An Act to amend the Internal Revenue Code of 1954 to provide for a refund of 1974 individual income taxes, to increase the low income allowance and the percentage standard deductions, to provide a credit for personal exemptions and a credit for certain earned income, to increase the investment credit and the surtax exemption, to reduce percentage depletion for oil and gas, and for other purposes.
PL 94-12 (H.R.2166), enacted 03/29/1975

89 STAT. 26 
PUBLIC LAW 94-12—MAR. 29, 1975 
Public Law 94-12 
94th Congress 
An Act 
Mar. 29, 1975 
[H.R. 2166] 
Tax Reduction 
Act of 1975. 
26 u s e 1 note. 
To amend the Internal Kevenue Code of 1954 to provide for a refund of 1874 
individual income taxes, to increase the low income allowance and the per-
centage standard deduction, to provide a credit for personal exemptions and 
a credit for certain earned income, to increase the investment credit and the 
surtax exemption, to reduce percentage depletion for oil and gas, and for other 
purposes. 
Be it enacted hy the Senate and House of Representatives of the 
United States of America in Congress assembled, 
SEC. 1. SHORT TITLE; TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the "Tax Reduction 
Act of 1975". 
(b) TABLE OF CONTENTS.— 
Sec. 1. Short title; table of contents. 
Sec. 2. Amendment of 1954 Code. 
TITLE I—REFUND OF 1974 INDIVIDUAL INCOME TAXES 
Sec. 101. Refund of 1974 individual income taxes. 
Sec. 102. Refunds disregarded in the administration of Federal programs and 
federally assisted programs. 
TITLE II—REDUCTIONS IN INDIVIDUAL INCOME TAXES 
Sec. 201. Increase in low income allowance. 
Sec. 202. Increase in percentage standard deduction. 
Sec. 203. Credit for personal exemptions. 
Sec. 204. Credit for certain earned Income. 
Sec. 205. Withholding tax. 
Sec. 206. Increase in income limitation applicable to child and dependent care 
deduction. 
Sec. 207. Extension of period for replacing old residence for purposes of non-
recognition of gain under section 1034. 
Sec. 208. Credit for purchase of new principal residence. 
Sec. 209. Effective dates. 
TITLE III—CERTAIN CHANGES IN BUSINESS TAXES 
Sec. 301. Increase in investment credit. 
Sec. 302. Allowance of investment credit where construction of property will 
take more than 2 years. 
Sec. 303. Change in corporate tax rates and increase in surtax exemption. 
Sec. 304. Increase in minimum accumulated earnings credit from $100,000 to 
$150,000. 
Sec. 305. Effective dates. 
TITLE IV—CHANGES AFFECTING INDIVIDUALS AND BUSINESSES 
Sec. 401. Federal welfare recipient employment incentive tax credit. 
Sec. 402. Time when contributions deemed made to certain pension plans. 
TITLE V—PERCENTAGE DEPLETION 
Sec. 501. Limitations on percentage depletion for oil and gas. 
TITLE VI—TAXATION OF FOREIGN OIL AND GAS INCOME AND OTHER 
FOREIGN INCOME 
Sec. 601. Limitations on foreign tax credit for taxes paid in connection with 
foreign oil and gas income. 
Sec. 602. Taxation of earnings and profits of controlled foreign corporations and 
their shareholders. 
Sec. 603. Denial of DISC benefits with respect to energy resources and other 
products. 
Sec. 604. Treatment for purposes of the investment credit of certain property 
used in international or territorial waters. 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 27 
TITLE VII—MISCELLANEOUS PROVISIONS 
Sec. 701. Certain unemployment compensation. 
Sec. 702. Special payment to recipients of benefits under certain retirement and 
survivor benefit programs. 
SEC. 2. AMENDMENT OF 1954 CODE. 
Except as otherwise expressly provided, whenever in this Act an 
amendment or repeal is expressed in terms of an amendment to, or 
repeal of. a section or other provision, the reference shall be con-
sidered to be made to a section or other provision of the Internal 
Revenue Code of 1954. 
26 USC 1 et seq. 
TITLE I—REFUND OF 1974 INDIVIDUAL 
INCOME TAXES 
SEC. 101. REFUND OF 1974 INDIVIDUAL INCOME TAXES. 
