributed 
income of a private foundation for any taxable year, which has not 
been distributed before the first day of the second (or any succeeding) 
taxable year following such taxable year (if such first day falls within 
the taxable period), a tax equal to 15 percent of the amount of such 
income remaining undistributed at the beginning of such second (or 
succeeding) taxable year. The tax imposed by this subsection shall not 
apply to the undistributed income of a private foundation— 
" (1) for any taxable year for which it is an operating founda-
tion (as defined in subsection (j)(3)),or 
"(2) to the extent that the foundation failed to distribute any 
amount solely because of an incorrect valuation of assets under 
subsection (e), if— 
" (A) the failure to value the assets properly was not willful 
and was due to reasonable cause, 
"(B) such amount is distributed as qualifying distributions 
(within the meaning of subsection (g)) by the foundation 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
503 
during the allowable distribution period (as defined in sub-
section (j) (4)), 
"(C) the foundation notifies the Secretary or his delegate 
that such amount has been distributed (within the meaning of 
subparagraph (B)) to correct such failure, and 
"(D) such distribution is treated under subsection (h) (2) 
as made out of the undistributed income for the taxable year 
for which a tax would (except for this paragraph) have been 
imposed under this subsection. 
"(b) ADDiTioisrAL TAX.—In any case in which an initial tax is im-
posed under subsection (a) on the undistributed income of a private 
foundation for any taxable year, if any portion of such income remains 
undistributed at the close of the correction period, there is hereby 
imposed a tax equal to 100 percent of the amount remaining undis-
tributed ajt such time. 
"(c) UNDISTRIBUTED INCOME.—For purposes of this section, the Definition. 
term 'undistributed income' means, with respect to any private foun-
dation for any taxable year as of any time, the amount by which— 
" (1) the distributable amount for such taxable year, exceeds 
"(2) the qualifying distributions made before such time out of 
such distributable amount. 
"(d) DISTRIBUTABLE AMOUNT.—For purposes of this section, the Definition. 
term 'distributable amount' means, with respect to any foundation for 
any taxable year, an amount equal to— 
" (1) the minimum investment return or the adjusted net income 
(whichever is higher), reduced by 
"(2) the sum of the taxes imposed on such private foundation 
for the taxable year under subtitle A and section 4940. 
^^ ^^^ i-is63. 
"(e) MINIMUM INVESTMENT RETURN.— 
"(1) I N GENERAL.—For purposes of subsection (d), the mini-
mum investment return for any private foundation for any tax-
able year is the amount determined by multiplying— 
"(A) the excess of (i) the aggregate fair market value of 
all assets of the foundation other than those being used (or 
held for use) directly in carrying out the foundation's exempt 
purpose over (ii) the acquisition indebtedness with respect 
to such assets (determined under section 514(c)(1), but 
Post, p.'^45. 
without regard to the taxable year in which the indebtedness 
was incurred), by 
"(B) the applicable percentage for such year, determined 
under paragraph (3). 
"(2) VALUATION.—For purposes of paragraph (1)(A), the 
fair market value of securities for which market quotations are 
readily available shall be determined on a monthly basis. For all 
other assets, the fair market value shall be determined at such 
times and in such manner as the Secretary or his delegate shall by 
regulations prescribe. 
"(3) APPLICABLE PERCENTAGE.—For purposes of 
paragraph 
(1) (B), the applicable percentage for taxable years beginning in 
1970 is 6 percent. The applicable percentage for any taxable year 
beginning after 1970 shall be determined and published by the Sec-
retary or his delegate and shall bear a relationship to 6 percent 
which the Secretary or his delegate determines to be comparable 
to the relationship which the money rates and investment yields 
for the calendar year immediately preceding the beginning of the 
taxable year bear to the money rates and investment yields for the 
calendar year 1969. 
"(4) TRANSITIONAL RULES.— 
"For special rules applicable to organizations created before May 27, 
1969, see section 101(1)(3) of the Tax Reform Act of 1969. 
Post. p. 534. 
504 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"(f) 
ADJUSTED NET INCOME.— 
"(1) DEFINED.—For purposes of subsection (d), the term 'ad-
justed net income' means the excess (if any) of— 
"(A) the gross income for the taxable year (determined 
with the income modifications provided by paragraph (2)), 
over 
"(B) the sum of the deductions (determined with the de-
duction modifications provided by paragraph (3) ^ which 
would be allowed to a corporation subject to the tax imposed 
26 use n' ^ ^^' 
^7 section 11 for the taxable year. 
"(2) INCOME MODIFICATIONS.—The income modifications re-
ferred to in para^aph (1) (A) are as follows: 
Post, p. 656. 
"(A) section 103 (relating to interest on certain govern-
mental obligations) shall not apply, 
"(B) capital gains and losses from the sale or other dis-
position oi property shall be taken into account only in an 
amount equal to any net short-term capital gain for the 
taxable year; and 
"(C) there shall be taken into account— 
"(i) amounts received or accrued as repayments of 
amounts which were taken into account as a qualifying 
distribution within the meaning of subsection (g) (1) (A) 
for any taxable year; 
"(ii) notwithstanding subparagraph (B), amounts 
received or accrued from the sale or other disposition of 
property to the extent that the acquisition of such prop-
ertv was taken into account as a qualifying distribution 
(within the meaning of subsection (g) (1) (B)) for any 
taxable year; and 
" (iii) any amount set aside under subsection (g) (2) to 
the extent it is determined that such amount is not neces-
sary for the purposes for which it was set aside. 
"(3) DEDUCTION MODIFICATIONS.—The deduction modifications 
referred to in pareigraph (1) (B) are as follows: 
"(A) no deduction shall be allowed other than all the ordi-
nary and necessary expenses paid or incurred for the produc-
tion or collection of gross income or for the management, 
conservation, or maintenance of property held for the pro-
duction of such income and the allowances for depreciation 
and depletion determined under section 4940(c) (3) (B), and 
Ts^stlt^'se ^^'' 
"(B) section 265 (relating to expenses and interest relating 
to tax-exempt interest) shall not apply. 
"(4) TRANSITIONAL RULE.—Forpurposesof paragraph (2) (B), 
the basis (for purposes of determining gain) of property held by a 
private foundation on December 31,1969, and continuously there-
after to the date of its disposition, shall be deemed to be not less 
than the fair market value of such property on December 31,1969. 
"(g) 
QUALIFYING DISTRIBUTIONS DEFINED.— 
" (1) I N GENERAL.—For purposes of this section, the term 'quali-
fying distribution' means— 
"(A) any amount (including administrative expenses) 
paid to accomplish one or more purposes described in section 
170(c) (2) (B), other than any contribution to (i) an orga-
nization controlled (directly or indirectly) by the foundation 
or one or more disqualified persons (as defined in section 4946) 
with respect to the foundation, except as provided in para-
graph (3), or (ii) a private foundation which is not an oper-
ating foundation (as defined in subsection (j)(3)), except 
as provided in paragraph (3), or 
Post, p. 553. 
26 use 501. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
505 
"(B) any amount paid to acquire an asset used (or held for 
use) directly in carrying out one or more purposes described 
in section 170(c)(2)(B). 
_ 
Post, p. 553. 
" (2) CERTAIN SET-ASIDES.—Subject to such terms and conditions 
as may be prescribed by the Secretary or his delegate, an amount 
set aside for a specific project which comes within one or more 
purposes described in section 170(c) (2) (B) may be treated as a 
qualifying distribution, but only if, at the time of the set-aside, the 
private foundation establishes to the satisfaction of the Secretary 
or his delegate that— 
"(A) the amount will be paid for the specific project 
within 5 years, and 
"(B) the project is one which can be better accomplished 
by such set-aside than by immediate payment of funds. 
For good cause shown, the period for paying the amount set aside 
may be extended by the Secretary or his delegate. 
"(3) CERTAIN CONTRIBUTIONS TO SECTION 501(C)(3) ORGANIZA-
TIONS.—For purposes of this section, the term 'qualifying distribu-
tion' includes a contribution to a section 501(c) (3) organization 
o^^nl^^Vn^^^' 
described in paragraph (1) (A) (i) or (ii) if— 
" (A) not later than the close of the first taxable year after 
its taxable year in which such contribution is received, such 
organization makes a distribution equal to the amount of such 
contribution and such distribution is a qualifying distribution 
(within the meaning of paragraph (1) or (2), without regard 
to this paragraph) which is treated under subsection (h) as a 
distribution out of corpus (or would be so treated if such 
section 501(c)(3) organization were a private foundation 
which is not an operating foundation), and 
"(B) the private foundation making the contribution 
obtains adequate records or other sufficient evidence from such 
organization 
showing 
that the qualifying 
distribution 
described in subparagraph (A) has been made by such 
organization. 
"(h) TREATMENT or QUALIFYING DISTRIBUTIONS.— 
"(1) I N GENERAL.—Except as provided in paragraph (2), any 
qualifying distribution made during a taxable year shall be treated 
as made— 
"(A) first out of the undistributed income of the immedi-
ately preceding taxable year (if the private foundation was 
subject to the tax imposed by this section for such preceding 
taxable year) to the extent thereof, 
"(B) second out of the undistributed income for the taxable 
year to the extent thereof, and 
"(C) then out of corpus. 
For purposes of this paragraph, distributions shall be taken into 
account in the order of time in which made. 
" (2) CORRECTION OF DEFICIENT DISTRIBUTIONS FOR PRIOR TAXABLE 
YEARS, ETC.—In the case of any qualifying distribution which 
(under paragraph (1)) is not treated as made out of the undis-
tributed income of the immediately preceding taxable year, the 
foundation may elect to treat any portion of such distribution as 
made out of the undistributed income of a designated prior taxable 
year or out of corpus. The election shall be made by the foundation 
at such time and in such manner as the Secretary or his delegate 
shall by regulations prescribe. 
Post, p. 55 2. 
^ ^ 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
''(i) ADJUSTMENT OF DISTRIBUTABLE AMOUNT WHERE DISTRIBU-
TIONS DURING PRIOR YEARS HAVE EXCEEDED INCOME.— 
"(1) I N GENERAL.—If, for the taxable years in the adjustment 
period for which an organization is a private foundation— 
"(A) the aggregate qualifying distributions treated (under 
subsection (h)) as made out of the undistributed income for 
such taxable year or as made out of corpus (except to the 
extent subsection (g) (3) with respect to the recipient private 
foundation or section 170(b) (1) (E) (ii) applies) during such 
taxable years, exceed 
"(B) the distributable amounts for such taxable years 
(determined without regard to this subsection), 
then, for purposes of this section (other than subsection (h)), the 
distributable amount for the taxable year shall be reduced by an 
amount equal to such excess. 
"(2) TAXABLE YEARS IN ADJUSTMENT PERIOD.—For purposes of 
paragraph (1), with respect to any taxable year of a private foun-
dation the taxable years in the adjustment period are the taxable 
years (not exceeding 5) beginning after December 31, 1969, and 
immediately preceding the taxable year, 
"(j) OTHER DEFINITIONS.—For purposes of this section— 
"(1) TAXABLE PERIOD.—The term 'taxable period' means, with 
respect to the undistributed income for any taxable year, the period 
beginning with the first day of the taxable year and ending on the 
date of mailing of a notice of deficiency with respect to the tax 
2 ^usc ^^212 ^°' 
imposed by subsection (a) under section 6212. 
"(2) CORRECTION PERIOD.—The term'correction period'means, 
with respect to any private foundation for any taxable year, the 
period beginning with the first day of the taxable year and ending 
90 days after the date of mailing of a notice of deficiency (with 
respect to the tax imposed by subsection (b)) under section 6212, 
extended by— 
"(A) any period in which a deficiency cannot be assessed 
under section 6213 (a), and 
"(B) any other period which the Secretary or his delegate 
determines is reasonable and necessary to permit a distribution 
of undistributed income under this section. 
"(3) OPERATING FOUNDATION.—For purposes of this section, 
the term 'operating foundation' means any organization— 
"(A) which makes qualifying distributions (within the 
meaning of paragraph (1) or (2) of subsection (g)) directly 
for the active conduct of the activities constituting the pur-
pose or function for which it is organized and operated equal 
to substantially all of its adjusted net income (as defined in 
subsection ( f ) ) ; and 
" (B) (i) substantially more than half of the assets of which 
are devoted directly to such activities or to functionally 
related businesses (as defined in paragraph (5)), or to both, 
or are stock of a corporation which is controlled by the foun-
dation and substantially all of the assets of which are so 
devoted, 
"(ii) which normally 
makes qualifying 
distributions 
(within the meaning of paragraph (1) or (2) of subsection 
(g)) directly for the active conduct of the activities constitut-
ing the purpose or function for which it is organized and 
operated in an amount not less than two-thirds of its mini-
mum investment return (as defined in subsection (e)), or 
26 u s e 6213. 
83 STAT.] 
PUBLIC LAW 91-172-DEC. 30, 1969 
507 
"(iii) substantially all of the suj)port (other than gross 
investment income as defined in section 509(e)) of which is 
normally received from the general public and from 5 or more 
exempt organizations which are not described in section 4946 
(a) (1) (H) with respect to each other or the recipient foun-
dation; not more than 25 percent of the support (other than 
gross investment income) of which is normally received from 
any one such exempt organization; and not more than half of 
the support of which is normally received from gross invest-
ment income. 
"(4) ALLOWABLE DISTRIBUTION PERIOD.—The t^rm 'allowable 
distribution period' means, with respect to any private foundation, 
the period beginning wdth the first day of the first taxable year 
following the taxable year in which the incorrect valuation 
(described in subsection (a)(2)) occurred and ending 90 days 
after the date of mailing of a notice of deficiency (with respect 
to the tax imposed by subsection (a)) under section 6212 extended 
"(A) any period in w^hich a deficiency cannot be assessed 
under section 6213 (a), and 
"(B) any other period which the Secretary or his delegate 
determines is reasonable and necessary to permit a distribu-
tion of undistributed income under this section. 
"(5) FUNCTIONALLY RELATED BUSINESS.—The term 'function-
ally related business' means— 
" (A) a trade or business which is not an unrelated trade or 
business (as defined in section 513), or 
"(B) an activity which is carried on within a larger aggre-
gate of similar activities or within a larger complex of other 
endeavors which is related (aside from the need of the orga-
nization for income or funds or the use it makes of the profits 
derived) to the exempt purposes of the organization. 
"SEC. 4943. TAXES ON EXCESS BUSINESS HOLDINGS. 
"(a) INITIAL TAX.— 
" (1) IMPOSITION.—There is hereby imposed on the excess busi-
ness holdings of any private foundation in a business enterprise 
during any taxable year which ends during the taxable period a 
tax equal to 5 percent of the value of such holdings. 
"(2) SPECIAL RULES.—The tax imposed by paragraph (1) — 
" (A) shall be imposed on the last day of the taxable year, 
but 
"(B) with respect to the private foundation's holdings in 
any business enterprise, shall be determined as of that day 
during the taxable year when the foundation's excess hold-
ings in such enterprise were the greatest. 
"(b) ADDITIONAL TAX.—In any case in which an initial tax is 
imposed under subsection (a) with respect to the holdings of a private 
foundation in any business enterprise, if, at the close of the correction 
period with respect to such holdings, the foundation still has excess 
business holdings in such enterprise, there is hereby imposed a tax 
equal to 200 percent of such excess business holdings. 
"(c) EXCESS BUSINESS HOLDINGS.—For purposes of this section— 
"(1) I N GENERAL.—The term 'excess business holdings' means, 
with respect to the holdings of any private foundation in any busi-
ness enterprise, the amount of stock or other interest in the enter-
prise which the foundation would have to dispose of to a person 
other than a disqualified person in order for the remaining 
Ante, p. 496. 
Definition. 
68A Stat. 770. 
26 u s e 6:212. 
Definition. 
Post, pp. 541, 
542. 
Definition. 
508 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
holdings of the foundation in such enterprise to be permitted 
holdings. 
"(2) 
PERMITTED HOLDINGS IN A CORPORATION.— 
"(A) I N GENERAL.—The permitted holdings of any private 
foundation in an incorporated business enterprise are— 
" (i) 20 percent of the voting stock, reduced by 
"(ii) the percentage of the voting stock owned by all 
disqualified persons. 
In any case in which all disqualified persons together do not 
own more than 20 percent of the voting stock of an incor-
porated business enterprise, nonvoting stock held by the 
private foundation shall also be treated as permitted holdings. 
" ( B ) 
35 PERCENT RULE WHERE THIRD PERSON HAS EFFECTIVE 
CONTROL o r ENTERPRISE.—If 
"(i) the private foundation and all disqualified per-
sons together do not own more than 35 percent of the 
voting stock of an incorporated business enterprise, and 
"(ii) it is established to the satisfaction of the Sec-
retary or his delegate that effective control of the corpora-
tion IS in one or more persons who are not disqualified 
persons with respect to the foundation, 
then subparagraph (A) shall be applied by substituting 35 
percent for 20 percent. 
"(C) 2 PERCENT D
E MINIMIS RULE.—A private foundation 
shall not be treated as having excess business holdings in any 
corporation in which it (together with all other private 
foundations which are described in section 4946(a) (1) (H)) 
owns not more than 2 percent of the voting stock and not 
more than 2 percent in value of all outstanding shares of all 
classes of stock. 
"(3) PERMITTED HOLDINGS IN PARTNERSHIPS, ETC.—The per-
mitted holdings of a private foundation in any business enterprise 
which is not incorporated shall be determined under regulations 
prescribed by the Secretary or his delegate. Such regulations shall 
be consistent in principle with paragraphs (2) and (4), except 
that— 
"(A) in the case of a partnership or joint venture, 'profits 
interest' shall be substituted for 'voting stock', and 'capital 
interest' shall be substituted for 'nonvoting stock', 
" (B) in the case of a proprietorship, there shall be no per-
mitted holdings, and 
"(C) in any other case, 'beneficial interest' shall be sub-
stituted for 'voting stock'. 
"(4) 
PRESENT HOLDINGS.— 
"(A)(i) In applying this section with respect to the hold-
ings of any private foundation in a business enterprise, if such 
foundation and all disqualified persons together have holdings 
in such enterprise in excess of 20 percent of the voting stock on 
May 26, 1969, the percentage of such holdings shall be sub-
stituted for '20 percent,' and for '35 percent' (if the percentage 
of such holdings is greater than 35 percent), wherever it 
appears in paragraph (2), but in no event shall the per-
centage so substituted be more than 50 percent. 
"(ii) If the percentage of the holdings of any private 
foundation and all disqualified persons together in a business 
enterprise (or if the percentage of the holdings of the private 
foundation in such enterprise) decreases for any reason, 
clause (i) and subparagraph (D) shall, except as provided 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
509 
in the next sentence, be applied for all periods after sucli 
decrease by substituting such decreased percentage for the 
percentage held on May 26, 1969, but in no event shall the 
percentage substituted be less than 20 percent. For purposes 
of this clause, any decrease in percentage holdings attribut-
able to issuances of stock (or to issuances of stock coupled 
with redemptions of stock) shall be determined only as of 
the close of each taxable year of the private foundation 
unless the aggregate of the percentage decreases attributable 
to the issuances of stock (or such issuances and redemp-
tions) during such taxable year equals or exceeds 1 percent, 
"(iii) The percentage substituted under clause (i), and any 
percentage substituted under subparagraph (D), shall be 
applied both with respect to the voting stock and, separately, 
with respect to the value of all outstanding shares of all 
classes of stock. 
"(iv) In the case of any merger, recapitalization, or other 
reorganization involving one or more business enterprises, the 
application of clauses (i), (ii), and (iii) shall be determined 
under regulations prescribed by the Secretary or his delegate. 
"(B) Any interest in a business enterprise which a private 
foundation holds on May 26, 1969, if the private foundation 
on such date has excess business holdings, shall (while held by 
the foundation) be treated as held by a disqualified person 
(rather than by the private foundation) — 
" (i) during the 20-year period beginning on such date, 
if the private foundation has more than a 95 percent 
voting stock interest on such date, 
"(ii) except as provided in clause (i), during the 
15-year period beginning on such date, if the foundation 
and all disqualified persons have more than a 75 percent 
voting stock interest (or more than a 75 percent profits or 
beneficial interest in the case of any unincorporated 
enterprise) on such date or more than a 75 percent 
interest in the value of all outstanding shares of all 
classes of stock (or more than a 75 percent capital interest 
in the case of a partnership or joint venture) on such date, 
or 
"(iii) during the 10-year period beginning on such 
date, in any other case. 
"(C) The 20-year, 15-year, and 10-year periods described in 
subparagraph (B) for the disposition of excess business hold-
ings shall be suspended during the pendency of any judicial 
proceeding by the private foundation which is necessary to 
reform, or to excuse such foundation from compliance with, 
its governing instrument or any other instrument (as in effect 
on May 26, 1969) in order to allow disposition of such 
holdings. 
"(D) (i) If, at any time during the second phase, all dis-
qualified persons together have holdings in a business enter-
prise in excess of 2 percent of the voting stock of such 
enterprise, then subparagraph (A) (i) shall be applied by 
substituting for '50 percent' the folloAving: '50 percent, of 
which not more than 25 percent shall be voting stock held by 
the private foundation'. 
"(ii) If, immediately before the close of the second phase, 
clause (i) of this subparagraph did not apply with respect to 
a business enterprise, then for all periods after the close of the 
510 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
second phase subparagraph (A) (i) shall be applied by substi-
tuting for '50 percent' the following: '35 percent, or if at any 
time after the close of the second phase all disqualified persons 
together have had holdings in such enterprise which exceed 
2 percent of the voting stock, 35 percent, of which not more 
than 25 percent shall be voting stock held by the private 
foundation'. 
" (iii) For purposes of tliis subparagraph, the term 'second 
phase' means the 15-year period immediately following the 
20-year, 15-year, or 10-year period described in subparagraph 
(B), whichever applies, as modified by subparagraph (C). 
"(E) Clause (li) of subparagraph ^B) shall not apply 
with respect to any business enterprise if before January 1, 
1971, one or more individuals who are substantial contributors 
(or members of the family (within the meaning of section 
1946 (d)) of one or more substantial contributors) to the 
private foundation and who on May 26,1969, held more than 
15 percent of the voting stock of the enterprise elect, in such 
manner as the Secretary or his delegate may by regulations 
prescribe, not to have such clause (ii) apply with respect to 
such enterprise. 
"(5) 
HOLDINGS ACQUIRED BY TRUST OR WILL.—Paragraph 
(4) 
(other than subparagraph (B) (i)) shall apply to any interest in a 
business enterprise which a private foundation acquires under the 
terms of a trust which was irrevocable on May 26, 1969, or under 
the terms of a will executed on or before such date, which are in 
effect on such date and at all times thereafter, as if such interest 
were held on May 26, 1969, except that the 15-year and 10-year 
periods prescribed in clauses (ii) and (iii) of paragraph (4) (B) 
shall commence with respect to such interest on the date of distri-
bution under the trust or will in lieu of May 26,1969. 
" ( 6 ) 
5-YEAR PERIOD TO DISPOSE OF GIFTS, BEQUESTS, ETC.—Except 
as provided in paragraph (5), if, after May 26, 1969, there is a 
change in the holdings in a business enterprise (other than by 
purchase by the private foundation or by a disqualified person) 
which causes the private foundation to have— 
" (A) excess business holdings in such enterprise, the inter-
est of the foundation in such enterprise (immediately after 
such change) shall (while held by the foundation) be treated 
as held by a disqualified person (rather than by the founda-
tion) during the 5-year period beginning on the date of such 
change in holdings; or 
"(B) an increase in excess business holdings in such enter-
prise (determined without regard to subparagraph (A)), sub-
paragraph (A) shall apply, except that the excess holdings 
immediately preceding the increase therein shall not be 
treated, solely because of such increase, as held by a disquali-
fied person (rather than by the foundation). 
"(d) DEFINITIONS ; SPECIAL RULES.—For purposes of this section— 
"(1) BUSINESS HOLDINGS.—In computing the holdings of a 
private foundation, or a disqualified person (as defined in section 
4946) with respect thereto, in any business enterprise, any stock or 
other interest owned, directly or indirectly, by or for a corpora-
tion, partnership, estate, or trust shall be considered as being 
owned proportionately by or for its shareholders, partners, or 
beneficiaries. The preceding sentence shall not apply with respect 
to an income or remainder interest of a private foundation m a 
trust described in section 4947 (a) (2), but only if, in the case of 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
511 
property transferred in trust after May 26,1969, such foundation 
holds only an income interest or only a remainder interest in 
such trust. 
"(2) TAXABLE PERIOD.—^The term 'taxable period' means, with 
respect to any excess business holdings of a private foundation 
in a business enterprise, the period beginning on the first day on 
which there are such excess holdings and ending on the date of 
mailing of a notice of deficiency with respect to the tax imposed 
by subsection (a) under section 6212 in respect of such holdings. 
26^sc 62n° 
"(3) CORRECTION PERIOD.—The term 'correction period' means, 
with respect to excess business holdings of a private foundation in 
a business enterprise, the period ending 90 days after the date of 
mailing of a notice of deficiency (with respect to the tax imposed 
by subsection (b)) under section 6212, extended by— 
"(A) any period in which a deficiency cannot be assessed 
under section 6213(a), and 
"(B) any other period which the Secretary or his delegate 
determines is reasonable and necessary to permit orderly dis-
. position of such excess business holdings. 
"(4) BUSINESS ENTERPRISE.—The term ''business enterprise' 
does not include— 
"(A) a functionally related business (as defined in section 
4942(j)(5)),or 
"(B) a trade or business at least 95 percent of the gross 
income of which is derived from passive sources. 
For purposes of subparagraph (B), gross income from passive 
sources includes the items excluded by section 512(b) (1), (2), 
(3), and (5), and income from the sale of goods (including 
fe*use 5
^
1
2
^
' 
charges or costs passed on at cost to purchasers of such goods or 
income received in settlement of a dispute concerning or in lieu 
of the exercise of the right to sell such goods) if the seller does 
not manufacture, pjroduce, physically receive or deliver, negotiate 
sales of, or maintain inventories in such goods. 
"SEC. 4944. TAXES ON INVESTMENTS WHICH JEOPARDIZE CHARITA-
BLE PURPOSE. 
" (a) INITIAL TAXES.— 
"(1) O N THE PRIVATE FOUNDATION.—If a private foundation 
invests any amount in such a manner as to jeopardize the carry-
ing out of any of its exempt purposes, there is hereby imposed on 
the making of such investment a tax equal to 5 percent of the 
amount so invested for each year (or part thereof) in the taxable 
period. The tax imposed by this paragraph shall be paid by the 
private foundation. 
"(2) O N THE MANAGEMENT.—In any case in which a tax is 
imposed by paragraph (1), there is hereby imposed on the par-
ticipation of any foundation m a n a ^ r in the making of the invest-
ment, knowing that it is jeopardizing the carrying out of any of 
the foundation's exempt purposes, a tax equal to 5 percent of the 
amount so invested for each year (or part thereof^ in the taxable 
period, unless such participation is not willful and is due to reason-
able cause. The tax imposed by this paragraph shall be paid by any 
foundation manager who participated in the making of the 
investment. 
"(b) 
ADDITIONAL TAXES.— 
" (1) O N THE FOUNDATION.—In any case in which an initial tax is 
imposed by subsection (a) (1) on the making of an investment 
and such investment is not removed from jeopardy within the cor-
rection period, there is hereby imposed a tax equal to 25 percent of 
512 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
the amount of the investment. The tax imposed by this paragraph 
shall be paid by the private foundation. 
"(2) O N THE MANAGEMENT.—In any case in which an additional 
tax is imposed by paragraph (1), if a foundation manager refused 
to agree to part or all of the removal from jeopardy, there is hereby 
imposed a tax equal to 5 percent of the amount of the investment. 
The tax imposed by this paragraph shall be paid by any founda-
tion manager who refused to agree to part or all of the removal 
from jeopardy. 
"(c) 
EXCEPTION FOR PROGRAM-RELATED INVESTMENTS.—For pur-
poses of this section, investments, the primary purpose of which is to 
accomplish one or more of the purposes described in section 170(c) 
Post, p. 553. 
^2) (B), and no significant purpose of which is the production of 
income or the appreciation of property, shall not be considered as 
investments which jeopardize the carrying out of exempt purposes. 
"(d) SPECIAL EULES.—For purposes of subsections (a) and (b) — 
"(1) JOINT AND SEVERAL LIABILITY.—If more than one person 
is liable under subsection (a) (2) or (b) (2) with respect to any 
one investment, all such persons shall be jointly and severally 
liable under such paragraph with respect to such investment. 
" (2) LIMIT FOR MANAGEMENT.—^With respect to any one invest-
ment, the maximum amount of the tax imposed by subsection (a) 
(2) shall not exceed $5,000, and the maximum amount of the tax 
imposed by subsection (b) (2) shall not exceed $10,000. 
"(e) DEFINITIONS.—For purposes of this section— 
"(1) TAXABLE PERIOD.—The term 'taxable period' means, with 
respect to any investment which jeopardizes the carrying out of 
exempt purposes, the period beginning with the date on which the 
amount is so invested and ending on whichever of the following 
is the earlier: (A) the date of mailing of a notice of deficiency 
with respect to the tax imposed by subsection (a) (1) under sec-
68A Stat. 770. 
tioii 6212, or (B) the date on which the amount so invested is 
26 use 6212. 
removed from jeopardy. 
" (2) REMOVAL FROM JEOPARDY.—An investment which jeopard-
izes the carrying out of exempt purposes shall be considered to 
be removed from jeopardy when such investment is sold or other-
wise disposed of, and the proceeds of such sale or other disposition 
are not investments which jeopardize the carrying out of exempt 
purposes. 
"(3) CORRECTION PERIOD.—The term 'correction period' means, 
with respect to any investment which jeopardizes the carrying out 
of exempt purposes, the period beginning with the date on which 
such investment is entered into and ending 90 days after the ddte 
of mailing of a notice of deficiency with respect to the tax imposed 
by subsection (b) (1) under section 6212, extended by— 
"(A) any period in which a deficiency cannot be assessed 
under section 6213 (a), and 
"(B) any other period which the Secretary or his delegate 
determines is reasonable and necessary to bring about removal 
from jeopardy. 
"SEC. 4945. TAXES ON TAXABLE EXPENDITURES. 
"(a) INITIAL TAXES.— 
"(1) O N THE FOUNDATION.—There is hereby imposed on each 
taxable expenditure (as defined in subsection (d)) a tax equal to 
10 percent of the amount thereof. The tax imposed by this para-
graph shall be paid by the private foundation. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
513 
"(2) O N THE MANAGEMENT.—There is hereby imposed on the 
agreement of any foundation manager to the makmg of an expendi-
ture, knoAving that it is a taxable expenditure, a tax equal to £1/^ 
percent of the amount thereof, unless such agreement is not willful 
and is due to reasonable cause. The tax imposed by this paragraph 
shall be paid by any foundation manager who agreed to the making 
of the expenditure. 
"(b) ADDITIONAL TAXES.— 
" (1) O N THE FOUNDATION.—In any case in which an initial tax 
is imposed by subsection (a) (1) on a taxable expenditure and such 
expenditure is not corrected wdthin the correction period, there is 
hereby imposed a tax equal to 100 percent of the amount of the 
expenditure. The tax imposed by this paragraph shall be paid by 
the private foundation. 
" (2) O N THE MANAGEMENT.—In any case in which an additional 
tax is imposed by paragraph (1), if a foundation manager refused 
to agree to part or all of the correction, there is hereby imposed 
a tax equal to 50 percent of the amount of the taxable expenditure. 
The tax imposed by this jjaragraph shall be paid by any foundation 
manager who refused to agree to part or all of the correction. 
"(c) SPECIAL RULES.—For purposes of subsections (a) and (b)— 
"(1) JOINT AND SEVERAL LIABILITY.—If more than one person 
is liable under subsection (a) (2) or (b) (2) with respect to the 
making of a taxable expenditure, all such persons shall be jointly 
and severally liable under such paragraph with respect to such 
expenditure. 
" (2) LIMIT FOR MANAGEMENT.—^With respect to any one taxable 
expenditure, the maximum amount of the tax imposed by sub-
section (a) (2) shall not exceed $5,000, and the maximum amount 
of the tax imposed by subsection (b) (2) shall not exceed $10,000. 
"(d) TAXABLE EXPENDITURE.—For purposes of this section, the term 
'taxable expenditure' means any amount paid or incurred by a private 
foundation— 
"(1) to carry on propaganda, or otherwise to attempt, to 
influence legislation, Avithin the meaning of subsection (e), 
"(2) except as provided in subsection (f), to influence the out-
come of any specific public election, or to carry on, directly or 
indirectly, any voter registration drive, 
" (3) as a grant to an individual for travel, study, or other simi-
lar purposes by such individual, unless such grant satisfies the 
requirements of subsection (g), 
" (4) as a grant to an organization (other than an organization 
described in paragraph (1), (2), or (3) of section 509(a)), unless 
^"'^' P- ^^e. 
the private foundation exercises expenditure responsibility with 
respect to such grant in accordance with subsection (h), or 
" (5) for any purpose other than one specified in section 170(c) 
( 2 ) ( B ) . 
Posf, p. 553. 
" (e) ACTIVITIES W I T H I N SUBSECTION (d)(1).—For purposes of sub-
section (d) (1), the term 'taxable expenditure' means any amount paid 
or incurred by a private foundation for— 
"(1) any attempt to influence any legislation through an 
attempt to affect the opinion of the general public or any segment 
thereof, and 
"(2) any attempt to influence legislation through communi-
cation with any member or employee of a legislative body, or with 
any other government official or employee who may participate in 
tlie formulation of the legislation (except technical advice or 
Post, p. 553. 
514 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
assistance provided to a governmental body or to a committee or 
other subdivision thereof in response to a written request by such 
body or subdivision, as the case may be), 
other than through making available the results of nonpartisan 
analysis, study, or research. Paragraph (2) of this subsection shall not 
apply to any amount paid or incurred in connection with an appearance 
before, or communication to, any legislative body with respect to a 
possible decision of such body which might affect the existence of the 
private foundation, its powers and duties, its tax-exempt status, or the 
deduction of contributions to such foundation. 
"(f) 
NONPARTISAN ACTIVITIES CARRIED ON BY CERTAIN ORGANIZA-
TIONS.—Subsection (d) (2) shall not apply to any amount paid or 
incurred by any organization— 
^^^stat_ 163. 
"(1) which is described in section 501(c) (3) and exempt from 
taxation under section 501 (a), 
" (2) the activities of which are nonpartisan, are not confined to 
one specific election period, and are carried on in 5 or more States, 
"(3) substantially all of the income of which is expended 
directly for the active conduct of the activities constituting the 
purpose or function for which it is organized and operated, 
"(4) substantially all of the support (other than gross invest-
Anfe, p. 496. 
mcnt income as defined in section 509(e)) of which is received 
from exempt organizations, the general public, governmental 
units described in section 170(c) (1), or any combination of the 
foregoing; not more than 25 percent of such support is received 
from any one exempt organization (for this purpose treating 
private foundations which are described in section 4946 (a) (1) (H) 
with respect to each other as one exempt organization) ; and not 
more than half of the support of ^^hich is received from gross 
investment income, and 
"(5) contributions to which for voter registration drives are 
not subject to conditions that they may be used only in specified 
States, possessions of the United States, or political subdivisions 
or other areas of any of the foregoing, or the District of Columbia, 
or that they may be used in only one specific election period. 
In determining whether the organization meets the requirements of 
paragraph (4) for any taxable year of such organization, there shall 
be taken into account the support received by such organization during 
such taxable year and during the immediately preceding 4 taxable years 
of such organization (excluding therefrom any preceding taxable 
year which begins before January 1, 1970). Subsection (d) (4) shall 
not apply to any grant to an organization which meets the requirements 
of this subsection. 
"(g) INDIVIDUAL GRANTS.—Subsection (d) (3) shall not apply to an 
individual grant awarded on an objective and nondiscriminatory basis 
pursuant to a procedure approved in advance by the Secretary or his 
delegate, if it is demonstrated to the satisfaction of the Secretary or his 
delegate that— 
"(1) the grant constitutes a scholarship or fellowship grant 
which is subject to the provisions of section 117(a) and is to be 
used for study at an educational institution described in section 
151(e)(4), 
"(2) the grant constitutes a prize or award which is subject to 
the provisions of section 74(b), if the recipient of such prize or 
award is selected from the general public, or 
"(3) the purpose of the grant is to achieve a specific objective, 
produce a report or other similar product, or improve or enhance 
a literary, artistic, musical, scientific, teaching, or other similar 
capacity, skill, or talent of the grantee. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
515 
"(h) ExPENDiTUEE EESPONSEBILITY.—The expenditure responsibil-
ity referred to in subsection (d) (4) means that the private foundation 
is responsible to exert all reasonable efforts and to establish adequate 
procedures— 
"(1) to see that the grant is spent solely for the purpose for 
which made, 
"(2) to obtain full and complete reports from the grantee on 
how the funds are spent, and 
"(3) to make full and detailed reports with respect to such 
expenditures to the Secretary or his delegate. 
"(i) OTHER DEFINITIONS.—For purposes of this section— 
"(1) CORRECTION.—The terms 'correction' and 'correct' mean, 
witn respect to any taxable expenditure, (A) recovering part or all 
of the expenditure to the extent recovery is possible, and where 
full recovery is not possible such additional corrective action as is 
prescribed by the Secretary or his delegate by regulations, or (B) 
in the case of a failure to comply with subsection (h) (2) or 
(h) (3), obtaining or making the report in question. 
"(2) CORRECTION PERIOD.—The term 'correction period' means, 
with respect to any taxable expenditure, the period beginning 
with the date on which the taxable expenditure occurs and ending 
90 days after the date of mailing of a notice of deficiency with 
respect to the tax imposed by subsection (b)(1) under section 
6212, extended by— .
.
.
. 
fAfteiii' 
" (A) any period in which a deficiency cannot be assessed 
under section J6213 (a), and 
"(B) any other period which the Secretary or his delegate 
determines is reasonable and necessary to bring about cor-
rection of the taxable expenditure (except that such deter-
mination shall not be made with respect to any taxable 
expenditure within the meaning of paragraph (1), (2), (3), 
or (4) of subsection (d) because of any action by an appro-
priate State officer as defined in section 6104(c) (2)). 
^°^'' P- ^^S-
"SEC. 4946. DEFINITIONS AND SPECIAL RULES. 
"(a) 
DISQUALIFIED 
PERSON.— 
"(1) I N GENERAL.—For purposes of this chapter, the term 'dis-
qualified person' means, with respect to a private foundation, a 
person who is— 
"(A) a substantial contributor to the foundation, 
"(B) a foundation manager (within the meaning of sub-
section (b)(1)), 
"(C) an owner of more than 20 percent of— 
" (i) the total combined voting power of a corporation, 
" (ii) the profits interest of a partnersihip, or 
"(iii) the beneficial interest of a trust or unincorpo-
rated enterprise, 
which is a substantial contributor to the foundation, 
"(D) a member of the family (as defined in subsection (d)) 
of any individual described in subparagraph (A), (B), or 
"(E) a corporation of which persons described in subpara-
graph (A), (B), (C),or (D) own more than 35 percent of the 
total combined voting ^ w e r , 
"(F) a partnership in which persons described in subpara-
graph (A), (B), (C), or (D) own more than 35 percent of 
the profits interest, 
516 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"(G) a trust or estate in which persons described in sub-
paragraph (A), _(B), (C), or (D) hold more than 35 percent 
of the beneficial interest, 
"(H) only for purposes of section 4943, a private founda-
tion— 
"(i) which is effectively controlled (directly or indi-
rectly) by the same person or persons who control the 
private foundation in question, or 
"(ii) substantially all of the contributions to which 
were made (directly or indirectly) by the same person or 
persons described in subparagraph (A), (B),or (C),or 
members of their families (within the meaning of sub-
section (d)), who made (directly or indirectly) substan-
tially all of the contributions to the private foundation in 
question, and 
"(I) only for purposes of section 4941, a government offi-
cial (as defined in subsection (c)). 
"(2) SUBSTANTIAL CONTRIBUTORS.—For purposes of paragraph 
(1), the term 'substantial contributor' means a person who is 
Ante, p. 493. 
described in section 507(d) (2). 
"(3) STOCKHOLDINGS.—For purposes of paragraphs (1) (C) (i) 
and (1) (E), there shall be taken into account indirect stockhold-
26'usc 2 7^' 
^^^^ which would be taken into account under section 267(c), 
except that, for purposes of this paragraph, section 267(c)(4) 
shall be treated as providing that the members of the family of an 
individual are the members within the meaning of subsection (d). 
"(4) PARTNERSHIPS; TRUSTS.—For purposes of paragraphs 
(l)(C)(ii) and (iii), (1) (F), and (1)(G), the ownership of 
profits or beneficial interests shall be determined in accordance 
with the rules for constructive ownership of stock provided in 
section 267(c) (other than paragraph (3) thereof), except that 
section 267(c) (4) shall be treated as providing that the members 
of the family of an individual are the members within the meaning 
of subsection (d). 
"(b) FOUNDATION MANAGER.—For purposes of this chapter, the 
term 'foundation manager' means, with respect to any private 
foundation— 
"(1) an officer, director, or trustee of a foundation (or an indi-
vidual having powers or responsibilities similar to those of officers, 
directors, or truste(;s of the foundation), and 
"(2) with respec'. to any act (or failure to act), the employees 
of the foundation having authority or responsibility with respect 
to such act (or failure to act), 
"(c) GOVERNMENT OFFICIAL.—For purposes of subsection (a) (1) (I) 
and section 4941, the term 'government official' means, with respect to 
an act of self-dealing described in section 4941, an individual who, at 
the time of such act, holds any of the following offices or positions 
(other than as a 'special Government employee', as defined in section 
202(a) of title 18, United States Code) : 
"(1) an elective public office in the executive or legislative 
branch of the Government of the United States, 
" (2) an office in the executive or judicial branch of the Govern-
ment of the United States, appointment to which was made by the 
President, 
"(3) a position in the executive, legislative, or judicial branch 
of the Government of the United States— 
"(A) which is listed in schedule C of rule VI of the Civil 
Service Rules, or 
76 Stat. 1121; 
52 Stat. 1115. 
5 u s e 5332 note. 
Ante, p. 492. 
558, 560-562. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
517 
"(B) the compensation for which is equal to or greater 
than the lowest rate of compensation prescribed for GS-16 of 
the General Schedule under section 5332 of title 5, United 
States Code, 
"(4) a position under the House of Representatives or the 
Senate of the United States held by an individual receiving gross 
compensation at an annual rate of $15,000 or more, 
"(5) an elective or appointive public office in the executive, 
legislative, or judicial branch of the government of a State, 
possession of the United States, or political subdivision or other 
area of any of the foregoing, or of the District of Columbia, held 
by an individual receiving gross compensation at an annual rate 
oi $15,000 or more, or 
"(6) a position as personal or executive assistant or secretary 
to any of the foregoing. 
"(d) MEMBERS OF FAMILY.—For purposes of subsection (a) (1), the 
family of any individual shall include only his spouse, ancestors, lineal 
descendants, and spouses of lineal descendants. 
"SEC. 4947. APPLICATION OF TAXES TO CERTAIN NONEXEMPT TRUSTS. 
"(a) APPLICATION OF TAX.— 
"(1) CHARITABLE TRUSTS.—For pur{)oses of part I I of sub-
chapter F of chapter 1 (other than section 508(a), (b), and (c)) 
and for purposes of this chapter, a trust which is not exempt from 
taxation under section 501(a), all of the unexpired interests in 26^50^50^^' 
which are devoted to one or more of the purposes described in 
section 170(c)(2)(B), and for which a deduction was allowed 
under section 170, 545(b)(2), 556(b)(2), 642(c), 2055, 2106(a) ^^^^°1*;,ZlJ^-^-
(2), or 2522 (or the corresponding provisions of prior law), shall 
be treated as an organization described in section 501(c) (3). For 
purposes of section 509(a) (3) (A), such a trust shall be treated 
as if organized on the day on which it first becomes subject to 
this paragraph. 
"(2) SPLIT-INTEREST TRUSTS.—In the case of a trust which is 
not exempt from tax under section 501 (a), not all of the unexpired 
interests in which are devoted to one or more of the purposes 
described in section 170(c)(2)(B), and which has amounts in 
trust for which a deduction was allowed under section 170, 545 
(b) (2), 556(b) (2), 642(c), 2055, 2106(a) (2), or 2522, section 507 
(relating to termination of private foundation status), section 
508(e) (relating to governing instruments) to the extent appli-
cable to a trust described in this paragraph, section 4941 (relating 
to taxes on self-dealing), section 4943 (relating to taxes on excess 
business holdings) except as provided in subsection (b) (3), sec-
tion 4944 (relating to investments which jeopardize charitable 
purpose) except as provided in subsection (b)(3), and section 
4945 (relating to taxes on taxable expenditures) shall apply as if 
such trust were a private foundation. This paragraph shall not 
apply with respect to— 
" (A) any amounts payable under the terms of such trust to 
income beneficiaries, unless a deduction was allowed under 
sectionl70(f) (2) (B)j2055(e) (2) (B),or2522(c) (2) (B), 
"(B) any amounts in trust other than amounts for which a 
deduction was allowed under section 170, 545(b) (2), 556(b) 
(2), 642(c), 2055, 2106(a) (2), or 2522, if such other amounts 
are segregated from amounts for which no deduction was 
allowable, or 
"(C) any amounts transferred in trust before May 27, 
1969. 
31-100 O - 70 - 35 
518 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"(3) 
SEGREGATED AMOUNTS.—For purposes of paragraph (2) 
(B), a trust with respect to which amounts are segregated shall 
separately account for the various income, deduction, and other 
items properly attributable to each of such segregated amounts. 
"(b) SPECIAL RULES.— 
"(1) REGULATIONS.—The Secretary or his delegate shall pre-
scribe such regulations as may be necessary to carry out the 
purposes of this section. 
"(2) LIMIT TO SEGREGATED AMOUNTS.—If any amounts in the 
trust are se^egated within the meaning of subsection (a) (2) (B) 
of this section, the value of the net assets for purposes of sub-
Ante, p. 492. 
sections (c) (2) and (g) of section 507 shall be limited to such 
segregated amounts. 
"(3) SECTIONS 4943 AND 4944.—Sections 4943 and 4944 shall not 
apply to a trust which is described in subsection (a) (2) if— 
"(A) all the income interest (and none of the remainder 
interest) of such trust is devoted solely to one or more of the 
Post, p. 553. 
purposes described in section 170(c) (2) (B), and all amounts 
in such trust for which a deduction was allowed under sec-
tion 170, 545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), 
Post, pp. 549, 
or 2522 have an aggregate value not more than 60 percent of 
558, 560-562. 
^j^^ aggregate fair market value of all amounts in such trusts, 
or 
"(B) a deduction was allowed under section 170,545 (b) (2), 
556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 for amounts 
payable under the terms of such trust to every remainder 
beneficiary but not to any income beneficiary. 
"SEC. 4948. APPLICATION OF TAXES AND DENIAL OF EXEMPTION WITH 
RESPECT TO CERTAIN FOREIGN ORGANIZATIONS. 
"(a) TAX ON INCOME OF CERTAIN FOREIGN ORGANIZATIONS.—In 
lieu of the tax imposed by section 4940, there is hereby imposed for 
each taxable year on the gross investment income (within the meaning 
of section 4940(c) (2)) derived from sources within the United States 
Post, p. 625. 
(within the meaning of section 861) by every foreign organization 
which is a private foundation for the taxable year a tax equal to 4 
percent of such income. 
"(b) CERTAIN SECTIONS INAPPLICABLE.—Section 507 (relating to 
termination of private foundation status), section 508 (relating to 
special rules with respect to section 501 (c) (3) organizations), and this 
chapter (other than this section) shall not apply to any foreign orga-
nization which has received substantially all 01 its support (other than 
gross investment income) from sources outside the United States. 
"(c) DENIAL OF EXEMPTION TO FOREIGN ORGANIZATIONS ENGAGED 
IN PROHIBITED TRANSACTIONS.— 
" (1) GENERAL RULE.—^A foreign organization described in sub-
section (b) shall not be exempt from taxation under section 
501(a) if it has engaged in a prohibited transaction after Decem-
ber 31,1969. 
"(2) PROHIBITED TRANSACTIONS.—For purposes of this subsec-
tion, the term 'prohibited transaction' means any act or failure to 
act (other than with respect to section 4942(e)) which would sub-
ject a foreign organization described in subsection (b), or a dis-
qualified person (as defined in section 4946) with respect thereto, 
to liability for a penalty under section 6684 or a tax under section 
507 if such foreign organization were a domestic organization. 
68A Stat. 163. 
26 u s e 501. 
Post, p. 519. 
68A Stat. 163. 
26 u s e 501. 
83 STAT.] 
PUBLIC LAW 9 1 - 1 7 2 - D E C . 30, 1969 
519 
"(3) 
TAXABLE YEARS AFFECTED.— 
"(A) Except as provided in subparagraph (B), a foreign 
organization described in subsection (b) shall be denied 
exemption from taxation under section 501(a) by reason of 
paragraph (1) for all taxable years beginning with the tax-
able year during which it is notified by the Secretary or his 
delegate that it has engaged in a prohibited transaction. The 
Pubiicati.3n in 
Secretary or his delegate shall publish such notice in the ^^'^^'^^^ Registe 
Federal Register on the day on which he so notifies such 
foreign organization. 
"(B) Under regulations prescribed by the Secretary or his 
delegate, any foreign organization described in subsection 
(b) which is denied exemption from taxation under section 
501(a) by reason of paragraph (1) may, with respect to the 
second taxable year following the taxable year in which 
notice is given under subparagraph (A) (or any taxable year 
thereafter), file claim for exemption from taxation under sec-
tion 501(a), If the Secretary or his delegate is satisfied that 
such organization will not knowingly again engage in a pro-
hibited transaction, such organization shall not, with respect 
to taxable years beginning with the taxable year with respect 
to which such claim is filed, be denied exemption from taxa-
tion under section 501(a) by reason of any prohibited trans-
action which was engaged in before the date on which such 
notice was given under subparagraph (A). 
"(4) 
DISALLOWANCE OF CERTAIN CHARITABLE DEDUCTIONS.—No 
gift or bequest shall be allowed as a deduction under section 170, 
^°^'i^^- ^'*^' 
545(b)(2), 556(b)(2), 642(c), 2055, 2106(a) (2), or 2522, if ^^s, 560-562. 
made— 
"(A) to a foreign organization described in subsection (b) 
after the date on which the Secretary or his delegate publishes 
notice under paragraph (3) (A) that he has notified such 
organization that it has engaged in a prohibited transaction, 
and 
"(B) in a taxable year of such organization for which it is 
not exempt from taxation under section 501(a) by reason of 
paragraph (1)." 
(c) 
ASSESSABLE 
PENALTIES 
FOR 
REPEATED, OR WILLFUL 
AND 
FLAGRANT, ACTS UNDER CHAPTER 42.—Subchapter B of chapter 68 «„^f,^,^*f^^f^®' 
(relating to assessable penalties) is amended by adding at the end ''"'''"' 
thereof the following new section: 
80 
Stat. 
1560. 
26 
use 
6671-
6683. 
"SEC. 6684. ASSESSABLE PENALTIES WITH RESPECT TO LIABILITY FOR 
TAX UNDER CHAPTER 42. 
Ante, 
p. 498. 
"If any person becomes liable for tax under any section of chapter 42 
(relating to private foundations) by reason of any act or failure to act 
which is not due to reasonable cause and either— 
" (1) such person has theretofore been liable for tax under such 
chapter, or 
"(2) such act or failure to act is both willful and flagrant, 
then such person shall be liable for a penalty equal to the amount of 
such tax." 
(d) 
INFORMATION RETURNS OF EXEMPT ORGANIZATIONS.— 
(1) I N GENERAL.—Section 6033(a) (relating to information 
SSA stat. 741. 
returns by exempt organizations) is amended to read as follows: 
"(a) 
ORGANIZATIONS REQUIRED To FILE.— 
" (1) I N GENERAL.—Except as provided in paragraph (2), every 
organization exempt from taxation under section 501(a) snail file 
an annual return, stating specifically the items of gross income, 
520 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
receipts, and disbursements, and such other information for the 
purpose of carrying out the internal revenue laws as the Secretary 
or his delegate may by forms or regulations prescribe, and shall 
keep such records, render under oath such statements, make such 
other returns, and comply with such rules and regulations as the 
Secretary or his delegate may from time to time prescribe; except 
that, in the discretion of the Secretary or his delegate, any organi-
6
8
A Stat. 134; 
zatiou described in section 401(a) may be relieved from stating 
76 Stat. 809. 
j^^ ^^^ retum any information which is reported in returns filed 
by the employer which established such organization. 
"(2) 
EXCEPTIONS FROM FILING.— 
"(A) MANDATORY EXCEPTIONS.—Paragraph (1) shall not 
apply to— 
" (i) churches, their integrated auxiliaries, and conven-
tions or associations of churches, 
"(ii) any organization (other than a private founda-
Ante, p. 496. 
tiou, as defined in section 509(a)) described in subpara-
graph (C), the gross receipts of which in each taxable 
year are normally not more than $5,000, or 
"(iii) the exclusively religious activities of any reli-
gious order. 
"(B) DISCRETIONARY EXCEPTIONS.—The Secretary or his del-
egate may relieve any organization required under paragraph 
(1) to file an information return from filing such a return 
where he determines that such filing is not necessary to the 
efficient administration of the internal revenue laws. 
"(C) CERTAIN ORGANIZATIONS.—The organizations referred 
to in subparagraph (A) (ii) are— 
"(i) a religious organization described in section 501 
68A Stat. 163. 
(c) ( 3 ) ; 
"(ii) an educational organization described in section 
Post, p. 550. 
170(b)(1) (A) (ii); 
"(iii) a charitable organization, or an organization for 
the prevention of cruelty to children or animals, described 
in section 501(c)(3), if such organization is supported, in 
whole or in part, by funds contributed by the United 
States or any State or political subdivision thereof, or is 
primarily supported by contributions of the general 
public; 
"(iv) an organization described in section 501(c) (3), 
if such organization is operated, supervised, or controlled 
by or in connection with a religious organization 
described in clause (i); 
"(v) an organization described in section 501(c) (8); 
and 
"(vi) an organization described in section 501(c) (1), 
if such organization is a corporation wholly owned by the 
United States or any agency or instrumentality thereof, 
or a wholly-owned subsidiary of such a corporation." 
72^st^t^*i66r^' 
(^) ADDITIONAL INFORMATION.—Section 6033(b) (relating to 
certain organizations described in section 501 (c) (3)) is amended— 
^A) by striking out in paragraph (3) "out of income", 
(B) by striking out paragraphs (4), (5), (6), and (8), and 
by redesignating paragraph (7) as paragraph (4), and 
(C) by adding after paragraph (4) (as redesignated) the 
following new paragraphs: 
"(5) the total of the contributions and gifts received by it dur-
ing the year, and the names and addresses of all substantial 
contributors. 
83 STAT.] 
PUBLIC LAW 9 1 - 1 7 2 - D E C . 30, 1969 
521 
"(6) the names and addresses of its foundation managers 
(within the meaning of section 4946(b)(1)) and highly com-
pensated employees, and 
"(7) the compensation and other payments made during the 
year to each individual described in paragraph (6)." 
(3) ANNUAL REPORT.—Part I I I of subchapter A of chapter 
61 (relating to information returns) is amended by adding after 
oe^s*^' '^^ 
subpart C, the following new subpart: 
6053. 
"Subpart D—Information Concerning Private Foundations 
"Sec. 6056. Annual reports by private foundations. 
"SEC. 6056. ANNUAL REPORTS BY PRIVATE FOUNDATIONS. 
"(a) GENERAL.—The foundation managers (within the meaning 
of section 4946(b)) of every organization which is a private founda- 
^"'®' P- S'^. 
tion (within the meaning of section 509(a)) having at least $5,000 of 
^"*®' P- '*-'^-
assets at any time during a taxable year shall file an annual report 
as of the close of the taxable year at such time and in such manner as 
the Secretary or his delegate may by regulations prescribe. 
" (b) CONTENTS.—The foundation managers of the private founda-
tion shall set forth in the annual report required under subsection (a) 
the following information: 
" (1) its gross income for the year, 
" (2) its expenses attributable to such income and incurred with-
in the year, 
"(3) its disbursements (including administrative expenses) 
within the year, 
" (4) a balance sheet showing its assets, liabilities, and net worth 
as of the beginning of the year, 
" (5) an itemized statement of its securities and all other assets 
at the close of the year, showing both book and market value, 
" (6) the total of the contributions and gifts received by it dur-
ing the year, 
"(7) an itemized list of all grants and contributions made or 
approved for future payment during the year, showing the amount 
of each such grant or contribution, the name and address of the 
recipient, any relationship between any individual recipient and 
the foundation's managers or substantial contributors, and a con-
cise statement of the purpose of each such grant or contribution, 
" (8) the address of the principal office of the foundation and (if 
different) of the place where its books and records are maintained, 
"(9) the names and addresses of its foundation managers 
(within the meaning of section 4946 (b)), and 
"(10) a list of all persons described in paragraph (9) that are 
substantial 
contributors 
(within 
the 
meaning 
of 
section 
507 (d) (2)) or that own 10 percent or more of the stock of any cor- 
^"'e, p. 492. 
poration of which the foundation owns 10 percent or more of the 
stock, or corresponding interests in partnerships or other entities, 
in which the foundation has a 10 percent or greater interest. 
"(c) FORM,—The annual report may be prepared in printed, type-
written, or any other legible form the foundation chooses. The Secre-
tary or his delegate shall provide forms which may be used by a private 
foundation for purposes of the annual report. 
"(d) SPECIAL RULES.— 
"(1) The annual report required to be filed under this section 
is in addition to and not in lieu of the information required to be 
filed under section 6033 (relating to returns by exempt organi- 
ofi'^rl^^^n'^V 
zations) and shall be filed at the same time as such information. 
^^ ' ""^''"'" 
26 use 6033. 
Ante, p. 519. 
522 
PUBLIC L
A
W 91-172-DEC. 30, 1969 
[83 STAT. 
Post, p. 523. 
££^2) A copy of the notice required by section 6104(d) (relating 
to public inspection of private foundations' annual reports), 
together with proof of publication thereof, shall be filed by the 
foundation managers together with the annual report. 
"(3) The foundation managers shall furnish copies of the 
annual report required b j this section to such State officials and 
other persons, at such times and under such conditions, as the 
Secretary or his delegate may by regulations prescribe." 
(4) 
PENALTY 
FOR 
LATE FILING 
OF 
CERTAIN INFORMATION 
79^stat*^385°^^' 
RETURNS.—Section 6652 (relating to failure to file certain informa-
26 use 6652. 
tiou retums) is amended by relettering subsection (d) as subsec-
tion (e) and inserting immediately after subsection (c) the 
following new subsection: 
•'(d) 
RETURNS 
BY 
EXEMPT 
ORGANIZATIONS AND 
BY 
CERTAIN 
TRUSTS.— 
"(1) PENALTY ON ORGANIZATION OR TRUST.—In the case of a 
failure to file a return required under section 6033 (relating to 
returns by exempt organizations), section 6034 (relating to returns 
Post, p. 529. 
\yj certain trusts), or section 6043(b) (relating to exempt orga-
nizations), on the date and in the manner prescribed therefor 
(determined with regard to any extension of time for filing), 
unless it is shown that such failure is due to reasonable cause there 
shall be paid (on notice and demand by the Secretary or his dele-
gate and in the same manner as tax) by the exempt organization 
or trust failing so to file, $10 for each day during which such 
failure continues, but the total amount imposed hereunder on any 
organization for failure to file any return shall not exceed $5,000. 
"(2) MANAGERS.—The Secretary or his delegate may make 
written demand upon an organization failing to file under para-
graph (1) specifying therein a reasonable future date by which 
such filing shall be made, and if such filing is not made on or before 
such date, and unless it is shown that failure so to file is due to 
reasonable cause, there shall be paid (on notice and demand by 
the Secretary or his delegate and in the same manner as tax) by 
the person failing so to file, $10 for each day after the expiration 
of the time specified in the written demand during which such 
failure continues, but the total amount imposed hereunder on all 
persons for such failure to file shall not exceed $5,000. If more 
than one person is liable under this paragraph for a failure to file, 
all such persons shall be jointly and severally liable with respect 
to such failure. The term 'person' as used herein means any 
officer, director, trustee, employee, member, or other individual 
who is under a duty to perform the act in respect of which the 
violation occurs. 
" (3) ANNUAL REPORTS.—In the case of a failure to file a report 
required under section 6056 (relating to annual reports by private 
foundations) or to comply with the requirements of section 6104 
(d) (relating to public inspection of private foundations' annual 
reports), on the date and in the manner prescribed therefor (deter-
mined with regard to any extension of time for filing), unless it is 
shown that such failure is due to reasonable cause, there shall be 
paid (on notice and demand by the Secretary or his delegate 
and in the same manner as tax) by the person failing so to file or 
meet the publicity requirement, $10 for each day during which 
such failure continues, but the total amount imposed hereunder on 
all such persons for such failure to file or comply with the require-
ments of section 6104(d) with regard to any one annual report 
shall not exceed $5,000. If more than one person is liable under 
Ante, p. 521-
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
523 
this paragraph for a failure to file or comply with the requirements 
of section 6104(d), all such persons shall be jointly and severally 
^"^'^ 
liable with respect to such failure. The term 'person' as used herein 
means any officer, director, trustee, employee, member, or other 
individual who is under a duty to perform the act in respect of 
which the violation occurs." 
(e) 
PUBLICITY or 
INFORMATION REQUIRED B Y CERTAIN EXEMPT 
ORGANIZATIONS.— 
(1) 
NAMES AND ADDRESSES OF CONTRIBUTORS.—Section 6104 
^ | ^ ^*^'- ^5^-
(relating to publicity of information required from certain exempt 
26 use 6104. 
organizations and certain trusts) is amended by inserting at the 
end of subsection (b), the following sentence: "Nothing in this 
subsection shall authorize the Secretary or his delegate to disclose 
the name or address of any contributor to any organization or trust 
(other than a private foundation, as defined in section 509(a)) 
which is required to furnish such information." 
(2) 
PUBLICATION TO STATE OFFICIALS.—Section 6104 is amended 
by adding after subsection (b) the following new subsection: 
(c) 
PUBLICATION TO STATE OFFICIALS.— 
" (1) GENERAL RULE.—In the case of any organization which is 
described in section 501(c) (3) and exempt from taxation under 
68A stat. les. 
section 501(a), or has applied under section 508(a) for recogni- 
^'^' P '^^'^• 
tion as an organization described in section 501(c) (3), the Secre-
tary or his delegate at such times and in such manner as he may 
by regulations prescribe shall— 
"(A) notify the appropriate State officer of a refusal to 
recognize such organization as an organization described in 
section 501 (c) (3), or of the operation of such organization in 
j 
a manner which does not meet, or no longer meets, the require-
ments of its exemption, 
"(B) notify the appropriate State officer of the mailing of 
a notice of deficiency of tax imposed under section 507 or 
chapter42, and 
Ante, pp. 492, 
"(C) at the request of such appropriate State officer, make "
^
^
^ 
available for inspection and copying such returns, filed state-
ments, records, reports, and other information, relating to a 
determination under subparagraph (A) or (B) as are rele-
vant to any determination under State law. 
"(2) APPROPRIATE STATE OFFICER.—For purposes of this sub-
section, the term 'appropriate State officer' means the State attor-
ney general. State tax officer, or any State official charged with 
overseeing organizations of the type described in 
section 
501(c)(3)." 
(3) ANNUAL REPORTS.—Section 6104 is amended by adding after 
subsection (c), as added by paragraph (2) of this subsection, the 
following new subsection: 
"(d) 
PUBLIC 
INSPECTION 
OF 
PRIVATE 
FOUNDATIONS' 
ANNUAL 
REPORTS.—The annual report required to be filed under section 6056 
^"'^' P 521. 
(relating to annual reports by private foundations) shall be made 
available by the foundation managers for inspection at the principal 
office of the foundation during regular business hours by any citizen on 
request made within 180 days after the publication of notice of its 
availability. Such notice shall be published, not later than the day pre-
scribed for filing such annual report (determined with regard to any 
extension of time for filing), in a newspaper having general circulation 
in the county in which the principal office of the private foundation is 
located. The notice shall state that the annual report of the private 
foundation is available at its principal office for inspection during 
524 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
regular business hours by any citizen who requests it within 180 days 
after the date of such publication, and shall state the address of the 
private foundation's principal office and the name of its principal 
manager." 
(4) 
WILLFUL FAILURE TO PROVIDE INFORMATION REGARDING PRI-
68A Stat. 828; 
V
A
T
E FOUNDATIONS.—Subchapter B of chapter 68 (relating to 
80 Stat. 1560. 
assessablc penalties) is amended by adding after section 6684 
(added by subsection (c) of this section) the following new 
section: 
"SEC. 6685. ASSESSABLE PENALTIES WITH RESPECT TO PRIVATE 
FOUNDATION ANNUAL REPORTS. 
"In addition to the penalty imposed by section 7207 (relating to 
fraudulent returns, statements, or other documents), any person who 
Ante, p. 521. 
ig required to file the report and the notice required under section 6056 
(relating to annual reports by private foundations) or to comply with 
Ante, p. 523. 
the requirements of section 6104-(d) (relating to public inspection of 
private foundations' annual reports) and who fails so to file or comply, 
if such failure is willful, shall pay a penalty of $1,000 with respect to 
each such report or notice." 
76^sfat^'83i*^^' 
(5) Sectlou 7207 (relating to fraudulent returns, statements, 
or other documents) is amended by striking out "section 6047 (b) 
or (c)" and inserting in lieu thereof "sections 6047 (b) or (c), 
6056, or 6104(d)". 
(f) 
PETITION 
TO 
T A X 
COURT; 
DEFICIENCY 
PROCEDURES 
MADE 
APPLICABLE.— 
68A Stat. 770. 
(1) Sectiou 6211(a) (relating to definition of a deficiency) is 
amended— 
(A) by striking out "and gift taxes" and inserting in lieu 
thereof "gift, and excise taxes,", 
(B) by striking out "subtitles A and B," and inserting in 
lieu thereof "subtitles A and B, and chapter 42,", and 
(C) by striking out "subtitles A or B" and inserting in lieu 
thereof "subtitle A or B or chapter 42". 
(2) Section 6212(c)(1) (relating to further deficiency letters 
restricted) is amended by striking out "or" before "of estate tax" 
and by inserting after "the same decedent," the following: "of sec-
Ante, p. 498. 
tiou 4940 tax for the same taxable year, or of chapter 42 tax (other 
than under section 4940) with respect to any act (or failure to 
act) to which such petition relates,". 
(3) Section 6213 (relating to restrictions applicable to defi-
ciencies; petition to Tax Court) is amended by relettering sub-
section (e) as subsection (f) and inserting immediately after 
subsection (d) the following new subsection: 
"(e) 
SUSPENSION OF FILING PERIOD FOR CERTAIN CHAPTER 42 TAXES.— 
The running of the time prescribed by subsection (a) for filing a peti-
tion in the Tax Court with respect to the taxes imposed by section 
4941 (relating to taxes on self-dealing), 4942 (relating to taxes on 
failure to distribute income), 4943 (relating to taxes on excess business 
holdings), 4944 (relating to investments which jeopardize charitable 
purpose), or 4945 (relating to taxes on taxable expenditures) shall be 
suspended for any period during which the Secretary or his delegate 
has extended the time allowed for making correction under section 
4941(e) (4),4942(j) (2),4943(d) (3),4944(e) (3),or4945(h) (2)." 
Ante, p. 498. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
525 
(g) LIMITATIONS ON ASSESSMENT AND COLLECTION.— 
(1) Section 6501 is amended by adding at the end thereof the „^t^ stat.soa; 
a ^\ 
' • 
1 
i ' 
J 
ts 
go Stat. 1151. 
lollowing new subsection: 
"(n) SPECIAL KULE FOR CHAPTER 42 TAXES.— 
" (1) I N GENERAL.—For purposes of any tax imposed by chapter 
42 (other than section 4940), the return referred to in this section 
shall be the return filed by the private foundation for the year in 
which the act (or failure to act) giving rise to liability for such tax 
occurred. For purposes of section 4940, such return is the return 
filed by the private foundation for the taxable year for which the 
tax is imposed. 
"(2) CERTAIN CONTRIBUTIONS TO SECTION soi (c)(3) ORGANI-
ZATIONS.—In the case of a deficiency of tax of a private foundation 
making a contribution in the manner provided in section 4942 
(g)(3) (relating to certain contributions to section 501(c) ^3) 
68A stat. 163. 
organizations) attributable to the failure of a section 501(c) (3) 
^^ ^^^ ^^^' 
organization to make the distribution prescribed by section 4942 
(g) (3), such deficiency may be assessed at any time before the 
exj)iration of one year after the expiration of the period within 
which a deficiency may be assessed for the taxable year with 
respect to which the contribution was made." 
(2) Section 6501(c) is amended by adding the following new 
paragraph at the end thereof: 
"(7) TERMINATION OF PRIVATE FOUNDATION STATUS.—In the 
case of a tax on termination of private foundation status under 
section 507, such tax may be assessed, or a proceeding in court 
Ante, p. 492. 
for the collection of such tax may be begun without assessment, 
at any time." 
(3) Section 6501 (e)(3) is amended by adding at the end thereof 
the following sentence: "In determining the amount of tax omitted 
on a return, there shall not be taken into account any amount of 
tax imposed by chapter 42 which is omitted from the return if the 
transaction giving rise to such tax is disclosed in the return, or 
in a statement attached to the return, in a manner adequate to 
apprise the Secretary or his delegate of the existence and nature 
of such item." 
(4) Section 6503 (relating to suspension of running of period of 
8° ^'^' ^ i^o. 
limitation) is amended by relettering subsection (h) as subsection 
(i) and inserting immediately after subsection (g) the following 
new subsection: 
"(h) SUSPENSION 
PENDING 
CORRECTION.—The running of 
the 
periods of limitations provided in sections 6501 and 6502 on the making 
^SA stat. 8O6. 
of assessments or the collection by levy or a proceeding in court in 
respect of any tax imposed by chapter 42 or section 507 shall be 
suspended for any period described in section 507(g^ (2) or during 
which the Secretary or his delegate has extended the time for making 
correction 
under 
section 
4941(e)(4), 4942(j) (2), 
4943(d)(3), 
4944(e)(3), or 4945(h)(2)." 
(h) LIMITATIONS ON CREDITS OR EEFUNDS.—Section 6511 (relating 
to limitations on credits or refunds) is amended by relettering sub-
section (f) as subsection (g) and inserting immediately after subsec-
tion (e) the following new subsection: 
"(f) SPECIAL RULE FOR CHAPTER 42 TAXES.—For purposes of any 
tax imposed by chapter 42, the return referred to in subsection (a) 
shall be the return specified in section 6501 (n) (1)." 
^P"^-
(i) CIVIL ACTION FOR EEFUND.—Section 7422 (relating to civil go^st^t^'fios'^' 
actions for refund) is amended by relettering subsection (g) as sub-
section (h) and by inserting immediately after subsection (f) the 
following new subsection: 
526 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"(g) 
SPECIAL RULES FOK CERTAIN EXCISE 
TAXES IMPOSED BY 
Ante. p. 498. 
C H A P T E R 
4 2 . — 
"(1) 
RIGHT TO BRING ACTIONS.—^With respect to any 
act 
(or 
failure to act) giving rise to liability under section 4941,4942,4943, 
4944, or 4945, payment of the full amount of tax imposed under 
section 4941(a) (relating to initial taxes on self-dealing), section 
4942(a) (relating to initial tax on failure to distribute income), 
section 4943(a) (relating to initial tax on excess business hold-
ings), section 4944(a) (relating to initial taxes on investments 
which jeopardize charitable purpose), section 4945(a) (relating 
to initial taxes on taxable expenditures), section 4941 (b) (relat-
ing to additional taxes on self-dealing), section 4942(b) (relating 
to additional tax on failure to distribute income), section 4943(b) 
(relating to additional tax on excess business holdings), section 
4944(b) (relating to additional taxes on investments which jeop-
ardize charitable purpose), or section 4945(b) (relating to addi-
tional taxes on taxable expenditures) shall constitute sufficient 
payment in order to maintain an action under this section with 
respect to such act (or failure to act). 
"(2) LIMITATION ON SUIT FOR REFUND.—No suit may be main-
tained under this section for the credit or refund of any tax 
imposed under section 4941, 4942, 4943, 4944, or 4945 with respect 
to any act (or failure to act) giving rise to liability for tax 
under such sections, unless no other suit has been maintained for 
credit or refund of, and no petition has been filed in the Tax 
Court with respect to a deficiency in, any other tax imposed by 
such sections with respect to such act (or failure to act). 
"(3) FINAL DETERMINATION OF ISSUES.—For purposes of this 
section, any suit for the credit or refund of any tax imposed under 
section 4941, 4942, 4943, 4944, or 4945 with respect to any act (or 
failure to act) giving rise to liability for tax under such sections, 
shall constitute a suit to determine all questions with respect to any 
other tax imposed with respect to such act (or failure to act) under 
such sections, and failure by the parties to such suit to bring any 
such question before the Court shall constitute a bar to such 
question." 
(j) TECHNICAL, CONFORMING, AND CLERICAL AMENDMENTS.— 
(1) Section 101(b) (2) (B) (iii) 
(relating to 
nonforfeitable 
rights) is amended by striking out "section 503(b)(1), (2), or 
(3)" and inserting in lieu thereof "section 170(b) (1) (A) (ii) or 
(vi) or which is a religious organization (other than a trust) . 
(2) Section 170 (i) (relating to disallowance of deductions in 
certain cases) (as redesignated by section 201(a) (1) (A) of this 
Act) is amended— 
(A) by striking out paragraph (1), and 
(B) by striking out "(2) For disallowance" and inserting 
in lieu thereof "For disallowance". 
68A Stat. 163. 
^3^ Section 501(a) (relating to exemption from taxation) is 
amended by striking out "502, 503, or 504" and inserting in lieu 
thereof "502 or 503". 
(4) Section 501(b) (relating to tax on unrelated business 
income) is amended to read as follows: 
"(b) 
TAX ON UNRELATED BUSINESS INCOME AND CERTAIN OTHER 
ACTIVITIES.—An organization exempt from taxation under subsection 
(a) shall be subject to tax to the extent provided in parts I I and I I I 
of this subchapter, but (notwithstanding parts I I and I I I of this 
subchapter) shall be considered an organization exempt from income 
72 Stat. 1622 
26 use 101. 
Post, p. 549. 
82 Stat. 269. 
74 Stat. 535. 
74 Stat. 534. 
68A Stat. 163. 
68A Stat. 166. 
83 STAT.] 
PUBLIC LAW 9]-172-DEC. 30, 1969 
527 
taxes for the purpose of any law which refers to organizations exempt 
from income taxes." 
(5) Section 501(c) (16) (relating to list of exempt organiza- 
26^scr5o\"' 
tions) is amended by striking out "part I I I " and inserting in lieu 
thereof "part IV". 
(6) Section 501(e) (relating to cooperative hospital service 
organizations) is amended by striking out in the last sentence 
thereof "section 503(b) (5)." and inserting in lieu thereof "section 
170(b)(1) (A) (iii).". 
(7) Section 503(a) (1) (relating to general rule) is amended to 
read as follows: 
"(1) 
GENERAL RULE.— 
"(A) An organization described in section 501(c) (17) 
shall not be exempt from taxation under section 501(a) if it 
has engaged in a prohibited transaction after December 
31, 1959. 
"(B) An organization described in section 401(a) shall 
not be exempt from taxation under section 501(a) if it has 
engaged in a prohibited transaction after March 1, 1954." 
(8) Section 503(a)(2) (relating to taxable years affected by 
denial of exemption) is amended by striking out "section 501(c) 
(3) or (17)" and inserting in lieu thereof "section 501(c) (17)". 
(9) Section 503(d) (relating to future status of organizations 
denied exemption) is amended by striking out "section 501(c) (3) 
or (17)" and inserting in lieu thereof "section 501(c) (17)". 
(10) Section 503(g) (relating to special rule for loans) is 
amended by striking out "subsection (c)(1)," and inserting in 
lieu thereof "subsection (b) (1),". 
(11) Section 503(h) (relating to special rules relating to lend-
ing by section 401(a) and section 501(c) (17) trusts to certain 
persons) is amended— 
(A) by striking out in the heading thereof "SPECIAL RULES 
RELATING T
O LENDING BY SECTION 401(a) 
AND SECTION 
501(c) (17) TRUSTS TO CERTAIN PERSONS.—", and inserting in 
lieu thereof "SPECIAL RULES.—"^ 
(B) by striking out "subsection (c) (1)," and inserting in 
lieu thereof "subsection (b) (1),", 
(C) by striking out "acquired by a trust described in sec-
tion 401 (a) or section 501 (c) (17)", and 
(D) bjr striking out in paragraph (3) "subsection (c)" and 
inserting in lieu thereof "subsection (b)". 
(12) Section 503(i) (relating to loans with respect to which 
employers are prohibited from pledging certain assets) 
is 
amended— 
(A) by striking out "Subsection (c) (1)" and inserting in 
lieu thereof "Subsection (b) (1)", and 
(B) by striking out "suDsection (h)" and inserting in lieu 
thereof 'Subsection (e)". 
(13) Section 503(j) (1) (relating to prohibited transactions) 
is amended by striking out "subsection (c)" and inserting in lieu 
thereof "subsection (b)". 
(14) Section 503 (relating to requirements of exemption) is 
amended by striking out subsections (b), (e), and (f) and by re-
designating subsections (c), (d), (g), (h). (i), and (i) 
(as 
amended), as subsections (b), (c), (d), (e), (f), and (g), 
respectively. 
(15) Section 504 (relating to denial of exemption) is repealed. 
es^A^stat. les 
72 Stat. 1629. 
72 Stat. 1630. 
76 Stat. 827. 
528 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
e/st^u^yVs^^^' 
(16) Section 542(a) (2) (relating to stock ownership require-
26 use 542. 
ment) is amended— 
(A) by striking out in the second sentence "section 503 
(b)" and inserting in lieu thereof "section 401(a), 501(c) 
(17), or 509(a)", and 
(B) by amending the third sentence to read as follows: 
"The preceding sentence shall not apply in the case of an 
organization or trust organized or created before July 1,1950, 
if at all times on or after July 1,1950, and before the close of 
the taxable year such organization or trust has owned all of 
the common stock and at least 80 percent of the total number 
of shares of all other classes of stock of the corporation." 
(17) Section 663(a) (2) (relating to charitable, etc., distribu-
tions) is amended by striking out "section 681" and inserting in 
lieu thereof "sections 508(d), 681, and 4948(c)(4)". 
68A^stat 232 
(^^) Sectiou 681 (b) and (c) (relating to operations of trusts 
and accumulated income) is repealed. 
(19) Section 681(d) (relating to cross reference) is redesig-
nated as subsection (b), and as so redesignated is amended by 
striking out "section 503 (e)" and inserting in lieu thereof "sections 
508(d) and 4948 (c)(4)". 
^^A^stat. 282; 
^20) Sectlou 878 (relating to foreign educational, charitable, 
and certain other exempt organizations) is amended by— 
(A) striking out "unrelated business incoltne of", and 
(B) striking out "trusts, see section 512(a)" and inserting 
in lieu thereof "organizations, see sections 512(a) 
and 
4948". 
(21) Section 884 (relating to cross references) is amended by 
striking out paragraph (1) and by redesignating paragraphs (2), 
(3), (4), (5), and (6) as paragraphs (1), (2), (3), (4), and (5), 
respectively. 
68A Stat. 358. 
^22) Sectlou 1443 (relating to foreign tax-exempt organiza-
tions) is amended by— 
(A) inserting "(a) INCOME SUBJECT TO SECTION 511.—" 
before "In the case of", and 
(B) adding subsection (b) to read as follows: 
"(b) INCOME SUBJECT TO SECTION 4948.—In the case of income of 
Anfe, p. 518. 
a forelgu organization subject to the tax imposed by section 4948(a), 
this chapter shall apply, except that the deduction and withholding 
shall be at the rate of 4 percent and shall be subject to such conditions 
as may be provided under regulations prescribed by the Secretary or 
his delesrate." 
72 Stat. 1623. 
(23) Sectiou 2039(c) (3) (relating to exemption of annuities 
under certain trusts and plans) is amended by striking out "sec-
tion 503(b) (1), (2), or (3)," and inserting in lieu thereof "sec-
Post, p. 550. 
tion 170(b)(1)(A) 
(ii) or (vi), or which is a religious 
organization (other than a trust),". 
(24) Section 2517(a) (3) (relating to general rule for certain 
annuities under qualified plans) is amended by striking out "sec-
tion 503 (b) (1), (2), -or (3)," and inserting in lieu thereof ""section 
170(b) (1) (A) (ii) or (vi), or which is a religious organization 
(other than a trust),". 
73 Stat. 617. 
(25) Sectlou 4057(b) (relating to the definition of nonprofit 
educational organization) is amended by striking out "section 
503(b) (2)" and inserting in lieu thereof "section 170(b) (1) (A) 
(ii)". 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
529 
72 Stat. 1282. 
26 u s e 4221. 
Post, p. 550. 
(26) Section 4221 (d)(5) (relating to the definition of nonprofit 
educational organization) is amended by striking out "section 
503(b) (2)" and inserting in lieu thereof "section 170(b) (1) (A) 
(ii)"-
(27) Section 4253(h) 
(relating to nonprofit hospitals) is 
amended by striking out "section 503 (b) (5)" and insertmg in lieu 
thereof "section 170(b) (1) (A) (iii)". 
(28) Section 4294(b) (relating to the definition of nonprofit 
educational organization) is amended by striking out "sec-
tion 503(b) (2)" and inserting in lieu thereof "section 170(b) (1) 
(A)(ii)". 
(29) Section 5214(a)(3)(A) (relating to purposes for with-
drawal of distilled spirits from bonded premises free of tax 
or without payment of tax) is amended by striking out "section 
503(b)(2)" and inserting in lieu thereof "section 170(b) (1,) 
(A)(ii)". 
(30) Section 6033(b)(4) (as redesignated by subsection (d) 
(2) of this section) (relating to certain balance sheet items on 
^nte, p. 520 
returns by exempt organizations) is amended by striking out 
"and" at the end thereof. 
(31) Section 6033(c) (relating to cross reference) is amended 
by inserting the following at the end thereof: 
"For reporting requirements as to certain liquidations, dissolutions, 
terminations, and contractions, see section 6043(b). For provisions re-
lating to penalties for failure to file a return required by this section, 
see section 6652(d).'' 
^"fe, p. 522, 
(32) Section 6034 (relating to returns by certain trusts) is 
amended by striking out all of such section before paragraph (1) 
of subsection (a) and inserting in lieu thereof the following: 
"SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 4947(a) OR 
CLAIMING CHARITABLE DEDUCTIONS UNDER SECTION 
642(c). 
"(a) GENERAL RULE.—Every trust described in section 4947(a) or 
claiming a charitable, etc., deduction under section 642(c) for the 
taxable year shall furnish such information with respect to such tax-
able year as the Secretary or his delegate may by forms or regulations 
prescribe, including—". 
(33) Section 6034 (a)(1) (relating to returns by certain trusts) 
is amended by striking out "(showing separately the amount of 
such deduction which was paid out and the amount which was 
permanently set aside for cnaritable, etc., purposes during such 
year)". 
(34) Section 6034 (relating to returns by certain trusts) is 
amended by adding the following new subsection at the end 
thereof: 
"(c) CROSS REFERENCE.— 
"For provisions relating to penalties for failure to file a return re-
quired by this section, see section 6652(d)." 
68A Stat. 742. 
Ante, p. 517. 
Post, p. 558. 
(35) Section 6043 (relating to return regarding corporate dis-
solution or liquidation) is amended— 
(A) by striking out the heading and inserting in lieu 
thereof 
"RETURNS REGARDING LIQUIDATION, DISSOLU-
TION, TERMINATION, OR CONTRACTION.", 
(B) by striking out "Every corporation" and inserting in 
lieu thereof "(a) CJORPORATIONS.—Every corporation", and 
68A Stat. 746. 
530 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
(C) by adding the following new subsections at the end 
thereof: 
"(b) EXEMPT ORGANIZATIONS.—Every organization which for any 
of its last 5 taxable years preceding its liquidation, dissolution, termi-
nation, or substantial contraction was exempt from taxation under 
26'uscr*5o\"' 
section 501(a) shall file such return and other information with 
respect to such liquidation, dissolution, termination, or substantial 
contraction as the Secretary or his delegate shall by forms or regula-
tions prescribe; except that— 
"(1) no return shall be required under this subsection from 
churches, their integrated auxiliaries, conventions or associations 
of churches, or any organization which is not a private foundation 
Ante, p. 496. 
^^g (j^fined in section 509(a)) and the gross receipts of which in 
each taxable year are normally not more than $5,000, and 
" (2) the Secretary or his delegate may relieve any organization 
from such filing where he determines that such filing is not neces-
sary to the efficient administration of the internal revenue laws or, 
with respect to an organization described in section 401 (a), where 
the employer who established such organization files such a 
return. 
"(c) 
CROSS EEFERENCE.— 
"For provisions relating to penalties for failure to file a return re-
quired by subsection (b), see section 6652(d)." 
(36) Section 6104(b) (relating to inspection of annual infor-
mation returns) is amended by striking out "sections 6033(b) and 
6034," and inserting in lieu thereof "sections 6033, 6034, and 
6056,". 
(37) Section 6161(b) (relating to the amount determined as a 
deficiency when granting an extension of time) is amended— 
(A) by striking out in paragraph (1) "chapter 1 or 12," 
and inserting in lieu thereof "chapter 1,12, or 42,", and 
(B) by striking out "chapter 1," the last time it appears and 
inserting in lieu thereof "chapter 1 or 42,". 
(38) Section 6201(d) (relating to deficiency proceedings) is 
amended by striking out "and gift taxes", and inserting in lieu 
thereof "gift, and chapter 42 taxes". 
(39) Section 6211(b) (2) (relating to the term "rebate") is 
amended by striking out "subtitles A or B" and inserting in lieu 
thereof "subtitle A or B or chapter 42". 
(40) Section 6212(a) 
(relating to notice of deficiency) is 
amended by striking out "subtitles A or B" and inserting in lieu 
thereof "subtitle A or B or chapter 42". 
(41) Section 6212(b) (1) (relating to address for notice of defi-
ciency) is amended— 
(A) by striking out in the title thereof "AND GIFT TAXES" and 
inserting in lieu thereof "AND GIFT TAXES AND TAXES IMPOSED 
BY CHAPTER 4 2 " , 
(B) by striking out "subtitle A or chapter 12," and insert-
ing in lieu thereof "subtitle A, chapter 12, or chapter 42,", and 
(C) by inserting "chapter 42," after "chapter 12," the last 
place it appears. 
(42) Section 6213 (a) (relating to restrictions applicable to defi-
ciencies; petition to Tax Court) is amended by inserting "or chap-
ter 42" after "subtitle A or B". 
(43) Section 6214 (relating to determination by the Tax Court) 
is amended by relettering subsection (c) as subsection (d) and by 
inserting after subsection (b) the following new subsection : 
Ante, p. 498. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
531 
"(c) 
TAXES IMPOSED BY SECTION 507 
OR CHAPTER 42.—The 
Tax 
Court, in redetermining a deficiency of any tax imposed by section 507 
>^«e. P- 492. 
or chapter 42 for any period, act, or failure to act, shall consider such 
Ante. p. 498. 
facts with relation to the taxes under chapter 42 for other periods, acts, 
or failures to act as may be necessary correctly to redetermine the 
amount of such deficiency, but in so doing shall have no jurisdiction 
to determine whether or not the taxes under chapter 42 for any other 
period, act, or failure to act have been overpaid or underpaid." 
(44) Section 6214(d) (as relettered) is amended by inserting 
^"'^' P- S3O. 
", chapter 42," after "chapter". 
(45) Section 6344(a) (1) (relating to certain cross references) 
^SA stat. 789. 
is amended by inserting "and taxes imposed by chapter 42," after 
"gift taxes,". 
(46) Section 6503(a) (1) (relating to issuance of statutory 
notice of deficiency) is amended by striking out "and gift taxes" 
and inserting in lieu thereof "gift and chapter 42 taxes". 
(47) Section 6512(a) (relating to effect of petition to Tax 
Court) is amended— 
(A) by striking out "and gift taxes" and inserting in lieu 
thereof "gift, and chapter 42 taxes", and 
(B) by striking out "or of estate tax in respect of the tax-
able estate of the same decedent," and inserting in lieu thereof 
"of estate tax in respect of the taxable estate of the same 
decedent, or of tax imposed by chapter 42 with respect to any 
act (or failure to act) to which such petition relates,". 
(48) Section 6512(b) (1) (relating to jurisdiction to determine 
overpayment determined by Tax Court) is amended by striking 
out "or of estate tax in respect of the taxable estate of the same 
decedent," and inserting in lieu thereof "of estate tax in respect 
of the taxable estate of the same decedent, or of tax imposed by 
chapter 42 with respect to any act (or failure to act) to which 
such petition relates,". 
(49) Section 6601(d) (relating to suspension of interest in cer-
tain cases) is amended— 
(A) by striking out in the title thereof "AND GIFT TAX 
CASES." and inserting in lieu thereof "GIFT, AND CHAPTER 
42 TAX CASES.", 
and 
(B) by striking out "and gift taxes" and inserting in lieu 
thereof "gift, and chapter 42 taxes". 
(50) Section 6653(c)(1) (relating to definition of underpay-
ment) is amended— 
(A) by striking out in the heading thereof "AND GIFT 
TAXES." and inserting in lieu thereof "GIFT, AND CHAPTER 42 
TAXES.", and 
(B) by striking out "and gift taxes" the last time it appears 
and inserting in lieu thereof "gift, and chapter 42 taxes". 
(51) Section 6659(b) (relating to procedure for assessing cer-
tain additions to tax) is amended by striking out "and gift taxes" 
and inserting in lieu thereof "gift, and chapter 42 taxes". 
(52) Section 6676(b) (relating to deficiency procedures not to 
75 stat. 829. 
apply) is amended by striking out "and gift taxes" and inserting 
in lieu thereof "gift, and chapter 42 taxes". 
(53) Section 6677(b) (relating to deficiency procedures not to 
^^ s*^'- -'s^-
^PPjy) is amended by striking out "and gift taxes" and inserting 
in lieu thereof "gift, and chapter 42 taxes". 
80 Stat. 61. 
68A Stat. 877, 
Ante, p. 515. 
532 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
26 use ^°^^' 
^^^^ Section 6679(b) (relating to deficiency procedures not to 
apply) is amended by striking out "and gift taxes" and inserting 
in lieu thereof "gift, and chapter 42 taxes". 
(55) Section 6682(b) (relating to deficiency procedures not to 
apply) is amended by striking out "and gift taxes" and inserting 
in lieu thereof "gift, and chapter 42 taxes". 
(56) Section 7422(e) (relating to stay of proceeding in civil 
actions for refund) is amended b}^ striking out "or gift tax" the 
first time it appears and inserting in lieu thereof "gift tax, or tax 
imposed by chapter 42". 
(57) Section 7454 (relating to burden of proof in fraud and 
transferee cases) is amended— 
(A) by striking out "FRAUD AND TRANSFEREE 
CASES" and inserting in lieu thereof "FRAUD, FOUNDA-
TION MANAGER, AND TRANSFEREE CASES", 
(B) by redesignating subsection (b) as subsection (c), and 
(C) by inserting after subsection (a) the following new 
subsection: 
"(b) FOUNDATION- MANAGERS.—In any proceeding involving the 
issue whether a foundation manager (as defined in section 4946(b)) 
has 'knowingly' participated in an act of self-dealing (within the 
meaning of section 4941), participated in an investment which jeopard-
izes the carrying out of exempt purposes (within the meaning of 
section 4944), or agreed to the making of a taxable expenditure (within 
the meaning of section 4945), the burden of proof in respect of such 
issue shall be upon the Secretary or his delegate." 
68A Stat. 163. 
(58) The table of parts for subchapter F of chapter 1 is 
amended to read as follows: 
"Subchapter F.—Exempt Organizations 
"Part 
I. General rule. 
"Part II. Private foundations. 
"Part III. Taxation of business income of certain exempt organi-
zations. 
"Part IV. Farmers' cooperatives. 
"Part 
V. Shipowners' protection and indemnity associations." 
68A Stat. 473. 
(59) The table of chapters for subtitle D is amended by adding 
at the end thereof the following new item: 
"Chapter 42. Private foundations." 
(60) The table of sections for subchapter B of chapter 68 is 
amended by adding at the end thereof the following new items: 
"Sec. 6684. Repeated liability for tax under chapter 42. 
"Sec. 6685. Assessable penalties with respect to private foundation 
annual reports." 
68A Stat. 163. 
(g^) The table of sections for part I of subchapter F of chapter 
1 is amended by striking out the item relating to section 504. 
68A Stat. 770. 
^g2) The heading of subchapter B of chapter 63 is amended by 
striking out "and Gift Taxes" and inserting in lieu thereof "Gift, 
and Certain Excise Taxes". 
68A Stat. 767. 
^gg) The table of subchapters for chapter 63 is amended by 
striking out "and gift taxes" in the item relating to subchapter B 
and inserting in lieu thereof "gift, and certain excise taxes". 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
533 
(64) The table of subparts for part I I I of subchapter A of 
chapter 61 is amended by adding at the end thereof the following 
new item: 
"Subpart D. Information concerning private foundations." 
(k) EFFECTIVE DATES.— 
(1) I N GENERAL.—Except as otherwise provided in this sub-
section and subsection (1), the amendments made by this section 
shall take effect on January 1,1970. 
(2) PROVISIONS EFFECTIVE FOR TAXABLE YEARS BEGINNING AFTER 
D
E
C
E
M
B
E
R 31, 1969.—The followiug provisious shall apply to tax-
able years beginning after December 31, 1969: 
(A) Sections 4940, 4942, 4943, and 4948 of the Internal 
Revenue Code of 1954 (as added by this section), and 
^"'^' P- ''^^• 
(B) The amendments made by subsection (d) and para-
graphs (3), (15), (16), (20), (21), (30), (31), (32), (33), 
(34), (35), and (61) of subsection (j). 
(3) SECTIONS 508 (a), (b), AND (C).—Sections 508 (a), (b), 
and (c) of the Internal Revenue Code of 1954 (as added by this 
^"'^' "• ^^'^^ 
section) shall take effect on October 9, 1969. 
(1) SAVINGS PROVISIONS.— 
(1) REFERENCES TO INTERNAL REVENUE CODE PRO\T:SIONS.—Ex-
cept as otherwise expressly provided, references in the following 
paragraphs of this subsection are to sections of the Internal Reve-
nue Code of 1954 as amended by this section. 
(2) SECTION 4941.—Section 4941 shall not apply to— 
(A) any transaction between a private foundation and a 
corporation which is a disqualified person (as defined in sec-
tion 4946), pursuant to the terms of securities of such corpora-
tion in existence at the time acquired by the foundation, if such 
securities were acquired by the foundation before May 27, 
1969; 
(B) the sale, exchange, or other disposition of property 
which is owned by a private foundation on May 26, 1969 (or 
which is acquired by a private foundation under the terms of 
a trust which was irrevocable on May 26, 1969, or under the 
terms of a will executed on or before such date, which are in 
effect on such date and at all times thereafter), to a disquali-
fied person, if such foundation is required to dispose of such 
property in order not to be liable for tax under section 4943 
(relating to taxes on excess business holdings) applied, in 
the case of a disposition before January 1, 1975, without 
taking section 4943(c) (4) into account and it receives in re-
turn an amount which equals or exceeds the fair market value 
of such property at the time of such disposition or at the time 
a contract for such disposition was previously executed in a 
transaction which would not constitute a prohibited trans-
action (within the meaning of section 503(b) or the cor-
responding provisions of prior law) ; 
(C) the leasing of property or the lending of money or 
other extension of credit between a disq^ualified person and a 
private foundation pursuant to a bindmg contract in effect 
on October 9, 1969 (or pursuant to renewals of such a con-
tract) , until taxable years beginning after December 31,1979, 
if such leasing or lending (or other extension of credit) 
remains at least as favorable as an arm's-length transaction 
with an unrelated party and if the execution of such contract 
534 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
was not at the time of such execution a prohibited transaction 
(within the meaning of section 503(b) or the corresponding 
provisions of prior law); 
(D) the use of goods, services, or facilities which are shared 
by a private foundation and a disqualified person until taxable 
years beginning after December 31,1979, if such use is pursu-
ant to an arrangement in effect before October 9, 1969, and 
such arrangement was not a prohibited transaction (within 
Ante, p. 527. 
^YiQ, meaning of section 503 (b) or the corresponding provisions 
of prior law) at the time it was made and would not be a 
prohibited transaction if such section continued to apply; and 
(E) the use of property in which a private foundation and 
a disqualified person have a joint or common interest, if the 
interests of both in such property were acquired before 
October 9,1969. 
Anfe, p. 502, 
^g^ SECTION 4 942.—In the case of organizations organized 
before May 27,1969, section 4942 shall— 
(A) for all purposes other than the determination of the 
minimum investment return under section 4942(j) (3) (B) 
(ii), for taxable years beginning before January 1, 1972, 
apply without regard to section 4942(e) (relating to mini-
mum investment return), and for taxable years beginning in 
! 
1972,1973, and 1974, apply with an applicable percentage (as 
prescribed in section 4942(e)(3)) which does not exceed 
\y2 percent, 5 percent, and 51/^ percent, respectively; 
(B) not apply to an organization to the extent its income is 
, 
required to be accumulated pursuant to the mandatory terms 
(as in effect on May 26, 1969, and at all times thereafter) of 
an instrument executed before May 27, 1969, with respect to 
the transfer of income producing property to such orga-
nization, except that section 4942 shall apply to such organiza-
tion if the organization would have been denied exemption 
if section 504(a) had not been repealed by this Act, or would 
have had its deductions under section 642 (c) limited if section 
Ante, p. 528. 
681(c) had uot been repealed by this Act. In applying the 
preceding sentence, in addition to the limitations contained 
m section 504(a) or 681(c) before its repeal, section 504(a) (1) 
or 681(c) (1) shall be treated as not applying to an organiza-
tion to the extent its income is required to be accumulated 
pursuant to the mandatory terms (as in effect on January 1, 
1951, and at all times thereafter) of an instrument executed 
before January 1,1951, with respect to the transfer of income 
producing property to such organization before such date, 
if such transfer was irrevocable on such date; 
(C) apply to a grant to a private foundation described in 
section 4942(g) (1) (A) (ii) which is not described in section 
4942(g) (1) (A) (i), pursuant to a written commitment which 
was binding on May 26,1969, and at all times thereafter, as if 
such grant is a grant to an operating foundation (as defined 
in section 4942(]) (3)), if sudi grant is made for one or more 
of the purposes described in section 170(c) (2) (B) and is to be 
paid out to such private foundation on or before December 31, 
1974; 
(D) apply, for purposes of section 4942(f), in such a man-
ner as to treat any distribution made to a private foundation in 
redemption of stock held by such private foundation in a busi-
ness enterprise as not essentially equivalent to a dividend 
under section 302(b) (1) if such redemption is described in 
paragraph (2) (B) of this subsection; and 
Ante, p. 527. 
Post, 
p. 558. 
Post, p. 553. 
68A Stat. 85 
26 u s e 302. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
535 
(E) not apply to an organization which is prohibited by its 
governing instrument or other instrument from distributing 
capital or corpus to the extent the requirements of section 
4942 are inconsistent with such prohibition. 
^"'®' p- 502. 
With respect to taxable years beginning after December 31, 1971, 
subparagraphs (B) and (E) shall apply only during the pendency 
of any judicial proceeding by the private foundation which is 
necessary to reform, or to excuse such foundation from com-
pliance with, its governing instrument or any other instrument 
(as in effect on May 26, 1969) in order to comply with the pro-
visions of section 4942, and in the case of subparagraph (B) for 
all periods after the termination of such judicial proceeding during 
which the governing instrument or any other instrument does not 
permit compliance with such provisions. 
(4) SECTION 4943.— 
(A) In the case of a private foundation— 
(i) which was incorporated before January 1,1951; 
(ii) substantially all of the assets of which on May 26, 
1969, consist of more than 90 percent of the stock of an 
incorporated business enterprise which is licensed and 
regulated, the sales or contracts of which are regulated, 
and the professional representatives of which are licensed, 
by State regulatory agencies in at least 10 States; and 
(iii) which acquired such stock solely by gift, devise, or 
bequest, 
section 4943(c) (4) (A) (i) shall be applied with respect to the ^"f^, p. 507. 
holdings of such foundation in such incorporated business 
enterprise by substituting "51 percent" for "50 percent", and 
section 4943(c) (4) (D) shall not apply with respect to such 
holdings. For purposes of the preceding sentence, stock of such 
enterprise in a trust created before May 27,1969, of which the 
foundation is the remainder beneficiary shall be deemed to be 
held by such foundation on May 26, 1969, if such foundation 
held (without regard to such trust) more than 20 percent of 
the stock of such enterprise on May 26,1969. 
(B) Subparagraph (A) shall apply to a private foundation 
only if— 
(i) the foundation does not purchase any stock or other 
interest in the enterprise described in subparagraph (A) 
after May 26, 1969, and does not acquire any stock or 
other interest in any other business enterprise which con-
stitutes excess business holdings under section 4943; and 
(ii) in the last 5 taxable years ending on or before 
December 31, 1970, the foundation expends substantially 
all of its adjusted net income (as defined in section 
4942(f)) for the purpose or function for which it is 
organized and operated. 
(C) For purposes of section 4943(c)(6), the term "pur-
chase" does not include an exchange which is described in para-
graph (2) (B) of this subsection and which is pursuant to a 
plan for disposition of excess business holdings. 
(5) SECTION 4945.—Section 4945 (d) (4) and (h) shall not 
apply to a grant which is described in paragraph (3) (C) of this 
subsection. 
(6) SECTION 508(e).—Section 508(e) shall not apply to require 
^"'«» P- '^94. 
inclusion in governing instruments of any provisions inconsistent 
with this subsection. 
536 
PUBLIC L
A
W 91-172-DEC. 30, 1969 
[83 STAT. 
Ante. p. 496. 
^'j'^ SECTiOiSr 509 (a).—III the case of any trust created under the 
terms of a will or a codicil to a will executed on or before March 
30, 1924, by which the testator bequeathed all of the outstanding 
common stock of a corporation in trust, the income of which trust 
is to be used principally for the benefit of those from time to time 
employed by the corporation and their families, the trustees of 
which trust are elected or selected from among the employees of 
such corporation, and which trust does not own directly any stock 
in any other corporation, if the trust makes an irrevocable election 
under this paragraph within one year after the date of the enact-
ment of this Act, such trust shall be treated as not being a private 
foundation for purposes of the Internal Revenue Code of 1954 but 
shall be treated for purposes of such Code as if it were not exempt 
68A Stat. 163. 
from tax under section 501(a) for any taxable year beginning 
after the date of the enactment of this Act and before the date 
(if any) on which such trust has complied with the requirements 
of section 507 for termination of the status of an organization as 
a private foundation. 
(8) CERTAIN" REDEMPTIONS.—For purposes of applying section 
302(b) (1) to the determination of the amount of gross investment 
^Anee. pp.498, 
incomc uuder sections 4940 and 4948(a), any distribution made 
to a private foundation in redemption of stock held by such 
private foundation in a business enterprise shall be treated as not 
essentially equivalent to a dividend, if such redemption is described 
in paragraph (2) (B) of this subsection. 
Subtitle B—Other Tax Exempt Organizations 
SEC. 121. TAX ON UNRELATED BUSINESS INCOME. 
(a) ORGAXIzATiONS SUBJECT TO TAX.— 
^68A Stat. 169; 
(1) CORPORATE RATES.—Sectiou 511 (a) (2) (A) (relating to cer-
°26'us'c 511. 
tain organizations subject to tax on unrelated business income at 
corporate rates) is amended to read as follows: 
"(A) ORGANIZATIONS DESCRIBED IN SECTIONS 401(a) AND 
501(c).—The taxes imposed by paragraph (1) shall apply 
in the case of any organization (other than a trust described 
in subsection (b) or an 9rganization described in section 501 
(c) (1)) which is exempt, except as provided in this part or 
part I I (relating to private foundations), from taxation 
under this subtitle by reason of section 501(a)." 
(2) INDIVIDUAL RATES.—Section 511(b)(2) (relating to char-
itable, etc., trusts subject to tax on unrelated business income) 
is amended to read as follows: 
"(2) 
CHARITABLE, ETC., TRUSTS SUBJECT TO TAX.—The 
tax 
imposed by paragraph (1) shall apply in the case of any trust 
which is exempt, except as provided in this part or part I I (relat-
ing to private foundations), from taxation under this subtitle by 
reason of section 501 (a) and which, if it were not for such exemp-
tion, would be subject to subchapter J (sec. 641 and following, 
relating to estates, trusts, beneficiaries, and decedents)." 
(3) SECTION" 501(c)(2) CORPORATIONS.—Section 511 (relating 
to tax on unrelated business income) is amended by striking out 
subsection (c) and inserting in lieu thereof the following new 
subsection: 
"(c) 
SPECIAL RULE FOR SECTION 5 0 1 ( C ) ( 2 ) 
CORPORATIONS.—If a 
corporation described in section 501 (c) (2) — 
"(1) pays any amount of its net income for a taxable year to 
an organization exempt from taxation under section 501(a) (or 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
537 
which would pay such an amount but for the fact that the expenses 
of collecting its income exceed its income), and 
" (2) such corporation and such organization file a consolidated 
return for the taxable year, 
such corporation shall be treated, for purposes of the tax imposed by 
subsection (a), as being organized and operated for the same purposes 
as such organization, in addition to the purposes described in section 
501(c)(2).'' 
^ 
^ 
' r u i c y " -
(4) CONFORMING AMENDMENT.—Section 1504 (relating to defi-
nitions for purposes of consolidated returns) is amended by add-
ing at the end thereof the following new subsection: 
"(e) INCLUDIBLE TAX-EXEMPT ORGANIZATIONS.—Despite the pro-
visions of paragraph (1) of subsection (b), two or more organizations 
exempt from taxation under section 501, one or more of which is 
described in section 501(c) (2) and the others of which derive income 
from such 501(c) (2) organizations, shall be considered as includible 
corporations for the purpose of the application of subsection (a) to 
such organizations alone." 
(b) 
DEFINITION OP UNRELATED BUSINESS TAXABLE INCOME.— 
(1) I N GENERAL.—Section 512(a) (relating to definition of 
unrelated business taxable income) is amended to read as follows: 
" (a) DEFINITION.—For purposes of this title— 
" (1) GENERAL RULE.—Except as otherwise provided in this sub-
section, the term 'unrelated business taxable income' means the 
gross income derived by any organization from any unrelated trade 
or business (as defined in section 513) regularly carried on by it, 
^°®'' P- •'^^^ 
less the deductions allowed by this chapter which are directly 
connected with the carrying on of such trade or business, both 
computed with the modifications provided in subsection (b). 
"(2) SPECIAL RULE FOR FOREIGN ORGANIZATIONS.—In the case 
of an organization described in section 511 which is a foreign 
'^"^^' ^' ''^^' 
organization, the unrelated business taxable income shall be— 
" (A) its unrelated business taxable income which is derived 
from sources within the United States and which is not effec-
tively connected with the conduct of a trade or business within 
the United States, plus 
"(B) its unrelated business taxable income which is effec-
tively connected with the conduct of a trade or business 
within the United States. 
"(3) 
SPECIAL RULES APPLICABLE TO ORGANIZATIONS DESCRIBED IN 
S E C T I O N 501(C) (7) OR ( 9 ) . 
"(A) GENERAL RULE.—In the case of an organization 
described in section 501(c) (7) or (9), the term 'unrelated 
Po^t, p. 541. 
business taxable income' means the gross income (excluding 
any exempt function income), less the deductions allowed by 
this chapter which are directly connected with the production 
of the gross income (excluding exempt function income), both 
computed with the modifications provided in paragraphs 
(6), (10), (11), and (12) of subsection (b). 
"(B) EXEMPT FUNCTION INCOME.—For purposes of subpar-
agraph (A), the term 'exempt function income' means the 
gross income from dues, fees, charges, or similar amounts 
paid by members of the organization as consideration for pro-
viding such members or their dependents or guests goods, 
facilities, or services in furtherance of the purposes constitut-
ing the basis for the exemption of the organization .to which 
such income is paid. Such term also means all income (other 
than an amount equal to the gross income derived from any 
unrelated trade or business regularly carried on by such 
538 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
organization computed as if the organization were subject 
to paragraph (1)), which is set aside— 
Post. p. 554. 
«(i) fQj. a purpose specified in section 170(c) (4), or 
"(ii) in the case of an organization described in sec-
Post, p. 541. 
^JQjj 501(c) (9), to provide for the payment of life, sick, 
accident, or other benefits, 
including; reasonable costs of administration directly con-
nected with a purpose described in clause (i) or (ii). If during 
the taxable year, an amount which is attributable to income 
so set aside is used for a purpose other than that described in 
clause (i) or (ii), such amount shall be included, under sub-
paragraph (A), in unrelated business taxable income for the 
taxable year. 
"(C) APPLICABILITY TO CERTAIN CORPORATIONS DESCRIBED 
IN SECTION 501(C)(2) .—In the case of a corporation described 
26'usc°*" ^1^' 
^^ section 501(c) (2), the income of which is payable to an 
organization described in section 501(c) (7) or (9), sub-
paragraph (A) shall apply as if such corporation were the 
organization to which the income is pa;7able. For purposes 
of the preceding sentence, such corporation shall be treated 
as having exempt function income for a taxable year only if 
it files a consolidated return with such organization for 
such year. 
" (D) NONRECOGNITION or GAIN.—If property used directly 
in the performance of the exempt function of an organization 
described in section 501(c) (7) or (9) is sold by such orga-
nization, and within a period beginning 1 year before the date 
of such sale, and ending 3 years after such date, other prop-
erty is purchased and used by such organization directly in 
the performance of its exempt function, gain (if any) from 
such sale shall be recognized only to the extent that such 
organization's sales price of the old property exceeds the 
organization's cost of purchasing the other property. For 
purposes of this subparagraph, the destruction in whole or in 
part, theft, seizure, requisition, or condemnation of property, 
shall be treated as the sale of such property, and rules similar 
to the rules provided by subsections (b), (c), (e), and (j) 
of section 1034 shall apply." 
(2) MODIFICATIONS.— 
(A) RENTS AND DEBT-FINANCED PROPERTY,—Section 512 
(b) (3) (relating to modifications with respect to rents from 
real property) and section 512(b) (4) (relating to modifica-
tions with respect to business leases) are amended to read 
as follows: 
" (3) In the case of rents— 
" (A) Except as provided in subparagraph (B), there shall 
be excluded— 
"(i) all rents from real property (including property 
78ltSr*35!°^^' 
described in section 1245 (a) (3) (C)), and 
"(ii) all rents from personal property (including for 
purposes of this paragraph as personal property any 
property described in section 1245(a)(3)(B)) leased 
with such real property, if the rents attributable to such 
personal property are an incidental amount of the total 
rents received or accrued under the lease, determined at 
the time the personal property is placed in service. 
"(B) Subparagraph (A) shall not apply— 
Post, p. 543. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
539 
" (i) if more than 50 percent of the total rent received 
or accrued under the lease is attributable to personal 
property described in subparagraph (A) (ii), or 
" (ii) if the determination of the amount of such rent 
depends in whole or in part on the income or profits 
derived by any person from the property leased (other 
than an amount based on a fixed percentage or percent-
ages of receipts or sales). 
"(C) There shall be excluded all deductions directly con-
nected with rents excluded under subparagraph (A). 
"(4) Notwithstanding paragraph (1), (2), (3), or (5), in the 
case of debt-financed property (as defined m section 514) there 
shall be included, as an item of gross income derived from an 
unrelated trade or business, the amount ascertained under section 
514(a) (1), and there shall be allowed, as a deduction, the amount 
ascertained under section 514(a) (2)." 
(B) LIMIT ON SPECIFIC DEDUCTION.—Section 512(b) (12) 
esAstat. 171. 
(relating to allowance of specific deduction) is amended to 
read as follows: 
" (12) Except for purposes of computing the net operating loss 
under section 172 and paragraph (6), there shall be allowed a 
^°«^ P- 619. 
specific deduction of $1,000. In the case of a diocese, province of a 
religious order, or a convention or association of churches, there 
shall also be allowed, with respect to each parish, individual 
church, district, or other local unit, a specific deduction equal to 
the lower of— 
"(A) $1,000,or 
"(B) the gross income derived from any unrelated trade 
or business regularly carried on by such local unit." 
(C) SPECIAL RULES FOR CERTAIN ORGANIZATIONS.—Section 
512(b) (relating to modifications in determining unrelated 
business taxable income) is further amended by adding at the 
end thereof the following: 
"(15) Notwithstanding paragraphs (1), (2), or (3), amounts 
of interest, annuities, royalties, and rents derived from any organi-
zation (in this paragraph called the 'controlled organization') of 
which the organization deriving such amounts (in this paragraph 
called the 'controlling organization') has control (as defined in 
section 368(c)) shall be included as an item of gross income 
je^scT^aes^^ 
(whether or not the activity from which such amounts are derived 
represents a trade or business or is regularly carried on) in an 
amount which bears the same ratio as— 
"(A) (i) in the case of a controlled organization which is 
not exempt from taxation under section 501 (a), the excess of 
the amount of taxable income of the controlled organization 
over the amount of such organization's taxable income w^hich 
if derived directly by the controlling organization would not 
be unrelated business taxable income, or 
"(ii) in the case of a controlled organization which is 
exempt from taxation under section 501(a), the amount of 
unrelated business taxable income of the controlled organiza-
tion, bears to 
"(B) the taxable income of the controlled organization 
(determined in the case of a controlled organization to which 
subparagraph (A) (ii) applies as if it were not an organiza-
tion exempt from taxation under section 501 (a)), but not less 
than the amount determined in clause (i) or (ii), as the case 
may be, of subparagraph (A), 
540 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
both amounts computed without regard to amounts paid directly 
or indirectly to the controlling organization. There shall be al-
lowed all deductions directly connected with amounts included in 
gross income under the preceding sentence. 
"(16) Except as provided in paragraph (4), in the case of a 
church, or convention or association of churches, for taxable years 
beginning before January 1,1976, there shall be excluded all gross 
income derived from a trade or business and all deductions 
directly connected with the carrying on of such trade or business 
if such trade or business was carried on by such organization or 
its predecessor before May 27,1969. 
"(17) Except as provided in paragraph (4), in the case of a 
trade or business— 
"(A) which consists of providing services under license 
issued by a Federal regulatory agency, 
"(B) which is carried on by a religious order or by an 
26'uscr\'5l^" 
educational institution (as defined in section 151(e)(4)) 
maintained b}'^ such religious order, and which was so carried 
on before May 27,1959, and 
"(C) less than 10 percent of the net income of which for 
each taxable year is used for activities which are not related 
to the purpose constituting the basis for the religious order's 
exemption, 
there shall be excluded all gross income derived from such trade 
or business and all deductions directly connected with the carrying 
on of such trade or business, so long as it is established to the 
satisfaction of the Secretary or his delegate that the rates or other 
charges for such services are competitive w^ith rates or other 
charges charged for similar services by persons not exempt from 
taxation." 
(D) TECHNICAL AMENDMENT.—Section 512(b) 
(relating 
to exceptions, additions, and limitations in determining un-
related business taxable income) is amended by striking out 
so much thereof as precedes paragraph (1) and inserting in 
lieu thereof the following: 
"(b) MODIFICATIONS.—The modifications referred to in subsection 
(a) are the following:" 
(3) RELATED AMENDMENT.— 
68A Stat. 76; 
(^) Part I X of Subchapter B of chapter 1 (relating to 
items not deductible) is amended by adding at the end thereof 
the following new section: 
"SEC. 277. DEDUCTIONS INCURRED BY CERTAIN MEMBERSHIP ORGA-
NIZATIONS IN TRANSACTIONS WITH MEMBERS. 
"(a) GENERAL RULE.—In the case of a social club or other member-
ship organization which is operated primarily to furnish services or 
goods to members and which is not exempt from taxation, deductions 
for the taxable year attributable to furnishing services, insurance, 
goods, or other items of value to members shall be allowed only to the 
C'.xtent of income derived during such year from members or transac-
tions with members (including income derived during such year from 
institutes and trade shows which are primarily for the education of 
members). If for any taxable year such deductions exceed such income, 
the excess shall be treated as a deduction attributable to furnishing 
services, insurance, goods, or other items of value to members paid 
or incurred in the succeeding taxable year. 
"(b) EXCEPTIONS.—Subsection (a) shall not apply to any organi-
zation— 
"(1) which for the taxable year is subject to taxation under 
subchapter H or L, 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
541 
75 Stat. 222. 
26 u s e 456. 
"(2) which has made an election before October 9,1969, under 
section 456(c) or which is affiliated with such an organization, or 
" (3) which for each day of any taxable year is a national securi-
ties exchange subject to regulation under the Securities Exchange 
Act of 1934 or a contract market subject to regulation under the 
^s sta^. SM 
Conmiodity Exchange Act." 
42 stat. 998 
(B) The table of sections for part I X of subchapter B of 
7 use i. 
chapter 1 is amended by adding at the end thereof the 
following: 
"Sec. 277. Deductions incurred by certain membership organizations 
in transactions with members." 
68A Stat. 172. 
(4) LOCAL EMPLOYEE ASSOCIATION.—Section 513(a)(2) (relat-
ing to exception to definition of unrelated trade or business) is 
amended by striking out "employees; or" and inserting in lieu 
thereof the following: "employees, or, in the case of a local associa-
tion of employees described in section 501(c) (4) organized before 
May 27, 1969, which is the selling by the organization of items of 
work-related clothes and equipment and items normallj^ sold 
through vending machines, through food dispensing facilities, or 
by snack bars, for the convenience of its members at their usual 
places of employment; or". 
(5) VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATIONS AND 
CERTAIN FRATERNAL SOCIETIES. 
(A) I N GENERAL.—Scctiou 501(c) 
(relating to list of 
26 use soi. 
exempt organizations) is amended by striking out paragraphs 
(9) and (10) and inserting in lieu thereof the following: 
"(9) Voluntary employees' Deneficiary associations providing 
for the payment of life, sick, accident, or other benefits to the 
members of such association or their dependents or designated 
beneficiaries, if no part of the net earnings of such association 
inures (other than through such payments) to the benefit of any 
private shareholder or individual. 
" (10) Domestic fraternal societies, orders, or associations, oper-
ating under the lodge system— 
"(A) the net earnings of which are devoted exclusively to 
religious, charitable, scientific, literary, educational, and fra-
ternal purposes, and 
"(B) which do not provide for the payment of life, sick, 
accident, or other benefits." 
(B) CONFORMING AMENDMENTS.—Section 801(b) (2) (re- ^3 stat. 112. 
lating to life insurance reserves) is amended— 
(i) by inserting "and" at the end of subparagraph 
(ii) by strikmg out subparagraph (B), and 
(iii) by redesignating subparagraph (C) as (B). 
Section 810 (relating to rules for certain reserves) is amended 
by striking out subsection (e). 
(6) CERTAIN FUNDED PENSION TRUSTS.— 
(A) EXEMPTION FROM TAXATION.—Section 501(c) (relating 
to list of exempt organizations) is amended by adding at the 
end thereof the following new paragraph: 
"(18) A trust or trusts created before June 25, 1959, forming 
part of a plan providing for the payment of benefits under a 
pension plan funded only by contributions of employees, if— 
"(A) under the plan, it is impossible, at any time prior to 
the satisfaction of all liabilities with respect to employees 
under the plan, for any part of the corpus or income to be 
542 
PUBLIC LAW 91-172--DEC. 30, 1969 
[83 STAT. 
(within the taxable year or thereafter) used for, or diverted 
to, any purpose other than the providing of benefits under 
the plan, 
"(B) such benefits are payable to employees under a classifi-
cation which is set forth in the plan and which is found by the 
Secretary or his delegate not to be discriminatory in favor of 
employees who are officers, shareholders, persons whose prin-
cipal duties consist of supervising the work of other 
employees, or highly compensated employees, and 
"(C) such benefits do not discriminate in favor of employees 
who are officers, shareholders, persons whose principal duties 
consist of supervising the work of other employees, or highly 
compensated employees. A plan shall not be considered dis-
criminatory within the meaning of this subparagraph merely 
because the benefits received under the plan bear a uniform 
relationship to the total compensation, or the basic or regular 
rate of compensation, of the employees covered by the plan." 
(B) CONFORMING AMENDMENTS.— 
(i) Section 503(a) (1) (as amended by section lOl(j) 
Ante, p. 527. 
(Y) of this Act) is amended by inserting after subpara-
graph (B) thereof the following new paragraph: 
Ante. p. 541. 
n(^Q-^ ^ j ^ 
Organization described in section 501(c) (18) 
shall not be exempt from taxation under section 501(a) if it 
has engaged in a prohibited transaction after December 31, 
1969." 
(ii) Section 503 (as so amended) is amended by strik-
ing out "(c) (IT)" each place it appears therein and in-
serting in lieu thereof "(c) (17) or (18)". 
ll%s^c^502^ 
(7) SPECIAL RULES FOR FEEDER ORGANIZATIONS.—Section 502 
(relating to feeder organizations) is amended to read as follows: 
"SEC. 502. FEEDER ORGANIZATIONS. 
"(a) GENERAL RULE.—An organization operated for the primary 
purpose of carrying on a trade or business for profit shall not be 
exempt from taxation under section 501 on the ground that all of its 
profits are payable to one or more organizations exempt from taxation 
under section 501. 
"(b) SPECIAL EULE.—For purposes of this section, the term "trade 
or business" shall not include— 
"(1) the deriving of rents which would be excluded under sec-
Ante, pp. 538, 
I{QYI 512(b) (3), if sectiou 512 applied to the organization, 
"(2) any trade or business in which substantially all the work 
in carrying on such trade or business is performed for the organi-
zation without compensation, or 
"(3) any trade or business which is the selling of merchandise, 
substantially all of which has been received by the organization as 
gifts or contributions." 
(c) ACTIVITIES INCLUDED AS UNRELATED TRADE OR BUSINESS,— 
68A Stat. 172. 
Scctiou 513 (relating to unrelated trade or business) is amended by 
striking out subsection (c) and inserting in lieu thereof the following 
new subsection: 
"(c) ADVERTISING, ETC., ACTIVITIES.—For purposes of this section, 
the term 'trade or business' includes any activity which is carried on 
for the production of income from the sale of goods or the performance 
of services. For purposes of the preceding sentence, an activity does 
not lose identity as a trade or business merely because it is carried on 
within a larger aggregate of similar activities or within a larger com-
plex of other endeavors which may, or may notj be related to the 
exempt purposes of the organization. Where an activity carried on for 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
543 
profit constitutes an unrelated trade or business, no part of such trade 
or business shall be excluded from such classification merely because it 
does not result in profit." 
(d) UNRELATED DEBT-FINANCED INCOME.— 
(1) I N GENERAL.—Section 514 (relating to business leases) is 
26'^us'c*5i4^^' 
amended by striking out so much thereof as precedes subsection 
(b) and inserting in lieu thereof the following: 
"SEC. 514. UNRELATED DEBT-FINANCED INCOME. 
"(a) 
L'NRELATED DEBT-FINANCED INCOME AND DEDUCTIONS.—In 
computing under section 512 the unrelated business taxable income for 53"^"'*' ^^- ^^^' 
any taxable year— 
"(1) 
PERCENTAGE OF INCOME TAKEN INTO ACCOUNT.—There 
shall be included with respect to each debt-financed property as an 
item of gross income derived from an unrelated trade or business 
an amount which is the same percentage (but not in excess of 100 
percent) of the total gross income derived during the taxable year 
from or on account of such property as (A) the average acquisi-
tion indebtedness (as defined in subsection (c) (7)) for the taxable 
year with respect to the property is of (B) the average amount 
(determined under regulations prescribed by the Secretary or his 
delegate) of the adjusted basis of such property during the period 
it is held by the organization during such taxable year. 
"(2) 
PERCENTAGE OF DEDUCTIONS TAKEN INTO ACCOUNT.—There 
shall be allowed as a deduction with respect to each debt-financed 
property an amount determined by applying (except as provided 
in the last sentence of this paragraph) the percentage derived 
under paragraph (1) to the sum determined under paragraph (3). 
The percentage derived under this paragraph shall not be applied 
with respect to the deduction of any capital loss resulting from 
the carryback or carryover of net capital losses under section 1212. 
"(3) DEDUCTIONS ALLOWABLE.—The sum referred to in para-
graph (2) is the sum of the deductions under this chapter which 
are directly connected with the debt-financed property or the 
income therefrom, except that if the debt-financed property is of 
a character which is subject to the allowance for depreciation pro-
vided in section 167, the allowance shall be computed only by use 
of the straight-line method. 
"(b) 
DEFINITION OF DEBT-FINANCED PROPERTY.— 
" (1) I N GENERAL.—For purposes of this section, the term 'debt-
financed property' means any property which is held to produce 
income and with respect to wnich there is an acquisition indebted-
ness (as defined in subsection (c)) at any time during the taxable 
year (or, if the property was disposed of during the taxable year, 
with respect to which there was an acquisition indebtedness at any 
time during the 12-month period ending with the date of such dis-
position) , except that such term does not include— 
"(A) (i) any property substantially all the use of which is 
substantially related (aside from the need of the organization 
for income or funds) to the exercise or performance by such 
organization of its charitable, educational, or other purpose 
or function constituting the basis for its exemption under sec-
tion 501 (or, in the case of an organization described in sec-
tion511(a) (2) (B),totheexerciseorperformanceof any pur-
pose or function designated in section 501 (c) (3)), or (ii) any 
property to which clause (i) does not apply, to the extent that 
its use is so substantially related; 
Post, 
pp. 638, 
639, 642. 
Post, p. 649. 
544 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
68A Stat. 170. 
26 u s e 512. 
Ante, p. 541. 
"(B) except in the case of income excluded under section 
512(b) (5), any property to the extent that the income from 
such property is taken into account in computing the gross 
income of any unrelated trade or business; 
"(C) any property to the extent that the income from such 
property is excluded by reason of the provisions of paragraph 
(7), (8), or (9) of section 512(b) m computing the gross 
income of any unrelated trade or business; or 
"(D) any property to the extent that it is used in any trade 
or business described in paragraph (1), (2), or (3) of section 
513(a). 
For purposes of subparagraph (A), substantially all the use of a 
property shall be considered to be substantially related to the 
exercise or performance by an organization of its charitable, edu-
cational, or other purpose or function constituting the basis 
for its exemption under section 501 if such property is real prop-
erty subject to a lease to a medical clinic entered into primarily for 
purposes which are substantially related (aside from the need of 
such organization for income or funds or the use it makes of the 
rents derived) to the exercise or performance by such organization 
of its charitable, educational, or other purpose or function con-
stituting the basis for its exemption under section 501. 
" (2) SPECIAL RULE FOR RELATED USES,—For purposes of applying 
paragraphs (1) (A), (C), and (D), the use of any property by 
an exempt organization which is related to an organization shall 
be treated as use by such organization. 
"(3) SPECIAL RULES WHEN LAND IS ACQUIRED FOR EXEMPT USE 
WITHIN 10 YEARS. 
"(A) NEIGHBORHOOD LAND.—If an organization acquires 
real property for the principal purpose of usin^ the land 
(commencing within 10 years of the time of acquisition) in 
the manner described in paragraph (1) (A) and at the time of 
acquisition the property is in the neignborhood of other prop-
erty owned by the organization which is used in such manner, 
the real property acquired for such future use shall not be 
treated as debt-financed property so long as the organization 
does not abandon its intent to so use the land within the 
10-year period. The preceding sentence shall not apply for any 
period after the expiration of the 10-year period, and shall 
apply after the first 5 years of the 10-year period only if the 
organization establishes to the satisfaction of the Secretary or 
his delegate that it is reasonably certain that the land will be 
used in the described manner before the expiration of the 10-
year period. 
"(B) OTHER CASES.—If the first sentence of subparagraph 
(A) is inapplicable only because— 
"(i) the acquired land is not in the neighborhood 
referred to in subparagraph (A), or 
"(ii) the organization (for the period after the first 5 
years of the 10-year period) is unable to establish to the 
satisfaction of the Secretary or his delegate that it is 
reasonably certain that the land will be used in the man-
ner described in paragraph (1) (A) before the expiration 
of the 10-year period, 
but the land is converted to such use by the organization 
within the 10-year period, the real property (subject to the 
provisions of subparagraph (D)) shall not be treated as debt-
financed property for any period before such conversion. For 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
545 
purposes of this subparagraph, land shall not be treated as 
used in the manner described in paragraph (1) (A) by reason 
of the use made of any structure which was on the land when 
acquired by the organization. 
"(C) LIMITATIONS.—Subparagraphs (A) and (B) — 
"(i) shall apply with respect to any structure on the 
land when acquired by the organization, or to the land 
occupied by the structure, only if (and so long as) the 
intended future use of the land in the manner described 
in paragraph (1) (A) requires that the structure be 
demolished or removed in order to use the land in such 
manner; 
"(ii) shall not apply to structures erected on the land 
after the acquisition of the land; and 
"(iii) shall not apply to property subject to a lease 
which is a business lease as (defined in subsection (f)). 
"(D) 
REFUND OF TAXES WHEN SUBPARAGRAPH (B) APPLIES.— 
If an organization for any taxable year has not used land in 
the manner to satisfy the actual use condition of subparagraph 
(B) before the time prescribed by law (including extensions 
thereof) for filing the return for such taxable year, the tax 
for such year shall be computed without regard to the appli-
cation of subparagraph (B), but if and when such use con-
dition is satisfied, the provisions of subparagraph (B) shall 
then be applied to such taxable year. If the actual use condi-
tion of subparagraph (B) is satisfied for anj^ taxable year 
after such time for filing the return, and if credit or refund of 
any overpayment for the taxable year resulting from the satis-
faction of such use condition is prevented at the close of the 
taxable year in which the use condition is satisfied, by the oper-
ation of any law or rule of law (other than chapter 74, relating 
26 usc^*? m-* 
to closing agreements and compromises), credit or refund of 7123. 
such overpayment may nevertheless be allowed or made if 
claim therefor is filed before the expiration of 1 year after 
the close of the taxable year in which the use condition is 
satisfied. Interest on any overpayment for a taxable year 
resulting from the application of subparagraph (B) after 
the actual use condition is satisfied shall be allowed and paid 
at the rate of 4 percent per annum in lieu of 6 percent per 
annum. 
"(E) 
SPECIAL RULE FOR CHURCHES.—In applying this para-
graph to a church or convention or association of churches, 
in lieu of the 10-year period referred to in subparagraphs (A) 
and (B) a 15-year period shall be applied, and subparagraphs 
(A) and (B) (ii) shall apply whether or not the acquired land 
meets the neighborhood test. 
((•) ACQUISITION INDEBTEDNESS.— 
"(1) GENERAL RULE.—For purposes of this section, the term 
'acquisition indebtedness' means, with respect to any debt-financed 
property, the unpaid amount of— 
"(A) the indebtedness incurred by the organization in 
acquiring or improving such property; 
"(B) the indebtedness incurred before the acquisition or 
improvement of such property if such indebtedness would not 
have been incurred but for such acquisition or improvement; 
and 
"(C) the indebtedness incurred after the acquisition or 
improvement of such property if such indebtedness would not 
have been incurred but for such acquisition or improvement 
5 ^ 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
and the incurrence of such indebtedness was reasonably fore-
seeable at the time of such acquisition or improvement, 
except that in the case of any taxable year beginning before Janu-
ary 1, 1972, any indebtedness incurred before June 28, 1966, shall 
not be taken into account. In the case of an organization (other 
than a church or convention or association of churches) such 
indebtedness incurred before June 28, 1966, shall be taken into 
account if such indebtedness constitutes business lease indebted-
ness (as defined in subsection (g)). 
"(2) PROPERTY ACQUIRED SUBJECT TO MORTGAGE, ETC.—For pur-
poses of this subsection— 
"(A) GENERAL RULE.—^Where property (no matter how 
acquired) is acquired subject to a mortgage or other similar 
lien, the amount of the indebtedness secured by such mortgage 
or lien shall be considered as an indebtedness of the organiza-
tion incurred in acquiring such property even though the 
organization did not assume or agree to pay such indebtedness. 
"(B) EXCEPTIONS.—Where property subject to a mortgage 
is acquired by an organization by bequest or devise, the indebt-
edness secured by the mortgage shall not be treated as acquisi-
tion indebtedness during a period of 10 years following the 
date of the acquisition. If an organization acquires property 
by gift subject to a mortgage which was placed on the prop-
erty more than 5 years before the gift, which property was 
held by the donor more than 5 years before the gift, the 
indebtedness secured by such mortgage shall not be treated 
as acquisition indebtedness during a period of 10 years follow-
ing the date of such gift. This subparagraph shall not apply 
if the organization, in order to acquire the equity in the 
property by bequest, devise, or gift, assumes and agrees to 
pay the indebtedness secured by the mortgage, or if the 
organization makes any payment for the equity in the prop-
erty owned by the decedent or the donor. 
"(3) Exi-ENSioN OF OBLIGATIONS.—For purposcs of this section, 
an extension, renewal, or refinancing of an obligation evidencing a 
pre-existing indebtedness shall not be treated as the creation of a 
new indebtedness. 
" (4) 
INDEBTEDNESS INCURRED IN PERFORMING EXEMPT PURPOSE.— 
For purposes of this section, the term 'acquisition indebtedness* 
does not include indebtedness the incurrence of which is inherent 
in the performance or exercise of the purpose or function consti-
tuting the basis of the organization's exemption, such as the 
indebtedness incurred by a credit union described in section 
501(c) (14) in accepting deposits from its members. 
" (5) ANNUITIES.—For purposes of this section, the term 'acqui-
sition indebtedness' does not include an obligation to pay an 
annuity which— 
''(A) is the sole consideration (other than a mortgage to 
which paragraph (2) (B) applies) issued in exchange for 
property if, at the time of the exchange, the value of the 
annuity is less than 90 percent of the value of the property 
received in the exchange, 
"(B) is payable over the life of one individual in being at 
the time the annuity is issued, or over the lives of two indi-
viduals in being at such time, and 
"(C) is payable under a contract which— 
"(i) does not guarantee a minimum amount of pay-
ments or specify a maximum amount of payments, and 
80 Stat. 4. 
26 u s e 501. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
547 
"(ii) does not provide for any adjustment of the 
amount of the annuity payments by reference to the 
income received from the transferred property or any 
other property. 
''(6) CERTAIN FEDERAL FINANCING.—For purposes of this sec-
tion, the terai 'acquisition indebtedness' does not include an 
obligation, to the extent that it is insured by the Federal Housing 
Administration, to finance the purchase, rehabilitation, or con-
struction of housing for low and moderate income persons. 
" (7) AVERAGE ACQUISITION INDEBTEDNESS.—For purposes of this 
section, the term 'average acquisition indebtedness' for any taxable 
year with respect to a debt-financed property means the average 
amount, determined under regulations prescribed by the Secretary 
or his delegate, of the acquisition indebtedness during the period 
the property is held by the organization during the taxable year, 
except that for the purpose of computing the percentage of any 
gain or loss to be taken into account on a sale or other disposition 
of debt-financed property, such term means the highest amount of 
the acquisition indebtedness with respect to such property during 
the 12-month period ending with the date of the sale or other 
disposition. 
"(d) BASIS or DEBT-FINANCED PROPERTY ACQUIRED IN CORPORATE 
LIQUIDATION.—For purposes of this subtitle, if the property was 
acquired in a complete or partial liquidation of a corporation in 
exchange for its stock, the basis of the property shall be the same as it 
would be in the hands of the transferor corporation, increased by the 
amount of gain recognized to the transferor corporation upon such 
distribution and by the amount of any gain to the organization which 
was included, on account of such distribution, in unrelated business 
taxable income under subsection (a). 
"(e) ALLOCATION RULES.—Where debt-financed property is held 
for purposes described in subsection (b)(1) (A), (B), (C),or (D) 
as well as for other purposes, proper allocation shall be made with 
respect to basis, indebtedness, and income and deductions. The alloca-
tions required by this section shall be made in accordance with regu-
lations prescribed by the Secretary or his 4elegate to the extent proper 
to carry out the purposes of this section." 
(2) RELATED AMENDMENTS.— 
(A) Section 48(a) (4) (relating to definition of section 38 
property) is amended by adding at the end thereof the fol-
lowing new sentence: "If the property is debt-financed prop-
erty (as defined in section 514(c)), the basis or cost of such 
^o®'- p- 543. 
property for purposes of computing qualified investment 
under section 46(c) shall include only that percentage of 
76 stat. 963. 
the basis or cost which is the same percentage as is used under 
section 514(b), for the year the property is placed in service, 
in computing the amount of gross income to be taken into 
account during such taxable year with respect to such 
property." 
(B) The second sentence of section 681(a) (relating to 
^^^ stat. 232. 
limitation on charitable deduction of taxable trusts) is 
amended by striking out the words "certain leases" and 
inserting in lieu thereof "certain property acquired with 
borrowed funds". 
(C) Section 1443(a) (relating to withholding of tax on 
^"'^' P 528. 
payments to foreign tax-exempt organizations) is amended by 
striking out "rents" and inserting in lieu thereof "income". 
76 Stat. 967. 
26 u s e 48. 
548 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
(3) 
TECHNICAL AND CONFORMING AMENDMENTS.— 
irusc^si'/^' 
(A) Subsections (b), (c), and (d) of section 514 (relating 
to business leases) are relettered as subsections (f), (g), and 
(h), respectively. 
(B) New subsection (f)(1) (old subsection (b) (1), relat-
ing to general rule for definition of business lease) is amended 
by striking out "subsection (c)" and inserting in lieu thereof 
"subsection (g)". 
(C) The table of sections for part I I I of subchapter F of 
68A Stat. 169; 
chapter 1 (as redesignated by section 101(a) of this Act) is 
^"'^' P- ^^^- 
amended by striking out— 
"Sec. 514. Business leases." 
and inserting in lieu thereof the following: 
"Sec. 514. Unrelated debt-financed income." 
(e) RETURNS.— 
68A Stat. 745. 
(1) I N GENERAL.—Subpart B of part I I I of subchapter A of 
chapter 61 is amended by adding at the end thereof the following 
new section: 
"SEC. 6050. RETURNS RELATING TO CERTAIN TRANSFERS TO EXEMPT 
ORGANIZATIONS. 
"(a) GENERAL RULE.—On or before the 90th day after the transfer 
of income producing property, the transferor shall make a return in 
compliance with the provisions of subsection (b) if the transferee is 
known by the transferor to be an organization referred to in section 
Ante, p. 536. 
^n 
(a) Or (b) and the property (without regard to any lien) has a 
fair market value in excess of $50,000. 
"(b) FORM AND CONTENTS OF RETURNS.—The return required by 
subsection (a) shall be in such form and shall set forth, in respect of 
the transfer, such information as the Secretary or his delegate pre-
scribes by regulations as necessary for carrying out the provisions of 
the income tax laws." 
(2) TECHNICAL AMENDMENT.—The table of sections for subpart 
B of part I I I of subchapter A of chapter 61 is amended by adding 
at the end thereof the following: 
"Sec. 6050. Returns relating to certain transfers to exempt 
organizations." 
(f) RESTRICTION ON EXAMINATION OF CHURCHES.—Section 7605 
(relating to time and place of examination) is amended by adding at 
the end thereof the following new subsection: 
"(c) RESTRICTION ON EXAMINATION OF CHURCHES.—No examina-
tion of the books of account of a church or convention or association of 
churches shall be made to determine whether such organization may 
be engaged in the carrying on of an unrelated trade or business or may 
be otherwise engaged in activities which may be subject to tax under 
part I I I of subchapter F of chapter 1 of this title (sec. 511 and follow-
mg, relating to taxation of business income of exempt organizations) 
unless the Secretary or his delegate (such officer being no lower than a 
principal internal revenue officer for an internal revenue region) 
believes that such organization may be so engaged and so notifies the 
organization in advance of the examination. No examination of the 
religious activities of such an organization shall be made except to the 
extent necessary to determine whether such organization is a church or 
a convention or association of churches, and no examination of 
the books of account of such an organization shall be made other than 
to the extent necessary to determine the amount of tax imposed by this 
title." 
83 STAT . ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
549 
(or) EFFECTIVE DATES.—The amendments made by this section 
Mother than by subsections (b) (3) and (e)) shall apply to taxable years 
Lffinning after December 31, 1969. The amendments made by subsec-
tion (b) (3) ^^^^^ apply *o taxable years beginning after December 31, 
1970 The amendments made by subsection (e) shall apply with respect 
to transfers of property after December 31,1969. Where an organiza-
tion makes a bargain purchase of property before October 9, 1969, 
which is subject to a mortgage which was placed on the property more 
than 5 y^^ 
before the purchase, and the organization paid the seller 
total amount no greater than the amount of the seller's cost (includ-
ing attorneys' fees) directly related to the transfer of such property 
to the organization (but in any event no more than 10 percent of the 
value of the seller's equity in the property), the indebtedness secured 
by such mortgage shall not be treated, notwithstanding the amend-
ments made by subsection (d) (1), as acquisition indebtedness for pur-
poses of section 514(c)(1) of the Internal Revenue Code of 1954 
during a period of 10 years following the date of the transaction. 
Ante, p. 545. 
26 use 170. 
TITLE II—INDIVIDUAL DEDUCTIONS 
Subtitle A—Charitable Contributions 
SEC. 201. CHARITABLE CONTRIBUTIONS. 
(a) LIMITATIONS AND SPECIAL K U L E S . — 
(1) I N GENERAL.—Section 170 (relating to charitable, etc., con- 
^f'^^l^^^^^^^ 
tributions and gifts) is amended— 
"" "''^ '^" 
(A) by redesignating subsections (h) and (i) as (i) and 
(j), respectively, and by redesignating subsection (d) as (h), 
and 
(B) by striking out subsections (a), (b), (c), (e), and (f) 
and inserting in lieu thereof the following: 
"(a) ALLOWANCE OF DEDUCTION.— 
"(1) GENERAL RULE.—There shall be allowed as a deduction 
any charitable contribution (as defined in subsection (c)) payment 
of which is made within the taxable year. A charitable contribu-
tion shall be allowable as a deduction only if verified under regu-
lations prescribed by the Secretary or his delegate. 
"(2) CORPORATIONS ON ACCRUAL BASIS.—In the case of a corpor-
ation reporting its taxable income on the accrual basis, if— 
"(A) the board of directors authorizes a charitable contri-
bution during any taxable year, and 
"(B) payment of such contribution is made after the close 
of such taxable year and on or before the 15th day of the 
third month following the close of such taxable year, 
then the taxpayer may elect to treat such contribution as paid 
during such taxable year. The election may be made only at the 
time of the filing of the return for such taxable year, and shall 
be signified in such manner as the Secretary or his delegate shall 
by^^regulations prescribe. 
"(3) 
FUTURE INTERESTS IN TANGIBLE PERSONAL PROPERTY.— 
For purposes of this section, payment of a charitable contribution 
which consists of a future interest in tangible personal property 
shall be treated as made only when all intervening interests in, 
and rights to the actual possession or enjoyment of, the property 
have expired or are held bv persons other than the taxpayer or 
those standing in a relationship to the taxpayer described in section 
'^•100 0 - 7 0 - 3 7 
550 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 ST^T 
68A Stat. 78. 
267(b). For purposes of the preceding sentence, a fixture A
v
h
i
c
T
i 
26 use 267. 
j^g intended to be severed from the real property shall be treatpl! 
as tangible personal property. 
"(b) 
PERCENTAGE LIMITATIONS.— 
"(1) INDIVIDUALS.—In the case of an individual, the deduction 
provided in subsection (a) shall be limited as provided in the 
succeeding subparagraphs. 
"(A) GENERAL, RULE.—Any charitable contribution t o -
"(i) a church or a convention or 
association of 
churches, 
"(ii) an educational organization which normahv 
maintains a regular faculty and curriculum and normallv 
has a regularly enrolled body of pupils or students in 
attendance at the place where its educational activities 
are re^larly carried on, 
"(iii) an organization the principal purpose or func-
tions of which are the providing of medical or hospital 
care or medical education or medical research, if the 
organization is a hospital, or if the organization is a 
medical research organization directly engaged in the 
continuous active conduct of medical research in con-
Junction with a hospital, and during the calendar year 
m which the contribution is made such organization is 
committed to spend such contributions for such research 
before January 1 of the fifth calendar year which begins 
after the date such contribution is made, 
"(iv) an organization which normally receives a sub-
stantial part of its support (exclusive of income received 
in the exercise or performance by such organization of 
its charitable, educational, or other purpose or function 
constituting the basis for its exemption under section 
501(a)) from the L'nited States or any State or political 
subdivision thereof or from direct or indirect contribu-
tions from the general public, and which is organized and 
operated exclusively to receive, hold, invest, and admin-
ister property and to make expenditures to or for the 
benefit of a college or university which is an organization 
referred to in clause (ii) of this subparagraph and which 
is an agency or instrumentality of a State or political 
subdivision thereof, or which is owned or operated by a 
State or political subdivision thereof or by an agency or 
instrumentality of one or more States or political 
subdivisions, 
"(v) a governmental unit referred to in subsection 
(c)(1), 
"(vi) an organization referred to in subsection (c) (2) 
which normally receives a substantial part of its support 
(exclusive of income received in the exercise or perform-
ance by such organization of its charitable, educational, 
or other purpose or function constituting the basis for 
its exemption under section 501(a)) from a govern-
mental unit referred to in subsection (c) (1) or from 
direct or indirect contributions from the general public, 
"(vii) a private foundation described in subpara-
graph (.E),or 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
551 
Ante, 
p. 496. 
"(viii) an organization described in section 509 (a) (2) 
or (3), 
shall be allowed to the extent that the aggregate of such con-
tributions does not exceed 50 percent of the taxpayer's con-
tribution base for the taxable year. 
"(B) OTHER CONTRIBUTIONS.—Any charitable contribution 
other than a charitable contribution to which subparagraph 
(A) applies shall be allowed to the extent that the aggregate 
of such contributions does not exceed the lesser of— 
" (i) 20 percent of the taxpayer's contribution base for 
the taxable year, or 
" (ii) the excess of 50 percent of the taxpayer's contri-
bution base for the taxable year over the amount of chari-
table contributions allowable under subparagraph (A) 
(determined without regard to subparagraph (D)). 
•'(C) 
UNLIMITED DEDUCTION FOR CERTAIN INDIVIDUALS.— 
Subject to the provisions of subsections (f) (6) and (g), the 
limitations in subparagraphs (A), (B), and (D), and the pro-
visions of subsection (e) (1) (B), shall not apply, in the case 
of an individual for a taxable year beginning before Janu-
ary 1,1975, if in such taxable year and in 8 of the 10 preceding 
taxable years, the amount of the chairitable contributions, plus 
the amount of income tax (determined without regard to 
chapter 2, relating to tax on self-employment income) paid 
^^^ ^'^*- ^^^'• 
during such year in respect of such year or preceding taxable 
26 use i4oi. 
years, exceeds the transitional deduction percentage (deter-
mined under subsection (f)(6)) of the taxpayer's taxable 
income for such year, computed without regard to— 
"(i) this section, 
"(ii) section 151 (allowance of deductions for per- ^^Post, pp. 675, 
sonal exemption), and 
"(iii) any net operating loss carryback to the taxable 
year under section 172. 
In lieu of the amount of income tax paid during any such 
year, there may be substituted for that year the amount of 
mcome tax paid in respect of such year, provided that any 
amount so included in the year in respect of which payment 
was made shall not be included in any other year. 
"(D) 
SPECIAL LIMITATION WITH RESPECT TO CONTRIBUTIONS 
O
F CERTAIN CAPITAL GAIN PROPERTY.— 
"(i) In the case of charitable contributions of capital 
gain property to which subsection (e) (1) (B) does not 
apply, the total amount of contributions of such 
property which may be taken into account under subsec-
tion (a) for any taxable year shall not exceed 30 percent 
of the taxpayer's contribution base for such year. For 
purposes of this subsection, contributions of capital gain 
property to which this paragraph applies shall be taken 
into account after all other charitable contributions. 
" (ii) If charitable contributions described in subpara-
graph (A) of capital gain property to which clause (i) 
applies exceeds 30 percent of the taxpayer's contribution 
base for any taxable year, such excess shall be treated, in 
a manner consistent with the rules of subsection (d) (1), 
as a charitable contribution of capital gain property to 
which clause (i) applies in each of the 5 succeeding tax-
able years in order of time. 
676. 
Post, p. 619. 
552 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT 
"(iii) At the election of the taxpayer (made at sucli 
time and in such manner as the Secretary or his dele^at 
prescribes hy regulations), subsection (e) (1) shall appi^ 
to all contributions of capital gain property (to whic{ 
subsection (e)(1)(B) does not otherwise apply) ^^y 
by the taxpayer during the taxable year. If such an eW 
tion is made, clauses (i) and (ii) shall not apply to con! 
tributions of capital gain property made during the 
taxable year, and, in applying subsection (d) (1) for such 
•w: r^ 5 i 
taxable year with respect to contributions of capital gain 
property made in any prior contribution year for which 
' 
an election was not made under this clause, such contri-
butions shall be reduced as if subsection (e)(1) ^^(j 
applied to such contributions in the year in which made 
"(iv) For purposes of this subparagraph, the term 
'capital gain property' means, with respect to any contri-
bution, any capital asset the sale of which at its fair 
market value at the time of the contribution would have 
resulted in gain which would have been long-term capital 
gain. For purposes of the preceding sentence, any prop-
erty which is property used in the trade or business (as 
^?^^?*f*-325. 
defined in section 1231(b)) shall be treated as a capital 
asset. 
"(E) CERTAIN PRIVATE FOUNDATIONS,—Tlie private founda-
tions referred to in subparagraph (A) (vii) and subsection 
(e)(1)(B) a r e -
" (i) a private operatmg foundation (as defined in sec-
Anfa, p. 502. 
tion 4942(j) (3)), 
"(ii) any other private foundation (as defined in sec-
Ante, p. 496. 
tiou 509(a)) wliicli, not later than the 15th day of the 
third month after the close of the foundation's taxable 
year in which contributions are received, makes qualify-
ing distributions (as defined in section 4942(g), without 
regard to paragraph (3) thereof), which are treated, 
after the application of section 4942(g) (3), as distribu-
tions out of corpus (in accordance with section 4942(h)) 
in an amount equal to 100 percent of such contributions, 
and with respect to which the taxpayer obtains adequate 
records or other sufficient evidence from the foundation 
showing that the foundation made such qualifying dis-
tributions, and 
"(iii) a private foundation all of the contributions to 
which are pooled in a common fund and which would be 
described in section 509(a) (3) but for the right of any 
substantial contributor (hereafter in this clause called 
'donor') or his spouse to designate annually the recipients, 
from among organizations described in paragraph (1) of 
section 509(a), of the income attributable to the donor's 
contribution to the fund and to direct (by deed or by will) 
the payment, to an organization described in such para-
graph (1), of the corpus in the common fund attributable 
to the donor's contribution; but this clause shall ai)ply 
:'j ' 
only if all of the income of the common fund is required 
to be (and is) distributed to one or more organizations 
described in such paragraph (1) not later than the 15tn 
day of the third month after the close of the taxable year 
in which the income is realized by the fund and only ii 
83 STAT ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
553 
all of the corpus attributable to any donor's contribu-
tion to the fund is required to be (and is) distributed to 
one or more of such organizations not later than one year 
After his death or after the death of his surviving spouse 
if she has the right to designate the recipients of such 
corpus. 
"(F) CONTRIBUTION BASE DEFINED.—For purposes of this 
section, the term 'contribution base' means adjusted gross 
income (computed without regard to unj net operating loss 
carryback to the taxable year under section 172). 
^^A stat. 63; 
"(2) CORPORATIONS.—In the case of a corporation, the total ^^26*usc V7'2. 
deductions under subsection (a) for any taxable year shall not 
exceed 5 percent of the taxpayer's taxable income computed with-
outregardto— 
"(A) this section, 
"(B) part V I I I (except section 248), 
^e use 241-248. 
"(C) any net operating loss carryback to the taxable year 
under section 172, 
"(D) section 922 (special deduction for Western Hemi- 
68A stat. 291. 
sphere trade corporations), and 
"(E) any capital loss carryback to the taxable year under 
section 1212(a) (1). 
^°«'» p- eas. 
"(c) CHARITABLE CONTRIBUTION DEFINED.—For purposes of this 
section, the term 'charitable contribution' means a contribution or gift 
to or for the use of— 
" (1) A State, a possession of the United States, or any political 
subdivision of any of the foregoing, or the United States or the 
District of Columbia, but only if the contribution or gift is made 
for exclusively public purposes. 
" (2) A corporation, trust, or community chest, fund, or founda-
tion— 
"(A) created or organized in the United States or in any 
possession thereof, or under the law of the United States, any 
* 
State, the District of Columbia, or any possession of the 
United States; 
"(B) organized and operated exclusively for religious, 
charitable, scientific, literary, or educational purposes or for 
the prevention of cruelty to children or animals; 
"(C) no part of the net earnings of which inures to the 
benefit of any private shareholder or individual; and 
" (D) no substantial part of the activities of which is carry-
ing on propaganda, or otherwise attempting, to influence 
legislation, and which does not participate in, or intervene 
in (including the publishing or distributing of statements), 
any political campaign on behalf of any candidate for public 
office. 
A contribution or gift by a corporation to a trust, chest, fund, or 
foundation shall be deductible by reason of this paragraph only 
if it is to be used within the United States or any of its possessions 
exclusively for purposes specified in subparagraph (B). 
''(3) A post or organization of war veterans, or an auxiliary 
unit or society of, or trust or foundation for, any such post or 
organization— 
"(A) organized in the United States or any of its posses-
sions, and 
"(B) no part of the net earnings of which inures to the 
benefit of any private shareholder or individual. 
554 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 STAT 
"(4) In the case of a contribution or ^ift by an individual 
domestic fraternal society, order, or association, operating unjer 
the lodge system, but only if such contribution or gift is to be 
used exclusively for religious, charitable, scientific, literary or 
educational purposes, or for the prevention of cruelty to children 
or animals. 
"(5) A cemetery company ov^^ned and operated exclusively fop 
the benefit of its members, or any corporation chartered solely 
for burial purposes as a cemetery corporation and not permitted 
' 
by its charter to engage in any business not necessarily incident 
. 
to that purpose, if such company or corporation is not operated 
for profit and no part of the net earnings of such company or 
corporation inures to the benefit of any private shareholder or 
individual. 
For purposes of this section, the term 'charitable contribution' also 
means an amount treated under subsection (h) as paid for the use 
of an organization described in paragraph (2), (3), or (4). 
"(d) 
CARRYOVERS OF EXCESS CONTRIBUTIONS.— 
"(1) 
INDIVIDUALS.— 
"(A) I N GENERAL.—In the case of an individual, if the 
amount of charitable contributions described in subsection 
(b)(1)(A) payment of which is made within a taxable year 
(hereinafter in this paragraph referred to as the 'contribution 
year') exceeds 50 percent (30 percent, in the case of a contribu-
tion year beginning before January 1,1970) of the taxpayer's 
contribution base for such year, such excess shall be treated as 
a charitable contribution described in subsection (b) (1) (A) 
paid in each of the 5 succeeding taxable years in order of time, 
but, with respect to any such succeeding taxable year, only 
to the extent of the lesser of the two following amounts: 
" (i) the amount by which 50 percent of the taxpayer's 
contribution base for such succeeding taxable year exceeds 
the sum of the charitable contributions described in sub-
section (b)(1)(A) payment of which is made by the 
taxpayer within such succeeding taxable year (deter-
mined without regard to this subparagraph) and the 
charitable contributions described in subsection (b) (1) 
(A) payment of which was made in taxable years before 
the contribution year w^hich are treated under this sub-
paragraph as having been paid in such succeeding taxable 
year; or 
"(ii) in the case of the first succeeding taxable year, 
the amount of such excess, and in the case of the second, 
third, fourth, or fifth succeeding taxable year, the portion 
of such excess not treated under this subparagraph as a 
charitable contribution described in subsection (b)(1) 
(A) paid in any taxable year intervening between the 
contribution year and such succeeding taxable year. 
"(B) 
SPECIAL RULE FOR NET OPERATING LOSS CARRYOVERS.— 
In applying subparagraph (A), the excess determined under 
subparagraph (A) for the contribution year shall be reduced 
to the extent that such excess reduces taxable income (as 
computed for purposes of the second sentence of section 172 
26 use f?*!.' 
' 
(b) (2)) and increases the net operating loss deduction for a 
taxable year succeeding the contribution year. 
"(2) 
CORPORATIONS.— 
"(A) I N GENERAL.—Any contribution made by a corpora-
tion in a taxable year (hereinafter in this paragraph referred 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
555 
to as the 'contribution year') in excess of the amount deduct-
ible for such year under subsection (b) (2) shall be deductible 
for each of the 5 succeeding taxable years in order of time, 
but only to the extent of the lesser of the two following 
amounts: (i) the excess of the maximum amount deductible 
for such succeeding taxable year under subsection (b) (2) 
over the sum of the contributions made in such year plus the 
aggregate of the excess contributions which were made in tax-
able years before the contribution year and which are deducti-
ble under this subparagraph for such succeeding taxable year; 
or (ii) in the case of the first succeeding taxable year, the 
amount of such excess contribution, and in the case of the 
second, third, fourth, or fifth succeeding taxable year, the 
portion of such excess contribution not deductible under this 
subparagraph for any taxable year intervening between the 
contribution year and such succeeding taxable year. 
"(B) SPECIAL RULE FOR NET OPERATING LOSS CARRYOVERS.— 
For purposes of subparagraph (A), the excess of— 
"(i) the contributions made by a corporation in a tax-
able year to which this section applies, over 
"(ii) the amount deductible m such year under the 
limitation in subsection (b) (2), 
shall be reduced to the extent that such excess reduces taxable 
income (as computed for purposes of the second sentence of 
section 172(b) (2)) and increases a net operating loss carry- 
76 stat. 889. 
over under section 172 to a succeeding taxable year. 
"(e) CERTAIN CONTRIBUTIONS or ORDINARY INCOME AND CAPITAL 
GAIN PROPERTY.— 
"(1) GENERAL RULE.—The amount of any charitable contribu-
tion of property otherwise taken into account under this section 
shall be reduced by the sum of— 
"(A) the amount of gain which would not have been long-
term capital gain if the property contributed had been sold by 
the taxpayer at its fair market value (determined at the time 
of such contribution), and 
"(B) in the case of a charitable contribution— 
"(i) of tangible personal property, if the use by the 
donee is unrelated to the purpose or function constituting 
the basis for its exemption under section 501 (or, in the 
case of a governmental unit, to any purpose or function 
. described m subsection (c)), or 
"(ii) to or for the use of a private foundation (as 
defined in section 509(a)), other than a private founda- 
^"<«' P- '*96-
tion described in subsection (b)(1)(E), 
50 percent (621/^ percent, in the case of a corporation) of the 
amount of gain which would have been long-term capital gain 
if the property contributed had been sold by the taxpayer at 
its fair market value (determined at the time of such con-
tribution) . 
For purposes of applying this paragraph (other than in the case 
of gain to which section 617 (d)(1), 1245 (a), 1250 (a), 1251 (c), or 
|>° f.^^-p^'sVi. 
1252(a) applies), property which is property used in the trade 552. see, 572. 
or business (as defined in section 1231(b)) shall be treated as a 
^^^ ^*^'- 2"-
capital asset. 
"(2) ALLOCATION OF BASIS.—For purposes of paragraph (1), 
in the case of a charitable contribution of less than the taxpayer's 
entire interest in the property contributed, the taxpayer's adjusted 
556 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 3^^ 
basis in such property shall be allocated between the interest con 
tributed and any interest not contributed in accordance with reoi' 
lations prescribed by the Secretary or his delegate. 
^ " 
"(f) 
DISALLOWANCE OF DEDUCTION IN CERTAIN CASES AND SPECUT 
RULES.— 
"(1) I N GENERAL.—No deduction shall be allowed under this 
section for a contribution to or for the use of an organization or 
Ante, pp. 494, 
(;pyst described in section 508(d) or 4948(c)(4) subject to the 
***• 
i T'; conditions specified in such sections. 
/ : 
"(2) 
CONTRIBUTIONS OF PROPERTY PLACED IN TRUST.— 
M: 
"(A) REMAINDER INTEREST.—In the case of property trans-
' = ' 
ferred in trust, no deduction shall be allowed under this sec-
' 
tion for the value of a contribution of a remainder interest 
' 
unless the trust is a charitable remainder annuity trust or a 
Post. p. 562. 
charitable remainder unitrust (described in section 664) or a 
Post, p. 558, 
pooled income fund (described in section 642(c) (5)). 
"(B) INCOME 
INTERESTS, ETC.—No deduction shall be 
allowed under this section for the value of any interest in 
property (other than a remainder interest) transferred in 
trust unless the interest is in the form of a guaranteed annuity 
or the trust instrument specifies that the interest is a fixed 
percentage distributed yearly of the fair market value of the 
trust property (to be determined yearly) and the grantor is 
treated as the owner of such interest for purposes of applying 
^8A Stat. 2
^
2
6
. 
sectiou 671. If the donor ceases to be treated as the owner of 
such an interest for purposes of applying section 671, at the 
time the donor ceases to be so treated, the donor shall for pur-
poses of this chapter be considered as having received an 
amount of income equal to the amount of any deduction he 
received under this section for the contribution reduced by the 
discounted value of all amounts of income earned by the trust 
and taxable to him before the time at which he ceases to be 
treated as the owner of the interest. Such amounts of income 
shall be discounted to the date of the contribution. The Secre-
tary or his delegate shall prescribe such regulations as may be 
necessary to carry out the purposes of this subparagraph. 
"(C) 
DENIAL OF DEDUCTION IN CASE OF PAYMENTS BY CER-
TAIN TRUSTS.—In any case in which a deduction is allowed 
under this section for the value of an interest in property 
described in subparagraph (B), transferred in trust, no de-
duction shall be allowed under this section to the grantor or 
any other person for the amount of any contribution made by 
the trust with respect to such interest. 
"(D) EXCEPTION.—This paragraph shall not apply in a 
case in which the value of all interests in property transferred 
in trust are deductible under subsection (a). 
"(3) 
DENIAL OF DEDUCTION IN CASE OF CERTAIN CONTRIBUTIONS 
OF PARTIAL INTERESTS IN PROPERTY. 
"(A) I N GENERAL.—Inthecaseof a contribution (notmade 
b j a transfer in trust) of an interest in property which con-
sists of less than the taxpayer's entire interest in such prop-
,V 
, 
^^Jf ^ deduction shall be allowed under this section only to 
' 
»'• 
the extent that the value of the interest contributed would W 
allowable as a deduction under this section if such interest 
had been transferred in trust. For purposes of this subpara-
graph, a contribution by a taxpayer of the right to use proP' 
erty shall be treated as a contribution of less than the 
taxpayer's entire interest in such property. 
83 STAT. ] 
PUBLIC LAW 9M72~DEC. 30, 1969 
557 
"(B) EXCEPTIONS.—Subparagraph (A) shall not apply to 
a contribution of— 
"(i) a remainder interest in a personal residence or 
farm, or 
"(ii) an undivided portion of the taxpayer's entire 
interest in property. 
'(4) 
VALUATION OF REMAINDER INTEREST IN REAL PROPERTY.— 
For purposes of this section, in determining the value of a 
remainder interest in real property, depreciation (computed on 
. . . 
the straight line method) and depletion of such property shall be 
^' 
taken into account, and such value shall be discounted at a rate of 
6 percent per annum, except that the Secretary or his delegate may 
prescribe a different rate. 
"(5) KEDUCTION FOR CERTAIN INTEREST.—If, in connection with 
, 
any charitable contribution, a liability is assumed by the recipient 
or by any other person, or if a charitable contribution is of prop-
erty which is subject to a liability, then, to the extent necessary to 
avoid the duplication of amounts, the amount taken into account 
for purposes of this section as the amount of the charitable 
contribution— 
" (A) shall be reduced for interest (i) which has been paid 
(or is to be paid) by the taxpayer, (ii) which is attributable to 
the liability, and (iii) which is attributable to any period after 
the making of the contribution, and 
"(B) in the case of a bond, shall be further reduced for 
interest (i) which has been paid (or is to be paid) by the tax-
payer on indebtedness incurred or continued to purchase or 
carry such bond, and (ii) which is attributable to any period 
before the making of the contribution. 
The reduction pursuant to subparagraph (B) shall not exceed the 
interest (including interest equivalent) on the bond which is 
attributable to any period before the making of the contribution 
and which is not (under the taxpayer's method of accounting) 
includible in the gross income of the taxpayer for any taxable year. 
For purposes of this paragraph, the term 'bond' means any bond, 
debenture, note, or certificate or other evidence of indebtedness. 
" (6) PARTIAL REDUCTION OF UNLIMITED DEDUCTION.— 
" (A) I N GENERAL.—If the limitations in subsections (b) (1) 
(A) and (B) do not apply because of the application of sub-
section (b)(1)(C), the amount otherwise allowable as a 
deduction under subsection (a) shall be reduced by the amount 
by which the taxpayer's taxable income computed without 
regard to this subparagraph is less than the transitional 
income percentage (determined under subparagraph (C)) of 
the taxpayer's adjusted gross income. However, in no case 
shall a taxpayer's deduction under this section be reduced 
below the amount allowable as a deduction under this section 
without the applicability of subsection (b)(1)(C). 
"(B) TRANSITIONAL DEDUCTION PERCENTAGE.—For purposes 
of applying subsection (b)(1)(C), the term 'transitional 
deduction percentage'means— 
" (i) in the case of a taxable year beginning before 1970, 
90 percent, and 
"(ii) in the case of a taxable year beginning in— 
1970 
80 percent 
197lII_I_I__IIIII_II 
74 percent 
1972lI_I"I_I"I_Z_I_I 
68 percent 
1973~~~"I"__I~ 
62 percent 
1974~2~ IIZ~II_I 
56 percent. 
558 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"(C) TRANSITIONAL INCOME PERCENTAGE.—For purposes of 
applying subparagraph (A), the term 'transitional income 
percentage' means, in the case of a taxable year beginning in-_ 
1970 
20 percent 
1971 
26 percent 
1972 
32 perceS 
197d 
38 percent 
1974 
44 percent." 
' 
' 
(2) 
CONFORMING AMENDMENTS.— 
II use tyo 
(^) Section iTO(g) (relating to application of unlimited 
charitable deduction^ is amended by striking out "subsection 
(b) (5)" each place it appears and inserting in lieu thereof 
"subsection (d)(1)", and by striking subparagraph (B) of 
paragraph (2). 
72 Stat. 1631. 
(B) Section 545(b)(2) (relating to adjustments to per-
sonal holding company taxable income) and section 556 
68A Stat. 197. 
Q^-^ ^2) (relating to adjustments to foreign personal holdino' 
company taxable income) are each amended— 
(i) by striking out "section 170(b) (1) (A) and (B)'' 
in the first sentence and inserting in lieu thereof "section 
170(b)(1) ( A ) , ( B ) , a n d ( D ) " ; 
(ii) by striking out "section 170(b) (2) and (5)" in 
the first sentence and inserting in lieu thereof "section 
170(b)(2) and (d)(1)"; 
(iii) by striking out "'adjusted gross income'" in 
the second sentence and inserting in lieu thereof " 'con-
tribution base'"; and 
(iv) by striking out "the first sentence of section 170 
(b) (2) and (5)" in the second sentence and inserting in 
lieu thereof "section 170(b) (2) and (d) (1)". 
7^ ^'^'' ^21- 
(C) Section 809 (e) (3) (relating to modifications of deduc-
tionsfor life insurance companies) is amended— 
(i) by striking out "the first sentence o f in subpara-
graph ( A ) ; a n d 
(ii) by striking out "section 170(b)(3)" in subpara-
graph (B) and inserting in lieu thereof "section 170 
(d)(2)(B)". 
(b) 
CHARITABLE CONTRIBUTIONS BY ESTATES AND TRUSTS.—Sub-
68A Stat. 216. 
sectlon (c) of section 642 (relating to deduction for amounts paid or 
permanently set aside for a charitable purpose) is amended to read as 
follows: 
"(c) 
DEDUCTION FOR AMOUNTS PAID OR PERMANENTLY SET ASIDE 
FOR A CHARITABLE PURPOSE.— 
"(1) GENERAL RULE.—In the case of an estate or trust (other 
then a trust meeting the specifications of subpart B), there shall be 
allowed as a deduction in computing its taxable income (in heu 
Ante, p. 549. 
^f ^l^^ dcductlon allowed by section 170(a), relating to deduction 
for charitable, etc., contributions and gifts) any amount of the 
gross income, without limitation, which pursuant to the terms of 
;, 
the governing instrument is, during the taxable year, paid for a 
purpose specified in section 170(c) (determined without regard 
- 
to section 170(c)(2)(A)). If a charitable contribution is paw 
after the close of such taxable year and on or before the last day 
of the year following the close of such taxable year, then the 
trustee or administrator may elect to treat such contribution as 
paid during such taxable year. The election shall be made at such 
time and in such manner as the Secretary or his delegate pre-
scribes by regulations. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1%9 
559 
«(2) AMOUNTS PERMANENTLY SET ASIDE.—In the case of an 
estate, and in the case of a trust (other than a trust meeting the 
specifications of subpart B) required by the terms of its gov-
erning instrument to set aside amounts which was— 
" (A) created on or before October 9,1969, if— 
"(i) an irrevocable remainder interest is transferred 
to or for the use of an organization described in section 
170(c),or 
Anfe, p. 553. 
"(ii) the grantor is at all times after October 9, 1969, 
under a mental disability to change the terms of the 
trust; or 
"(B) established by a will executed on or before October 9, 
1969, if— 
"(i) the testator dies before October 9, 1972, without 
having republished the will after October 9, 1969, by 
codicil or otherwise, 
"(ii) the testator at no time after October 9,1969, had 
the right to change the portions of the will which pertain 
to the trust, or 
" (iii) the will is not republished by codicil or otherwise 
before October 9, 1972, and the testator is on such date 
and at all times thereafter under a mental disability to 
republish the will by codicil or otherwise, 
there shall also be allowed as a deduction in computing its tax-
able income any amount of the gross income, without limitation, 
which pursuant to the terms of the governing instrument is, dur-
ing the taxable year, permanently set aside for a purpose specified 
in section 170(c), or is to be used exclusively for religious, chari-
table, scientific, literary, or educational purposes, or for the pre-
vention of cruelty to children or animals, or for the establishment, 
acquisition, maintenance, or operation of a public cemetery not 
operated for profit. In the case of a trust, the preceding sentence 
shall apply only to gross income earned with respect to amounts 
transferred to the trust before October 9, 1969, or transferred 
under a will to which subparagraph (B) applies. 
"(3) POOLED INCOME FUNDS.—In the case of a pooled income 
fund (as defined in paragraph (5)), there shall also be allowed as 
a deduction in computing its taxable income any amount of the 
gross income attributable to gain from the sale of a capital asset 
held for more than 6 months, without limitation, which pursuant 
to the terms of the governing instrument is, during the taxable 
year, permanently set aside for a purpose specified in section 
170(c). 
"(4) ADJUSTMENTS.—To the extent that the amount otherwise 
allowable as a deduction under this subsection consists of gain 
from the sale or exchange of capital assets held for more than 6 
months, proper adjustment shall be made for any deduction allow-
able to the estate or trust under section 1202 (relating to deduction 
26^s*c\'202°' 
for excess of capital gains over capital losses). In the case of a 
trust, the deduction allowed by this subsection shall be subject to 
section 681 (relating to unrelated business income). 
52^"'^' ^^* ^'*^' 
"(5) 
DEFINITION OF POOLED INCX)ME FUND.—^For purposes of 
paragraph (3), a pooled income fund is a trust— 
" (A) to which each donor transfers property, contributing 
an irrevocable remainder interest in such property to or for 
,,. „ 
. 
the use of an organization described in section 170(b) (1) (A) 
(other than in clauses (vii) or (viii)), and retaining an in-
come interest for the life of one or more beneficiaries (living 
at the time of such transfer), 
560 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"(B) in which the property transferred by each donor is 
commingled with property transferred by other donors who 
have made or make similar transfers, 
"(C) which cannot have investments in securities which 
are exempt from the taxes imposed by this subtitle, 
" (D) which includes only amounts received from transfers 
which meet the requirements of this paragraph, 
• ^ >
•
' '- 
"(E) which is maintained by the organization to which 
H;MM J:* the remainder interest is contributed and of which no donor 
, f * 
or beneficiary of an income interest is a trustee, and 
"(F) from which each beneficiary of an income interest 
receives income, for each year for which he is entitled to re-
ceive the income interest referred to in subparagraph (A) 
determined by the rate of return earned by the trust for such 
year. 
For purposes of determining the amount of any charitable con-
tribution allowable by reason of a transfer of property to a pooled 
fund, the value of the income interest shall be determined on the 
basis of the highest rate of return earned by the fund for any of 
the 3 taxable years immediately preceding the taxable year of the 
fund in which the transfer is made. In the case of funds in exist-
ence less than 3 taxable years preceding the taxable year of the 
fund in which a transfer is made, the rate of return shall be 
deemed to be 6 percent per annum, except that the Secretary or 
his delegate may prescribe a different rate of return. 
"(6) TAXABLE PRPVATE FOUNDATIONS.—In the case of a private 
foundation which is not exempt from taxation under section 
501 (a) for the taxable year, the provisions of this subsection shall 
Re'e'a?* ^'*^' 
^^^ ^PP^J ^^^ ^hc provlslous of section 170 shall apply." 
68A Stat. 227, 
(c) TWO-YEAR CHARITABLE TRUSTS.—Sectiou 673(b) (relating to 
trusts where the income is payable to a charitable beneficiary for at 
least a two-year period) is repealed. 
(d) 
DISALLOWANCE OF ESTATE AND GIFT TAX DEDUCTIONS IN CER-
TAIN CASES.— 
(1) ESTATES OF CITIZENS OR RESIDENTS.—Subsection (e) of sec-
tion 2055 (relating to disallowance of charitable deductions in 
certain cases) is amended to read as follows: 
"(e) 
DISALLOWANCE OF DEDUCTIONS IN CERTAIN CASES.— 
"(1) No deduction shall be allowed under this section for a 
transfer to or for the use of an organization or trust described 
^^Ante, pp. 494, 
i^ scctiou 508 (d) Or 4948(c) (4) subject to the conditions specified 
in such sections. 
"(2) Where an interest in property (other than a remainder 
interest in a personal residence or farm or an undivided portion 
of the decedent's entire interest in property) passes or has passed 
from the decedent to a person, or for a use, described in subsection 
(a), and an interest (other than an interest which is extinguished 
upon the decedent's death) in the same property passes or has 
passed (for less than an adequate and full consideration in money 
or money's worth) from the decedent to a person, or for a use, not 
• 4 
' 
described in subsection (a), no deduction shall be allowed under 
j^: 
this section for the interest which passes or has passed to the 
person, or for the use, described in subsection (a) unless— 
. . 
" (A) in the case of a remainder interest, such interest is in 
a trust which is a charitable remainder annuity trust or a 
charitable remainder unitrust (described in section 664) or a 
pooled income fund (described in section 642(c) (5)), or 
68A Stat. 391. 
26 u s e 2055. 
Post, 
p. 562. 
Ante, p. 558. 
STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
561 
8
3 
68A Stat. 398. 
26 u s e 2106. 
Ante, pp. 494, 
518. 
(B) in the case of any other interest, such interest is in the 
form of a guaranteed annuity or is a fixed percentage dis-
tributed yearly of the fair market value of the property (to 
be determined yearly)." 
(2) ESTATES OF NONRESIDENTS NOT CITIZENS.—Subparagraph 
(E) of section 2106(a) (2) (relating to disallowance of deductions 
in certain cases) is amended to read as follows: 
"(E) 
DISALLOWANCE OF DEDUCTIONS IN CERTAIN CASES.— 
The provisions of section 2055 (e) shall be- applied in the deter- 
'^"'^' ^- ^^° 
mination of the amount allowable as a deduction under this 
paragraph." 
(3) GIFT TAX.—Subsection (c) of section 2522 (relating to 
disallowance of charitable deductions in certain cases) is amended 
to read as follows: 
"(c) 
DISALLOWANCE OF DEDUCTIONS IN CERTAIN CASES.— 
" (1) No deduction shall be allowed under this section for a gift 
to of for the use of an organization or trust described in section 
508(d) or 4948 (c) (4) subject to the conditions specified in such 
sections. 
"(2) Where a donor transfers an interest in property (other 
than a remainder interest in a personal residence or farm or an 
undivided portion of the donor's entire interest in property) to 
a person, or for a use, described in subsection (a) or (b) and an 
interest in the same property is retained by the donor, or is trans-
ferred or has been transferred (for less than an adequate and full 
consideration in money or money's worth) from the donor to a 
person, or for a use, not described in subsection (a) or (b), no 
deduction shall be allowed under this section for the interest 
which is, or has been transferred to the person, or for the use, 
described in subsection (a) or (b), unless— 
" (A) in the case of a remainder interest, such interest is in a 
trust which is a charitable remainder annuity trust or a chari-
table remainder unitrust (described in section 664) or a pooled 
income fund (described in section 642(c) (5)), or 
"(B) in the case of any other interest, such interest is in the 
form of a guaranteed annuity or is a fixed percentage dis-
tributed yearly of the fair market value of the property (to 
be determined yearly)." 
(4) P O L I T I C A L ACTIVITIES.— 
(A) Section 2055(a) (relating to transfers for public, 
SSA stat. 390 
charitable, and religious uses) is amended— 
(i) by striking out "and" before "no substantial part" 
in paragraph (2), and by inserting before the semicolon 
at the end of such paragraph ", and which does not par-
ticipate in, or intervene in (including the publishing or 
distributing of statements), any political campaign on 
behalf of any candidate for public office"; and 
(ii) by striking out "and" before "no substantial part" 
in paragraph (3), and by inserting before the semicolon 
at the end of such paragraph ", and such trustee or trust-
ees, or such fraternal society, order, or association, does 
not participate in, or intervene in (including the pub-
lishing or distributing of statements), any political cam-
paign on behalf of any candidate for public office". 
(B) Section 2106(a) (2) (relating to transfers for public, 
charitable, and religious uses) is amended— 
Post, p. 562. 
Ante, p. 558. 
562 
PUBLIC LAW 91-172-DEC. 30, 1%9 
[33 STAT. 
(i) by striking out "and" before "no substantial part" 
in subparagraph (A)(ii), and by inserting before the 
semicolon at the end of such subparagraph ", and which 
does not participate in, or intervene in (including the 
publishing or distributing of statements), any political 
campaign on behalf of any candidate for public office"-
and 
' 
, , 
(ii) by striking out "and" before "no substantial part" 
' ' 
' ! 
in subparagraph (A) (iii), and by inserting before the 
semicolon at the end of such subparagraph ", and such 
trustee or trustees, or such fraternal society, order or 
association, does not participate in, or intervene in 
(including the publishing or distributing of statements) 
any political campaign on behalf of any candidate for 
public office". 
2rufc'25l.2°' 
(C) Section 2522(a) (relating to charitable and similar 
gifts of citizens or residents) is amended by striking out 
"and" before "no substantial part" in paragraph (2), andbv 
inserting before the semicolon at the end of such paragraph 
", and which does not participate in, or intervene in (includ-
ing the publishing or distributing of statements), any politi-
cal campaign on behalf of any candidate for public office". 
(D) Section 2522(b) (relating to charitable and similar 
gifts of nonresidents) is amended— 
(i) by striking out "and" before "no substantial part" 
in paragraph (2), and by inserting before the semicolon 
at the end of such paragraph ", and which does not par-
ticipate in, or intervene in (including the publishing or 
distributing of statements), any political campaign on 
behalf of any candidate for public office"; and 
(ii) by inserting after "legislation" in paragraph (3) 
", and which does not participate in, or intervene in 
(including the publishing or distributing of statements), 
any political campaign on behalf of any candidate for 
public office", 
(e) 
CHARITABLE REMAINDER TRUSTS.— 
(1) Subpart C of part I of subchapter J of chapter 1 (relating 
to estates and trusts which may accumulate income or which dis-
tribute corpus) is amended by adding at the end thereof the fol-
lowing new section: 
"SEC. 664. CHARITABLE REMAINDER TRUSTS. 
"(a) GENERAL RULE.—Notwithstanding any other provision of this 
subchapter, the provisions of this section shall, in accordance with 
regulations prescribed by the Secretary or his delegate, apply in the 
case of a charitable remainder annuity trust and a charitable remainder 
unitrust. 
"(b) CHARACTER OF DISTRIBUTIONS.—Amounts distributed by a 
charitable remainder annuity trust or by a charitable remainder uni-
trust shall be considered as having the following characteristics in 
the hands of a beneficiary to whom is paid the annuity described m 
subsection (d)(1)(A) or the payment described in subsection (d) 
( 2 ) ( A ) : 
' " 
" 
' 
"(1) First, as amounts of income (other than ^ams, ana 
amounts treated as gains, from the sale or other disposition of cap-
ital assets) includible in gross income to the extent of such income 
of the trust for the year and such undistributed income of the 
trust for prior years; 
68A Stat. 220 
26 u s e 661. 
83 S
T
A
T
. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
563 
" (2) Second, as a capital gain to the extent of the capital gain of 
the trust for the year and the undistributed capital gain of the 
trust for prior years; 
«(3) Third, as other income to the extent of such income of the 
trust for the year and such undistributed income of the trust for 
prior years; and 
" (4) Fourth, as a distribution of trust corpus. 
For purposes of this section, the trust shall determine the amount of 
its undistributed capital gain on a cumulative net basis. 
"(c) EXEMPTION FROM INCOME TAXES.—A charitable remainder 
annuity trust and a charitable remainder unitrust shall, for any taxable 
year, not be subject to any tax imposed by this subtitle, unless such 
trust, for such year, has unrelated business taxable income (within the 
meaning of section 512, determined as if part I I I of subchapter F 
^"'e, pp. 537, 
applied to such trust). 
" s , 492. 
"(d) 
DEFINITIONS.— 
"(1) CHARITABLE REMAINDER ANNUITY TRUST.—For purposes 
of this section, a charitable remainder annuity trust is a trust— 
"(A) from which a sum certain (which is not less than 5 
percent of the initial net fair market value of all property 
placed in trust) is to be paid, not less often than annually, to 
one or more persons (at least one of which is not an organiza-
tion described in section 170 (c) and, in the case of individuals, 
^"'^' P- ^53. 
only to an individual who is living at the time of the creation 
of the trust) for a term of years (not in excess of 20 years) 
or for the life or lives of such individual or individuals, 
"(B) from which no amount other than the payments de-
scribed in subparagraph (A) may be paid to or for the use of 
any person other than an organization described in section 
170(c), and 
"(C) following the termination of the payments described 
in subparagraph (A), the remainder interest in the trust is to 
l)e transferred to, or for the use of, an organization described 
in section 170 (c) or is to be retained by the trust for such a use. 