(a) I N GENERAL.—Subchapter B of chapter 65 (relating to rules of 
special application in the case of abatements, credits, and refunds) is 
amended by adding at the end thereof the following new section: 
"SEC. 6428. REFUND OF 1974 INDIVIDUAL INCOME TAXES. 
26 USC 6428. 
" (a) GENERAL RULE.—Except as otherwise provided in this section, 
each individual shall be treated as having made a payment against the 
tax imposed by chapter 1 for his first taxable year beginning in 1974 26 USC 1. 
in an amount equal to 10 percent of the amount of his liability for tax 
for such taxable year. 
"(b) MINIMUM PAYMENT.—The amount treated as paid by reason 
of this section shall not be less than the lesser of— 
"(1) the amount of the taxpayer's liability for tax for his first 
taxable year beginning in 1974, or 
" (2) $100 ($50 in the case of a married individual filing a sepa-
rate return). 
"(c) 
MAXIMUM PAYMENT.— 
"(1) I N GENERAL.—The amount treated as paid by reason of 
this section shall not exceed $200 ($100 in the case of a married 
individual filing a separate return). 
" (2) 
LIMITATION BASED ON ADJUSTED GROSS INCOME.—The excess 
(if any) of— 
"(A) the amount which would (but for this paragraph) be 
treated as paid by reason of this section, over 
" ( B ) the applicable minimum payment provided by sub-
section (b), 
shall be reduced (but not below zero) by an amount which bears 
the same ratio to such excess as the adjusted gross income for the 
taxable year in excess of $20,000 bears to $10,000. In the case of a 
married individual filing a separate return, the preceding sen-
tence shall be applied by substituting '$10,000' for '$20,000' and 
by substituting'$5,000'for'$10,000'. 
"(d) LIABILITY FOR TAX.—For purposes of this section, the liability 
for tax for the taxable year shall be the sum of— 
" (1) the tax imposed by chapter 1 for such year, reduced by the 
sum of the credits allowable under— 
" ( A ) section 33 (relating to foreign tax credit), 
26 USC 33. 
" ( B ) section 37 jrelating to retirement income), 
26 USC 37. 
"(C) section 38 (relating to investment in certain depreci- 
26 USC 38. 
able property), 
" ( D ) section 40 (relating to expenses of work incentive 
26 USC 40. 
programs), and 
89 STAT. 28 
PUBLIC LAW 94-12—MAR. 29, 1975 
26 use 41. 
" ( E ) section 41 (relating to contributions to candidates for 
public office), plus 
26 use 3102, 
" (2) the tax on amounts described in section 3102(c) or 3202(c) 
3202. 
which are required to be shown on the taxpayer's return of the 
chapter 1 tax for the taxable year. 
"(e) DATE PAYMENT DEEMED MADE.—The payment provided by 
this section shall be deemed made on whichever of the following dates 
is the later: 
"(1) the date presciibed by law (determined without exten-
26 use 1 et seq. 
sions) for filing the return of tax under chapter 1 for the taxable 
year, or 
" (2) the date on which the taxpayer files his return of tax under 
chapter 1 for the taxable year. 
*'(f) JOINT RETURN.—For purposes of this .section, in the case of a 
joint return under section 6013 both spouses shall be treated as one 
individual. 
"(g) MARITAL STATUS.—The determination of marital status for 
purposes of this section shall be made under section 143. 
"(h) CERTAIN PERSONS NOT ELIGIBLE.—This section shall not apply 
to any estate or trust, nor shall it apply to any nonresident alien 
individual." 
26 use 6611 
(b) No INTEREST ON INDIVIDUAL INCOME TAX REFUNDS FOR 1974 
note. 
REFUNDED W I T H I N 60 DAYS AFTER RETURN I S FILED.—In applying 
26 use 6611. 
section 6611(e) of the Internal Revenue Code of 1954 (relating to 
income tax refund within 45 days after return is filed) in the case of 
any overpayment of tax imposed by subtitle A of such Code by an indi-
vidual (other than an estate or trust and other than a nonresident alien 
individual) for a taxable year beginning in 1974, "60 days" shall be 
substituted for "45 days" each place it appears in such section 6611(e). 
(c) CLERICAL AMENDMENT.—The table of sections for such sub-
chapter B is amended by adding at the end thereof the following new 
item: 
"Sec. 6428. Refund of 1974 individual income taxes." 