"(2) CHARITABLE REMAINDER UNITRUST.—For purposes of this 
section, a charitable remainder unitrust is a trust— 
" (A) from which a fixed percentage (which is not less than 
5 percent) of the net fair market value of its assets, valued 
annually, is to be paid, not less often than annually, to one or 
more persons (at least one of which is not an organization de-
scribed in section 170(c) and, in the case of individuals, only 
to an individual who is living at the time of the creation of 
the trust) for a term of years (not in excess of 20 years) or for 
the life or lives of such individual or individuals, 
"(B) from which no amount other than the payments de-
scribed in subparagraph (A) may be paid to or for the use of 
any person other than an organization described in section 
170(c), and 
"(C) following the termination of the payments described 
in subparagraph (A), the remainder interest in the trust is to 
be transferred to, or for the use of, an organization described 
in section 170 (c) or is to be retained by the trust for such a use. 
"(3) EXCEPTION.—NotAvithstanding the provisions of para-
graphs (2) (A) and (B), the trust instrument may provide that 
the trustee sliall pay the income beneficiary for any year— 
" (A) the amount of the trust income, if such amount is less 
than the amount required to be distributed under paragraph 
(2) (A), and 
564 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 s^^^ 
"(B) any amount of the trust income which is in excess of 
the amount required to be distributed under paragraph (2\ 
(A), to the extent that (by reason of subparagraph (A)) the 
aggregate of the amounts paid in prior years was less than the 
aggregate of such required amounts. 
"(e) 
VALUATION FOR PURPOSES or CHARITABLE CONTRIBUTIGN.—.p^j. 
purposes of determining the amount of any charitable contribution the 
remainder interest of a charitable remainder annuity trust or cliari-
table remainder unitrust shall be computed on the basis that an 
amount equal to 5 percent of the net fair market v-alue of its assets (or 
a greater amount, if required under the terms of the trust instrument) 
is to be distributed each year." 
(2) The table of sections for subpart C of part I of subchapter 
J of chapter 1 (relating to estates and trusts which may accumu-
late income or which distribute corpus) is amended by adding at 
the end thereof: 
"Sec. 664. Charitable remainder trusts." 
68A Stat. 296. 
^£^ 
B A R G A I N S A L E S TO C H A R I T A B L E ORGANIZATIONS. 
SectioU 1011 
(relating to adjusted basis for determining gain or loss) is amended— 
(1) by striking out "The" at the beginning and inserting in lieu 
thereof: 
" (a) GENERAL KULE.—The", and 
(2) by adding at the end thereof the following new subsection: 
"(b) BARGAIN SALE TO A CHARITABLE ORGANIZATION.—If a deduc-
Ante, p. 549. 
^JQJ^ jg allowable under section lYO (relating to charitable contribu-
tions) by reason of a sale, then the adjusted basis for determining 
the gain from such sale shall be that portion of the adjusted basis 
which bears the same ratio to the adjusted basis as the amount realized 
bears to the fair market value of the property." 
(g) EFFECTIVE DATES.— 
(1) (A) Except as provided in subparagraphs (B) and (C),the 
amendments made by subsection (a) shall apply to taxable years 
beginning after December 31,1969. 
(B) Subsections (e) and (f) (1) of section ITO of the Internal 
Revenue Code of 1954 (as amended by subsection (a)) shall apply 
to contributions paid after December 31, 1969, except that, with 
respect to a letter or memorandum or similar property described 
in section 1221 (3) of such Code (as amended by section 514 of this 
Act), such subsection (e) shall apply to contributions paid after 
July 25,1969. 
(C) Paragraphs (2), (3), and (4) of section 170(f) of such 
Code (as amended by subsection (a)) shall apply to transfers in 
trust and contributions made after July 31, 1969. 
(D) For purposes of applying section 170(d) of such Code 
(as amended by subsection (a)) with respect to contributions paid 
in a taxable year beginning before January 1, 1970, subsection 
(b)(1)(D), subsection (e), and paragraphs (1), (2), (3), and 
(4) of subsection (f) of section 170 of such Code shall not apply-
(2) The amendments made by subsection (b) shall apply with 
respect to amounts paid, permanently set aside, or to be used for 
a charitable purpose in taxable years beginning after December 
31, 1969, except that section 642(c) (5) of the Internal Revenue 
Code of 1954 (as added by subsection (b)) shall apply to transfers 
in trust made after July 31,1969. 
, 
(3) The amendment made by subsection (c) shall apply *
^ 
transfers in trust made after April 22, 1969. 
Post, p. 643. 
Ante, p. 558. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
565 
(4) (A) Except as provided in subparagraphs (B) and (C), the 
amendments made by paragraphs (1) and (2) of subsection (d) 
shall apply in the case of decedents dying after December 31,1969. 
(B) ouch amendments shall not apply in the case of property 
passing under the terms of a will executed on or before October 9, 
1969— 
(i) if the decedent dies before October 9, 1972, without 
having republished the will after October 9,1969, by codicil or 
otherwise, 
(ii) if the decedent at no time after October 9, 1969, had 
the right to change the portions of the will which pertain to 
the passing of the property to, or for the use of, an organiza-
tion described in section 2055 (a), or 
^^te, p. se i. 
(iii) if the will is not republished by codicil or otherwise 
before October 9, 1972, and the decedent is on such date and 
at all times thereafter under a mental disability to republish 
the will by codicil or otherwise. 
(C) Such amendments shall not apply in the case of property 
transferred in trust on or before October 9,1969— 
(i) if the decedent dies before October 9, 1972, without 
having amended after October 9,1969, the instrument govern-
ing the disposition of the property, 
(ii) if the property transferred was an irrevocable interest 
to, or for the use of, an organization described in section 
2055 (a) J or 
(iii) if the instrument governing the disposition of the 
property was not amended by the decedent before October 9, 
1972, and the decedent is on such date and at all times there-
after under a mental disability to change the disposition of 
theproperty. 
(D) The amendment made by paragraph (3) of subsection (d) 
shall apply to gifts made after December 31,1969, except that the 
amendments made to section 2522(c) (2) of the Internal Revenue 
Code of 1954 shall apply to gifts made after July 31,1969. 
(E) The amendments made by paragraph (4) of subsection (d) 
shall apply to gifts and transfers made after December 31,1969. 
(5) The amendment made by subsection (e) shall apply to 
transfers in trust made after July 31,1969. 
(6) The amendments made by subsection (f) shall apply with 
respect to sales made after December 19,1969. 
(h) ELIGIBILITY FOR UNLIMITED CHARITABLE DEDUCTION.— 
(1) Section 170(b)(1)(C) (relating to unlimited charitable 
deduction for certain individuals), as amended by subsection (a) 
of this section, is amended by adding at the end thereof the follow-
ing new sentence: "In the case of a separate return for the taxable 
year by a married individual who previously filed a joint return 
with a former deceased spouse for any of the 10 preceding ta,xable 
years, the amount of charitable contributions and taxes paid for 
any such preceding taxable year, for which a joint return was filed 
with the former deceased spouse, shall be determined in the same 
manner as if the taxpayer had not remarried after the death of 
such former spouse." 
(2) The amendment made by this subsection shall apply to 
taxable years beginning after December 31,1968. 
Ante, 
p . 5 6 1 . 
Ante, 
p . 5 4 9 , 
31-100 O - 70- 38 
68A Stat. 325. 
26 use 1231. 
72 Stat. 1650. 
26 u s e 1371. 
566 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 STAT 
Subtitle B—Farm Losses, Etc. 
SEC. 211. GAIN FROM DISPOSITION OF PROPERTY USED IN FARMlNr 
WHERE FARM LOSSES OFFSET NONFARM INCOME. 
(a) I N GENERAL.—Part IV of subchapter P of chapter 1 (relatingto 
special rules for determining capital gains and losses) is amended bv 
adding at the end thereof the following new section: 
"SEC. 1251. GAIN FROM DISPOSITION OF PROPERTY USED IN FARMING 
WHERE FARM LOSSES OFFSET NONFARM INCOME. 
" (a) CIRCUMSTANCES UNDER W H I C H SECTION APPLIES.—This section 
shall apply with respect to any taxable year only if— 
" (1) there is a farm net loss for the taxable year, or 
" (2) there is a balance in the excess deductions account as of the 
close of the taxable year after applying subsection (b) (3) (A). 
"(b) EXCESS DEDUCTIONS ACCOUNT.— 
" (1) REQUIREMENT.—Each taxpayer subject to this section shall 
for purposes of this section, establish and maintain an excess 
deductions account. 
" (2) ADDITIONS TO ACCOUNT.— 
"(A) GENERAL RULE.—There shall be added to the excess 
deductions account for each taxable year an amount equal to 
the farm net loss. 
"(B) EXCEPTIONS.—In the case of an individual (other 
than a trust) and, except as provided in this subparagraph, 
in the case of an electing small business corporation (as 
defined in section 1371(b)), subparagraph (A) shall apply 
for a taxable year— 
"(i) only if the taxpayers nonfarm adjusted gross 
income for such year exceeds $50,000, and 
" (ii) only to the extent the taxpayer's farm net loss for 
such year exceeds $25,000. 
This subparagraph shall not apply to an electing small busi-
ness corporation for a taxable year if on any day of such year 
a shareholder of such corporation is an individual who, for 
his taxable year with which or within which the taxable year 
of the corporation ends, has a farm net loss. 
"(C) MARRIED INDIVIDUALS.—In the case of a husband or 
wife who files a separate return, the amount specified in sub-
paragraph (B) (i) shall be $25,000 in lieu of $50,000, and in 
subparagraph (B) (ii) shall be $12,500 in lieu of $25,000. This 
subparagraph shall not apply if the spouse of the taxpayer 
does not have any nonfarm adjusted gross income for the tax-
able year. 
"(D) NONFARM ADJUSTED GROSS INCOME.—For purposes of 
this section, the term 'nonfarm adjusted gross income' means 
adjusted gross income (taxable income, in the case of an elect-
ing small business corporation) computed without regard to 
income or deductions attributable to the business of farming. 
"(3) SUBTRACTIONS FROM ACCOUNT.—If there is any amount m 
the excess deductions account at the close of any taxable year 
(determined before any amount is subtracted under this para-
graph for such year) there shall be subtracted from the accountr--
"(A) an amount equal to the farm net income for such 
year, plus the amount (determined as provided in regulations 
prescribed by the Secretary or his delegate) necessary to 
adjust the account for deductions which aid not result in a 
reduction of the taxpayer's tax under this subtitle for the 
taxable year or any preceding taxable year, and 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
567 
"(B) after applying paragraph (2) or subparagraph (A) 
of this paragraph (as the case may be), an amount equal to 
the sum of the amounts treated, solely by reason of the appli-
cation of subsection (c), as gain from the sale or exchange of 
property which is neither a capital asset nor property 
described in section 1231. 
esA stat. 325. 
"(4) 
EXCEPTION FOR TAXPAYERS USING 
CERTAIN ACCOUNTING 
26 use 1231. 
METHODS.— 
"(A) GENERAL, RULE.—Except to the extent that the tax-
payer has succeeded to an excess deductions account as pro-
vided in paragraph (5), additions to the excess deductions 
account shall not be required by a taxpayer who elects to com-
pute taxable income from farming (i) by using inventories, 
and (ii) by charging to capital account all expenditures paid 
or incurred which are properly chargeable to capital account 
(including such expenditures which the taxpayer may, under 
this chapter or regulations prescribed thereunder, otherwise 
treat or elect to treat as expenditures which are not chargeable 
to capital account). 
"(B) TIME, MANNER, AND EFFECT or ELECTION.—^An elec-
tion under subparagraph (A) for any taxable year shall be 
filed within the time prescribed by law (including extensions 
thereof) for filing the return for such taxable year, and shall 
be made and filed in such manner as the Secretary or his dele-
gate shall prescribe by regulations. Such election shall be 
binding on the taxpayer for such taxable year and for all 
subsequent taxable years and may not be revoked except with 
the consent of the Secretary or his delegate. 
"(C) CHANGE or METHOD or ACCOUNTING, ETC.—If, in order 
to comply with the election made under subparagraph (A), a 
taxpayer changes his method of accounting in computing 
taxable income from the business of farming, such change 
shall be treated as having been made with the consent of 
the Secretary or his delegate and for purposes of section 
481(a) (2) shall be treated as a change not initiated by the 
72 stat. 1626. 
taxpayer. 
''(5) 
TRANSFER OF ACCOUNT.— 
"(A) CERTAIN CORPORATE TRANSACTIONS.—In the case of 
a transfer described in subsection (d) (3) to which section 
371 (a), 374 (a), or 381 applies, the acquiring corporation shall 
68A stat. 121, 
succeed to and take into account as of the close of the day of i^^jro stat. 402. 
distribution or transfer, the excess deductions account of the 
transferor. 
"(B) 
CERTAIN GIFTS.—^If— 
"(i) farm recapture property is disposed of by gift, 
and 
"(ii) the potential gain (as defined in subsection (e) 
(5)) on farm recapture property disposed of by gift 
during any one-year period in which any such gift occurs 
is more than 25 percent of the potential gain on farm 
recapture property held by the donor immediately prior 
to the first of such gifts, 
each donee of the property shall succeed (at the time the first of 
such gifts is made, but in an amount determined as of the close of 
the donor's taxable year in which the first of such gifts is made) 
to the same proportion of the donor's excess deductions account 
(determined, after the application of paragraphs (2) and (3) 
Post, pp. 675, 
676. 
26 u s e 1231. 
568 
PUBLIC LAW 91-172-DEC. 30, 1%9 
[33 STAT 
with respect to the donor, as of the close of such taxable year) as 
the potential gain on the property received by such donee beai^j 
to the aggregate potential gain on farm recapture property held 
by the donor immediately prior to the first of such gifts. 
"(6) JOINT RETURN.—In the case of an addition to an excess 
deductions account for a taxable year for which a joint return was 
filed under section 6013, for any subsequent taxable year for which 
a separate return was filed the Secretary or his delegate shall 
provide rules for allocating any remaining amount of such addi-
tion in a manner consistent with the purposes of this section. 
"(c) 
ORDINARY INCOME.— 
"(1) GENERAL RULE.—Except as otherwise provided in this 
section, if farm recapture property (as defined in subsection 
(e)(1)) is disposed of during a taxable year beginning after 
December 31,1969, the amount by which— 
" (A) in the case of a sale, exchange, or involuntary con-
version, the amount realized, or 
"(B) in the case of any other disposition, the fair market 
value of such property, 
exceeds the adjusted basis of such property shall be treated as gain 
from the sale or exchange of property which is neither a capital 
68A Stat. 325. 
assct uor property described in section 1231. Such gain shall be 
o^ T
T
c
r
^ 10,, 
recognized notwithstanding any other provision of this subtitle. 
"(2) 
LIMITATION.— 
"(A) 
AMOUNT 
IN 
EXCESS 
DEDUCTIONS 
ACCOUNT.—The 
aggregate of the amounts treated under paragraph (1) as 
gain from the sale or exchange of property which is neither 
a capital asset nor property described in section 1231 for any 
taxable year shall not exceed the amount in the excess deduc-
tions account at the close of the taxable year after applying 
subsection (b) (3) (A). 
"(B) 
DISPOSITIONS TAKEN INTO ACCOUNT.—^If the aggregate 
of the amounts to which paragraph (1) applies is limited by 
the application of subparagraph (A), paragraph (1) shall 
apply in respect of such dispositions (and in such amounts) as 
provided under regulations prescribed by the Secretary or his 
delegate. 
"(C) SPECIAL RULE FOR DISPOSITIONS OF LAND.—In apply-
ing subparagraph (A), any gain on the sale or exchange of 
land shall be taken into account only to the extent of its 
potential gain (as defined in subsection (e)(5)). 
" (d) 
EXCEPTIONS AND SPECIAL RULES.— 
" (1) GIFTS.—Subsection (c) shall not apply to a disposition by 
gift. 
"(2) TRANSFER AT DEATH.—Except as provided in section 691 
(relating to income in respect of a decedent), subsection (c) shall 
not apply to a transfer at death. 
"(3) CERTAIN CORPORATE TRANSACTIONS.—If the basis of prop-
erty in the hands of a transferee is determined by reference to 
its basis in the hands of the transferor by reason of the application 
of sections 332, 351, 361, 371(a), or 374(a), then the amount of 
gain taken into account by the transferor under subsection (c) (1) 
shall not exceed the amount of gain recognized to the transferor 
on the transfer of such property (determined without regard to 
this section). This paragraph shall not apply to a disposition to 
an organization (other than a cooperative described in section 
68A Stat. 176. 
5^1) whlch Is excmpt from the tax imposed by this chapter. 
68A Stat. 102-
121; 70 Stat. 402. 
63 STAT.1 
PUBLIC LAW 91-172-DEC. 30, 1969 
569 
"(4) LiBa: KIND EXCHANGES; INVOLUNTARY CONVERSION, ETC.— 
If property is disposed of and gain (determined without regard 
to this section) is not recognized in whole or in part under section 
1031 or 1033, then the amount of gain taken into account by the 
transferor under subsection (c) (1) shall not exceed the sum of— 
"(A) the amount of gain recognized on such disposition 
(determined without regard to this section), plus 
"(B) the fair market value of property acquired with 
respect to which no gain is recognized under subparagraph 
(A), but which is not farm recapture property. 
"(5) 
PARTNERSHIPS.— 
" (A) I N GENERAL.—In the case of a partnership, each part-
ner shall take into account separately his distributive share 
of the partnership's farm net losses, gains from dispositions of 
farm recapture property, and other items in applying this 
section to the partner. 
"(B) TRANSFERS TO PARTNERSHIPS.—If farm recapture 
property is contributed to a partnership and gain (determined 
without regard to this section) is not recognized under section 
721, then the amount of gain taken into account by the trans-
feror under subsection (c) (1) shall not exceed the excess of 
the fair market value of farm recapture property transferred 
over the fair market value of the partnership interest attrib-
utable to such property. If the partnership agreement provides 
for an allocation of gain to the contributing partner with 
respect to farm recapture property contributed to the partner-
ship (as provided in section 704(c)(2)), the partnership 
interest of the contributing partner shall be deemed to be 
attributable to such property. 
"(6) 
PROPERTY TRANSFERRED TO CONTROLLED CORPORATIONS.— 
Except for transactions described in subsection (b) (5) (A), in the 
case of a transfer, described in paragraph (3), of farm recapture 
property to a corporation, stock or securities received by a trans-
feror in the exchange shall be farm recapture property to the 
extent attributable to the fair market value of farm recapture 
property (or, in the case of land, if less, the adjusted basis plus the 
potential gain (as defined in subsection (e) (5)) on farm recapture 
property) contributed to the corporation by such transferor. 
" (e) DEFINITIONS.—For purposes of this section— 
"(1) FARM RECAPTURE PROPERTY.—The term 'farm recapture 
property' means— 
"(A) any property (other than section 1250 property) 
described in paragraph (1) (relating to business property 
held for more than 6 months), (3) (relating to livestock), 
or (4) (relating to an unharvested crop) of section 1231(b) 
which is or has been used in the trade or business of farming 
by the taxpayer or by a transferor in a transaction described 
in subsection (b) (5), and 
"(B) any property the basis of which in the hands of the 
taxpayer is determined with reference to the adjusted basis 
of property which was farm recapture property in the hands 
of the taxpayer within the meaning of subparagraph (A). 
"(2) FARM NET LOSS.—The term 'farm net loss' means the 
amount by which— 
"(A) the deductions allowed or allowable by this chapter 
which are directly connected wnth the carrying on of the 
trade or business of farming, exceed 
68A Stat. 302. 
26 use 1031, 
1033. 
26 use 721. 
26 u s e 704. 
570 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
" (B) the gross income derived from such trade or business 
Gains and losses on the disposition of farm recapture propertv 
Post, p. 646. 
referred to in section 1231(a) (determined without regard to th^ 
Post, p. 571. 
section or section 1245(a)) shall not be taken into account. 
"(3) FARM NET INCOME.—The term 'farm net income' means 
the amount by which the amount referred to in paragraph (2) (B\ 
exceeds the amount referred to in paragraph (2) (A). 
it 
" (4) TRADE OR BUSINESS OF FARMING.— 
;f 
"(A) HORSE RACING.—In the case of a taxj)ayer engaged 
in the raising of horses, the term 'trade or business of farm-
ing' includes the racing of horses. 
"(B) SEVERAL BUSINESSES OF FARMING.—If a taxpayer is 
engaged in more than one trade or business of farming all 
such trades and businesses shall be treated as one trade or 
business. 
"(5) POTENTIAL GAIN.—The term 'potential gain' means an 
amount equal to the excess of the fair market value of property 
over its adjusted basis, but limited in the case of land to the extent 
of the deductions allowable in respect to such land under sections 
ll%l^c\7V' 
^"^^ (relating to soil and water conservation expenditures) and 
76 Stat. 1063. 
182 (relating to expenditures by farmers for clearing land) for 
the taxable year and the 4 preceding taxable years." 
(b) CONFORMING AMENDMENTS.— 
(1) Section 301(b) (1) (B) (ii) (relating to corporate distri-
butions of property) is amended by striking out "or 1250(a)" and 
inserting in lieu thereof "1250(a), 1251(c), or 1252(a)". 
(2) Section 301(d) (2) (B) (relating to the basis of property 
distributed by a corporation) is amended by striking out "or 
1250(a)" and inserting in lieu thereof "1250(a), 1251(c), or 
1252(a)". 
(3) Section 312(c) (3) (relating to adjustment to corporate 
earnings and profits) is amended by striking out "or 1250 (a)" and 
inserting in lieu thereof "1250 (a) ,1251 (c), or 1252 (a)". 
(4) Section 341(e) (12) (relating to nonapplication of section 
1245(a) with respect to collapsible corporations) is amended by 
striking out "and 1250(a)" and inserting in lieu thereof "1250(a), 
1251(c), and 1252(a)". 
(5) Section 453(d) (4) (B) (relating to distribution of install-
ment obligations under certain liquidations) is amended by strik-
ing out "or 1250(a)" and inserting in lieu thereof "1250(a), 1251 
(c), or 1252(a)". 
(6) Section 751(c) (relating to unrealized receivables in part-
nership transactions) is amended by striking out "and section 1250 
property (as defined in section 1250(c))" and inserting in lieu 
thereof "section 1250 property (as defined in section 1250(c)), 
farm recapture property (as defined in section 1251(e) (1))? ^^^ 
farm land (as defined in section 1252(a))"; and by striking out 
"1250(a)" and inserting in lieu thereof "1250(a), 1251(c), or 
1252(a)". 
(7) The table of sections for part IV of subchapter P of chapter 
1 is amended by adding at the end thereof the following: 
"Sec. 1251. Gain from disposition of property used in farming where 
' 
farm losses offset nonfarm income." 
(c) EFFECTIVE DATES.—The amendments made by this section shall 
apply to taxable years beginning after December 31, 1969. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
571 
SEC. 212. LIVESTOCK. 
(a) DEPRECIATIOX RECAPTURE.— 
(1) GENERAL RULE.—Section 1245(a)(2) (relating to recom- 
76 stat. 1032. 
puted basis with respect to gain from disposition of certain 
Je'usc'u^s 
depreciable property) is amended by striking out "or" at the end 
of subparagraph (A), and by inserting immediately after sub-
paragraph (B) the following: 
"(C) with respect to livestock, its adjusted basis recom-
puted by adding thereto all adjustments attributable to 
periods after December 31, 1969, or". 
(2) CONFORMING AMEXDMEXT.—Section 1245(a) (3) (relating 
to section 1245 property) is amended by striking out " (other than 
livestock)". 
(3) EFFECTIVE DATE.—The amendments made by paragraphs 
(1) and (2) shall apply with respect to taxable years begmning 
after December 31,1969. 
(b) LIVESTOCK USED I N TRADE OR BUSINESS.— 
(1) AMENDMENT OF SECTION 1231.—Section 1231(b) (3) (relat- 
68A stat. 325. 
ing to property used in a trade or business) is amended to read 
as follows: 
" (3) LIVESTOCK.—Such term includes— 
"(A) cattle and horses, regardless of age, held by the tax-
payer for draft, breeding, dairy, or sporting purposes, and 
held by him for 24 months or more from the date of acquisi-
tion, and 
"(B) other livestock, regardless of age, held by the tax-
payer for draft, breeding, dairy, or sporting purposes, and 
held by him for 12 months or more from the date of 
acquisiti(m. 
Such term does not include poultry." 
(2) EFFPX'TIVE DATE.-—llie amendments made by paragraph 
(1) shall apply to livestock acquired after December 31,1969. 
(c) EXCHANGES OF LIVESTOCK OF DIFFERENT SEXES.— 
(1) NOT TO BE TREATED AS LIKE KIND EXCHANGES.—Section 1031 
26^sc?*io3°i^" 
(relating to exchange of property held for productive use or for 
investment) is amended by adding at the end thereof the follow-
ing new subsection: 
"(e) EXCHANGES OF LIVESTOCK OF DIFFERENT SEXES.—For purposes 
of this section, livestock of different sexes are not property of a like 
kind." 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply to taxable years to which the Internal Revenue Code 
of 1954 applies. 
SEC. 213. DEDUCTIONS ATTRIBUTABLE TO ACTIVITIES NOT ENGAGED 
IN FOR PROFIT. 
. (a) GENERAL RULE.—Part VI of subchapter B of chapter 1 (relat-
ing to itemized deductions for individuals and corporations) is 
amended by adding at the end thereof the following new section: 
"SEC. 183. ACTIVITIES NOT ENGAGED IN FOR PROFIT. 
. "(a) GENERAL RULE.—In the case of an activity engaged in by an 
individual or an electing small business corporation (as defined in 
section 1371 (b)), if such activity is not engaged in for profit, no deduc-
tion attributable to such activity shall be allowed under this chapter 
^^f^^Pt as provided in this section. 
(b) DEDUCTIONS ALLOWABLE.—In the case of an activity not 
engaged in for profit to which subsection (a) applies, there shall 
be allowed— 
26 u s e 161-
182. 
572 
PUBLIC LAW 91-172-DEC. 30, 1%9 
[83STAT 
"(1) the deductions whicli would be allowable under this 
chapter for the taxable year without regard to whether or not 
such activity is engaged in for profit, and 
"(2) a deduction equal to the amount of the deductions which 
would be allowable under this chapter for the taxable year only 
if such activity were engaged in for profit, but only to the extent 
that the gross income derived from such activity for the taxable 
year exceeds the deductions allowable by reason of paragraph (1). 
"(c) 
ACTIVITY NOT ENGAGED IN FOR PROFIT DEFINED.—For pm-i 
poses of this section, the term 'activity not engaged in for profit' 
means any activity other than one with respect to which deductions 
Post, p. 710. 
are allowable for the taxable year under section 162 or under para-
68A Stat. 69. 
^^aph (1) or (2) of section 212. 
"(d) PRESUMPTION.—If the gross income derived from an activity 
for 2 or more of the taxable years in the period of 5 consecutive taxable 
years which ends with the taxable year exceeds the deductions attrib-
utable to such activity (determined without regard to whether or not 
such activity is engaged in for profit), then, unless the Secretary or 
his delegate establishes to the contrary, such activity shall be pre-
sumed for purposes of this chapter for such taxable year to be an 
activity engaged in for profit. In the case of an activity which con-
sists in major part of the breeding, training, showing, or racing of 
horses, the preceding sentence shall be applied by substituting the 
period of 7 consecutive taxable years for the period of 5 consecutive 
taxable years." 
K^p^ai- 
(b) TECHNICAL AMENDMENT.—Section 270 (relating to limitation 
on deductions allowable to certain individuals) is repealed. 
(c) CLERICAL AMENDMENTS.— 
(1) 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. 183. Activities not engaged in for profit" 
(2) The table of sections for part I X of subchapter B of chap-
ter 1 is amended by striking out the item relating to section 270. 
(3) Section 6504 (relating to cross references) is amended by 
striking out the item relating to section 270. 
(d) EFFECTIA'F: DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31, 1969. 
SEC. 214. GAIN FROM DISPOSITION OF FARM LAND. 
(a) I N GENERAL.—Part IV of subchapter P of chapter 1 (relating 
to special rules for determining capital gains and losses) is amended 
Ante, p. 566. 
by adding after section 1251 (added by section 211 of this Act) the 
following new section: 
"SEC. 1252. GAIN FROM DISPOSITION OF FARM LAND. 
"(a) 
GENERAL RULE.— 
"(1) ORDINARY INCOME.—Except as otherwise provided in this 
section, if farm land which the taxpayer has held for less than 10 
years is disposed of during a taxable year beginning after Decem-
ber 31,1969, the lower of— 
1 
"(A) the applicable percentage of the aggregate of the 
26^?c*i7y.' 
mttm 
deductions allowed under sections 175 (relating to soil and 
76 Stat. 1063. 
' 
watcr couservation expenditures) 
and 182 (relating to 
expenditures by farmers for clearing land) for expenditures 
made by the taxpayer after December 31,1969, with respect to 
the farm land or 
ia, ., 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
573 
Ante, p. 571. 
"(B) the excess of— 
"(i) the amount realized (in the case of a sale, 
exchange, or involuntary conversion), or the fair market 
value of the farm land (in the case of any other 
disposition), over 
" (ii) the adjusted basis of such land, 
shall be treated as gain from the sale or exchange of property 
which is neither a capital asset nor property described in sec-
tion 1231. Such gain shall be recognized notwithstanding anv 
^^A stat. 325. 
other provision of this subtitle, except that this section shall 
^^ ^^^ ^^^^' 
not apply to the extent section 1251 applies to such gain. 
^"'e, p. see. 
"(2) FARMLAND.—For purposes of this section, the term'farm 
land' means any land with respect to which deductions have been 
allowed under sections 175 (relating to soil and water conservation 
expenditures) or 182 (relating to expenditures by farmers for 
'^ ^*^*- ^o^^. 
clearing land). 
"(3) APPLICABLE PERCENTAGE.—For purposes of this section— 
The applicable 
"If the farm land is disposed of— 
^ 
percentage is— 
Within 5 years after the date it was acquired 
100 percent. 
Within the sixth year after it w^as acquired 
80 percent. 
Within the seventh year after it was acquired 
60 percent. 
Within the eighth year after it was acquired 
40 percent. 
Within the ninth year after it was acquired 
20 percent. 
10 years or more years after it was acquired 
0 percent. 
"(b) SPECIAL RULES.—Under regulations prescribed by the Secre-
tary or his delegate, rules similar to the rules of section 1245 shall be 
applied for purposes of this section." 
(b) CLERICAL AMENDMENT.—The table of sections for part IV of 
subchapter P of chapter 1 is amended by adding at the end thereof the 
following: 
"Sec. 1252. Gain from the disposition of farm land." 
(c) EEFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31,1969. 
SEC. 
2
1
5
. 
CROP 
INSURANCE 
PROCEEDS. 
(a) YEAR IN W H I C H INCLUDED IN INCOME.—Section 451 (relating 79^|fat?382^^^' 
to general rule for taxable year of inclusion) is amended by adding at 
the end thereof the following new subsection: 
"(d) SPECIAL RULE FOR CROP INSURANCE PROCEEDS,—In the case 
of insurance proceeds received as a result of destruction or damage to 
crops, a taxpayer reporting on the cash receipts and disbursements 
method of accounting may elect to include such proceeds in income for 
the taxable year following the taxable year of destruction or damage, 
if he establishes that, under his practice, income from such crops 
would have been reported in a following taxable year. An election 
under this subsection for any taxable year shall be made at such time 
and in such manner as the Secretary or his delegate prescribes." 
(b) EEFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to taxable years ending after the date of the enactment of 
this Act. 
SEC. 216. CAPITALIZATION OF COSTS OF PLANTING AND DEVELOPING 
CITRUS GROVES. 
(a) REQUIREMENT OF CAPITALIZATION.—Part I X of subchapter B 
of chapter 1 (relating to items not deductible) is amended by adding 
after section 277 (added by section 121 (b) (3) of this Act) the follow- 
^^e. p. 540. 
ing new section: 
574 
PUBLIC L
A
W 91-172-DEC. 30, 1969 
[83 STAT. 
"SEC. 278. CAPITAL EXPENDITURES INCURRED IN PLANTING AXD np 
VELOPING CITRUS GROVES. 
"*-
"(a) GbrNERAL RULE,—Except as provided in subsection (b) anv 
amount (allowable as a deduction without regard to this section) 
which is attributable to the planting, cultivation, maintenance or 
development of any citrus grove (or part thereof), and which is 
incurred before the close of the fourth taxable year beginning with the 
taxable year in which the trees were planted, shall be charged to capital 
account. For purposes of the preceding sentence, the portion of a citrus 
grove planted in one taxable year shall be treated separately from the 
, 
H 
portion of such grove planted in another taxable year. 
"(b) EXCEPTIONS.—Subsection (a) shall not apply to amounts allow-
able as deductions (without regard to this section), and attributable to 
a citrus grove (or part thereof) which was: 
"(1) replanted after having been lost or damaged (while in the 
hands of the taxpayer), by reason of freeze, disease, drought, pests 
or casualty, or 
" (2) planted or replanted j)rior to the enactment of this section." 
(b) CLERICAL AMENDMENT.—The table of sections for such part IX 
is amended by adding at the end thereof the following new item: 
"Sec. 278. Capital expenditures incurred in planting and developing 
citrus groves." 
(c) Eri^CTiVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31, 1969. 
Subtitle C—Interest 
SEC. 221. INTEREST. 
(a) LIMITATION ON INTEREST DEDUCTION ATTRIBUTABLE TO INVEST-
68A Stat. 46; 
]\iENT INDEBTEDNESS.—Scctiou 163 (relating to interest) is amended 
26 usc'i63. 
by redesignating subsection (d) as (e), and by inserting after subsec-
tion (c) the following new subsection: 
"(d) 
LIMITATION ON INTEREST ON INVESTMENT INDEBTEDNESS.— 
" (1) I N GENERAL.—In the case of a taxpayer other than a corpo-
ration, the amount of investment interest (as defined in para-
graph (3) (D)) otherwise allowable as a deduction under this 
chapter shall be limited, in the following order, to— 
"(A) $25,000 ($12,500, in the case of a separate return by 
a married individual), plus 
"(B) the amount of the net investment income (as defined 
in paragraph (3) (A)), plus 
"(C) an amount equal to the amount by which the net 
long-term capital gain exceeds the net short-term capital 
loss for the taxable year, plus 
"(D) one-half of the amount by which investment interest 
exceeds the sum of the amounts described in subparagraphs 
( A ) , ( B ) , a n d ( C ) . 
. 
In the case of a trust, the $25,000 amount specified in subpara-
graph (A) and in paragraph (2) (A) shall be zero. In deter-
mining the amount described in subparagraph (C), only gains 
and losses attributable to the disposition of property held for 
investment shall be taken into account. 
" ( 2 ) 
CARRYOVER OF DISALLOWED INVESTMENT INTEREST.— 
"(A) I N GENERAL.—The amouut of disallowed investment 
interest for any taxable year shall be treated as investment 
interest paid or accrued in the succeeding taxable year. The 
amount of the interest so treated which is allowable as a 
83 STAT. 1 
PUBLIC LAW 91-172-DEC. 30, 1969 
575 
deduction by reason of the first sentence of this paragraph 
for any taxable year shall not exceed one-half of the amount 
by which— 
"(i) the net investment income for such taxable year 
plus $25,000, exceeds 
"(ii) the investment interest paid or accrued during 
such taxable year (determined without regard to this 
paragraph) or $25,000, whichever is greater. 
" ( B ) 
REDUCTIOlSr FOR CAPITAL GAIN DEDUCTION. 
If— 
"(i) an amount of disallowed investment interest 
treated under subparagraph (A) as investment interest 
paid or accrued in the taxable year is not allowable as a 
deduction for such taxable year by reason of the second 
sentence of subparagraph (A), and 
"(ii) the taxpayer is entitled to a deduction under 
section 1202 for such taxable year (whether or not the 
68A stat. 320. 
taxpayer claims such deduction), the amount of such 
^e use 1202, 
disallowed investment interest shall be reduced by an 
amount equal to the amount of the deduction allowable 
under section 1202. 
"(3) DEFINITIONS.—For purposes of this subsection— 
" (A) NET INVESTMENT INCOME.—The term 'net investment 
income' means the excess of investment income over invest-
ment expenses. 
"
^ 
" ( ^ ) INVESTMENT INCOME.—The term'investment income' 
means— 
"(i) the gross income from interest, dividends, rents, 
and royalties, 
" (ii) the net short-term capital gain attributable to the 
disposition of property held for investment, and 
"(iii) any amount treated under sections 1245 and 
76 stat. 1032. 
1250 as gain from the sale or exchange of property which 
Post. p. 6S2. 
is neither a capital asset nor property described in section 
1231, 
68A Stat. 325. 
but only to the extent such income, gain, and amounts are not 
derived from the conduct of a trade or business. 
"(C) INVESTMENT EXPENSES.—The term 'investment ex-
penses' means the deductions allowable under sections 164 (a) 
(1) or (2), 166, 167, 171, 212, or 611 directly connected with ^J^ 1,'^^-^^I^QJ 
the production of investment income. For purposes of this sub-
paragraph, the deduction allowable under section 167 with 
Post, pp. 625, 
respect to any property may be treated as the amount which 
would have been allowable had the taxpayer depreciated the 
property under the straight line method for each taxable year 
of its useful life for which the taxpayer has held the property, 
and the deduction allowable under section 611 with respect to 
any property may be treated as the amount which would have 
been allowable had the taxpayer determined the deduction 
under section 611 without regard to section 613 for each tax- _^°^^' PP- ^29, 
able year for which the taxpayer has held the property. 
" (D) INVESTMENT INTEREST.—The term 'investment inter-
est' means interest paid or accrued on indebtedness incurred or 
continued to purchase or carry property held for investment. 
"(E) DISALLOWED IN%TESTMENT INTEREST.—The term 'dis-
allowed investment interest' means with respect to any taxable 
year, the amount not allowable as a deduction solely by reason 
of the limitations in paragraphs (1) and (2) (A). 
649. 
630. 
576 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 3^.^^ 
"(4) 
SPECIAL RULES.— 
"(A) 
PROPERTY SUBJECT TO NET LEASE.—For purposes of 
this subsection, property subject to a lease shall be treated as 
property held for investment, and not as property used in a 
trade or business, for a taxable year, if— 
"(i) for such taxable year the sum of the deductions 
with respect to such property which are allowable solely 
Post, p. 710. 
by reason of section 162 is less than 15 percent of the 
rental income produced by such property, or 
"(ii) the lessor is either guaranteed a specified return 
• 
or is guaranteed in whole or m part against loss of income 
"(B) PARTNERSHIPS.—In the case of a partnership, each 
partner shall, under regulations prescribed by the Secretary 
or his delegate, take into account separately his distributive 
share of the partnership's investment interest and the other 
items of income and expense taken into account under this 
subsection. 
" ( C ) 
S H A R E H O L D E R S o r ELECTING SMALL BUSINESS CORPORA-
TioNS.—In the case of an electing small business corporation 
26 use m?" 
^^^ defined in section 1371(b)), the investment interest paid 
or accrued by such corporation and the other items of income 
and expense which would be taken into account if this sub-
section applied to such corporation shall, under regulations 
prescribed by the Secretary or his delegate, be treated as 
investment interest paid or accrued by the shareholders of 
such corporation and as items of such shareholders, and 
shall be apportioned pro rata among such shareholders in a 
manner consistent with section 1374(c)(1). 
"(D) CONSTRUCTION INTEREST.—For purposes of this sub-
section, interest paid or accrued on indebtedness incurred or 
continued in the construction of property to be used in a trade 
or business shall not be treated as investment interest. 
Post, p. 635. 
"(5) CAPITAL GAINS.—For purposes of sections 1201(b) (relat-
68A Stat. 320. 
[^g ^Q alternative capital gains tax), 1202 (relating to deduction 
Post, p. 581. 
fQj. capital gains), and 57(a) (9) (relating to treatment of capital 
gains as a tax preference), an amount equal to the amount of invest-
ment interest which is allowable as a deduction under this chap-
ter by reason of subparagraph (C) of paragraph (1) shall be 
treated as gain from the sale or other disposition of property 
which is neither a capital asset nor property described in section 
26 use 1231. 
1231. 
" (6) EXCEPTIONS.—This subsection shall not apply with respect 
to investment interest, investment income, and investment expenses 
attributable to a specific item of property, if the indebtedness with 
respect to such property— 
"(A) is for a specified term, and 
"(B) was incurred before December 17,1969, or is incurred 
after December 16, 1969, pursuant to a written contract or 
commitment which, on such date and at all times thereafter 
prior to the incurring of such indebtedness, is binding on the 
taxpayer." 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31,1971. 
78 Stat. 51. 
26 u s e 217. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
577 
Subtitle D—^Moving Expenses 
SEC. 231. MOVING EXPENSES. 
(a) DEDUCTION F
O
R MOVING EXPENSES.—Section 217 (relating to 
moving expenses) is amended to read as follows: 
«SEC. 217. MOVING EXPENSES. 
"(a) DEDUCTION ALLOWED.—There shall be allowed as a deduction 
moving expenses paid or incurred during the taxable year in connection 
Avith the commencement of work by the taxpayer as an employee or as a 
self-employed individual at a new principal place of work. 
"(b) DEFINITION OF MOVING EXPENSES.— 
"(1) I N GENERAL.—For purposes of this section, the term 
'moving expenses' means only the reasonable expenses— 
" (A) of moving household goods and personal effects from 
the former residence to the new residence, 
"(B) of traveling (including meals and lodging) from the 
former residence to the new" place of residence, 
"(C) of traveling (including meals and lodging), after 
obtaining employment, from the former residence to the gen-
eral location of the new principal place of work and return, 
for the principal purpose of searching for a new residence, 
"(D) of meals and lodging while occupying temporary 
quarters in the general location of the new principal place of 
work during any period of 30 consecutive days after obtain-
ing employment, or 
"(E) constituting qualified residence sale, purchase, or 
lease expenses. 
"(2) QUALIFIED RESIDENCE SALE, ETC., EXPENSES.—For pur-
poses of paragraph (1) (E), the term 'qualified residence sale, pur-
chase, or lease expenses' means only reasonable expenses incident 
to— 
"(A) the sale or exchange by the taxpayer or his spouse of 
the taxpayer's former residence (not including expenses for 
w^ork performed on such residence in order to assist in its sale) 
w^hich (but for this subsection and subsection (e)) would be 
taken into account in determining the amount realized on the 
sale or exchange, 
"(B) the purchase by the taxpayer or his spouse of a new 
residence in the general location of the new principal place of 
work which (but for this subsection and subsection (e)) 
would be taken into account in determining— 
"(i) the adjusted basis of the new residence, or 
" (ii) the cost of a loan (but not including any amounts 
which represent payments or prepayments of interest), 
"(C) the settlement of an unexpired lease held by the tax-
payer or his spouse on property used by the taxpayer as his 
former residence, or 
" (D) the acquisition of a lease by the taxpayer or his spouse 
on property used by the taxpayer as his new residence in the 
general location of the new principal place of work (not 
including amounts which are payments or prepayments of 
rent). 
"(3) LIMITATIONS.— 
" (A) DOLLAR LIMITS.—The aggregate amount allowable as 
a deduction undar subsection (a) in connection with a com-
mencement of work w^hich is attributable to expenses 
described in subparagraph (C) or (D) of paragraph (1) 
578 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT 
shall not exceed $1,000. The aggregate amount allowable as 
deduction under subsection (a) which is attributable to qualf 
fied residence sale, purchase, or lease expenses shall not exceed 
$2,500j reduced by the aggregate amount so allowable which 
is attributable to expenses described in subparagraph (C) or 
(D) of paragraph (1). 
"(B) HUSBAND AND WIFE.—If a husband and wdfe both 
commence work at a new principal place of work within the 
same general location, subparagraph (A) shall be applied ^s 
if there was only one commencement of work. In the case of a 
husband and wife filing separate returns, subparagraph (A^ 
shall be applied by substituting '$500' for '$1,000', and bv 
substituting '$1,250' for '$2,500'. 
^ 
"(C) INDIVIDUALS OTHER THAN TAXPAYER.—In the case of 
any individual other than the taxpayer, expenses referred to 
in subparagraphs (A) through (D) of paragraph (1) shall 
be taken into account only if such individual has both the 
former residence and the new residence as his principal place 
of abode and is a member of the taxpayer's household. 
"(c) CONDITIONS FOR ALLOW^VNCE.—Xo deduction shall be allowed 
under this section unless— 
" (1) the taxpayer's new^ principal place of work— 
"(A) is at least 50 miles farther from his former residence 
than was his former principal place of work, or 
"(B) if he had no former principal place of work, is at 
least 50 miles from his former residence, and 
"(2) either—^ 
"(A) during the 12-month period immediately following 
his arrival in the general location of his new principal place 
of work, the taxpayer is a full-time employee, in such general 
location, during at least 39 weeks, or 
"(B) during the 24-month period imme<liately following 
his arrival in the general location of his new principal place 
of ^vork, the taxpayer is a full-time employee or performs 
services as a self-employed individual on a full-time basis, in 
such general location, during at least 78 weeks, of which not 
less than 39 weeks are during the 12-month period referred 
to in subparagraph (A). 
For purposes of paragraph 
(1), the distance between two 
points shall be the shortest of the more commonly traveled routes 
between such tw-o points. 
"(d) 
RULES FOR APPLICATION or SUBSECTION ( C ) ( 2 ) . — 
"(1) The condition of subsection (c) (2) shall not apply if the 
taxpayer is unable to satisfy such condition by reason of— 
"(A) death or disability, or 
"(B) involuntary separation (other than for willful mis-
conduct) from the service of, or transfer for the benefit of, 
an employei' after obtaining full-time employment in which 
the taxpayer could reasonably have been expected to satisfy 
such condition. 
"(2) If a taxj)ayer has not satisfied the condition of subsection 
(c) (2) before the time prescribed by law (including extensions 
thereof) for filing the return for the taxable year during which he 
paid or incurred moving expenses which would otherwise be 
deductible under this section, but may still satisfy such condition, 
then such expenses may (at the election of the taxpayer) be de-
ducted for such taxable vear notwithstanding subsection (c) (2)' 
"(3) 
If— 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
579 
"(A) for any taxable year moving expenses have been 
deducted in accordance with the rule provided in paragraph 
(2), and 
"(B) the condition of subsection (c) (2) cannot be satis-
fied at the close of a subsequent taxable year, 
then an amount equal to the expenses which were so deducted shall 
be included in gross income for the first such subsequent taxable 
year. 
•'(e) DENIAL OF DOUBLE BENEFIT.—The amount realized on the sale 
of the residence described in subparagraph (A) of subsection (b) (2) 
" 
' ' 
shall not be decreased by the amount of any expenses described in such 
subparagraph which are allowed as a deduction under subsection (a), 
and the basis of a residence described in subparagraph (B) of subsec-
tion (b) (2) shall not be increased by the amount of any expenses 
described in such subparagraph which are allowed as a deduction under 
subsection (a). This subsection shall not apply to any expenses with 
respect to which an amount is included in gross income under subsec-
tion (d)(3). 
"(f) KULES FOR SELF-EMPLOYED INDIVIDUALS. 
"(1) DEFINITION.—For purposes of this section, the term 'self-
employed individual' means an individual who performs personal 
services— 
"(A) as the owner of the entire interest in an unincorpo-
rated trade or business, or 
"(B) as a partner in a partnership carrying on a trade or 
business. 
"(2) KULE FOR APPLICATION OF SUBSECTIONS ( b ) ( 1 ) 
(c) AND 
(D).—For purposes of subparagraphs (C) and (D) of subsection 
(b) (1), an individual who commences work at a new principal 
place of work as a self-employed individual shall be treated as hav-
mg obtained employment when he has made substantial arrange-
ments to commence such work. 
"(g) REGULATIONS.—The Secretary or his delegate shall prescribe 
such regulations as may be necessary to carry out the purposes of this 
section." 
(b) INCLUSION IN GROSS INCOME OF MOVING EXPENSE REIMBURSE-
MENTS.—Part I I of subchapter B of chapter 1 (relating to items spe- 8o^sfat!*fi52?' 
cifically included in gross income) is amended by adding after section 
26 use 71-81. 
81 the following new section: 
"SEC. 82. REIMBURSEMENT FOR EXPENSES OF MOVING. 
"There shall be included in gross income (as compensation for serv-
ices) any amount received or accrued, directly or indirectly, by an 
individual as a payment for or reimbursement of expenses of moving 
from one residence to another residence which is attributable to 
employment or self-employment." 
(c) CONFORMING AMENDMENTS.— 
(1) The table of sections for part II of subchapter B of chapter 
1 is amended by adding at the end thereof the following new item: 
"Sec. 82. Reimbursement of moving expenses." 
(2) Section 1001 (relating to determination of amount and rec-
ognition of gain or loss) is amended by adding after subsection 
(e) (as added by section 516(a) of this Act) the following new 
subsection: 
"(f) 
CROSS REFERENCE.— 
r. 
"For treatment of certain expenses incident to the sale of a residence 
which were deducted as moving expenses by the taxpayer or his spouse 
idpr SCX'tinn 917/'Q"\ 
COO aoftinn 
917fo^ 
" 
Post, 
p. 646. 
TTiucn were aeauciea as moving expenses 
under section 217(a), see section 217(e)." 
580 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 STAT 
68A Stat. 301. 
(3) Sectioii 1016 (c) is amended to read as follows: 
"(c) 
CROSS REFERENCES.— 
"(1) For treatment of certain expenses incident to the purchase o
f 
a residence which were deducted as moving expenses by the taxpayer O
P 
his spouse under section 217(a), see section 217(e). 
^ 
"(2) For treatment of separate mineral interests as one property 
see section 614." 
^' 
(d) EFFECTIVE DATES.—The amendments made by this section shall 
apply to taxable years beginning after December 31,1969, except that-. 
Ante, p . 577. 
(1) scction 217 of tlic Internal Revenue Code of 1954 (as 
amended by subsection (a)) shall not apply to any item to the 
extent that the taxpayer received or accrued reimbursement or 
other expense allowance for such item in a taxable year beginning 
on or before December 31, 1969, which was not included in his 
gross income; and 
(2) the amendments made by this section shall not apply (at the 
election of the taxpayer made at such time and manner as the 
Secretary of the Treasury or his delegate prescribes) with respect 
to moving expenses paid or incurred before July 1, 1970, in con-
nection with the commencement of work by the taxpayer as an 
employee at a new principal place of work of which the taxpayer 
had been notified by his employer on or before December 19,1969. 
TITLE III—MINIMUM TAX; ADJUSTMENTS 
PRIMARILY AFFECTING INDIVIDUALS 
Subtitle A—Minimum Tax 
82 Stat. 252 
26 u s e 1-51. 
541 
SEC. 
3
0
1
. 
MINIMUM 
TAX 
FOR 
TAX 
PREFERENCES. 
f s^t^^^V?^' 
(^) ^^ GENERAL.—Subchapter A of chapter 1 (relating to determi-
nation of tax liability) is amended by adding at the end thereof the 
following new part: 
"PART VI—MINIMUM TAX FOR TAX PREFERENCES 
"Sec. 56. Imposition of tax. 
"Sec. 57. Items of tax preference. 
"Sec. 58. Rules for application of this part. 
"SEC. 56. IMPOSITION OF TAX. 
"(a) I N GENERAL.—In addition to the other taxes imposed by this 
chapter, there is hereby imposed for each taxable year, with respect to 
the income of every person, a tax equal to 10 percent of the amount (if 
any) by which— 
" (1) the sum of the items of tax preference in excess of $30,000, 
is greater than 
"(2) the taxes imposed by this chapter for the taxable year 
(computed without regard to this part and without regard to 
26 use 531, 
the taxes imposed by sections 531 and 541) reduced by the sum 
of the credits allowable under— 
68A Stat. 13. 
u ^^^ scctiou 33 (relating to foreign tax credit), 
"(B) section 37 (relating to retirement income), and 
"(C) section 38 (relating to investment credit). 
"(b) 
DEFERRAL or TAX LIABILITY IN CASE OF CERTAIN NET OPERAT-
ING LOSSES.— 
" (1) I N GENERAL.—If for any taxable year a person— 
" (A) has a net operating loss any portion of which (under 
section 172) remains as a net operating loss carryover to a 
succeeding taxable year, and 
"(B) has items of tax preference in excess of $30,000, 
76 Stat. 962. 
Post, p. 619. 
d 36X.« " 
g3 S
T
A
T
. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
581 
then an amount equal to the lesser of the tax imposed by subsec-
tion (a) or 10 percent of the amount of the net operating loss 
carryover described in subparagraph (A) shall be treated as tax 
liability not imposed for the taxable year, but as imposed for the 
succeeding taxable year or years pursuant to paragraph (2). 
"(2) YEAR OF LIABILITY.—In any taxable year in which any 
portion of the net operating loss carryover attributable to the 
excess described in paragraph (1) (B) reduces taxable income, the 
amount of tax liability described in paragraph (1) shall be treated 
as tax liability imposed in such taxable year in an amount equal 
to 10 percent of such reduction. 
"(3) PRIORITY OF APPLICATION.—For purposes of paragraph 
(2), if any portion of the net operating loss carryover described in 
paragraph (1) (A) is not attributable to the excess described in 
paragraph (1)(B), such portion shall be considered as being 
applied in reducing taxable income before such other portion. 
"SEC. 57. ITEMS OF TAX PREFERENCE. 
«(a) I N GENERAL.—For purposes of this part, the items of tax 
preference are— 
"(1) EXCESS INVESTMENT INTEREST.—The amount of the excess 
investment interest for the taxable year (as determined under 
subsection (b)). 
"(2) ACCELERATED DEPRECIATION ON REAL PROPERTY.—^With 
respect to each section 1250 property (as defined in section 1250 
2
6 use 1256. 
(c)), the amount by which the deduction allowable for the tax-
able year for exhaustion, wear and tear, obsolescence, or amortiza-
tion exceeds the depreciation deduction which would have been 
allowable for the taxable year had the taxpayer depreciated the 
property under the straight line method for each taxable year of 
its useful life (determined without regard to section 167(k)) for 
which the taxpayer has held the property. 
" (3) ACCELERATED DEPRECIATION ON PERSONAL PROPERTY SUBJECT 
T
O A NET LEASE.—^With respect to each item of section 1245 prop-
erty (as defined in section 1245(a) (3)) which is the subject of Po^t^^'.^yV^' 
a net lease, the amount by which the deduction allowable for the 
taxable year for exhaustion, wear and tear, obsolescence, or 
amortization exceeds the depreciation deduction which would have 
been allowable for the taxable year had the taxpayer depreciated 
the property under the straight line method for each taxable year 
of its useful life for which the taxpayer has held the property. 
"(4) AMORTIZATION or CERTIFIED POLLUTION CONTROL FACILI-
TIES.—With respect to each certified pollution control facility for 
which an election is in effect under section 169, the amount by 
^°«^' P- ^^''^ 
which the deduction allowable for the taxable year under such 
section exceeds the depreciation deduction which would otherwise 
be allowable under section 167. 
. 
..^°^'' P^' ^^^' 
"(5) AMORTIZATION OF RAILROAD ROLLING STOCK.—With respect 
to each unit of railroad rolling stock for which an election is in 
effect under section 184, the amount by which the deduction allow-
able for the taxable year under such section exceeds the deprecia-
tion deduction which would otherwise be allowable under section 
167. 
" (6) STOCK oPTiONS.^With respect to the transfer of a share of 
stock pursuant to the exercise of a qualified stock option (as de-
fined in section 422(b)) or a restricted stock option (as defined in 
Post. 
p . 6 5 1 . 
6 4 9 . 
Post, 
p . 6 7 0 . 
78 S t a t . 6 4 . 
31-100 0 - 70 - 39 
582 
PUBLIC L
A
W 91-172-DEC. 30, 1969 
[33 ST^T 
78 Stat. 69. 
sectioii 424 (b)), the amount by which the fair market value of tV 
share at the time of exercise exceeds the option price. 
"(7) 
KESERVES FOR LOSSES OX BAD DEBTS or FIXANCIAL INSTITU. 
Post, p. 616. 
Tioxs.—In the case of a financial institution to which section 585 
Post, p. 6 20. 
or 593 applies, the amount by which the deduction allowable for 
the taxable year for a reasonable addition to a reserve for bad 
debts exceeds the amount that would have been allowable had the 
institution maintained its bad debt reserve for all taxable years 
on the basis of actual experience. 
" (8) DEPLETIOX.—^With respect to each property (as defined in 
68A Stat. 210. 
scctiou 614), the excess of the deduction for depletion allowable 
26 use 614. 
under section 611 for the taxable year over the adjusted basis of 
the property at the end of the taxable year (determined without 
regard to the depletion deduction for the taxable year). 
. . 
''(9) CAPITAL GAixs.— 
"(A) INDIVIDUALS.—In the case of a taxpayer other than 
a corporation, an amount equal to one-half of the amount by 
which the net long-term capital gain exceeds the net short-
term capital loss for the taxable year. 
"(B) CORPORATIOXS.—In the case of a corporation, if the 
net long-term capital gain exceeds the net short-term capital 
loss for the taxable year, an amount equal to the product 
obtained by multiplying such excess by a fraction the numer-
ator of which is the sum of the normal tax rate and the sur-
78 Stat. 25. 
tax rate under section 11, minus the alternative tax rate 
Post, p. 635. 
under section 1201(a), for the taxable year, and the denomi-
nator of which is the sum of the normal tax rate and the surtax 
rate under section 11 for the taxable year. In the case of a 
corporation to which section 1201(a) does not apply, the 
amount under this subparagraph shall be determined under 
regulations prescribed by the Secretary or his delegate in a 
manner consistent with the preceding sentence. 
Paragraph (1) shall apply only to taxable years beginning before 
January 1, 1972. Paragraphs (1) and (3) shall not apply to a corpo-
ration other than an electing small business corporation (as defined in 
72 Stat. 1650. 
sectiou 1371(b)) and a personal holding company (as defined in sec-
Ante, p. 528. 
tion542). 
"(b) 
EXCESS INVESTMENT INTEREST.— 
"(1) I N GENERAL.—For purposes of paragraph (1) of subsec-
tion (a), the excess investment interest for any taxable year is the 
amount by which the investment interest expense for the taxable 
year exceeds the net investment income for the taxable year. 
,, . 
"''", 
"(2) DEFINITIONS.—For purposes of this subsection— 
"(A) NET INVESTMENT INCOME.—The term'net investment 
'' _
; 
income' means the excess of investment income over invest-
.,, „ ,^„:i^ 
ment expenses. 
. ? ^
^
^ 
"(B) INVESTMENT INCOME.—The term'investment income 
^! 
r' 
means— 
<
:
• , ,#\4 .c ,^ -'^ 
..jifc 
"(^) *^^^ gross income from interest, dividends, rents, 
^V'" * 
and royalties, 
:,j H
.
r
t , 
nj. 
"(ii) tbe net short-term capital gain attributable to 
the disposition of property held for investment, and 
pVstl'.lll'. 
"(^j^) amounts treated under sections 1245 and 1250 
as gain from the sale or exchange of property which is 
neither a capital asset nor property described in section 
68A Stat. 325. 
1231 
but only to the extent such income, gain, and amounts are not 
derived from the conduct of a trade or business. 
50-
1558, 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
583 
"(C) INVESTMENT 
EXPENSES.—The 
term 
'investment 
expenses' means the deductions allowable under sections 
164(a) (1) or (2), 166, 167, 171, 212, 243, 244, 245, or 611 
78 stat. 4o, 52, 
directly connected with the production of investment income. 207-^80 s
^
t
*
a
t
* 
For purposes of this subparagraph, the deduction allowable 
under section 167 with respect to any property may be treated 
^°sf, pp. 625, 
as the amount which would have been allowable had the tax- ^^^' 
payer depreciated the property under the straight line 
method for each taxable year of its useful life for which 
the taxpayer has held the property, and the deduction allow-
able under section 611 with respect to any property may be 
treated as the amount which would have been allowable had 
the taxpayer determined the deduction under section 611 
without regard to section 613 for each taxable year for which 
^°®'' PP- ^29, 
the taxpayer has held the property. 
"(D) INVESTMENT INTEREST EXPENSE.—The term 'invest-
ment interest expense' means interest paid or accrued on 
indebtedness incurred or continued to purchase or carry prop-
erty held for investment. For purposes of the preceding sen-
tence, interest paid or accrued on indebtedness incurred or 
, 
continued in the construction of property to be used in a 
trade or business shall not be treated as an investment interest 
expense. 
"(3) PROPERTY SUBJECT TO NET LEASE.—For purposes of this 
subsection, property which is subject to a net lease entered into 
after October 9,1969, shall be treated as property held for invest- 
• 
' • 
ment, and not as property used in a trade or business. 
'/ 
"(c) NET LEASES.—For purposes of this section, property shall be 
considered to be subject to a net lease for a taxable year if— 
"(1) for such taxable year the sum of the deductions wdth 
respect to such property which are allowable solely by reason of 
section 162 is less than 15 percent of the rental income produced 
^°^'' P- ^^°-
by such property, or 
" (2) the lessor is either guaranteed a specified return or is guar-
anteed in whole or in part against loss of income. 
-SEC. 58. RULES FOR APPLICATION OF THIS PART. 
"(a) HUSBAND AND WIFE.—In the case of a husband or wife who 
files a separate return for the taxable year, the $30,000 amount specified 
in section 56 shall be $15,000. 
"(b) MEMBERS or CONTROLLED GROUPS.—In the case of a controlled 
group of corporations (as defined in section 1563(a)), the $30,000 
Post,p.602. 
amount specified in section 56 shall be divided equally among the com-
ponent members of such group unless all component members consent 
(at such time and in such manner as the Secretary or his delegate pre-
scribes by regulations) to an apportionment plan providing for an 
unequal allocation of such amount. 
"(c) ESTATES AND TRUSTS.—In the case of an estate or trust— 
"(1) the sum of the items of tax preference for any taxable year 
of the estate or trust shall be apportioned between the estate or 
trust and the beneficiaries on the basis of the income of the estate 
Or trust allocable to each, and 
"(2) the $30,000 amount specified in section 56 applicable to 
such estate or trust shall be reduced to an amount which bears the 
same ratio to $30,000 as the portion of the sum of the items of tax 
preference allocated to the estate or trust under paragraph (1) 
^ bears to such sum. 
(d) 
ELECTING SMALL BUSINESS CORPORATIONS AND T H E I R SIIARE-
H0IJ)ERS.— 
584 
PUBLIC LAW 9M72-DEC. 30, 1969 
[33 5^^^ 
"(1) I N GENERAL.—Except as provided in paragraph (2) R 
items of tax preference of an electing small business corporati 
72 Stat. 1650. 
(as defined in section 1371 (b)) for each taxable year of the cori?'^ 
ration shall be treated as items of tax preference of the sharp 
holders of such corporation, and, except as provided in paragraph 
(2), shall not be treated as items of tax preference of such corpora 
tion. The sum of the items so treated shall be apportioned pro rata 
among such shareholders in a manner consistent with section I374 
(c) (1). For purposes of this paragraph, this part shall be treated 
as applying to such corporation. 
" 
" (2) CERTAIN CAPITAL GAINS.—If for a taxable year of an elect-
ing small business corporation a tax is imposed on the income of 
80 Stat. 113. 
such corporation under section 1378, such corporation shall not-
withstanding the provisions of section 1371(b) (1), be subject to 
Ante, p. 580. 
f]r^Q. ^^x imposed by section 56, but computed only with reference 
to the item of tax preference set forth in section 57(a) (9) (B) to 
the extent attributable to gains subject to the tax imposed by 
'• 
section 1378. 
"(e) PARTICIPANTS IN A COMMON TRUST FUND.—The items of tax 
68A Stat. 203. 
preference of a common trust fund (as defined in section 584(a)) for 
each taxable year of the fund shall be treated as items of tax pref-
erence of the participants of such fund and shall be apportioned 
pro rata among such participants. For purposes of this subsection, 
this part shall be treated as applying to such fund. 
"(f) REGULATED INVESTMENT COMPANIES, ETC.—In the case of a 
74^ltlt!'loor^' 
regulated investment company to which j)art I of subchapter M applies 
26 use 851*, 
or a real estate investment trust to which part II of subchapter M 
^^^- 
applies— 
"(1) the item of tax preference set forth in section 57(a)(9) 
shall not be treated as an item of tax preference of such company 
or such trust for each taxable year to the extent that such item is 
attributable to amounts taken into account as income by the share-
holders of such company under section 852 (b) (3), or by the share-
holders or holders of beneficial interests of such trust under section 
857(b) (3), and 
" (2) the items of tax preference of such company or such trust 
for each taxable year (other than the item of tax preference set 
forth in section 57(a) (9) and, in the case of a real estate invest-
ment trust, the item of tax preference set forth in section 57(a) 
(2)) shall be treated as items of tax preference of the shareholders 
of such company, or the shareholders or holders of beneficial 
interests of such trust (and not as items of tax preference of such 
company or such trust), in the same proportion that the dividends 
(other than capital gain dividends) paid to each such shareholder, 
or holder of beneficial interest, bears to the taxable income of such 
company or such trust determined without regard to the deduc-
tion for dividends paid. 
,i "(g) 
TAX PREFERENCES ATTRIBUTABLE TO FOREIGN SOURCES.— 
( 
" (1) I N GENERAL.—For purposes of section 56, the items of tax 
,t 
preference set forth in section 57(a) (other than in paragraphs 
(6) and (9) of such section) which are attributable to sources 
• 
within any foreign country or possession of the United States 
shall be taken into account only to the extent that such items 
reduce the tax imposed by this chapter (other than the tax 
imposed by section 56) on income derived from sources withm 
the United States. For purposes of the preceding sentence, items 
of tax preference shall be treated as reducing the tax imposed by 
this chapter before items which are not items of tax preference. 
Post, p. 637. 
83 STAT. ] 
PUBLIC LAW 9 M 7 2 - D E C . 30, 1969 
585 
.ii'*e p54 
"(2) CAPITAL GAINS AND STOCK OPTIONS.—For purposes of sec-
tion 56, the items of tax preference set forth in paragraphs (6) 
^"^^- P- SSO 
and (9) of section 57(a) which are attributable to sources within 
any foreign country or possession of the United States shall not 
be taken into account if, under the tax laws of such country or 
possession— 
"(A) in the case of the item set forth in paragraph (6) of 
section 57(a), preferential treatment is not accorded trans-
fers of shares of stock pursuant to stock options described 
in such paragraph, and 
"(B) in the case of the item set forth in paragraph (9) of 
section 57(a), preferential treatment is not accorded gain 
from the sale or exchange of capital assets (or property 
treated as capital assets)." 
^ ,»., n 
(b) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) The table of parts for subchapter A of chapter 1 is amended 
by adding at the end thereof the following new item: 
"Part VI. Minimum tax for tax preferences." 
i 
(2) Section 5(a) (relating to cross references to other rates of 
tax on individuals, etc.) is amended by adding at the end thereof 
the following new paragraph: 
"(5) For minimum tax for tax preferences, see section 56." 
(3) Section 12 (relating to cross references relating to tax on 
corporations) is amended by adding at the end thereof the follow-
ing new paragraph: 
"(8) For minimum tax for tax preferences, see section 56." 
(4) Section 46(a)(3) (relating to lia;bility for tax for deter-
mining amount of investment credit) is amended by inserting 
"section 56 (relating to minimum tax for tax preferences)," before 
"section 531". 
(5) Section 51 (b) (1) (relating to adjusted tax for purposes of 
82 stat. 252. 
tax surcharge) is amended by inserting "section 56," after "this 
section,". 
(6) Section 443 (relating to returns for a period of less than 12 
je'uscT 4
4
3
"
*
^ 
months) is amended by redesignating subsection (d) as subsec-
tion (e) and inserting after subsection (c) the following new 
subsection: 
"(d) ADJUSTMENT IN EXCLUSION FOR COMPUTING MINIMUM TAX 
F
O
R TAX PREFERENCES.—If a return is made for a short period by rea-
son of subsection (a), then the $30,000 amount specified in section 56 
^"'e, p. sso. 
(relating to minimum tax for tax preferences), modified as provided 
by section 58, shall be reduced to the amount which bears the same 
i^tio to such specified amount as the number of days in the short period 
bears to 365." 
(7) Section 453 (c) (3) (relating to rule for change from accrual 
to installment basis) is amended by inserting ", other than by sec-
tion 56," after "prior revenue laws)". 
(8) Section 511 (relating to tax on unrelated business income 
Ante, p. sae. 
of charitable, etc., organizations) is amended by adding after 
subsection (c) (as added by section 121(a)(3) of this Act) the 
following new subsection: 
''(d) TAX PREFERENCES.—The tax imposed by section 56 shall apply 
to an organization subject to tax under this section with respect to 
Items of tax preference which enter into the computation of unrelated 
business taxable income." 
(9) The last sentence of section 901(a) (relating to allowance 
26 use 901. 
of credit for taxes of foreign countries and of possessions of the 
United States) is amended by inserting "against the tax imposed 
586 
PUBLIC LAW 91-172-DEC. 30, 1969 
[335^^^ 
by section 56 (relating to minimum tax for tax preferences)," afte 
"not be allowed". 
' 
r 
80 Stat. 114. 
(10) Section 1373(c) (relating to definition of "undistributed 
26 use 1373. 
taxable income) is amended by striking out "tax imposed by sec-
tion 1378(a)" and inserting in lieu thereof "taxes imposed bv 
sections 56 and 1378(a)". 
^ 
72 Stat. 1654. 
(H) Scctiou 1375(a)(3) 
(relating to reduction for taxes 
imposed) is amended— 
(A) 
by striking out "TAX IMPOSED BY SECTIOX ISTS" in the 
heading of such section and inserting in lieu thereof "TAXES 
•" • 
IMPOSED"; and 
- •' 
(B) by striking out "tax imposed by section 1378 (a) on the 
' 
income of" in the text of such section and inserting in lieu 
thereof "taxes imposed by sections 56 and 1378(a) on". 
80 Stat. 62. 
(12) Section 6015 (c) (relating to definition of estimated tax) is 
-
*
-
* amended by inserting after "taxable year" in paragraph (1) 
"(other than the tax imposed by section 56)". 
(13) Section 6654(f) (relating to definition of tax) is amended 
by inserting after "chapter 1" in paragraph (1) "(other thanbv 
section 56)". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years ending after December 31,1969. In the case of a 
taxable year beginning in 1969 and ending in 1970, the tax imposed by 
Ante. p. 580. 
sectlou 56 of the Internal Kevenue Code of 1954 (as added by subsec-
tion (a)) shall be an amount equal to the tax imposed by such section 
(determined without regard to this sentence) multiplied by a 
fraction— 
(1) the numerator of which is the niunber of days in the taxable 
year occurring after December 31,1969, and 
(2) the denominator of which is the number of days in the 
entire taxable year. 
Subtitle B—Income Averaging 
SEC. 311. INCOME AVERAGING. 
78 Stat. 105. 
(^Q^-j LIMITATION ox TAX.—Section 1301 (relating to limitation on 
tax) is amended by striking out "20 percent of such income" and all 
that follows and inserting m lieu thereof "20 percent of such income 
to 120 percent of average base period income." 
(b) AVERAGABLE INCOME.—Section 1302 (relating to the definition 
of averagable income and related definitions) is amended to read as 
follows: 
"SEC. 1302. DEFINITION OF AVERAGABLE INCOME; RELATED DEFINI-
TIONS. 
:;:;:•••:-
"(a) 
AVERAGABLE INCOME.— 
"(1) I N GENERAL.—For purposes of this part, the term 'aAer-
agable income' means the amount by which taxable income for the 
computation year (reduced as provided in paragraph (2)) 
.fit; - 5 ^
» 
exceeds 120 percent of average base period income. 
f 
"(2) REDUCTIONS.—The taxable income for the computation 
a 
year shall be reduced by— 
"(A) the amount (if any) to which section 72(ni)(3) 
f 
applies, and 
"(B) the amounts included in the income of a beneficiary 
of a trust under section 668 (a). 
"(b) AVEILVGE BASE PERIOD INCOME.—For purposes of this part"^ 
"(1) I N GENERAL.—The term 'average base period income 
means one-fourth of the sum of the base period incomes for the 
base period. 
Post, p. 594. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
587 
Post, p. 594. 
"(2) BASE PERIOD INCOME.—The base period income for anv 
taxable year is the taxable income for such year— 
" (A) increased by an amount equal to the excess of— 
"(i) the amount excluded from gross income under 
section 911 (relating to earned income from sources with-
out the United States) and subpart D of part I I I of 
subchapter N (sec. 931 and following, relating to income 
from sources within possessions of the United States), 
over 
"(ii) the deductions which would have been properly 
allocable to or chargeable against such amount but for 
the exclusion of such amount from gross income; and 
"(B) decreased by the amounts included in the income of 
a beneficiary of a trust under section 668 (a). 
"(c) OTHER RELATED DEFINITIONS.—For purposes of this part— 
"(1) COMPUTATION YEAR.—The term 'computation year' means 
the taxable year for which the taxpayer chooses the benefits of this 
part. 
"(2) BASE PERIOD.—The term'base period'means the 4 taxable 
years immediately preceding the computation year. 
" (3) BASE PERIOD YEAR.—The term 'base period year' means any 
of the 4 taxable years immediately preceding the computation 
year. 
"(4) JOINT RETURN.—The term 'joint return' means the return 
of a husband and wife made under section 6013." 
^os'. PP- ^75, 
(c) SPECIAL, RULES.—Section 1304(b) (relating to special rules ^^yg stat. los. 
applicable to income averaging) is amended— 
(1) by striking out "and" at the end of paragraph (3) ; 
(2) by striking out the period at the end of paragraph (4) and 
inserting in lieu thereof a comma; and 
(3) by adding at the end thereof the following new paragraphs; 
" (5) section 1201 (b) (relating to alternative capital gains tax), 
and 
"(6) section 1348 (relating to 50-percent maximum rate on 
Post, p. ess. 
earned income)." 
(d) CONFORMING AMENDMENTS.— 
(1) Section 1303(c)(2)(B) 
is amended by striking out 
"adjusted". 
(2) Section 1304 is amended— 
(A) by striking out paragraph (3) of subsection (c) and 
by redesignating paragraphs (4) and (5) of such subsections 
as paragraphs (3) and (4), respectively; 
(B) by striking out "Paragraphs (2), (3), and (4)" in 
subsection (c) (1) and inserting in lieu thereof "Paragraphs 
(2) and (3)"; 
(C) by striking out "paragraph (4)" in subsection (c) (1) 
(B) and inserting in lieu thereof "paragraph (3)"; 
(D) by striking out "adjusted" in subparagraph (B) of 
subsection (c) (3) (as redesignated); 
(E) by striking out in subsection (d) ", and the $3,000 
figure contained in section 1302(b)(2)(C) shall be applied 
to the aggregate net incomes"; 
(F) by striking out subsections (e) and (f) and inserting 
in lieu thereof the following: 
'(e) 
TREATMENT OF CERTAIN OTHER ITEMS.— 
Post, p. 635. 
78 Stat. 107. 
Ante, p. 586. 
78 Stat. 111. 
26 u s e 6511. 
Ante, p. 586. 
588 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 g^^ 
'^ ^'^'- ^''- 
"(1) SECTION 72(111) (5).—Section 72(m) (5) (relating to r^ 
alties applicable to certain amounts received by owner-employe \
" 
shall be applied as if this part had not been enacted. 
^^' 
" (2) OTHER ITEMS.—Except as otherwise provided in this MH 
the order and manner in which items of income or limitationc 
tax shall be taken into account in computing the tax imposed b^ 
this chapter on the income of any eligible individual to ^ho^ 
section 1301 applies for any computation year shall be determined 
under regulations prescribed by the Secretary or his deleo-ntp » 
and 
^ 
*
= • ' 
(G) by redesignating subsection (g) as (f). 
(3) Section 6511 (d) (2) (B) (ii) is amended— 
(A) by striking out "1302(e)(1)" and inserting in lipn 
thereof "1302(c) (1)"; and 
(B) by striking out "1302(e)(3)" and inserting in lipn 
thereof "1302 (c)(3)". 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to computation years (within the meaning of sec-
tion 1302(c)(1) of the Internal Revenue Code of 1954) beginning 
after December 31,1969, and to base period years (within the meaning 
of section 1302(c) (3) of such Code) applicable to such computation 
years. 
Subtitle C—Restricted Property 
SEC. 321. RESTRICTED PROPERTY. 
(a) I N GENERAL.—Part I I of subchapter B of chapter 1 (relating 
to items specifically included in gross income) is amended by adding 
Ante, p. 579. 
after section 82 (as added by section 221 (b) of this Act( the following 
new section: 
"SEC. 83. PROPERTY TRANSFERRED IN CONNECTION WITH PERFORM. 
ANCE OF SERVICES. 
"(a) GENERAL RULE.—If, in connection with tlie performance of 
services, property is transferred to any person other than the person 
for whom such services are performed, the excess of— 
"(1) the fair market value of such property (determined with-
out regard to any restriction other than a restriction which by its 
terms will never lapse) at tlie first time the rights of the person 
having the beneficial interest in such property are transferable or 
are not subject to a substantial risk of forfeiture, whichever occurs 
earlier, over 
" (2) the amount (if any) paid for such property, 
shall be included in the gross income of the person who performed such 
services in the first taxable year in which the rights of the person hav-
ing the beneficial interest in such property are transferable or are not 
subject to a a substantial risk of forfeiture, whichever is applicable. 
The preceding sentence shall not apply if such person sells or other-
wise disposes of such property in an arm's length transaction before 
his rights in such property become transferable or not subject to a 
substantial risk of forfeiture. 
" ( b ) 
ELECTION 
To 
INCLUDE 
I N 
GROSS 
INCOME 
I N YEAR OF 
TRANSFER.— 
"(1) I N GENERAL.—Any person who performs services in con-
<
. 
nection with which property is transferred to any person may 
elect to include in his gross income, for the taxable year in which 
such property is transferred, the excess of— 
, 
, 
" (A) the fair market value of such property at the time 01 
transfer (determined without regard to any restriction other 
than a restriction which by its terms will never lapse), over 
g3 S
T
A
T
. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
589 
"(B) th& amount (if any) paid for such property. 
If such election is made, subsection (a) shall not apply with respect 
to the transfer of such proprty, and if such property is subse-
quently forfeited, no deduction shall be allowed in respect of such 
forfeiture. 
. 
, 
. 
"(2) ELECTION.—An election under paragraph (1) with respect 
to any transfer of property shall be made in such manner as the 
Secretary or his delegate prescribes and shall be made not later 
than 30 days after the date of such transfer (or, if later, 30 days 
after the date of the enactment of the Tax Reform Act of 1969). 
Such election may not be revoked except with the consent of the 
Secretary or his delegate. 
"(c) SPECIAL RULES.—For purposes of this section— 
"(1) SUBSTANTIAL RISK or FORFEITURE.—The rights of a person 
in property are subject to a substantial risk of forfeiture if such 
person's rights to full enjoyment of such property are conditioned 
upon the future performance of substantial services by any 
individual. 
"(2) TRANSFERABILITY OF PROPERTY.—The rights of a person in 
property are transferable only if the rights in such property of 
any transferee are not subject to a substantial risk of forfeiture. 
"(d) CERTAIN RESTRICTIONS W H I C H W I L L NEVER LAPSE.— 
"(1) VALUATION.—In the case of property subject to a restric-
tion which by its terms will never lapse, and Avhich allows the 
transferee to sell such property only at a price determined under 
a formula, the price so determined shall be deemed to be the fair 
market value of the property unless established to the contrary 
by the Secretary or his delegate, and the burden of proof shall be 
on the Secretary or his delegate with respect to such value. 
" (2) CANCELLATION.—If, in the case of property subject to a 
restriction which by its terms will never lapse, the restriction is 
canceled, then, unless the taxpayer establishes— 
"(A) that such cancellation was not compensatory, and 
"(B) that the person, if any, who would be allowed a 
deduction if the cancellation were treated as compensatory, 
will treat the transaction as not compensatory, as evidenced 
in such manner as the Secretary or his delegate shall pre-
scribe by regulations, 
the excess of the fair market value of the property (computed 
without regard to the restrictions) at the time of cancellation 
over the sum of— 
"(C) the fair market value of such property (computed 
by taking the restriction into account) immediately before 
the cancellation, and 
" (D) the amount, if any, paid for the cancellation, 
shall be treated as compensation for the taxable year in which 
such cancellation occurs. 
"(^) APPLICABIUTY OF SECTION.—This section shall not apply to— 
^^ ^^^^ ^^ 
" (1) a transaction to which section 421 aj>plies, 
2
6 use 421'. 
"(2) a transfer to or from a trust described in section 401(a) 
or a transfer under an annuity plan which meets the require-
ments of section 404 (a) (2), 
"(3) the transfer of an option without a readily ascertainable 
fair market value, or 
" (4) the transfer of property pursuant to the exercise of an 
option with a readily ascertainable fair market value at the date 
of grant. 
68A Stat 
309. 
590 
PUBLIC LAW 91-172-DEC. 30, 1969 
[335^^ 
•'(f) HOLDING PERIOD.—In determining the period for wliich tK 
taxpayer has held property to which subsection (a) applies, there sh 1
^ 
be included only the period beginning at the first time his rights in s^ v
! 
property are transferable or are not subject to a substantial risk i 
forfeiture, whichever occurs earlier. 
''(g) CERTAIN EXCHANGES.—If property to which subsection (^\ 
applies is exchanged for property subject to restrictions and condition 
substantially similar to those to which the property given in such 
exchange was subject, and if section 354, 355, 356, or 1036 (or so mucli 
of section 1031 as relates to section 1036) applied to such exchange or 
if such exchange was pursuant to the exercise of a convers'ior 
privilege— 
"(1) such exchange shall be disregarded for purposes of sub-
section (a),and 
" (2) the property received shall be treated as property to which 
subsection (a) applies. 
*'(h) DEDUCTION BY EMPLOYER.—In the case of a transfer of prop-
erty to which this section applies or a cancellation of a restriction 
described in subsection (d), there shall be allowed as a deduction under 
Post. p. 710. 
section 162, to the person for whom were performed the services in 
connection with which such property was transferred, an amount equal 
to the amount included under subsection (a), (b), or (d)(2) in the 
gross income of the person who performed such services. Such deduc-
tion shall be allowed for the taxable year of such person in which or 
with which ends the taxable year in which such amount is included in 
the gross income of the person who performed such services. 
"(i) TRANSITION RULES.—This section shall apply to property 
transferred after June 30,1969, except that this section shall not apply 
to property transferred— 
'' (1) pursuant to a binding written contract entered into before 
April 22,1969, 
"(2) upon the exercise of an option granted before April 22, 
1969, 
"(3) before May 1, 1970, pursuant to a written plan adopted 
and approved before July 1,1969, 
"(4) before January 1, 1973, upon the exercise of an option 
granted pursuant to a binding written contract entered into before 
April 22,1969, between a corporation and the transferor requiring 
the transferor to grant options to employees of such corporation 
(or a subsidiary of such corporation) to purchase a determinable 
number of shares of stock of such corporation, but only if the 
transferee was an employee of such corporation (or a subsidiary 
of such corporation) on or before April 22, 1969, or 
"(5) in exchange for (or pursuant to the exercise of a conver-
sion privilege contained in) property transferred before July Ij 
1969, or for property to which this section does not apply (by 
. , _^ 
reason of paragraphs (1), (2), (3), or (4)), if section 354, 355, 
: r*. '{• • I 
356, or 1036 (or so much of section 1031 as relates to section 1036) 
V 
applies, or if gain or loss is not otherwise required to be recog-
r- 
nized upon the exercise of such conversion privilege, and if the 
property received in such exchange is subject to restrictions and 
*
> 
conditions substantially similar to those to which the property 
given in such exchange was subject." 
(b) 
NONEXEMPT TRUSTS AND NONQUALIFIED ANNUITIES.— 
68A Stat. 136. 
(1) BENEFICIARY OF NONEXEMPT TRUST.—Scctiou 402(b) (relat-
26 use 402. 
^j^g ^Q taxability of beneficiary of nonexempt trust) is amended to 
read as follows: 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
591 
«/|)) TAXABILITY OF BENEFICIARY OF NONEXEMPT TRUST.—Contri-
butions to an employees' trust made by an employer during a taxable 
vear of the employer which ends within or with a taxable year of the 
trust for which the trust is not exempt from tax under section 501 (a) 
26^scf*5o\"' 
shall be included in the gross income of the employee in accordance 
with section 83 (relating to property transferred in connection with 
^"'^' P- ^SS. 
performance of services), except that the value of the employee's 
iiiterest in the trust shall be substituted for the fair market value of 
the property for purposes of applying such section. The amount actu-
ally distributed or made available to any distributee by any such trust 
shall be taxable to him in the year in which so distributed or made 
available, under section 72 (relating to annuities), except that distri-
butions of income of such trust before the annuity starting date (as 
defined in section 72 (c) (4)) shall be included in the gross income of 
the employee without regard to section 72(e) (1) (relating to amount 
not received as annuities). A beneficiary of any such trust shall not be 
considered the owner of any portion of such trust under subpart E of 
part I of subchapter J (relating to grantors and others treated as 
substantial owners)." 
(2) BENEFICIARY UNDER NONQUALIFIED ANNUITY.—Section 403 7 2^|fau*i62o^^' 
(relating to taxation of employee annuities) is amended by strik- 1622. 
ing out subsections (c) and (d) and inserting in lieu thereof the 
following new subsection: 
/, r, 
"(c) TAXABILITY OF BENEFICIARY UNDER NONQUALIFIED ANNUITIES 
O
R UNDER ANNUITIES PURCHASED BY EXEMPT ORGANIZATIONS.— 
jPremiums paid by an employer for an annuity contract which is not 
subject to subsection (a) shall be included in the gross income of the 
employee in accordance with section 83 (relating to property trans-
ferred in connection with performance of services), except that the 
value of such contract shall be substituted for the fair market value of 
the property for purposes of applying such section. The preceding 
sentence shall not apply to that portion of the premiums paid which 
is excluded from gross income under subsection (b). The amount 
actually paid or made available to any beneficiary under such contract 
shall be taxable to him in the year in which so paid or made available 
under section 72 (relating to annuities)." 
(3) DEDUCTIBILITY OF EMPLOYER CONTRIBUTIONS.—Section 404 
(a) (5) (relating to deduction for contributions of an employer 
to an employees' trust, etc.) is amended to read as follows: 
"(5) OTHER PLANS.—If the plan is not one included in para-
graph (1), (2), or (3), in the taxable year in which an amount 
attributable to the contribution is includible in the gross income of 
employees participating in the plan, but, in the case of a plan in 
which more than one employee participates only if separate 
accounts are maintained for each employee." 
(c) CLERICAL AMENDMENT.—The table of sections for part I I of 
subchapter B of chapter 1 is amended by adding at the end thereof the 
following new item: 
"Sec. 83. Property transferred in connection witli performance of 
services." 
(d) EFFECTIVE DATES.—The amendments made by subsections (a) 
^nd (c) shall apply to taxable years ending after June 30, 1969. The 
amendments made by subsection (b) shall apply with respect to con-
tributions made and premiums paid after August 1, 1969. 
592 
PUBLIC LAW 91-172-DEC. 30, 1%9 
[SSSTAT 
Subtitle D—Accumulation Trusts, Multiple Trusts, Etc. 
SEC. 331. TREATMENT OF EXCESS DISTRIBUTIONS BY TRUSTS. 
(a) I N GENERAL.—Subpart D of part I of subchapter J of chapte 
1 is amended to read as follows: 
^ 
68A Stat. 223; 
76 Stat. 986. 
'SUBPART D—TREATMENT OF EXCESS DISTRIBUTIONS 
BY TRUSTS 
"Sec. 665. Definitions applicable to subpart D. 
"Sec. 666. Accumulation distribution allocated to preceding years 
"Sec. 667. Denial of refund to trusts ; authorization of credit to bene-
ficiaries. 
"Sec. 668. Treatment of amounts deemed distributed in preceding 
., , 
years. 
* 
*" 
"Sec. 669. Treatment of capital gain deemed distributed in pre-
ceding years. 
"SEC. 665. DEFINITIONS APPLICABLE TO SUBPART D. 
" 
"(a) UNDISTRIBUTED NET INCOME.—For purposes of this subpart 
the term 'undistributed net income' for any taxable year means the 
•r-i'- 
'' 
amount by which the distributable net income of the trust for such 
taxable year exceeds the sum of— 
"(1) the amounts for such taxable year specified in paragraphs 
ITvlTeel^^' 
(1) and (2) of section 661 (a), and 
"(2) the amount of taxes imposed on the trust attributable to 
such distributable net income. 
"(b) ACCUMULATION DISTRIBUTION.—For purposes of this subpart, 
the term 'accumulation distribution' means, for any taxable year of the 
trust, the amount by which— 
"(1) the amounts specified in paragraph (2) of section 661(a) 
for such taxable year, exceed 
" (2) distributable net income for such year reduced (but not 
below zero) by the amounts specified in paragraph (1) of section 
661(a). 
"(c) 
SPECIAL RULE APPLICABLE TO DISTRIBUTIONS BY CERTAIN FOR-
EIGN TRUSTS.—For purposes of this subpart, any amount paid to a 
United States person which is from a payor who is not a United 
States person and which is derived directly or indirectly from a foreign 
trust created by a United States person shall be deemed in the year 
of payment to have been directly paid by the foreign trust. 
"(d) TAXES IMPOSED ON THE TRUST.—For purposes of this sub-
part, the term 'taxes imposed on the trust' means the amount of the 
taxes which are imposed for any taxable year of the trust under this 
chapter (without regard to this subpart) and which, under regulations 
prescribed by the Secretary or his delegate, are properly allocable to 
the undistributed portions of distributable net mcome and gains m 
excess of losses from sales or exchanges of capital assets. The amount 
determined in the preceding sentence shall be reduced by any amount 
of such taxes deemed distributed under section 666 (b) and (c) or 
669 (d) and (e) to any beneficiary. 
"(e) PRECEDING TAXABLE YEAR.—For. purposes of this subpart— 
^ 
" (1) in the case of a trust (other than a foreign trust created by 
^' 
a United States person), the term 'preceding taxable year' does not 
include any taxable year of the trust— 
"(A) which precedes by more than 5 years the ta.xable 
year of the trust in which an accumulation distribution is 
made, if it is made in a taxable year beginning before Janu-
ary 1, 1974, 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1%9 
593 
"(B) whicli begins before January 1, 1969, in the case of 
an accumulation distribution made during a taxable year 
beginning after December 31,1973, or 
"(C) which begins before January 1,1969, in the case of a 
capital gam distribution made during a taxable year begin-
ning after December 31,1968; and 
«(2) m the case of a foreign trust created by a United States 
person, such term does not include any taxable year of the trust to 
which this part does not apply. 
In the case of a preceding taxable year with respect to which a trust 
qualifies (without regard to this subpart) under the provisions of sub-
part B, for purposes of the application of this subpart to such trust 
for such taxable year, such trust shall, in accordance with regulations 
prescribed by the Secretary or his delegate, be treated as a trust to 
which subpart C applies. 
"(f) UNDISTRIBUTED CAPITAL GAIN.—For purposes of this subpart, 
the term 'undistributed capital gain' means, for any taxable year of the 
trust beginning after December 31, 1968, the amount by which— 
"(1) gains in excess of losses from the sale or exchange of capi-
tal assets, to the extent that such gains are allocated to corpus and 
are not (A) paid, credited, or required to be distributed to any 
beneficiary during such taxable year, or (B) paid, permanently 
set aside, or used for the purposes specifi^ed m section 642(c), 
^"'^' P- SSS. 
exceed 
"(2) the amount of taxes imposed on the trust attributable to 
such gains. 