26 use 6428 
SEC. 102. REFUNDS DISREGARDED IN THE ADMINISTRATION OF FED-
note. 
ERAL PROGRAMS AND FEDERALLY ASSISTED PROGRAMS. 
Any payment considered to have been made by any individual by 
Ante, p. 27. 
reason of section 6428 of the Internal Revenue Code of 1954 shall not 
be taken into account as income or receipts for purposes of determining 
the eligibility of such individual or any other individual for benefits 
or assistance, or the amount or extent of benefits or assistance, under 
any Federal program or under any State or local program 
financed 
in whole or in part with Federal funds. 
TITLE II—REDUCTIONS IN INDIVIDUAL 
INCOME TAXES 
SEC. 201. INCREASE IN LOW INCOME ALLOWANCE. 
26 use 141. 
(a) I N GENERAL.—Subsection (c) of section 141 (relating to low 
income allowance) is amended to read as follows: 
"(c) Low INCOME ALLOWANCE.—The low income allowance is— 
"(1) $1,900 in the case of— 
26 use 6013. 
" (A) a joint return under section 6013, or 
26 use 2. 
" ( B ) a surviving spouse (as defined in section 2 ( a ) ) , 
"(2) $1,600 in the case of an individual who is not married and 
who is not a surviving spouse (as so defined), or 
"(3) $950 in the case of a married individual filing a separate 
return." 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 29 
(b) 
CHANGE IN FILING REQUIREMENTS TO REFLECT INCREASE IN 
Low INCOME ALLOWANCE.—So much of paragraph (1) of section 
6012(a) (relating to persons required to make returns of income) as 26 USC 6012. 
precedes subparagraph (C) thereof is amended to read as follows: 
"(1) (A) Every individual having for the taxable year a gross 
income of $750 or more, except that a return shall not be required 
of an individual (other than an individual referred to in section 
142(b))— 
26 USC 142. 
"(i) who is not married (determined by applying section 
143), is not a surviving spouse (as defined in section 2(a)), 26 USC 143, 2. 
and for the taxable year has a gross income of less than 
$2,350, 
"(ii) who is a surviving spouse (as so defined) and for the 
taxable year has a gross income of less than $2,650, or 
"(iii) who is entitled to make a joint return under section 
6013 and whose gross income, when combined with the gross 26 USC 6013. 
income of his spouse, is, for the taxable year, less than 
$3,400 but only if such individual and his spouse, at the close 
of the taxable year, had the same household as their home. 
Clause (iii) shall not apply if for the taxable year such spouse 
makes a separate return or any other taxpayer is entitled to an 
exemption for such spouse under section 151 (e). 
26 USC 151. 
"(B) The amount specified in clause (i) or (ii) of subparagraph 
(A) shall be increased by $750 in the case of an individual entitled 
to an additional personal exemption under section 151(c) (1), and 
the amount specified in clause (iii) of subparagraph (A) shall 
be increased by $750 for each additional personal exemption to 
which the individual or his spouse is entitlea under section 
151(c);". 
(c) 
CHANGE IN OPTIONAL TAX TABLES.—Section 3 (relating to 26 USC 3. 
optional tax tables) is amended by striking out "$10,000" and by 
inserting in lieu thereof "$15,000". 
SEC. 202. INCREASE IN PERCENTAGE STANDARD DEDUCTION. 
(a) INCREASE.—Subsection (b) of section 141 (relating to percentage 26 USC 141. 
standard deduction) is amended to read as follows: 
"(b) PERCENTAGE STANDARD DEDUCTION.—The percentage standard 
deduction is an amount equal to 16 percent of adjusted gross income 
but not to exceed— 
" (1) $2,600 in the case of— 
" (A) a joint return under section 6013, or 
"(B) a surviving spouse (as defined in section 2(a)), 
"(2) $2,300 in the case of an individual who is not married and 
who is not a surviving spouse (as so defined), or 
"(3) $1,300 in the case of a married individual filing a separate 
return." 
(b) CONFORMING AMENDMENT.—Subparagraph (B) of section 3402 
(m) (1) (relating to withholding allowances based on itemized deduc- 26 USC 3402. 
tions) is amended to read as follows: 
"(B) an amount equal to the lesser of (i) 16 percent of his 
estimated wages, or (ii) $2,600 ($2,300 in the case of an indi-
vidual who is not married (| within the meaning of section 
143) and who is not a surviving spouse (as defined in section 
2(a)))." 
SEC. 203. TAX CREDIT FOR PERSONAL EXEMPTIONS. 
(a) I N GENERAL.^—Subpart A of part VI of subchapter A of chapter 
1 (relating to credits allowable agamsttax) is amended by redesignat-
ing section 42 as section 43 and by inserting after section 41 the follow- 26 USC 42. 
ing new section: 
89 STAT. 30 
PUBLIC LAW 94-12—MAR. 29, 1975 
26 use 42. 
"SEC. 42. CREDIT FOR PERSONAL EXEMPTIONS. 
"(a) GENERAL RULE.—In the case of an individual, there shall be 
allowed as a credit against the tax imposed by this chapter for the tax-
able year $30, multiplied by each exemption for which the taxpayer 
is entitled for the taxable year under subsection (b) or (e) of sec-
26 use 151. 
tion 151. 
"(b) APPLICATION W I T H OTHER CREDITS.—The credit allowed by 
subsection (a) shall not exceed the amount of the tax imposed by this 
chapter for the taxable year. In determining the credits allowed 
under— 
26 use 33. 
" (1) section 33 (relating to foreign tax credit), 
26 use 37. 
" ^2) section 37 (relating to retirement income), 
26 use 38. 
"(3J section 38 (relating to investment in certain depreciable 
property). 
26 use 40. 
"(4) section 40 (relating to expenses of work incentive pro-
grams), and 
26 use 41. 
"(5) section 41 (relating to contributions to candidates for 
public office), 
the tax imposed by this chapter shall (before any other reductions) be 
reduced by the credit allowed by this section." 
(b) TECHNICAL AND CLERICAL AMENDMENTS.— 
(1) The table of sections for such subpart is amended by strik-
ing out the last item and inserting in lieu thereof the following: 
"Sec. 42. Credit for personal exemptions. 
"Sec. 43. Overpayments of tax." 
26 use 56. 
(2) Section 56(a) (2) (relating to imposition of minimum tax) 
is amended by striking out "and" at the end of clause (iv), by 
striking out "; and" at the end of clause (v) and inserting in 
lieu thereof ", and", and by inserting after clause (v) the follow-
ing new clause: 
Supra. 
"(vi) section 42 (relating to credit for personal exemp-
tions) ; and". 
(3) Section 56(c) (1) (relating to tax carryovers) is amended 
by sti-iking out "and" at the end of subparagraph ( D ) , by striking 
out "exceed" at the end of subparagraph (E) and inserting in lieu 
thereof "and", and by inserting after subparagraph (E) the fol-
lowing new subparagraph: 
" ( F ) section 42 (relating to credit for personal exemp-
tions) , exceed". 
26 use 6096. 
(4) Section 6096 (b) (relating to designation of income tax pay-
ments to Presidential Election Campaign Fund) is amended by 
striking out "and 41" and inserting in lieu thereof "41, and 42". 
SEC. 204. CREDIT FOR CERTAIN EARNED INCOME. 
(a) ALLOWANCE or CREDIT.—Subpart A of part I V of subchapter 
A of chapter 1 (relating to credits against tax) is amended by redesig-
nating section 43 as section 44, and by inserting after section 42 the 
following new section: 
26 use 43. 
"SEC. 43. EARNED INCOME. 
"(a) ALLOWANCE OF CitEDiT.—In the case of an eligible individual, 
there shall be allowed as a credit against the tax imposed by this chap-
ter for the taxable year an amount equal to 10 percent of so much of 
the earned income for the taxable year as does not exceed $4,000. 
"(b) LIMITATION.—The amount of the credit allowable to a tax-
payer under subsection (a) for any taxable year shall be reduced (but 
not below zero) by an amount equal to 10 percent of so much of the 
adjusted gross income (or, if greater, the earned income) of the tax-
payer for the taxable year as exceeds $4,000. 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 31 
"(c) DEFINITIONS.—For purposes of this section— 
"(1) ELIGIBLE INDIVIDUAL.—The term 'eligible individual' 
means an individual who, for the taxable year— 
" (A) maintains a household (within the meaning of section 
214(b) (3)) in the United States which is the principal place 26 USC 214. 
of abode of that individual and of a child of that individual 
with respect to whom he is entitled to claim a deduction under 
section 151(e) (1) (B) (relating to additional exemption for 26 U
S
C 151. 
dependents), and 
"(B) is not entitled to exclude any amount from gross 
income under section 911 (relating to earned income from 26 USC 911. 
sources without the United States) or section 931 (relating to 26 USC 931. 
income from sources within the possessions of the United 
States). 