For purposes of paragraph (1), the deduction under section 1202 
26^8*0*120^2°' 
(relating to deduction for excess of capital gains over capital losses) 
shall not be taken into account. 
"(g) CAPITAL GAIN DISTRIBUTION,—For purposes of this subpart, 
the term 'capital gain distribution' for any taxable year of the trust 
means, to the extent of undistributed capital gain for such taxable year, 
that portion of— 
"(1) the excess of the amounts specified in paragraph (2) of 
section 661(a) for such taxable year over distributable net income 
for such year reduced (but not below zero) by the amounts speci-
fied in paragraph (1) of section 661 (a), over 
"(2) the undistributed net income of the trust for all preceding 
taxable years. 
"SEC. 666. ACCUMULATION DISTRIBUTION ALLOCATED TO PRECED-
ING YEARS. 
"(a) AMOUNT ALLOCATED.—In the case of a trust which is subject 
to subpart C, the amount of the accumulation distribution of such trust 
for a taxable year shall be deemed to be an amount within the meaning 
of paragraph (2) of section 661(a) distributed on the last day of each 
of the preceding taxable years, commencing with the earliest of such 
years, to the extent that such amount exceeds the total of any undistrib-
uted net income for all earlier preceding taxable years. The amount 
deemed to be distributed in any such preceding taxable year under the 
preceding sentence shall not exceed the undistributed net income for 
such preceding taxable year. For purposes of this subsection, undis-
tributed net income for each of such preceding taxable years shall be 
computed without regard to such accumulation distribution and 
without regard to any accumulation distribution determined for any 
succeeding taxable year. 
'(b) 
TOTAL TAXES DEEMED DISTRIBUTED.—If any portion of 
an 
accumulation distribution for any taxable year is deemed under sub-
s^tion (a) to be an amount within the meaning of paragraph (2) 
594 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 3^^ 
>
• 
of section 661 (a) distributed on the last day of any preceding taxabl 
year, and such portion of such distribution is not less than the uiicli ^ 
68A Stat. 220. 
26 use 661. 
^,^^^^ ^^^^ g^^^j^ portion of such distribution is not "less than theutitlT^ 
tributed net income for such preceding taxable year, the trust shatl 
be deemed to have distributed on the last day of such preceding tax 
able year an additional amount within the meaning of paragraph (•;\ 
of section 661(a). Such additional amount shall be equal to the taxes 
imposed on the trust for such preceding taxable year attributable to 
the undistributed net income. For purposes of this subsection the 
nndistributed net income and the taxes imposed on the trust for 
such preceding taxable year attributable to such undistributed net 
income shall be compnted without regard to such accumulation distri-
bution and without regard to any accumulation distribution deter-
mined for any succeeding taxable year. 
"(c) 
PRO RATA PORTION or TAXES DEEMED DISTRIBUTP:D.—If anv 
portion of an accumulation distribution for any taxable year is deemed 
under subsection (a) to be an amount within the meaning of paragraph 
(2) of section 661(a) distributed on the last day of any preceding 
taxable year and such portion of the accumulation distribution is less 
than the undistributed net income for such preceding taxable year 
the trust shall be deemed to have distributed on the last day of snch 
preceding taxable year an additional amount within the meaning of 
paragraph (2) of section 661(a). Such additional amount shall be 
equal to the taxes imposed on the trust for such taxable year attribut-
able to the undistributed net income multiplied by the ratio of the 
portion of the accimiulation distribution to the undistributed net 
income of the trust for such year. For purposes of this subsection, the 
undistributed net income and the taxes imposed on the trust for such 
preceding taxable year attributable to such undistributed net income 
shall be computed without regard to the accumulation distribution and 
without regard to any accumulation distribution determined for any 
succeeding taxable year. 
"(d) 
RULE W H E N INFORMATION I S NOT AVAILABLE.—If adequate 
records are not available to determine the proper application of this 
subpart to an amount distributed by a trust, such amount shall be 
deemed to be an accumulation distribution consisting of undistributed 
net income earned during the earliest preceding taxable year of the 
trust in which it can be established that the trust was in existence. 
"SEC. 667. DENIAL 
OF REFUND 
TO TRUSTS; 
AUTHORIZATION OF 
CREDIT TO BENEFICIARIES. 
"(a) DENIAL or REFUND TO TRUSTS.—No refund or credit shall be 
allow^ed to a trust for any preceding taxable year by reason of a 
distribution deemed to have been made by such trust in such year under 
section 666 or 669. 
"(b) AUTHORIZATION OF CREDIT TO BENEFICIARY.—There shall be 
allowed as a credit (without interest) against the tax imposed by this 
subtitle on the beneficiary an amount equal to the amount of the taxes 
deemed distributed to such beneficiary by the trust under sections 666 
(b) and (c) and 669 (d) and (e) during preceding taxable years of 
the trust on the last day of which the beneficiary was in being, reduced 
by the amount of the taxes deemed distributed to such beneficiary for 
such preceding taxable years to the extent that such taxes are taken 
into account under sections 668(b) (1) and 669(b) in determining the 
amount of the tax imposed by section 668. 
"SEC. 668. TREATMENT OF AMOUNTS DEEMED DISTRIBUTED IN PRE-
CEDING YEARS. 
"(a) GENERAL RULE.—The total of the amounts which are treated 
under sections 666 and 669 as having been distributed by the trust in a 
preceding taxable year shall be included in the income of a beneficiary 
26 use 662. 
83 S
T
A
T
. ] 
PUBLIC LAW 91-172-DEC. 30, 1%9 
595 
of the trust when paid, credited, or required to be distributed to the 
nvtent that such total would have been included in the income of such 
beneficiary under section 662(a) (2) and (b) if such total had been 
^'^ ^'^'- "o-
paid to such beneficiary on the last day of such preceding taxable 
Vear. The tax imposed by this subtitle on a beneficiary for a taxable 
year in which any such amount is included in his income shall be 
determined only as provided in this section and shall consist of the 
sum of— 
"(1) a partial tax computed on the taxable income reduced by 
an amount equal to the total of such amounts, at the rate and iii 
the manner as if this section had not been enacted, 
"(2) a partial tax determined as provided in subsection (b) of 
this section, and 
" (3) in the case of a beneficiary of a trust which is not required 
to distribute all of its income currently, a partial tax determined 
as provided in section 669. 
For purposes of this subpart, a trust shall not be considered to be a 
trust which is not recjuired to distribute all of its income currently for 
any taxable year prior to the first taxable year in which income is 
accumulated. 
"(b) TAX ON DISTRIBUTION.— 
" (1) ALTERNATIVE METHODS.—^Except as provided in paragraph 
(2), the partial tax imposed by subsection (a)(2) shall be the 
lesser of— 
"(A) the aggregate of the taxes attributable to the 
amounts deemecl distributed under section 666 had they been 
included in the gross income of the beneficiary on the last 
day of each respective preceding taxable year, or 
"(B) the tax determined by multiplying, by the number 
of preceding taxable years of the trust, on the last day of 
which an amount is deemed under section 666(a) to have 
been distributed, the average of the increase in tax attrib-
utable to recomputing the beneficiary's gross income for each 
of the beneficiary's 3 taxable years immediately preceding the 
year of the accumulation distribution by adding to the income 
of each of such years an amount determined by dividing the 
amount deemed distributed under section 666 and required to 
be included in income under subsection (a) by such number 
of preceding taxable years of the trust, 
less an amount equal to the amount of taxes deemed distributed 
to the beneficiary under sections 666 (b) and (c). 
"(2) 
SPECIAL RULES.— 
"(A) If a beneficiary w^as not in existence on the last day 
of a preceding taxable year of the trust with respect to which 
a distribution is deemed made under section 666(a), the par-
tial tax under either paragraph (1) (A) or (1) (B) shall be 
computed as if the beneficiary were in existence on the last 
day of such year on the basis that the beneficiary had no gross 
income (other than amounts deemed distributed to him under 
sections 666 and 669 by the same or other trusts) and no deduc-
tions for such year. 
"(B) The partial tax shall not be computed under the pro-
visions of subparagraph (B) of paragraph (1) if, in the same 
prior taxable year of the beneficiary in which any part of the 
accumulation distribution is deemed under section 666(a) to 
have been distributed to such beneficiary, some part of prior 
accumulation distributions by each of two or more other trusts 
596 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT 
is deemed under section 666(a) to have been distributed 
such beneficiary. 
™ 
"(C) If the partial tax is computed under pa^agrar^v 
(1)(B), and the amount of the undistributed net inconi 
deemed distributed in any preceding taxable year of the trust 
is less than 25 percent of the amount of the accumulation dig 
tribution divided by the number of preceding taxable years to 
which the accumulation distribution is allocated under section 
666(a), the number of preceding taxable years of the trust 
with respect to which an amount is deemed distributed to a 
beneficiary under section 666(a) shall be determined without 
J 
regard to such year. 
"(3) 
EFFECT OF OTHER ACCUMULATION DISTRIBUTIONS AND CAPI-
TAL GAIN DISTRIBUTIONS.—In computing the partial tax under 
paragraph (1) for any beneficiary, the income of such beneficiary 
for each of his prior taxable years— 
, •; 
"(A) shall include amounts previously deemed distributed 
; ' 
to such beneficiary in such year under section 666 or 669 as a 
result of prior accumulation distributions or capital gain dis-
tributions (whether from the same or another trust), and 
"(B) shall not include amounts deemed distributed to such 
beneficiary in such year under section 669 as a result of a 
capital gain distribution from the same trust in the current 
year. 
" (4) 
MULTIPLE DISTRIBUTIONS IN THE SAME TAXABLE TEAR.—In 
the case of accumulation distributions made from more than one 
trust which are includible in the income of a beneficiary in the 
same taxable year, the distributions shall be deemed to have been 
made consecutively in whichever order the beneficiary shall 
determine. 
"(5) 
INFORMATION REQUIREMENTS WITH 
RESPECT TO BENE-
FICIARY.— 
" (A) Except as provided in subparagraph (B), the partial 
tax shall not be computed under the provisions of paragraph 
(1) (A) unless the beneficiary supplies such information with 
respect to his income, for each taxable year with which or in 
which ends a taxable year of the trust on the last day of which 
an amount is deemed distributed under section 666 (a), as the 
Secretary or his delegate prescribes by regulations. 
"(B) If by reason of paragraph (2) (B) the provisions of 
paragraph (1) (B) do not apply, the determination of the 
amount of the beneficiary's income for a taxable year for 
which the beneficiary has not supplied the information 
required under subparagraph (A) shall be made by the Sec-
retary or his delegate on the basis of information available 
to him. 
"SEC. 669. TREATMENT OF CAPITAL GAIN DEEMED DISTRIBUTED IN 
PRECEDING YEARS. 
"(a) AMOUNT ALLOCATED.—In the case of a trust which is not 
required to distribute all of its income currently, the amount of a capital 
gain distribution of such trust for a taxable year shall be deemed to be 
an amount properly paid, credited, or required to be distributed on the 
last day of each of the preceding taxable years, commencing with the 
earliest of such years, to the extent that such amount exceeds the total 
of any undistributed capital gain for all earlier preceding taxable 
years. The amount deemed to be distributed in any such preceding 
taxable year under the preceding sentence shall not exceed the undis-
tributed capital gain for such preceding taxable year. For purposes 01 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
597 
this subsection, undistributed capital gain for each of such preceding 
taxable years shall be computed without regard to such capital gain 
distribution and without regard to any capital gain distribution deter-
mined for any succeeding taxable year. 
«(b) TAX ON DISTRIBUTION.—The partial tax imposed by section 668 
/a) (3) shall be the lesser of— 
"(1) the aggregate of the taxes attributable to the amounts 
deemed distributed under this section, had such amounts been 
included in the gross income of the beneficiary on the last day of 
each respective preceding taxable year, or 
"(2) the tax determined by multiplying by the number of 
preceding taxable years of the trust, on the last day of which net 
gains from the sale or exchange of capital assets are deemed under 
subsection (a) to have been distributed, the average of the increase 
in tax attributable to recomputing the beneficiary's gross in-
come for each of the beneficiary's 3 taxable years immediately 
preceding the year of the capital gain distribution by adding to 
• \' 
' [^'V 
the income of each of such years an amount determined by divid-
ing the total of the amounts deemed distributed under this section 
and required to be included in income under section 668(a) by 
such number of preceding taxable years of the trust, 
less an amount equal to the amount of taxes deemed distributed to the 
beneficiary under subsections (d) and (e) which are attributable to 
the capital gain distribution. 
"(c) 
EFFECT OF OTHER DISTRIBUTIONS; SPECIAL RULES, ETC.—In 
computing the partial tax under subsection (b) for any beneficiary, the 
income of such beneficiary for each of his prior taxable years— 
"(1) shall include amounts previously deemed distributed to 
such beneficiary in such year under section 666 or 669 as a result 
of prior accumulation distributions or capital gain distributions 
(whether from the same or another trust), and 
"(2) shall include amounts deemed distributed to such bene-
ficiary in such year under section 666 as a result of an accumulation 
distribution from the same trust in the current year. 
Under regulations prescribed by the Secretary or his delegate, rules 
similar to the rules provided by paragraphs (2), (4), and (5) of sec-
tion 668 (b) shall be applied for purposes of this section. 
"(d) 
TOTAL TAXES DEEMED DISTRIBUTED.—If any 
portion of 
a 
capital gain distribution for any taxable year is deemed under subsec-
tion (a) to be an amount properly paid, credited or required to be 
distributed on the last day of any preceding taxable year, and such 
portion of such capital gain distribution is not less than the undis-
tributed capital gam for such preceding taxable year, the trust shall 
be deemed to have properly distributed on the last day of such preced-
ing taxable year an additional amount. Such additional amount shall 
be equal to the taxes imposed on the trust for such preceding taxable 
year attributable to such undistributed capital gain. For purposes of 
this subsection, the undistributed capital gain and the taxes imposed 
on the trust for such preceding taxable year attributable to such gain 
shall be computed without regard to such capital gain distribution and 
without regard to any capital gain distribution determined for any 
succeeding taxable year. 
** * ''^'^' 
"(e) 
PRO RATA PORTION OF TAXES DEEMED DISTRIBUTED.—If 
any 
portion of a capital gain distribution for any taxable year is deemed 
under subsection (a) to be an amount properly paid, credited, or re-
quired to be distributed on the last day of any preceding taxable year 
and such portion of the capital gain distribution is less than the undis-
tributed capital gain for such preceding taxable year, the trust shall 
31-100 0 - 70 - 40 
598 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 STAT. 
be deemed to have properly distributed on the last day of such preced-
ing taxable year an additional amount. Such additional amount shall 
be equal to the taxes imposed on the trust for such taxable year 
attributable to such undistributed capital gain multiplied by the 
ratio of the portion of the capital gain distribution to the undistributed 
capital gain of the trust for such year. For purposes of this subsection 
the undistributed capital gain and the taxes imposed on the trust for 
such preceding taxable year attributable to such gain shall be com-
puted without regard to the capital gain distribution and without 
regard to any capital gain distribution determined for any succeeding 
taxable year. 
"(f) 
CHARACTER OF CAPITAL GAIN.—For purposes of this section 
the character of the capital gain of a trust for any taxable year with 
respect to a beneficiary shall be the same as it was with respect to the 
trust." 
(b) 
DISTRIBUTIONS IN FIRST SIXTY-FIVE DAYS OF TAXABLE YEAR.— 
68A Stat 222. 
Se(.tion 663(b)(2) (relating to limitation on sixty-five day rule) is 
26 UoC^ 0 0 0 , 
1 1 1 
1 
i» n 
amended to read as follows: 
"(2) LIMITATION.—Paragraph (1) shall apply with respect to 
any taxable year of a trust only if the fiduciary of such trust elects 
in such manner and at such time as the Secretary or his delegate 
prescribes by regulations, to have paragraph (1) apply for such 
taxable year." 
79 Stat. 168. 
^^^ EXCESSIVE CREDITS.—Section 6401(b) 
(relating to excessive 
credits) is amended— 
(1) by striking out "UNDER SECTIONS 31 AND 39" in the heading 
of such section; 
(2) bj^ striking out "and 39 (relating" in the text of such sec-
tion and inserting in lieu thereof ", 39 (relating"; and 
(3) by inserting after "lubricating oil)" in the text of such sec-
tion "and 667 (b) (relating to taxes paid by certain trusts)". 
(d) 
EFFECTIVE DATE.— 
(1) GENERAL RULE.—Except as otherwise provided in this sub-
section, the amendments made by this section shall apply to tax-
able years beginning after December 31,1968. 
(2) EXCEPTIONS.— 
(A) Amounts paid, credited, or required to be distributed 
by a trust (other than a foreign trust created by a United 
States person) on or before the last day of a taxable year of 
the trust beginning before January 1, 1974, shall not be 
deemed to be accumulation distributions to the extent that 
such amounts were accumulated by a trust in taxable years of 
such trust beginning before January 1, 1969, and would have 
been excepted from the definition of an accumulation distribu-
tion by reason of paragraphs (1), (2), (3), or (4) of section 
665(b) of the Internal Revenue Code of 1954, as in effect on 
- i 
- December 31, 1968, if they had been distributed on the last 
; - i. 5 • day of the last taxable year of the trust beginning before 
J" V 
January 1,1969. 
(B) For taxable years of a trust begimiing before Janu-
ary 1,1970, the first sentence of section 666 (a) of the Internal 
Revenue Code of 1954 (as amended by this section) shall not 
apply, and the amount of the accumulation distribution of the 
trust for such taxable years shall be deemed to be an amount 
w^ithin the meaning of paragraph (2) of section 661(a) dis-
tributed on the last day of each of the preceding taxable years 
Ante, p. 593. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1%9 
599 
to the extent that such amount exceeds the total of any un-
distributed net income for any taxable years intervening be-
tween the taxable year with respect of which the accumulation 
distribution is determined and such preceding taxable year. 
(C) In the case of a trust which was in existence on Decem-
ber 31, 1969, section 669 of the Internal Revenue Code of 
1954, as amended by this section, shall not apply to capital 
gain distributions made to a beneficiary before January 1, 
1972. If the beneficiary receives capital gain distributions 
from more than one such trust before January 1, 1972, the 
preceding sentence shall apply to capital gain distributions 
from only one of such trusts, such one to be designated by 
the taxpayer in accordance with regulations prescribed by • 
the Secretary or his delegate. For purposes of the preceding 
' ' ' ' ""'• 
sentence, capital gain distributions received from a trust 
qualifying under section 2056(b) (5) of the Internal Revenue 
Code of 1954 by a surviving spouse (who is the beneficiary 
26'us*c*2ol6^' 
of only one such trust) shall be disregarded. 
SEC. 332. TRUST INCOME FOR BENEFIT OF A SPOUSE. 
P
; 
.s.o^^ 
(a) INCOME F
O
R BENEFIT OF GRANTOR'S SPOUSE.— 
(1) Paragraphs (1), (2), and (3) of section 677(a) (relating 
to income for benefit of grantor) are amended by striking out "the 
oTantor" each place it appears and inserting in lieu thereof "the 
grantor or the grantor's spouse". 
(2) Section 677(b) is amended by striking out "beneficiary'' 
and inserting in lieu thereof "beneficiary (other than the grantor's 
spouse)". 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply in respect of property transferred in trust after October 9, 
1969. 
TITLE IV—ADJUSTMENTS PRIMARILY 
AFFECTING CORPORATIONS 
Subtitle A—Multiple Corporations 
SEC. 401. MULTIPLE CORPORATIONS. 
(a) I N 
GENERAL.— 
(1) Section 1561 (relating to surtax exemptions in case of 
certain controlled corporations) is amended to read as follows: 
•SEC. 1561. LIMITATIONS ON CERTAIN MULTIPLE TAX BENEFITS IN 
THE CASE OF CERTAIN CONTROLLED CORPORATIONS. 
"(a) GENERAL RULE.—The component members of a controlled 
group of corporations on a December 31 shall, for their taxable years 
which include such December 31, be limited for purposes of this sub-
title t o - 
;,. -
"(1) one $25,000 surtax exemption under section 11(d), ' 
^^ ^'^'- ^^^ 
*'(2) one $100,000 amount for purposes of computing the accu-
mulated earnings credit under section 535(c) (2) and (3), and 72^8^3^*1680^°' 
" (3) one $25,000 amount for purposes of computing the limita-
tion on the small business deduction of life insurance companies 
under sections 804(a) (4) and 809(d) (10). 
The amount specified in paragraph (1) shall be divided equally 
i^mong the component members of such group on such December 31 
unless all of such component members consent (at such time and in such 
manner as the Secretary or his delegate shall by regulations prescribe) 
fo an apportionment plan providing for an unequal allocation of such 
amount. The amounts specified in paragraphs (2) and (3) shall be 
78 Stat. 116. 
73 Stat, 115. 
600 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 STAT 
divided equally among the component members of such group on such 
December 31 unless the Secretary or his delegate prescribes regulations 
permitting an unequal allocation of such amounts. 
''(b) 
CERTAIX SHORT TAXABLE YEARS.—If a corporation has a short 
taxable year which does not include a December 31 and is a component 
member of a controlled group of corporations with respect to such tax-
able year, then for purposes of this subtitle— 
78 Stat. 25. 
"(1) tlic surtax exemption under section 11(d), 
" (2) the amount to be used in computing the accumulated earn-
68A Stat. 180; 
ings Credit under section 535(c) (2) and (3), and 
72 Stat. 1680. 
a ^3^ ^^le amouut to be used in computing the limitation on the 
small business deduction of life insurance companies under sec-
73 Stat. 115. 
tions 804(a) (4) and 809(d) (10), 
of such corporation for such taxable year shall be the amount specified 
in subsection (a) (1), (2), or (3), as the case may be, divided by the 
number of corporations which are component members of such group 
on the last day of such taxable year. For purposes of the preceding 
78 Stat. 120. 
sentence, section 1563(b) shall be applied as if such last day were sub-
26 use 1563. 
gtituted for December 31." 
^^p^^^- 
(2) Section 1562 (relating to privilege of groups to elect mul-
tiple surtax exemptions) is repealed. 
(3) The table of sections for part I I of subchapter B of chapter 
6 is amended by striking out the items relating to sections 1561 and 
1562 and inserting in lieu thereof the following: 
"Sec. 1561. Limitations on certain multiple tax benefits in the case o
f 
certain controlled corporations." 
(b) 
TRANSITIONAL 
RULES FOR CONTROLLED GROUPS OF CORPORA-
TIONS.— 
78 Stat. 116. 
^ ^ Part I I of subchapter B of chapter 6 (relating to certain 
controlled corporations) is amended by adding at the end thereof 
the following new section: 
"SEC. 1564. TRANSITIONAL RULES IN THE CASE OF CERTAIN CON-
TROLLED CORPORATIONS. 
" (a) LIMITATION ON ADDITIONAL BENEFITS.— 
"(1) I N GENERAL.—With respect to any December 31 after 1969 
and before 1975, the amount of— 
"(A) each additional $25,000 surtax exemption under sec-
tion 1562 in excess of the first such exemption, 
"(B) each additional $100,000 amount under section 535 (c) 
(2) and (3) in excess of the first such amount, and 
"(C) each additional $25,000 limitation on the small busi-
ness deduction of life insurance companies under sections 
804(a) (4) and 809(d) (10) in excess of the first such limita-
tion, 
otherwise allowed to the component members of a controlled group 
of corporations for their taxable years which include such Decem-
ber 31 shall be reduced to the amount set forth in the following 
schedule: 
Amount 
Small 
k^^iyr-u 
••'cM\ v ! ; i - 
>
^
: ;•:.• r^W'-'^J':-^-?''--., 
under sec. 
business 
? H . « i « ' r - 
Surtax 
535(c)(2) 
deduclmn 
"Taxable years including— 
exemption 
and (3) 
limitation 
Dec. 31,1970 
520,833 
J83,333 
J?5'Hi 
Dec. 31,1971 
16,667 
66,667 
^}'fl 
Dec. 31,1972 
12,500 
50,000 
12.500 
Dec 31,1973 
8,333 
33,333 
J-fS 
Dec 31,1974 
4,167 
16,667 
*•"' 
83 
STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
601 
"(2) ELECTION.—With respect to any December 31 after 1969 
and before 1975, the component members of a controlled group of 
corporations shall elect (at such time and in such manner as the 
Secretary or his delegate shall by regulations prescribe) which 
component member of such group shall be allowed for its taxable 
year which includes such December 31 the surtax exemption, the 
amount under section 535(c) (2) and (3), or the small business 
SSA stat. iso; 
deduction limitation which is not reduced under paragraph (1), ^^ ^
*
^
*
* ^^*°' 
"(b) DIVIDENDS RECEIVED BY COKPORATIONS.— 
^Ul) GENERAL RULE.—If— 
"(A) an election of a controlled group of corporations (as 
defined in paragraph (1), or in so much of paragraph (4) as 
relates to paragraph (1), of section 1563(a)) under section 
^^ ^*^*- ^^o. 
1562(a) (relating to privilege of a controlled group of cor- 
^"^^' P- ^°°-
porations to elect to have each of its component members 
make its returns without regard to section 1561) was made 
'' ''"' '•"' 
on or before April 22,1969, and 
"(B) such election is effective with respect to the taxable 
year of each component member of such group which includes 
December 31, 1969, 
then, with respect to a dividend distributed on or before Decem-
ber 31,1977, out of earnings and profits of a taxable year which 
includes a December 31 after 1969 and before 1975, subsections 
(a) (3) and (b) of section 243 (relating to dividends received by 
H ^g^- ^^^ 
corporations) shall be applied to such component members com-
prising an affiliated group (as defined in section 243(b) (5)) in the 
manner set forth in paragraph (2). 
' j i: 
"(2) SPECIAL RULES.— 
"(A) An election under section 243(b)(2) may be made 
for a taxable year which includes a December 31 after 1969 
and before 1975, notwithstanding that an election under sec-
tion 1562 (a) is in effect for the taxable year. 
"(B) Section 243(b) (1) (B) (ii) shall not apply with 
respect to a dividend distributed on or before December 31, 
1977, out of earnings and profits of a taxable year which 
includes a December 31 after 1969 and before 1975 for which 
an election under section 1562(a) is in effect, and in lieu of 
the percentage specified in section 243(a) (3) with respect to 
such dividend, the percentage shall be the percentage set forth 
in the following schedule: 
"If the dividend is distributed out 
', > 
* 
of the earnings and profits of 
the distributing 
corporation's 
The percentage 
taxable year which includes— 
shall be— 
December 31,1970 
87% percent. 
December 31,1971 
90 percent. 
December 31,1972 
921/3 percent. 
December 31,1973 
95 percent. 
December 31,1974 
971/3 percent. 
,,,.,,;>,„=, 
" (C) For taxable years which include a December 31 after 
1969 for which an election under section 1562(a) is in effect, 
section 243(b) (3) (C) (v) shall not be applied to limit the 
^
^ 
number of surtax exemptions. 
'(c) CERTAIN SHORT TAXABLE YEARS.—If— 
"(1) a corporation has a short taxable year beginning after 
December 31, 1969, and ending before December 31, 1974, which 
does not include a December 31, and 
78 Stat. 25. 
68A Stat. 182. 
73 Stat. 115. 
602 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"(2) such corporation is a component member of a controllei 
group of corporations with respect to such taxable year (deter 
mined by applying section 1563(b) as if the last day of such tax-
able year were substituted for December 31), 
then subsections (a) and (b) shall be applied as if the last day of s^pj^ 
taxable year were the nearest December 31 to such day." 
Ante, p. 600. 
(2) (A) Tlie first sentence of section 1562 (b) (1) is amended by 
striking out "$25,000"' and inserting in lieu thereof "the amount 
of such corporation's surtax exemption for such taxable year". 
(B) Section 11(d) is amended by striking out "section 1561" 
and inserting in lieu thereof "section 1561 or 1564". 
(C) Section 535(c)(5) is amended by striking out "section 
1551" and inserting in lieu thereof "section 1551, and for limita-
tion on such credit in the case of certain controlled corporations 
see sections 1561 and 1564". 
(D) Section 804 is amended by adding after subsection (c) the 
following new subsection: 
"(d) CROSS REFERENCE.— 
^ 
"For reduction of the $25,000 amount provided in subsection (a)(4) 
in the case of certain controlled corporations, see sections 1561 and 
1564." 
(E) The table of sections for part I I of subchapter B of chap-
ter 6 is amended by adding at the end thereof the following: 
"Sec. 1564. Transitional 
rules in the case of certain controlled 
corporations." 
llfl^^'}^2^ 
(c) BROTIIER-SISTER CONTROLLED GROUPS.—Section 1563(a)(2) is 
26 u s e 1 5 6 3 . 
T 
T , 
-I 
p ^^ 
\ / \ / 
amended to read as follows: 
"(2) BROTIIER-SISTER CONTROLLED GROUP.—Two or more corpo-
, ,^. rations if 5 or fewer persons who are individuals, estates, or trusts 
own (within the meaning of subsection (d)(2)) stock uossessinj;— 
"(A) at least 80 percent of the total combined voting 
power of all classes of stock entitled to vote or at least 80 
percent of the total value of shares of all classes of the stock 
of each corporation, and 
"(B) more than 50 percent of the total combined voting 
power of all classes of stock entitled to vote or more than 50 
percent of the total value of shares of all classes of stock of 
,;, 
. 
each corporation, taking into account the stock ownership of 
each such person only to the extent such stock ownership is 
identical with respect to each such corporation." 
(d) EXCLUDED STOCK: RULES.— 
(1) Section 1563(c) (2) (A) is amended by striking out "or" at 
the end of clause (ii); by striking out "stock." at the end of clause 
(iii) and inserting in lieu thereof "stock, or"; and by adding after 
•
• clause (iii) the following new clause: 
'.: 
"(iv) stock in the subsidiary corporation owned (within 
. ],~.' 
the meaning of subsection (d) (2)) by an organization (other 
68A Stat, 163. 
^hau the parent corporation) to which section 501 (relating to 
certain educational and charitable organizations which are 
_ , ^ ^,, 
exempt from tax) applies and which is controlled directly or 
.»,i. ,.i 
indirectly by the parent corporation or subsidiary corpora-
i»- 
tion, by an individual, estate, or trust that is a principal stock-
~ 
' 
holder (within the meaning of clause (ii)) of the parent 
corporation, by an officer of the parent corporation, or by any 
combination thereof." 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
603 
(2) Section 1563(c) (2) (B) isamended— 
78 stat. 120. 
(A) by striking out "a person who is an individual, estate, 
^^ "^^ ^^"" 
or trust (referred to in this paragraph as 'common owner') 
owns" and inserting in lieu thereof "5 or fewer persons who 
are individuals, estates, or trusts (referred to in this subpara-
graph as 'common owners') own"; 
(B) by striking out "or" at the end of clause (i); 
(C) by striking out in clause (ii) "such common owner", 
"the common owner", and "stock." and inserting in lieu 
thereof "any of such common owners", "any of the common 
owners", and "stock, or", respectively; and 
(D) by adding after clause (ii) the following new clause: 
•
-
> . 
"(iii) stock in such corporation owned (within the 
meaning of subsection (d)(2)) by an organization to 
which section 501 (relating to certain educational and 
^SA stat. lea. 
charitable organizations which are exempt from tax) 
applies and which is controlled directly or indirectly by 
such corporation, by an individual, estate, or trust that 
is a principal stockholder (within the meaning of sub-
paragraph (A)(ii)) of such corporation, by an officer 
of such corporation, or by any combination thereof." 
(e) INVESTMENT CREDIT.— 
(1) Section 46(a) (5) is amended to read as follows: 
'^^ ^*^*- ^^3. 
"(5) CONTROLLED GROUPS.—In the case of a controlled group, 
the $25,000 amount specified under paragraph (2) shall be reduced 
for each component member of such group by apportioning 
$25,000 among the component members of such group in such 
manner as the Secretary or his delegate shall by regulations pre-
scribe. For purposes of the preceding sentence, the term 'con-
trolled group' has the meaning assigned to such term by section 
1563(a)." 
(2) Section 48(c) (2) (C) is amended to read as follows: 
"(C) CONTROLLED GROUPS.—In the case of a controlled 
group, the $50,000 amount specified under subparagraph (A) 
shall be reduced for each component member of the group by 
apportioning $50,000 among the component members of such 
group in accordance with their respective amounts of used 
section 38 property which may be taken into account." 
(3) Section 48(c) (3) (C) is amended to read as follows: 
"(C) CONTROLLED GROUP.—The term 'controlled group' has 
the meaning assigned to such term by section 1563(a), except 
that the phrase 'more than 50 percent^all be substituted for 
the phrase 'at least 80 percent' each place it appears in section 
, , 
1563(a)(1)." 
. 
.- . 
(4) Section 48(d)(2) is amended to read as follows: 
' ' 
" (2) if such property is leased by a corporation which is a com-
ponent member of a controlled group (within the meaning of sec-
tion 46(a)(5)) to another corporation which is a component 
member of the same controlled group, the basis of such property 
to the lessor." 
(f) 
ADDITIONAL FIRST-YEAR DEPRECIATION.—Section 179(d) 
is 
amended— 
(1) by amending paragraph (2) (B) to read as follows: 
" (B) the property is not acquired by one component mem-
ber of a controlled group from another component member of 
the same controlled group, and"; and 
Supra. 
72 Stat. 1679. 
604 
72 Stat. 1680. 
Ante, p. 602. 
Ante, p. 600. 
68A Stat. 76; 
Ante, p. 573. 
26 u s e 261. 
.'i''Mi ,'.arS S-
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 ST^T 
(2) by amending paragraphs (6) and (7) to read as follo^vs-
"(6) 
DOLLAR LIMITATION OF CONTROLLED GROUP.—For purposes 
of subsection (b) of this section— 
" (A) all component members of a controlled group shall be 
treated as one taxpayer, and 
"(B) the Secretary or his delegate shall apportion the dol-
lar limitation contained in such subsection (^b) among the 
component members of such controlled group in such manner 
as he shall by regulations prescribe. 
" (7) CONTROLLED GROUP DEFINED.—For purposes of paragraphs 
(2) and (6), the term 'controlled group' has the meaning assigned 
to it by section 1563 (a); except that, for such purposes, the phrase 
'more than 50 percent' shall be substituted for the phrase 'at least 
80 percent' each place it appears in section 1563(a) (1)." 
(g) 
RETROACTIVE TERMINATION OF SECTION 1562 ELECTIONS.—If an 
affiliated group of corporations makes a consolidated return for the 
taxable year which includes December 31, 1970 (hereinafter in this 
subsection referred to as "1970 consolidated return year"), then on or 
before the due date prescribed by law (including any extensions 
thereof) for filing such consolidated return such affiliated group of 
corporations may terminate the election under section 1562 of the 
Internal Revenue Code of 1954 with respect to any prior December 31 
which is included in a taxable year of any of such corporations from 
which there is a net operating loss carryover to the 1970 consolidated 
return year. A termination of an election under this subsection shall 
be valid only if it meets the requirements of sections 1562(c) (1) and 
1562(e) of such Code (other than making the termination before the 
expiration of the 3-year period specified in section 1562(e)). 
(h) EFFECTIVE DATTIS.— 
(1) The amendments made by subsection (a) shall apply with 
respect to taxable years beginning after December 31,1974. 
(2) Tlie amendments made by subsection (b) shall apply with 
respect to taxable years beginning after December 31, 1969. 
(3) The amendments made by subsections (c), (d), (e), and 
(f) shall apply with respect to taxable years ending on or after 
December 31,1970. 
Subtitle B—Debt-Financed Corporate Acquisitions and 
Related Problems 
SEC. 411. INTEREST ON INDEBTEDNESS INCURRED BY CORPORATION 
TO ACQUIRE STOCK OR ASSETS OF ANOTHER CORPORA-
TION. 
(a) DISALLOWANCE OF INTEREST DEDUCTION.—Part I X of sub-
chapter B of chapter 1 (relating to items not deductible) is amended 
by adding at the end thereof the following new section: 
"SEC. 279. INTEREST ON INDEBTEDNESS 
INCURRED BY CORPORA-
TION TO ACQUIRE STOCK OR ASSETS OF ANOTHER COR-
PORATION. 
"(a) GENERAL RULE.—No deduction shall be allowed for any 
interest paid or incurred by a corporation during the taxable year with 
respect to its corporate acquisition indebtedness to the extent that such 
interest exceeds— 
"(1) $5,000,000, reduced by 
"(2) the amount of interest paid or incurred by such cor-
poration during such year on obligations (A) issued after Decem-
ber 31,1967, to provide consideration for an acquisition described 
in paragraph (1) of subsection (b), but (B) which are not 
corporate acquisition indebtedness. 
83 STAT. ] 
PUBLIC LAW 91-172~DEC. 30, 1%9 
605 
"(b) CORPORATE ACQUISITION INDEBTEDNESS.—For purposes of 
this section, the term 'corporate acquisition indebtedness' means any 
obligation evidenced by a bond, debenture, note, or certificate or other 
evidence of indebtedness issued after October 9,1969, by a corporation 
(hereinafter in this section referred to as 'issuing corporation') if— 
"(1) such obligation is issued to provide consideration for the 
acquisition of— 
"(A) stock in another corporation (hereinafter in this 
section referred to as 'acquired corporation'), or 
"(B) assets of another corporation (hereinafter in this 
section referred to as 'acquired corporation') pursuant to a 
plan under vehich at least two-thirds (in value) of all the 
assets (excluding money) used in trades and businesses carried 
on by such corporation are acquired, 
"(2) such obligation is either— 
"(A) subordinated to the claims of trade creditors of the 
issuing corporation generally, or 
"(B) expressly subordinated in right of payment to the 
payment of any substantial amount of unsecured indebted-
ness, whether outstanding or subsequently issued, of the 
issuing corporation, 
" (3) the bond or other evidence of indebtedness is either— 
"(A) convertible directly or indirectly into stock of the 
issuing corporation, or 
"(B) part of an investment unit or other arrangement 
which includes, in addition to such bond or other evidence of 
indebtedness, an option to acquire, directly or indirectly, stock 
in the issuing corporation, and 
" (4) as of a day determined under subsection (c) (1), either— 
"(A) the ratio of debt to equity (as defined in subsection 
(c) (2)) of the issuing corporation exceeds 2 to 1, or 
"(B) the projected earnings (as defined in subsection 
(c) (3)) do not exceed 3 times the annual interest to be paid 
or incurred (determined under subsection (c) (4)). 
" (c) RULES FOR APPLICATION OF SUBSECTION (b) (4).—For purposes 
of subsection (b) (4)— 
" (1) TIME OF DETERMINATION.—Determinations are to be made 
as of the last day of any taxable year of the issuing corporation in 
which it issues any obligation to provide consideration for an 
acquisition described in subsection (b) (1) of stock in, or assets of, 
the acquired corporation. 
"(2) RATIO OF DEBT TO EQUITY.—The term 'ratio of debt to 
equity' means the ratio which the total indebtedness of the issuing 
corporation bears to the sum of its money and all its other assets 
(in an amount equal to their adjusted basis for determining gain) 
less such total indebtedness. 
"(3) PROJECTED EARNINGS.— 
"(A) The term 'projected earnings' means the 'average 
annual earnings' (as defined in subparagraph (B)) of— 
"(i) the issuing corporation only, if clause (ii) does 
not apply, or 
"(ii) both the issuing corporation and the acquired 
corporation, in any case where the issuing corporation 
^^^ ^^^^ ^^^ 
has acquired control (as defined in section 368(c)), or 
26 use 368. * 
has acquired substantially all of the properties, of the 
acquired corporation. 
606 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 STAT 
"(B) The average annual earnings referred to in subpara-
graph (A) is, for any corporation, the amount of its earn-
ings and profits for any 3-year period ending with the last 
day of a taxable year of the issuing corporation described 
in paragraph (1), computed without reduction for— 
"(i) interest paid or incurred, 
"(ii) depreciation or amortization allowed under this 
,. 
chapter, 
" (iii) liability for tax under this chapter, and 
2^1JS*C*3OV" 
'•'• 
"(^^^ distributions to which section 301(c)(1) ap-
•* , 
plies (other than such distributions from the acquired 
to the issuing corporation), 
and reduced to an annual average for such 3-year period pur-
suant to regulations prescribed by the Secretary or his dele-
gate. Such regulations shall include rules for cases where 
> 
any corporation was not in existence for all of such 3-year 
period or such period includes only a portion of a taxable year 
of any corporation. 
"(4) ANNUAL INTEREST TO BE PAID OR INCURRED.—The term 
'annual interest to be paid or incurred' means— 
"(A) if subparagraph (B) does not apply, the annual 
interest to be paid or incurred by the issuing corporation only, 
determined by reference to its total indebtedness outstanding, 
or 
"(B) if projected earnings are determined under clause 
(ii) of paragraph (3) (A), the annual interest to be paid or 
incurred by both the issuing corporation and the acquired 
corporation, determined by reference to their combined total 
indebtedness outstanding. 
"(5) 
SPECIAL RULES FOR BANKS AND LENDING OR FINANCE COM-
PANIES.—^With respect to any corporation which is a bank (as 
2
6 use 581. 
defined in section 581) or is primarily engaged in a lending or 
finance business— 
"(A) in determining under paragraph (2) the ratio of 
debt to equity of such corporation (or of the affiliated group 
of which such corporation is a member), the total indebted-
ness of such corporation (and the assets of such corporation) 
shall be reduced by an amount equal to the total indebtedness 
owed to such corporation which arises out of the banking 
business of such corporation, or out of the lending or finance 
business of such corporation, as the case may be; 
"(B) in determining under paragraph (4) the annual 
interest to be paid or incurred by such corporation (or by 
the issuing and acquired corporations referred to in para-
. graph (4) (B) or by the affiliated group of which such corpo-
ration is a member) the amount of such interest (determined 
without regard to this paragraph) shall be reduced by an 
amount which bears the same ratio to the amount of such 
interest as the amount of the reduction for the taxable year 
''''•:• 
under subparagraph (A) bears to the total indebtedness of 
such corporation; and 
"(C) in determining under paragraph (3) (B) the aver-
. 
age annual earnings, the amount of the earnings and profits 
for the 3-year period shall be reduced by the sum of the 
reductions under subparagraph (B) for such period. 
For purposes of this paragraph, the term 'lending or finance 
business' means a business of making loans or purchasing or dis-
counting accounts receivable, notes, or installment obligations. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1%9 
607 
"(d) TAXABLE YEARS TO W H I C H APPLICABLE.—In applying this 
section— 
"(1) FIRST YEAR OF DISALLOWANCE.—The deduction of interest 
on any obligation shall not be disallowed under subsection (a) 
before the hrst taxable year of the issuing corporation as of the 
last day of which the application of either subparagraph (A) or 
subparagraph (B) of subsection (b) (4) results in such obliga-
tion being corporate acquisition indebtedness. 
"(2) GENERAL RULE FOR SUCCEEDING YEARS.—Except as pro-
vided in paragraphs (3), (4), and (5), if an obligation is deter-
mined to be corporate acquisition indebtedness as of the last day 
of any taxable year of the issuing corporation, it shall be corpo-
rate acquisition indebtedness for such taxable year and all sub-
sequent taxable years. 
"(3) REDETERMINATION WHERE CONTROL, ETC., IS ACQUIRED.— 
If an obligation is determined to be corporate acquisition indebt- 
^ ,
^ ,. 
edness as of the close of a taxable year of the issuing corporation 
" 
in which clause (i) of subsection (c) (3) (A) applied, but would 
not be corporate acquisition indebtedness if the determination 
were made as of the close of the first taxable year of such corpo-
ration thereafter in which clause (ii) of subsection (c) (3) (A) 
could apply, such obligation shall be considered not to be corpo-
rate acquisition indebtedness for such later taxable year and all 
taxable years thereafter. 
"(4) SPECIAL 3-YEAR RUT:,E.—If an obligation which has been 
determined to be corporate acquisition indebtedness for any tax-
able year would not be such indebtedness for each of any 3 con-
secutive taxable years thereafter if subsection (b) (4) were applied 
as of the close of each of such 3 years, then such obligation shall 
not be corporate acquisition indebtedness for all taxable years 
after such 3 consecutive taxable years. 
"(5) 5 PERCENT STOCK RULE.—In the case of obligations issued 
to provide consideration for the acquisition of stock in another 
corporation, such obligations shall be corporate acquisition in-
debtedness for a taxable year only if at some time after October 9, 
1969, and before the close of such year the issuing corporation owns 
5 percent or more of the total combined voting power of all classes 
of stock entitled to vote of such other corporation. 
"(e) CERTAIN NONTAXABLE TRANSACTIONS.—An acquisition of stock 
of a corporation of which the issuing corporation is in control (as 
defined in section 368(c)) in a transaction in which gain or loss is not 
26^?c*368^°' 
recognized shall be deemed an acquisition described m paragraph (1) 
of subsection (b) only if immediately before such transaction (1) the 
acquired corporation was in existence, and (2) the issuing corporation 
was not in control (as defined in section 368(c)) of such corporation. 
"(f) EXEMPTION FOR CERTAIN ACQUISITIONS OF FOREIGN CORPORA-
TIONS.—For purposes of this section, the term 'corporate acquisition 
indebtedness' does not include any indebtedness issued to any person 
to provide consideration for the acquisition of stock in, or assets of, any 
foreign corporation substantially all of the income of which, for the 
^-year period ending with the date of such acquisition or for such part 
of such period as the foreign corporation v/as in existence, is from 
sources without the United States. 
,(g) AFFILIATED GROUPS.—In any case in which the issuing corpo-
ration is a member of an affiliated group, the application of this section 
shall be determined, pursuant to regulations prescribed by the Secre-
tary or his delegate, by treating all of the members of the affiliated 
group in the aggregate as the issuing: corporation, except that the ratio 
01 debt to equity of, projected earnings of, and annual interest to be 
68A Stat. 369. 
26 u s e 1504. 
608 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT 
paid or incurred by any corporation (other than the issuing; coi-pora-
tion determined without regard to this subsection) shall be included 
in the determinations required under subparagraphs (A) and (B) of 
subsection (b) (4) as of any day only if such corporation is a member 
of the affiliated group on such day, and, in determining projected 
earnings of such corporation under subsection (c) (3), there shall be 
taken mto account only the earnings and profits of such corporation 
for the period during which it was a member of the affiliated group 
For purposes of the preceding sentence, the term 'affiliated group' has 
the meaning assigned to such term by section 1504(a), except that all 
corporations other than the acquired corporation shall be treated as 
includible corporations (without any exclusion under section 1504(b)) 
and the acquired corporation shall not be treated as an includible cor-
poration. 
"(h) CHANGES IN OBLIGATION.—For purposes of this section— 
"(1) Any extension, renewal, or refinancing of an obligation 
evidencing a preexisting indebtedness shall not be deemed to be the 
issuance of a new obligation. 
"(2) Any obligation which is corporate acquisition indebted-
ness of the issuing corporation is also corporate acquisition indebt-
edness of any corporation which becomes liable for such obligation 
as guarantor, endorser, or indemnitor or which assumes liability 
for such obligation in any transaction. 
" (i) CERTAIN OBLIGATIONS ISSUED AFTER OCTOBER 9,1969.—For pur-
poses of this section, an obligation shall not be corporate acquisition 
indebtedness if issued after October 9, 1969, to provide consideration 
for the acquisition of— 
"(1) stock or assets pursuant to a binding written contract. 
which was in effect on October 9,1969, and at all times thereafter 
before such acquisition, or 
" (2) stock in any corporation where the issuing corporation, on 
October 9,1969, and at all times thereafter before such acquisition, 
owned at least 50 percent of the total combined voting power of all 
classes of stock entitled to vote of the acquired corporation. 
Paragraph (2) shall cease to apply when (at any time on or after 
October 9, 1969) the issuing corporation has acquired control (as 
defined in section 368 (c)) of the acquired corporation. 
"(j) EFFECT ON OTHER PROVISIONS.—No inference shall be drawn 
from any provision in this section that any instrument designated as a 
bond, debenture, note, or certificate or other evidence of indebtedness 
by its issuer represents an obligation or indebtedness of such issuer in 
applying any other provision 01 this title." 
(b) CLERICAL AMENDMENT.—^The table of sections for part IX of 
subchapter B of chapter 1 is amended by adding at the end thereof the 
following new item: 
"Sec. 279. Interest on indebtedness incurred by corporation to acquire 
stock or assets of another corporation." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to the determination of the allowability of the deduction of 
interest paid or incurred with respect to indebtedness incurred aft«r 
October 9,196». 
• ' 
-
SEC. 412. INSTALLMENT METHOD. 
(a) 
CERTAIN EVIDENCES OF INDEBTEDNESS DEEMED To 
B E PAY-
MENT.—Section 453(b) (relating to sales of realty and casual sales of 
personalty) is amended by adding at the end thereof the following 
new paragraph: 
" (3) 
PURCHASER EVIDENCES OF INDEBTEDNESS PAYABLE ON DEMAND 
OR READILY TRADABLE.—In applying this subsection, a bond or other 
26 use 368. 
26 u s e 453. 
83 STAT. ] 
PUBLIC LAW 91-1^2-DEC. 30, 1969 
609 
evidence of indebtedness which is payable on demand, or which is 
issued by a corporation or a government or political subdivision 
thereof (A) with interest coupons attached or in registered form 
(other than one in registered form which the taxpayer establishes 
will not be readily tradable in an established securities market), 
or (B) in any other form designed to render such bond or other 
evidence of indebtedness readily tradable in an established securi-
ties market, shall not be treated as an evidence of indebtedness of 
the purchaser." 
(b) EFFECTIVE DATE.—The aniendment made by subsection (a) 
shall apply to sales or other dispositions occurring after May 27,1969, 
which are not made pursuant to a binding written contract entered 
into on or before such date. 
'^'''' '- ' '•"^*'' 
SEC. 413. BONDS AND OTHER EVIDENCES OF INDEBTEDNESS. 
(a) BONDS AND OTHER EVIDENCES OF INDEBTEDNESS.—Section 1232 
(a) (relating to general rule) is amended to read as follows: 
^SA stat. 326, 
"(a) GENERAL RULE.—For purposes of this subtitle, in the case of 
^^ "^*^ ^^^^' 
bonds, debentures, notes, or certificates or other evidences of indebt-
edness, which are capital assets in the hands of the taxpayer, and which 
are issued by any corporation, or by any government or political sub-
division thereof— 
"(1) RETIREMENT.—Amounts received by the holder on retire-
ment of such bonds or other evidences of indebtedness shall be con-
sidered as amounts received in exchange therefor (except that in 
the case of bonds or other evidences of indebtedness issued before 
January 1, 1955, this paragraph shall apply only to those issued 
with interest coupons or in registered form, or to those in such 
form on March 1, 1954). 
"(2) SALE OR EXCHANGE.— 
" ( A ) 
CORPORATE 
BONDS ISSUED AFTER MAY 27, i969.— 
Except as provided in subparagraph (C), on the sale or 
exchange of bonds or other evidences of indebtedness issued 
by a corporation after May 27, 1969, held by the taxpayer 
more than 6 months, any gain realized shall (except as pro-
vided in the following sentence) be considered gain from the 
sale or exchange of a capital asset held for more than 6 months. 
If at the time of original issue there was an intention to call 
the bond or other evidence of indebtedness before maturity, 
any gain realized on the sale or exchange thereof which does 
not exceed an amount equal to the original issue discount (as 
defined in subsection (b)) reduced by the portion of original 
issue discount previouslj^ includible in the gross income of 
any holder (as provided in paragraph (3) (B)) shall be con-
sidered as gain from the sale or exchange of property which 
is not a capital asset. 
"(B) CORPORATE BONDS ISSUED ON OR BEFORE MAT 27, i969, 
AND GOVERNMENT BONDS.—^Except as provided in subpara-
graph (C), on the sale or exchange of bonds or other evidences 
of indebtedness issued by a government or political sub-
division thereof after December 31,1954, or by a corporation 
after December 31,1954, and on or before May 27,1969, held 
by the taxpayer more than 6 months, any gain realized which 
does not exceed— 
"(i) an amount equal to the original issue discount 
(as defined in subsection (b)), or 
" (ii) if at the time of original issue there was no inten-
tion to call the bond or other evidence of indebtedness 
Post, p. 656. 
610 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
before maturity, an amount which bears the same ratio to 
the original issue discount (as defined in subsection (j^u 
as the number of complete months that the bond or other 
evidence of indebtedness was held by the taxpayer bears 
to the number of complete months from the date of orig-
inal issue to the date of maturity, 
shall be considered as gain from the sale or exchange of prop. 
erty which is not a capital asset. Gain in excess of such amount 
shall be considered gain from the sale or exchange of a capital 
J 
asset held more than 6 months. 
"(C) EXCEPTIONS.—This paragraph shall not apply to— 
" (i) obligations the interest on which is not includible 
in gross income under section 103 (relating to certain 
^ governmental obligations), or 
"(ii) any holder who has purchased the bond or other 
evidence of indebtedness at a premium. 
"(D) 
DOUBLE INCLUSION IN INCOME NOT REQUIRED.—This 
section shall not require the inclusion of any amount previ-
ously includible in gross income. 
"(3) 
INCLUSION IN INCOME or 
ORIGINAL ISSUE DISCOUNT O
N 
CORPORATE BONDS ISSUED AFTER MAY 27, 1 969.— 
" (A) GENERAL RULE.—There shall be included in the gross 
income of the holder of any bond or other evidence of indebt-
edness issued by a corporation after May 27,1969, the ratable 
monthly portion of original issue discount multiplied by the 
' 
number of complete months (plus any fractional part of a 
month determined in accordance with the last sentence of this 
subparagraph) such holder held such bond or other evidence 
of indebtedness during the taxable year. Except as provided 
in subparagraph (B), the ratable monthly portion of original 
issue discount shall equal the original issue discount (as 
' • defined in subsection (b)) divided by the number of complete 
months from the date of original issue to the stated maturity 
'' date of such bond or other evidence of indebtedness. For pur-
poses of this section, a complete month commences with the 
date of original issue and the corresponding day of each suc-
ceeding calendar month (or the last day of a calendar month in 
which there is no corresponding day); and, in any case where 
a bond or other evidence of indebtedness is acquired on any 
other day, the ratable monthly portion of original issue dis-
' 
count for the complete month in which such acquisition 
occurs shall be allocated between the transferor and the 
transferee in accordance with the number of days in such 
complete month each held the bond or other evidence of 
indebtedness. 
"(B) 
REDUCTION IN CASE OF ANY SUBSEQUENT HOLDER.— 
"-' ' 
For purposes of this paragraph, the ratable monthly portion 
«'• 
of original issue discount shall not include an amount, deter-
mined at the time of any purchase after the original issue of 
such bond or other evidence of indebtedness, equal to the 
excess of— 
" (i) the cost of such bond or other evidence of indebt-
edness incurred by such holder, over 
"(ii) the issue price of such bond or other evidence of 
indebtedness increased by the portion of original dis-
count previously includible in the gross income of any 
holder (computed without regard to this subparagraph), 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
611 
divided by the number of complete months (phis any frac-
tional part of a month commencin«r Avith the date of purchase) 
from the date of such purchase to the stated maturity date 
of such bond or other evidence of indebtedness. 
"(C) PURCHASE DEFINED.—For purposes of subparagraph 
(B), the term 'purchase' means any acquisition of a bond or 
other evidence of indebtedness, but only if the basis of the 
bond or other evidence of indebtedness is not determined in 
Avhole or in part by reference to the adjusted basis of such 
bond or other evidence of indebtedness in the hands of the 
person from whom acquired, or under section 1014(a) (relat- 
SSA stat. 296. 
ing to property ac(piired from a decedent). 
^e use 1014. 
''(D) EXCEPTIONS.—This paragraph shall not apply to 
any holder— 
"(i) who has purchased the bond or other evidence of 
indebtedness at a premium, or 
"(ii) which is a life insurance company to which sec-
tion 818(b) applies. 
73 stat. 133. 
"(E) BASIS ADJUSTMENTS.—The basis of any bond or other 
evidence of indebtedness in the hands of the'holder thereof 
shall be increased by the amount included in his gross income 
pursuant to subparagraph (A)."' 
(b) ISSUE PRICE.—Section 1232(b)(2) (relating to issue price) is 
esA stat. 326; 
amended by adding at the end thereof the following: 
^^ ^'^'- ^'*^-
"In the case of a bond or other evidence of indebtedness and an 
option or other security issued together as an investment unit, 
the issue i)rice for such investment unit shall be determined in 
accordance with the rules stated in this paragraph. Such issue 
price attributable to each element of the investment unit shall be 
that portion thereof which the fair market value of such element 
bears to the total fair market value of all the elements in the invest-
ment unit. The issue price of the bond or other evidence of 
indebtedness included in such investment unit shall be the portion 
so allocated to it. In the case of a bond or other evidence of 
indebtedness, or an investment unit as described in this i^aragraj)!! 
(other than a bond or other evidence of indebtedness or an invest-
ment unit issued pursuant to a plan of reorganization within the 
meaning of section 068(a)(1) or an insolvency reorganization 
26 use 368. 
within the meaning of section .371, 373, or 374)", which is issued 
68A stat. 121. 
for property and whicli— 
^ 
70 stat. 402. 
"(A) is part of an issue a portion of which is traded on an 
established securities market, or 
"(B) is issued for stock or securities which are traded on an 
established securities market, 
the issue price of such bond or other evidence of indebtedness or 
investment unit, as the case may be, shall be the fair market value 
. _, 
of such property. Except in cases to which the preceding sentence 
applies, the issue price of a bond or other evidence of indebted-
ness (whether or not issued as a part of an investment unit) which 
is issued for property (other than money) shall be the stated 
redemption price at maturity." 
(c) REQUIREMENT OF REroRTiNO.—Section 0049(a) (1) (relating to 
76 stat. io56. 
requirements of reporting interest) is amended to read as follows: 
"(1) I N GENERAL.—Evcrv pci'sou— 
"(A) who makes payments of interest (as defined in sub-
section (b)) aggregating $10 or more to any other i)erson dur-
ing any calendar year, 
612 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT 
•'(B) who receives payments of interest as a nominee and 
who makes payments aggregating $10 or more during anv 
calendar year to any other person with respect to the interest 
so received, or 
"(C) which is a corporation that has outstanding any bond 
debenture, note, or certificate or other evidence of indebted-
ness in registered form as to which there is during any cal-
endar year an amount of original issue discount aggregating 
$10 or more includible in the gross income of any holder under 
Ante, p. 609. 
sectlou 1232(a)(3) without regard to subparagraph (B) 
thereof, 
shall make a return according to the forms or regulations pre-
scribed by the Secretary or his delegate, setting forth the aggregate 
amount of such payments and such aggregate amount includible 
in the gross income of any holder and the name and address of the 
person to whom paid or such holder." 
(d) STATEMENTS TO B E FURNISHED TO PERSONS "WITH RESPECT TO 
76 Stat. 1056. 
AVHOIM INFORMATION Is FuRNisHED.—Sectiou 6049(c) (relating to 
26 use 6049. 
statements to be furnished to persons with respect to whom informa-
tion is furnished) is amended to read as follows: 
*'(c) STATEMENTS To B E FURNISHED TO PERSONS W I T H RESPECT TO 
WHOM INFORMATION I S FURNISHED.—Every person making a return 
under subsection (a) (1) shall furnish to each person whose name is set 
forth in such return a written statement showing— 
"(1) the name and address of the person making such return, 
and 
"(2) the aggregate amount of payments to, or the aggregate 
amount includible in the gross income of, the person as shown on 
such return. 
The written statement required under the preceding sentence shall be 
furnished to the person on or before January 31 of the year following 
the calendar year for which the return under subsection (a) (1) was 
made. No statement shall be required to be furnished to any person 
under this subsection if the aggregate amount of payments to, or the 
aggregate amount includible in the gross income of, such person shown 
on the return made with respect to subparagraph (A), (B), or (C), as 
the case may be, of subsection (a)(1) is less than $10." 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to bonds and other evidences of indebtedness issued 
after May 27, 1969 (other than evidences of indebtedness issued pur-
suant to a written commitment which was binding on May 27, 1969, 
and at all times thereafter). 
SEC. 414. LIMITATION ON DEDUCTION OF BOND PREMIUM ON RE-
PURCHASE. 
(a) LIMITATION ON DEDUCTION OF BOND PREMIUM ON REPUB-
68A Stat. 72. 
CHASE.—Part V I I I of Subchapter B of chapter 1 (relating to special 
deductions for corporations) is amended by adding at the end thereof 
the following new section: 
"SEC. 249. LIMITATION ON DEDUCTION OF BOND PREMIUM ON RE-
PURCHASE. 
.
<
5
?
;
9
i -ie>fe'-; 
"(a) GENERAL RULE.—No deduction shall be allowed to the issuing 
corporation for any premium paid or incurred upon the repurchase of a 
bond, debenture, note, or certificate or other evidence of indebtedness 
which is convertible into the stock of the issuing corporation, or a cor-
poration in control of, or controlled by, the issuing corporation, to the 
extent the repurchase price exceeds an amount equal to the adjusted 
issue price plus a normal call premium on bonds or other evidences of 
8
3 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
613 
indebtedness which are not convertible. The preceding sentence shall 
not apply to the extent that the corporation can demonstrate to the 
satisfaction of the Secretary or his delegate that such excess is attribut-
able to the cost of borrowing and is not attributable to the conversion 
"(b) SPECIAL RULES.—For purposes of subsection (a)— 
"(1) ADJUSTED ISSUE PRICE.—The adjusted issue price is the 
issue price (as defined in section 1232(b)) increased by any 
Arite.p.en. 
amount of discount deducted before repurchase, or, in the case of 
bonds or other evidences of indebtedness issued after February 28, 
1913, decreased by any amount of premium included in gross 
income before repurchase by the issuing corporation. 
" (2) CONTROL.—The term 'control' has the meaning assigned to 
such term by section 368 (c)." 
68A stat. 120. 
(b) CLERICAL AMENDMENT.—The table of sections for part V I I I of 
26 use 368. 
subchapter B of chapter 1 is amended by adding at the end thereof the 
following new item: 
"Sec. 249. Limitation on deduction of bond premium on repurchase." 
-
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to a convertible bond or other convertible evidence of 
indebtedness repurchased after April 22,1969, other than such a bond 
or other evidence of indebtedness repurchased pursuant to a binding 
obligation incurred on or before April 22, 1969, to repurchase such 
bond or other evidence of indebtedness at a specified call premium, but 
no inference shall be drawn from the fact that section 249 of the 
Internal Revenue Code of 1954 (as added by subsection (a) of this 
Ante. p. 612. 
section) does not apply to the repurchase of such convertible bond or 
other convertible evidence of indebtedness. 
SEC. 
4
1
5
. 
TREATMENT 
OF 
CERTAIN 
CORPORATE 
INTERESTS 
AS 
STOCK 
OR 
INDEBTEDNESS. 
(a) I N GENERAL.—Subchapter C of Chapter 1 (relating to corporate 
distributions and adjustments) is amended by redesignating part VI 
(relating to effective date of subchapter C) as part VII and by 
oe^us^^^'g^^^' 
inserting after part V the following new part: 
"Part VI—Treatment of Certain Corporate Interests as Stock 
or Indebtedness 
"See. 385. Treatment of certain interests in corporations as stock or 
indebtedness. 
"
S
E
C
. 
3
8
5
. 
TREATMENT 
OF 
CERTAIN 
INTERESTS 
IN 
CORPORATIONS 
AS 
STOCK 
OR 
INDEBTEDNESS. 
"(a) 
AUTHORITY To PRESCRIBE REGULATIONS.—The Secretary or his 
delegate is authorized to prescribe such regulations as may be neces-
sary or appropriate to determine whether an interest in a corporation 
is to be treated for purposes of this title as stock or indebtedness. 
"(b) FACTORS.—The regulations prescribed under this section shall 
set forth factors which are to be taken into account in determining 
with respect to a particular factual situation whether a debtor-creditor 
relationship exists or a corporation-shareholder relationship exists. 
The factors so set forth in the regulations may include among other 
ractors: 
"(1) whether there is a written unconditional promise to pay 
on demand or on a specified date a sum certain in money in return 
for an adequate consideration in money or money's worth, and to 
pay a fixed rate of interest, 
. > 
31-100 O - 70 - 41 
614 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT 
"(2) whether there is subordination to or preference over a 
indebtedness of the corporation, 
^^ 
" (3) the ratio of debt to equity of the corporation, 
" (4) whether there is convertibility into the stock of the corno 
ration, and 
^ " 
"(5) the relationship between holdings of stock in the cortDo 
ration and holdings of the interest in question." 
^ " 
(b) CLERICAL AMENDMENT.—The table of parts for subchapter C of 
chapter 1 is amended by striking out the last line and inserting in li^y 
thereof the following: 
"Part VI. Treatment of certain corporate interests as stock or 
indebtedness. 
- 
^ 
"Part VII. Effective date of subchapter C." 
• 
Subtitle C—Stock Dividends 
SEC. 421. STOCK DIVIDENDS. 
26^s*c*305°" 
(^) -^^ GENERAL.—Section 305 (relating to distributions of stock 
and stock rights) is amended to read as follows: 
"SEC. 305. DISTRIBUTIONS OF STOCK AND STOCK RIGHTS. 
" (a) GENERAL RULE.—Except as otherwise provided in this section 
gross income does not include the amount of any distribution of the 
stock of a corporation made by such corporation to its shareholders 
with respect to its stock. 
''(b) EXCEPTIONS.—Subsection (a) shall not apply to a distribution 
by a corporation of its stock, and the distribution shall be treated as a 
distribution of property to which section 301 applies— 
"(1) DISTRIBUTIONS IN LIEU OF MONEY.—If the distribution is, 
at the election of any of the shareholders (whether exercised 
before or aft^r the declaration thereof), payable either— 
"(A) in its stock, or 
"(B) in property. 
''(2) DISPROPORTIONATE DISTRIBUTIONS.—If the distribution (or 
a series of distributions of which such distribution is one) has the 
result of— 
"(A) the receipt of property by some shareholdei-s, and 
"(B) an increase in the proportionate interests of other 
shareholders in the assets or earnings and profits of the cor-
poration. 
"(3) DISTRIBUTIONS or COMMON AND PREFERRED STOCK.—If the 
distribution (or a series of distributions of which such distribution 
is one) has the result of— 
"(A) the receipt of preferred stock by some common 
shareholders, and 
"(B) the receipt of common stock by other common share-
holders. 
"(4) DISTRIBUTIONS ON PREFERRED STOCK.—If the distribution 
is with respect to preferred stock, other than an increase in the 
conversion ratio of convertible preferred stock made solely to take 
account of a stock dividend or stock split Avith respect to the 
stock into which such convertible stock is convertible. 
"(5) DISTRIBUTIONS OF CONVERTIBLE PREFERRED STOCK.—If tn^ 
distribution is of convertible preferred stock, unless it is estab-
lished to the satisfaction of the Secretary or his delegate that such 
distribution will not have the result described in paragraph (2) • 
"(c) CERTAIN 
TRANSACTIONS 
TREATED AS DISTRIBUTIONS.—^For 
26 use 301. 
purposes of this section and section 301, the Secretary or his delegate 
shall prescribe regulations under which a change in conversion ratio, 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
615 
a 
„ change in redemption price, a difference between redemption price 
and issue price, a redemption Avhicli is treated as a distribution to 
which section 301 applies, or any transaction (including a recapitaliza-
tion) having a similar effect on the interest of any shareholder shall be 
treated as a distribution with respect to any shareholder whose propor-
tionate interest in the earnings and profits or assets of the corpora-
l-ion is increased by such change, difference, redemption, or similar 
transaction. 
"(d) DEFINITIONS.— 
"(1) EIGHTS T
O ACQUIRE STOCK.—For purposes of this section, 
the term 'stock' includes rights to acquire such stock. 
"(2) SHAREHOLDERS.—For purposes of subsections (b) and (c), 
the term 'shareholder' includes a holder of rights or of convertible 
securities. 
-••:•> . . • nr-.r^f^;:: ;:.^::.:- ;-: • v^; 
"(e) 
CROSS REFERENCES.— 
"For special rules— 
"(1) Relating to the receipt of stock and stock rights in corporate 
organizations and reorganizations, see part III (sec. 351 and 
following). 
"(2) In the case of a distribution which results in a gift, see section 
2501 and following. 
"(3) In the case of a distribution which has the effect of the pay-
ment of compensation, see section 61(a)(1)," 
(b) EFFECTIVE DATES.— 
(1) Except as otherwise provided in this subsection, the amend-
ment made by subsection (a) shall apply with respect to distribu-
tions (or deemed distributions) made after January 10, 1969, in 
taxable years ending after such date. 
(2) (A) Section 305(b)(2) of the Internal Eevenue Code of 
1954 (as added by subsection (a)) shall not apply to a distribution 
(or deemed distribution) of stock made before January 1, 1991, 
with respect to stock (i) outstanding on January 10, 1969, (ii) 
issued pursuant to a contract binding on January 10,1969, on the 
distributing corporation, (iii) which is additional stock of that 
class of stock which (as of January 10,1969) had the largest fair 
market value of all classes of stock of the corporation (taking 
into account only stock outstanding on January 10,1969, or issued 
pursuant to a contract binding on January 10, 1969), (iy) 
described in subparagraph (C) (iii), or (v) issued in a prior dis-
tribution described in clause (i), (ii), (iii), or (iv). 
(B) Subparagraph (A) shall apply only if— 
(i) the stock as to which there is a receipt of property was 
outstanding on January 10,1969 (or was issued pursuant to 
a contract binding on January 10, 1969, on the distributing 
corporation), and 
(ii) if such stock and any stock described in subparagraph 
(A) (i) were also outstanding on January 10, 1968, a distri-
bution of property was made on or before January 10, 1969, 
with respect to such stock, and a distribution of stock was 
made on or before January 10, 1969, with resx)ect to such 
stock described in subparagraph (A)(i). 
(C) Subparagraph (A) shall cease to apply when at any time 
after October 9,1969, the distributing corporation issues any of its 
stock (other than in a distribution of stock with respect to stock 
of the same class) which is not— 
(i) nonconvertible preferred stock, 
(ii) additional stock of that class of stock which meets the 
requirements of subparagraph (A) (iii),or 
68A Stat. 84. 
26 use 301. 
^•^^ 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 ST^ 
(iii) preferred stock which is convertible into stock whi>li 
meets the requirements of subparagraph (A) (iii) at a fix d 
conversion ratio which takes account of all stock dividend 
and stock splits with respect to the stock into which such con 
vertible stock is convertible. 
(D) For purposes of this paragraph, the term "stock" include, 
rights to acquire such stock. 
(3) In cases to which Treasury Decision 6990 (promulgated 
January 10,1969) would not have applied, in applying paragraphs 
iivv (1) and (2) April 22, 1969, shall be substituted for Januarv 10 
1969. 
^ 
' 
^"'«' P- ^1^- 
(4) Section 305(b) (4) of the Internal Revenue Code of 1954 
(as added by subsection (a)) shall not apply to any distribution 
(or deemed distribution) with respect to preferred stock (includ-
ing any increase in the conversion ratio of convertible stock) made 
before January 1, 1991, pursuant to the terms relating to the 
: issuance of such stock which were in effect on January 10, 1969. 
'• 
(5) With respect to distributions made or considered as made 
after January 10, 1969, in taxable years ending after such date 
to the extent that the amendment made by subsection (a) does not 
apply by reason of paragraph (2), (3), or (4) of tliis subsection, 
section 305 of the Internal Revenue Code of 1954 (as in effect 
before the amendment made by subsection (a)) shall continue 
to apply. 
Subtitle D—Financial Institutions 
SEC. 431. RESERVE FOR LOSSES ON LOANS; NET OPERATING L
O
S
S 
CARRYBACKS. 
(a) 
BAD DEBT DEDUCTIONS OF FINANCIAL INSTITUTIONS.—Part I of 
26'\js(^'58^i-^' 
subchapter H of chapter 1 (relating to rules of general application 
584. 
to banking institutions) is amended by adding at the end thereof the 
following new sections: 
"SEC. 
585. 
RESERVES FOR LOSSES ON LOANS OF 
BANKS. 
"(a) INSTITUTIONS TO W H I C H SECTION APPLIES.—This section shall 
apply to the following financial institutions: 
26 use 581. 
«(]^) any bank (as defined in section 581) other than an orga-
^^Posf. pp. 620, 
nization to which section 593 applies, and 
"(2) any corporation to which paragraph (1) would apply 
except for the fact that it is a foreign corporation, and in the case 
of any such foreign corporation this section shall apply only with 
respect to loans outstanding the interest on which is effectively 
connected with the conduct of a banking business within the 
United States. 
" (b) 
ADDITION TO RESERVES FOR BAD DEBTS.— 
68A Stat. 50. 
«^1) GENERAL RULE.—For purposes of section 166(c), the rea-
sonable addition to the reserve for bad debts of any financial insti-
tution to which this section applies shall be an amount determined 
by the taxpayer which shall not exceed the greater of— 
"(A) for taxable years beginning before 1988 the addition 
to the reserve for losses on loans determined under the per-
• • 
centage method as provided in paragraph (2), or 
"(B) the addition to the reserve for losses on loans deter-
'
* •' -' 
mined under the experience method as provided in paragraph 
(3). 
"(2) PERCENTAGE METHOD.—The amount determined under this 
?i. 
fi 
paragraph for a taxable year shall be the amount necessary to 
increase the balance of the reserve for losses on loans (at the close 
8
3 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
617 
of the taxable year) to the allowable percentage of eligible loans 
outstanding at such time, except that— 
" (A) If the reserve for losses on loans at the close of the base 
year is less than the allowable percentage of eligible loans out-
standing at such time, the amount determined under this para-
graph with respect to the difference shall not exceed one-fifth 
of such difference. 
" (B) If the reserve for losses on loans at the close of the base 
year is not less than the allowable percentage of eligible loans 
outstanding at such time, the amount determined under this 
paragraph shall be the amount necessary to increase the 
balance of the reserve at the close of the taxable year to (i) the 
allowable percentage of eligible loans outstanding at such 
time, or (ii) the balance of tlie reserve at the close of the base 
year, whichever is greater, but if the amount of eligible loans 
outstanding at the close of the taxable year is less than the 
amount of such loans outstanding at the close of the base 
year, the amount determined under clause (ii) shall be the 
amount necessary to increase the balance of the reserve at the 
close of the taxable year to the amount which bears the same 
ratio to eligible loans outstanding at the close of the taxable 
year as the balance of the reserve at the close of the base year 
bears to the amount of eligible loans outstanding at the close 
of the base year. 
For purposes of this paragraph, the term 'allowable percentage' 
means 1.8 percent for taxable years beginning before 1976; 1.2 per-
cent for taxable years beginning after 1975 but before 1982; and 0.6 
percent for taxable years beginning after 1981. The amount deter-
mined under this paragraph shall not exceed 0.6 percent of eligible 
loans outstanding at the close of the taxable year or an amount 
sufficient to increase the reserve for losses on loans to 0.6 percent of 
eligible loans outstanding at the close of the taxable year, which-
ever is greater. For purposes of this paragraph, the term 'base year' 
means: for taxable years beginning before 1976, the last taxable year 
beginning on or before July 11, 1969, for taxable years beginning 
after 1975 but before 1982, the last taxable year beginning before 
1976, and for taxable years beginning after 1981, the last taxable 
year beginning before 1982; except that for purposes of subparagraph 
(A) such term means the last taxable year before the most recent 
adoption of the percentage method, if later. 
"(3) EXPERIENCE METHOD.—The amount determined under this 
paragraph for a taxable year shall be the amount necessary to increase 
the balance of the reserve for losses on loans (at the close of the taxa-
ble year) to the greater of— 
"(A) the amount which bears the same ratio to loans out-
standing at the close of the taxable year as (i) the total bad 
debts sustained during the taxable year and the 5 preceding 
taxable years (or, with the approval of the Secretary or his 
delegate,"a shorter period), adjusted for recoveries of bad debts 
durnig such period, bears to (ii) the sum of the loans outstand-
ing at the close of such 6 or fewer taxable years, or x i-
"(B) the lower of— 
' 
^ 
"(i) the balance of the reserve at the close of the base 
year, or 
"(ii) if the amount of loans outstanding at the close of 
the taxable year is less than the amount of loans outstandmg 
at the close of the base year, the amount which bears the 
same ratio to loans outstanding at the close of the taxable 
618 
PUBLIC LAW 91-172-DEC. 30, 1969 
L83 STAT. 
26 use 165. 
year as the balance of the reserve at the close of the ba 
year bears to the amount of loans outstanding at the Q\ 
of the base year. 
^^^ 
For purposes of this paragraph, the base year shall be the last taxabl 
year before the most recent adoption of the experience method, excent 
that for taxable years beginning after 1987 the base year shali be th 
last taxable year beginning before 1988. 
^ 
"(4) 
REGULATIONS; DEFINITION OF ELIGIBLE LOAN, ETC.—The Seo 
retary or his delegate shall define the terms 'loan' and 'eligible loan' 
and prescribe such regulations as may be necessary to carry out the 
purposes of this section; except that the term 'eligible loan' shall not 
include— 
, • 
68A^|t^aUg202. 
" (A) a loau to a bank (as defined iu sectiou 581), 
' 
"(B) a loan to a domestic branch of a foreign corporation to 
which subsection (a) (2) applies, 
"(C) a loan secured by a deposit (i) in the lending bank or 
(ii) in an institution described in subparagraph (A) or (B) if 
the lending bank has control over withdrawal of such deposit 
"(D) a loan to or guaranteed by the United States, a possession 
or instrumentality thereof, or a State or a political subdivision 
thereof, 
"(E) a loan evidenced by a security as defined in section 165 
(g)(2)(C), 
"(F) a loan of Federal funds, and 
"(G) commercial paper, including short-term promissory notes 
which may be purchased on the open market. 
"SEC. 586. RESERVES FOR LOSSES ON LOANS OF SMALL BUSINESS 
INVESTMENT COMPANIES, ETC. 
" (a) INSTITUTIONS TO W H I C H SECTION APPLIES.—This section shall 
apply to the following financial institutions: 
"(1) anv small business investment company operating under 
1
5 use e^i' 
*^® Small Business Investment Act of 1958, and 
note. 
"(2) any business development corporation. 
For purposes of this section, the term 'business development corpora-
tion' means a corporation which was created by or pursuant to an 
act of a State legislature for purposes of promoting, maintaining, 
and assisting the economy and industry within such State on a regional 
or statewide basis by making loans to be used in trades and businesses 
which would generally not be made by banks (as defined in section 
581) within such region or State in the ordinary course of their busi-
ness (except on the basis of a partial participation), and which is 
operated primarily for such purposes. 
" (b) 
ADDITION TO RESERVES FOR BAD DEBTS.— 
68A Stat. 50. 
«(]^) GENERAL RULE.—For purposes of section 166(c), except 
as provided in paragraph (2) the reasonable addition to the 
reserve for bad debts of any financial institution to which this 
section applies shall be an amount determined by the taxpayer 
which shall not exceed the amount necessary to increase the balance 
• of the reserve for bad debts (at the close of the taxable year) to 
h the greater of— 
"(A) the amount which bears the same ratio to loans out-
standing at the close of the taxable year as (i) the total bad 
Wjir' • debts sustained during the taxable year and the 5 preceding 
taxable years (or, with the approval of the Secretary or 1
^
^
^ 
delegate, a shorter period), adjusted for recoveries of bad 
debts during such period, bears to (ii) the sum of the loans 
outstanding at the close of such 6 or fewer taxable years, or 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
619 
"(B) the lower of— 
" (i) the balance of the reserve at the close of the base 
year, or 
" (ii) if the amount of loans outstanding at the close of 
the taxable year is less than the amount of loans outstand-
ing at the close of the base year, the amount which bears 
the same ratio to loans outstanding at the close of the 
taxable year as the balance of the reserve at the close of 
the base year bears to the amount of loans outstanding at 
the close of the base year. 
For purposes of this.subparagraph, the term 'base year' means 
the last taxable year beginning on or before July 11,1969. 
" (2) NEW FINANCIAL INSTITUTIONS.—In the case of any taxable 
year beginning not more than 10 years after the day before the 
first day on which a financial institution (or any predecessor) was 
authorized to do business as a financial institution described in 
subsection (a), the reasonable addition to the reserve for bad debts 
of such financial institution shall not exceed the larger of the 
amount determined under paragraph (1) or the amount necessary 
to increase the balance of the reserve for bad debts at the close of 
the taxable year to the amount which bears the same ratio (as de-
termined by the Secretary or his delegate) to loans outstanding at 
the close of the taxable year as (i) the total bad debts sustained by 
all institutions described in the applicable paragraph of subsection 
(a) during the 6 preceding taxable years (adjusted for recoveries 
of bad debts during such period), bears to (ii) the sum of the loans 
by all such institutions outstanding at the close of such taxable 
years." 
(b) 10-YEAR NET OPERATING Loss CARRYBACK.—Section 172(b) (1) 
j^l^J^f^g^^' 
(relating to net operating loss deduction) is amended by striking out gi stat! 732! 
in subparagraph (A) (i) thereof "and ( E ) " and inserting in lieu 
26 use 172. 
thereof " ( E ) , (F), and (G)", and by adding at the end thereof the 
following new subparagraphs: 
"(F) In the case of a financial institution to which section 
'''" 
585, 586, or 593 applies, a net operating loss for any taxable 
J^'^^^- p^^ie^ 
year beginning after December 31, 19T5, shall be a net oper- 622°^' 
ating loss carryback to each of the 10 taxable years preceding 
the taxable year of such loss and shall be a net operating loss 
carryover to each of the 5 taxable years following the taxable 
year of such loss. 
"(G) In the case of a Bank for Cooperatives (organized 
and chartered pursuant to section 2 of the Farm Credit Act of 
1933 (12 U.S.C. 1134)), a net operating loss for any tax- 
70 stat. 664. 
able year beginning after December 31, 1969, shall be a net 
operating loss carryback to each of the 10 taxable years pre-
ceding the taxable year of such loss and shall be a net oper-
ating loss carryover to each of the 5 taxable years following 
the taxable year of such loss." 
(c) TECHNICAL AND CLERICAL AMENDMENTS.— 
(1) Subsection (h) of section 166 (relating to bad debts) is 
amended by adding at the end thereof the following new para-
graph : 
"(4) For special rule for bad debt reserves of banks, small business 
investment companies, etc., see sections 585 and 586." 
26 use 166. 
68A Stat. 202. 
76 Stat. 978. 
26 u s e 593. 
620 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 ST^T 
(2) The table of sections for part I of subchapter H of chant 
1 is amended— 
^ 
(A) by striking out: 
"Sec. 582. Bad debt and loss deduction with respect to seenrif 
held by banks." 
^
^
^
^ 
and inserting in lieu thereof: 
"Sec. 582. Bad debts, losses, and gains with respect to securitip 
/ 
held by financial institutions." 
^ 
(B) by adding at the end thereof the following: 
" .*'• ' 
"Sec. 585. Reserves for losses on loans of banks. 
. • "Sec. 586. Reserves for losses on loans of small business invest-
ment companies, etc." 
(d) EFFECTIVE DATE.—The amendments made by subsections (a) 
and (c) shall apply to taxable years beginning after July 11,1969. 
SEC. 432. MUTUAL SAVINGS BANKS, ETC. 
(a) EESERVE FOR LOSSES ox LOANS.—Section 593(b) (relating to 
addition to reserves for bad debts) is amended— 
(1) by striking out subparagraph (A) of paragraph (1) and 
inserting in lieu thereof the following: 
" (A) the amount determined to be a reasonable addition to 
the reserve for losses on nonqualifying loans, computed in the 
same manner as is provided with respect to additions to the 
reserves for losses on loans of banks under section 585 (b) (3), 
plus". 
(2) by striking out paragraphs (2), (3), (4), and (5) and 
inserting in lieu thereof the following: 
" (2) 
PERCENTAGE OF TAXABLE INCOME METHOD.— 
"(A) I N GENERAL.—Subject to subparagraphs (B), (C), 
and (D), the amount determined under this paragraph for the 
taxable year shall be an amount equal to the applicable per-
centage of the taxable income for such year (determined 
under the following table) : 
The applicable percentage under 
"For a taxable year beginning in— 
this paragraph shall be— 
1969 
60 percent 
1970 
57 percent 
1971 
54 percent 
1972 
51 percent 
1973 
49 percent 
1974 
47 percent 
1975 
45 percent 
1976 
43 percent 
1977 
42 percent 
1978 
41 percent 
1979 or thereafter 
40 percent 
"(B) 
REDUCTION OF APPLICABLE PERCENTAGE IN CERTAIN 
CASES.—If, for the taxable year, the percentage of the assets of 
a taxpayer described in subsection (a), which are assets de-
scribed in section 7701 (a)(19)(C),is less than— 
; 
•, H ; 
" (i) 82 percent of the total assets in the case of a tax-
; ;:-i, 
payer other than a mutual savings bank, the applicable 
percentage for such year provided by subparagraph (A) 
a^sif:. ,
^ |s> - 
shall be reduced by % of 1 percentage point for each 1 
percentage point of such difference, or 
"(ii) 72 percent of the total assets in the case of a 
mutual savings bank, the applicable percentage for such 
Post, 
p. 622. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
621 
year provided by subparagraph (A) shall be reduced by 
11/2 percentage points for each 1 percentage point of such 
difference. 
If, for the taxable year, the percentage of the assets of such 
taxpayer which are assets described in section 7701(a) (19) 
(C) is less than 60 percent (50 x)ercent for a taxable year 
^°^'' ^- "^• 
beginning before 1973 in the case of a mutual savings bank), 
this paragraph shall not apply. 
"(C) 
EEDUCTION FOR AMOUNTS REFERRED TO IN PARAGRAPH 
(1) (A).—The amount determined under subparagraph (A) 
SSP J
C
-
shall be reduced by that portion of the amount referred to 
in paragraph (1) (A) for the taxable year (not in excess of 
100 percent) which bears the same ratio to such amount as 
(i) 18 percent (28 percent in the case of mutual savings 
banks) bears to (ii) the percentage of the assets of the tax-
payer for such year which are not assets described in section 
7701(a) (19) (C). 
"(D) OVERALL LIMITATION ON PARAGRAPH.—The amount 
determined under this paragraph shall not exceed the amount 
necessary to increase the balance at the close of the taxable 
year of the reserve for losses on qualifying real property loans 
to 6 percent of such loans outstanding at such time. 
1. ? 
"(E) COMPUTATION OF TAXABLE INCOME.—For purposes of 
this paragraph, taxable income shall be computed— 
"(i) by excluding from gross income any amount 
included therein by reason of subsection (f), 
T .! 
"(ii) without regard to any deduction allowable for 
any addition to the reserve for bad debts, 
" (iii) by excluding from gross income an amount equal 
to the net gain for the taxable year arising from the sale 
or exchange of stock of a corporation or of obligations 
' • 
the interest on which is excludable from gross income 
under section 103, 
^°^'' P- ^^S. 
"(iv) by excluding from gross income an amount equal 
to the lesser of % of the net long-term capital gain for 
;i." 
the taxable year or % of the net long-term capital gain 
-ii- 
for the taxable year from the sale or exchange of prop-
's, 
erty other than property described in clause (iii), and 
h , 
- 
"(v) by excluding from gross income dividends with 
^
- ,-£. 
respect to which a deduction is allowable by part VIII of 
subchapter B, reduced by an amount equal to the appli-
cable percentage (determined mider subparagraphs (A) 
•t, , 
and 
(B)) 
of 
the 
dividends 
received 
deduction 
(determined without regard to section 596) for the tax- 
^°^'' P- ^^4. 
able year. 
" (3) PERCENTAGE METHOD.—The amount determined under this 
paragraph to be a reasonable addition to the reserv^e for losses on 
qualifying real property loans shall be computed in the same man-
ner as is provided with respect to additions to the reserves for 
losses on loans of banks under section 585(b) (2), reduced by the 
amount referred to in paragraph (1)(A) for the taxable year. 
" (4) EXPERIENCE METHOD.—The amount determined under this 
paragraph for the taxable year shall be computed in the same 
manner as is provided with respect to additions to the reserves 
for losses on loans of banks under section 585(b) (3). 
"(5) 
DETERMINATION OF RESERVE FOR PERCENTAGE METHOD.— 
For purposes of paragraph (3), the amount deemed to be the bal-
ance of the reserve for losses on loans at the beginning of the 
Ante, p. 616. 
76 Stat. 981. 
26 u s e 593. 
622 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 ST^T 
taxable year shall be the total of the balances at such time of t] 
reserve for losses on nonqualifying loans, the reserve for losses o^ 
qualifying real i)roperty loans, and the supplemental reserve for 
losses on loans." 
(b) CERTAIN CORPORATE AcQuisrnoNS.—Section 593(f) (1) (relat-
ing to distributions to shareholders) is amended by adding at the end 
thereof the following new sentence: "This paragraph shall not apply 
26 use 381. 
to any transaction to which section 381 (relating to carryovers in 
certain corporate acquisitions) applies." 
76 Stat. 982. 
(c) INVESTMENT 
STANDARDS.—Scction 
7T01(a)(19) 
(defining 
domestic building and loan association) is amended to read as follows-
"(19) DOMESTIC BUILDING AND LOAN ASSOCIATION.—The terni 
'domestic building and loan association' means a domestic buildino-
and loan association, a domestic savings and loan association and 
a Federal savings and loan association— 
"(A) which either (i) is an insured institution within the 
meaning of section 401(a) of the National Housing Act (12 
48 Stat. 1255. 
U.S.C, sec. 1724(a)), or (ii) is subject by law to supervision 
and examination by State or Federal authority having super-
vision over such associations; 
"(B) the business of which consists principally of acquir-
ing the savings of the public and investing in loans; and 
"(C) at least 60 percent of the amount of the total assets of 
which (at the close of the taxable year) consists of— 
"(i) cash, 
" (ii) obligations of the United States or of a State or 
political subdivision thereof, and stock or obligations of 
a corporation which is an instrumentality of the United 
States or of a State or political subdivision thereof, but 
not including obligations the interest on which is exclud-
able from gross income under section 103, 
"(iii) certificates of deposit in, or obligations of, a 
corporation organized under a State law which specifi-
cally authorizes such corporation to insure the deposits or 
share accounts of member associations, 
" (iv) loans secured by a deposit or share of a member, 
"(v) loans (including redeemable ground rents, as 
^^ ^*^'* ^
* 
defined in section 1055) secured by an interest in real 
property which is (or, from the proceeds of the loan, will 
become) residential real property or real property used 
primarily for church purposes, loans made for the im-
provement of residential real property or real property 
used primarily for church purposes, provided that for 
purposes of this clause, residential real property shall 
include single or multifamily dwellings, facilities m resi-
dential developments dedicated to public use or property 
used on a nonprofit basis for residents, and mobile homes 
not used on a transient basis, 
"(vi) loans secured by an interest in real property 
. '' 
located within an urban renew^al area to be developed for 
, 
, 
predominantly residential use under an urban renewal 
plan approved by the Secretary of Housing and Urban 
Development under part A or part B of title I of the 
82"tSr5il'^' 
' • '~ > • 
Housing Act of 1949, as amended, or located within aiiy 
42 use 1450- 
_ ^ 
area covered by a program eligible for assistance under 
1469c. 
' 
section 103 of the Demonstration Cities and Metropolitan 
42 use 3303.' 
Development Act of 1966, as amended, and loans made 
for the improvement of any such real property, 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
623 
"(vii) loans secured by an interest in educational, 
health, or welfare institutions or facilities, including 
structures designed or used primarily for residential 
purposes for students, residents, and persons under care, 
employees, or members of the staff of such institutions 
or facilities, 
"(viii) property acquired through the li(juidation of 
defaulted loans described in clause (v), (vi), or (vii), 
" (ix) loans made for the payment of expenses of col-
lege or university education or vocational training, in 
accordance with such regulations as may be prescribed 
by the Secretary or his delegate, and 
"(x) property used by the association in the conduct 
of the business described in subparagraph (B). 