" ( 2 ) 
E A R N E D INCOME.— 
" (A) The term 'earned income' means— 
"(i) wages, salaries, tips, and other employee compen-
sation, plus 
"(ii) the amount of the taxpayer's net earnings from 
self-employment for the taxable year (within the mean-
ing of section 1402 (a)). 
26 USC 1402. 
"(B) For purposes of subparagraph (A) — 
"(i) except as provided in clause (ii), any amount 
shall be taken into account only if such amount is includi-
ble in the gross income of the taxpayer for the taxable 
year, 
" (ii) the earned income of an individual shall be com-
puted without regard to any community property laws, 
" (iii) no amount received as a pension or annuity shall 
be taken into account, and 
"(iv) no amount to which section 871(a) applies 26 USC 871. 
(relating to income of nonresident alien individuals not 
connected with United States business) shall be taken 
into account. 
"(d) MARRIED INDIVIDUALS.—In the case of an individual who is 
married (within the meaning of section 143), this section shall apply 26 U
S
C 143. 
only if a joint return is filed for the taxable year under section 6013. 26 USC 6013. 
"(e) 
TAXABLE YEAR MUST BE FULL TAXABLE YEAR.—Except in the 
case of a taxable year closed by reason of the death of the taxpayer, 
no credit shall be allowable under this section in the case of a taxable 
year covering a period of less than 12 months." 
(b) REFUND To B E MADE WHERE CREDIT EXCEEDS LIABILITY FOR 
T A X . — 
(1) 
Section 6401(b) 
(relating to excessive credits) 
is 26 USC 6401. 
amended— 
(A) by inserting "43 (relating to earned income credit)," 
before "and 667(b)"; and 
^««e, p. 30. 
(B) by striking out "and 39" and inserting in lieu thereof 
a comma and ", 39, and 43". 
26 USC 39. 
(2) Section 6201(a)(4) (relating to assessment authority) is 26 USC 6201. 
amended by— 
(A) inserting "or 43" after "section 39" in the caption of 
such section; and 
(B) striking out "oil)," and inserting in lieu thereof "oil) 
or section 43 (relating to earned income),". 
89 STAT. 32 
PUBLIC LAW 94-12—MAR. 29, 1975 
(c) CLERICAL AMENDMENT.—The table of sections for such subpart 
is amended by striking out the last item and inserting in lieu thereof 
the following: 
"Sec. 43. Credit for certain earned income. 
"Sec. 44. Overpayments of tax." 
SEC. 205. WITHHOLDING TAX. 
(a) 
KEQUIREMENT OF WITHHOLDING.—Subsection (a) of section 
26 use 3402. 
3402 (relating to income tax collected at source) is amended to read 
as follows: 
"(a) 
REQUIREMENT OF WITHHOLDING.—Except as otherwise pro-
vided in this section, every employer making payment of wages shall 
deduct and withhold upon such wages a tax determined in accordance 
with tables prescribed by the Secretary or his delegate. The tables so 
prescribed shall be the same as the tables contained in this subsection 
as in effect on January 1, 1975, except that the amounts set forth as 
amounts of income tax to be withheld with respect to wages paid after 
April 30, 1975, and before January 1, 1976, shall reflect the full cal-
endar year effect for 1975 of the amendments made by sections 201, 
202, 203, and 204 of the Tax Reduction Act of 1975. For purposes of 
"The amount of 
applying such tables, the term 'the amount of wages' means the amount 
wages." 
by which the wages exceed the number of withholding exemptions 
claimed, multiplied by the amount of one such exemption as shown in 
the table in subsection (b) (1)." 
(b) 
CONFORMING AMENDMENT.—Section 3402(c) (6) 
(relating to 
wage bracket withholding) is amended by striking out "table 7 con-
tained in subsection ( a ) " and inserting in lieu thereof "the table for 
an annual payroll period prescribed pursuant to subsection (a)". 