At the election of the taxpayer, the percentage specified in this 
subparagraph shall be applied on the basis of the average 
assets outstanding during tlie taxable year, in lieu of the close 
of the taxable year, computed under regulations prescribed 
by the Secretary or his delegate. For purposes of clause (v), 
if a multifamily structure securing a loan is used in part for 
nonresidential purposes, the entire loan is deemed a residen-
tial real property loan if the planned residential use exceeds 
80 percent of the property's planned use (determined as of 
the time the loan is made). For purposes of clause (v), loans 
made to finance the acquisition or development of land shall 
be deemed to be loans secured by an interest in residential 
real property if, under regulations prescribed by the Secre-
tary or his delegate, there is reasonable assurance that the 
., 
property will become residential real property w ithin a period 
of 3 years from the date of acquisition of such land; but this 
sentence shall not apply for any taxable year unless, within 
such 3-year period, such land becomes residential real 
property." 
(d) CONFORMING AMENDMENTS.—Section 7701 (a) (32) 
(defining 
2
6 use 7701" 
cooperative bank) is amended— 
(1) by striking out subparagraph (B) and inserting in lieu 
thereof the following: 
"(B) meets the requirements of subparagraphs (B) and 
(C) of paragraph (19) of this subsection (relating to defini-
tion of domestic building and loan association).", and 
(2) by striking out the third sentence thereof. 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
be effective for taxable years beginning after July 11, 1969. 
SEC. 433. TREATMENT OF BONDS, ETC., HELD BY FINANCTAL INSTITU-
TIONS. 
(a) GAIN ON SECURITIES H E U ) BY FINANCIAL INSTITUTIONS.—Sub-
section (c) of section 682 (relating to bad debt and loss deduction with 
26'urc'582°^' 
respect to securities held by banks) is amended by striking out such 
" . 
subsection and inserting the following in lieu thereof: 
. 
"(c) 
BOND, ETC., LOSSES AND GAINS OF FINANCIAL INSTITUTIONS.— 
"(1) GENERAL RULE.—For purposes of this subtitle, in the case 
of a financial institution to which section 585, 586, or 593 applies, ^2^"'^' ^P- ^^^' 
the sale or exchange of a bond, debenture, note, or certificate or 
other evidence of indebtedness shall not be considered a sale or 
exchange of a capital asset. 
"(2) TRANSTTIONAL RULE FOR BANKS.—In the case of a bank, if 
the net long-term capital gains of the taxable year from sales or 
ilM* 
624 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 g^ 
exchanges of qualifying securities exceed the net short-term cat) 
ital losses of the taxable year from such sales or exchanges sucli" 
excess shall be considered as gain from the sale of a capital asset 
held for more than 6 months to the extent it does not exceed the net 
gain on sales and exchanges described in paragraph (1). 
"(3) SPECIAL RULES.—For purposes of this subsection— 
"(A) The term'qualifying security'means a bond, debeii-
ture, note, or certificate or other evidence of indebtedness helri 
by a bank on July 11,1969. 
^ 
"(B) The amount treated as capital gain or loss from the 
sale or exchange of a qualifying security shall be determined 
by multiplying the amount of capital gain or loss from the 
t'jr.IJf G sale or exchange of such security (determined without regard 
to this subsection) by a fraction, the numerator of which is 
the number of days before July 12, 1969, that such security 
was held by the bank, and the denominator of which is the 
number of days the security was held by the bank." 
26 use 1
^
2
^
4
3
' 
(^) CONFORMING AMENDMENT.—Paragraph (1) of section 1243 
(relating to loss of a small business investment company) is amended 
to read as follows: 
"(1) a loss is on stock received pursuant to the conversion 
privilege of convertible debentures acquired pursuant to section 
72 Stat. 693; 
304 of the Small Business Investment Act of 1958, and". 
1
5 use 684. 
(c) CLERICAL AMENDMENT.—The heading for section 582 is amended 
to read as follows: 
"SEC. 582. BAD DEBTS, LOSSES, AND GAINS WITH RESPECT TO SE-
CURITIES HELD BY FINANCIAL INSTITUTIONS." 
(d) 
EFFECTIVE DATE.— 
(1) I N GENERAL.—The amendments made by this section shall 
apply to taxable years beginning after July 11,1969. 
(2) 
ELECTION FOR SMALL BUSINESS INVESTMENT COMPANIES A
N
D 
BUSINESS DEVELOPMENT CORPORATIONS.—Notwithstanding para-
- graph (1), in the case of a financial institution described in section 
Ante, p. 618. 
586(a) of tliB Internal Revenue Code of 1954, the amendments 
made by this section shall not apply for its taxable years beginning 
after July 11, 1969, and before July 11, 1974, unless the taxpayer 
so elects at such time and in such manner as shall be prescribed by 
the Secretary of the Treasury or his delegate. Such election shall 
be irrevocable and shall apply to all such taxable years. 
SEC. 434. LIMITATION ON DEDUCTION FOR DIVIDENDS RECEIVED B
Y 
MUTUAL SAVINGS BANKS, ETC. 
^g^8A Stat. 204; 
(a) SPECIAL LIMITATION.—Part I I of subchapter H of chapter 1 is 
26 use 591. 
amended by adding at the end thereof the following new section: 
"SEC. 596. LIMITATION ON DIVIDENDS RECEIVED DEDUCTION. 
Ante, pp. 620, 
iij^ ^-j^^ ^g^ QJ ^^^ orgaulzatiou to which section 593 applies and 
which computes additions to the reserve for losses on loans for the 
taxable year under section 593(b) (2), the total amount allowed under 
80 s!a!' 1558 ^' 
sectlous 243, 244, and 245 (determined without regard to this section) 
for the taxable year as a deduction with respect to dividends received 
shall be reduced by an amount equal to the applicable percentage for 
M- —
. 
. 
such year (determined under subparagraphs (A) and (B) of section 
•^'^ 
593(b) (2)) of such total amount." 
622 
80 Stat. 1572. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
625 
(b) TECHNICAL AXD CLERICAL AMENDMENTS.— 
(1) Section 246 (relating to rules applying to deductions for 
^^^ ^'^'- ^^' 
dividends received) is amended by adding at the end thereof the ''2l'usc'V/e. 
following new subsection: 
"(d) 
CROSS KEFERENCE.— 
"For special rule relating to mutual savings banks, etc., to which 
section 593 applies, see section 596." 
(2) The table of sections for part I I of subchapter H of chap-
ter 1 is amended by adding at the end thereof: 
"Sec. 596. Limitation on dividends received deduction," 
*
«
" id • 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after July 11,1969. 
SEC. 435. FOREIGN DEPOSITS IN UNITED STATES BANKS. - f 
(a) INCOME FROM SOURCES "WITHIN THE L^NITED STATES.— 
(1) Effective with respect to amounts paid or credited after 
December 31, 1969, subparagraphs (C) and (D) of section 
861(a) (1) (relating to interest) are each amended by striking out 
so stat. 1542. 
"after December 31,1972,". 
(2) Section 861(c) (relating to interest on deposits, etc.) is 
amended by striking out "1972" and inserting in lieu thereof 
"1975". 
(b) PROPERTY W I T H I N THE UNITED STATES.—The second sentence 
of section 2104(c) (relating to debt obligations) is amended by strik-
ing out "December 31, 1972" and inserting in lieu thereof "Decem-
ber 31,1969". 
Subtitle E—Depreciation Allowed Regulated Industries; Earn-
ings and Profits Adjustment for Depreciation 
SEC. 441. PUBLIC UTILITY PROPERTY. 
(a) IN GENERAL.—Section 167 (relating to depreciation) is amended 
so stat. 1513; 
by inserting after subsection (k) (added by section 521) the following-
new subsection: 
"(1) 
REASONABLE ALLOWANCE IN (^ASE OF PROPERTV or CERTAIN 
UTILITIES.— 
" (1) P R E - 19 7 0 PUBLIC UTILITY PROPERTY.— 
"(A) I N GENERAL.—In the case of any pre-1970 public 
utility property, the term 'reasonable allowance' as used in 
subsection (a) means an allowance computed under— 
"(i) a subsection (1) method, or 
"(ii) the applicable 1968 method for such property. 
Except as provided in subparagraph (B), clause (ii) shall 
apply only if the taxpayer uses a normalization method of 
accounting. 
"(B) 
FLOW-THROUGH METHOD or ACCOUNTIN(} IN CERTAIN 
CASES.—In the case of any pre-1970 public utility property, 
the taxpayer may use the applicable 1968 method for such 
property if— 
* • 
"(i) the taxpayer used a flow-through method of 
accounting for such property for its July 1969 account-
ing period, or 
^(ii) the first accounting period with resi>ect to such 
property is after the July 1969 accounting period, and the 
taxpayer used a flow-through method of accounting for 
its July 1969 accounting period for the property on the 
basis of which the applicable 1968 method for the prop-
erty in question is established. 
Post, p. 649. 
76 Stat. 419. 
626 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 g^^^ 
"(2) POST-1969 PUBLIC UTILITY PROPEKTY.—In the case of an 
post-1969 public utility property, the term 'reasonable allowanc^ 
as used in subsection (a) means an allowance computed under—-^ 
"(A) a subsection (1) method, 
" (B) a method otherwise allowable under this section if t\\ 
f!»: • ^i) taxpayer uses a normalization method of accounting, or 
" (C) the apj)licable 1968 method, if, with respect to its pre-
-ffliifc> *' l^'^O public utility property of the same (or similar) kind 
most recently placed in service, the taxpayer used a flo^. 
through method of accounting for its July 1969 accountine 
period. 
^ 
•!' 
" (3) DEFINITIONS.—For purposes of this subsection— 
"(A) PUBLIC UTILITY PROPERTY.—The term 'public utility 
property' means property used predominantly in the trade or 
business of the furnishing or sale of— 
,. ,. 
"(i) 
electrical energy, water, or sewage disposal 
, 
services, 
. 
"(ii) gas or steam through a local distribution system 
" (iii) telephone services, or other communication serv-
ices if furnished 
or sold by the Communications 
Satellite Corporation for purposes authorized by the 
Communications Satellite Act of 1962 (47 U.S.C. 701), 
or 
"(iv) transportation of gas or steam by pipeline, 
if the rates for such furnishing or sale, as the case may be, 
have been established or approved by a State or political sub-
division thereof, by any agency or instrumentality of the 
United States, or by a public service or public utility com-
mission or other similar body of any State or political sub-
division thereof. 
"(B) PRE-197 0 PUBLIC UTILITY PROPERTY.—The term 'pre-
1970 public utility property' means property which was public 
utility property in the hands of any person at any time before 
January 1,1970. 
"(C) POST- 19 G 9 PUBLIC UTILITY PROPERTY.—The term 'post-
1969 public utility property' means any public utility 
property which is not pre-1970 public utility property. 
"(D) APPLICABLE 19G8 METHOD.—The term 'applicable 1968 
method' means, with respect to any public utility propert}^— 
"(i) the method of depreciation used on a return with 
respect to such property for the latest taxable year for 
which a return was filed before August 1, 1969, 
"(ii) if clause (i) does not apply, the method used by 
the taxpayer on a return for the latest taxable year for 
which a return was filed before August 1, 1969, with 
respect to its public utility property of the same kind (or 
if there is no property of the same kind, property of the 
most similar kind) most recently placed in service, or 
"(iii) if neither clause 
(i) 
nor 
(ii) 
applies, a 
' - 
subsection (1) method. 
In the case of any section 1250 property to which subsection 
(j) applies, the term 'applicable 1968 method' means the 
method permitted under subsection (j) which is most nearly 
comparable to the applicable 1968 method determined under 
the preceding sentence. 
"(E) 
APPLICABLE 1968 METHOD IN CERTAIN CASES.—^If P
® 
taxpayer evidenced the intent to use a method of depreciation 
(other than its applicable 1968 method or a subsection vl 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
627 
method) with respect to any public utility property in a 
timely application for change of accounting method filed 
before August 1,1969, or in the computation of its tax expense 
for purposes of reflecting operating results in its regulated 
books of account for its July 1969 accounting period, such 
other method shall be deemed to be its aj)plicable 1968 method 
with respect to such property and public utility property of 
the same (or similar) kind subsequently placed in service. 
"(F) SUBSECTION (1) METHOD.—The term 'subsection (1) 
method' means any method determined by the Secretary or his 
delegate to result in a reasonable allowance under subsection 
(a), other than (i) a declining balance method, (ii) the sum 
of the years-digits method, or (iii) any other method allow-
able solely by reason of the application of subsection (b) (4) 
o r ( j ) ( l ) ( C ) . 
"(G) NORMALIZATION METHOD OF ACCOUNTING.—In order 
to use a normalization method of accounting with respect to 
any public utility property— 
"(i) the taxpayer must use the same method of depre-
ciation to compute both its tax expense and its deprecia-
' 
tion expense for purposes of establishing its cost of 
service for ratemaking purposes and for reflecting oper-
ating results in its regulated books of account, and 
"(li) if, to compute its allowance for depreciation 
under this section, it uses a method of depreciation other 
than the method it used for the purposes described in 
clause (i), the taxpayer must make adjustments to a 
reserve to reflect the deferral of taxes resulting from the 
use of such difi^erent methods of depreciation. 
"(H) FLOW-THROUGH METHOD OF ACCOUNTING.—The tax-
payer used a 'flow-tlirough method of accounting* with respect 
to any public utility property if it used the same method of 
,
• 
depreciation (other than a subsection (1) method) to compute 
its allowance for depreciation under this section and to com-
pute its tax expense for purposes of reflecting 
oper-
ating results in its regulated books of account. 
"(T) JULY 1009 ACCOUNTING PERIOD.—The term 'July 1969 
accounting period' means the taxpayer's latest accounting 
period ending before August 1, 1969, for which it computed 
its tax expense for purposes of reflecting operating results 
in its regulated books of account. 
For purposes of this paragraph, different declining balance rates 
shall be treated as different methods of depreciation. 
" (4) SPECIAL RULES AS TO FLOW-THROUGH METHOD.— 
"(A) 
ELECTION AS TO NEW PROPERTY REPRESENTING GROWTH 
IN CAPACITY.—If the taxpayer makes an election under this 
subparagraph within 180 days after the date of the enact-
ment of this subparagraph in the manner prescribed by the 
Secretary or his delegate, in the case of taxable years begin-
ning after December 31, 1970, paragraph (2) (C) shall not 
apply with respect to any post-1969 public utility property, 
to the extent that such property constitutes property which 
increases the productive or operational capacity of the tax- 
.^ 
)«u ac 
payer with respect to the goods or services described in para-
graph (3) (A) and does not represent the replacement of 
existing capacity. 
"(B) 
CERTAIN PENDING APPLICATIONS FOR CHANGES IN 
METHOD.—In applying paragraph (1) (B), the taxpayer shall 
628 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 s^^^ 
be deemed to have used a flow-througli method of accountin 
for its July 1969 accounting period with respect to any pr5 
1970 public utility property for which it filed a timely appli, 
cation for change of accounting method before August 1 i%n 
if with respect to public utility propertj^ of the same (or 
similar) kind most recently placed in service, it used a flo\v-
through method of accounting for its July 1969 accounting 
period. 
"(5) REORGANIZATIONS, ASSETS ACQUISITIONS, ETC.—If by rea-
son of a corporate reorganization, by reason of any other acquisi-
tion of the assets of one taxpayer by another taxpayer, by reason 
of the fact that any trade or business of the taxpayer is subject to 
ratemaking by more than one body, or by reason of other circum-
stances, the application of any provisions of this subsection to any 
public utility property does not carry out the purposes of this 
subsection, the Secretary or his delegate shall provide by regula-
tions for the application of such provisions in a manner consistent 
with the purposes of this subsection." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply with respect to all taxable years for which a return has not 
been filed before August 1,1969. 
SEC. 442. EFFECT ON EARNINGS AND PROFITS. 
76^sfat^'fo4of' 
{^) I ^ GENERAL.—Sectiou 312 (relating to earnings and profits) is 
26 use 312. 
amended by adding at the end thereof the following new subsection: 
" (m) 
EFFECT OF DEPRECIATION ON EARNINGS AND PROFITS.— 
" (1) GENERAL RULE.—For purposes of computing the earnings 
and profits of a corporation for any taxable year beginning after 
June 30,1972, the allowance for depreciation (and amortization,if 
any) shall be deemed to be the amount which would be allowable 
for such year if the straight line method of depreciation had been 
used for each taxable year beginning after June 30,1972. 
"(2) EXCEPTION.—If for any taxable year , beginning after 
June 30,1972, a method of depreciation was used by the taxpayer 
which the Secretary or his delegate has determined results in a 
26 use 167. 
reasonable allowance under section 167(a), and which is not— 
" (A) a declining balance method, 
"(B) the sum of the years-digits method, or 
"(C) any other method allowable solely by reason of the 
Post, p. 649. 
application of subsection (b) (4) or (j) (1) (C) of section 167, 
then the adjustment to earnings and profits for depreciation for 
such year shall be determined under the method so used (in lieu of 
under the straight line method). 
"(3) CERTAIN FOREIGN CORPORATIONS.—The provisions of para-
graph (1) shall not apply in computing the earnings and profits 
of a foreign corporation for any taxable year for which less than 
20 percent of the gross income from all sources of such corporation 
is derived from sources within the United States." 
(b) 
CONFORMING AMENDMENTS.— 
76 Stat. 1
0
2 7. 
^ ^ Section 964(a) (relating to earnings and profits of a 
foreign corporation) is amended by striking out "For purposes 
of this subpart," and inserting in lieu thereof "Except as provided 
in section 312 (m) (3), for purposes of this subpart". 
(2) Section 1248(c)(1) (relating to general rule for determina-
tion of the earnings and profits of a foreign corporation) is 
amended by striking out "For purposes of this section," and 
inserting in lieu thereof "Except as provided in section 312 (m) 
(3), for purposes of this section". 
26 use 1248. 
629 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
TITLE V—ADJUSTMENTS AFFECTING 
INDIVIDUALS AND CORPORATIONS 
Subtitle A—Natural Resources 
SEC. 501. PERCENTAGE DEPLETION RATES. 
(a) CHANGE IN CERTAIN PERCENTAGE DEPLETION RATES.—Subsec-
tion (b) of section 613 (relating to percentage depletion) is amended 
^^^ stat. 208; 
\ l „c -frvllrvWQ- 
c' 
i 
/ 
80 Stat. 1579. 
toreadastollows. 
^, 
. 
26 use 613. 
»(b) PERCENTAGE DEPLETION RATES.—The mines, wells, and other 
natural deposits, and the percentages, referred to in subsection (a) are 
as follows: 
" ( 1 ) 
2 2 P E R C E N T — 
-• 
• -••' = - ' ; ; - • 
;^; 
- - • 
' ^ ' ^ ' i 
"•-'' 
' i ; - " 
"(A) oil and gas wells; 
"(B) sulphur and uranium; and 
"(C) if from deposits in the United States—anorthosite, 
clay, laterite, and nephelite syenite (to the extent that alumina 
and aluminum compounds are extracted therefrom), asbestos, 
bauxite, celestite, chromite, corundum, fluorspar, graphite, 
ilmenite, kyanite, mica, olivine, quartz crystals (radio grade), 
/^ 
rutile, block steatite talc, and zircon, and ores of the following 
' ' 
metals: antimony, beryllium, bismuth, cadmium, cobalt, 
columbium, lead, lithium, manganese, mercury, molybdenum, 
nickel, platinum and platinum group metals, tantalum, 
thorium, tin, titanium, tungsten, vanadium, and zinc. 
"(2) 15 PERCENT—if from deposits in the United States— 
, i 
" (A) gold, silver, copper, and iron ore, and 
"(B) oil shale (except shale described in paragraph (5)). 
"(3) 14 PERCENT— 
"(A) metal mines (if paragraph (1)(C) or (2) (A) does 
not apply), rock asphalt, and vermiculite; and 
"(B) if paragraph (1)(C), (5), or (6) (B) does not 
apply, ball clay, bentonite, china clay, sagger clay, and clay 
used or sold for use for purposes dependent on its refractory 
properties. 
"(4) 10 PERCENT—asbestos (if paragraph (1) (C) does not 
'M>pl^y)^ brucite, coal, lignite, perlite, sodium chloride, and 
wollastonite. 
"('^) '^V2 PERCENT—clay and shale used or sold for use in the 
manufacture of sewer pipe or brick, and clay, shale, and slate used 
or sold for use as sintered or burned lightweight aggregates. 
" (6) 5 PERCENT— 
" (A) gravel, peat, pumice, sand, scoria, shale (except shale 
described in paragraph (2) (B) or (5)), and stone except 
stone described in paragraph (7)); 
"(B) clay used, or sold for use, in the manufacture of 
drainage and roofing tile, flower pots, and kindred products; 
and 
"(C) if from brine wells—bromine, calcium chloride, and 
. y.., .,,,.,.,, 
magnesium chloride. 
"(7) 14 PERCENT—all other minerals, including, but not lim-
ited to, aplite, barite, borax, calcium carbonates, diatomaceous 
earth, dolomite, feldspar, fullers earth, garnet, gilsonite, S^^nite, 
limestone, magnesite, magnesium carbonates, marble, mollusk 
shells (iiichiding clam shells and oyster shells), phosphate rock, 
potash, (|uartzite, slate, soapstone, stone (used or sold for use by 
the mine owner or operator as dimension stone or ornamental 
stone), thenardite, tripoli, trona, and (if paragraph (1) (C) does 
630 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 ST^T 
not apply) bauxite, flake gTaphite, fluorspar, lepidolite, mien 
spodumene, and talc (including pyrophyllite), except that' unles' 
sold on bid in direct competition with a bona fide bid to sell 
mineral listed in paragraph (3), the percentage shall be 5 pgr, 
cent for any such other mineral (other than slate to which para 
graph (5) applies) when used, or sold for use, by the mine owner 
or operator as rip rap, ballast, road material, rubble, concrete 
:s*j? i; ^if- 
aggregates, or for similar purposes. For purposes of this para-
;•' 
graph, the term 'all other minerals' does not include— 
" (A) soil, sod, dirt, turf, water, or mosses; or 
. 
' - 
"(B) minerals from sea water, the air, or similar inex-
haustible sources. 
For the purposes of this subsection, minerals (other than sodium 
chloride) extracted from brines pumped from a saline perennial lake 
within the United States shall not be considered minerals from an 
inexhaustible source." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to taxable years beginning after October 9, 1969. 
SEC. 502. TREATMENT PROCESSES IN THE CASE OF OIL SHALE. 
26USC61"." 
(^) I N GENERAL.—Section 613(c) (4) (relating to treatment proc-
esses considered as mining) is amended by striking out "and" at the 
end of subparagraph (G), by redesignating subparagraph (H) as sub-
paragraph (I), and by inserting after subparagraph (G) the follow-
ing new subparagraph: 
"(H) in the case of oil shale—extraction from the ground, 
crushing, loading into the retort, and retorting, but not hydro-
genation, refining, or any other process subsequent to retort-
ing; and", 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply to taxable years beginning after the date of the enactment 
of this Act. 
SEC. 503. MINERAL PRODUCTION PAYMENTS. 
26'usc^*6n-^' 
(^) -"-^ GENERAL.—Subchapter I of chapter 1 (relating to natural 
632. 
resources) is amended by adding at the end thereof the following new 
part: 
"PART IV—MINERAL PRODUCTION PAYMENTS 
"Sec. 636. Income tax treatment of mineral production payments. 
"SEC. 636. INCOME TAX TREATMENT OF MINERAL PRODUCTION PAY-
MENTS. 
"(a) CARVED-OUT PRODUCTION PAYMENT.—A production payment 
carved out of mineral property shall be treated, for purposes of this 
subtitle, as if it were a mortgage loan on the property, and shall not 
qualify as an economic interest in the mineral property. In the case 
of a production payment carved out for exploration or development 01 
a mineral property, the preceding sentence shall apply only if and to 
the extent gross income from the property (for purposes of section 
Ante, p. 629. 
g^g) would be realized, in the absence of the application of such sen-
tence, by the person creating the production payment. 
"(b) 
RETAINED PRODUCTION PAYMENT ON SALE OF MINERAL PEOP-
ERTY.—A production payment retained on the sale of a mineral prop-
erty shall be treated, for purposes of this subtitle, as if it were a 
purchase money mortgage loan and shall not qualify as an economic 
interest in the mineral property. 
"(c) 
RETAINED PRODUCTION PAYMENT ON LEASE OF MINERAL PROP-
ERTY.—A production payment retained in a mineral property by the 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
631 
igggor in a leasing transaction shall be treated, for purposes of this 
subtitle, insofar as the lessee (or his successors in interest) is con-
cerned, as if it were a bonus granted by the lessee to the lessor payable 
in installments. The treatment of the production payment in the hands 
of the lessor shall be determined without regard to the provisions of 
tliis subsection. 
, . 
, . 
"(d) DEFINITION.—As used m this section, the term 'mineral prop-
erty' has the meaning assigned to the term 'property' in section 614(a). 
^^A stat. 210. 
"(e) REGULATIONS.—The Secretary or his delegate shall prescribe 
^^ ^^^ ^^'^' 
such regulations as may be necessary to carry out the purposes of this 
.«. x .«.«-. m 
section." 
(b) CLERICAL AMENDMENT.—The table of parts for subchapter I of 
chapter 1 is amended by adding at the end thereof the following: 
"Part IV. Mineral production payments." 
(c) EFFECTIVE DATES.— 
(1) GENERAL RULE.—The amendments made by this section 
shall apply with respect to mineral production payments created 
on or after August 7, 1969, other than mineral production pay-
ments created before January 1, 1971, pursuant to a binding con-
tract entered into before August 7,1969. 
(2) ELECTION.—At the election of the taxpayer (made at such 
time and in such manner as the Secretary of the Treasury or his 
delegate prescribes by regulations), the amendments made by this 
section shall apply with respect to all mineral production pay-
ments which the taxpayer carved out of mineral properties after 
the beginning of his last taxable year ending before August 7, 
1969. No interest shall be allowed on any refund or credit of any 
overpayment resulting from such election for any taxable year 
ending before August 7,1969. 
(3) SPECIAL RULE.—With respect to a taxpayer who does not 
elect the treatment provided in paragraph (2) and who carves 
out one or more mineral production payments on or after 
August 7, 1969, during the taxable year which includes such date, 
the amendments made by this section shall apply to such produc-
tion payments only to the extent the aggregate amount of such 
production payments exceeds the lesser of— 
(A) the excess of— 
(i) the aggregate amount of production payments 
< 
carved out and sold by the taxpayer during the 12-month 
V 
period immediately preceding his taxable year which 
includes August 7,1969, over 
f ' 
(ii) the aggregate amount of production payments 
carved out before August 7,1969, by the taxpayer during 
his taxable year which includes such date, or 
(B) the amount necessary to increase the amount of the 
taxpayer's gross income, within the meaning of chapter 1 of 
subtitle A of the Internal Revenue Code of 1954, for the tax- 
/SA stat S: 
78 Stat. 116. 
able year which includes August 7, 1969, to an amount equal 
26 use 1-
to the amount of deductions (other than any deduction under i5j4.^ 
^^^ 
section 172 of such Code) allowable for such year under such 
^"^l] l\ ^^g\ 
chapter. 
The preceding sentence shall not apply for purposes of determin-
ing the amount of any deduction allowable under section 611 or 26 use en. 
the amount of foreign tax credit allowable under section 904 of 
such Code. 
^°^'' P' "^-
632 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT 
SEC. 504. EXPLORATION EXPENDITURES. 
6
8
A Stat. 211; 
(a) AMENDMENTS T
O SECTION 615.—Section 615 (relating to PTi^u 
80 Stat 76 S 
• 
T
*
\
' 
T I 
O ^ 
^•*|J10-
26 use 615. 
ration expenditures) IS amended— 
(1) by striking out the heading and inserting in lieu thereof-
"SEC. 615. PRE-1970 EXPLORATION EXPENDITURES."; and 
(2) by adding at the end thereof the following new subsection-
•'(h) TERMINATION.—The provisions of this section shall not apply 
'^*Hd ^atf 6c 
with respect to expenditures paid or incurred after December 3i 
1969." 
80 Stat. 759. 
^\)^ AMENDMENTS TO SECTION 617.—Sectiou 617 (relating to addi-
tional exploration expenditures in the case of domestic mining) ig 
amended— 
(1) by striking out the heading and inserting in lieu thereof: 
"SEC. 617. DEDUCTION AND RECAPTURE OF CERTAIN MINING EXPLO-
RATION EXPENDITURES."; 
(2) by striking out in subsection (a) (1) "in the United States 
or on the Outer Continental Shelf (within the meaning of section 
2 of the Outer Continental Shelf Lands Act, as amended and sup-
67 Stat. 462. 
plcmeutcd; 43 U.S.C. 1331)"; and 
(3) by striking out subsection (h) and inserting the following 
in lieu thereof : 
"(h) LIMITATION.-— 
"(1) I N GENERAL.—Subsectiou (a) shall apply to any amount 
paid or incurred after December 31, 1969, with respect to any 
deposit of ore or other mineral located outside the United States, 
only to the extent that such amount, when added to the amounts 
which are or have been deducted under subsection (a) and section 
615 (a) and the amounts which are or have been treated as deferred 
expenses under section 615(b), or the corresponding provisions of 
prior law, does not exceed $400,000. 
"(2) AMOUNTS TAKEN INTO ACCOUNT.—For purposes of para-
graph (1), there shall be taken into account amounts deducted 
and amounts treated as deferred expenses by— 
"(A) the taxpayer, and 
"(B) any individual or corporation who has transferred to 
the taxpayer any mineral property. 
"(3) APPLICATION OF PARAGRAPH (2)(B).—Paragraph (2)(B) 
shall apply with respect to all amounts deducted and all amounts 
treated as deferred expenses which were paid or incurred before 
the latest such transfer from the individual or corporation to the 
taxpayer. Paragraph (2) (B) shall apply only if— 
"(A) the taxpayer acquired any mineral property from 
the individual or corporation under circumstances which 
make paragraph (7), (8), (11), (15), (17), (20), or (22) of 
section 113(a) of the Internal Revenue Code of 1939 apply 
' 
to such transfer; 
"(B) the taxpayer would be entitled under section 381(c) 
' 
(10) to deduct expenses deferred under section 615 (b) had the 
' 
distributor or transferor corporation elected to defer such 
r'^^ , 
w ' 
expenses; or 
"(C) the taxpayer acquired any mineral property from 
' 
the individual or corporation under circumstances which 
make section 334(b), 362 (a) and (b), 372(a), 373(b) (Ijj 
^^68A Stat. 104- 
1051, O
T 1082 apply to such transfer." 
. ^ . . 
53 Stat. 40. 
Post, p. 633. 
78 Stat. 53. 
26 use 243. 
26 use 703. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
633 
(c) CONFORMING AMENDMENTS.— 
^ 
(1) Section 243(b) (3) (C) (iii) is amended by striking out 
"section 615(c) (1)" and inserting in lieu thereof "sections 615(c) 
(1) and 617(h)(1)". 
(2) Paragraph (10) of section 381(c) is amended— 
^SA stat. 127. 
(A) by striking out so much as precedes the second sen-
tence and inserting in lieu thereof: 
" ( 1 0 ) 
T R E A T M E N T O F C E R T A I N M I N I N G E X P L O R A T I O N A N D DEVEL-
OPMENT EXPENSES OF DISTRIBUTOR OR TRANSFEROR CORPORATION, 
The acquiring corporation shall be entitled to deduct, as if it were 
the distributor or transferor corporation, expenses deferred under 
sections 615 and 616 (relating to pre-1970 exploration expendi- 
^e use 616. 
tures and development expenditures, respectively) if the distrib-
utor or transferor corporation has so elected."; and 
--j -.u* 
(B) by adding at the end thereof the following new 
" ' 
sentence: "For the purpose of applying the limitation pro-
vided in section 617, if, for any taxable year, the distributor 
or transferor corporation was allowed the deduction in section 
615(a) or section 617(a) or made the election provided in 
^"'^' P- ^^2. 
section 615(b), the acquiring corporation shall be deemed to 
have been allowed sucn deduction or deductions or to have 
made such election, as the case may be." 
(3) Section 703(b) is amended by striking out "(relating to 
exploration expenditures) or under section 617 (relating to addi-
tional exploration expenditures in the case of domestic mining)" 
and inserting in lieu thereof "(relating to pre-1970 exploration 
expenditures) or under section 617 (relating to deduction and 
recapture of certain mining exploration expenditures)". 
(4) Paragraph (10) of section 1016(a) is amended by inserting 
^^^ ^'^t- ^oo. 
"pre-1970" after "certain". 
(5) The table of sections for part I of subchapter I of Chapter 1 
is amended— 
(A) by striking out the item relating to section 615 and 
inserting in lieu thereof: 
"Sec. 615. Pre-1970 exploration expenditures."; and 
(B) by striking out the item relating to section 617 and 
inserting in lieu thereof: 
"Sec. 617, Deduction and recapture of certain mining exploration 
expenditures." 
(d) EFFECTIVE 
D A T E . — 
(1) I N GENERAL,—The amendments made by this section shall 
apply with respect to exploration expenditures paid or incurred 
after December 31,1969. 
(2) PRESUMPTION OF ELECTION UNDER SECTION 617.—For pur-
poses of section 617 of the Internal Revenue Code of 1954, an 
election under section 615 (e) of such Code, which is effective with 
respect to exploration expenditures paid or incurred before Janu-
ary 1, 1970, shall be treated as an election under section 617(a) 
of such Code with respect to exploration expenditures paid or 
incurred after December 31, 1969. The preceding sentence shall 
• 
not apply to any taxpayer who notifies the Secretary of the 
' 
Treasury or his delegate (at such time and in such manner as the 
Secretary or his delegate prescribes by regulations) tliat he does 
not desire his election under section 615(e) to be so treated. 
634 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
68A Stat. 207; 
Ante, 
p. 630. 
26 u s e 611-
636. 
"United 
S t a t e s . " 
"Foreign 
country." 
" P o s s e s s i o n of 
the United 
S t a t e s . " 
SEC. 505. CONTINENTAL SHELF AREAS. 
(a) I N GENERAL.—Subchapter I of chapter 1 (relating to natur 1 
resources) is amended by adding after part IV (added by section 5m 
of this Act) the following new part: 
"PART V—CONTINENTAL SHELF AREAS 
"Sec. 638. Continental shelf areas. 
"SEC. 638. CONTINENTAL SHELF AREAS. 
"For purposes of applying the provisions of this chapter (includiriff 
8o'lfat^1s4r'' 
sections 861(a) (3) and 862(a) (3) in the case of the performance of 
26 use 861", 862. persoual services) with respect to mines, oil and gas wells, and other 
natural deposits— 
"(1) the term 'United States' when used in a geographical 
sense includes the seabed and subsoil of those submarme areas 
which are adjacent to the territorial waters of the United States 
and over which the United States has exclusive rights, in accord-
ance with international law, with respect to the exploration and 
exploitation of natural resources; and 
" (2) the terms 'foreign country' and 'possession of the United 
States' when used in a geographical sense include the seabed and 
subsoil of those submarine areas which are adjacent to the terri-
torial waters of the foreign country or such possession and over 
which the foreign country (or the United States in case of such 
possession) has exclusive rights, in accordance with international 
law, with respect to the exploration and exploitation of natural 
resources, but this paragraph shall apply in the case of a foreign 
country only if it exercises, directly or indirectly, taxing jurisdic-
tion with respect to such exploration or exploitation. 
No foreign country shall, by reason of the application of this section, 
be treated as a country contiguous to the United States." 
(b) SOURCE OF INCOME FOR WITHHOLDING OF TAX.—Section 1441 
(relating to withholding of tax on nonresident aliens) is amended by 
adding at the end thereof the following new subsection: 
"(f) 
CONTINENTAL SHELF AREAS.— 
"For sources of income derived from, or for services performed with 
respect to, the exploration or exploitation of natural resources on sub-
marine areas adjacent to the territorial waters of the United States, see 
section 638." 
(c) CLERICAL AMENDMENT.—The table of parts for subchai)ter I of 
chapter 1 is amended by adding at the end thereof the following new 
item: 
"Part V. Continental shelf areas." 
SEC. 506. FOREIGN TAX CREDIT WITH RESPECT TO CERTAIN FOREIGN 
MINERAL INCOME. 
(a) LIMITATION ON AMOUNT OF FOREIGN TAXES ALLOWED.—Section 
901 (relating to taxes of foreign countries and possessions of the 
United States) is amended— 
(1) by redesi^ating subsection (e) as subsection (f),and 
(2) by inserting after subsection (d) the following new sub-
section : 
" (e) FOREIGN TAXES ON MINERAL INCOME.— 
"(1) REDUCTION IN AMOUNT ALLOWED.—Notwithstanding sub-
section (b), the amount of any income, war profits, and excess 
profits taxes paid or accrued during the taxable year to any foreign 
country or possession of the United States with respect to foreigii 
68A Stat. 357; 
80 Stat. 1553. 
68A Stat. 285; 
80 Stat. 1569. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
635 
mineral income from sources within such country or possession 
which would (but for this paragraph) be allowed under such sub-
section shall be reduced by the amount (if any) by which 
"(A) the amount of such taxes (or, if smaller, the amount 
of the tax which would be computed under this chapter with 
respect to such income determined without the deduction 
allowed under section 613), exceeds 
Ante, p. 629. 
"(B) the amount of the tax computed under this chapter 
with respect to such income. 
" ( 2 ) 
FOREIGX MINERAL INCOME DEFINED.—For purpOSeS of 
paragraph (1), the term 'foreign mineral income' means income 
derived from the extraction of minerals from mines, wells, or other 
natural deposits, the processing of such minerals into their pri-
mary products, and the transportation, distribution, or sale of 
such minerals or primary products. Such term includes, but is 
n . . , ».' 
not limited to-y 
jr- i .;u^ 
"(A) dividends received from a foreign corporation in 
respect of which taxes are deemed paid by the taxpayer under 
section 902, to the extent such dividends are attributable to 
^^ stat. 999. 
foreign mineral income, and 
^^ ^^^ ^°^" 
"(B) that portion of the taxpayer's distributive share of 
the income of partnerships attributable to foreign mineral 
income" 
(b) ELECTION OF OVERALL LIMITATION.—Section 904(b) (relating 
'^'* ^*^*- lo^o-
to election of overall limitation) is amended— 
(1) by striking out "with the consent of the Secretary or his 
delegate with respect to any taxable year" in paragraph (1) and 
inserting in lieu thereof "(A) with the consent of the Secretary 
or his delegate with respect to any taxable year or (B) for the 
taxpayer's first taxable year beginning after December 31, 1969", 
and 
(2) by striking out''If a taxpayer" in paragraph (2) and insert- , 
ing in lieu thereof "Except in a case to which paragraph (1) (B) 
applies, if the taxpayer". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to taxable years beginning after December 31,1969. 
* • 
Subtitle B—Capital Gains and Losses 
SEC. 511. INCREASE IN ALTERNATIVE CAPITAL GAINS TAX. 
(a) DEFINITION OF NET SECTION 1201 GAIN.—Section 1222 (relating 
^^^ ^'^'- ^^'^^ 
to definition of terms applicable to capital gains and losses) is amended 
by adding at the end thereof the following new paragi-aph: 
" (11) NET SECTION 1201 GAIN.—The term 'net section 1201 gain' 
means the excess of the net long-term capital gain for the taxable 
year over the net short-term capital loss for such year." 
(b) INCREASE IN ALTERNATIVE TAX EATES.—Section 1201 (relating 
2
6 use 1201. 
to alternative tax) is amended to read as follows: 
"SEC. 1201. ALTERNATIVE TAX. 
' 
;^ 
"(a) CORPORATIONS.—If for any taxable year a corporation has a 
net section 1201 gain, then, in lieu of the tax imposed by sections 11,511, 7/ltat^ 997; 
' 
821 (a) or (c), and 831 (a), there is hereby imposed a tax (if such tax is Ante. pp. 536, 
less than the tax imposed by such sections) w^hich shall consist of the ""^ 
sum of a tax computed on the taxable income reduced by the amount of 
the net section 1201 gain, at the rates and in the manner as if this 
subsection had not been enacted, plus— 
585. 
636 
PUBLIC LAW 91-172-DEC. 30, 1969 
[93 5^^ 
"(1) in the case of a taxable year beginning before Januarv 1 
1975— 
^ ^' 
" (A) a tax of 25 percent of the lesser of— 
" (i) the amount of the subsection (d) gain, or 
"(ii) the amount of the net section 1201 gain 
and 
'''"'- 
" (B) a tax of 30 percent (28 percent in the case of a taxable 
19*q/• t • ygg^j. beginning after December 31,1969, and before January 1 
1971) of the excess (if any) of the net section 1201 gain over 
the subsection (d) gain; and 
" (2) in the case of a taxable year beginning after December 3i 
1974, a tax of 30 percent of the net section 1201 gain. 
' 
"(b) OTHER TAXPAYERS.—If for any taxable year a taxpayer other 
than a corporation has a net section 1201 gain, then, in lieu of the tax 
Post, p. 678. 
imposed by sections 1 and 511, there is hereby imposed a tax (if such 
" ^' ^' " • 
tax is less than the tax imposed by such sections) which shall consist 
of the sum of— 
"(1) a tax computed on the taxable income reduced by an 
amount equal to 50 percent of the net section 1201 gain, at the 
rates and in the manner as if this subsection had not been enacted 
" (2) a tax of 25 percent of the lesser of— 
"(A) the amount of the subsection (d) gain, or 
"(B) the amount of the net section 1201 gain, and 
"(3) if the amount of the net section 1201 gain exceeds the 
amount of the subsection (d) gain, a tax computed as provided in 
subsection (c) on such excess. 
"(c) 
COMPUTATION OF TAX ON CAPITAL GAIN IN EXCESS OF SIB-
SECTioN (d) 
G A I N . — 
"(1) I N GENERAL.—The tax computed for purposes of subsec-
tion (b) (3) shall be the amount by which a tax determined under 
section 1 or 511 on an amount equal to the taxable income (but not 
less than 50 percent of the net section 1201 gain) for the taxable 
year exceeds a tax determined under section 1 or 511 on an amount 
equal to the sum of (A) the amount subject to tax under subsec-
tion (b) (1) plus (B) an amount equal to 50 percent of the sub-
section (d) gain. 
"(2) LIMITATION.—Notwithstanding paragraph (1), the tax 
computed for purposes of subsection (b) (3) shall not exceed an 
amount equal to the following percentage of the excess of the net 
section 1201 gain over the subsection (d) gain: 
" (A) 291/^ percent, in the case of a taxable year beginning 
after December 31,1969, and before January 1,1971, or 
"(B) 321/^ percent, in the case of a taxable year beginning 
after December 31, 1970, and before January 1, 1972. 
"(d) SUBSECTION (d) GAIN DEFINED.—For purposes of this section, 
the term 'subsection (d) gain' means the sum of the long-term capital 
gains for the taxable year arising— 
"(1) in the case of amounts received before January 1,1975, 
from sales or other dispositions pursuant to binding contracts 
(other than any gain from a transaction described in section 631 
3
2
^
g
8
A Stat. 213, 
or 1235) cutered into on or before October 9,1969, including sales 
26 use 631, 
or other dispositions the income from which is returned on the 
1235. 
basis and in the manner prescribed in section 453(a) (1), 
26 use 45^^.' 
" (2) in respect of distributions from a corporation made ^rior 
to October 10,1970, which are pursuant to a plan of complete hqui-
dation adopted on or before October 9,1969, and 
83 S
T
A
T
. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
637 
"(3) in the case of a taxpayer other than a corporation, from 
any other source, but tlie amount taken into account from such 
other sources for the purposes of this paragiuph shall be limited 
to an amount equal to the excess (if any) of $50,000 ($25,000 in 
the case of a married individual filing a separate return) over the 
sum of the gains to which paragraphs (1) aoid (2) apply. 
«(e) CROSS REFERENCES.— 
"For computation of the alternative tax— 
"(1) in the case of life insurance companies, see section 802(a)(2); 
"(2) in''the case of regulated investment companies and their share-
holders, see section 852(b)(3) (A) and (D); and 
"(3) in the case of real estate investment trusts, see section 857(b) 
(3)(A)." 
(c) 
CONFORMING A M E N D M E N T S . — 
^ 
(1) Section 802(a) (2) (B) (relating to alternative tax in case 
H use gVa""' 
of capital gains of life insurance companies) is amended to read 
as follows: 
"(B) an amount determined as provided in section 1201 
(a) on such excess." 
^"'^' p- ^^s. 
(2) Section 852(b)(3) (relating to method of taxation of reg- 
68A stat. 271. 
ulated investment companies and their shareholders in the case 
of capital gains) is amended: 
(A) by striking out "of 25 percent of" in subparagraph 
(A) and inserting in lieu thereof ", determined as provided 
in section 1201 (a), on", 
(B) by adding at the end of subparagraph (C) the follow-
ing new sentence: "For purposes of subparagraph (A) (ii), 
the deduction for dividends paid shall, in the case of a tax-
able year beginning before January 1, 1975, first be made 
from the amount subject to tax in accordance Avith section 
1201(a)(1)(B), to the extent thereof, and then from the 
amount subject to tax in accordance with section 1201(a) 
(1)(A).", 
(C) by striking out "of 25 percent" in subparagraph (D) 
(ii),and 
(D) by amending subparagraph 
(D) (iii) to read as 
follows: 
"(iii) The adjusted basis of such shares in the hands 
of the shareholder shall be increased, with respect to the 
amounts required by this subparagraph to be included in 
computing his long-term capital gains, by 75 percent of 
so nuich of such amounts as equals the amount subject to 
tax in accordance with section 1201(a)(1)(A) and by 
70 percent (72 percent in the case of a taxable year begin-
ning after December 31, 1969, and before January 1, 
1971) of so much of such amounts as equals the amount 
subject to tax in accordance with section 1201(a) (1) (B) 
or (2)." 
(3) Section 857(b) (3) (relating to imposition of tax in the 
case of capital gains of real estate investment trusts) is amended: 
(A) by striking out "of 25 percent of" in subparagraph 
(A) and inserting in lieu thereof ", determined as provided 
in section 1201 (a), on", and 
(B) by adding at the end of subparagrapli (C) the follow-
ing new sentence: "For purposes of subparagraph (A) (ii), 
in the case of a taxable year beginning before January 1, 
1975, the deduction for dividends paid shall first be made 
70 Stat. 530. 
74 Stat. 1006. 
638 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 g^^ 
from the amount subject to tax in accordance with seo 
Ante, p. 635. 
tion 1201(a) (1) (B), to the extent thereof, and then from 
the amount subject to tax in accordance with spotiA 
1201(a)(1)(A)." 
"^^ 
80 Stat. 113. 
(4) Section 1378 (relating to tax imposed on certain capital 
26 use 1378. 
gains of an electing small business corporation) is amended: 
(A) by striking out "25 percent of" in subsection (b) (1 \ 
and inserting in lieu thereof "the tax, determined as provided 
" * *
'
»
>
. r in section 1201 (a), on", 
(B) by adding at the end of subsection (b) the foUowiiiff 
new sentence: "In applying section 1201(a) (1) (A) and (B^ 
for purposes of paragraph (1), the $25,000 limitation shall 
first be deducted from the amount (determined without 
: regard to this subsection) subject to tax in accordance with 
section 1201(a) (1) (B), to the extent thereof, and then from 
the amount (determined without regard to this subsection) 
subject to tax in accordance with section 1201(a) (1)(A)." 
and 
(C) by striking out "25 percent of' in subsection (c)(3) 
and inserting in lieu thereof "a tax, determined as provided 
in section 1201 (a), on", 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31, 1969. 
SEC. 512. CAPITAL LOSSES OF CORPORATIONS. 
(a) 
THREE-YEAR CARRYBACK OF NET CAPITAL LOSSES.—Section 
78 Stat. 860. 
1212(a)(1) (relating to capital loss carryover for corporations) is 
amended to read as follows: 
" (1) I N GENERAL.—If a corporation has a net capital loss for any 
taxable year (hereinafter in this paragraph referred to as the 'loss 
year'), the amount thereof shall be— 
" (A) a capital loss carryback to each of the 3 taxable years 
preceding the loss year, but only to the extent— 
"(1) such loss is not attributable to a foreign expro-
priation capital loss, and 
" (ii) the carryback of such loss does not increase or 
produce a net operating loss (as defined in section 
6
8
A Stat. 63. 
172(c)) for the taxaWc year to wMch it Is being carricd 
back; and 
"(B) a capital loss carryover to each of the 5 taxable years 
(10 taxable years to the extent such loss is attributable to a 
foreign expropriation capital loss) succeeding the loss year, 
and shall be treated as a short-term capital loss in each such tax-
able year. The entire amount of the net capital loss for any taxable 
year shall be carried to the earliest of the taxable years to which 
such loss may be carried, and the portion of such loss which shall 
be carried to each of the other taxable years to which such loss 
may be carried shall be the excess, if any, of such loss over the 
total of the net capital gains for each of the prior taxable years 
to which such loss may be carried. For purposes of the preceding 
sentence, the net capital gain for any such prior taxable year shall 
be computed without regard to the net capital loss for the loss 
year or for any taxable year thereafter. In the case of any net 
capital loss which cannot be carried back in full to a preceding 
taxable year by reason of clause (ii) of subparagraph (A), the net 
' 
capital gain for such prior taxable year shall in no case be treated 
68A Stat. 195. 
26 u s e 851. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
639 
as greater than the amount of such loss which can be carried back 
to such preceding taxable year upon the application of such 
clause (ii)." 
^ 
(b) SPECIAL EULES.—Section 1212(a) (relating to net capital losses 
^"'®' P- ^^S. 
of corporations) is amended by adding at the end thereof the following 
^^ "^^ ^^^^" 
new paragraphs: 
"(3) ELECTING 
SMALL 
BUSINESS 
CORPORATIONS.—Paragraph 
(1) (A) shall not apply to the net capital loss of a corporation for 
any taxable year for which it is an electing small business corpora-
tion under subchapter S, and a net capital loss of a corporation 
^°^^' P- 654. 
(for a year for which it is not such an electing small business cor-
poration) shall not be carried back under paragraph (1) (A) to a 
taxable year for which it is an electing small business corporation. 
"(4) SPECIAL RULES ON CARRYBACKS.—A net capital loss of a 
corporation shall not be carried back under paragraph (1) (A) to 
a taxable year— 
"(A) for which it is a foreign personal holding company 
(as defined in section 552); 
"(B) for which it is a regulated investment company (as 
defined in section 851) ; 
"(C) for which it is a real estate investment trust (as 
defined in section 856) ; or 
74 stat. ioo4. 
"(D) for which an election made by it under section 1247 
is applicable (relating to election by foreign investment com-
panies to distribute income currently)." 
(c) CERTAIN CORPORATE ACQUISITIONS.—Section 381(b)(3) (relat-
ing to operating rules for carryovers in certain corporate acquisitions) 
is amended by striking out "a net operating loss" and inserting in lieu 
thereof "a net operating loss or a net capital loss". 
(d) TENTATIVE CARRYBACK ADJUSTMENTS.—Section 6411 (relating g^^stat^^yaV^*^' 
to quick refunds in respect of tentative carryback adjustments) is 
amended— 
(1) by striking out the first two sentences of subsection (a) and 
inserting in lieu thereof "A taxpayer may file an application for a 
tentative carryback adjustment of the tax for the prior taxable 
year affected by a net operating loss carryback provided in section 
? 
lT2(b), by an investment credit carryback provided in section yg^gtalr'^v^^^' 
46(b), or by a capital loss carryback provided in section 1212(a) 
Post, p. eee. 
(1), from any taxable year. The application shall be verified in 
the manner prescribed by section 6065 in the case of a return of 
such taxpayer, and shall be filed, on or after the date of filing of 
the return for the taxable year of the net operating loss, net cap-
ital loss, or unused investment credit from which the carryback 
results and within a period of 12 months from the end of such 
taxable year (or, with respect to any portion of an investment 
credit carryback from a taxable year attributable to a net oper-
ating loss carryback or a capital loss carryback from a subsequent 
taxable year, within a period of 12 months from the end of such 
subsequent taxable year), in the manner and form required by 
regulations prescribed by the Secretary or his delegate.", and 
(2) by striking out "net operating loss or unused investment 
credit", wherever such term appears in subsections (a) (1), (b), 
and, (c), and inserting in lieu thereof "net operating loss, net cap-
ital loss, or unused investment credit". 
(e) STATUTES OF LIMITATIONS AND INTEREST RELATING TO CAPITAL 
Loss CARRYBACKS.— 
26 use 6065. 
O H * >",3>J> f'l' 
76 Stat. 889. 
26 u s e 172. 
81 Stat. 731. 
640 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT 
72 Stat. 1663; 
(1) ASSESSMENT A
X
D COLLECTION.—Sectioii 6501 (relating t 
^^26'usc 6501. 
limitations on assessment and collection) is amended— 
^ 
(A) by striking out "Loss CARRYBACKS" in the heading of 
subsection (h) and inserting in lieu thereof "Loss OR CAPITAL 
T^ss CARRYBACKS", 
(B) by striking out "loss carryback" in subsection (h) and 
inserting in lieu thereof "loss carryback or a capital loss 
' 
carryback", 
"^''[ 
(C) by striking out "operating loss which" in subsection 
' • ' • " ' 
(h) and inserting in lieu thereof "operating loss or net capital 
'•'^•' •'. loss which", 
•' • •' 
(D) by striking out "assessed, or within 18 months" and all 
'• ' 
that follows thereafter in subsection (h) and inserting in lieu 
thereof "assessed. In the case of a deficiency attributable to 
' the application of a net operating loss carryback, such defi-
ciency may be assessed within 18 months after the date on 
' 
' 
which the taxpayer files in accordance with section 172 (b) (3) 
a copy of the certification (with respect to the taxable year of 
the net operating loss) issued under section 317 of the Trade 
Expansion Act of 1962, if later than the date prescribed by 
' ' 
the preceding sentence.", 
(E) by striking out "loss carryback" in subsection (j) and 
inserting in lieu thereof "loss carryback or a capital loss 
carryback", and 
(F) by striking out "net operating loss carryback or an 
investment credit carryback" in subsection (m) and inserting 
in lieu thereof "net operating loss carryback, a capital loss 
carryback, or an investment credit carryback". 
6
8
A Stat. 808; 
(£) CREDIT O
R REFUND.—Subscctiou (d) of sectiou 6511 (relat-
ing to limitations on credit or refund) is amended— 
(A) by striking out "LOSS CARRYBACKS" in the heading of 
paragraph (2) and inserting in lieu thereof "LOSS OR CAPITAL 
LOSS CARRYBACKS", 
(B) by striking out "loss carryback" in that part of para-
graph (2) (A) which precedes clause (i) thereof and insert-
ing in lieu thereof "loss carryback or a capital loss carryback"', 
(C) by striking out "operating loss which" in that part of 
paragraph (2) (A) which precedes clause (i) thereof and 
inserting in lieu thereof "operating loss or net capital loss 
which", 
(D) by striking out "loss carryback" in the first sentence of 
paragraph (2) (B) (i) and inserting in lieu thereof "loss 
' '• • 
carryback or a capital loss carryback". 
=
• 
(E) by amending the last sentence of paragraph (2) (B) 
(i) to read as follows: "In the case of any such claim for credit 
or refund or any such application for a tentative carryback 
adjustment, the determination by any court, including the 
' . ' 
Tax Court, in any proceeding in which the decision of the 
court has become final, shall be conclusive except with respect 
to the net operating loss deduction, and the effect of such 
/^ 
deduction, or with respect to the determination of a short-
' ' ,' 
term capital loss, and the effect of such short-term capitaj 
•
^
' 
loss, to the extent that such deduction or short-term capital 
loss is affected by a carryback which was not an issue in such 
proceeding.", 
(F) by striking out "loss carryback" in paragraph (2) (B) 
(ii) and inserting in lieu thereof "loss carryback or a capital 
loss carryback, as the case may be,", and 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
641 
(G) by striking out ''loss carryback" in paragraph (4) (A) 
and inserting m lieu thereof "loss carryback or a capital loss 
carryback". 
81 Stat. 731. 
(3) INTEREST ON UNDERPAYMENTS.—Section 6601(e) (relating 
76 stat. 972. 
to computation of interest in case of carryback or adjustment for 
^^ "^^ ^^°^' 
certain unused deductions) is amended— 
(A) by striking out "LOSS CARRYBACK" in the heading of 
paragraph (1) and inserting in lieu thereof "LOSS OR CAPITAL 
LOSS CARRYBACK", 
(B) by striking out "net operating loss" wherever it 
appears in paragraph (1) and inserting in lieu thereof "net 
operating loss or net capital loss", and 
(C) by striking out "loss carryback" in paragraph (2) and 
si stat. 731. 
inserting in lieu thereof "loss carryback or a capital loss 
carryback". 
(4) INTEREST ON OVERPAYMENTS.—Section 6611(f) (relating to 
^e stat. 972. 
interest in case of refund of income tax caused by carryback or 
adjustment for certain unused deductions) is amended— 
(A) by striking out "LOSS CARRYBACK" in the heading of 
paragraph (1) and inserting in lieu thereof "LOSS OR CAPITAL 
LOSS C A R R Y B A C K " , 
(B) by striking out "net operating loss" wherever it ap-
pears in paragraph (1) and inserting in lieu thereof "net 
operating loss or net capital loss", and 
(C) by striking out "loss carryback" in paragraph (2) and 
inserting in lieu thereof "loss carryback or a capital loss 
carryback". 
(f) TECHNICAL AMENDMENTS.— 
(1) The heading of section 1212 is amended by striking out 
"CARRYOVER" and inserting in lieu thereof "CARRYBACKS 
AND CARRYOVERS'*. 
(2) The item relating to section 1212 in the table of sections for 
part II of subchapter P of chapter 1 is amended by striking out 
"carryover" and inserting in lieu thereof "carrybacks and carry-
overs". 
(3) Section 246(b) (1) (relating to dividends received deduc-
tion) is amended by striking out "and 247" and inserting in lieu 
thereof "and 247, and without regard to any capital loss carryback 
to the taxable year under section 1212 (a)(1)." 
(4) Section 481(b) (3) (A) (relating to changes in method of 
accounting) is amended by striking out "loss carryover" and 
inserting in lieu thereof "loss carryback or carryover", 
(5) Section 535(b) (6) (relating to improper accumulations of 
surplus) is amended— 
(A) by striking out "capital loss carryover" in the first 
sentence and inserting in lieu thereof "capital loss carryback 
or carryover", and 
(B) by striking out "capital loss carryover" in subpara-
graph (B) and inserting in lieu thereof "capital loss carry-
back and carryover". 
(6) Paragraph (7) of section 535(b) (relating to treatment of 
capital loss carryovers) is amended to read as follows: 
"CS") CAPITAL LOSS.—NO allowance shall be made for the capital 
loss carrvback or carryover provided in section 1212." 
(7) Section 1314(a) (relating to mitigation of limitations) is 
amended by striking out "capital loss carryover" and inserting 
in lieu thereof "capital loss carryback or carryover". 
68A stat. 74. 
72 stat. 1631. 
68A Stat. 340. 
26 u s e 1314. 
642 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 s^^ 
(8) The last sentence of section 1314(b) (relating to method f 
adjustment) is amended to read as follows: "In the case of a 
adjustment resulting from an increase or decrease in a net ope? 
ating loss or net capital loss which is carried back to the year of 
adjustment, interest shall not be collected or paid for any period 
prior to the close of the taxable year in which the net operatin 
loss or net capital loss arises." 
^ 
(g) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to net capital losses sustained in taxable years 
beginning after December 31,1969. 
SEC. 513. CAPITAL LOSSES OF INDIVIDUALS. 
(a) LIMITATION ON ALLOWANCE OF CAPITAL LOSSES.—Section 1211 
(b) (relating to limitation on capital losses of taxpayers other than 
corporations) is amended to read as follows: 
"(b) 
OTHER TAXPAYERS.— 
"(1) I N GENERAL.—In the case of a taxpayer other than a cor-
poration, losses from sales or exchanges of capital assets shall be 
allowed only to the extent of the gains from such sales or 
exchanges, plus (if such losses exceed such gains) whichever of 
the following is smallest: 
" (A) the taxable income for the taxable year, 
"(B) $1,000, or 
"(C) the sum of— 
"(i) the excess of the net short-term capital loss over 
the net long-term capital gain, and 
" (ii) one-half of the excess of the net long-term capital 
loss over the net short-term capital gain. 
"(2) MARRIED INDIVIDUALS.—In the case of a husband or wife 
Avho files a separate return, the amount specified in paragraph 
(1) (B) shall be $500 in lieu of $1,000. 
" (3) COMPUTATION OF TAXABLE INCOME.—For purposes of para-
graph (1), taxable income shall be computed without regard to 
gains or losses from sales or exchanges of capital assets and 
Avithout regard to the deductions provided in section 151 (relating 
to personal exemptions) or any deduction in lieu thereof. If the 
taxpayer elects to pay the optional tax imposed by section 3, 'tax-
able income' as used in this subsection shall read as 'adjusted 
gross income'." 
78 Stat. 99. 
(b) CAPITAL Loss CARRYOVER.—Section 1212(b) (relating to capital 
loss carryover of taxpayers other than corporations) is amended by 
striking out "beginning after December 31, 1963" at the beginning o
f 
paragraph (1), by striking out the last sentence of paragraph (l)i 
and by striking out paragraph (2) and inserting in lieu thereof the 
following new paragraphs: 
"(2) 
SPECIAL RULES.— 
" (A) For purposes of determining the excess referred to in 
paragraph (1) (A), an amount equal to the amount allowed 
for the taxable year under section 1211(b) (1) (A), (B),or 
(C) shall be treated as a short-term capital gain in such year. 
"(B) For purposes of determining the excess referred to 
in paragraph (1) (B), an amount equal to the sum of— 
"(i) the amount allowed for the taxable year under 
section 1211(b)(1) (A), (B),or (C),and 
*- I;.; 
"(ii) the excess of the amount described in clause (1) 
wi^rv 
*^^'^^ t^® 1"'^^ short-term capital loss (determined without 
regard to this subsection) for such year, 
shall be treated as a short-term capital gain in such year. 
Post, p. 675. 
Ante, p. 642. 
68A Stat. 321. 
g3 STAT. 1 
PUBLIC LAW 91-172-DEC. 30, 1969 
643 
"(8) TRANSITIONAL RULE.—In the case of any amount which, 
under paragraph (1) and section 1211(b) (as in effect for taxable 
years beginning before January 1,1970), is treated as a capital loss 
in the first taxable year beginning after December 31,1969, para-
graph (1) and section 1211(b) (as in effect for taxable years 
beginning before January 1, 1970) shall apply (and paragraph 
(1) and section 1211(b) as in effect for taxable years beginning 
after December 31, 1969, shall not apply) to the extent such 
amount exceeds the total of any net capital gains (determined 
without regard to this subsection) of taxable years beginning 
after December 31,1969." 
(c) CONFORMING AMENDMENT.—Section 1222(9) (defining net capi- 
78 stat. loo. 
tal <^ain) is amended by striking out "In the case of a corporation, the" 
^^ ^^'^ ^^"" 
ancTinserting in lieu thereof "The". 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31,1969. 
SEC. 514. LETTERS, MEMORANDUMS, ETC. 
(a) TREATMENT AS PROPERTY W H I C H I S NOT A CAPITAL ASSET.— 
Section 1221 (3) (relating to definition of capital asset) is amended to 
read as follow^s: 
"(3) a copyright, a literary, musical, or artistic composition, a 
letter or memorandum, or similar property, held by— 
"(A) a taxpayer whose personal efforts created such 
propert}[, 
"(B) in the case of a letter, memorandum, or similar prop-
erty, a taxpayer for whom such property was prepared or 
proclucecl, or 
" (C) a taxpayer in whose hands the basis of such property 
is determined, for purposes of determining gain from a sale 
or exchange, in whole or part by reference to the basis of such 
property in the hands of a taxpayer described in subpara-
graph (A) or (B) ;". 
(b) CONFORMING AMENDMENTS.— 
(1) Section 341(e) (5) (A) (iv) (relating to definition of subsec-
tion (e) asset in the case of collapsible corporations) is amended to 
read as follows: 
"(iv) property (unless included under clause (i), (ii), or 
(iii)) which consists of a copyright, a literary, musical, or 
artistic composition, a letter or memorandum, or similar 
property, or any interest in any such property, if the property 
was created in w^hole or in part by the personal efforts of, or 
(in the case of a letter, memorandum, or similar property) 
was prepared, or produced in whole or in part for, any indi-
vidual w ho ow ns more than 5 percent in value of the stock of 
the corporation." 
(2) Section 1231(b)(1)(C) (relating to definition of property 
used in the trade or business) is amended by inserting ", a letter or 
memorandum" before ", or similar property". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to sales and other dispositions occurring after July 25,1969. 
SEC. 515. TOTAL DISTRIBUTIONS FROM QUALIFIED PENSION, ETC., 
PLANS. 
(a) LIMITATION ON CAPITAL GAINS TREATMENT.— 
(1) EMPLOYEES'TRUST.—Section 402(a) (relating to taxability 
.^Itf^^'^'^'''' 
of beneficiary of exempt trust) is amended by adding at the end 
thereof the following new paragraph: 
"(5) LIMFIATION ON CAPITAL GAINS TREATMENT.—The first 
72 Stat. 1618. 
644 
PUBLIC LAW 91-172-DEC. 30, 1969 
[33 g^ 
sentence of paragraph (2) shall apply to a distribution paid aft 
December 31, 1969, only to the extent that it does not exceed fh^ 
sum of— 
^ 
"(A) the benefits accrued by the employee on behalf f 
whom it is paid during plan years beginning before T
a 
uary 1,1970, and 
^^• 
"(^B) the portion of the benefits accrued by such emplovep 
during plan years beginning after December 31,1969, which 
the distributee establishes does not consist of the employee's 
allocable share of employer contributions to the trust by which 
such distribution is paid. 
. ' 
The Secretary or his delegate shall prescribe such regulations as 
may be necessary to carry out the purposes of this paragraph " 
a^usc «3'^" 
(2) EMPLOYEE ANNUITIES.—Section 403(a) (2) 
(relating to 
capital gains treatment for certain distributions under a qualified 
annuity plan) is amended by adding at the end thereof the fol-
lowing new subparagraph: 
"(C) 
LIMITATION ON CAPITAL GAINS TREATMENT.—Subpara-
graph (A) shall apply to a payment paid after December 31, 
1969, only to the extent it does not exceed the sum o
f
— 
"(1) the benefits accrued by the employee on behalf 
of whom it is paid during plan years beginning before 
January 1,1970, and 
"(ii) the portion of the benefits accrued by such 
employee during plan years beginning after December 31, 
1969, which the payee establishes does not consist of the 
employee's allocable share of employer contributions 
under the plan under which the annuity contract is 
purchased. 
The Secretary or his delegate shall prescribe such regulations 
as may be necessary to carry out the purposes of this sub-
paragraph." 
76 Stat. 824. 
(jj) LIMITATION ON TAX.—Section72(n) (relating to treatment o
f 
certain distributions with respect to contributions by self-employed 
individuals) is amended— 
(1) by striking out so much thereof as precedes paragraph 
(2) and inserting m lieu thereof the following: 
" (n) 
TREATMENT OF TOTAL DISTRIBUTIONS.— 
"(1) 
APPLICATION OF SUBSECTION.— 
"(A) GENERAL RULE.—This subsection shall apply to 
amounts— 
; 
"(i) distributed to a distributee, in the case of an 
employees' trust described in section 401(a) which is 
exempt from tax under section 501 (a), or 
"(ii) paid to a payee, in the case of an annuity plan 
• 
described in section 403 (a), 
if the total distributions or amounts payable to the distributee 
or payee with respect to an employee (including an individual 
I- ' 
who is an employee within the meaning of section 401 (c) (1)) 
are paid to the distributee or payee wiUiin one taxable year 01 
' o 
the distributee or payee, but only to the extent that section 
402(a) (2) or 403(a) (2) (A) does not apply to such amounts. 
"(B) 
DISTRIBUTIONS TO WHICH APPLICABLE.—This subsec-
;" ' : 
' 
: . 
tion shall apply only to distributions or amounts paid— 
' 
V .:^ 0 ! 
"(i) on account of the employee's death, 
" (ii) with respect to an individual who is an ©^^P'PP 
f^^n 
without regard to section 401(c) (1), on account 01 o» 
separation from the service, 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
645 
26 use 401. 
" (iii) with respect to an employee "svithin the meaning 
of section 401 (c) (1), after lie has attained tlie age of 591/2 
years, or 
" (iv) with respect to an employee within the meaning 
of sectioji 401(c)(1), after he has become disibled 
(within the meaning of subsection (m)(7)). 
"(C) MINIMUM PERIOD or SERVICE.—This subsection shall 
apply to amounts distributed or paid to an employee from or 
under a plan only if he has been a participant in the plan for 
5 or more taxable years prior to the taxable year in which such 
amounts are distributed or paid, 
"(D) AMOUNTS SUHJECT TO I^EXALTY.—This subsection 
shall not apply to amounts described in clauses (ii) and (iii) 
of subparagraph (A) of subsection (m) (5) (but, in the case 
of auiounts described in clause (ii) of such subparagraph, only 
to the extent that subsection (m) (5) applies to such 
amounts)."; and 
(2) by adding at the end thereof the followiug new paragraph: 
"(4) 
SPECIAL RULE FOR EMPLOYEES WITHOUT REOARD TO SECTION 
401(C) (IK—111 the case of amounts to which this subsection 
applies which are distributed or paid with respect to an individual 
who is an employee without regard to section 401(c)(1), para-
graph (2) shall be applied with the following modifications: 
"(A) '7 times' shall be substituted for '5 times', and '14% 
percent' shall be substituted for '20 percent'. 
"(B) Any amount which is received during the taxable 
year by the employee as compensation (other than as deferred 
compensation within the meaning of section 404) for personal 
services performed for tlie employer in resi)cct of whom the 
amounts distributed or paid are received shall not be taken, 
into account. 
"(C) No portion of the total distributions or amounts pay-
able (of which the amounts distributed or paid are a part) 
to which section 402(a) (2) or 403(a) (2) (A) applies shall be 
taken into account. 
Subparagraph (B) shall not apply if the employee has not 
attained the age of 591/^ years, unless he has died or become dis-
abled (within the meaning of subsection (m) (7))." 
(c) 
TECHNICAL AND CONFORMING A:MENDMENTS.— 
(1) Section 405(e) (relating to capital gains treatment not to 
76 stat. 82 7. 
apply to bonds distributed by trusts) is amended— 
(A) 
by striking out "CAPITAL GAINS TREATMENT" in the 
heading and inserting in lieu thereof "CAPITAL GAINS TREAT-
MENT AND LIMITATION OF TAX" ; 
(B) by striking out "Section 402(a) (2)" and inserting in 
lieu thereof "Section 72(n) and section 402(a) (2)"; and 
(C) by striking out "section" and inserting in lieu thereof 
"sections". 
(2) Section 400(c) (relating to termination of status as deemed 
''^ stat. 59. 
employee not to be treated as separation from service for purposes 
of capital gain provisions) is amended— 
(A) by striking out "PROVISIONS." in the heading and 
inserting in lieu thereof "PROVISIONS AND LIMITATION OF 
TAX.'*; and 
!ii.inn n - 70 - 4S 
646 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
26 use 402. 
(g) Ijy striking out "section 402(a) (2)" and inserting in 
lieu thereof "section 72(n), section 402(a) (2),". 
78 Stat. 61. 
^3^ Section 407(c) (relating to termination of status as deemed 
employee not to be treated as separation from service for purposes 
of capital gain provisions) is amended— 
(A) by striking out "PROVISIONS." in the heading and 
inserting in lieu thereof "PEOVISIONS AND LIMITATION OF 
TAX."; and 
(B) by striking out "section 402(a) (2)" and inserting in 
lieu thereof "section 72(n), section 402(a) (2),". 
78 Stat. 108. 
(4) Section 1304(b) (2) (relating to certain provisions inap-
plicable) is amended to read as follows: 
"(2) section 72(n) (2) (relating to limitation of tax in case of 
total distribution),", 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years ending after December 31, 1969. 
SEC. 516. OTHER CHANGES IN CAPITAL GAINS TREATMENT. 
6
8
A Stat. 295; 
(a) SALES OF TERM INTERESTS.—Sectiou 1001 (relating to determina-
" ^' ^' 
• 
tion of amount of and recognition of gain or loss) is amended by adding 
at the end thereof the following new subsection: 
"(e) CERTAIN TERM INTERESTS.— 
" (1) I N GENERAL.—In determining gain or loss from the sale or 
other disposition of a term interest in property, that portion of the 
adjusted basis of such interest which is determined pursuant to 
^g2^usc 1014, 
section 1014 or 1015 (to the extent that such adjusted basis is a 
portion of the entire adjusted basis of the property) shall be 
disregarded. 
"(2) TERM INTEREST IN PROPERTY DEFINED.—For purposes of 
paragraph (1), the term 'term interest in property' means— 
" (A) a life interest in property, 
"(B) an interest in property for a term of years, or 
"(C) an income interest in a trust. 
"(3) EXCEPTION.—Paragraph (1) shall not apply to a sale or 
other disposition which is a part of a transaction in which the 
entire interest in property is transferred to any person or 
persons." 
(b) CERTAIN CASUALTY LOSSES UNDER SECTION 1231.—Section 1231 
6
8
A Stat. 325. 
^g^^ (relating to property used in the trade or business and involun-
tary conversions) is amended by striking out all that follows para-
graph (1) and inserting in lieu thereof the following: 
"(2) losses (including losses not compensated for by insurance 
or otherwise) upon the destruction, in whole or in part, theft or 
seizure, or requisition or condemnation of (A) property used in 
the trade or business or (B) capital assets held for more than 
6 months shall be considered losses from a compulsory or involun-
tary conversion. 
In the case of any involuntary conversion (subject to the provisions of 
this subsection but for this sentence) arising from fire, storm, ship-
wreck, or other casualty, or from theft, of any property used in the 
trade or business or of any capital asset held for more than 6 months, 
this subsection shall not apply to such conversion (whether resulting 
in gain or loss) if during the taxable year the recognized losses from 
such conversions exceed the recognized gains from such conversions." 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
647 
26 u s e 1231-
1252. 
Ante, p. 572. 
(c) 
TRANSFERS OF FRANCHISES, TRADEMARKS AND TRADE XAMES.— 
(1) I N GENERAL.—Part IV of subchapter P of chapter 1 (relat-
ing to special rules for determining capital gains and losses) is 
amended by adding after section 1252 (added by section 214 of this 
Act) the following new section: 
"SEC. 1253. TRANSFERS OF FRANCHISES, TRADEMARKS, AND TRADE 
NAMES. 
''(a) GENERAL RULE.—A transfer of a franchise, trademark, or 
trade name shall not be treated as a sale or exchange of a capital asset 
if the transferor retains any significant powder, right, or continuing 
interest with respect to the subject matter of the franchise, trademark, 
or trade name. 
"(b) DEFINITIONS.—For purposes of this section— 
"(1) FRANCHISE.—The term "franchise" includes an agreement 
which gives one of the parties to the agreement the right to dis-
tribute,- sell, or provide goods, services, or facilities, within a 
specified area. 
"(2) 
SIGNIFICANT POWER, RIGHT, OR CONTINUING INTEREST.— 
The term 'significant power, right, or continuing interest' includes, 
but is not limited to, the following rights with respect to the inter-
est transferred: 
"(A) A right to disapprove any assignment of such inter-
est, or any part thereof. 
"(B) A right to terminate at will. 
"(C) A right to prescribe the standards of quality of 
products used or sold, or of services furnished, and of tlie 
equipment and facilities used to promote such products or 
services. 
"(D) A right to require that the transferee sell or adver-
tise only products or services of the transferor. 
"(E) A right to require that the transferee purchase sub-
stantially 
all of his supplies and equipment from the 
transferor. 
"(F) A right to payments contingent on the productivity, 
use, or disposition of the subject matter of the interest trans-
ferred, if such payments constitute a substantial element 
under the transfer agreement. 
"(3) TRANSFER.—The term 'transfer' includes the renewal of a 
franchise, trademark, or trade name. 
"(c) 
TREATMENT OF CONTINGENT PAYMENTS BY TRANSFEROR.— 
Amounts received or accrued on account of a transfer, sale, or other 
disposition of a franchise, trademark, or trade name which are con-
tingent on the productivity, use, or disposition of the franchise, trade-
mark, or trade name transferred shall be treated as amounts received or 
accrued from the sale or other disposition of property which Is not a 
capital asset. 
"(d) 
TREATMENT OF PAYMENTS BY TRANSFEREE.— 
"(1) CONTINGENT PAYMENTS.—Amounts paid or incurred dur-
ing the taxable year on account of a transfer, sale, or other disposi-
tion of a franchise, trademark, or trade name which are contingent 
on the productivity, use, or disposition of the franchise, trade-
mark, or trade name transferred shall be allowed as a deduction 
under section 162(a) (relating to trade or business expenses). 
SSA stat. 4s 
"(2) OTHER PAYMENTS.—If a transfer of a franchise, trade-
mark, or trade name is not (by reason of the application of sub-
section (a)) treated as a sale or exchange of a capital asset, any 
648 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
payment not described in paragraph (1) which is made in dis-
charge of a principal sum agreed upon in the transfer agreement 
shall be allowed as a deduction— 
"(A) in the case of a single payment made in discharge 
of such principal sum, ratably over the taxable years in the 
period beginning with the taxable year in which the payment 
IS made and ending with the ninth succeeding taxable year 
or ending with the last taxable year beginning in the period 
of the transfer agreement, whichever period is shorter; 
"(B) in the case of a payment which is one of a series of 
approximately equal payments made in discharge of such 
prmcipal sum, which are payable over— 
"(i) the period of the transfer agreement, or 
"(ii) a period of more than 10 taxable years, w^hether 
ending before or after the end of the period of the trans-
fer agreement, 
in the taxable year in which the payment is made; and 
"(C) in the case of any other payment, in the taxable year 
or years specified in regulations prescribed by the Secretary 
or his delegate, consistently with the preceding provisions of 
this paragraph. 
"(e) EXCEPTION.—This section shall not apply to the transfer of a 
franchise to engage in professional football, basketball, baseball, or 
other professional sport." 
(2) CONFORMING AMENDMENTS,— 
P°^^'P-7io. 
(A) Section 162(h) (as redesignated by section 902) is 
amended by striking out "For" and inserting in lieu thereof 
"(1) For", and by adding at the end thereof the following: 
"(2) For special rule relating to the treatment of payments by 
a transferee of a franchise, trademark, or trade name, see section 
1253." 
6
8
A Stat. 299; 
(B) Sectlou 1016(a) (relating to adjustments to basis) is 
'^^26*usc%i6. 
amended by striking out the period at the end of paragraph 
(21) and inserting in lieu thereof a semicolon, and by insert-
ing after paragraph (21) the following new paragraph: 
" (22) for amounts allowed as deductions for payments made on 
account of transfers of franchises, trademarks, or trade names 
Ante, p. 647. 
Under scctlon 1253 (d) (2)." 
(C) The table of sections for part IV of subchapter P of 
chapter 1 is amended by adding at the end thereof the follow-
ing new item: 
"Sec. 1253. Transfers of franchises, trademarks, and trade 
names." 
(d) 
EFFECTIVE DATES.— 
(1) The amendment made by subsection (a) shall apply to sales 
or other dispositions after October 9,1969. 
(2) The amendment made by subsection (b) shall apply to 
taxable years beginning after December 31, 1969. 
(3) The amendments made by subsection (c) shall apply to 
transfers after December 31,1969, except that section 1253(d) (1) 
of the Internal Revenue Code of 1954 (as added by subsection (c)) 
shall, at the election of the taxpayer (made at such time and in 
such manner as the Secretary or his delegate may by regulations 
prescribe), apply to transfers before January 1, 1970, but only 
with respect to payments made in taxable years ending after 
December 31, 1969, and beginning before January 1, 1980. 
80 Stat. 1513; 
Ante, 
p. 625. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
649 
Subtitle C—Real Estate Depreciation 
SEC. 
5
2
1
. 
DEPRECIATION OF 
REAL 
ESTATE. 
(a) 
SECTION 
1250 
PROPERTY AND REHABILITATION 
PROPERTY.— 
Section 167 (relating to depreciation) is amended by redesignating sub-
section (j) as subsection (m), and by inserting after subsection (i) 
26 use le? 
the following new subsections: 
•' (j) SPECIAL RULES FOR SECTION 1250 PROPERTY.— 
"(1) GENERAL RULE.—Except as provided in paragraphs (2) 
and (3), in the case of section 1250 property, subsection (b) shall 
not apply and the term 'reasonable allowance' as used in subsec-
tion (a) shall include an allowance computed in accordance with 
regulations prescribed by the Secretary or his delegate, under any 
of the following methods: 
" (A) the straight line method, 
"(B) the declining balance method, using a rate not exceed-
ing 150 percent of the rate which would have been used had 
the annual allowance been computed under the method 
described in subparagraph (A), or 
"(C) any other consistent method productive of an annual 
allowance which, when added to all allowances for the period 
commencing w^ith the taxpayer's use of the property and 
including the taxable year, does not, during the first two-
thirds of the useful life of the property, exceed the total of 
such allowances which would have been used had such allow-
ances been computed under the method described in subpara-
graph (B). 
Nothing in this paragraph shall be construed to limit or reduce 
an allowance otherwise allowable under subsection (a) except 
where allowable solely by reason of paragraph (2), (3), or (4) 
of subsection (b). 
"(2) 
RESIDENTIAL RENTAL PROPERTY.— 
"(A) I N GENERAL.—Paragraph (1) of this subsection shall 
not apply, and subsection (b) shall apply in any taxable year, 
to a building or structure— 
"(i) which is residential rental property 
located 
within the United States or any of its possessions, or 
located within a foreign country if a method of deprecia-
tion for such property comparable to the method pro-
vided in subsection (b) (2) or (3) is provided by the 
laws of such country, and 
"(ii) the original use of which commences with the 
taxpayer. 
In the case of residential rental property located within a 
foreign country, the original use of which commences with 
the taxpayer, if the allowance for depreciation provided 
under the laws of such country for such property is greater 
than that provided under paragraph (1) of this subsection, 
but less than that provided under subsection (b), the allow-
ance for depreciation under subsection (b) shall be limited 
to the amount provided under the laws of such country. 
"(B) DEFINITION.—For purposes of subparagraph (A)j a 
building or structure shall be considered to be residential 
rental property for any taxable year only if 80 percent or 
more of the gross rental income from such building or struc-
ture for such year is rental income from dwelling units 
(within the meaning of subsection (k)(3)(C)). For pur-
poses of the preceding sentence, if any portion of such build-
ing or structure is occupied by the taxpayer, the gross rental 
650 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
income from such building or structure shall include the 
rental value of the portion so occupied. 
"(C) CHANGE IN METHOD or DEPRECIATION.—Any change 
in the computation of the allowance for depreciation for any 
taxable year, permitted or required by reason of the appli-
cation of subparagraph (A), shall not be considered a change 
in a method of accounting. 
'(3) 
PROPERTY CONSTRUCTED, ETC., BEFORE J U L Y 25, i96 9.— 
Paragraph (1) of this subsection shall not apply, and subsection 
(b) shall apply, in the case of property— 
" (A) the construction, reconstruction, or erection of which 
was begun before July 25,1969, or 
"(B) for which a written contract entered into before 
July 25, 1969, with respect to any part of the construction, 
reconstruction, or erection or for the permanent 
financing 
thereof, was on July 25, 1969, and at all times thereafter, 
binding on the taxpayer. 
"(4) USED SECTION 1250 PROPERTY.—Except as provided in par-
agraph (5), in the case of section 1250 property acquired after 
July 24, 1969, the original use of which does not commence with 
the taxpayer, the allowance for depreciation under this section 
shall be limited to an amount computed under— 
"(A) the straight line method, or 
"(B) any other method determined by the Secretary or 
his delegate to result in a reasonable allowance under sub-
section (a), not including— 
"(i) any declining balance method, 
"(ii) the sum of the years-digits method, or 
"(iii) any other method allowable solely by reason of 
the application of subsection (b) (4) or paragraph (1) 
(C) of this subsection. 
Us 
"(5) USED RESIDENTIAL RENTAL PROPERTY.—In the case of sec-
tion 1250 property which is residential rental property (as defined 
in paragraph (2) (B)) acquired after July 24,1969, having a use-
ful life of 20 years or more, the original use of which does not 
commence with the taxpayer, the allowance for depreciation under 
this section shall be limited to an amount computed under— 
" (A^ the straight line method, 
"(B) the declining balance method, using a rate not exceed-
ing 125 percent of the rate which would have been used had 
the annual allowance been computed under the method 
described in subparagraph (A), or 
"(C) any other method determined by the Secretary or his 
delegate to result in a reasonable allowance under subsection 
(a), not including— 
" (i) the sum of the years-digits method, 
"(ii) any declining balance method using a rate in 
excess of the rate permitted under subparagraph (B), or 
"(iii) any other method allowable solely by reason of 
the application of subsection (b) (4) or paragraph 
(1) (C) of this subsection. 
"(6) 
SPECIAL RULES.— 
" (A) Under regulations prescribed by the Secretary or his 
delegate, rules similar to the rules provided in paragraphs 
2?usci8°^* 
(^)' (^)' (^^)' ^"^ (^^) ^* section 48(h) shall be applied 
for purposes of paragraphs (3), (4), and (5) of this 
subsection. 
83 STAT.] 
PUBLIC LAW 9 1 - 1 7 2 - D E C . 30, 1969 
651 
"(B) For purposes of paragraphs (2), (4), and (5), if 
section 1250 property which is not property described in sub-
section (a) when its original use commences, becomes property 
described in subsection (a) after July 24,1969, such j)roperty 
shall not be treated as property the original use of which com-
mences with the taxpayer. 
"(C) Paragraphs (4) and (5) shall not apply in the case of 
section 1250 property acquired after July 24, 1969, pursuant 
to a written contract for the acquisition of such property or 
for the permanent financing thereof, w^iich was, on July 24, 
1969, and at all times thereafter, binding on the taxpayer. 
" (k) 
DEPRECIATION or EXPENDITURES To REHABILITATE LOW-INCOME 
RENTAL HOUSING.— 
"(1) 60-MONTH RULE.—The taxpayer may elect, in accordance 
with regulations prescribed by the Secretary or his delegate, to 
compute the depreciation deduction provided by subsection (a) 
attributable to rehabilitation expenditures incurred with respect 
to low-income rental housing after July 24, 1969, and before Jan-
uary 1,1975, under the straight line method using a useful life of 
60 months and no salvage value. Such method shall be in lieu of any 
other method of computing the depreciation deduction under sub-
section (a), and in lieu of any deduction for amortization, for such 
expenditures. 
"(2) 
LIMITATIONS.— 
" (A) The aggregate amount of rehabilitation expenditures 
paid or incurred by the taxpayer with respect to any dwelling 
unit in any low-income rental housing which may be taken into 
account under paragraph (1) shall not exceed $15,000. 
"(B) Rehabilitation expenditures paid or incurred by the 
taxpayer in any taxable year with respect to any dwelling 
unit in any low-income rental housing shall be taken into 
account under paragraph (1) only if over a period of two con-
secutive years, including the taxable year, the aggregate 
amount of such expenditures exceeds $3,000. 
"(3) DEFINITIONS.—For purposes of this subsection— 
"(A) REHABILITATION EXPENDITURES.—The term 'rehabili-
tation expenditures' means amounts chargeable to capital 
account and incurred for property or additions or improve-
ments to property (or related facilities) with a useful life of 5 
years or more, in connection with the rehabilitation of an 
existing building for low-income rental housing; but such 
term does not include the cost of acquisition of such building 
or any interest therein. 
"(B) LOW-INCOME 
RENTAL 
HOUSING.—The term 
'low-
income rental housing' means any building the dwelling units 
in which are held for occupancy on a rental basis by families 
and individuals of low or moderate income, as determined by 
the Secretary or his delegate in a manner consistent with the 
policies of the Housing and Urban Development Act of 1968 
^2 sta^. 4
7
6
^
.
^ 
pursuant to regulations prescribed under this subsection. 
note. 
"(C) DWELLING UNIT.—The term 'dwelling unit' means a 
house or an apartment used to provide living accommodations 
in a building or structure, but does not include a unit in a 
hotel, motel, inn, or other establishment more than one-half 
of the units in which are used on a transient basis." 
652 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
26 use /2°50 
^^^ 
EECAPTURE OF ADDITIONAL DEPRECIATION. 
Sectioil 
1250(a) 
(relating to gain from dispositions of certain depreciable realty) is 
amended to read as follows: 
" (a) GENERAL RULE.—Except as otherwise provided in this section— 
"(1) ADDITIONAL DEPRECIATION AFTER DECEMBER 31, 1969.—If 
section 1250 property is disposed of after December 31, 1969, the 
applicable percentage of the lower of— 
"(A) that portion of the additional depreciation (as 
defined in subsection (b) (1) or (4)) attributable to periods 
after December 31, 1969, in respect of the property, or 
"(B) the excess of— 
"(i) the amount realized (in the case of a sale, 
exchange, or involuntary conversion), or the fair market 
value of such property (in the case of any other disposi-
tion), over 
"(ii) the adjusted basis of such property, 
shall be treated as gain from the sale or exchange of property 
which is neither a capital asset nor property described in section 
6
8
A Stat. 325. 
1231. Such galu shall be recognized notwithstanding any other 
provision of this subtitle. 
"(C) APPLICABLE PERCENTAGE.—For pui'poses of para-
graph (1), the term 'applicable percentage' means— 
"(i) in the case of section 1250 property disposed of 
pursuant to a written contract which was, on July 24, 
1969, and at all times thereafter, binding on the owner of 
the property, 100 percent minus 1 percentage point for 
each full month the property was held after the date the 
property was held 20 full months; 
"(ii) in the case of section 1250 property constructed, 
reconstructed, or acquired by the taxpayer before Janu-
ary 1, 1975, with respect to which a mortgage is insured 
imder section 221(d) (3) or 236 of the National Housing 
75 Stat. 150; 
j^ct, or housing is financed or assisted by direct loan or 
1
2 use 1715/, 
tax abatement under similar provisions of State or local 
1715Z-1. 
laws, and with respect to which the owner is subject to 
^°^'' P- ^'^- 
the restrictions described in section 1039(b) (1) (B), 100 
percent minus one percentage point for each full month 
the property was held after the date the property was 
held 20 full months; 
"(iii) in the case of residential rental property (as 
Ante, p. 649. 
defined in section 167( j) (2) (B)) other than that covered 
by clauses (i) and (ii), 100 percent minus 1 percentage 
point for each full month the property was held after 
the date the property was held 100 full months; 
"(iv) in the case of section 1250 property with respect 
to which a depreciation deduction for rehabilitation 
Ante, p. 651. 
expenditures was allowed under section 167(k), 100 per-
cent minus 1 percentage point for each full month in 
excess of 100 full months after the date on which such 
property was placed in service; and 
"(v) m the case of all other section 1250 property, 100 
percent. 
Clauses (i), (ii), and (iii) shall not apply with respect to the 
additional depreciation described in subsection (b) (4). 
"(2) ADDITIONAL 
DEPRECIATION 
BEFORE 
JANUARY 
i, 
1970.— 
"(A) I N GENERAL.—If section 1250 property is disposed 
of after December 31,1963, and the amount determined under 
26 use 1231. 
78 Stat. 101. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
653 
paragraph (1)(B) exceeds the amount determined under 
paragraph (1)(A), then the applicable percentage of the 
lower of— 
"(i) that portion of the additional depreciation attrib-
utable to periods before January 1, 1970, in respect of 
the property, or 
"(ii) the excess of the amount determined under para-
graph (1) (B) over the amount determined under para-
graph (1)( A), 
shall also be treated as gain from the sale or exchange of prop-
erty which is neither a capital asset nor property described 
in section 1231. Such gain shall be recognized notwithstand-
ing any other provision of this subtitle. 
"(B) APPLICABLE PERCENTAGE.—For purposes of subpara-
graph (A) the term 'applicable percentage' means 100 percent 
minus 1 percentage pomt for each full month the property 
was held after the date on which the property was held for 20 
full months." 
(c) ADDITIONAL DEPRECIATION.—Section 1250(b) (relating to defi-
nition of additional depreciation) is amended by adding at the end 
thereof the following new paragraph: 
"(4) ADDITIONAL DEPRECIATION ATTRIBUTABLE TO REHABILITA-
TION EXPENDITURES.—The term 'additional depreciation' also 
means, in the case of section 1250 property with respect to which a 
depreciation 
deduction for rehabilitation 
expenditures was 
allowed under section 167(k), the depreciation adjustments 
Ante, p. esi. 
allowed under such section to the extent attributable to such prop-
erty, except that, in the case of such property held for more than 
one year after the rehabilitation expenditures so allowed were 
incurred, it means such adjustments only to the extent that they 
exceed the amount of the depreciation adjustments which would 
have resulted if such adjustments had been determined under the 
straight line method of adjustment without regard to the useful 
life permitted under section 167(k)." 
(d) 
CHANGE IN METHOD OF COMPUTING DEPRECIATION.—Section 
167(e) (relating to depreciation) is amended by adding at the end ^e stat. 1034. 
thereof the following new paragraph: 
"(3) CHANGE WITH RESPECT TO SECITON I2.-)0 PROPERTY.—A tax-
payer may, on or before the last day prescribed by law (including 
extensions thereof) for filing his return for his first taxable year 
beginning after July 24,1969, and in such manner as the Secretary 
or his delegate shall by regulation prescribe, elect to change his 
method of depreciation in respect of section 1250 property (as 
defined in section 1250(c)) from any declining balance or sum of 
the years-digits method to the straight line method. An election 
may be made under this paragraph notwithstanding any pro-
vision to the contrary in an agreement under subsection (d)." 
(e) TECHNICAL AND CONFORMING CHANGES.— 
(1) Subsection (d) of section 1250 is amended by striking out 
"subsection (a)(1)" wherever it appears and inserting in lieu 
thereof "subsection (a)". 
(2) Subsection (f) of section 1250 is amended— 
(A) by striking out "subsection (a) (1)" in paragraph (1) 
and inserting in lieu thereof "subsection (a)", and 
654 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
78 Stat. 104. 
26 u s e 1250 
68A Stat. 126. 
(B) by striking out paragraph (2) thereof and inserting 
in lieu thereof the following: 
"(2) 
ORDINARY INCOME ATTRIBUTABLE TO AN ELEMENT.—For 
purposes of paragraph (1), the amount taken into account for any 
element shall be the sum of— 
•'(A) the amount (if any) determined by multiplying— 
"(i) the amount which bears the same ratio to the 
lower of the amounts specified in subparagraph (A) or 
(B) of subsection (a) (1) for the section 1250 property as 
the additional depreciation for such element attributable 
to periods after December 31,1969, bears to the sum of the 
additional depreciation for all elements attributable to 
periods after December 31,1969, by 
"(ii) the applicable percentage for such element, and 
"(B) the amount (if any) determined by multiplying— 
"(i) the amount which bears the same ratio to the 
low^er of the amounts specified in subsection (a)(2)(A) 
(i) or (ii) for the section 1250 property as the additional 
depreciation for such element attributable to periods 
before January 1,1970, bears to the sum of the additional 
depreciation for all elements attributable to periods 
before January 1,1970, by 
"(ii) the applicable percentage for such element. 
For purposes of this paragraph, determinations with respect to 
any element shall be made as if it were a separate property." 
(f) 
CARRYOVERS IN CERTAIN CORPORATE ACQUISITIONS.—Section 
381(c) (6) (relating to method of computing depreciation allowance) 
is amended to read as follows: 
"(6) 
METHOD OF COMPUTING DEPRECIATION ALLOWANCE.—The 
acquiring corporation shall be treated as the distributor or trans-
feror corporation for purposes of computing the depreciation 
Ante, pp. 625, 
allowauce under subsections (b), (j), and (k) of section 167 on 
' property acquired in a distribution or transfer with respect to so 
much of the basis in the hands of the acquiring corporation as does 
not exceed the adjusted basis in the hands of the distributor or 
transferor corporation." 
(g) ErFECTiVE DATE.—The amendments made by this section shall 
apply with respect to taxable years ending after July 24, 1969. 
Subtitle D—Subchapter S Corporations 
SEC. 531. QUALIFIED PENSION, ETC., PLANS OF SMALL BUSINESS COR-
PORATIONS. 
8o^stft''\"i3^^°' 
(a) I N GENERAL.—Subchapter S of chapter 1 (relating to election 
26 use 1
3 71- 
of certain small business corporations as to taxable status) is amended 
1378. 
by adding at the end thereof the following new section: 
"SEC. 1379. CERTAIN QUALIFIED PENSION, ETC., PLANS. 
" (a) ADDITIONAL REQUIREMENT FOR QUALIFICATION or STOCK BONUS 
OR PROFIT-SHARING PLANS.—A trust forming part of a stock bonus or 
profit-sharing plan w'hich provides contributions or benefits for 
employees some or all of whom are shareholder-employees shall not 
constitute a qualified trust under section 401 (relating to qualified pen-
sion, profit-sharing, and stock bonus plans) unless the plan of which 
such trust is a part provides that forfeitures attributable to contribu-
tions deductible under section 404(a) (3) for any taxable year (begin-
ning after December 31, 1970) of the employer with respect to which 
649 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
655 
it is an electing small business corporation may not inure to tlie bene-
fit of any individual who is a shareholder-employee for such taxable 
year. A plan shall be considered as satisfying the requirement of this 
subsection for the period beginning with the tirst day of a taxable year 
and ending with the 15th day of the third month following the close 
of such taxable year, if all the provisions of the plan which are 
necessary to satisfy this requirement are in effect by the end of such 
period and have been made effective for all purposes Avith respect to 
the whole of such period. 
" ( b ) 
TAXAmi.ITY OF SirAREIIOU)ER-E>IlM.OYEE B E X E F I C I A R I E S . 
" ( 1 ) 
IX"CLI'SION OF EXCESS COXTRIHUTIOXS IX (IROSS IXCOME. 
Notwithstanding tlie provisions of section 402 (relating to tax- 
^^ "^*^ '*°2. 
ability of beneficiary of employees' trust), section 403 (relating ^"fe, pp. 591, 
to taxation of employee anmiities), or section 405 (d) (rehiting to 
taxability of beneficiaries luuler (pialified bond purcliase plans), 
an individual who is a shareholder-em])loyee of an electing small 
business corporation shall include iri gross income, for his taxable 
year in which or with which the taxable year of the corporation 
ends, the excess of tlie amount of contributions paid on his behalf 
which is deductible under section 404(a) (1), (2), or (3) by the 
corporation for its taxable year over the lesser of— 
" (A) 10 percent of the compensation received or accrued by 
him from such corporation during its taxable year, or 
"(B) $2,500. 
"(2) 
TREA'J-:MEXT OF A:MOUNTS IXCEUDED IN (JROSS IXCO^IE.—Any 
amount included in the gross income of a shareholder-employee 
under paragraph (1) shall be treated as (onsideration for the con-
tract contributed by the shareholder-employee for purposes of 
section 72 (relating to annuities). 
68A stat. 20. 
"(3) I)EDi'("ri()x F
O
R A:S[01"XTS NOT RECEIVED AS HEXEFTTS.—If— 
"(A) amounts are included in the gross income of an indi-
vidual under paragraph (l),and 
"(B) the rights of such individual (or his beneficiaries) 
under the plan terminate before payments under the plan 
which are excluded from gross income equal the amounts 
included in gross income under paragraph (1), 
then there slujll be allowed as a deduction, for the taxable year in 
which such rights terminate, an amount equal to the excess of the 
amounts included in gross income under paragraph (1) over such 
payments. 
"(c) C
A
F
t
R
Y
O
V
E
R OF A:\r()UNTS DEDUCTIBLE.—Ko aiuouiit deductible 
shall be carried forward luider the second sentence of section 404(a) 
(3) (A) (relating to limits on deductible contributions under stock 
bonus and profit-sharing trusts) to a taxable year of a corporation with 
respect to which it is not an electing small business corporation from 
a taxable year (beoinning after December 31, 1970) with resj)ect to 
which it is an electing small business corporation. 
"(d) SIIAREIIOEDER-EMPLOYEE.—For purposes of this section, the 
term 'shareliolder-em])loyee' means an employee or officer of an electing 
small business corporation who owns (or is considered as owning 
within the meaning of section 318(a) (1), on any day during the tax-
able year of such corporation, more than 5 percent of the outstanding 
stock of the corporation." 
(b) CONFORMING X\>IENDIMENT.—Section 62 (relating to adjusted 
^SA stat. 17; 
gross income defined) is amended by inserting after paragraph (8) the ^^ ^'^'' ^^' 
following new paragraph: 
"(9) 
PENSION, 
ETC., 
FLANS 
OF 
ELECTING 
SMALL 
BUSINESS 
CORPORATIONS.—The deduction allowed by section 1379(b) (3)." 
supra. 
656 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
(c) CLERICAL AMENDMENT.—The table of sections for subchapter S 
of chapter 1 is amended by adding at the end thereof the following 
new item : 
"Sec. 1379. Certain qualified pensions, etc., plans." 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to taxable years of electing small business 
corporations beginning after December 31, 1970. 
TITLE VI—STATE AND LOCAL OBLIGATIONS 
SEC. 601. ARBITRAGE BONDS. 
82^stl^'266?^' 
(^) . ^ ^ Tp B E TREATED AS TAX-EXEMPT OBLIGATIONS.—Section 103 
26 use 103. 
(relating to interest on certain governmental obligations) is amended 
by redesignating subsection (d) as (e), and by inserting after subsec-
tion (c) the following new subsection: 
"(d) ARBITRAGE BONDS.— 
"(1) SUBSECTION (a) (1) NOT T
O APPLY.—Except as provided in 
this subsection, any arbitrage bond shall be treated as an obliga-
tion not described in subsection (a) (1). 
"(2) ARBITRAGE BOND.—For purposes of this subsection, the 
term 'arbitrage bond' means any obligation w^hich is issued as part 
of an issue all or a major portion of the proceeds of which are 
reasonably expected to be used directly or indirectly— 
"(A) to acquire securities (within the meaning of section 
26 use 165. 
165(g) (2) (A) or (B)) or obligations (other than obliga-
tions described in subsection (a) (1)) which may be reason-
ably expected at the time of issuance of such issue, to produce 
a yield over the term of the issue which is materially higher 
(taking into account any discount or premium) than the 
yield on obligations of such issue, or 
"(B) to replace funds which were used directly or indi-
rectly to acquire securities or obligations described in sub-
paragraph (A). 
"(3) EXCEPTION.—Paragraph (1) shall not apply to any obli-
gation— 
"(A) which is issued as part of an issue substantially all 
of the proceeds of which are reasonably expected to be used 
to provide permanent financing for real property used or to 
be used for residential purposes for the personnel of an edu-
cational 
institution 
(within 
the meaning 
of 
section 
6
8
A Stat. 42. 
151(6) (4)) which graiits baccalaureate or higher degrees, or 
to replace funds which were so used, and 
"(B) the yield on which over the term of the issue is not 
reasonably expected, at the time of issuance of such issue, to 
be substantially lower than the yield on obligations acquired 
or to be acquired in providing such financing. 
This paragraph shall not apply with respect to any obligation for 
any period during which it is held by a person who is a sub-
stantial user of property financed by the proceeds of the issue of 
which such obligation is a part, or by a member of the family 
26 use 318. 
(within the meaning of section 318(a) (1)) of any such person. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
657 
"(4) SPECIAL RULES.—For purposes of paragraph (1), an obli-
gation shall not be treated as an arbitrage bond solely by reason 
of the fact that— 
"(A) the proceeds of the issue of which such obligation is 
a part may be invested for a temporary period in securities 
or other obligations until such proceeds are needed for the 
purpose for which such issue was issued, or 
"(B) an amount of the proceeds of the issue of which such 
obligation is a part may be invested in securities or other obli-
gations which are part of a reasonably required reserve or 
replacement fund. 
The amount referred to in subparagraph (B) shall not exceed 15 
percent of the proceeds of the issue of which such obligation is a 
part unless the issuer establishes that a higher amount is necessary. 
"(5) BEGULATIONS.—The Secretary or his delegate shall pre-
scribe such regulations as may be necessary to carry out the pur-
poses of this subsection." 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply with respect to obligations issued after October 9,1969. 
TITLE VII—EXTENSION OF TAX SURCHARGE 
AND EXCISE TAXES; TERMINATION OF IN-
VESTMENT CREDIT 
SEC. 701. EXTENSION OF TAX SURCHARGE. 
(a) SURCHARGE EXTENSION. Section 51(a) (relating to imposition 
of tax surcharge) is amended— 
(1) by adding at the end of paragraph (1) (A) the following: 
"CALENDAR YEAR 1970: 
TABLE 1.—SINGLE PERSON (OTHER THAN HEAD OF HOUSEHOLD) AND MARRIED PERSONS FILING SEPARATE 
RETURNS 
If the adjusted taxis: 
At least— 
0 
$155 
1
7
5 
1
9
5 
215 
235 
255 
275 
300 
340 
380 
420 
460 
500 
540 
580 
620 
660 
700 
740 
780 
820 
860 
900 
940 
980 
But less than— 
$155 
175 
1
9
5 
215 
235 
255 
275 
300 
340 
380 
420 
460 
500 
540 
580 
620 
660 
700 
740 
780 
820 
860 
900 
940 
980 
1,020 
The tax Is— 
0 
$1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
1
4 
15 
16 
1
7 
18 
19 
20 
21 
22 
23 
24 
25 
If the adjusted tax Is: 
At least— 
$1,020 
1,060 
1,100 
1,140 
1,180 
1,220 
1,260 
1,300 
1,340 
1,380 
1,420 
1,460 
1,500 
1,540 
1,580 
1,620 
1,660 
1,700 
1,740 
1,780 
1,820 
1,860 
1,900 
1,940 
1,980 
2,020 and 
But less than— 
$1,060 
1,100 
1,140 
1,180 
1,220 
1,260 
1,300 
1,340 
1,380 
1,420 
1,460 
1,500 
1,540 
1,580 
1,620 
1,660 
1,700 
1,740 
1,780 
1.820 
1,860 
1,900 
1,940 
1,980 
2,020 
over, 2.5% of the adjusted 
The tax is— 
$26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
50 
tax. 
Ante, 
p. 93. 
658 
PUBLIC LAW 91-172-DEC. 30, 1969 
TABLE 2.—HEAD OF HOUSEHOLD 
[83 STAT. 
If the 
At least— 
0 
$230 
250 
270 
290 
310 
330 
350 
370 
390 
410 
430 
460 
500 
540 
580 
620 
660 
700 
740 
780 
820 
860 
900 
940 
980 
adjusted tax is: 
But less than— 
$230 
250 
270 
290 
310 
330 
350 
370 
390 
410 
430 
460 
500 
540 
580 
620 
660 
700 
740 
780 
820 
860 
900 
940 
980 
1,020 
The tax is— 
0 
$1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
If the adjusted tax is: 
At least— 
$1,020 
1,060 
1,100 
1,140 
1,180 
1,220 
1,260 
1,300 
1,340 
1,380 
1,420 
1,460 
1,500 
1,540 
1,580 
1,620 
1,660 
1,700 
1,740 
1,780 
1,820 
1,860 
1,900 
1,940 
1,980 
2,020 and 
But less than— 
$1,060 
1,100 
1,140 
1,180 
1,220 
1,260 
1,300 
1,340 
1,380 
1,420 
1,460 
1,500 
1,540 
1,580 
1,620 
1,660 
1,700 
1,740 
1,780 
1,820 
1,860 
1,900 
1,940 
1,980 
2,020 
The tax is— 
$26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
50 
over, 2.5% of the adjusted tax. 
TABLE 3.-IVIARRIED PERSONS OR SURVIVING SPOUSE FILING JOINT RETURN 
If the adjusted taxis: 
At least— 
0 
$300 
320 
340 
360 
380 
400 
420 
440 
460 
480 
500 
520 
540 
560 
580 
620 
660 
700 
740 
780 
820 
860 
900 
940 
980 
But less than— 
$300 
320 
340 
360 
380 
400 
420 
440 
460 
480 
500 
520 
540 
560 
580 
620 
660 
700 
740 
780 
820 
860 
900 
940 
980 
1,020 
The tax is— 
0 
$1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
If the adjusted tax is: 
At least— 
$1,020 
1,060 
1,100 
1,140 
1,180 
1,220 
1,260 
1,300 
1,340 
1,380 
1,420 
1,460 
1,500 
1,540 
1,580 
1,620 
1,660 
1,700 
1,740 
1,780 
1,820 
1,860 
1,900 
1,940 
1,980 
2,020 and 
But less than— 
$1,060 
1,100 
1,140 
1,180 
1,220 
1,260 
1,300 
1,340 
1,380 
1,420 
1,460 
1,500 
1,540 
1,580 
1,620 
1,660 
1,700 
1,740 
1,780 
1,820 
1,860 
1,900 
1,940 
1,980 
2,020 
The tax is— 
$26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
50 
over, 2.5% of the adjusted tax." 
Ante, p. 95. 
(2) by striking out the table in paragraph (1) (B) and inserting 
in lieu thereof the following table: 
1968.. 
1969-
1970.. 
"Calendar year 
Percent 
Estates and 
trusts 
7.5 
10.0 
2.5 
Corporation 
10.0 
10.0 
2.5." 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
659 
(3) by striking out "January 1, 1970" the first time it appears 
in paragraph (2) (A) and inserting in lieu thereof "July 1,1970", "^"K^'^'^,^' 
and 
(4) by striking out paragraph (2) (A) (ii) and inserting in lieu 
thereof the following: 
" (ii) a fraction, the numerator of which is the sum of 
the number of days in the taxable year occurring on and 
after the effective date of the surcharge and before Janu-
ary 1,1970, plus one-half times the number of days in the 
taxable year occurring after December 31, 1969, and be-
fore July 1, 1970, and the denominator of which is the 
number of days in the entire taxable year." 
(b) RECEIPT t)r MINIMUM DISTRIBUTIONS.—Section 963(b) (relat- 
Ante, p. 95. 
ing to receipt of minimum distributions) is amended— 
(1) by striking out "surcharge period" in the heading of para-
graph (1) and inserting in lieu thereof "surcharge period ending 
before January 1,1970"; 
(2) by striking out "1964" in the heading of paragraph (2) and 
inserting in lieu thereof "1964 and taxable years beginning in 
1969 and ending in 1970 to the extent subparagraph (B) applies"; 
and 
(3) by striking out the last two sentences and inser.'ing in lieu 
thereof the following: 
"In the case of a taxable year beginning before the surcharge 
period and ending within the surcharge period, or beginning 
within the surcharge period and ending after the surcharge period, 
or beginning before January 1, 1970, and ending after Decem-
ber 31, 1969, the required minimum distribution shall be equal 
to the sum of— 
"(A) that portion of the minimum distribution which 
would be required if the provisions of paragraph (1) were 
applicable to the taxable year, wiiich the number of days in 
such taxable year which are within the surcharge period 
and before January 1, 1970, bears to the total number of 
days in such taxable year, 
"(B) that portion of the minimum distribution which 
would be required if the provisions of paragraph (2) were 
applicable to such taxable year, which the number of days 
in such taxable year which are within the surcharge period 
and after December 31, 1969, bears to the total number of 
days in such taxable year, and 
"(C) that portion of the minimum distribution which 
would be required if the provisions of paragraph (3) were 
applicable to such taxable year, which the number of days 
in such taxable year which are not within tlie surcharge 
period bears to the total number of days in such taxable 
year. 
As used in this subsection, the term 'surcharge period' means the 
period beginning January 1, 1968, and ending June 30, 1970." 
(c) EFFECTIVE DATES.—The amendments made by subsections (a) 
and (b) shall apply to taxable years ending after December 31, 1969, 
and beginning before July 1,1970. 
82 Stat. 265. 
660 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
SEC. 702. CONTINUATION OF EXCISE TAXES ON COMMUNICATION 
SERVICES AND ON AUTOMOBILES. 
(a) PASSENGER AUTOMOBILES.— 
26 ulc 406^• 
(^) ^^ GENERAL.—Section 4061(a) (2) (A) (relating to tax on 
passenger automobiles, etc.) is amended to read as follows: 
"(A) Articles enumerated in subparagraph (B) are tax-
able at whichever of the following rates is applicable: 
"If the article is sold— 
The tax rate is— 
Before January 1,1971 
7 percent. 
During 1971 
5 percent 
During 1972 
3 percent. 
During 1973 
1 percent. 
The tax imposed by this subsection shall not apply with 
respect to articles enumerated in subparagraph (B) which are 
sold by the manufacturer, producer, or importer after Decem-
ber 31,1973." 
gJltlT^ies^' 
^^^ CONFORMING AMENDMENT.—Section 6412(a) (1) (relating 
to floor stocks refunds on passenger automobiles, etc.) is amended 
by striking out "January 1,1970, January 1,1971, January 1,1972, 
or January 1, 1973", and inserting in lieu thereof "January 1, 
1971, January 1,1972, January 1,1973, or January 1,1974". 
{b) COMMUNICATIONS SERVICES.— 
(1) CONTINUATION OF TAX.—Section 4251(a)(2) (relating to 
tax on certain communications services) is amended by striking 
out the table and inserting in lieu thereof the following table: 
"Amounts paid pursuant to 
bills first rendered— 
Percent— 
Before January 1, 1971 
10 
During 1971 
5 
During 1972 
3 
During 1973 
1". 
(2) CONFORMING AMENDMENT.—Section 4251(b) (relating to 
termination of tax) is amended by striking out "January 1, 1973", 
and inserting in lieu thereof "January 1,1974". 
(3) EEPEAL OF SUBCHAPTER B OF CHAPTER 3 3.—Section 105 (b) (3) 
of the Eevenue and Expenditure Control Act of 1968 (82 Stat. 
26 use 4251 
266) is amended to read as follows: 
"(3) REPEAL OF SUBCHAPTER B OF CHAPTER 33.—Effective with 
respect to amounts paid pursuant to bills first rendered on or after 
January 1, 1974, subchapter B of chapter 33 (relating to the tax 
on communications) is repealed. For purposes of the preceding 
sentence, in the case of communications services rendered before 
November 1, 1973, for which a bill has not been rendered before 
January 1, 1974, a bill shall be treated as having been first ren-
dered on December 31, 1973. Effective January 1, 1974, the table 
of subchapters for chapter 33 is amended by striking out the 
item relating to such subchapter B." 
SEC. 703. TERMINATION OF INVESTMENT CREDIT. 
(a) I N GENERAL.—Subpart B of part IV of subchapter A of chap-
76 Stat. 963. 
ter 1 (relating to rules for computing credit for investment in certain 
depreciable property) is amended by adding at the end thereof the 
following new section: 
•'SEC. 49. TERMINATION OF CREDIT. 
"(a) GENERAL RULE.—For purposes of this subpart, the term 'sec-
tion 38 property' does not include property— 
"(1) the physical construction, reconstruction, or erection of 
which is begun after April 18,1969, or 
note 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
661 
" (2) which is acquired by the taxpayer after April 18,1969, 
other than pre-termination property. 
"(b) PRE-TERMINATION PROPERTY.—For purposes of this section— 
"(1) BINDING CONTRACTS.—Any property shall be treated as 
pre-termination property to the extent that such property is con-
structed, reconstructed, erected, or acquired pursuant to a con-
tract which was, on April 18, 1969, and at all times thereafter, 
binding on the taxpayer. 
"(2) EQUIPPED BUILDING RULE.—If— 
"(A) pursuant to a plan of the taxpayer in existence on 
April 18, 1969 (which plan was not substantially modified at 
any time after such date and before the taxpayer placed the 
equipped building in service) j the taxpayer has constructed, 
reconstructed, erected, or acquired a building and the machin-
ery and equipment necessary to the planned use of the build-
ing by the taxpayer, and 
"(B) more than 50 percent of the aggregate adjusted basis 
of all the property of a character subject to the allowance 
for depreciation making up such building as so equipped is 
attributable to either property the construction, reconstruc-
tion, or erection of which was begun by the taxpayer before 
April 19, 1969, or property the acquisition of which by the 
taxpayer occurred before such date, 
then all property comprising such building as so equipped (and 
any incidental property adjacent to such building which is neces-
sary to the planned use of the building) shall be pre-termination 
property. For purposes of subparagraph (B) of the preceding 
sentence, the rules of paragraphs (1) and (4) shall be applied. 
For purposes of this paragraph, a special purpose structure shall 
be treated as a building. 
" (3) P L A N T FACILITY RULE.— 
" ( A ) GENERAL RULE.—If— 
"(i) pursuant to a plan of the taxpayer in existence on 
April 18,1969 (which plan was not substantially modified 
at any time after such date and before the taxpayer placed 
the plant facility in service), the taxpayer has con-
structed, reconstructed, or erected a plant facility, and 
either 
"(ii) the construction, reconstruction, or erection of 
such plant facility was commenced by the taxpayer before 
April 19,1969, or 
"(iii) more than 50 percent of the aggregate adjusted 
basis of all the property of a character subject to the 
allowance for depreciation making up such plant facility 
is attributable to either property the construction, recon-
struction, or erection of which was begun by the tax-
payer before April 19, 1969, or property the acquisition 
of which by the taxpayer occurred before such date, 
then all property comprising such plant facility shall be pre-
termination property. For purposes of clause (iii) of the 
preceding sentence, the rules of paragraphs (1) and (4) shall 
be applied. 
" (B) PLANT FACILITY DEFINED.—For purposes of this para-
graph, the term 'plant facility' means a facility which does 
not include any building (or of which buildings constitute 
an insignificant portion) and which is— 
" (i) a self-contained, single operating unit or process-
ing operation, 
662 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"(ii) located on a single site, and 
"(iii) identified, on April 18, 1969, in the purchasing 
and internal financial plans of the taxpayer as a single 
unitary project. 
''(C) SPECIAL RULE.—For purposes of this subsection, if— 
" (i) a certificate of convenience and necessity has been 
issued before April 19, 1969, by a Federal regulatory 
agency with respect to two or more plant facilities which 
are included under a single plan of the taxpayer to con-
struct, reconstruct, or erect such plant facilities, and 
"(ii) more than 50 percent of the aggregate adjusted 
basis of all the property of a character subject to the 
allowance for depreciation making up such plant facili-
ties is attributable to either property the construction, 
reconstruction, or erection of which was begun by the 
taxpayer before April 19, 1969, or property the acquisi-
tion of which by the taxpayer occurred before such date, 
such plant facilities shall be treated as a single plant facility. 
"(D) COMMENCEMENT OF CONSTRUCTION.—For purposes of 
subparagraph (A)(ii), the construction, reconstruction, or 
erection of a plant facility shall not be considered to have 
commenced until construction, reconstruction, or erection has 
commenced at the site of such plant facility. The preceding 
sentence shall not apply if the site of such plant facility is 
not located on land. 
" (4) MACHINERY OR EQUIPMENT RULE.—Any piece of machinery 
or equipment— 
" (A) more than 50 percent of the parts and components of 
which (determined on the basis of cost) were held by the tax-
payer on April 18, 1969, or are acquired by the taxpayer pur-
suant to a binding contract which was in effect on such date, 
for inclusion or use in such piece of machinery or equipment, 
and 
"(B) the cost of the parts and components of which is not 
an insignificant portion of the total cost, 
shall be treated as property which is pre-termination property. 
"(5) 
CERTAIN LEASE-BACK TRANSACTIONS, ETC.— 
"(A) Where a person who is a party to a binding contract 
described in paragraph (1) transfers rights in such contract 
(or in the property to which such contract relates) to another 
person but a party to such contract retains a right to use the 
property under a lease with such other person, then to the 
extent of the transferred rights such other person shall, for 
purposes of paragraph (1), succeed to the position of the 
transferor with respect to such binding contract and such 
property. In any case in which the lessor does not make an 
76 Stat. 967; 
elcction under section 48(d) — 
26 usc^ 48. 
" (i) the preceding sentence shall apply only if a party 
to the contract retains the right to use the property under 
a lease for a term of at least 1 year; and 
"(ii) if such use is retained (other than under a long-
term lease), the lessor shall be deemed for the purposes of 
26 use 47. 
section 47 as having made a disposition of the property 
at such time as the lessee loses the right to use the 
property. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
663 
For purposes of clause (ii), if the lessee transfers the lease in 
a transfer described in paragraph (7), the lessee shall be con-
sidered as having the right to use of the property so long as 
the transferee has such use. 
"(B) For purposes of subparagraph (A) — 
"(i) a person who holds property (or rights in prop-
erty) which is pre-termination property by reason of 
the application of paragraph (4) shall, with respect to 
such property, be treated as a party to a binding con-
tract described in paragraph (1), and 
"(ii) a corporation which is a member of the same 
affiliated group (as defined in paragraph (8)) as the 
transferor described in subparagraph (A) and which 
simultaneously with the transfer of property to another 
person acquires a right to use such property under a lease 
with such other person shall be treated as the transferor 
and as a party to the contract. 
" (6) CERTAIN LEASE AND CONTRACT OBLIGATIONS.— 
"(A) Where, pursuant to a binding lease or contract to 
lease in effect on April 18,1969, a lessor or lessee is obligated 
to construct, reconstruct, erect, or acquire property specified 
in such lease or contract or in a related document filed before 
April 19,1969, with a Federal regulatory agency, or property 
the specifications of which are readily ascertainable from the 
terms of such lease or contract or from sucli related document, 
any property so constructed, reconstructed, erected, or 
acquired by the lessor or lessee shall be pre-termination prop-
erty. In the case of any project which includes property other 
than the property to be leased to such lessee, the preceding sen-
tence shall be applied, in the case of the lessor, to such other 
property only if the binding leases and contracts with all 
lessees in effect on April 18, 1969, cover real property consti-
tuting 25 percent or more of the project (determined on the 
basis of rental value). For purposes of the preceding sen-
tences of this paragraph, in the case of any project where one 
or more vendor-vendee relationships exist, such vendors and 
vendees shall be treated as lessors and lessees. 
"(B) Where, in order to perform a binding contract or con-
tracts in effect on April 18,1969, (i) the taxpayer is required 
to construct, reconstruct, erect, or acquire property specified 
in any order of a Federal regulatory agency for which appli-
cation was filed before April 19, 1969, (ii) the property is to 
be used to transport one or more products under such contract 
or contracts, and (iii) one or more parties to the contract or 
contracts are required to take or to provide more than 50 per-
cent of the products to be transported over a substantial 
portion of the expected useful life of the property, then such 
property shall be pre-termination property. 
"(C) Where, in order to perform a binding contract in 
effect on April 18,1969, the taxpayer is required to construct, 
reconstruct, erect, or acquire property specified in the contract 
to be used to produce one or more products and (unless the 
other party to the contract is a State or a political subdivision 
of a State which is required by the contract to make substan-
tial expenditures which benefit the taxpayer) the other 
party to the contract is required to take substantially all of 
the products to be produced over a substantial portion of the 
expected useful life of the property, then such property shall 
664 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
be pre-termination property. For purposes of applying the 
preceding sentence in the case of a contract for the extraction 
of minerals, property shall be treated as specified in the con-
tract if (i) the specifications for such propertj^ are readily 
ascertainable from the location and characteristics of the 
mineral properties specified in such contract from which the 
minerals are to be extracted; (ii) such property is necessary 
for and is to be used solely in the extraction of minerals under 
such contract; (iii) the physical construction, reconstruction, 
or erection of such property is begun by the taxpayer before 
April 19, 1970, such property is acquired by the taxpayer 
before April 19,1970, or such property is constructed, recon-
structed, erected, or acquired pursuant to a contract which 
was, on April 18, 1970, and at all times thereafter, binding 
on the taxpayer; (iv) such property is placed in service on 
or before December 31, 1972; (v) such contract is a fixed 
price contract (except for provisions for price changes under 
which the loss of the credit allowed by section 38 would not 
result in a price change); and (vi) such property is not 
placed in service to replace other property used in extracting 
minerals under such contract. 
"(7) 
CERTAUST TRANSFERS TO BE DISREGARDED.— 
"(A) If property or rights under a contract are trans-
ferred in— 
" (i) a transfer by reason of death, 
"(ii) a transaction as a result of which the basis of 
the property in the hands of the transferee is deter-
mined by reference to its basis in the hands of the 
transferor by reason of the application of section 332, 
^ 
_ 
_^ 
351,361,371 (a), 374(a), 721, or 731, or 
80 Stat".I577. "" 
"(iii) 'a sale of substantially all of the assets of the 
transferor pursuant to the terms of a contract, which was 
on April 18, 1969, and at all times thereafter, binding on 
the transferee, 
and such property (or the property acquired under such con-
tract) Avould be treated as pre-termination property in the 
hands of the decedent or the transferor, such property shall 
be treated as pre-termination property in the hands of the 
transferee. 
"(B) 
If— 
"(i) property or rights under a contract are acquired 
6
8
A Stat. 104: 
in a trausactiou to which section 334(b) (2) applies, 
"(ii) the stock of the distributing corporation was 
acquired before April 19, 1969, or pursuant to a binding 
contract in effect April 18,1969, and 
"(iii) such property (or the property acquired under 
such contract) would be treated as pre-termination prop-
erty in the hands of the distributing corporation, 
such property shall be treated as pre-termination property in 
the hands of the distributee. 
"(8) 
PROPERTY ACQUIRED FROM AFFILIATED CORFORATION.—In 
the case of property acquired by a corporation which is a mem-
ber of an affiliated group from another member of the same 
group— 
"(A) such corporation shall be treated as having acquired 
such property on the date on which it was acquired by such 
other member, 
68A Stat. 102 
245; 70 Stat. 402; 
80 Stat. 1576. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
665 
"(B) such corporation shall be treated as having entered 
into a binding contract for the construction, reconstruction, 
erection, or acquisition of such property on the date on which 
such other member entered into a contract for the construc-
tion, reconstruction, erection, or acquisition of such property, 
and 
"(C) such corporation shall be treated as having commenced 
the construction, reconstruction, or erection of such property 
on the date on which such other member commenced such 
construction, reconstruction, or erection. 
For i>urposes of this subsection and subsection (c), a contract-
between two corporations which are membei's of the same affiliated 
group shall not be treated as a binding contract as between such 
corporations, unless, at all times after June 30, 1969, and prior to 
the completion of performance of such contract, such corporations 
are not members of the same affiliated group. For purposes of the 
preceding sentences, the term 'affiliated group' has the meaning 
assigned to it by section 1504(a), except that all corporations shall 
^^A stat. 369. 
be treated as includible corporations (without any exclusion 
under section 150J:(b)), 
"(9) 
BARGES FOR OCEAN-GOING VESSELS.—Barges specifically 
designed and constructed, reconstructed, erected, or acquired for 
use with ocean-going vessels which are designed to carry barges 
and which are pre-termination property, but not in excess of— 
"(A) the number to be used with such vessels specified in 
applications for mortgage or construction loan insurance fi^ed 
with the Secretary of Commerce on or before April 18, 1969, 
under title X I of the Merchant Marine Act, 1936, or 
73^ltar*i69^^2^72 
"(B) if subparagraph (A) does not apply and if more than 
46 use 1271-
50 percent of the barges which the taxpayer establishes as 1279b. 
necessary to the initial planned use of such vessels are pre-
termination property (determined without regard to this 
paragraph), the number which the taxpayer establishes as so 
necessary, 
together with the machinery and equipment to be installed on such 
barges and necessary for their planned use, shall be treated as pre-
termination property. 
"(10) CERTAIN NEW-DESIGN PRODUCTS.—^Wliere— 
"(A) on April 18, 1969, the taxpayer had undertaken a 
project to produce a product of a new design pursuant to 
binding contracts in effect on such date which—• 
"(i) were fixed-price contracts (except for provisions 
requiring or permitting price changes resulting from 
changes in rates of pay or costs of materials), and 
"(ii) covered more than 50 percent of the entire pro-
duction of such design to be delivered by the taxpayer 
before January 1, 1973, and 
"(B) on or before April 18, 1969, more than 50 percent of 
the aggregate adjusted basis of all property of a character 
subject to the allowance for depreciation required to carry 
out such binding contracts was property the construction, 
reconstruction, or erection of which had been begun by the 
taxpayer, or had been acquired by the taxpayer (or was under 
a binding contract for such construction, reconstruction, erec-
tion, or acquisition), 
then all tangible personal property placed in service by the tax-
payer before January 1, 1972, which is required to carry out such 
binding contracts shall be deemed to be pre-termination property. 
For purposes of subparagraph (B) of the preceding sentence, jigs, 
dies, templates, and similar items which can be used only for the 
666 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
manufacture or assembly of tlie production under the project and 
Avhicli Avere described in written engineering and internal financial 
plans of the taxpayer in existence on April 18, 1969, shall be 
treated as property Avhich on such date was under a binding con-
tract for construction. 
"(c) LEASED PROPERTY.—In the case of property which is leased 
after April 18,1969 (other than pursuant to a binding contract to lease 
entered into before April 19, 1969), which is section 38 property wdth 
respect to the lessor but is property which would not be section 38 prop-
erty because of the application of subsection (a) if acquired by the 
lessee, and which is property of the same kind which the lessor ordi-
narily sold to customers before April 19, 1969, or ordinarily leased 
Ts^stft^'i/^^' 
before such date and made an election under section 48(d), such prop-
26 use 48. 
t I'ty sjiall not be section 38 property with respect to either the lessor 
or the lessee. 
"(d) PROPERTY PLACED IN SERVICE ArTi:R 1975.—For purposes of 
this subpart, the term 'section 38 property' does not include any prop-
erty placed in service after December 31,1975." 
(b) 
LIMITATIONS ON USE OF CARRYOVERS AND CARRYBACKS.—Section 
76 Stat. 963. 
46(b) (relating to carryback and carryover of unused credits) is 
amended by adding at the end thereof the following new paragraphs: 
"(5) 
TAXABLE YEARS BEGINNING AFTER DECEMBER S I , I 9 6 8 , AND 
ENDING AFTER APRIL 18, 1909.—The amount which may be added 
under this subsection for any taxable year beginning after Decem-
ber 31, 1968, and ending after April 18, 1969, shall not exceed 20 
percent of the higher of— 
"(A) the aggregate of the investment credit carrybacks 
and investment credit carryovers to the taxable year, or 
"(B) the highest amount computed under subparagraph 
(A) for any preceding taxable year wdiich began after Decem-
ber 31, 1968, and ended after April 18, 1969. 
"(6) 
ADDITIONAL S-YEAR CARRYOVER PERIOD IN CERTAIN CASES.— 
Any portion of an investment credit carryback or carryover to any 
taxable year beginning after December 31, 1968, and ending after 
April 18,1969, Avhich— 
" (A) may be added under this subsection under the limita-
tion provided by paragraph (2), and 
"(B) may not be added under the limitation provided by 
paragraph (5), 
shall be an investment credit carryover to each of the 3 taxable 
years following the last taxable year for which such portion may 
be added under paragraph (1), and shall (subject to the provi-
sions of paragraphs (1), (2), and (5)) be added to the amount 
allowable as a credit by section 38 for such years." 
(c) 
RULES RELATING TO CERTAIN CASUALTIES AND THEFTS AND TO 
REPLACEMENT OF CERTAIN SECTION 38 PROPERTY.— 
26 use 47. 
(1) PROPERTY D
E
S
T
R
O
Y
E
D B
Y CASUALTY.—Section 47(a) (4) (re-
lating to rules with respect to section 38 property destroyed by 
casualty, etc.) is amended by adding at the end thereof the fol-
lowing new sentence: 
"Subparagraphs (B) and (C) shall not apply with respect 
to any casualty or theft occurring after April 18, 1969." 
(2) 
REPLACE]MENT OF CERTAIN SECTION ;?8 PROPERTY.—Section 
47(a) (relating to certain dispositions of section 38 property) is 
amended by adding at the end thereof the following new 
paragraph: 
"(5) 
CERTAIN PROPERTY REPLACED AFTJ:R APRIL IS, 1969.—In 
any case in which— 
" (A) section 38 property is disposed of, and 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
667 
"(B) property which would be section 38 property but for 
section 49 is placed in service by the taxpayer to replace the 
^"^^' P- ^6°-
property disposed of, 
the increase under paragraph (1) and the adjustment under para-
graph (3) shall not be greater than the increase or adjustment 
which would result if the qualified investment of the property 
described in subparagraph (B) (determined as if such property 
were section 38 property) were substituted for the qualified 
investment of the property disposed of (as determined under 
paragraph (1)). Except in the case of a disposition by reason 
of a casualty or theft occurring before April 19, 1969, the pre-
ceding sentence shall apply only if the section 38 property dis-
posed of is replaced within 6 months after the date of such 
disposition." 
(d) CONFORMING AMENDMENT.—The table of sections for subpart B 
of part IV of subchapter A of chapter 1 (relating to rules for comput-
ing credit for investment in certain depreciable property) is amended 
by adding at the end thereof the following new item : 
"Sec. 49. Termination of credit." 
SEC. 704. AMORTIZATION OF POLLUTION CONTROL FACILITIES. 
(a) ALLOWANCE.—Part VI of subchapter B of chapter 1 (relating 
p^'tf^*^*' t%. 
to itemized deductions for individuals and corporations) is amended 674. 
by striking out section 169 and inserting in lieu thereof the following 
26 use lei-is?. 
new section: 
"SEC. 169. AMORTIZATION OF POLLUTION CONTROL FACILITIES. 
"(a) ALLOWANCE OF DEDTJCI^ON.—Every person, at his election, 
shall be entitled to a deduction with respect to the amortization of 
the amortizable basis of any certified pollution control facility (as 
defined in subsection (d), based on a period of 60 months. Such 
amortization deduction shall be an amount, with respect to each month 
of such period within the taxable year, equal to the amortizable basis 
of the pollution control facility at the end of such month divided by 
the number of months (including the month for which the deduction is 
computed) remaining in the period. Such amortizable basis at the end 
of the month shall be computed without regard to the amortization 
deduction for such month. The amortization deduction provided by 
this section with respect to any month shall be in lieu of the deprecia-
tion deduction with respect to such pollution control facility for such 
month provided by section 167. The 60-month period shall begin, as to ,/"^^ ^k?^'*^' 
any pollution control facility, at the election of the taxpayer, with the 
month following the month in which such facility was completed 
or acquired, or with t]ie succeeding taxable year. 
"(b) ELECTION or AMORTIZATION.—The election of the taxpayer to 
take the amortization deduction and to begin the 60-month period with 
the month following the month in which the facility is completed or 
acquired, or with the taxable year succeeding the taxable year in which 
such facility is completed or acquired, shall be made by filing with the 
Secretary or his delegate, in such manner, in such form, and within 
such time, as the Secretary or his delegate may by regulations pre-
scribe, a statement of such election. 
"(c) TERMINATION or 
AMORTIZATION 
DEDUCTION.—A 
taxpayer 
which has elected under subsection (b) to take the amortization deduc-
tion provided in subsection (a) may, at any time after making such 
election, discontinue the amortization deduction with respect to the 
remainder of the amortization period, such discontinuance to begin as 
of the beginning of any month specified by the taxpayer in a notice 
in writing filed with the Secretary or his delegate before the beginning 
of such month. The depreciation deduction provided under section 
167 shall be allowed, beginning with the first month as to which the 
26 use 167. 
668 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
amortization deduction does not apply, and the taxpa3'er shall not be 
entitled to any further amortization deduction under this section Avith 
respect to such pollution control facility. 
'" (d) DEFINITIONS.—For purposes of this section— 
"(1) CERTIFIED POLI^UTION CONTROL FACILITY.—The term 'cer-
tified pollution control facility* means a new identifiable treat-
ment facility which is used, in connection with a plant or other 
property in operation before January 1, 1969, to abate or control 
water or atmospheric pollution or contamination by removing, 
altering, disposing, or storing of pollutants, contaminants, wastes, 
or heat and which— 
"(A) the State certifying authority liaving jurisdiction 
with respect to such facility has certified to the Federal cer-
tifying authority as having been constructed, reconstructed, 
erected, or acquired in conformity with the State program or 
requirements for abatement or control of water or atmos-
pheric pollution or contamination; and 
"(R) the Federal certifying authority has certified to the 
Secretary or his delegate (i) as being in compliance with the 
applicable regulations of Federal agencies and (ii) as being 
in furtherance of the general policy of the L'nited States for 
cooperation with the States in the prevention and abatement 
of water pollution under the Federal Water Pollution Con-
so^ 
stau*i2?6!' 
trol A(tt, as amended {i\^ U.S.C. 466 et seq.), or in the pre-
vention and abatement of atmospheric i)ollution and con-
tamination under the Clean Air Act. as amended (-I'i U.S.C. 
81 Stat. 485. 
1857etseq.). 
"(•^) STATE CERTIFYINC; AUTnoRrrv.—The term 'State certify-
ing authority' means, in the case of water pollution, the State 
water pollution control agency as defined in section 13(a) of the 
33 use 466j. 
Federal AVater Pollution (\)ntrol Act and, in the case of air 
pollution, the air [)ollution control agency as defined in section 
42 use i8S7h. 
:>,()2(b) of the Clean Air Act. The term 'State certifying authority* 
includes any interstate agency authorized to act in place of a 
certifying authority of the State. 
"(3) FEDERAL CERTIFYING AiTiioRrrY.—The term 'Federal cer-
tifying authority' means, in the case of water pollution, the Secre-
tary of the Interior and, in the case of air pollution, the Secretary 
of Health, Education, and Welfare. 
"'(4) 
XEAV lOEN'TIFlABLE TREATMENT FACILITY. 
F o r purpOSCS of 
l)aragraph (1), the term 'new identifiable treatment facility' 
inchules only tangible pr<)i)erty (not including a building and 
its structural components, other than a building which is 
exclusively a treatment facility) which is of a character subject 
^r'usc 1^7^' 
^
^
* ^'^^' allowance for depreciation provided in section 167, which 
is identifiable as a treatment facility, and which— 
"'(A) is property— 
"(i) the construction, reconstruction, or erection of 
Avhich is completed bv the taxpayer after December 31. 
1968, or 
"(ii) acquired after December 31, 1968, if the original 
use of the property connnences with the taxpayer and 
commences after snch date, and 
"(B) is ]daced in service by the taxpaver before Januarv 1, 
1975. 
In applying this section in the case of property described in clause 
(i) of subparagraph (A), there shall be taken into account only 
that portion of the basis which is properly attributable to con-
strnction, reconstruction, or erection after December 31,1908. 
Ante, p. 649. 
26 use 167. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
669 
"(e) PROFITMAKING ABATEMENT WORKS, ETC.—The Federal certi-
fying authority shall not certify any property under subsection 
(d)(1)(B) to the extent it appears that by reason of profits derived 
through the recovery of wastes or otherwise in the operation of such 
property, its costs will be recovered over its actual useful life. 
"(f) 
AMORTIZABLE BASIS.— 
" (1) DEFINED.—For purposes of this section, the term 'amortiz-
able basis' means that portion of the adjusted basis (for determin-
ing gain) of a certified pollution control facility which may be 
amortized under this section. 
"(2) 
SPECIAL RULES.— 
"(A) If a certified pollution control facility has a useful 
life (determined as of the first day of the first month for 
which a deduction is allowable under this section) in excess of 
15 years, the amortizable basis of such facility shall be equal 
to an amount which bears the same ratio to the portion of the 
adjusted basis of such facility, which would be eligible for 
amortization but for the application of this subparagraph, as 
15 bears to the number of years of useful life of such facility. 
"(B) The amortizable basis of a certified pollution control 
facility with respect to which an election under this section is 
in effect shall not be increased, for purposes of this section, 
for additions or improvements after the amortization period 
has begun. 
"(g) DEPRECIATION DEDUCTION.—The depreciation deduction pro-
vided by section 167 shall, despite the provisions of subsection (a), be 
allowed with respect to the portion of the adjusted basis which is not 
the amortizable basis. 
"(h) INVESTMENT CREDIT NOT To B E ALLOWED.—In the case of any 
property with respect to which an election has been made under sub-
section (a), so much of the adjusted basis of the property as (after the 
application of subsection (f)) constitutes the amortizable basis for 
purposes of this section shall not be treated as section 38 property 
within the meaning of section 48 (a). 
76 stat. 967. 
"(i) LIFE TENANT AND REMAINDERMAN.—In the case of property 
held by one person for life with remainder to another person, the 
deduction under this section shall be computed as if the life tenant 
were the absolute owner of the property and shall be allowable to the 
life tenant, 
"(j) 
CROSS REFERENCE.— 
"For special rule with respect to certain gain derived from the dis-
position of property the adjusted basis of which is determined with 
regard to this section, see section 1245." 
(b) 
CONFORMING, ETC., AMENDMENTS.— 
(1) The table of sections for part VI of subchapter B of chap-
ter 1 is amended by striking out the item relating to section 169 
and inserting in lieu thereof the following new item: 
"Sec. 169. Amortization of pollution control facilities." 
(2) The heading and the first sentence of section 642(f) (relat-
ing to special rules for credits and deductions of estates and 
trusts) are amended to read as follows: 
"(f) AMORTIZATION DEDUCTIONS.—The benefit of the deductions for 
amortization provided by sections 168, 169, 184, and 187 shall be 
^"'''' P- ^6^-
allowed to estates and trusts in the same manner as in the case of an 674.°^'' ^^' ^^°' 
individual." 
(3) Section 1082(a) (2) (B) (relating to basis for determining 
SSA stat. 315. 
gain or loss) is amended by striking out "or 169" and inserting 
in lieu thereof ", 169, 184, 185, or 187". 
670 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
Ante. p. 571. 
(4) Sectioii 1245(a) of such Code (relating to gain from dis-
position of certain depreciable property) is amended— 
(A) by inserting after paragraph (2) (C) (added by sec-
tion 212(a) (1) of this Act) the following new subparagraph: 
"(D) wdth respect to any property referred to in para-
graph (3)(D), its adjusted basis recomputed by adding 
thereto all adjustments attributable to periods beginning with 
the first month for which a deduction for amortization is 
allowed under section 169 or 185"; 
(B) by striking out "168" each place it appears in para-
graph (2) and inserting in lieu thereof "168,169,184,185, or 
187". 
(C) by striking out "section 167" in paragraph (3) and 
inserting in lieu thereof "section 167 (or subject to the allow-
ance of amortization provided in section 185)"; 
(D) by striking out "or" at the end of paragraphs (3) (A) 
and (B) ; 
_ 
(E) by striking out the period at the end of paragraph 
(3) (C) and inserting in lieu thereof ", or"; and 
(F) by adding at the end of paragraph (3) the following 
new subparagraph: 
"(D) so much of any real property (other than any prop-
erty described in subparagraph (B)) which has an adjusted 
basis in which there are reflected adjustments for amortization 
under section 169 or 185." 
26 u^c mo 
(^) Section 1250(b) (3) (relating to depreciation adjustments) 
is amended by striking out "168" and inserting in lieu thereof "168, 
169, or 185". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to taxable years ending after December 31, 1968. 
SEC. 705. AMORTIZATION OF RAILROAD ROLLING STOCK AND RIGHT-
OF-WAY IMPROVEMENTS. 
(a) ALLOWANCE.—Part VI of subchapter B or chapter 1 (relating to 
itemized deductions for individuals and corporations) is amended by 
6
8
A Stat. 45; 
addinff after section 183 (as added by section 213 of this Act) the 
following new sections: 
"SEC. 184. AMORTIZATION OF CERTAIN RAILROAD ROLLING STOCK. 
"(a) ALLOWANCE OF DEDUCTION.—Every person, at his election, 
shall be entitled to a deduction with respect to the amortization of the 
adjusted basis (for determining gain) of any qualified railroad rolling 
stock (as defined in subsection (d)), based on a period of 60 months. 
Such amortization deduction shall be an amount, with respect to each 
month of such period within the taxable year, equal to the adjusted 
basis of the qualified railroad rolling stock at the end of such month 
divided by the number of months (including the month for which the 
deduction is computed) remaining in the period. Such adjusted basis 
at the end of the month shall be computed without regard to the 
amortization deduction for such month. The amortization deduction 
provided by this section with respect to any qualified railroad rolling 
stock for any month shall be in lieu of the depreciation deduction with 
respect to such rolling stock for such month provided by section 167. 
The 60-month period shall begin, as to any qualified railroad rolling 
stock, at the election of the taxpayer, w^ith the month following the 
month in which such rolling stock was placed in service or with the 
succeeding taxable year. 
"(b) ELECTION OF AMORTIZATION.—The election of the taxpayer to 
take the amortization deduction and to begin the 60-month period with 
the month following the month in which the qualified railroad rolling 
stock was placed in service, or with the taxable year succeeding the 
76 Stat. 1063; 
Ante, p. 571. 
26 use 167. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
671 
taxable year in which such rolling stock is placed in service, shall be 
made by filing with the Secretary or his delegate, in such manner, in 
such form, aaid within such time, as the Secretary or his delegate may 
by regulations prescribe, a statement of such election. 
"(c) 
TERMINATION OF AMORTIZATION DEDUCTION.—A 
taxpayer 
which has elected under subsection (b) to take the amortization deduc-
tion provided by subsection (a) may, at any time after making such 
election, discontinue the amortization deduction with respect to the 
remainder of the amortization period, such discontinuance to begin as 
of the beginning of any month specified by the taxpayer in a notice in 
writing filed with the Secretary or his delegate before the beginning of 
such month. The depreciation deduction provided under section 167 
^"'^' P- 649. 
i
n
i
n 
1
1
"
' 
• 1 
1 
r* 
i 
i
*
i
i 
" 
'"^ TTcr* t fi.'7 
shall be allowed, beginning with the first month as to which the amorti-
zation deduction does not apply, and the taxpayer shall not be entitled 
to any further amortization deduction under this section with respect 
to such rolling stock. 
"(d) QUALIFIED RAILROAD ROLLING STOCK.—Except as provided in 
subsection (e)(4), the term 'qualified railroad rolling stock' means, for 
purposes of this section, rolling stock of the type used by a common 
carrier engaged in the furnishing or sale of transportation by railroad 
and subject to the jurisdiction of the Interstate Commerce Commission 
if— 
" (1) such rolling stock is— 
"(A) used by a domestic common carrier by railroad on a 
full-time basis, or on a part-time basis if its only additional 
use is an incidental use by a Canadian or Mexican common 
carrier by railroad on a per diem basis, or 
"(B) owned and used by a switching or terminal company 
all of whose stock is owned by one or more domestic common 
carriers by railroad, and 
"(2) the original use of such rolling stock commences with the 
taxpayer after December 31,1968. 
"(e) 
SPECIAL RULES.— 
"(1) I N GENERAL.—Except as otherwise provided in this sub-
section, this section shall apply to qualified railroad rolling stock 
placed in service after 1968 and before 1975. 
"(2) PLACED IN SERVICE IN I969.—If any qualified railroad 
rolling stock is placed in service in 1969— 
"(A) the month as to which the amortization period shall 
begin with respect to such rolling stock shall be determined as 
if such rolling stock were placed in service on December 31, 
1969, and 
"(B) subsections (a) and (b) shall be applied by sub-
stituting '48' for '60' each place that it appears in such sub-
sections. 
This section shall not apply to any qualified railroad rolling stock 
S
laced in service in 1969 and owned by any person who is not a 
omestic common carrier by railroad, or a corporation at least 95 
percent of the stock of which is owned by one or more such 
common carriers. 
" (3) PLACED IN SERVICE IN 1970.—If any qualified railroad roll-
ing stock is placed in service in 1970 by a domestic common carrier 
by railroad or by a corporation at least 95 percent of the stock 
of which is owned by one or more such common carriers, then 
subsection (a) shall be applied, without regard to paragraph (2), 
as if such rolling stock were placed in service on December 31, 
1969. 
"(4) 
RAILROAD ROLLING STOCK NOT IN SHORT SUPPLY.—The 
Secretary or his delegate shall determine (with the assistance of 
the Secretary of Transportation) which types of railroad rolling 
672 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
stock are not in sliort supply and shall prescribe regulations 
desijj:natino; such types. The term '(jualified railroad rolling- stock' 
shall not include any rolling stock Avhich— 
''(A) is of tlie type of roHin<j; stock desionated by such 
re<rulations as not in sliort sui)[)ly, and 
"(B) is placed in service after (i) 19r2, or (ii) ;]() days 
after the date on which such reoulations are pronudj>"ated, 
Avhichever is later. 
"(5) 
ADJUSTED BASIS.— 
"(A) The adjusted basis of any (jualitied railroad rollinjr 
stock, with respect to Avhich an election has been made under 
this section, shall not be increased, for pur[)oses of this section, 
for amounts chargeable to capital account for additions or 
improvements after the amortizaticm period has begun. 
"(B) (^osts incurred in connection Avith a used unit of rail-
road rolling stock which are j)ro[>erly chargeable to capital 
account shall be treated as a separate unit of railroad rolling 
stock for purposes of this sectiou. 
26 usc'i??'" 
"^^^ '^^^^ depreciation deduction ])rovided by section 167 
shall, despite the provisions of subsection (a), be allowed with. 
respect to the portion of the adjusted basis which is not taken 
into account in applying this section. 
"(6) CoNSTUFCTivE TERMiNATiox.—If at any time during the 
amortization period any qualified railroad rolling stock ceases to 
meet the requirements of subsection (d) (1), the taxpayer shall be 
deemed to ha^e terminated under subsection (c) his election under 
this section. Such termination shall be effective beginning Avith the 
month following the month in which such cessation occurs. 
"(7) ME'nroD OF ACCOUNTIX(} FOK DATE PLACED ix SEHVICE.—For 
purposes of subsections (a) and (b), in the case of (pialified rail-
road rolling stock placed in service after December HI, 1969, and 
before January 1, 1970, the taxpayer may elect (unless paragraph 
(3) is applicable) to begin the 60-month period with the date 
when such rolling stock is treated as having been placed in service 
under a method of accounting for acquisitions and retirements of 
property which— 
"(A) prescribes a date when ])ro])erty is placed in service, 
and 
"(B) is consistently followed by the taxpayer. 
"(f) LIFE TENAXT AX^D KEMAIXDERMAX.—In the case of qualified 
railroad rolling stock leased to a domestic common carrier, and held 
by one person for life with remainder to another person, the deduction 
under this section shall be computed as if the life tenant were the 
absolute oAvner of the ])roperty and shall be alloAvable to the life 
tenant. 
"(g) CROSS REFEREXCE.— 
"For treatment of certain Rain derived from the disposition of 
property the adjusted basis of which is determined with regard to 
this section, see section 1245." 
"SEC. 185. AMORTIZATION 
OF RAILROAD 
GRADING 
AND TUNNEL 
BORES. 
"(a) GEXERAL RUEE.—In the case of a domestic common carrier by 
railroad, the taxpayer shall, at his election, be entitled to a deduction 
Avith res])ect to the amortization of the adjusted basis (for determining 
gain) of his qualified railroad grading and tunnel bores. The amor-
tization deduction proA'ided by this section Avith respect to such prop-
erty shall be in lieu of any depreciation deduction, or other amortiza-
tion deduction, with respect to such property for any taxable year 
to which the election applies. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
673 
'• (b) 
A 3 I ( J I > ; T O F D E I H C T I O X . — 
"(1) I x GEXEKAL.—Tlie (lodiiction ullowable under siibsectioji 
(a) for any taxable year sliall be an amount deterjnined by amor-
tizing ratably over a period of 50 years tiie adjusted basis (for 
determining gain) of tlie qualified railroad grading and tuniiel 
bores of the taxpayer. Such 5()-year period shall commence with 
the first taxable year for which an elec-tion mider this section is 
effective. 
"(2) 
SPECIAL KULE.—In the case of qualified railroad grading 
and tunnel bores placed in ser\ice after the beginning of the first 
taxable year for which an election under this section is effective, 
the 50-year j^eriod with respect to such property shall begin witli 
the year following the year the pro])erty is placed in service. 
"'(c) ELECTION or A:MoriTizATiox.—The election of the taxpayer 
to take the amortization deduction provided in subsection (a) may be 
made for any taxable year beginning after December ?>1, 1909, Such 
election shall be made by filing with the Secretary or his delegate, in 
such manner, in such form, and Avithin such time, as the Secretary or 
his delegate may by regulations prescribe, a statement of such elec-
tion. The election shall remain in effect for all taxable years subsequent 
to the first year for which it is effective and shall apply to all qualified 
railroad grading and tunnel bores of the taxi)ayer, unless, on ai)plica-
tion by the taxpayer, the Secretary or his delegate pei'mits him, sub-
ject to such conditions as the Secretary or his delegate deems necessary, 
to revoke such election. 
" ( d ) 
DEEIXITIOXS.—For i)ur])oses of this section— 
" (1) RAILHOAD ORADIXO AXD Ti'xxEL BORES.—The term 'railroad 
grading and tunnel bores" means all improvements resulting from 
excavations (including tumieling), construction of embankments, 
clearings, di^•ersions of roads and streams, sodding of slopes, and 
from similar woi-k necessary to provide, construct, reconstruct, 
alter, protect, inqn'OAe, replace, or restore a roadbed or right-of-
way for railroad 
track. If 
expenditures for 
improvements 
described in the ])receding sentence arc incurred with res])e€t to 
an existing roadbed or righ.t-of-way for I'ailroad track, such 
expenditures shall be considered, in applying this section, as costs 
for railroad grading or tunnel bores placed in service in the year 
in which such costs are incurred. 
" ( 2 ) 
QUALIFIED KAILKOAD GRADIXG AXD TUXX^EL BORES.—The 
term 'qualified railroad grading and tunnel bores' means railroad 
grading and tunnel bores the original use of which commences 
after December 31, 1968. 
"(e) 
TREATMEXT Urox^ RETIRE3IEXT.—If 
any qualified 
railroad 
grading or tunnel bore is retired or abandoned during a taxable year 
for which an election, under this section is in effect, no deduction shall 
be allowed on account of such retirement or abandonment and the 
amortization deduction under this section shall continue with respect 
to such property. This subsection shall not apply if the retirement or 
abandonment is attributable primarily to fire, stonn, or other casualty. 
" ( f ) 
IX'VESTMEXT CREDIT X O T To B E ALLOWED.—Property eligible 
to be amortized under this section shall not be treated as section 38 
propertv within the meanins: of section 48 ( a ) . 
'^^ stat. 967. 
(g) KEGFLATIOX'S.— IJie Secretary or ins delegate shall i)rescribe 
such regulations as may be necessary to carry out tlie purposes of this 
section. 
" ( h ) CROSS REFEREXCE.— 
"For special rule with respect to certain gain derived from the dis-
position of property the adjusted basis of which is determined with 
regard to this section, see section 1245." 
26 u s e 48. 
674 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
(b) CONFORMING A M E N D M E N T . — T h e table of sections for x^art V I of 
subchapter B of cliapter 1 is amended by adding at the end thereof the 
following new items: 
"Sec. 184. Amortization of certain railroad rolling stock. 
"Sec. 185. Amortization of railroad grading and tunnel bores." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to taxable years beginning after December 31,1969. 
SEC. 706. EXPENDITURES IN CONNECTION WITH CERTAIN RAILROAD 
ROLLING STOCK. 
jgliaulW.'^'' 
(^) I ^ GENERAL.—Section 263 (relating to capital expenditures) is 
26 use 263. 
amended by adding at the end thereof the following new subsection: 
"(e) 
EXPENDITURES I N CONNECTION 
W I T H 
CERTAIN 
RAILROAD 
ROLLING STOCK.—In the case of expenditures in connection with the 
rehabilitation of a unit of railroad rolling stock (except a locomotive) 
used by a domestic common carrier by railroad which would, but for 
this subsection, be properly chargeable to capital 
account, such 
expenditures, if during any 12-month period they do not exceed an 
amount equal to 20 percent of the basis of such unit in the hands of the 
taxpayer, shall be treated (notwithstanding subsection ( a ) ) as deduc-
26 use 162, 
tjble repairs under section 162 or 212." 
212. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
apply with respect to taxable years beginning after December 31,1969. 
SEC. 707. AMORTIZATION OF CERTAIN COAL MINE SAFETY EQUIP-
MENT. 
(a) ALLOWANCE.—Part V I of subchapter B of chapter 1 (relating 
to itemized deductions for individuals and corporations) is amended 
Post, p. 711. 
by adding after section 186 (added by section 904 of this Act) the fol-
lowing new section. 
"SEC. 187. AMORTIZATION OF CERTAIN COAL MINE SAFETY EQUIP-
MENT. 
" ( a ) 
ALLOW^ANCE OF DEDUCTION.—Every person, at his election, 
shall be entitled to a deduction with respect to the amortization of the 
adjusted basis (for determining gain) of any certified coal mine safety 
equipment (as defined in subsection ( d ) ) , based on a period of 60 
months. Such amortization deduction shall be an amount, with respect 
to each month of such period within the taxable year, equal to the 
adjusted basis of the certified coal mine safety equipment at the end 
of such month divided by the number of months (including the month 
for which the deduction is computed) remaining in the period. Such 
adjusted basis at the end of the month shall be computed without 
regard to the amortization deduction for such month. T h e amortiza-
tion deduction provided by this section with respect to any certified 
coal mine safety equipment for any month shall be in lieu of the depre-
ciation deduction with respecl to such equipment for such month pro-
^"'^' p- 649- 
vided by section 167. The 60-montli period shall begin, as to any cer-
tified coal mine safety equipment, at the election of the taxpayer, with 
the month following the month in which such equipment was placed 
in service or with the succeeding taxable year. 
" ( b ) 
ELECTION OF AMORTIZATION.—The election of the taxpayer to 
take the amortization deduction and to begin the 60-month period with 
the month following the month in which the certified coal mine safety 
equipment was placed in service, or with the taxable year succeeding 
the taxable year in which such equipment is placed in service, shall be 
made by filing with the Secretary or his delegate, in such manner, in 
such form, and within such time, as the Secretary or his delegate may 
by regulations prescribe, a statement of such election. 
"(c) 
TERMINATION OF AMORTIZATION 
DEDUCTION.—A 
taxpayer 
which has elected under subsection (b) to take the amortization deduc-
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
675 
tion provided by subsection (a) may, at any time after making such 
election, discontinue the amortization deduction with respect to the 
remainder of the amortization period, such discontinuance to begin as 
of the beginning of any month specified by the taxpayer in a notice in 
writing filed with the Secretary or his delegate before the beginning of 
such month. The depreciation deduction provided under section 167 
^^usc leV' 
shall be allowed, beginning with the first month as to which the amor-
tization deduction does not apply, and the taxpayer shall not be entitled 
to any further amortization deduction under this section with respect 
to such equipment. 
"(d) CERTIFIED COAL MINE SAFETY EQUIPMENT.—For purposes of 
this section, the term 'certified coal mine safety equipment means 
property which— 
"(1) is electric face equipment (within the meaning of sec-
tion 305 of the Federal Coal Mine Health and Safety Act of 1969) 
Post, p. 775. 
required in order to meet the requirements of section 305(a) (2) 
of such Act, 
" (2) the Secretary of the Interior certifies is permissible within 
the meaning of such section 305 (a)(2), and 
" (3) is placed in service before January 1,1975. 
For purposes of this section, any property placed in service in connec-
tion with any used electric face equipment which the Secretary of the 
Interior certifies makes such electric face equipment permissible shall 
be treated as a separate item of certified coal mine safety equipment. 
"(e) SPECIAL KULES.— 
" (1) The adjusted basis of any certified coal mine safety equip-
ment, with respect to which an election is made under this section, 
shall not be increased, for purposes of this section, for amounts 
chargeable to capital account for additions or improvements after 
the amortization period has begun. 
"(2) The depreciation deduction provided by section 167 shall, 
despite the provisions of subsection (a), be allowed with respect to 
the portion of the adjusted basis which is not taken into account 
in applying this section." 
(b) CLERICAL AMENDMENT.—^The table of sections for part VI of 
subchapter B of the chapter 1 is amended by adding at the end thereof 
the following new item: 
"Sec. 187. Amortization of certain coal mine safety equipment." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years ending after December 31,1969. 
TITLE VIII—ADJUSTMENT OF TAX BURDEN 
FOR INDIVIDUALS 
SEC. 801. PERSONAL EXEMPTIONS. 
(a) INCREASE TO $625 FOR 1970.— Effective with respect to taxable 
years beginning after December 31,1969, and before January 1,1971— 
(1) section 151 (relating to allowance of personal exemptions) 
esA stat. 42. 
is amended by striking out "$600" wherever it appears therein and 
inserting in lieu thereof "$625"; and 
(2) section 6013(b) (3) (A) (relating to assessment and collec- 
^SA stat. 733. 
tion in case of certain returns of husband and wife) is amended 
by striking out "$600" wherever it appears therein and inserting 
in lieu thereof "$625", and by striking out "$1,200" wherever it 
appears therein and inserting in lieu thereof "$1,250". 
(b) INCREASE TO $650 FOR 1971.—Effective with respect to taxable 
years beginning after December 31,1970, and before January 1,1972— 
676 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
68A Stat. 42 
26 u s e 151. 
(1) section 151 (relating to allowance of personal exemptions) 
is amended by striking out "$625" wherever it appears therein and 
inserting in lien thereof "$650"'; and 
6
8
A Stat. 733. 
(2) scction 6013(b) (3) (A) (relating to assessment and collec-
tion in case of certain returns of husband and wife) is amended 
by striking out "$625" wherever it appears therein and inserting 
in lieu thereof "$650",, and by striking out "$1,250" wherever it 
appears therein and inserting in lieu thereof "$1,300". 
(c) INCREASE TO $700 FOR 1972.—Effective with respect to taxable 
years beginning after December 31,1971, and before January 1,1973—• 
(1) section 151 (relating to allowance of personal exemptions) 
is amended by striking out "$650" wherever it appears therein and 
inserting in lieu thereof "$700"; and 
(2) section 6013(b) (3) (A) (relating to assessment and collec-
tion in case of certain returns of husband and wife) is amended by 
striking out "$650" wherever it appears therein and inserting in 
lieu thereof "$700", and by striking out "$1,300" wherever it 
appears therein and inserting in lieu thereof "$1,400". 
(d) INCREASE TO $750 FOR 1973 AND SUBSEQUENT YEARS.—Effective 
with respect to taxable years beginning after December 31, 1972— 
(1) section 151 (relating to allowance of personal exemptions) 
is amended by striking out "$700" wherever it appears therein and 
inserting in lieu thereof "$750"; and 
(2) section 6013(b)(3)(A) (relating to assessment and col-
lection in case of certain returns of husband and Avife) is amended 
by striking out "$700" wherever it appears therein and inserting 
in lieu thereof "$750", and by striking out "$1,400", wherever it 
appears therein and inserting in lieu thereof "$1,500". 
SEC. 802. LOW INCOME ALLOWANCE; INCREASE IN STANDARD 
DEDUCTION. 
26 use ^^' 
^'^^ ^^ GENERAL.—Section 141 (relating to the standard deduc-
tion) is amended by striking out subsections (a), (b), and (c) and 
inserting in lieu thereof the following: 
"(a) STANDARD DEDUCTION.—Except as otherwise provided in this 
section, the standard deduction referred to in this title is the larger of 
the ])ercentage standard deduction or the low income allowance. 
"(b) PERCVENTAGE STANDARD DEDUCTION.—The percentage standard 
deduction is an amount equal to the applicable percentage of adjusted 
gross income shown in the following table, but not to exceed the maxi-
mum amount shown in such table (or one-half of such maximum 
amount in the case of a separate return by a married individual) : 
"Taxable years beginning in— 
1970 
1971 
1972 
1973 and thereafter 
Applicable 
percentage 
10 
13 
14 
15 
Maximum 
amount 
$1,000 
1,500 
2,000 
2.000 
" (c) Low INCOME ALLOW^ANCE.— 
"(1) I N GENERAL.—The low income allowance is an amount 
equal to tlie sum of— 
" (A) the basic allowance, and 
"(B) the additional allowance. 
"(2) BASIC ALLOWANCE.—For purposes of this subsection, the 
basic allowance is an amount equal to the sum of— 
"(A) $200, plus 
"(B) $100, multiplied by the number of exemptions. 
The basic allowance shall not exceed $1,000. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
677 
"(3) 
ADDITIONAL ALLOWANCE.— 
"(A) I N GENERAL.—For purposes of this subsection, tlie 
additional allowance is an amount equal to the excess (if any) 
of $900 over the sum of— 
"(i) $100, multiplied by the number of exemptions, 
plus 
"(ii) the income phase-out. 
•'(B) INCOME PHASE-OUT.—For purposes of subparagraph 
(A) (ii), the income phase-out is an amount eq^ual to one-half 
of the amount by which the adjusted gross income for the 
taxable year exceeds the sum of— 
"(i) $1,100, plus 
• "(ii) $625, multiplied by the number of exemptions. 
••(4) 
MARRIED INDIVIDUALS FILING SEPARATE RETURNS.—In 
the 
case of a married taxpayer filing a separate return— 
"(A) the low income allowance is an amount equal to the 
basic allowance, and 
"(B) the basic allowance is an amount (not in excess of 
$500) equal to the sum of— 
"(i) $100, plus _ 
" (ii) $100, multiplied by the number of exemptions. 
•*(5) NUMBER OF EXEMPTIONS.—For purposes of this subsec-
tion, the number of exemptions is the number of exemptions 
allowed as a deduction for the taxable year under section 151. 
676"'"' ^^' ^^^' 
"(6) SPECIAL RULE FOR 1971.—For a taxable year beginning 
after December 31, 1970, and before January 1, 1972,— 
"(A) paragraph (3) (A) shall be applied by substituting 
•$850' for '$900', 
"(B) paragraph (3) (B) shall be applied by substituting 
'one-fifteenth' for 'one-half, 
"(C) paragraph (3) (B) (i) shall be applied by substitut-
ing '$1050' for '$1100', and 
"(D) paragraph (3) (B) (ii) shall be applied by substitut-
ing'$650'for'$625'." 
(b) DETERMINATION OF MARriAL STATUS.—Section 143 (relating to 
68Astat.4i. 
determination of marital status) is amended— 
^^ ^^^ ^'^^' 
(1) by striking out "For purposes of this part—" and inserting 
in lieu thereof "(a) 
GENERAL RULE.—For purposes of this 
part—"; and 
(2) by adding at the end thereof the following new subsection: 
"(b) 
CERTAIN MARRIED INDIVIDUALS LIVING APART.—For purposes 
of this part, if— 
"(1) an individual who is married (within the meaning of sub-
section (a)) and who files a separate return maintains as his home 
a household which constitutes for more than one-half of the tax-
able year the principal place of abode of a dependent (A) who 
(within the meaning of section 152) is a son, stepson, daughter, 
26 use is2. 
or stepdaughter of the individual, and (B) with respect to whom 
such individual is entitled to a deduction for the taxable year 
under section 151, 
"(2) such individual furnishes over half of the cost of main-
taining such household during the taxable year, and 
"(3) during the entire taxable year such individual's spouse is 
not a member of such household, 
such individual shall not be considered as married." 
(c) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) Section 4(a) 
(relating to number of exemptions) is 
68A stat. 10. 
amended to read as follows: 
'•(a) NUMBER OF EXEMPITONS.—For purposes of the tables pre-
scribed by the Secretary or his delegate pursuant to section 3, the term 
^°®'' P- ^84. 
678 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
'number of exemptions' means the number of exemptions allowed 
^^^nfe, pp. 675, 
Under section 151 as deductions in computing taxable income." 
78 Stat. 140. 
(2) Section 4(c) (relating to married individuals filing sepa-
rate returns) is amended to read as follows: 
"(c) 
HUSBAND OR W I F E FILING SEPARATE RETURN.— 
"(1) A husband or wife may not elect to pay the optional tax 
Post, p. 684. 
imposed by section 3 if the tax of the other spouse is determined 
^"^''^- 
under section 1 on the basis of taxable income computed without 
regard to the standard deduction. 
"(2) Except as otherwise provided in this subsection, in the 
case of a husband or wife filing a separate return the tax imposed 
by section 3 shall be the lesser of the tax shown in— 
" (A) the table prescribed under section 3 applicable in the 
case of married persons filing separate returns which applies 
the percentage standard deduction, or 
"(B) the table prescribed under section 3 applicable in the 
case of married persons filing separate returns which applies 
the low income allowance. 
"(3) The table referred to in paragraph (2) (B) shall not apply 
in the case of a husband or wife filing a separate return if the tax 
of the other spouse is determined with regard to the percentage 
standard deduction; except that an individual described in section 
141(d) (2) may elect (under regulations prescribed by the Secre-
tary or his delegate) to pay the tax shown in the table referred to 
in paragraph (2) (B) in lieu of the tax shown in the table referred 
to m paragraph (2) (A). For purposes of this title, an election 
under the preceding sentence shall be treated as an election made 
under section 141(d) (2). 
"(4) For purposes of this subsection, determination of marital 
Ante, p. 677. 
status shall be made under section 143." 
78 Stat. 140. 
(3) Paragraph (4) of section 4(f) is amended to read as fol-
lows: 
"(4) For computation of tax by Secretary or his delegate, see section 
6014." 
26 use Ml. 
(^) Section 141(d) (relating to married individuals filing sep-
arate returns) is amended— 
(A) by striking out "minimum standard deduction" each 
place it appears and inserting in lieu thereof "low income 
allowance"; and 
(B) by striking out "10-percent" each place it appears 
therein and insertmg in lieu thereof "percentage". 
AnL^^^^587^' 
(^) Section 1304(c)(4) (relating to special rules for income 
averaging) is amended by striking out "section 143" and inserting 
in lieu thereof "section 143(a)". 
(d) EFFECTIVE DATE.—The amendments made by subsections (a), 
(b), and (c) shall apply to taxable years beginning after December 31, 
1969. 
(e) YEARS AFTER 1971.—Effective with respect to taxable years 
Ante, p. 676. 
beginning after December 31, 1971, section 141(c) (relating to low 
income allowance), as amended by subsection (a), is amended to read 
as follows: 
"(c) Low INCOME ALLOWANCE.—The low income allowance is $1,000 
($500, in the case of a married individual filing a separate return)." 
SEC. 803. TAX RATES FOR SINGLE INDIVIDUALS AND HEADS OF 
HOUSEHOLDS; OPTIONAL TAX. 
6
8
A Stat. 5; 
(a) KATES OF TAX ON INDIVIDUALS.—Section 1 (relating to the tax 
78 Stat. 19. 
imposed) is amended to read as follows: 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
679 
"SECTION 1. TAX IMPOSED. 
"(a) 
MARRIED INDIVIDUALS FILING JOINT KETURNS AND SUEVIVINQ 
SrousES.—There is hereby imposed on the taxable income of— 
"(1) every married individual (as defined in section 143) who 
makes a single return jointly with his spouse under section 6013, 
and 
" (2) every surviving spouse (as defined in section 2(a)), 
A tax determined in accordance with the following table: 
"If the taxable income is: 
The tax is: 
Not over $1,000 
Over $1,000 but not over $2,000 
Over $2,000 but not over $3,000 
Over $3,000 but not over $4,000 
Over $4,000 but not over $8,000 
Over $8,000 but not over $12,000 
Over $12,000 but not over $16,000— 
Over $16,000 but not over $20,000— 
Over $20,000 but not over $24,000— 
Over $24,000 but not over $28,000— 
Over $28,000 but not over $32,000— 
Over $32,000 but not over $36,000— 
Over $36,000 but not over $40,000— 
Over $40,000 but not over $44,000— 
Over $44,000 but not over $52,000— 
Over $52,000 but not over $64,000— 
Over $64,000 but not over $76,000— 
Over $76,000 but not over $88,000— 
Over $88,000 but not over $100,000-
Over $100,000 but not over. $120,000-
Over $120,000 but not over $140,000-
Over $140,000 but not over $160,000-
Over $160,000 but not over $180,000. 
Over $180,000 but not, over $200,000-
Over $200,000 
14% of the taxable income. 
$140, plus 
15% of excess 
over 
$1,000. 
$290, plus 16% 
of 
excess 
over 
$2,000. 
$450, plus 
17% of 
excess 
over 
$3,000. 
$620, plus 
19% of 
excess 
over 
$4 000. 
$1,380, plus 22% of excess over 
$8,000. 
$2,260, plus 25% of excess over 
$12,000. 
$3,260, plus 28% of excess over 
$16,000. 
$4,380, plus 32% of excess over 
$20,000. 
$5,660, plus 36% of excess over 
$24,000. 
$7,100, plus 39% of excess over 
$28,000. 
$8,660, plus 42% of excess over 
$32,000. 
$10,340, plus 45% of excess over 
$36,000. 
$12,140, plus 48% of excess over 
$40,000. 
$14,060, plus 50% of excess over 
$44,000. 
$18,060, plus 53% of excess over 
$52,000. 
$24,420, plus 55% of excess over 
$64,000. 
$31,020, plus 58% of excess over 
$76,000. 
$37,980, plus 60% of excess over 
$88,000. 
$45,180, plus 62% of excess over 
$100,000. 
$57,580, plus 64% of excess over 
$120,000. 
$70,380, plus 66% of excess over 
$140,000. 
$83,580, plus 68% of excess over 
$160,000. 
$97,180, plus 69% of excess over 
$180,000. 
$110,980, plus 70% of excess over 
$200,000. 
Ante, 
p. 677. 
Ante, 
p. 675. 
Post, 
p. 682. 
680 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
''(b) HEADS OF HOUSEHOLDS.—There is hereby imposed on the tax-
able income of every individnal Avho is tlie head of a honsehold (as 
Post, p. 683. 
defined in section 2(b)) a tax determined in accordance with the 
following table: 
"If the taxable income i s : 
The tax is: 
Not over $1,000 
14% of the taxable income. 
Over ,$1,000 hut not over .$2,000 
$140, plus 16% of excess over $1,000. 
Over $2,0<X) but not over .$4,000 
$300, plus 18% of excess over $2,000. 
Over $4,(K)0 but not over $6,000 
$060. plus 19% 
of 
excess 
over 
.$4,000. 
Over .$6,0(K) but not over .$8,000 
.$1,040, plus 22% of excess over 
.$6,(X)0. 
Over $8,0(H) but not over $10,000___ 
$1,480, plus 2.3% of excess over 
$8,000. 
Over $10,000 but not over $12,000_- 
$1,940, plus 2.")% of excess over 
$10,000. 
Over $12.0(K) hut not over $14.000_- 
$2,440, plus 27% 
of excess over 
$12,000. 
Over $14.(X)0 hut not over $16,000— 
$2,980, plus 28% of excess over 
$14,000. 
Over $16,000 but not over $18,000__ 
.$3.-540, plus 3 1 % of excess over 
$16,000. 
Over $18,000 hut not over $20,000_- 
.$4,160, plus 32% of excess over 
$18.0(X). 
Over $20,000 but not over .$22,000_- 
.$4,800, plus 3.")% of excess over 
$20,000. 
Over ,$22,000 hut not over $24,000__ 
$."),.500, plus 36% of excess over 
.$22,000. 
Over $24,000 but not over $26,000_- 
$6,220, plus 38% of excess over 
.$24.0(X). 
Over $26,000 hut not over $28,000— 
$6,980, plus 4 1 % of excess over 
$26,000. 
Over .$28,000 hut not over $32,000— 
$7,800. plus 42% of excess over 
$28,000. 
Over $32,000 but not over .$36,000— 
$9,480, plus 45% of excess over 
.$32,000. 
Over $,36,000 hut not over ,$38,000— 
$11,280, plus 48% of excess over 
$36,000. 
Over ,$38,000 hut not over $40,000— 
$12,240, plus 5 1 % of excess over 
,$38,000. 
Over ,$40,000 hut not over $44,000-- 
$13,260, plus 52% of excess over 
,$40,000. 
Over $44,000 but not over $.50,000— 
$15,340, plus ,55% of excess over 
$44,000. 
Over $50,000 hut not over $52,000— 
$18,640, plus -56%, of excess over 
$50,000. 
Over $52,000 hut not over .$64,000— 
$19,760, plus 58% of excess over 
$52,000. 
Over $64,000 but not over $70,000— 
,$26,720, plus 59% of excess over 
,$64,000. 
Over $70,000 but not over $76,000— 
,$,30,260, plus 61% of excess over 
$70,000. 
Over $76,000 hut not over $80,000— 
$33,920, plus 62% of excess over 
$76,000. 
Over .$80,000 hut not over $88,000— 
.$36,400, plus 63% of excess over 
$80,000. 
Over $88,000 but not over $100,000- 
$41,440, plus 64% of excess over 
,$88,000. 
Over $100,000 but not over $120,000- 
,$49,120, plus 66% of excess over 
$100,000. 
Over $120,000 hut not over ,$140,000_ 
.$62,320, plus 67% of excess over 
$120 000. 
Over $140,000 hut not over $160,000- 
$75,720, plus 68% of excess over 
$140,000. 
Over $160,000 but not over $180,000- 
,$89,320, plus 69% of excess over 
$160,000. 
Over $180,000 
$103,120, plus 70% of excess over 
$180,000. 
83 
STAT.] 
PUBLIC LAW 91-172-DEC. 30, 1969 
681 
"(c) 
UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES 
AND HEADS OF HOUSEHOLDS) .—There is hereby imposed on the taxable 
income of every individual (other than a surviving spouse as defined in 
section 2(a) or the head of a household as defined m section 2(b)) who 
is not a married individual (as defined in section 143) a tax determined 
in accordance with the following table: 
"If the taxable income is: 
The tax is: 
14% of the taxable income. 
$70. plus 15% of excess over $500. 
$145, plus 16% of excess over $1,000. 
$225, plus 17% of excess over $1,500. 
$310, plus 19% of excess over $2,000. 
$690, plus 2 1 % of excess over $4,000. 
$1,110, plus 24% of excess over 
$6,000. 
$1,590, plus 25% of excess over 
$8,000. 
$2,090, plus 27% of excess over 
$10,000. 
$2,630, plus 29% of excess over 
$12,000. 
$3,210, plus 3 1 % of excess over 
$14,000. 
$3,830, plus 34% of excess over 
$16,000. 
$4,510, plus 36% of excess over 
$18,000. 
$5,230, plus 38% of excess over 
$20,000. 
$5,990, plus 40% of excess over 
$22,000. 
$7,590, plus 45% of excess over 
$26,000. 
$10,290, plus 50% of excess over 
$32,000. 
$13,290, plus 55% of excess over 
$38,000. 
$16,590, plus 60% of excess over 
$44,000. 
$20,190, plus 62% of excess over 
$50 000 
$26,390, plus 64% of excess over 
$60,000. 
$32,790, plus 66% of excess over 
$70,000. 
$39,390, plus 68% of excess over 
$80,000. 
$46,190, plus 69% of excess over 
$90,000. 
$53,090, plus 70% of excess over 
$100,000. 
"(d) 
MARRIED INDIVIDUALS FILING SEPARATE RETURNS; ESTATES 
AND TRUSTS.—There is hereby imposed on the taxable income of every 
married individual (as defined in section 143) who does not make a 
single return jointly with his spouse under section 6013, and of every 
estate and trust taxable under this subsection, a tax determined in 
accordance with the following table: 
Not over 
Over $500 but not over $1,000 
Over $1,000 but not over $1,500 
Over $1,500 but not over $2,000 
Over $2,000 but not over $4,000 
Over $4,000 but not over $6,000 
Over $6,000 but not over $8,000 
Over $8,000 but not over $10,000— 
Over $10,000 but not over $12,000— 
Over $12,000 but not over $14,000— 
Over $14,000 but not over $16,000— 
Over $16,000 but not over $18,000— 
Over $18,000 but not over $20,000— 
Over $20,000 but not over $22,000— 
Over $22,000 but not over $26,000— 
Over $26,000 but not over $32,000— 
Over $32,000 but not over $38,000— 
Over $38,000 but not over $44,000__ 
Over $44,000 but not over $50,000— 
Over $50,000 but not over $60,000— 
Over $60,000 but not over $70,000— 
Over $70,000 but not over $80,000— 
Over $80,000 but not over $90,000__ 
Over $90,000 but not over $100,000-
Over $100,000 
"If the taxable income i s : 
Not over $500 
Over $500 but not over $1,000 
Over $1,000 but not over $1,500 
Over $1,500 but not over $2,000 
Over $2,000 but not over $4,000 
The tax is: 
14% of the taxable income. 
$70, plus 15% of excess over $500. 
$145, 
plus 16% of 
excess 
over 
$1,000. 
$225, plus 17% of 
excess 
over 
$1,500. 
$310, 
plus 19% of excess over 
$2,000. 
Post, 
p, 682. 
Ante, 
p. 677. 
Ante, 
p. 675. 
682 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
68A Stat. 8. 
26 use 2. 
Ante, p . 679. 
26 u s e 152. 
Ante, 
pp. 675, 
676. 
'If the taxable income is: 
Over $4,000 but not over $6,000 
Over $6,000 but not over $8,000 
Over $8,000 but not over $10,000-_ 
Over $10,000 but not over $12,000__ 
Over $12,000 but not over $14,000— 
Over $14,000 but not over $16,000-. 
Over $16,000 but not over $18,000__ 
Over $18,000 but not over $20,000__ 
Over $20,000 but not over $22,000— 
Over $22,000 but not over $26,000— 
Over $26,000 but not over $32,000— 
Over $32,000 but not over $38,000__ 
Over $38,000 but not over $44,000-_ 
Over $44,000 but not over $50,000— 
Over $50,000 but not over $60,000— 
Over $60,000 but not over $70,00€— 
Over $70,000 but not over $80,000— 
Over $80,000 but not over $90,000— 
Over $90,000 but not over $100,000_ 
Over $100,000 
The tax i s : 
$690, plus 22% of excess 
over 
$4,000. 
$1,130, plus 25% of excess over 
$6,000. 
$1,630, plus 28% of excess over 
$8,000. 
$2,190, plus 32% of excess over 
$10,000. 
$2,830, plus 36% of excess over 
$12,000. 
$3,550, plus 39% of excess over 
$14,000. 
$4,330, plus 42% of excess over 
$16,000. 
$5,170, plus 45% of excess over 
$18,000. 
$6,070, plus 48% of excess over 
$20,000. 
$7,030, plus 50% of excess over 
$22,000. 
$9,030, plus 53% of excess over 
$26,000. 
S12,210, plus 55 7o of excess over 
$32,000. 
$15,510, plus 58% of excess over 
$38,000. 
$18,990, plus 60% of excess over 
$44,000. 
$22,590, plus 02% of excess over 
$50,000. 
$28,790, plus 04% of excess over 
$60,000. 
$35,190, plus 66% of excess over 
$70,000. 
$41,790, plus 08% of excess over 
$80,000. 
$48,590, plus 69% of excess over 
$90,000. 
$55,490, plus 70% of excess over 
$100,000." 
(b) DEFINITIONS AND SPECIAL KULES.—Section 2 (relating to tax in 
case of joint return or return of surviving spouse) is amended to read 
as follows: 
"SEC. 2. DEFINITIONS AND SPECIAL RULES. 