SEC. 206. INCREASE IN INCOME LIMITATION APPLICABLE TO CHILD 
AND DEPENDENT CARE DEDUCTION. 
26 use 214. 
Section 214 (relating to expenses for household and dependent care 
services necessary for gainful employment) is amended by striking 
out "$18,000" each place it appears in subsection (d) and inserting in 
lieu thereof "$35,000". 
SEC. 207. EXTENSION OF PERIOD FOR REPLACING OLD RESIDENCE 
FOR PURPOSES OF NONRECOGNITION OF GAIN UNDER 
SECTION 1034. 
(a) ONE-YEAR PERIOD INCREASED TO 18 MONTHS.— 
(1) Subsections (a), (c)(4), (c)(5), ( d ) , and (h) of section 
26 use 1034. 
1034 (relating to nonrecognition of gain on sale or exchange of 
residence) are each amended by striking out "1 year" each place it 
appears and inserting in lieu thereof "18 months". 
(2) Subsection (c) (5) of section 1034 is amended by striking 
out "one year" and inserting in lieu thereof "18 months". 
(b) 18-MoNTii PERIOD FOR CONSTRUCTING NEW RESIDENCE INCREASED 
TO 2 YEARS.—Subsection (c) (5) of section 1034 is amended by strik-
ing out "18 months" and inserting in lieu thereof "2 years". 
SEC. 208. CREDIT FOR PURCHASE OF NEW PRINCIPAL RESIDENCE. 
(a) ALLOWANCE OF CREDIT.—Subpart A of part I V of subchapter A 
of chapter 1 (relating to credits allowed) is amended by redesignating 
section 44 as section 45 and by inserting after section 43 tlie following 
new section: 
26 use 44. 
"SEC. 44. PURCHASE OF NEW PRINCIPAL RESIDENCE. 
"(a) GENERAL RULE.—In the case of an individual there is allowed, 
as a credit against the tax imposed by this chapter for the taxable year, 
an amount equal to 5 percent of the purchase price of a new principal 
residence purchased or constructed by the taxpayer. 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 33 
"(b) LIMITATIONS.— 
"(1) MAXIMUM CREDIT.—The credit allowed under subsection 
(a) may not exceed $2,000. 
"(2) LIMITATION TO ONE RESIDENCE.—The credit under this sec-
tion shall be allowed with respect to only one residence of the 
taxpayer. 
"(3) MARRIED INDIVIDUALS.—In the case of a husband and wife 
who file a joint return under section 6013, the amount specified 
26 USC 6013. 
under paragraph (1) shall apply to the joint return. In the case of 
a married individual filing a separate return, paragraph (1) shall 
be applied by substituting '$1,000' for '$2,000'. 
"(4) 
CERTAIN OTHER TAXPAYERS.—In the case of individuals 
to whom paragraph (3) does not apply who together purchase the 
same new principal residence for use as their principal residence, 
the amount of the credit allowed under subsection (a) shall be 
allocated among such individuals as prescribed by the Secretary 
or his delegate, but the sum of the amounts allowed to such indi-
viduals shall not exceed $2,000 with respect to that residence. 
"(5) 
APPLICATION WITH OTHER CREDITS.—The credit allowed 
by subsection (a) shall not exceed the amount of the tax imposed 
by this chapter for the taxable year, reduced by the sum of the 
credits allowable under sections 33, 37, 38, 40, 41, and 42. 
26 USC 33, 37, 
" (c) DEFINITIONS.—For purposes of this section— 
38, 40, 41, 42. 
"(1) N E W PRINCIPAL RESIDENCE.—The term 'new principal resi-
dence' means a principal residence (within the meaning of section 
1034), the original use of which commences with the taxpayer, 
26 USC 1034. 
and includes, without being limited to, a single family structure, 
a residential unit in a condominium or cooperative housing proj-
ect, and a mobile home. 
"(2) PURCHASE PRICE.—The term 'purchase price' means the 
adjusted basis of the new principal residence on the date of the 
acquisition thereof. 