" ( a ) 
D E F I N I T I O N O F S U R V I V I N G 
S P O U S E . — 
"(1) I N GENERAL.—For purposes of section 1, the term 'sur-
viving spouse' means a taxpayer— 
"(A) whose spouse died during either of his two taxable 
years immediately preceding the taxable year, and 
"(B) who maintains as his home a household which con-
stitutes for the taxable year the principal place of abode (as a 
member of such household) of a dependent (i) who (within 
the meaning of section 152) is a son, stepson, daughter, or 
stepdaughter of the taxpayer, and (ii) with respect to whom 
the taxpayer is entitled to a deduction for the taxable year 
under section 151. 
For purposes of this paragraph, an individual shall be considered 
as maintaining a household only if over half of the cost of main-
taining the household during the taxable year is furnished by such 
individual. 
"(2) LIMITATIONS.—Notwithstanding paragraph (1), for pur-
poses of section 1 a taxpayer shall not be considered to be a surviv-
ing spouse— 
"(A) if the taxpayer has remarried at any time before the 
close of the taxable year, or 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
683 
"(B) unless, for the taxpayer's taxable year during Avhich 
his spouse died, a joint return could have been made under 
the provisions of section 6013 (without regard to subsection 
^e use eoia. 
(a)(3) thereof). 
"(b) 
DEFINITIOX OF HEAD OF HOUSEHOLD.— 
" (1) I N GENERAL.—For purposes of this subtitle, an individual 
shall be considered a head of a household if, and only if, such 
individual is not married at the close of his taxable year, is not a 
survivin<T spouse (as defined in subsection (a)), and either— 
"(A) maintains as his home a household -which constitutes 
for such taxable year the principal place of abode, as a mem-
ber of such household, of— 
"(i) a son, stepson, daughter, or stepdaughter of the 
taxpayer, or a descendant of a scm or daughter of the 
taxpayer, but if such son, stepson, daughter, stepdaugh-
ter, or descendant is married at the close of the taxpay-
er's taxable year, only if the taxpayer is entitled to a 
deduction for the taxable year for such person under 
section 151, or 
Ante, pp. 67s, 
"(ii) any other person who is a dependent of the tax- ^^^• 
payer, if the taxpayer is entitled to a deduction for the 
taxable year for such person under section 151, or 
"(B) maintains a household which constitutes for such 
taxable year the principal place of abode of the father or 
mother of the taxpayer, if the taxpayer is entitled to a deduc-
tion for the taxable year for such father or mother under 
section 151. 
For purposes of this paragraph, an individual shall be consid-
ered as maintaining a household only if OA-er half of the cost of 
maintaining the household during the taxable yeav is furnished 
by such individual. 
"(2) DETERMINATION OF STATUS,—For purposes of this sub-
section— 
"(A) a legally adopted child of a person shall be consid-
ered a child of such person by blood; 
"(B) an individual who is legally separated from his 
spouse under a decree of divorce or of separate maintenance 
shall not be considered as married; 
"(C) a taxpayer shall be considered as not married at the 
close of his taxable year if at any time during the taxable 
year his spouse is a nonresident alien; and 
"(D) a taxpayer shall be considered as married at the 
close of his taxable year if his spouse (other than a spouse 
described in subparagraph (C)) died during the taxable year. 
"(3) LIMITATIONS.—Notwithstanding paragraph (1), for pur-
poses of this subtitle a taxpayer shall not be considered to be a head 
of a household— 
"(A) if at any time during the taxable year he is a non-
resident alien; or 
"(B) by reason of an individual who would not be a de-
pendent for the taxable year but for— 
"(i) paragraph (9) of sect ion 152(a), 
26 use 152. 
"(ii) paragraph (10) of section 152(a), or 
"(iii) subsection (c) of section 152. 
"(c) 
CERTAIN MARRIED INDIVIDUALS LIVING APART.—For purposes 
of this part, an individual who, under section 143(b), is not to be con-
sidered as married shall not be considered as married. 
Ante, 
p. 677. 
684 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
••(d) XoNRESiDEXT ALIENS.—111 the case of a nonresident alien 
Ante, p. 678. 
uidividual, the tax imposed by section 1 shall apply onlv as provided 
Jl use 871. 
i3y section 871 or 877. 
"(e) 
CROSS REFERENCE,— 
"For definition of taxable income, see section 63." 
78 Stat. 129. 
(^^-^ OPTIONAL TAX TABLES F
O
R INDIVIDUALS.—Section 3 (relating to 
optional tax if adjusted gross income is less than $5,000) is amended to 
read as follows: 
"SEC. 3; OPTIONAL TAX TABLES FOR INDIVIDUALS. 
"In lieu of the tax imposed by section 1, there is hereby imposed for 
each taxable year be^-inning after December 31, 1969, on the taxable 
income of every individual whose adjusted gross income for such year is 
less than $10,000 and who has elected for such year to pay the tax im-
posed by this section, a tax determined under tables, applicable to such 
taxable year, which shall be prescribed by the Secretary or his delegate. 
In the tables so prescribed, the amounts of tax shall be computed on the 
basis of the taxable income computed by taking the standard deduction 
and on the basis of the rates prescribed by section 1." 
(d) 
TECHNICAL, CONFORMING, AND CLERICAL A M E N D M E N T S . — 
6
8
A Stat. 736. 
(^\^ Sectioii 6014(a) 
(relating to election by taxpayer) is 
amended— 
(A) by striking out "$5,000" in the first sentence, and insert-
ing in lieu thereof "$10,000", and 
(B) by striking out the last two sentences. 
68A Stat. 169. 
(2) Sectiou 511(b) (1) (relating to imposition of tax on unre-
lated business income of charitable, etc., organizations) is amended 
by striking out "section 1", in the first sentence of such section, and 
inserting m lieu thereof "section 1(d)". 
(3) Section 641 (relating to imposition of tax in respect of 
estates and trusts) is amended by striking out "The taxes imposed 
by this chapter on individuals" in subsection (a) and inserting in 
lieu thereof "The tax imposed by section 1(d)". 
, (4) Section 632 (relating to sale of oil or gas properties) is 
amended— 
(A) by striking out "surtax" and inserting in lieu thereof 
"tax", and 
(B) by striking out "30 percent" and inserting in lieu 
thereof "33 percent". 
•j^ltr^^b^V^' 
(^) Section 1347 (relating to claims against United States 
involving acquisition of property) is amended— 
(A) by striking out "surtax" and inserting in lieu thereof 
"tax", and 
--n'> ; 
^g^ l3y striking out "30 percent" and inserting in lieu 
thereof "33 percent". 
78 Stat. 111. 
^g^ Paragraphs (1) and (5) of section 5(b) (cross references) 
are each amended by striking out "surtax" and inserting in lieu 
thereof "tax". 
74 Stat. 1000. 
(7) Section 6015(a)(1) (relating to declaration of estimated 
income tax by individuals) is amended— 
(A) by striking out "section 1 (b) (2)" each place it appears 
and inserting in lieu thereof "section 2(b)", and 
(B) by striking out "section 2(b)" each place it appears 
and inserting in lieuthereof "section 2(a)". 
(8) Section 1304(b) (1) (relating to special rules) is amended 
by striking out "if adjusted gross income is less than $5,000". 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
685 
(9) Tlie table of sections for part I of subcliai)ter A of chapter 
1 is amended by striking ont the second and tliird items and 
inserting in lien thereof the following: 
"Sec. 2. Definitions and special rules. 
"Sec. 3. Optional tax tables for individuals." 
(e) Section 21(d) (relating to changes in rates dnring a taxable 
26 use 2^°' 
year) is amended to read as follows: 
"(d) CHANGES MADE BY TAX REFOIOI ACT OF 1909 iisr CASE OF 
IxDiviDUALS.—In applying subsection (a) to a taxable year of an indi-
vidual which is not a calendar year, each change made by the Tax 
Reform Act of 19(59 in part I or in the ai)plication of part IV or V of 
subchapter B for purposes of the determination of taxable income 
shall be treated as a change in a rate of tax." 
(f) EFFECTIVE DATES.—The amendments made by subsections (a), 
(b), and (d) (other than paragraphs (1) and (8)) shall apply to 
taxable years beginning after December 31, 1970, excei)t that section 
2(c) of the Internal Revenue Code of 1954, as amended by subsection 
^"'^' P- ^^a. 
(b), shall also apply to taxable years beginning after December 31, 
1969. The amendments made by subsections (c), (d) (1), and (d) (8) 
shall apply to taxable years beginning after December 31, 1969. 
SEC. 804. FIFTY-PERCENT MAXIMUM RATE ON EARNED INCOME. 
(a) Ix GENERAL.—Part VI of subchapter Q of cha])ter 1 (relating 
H^lc'islV-' 
to otlier limitations) is amended by adding at tlie end thereof the 1347. 
fol 1 ow i ng new secti on: 
"SEC. 1348. FIFTY-PERCENT MAXIMUM RATE ON EARNED INCOME. 
"'(a) GENERAL RILE.—If for any taxable year an individual has 
earned taxable income AAiiich exceeds the amount of taxable income 
specified in paragrapli (1), the tax imposed by section 1 for such year 
'^"'^' P* ^'^^• 
shall, unless the taxpayer chooses the benefits of part 1 (relating to 
income averaging), be the sum of— 
"(1) the tax imposed by section 1 on the lowest amount of tax-
able income on which tlie rate of tax under section 1 exceeds 50 
percent, 
"(2) 50 percent of tlie amount by which his earned taxable in-
come exceeds the lowest amount of taxable income on which the 
rate of tax under section 1 exceeds 50 percent, and 
"(3) the excess of the tax computed under section 1 without 
regard to this section over the tax so comi)uted with reference solely 
to his earned taxable income. 
Tn api)lying this subsection to a taxable year beginning after Decem-
ber 31, 1970, and before January 1, 1972, '60 ])ercent' shall be substi-
tuted for '50 percent" eacli place it ai)i)ears in paragraphs (1) and (2). 
"(b) DEFINITIONS.—For purposes of this section— 
"(1) EARNED INCOME.—The term 'earned income' means any 
income which is earned income within the meaning of section 401 
(c) (2) (C) or section 911 (b), except that such term does not in-
clude any distribution to which section 72(m)(5), 72(n), 402 Ante, p. 644. 
(a) (2), or 403(a) (2) (A) applies or any deferred compensation 
within the meaning of section 404. For i)ur])oses of this para-
graph, deferred compensation does not include any amount re-
ceived before the end of the taxable year following the first tax-
able year of the recipient in which his right to receive such amount 
is not subiect to a substantial risk of forfeiture (within the mean-
ing of section 83(c) (1)). 
An^e.p. 589. 
82 Stat. 256. 
686 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"(2) EARNED TAXABLE INCOME.—The earned taxable income of 
an individual is the excess of— 
"(A) the amount which bears the same ratio (but not in 
excess of 100 percent) to his taxable income as his earned net 
income bears to his adjusted gross income, over 
"(B) the amount by which the greater of— 
" (i) one-fifth of the sum of the taxpayer's items of tax 
Anto, p. 581. 
preference referred to in section 57 for the taxable year 
and the 4 preceding taxable years, or 
" (ii) the sum of the items of tax preference for the tax-
ableyear, 
exceeds $30,000. 
For purposes of subparagraph (A), the term 'earned net income' 
means earned income reduced by any deductions allowable under 
26 use 62. 
section 62 which are properly allocable to or chargeable against 
such earned income. 
"(c) MARRIED INDIVIDUALS.—This section shall apply to a married 
individual only if such individual and his spouse make a single return 
jointly for the taxable year." 
(b) CLERICAL AMENDMENT.—The table of sections for part VI of 
subchapter Q of chapter 1 is amended by adding at the end thereof the 
following new item: 
"Sec. 1348. Fifty-percent maximum rate on earned income." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31,1970. 
SEC. 805. COLLECTION OF INCOME TAX AT SOURCE ON WAGES. 
(a) EEQUIREMENT OF WITHHOLDING.—Section 3402(a) (relating to 
requirement of withholding) is amended by striking out paragraphs 
(1) and (2) and inserting in lieu thereof the following: 
"(1) In the case of wages paid after December 31, 1969, and 
before July 1,1970: 
"Table 1—If the payroll period with respect to an employee is 
W E E K L Y 
" (a) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $21.00 
0. 
Over $21.00 but not over $33.00 
2 1 % of excess over $21.00. 
Over $33.00 but not over $52.00 
$2.52 plus 27% of excess over $33.00. 
Over $52.00 but not over $88.00 
$7.65 plus 18% of excess over $52.00. 
Over $88.00 but not over .$177.00— 
$14.13 plus 2 1 % of excess over 
$88.00. 
Over $177.00 but not over $212.00— 
$32.82 plus 26% of excess over 
$177.00. 
Over $212.00 
$41.92 plus 3 1 % of excess over 
$212.00. 
" ( b ) 
M a r r i e d P e r s o n : 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $21.00 
0. 
Over $21.00 but not over $48.00 
2 1 % of excess over $21.00. 
Over $48.00 but not over $88.00 
$5.67 plus 16% of excess over $48.00. 
Over .$88.00 but not over $177.00— 
$12.07 plus 18% of excess over 
$88.00. 
Over $177.00 but not over $346.00— 
$28.09 plus 2 1 % of excess over 
$177.00. 
Over $346.00 but not over $423.00— 
$63.58 plus 26% of excess over 
$346.00. 
Over $423.00 
$83.60 plus 3 1 % of excess over 
$423.00. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
"Table 2—If the payroll period with respect to an employee is 
B I W E E K L Y 
" (a) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $42.00 
0. 
Over $42.00 but not over $65.00 
21% of excess over $42.00. 
Over $65.00 but not over $104.00___ 
$4.83 plus 27% of excess over $65.00. 
Over $104.00 but not over $177.00__ 
$15.36 plus 18% of excess over 
$104.00. 
Over $177.00 but not over $354.00— 
$28.50 plus 21% of excess over 
$177.00. 
Over $354.00 but not over $423.00__ 
$65.67 plus 26% of excess over 
$354.00. 
Over $423.00 
$83.61 plus 31% of excess over 
$423.00. 
"(b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $42.00 
0. 
Over $42.00 but not over $96.00 
21% of excess over $42.00. 
Over $96.00 but not over $177.00___ 
$11.34 plus 16% of excess over 
$96.00. 
Over $177.00 but not over $354.00__ 
$24.30 plus 18% of excess over 
$177.00. 
Over $354.00 but not over $692.00— 
$56.16 plus 21% of excess over 
$354.00. 
Over $692.00 but not over $846.00__ 
$127.14 plus 26% of excess over 
$692.00. 
Over $846.00 
$167.18 plus 31% of excess over 
$846.00. 
"Table 3—If the payroll period with respect to an employee is S E M I -
M O N T H L Y 
" (a) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $46 
0. 
Over $46 but not over $71 
21% of excess over $46. 
Over $71 but not over $113 
$5.25 plus 27% of excess over $71. 
Over $113 but not over $192 
$16.59 plus 18% of excess over $113. 
Over $192 but not over $383 
$30.81 plus 21% of excess over $192. 
Over $383 but not over $458 
$70.92 plus 26% of excess over .$383. 
Over $458 
$90.42 plus 31% of excess over $458. 
" ( b ) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $46 
0. 
Over $46 but not over $104 
21% of excess over $46. 
Over $104 but not over $192 
$12.18 plus 16% of excess over 
$104. 
Over $192 but not over $383 
$26.26 plus 18% of excess over 
$192. 
Over $383 but not over $750 
$60.64 plus 21% of excess over 
$383. 
Over $750 but not over $917 
$137.71 plus 26% of excess over 
$750. 
Over $917 
$181.13 plus 31% of excess over 
$917. 
687 
688 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"Table 4.—If the payroll period with respect to an employee is 
MONTHLY 
" (a) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $92 
0. 
Over $92 but not over $142 
2 1 % of excess over $92. 
Over $142 but not over $225 
$10.50 plus 27% of excess over 
$142. 
Over $225 but not over $383 
$32.91 plus 18% of excess over 
$225. 
Over $383 but not over $767 
$61.35 plus 2 1 % of excess over 
$383. 
Over $767 but not over $917 
$141.99 plus 26% of excess over 
$767. 
Over $917 
$180.99 plus 3 1 % of excess over 
$917. 
"(b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $92 
0. 
Over $92 but not over $208 
2 1 % of excess over $92. 
Over $208 but not over $383 
.$24.30 plus 16% of excess over $208. 
Over $383 but not over $767 
$52.36 plus 18% of excess over $383. 
Over $767 but not over $1,500 
$121.48 plus 2 1 % of excess over 
$767. 
Over $1,500 but not over $1,833 
$275.41 plus 26% of excess over 
$1 500 
Over $1,833 
$.361.99 plus 31%, of excess over 
$1,833. 
"Table 5—If the payroll period with respect to an employee is 
QUARTERLY 
"(a) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages i s : 
held shall be: 
Not over $275 
0. 
Over $275 but not over $425 
2 1 % of excess over $275, 
Over $425 but not over $675 
$31.50 plus 27% of excess over $425. 
Over $675 but not over $1,150 
$99.00 plus 18% of excess over $675. 
Over $1,150 but not over $2,300 
$184.50 plus 2 1 % of excess over 
$1,150. 
Over $2,300 but not over $2,750— 
$426.00 plus 26% of excess over 
$2 300. 
Over $2,750 
$.543.00 plus 3 1 % of excess over 
$2,750. 
"(b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $275 
0. 
Over $275 but not over $625 
2 1 % of excess over $275. 
Over $625 but not over $1,150 
$73.50 plus 16% of excess over $625. 
Over $1,150 but not over $2,300 
$157.50 plus 18% of excess over 
$1,150. 
Over $2,300 but not over $4,500 
$364.50 plus 2 1 % of excess over 
$2 300. 
Over $4,500 but not over $5,500 
$826!50 plus 26% of excess over 
$4,500. 
Over $5,500 
$1,086.50 plus 3 1 % of excess over 
$5,500. 
83 STAT.] 
PUBLIC LAW 91-172-DEC. 30, 1969 
689 
"Table 6—If the payroll period with respect to an employee is 
SEMIANNUAL 
" (a) Single Person—Including Head of Household : 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $550 
0. 
Over $550 but not over $850 
21% of excess over $550. 
Over $850 but not over $1,350 
$63 plus 27% of excess over $850. 
Over $1,350 but not over $2,300 
$198 plus 18% of excess over $1,350. 
Over $2,300 but not over $4,600 
$369 plus 21% of excess over $2,300. 
Over $4,600 but not over $5,500 
$852 plus 26% of excess over $4,600. 
Over $5,500 
$1,086 plus 31% of excess over 
$5,500. 
" (b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $550 
0. 
Over $550 but not over $1,250 
21% of excess over $550. 
Over $1,250 but not over $2,300 
$147 plus 16% of excess over $1,250. 
Over $2,300 but not over $4,600 
$315 plus 18% of excess over $2,300. 
Over $4,600 but not over $9,000 
$729 plus 21% of excess over $4,600. 
Over $9,000 but not over $11,000— 
$1,653 plus 26% of excess over 
$9,000. 
Over $11,000 
$2,173 plus 31% of excess over 
$11,000. 
"Table 7—If the payroll period with respect to an employee is 
ANNUAL 
" (a) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $1,100 
0. 
Over $1,100 but not over $1,700 
21% of excess over $1,100. 
Over $1,700 but not over $2,700 
$126 plus 27% of excess over $1,700. 
Over $2,700 but not over $4,600 
$396 plus 18% of excess over $2,700. 
Over $4,600 but not over $9,200 
$738 plus 21% of excess over $4,600. 
Over $9,200 but not over $11,000 
$1,704 plus 26% of excess over 
$9,200. 
Over $11,000 
$2,172 plus 31% of excess over 
$11,000. 
"(b) Married Person: 
The amount of income tax to be with-
'If the amount of wages is: 
held shall be: 
Not over $1,100 
0. 
Over $1,100 but not over $2,500 
21% of excess over $1,100. 
Over $2,500 but not over $4,600 
$294 plus 16% of excess over $2,500. 
Over $4,600 but not over $9,200 
$630 plus 18% of excess over $4,600. 
Over $9,200 but not over $18,000 
$1,458 plus 21% of excess over 
$9,200. 
Over $18,000 but not over $22,000— 
$3,306 plus 26% of excess over 
$18,000. 
Over $22,000 
$4,346 plus 31% of excess over 
$22,000. 
"Table 8—If the payroll period with respect to an emplo}^ee is a 
DAILY payroll period or a miscellaneous payroll period 
"(a) Single Person—Including Head of Household: 
"If the amount of wages divided by the 
number of days in the payroll period The amount of income tax to be with-
is: 
held shall be: 
Not over $3.00 
0. 
Over $3.00 but not over $4.70 
21% of excess over $3.00. 
Over $4.70 but not over $7.40 
$0.36 plus 27% of excess over $4.70. 
Over $7.40 but not over $12.60 
$1.09 plus 18% of excess over $7.40. 
Over $12.60 but not over $25.20 
$2.02 plus 21% of excess over $12.60. 
Over $25.20 but not over $30.10 
$4.67 plus 26% of excess over $25.20. 
Over $30.10 
$5.94 plus 31% ofiexcess over $30.10. 
690 
PUBLIC LAW 91-17 2-DEC. 30, 1969 
[83 STAT. 
"(b) Married Person: 
'If the amount of wages divided by the 
number of days in the payroll period 
is: 
Not over $3.00 
Over $3.00 but not over $6.80 
Over $6.80 but not over $12.60 
Over $12.60 but not over $25.20 
Over $25.20 but not over $49.30 
Over $49.30 but not over $60.30 
Over $60.30 
The amount of income tax to be with-
held shall be: 
0. 
21% of excess over $3.00. 
$0.80 plus 16% of excess over $6.80. 
$1.73 plus 18% of excess over $12.60. 
$3.99 plus 21% of excess over $25.20. 
$9.06 plus 26% of excess over $49.30. 
$11.92 plus 31% of exqess over 
$60.30. 
*'(2) I n the case of wages paid after J u n e 30, 1970, and before Jan-
uary 1, 1971: 
"Table 1—If the payroll period with respect to an emplovee is 
W E E K L Y 
. *'(a) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $21 
0. 
Over $21 but not over $33 
21% of excess over $21. 
Over $33 but not over $52 
.$2.52 plus 25% of excess over $33. 
Over $.52 but not over $88 
$7.27 plus 17% of excess over $52. 
Over $88 but not over $177 
$13.39 plus 21% of excess over $88. 
Over $177 but not over $212 
$32.08 plus 25% of excess over $177. 
Over $212- 
$40.83 plus 30% of excess over $212. 
"(b) Married Person: 
The amount of income tax to be with-
''If the amount of wages is: 
held shall be: 
Not over $21 
0. 
Over $21 but not over $48 
21% of excess over $21. 
Over $48 but not over $88 
$5.67 plus 15% of excess over $48. 
Over $88 but not over $177 
$11.67 plus 17% of excess over $88. 
Over $177 but not over $346 
$26.80 plus 20% of excess over $177. 
Over $346 but not over $423 
$60.60 plus 25% of excess over $346. 
Over $423 
$79.85 plus 30% of excess over $423. 
•'Table 2—If the payroll period with respect to an employee is BI-
WEEKLY 
" (a) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $42 
0. 
Over $42 but not over $65 
21% of excess over $42. 
Over $65 but not over $104 
$4.83 plus 25% of excess over $65. 
Over $104 but not over $177 
$14.58 plus 17% of excess over $104. 
Over $177 but not over $354 
$26.99 plus 21% of excess over $177. 
Over $354 but not over $423 
$64.16 plus 25% of excess over $354. 
Over $423 
$81.41 plus 30% of excess over $423. 
" (b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $42 
0. 
Over $42 but not over $96 
21% of excess over $42. 
Over $96 but not over $177 
$11.34 plus 15% of excess over $96. 
Over $177 but not over $354 
$23.49 plus 17% of excess over $177. 
Over $354 but not over $692 
$53.58 plus 20% of excess over $354. 
Over $692 but not over $846 
$121.18 plus 25% of excess over 
$692. 
Over $846 
$159.68 plus 30% of excess over 
83 
STAT.] 
PUBLIC LAW 91-172-DEC. 30, 1969 
691 
"Table 3—If the payroll period with respect to an employee 
is SEMIMONTHLY 
"(a) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages i s : 
I eld shall be: 
Not over $46 
0. 
Over $46 but not over $71 
2 1 % of excess over $46. 
Over $71 but not over $113 
.$5.25 plus 25%, of excess over $71. 
Over $113 but not over $192 
,$15.75 plus 17% of excess over $113. 
Over $192 but not over $383 
$29.18 plus 2 1 % of excess over $192. 
Over $383 but not over $458 
,$69.29 plus 25% of excess over $383. 
Over ,$458 
$88.04 plus 30% of excess over $458. 
" ( b ) M a r r i e d 
P e r s o n : 
The amount of income tax to be with-
"If the amount of wages i s : 
held shall be: 
Not over $46 
0. 
Over $46 but not over $104 
2 1 % of excess over ,$46. 
Over $104 but not over $192 
$12.18 plus 15% of excess over $104. 
Over $192 but not over $383 
,$25.38 plus 17% of excess over $192. 
Over $383 but not over $750 
$57.85 plus 20% of excess over ,$383. 
Over ,$750 but not over $917 
.$131.25 plus 25% of excess over 
$750. 
Over .$917 
,$173.00 plus .30% of excess over 
.$917. 
"Table 4.—If the payroll period with respect to an employee is 
MONTHLY 
"(a) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $92 
0. 
Over $92 but not over $142 
2 1 % of excess over $92. 
Over $142 but not over $225 
$10.50 plus 25% of excess over $142. 
Over $225 but not over $383 
$31.25 plus 17% of excess over $225. 
Over $383 but not over $767 
$58.11 plus 2 1 % of excess over $383. 
Over $767 but not over $917 
$138.75 plus 25% of excess over 
$767. 
Over $917 
$176.25 plus 30% of excess over 
$917. 
"(b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $92 
0. 
Over $92 but not over $208 
2 1 % of excess over $92. 
Over $208 but not over $383 
,$24.36 plus 15% of excess over $208. 
Over $383 but not over $767 
$50.61 plus 17% of excess over $383. 
Over $767 but not over $1,500 
$115.89 plus 20% of excess over 
$767. 
Over $1,500 but not over $1,833 
$262.49 plus 25% of excess over 
$1 500 
Over $1,833 
$345.74 plus 30% of excess over 
$1,833. 
" T a b l e 5 — I f t h e p a y r o l l p e r i o d w i t h respect t o a n e m p l o y e e is 
Q U A E T E R L Y 
" ( a ) S i n g l e P e r s o n — I n c l u d i n g H e a d of 
H o u s e h o l d : 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $275 
0. 
Over $275 but not over $425 
2 1 % of excess over $275. 
Over $425 but not over $675 
$31.50 plus 25% of excess over 
$425 
Over .$675 but not over $1,150 
$94.00 plus 17% of excess over 
$675. 
Over $1,150 but not over $2,300 
$174.75 plus 2 1 % of excess over 
$1150 
Over $2,300 but not over $2,750 
$416.25 plus 25% of excess over 
$2 300 
Over $2,750 
,$528.75 plus 30% of excess over 
$2,750. 
692 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
" ( b ) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $275 
0. 
Over $275 but not over $625 
21% of excess over $275. 
Over $625 but not over $1,150 
$73.50 plus 15% of excess over 
$625. 
Over $1,150 but not over $2,300 
$152.25 plus 17% of excess over 
$1,150. 
Over $2,300 but not over $4,500 
$847.75 plus 20% of excess over 
$2,300. 
• ' 
Over $4,500 but not over $5,500 
$787.75 plus 25% of excess over 
.*: 
$4,500. 
' 
Over $5,500 
$1,037.75 plus 30% of excess over 
$5,500. 
"Table 6—If the payroll period with respect to an employee is 
SEMIANNUAL 
" (a) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $550 
0. 
Over $550 but not over $850 
21% of excess over $550. 
Over $850 but not over $1,350 
$63.00 plus 25% of excess over $850. 
Over $1,350 but not over $2,300__- 
$188.00 plus 17% of excess over 
$1,350. 
Over $2,300 but not over $4,600___ 
$349.50 plus 21% of excess over 
$2,300. 
Over $4,600 but not over $5,500___ 
$832.50 plus 25% of excess over 
$4,600. 
Over $5,500 
$1,057.50 plus 30% of excess over 
$5,500. 
"(b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $550 
0. 
Over $550 but not over $1,250 
21% of excess over $550. 
Over $1,250 but not over $2,300___ 
$147.00 plus 15% of excess over 
$1,250. 
Over $2,300 but not over $4,600___ 
$304.50 plus 17% of excess over 
$2,300. 
Over $4,600 but not over $9,000___ 
$695.50 plus 20% of excess over 
$4,600. 
Over $9,000 but not over $11,000__ 
$1,575.50 plus 25% of excess over 
$9 000. 
Over $11,000 
$2,075.50 plus 30% of excess over 
$11,000. 
"Table 7—If the payroll period with respect to an employee 
is A N N U A L 
" ( a ) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $1,100 
0. 
Over $1,100 but not over $1,700 
21% of excess over $1,100. 
Over $1,700 but not over $2,700 
$126 plus 25% of excess over $1,700. 
Over $2,700 but not over $4,600 
$376 plus 17% of excess over $2,700. 
Over $4,600 but not over $9,200 
$699 plus 21% of excess over $4,600. 
Over $9,200 but not over $11,000 
$1,665 plus 25% of excess over 
$9,200. 
Over $11,000 
$2,115 plus 30% of excess over 
$11,000. 
83 
STAT.] 
PUBLIC LAW 91-172-DEC. 30, 1969 
693 
"(b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $1,100 
0. 
Over $1,100 but not over $2,500 
2 1 % of excess over $1,100. 
Over $2,500 but not over $4,600 
$294 plus 15% of excess over .$2,500. 
Over $4,600 but not over $9,200 
$609 plus 17% of excess over $4,600. 
Over $9,200 but not over .$18,000— 
$1,391 plus 20% of excess over 
$9,200. 
Over $18,000 but not over .$22,000— 
$3,151 plus 25% of excess over 
$18,000. 
Over $22.000 
$4,151 plus 30% of excess over 
$22,000. 
"Table 8—If the payroll period with respect to an employee is a 
DAILY payroll period or a miscellaneous payroll period 
" (a) Single Person—Including Head of Household: 
"If the amount of wages divided by the 
number of days in the payroll period The amount of income tax to be with-
is: 
held shall be: 
Not over $3.00 
0. 
Over $3.00 but not over $4.70 
2 1 % of excess over $3.00. 
Over $4.70 but not over $7.40 
$0.36 plus 25% of excess over $4.70. 
Over $7.40 but not over $12.60 
$1.03 plus 17% of excess over $7.40. 
Over $12.60 but not over $25.20___ 
$1.92 plus 2 1 % of excess over $12.60. 
Over $25.20 but not over $30.10 
$4.56 plus 25% of excess over $25.20. 
Over $30.10 
$5.79 plus 30% of excess over $30.10. 
"(b) Married Person: 
"If the amount of wages divided by the 
number of days in the payroll period The amount of income tax to be with-
is: 
held shall be: 
Not over $3.00 
0. 
Over $3.00 but not over $6.80 
2 1 % of excess over $3.00. 
Over $6.80 but not over $12.60 
$0.80 plus 15% of excess over $6.80. 
Over $12.60 but not over $25.20 
$1.67 plus 17% of excess over $12.60. 
Over $25.20 but not over $49.30 
$3.81 plus 20% of excess over $25.20. 
Over $49.30 but not over $60.30 
$8.63 plus 25% of excess over $49.30. 
Over .$60.30 
$11.38 plus 30% of excess over 
$60.30. 
"(3) In the case of wages paid after December 31, 1970, and before 
January 1, 1972: 
"Table 1—If the payroll period with respect to an employee is 
W E E K L Y 
"(a) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $20 
0. 
Over $20 but not over $31 
14% of excess over $20. 
Over $31 but not over $50 
$1.54 plus 17% of excess over $31. 
Over $50 but not over $100 
$4.77 plus 20% of excess over $50. 
Over $100 but not over $135 
$14.77 plus 18% of excess over $100. 
Over $135 but not over $212 
$21.07 plus 2 1 % of excess over $1.35. 
Over $212 
$.37.24 plus 24% of excess over $212. 
"(b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over ,$20 
0. 
Over $20 but not over ,$42 
14% of excess over ,$20. 
Over $42 but not over $77 
$3.08 plus 17% of excess over $42. 
Over $77 but not over $163 
$9.03 plus 16% of excess over $77. 
Over $163 but not over $269 
$22.79 plus 19% of excess over $163. 
Over $269 but not over $385 
$42.93 plus 2 1 % of excess over $269. 
Over $385 
$67.29 plus 25% of excess over $.38,5. 
31-100 O - 70 - 46 
694 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"Table 2—If the payroll period with respect to an employee is BI-
W E E K L Y 
" (a) Single Person—Including Head of Household: 
The amount of income tax to be with-
*If the amount of wages is: 
held shall be: 
Not over $40 
0. 
Over $40 but not over $62 
14% of excess over $40. 
Over $62 but not over $100 
$3.08 plus 17% of excess over $62, 
Over $100 but not over $200 
$9.54 plus 20% of excess over $100. 
Over $200 but not over $269 
$29.54 plus 18% of excess over $200. 
Over $269 but not over $423 
$41.96 plus 21% of excess over $269. 
Over $423 
$74.30 plus 24% of excess over $423. 
"(b) Married Person: 
The amount of income tax to be with-
'If the amount of wages is: 
held shall be: 
Not over $40 
0. 
Over $40 but not over $85 
14% of excess over $40. 
Over $85 but not over $154 
$6.30 plus 17% of excess over $85. 
Over $154 but not over $327 
$18.03 plus 16% of excess over $154. 
Over $327 but not over $538 
$45.71 plus 19% of excess over $327. 
Over $538 but not over $769 
$85.80 plus 21% of excess over $538. 
Over $769 
$134.31 plus 25% of excess over 
$769. 
"Table 3—If the payroll period with respect to an employee is 
SEMIMONTHLY 
"(a) Single Person—Including Head of Household: 
The amount of income tax to be with-
'If the amount of wages is: 
held shall be: 
Not over $44 
0. 
Over $44 but not over $67 
14% of excess over $44. 
Over $67 but not over $108 
$3.22 plus 17% of excess over $67. 
Over $108 but not over $217 
.$10.19 plus 20% of excess over $108. 
Over $217 but not over $292 
$31.99 plus 18% of excess over $217. 
Over $292 but not over $458 
$45.49 plus 21% of excess over $292. 
Over $458 
$80.35 plus 24% of excess over $458. 
"(b) Married Person: 
The amount of income tax to be with-
'If the amount of wages is: 
held shall be: 
Not over $44_l'i 
0. 
Over $44 but not over $92 
14% of excess over $44. 
Over $92 but not over $167 
$6.72 plus 17% of excess over $92. 
Over $167 but not over $354 
$19.47 plus 16% of excess over $167. 
Over $354 but not over $583 
$49.39 plus 19% of excess over $354. 
Over $583 but not over $833 
$92.90 plus 21% of excess over $583. 
Over $833 
$145.40 plus 25% of excess over 
$833. 
"Table 4—If the payroll period with respect to an employee is 
M O N T H L Y 
•'(a) Single Person—Including Head of Household: 
The amount of income tax to be with-
'If the amount of wages is: 
held shall be: 
Not over $88 
0. 
Over $88 but not over $133 
14% of excess over $88. 
Over $133 but not over $217 
$6.30 plus 17% of excess over $133. 
Over $217 but not over $433 
$20.58 plus 20% of excess over $217. 
Over $433 but not over $583 
$63.78 plus 18% of excess over $433. 
Over $583 but not over $917 
$90.78 plus 21% of excess over $583. 
Over $917 
$160.92 plus 24% of excess over 
$917. 
83 STAT. ] 
P U B L I C LAW 9 1 - 1 7 2 - D E C . 30, 1969 
" ( b ) M a r r i e d P e r s o n : 
The amount of income tax to be with-
"If the amount of wages i s : 
held shall b e : 
Not over $88 
0. 
Over $88 but not over $183 
14% of excess over $88. 
Over $183 but not over $333 
$13.30 plus 17% of excess over $183. 
Over $333 but not over $708 
$38.80 plus 16% of excess over $333. 
Over $708 but not over $1,167 
$08.80 plus 19% of excess over $708. 
Over .$1,167 but not over $1,667___ 
$186.01 plus 2 1 % of excess over 
.$1,167. 
Over $1,667 
.$201.01 plus 2.")% of excess over 
$1,667. 
" T a b l e 5 — I f t h e p a y r o l l p e r i o d w i t h respect t o a n e m p l o y e e is 
Q U A R T E R L Y 
" ( a ) S i n g l e P e r s o n — I n c l u d i n g H e a d of H o u s e h o l d : 
The amount of income tax to be with-
"If the amount of wages i s : 
held shall be: 
Not over $263 
0. 
Over $263 but not over $400 
14% of excess over $263. 
Over $400 but not over $650 
$19.18 plus 17%. of excess over $400. 
Over $650 but not over $1,300 
$61.68 plus 20% of excess over $650. 
Over $1,300 but not over $1,750 
$191.68 plus 18% of excess over 
$1,300. 
Over $1,750 but not over .$2,750 
$272.68 plus 21%, of excess over 
$1,750. 
Over $2,750 
$482.68 plus 24% of excess over 
$2,7.50. 
" ( b ) 
M a r r i e d 
P e r s o n : 
The amount of income tax to be with-
"If the amount of wages i s : 
held shall be: 
Not over $263 
0. 
Over $263 but not over $550 
14% of excess over $263. 
Over $.5.50 but not over $1,000 
,$40.18 plus 17% of excess over $550. 
Over $1,000 but not over .$2,125—_ 
$116.(>8 plus 16% of excess over 
$1,000. 
Over .$2,125 but not over $3,(500— 
$296.68 plus 19% of excess over 
$2,125. 
Over $3..500 but not over $5,000 
.$557.93 plus 2 1 % of excess over 
$3,.500. 
Over ,$5.000 
,$872.93 plus 25% of excess over 
$5,000. 
"Tn/ble 6 — I f t h e j>ayroll p e r i o d w i t h i-espect t o a n e m p l o y e e is 
SEMIANNUAL 
"(a) Single Person—lucluding Head of Household: 
The amount of income tax to be with-
al f the amount of wages i s : 
held shall be: 
Not over $525 
0. 
Over $525 but not over $800 
14% of excess over $525. 
Over $800 but not over $1,300 
.$38.50 plus 17%, of excess over $800. 
Over $1,,300 but not over $2,600 
,$123.50 plus 20% of excess over 
$1,300. 
Over $2,600 but not over $3,500 
$383.50 plus 18% of excess over 
$2,600. 
Over .$3,500 but not over $5,500 
$545.50 plus 2 1 % of excess over 
$3,500. 
Over ,$,5,,500 
,$965.50 plus 24% of excess over 
$5,.560. 
695 
696 
PUBLIC L
A
W 91-172-DEC. 30, 1969 
[83 STAT. 
"(b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $525 
0. 
Over $525 but not over $1,100 
14% of excess over $525. 
Over $1,100 but not over $2,000___ 
$80.50 plus 17% of excess over 
$1,100. 
Over $2,000 but not over $4,250___ 
$233.50 plus 16% of excess over 
$2,000. 
Over $4,250 but not over $7,000__ 
$593.50 plus 19% of excess over 
$4,250. 
Over $7,000 but not over $10,000_- 
$1,116.00 plus 21% of excess over 
$7,000. 
Over $10,000 
$1,746.00 plus 25% of excess over 
$10,000. 
"Table 7—If the payroll period with respect to an employee is 
A N N U A L 
" ( a ) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $1,050 
0. 
Over $1,050 but not over $1,600___ 
14% of excess over $1,050. 
Over $1,600 but not over $2,600— 
$77 plus 17% of excess over $1,600. 
Over $2,600 but not over $5,200___ 
$247 plus 20% of excess over $2,600. 
Over $5,200 but not over $7,000___ 
$767 plus 18% of excess over $5,200. 
Over $7,000 but not over $11,000— 
$1,091 plus 21% of excess over 
$7,000. 
Over $11,000 
$1,931 plus 24% of excess over 
$11,000. 
"(b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $1,050 
0. 
Over $1,050 but not over $2,200 
14% of excess over $1,050. 
Over $2,200 but not over $4,000 
$161 plus 17% of excess over 
$2,200. 
Over $4,000 but not over $8,500 
$467 plus 16% of excess over 
$4,000. 
Over $8,500 but not over $14,000 
$1,187 plus 19% of excess over 
$8 500. 
Over $14,000 but not over $20,000— 
$2,232 plus 21% of excess over 
$14,000. 
Over $20,000 
$3,492 plus 25% of excess over 
$20,000. 
"Table 8—If the payroll period with respect to an employee is a 
DAILY payroll period or a miscellaneous payroll period 
"(a) Single Person—Including Head of Household: 
"If the amount of wages divided by the 
number of days in the payroll period The amount of income tax to be with-
is: 
held shall be: 
Not over $2.90 
0. 
Over $2.90 but not over $4.40 
14% of excess over $2.90. 
Over $4.40 but not over $7.10 
$0.21 plus 17% of excess over $4.40. 
Over $7.10 but not over $14.20 
$0.67 plus 20% of excess over $7.10. 
Over $14.20 but not over $19.20 
$2.09 plus 18% of excess over 
$14.20. 
Over $19.20 but not over $30.10 
$2.99 plus 21% of excess over 
$19.20. 
Over $30.10 
$5.28 plus 24% of excess over 
$30.10. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
697 
*'(b) Mjirried Person: 
"If the amount of wages divided by the 
number of days in the payroll period The amount of income tax to be with-
is: 
held shall be: 
Not over $2.90 
0. 
Over $2.1)0 but not over $6.(X) 
l-i'/c of excess over $2.90. 
Over $6.00 but not over $11.00 
$0.48 plus 17% of excess over $0.00. 
Over $11.00 but not over $23.30 
$1.28 plus 10% of excess over $11.00. 
Over $23.30 but not over $38.40 
$3.2o plus 19% of excess over $23.30. 
Over $38.40 but not over .$^4.80 
$0.12 plus 2 1 % of excess over $38.40. 
Over $r)4.S0 
$9.r>7 plus 2r>% of excess over $r)4.80. 
"(4) 111 case of wages paid after December 31, 11)71, and before 
Jannary 1, 1973: 
''Table 1—If the payroll i)eriod with respect to an employee 
is WEEKLY 
"(a) Single Person—Including Head of Honseliold: 
The amount of income tax to be with-
"If the amount of wages i s : 
held shall be: 
Not over $19 
0. 
Over $19 but not over $:38 
14% of excess over $19. 
Over $38 but not over ,$.')8 
.$2.00 plus 17%. of excess over $38. 
Over .$58 Imt not over ,$87 
.$0.00 plus 19% of excess over .$58. 
Over ,$87 but not over $135 
$11.57 plus 20% of excess over .$87. 
Over $135 but not over ,$221 
,$21.17 plus 2 1 % of excess over $135. 
Over .$221 
.$39.23 plus 24% of excess over ,$221. 
' • ( b ) M a r r i e d 
P e r s o n : 
The amount of income tax to be with-
"If the amount of wages i s : 
held shall be: 
Not over $19 
0. 
Over .Ssl9 but not over .$48 
14% of excess over $19. 
Over .$48 but not over $183 
.$4.00 plus 10% of excess over $48. 
()ver .$183 but not over .$269 
.$25.06 plus 19% of excess over $183. 
Over .$269 but not over ,$365 
$42.00 plus 21% of excess over $269. 
Over $:i65 but not over ,$442 
.$62.16 plus 24% of ex<-ess over .$365. 
Over $442 
.$80.64 plus 28% of excess over $442. 
' ' T a b l e '2—If 
tlie paAi-oll p e r i o d 
"svitli respect 
to an e m p l o y e e 
is 
B I W E E K L Y 
" ( a ) 
S i n g l e P e r s o n — I n c l u d i n g H e a d of H o u s e h o l d : 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over .$38 
0. 
Over .$38 but not o\ er $77 
14% of excess over .$38. 
Over $77 but not over $115 
.$5.46 plus 17% of excess over $77. 
< )ver $115 but not over $173 
.$] 1.92 plus 19% of excess over $115. 
Over $173 but not over .$269 
.$22.04 plus 20% of excess over $173. 
Over .$209 but not over .$442 
.$42.14 plus 2 1 % of excess over ,$260. 
Over .$442 
$78.47 plus 24% of excess over .$442. 
" ( b ) M a r r i e d P e r s o n : 
The amount of income tax to be with-
"If the amount of wages i s : 
held shall be: 
Not over ,$38 
0. 
Over $38 but not over $96 
14% of excess over $38. 
Over ,$96 but not over $365 
$8.12 plus 16% of excess over $96. 
Over $365 but not over $538 
$51.10 plus 19% of excess over $365. 
Over $538 but not over $731 
$84.03 plus 2 1 % of excess over $538. 
Over ,$731 but not over $885 
$124.56 plus 24% of excess over 
,$731. 
Over .$88.5 
$101..52 plus 28% of excess over 
$885. 
698 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 
STAT. 
"Table 3—If the payroll period with respect to an employee is S E M I -
M O N T H L Y 
" ( a ) Single Person—Including H e a d of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $42 
0. 
Over $42 but not over $83 
14% of excess over $42. 
Over $83 but not over $125 
$5.74 plus 17% of excess over $83. 
Over $125 but not over $188 
$12.88 plus 19% of excess over $125. 
Over $188 but not over $292 
$24.85 plus 20% of excess over $188. 
Over $292 but not over $479 
$45.65 plus 21% of excess over $292. 
Over $479 
$84.92 plus 24% of excess over $479. 
" (b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $42 
0. 
Over $42 but not over $104 
14% of excess over $42. 
Over $104 but not over $396 
$8.68 plus 16% of excess over $104. 
Over $396 but not over $583 
$55.40 plus 19% of excess over $396. 
Over $583 but not over $792 
$90.93 plus 21% of excess over $583. 
Over $792 but not over $958 
$134.82 plus 24% of excess over 
$792. 
Over $958 
$174.66 plus 28% of excess over 
"Table 4—If the payroll period with respect to an employee is 
M O N T H L Y 
" ( a ) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $83 
0. 
Over $83 but not over $167 
14% of excess over $83. 
Over $167 but not over $250 
$11.76 plus 17% of excess over $167. 
Over $250 but not over $375 
$25.87 plus 19% of excess over $250. 
Over $375 but not over $583 
$49.62 plus 20% of excess over $375. 
Over $583 but not over $958 
$91.22 plus 21% of excess over $583. 
Over $958 
$169.97 plus 24% of excess over 
"(b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $83 
0. 
Over $83 but not over $208 
14% of excess over $83. 
Over $208 but not over $792 
$17.50 plus 16% of excess over $208. 
Over $792 but not over $1,167 
$110.94 plus 19% of excess over 
$792. 
Over $1,167 but not over $1,583 
$182.19 plus 21% of excess over 
$1,167. 
Over $1,583 but not over $1,917 
$269.55 plus 24% of excess over 
$1,583. 
Over $1,917 
$349.71 plus 28% of excess over 
$1,917. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
"Table 5—If the payroll period with respect to an employee is 
QUARTERLY 
" (a) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $250 
0. 
Over $250 but not over $500 
14% of excess over $250. 
Over $500 but not over $750 
$35.00 plus 17% of excess over $500. 
Over $750 but not over $1,125 
$77.50 plus 19% of excess over $750. 
Over $1,125 but not over $1,750 
$148.75 plus 207o of excess over 
$1,125. 
Over $1,750 but not over $2,875 
$273.75 plus 21% of excess over 
$1,750. 
Over $2,875 
$510.00 plus 24% of excess over 
$2,875. 
''(b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $250 
0. 
Over $250 but not over $625 
14% of excess over $250. 
Over $625 but not over $2,375 
$52.50 plus 16% of excess over 
$625. 
Over $2,375 but not over $3,500___ 
$332.50 plus 19% of excess over 
$2,375. 
Over $3,500 but not over $4,750___ 
$546.25 plus 21% of excess over 
$3,500. 
Over $4,750 but not over $5,750__ 
$808.75 plus 24% of excess over 
$4,750. 
Over $5,750 
$1,048.75 plus 28% of excess over 
$5,750. 
"Table 6—If the payroll period with respect to an employee is 
SEMIANNUAL 
"(a) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $500 
0. 
Over $500 but not over $1,000 
14% of excess over $500. 
Over $1,000 but not over $1,500— 
$70 00 plus 17% of excess over 
$1,000. 
Over $1,500 but not over $2,250— 
$155.00 plvis 19% of excess over 
$1,500. 
Over $2,250 but not over $3,500— 
$297.50 plus 20% of excess over 
$2,250. 
Over $3,500 but not over $5,750 
$547.50 plus 21% of excess over 
$3,500. 
Over $5,750 
$1,020.00 plus 24% of excess over 
$5,750. 
" ( b ) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $500 
0. 
Over $500 but not over $1,250 
14% of excess over $500. 
Over $1,250 but not over $4,750 
$105.00 plus 16% of excess over 
$1250. 
Over $4,750 but not over $7,000 
$665.00 plus 19% of excess over 
$4,750. 
Over $7,000 but not over $9,500 
$1,092.50 plus 21% of excess over 
$7 000. 
Over $9,500 but not over $11,500 
$1,617.50 plus 24% of excess over 
$9 500 
Over $11,500 
$2,097.50 plus 28% of excess over 
$11,500. 
699 
700 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
•'Table T—If the payroll period Avith respect to an employee is 
A N N U A L 
" ( a ) Single Person—Including- Head of Honseliold: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $1,000 
0. 
Over $1,000 but not over $2,000 
14% of excess over $1,000. 
Over $2,000 but not over $3,000 
$140 plus 17% of excess over $2,000. 
Over $3,000 but not over $4,500 
$310 plus 10% of excess over $3,000. 
Over .$4,500 but not over $7,000 
$.59.') plus 20% of excess over $4,500. 
Over $7,000 but not over .$11,.500___ 
$1,095 plus 21% of excess over 
$7,000. 
Over $11,500 
.$2,040 plus 24% of excess over 
$11,500. 
"(b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $1,000 
0. 
Over $1,000 but not over $2,500 
14% of excess over $1,0(X). 
Over $2,500 but not over $9,500 
$210 plus 16% of excess over 
$2,500. 
Over $9,500 but not over $14,000— 
$1,330 plus 19% of excess over 
$9,500. 
Over $14,000 but not over $19,000__ 
$2,185 plus 21% of excess over 
$14,000. 
Over $19,000 but not over $23,000__ 
$3,235 plus 24% of excess over 
$19,000. 
Over .$23,000 
$4,195 plus 2S% of excess over 
$23,000. 
"Table 8—If the payroll period with respect to an employee is a 
DAILY payroll period or a miscellaneous payroll period 
" (a) Single Person—Including Head of Household: 
"If the amount of wages divided by the 
number of days in the payroll period The amount of income tax to be with-
is: 
held shall be: 
Not over $2.70 
0. 
Over $2.70 but not over $5.50 
14% of excess over $2.70. 
Over .$5.50 but not over $8.20 
$0.39 plus 17% of excess over $5.50. 
Over $8.20 but not over $12.30 
$0.85 plus 19% of excess over $8.20. 
Over $12.30 but not over $19.20 
$1.63 plus 20% of excess over 
$12.,S0. 
Over $19.20 but not over $31.50 
$3.01 plus 21% of excess over 
$19.20. 
Over $31.50 
$5.59 plus 24% of excess over 
.$31.50. 
" ( b ) Married Person: 
"If the amount of wages divided by the 
number of days in the payroll period The amount of income tax to be with-
is: 
held shall be: 
Not over $2.70 
0. 
Over $2.70 but not over $6.80 
14% of excess over $2.70. 
Over $6.80 but not over $26.00 
$0.57 plus 16% of excess over $6.80. 
Over $26.00 but not over $38.40 
$3.65 plus 19% of excess over $26.00. 
Over $38.40 but not over $52.10 
$6.00 plus 21% of excess over $38.40. 
Over $52.10 but not over $63.00 
.$8.88 plus 24% of excess over $52.10. 
Over $63.00 
$11.50 plus 28% of excess over 
$(J3.00. 
"(5) In the case of wages paid after December 31,1972: 
83 STAT.] 
PUBLIC LAW 91-172-DEC. 30, 1969 
701 
"Table 1—If the payi-oll period with respect to an employee is 
W E E K L Y 
" ( a ) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $19 
0. 
Over $19 but not over $38 
14% of excess over $19. 
Over $38 but not over $58 
$2.66 plus 17% of excess over $38. 
Over $58 but not over $96 
$6.06 plus 19% of excess over $58. 
Over $96 but not over $183 
$13.28 plus 20% of excess over $96. 
Over $183 but not over $221 
$30.68 plus 21% of excess over $183. 
Over $221 
$38.66 plus 23% of excess over $221. 
" ( b ) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $19 
0. 
Over $19 but not over $38 
14% of excess over $19. 
Over $38 but not over $96 
$2.66 plus 15% of excess over $38. 
Over $96 but not over $183 
$11.36 plus 16% of excess over $96. 
Over $183 but not over $288 
$2.5.28 plus 19% of excess over $183. 
Over $288 but not over $442 
$45.23 plus 22% of excess over $288. 
Over $442 
$79.11 plus 27% of excess over $442. 
"Table 2—If the payroll period with respect to an employee is 
BIWEEKLY 
" (a) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $38 
0. 
Over $38 but not over $77 
14% of excess over $38. 
Over $77 but not over $115 
$5.46 plus 17% of excess over $77. 
Over $115 but not over $192 
$11.92 plus 19% of excess over $115. 
Over $192 but not over $365 
$26.55 plus 20% of excess over $192. 
Over $365 but not over $442 
$61.15 plus 21% of excess over $365. 
Over $442 
$77.32 plus 23% of excess over $442. 
" (b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $38 
0. 
Over $38 but not over $77 
14% of excess over $38. 
Over $77 but not over $192 
$5.46 plus 15% of excess over $77. 
Over $192 but not over $365 
$22.71 plus 16% of excess over $192. 
Over $365 but not over $577 
$50.39 plus 19% of excess over $365. 
Over $577 but not over $885 
$90.67 plus 22% of excess over $577. 
Over $885 
$1.58.43 plus 27% of excess over 
$885. 
"Table 3—If the payroll period with respect to an employee is 
S E M I M O N T H L Y 
" ( a ) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $42 
0. 
Over $42 but not over $83 
14% of excess over $42. 
Over $83 but not over $125 
$5.74 plus 17% of excess over $83. 
Over $125 but not over $208 
$12.88 plus 19% of excess over $125. 
Over $208 but not over $396 
$2a65 plus 20% of excess over $208. 
Over $396 but not over $479 
$66.25 plus 21% of excess over $396. 
Over $479 
$83.68 plus 23% of excess over $479. 
702 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"(b) Married Person: 
The amount of income tax to be with-
'If the amount of wages is: 
held shall be: 
Not over $42 
0. 
Over $42 but not over $83 
14% of excess over $42. 
Over $83 but not over $208 
$5.74 plus 15% of excess over $83. 
Over $208 but not Ov^er $396 
$24.49 plus 16% of excess over $208. 
Over $396 but not over $625 
$54.57 plus 19% of excess over $396. 
Over $625 but not over $958 
$98.08 plus 22% of excess over $625. 
Over $958 
$171.34 plus 27% of excess over 
$958. 
'Table 
If the payroll period with respect to an employee is 
MONTHLY 
"(a) Single Person—Including Head of Household: 
The amount of income tax to be with-
'If the amount of wages is: 
held shall be: 
Not over $83 
0. 
Over $83 but not over $167 
14% of excess over $83. 
Over $167 but not over $250 
$11.76 plus 17% of excess over $167. 
Over $250 but not over $417 
.$25.87 plus 19% of excess over $250. 
Over $417 but not over $792 
$57.60 plus 20% of excess over $417. 
Over $792 but not over $958 
$132.60 plus 2 1 % of excess over 
$792 
Over $958 
$167.46 plus 23% of excess over 
$9.58. 
' • ( b ) M a r r i e d 
P e r s o n : 
The amount of income tax to be with-
'If the amount of wages is: 
held shall be: 
Not over $83 
0. 
Over $83 but not over $167 
14% of excess over $83. 
Over $167 but not over $417 
$11.76 plus 15% of excess over $167. 
Over $417 but not over $792 
$49.26 plus 16% of excess over $417, 
Over $792 but not over $1,250 
$109.26 plus 19% of excess over 
$792. 
Over $1,250 but not over $1.917 
$196.28 plus 22% of excess over 
$1 250. 
Over $1,917 
$343!o2 "plus 27% of excess over 
$1,917. 
•'Table 5 — I f t h e p a y r o l l p e r i o d w i t h r e s p e c t t o a n e m p l o y e e is 
Q U A R T E R L Y 
" ( a ) S i n g l e P e r s o n — I n c l u d i n g H e a d of H o u s e h o l d : 
The amount of income tax to be with-
held shall be: 
0. 
14% of excess over $250. 
$35.00 plus 17% of excess over $500. 
$77.50 plus 19% of excess over $750. 
$172.50 plus 20% of excess over 
$1,250. 
$397.50 plus 2 1 % of excess over 
$2,375. 
$502.50 plus 23% of excess over 
$2,875. 
The amount of income tax to be with-
held shall be: 
0. 
1 4 % of 
excess 
over 
$250. 
$35.00 
plus 
1 5 % 
of 
excess 
over 
$500. 
$147.50 plus 1 6 % of excess over 
$1,250. 
$327.50 plus 1 9 % of excess over 
$2,375. 
$588.75 plus 2 2 % of excess over 
$3 
750. 
$1,028.75 plus 2 7 % 
of 
excess over 
$5,750. 
"If the amount of wages is: 
Not over $250 
Over 
$250 
but 
not 
over 
$500 
Over $500 
but 
not 
over 
$750 
Over 
$750 
but 
not 
over 
$1,250— 
Over 
$1,250 
but 
not 
over 
$2,375. 
Over 
$2,375 
but 
not 
over 
$2,875. 
Over $2,875 
•'(b) M a r r i e d 
P e r s o n : 
'If the amount of wages is: 
Not over $250 
Over $250 but not over $500 
Over $500 but not over $1,250___ 
Over $1,250 but not over $2,375. 
Over $2,375 but not over $3,750. 
Over $3,750 but not over $5,750. 
Over $5,750 
83 STAT. ] 
PUBLIC L
A
W 91-172-DEC. 30, 1969 
"Table 6—If the payroll period with respect to an employee is 
SEMIANNUAL 
" (a) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $500 
0. 
Over $500 but not over $1,000 
14% of excess over $500. 
Over $1,000 but not over $1,500— 
$70.00 plus 17% of excess over 
$1,000. 
Over $1,500 but not over $2,500___ 
$155.00 plus 19% of excess over 
$1,500. 
Over $2,500 but not over $4,750___ 
$345.00 plus 20% of excess over 
$2,500. 
Over $4,750 but not over $5,750— 
$795.00 plus 21% of excess over 
$4,750. 
Over $5,750 
$1,005.00 plus 23% of excess O
A
^
e
r 
$5,750. 
" ( b ) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $500 
0. 
Over $500 but not over $1,000 
14% of excess over $500. 
Over $1,000 but not over $2,500___ 
$70.00 plus 15% of excess over 
$1,000. 
Over $2,500 but not over $4,750— 
$295.00 plus 16% of excess over 
$2,500. 
Over $4,750 but not over $7,500— 
$655.00 plus 19% of excess over 
$4,750. 
Over $7,500 but not over $11,500__ 
$1,177.50 plus 22% of excess over 
$7,500. 
Over $11,500 
$2,057.50 plus 27% of excess over 
$11,500. 
"Table 7—If the payroll period with respect to an employee is 
A N N U A L 
" ( a ) Single Person—Including Head of Household: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $1,000 
0. 
Over $1,000 but not over $2,000— 
14% of excess over $1,000. 
Over $2,000 but not over $3,000— 
$140 plus 17% of excess over $2,000. 
Over $3,000 but not over $5,000 
$310 plus 19% of excess over $3,000, 
Over $5,000 but not over $9,500— 
$690 plus 20% of excess over $5,000. 
Over $9,500 but not over $11,500— 
$1,590 plus 21% of excess over 
$9,500. 
Over $11,500 
$2,010 plus 23% of excess over 
$11,500. 
"(b) Married Person: 
The amount of income tax to be with-
"If the amount of wages is: 
held shall be: 
Not over $1,000 
0. 
Over $1,000 but not over $2,000 
14% of excess over $1,000. 
Over $2,000 but not over $5,000__ 
$140 plus 15% of excess over $2,000. 
Over $5,000 but not over $9,500— 
$590 plus 16% of excess over $5,000. 
Over $9,500 but not over $15,000— 
$1,310 plus 19% of excess over 
$9,500. 
Over $15,000 but not over $23,000— 
$2,355 plus 22% of excess over 
$15,000. 
Over $23,000 
$4,115 plus 27% of excess over 
$23,000. 
703 
704 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"Table 8—If the payroll period Avitk respect to an employee is a 
DAILY payroll period or a niiscellaneoiis payroll period 
80 Stat. 41. 
26 u s e 3402. 
a (a) Single Person—Including Head of Household: 
"If the amount of wages divided by the 
number of days in the payroll period The amount of income tax to be with-
is: 
held shall be: 
Not over $2.70 
0. 
Over $2.70 but not over $5.50 
14% of excess over $2.70. 
Over $5.50 but not over $8.20 
$0.39 plus 17% of excess over $5..50. 
Over $8.20 but not over $13.70 
$0.85 plus 19% of excess over $8.20. 
Over $13.70 but not over $26.00 
$1.90 plus 20% of excess over $13.70. 
Over $26.00 but not over $31.50 
$4.36 plus 2 1 % of excess over $26.00. 
Over $31..50 
$5..">1 plus 23% of excess over $31.-50. 
"(b) Married Person: 
"If the amount of wages divided by the 
number of days in the payroll period The amount of income tax to be with-
is: 
held shall be: 
Not over $2.70 
0. 
Over $2.70 but not over $5.50 
14% of excess over $2.70. 
Over $5.50 but not over $13.70 
$0.39 plus 15% of excess over $5.50. 
Over $13.70 but not over $26.00___ 
$1.62 plus 16% of excess over $13.70. 
Over $26.00 but not over $41.10— 
$3.59 plus 19% of excess over $26.00. 
Over $41.10 but not over $63.00___ 
$6.46 plus 22% of excess over $41.10. 
Over .$63.00 
$11.28 plus 27% of excess over 
$63.00." 
(b) 
PERCENTAGE METHOD OF WITIUIOEDING.— 
(1) WAGES PAID BEFORE JULY i, 1970.—Etiective with respect 
to wages paid after December 31,1969, and before July 1,1970, the 
table contained in section 3402(b)(1) is amended to read as 
follows: 
"Percentage Method Withholding Table 
Amount of one 
withholding 
"Payroll period 
exemption: 
Weekly 
$11. 50 
Biweekly 
23.0<3 
Semimonthly 
25.00 
Monthly 
.50.00 
Quarterly 
1.50. 00 
Semiannual 
300.00 
Annual 
600. 00 
Daily or miscellaneous (per day of such period) 
1.60." 
(2) "WAGES PAID IN IOTO AXD IOTI.—Etfective with respect to 
wages ]3aid after June 30, 1970, and before January 1, 1972, the 
table contained in section 3402(b)(1) is amended to read as 
follows: 
"Percentage Method Withholding Table 
Amount of one 
withholding 
"Payroll period 
exemption: 
Weekly 
$12. 50 
Biweekly 
25. 00 
Semimonthly 
27.10 
Monthly 
54. 20 
Quarterly 
162. 50 
Semiannual 
325. 00 
Annual 
650. 00 
Daily or miscellaneous (per day of such period) 
1. 80." 
(3) WAGES PAID DURIXG 1972.—Effective with respect to wages 
paid during 1972, the table contained in section 3402(b)(1) is 
amended to read as follows: 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
705 
"Percentage Method Withholding Table 
Amount of one 
withholding 
"Payroll period 
exemption: 
Weekly 
$13. 50 
Biweekly 
26.90 
Semimonthly 
29. 20 
Monthly 
58. 30 
Quarterly 
175. 00 
Semiannual 
350. 00 
Annual 
700. 00 
Daily or miscellaneous (per day of such period) 
1.90." 
(4) WAGES PAID AFTER 1972.—Effective with respect to wages 
paid after 1972, the table contained in section 3402(b)(1) is 
^"'e, p. 704. 
amended to read as follows: 
"Percentage Method Withholding Table 
Amount of one 
withholding 
"Payroll period 
exemption: 
Weekly 
$14. 40 
Biweekly 
28. 80 
Semimonthly 
31.30 
Monthly 
62. 50 
Quarterly 
187. 50 
Semiannual 
375. 00 
Annual 
750. 00 
Daily or miscellaneous (per day of such period) 
2.10." 
(c) WAGE BRACKET WITHHOLDING.—Section 3402(c) (relating to 
78 stat. HO. 
wage bracket withholding) is amended— 
(1) by striking out paragraph (1) and inserting in lieu thereof 
the following: 
"(1) At the election of the employer with respect to any 
employee, the employer shall deduct and withhold upon the wages 
paid to such employee a tax (in lieu of the tax required to be 
deducted and withheld under subsection (a)) determined in 
accordance with tables prescribed by the Secretary or his delegate 
in accordance with paragraph (6).", and 
(2) by striking out paragraph (6) and inserting in lieu thereof 
82 stat. 259. 
the following: 
"(6) In the case of wages paid after December 31, 1969, the 
amount deducted and withheld under paragraph (1) shall be 
determined in accordance with tables prescribed by the Secretary 
or his delegate. In the tables so prescribed, the amounts set forth 
as amounts of wages and amounts of income tax to be deducted 
and withheld shall be computed on the basis of table 7 contained 
in paragraph (1), (2), (3), (4), or (5) (whichever is applicable) 
of subsection (a)." 
Ante, p. ese. 
(d) ALTERNATIVE METHODS OF COMPUTING AMOUNT To B E W I T H -
HELD.—Section 3402(h) (relating to withholding on basis of average 
^^A stat. 469. 
wages) is amended to read as follows: 
"(h) ALTERNATIVE METHODS O
P COMPUTING AMOUNT To B E W I T H -
HELD.—The Secretary or his delegate may, under regulations pre-
scribed by him, authorize— 
"(1) WITHHOLDING ON BASIS OF AVERAGE WAGES.—An em-
ployer— 
"(A) to estimate the wages which will be paid to any 
employee in any quarter of the calendar year, 
"(B) to determine the amount to be deducted and withheld 
upon each payment of wages to such employee during such 
quarter as if the appropriate average of the wages so esti-
mated constituted the actual wages paid, and 
706 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"(C) to deduct and withhold upon any payment of wages 
to such employee durmg such quarter (and, in the case of tips 
II fj^^' if^n 
referred to in subsection (k), within 30 days thereafter) such 
26 u s e 3402. 
, 
, 
^ "
^ ' j 
T 
, ii*^ 
, 
i 
n 
amount as may be necessary to adjust the amount actually 
deducted and withheld upon the wages of such employee dur-
ing such quarter to the amount required to be deducted and 
withheld during such quarter without 
regard to this 
subsection. 
"(2) 
WITHHOLDING ON BASIS or ANNUALIZED WAGES.—An em-
ployer to determine the amount of tax to be deducted and withheld 
upon a payment of wages to an employee for a payroll period by— 
" (A) multiplying the amount of an employee's wages for a 
payroll period by the number of such payroll periods in 
the calendar year, 
"(B) determining the amount of tax which would be re-
quired to be deducted and withheld upon the amount deter-
mined under subparagraph (A) if such amount constituted 
the actual wages for the calendar year and the payroll period 
of the employee were an annual payroll period, and 
"(C) dividing the amount of tax determined under sub-
paragraph (B) by the number of payroll periods (described 
m subparagraph (A)) in the calendar year. 
"(3) 
WITHHOLDING ON BASIS OF CUMULATIVE WAGES.—An em-
ployer, in the case of any employee who requests to have the 
amount of tax to be withheld from his wages computed on the 
basis of his cumulative wages, to— 
"(A) add the amount of the wages to be paid to the em-
ployee for the payroll period to the total amount of wages 
paid by the employer to the employee during the calendar 
year, 
"(B) divide the aggregate amount of wages computed 
under subparagraph (A) oy the number of payroll periods 
to which such aggregate amount of wages relates, 
"(C) compute the total amount of tax that would have 
been required to be deducted and withheld under subsection 
(a) if the average amount of wages (as computed under 
subparagraph (B)) had been paid to the employee for the 
number of payroll periods to which the aggregate amount of 
wages (computed under subparagraph (A)) relates, 
"(D) determine the excess, if any, of the amount of tax 
computed under subparagraph (C) over the total amount 
of tax deducted and withheld by the employer from wages 
paid to the employee during the calendar year, and 
"(E) deduct and withhold upon the payment of Avages 
(referred to in subparagraph (A)) to the employee an amount 
equal to the excess (if any) computed under subparagraph 
(D). 
"(4) OTHER METHODS.—An employer to determine the amount 
of tax to be deducted and withheld upon the wages paid to an 
employee by any other method which will require the employer 
to deduct and withhold upon such wages substantially the same 
amount as would be required to be deducted and withheld by 
Ante, pp. 686, 
applying subsection (a) or (c), either with respect to a payroll 
^^' 
period or with respect to the entire taxable year." 
(e) WITHHOLDING ALLOWANCES BASED ON ITEMIZED DEDUCTIONS.— 
80 Stat. 59. 
Section 3402(m) (relating to withholding allowances based on item-
ized deductions in the case of income tax collected at source) is 
amended: 
705 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
707 
(1) by redesignating ]){iragrapli (2) (C) as paragrapli (2) (D), 
and 
(2) by amending that portion of sneli section as precedes para-
graph (2) (D) (as redesignated) to read as follows: 
" ( m ) AYlTHHOLDIXG ALLOWANCES B A S E D ON ITEMIZED D E D I C T'lONS.— 
''(1) GENERAL RULE.—An eni]iloyee shall be entitled to with-
holding allowances nnder this subsection witli respect to a pay-
ment of wages in a number equal to the number deteiinined by 
dividing by $750 tlie excess of— 
"(A) his estimated itemized deductions, over 
"(B) an amount equal to 15 ])ercent of his estimated wages. 
For purposes of this subsection, a fractional number shall not be 
taken into account unless it amounts to one-half or ujore, in which 
case it shall be increased to 1. 
"(2) DEEiNrnoNS.—P\)r purposes of this subsection— 
"(A) 
ESTIMATED ITE^ITZED DEDICTIOXS.—The term 'esti-
mated itemized deductions' means the aggregate amount 
which he reasonably expects Avill be allowable as deductions 
under cha]iter 1 (other than the deductions referred to in 
sections 141 and 151 and other than the deductions required eie^^eis.^' "^^' 
to be taken into account in determining adjusted gross income 
26 use i4i, isi. 
under section 62) for the estimation year. Tn no case shall 
^6 use 62. 
such aggregate amount be greater than the sum of (i) the 
amount of such deductions (or the amount of the standard 
deduction) reflected in his return of tax under subtitle A for 
the taxable year ])receding the estimation year, and (ii) the 
amount of his determinable additional deductions for the 
estimation year. 
"(B) EsrnrATED WAGES.—The term 'estimated wages' means 
the aggregate amount which he reasonably expects will con-
stitute wages for the estimation year. 
"(C) PETEr.AriNAHLE ADDTnoNAL DEurcTioNS.—The term 
'determinable additional deductions' means those estimated 
itemized deductions which (i) are in excess of the deductions 
referred to in subi)aragraph (A) (or the standard deduction) 
reflected on his return of tax under subtitle A for the taxable 
year preceding the estimation year, and (ii) are demonstrably 
attributable to an identifiable event during the estimation year 
or the preceding taxable year which can reasonably be ex-
l)ected to cause an increase in the amount of such deductions 
on the return of tax under subtitle A for the estimation year." 
(f) EMPLOYEES INCURRING No INCO:ME TAX LiAiiiLiTY.— 
(1) I N GEXEP.AL.—Section o402 (relating to income tax collected 
i"\%^\^}lt-
at source) is amended by adding at the end thereof the following 
new subsection: 
"(n) EMPLOYEES IX( rinnNG Xo Ixro:srE TAX LTAHILITY.—Notwith-
standing any other j>rovision of this section, an employer shall not be 
required to deduct and withhold any tax under this chapter upon a 
payment of wages to an employee if there is in effect with respect to 
such Dayment a withholding exemption certificate (in such form and 
containinir such other information as the Secretary or his delegate may 
])rescribe) furnished to the employer by the employee certifying that 
the employee— 
"(1) incurred no liability for income tax imposed under subtitle 
A for his preceding taxable year, and 
"(2) anticipates that he will incur no liability for income tax 
imposed under subtitle A for his current taxable year. 
26 use 3402. 
68A Stat. 747. 
26 u s e 6051. 
Ante, p. 707. 
708 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
The Secretary or his delegate shall by regulations ])ro\i(le for the 
coordination of the provisions of this subsection with the provisions of 
subsection (f)." 
(2) CONFORMING AMENDMENT.—The first sentence of section 
6061 (relating to receipts for employees) is amended by striking 
out "under section 8402 if"' and inserting "under section 3402 
(determined without regard to subsection (n)) if". 
(g) EXTENSION OF WITHHOLDING TO PAYMENTS OTHER THAN 
WAGES.—Section 3402 (relating to income tax collected at source) is 
amended by adding after subsection (n) (added by subsection (f)) the 
following new subsections: 
"(o) EXTENSION OF WITHHOLDING TO CERTAIN PAYMENTS OTHER 
I'HAN WAGES.— 
"(1) GENERAL RULE.—For purposes of this chapter (and so 
much of subtitle F as relates to this chapter)— 
" (A) any supplemental unemployment compensation bene-
fit paid to an individual, and 
''(B) any payment of an annuity to an individual, if at the 
time the payment is made a request that such annuity be sub-
ject to withholding under this chapter is in effect, 
shall be treated as if it were a payment of wages by an employer 
to an employee for a payroll period. 
"(2) DEFINITIONS.— 
"(A) SUPPLEMENTAL 
UNEMPLOYMENT 
COMPENSATION 
BENEFITS.—For purposes of paragraph (1), the term 'supple-
mental unemployment compensation benefits' means amounts 
which are paid to an employee, pursuant to a plan to which 
the employer is a party, because of an employee s involuntary 
separation from employment (whether or not such separa-
tion is temporary), resulting directly from a reduction in 
force, the discontinuance of a plant or operation, or other 
similar conditions, but only to the extent such benefits are 
includible in the employee's gross income. 
"(B) ANNUITY.—For purposes of this subsection, the term 
'annuity' means any amount paid to an individual as a pen-
sion or annuity, but only to the extent that the amount is 
includible in the gross income of such individual. 
" (3) REQUEST FOR WITHHOLDING.—A request that an annuity be 
subject to w^ithholding under this chapter shall be made by the 
payee in writing to the person making the annuity payments, shall 
be accompanied by a withholding exemption certificate, executed 
in accordance with the provisions of subsection (f) (2), and shall 
take effect as provided in subsection (f) (3). Such a request may, 
notwithstanding the provisions of subsection (f)(4), be termi-
nated by furnishing to the person making the payments a written 
statement of termination which shall be treated as a wi*^hholding 
exemption certificate for purposes of subsection (f)(3)(B). 
"(p) VOLUNTARY AVITHHOLDING AGREEMENTS.—The Secretary or 
his delegate is authorized by regulations to provide for withholding— 
"(1) from remuneration for services performed by an employee 
for his employer which (without regard to this subsection) does 
not constitute wages, and 
"(2) from any other type of payment with respect to which the 
Secretary or his delegate finds that withholding would be appro-
priate under the provisions of this chapter, 
if the employer and the employee, or in the case of any other type of 
payment the person making and the person receiving the payment, 
agree to such withholding. Such agreement shall be made in such form 
and manner as the Secretary or his delegate may by regulations pro-
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
709 
vide. For purposes of this chapter (and so niuc]i of subtitle F as relates 
to this chapter) remuneration or other payments Avith respect to Avhich 
such agreement is made shall be treated as if they were wages paid 
by an employer to an employee to the extent that such renumeration 
is paid or other payments are made during the period for which the 
agreement is in effect." 
(h) EFFECTIVE DATES.— 
(1) The amendments made by subsections (a), (b), (c), (d), 
and (e) shall apply with respect to remuneration paid after 
December ;U, 1969. 
(2) The amendment made by subsection (f) applies to wages 
paid after April 30,1970. 
(3) Subsection (o) of section 3402 of the Internal Revenue 
Code of 1954, added by subsection (g) of this subsection, shall 
apply to payments made after December 31, 1970. Subsection (p) 
of such section 3402, added by subsection (g) of this section, shall 
apply to payments made after June 30, 1970. 
TITLE IX—MISCELLANEOUS PROVISIONS 
Subtitle A—Miscellaneous Income Tax Provisions 
SEC. 901. EXCLUSION OF ADDITIONAL LIVING EXPENSES. 
(a) ExciASioN OF ADDITIONAL LIVING EXPENSES.—Part I I I of 
subchapter B of chapter 1 (relating to items specifically excluded 8Q^|^J^*32" ^^' 
from gross income) is amended by renumbering section 123 as 124, 
26 use loi-
and by inserting after section 122 the following new section: 
123. 
'SEC. 123. AMOUNTS RECEIVED UNDER INSURANCE CONTRACTS FOR 
CERTAIN LIVING EXPENSES. 
"(a) GENERAL RULE.—In the case of an individual whose principal 
residence is damaged or destroyed by fire, storm, or other casualty, or 
who is denied access to his principal residence by governmental au-
thorities because of the occurrence or threat of occurrence of such a 
casualty, gross income does not include amounts received by such in-
dividual under au insurance contract which are paid to compensate 
or reimburse such individual for living expenses incurred for him-
self and members of his household resulting from the loss of use or 
occupancy of such residence. 
"(b) LiMrrATioN.—Subsection (a) shall apply to amounts received 
by the taxpayer for living expenses incurred during any period only 
to the extent the amounts received do not exceed the amount by 
which— 
" (1) the actual living expenses incurred during such period for 
himself and members of his household resulting from the loss of 
use or occupancy of their residence, exceed 
"(2) the normal living expenses Avh'ch would have been in-
curred for himself and members of his household during such 
period." 
(b) CONFORMING AMENDMENT.—The table of sections for such part 
I I I is amended b,y striking out the last item and inserting in lieu 
thereof the following: 
"Sec. 123. Amounts received under insurance contracts for certain 
living expenses. 
"Sec. 124. Cross references to other Acts." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to amounts received on or after January 1, 1969. 
710 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
SEC. 902. DEDUCTIBILITY OF TREBLE DAMAGE PAYMENTS, FINES 
AND PENALTIES, ETC. 
(a) 
FINES AND PENALTIES; TREBLE DAMAGE PAYMENTS.—Section 
ye^stlt^'gVs''^' 
162 (relating to deduction of trade or business expenses) is amended by 
26 use 162. 
redesignating subsection (f) as subsection (h), and by inserting after 
subsection (e) the following new subsections: 
"(f) FINES AND PENALTIES.—No deduction shall be allowed under 
subsection (a) for any fine or similar penalty paid to a government 
for the violation of any law. 
"(g) 
TREBLE DAMAGE PAYMENTS UNDER THE ANTITRUST LAWS.— 
If in a criminal proceeding a taxpayer is convicted of a violation of 
the antitrust laws, or his plea of guilty or nolo contendere to an in-
dictment or information charging such a violation is entered or ac-
cepted in such a proceeding, no deduction shall be allowed under sub-
section (a) for two-thirds of any amount paid or incurred— 
"(1) on any judgment for damages entered against the tax-
payer under section 4 of the Act entitled 'An Act to supplement 
existing laws against unlawful restraints and monopolies, and 
for other purposes', approved October 15,1914 (commonly known 
1
5 use' ^5^^' 
^^ ^^^ Clayton Act), on account of such violation or any related 
violation of the antitrust laws which occurred prior to the date of 
the final judgment of such conviction, or 
"(2) in settlement of any action brought under such section 4 
on account of such violation or related violation. 
The preceding sentence shall not apply with respect to any conviction 
or plea before January 1,1970, or to any conviction or plea on or after 
such date in a new trial following an appeal of a conviction before such 
date." 
(b) BRIBES AND ILLEGAL KICKBACKS.—Section 162(c) (relating to 
improper payments to certain government officials or employees) is 
amended to read as follows: 
"(c) 
BRIBES AND ILLEGAL KICKBACKS.— 
"(1) 
ILLEGAL PAYMENTS TO GOVERNMENT omcii^Ls OR EM-
PLOYEES.—No deduction shall be allowed under subsection (a) for 
any payment made, directly or indirectly, to an official or em-
ployee of any government, or of any agency or instrumentality of 
any government, if the payment constitutes an illegal bribe or kick-
back or, if the payment is to an official or employee of a foreign 
government, the payment would be unlawful under the laws of the 
United States if such laws were applicable to such payment and to 
such official or employee. The burden of proof in respect of the 
issue, for the purposes of this paragraph, as to whether a payment 
constitutes an illegal bribe or kickback (or w^ould be unlawful 
under the laws of the United States) shall be upon the Secretary 
or his delegate to the same extent as he bears the burden of proof 
Ante, p. 532. 
uuder sectiou 7454 (concerning the burden of proof when the 
issue relates to fraud), 
"(2) OTHER BRIBES OR KICKBACKS.—If in a criminal proceeding 
a taxpayer is convicted of making a payment (other than a pay-
ment described in paragraph (1)) which is an illegal bribe or 
kickback, or his plea of guilty or nolo contendere to an indictment 
or information charging the making of such a payment is entered 
or accepted in such a proceeding, no deduction shall be allowed 
under subsection (a) on account of such payment or any related 
payment made prior to the date of the final judgment in such 
proceeding. 
"(3) STATUTE OF LIMITATIONS.—If a taxpayer claimed a deduc-
tion for a payment described in paragraph (2) which is disallowed 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
711 
because of a final judgment entered after the close of the taxable 
year for which the deduction was claimed, and if the proceeding 
was based on an indictment returned or an information filed prior 
to the expiration of the period for the assessment of any deficiency 
for such taxable year, the period for the assessment of any defi-
ciency attributable to the deduction of such payment shall not 
expire prior to the expiration of one year from the date of such 
final judgment, and such deficiency may be assessed prior to the 
expiration of such one-year period notwithstanding the provision 
of any other law or rule of law which would otherwise prevent 
such assessment." 
(c) EFFECTIVE DATES.—Section 162(f) of the Internal Revenue Code 
of 1954 (as added by subsection (a)) shall apply to all taxable years to 
which such Code applies. Section 162(g) of such Code (as added by 
subsection (a)) shall apply with respect to amounts paid or incurred 
after December 31,1969. Section 162(c) (1) of such Code (as amended 
by subsection (b)) shall apply to all taxable years to which such Code 
applies. Sections 162(c) (2) and (3) of such Code (as amended by 
subsection (b)) shall apply with respect to payments made after the 
date of the enactment of this Act. 
SEC. 903. ACCRUED VACATION PAY. 
Section 97 of the Technical Amendments Act of 1958 is amended by go^stat''\'o2^;!^' 
striking out ''January 1, 1969" and inserting in lieu thereof "Jan- 
26 use i62 
uary 1, 1971". 
"°*^-
SEC. 904. DEDUCTION OF RECOVERIES OF ANTITRUST DAMAGES, ETC. 
(a) DEDUCTION ALLOWED.—Part VI of subchapter B of chapter 1 
(relating to itemized deductions for individuals and corporations) is 
amended by adding after section 185 (as added by section 705 of this 
^"te, p. 672. 
Act) the following new section: 
"SEC. 186. RECOVERIES OF DAMAGES FOR ANTITRUST VIOLATIONS, 
ETC. 
'"(a) ALLOWANCE or DEDUCTION.—If a compensatory amount which 
is included in gross income is received or accrued during the taxable 
year for a compensable injury, there shall be allowed as a deduction 
for the taxable year an amount equal to the lesser of— 
"(1) the amount of such compensatory amount, or 
"(2) the amount of the unrecovered losses sustained as a result 
of such compensable injury. 
"(b) COMPENSABLE INJURY.—For purposes of this section, the term 
'compensable injury' means— 
"(1) injuries sustained as a result of an infringement of a 
patent issued by the United States, 
"(2) injuries sustained as a result of a breach of contract or a 
breach of fiduciary duty or relationship, or 
"(3) injuries sustained in business, or to property, by reason 
of any conduct forbidden in the antitrust laws for which a civil 
action may be brought under section 4 of the Act entitled 'An 
Act to supplement existing laws against unlawful restraints and 
monopolies, and for other purposes', approved October 15, 1914 
(commonly knowm as the Clayton Act). 
38 stat. 731 
"(c) COMPENSATORY AMOUNT.—For purposes of this section, the 
'" "'^'^ ^ 
term 'compensatory amount' means the amount received or accrued 
during the taxable year as damages as a result of an award in, or in 
settlement of, a civil action for recovery for a compensable injury, 
reduced by any amounts paid or incurred in the taxable year in secur-
ing such award or settlement. 
'5 .use 15. 
Ante, p. 619. 
712 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
" ( d ) UNRECo^^ERED LOSSES.— 
"(1) I N GENERAL,—For purposes of this section, the amount 
of any unrecovered loss sustained as a result of any compensable 
injury is— 
" (A) the sum of the amount of the net operating losses (as 
determined under section 172) for each taxable year in whole 
or in part within the injury period, to the extent that such 
net operating losses are attributable to such compensable 
injury, reduced by 
"(B) the sum of— 
"(i) the amount of the net operating losses described 
in subparagraph (A) which were allowed for any prior 
taxable year as a deduction under section 172 as a net 
operating loss carryback or carryover to such taxable 
year, and 
"(ii) the amounts allowed as a deduction under sub-
section (a) for any prior taxable year for prior recoveries 
of compensatory amounts for such compensable injury. 
"(2) INJURY PERIOD.—For purposes of paragraph (1), the 
injury period is— 
"(A) with respect to any infringement of a patent, the 
period in which such infringement occurred, 
"(B) with respect to a breach of contract or breach of fidu-
ciary duty or relationship, the period during which amounts 
would have been received or accrued but for the breach of 
contract or breach of fiduciary duty or relationship, and 
"(C) with respect to injuries sustained by reason of any 
conduct forbidden in the antitrust laws, the period in which 
such injuries were sustained. 
"(3) 
NET OPERATING LOSSES ATTRIBUTABLE TO COMPENSABLE 
INJURIES.—For purposes of paragraph (1) — 
"(A) a net operating loss for any taxable year shall be 
treated as attributable to a compensable injury to the extent 
of the compensable injury sustained during such taxable year, 
and 
"(B) if only a portion of a net operating loss for any 
taxable year is attributable to a compensable injury, such por-
tion shall (in applying section 172 for purposes of this sec-
tion) be considered to be a separate net operating loss for 
such year to be applied after the other portion of such net 
operating loss. 
"(e) EFFECT ON NET OPERATING Loss CARRYOVERS.—If for the tax-
able year in which a compensatory amount is received or accrued any 
portion of a net operating loss carryover to such year is attributable to 
the compensable injury for which such amount is received or accrued, 
such portion of such net operating loss carryover shall be reduced by 
an amount equal to— 
"(1) the deduction allowed under subsection (a) with respect to 
such compensatory amount, reduced by 
"(2) any portion of the unrecovered losses sustained as a result 
of the compensable injury with respect to which the period for 
carryover under section 172 has expired." 
(b) CLERICAL AMENDMENT.—The table of sections for part VI of 
subchapter B of chapter 1 is amended by adding at the end therebf the 
following new item: 
"Sec. 186. Recoveries of damages for antitrust violations, etc." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31, 1968. 
26 u s e 302. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
713 
SEC. 905. CORPORATIONS USING APPRECIATED PROPERTY TO REDEEM 
THEIR OWN STOCK. 
(a) GEXERALKuLE.--Section:Ul (reliiting to tsixsibility of corpora- 
jrusc'an*' 
tioii on distribution) is amended by adding at the end thereof the 
following new subsection: 
" ( d ) 
AVPRECIATED PlJOl'EUTY UsED T o R E D E E M 
S T O C K . 
"(1) 
INGEXERAL.—If— 
"(A) a corporation distributes i)roperty (otlier tlian an 
obligation of such corporation) to a sliai-eholder in a redemp-
tion (to which subpart A applies) of part or all of his stock 
in such corporation, and 
"(B) the fair market A'alue of such property exceeds its 
adjusted basis (in the hands of tlie distributing corporation), 
then again shall be recognized to the distributing corporation in an 
amount equal to such excess as if the pi'operty distributed had 
been sold at the time of the distribution. Subsections (b) and (c) 
shall not apply to any distribution to wliich this subsection 
applies. 
"(2) ExcEi'-rioxs AXD LI^MITATIOXS.—Paragraph (1) shall not 
apply to— 
"(A) a distribution in complete redemption of all of the 
stock of a shareholder who, at all times within the 1-2-month 
])eriod eiuling on the date of such distribution, owns at least 
10 percent in value of the outstanding stock of the distribut-
ing corporation, but only if the redemption (jualifies under 
section o02(b)(P>) (determined without the application of 
section 302(c) (2) (A) (ii)); 
"(B) a distribution of stock or an obligation of a corpora-
tion— 
"(i) which is engaged in at least one trade or business, 
"(ii) which has not received proi)erty constituting a 
substantial part of its assets from the distributing corpo-
ration, in a transaction to which section 351 applied or as 
a contribution to capital, within the r)-year period ending 
on the date of the distribution, and 
"(iii) at least 50 percent in value of the outstanding 
stock of which is owned by the distributing corporation 
at any time within the 9-year ])eri()d ending one year be-
fore the date of the distribution ; 
"(C) a distribution before Deceml)er 1, 1974, of stock of a 
corporation substantially all of the assets of which tlie dis-
tributing c()r])oration (or a cor])oration which is a member of 
the same afliliated group (as defined in section 1504(a)) as ^^^J'^^Vr^J^!,^" 
the distributing corporation) held on November 30, lOGO, if 
such assets constitute a trade oi' business which has been 
actively conducted throughout the one-yeai- [)eriod ending 
on the date of the distribution ; 
"(1)) a distribution of stock or securities pursuant to the 
terms of a final judgment rendered by a court witli respect to 
the distributing corporation in a court proceeding under the 
Sherman Act (20 Stat. 209; 15 TLS.(\ 1-7) or tlie Clayton 
Act (38 Stat. 730: 15 U.S.C. 12-27), or both, to which the 
United States is a party, but only if tlie distiibution of such 
stock or securities in redemption of the distributing corpora-
tion's stock is in furtherance of the purposes of the judgment; 
"(E) a distribution to the extent that section 303(a) (re-
lating to distributions in redemption of stock to pay death 
taxes) applies to such distribution; 
26 use 1504. 
714 
PUBLIC LAW 91-17^DEC. 30, 1969 
[83 STAT. 
"(F) a distribution to a private foundation in redemption 
of stock which is described in section 537(b)(2)(A) and 
Post. p. 715. 
( B ) ; a n d 
"(G) a distribution by a corporation to which part I of 
68A Stat. 268. 
subchaptcr M (relating to regelated investment companies) 
851-855. 
applies, if such distribution is in redemption of its stock upon 
the demand of the shareholder." 
(b) 
CONFORMING AMENDMENTS.— 
(1) Section 311(a) is amended by striking out "subsections (b) 
and (c)" and inserting in lieu thereof "subsections (b), (c), 
and (d)". 
(2) Sections301(b) (1) (B) (ii),301(d) (2) (B),and312(c) (3) 
are each amended by striking out "subsection (h) or (c)" and 
inserting in lieu thereof "subsection (b), (c), or (d)". 
(c) EFFECTIVE DATE.— 
(1) Except as provided in paragraphs (2) and (3), the amend-
ments made by subsections (a) and (b) shall apply with respect to 
distributions after November 30, 1969. 
(2) The amendments made by subsections (a) and (b) shall not 
apply to a distribution before April 1,1970, pursuant to the terms 
of— 
(A) a written contract which was binding on the distrib-
uting corporation on November 30, 1969, and at all times 
thereafter before the distribution, 
(B) an offer made by the distributing corporation before 
December 1,1969, 
(C) an offer made in accordance with a request for a ruling 
filed by the distributing corporation with the Internal Eeve-
nue Service before December 1,1969, or 
(D) an offer made in accordance with a registration state-
ment filed with the Securities and Exchange Commission 
before December 1,1969. 
For purposes of subparagraphs (B), (C), and (D), an offer shall 
be treated as an offer only if it was in writing and not revocable 
by its express terms. 
(3) The amendments made by subsections (a) and (b) shall 
not apply to a distribution by a corporation of specific property 
in redemption of stock outstanding on November 30, 1969, if— 
(A) every holder of such stock on such date had the right 
to demand redemption of his stock in such specific property, 
and 
(B) the corporation had such specific property on hand on 
such date in a quantity sufficient to redeem all of such stock. 
For purposes of the preceding sentence, stock shall be considered 
to have been outstanding on November 30, 1969, if it could have 
been acquired on such date through the exercise of an existing 
right of conversion contained in other stock held on such date. 
SEC. 906. REASONABLE ACCUMULATIONS BY CORPORATIONS. 
6
8
A Stat. 182. 
(j^) GENERAL RULE.—Section 537 (relating to reasonable needs of 
the business) is amended to read as follows: 
"SEC. 537. REASONABLE NEEDS OF THE BUSINESS, 
"(a) GENERAL RULE.—For purposes of this part, the term 'reason-
able needs of the business' includes— 
"(1) the reasonably anticipated needs of the business, 
26 use 303. 
«^2) the section 303 redemption needs of the business, and 
"(3) the excess business holdings redemption needs of the busi-
ness. 
83 STAT. ] 
PUBLIC LAW 91.172-DEC. 30, 1969 
715 
"(b) SPECIAL RULES.—For purposes of subsection (a) — 
"(1) SECTION 303 REDEMPTION NEEDS.—The term 'section 303 
26'usc^303^' 
redemption needs' means, with respect to the taxable year of the 
corporation in which a shareholder of the corporation died or 
any taxable year thereafter, the amount needed (or reasonably 
anticipated to be needed) to make a redemption of stock included 
in the gross estate of the decedent (but not in excess of the maxi-
mum amount of stock to which section 303(a) may apply). 
"(2) EXCESS BUSINESS HOLDINGS REDEMPTION NEEDS.—The term 
'excess business holdings redemption needs' means, with respect to 
taxable years of the corporation ending after May 26, 1969, the 
amount needed (or reasonably anticipated to be needed) to redeem 
from a private foundation stock which— 
"(A) such foundation held on May 26, 1969 (or which was 
received by such foundation pursuant to a will or irrevocable 
trust to which section 4943(c) (5) applies), and 
^"f^, p. 507. 
"(B) constituted excess business holdings on May 26,1969, 
or would have constituted excess business holdings as of such 
date if there were taken into account (i) stock received pur-
suant to a will or trust described in subparagraph (A), and 
(ii) the reduction in the total outstanding stock of the corpo-
ration which would have resulted solely from the redemption 
of stock held by the private foundation. 
"(3) OBLIGATIONS INCURRED TO MAKE REDEMPTIONS.—In apply-
ing paragraphs (1) and (2), the discharge of any obligation 
incurred to make a redemption described in such paragraphs shall 
be treated as the making of such redemption. 
"(4) No INFERENCE A
S T
O PRIOR T
A
X
A
B
L
E TEARS.—The applica-
tion of this part to any taxable year before the first taxable year 
specified in paragraph (1) or (2) shall be made without regard to 
the fact that distributions in redemption coming within the terms 
of such paragraphs were subsequently made."' 
(b) EFFI'.CTIVE DATE.—The amendment made by subsection (a) shall 
apply to tlie tax imposed under section 531 of the Internal Revenue 
Code of 1954 with respect to taxable years ending after May 26, 1969. 
SEC. 907. INSURANCE COMPANIES. 
(a) 
SPECIAL CONTINGENCY RESERVES I^NDER (TROUP CONTRACTS.— 
(1) INTEREST PAID.—Section 805(e)(4) 
(relating to interest 
73 stat. iis. 
paid on certain reserves) is amended to read as follows: 
"(4) 
INTEREST ON CERTAIN SPECIAL CONTINGENCY RESERVES.— 
Interest for the taxable year on special contingency reserves under 
contracts of group term life insurance or group health and acci-
dent insurance which are established and maintained for tlie pro-
vision of insurance on retired lives, for premium stabilization, or 
for a combination thereof." 
(2) RULES F
O
R CERTAIN CONTINGENCY RESERVES.—Section 810(c) 
^3 stat. 125. 
(relating to items taken into account as reserves) is amended by 
inserting after paragraph (5) the following new paragraph: 
"(6) Special contingency reserves under contracts of group 
term life insurance or group health and accident insurance which 
are established and maintained for the provision of insurance on 
retired lives, for premium stabilization, or for a combination 
thereof." 
(b) CERTAIN DISTRIBUTIONS.— 
(1) EXCEITION FROM DEFINITION OF DISTRIBUTION. ScctioU 
815(f) (relating to definition of distribution) is amended— 
78 stat. 859; 
(A) by striking out "or" at the end of paragraph (3); 
^' ^*"*- ^^''• 
(B) by striknig out the period at the end of paragraph 
(4) and inserting in lieu thereof "; or"; 
716 
PUBLIC L
A
W 91-172-DEC. 30, 1969 
[83 STAT. 
(C) by inserting after paragraph (4) the following new 
paragraph: 
"(5) any distribution after December 31,1968, of the stock 
26 use 355. 
Qf a controlled corporation to which section 355 applies, if 
such distribution is made to a corporation which immediately 
after the distribution is the owner of all the stock of all classes 
of both the distributing corporation and such controlled cor-
poration and if, immediately before the distribution, the dis-' 
tributing corporation had been the owner of all of the stock 
of all classes of such controlled corporation at all times since 
December 31, 1957."; 
(D) by striking out "Neither paragraph (3) nor paragraph 
(4) shall apply" in the next to the last sentence and inserting 
in lieu thereof "Paragraphs (3), (4), and (5) shall not ap-
ply" ; and 
(E) by striking out "paragraphs (3) and (4)" in the last 
sentence and inserting in lieu thereof "paragraphs (3), (4), 
and (5)". 
Ante, p. 715. 
^2) SPECIAL RULE.—Sectiou 815 (relating to distributions to 
shareholders) is amended by adding at the end thereof the fol-
lowing new subsection: 
"(g) CERTAIN DISTRIBUTIONS RELATED TO FORMER SUBSIDIARIES.— 
If subsection (f) (5) applied to the distribution by a life insurance 
company of the stock of a corporation which was a controlled corpo-
ration— 
"(1) any distribution by such corporation to its shareholders 
(after the date of the distribution of its stock by the life insurance 
company), and 
"(^2) any disposition of the stock of such corporation by the 
distributee corporation, 
shall, for purposes of this section, be treated as a distribution to its 
shareholders by such life insurance company, until the amounts so 
treated equal the amount of the distribution of such stock which by 
reason of subsection (f) (5) was not included as a distribution for 
purposes of this section." 
(c) CARRYOVER or LOSSES.— 
7o^stlt^*48 ^^^'' 
{^^ ^^ GENERAL.—Part IV of subchapter L of chapter 1 (re-
26 use 841-843. 
latmg to ppovisions of general application to insurance com-
panies) is amended by adding at the end thereof the following 
new section: 
"SEC. 844. SPECIAL LOSS CARRYOVER RULES. 
"(a) GENERAL RULE.—If an insurance company— 
"(1) is subject to the tax imposed by part I, II, or I I I of this 
subchapter for the taxable year, and 
"(2) was subject to the tax imposed by a different part of this 
subchapter for a prior taxable year beginning after December 
31, 1962, 
73 Stat. 127. 
^J^QJ^ ^uy operations loss carryover under section 812, unused loss 
76 Stat. 995. 
carryovcT under section 825, or net operating loss carryover under 
Ante, p. 619. 
sectiou 172, as the case maj be, arising in such prior taxable year shall 
be included in its operations loss deduction under section 812(a), 
unused loss deduction under section 825(a), or net operating loss 
deduction under section 832(c) (10), as the case may be. 
"(b) LIMITATION.—The amount included under section 812(a), 
825(a), or 832(c) (10), as the case may be, by reason of the applica-
tion of subsection (a) shall not exceed the amount that would have 
constituted the loss carryover under such section if for all relevant 
taxable years such company had been subject to the tax imposed by 
the part referred to in subsection (a) (1) rather than the part referred 
68A Stat. 264. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
717 
to in subsection (a)(2). For purposes of applying the preceding 
sentence— 
" (1) in the case of a mutual insurance company which becomes 
a stock insurance company, an amount equal to 25 percent of the 
deduction under section 832(c) (11) (relating to dividends to 
jeus^csa^' 
policyholders) shall not be allowed, and 
"(2) section 812(b) (1) (A) (iii) (relating to additional years 
73 stat. 127. 
to which losses may be carried by new life insurance companies) 
shall not apply. 
"(c) EEGULATIONS.—The Secretary or his delegate shall prescribe 
such regulations as may be necessary to carry out the purposes of this 
section." 
(2) CLERICAL AND CONFORMING AMENDMENTS.— 
(A) The table of sections for part IV of subchapter L of 
chapter 1 is amended by adding at the end thereof the follow-
ing new item: 
"Sec. 844. Special loss carryover rules." 
(B) Sections 809(e) (5) and 823(b)(1) are each amended 
by striking out "The" and inserting in lieu thereof "Except 
as provided by section 844, the". 
(C) Section 825(g) (2) is amended by striking out "to or 
from" and inserting in lieu thereof "except as provided by 
section 844, to or from". 
(D) Section 825(g)(3) is amended by striking out "to 
any" and inserting in lieu thereof "except as provided by sec-
tion 844, to any". 
(d) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply to taxable years beginning after December 31, 1957. The 
amendments made by subsection (b) shall apply to taxable years be-
ginning after December 31, 1968. The amendments made by subsec-
tion (c) shall apply with respect to losses incurred in taxable years 
beginning after December 31, 1962, but shall not affect any tax liabil-
ity for any taxable year beginning before January 1, 1967. 
SEC. 908. CERTAIN UNIT INVESTMENT TRUSTS. 
(a) NOT To_BE TREATED A
S SEPARATE TAXPAYER.—Section 851 (re- 
esA stat. 268. 
lating to definition of regulated investment company) is amended by 
adding at the end thereof the following new subsection: 
"(f) 
CERTAIN UNIT INVESTMENT TRUSTS.—For purposes of this 
title— 
"(1) A unit investment trust (as defined in the Investment 
Companv Act of 1940)— _ 
54 sta^. nig.^^ 
"(A) which is registered under such Act and issues pe-
riodic payment plan certificates (as defined in such Act) in 
one or more series, 
"(B) substantially all of the assets of which, as to all such 
series, consist of (i) securities issued by a single management 
company (as defined in such Act) and securities acquired 
pursuant to subparagraph (C), or (ii) securities issued by 
a single other corporation, and 
"(C) which has no power to invest in any other securities 
except securities issued by a single other management com-
pany, when permitted by such Act or the rules and regula-
tions of the Securities and Exchange Commission, 
shall not be treated as a person. 
"(2) In the case of a unit investment trust described in para-
graph (1)— 
"(A) each holder of an interest in such trust shall, to the 
extent of such interest, be treated as owning a proportionate 
share of the assets of such trust; 
718 
PUBLIC LAW_91-172-:DEC. 30, 1969 
[83 STAT. 
"(B) the basis of the assets of such trust which are treated 
under subparagraph (A) as being owned by a holder of an 
interest in such trust shall be the same as the basis of his in-
terest in such trust; and 
"(C) in determining the period for which the holder of an 
interest in such trust has held the assets of the trust which 
are treated under subparagraph (A) as being owned by him, 
there shall be included the period for which such holder has 
held his interest in such trust. 
This subsection shall not apply in the case of a unit investment trust 
Avhich is a segregated asset account under the insurance laws or regula-
tions of a State." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to taxable years of unit investment trusts ending after 
December ol, 15)()8, and to taxable years of holders of interests ni such 
trusts ending with or within such taxable years of such trusts. The 
enactment of this section shall not be construed to result in the realiza-
tion of gain or loss by any unit investment trust or by any holder of 
an interest in a unit investment trust. 
SEC. 909. FOREIGN CORPORATIONS NOT AVAILED OF TO REDUCE 
TAXES. 
(a) 
EXCLUSION FROM FOREICXX BASE COMPANY INCOME.—Section 
26 use 954°^' 
954(b) (4) (relating to exception for foreign corporations not availed 
of to reduce taxes) is amended to read as follows: 
"(4) 
EXCEPTION FOR FOI{EIGN CORPOIJATIONS NOT AVAILED OF TO 
R
E
D
U
C
E TAXES.—For purposes of subsection (a), foreign base com-
pany income does not include any item of income receiA'ed by a 
controlled foreign corporation if it is established to the satisfac-
tion of the Secretary or his delegate that neither— 
"(A) the creation or organization of such controlled for-
eign corporation under the laws of tlie foreign country in 
which it is incorporated (or, in the case of a controlled for-
eign cor])oration which is an acquired corporation, the acqui-
sition of such corporation created or organized under the 
laws of the foreign country in Avhich it is incorporated), nor 
"(B) the effecting of the transaction giving rise to such 
income through the controlled foreign corporation, 
has as one of its significant purposes a substantial reduction of 
income, war profits, or excess profits or similar taxes." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to taxable years ending after October 9,19(59. 
SEC. 910. SALES OF CERTAIN LOW-INCOME HOUSING PROJECTS. 
(a) NoNRECO(}NITION OF (xAIN IN CASE OF APPROVED DISPOSITIONS.— 
68A Stat. 302; 
Part I I I of Subchapter O of chapter 1 (relating to common nontax-
26 use 1031- 
'ible exchanges) is amended by adding at the end thereof the following 
1038. 
new section: 
"SEC. 1039. CERTAIN SALES OF LOW-INCOME HOUSING PROJECTS. 
"(a) NoNRECO(JNrnoN OF GAIN.—If^— 
"(1) a qualified housing project is sold or disposed of by the 
taxi)ayer in an approved disposition, and 
"(2) within tlie reinvestment period the taxpayer constructs, 
reconstructs, or accjuires another qualified housing project, 
then, at the election of the taxpayer, gain from such approved disposi-
tion shall be recognized only to the extent that the net amount realized 
on such approved disposition exceeds the cost of such other qualified 
housing project. An election under this subsection shall be made at 
such time and in such manner as the Secretary or his delegate pre-
scribes by regulations. 
83 STAT.] 
PUBLIC LAW 9 1 - 1 7 2 - D E C . 30, 1969 
719 
" (b) DEFINITIONS.—For purposes of this section— 
" (]) QUALIFIED HOUSING PROJECT.—The term 'qualified housing 
project' means a project to provide rental or cooperative housing 
for lower income families— 
"(A) with respect to which a mortgage is insured under 
section 221(d) (3) or 236 of the National Housing Act, and 
^s stat. iso; 
"(B) with respect to which the owner is, under such sec- 
1
2 use 1715^, 
tions or regulations issued thereunder— 
i7isz-i. 
"(i) limited as to the rate of return on his investment 
in the project, and 
"(ii) limited as to rentals or occupancy charges for 
units in the project. 
"(2) APPROVED DISPOSITION.—The term 'approved disposition' 
means a sale or other disposition of a qualified housing project to 
the tenants or occupants of units in such project, or to a coopera-
tive or other nonprofit organization formed solely for the benefit 
of such tenants or occupants, which sale or disposition is approved 
by the Secretary of Housing and Urban Development under sec-
tion 221(d) (3) or 236 of the National Housing Act or regulations 
issued under such sections. 
"(3) REINVESTMENT PERIOD.—The reinvestment period, with 
respect to an approved disposition of a qualified housing project, 
is the period beginning one year before the date of such approved 
disposition and ending— 
"(A) one year after the close of the first taxable year in 
which any part of the gain from such approved disposition 
is realized, or 
" (B) subject to such terms and conditions as may be speci-
fied by the Secretary or his delegate, at the close of such later 
date as the Secretary or his delegate may designate on appli-
cation by the taxpayer. Such application shall be made at 
such time and in such manner as the Secretary or his delegate 
prescribes by regulations. 
•'(4) NET AMOUNT REALIZED.—The net amount realized on an 
approved disposition of a qualified housing project is the amount 
realized reduced by— 
" (A) the expenses paid or incurred which are directly con-
nected with such approved disposition, and 
"(B) the amount of taxes (other than income taxes) paid 
or incurred which are attributable to such 
approved 
disposition. 
"(c) SPECIAL RULES.—For purposes of applying subsection (a) (2) 
with respect to an approved disposition— 
"(1) no property acquired by the taxpayer before the date of 
the approved disposition shall be taken into account unless such 
property is held by the taxpayer on such date, and 
"(2) no property acquired by the taxpayer shall be taken into 
account unless, except as provided in subsection (d), the unad-
justed basis of such property is its cost within the meaning of 
section 1012. 
68A stat. 296. 
"(d) BASIS OF OTHER QUALIFIED HOUSING PROJECT.—If the tax- 
^^ "^^ ^°^^ 
payer makes an election under subsection (a) with respect to an ap-
proved disposition, the basis of the qualified housing project described 
in subsection (a) (2) shall be its cost reduced by an amount equal to 
the amount of gain not recognized by reason of the application of 
subsection (a). 
Ante, p. 525. 
720 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
"(e) 
ASSESSMENT OF DEFICIENCIES.— 
"(1) 
DEFICIENCY ATTRIBUTABLE TO GAIN.—If the taxpayer has 
made an election under subsection (a) with respect to an approved 
disposition— 
"(A) the statutory period for the assessment of any defi-
ciency, for any taxable year in which any part of the gain 
on such approved disposition is realized, attributable to the 
gain on such approved disposition shall not expire prior to 
the expiration of 3 years from the date the Secretary or his 
delegate is notified by the taxpayer (in such manner as the 
Secretary or his delegate may by regulations prescribe) of 
the construction, reconstruction, or acquisition of another 
qualified housing project or of the failure to construct, re-
construct, or acquire another qualified housing project, and 
"(B) such deficiency may be assessed before the expiration 
of such 3-year period notwithstanding the provisions of sec-
26^80^62^2° 
^^^^ 6212(c) or the provision of any other law or rule of law 
which would otherwise prevent such assessment. 
"(2) 
TIME FOR ASSESSMENT OF OTHER DEFICIENCIES ATTRIB-
UTABLE TO ELECTION.—If a taxpayer has made an election under 
subsection (a) with respect to an approved disposition and an-
other qualified housing project is constructed, reconstructed, or 
acquired before the beginning of the last taxable year in which any 
part of the gain upon such approved disposition is realized, any 
deficiency, to the extent resulting from such election, for any 
taxable year ending before such last taxable year may be assessed 
(notwithstanding the provisions of section 6212(c) or 6501 or the 
provisions of any other law or rule of law which would otherwise 
prevent such assessment) at any time before the expiration of the 
period within which a deficiency for such last taxable year may be 
assessed." 
(b) AMENDMENTS TO SECTION 1250.— 
(1) Section 1250(d) (relating to exceptions and limitations) is 
amended by adding at the end thereof the following new-
paragraph : 
"(8) DISPOSITION OF QUALIFIED LOW-INCOME HOUSING.—If sec-
tion 1250 property is disposed of and gain (determined without 
regard to this section) is not recognized in whole or in part under 
section 1039, then— 
"(A) RECOGNITION LIMIT.—The amount of gain recognized 
by the transferor under subsection (a) shall not exceed the 
greater of— 
"(i) the amount of gain recognized on the disposition 
(determined without regard to this section), or 
" (ii) the amount determined under subparagraph (B). 
"(B) 
ADJUSTMENT WHERE INSUFFICIENT SECTION 1250 PROP-
ERTY IS ACQUIRED.—With respect to any transaction, the 
amount determined under this subparagraph shall be the 
excess of— 
"(i) the amount of gain which would (but for this 
paragraph) be taken into account under subsection (a), 
over 
"(ii) the cost of the section 1250 property acquired in 
the transaction. 
"(C) BASIS OF PROPERTY ACQUIRED.—The basis of property 
acquired by the taxpayer, determined under section 1039(d), 
shall be allocated— 
Ante, 
p. 652. 
Ante, 
p. 718. 
83 STAT. ] 
PUBLIC L M _ 9 W 7 ^ - D E a 30, 1969 
721 
"(i) first to the section 1250 property described in 
subparagraph (E) (i), in the amount determined under 
such subparagraph, reduced by the amount of gain not 
recognized attributable to the section 1250 property dis-
pose:^ of, 
"(ii) then to any property (other than section 1250 
property) to whicli section 1039 applies, in the amount 
Ante, p. 7\8. 
of its coit, reduced by the amount of gain not recog-
nized except to the extent taken into account under 
clause (i), and 
"(iii) then to the section 1250 property described in 
subparagraph (E) (ii). in the amount determined there-
under, reduced by the amount of gain not recognized ex-
cept to the extent taken into account under clauses (i) 
and (ii). 
"(D) ADDITIONAL DEPBECIATION WITH RESPECT TO PROP-
ERTY DISPOSED OF.—The additional depreciation with respect 
to any property acquired shall include the additional depre-
ciation with respect to the corresponding section 1250 prop-
erty disposed 01, reduced by the amount of gain recognized 
attributable to such property. 
" ( E ) PROPERTY CONSISTING OF MORE THAN ONE ELEMENT.— 
There shall be treated as a separate element of section 1250 
property— 
"(i) that portion of the section 1250 property ac-
quired the cost of which does not exceed the net amount 
realized (as defined in section 1039(b)) attributable to 
the section 1250 property disposed of, reduced by the 
amount of gain recognized (if any) attributable to such 
property, and 
"(ii) that portion of the section 1250 property acquired 
the cost of which exceeds the net amount realized (as 
defined in section 1039(b)) attributable to the section 
1250 property disposed of. 
"(F) ALLOCATION RULES.—For purposes of this para-
graph— 
"(i) the amount of gain recognized attributable to the 
section 1250 property disposed of shall be the net amount 
realized with respect to such property, reduced by the 
greater of the adjusted basis of the section 1250 property 
disposed of or the cost of the section 1250 property 
acquired, but shall not exceed the gain recognized in the 
transaction, and 
"(ii) if any section 1250 property is treated as con-
sisting of more than one element by reason of the applica-
tion of subparagraph (E) to a prior transaction, then the 
amount of gain recognized, the net amount realized, and 
the additional depreciation, with respect to each such 
element shall be allocated in accordance with regulations 
prescribed by the Secretary or his delegate." 
(2) Section 1250(e) (relating to holding period) is amended 
Ante, p. e52. 
by adding at the end thereof the following new paragraph: 
"(4) QUALIFIED LOW-INCOME HOUSING.—The holding period of 
any section 1250 property acquired which is described in subsec-
tion (d)(8)(E)(i) shall include the holding period of the corre-
sponding element of section 1250 property disposed of." 
Ante, p. 721. 
722 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
Ante, p. 652. 
(3) Sectlon 1250 (relating to gain from dispositions of certain 
depreciable realty) is amended by redesignating subsections (g) 
and (h) as subsections (h) and (i) and by inserting after sub-
section (f) the following new subsection: 
"(g) SPECIAL KULES FOR QUALIFIED LOW-INCOME HOUSING.— 
"(1) AMOUNT TREATED AS ORDINARY INCOME.—If, in the case 
of a disposition of section 1250 property, the property is treated 
as consisting of more than one element by reason of the applica-
tion of subsection (d)(8)(E), and gain is recognized in whole 
or in part, then the amount taken into account under subsection 
(a) as gain from the sale or exchange of property which is neither 
68A Stat. 325. 
r
^ capital asset nor property described in section 1231 shall be the 
sum of the amounts determined under paragraph (2). 
"(2) 
ORDINARY INCOME ATTRIBUTABLE TO AN ELEMENT.—For 
purposes of paragraph (1), the amount taken into account for any 
element shall be the amount determined by multiplying— 
"(A) the amount which bears the same ratio to the lower 
of the additional depreciation or the gain recognized for the 
section 1250 property disposed of as the additional deprecia-
tion for such element bears to the sum of the additional depre-
ciation for all elements disposed of, by 
"(B) the applicable percentage for such element. 
For purposes of this paragraph, determinations with respect to 
any element shall be made as if it were a separate property." 
(c) CLERICAL AMENDMENT.—The table of sections for part I I I of 
subchapter O of chapter 1 is amended by adding at the end thereof the 
following new item: 
"Sec. 1039. Certain sales of low-income housing projects." 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply to approved dispositions of qualified housing projects (within 
Ante, p. 718. 
the meaning of section 1039 of the Internal Revenue Code of 1954, as 
added by subsection (a)) after October 9, 1969. 
SEC. 911. PER-UNIT RETAIN ALLOCATIONS. 
(a) PAYMENTS 
OF MONEY 
AND OTHER 
PROPERTY.—Section 
9° f^^r i^ao' 
1382(b) (3) (relating to patronage dividends and per-unit retain al-
locations) is amended to read as follows: 
"(3) as per-unit retain allocations (as defined in section 
1388(f)), to the extent paid in money, qualified per-unit retain 
certificates (as defined in section 1388(h)), or other property (ex-
cept nonqualified per-unit retain certificates, as defined in section 
1388 (i)) with respect to marketing occurring during such tax-
able year; or". 
(b) CONFORMING AMENDMENT.—Section 1388(f) (relating to per-
unit retain allocations) is amended by striking out "other than by pay-
ment in money or other property (except per-unit retain certificates)". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to per-unit retain allocations made after October 9, 1969. 
SEC. 912. FOSTER CHILDREN. 
Ts^st^t^'eg'g''^' 
^^} ^^ GENERAL.—Section 162(b) (2) (relating to rules relating to 
definition of dependent) is amended by inserting immediately before 
"shall be treated" the following: ", or a foster child of an individual 
(if such child satisfies the requirements of subsection (a) (9) with re-
spect to such individual),". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) of 
this section shall apply to taxable years beginning after December 
31,1969. 
26 u s e 1382. 
80 Stat. 1582. 
i83 STAT. ] 
PUBLIC_LAW 9lil71-DEC .SO^ .1169 
723 
SEC. 913. COOPERATIVE HOUSING CORPORATIONS. 
(a) STOCK HELD BY GOVERNMENTAL UNITS.—Section 216(b) (re- 
26'uscr*2iV" 
lating to definitions) is amended by adding at the end thereof the fol-
lowing new paragraph: 
"(4) STOCK O
W
N
E
D B
Y GOVERNMENTAL UNITS.—FoT purposes of 
this subsection, in determining whether a corporation is a cooper-
ative housing corporation, stock owned and apartments leased by 
the United States or any of its possessions, a State or any political 
subdivision thereof, or any agency or instrumentality of the fore-
going empowered to acquire shares in a cooperative housing cor-
poration for the purpose of providing housing facilities, shall not 
be taken into account." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31,1969. 
SEC 914. PERSONAL HOLDING COMPANY DIVIDENDS. 
(a) DIVIDENDS PAID AFTER CLOSE OF YEAR.—Section 563(b) (re- 
esA stat. 199. 
lating to personal holding company tax) is amended by striking out 
"10 percent" in paragraph (2) and inserting in lieu thereof "20 
percent". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1969. 
SEC. 915. REPLACEMENT OF PROPERTY INVOLUNTARILY CONVERTED 
WITHIN A 2-YEAR PERIOD. 
(a) I N GENERAL.—Section 1033(a) (3) (B) (relating to the period 
^SA stat. 303. 
within which property must be replaced) is amended by striking out 
"one year" in clause (i) and inserting in lieu thereof "2 years". 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
apply only if the disposition of the converted property (within the 
meaning of section 1033(a) (2) of the Internal Kevenue Code of 1954) 
occurs after the date of the enactment of this Act. 
SEC. 916. CHANGE IN REPORTING INCOME ON INSTALLMENT BASIS. 
(a) I N GENERAL.—Section 453(c) (relating to change from accrual 
^SA stat. 154. 
to installment basis of reporting) is amended by adding at the end 
thereof the following new paragraphs: 
"(4) REVOCATION OF ELECTION.—An election under paragraph 
(1) to report taxable income on the installment basis may be re-
voked by filing a notice of revocation, in such manner as the Secre-
tary or his delegate prescribes by regulations, at any time before 
the expiration of 3 years following the date of the filing of the 
tax return for the year of change. If such notice of revocation is 
timely filed— 
"(A) the provisions of paragraph (1) and subsection (a) 
shall not apply to the year of change or for any subsequent 
year; 
"(B) the statutory period for the assessment of any de-
ficiency for any taxable year ending before the filing of such 
notice, which is attributable to the revocation of the election 
to use the installment basis, shall not expire before the expira-
tion of 2 years from the date of the filing of such notice, and 
such deficiency may be assessed before the expiration of such 
2-year period notwithstanding the provisions of any law or 
rule of law which would otherwise prevent such assessment; 
and 
"(C) if refund or credit of any overpayment, resulting 
from the revocation of the election to use the installment basis, 
26 use 453. 
724 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
for any taxable year ending before tlie date of the filing of 
the notice of revocation is prevented on the date of such 
filing, or within one year from such date, by the operation of 
26ljsc'7m^' 
any law or rule of law (other than section 7121 or 7122), 
7122. 
refund or credit of such overpayment may nevertheless be 
made or alloAved if claim therefor is filed within one j^ear from 
such date. No interest shall be allowed on the refund or credit 
of such overpayment for any period prior to the date of the 
filing of the notice of revocation. 
"(5) 
ELECTION AFTER REVOCATION.—If the taxpayer revokes 
under paragraph (4) an election under paragraph (1) to report 
taxable income on the installment basis, no election under para-
graph (1) may be made, except with the consent of the Secretary 
or his delegate, for any subsequent taxable year before the fifth 
taxable year following the year of change with respect to which 
such revocation is made." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to an election made for any year of change (as defined in 
section 453(c) (1) of the Internal Revenue Code of 1954) ending on 
or after the date of the enactment of this Act, and shall also apply to 
any such year of change which ended before such date if the 3-year 
statutory period for assessment of any deficiency for such year has 
not expired on the date of the enactment of this Act. 
SEC. 917. RECOGNITION OF GAIN IN CERTAIN LIQUIDATIONS. 
26'uscr333°^ 
^^^' purposes of applying section 333 (e) and (f) of the Internal 
Revenue Code of 1954 to a distribution in liquidation of a corporation 
during 1970, stock (including stock received in respect of such stock by 
reason of a stock dividend or stock split) or securities received by a 
qualified electing shareholder in exchange for his stock in the 
liquidating corporation shall be considered as having been acquired 
by the liquidating corporation before January 1, 1954, if— 
(1) such stock or securities were acquired by the liquidating 
corporation after December 31, 1953, from such qualified electing 
shareholder (or from a person from whom such qualified electing 
shareholder acquired such stock in the liquidating corporation by 
gift, bequest, or inheritance) solely in exchange for its stock in a 
26 use 351. 
transaction to which section 351 of such Code (or the correspond-
ing provisions of prior law) applied, and 
(2) the holding period of such stock or securities in the hands 
of the liquidating corporation, determined under section 1223(2) 
of such Code, includes any period before January 1, 1954. 
26 use 1223. 
Subtitle B—Miscellaneous Excise Tax Provisions 
SEC. 931. CONCRETE MIXERS. 
79 Stat. 157. 
( a ) EXEMPTION FROM T A X ON MoTOR VEHICLES. 
ScctioU 4 0 6 3 ( a ) 
(relating to exemption of specified articles from the tax on motor 
vehicles) is amended by adding at the end thereof the following new 
paragraph: 
26 use 4061. 
u^5^ CONCRETE MIXERS.—The tax imposed under section 4061 
shall not apply in the case of— 
"(A) any article designed (i) to be placed or mounted on 
an automobile truck chassis or truck trailer or semitrailer 
chassis and (ii) to be used to process or prepare concrete, and 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
725 
"(B) parts or accessories designed primarily for use on or 
in connection with an article described in subparagraph (A)." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply with respect to articles sold after December 31, 1969. 
SEC. 932. CONSTRUCTIVE SALE PRICE. 
(a) 
DETERMINATION OF FAIR MARKET PRICE.—Section 4216(b) 
72 stat. 1279. 
(relating to constructive sale price) is amended by adding at the end 
26 use 421 e. 
thereof the following new paragraphs: 
"(3) 
FAIR MARKET PRICE IN CASE OF CERTAIN ARTICLES.—Except 
as provided in paragraph (4), for purposes of paragraph (1) (C), 
if— 
"(A) the manufacturer, producer, or importer of an 
article regularly sells such article to a distributor which is a 
member of the same affiliated group of corporations (as 
defined in section 1504(a)) as the manufacturer, producer, 
SSA stat. 359. 
or importer, and 
"(B) such distributor regularly sells such article to one or 
more independent retailers, but does not regularly sell to 
wholesale distributors, 
the fair market price of such article shall be 90 percent of the 
lowest price for which such distributor regularly sells such article 
in arm's-length transactions to such independent retailers. The 
price determined under this paragraph shall not be adjusted for 
any exclusion (except for the tax imposed on such article) or read-
justments under subsections (a) and (f) and under section 
6416(b)(1). If both this paragraph and paragraph (4) apply 
asAstat.joi; 
with respect to an article, the fair market price for such article 
shall be the lower of the fair market price determined under this 
paragraph or paragraph (4). 
" (4) 
FAIR MARKET PRICE IN CASE OF CERTAIN OTHER ARTICLES.— 
For purposes of paragraph (1) (C), if— 
" (A) the manufacturer, producer, or importer of an article 
regularly sells (except for tax-free sales) only to a distributor 
which is a member of the same affiliated group of corpora-
tions (as defined in section 1504 (a)) as the manufacturer, pro-
ducer, or importer, 
"(B) the distributor regularly sells (except for tax-free 
sales) such article only to retailers, and 
"(C) the normal method of sales for such articles within 
the industry by manufacturers, producers, or importers is to 
sell such articles in arm's-length transactions to distributors, 
the fair market price for such article shall be the price at which 
such article is sold to retailers by the distributor, reduced by a 
percentage of such price equal to the percentage which (i) the dif-
ference between the price for which comparable articles are sold to 
wholesale distributors, in the ordinary course of trade, by manu-
facturers or producers thereof, and the price at which such whole-
sale distributors in arm's-length transactions sell such comparable 
articles to retailers, is of (ii) the price at which such wholesale 
distributors in arm's-length transactions sell such comparable 
articles to retailers. The price determined under this paragraph 
shall not be adjusted for any exclusion (except for the tax imposed 
on such article) or readjustment under subsections (a) and (f) 
and under section 6416(b) (1)." 
(b) EFFECTIVE DATE.—The amendment made by subs'ection (a) shall 
apply with respect to articles sold after December 31,1969. 
72 S t a t . 130(5. 
31-100 O - 70 - 48 
676. 
726 
PUBLIC LAW 91.172-DEC. 30, 1969 
[83 STAT. 
Subtitle C—Miscellaneous Administrative Provisions 
SEC. 941. FILING REQUIREMENTS. 
26 uscTeou^ 
(^) I ^ GENERAL.—Section 6012(a) (relating to persons required to 
make returns of income) is amended by striking out paragraph (1) 
and inserting in lieu thereof the following: 
"(1)(A) Every individual having for the taxable year a gross 
income of $600 or more, except that a return shall not be required 
of an individual (other than an individual referred to in section 
142(b))— 
"(i) who is not married (determined by applying section 
Ante. p. 677. 
143(a)) and for the taxable year has a gross income of less 
than $1,700, or 
"(ii) who is entitled to make a joint return under section 
6013 and whose gross income, when combined with the gross 
income of his spouse, is, for the taxable year, less than $2,300 
but only if such individual and his spouse, at the close of the 
taxable year, had the same household as their home. 
Clause (ii) shall not apply if for the taxable year such spouse 
makes a separate return or any other taxpayer is entitled to an 
Ante, pp. 675, 
exemptlou for such spouse under section 151 (e). 
"(B) The $1,700 amount specified in subparagraph (A) (i) shall 
be increased to $2,300 in the case of an individual entitled to an 
additional personal exemption under section 151(c)(1), and the 
$2,300 amount specified in subparagraph 
(A) (ii) 
shall be 
increased by $600 for each additional personal exemption to which 
the individual or his spouse is entitled under section 151(c);". 
(b) TECHNICAL AMENDMENT.—Subsections (b) and (c) (2) of sec-
tion 151 (relating to allowance of deductions for personal exemptions) 
are amended by striking out "if a separate return is made by the tax-
payer" and inserting in lieu thereof "if a joint return is not made by 
the taxpayer and his spouse". 
(c) EFFECTIVE DATE.—The amendments made by subsections (a) 
and (b) shall apply to taxable years beginning after December 31, 
1969. 
(d) TAXABLE YEARS AFTER 1972.—Effective with respect to taxable 
Supra. 
years beginning after December 31, 1972, section 6012(a)(1) 
is 
amended— 
(1) by striking out "$600" each place it appears therein and 
inserting in lieu thereof "$750"; 
(2) by striking out "$1,700" each place it appears and inserting 
in lieu thereof "$1,750"; and 
(3) by striking out "$2,300" each place it appears and inserting 
in lieu thereof "$2,500". 
SEC. 942. COMPUTATION OF TAX BY INTERNAL REVENUE SERVICE. 
(a) I N GENERAL.—The first sentence of section 6014(b) (relating to 
regulations; tax not computed by taxpayer) is amended to read as fol-
lows: "The Secretary or his delegate shall prescribe regulations for 
carrying out this section, and such regulations may provide for the 
application of the rules of this section— 
"(1) to cases where the gross income includes items other than 
those enumerated by subsection (a), 
"(2) to cases where the gross income from sources other than 
wages on which the tax has been withheld at the source is more 
than $100, 
68A Stat. 42. 
68A Stat. 736. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
727 
"(3) to cases where the gross income is $10,000 or more, 
"(4) to cases where the taxpayer is entitled to the credit pro-
vided by section 37 (relating to retirement income credit), or 
26 use 37. 
"(5) to cases where the taxpayer does not elect the standard 
deduction." 
(b) ErrECTivE DATE.—The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1969. 
SEC. 943. FAILURE TO MAKE TIMELY PAYMENT OR DEPOSIT OF TAX. 
(a) FAILURE To PAY TAX.—Section 6651 (relating to failure to 
esAstat. 821. 
file tax return) is amended to read as follows: 
"SEC. 6651. FAILURE TO FILE TAX RETURN OR TO PAY TAX. 
" (a) ADDITION TO TJIE TAX.—In case of failure— 
"(1) to file any return required under authority of subchapter 
A of chapter 61 (other than part I I I thereof), subchapter A of 
26 use eooi, 
chapter 51 (relating to distilled spirits, Avines, and beer), or of ^°°^' ^^°^' ^^°^-
subchapter A of chapter 52 (relating to tobacco, cigars, cigarettes, 
and cigarette papers and tubes), or of subchapter A of chapter 
53 (relating to machine guns and certain other firearms), on the 
date prescribed therefor (determined with regard to any exten-
sion of time for filing), unless it is shown that such failure is due 
to reasonable cause and not due to willful neglect, there shall be 
added to the amount required to be shown as tax on such return 
5 percent of the amount of such tax if the failure is for not more 
than 1 month, with an additional 5 percent for each additional 
month or fraction thereof during which such failure continues, 
not exceedhig 25 percent in the aggregate; 
"(2) fo pay the amounf shown as tax on any return specified in 
paragraph (1) on or before the date prescribed for payment of 
such tax (determined with regard to any extension of tin:e for 
payment), unless it is shown that such failure is due to reasonable 
cause and not due to willful neglect, there shall be added to the 
amount shown as tax on such return 0.5 percent of the amount of 
such tax if the failure is for not more tlian 1 month, with an addi-
tional 0.5 percent for each additional month or fraction thereof 
during which such failure continues, not exceeding 25 percent 
in the aggregate; or 
"(3) to pay any amount in respect of any tax required to be 
shown on a return specified in paragraph (1) which is not so 
shown 
(including an assessment made pursuant to section 
6213(b)) within 10 days of the date of the notice and demand 
26 use 6213. 
therefor, unless it is shown that such failure is due to reasonable 
cause and not due to Avillful neglect, there shall be added to the 
amount of tax stated in such notice and demand 0.5 percent of the 
amount of such tax if the failure is for not more than 1 month, 
with an additional 0.5 percent for each additional month or frac-
tion thereof during Avhich such failure continues, not exceeding 
25 percent in the aggregate. 
"(b) 
PENALTY IMPOSED ON XET A:MOUNT DUE.—For purposes of— 
"(1) subsection (a)(1), the amount of tax required to be shown 
on the return shall be reduced by the amount of any part of the 
tax wliich is paid on or before the date prescribed for payment of 
the tax and by the amount of any credit against the tax Avhich 
may be claimed on the return, 
"(2) subsection (a) (2), the amount of tax shown on the return 
shall, for purposes of computing the addition for any month, be 
728 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
reduced by the amount of any part of the tax which is paid on or 
before the beginning of such month and by the amount of any 
credit against the tax which may be claimed on the return, and 
"(3) subsection (a) (3), the amount of tax stated in the notice 
and demand shall, for the purpose of computing the addition for 
any month, be reduced by the amount of any part of the tax which 
is paid before the beginning of such month. 
"(c) 
LIMITATIONS AND SPECIAL RULE.— 
"(1) 
ADDITIONS UNDER MORE THAN ONE PARAGRAPH.— 
"(A) With respect to any return, the amount of the addi-
tion under paragraph (1) of subsection (a) shall be reduced 
by the amount of the addition under paragraph (2) of sub-
section (a) for any month to which an addition to tax applies 
under both paragraphs (1) and (2). 
"(B) With respect to any return, the maximum amount of 
the addition permitted under paragraph (3) of subsection 
(a) shall be reduced by the amount of the addition under 
paragraph (1) of subsection (a) which is attributable to the 
tax for which the notice and demand is made and which is not 
paid within 10 days of notice and demand. 
"(2) 
AMOUNT OF TAX SHOWN MORE THAN AMOUNT REQUIRED TO 
BE SHOWN.—If the amount required to be shown as tax on a return 
is less than the amount shown as tax on such return, subsections 
(a) (2) and (b) (2) shall be applied by substituting such lower 
amount. 
"(d) EXCEPTION FOR DECLARATIONS OF ESTIMATED TAX.—This sec-
tion snail not apply to any failure to file a declaration of estimated 
26 use 6015. 
(.g^x required by section 6015 or to pay any estimated tax required to be 
82 Stat. 260. 
paid by section 6153 or 6154." 
68Astat. 826. 
(b) FAILURE To MAKE DEPOSIT OF TAX.—Sectiou 6656(a) (relat-
ing to penalty for failure to make deposit of taxes) is amended by 
striking out the first sentence and inserting in lieu thereof the follow-
ing: "In case of failure by any person required by this title or by 
regulation of the Secretary or his delegate under this title to deposit 
on the date prescribed therefor any amount of tax imposed by this title 
in such government depositary as is authorized under section 6302(c) 
to receive such deposit, unless it is shown that such failure is due to 
reasonable cause and not due to willful neglect, there shall be 
imposed upon such person a penalty of 5 percent of the amount of the 
underpayment." 
(c) 
CONFORMING AMENDMENTS.— 
7
2 Stat. 1044. 
(1) Sectiou 3121 (k) (1) (F) (i) Trelatingto definitions of waiver 
of exemption by religious, charitable, and certain other organiza-
tions) is amended by inserting "or pay tax" after "tax return". 
(2) Section 3121 (k) (1) (G) (i) 
(relating to definitions of 
waiver of exemption by religious, charitable, and certain other 
organizations) is amended by inserting "or pay tax" after "tax 
return". 
79 Stat. 386. 
(3) Scctlon 3121 (k) (1) (H) (i) (relating to definitions of waiv-
ers of exemption by religious, charitable, and certain other organi-
zations) is amended by inserting "or pay tax" after "tax return". 
72 Stat. 1410. 
^4^ Section 5684(d) (2) (relating to cross references for pen-
alties relating to the payment and collection of liquor taxes) is 
amended by inserting "or pay tax" after "tax return". 
68A Stat. 822. 
26 u s e 6653. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
729 
(5) The table of sections for subchapter A of chapter 68 is 
amended by striking out: 
"Sec. 6651. Failure to file tax return." 
and inserting in lieu thereof: 
"Sec. 6651. Failure to file tax return or pay tax." 
(6) Section 6653(d) (relating to penalty for failure to pay tax 
if fraud assessed) is amended by adding "or pay tax" after 
"such return", 
(d) 
EFFECTIVE DATES.—The amendments made by subsections 
(a) and (c) shall apply with respect to returns the date prescribed 
by law (without regard to any extension of time) for filing of w^hich 
is after December 81, 1969, and with respect to notices and demands 
for payment of tax made after December 31, 1969. The amendment 
made by subsection (b) shall apply with respect to deposits the time 
for making of which is after December 31,1969. 
SEC. 944. DECLARATIONS OF ESTIMATED TAX BY FARMERS. 
(a) RETURN AS DECLARATION OR XVMENDMENT.—Section 6015(f) 
esA stat. 738. 
(relating to return considered as declaration or amendment) is 
amended by striking out "February 15" and inserting in lieu thereof 
"March 1". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
apply with respect to taxable years beginning after December 31,1968. 
SEC. 945. PORTION OF SALARY, WAGES, OR OTHER INCOME EXEMPT 
FROM LEVY. 
(a) I N GENERAL.—Section 6334(a) (relating to enumeration of 
68A stat. 784; 
property exempt from levy) is amended by adding at the end thereof 
the following new paragraph: 
"(8) SALARY, WAGES, OR OTHER INCOME.—If the taxpayer is 
required by judgment of a court of competent jurisdiction, entered 
prior to the date of levy, to contribute to the support of his minor 
children, so much of his salary, wages, or other income as is 
necessary to comply with such judgment." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply with respect to levies made 30 days or more after the date 
of the enactment of this Act. 
SEC. 946. INTERESTS AND PENALTIES IN CASE OF CERTAIN TAXABLE 
YEARS. 
(a) lNTEin:sT ox T'NDERPAY^IENT.—Notwithstanding section 6601 
of the Internal Revenue Code of 1954, in the case of any taxable year 
^6 use eeoi. 
ending before the date of the enactment of this Act, no interest on 
any underpayment of tax, to the extent such underpayment is attribut-
able to the amendments made by this Act, shall be assessed or collected 
for any period before the 90th day after such date. 
(b) DECLARATIONS OF ESTIMATED TAX.—In the case of a taxable 
year beginning before the date of the enactment of this Act, if any 
taxpayer is required to make a declaration or amended declaration of 
estimated tax, or to pay any amount or additional amount of esti-
mated tax, by reason of the amendments made by this Act, such 
amount or additional amount shall be paid ratably on or before each 
of the remaining installment dates for the taxable year beginning with 
the first installment date on or after the 30th day after such date 
of enactment. With respect to any declaration or payment of estimated 
tax before such first installment date, sections 6015, 6154, 6654, and 
82 stat. leo. 
730 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
26 use 6655. 
6655 of the Internal Kevenue Code of 1954 shall be applied without 
regard to the amendments made by this Act. For purposes of this sub-
section, the term "installment date" means any date on which, under 
section 6153 or 6154 of such Code (whichever is applicable), an 
installment payment of estimated tax is required to be made by the 
taxpayer. 
Subtitle D—United States Tax Court 
SEC. 951. STATUS OF TAX COURT. 
68A Stat. 879. 
Section 7441 (relating to the status of the Tax Court) is amended 
to read as follows: 
"SEC. 7441. STATUS. 
"There is hereby established, under article I of the Constitution of 
use prec. 
^^3 United States, a court of record to be known as the United States 
Tax Court. The members of the Tax Court shall be the chief judge 
and the judges of the Tax Court." 
SEC. 952. APPOINTMENT; TERM OF OFFICE. 
(a) Subsection (b) of section 7443 (relating to appointment of Tax 
Court judges) is amended by adding at the end thereof the following 
new sentence: "No individual shall be a judge of the Tax Court unless 
he is appointed to that office before attaining the age of 65." 
(b) Subsection (e) of such section (relating to terms of office of Tax 
Court judges) is amended to read as follows: 
"(e) TERM OF OrncE.—The term of office of any judge of the Tax 
Court shall expire 15 years after he takes office." 
SEC. 953. SALARY. 
78^st^at^*434?^^' 
Sectiou 7443(c) (relating to salaries of Tax Court judges) is 
amended to read as follows: 
"(c) 
SALARY.— 
"(1) Each judge shall receive salary at the same rate and in the 
same installments as judges of the district courts of the United 
States. 
" (2) For rate of salary and frequency of installment see section 
62 Stat. 897; 
135, title 28, United States Code, and section 5505, title 5, United 
''I'll'J'^^. 
States Code." 
SEC. 954. RETIREMENT. 
(a) Subsection (b) of section 7447 (relating to time of retirement) 
is amended to read as follows: 
"(b) 
RETIREMENT,— 
"(1) Any judge shall retire upon attaining the age of 70. 
"(2) Any judge who has attamed the age of 65 may retire any 
time after serving as judge for 15 years or more. 
"(3) Any judge who is not reappointed following the expira-
tion of the term of his office may retire upon the completion of 
such term, if (A) he has served as a judge of the Tax Court for 15 
years or more and (B) not earlier than 9 months preceding the 
date of the expiration of the term of his office and not later than 
6 months preceding such date, he advised the President in writing 
that he was willing to accept reappointment to the Tax Court. 
" (4) Any judge who becomes permanently disabled from per-
forming his duties shall retire. 
Section 8335(a) of title 5 of the United States Code (relating to 
automatic separation from the service) shall not apply in respect of 
judges." 
so^ltt^T' ^^^' 
(") Subsection (d) of such section (relating to retired pay) is 
amended to read as follows: 
80 Stat. 476. 
68A Stat, 880. 
80 Stat. 571. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
731 
"(d) RETIRED PAY.—Any individual who— 
"(1) retires under paragraph (1), (2), or (3) of subsection (b) 
and elects under subsection (e) to receive retired pay under this 
subsection shall receive retired pay during any period at a rate 
which bears the same ratio to the rate of the salary payable to a 
judge during such period as the number of years he has served as 
judge bears to 10; except that the rate of such retired pay shall not 
be more than the rate of such salary for such period; or 
"(2) retires under paragraph (4) of subsection (b) and elects 
under subsection (e) to receive retired pay under this subsection 
shall receive retired pay during any period at a rate— 
"(A) equal to the rate of the salary payable to a judge 
during such period if before he retired he had served as a 
judge not less than 10 years; or 
"(B) one-half of the rate of the salary payable to a judge 
during such period if before he retired he had served as a 
judge less than 10 years. 
Such retired pay shall begin to accrue on the day following the day on 
which his salary as judge ceases to accrue, and shall continue to accrue 
during the remainder of his life. Retired pay under this subsection 
shall be paid in the same manner as the sahiry of a judge. In computing 
the rate of the retired pay under paragraph (1) of this subsection for 
any individual who is entitled thereto, that portion of the aggregate 
number of years he has served as a judge which is a fractional part of 
1 year shall be eliminated if it is less than 6 m(mths, or shall be counted 
as a full year if it is 6 months or more." 
(c) Subsection (g) of such section is amended by striking out para-
graphs (2), (3), and (4) and inserting in lieu thereof the following: 
"(2) EFFECT OF ELECTING RETIRED PAY.—In the case of any 
individual who has filed an election to receive retired pay under 
subsection (d) — 
"(A) no annuity or other payment shall be payable to any 
person under the civil service retirement laws with respect 
to any service performed by such individual (whether per-
formed before or after such election is filed and whether per-
formed as judge or otherwise); 
"(B) no deduction for purposes of the Civil Service Re-
tirement and Disability Fund shall be made from retired pay 
payable to him under subsection (d) or from any other sal-
ary, pay, or compensation payable to him, for any period 
beginning after the day on which such election is filed; and 
"(C) such individual shall be paid the lump-sum credit 
computed under section 8331(8) of title 5 of the United 
States Code upon making application therefor with the Civil 
8° ^*^*- sei 
Service Commission." 
(d) Section 7447 (relating to retirement) is amended by adding 
at the end thereof the following new subsection: 
"(h) 
RETIREMENT FOR DISABILITY.— 
"(1) Any judge who becomes permanently disabled from per-
forming his duties shall certify to the President his disability in 
writing. If the chief judge retires for disability, his retirement 
shall not take effect until concurred in by the President. If any 
other judge retires for disability, he shall furnish to the Presi-
dent a certificate of disability signed by the chief judge. 
"(2) Whenever any judge who becomes permanently disabled 
from performing his duties does not retire and the President finds 
68A Stat. 882. 
26 u s e 7447. 
732 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
that such judge is unable to discharge efficiently all the duties of 
his office by reason of permanent mental or physical disability 
and that the appointment of an additional judge is necessary for 
the efficient dispatch of business, the President shall declare such 
judge to be retired." 
26ljs*cV447°' 
(^) Section 7447 (relating to retirement) is further amended as 
follows: 
Repeal, 
(1) Paragraph (4) of subsection (a) is repealed. 
(2) Paragraph (1) of subsection (g) is amended by striking 
out "Civil Service Retirement Act" and inserting in lieu thereof 
"civil service retirement laws" and by striking out "such Act 
applies" and inserting in lieu thereof "such civil service retirement 
laws apply". 
SEC. 955. SURVIVORS. 
75 Stat. 796. 
(^^^ Sectiou 7448(b) (relating to election of survivor annuities) is 
amended to read as follows: 
"(b) ELECTION.—Any judge may by written election filed while he is 
a judge (except that in the case of an individual who is not reappointed 
following expiration of his term of office, it may be made at any time 
before the day after the day on which his successor takes office) bring 
himself w^ithin the purview of this section. In the case of any judge 
other than the chief judge the election shall be filed with the chief 
judge; in the case of the chief judge the election shall be filed as 
prescribed by the Tax Court." 
(b) Section 7448 (relating to survivor annuities) is further amended 
as follows: 
(1) Subsections (d), (h), and (r) are each amended by striking 
out "Civil Service Retirement Act" the last place it appears in 
each such subsection and inserting in lieu thereof in each such 
place "civil service retirement laws . 
(2) Subsections (d) and (n) are each amended by striking out 
"section 3 of the Civil Service Retirement Act (5 U.S.C. 2253)" 
and inserting in lieu thereof in each such place "section 8332 of 
80 Stat. 567. 
title 5 of thc United States Code". 
(3) Subsection (m) is amended by striking out "section 1 (c) of 
the Civil Service Retirement Act (5 U.S.C. 2251(c))" and insert-
ing in lieu thereof "section 2107 of title 5 of the United States 
80 Stat. 409. 
C o d e " 
(4) Subsection (r) is amended by striking out "a waiver filed 
under section 7447(g) (3)" and inserting in lieu thereof "an elec-
tion filed under section 7447 (e)". 
SEC. 956. POWERS. 
Post, p. 734. 
Section 7456 (relating to powers of the Tax Court) is amended by 
adding at the end thereof the following new subsection: 
"(d) INCIDENTAL POWERS.—The Tax Court and each division there-
of shall have power to punish by fine or imprisonment, at its discre-
tion, such contempt of its authority, and none other, as— 
" (1) misbehavior of any person in its presence or so near there-
to as to obstruct the administration of justice; 
"(2) misbehavior of any of its officers in their official transac-
tions; or 
"(3) disobedience or resistance to its lawful writ, process, 
order, rule, decree, or command. 
It shall have such assistance in the carrying out of its lawful writ, 
process, order, rule, decree, or command as is available to a court of the 
United States." 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
733 
SEC. 957. TAX DISPUTES INVOLVING $1,000 OR LESS. 
(a) Part I I of subchapter C of chapter 76 (relating to Tax Court 
procedure) is amended by renumbering section 7463 as 7464, and by 7463. 
inserting after section 7462 the following new section: 
"SEC. 7463. DISPUTES INVOLVING $1,000 OR LESS. 
"(a) I N GENERAL.—In the case of any petition filed with the Tax 
Court for a redetermination of a deficiency where neither the amount 
of the deficiency placed in dispute, nor the amount of any claimed over-
payment, exceeds— 
"(1) $1,000 for any one taxable year, in the case of the taxes 
imposed by subtitle A and chapter 12, or 
"(2) $1,000, in the case of the tax imposed by chapter 11, 
at the option of the taxpayer concurred in by the Tax Court or a di-
vision thereof before the hearing of the case, proceedings in the case 
shall be conducted under this section. Notwithstanding the provisions 
of section 7453, such proceedings shall be conducted in accordance 
with such rules of evidence, practice, and procedure as the Tax Court 
may prescribe. A decision, together with a brief summary of the rea-
sons therefor, in any such case shall satisfy the requirements of sec-
tions 7459(b) and 7460. 
"(b) FINALITY OF DECISIONS.—A decision entered in any case in 
which the proceedings are conducted under this section shall not be re-
viewed in any other court and shall not be treated as a precedent for 
any other case. 
"(c) LIMITATION OF JURISDICTION.—In any case in which the pro-
ceedings are conducted under this section, notwithstanding the provi-
sions 01 sections 6214(a) and 6512(b), no decision shall be entered re-
determining the amount of a deficiency, or determining an overpay-
ment, except with respect to amounts placed in dispute within the 
limits described in subsection (a) and with respect to amounts con-
ceded by the parties. 
"(d) 
DISCONTINUANCE OF PROCEEDINGS.—At any time before a 
decision entered in a case in which the proceedings are conducted 
under this section becomes final, the taxpayer or the Secretary or his 
delegate may request that further proceedings under this section in 
such case be discontinued. The Tax Court, or the division thereof hear-
ing such case, may, if it finds that (1) there are reasonable grounds for 
believing that the amount of the deficiency placed in dispute, or the 
amount of an overpayment, exceeds the applicable jurisdictional 
amount described in subsection (a), and (2) the amount of such excess 
is large enough to justify granting such request, discontinue further 
proceedings in such case under this section. Upon any such discontinu-
ance, proceedings in such case shall be conducted in the same manner 
as cases to which the provisions of sections 6214(a) and 6512(b) 
apply. 
"(e) AMOUNT OF DEFICIENCY IN DISPUTE.—For purposes of this 
section, the amount of any deficiency placed in dispute includes addi-
tions to the tax, additional amounts, and penalties imposed by chapter 
68, to the extent that the procedures described in subchapter B of 
chapter 63 apply." 
(b) The table of sections for part I I of subchapter C of chapter 76 
is amended by striking out the last item and inserting in lieu thereof 
the following: 
"Sec. 7463. Disputes involving $1,000 or less. 
"Sec. 7464. Provisions of special application to transferees:" 
68A Stat. 884. 
26 u s e 7451-
734 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
68A Stat. 885, 
26 u s e 7456. 
68A Stat. 891. 
68A Stat. 773. 
75 Stat. 796. 
68A Stat. 889. 
SEC. 958. COMMISSIONERS. 
Section 7456(c) (relating to Tax Court commissioners) is amended 
to read as follows: 
"(c) COMMISSIONERS.—The chief judge may from time to time 
appoint commissioners who shall proceed under such rules and regula-
tions as may be promulgated by the Tax Court. Each commissioner 
shall receive the same compensation and travel and subsistence allow-
ances provided by law for commissioners of the United States Court 
of Claims." 
SEC. 959. NOTICE OF APPEAL. 
(a) Section 7483 (relating to petition for review) is amended to 
I'ead as follows: 
"SEC. 7483. NOTICE OF APPEAL. 
"Keview of a decision of the Tax Court shall be obtained by filing a 
notice of appeal with the clerk of the Tax Court within 90 days after 
the decision of the Tax Court is entered. If a timely notice of appeal 
is filed by one party, any other party may take an appeal by filing a 
notice of appeal within 120 days after the decision of the Tax Court is 
entered." 
(b) The table of sections for subchapter D of chapter 76 is amended 
by striking out the item relating to section 7483 and inserting in lieu 
thereof the following: 
"Sec. 7483. Notice of appeal." 
SEC. 960. CONFORMING AMENDMENTS. 
(a) Section 6214(a) (relating to jurisdiction to determine increased 
deficiencies, etc.) is amended by striking out "The Tax Court" and 
inserting in lieu thereof "Except as provided by section 7463, the Tax 
Court". 
(b) Section 6512(b) (1) (relating to jurisdiction to determine over-
payments) is amended by striking out "If the Tax Court" and insert-
ing in lieu thereof "Except as provided by paragraph (2) and by 
section 7463, if the Tax Court". 
(c) Sections 7447(a)(1) and 7448(a)(1) (relating to retirement 
and survivor annuities) are each amended by striking out "Tax Court 
of the United States" and inserting in lieu thereof "United States 
Tax Court". 
(d) Section 7447(a) (5) (relating to periods of service) is amended 
by striking out "or as a member of the Board." and inserting in lieu 
thereof ", as judge of the Tax Court of the United States, or as a 
member of the Board of Tax Appeals." 
(e) Section 7448(n) (relating to includible service) is amended by 
inserting after "Tax Appeals" the following: ", as a judge of the Tax 
Court of the United States,". 
(f) Section 7453 (relating to rules of practice, procedure, and evi-
dence) is amended by striking out "The" and inserting in lieu thereof 
"Except in the case of proceedings conducted under section 7463, the". 
(g) Section 7471(c) (relating to travel and subsistence allowances 
of commissioners) is amended to read as follows: 
"(c) 
COMMISSIONERS.^— 
"For compensation and travel and subsistence allowances of com-
missioners of the Tax Court, see section 7456(c)." 
(h) (1) Section 7481 (relating to date when Tax Court decision be-
comes final) is amended— 
(A) by striking out so much of such section as precedes para-
graph (2) thereof and inserting in lieu thereof the following: 
Ante, p. 733. 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
735 
" (a) REVIEWABLE DECISIONS.—Except as provided in subsection (b), 
the decision of the Tax Court shall become final— 
"(1) TIMELY NOTICE OF APPEAL NOT FILED.—Upon the expiration 
of the time allowed for filing a notice of appeal, if no such notice 
has been duly filed within such time; or"; 
(B) by striking out "PETITION FOR REVIEW" in the heading 
of paragraph (2) and inserting in lieu thereof "APPEAL"; 
(C) by striking out "petition for review" each place it 
appears in the text of paragraph (2) and inserting in lieu 
thereof "appeal"; and 
(D) by adding at the end thereof the following new sub-
section : 
"(b) NONREVIEWABLE DECISIONS.—The decision of the Tax Court 
in a proceeding conducted under section 7463 shall become final upon 
the expiration of 90 days after the decision is entered." 
(2) Section 7482 (c) (relating to courts of review) is amended— 
(A) by striking out "section 2074 of title 28" in paragraph 
(2) and inserting in lieu thereof "section 2072 of title 28"; 
(B) by striking out the second sentence of paragraph (2); 
and 
(C) by striking out "petition" in paragraph (4) and 
inserting in lieu thereof "notice of appeal". 
(3) Section 7485 (relating to bond to stay assessment and col-
lection) is amended— 
(A) by striking out "PETITION FOR REVIEW" in the heading 
of subsection (a) and inserting in lieu thereof "NOTICE OF 
APPEAL" ; 
(B) by striking out "petition for review" each place it 
appears in the text of subsection (a) and inserting in lieu 
thereof "notice of appeal"; and 
(C) by striking out "review bond" in paragraph (2) of 
subsection (a) and inserting in lieu thereof "appeal bond". 
(i)(l) Section 7487 (relating to cross references) is amended to 
read as follows: 
"SEC. 7487. CROSS REFERENCES. 
"(1) Nonreviewability.—For nonreviewability of Tax Court deci-
sions in small claims cases, see section 7463(b). 
"(2) Transcripts.—For authority of the Tax Court to fix fees for 
transcript of records, see section 7474." 
(2) The last item in the table of sections for subchapter D of chapter 
76 (relating to court review of Tax Court decisions) is amended to read 
as follows: 
"Sec. 7487. Cross references." 
(i) Section 7701(a) (27) (relating to definition of Tax Court) is 
amended by striking out "Tax Court of the United States" and insert-
ing in lieu thereof "United States Tax Court". 
SEC. 961. CONTINUATION OF STATUS. 
The United States Tax Court established under the amendment 
made by section 951 is a continuation of the Tax Court of the United 
^"^^' ^' ^^°" 
States as it existed prior to the date of enactment of this Act, the 
judges of the Tax Court of the United States immediately prior to 
the date of enactment of this Act shall become the judges of the 
United States Tax Court upon the enactment of this Act, and no loss 
of rights or powers, interruption of jurisdiction, or prejudice to mat-
735 
736 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
T's pending in the Tax Court of the United States before the date 
enactment of this Act shall result from the enactment of this Act. 
SEC. 962. EFFECTIVE DATES. 
(a) The amendments made by sections 951, 953, 954 (c) and (e), 
Ante, pp. 730- 
955, 956, 958, and 960 (c), (d), (e), (g), and (j) shall take effect on 
the date of enactment of this Act. 
(b) The amendment made by section 952(a) shall apply to judges 
appointed after the date of enactment of this Act. 
(c) The amendment made by section 952(b) shall take effect on the 
date of enactment of this Act, except that— 
(1) the term of office being served by a judge of the Tax Court 
on that date shall expire on the date it would have expired under 
the law in effect on the date preceding the date of enactment of 
this Act; and 
(2) a judge of the Tax Court on the date of enactment of this 
x\ct may be reappointed in the same manner as a judge of the Tax 
Court hereafter appointed. 
(d) The amendments made by subsections (a), (b), and (d) of 
section 954 shall apply to— 
(1) all judges of the Tax Court retiring on or after the date of 
enactment of this Act, and 
(2) all individuals performing judicial duties pursuant to sec-
Ante, p. 730. 
tion 7447(c) or receiving retired pay pursuant to section 7447(d) 
on the day preceding the date of enactment of this Act. 
Any individual who has served as a judge of the Tax Court for 18 
years or more by the end of one year after the date of the enactment 
of this Act may retire in accordance with the provisions of section 
7447 of the Internal Revenue Code of 1954 as in effect on the day pre-
ceding the date of the enactment of this Act. Any individual who is a 
judge of the Tax Court on the date of the enactment of this Act may 
retire under the provisions of section 7447 of such Code upon the com-
pletion of the term of his office, if he is not reappointed as a judge of 
the Tax Court and gives notice to the President within the time pre-
Ante, p. 730, 
scribcd by section 7447(b) of such Code (or if h's term expires within 
6 months after the date of enactment of this Act, gives notice to the 
President before the expiration of 3 months after the date of enact-
ment of this Act), and shall receive retired pay at a rate Avhich bears 
the same ratio to the rate of the salary payable to a judge as the 
number of years he has served as a jvidge of the Tax Court bears to 15; 
except that the rate of such retired pay shall not exceed the rate of the 
salary of a judge of the Tax Court. For purposes of the preceding 
sentence the years of service as a judge of the Tax Court shall be 
determined in the manner set forth in section 7447(d) of such Code. 
Ante,pp. 733- 
(g) ^he amendments made by sections 957 and 960 (a), (b), (f), 
and (i) shall take effect one year after the date of enactment of this 
Act. 
(f) The amendments made by sections 959 and 960(h) shall take 
effect 30 days after the date of the enactment of this Act. In the case 
of any decision of the Tax Court entered before the 30th day after the 
date of the enactment of this Act, the United States Courts of Appeals 
shall have jurisdiction to hear an appeal from such decision, if such 
appeal was filed within the time prescribed by Rule 13(a) of the Fed-
28 use app. 
Qj.c^Y Rules of Appellate Procedure or by section 7483 of the Internal 
Ante, p. 734. 
Reveuue Code of 1954, as in effect at the time the decision of the Tax 
Court was entered. 
83 STAT.] 
PUBLIC L
A
W 91-172-DEC. 30, 1969 
737 
TITLE X—INCREASE IN SOCIAL SECURITY 
BENEFITS 
This title may 
1969' 
SEC. 
? 
be cited as the 
1002. INCREASE IN 
"Social Secu 
rity A m p n d m P n t t ; o f 
Social Security 
^ U i e n U l U e i i t b Ol 
Amendments of 
1969. 
OLD-AGE, SURVIVORS, AND DISABILITY 
INSURANCE BENEFITS. 
(d) Section 215 
out the table and 
(a) of the Social Security Act is am 
inserting in lieu thereof the follo^\ 
ended by 
•ing: 
strikino- 
si stat. 824. 
OLiiiviiig, 
^2 u s e 415. 
"TABLE F
O
R D
E
T
E
R
M
I
N
I
N
G P
R
I
M
A
R
Y INSURANCE A
M
O
U
N
T A
N
D M
A
X
I
M
U
M F
A
M
I
L
Y BENEFITS 
"1 
(Primary insurance benefi 
If an i 
t under 
1939 Act, as modified) 
ndividual's primary insurance 
benefit (as determined under subsec. 
(d)) is 
$16.21 
16.85 
17.61 
18.41 
19.25 
20.01 
20.65 
21.29 
21.89 
22.29 
22.69 
23.09 
23.45 
23.77 
24.21 
24.61 
25.01 
25.49 
25.93 
26.41 
26.95 
27.47 
28.01 
28.69 
29.26 
29.69 
30.37 
30.93 
31.37 
32.01 
32.61 
33.21 
33.89 
34.51 
35.01 
35.81 
36.41 
37.09 
37.61 
38.21 
39.13 
39.69 
40.34 
41.13 
41.77 
42.45 
43.21 
43.77 
44.45 
44.89 
At 
least-
But 
not 
more 
than— 
$16.20 
16.84 
17.60 
18.40 
19.24 
20.00 
20.64 
21.28 
21.88 
22.28 
22.68 
23.08 
23.44 
23.76 
24.20 
24.60 
25.00 
25.48 
25.92 
26.40 
26.94 
27.46 
28.00 
28.68 
29.25 
29.68 
30.36 
30.92 
31.36 
32.00 
32.60 
33.20 
33.88 
34.50 
35.00 
35.80 
36.40 
37.08 
37.60 
38.20 
39.12 
39.68 
40.33 
41.12 
41.76 
42.44 
43.20 
43.76 
44.44 
44.88 
45.60 
II 
(Primary 
insurance 
amount 
under 
1967 A«t) 
III 
(Average monthly wage) 
O
r his average monthly wage 
O
r his 
primsry 
insurance 
amount (as 
determined 
under 
subsec. (c)) 
is— 
$55.40 . 
or less 
56.50 
57.70 
58.80 
59.90 
61.10 
62.20 
63.30 
64.50 
65.60 
66.70 
67.80 
69.00 
70.20 
71.50 
72.60 
73.80 
75.10 
76.30 
77.50 
78.70 
79.90 
81.10 
82.30 
83.60 
84.70 
85.90 
87.20 
88.40 
89.50 
90.80 
92.00 
93.20 
94.40 
95.60 
96.80 
98.00 
99.30 
100. 50 
101. 60 
102.90 
104.10 
105.20 
106.50 
107.70 
108.90 
110.10 
111.40 
112.60 
113.70 
115.00 
116.20 
117.30 
(as 
determined 
under 
subsec. (b)) is— 
But 
At 
not 
least— 
more 
than-
$77 
79 
81 
82 
84 
86 
88 
90 
91 
93 
95 
97 
98 
100 
102 
103 
105 
107 
108 
110 
114 
119 
123 
128 
133 
137 
142 
147 
151 
156 
161 
165 
170 
175 
179 
184 
189 
194 
198 
203 
208 
212 
217 
222 
226 
231 
236 
240 
245 
250 
254 
259 
$76 
78 
80 
81 
83 
85 
87 
89 
90 
92 
94 
96 
97 
99 
101 
102 
104 
106 
107 
109 
113 
118 
122 
127 
132 
136 
141 
146 
150 
155 
160 
164 
169 
174 
178 
183 
188 
193 
197 
202 
207 
211 
216 
221 
225 
230 
235 
239 
244 
249 
253 
258 
263 
I
V 
(Primary 
insurance 
amount) 
The amount 
referred to 
in the 
preceding 
paragraphs 
of this 
subsection 
shall be— 
$64. 00 
65.00 
66.40 
67.70 
68.90 
70.30 
71.60 
72.80 
74.20 
75.50 
76.80 
78.00 
79.40 
80.80 
82.30 
83.50 
84.90 
86.40 
87.80 
89.20 
90.60 
91.90 
93.30 
94.70 
96.20 
97.50 
98.80 
100.30 
101.70 
103.00 
104.50 
105.80 
107.20 
108.60 
110.00 
111.40 
112.70 
114.20 
115.68 
116.90 
118.40 
119.80 
121.00 
122.50 
123.90 
125. 30 
126.70 
128.20 
129.50 
130.80 
132.30 
133.70 
134.90 
V 
(Maximum 
family 
benefits) 
And the 
maximum 
amount of 
benefits 
payable (as 
provided in 
sec. 203(a)) 
on the basis 
of his wages 
and self-
employment 
income 
shall be— 
$96.00 
97.50 
99.60 
101.60 
103.40 
105.50 
107.40 
109.20 
111.30 
113.30 
115.20 
117.00 
119.10 
121.20 
123. 50 
125.30 
127.40 
129.60 
131.70 
133.80 
135.90 
137.90 
140. 00 
142.10 
144. 30 
146. 30 
148. 20 
150.50 
152.60 
154. 50 
156.80 
158.70 
160. 80 
162.90 
165. 00 
167.10 
169.10 
171.30 
173.40 
175.40 
177.60 
179.70 
181.50 
183.80 
185.90 
188.00 
190.10 
192.30 
195.20 
199.20 
202.40 
206.40 
210.40 
738 
PUBLIC L
A
W 91-172~DEC. 30, 1969 
[83 STAT. 
"TABLE FOR DETERMINING PRIMARY INSURANCE AMOUNT AND MAXIMUM FAMILY BENEFITS—Continued 
"1 
II 
(Primary 
(Primary insurance benefit under 
insurance 
1939 Act, as modified) 
amount 
under 
1967 Act) 
If an individual's primary insurance 
benefit (as determined under subsec. 
(d)) is— 
O
r his 
primary 
insurance 
amount (as 
determined 
But 
under 
At 
not 
subsec. (c)) 
least— 
more 
is— 
than— 
$118.60 
119.80 
121.00 
122.20 
123.40 
124.70 
125.80 
127.10 
128.30 
129.40 
130.70 
131.90 
133.00 
134,30 
135.50 
136.80 
137.90 
139.10 
140.40 
141.50 
142.80 
144.00 
145.10 
146.40 
147.60 
148.90 
150.00 
151.20 
152.50 
153.60 
154.90 
156.00 
157.10 
158.20 
159.40 
160.50 
16L60 
162.80 
163.90 
165.00 
166.20 
167.30 
168.40 
169.50 
170.70 
17L80 
172.90 
174.10 
175.20 
176.30 
177.50 
178.60 
179.70 
180.80 
182.00 
183.10 
184.20 
185.40 
186.50 
187.60 
188.80 
189.90 
191.00 
192.00 
193.00 
194.00 
195.00 
196.00 
197.00 
198.00 
199.00 
200.00 
III 
(Average monthly wage) 
O
r his average monthly wage 
(as 
determined 
under 
subsec. (b)) is-
At 
least— 
$264 
268 
273 
278 
282 
287 
292 
296 
301 
306 
310 
315 
320 
324 
329 
334 
338 
343 
348 
352 
357 
362 
366 
371 
376 
380 
385 
390 
394 
399 
404 
408 
413 
418 
422 
427 
432 
437 
441 
446 
451 
455 
460 
465 
469 
474 
479 
483 
488 
493 
497 
502 
507 
511 
516 
521 
525 
530 
535 
539 
544 
549 
554 
557 
561 
564 
568 
571 
575 
578 
582 
585 
But 
not 
more 
than— 
$267 
272 
277 
281 
286 
291 
295 
300 
305 
309 
314 
319 
323 
328 
333 
337 
342 
347 
351 
356 
361 
365 
370 
375 
379 
384 
389 
393 
398 
403 
407 
412 
417 
421 
426 
431 
436 
440 
445 
450 
454 
459 
464 
468 
473 
478 
482 
487 
492 
496 
501 
506 
510 
515 
520 
524 
529 
534 
538 
543 
548 
553 
556 
560 
563 
567 
570 
574 
577 
581 
584 
588 
I
V 
(Primary 
insurance 
amount) 
The amount 
referred to 
in the 
preceding 
paragraphs 
of this 
subsection 
shall be— 
$136.40 
137.80 
139.20 
140.60 
142.00 
143.50 
144.70 
146.20 
147.60 
148.90 
150.40 
151.70 
153.00 
154.50 
155.90 
157.40 
158.60 
160.00 
161.50 
162.80 
164.30 
165.60 
166.90 
168.40 
169.80 
171.30 
172.50 
173.90 
175.40 
176.70 
178.20 
179.40 
180.70 
182.00 
183.40 
184.60 
185.90 
187.30 
188.50 
189.80 
191.20 
192.40 
193.70 
195.00 
196.40 
197.60 
198.90 
200.30 
201.50 
202.80 
204.20 
205.40 
206.70 
208.00 
209.30 
210.60 
211.90 
213.30 
214.50 
215.80 
217.20 
218.40 
219.70 
220.80 
222.00 
223.10 
224.30 
225.40 
226.60 
227.70 
228.90 
230.00 
V 
(Maximum 
family 
benefits) 
And the 
maximum 
amount of 
benefits 
payable (as 
provided in 
sec. 203(a)) 
on the basis 
of his wages 
and self-
employment 
income 
shall be— 
$213.60 
217.60 
221.60 
224.80 
228.80 
232.80 
236.00 
240.00 
244.00 
247.20 
251.20 
255.20 
258.40 
262.40 
266.40 
269.60 
273.60 
277.60 
280.80 
284.80 
288.80 
292.00 
296.00 
300.00 
303.20 
307.20 
311.20 
314.40 
318.40 
322.40 
325.60 
329.60 
333.60 
336.80 
340.80 
344.80 
348.80 
350.40 
352.40 
354.40 
356.00 
358.00 
360.00 
361.60 
363.60 
365.60 
367.20 
369.20 
371.20 
372.80 
374.80 
376.80 
378.40 
380.40 
382.40 
384.00 
386.00 
388.00 
389.60 
391.60 
393.60 
395.60 
396.80 
398.40 
399.60 
401.20 
402.40 
404.00 
405.20 
406.80 
408.00 
409.60 
83 STAT. ] 
PUBLIC LAW 91-172-DEC. 30, 1969 
739 
"TABLE FOR DETERMINING PRIMARY INSURANCE AMOUNT AND MAXIMUM FAMILY BENEFITS-Continued 
"1 
(primary insurance benefit under 
1939 Act, as modified) 
If an individual's primary insurance 
benefit (as determined under subsec. 
( d ) ) i s -
But 
At 
not 
least— 
more 
than— 
II 
(Primary 
insurance 
amount 
under 
1967 Act) 
Or his 
primsry 
insurance 
amount (as 
determined 
under 
subsec. (c)) 
is— 
$201.00 
202.00 
203.00 
204.00 
205. 00 
206.00 
207.00 
208.00 
209.00 
210. 00 
211.00 
212. 00 
213. 00 
214.00 
215. 00 
216. 00 
217.00 
218.00 
III 
(Average mon 
Ihly wage) 
Or his average monthly wage 
(as 
determined 
under 
subsec. (b)) is 
At 
least— 
$589 
592 
596 
599 
603 
606 
610 
613 
617 
621 
624 
628 
631 
635 
638 
642 
645 
649 
But 
not 
more 
than— 
$591 
595 
598 
602 
605 
609 
612 
616 
620 
623 
627 
630 
634 
637 
641 
644 
648 
650 
IV 
(Primary 
insurance 
amount) 
The amount 
referred to 
in the 
preceding 
paragraphs 
of this 
subsection 
shall be— 
$231.20 
232.30 
233.50 
234.60 
235.80 
236.90 
238.10 
239. 20 
240. 40 
241. 50 
242.70 
243.80 
245. 00 
246.10 
247.30 
248.40 
249.60 
250.70 
V 
(Maximum 
family 
benefits) 
And the 
maximum 
amount of 
benefits 
payable (as 
provided in 
sec. 203(a)) 
on the basis 
of his wages 
and self-
employment 
income 
shall be— 
$410.80 
412.40 
413.60 
415. 20 
416.40 
418.00 
419. 20 
420.80 
422.40 
423.60 
425.20 
426.40 
428. 00 
429. 20 
430.80 
432. 00 
433.60 
434.40". 
(b) (1) Section 203(a) of such Act is amended by striking out para-
graph (2) and inserting in lieu thereof the following: 
"(2) when two or more persons were entitled (without the ap-
plication of section 202(j)(l) and section 223(b)) to monthly 
benefits under section 202 or 223 for January 1970 on the basis of 
the wages and self-employment income of such insured individual 
and at least one such person was so entitled for December 1969 
on the basis of such wages and self-employment income, such total 
of benefits for January 1970 or any subsequent month shall not be 
reduced to less than the larger of— 
"(A) the amount determined under this subsection without 
regard to this paragraph, or 
"(B) an amount equal to the sum of the amounts derived by 
multiplying the benefit amount determined under this title 
(including this subsection, but without the application of sec-
tion 222(b), section 202 (q), and subsections (b), (c),and (d) 
of this section), as in effect prior to the enactment of the 
Social Security Amendments of 1969 (and prior to January 
1,1970), for each such person for such month, by 115 percent 
and raising each such increased amount, if it is not a multiple 
of $0.10, to the next higher multiple of $0.10; 
but in any such case (i) paragraph (1) of this subsection shall not 
be applied to such total of benefits after the application of sub-
paragraph (B), and (ii) if section 202(k) (2) (A) was applicable 
in the case of any such benefits for January 1970, and ceases to 
apply after such month, the provisions of subparagraph (B) shall 
be applied, for and after the month in which section 202(k) (2) 
(A) ceases to apply, as though paragraph (1) had not been ap-
plicable to such total of benefits for January 1970, or". 
81 Stat. 826. 
42 u s e 403, 
42 u s e 402, 
423. 
42 u s e 422, 
402. 
•740 
PUBLIC LAW 91-172-DEC. 30, 1969 
[83 STAT. 
(2) Notwithstanding any other provision of law, when two or more 
persons are entitled to monthly insurance benefits under title I I of the 
81^state's33^^^' 
Social Security Act for any month after 1969 on the basis of the wages 
42 use 401- 
and self-employment income of an insured individual (and at least 
'*29. 
one of such persons was so entitled for a month before January 1971 
on the basis of an application filed before 1971), the total of the 
benefits to which such persons are entitled under such title for such 
f2usc"4"2^" 
iT^onth (after the application of sections 203(a) and 202(q) of such 
Act) shall be not less than the total of the monthly, insurance benefits 
to which such persons would be entitled under such title for such 
month (after the application of such sections 203 (a) and 202 (q)) with-
out regard to the amendment made by subsection (a) of this section. 
42 use 4lY' 
(^) Section 215(b)(4) of such xVct is amended by striking out 
"January 1968" each time it appears and inserting in lieu thereof 
"December 1969". 
(d) Section 215(c) of such Act is amended to read as follows: 
81 Stat. 827, 
"Primary Insurance Amount Under 1967 Act 
"(c) (1) For the purposes of column I I of the table appearing in 
Ante, p. 737. 
subsectiou (a) of this section, an individual's primary insurance 
amount shall be computed on the basis of the law in effect prior to 
the enactment of the Social Security Amendments of 1969. 
"(2) The provisions of this subsection shall be applicable only in 
the case of an individual who became entitled to benefits under section 
42 use 423. 
202(a) or section 223 before January 1970, or who died before such 
month." 
(e) The amendments made by this section shall apply Avith respect 
to monthly benefits under title I I of the Social Security Act for 
months after December 1969 and with respect to lump-sum death pay-
ments under such title in the case of deaths occurring after December 
1969. 
(f) If an individual was entitled to a disability insurance benefit 
under section 223 of the Social Security Act for December 1969 and 
became entitled to old-age insurance benefits under section 202(a) of 
such Act for January 1970, or he died in such month, then, for pur-
poses of section 215(a) (4) of the Social Security Act (if applicable), 
the amount in column IV of the table appearing in such section 215 (a) 
for such individual shall be tlie amount in such column on the line on 
which in column I I appears his primary insurance amount (as deter-
mined under section 215 (c) of such Act) instead of the amount in col-
umn IV equal to the primary insurance amount on which his disability 
insurance benefit is based. 
SEC. 1003. INCREASE IN BENEFITS FOR CERTAIN INDIVIDUALS AGE 
72 AND OVER. 
$2 use 427* 
(a)(1) Section 227(a) of the Social Security Act is amended by 
striking out "$40" and inserting in lieu thereof "$46", and by striking 
out "$20" and inserting in lieu thereof "$23". 
(2) Section 227(b) of such Act is amended by striking out "$40" 
and inserting in lieu thereof "$46". 
(b) (1) Section 228(b) (1) of such Act is amended by striking out 
"$40" and inserting in lieu thereof "$46". 
(2) Section 228(b) (2) of such Act is amended by striking out "$40" 
and inserting in lieu thereof "$46", and by striking out "$20" and 
inserting in lieu thereof "$23". 
(3) Section 228 (c) (2) of such Act is amended by striking out "$20" 
and inserting in lieu thereof "$23". 
42 u s e 428. 
83 
STAT.] 
PUBLIC LAW 9M72-DEC. 30, 1969 
741 
Effective date. 
42 u s e 401-429. 
81 Stat. 828. 
42 u s e 402. 
81 Stat. 828. 
81 Stat. 828, 
(4) Section 228(c) (3) (A) of such Act is amended by striking out 
si f^^r !^!' 
"$40" and inserting in lieu thereof "$46". 
(5) Section 228(c) (3) (B) of such Act is amended by striking out 
"$20" and inserting in lieu thereof "$23". 
(c) The amendments made by subsections (a) and (b) shall apj)ly 
with respect to monthly benefits under title I I of the Social Security 
Act for months after December 1969. 
SEC. 1004. MAXIMUM AMOUNT OF A WIFE'S OR HUSBAND'S INSUR-
ANCE BENEFIT. 
(a) Section 202(b)(2) of the Social Security Act is amended to 
read as follows: 
"(2) Except as provided in subsection (q), such wife's insurance 
benefit for each month shall be equal to one-half of the primar^^ insur-
ance amount of her husband (or, in the case of a divorced wife, her 
former husband) for such month." 
(b) Section 202(c) (3) of such Act is amended to read as follows: 
"(3) Except as provided in subsection (q), such husband's insur-
ance benefit for each month shall be equal to one-half of the primary 
insurance amount of his wife for such month." 
(c) Sections 202(e) (4) and 202(f) (5) of such Act are each amended 
by striking out "whichever of the following is the smaller: (A) one-
half of the primary insurance amount of the deceased individual on 
whose wages and self-employment income such benefit is based, or (B) 
$105" and inserting in lieu thereof "one-half of the primary insurance 
amount of the deceased individual on whose wages and self-employ-
ment income such benefit is based". 
(d) The amendments made by subsections (a), (b), and (c) shall 
apply with respect to monthly benefits under title I I of the Social 
Security Act for months after December 1969. 
SEC. 1005. ALLOCATION TO DISABILITY INSURANCE TRUST FUND. 
(a) Section 201(b) (1) of the Social Security Act is amended— 
(1) by striking out "and" at the end of clause ( B ) ; and 
(2) by striking out "1967, and so reported," and inserting in 
lieu thereof the following: "1967, and before January 1,1970, and 
so reported, and (D) 1.10 per centum of the wages (as so defined) 
paid after December 31, 1969, and so reported,". 
(b) Section 201(b) (2) of such Act is amended— 
(1) by striking out "and" at the end of clause (B); and 
(2) by striking out "1967," and inserting in lieu thereof the 
following: "1967, and before January 1, 1970, and (D) 0.825 of 
1 per centum of the amount of self-employment income (as so 
defined) so reported for any taxable year beginning after Decem-
ber 31,1969,". 
SEC. 1006. DISREGARDING OF RETROACTIVE PAYMENT OF OASDI 
BENEFIT INCREASE. 
Notwithstanding the provisions of sections 2(a) (10), 402(a)(7), 
1002(a)(8), 1402(a)(8), and 1602(a) (13) and (14) of the Social 
Security Act, each State, in determining need for aid or assistance 
42 use 302,, 
under a State plan approved under title I, X, XIV, or XVI, or part Jgg^ ^^°^' ^^"' 
A of title IV, of such Act, shall disregard (and the plan shall be 
deemed to require the State to disregard), in addition to any other 
amounts which the State is required or permitted to disregard in deter-
mining such need, any amount paid to an individual under title I I 
of such Act (or under the Railroad Retirement Act of 1937 by reason 
of the first proviso in section 3(e) thereof), in any month after 
es stat. ess; 
December 1969, to the extent that (1) such payment is attributable ^%5'usc^228r 
to the increase in monthly benefits under the old-age, survivors, and 
Effective date. 
81 Stat. 837. 
42 u s e 401. 
31-100 O - 70 - 49 
4 29 
742 
PUBLIC LAW 91-173-DEC. 30, 1969 
[83 STAT. 
disability insurance system for January or February 1970 resulting 
from the enactment of this title, and (2) the amount of such increase 
is paid separately from the rest of the monthly benefit of such indi-
vidual for January or February 1970. 
SEC. 1007. DISREGARDING OF INCOME OF OASDI RECIPIENTS IN 
DETERMINING NEED FOR PUBLIC ASSISTANCE. 
In addition to the requirements imposed by law as a condition of 
approval of a State plan to provide aid or assistance in the form of 
money payments to individuals under title I, X, XIV, or XVI of the 
1
2
0
^
1 "fasf° 1381 Social Security Act, there is hereby imposed the requirement (and the 
plan shall be deemed to require) that, in the case of any individual 
receiving aid or assistance for any month after March 1970 and before 
July 1970 who also receives in such month a monthly insurance benefit 
42 use 401- 
under title I I of such Act which is increased as a result of the enact-
ment of the other provisions of this title, the sum of the aid or assist-
ance received by him for such month, plus the monthly insurance 
benefit received by him in such month (not including any part of such 
42 use 1206. 
benefit which is disregarded under section 1006), shall exceed the 
sum of the aid or assistance which would have been received by him for 
such month under such plan as in effect for March 1970, plus the 
monthly insurance benefit which would have been received by him in 
such month without regard to the other provisions of this title, by an 
amount equal to $4 or (if less) to such increase in his monthly insur-
ance benefit under such title I I (whether such excess is brought about 
by disregarding a portion of such monthly insurance benefit or 
otherwise). 
Approved December 30, 1969, 9:30 a.m. 
Public Law 91-173 
n 
K 
,n io«Q 
A N 
A C T 
December 30, 1969 
[S- 2917] 
To provide for the protection of the health and safety of persons worlcing in the 
coal mining industry of the United States, and for other purposes. 
Be it enacted hy the Senate and House of Representatives 
of the 
Federal Coal 
United Sttttes of America in Congress assembled. That this Act may 
Sety^lcfor'' 
be cited as the "Federal Coal Mine Health and Safety Act of 1969". 
1969. 
FINDINGS AND PURPOSE 
SEC. 2. Congress declares that— 
(a) the first priority and concern of all in the coal mining