"(3) PURCHASE.—The term 'purchase' means any acquisition of 
property, but only if— 
" ( A ) the property is not acquired from a person whose 
relationship to the person acquiring it would result in the 
disallowance of losses under section 267 or 707(b) (but, in 26 USC 267, 
applying section 267 (b) and (c) for purposes of this section, ^^^* 
paragraph (4) of section 267(c) shall be treated as providing 
that the family of an individual shall include only his spouse, 
ancestors, and lineal descendants), and 
"(B) the basis of the property in the hands of the person 
acquiring it is not determined— 
"(i) in whole or in part by reference to the adjusted 
basis of such property in the hands of the person from 
whom acquired, or 
"(ii) under section 1014(a) 
(relating to property 
26 USC 1014. 
acquired from a decedent). 
" ( d ) RECAPTURE FOR CERTAIN DISPOSITIONS.— 
"(1) I N GENERAL.—Except as provided in paragraphs (2) and 
(3), if the taxpayer disposes of property with respect to the 
purchase of which a credit was allowed under subsection (a) at 
any time within 36 months after the date on which he acquired it 
(or, in the case of construction by the taxpayer, on the day on 
which he first occupied it) as his principal residence, then the tax 
imposed under this chapter for the taxable year in which termi-
89 STAT. 34 
PUBLIC LAW 94-12—MAR. 29, 1975 
tiates the replacement period under paragraph (2) with respect 
to the disposition is increased by an amount equal to the amount 
allowed as a credit for the purchase of such property. 
"(2) ACQUISITION OF NEW RESIDENCE.—If, in connection with a 
disposition described in paragraph (1) and within the applicable 
Ante, p. 32. 
period prescribed in section 1034, the taxpayer purchases or con-
structs a new principal residence, then the provisions of paragraph 
(1) shall not apply and the tax imposed by this chapter for the 
taxable year following the taxable year during which disposition 
occurs is increased by an amount which bears the same ratio to the 
amount allowed as a credit for the purchase of the old residence 
as (A) the adjusted sales price of the old residence (within 
26 use 1034. 
the meaning of section 1034), reduced (but not below zero) by the 
taxpayer's cost of purchasing the new residence (within the 
meaning of such section) bears to (B) the adjusted sales price of 
the old residence. 
"(3) DEATH or OWNER; CASXIALTY LOSS; INVOLUNTARY CONVER-
SION; ETC.—The provisions of paragraph (1) do not apply to— 
"(A) a disposition of a residence made on account of the 
death of any individual having a legal or equitable interest 
therein occurring during the 36 month period to which ref-
erence is made under such paragraph, 
"(B) a disposition of the old residence if it is substantially 
or completely destroyed by a casualty described in section 
26 use 165. 
165(c)(3) or compulsorily and involuntarily 
converted 
26 use 1033. 
(within the meaning of section 1033(a)), or 
"(C) a disposition pursuant to a settlement in a divorce or 
legal separation proceeding where the other spouse retains 
the residence as principal residence. 
"(e) PROPERTY TO W H I C H SECTION APPLIES.— 
"(1) I N GENERAL.—The provisions of this section apply to a 
new principal residence— 
"(A) the construction of Avhich began before March 26, 
1975, 
"(B) which is acquired and occupied by the taxpayer after 
March 12, 1975, and before January 1, 1977, and 
"(C) if not constructed by the taxpayer, which was 
acquired by the taxpayer under a binding contract entered 
into by the taxpayer before January 1,1976. 
"(2) 
SELF-CONSTRUCTED PROPERTY BEGUN BEFORE MARCH 
I 3 , 
10 7 5.—In the case of property the construction of which was 
begun by the taxpayer before March 13,1975, only that portion of 
the basis of such property properly allocable to construction after 
March 12, 1975, shall be taken into account in determining the 
amount of the credit allowable under subsection (a). 
"(3) BINDING CONTRACT.—For purposes of this subsection, a 
contract for the purchase of a residence which is conditioned upon 
the purchaser's obtaining a loan for the purchase of the residence 
(including conditions as to the amount or interest rate of such 
loan) is not considered non-binding on account of that condition. 
"(4) 
CERTIFICATION MUST BE ATTACHED TO RETURN.—This sec-
tion shall not apply to any residence (other than a residence con-
structed by the taxpayer) unless there is attached to the return 
of tax on which the credit is claimed a certification by the seller, 
in accordance with regulations prescribed by the Secretary or his 
delegate, that the purchase price is the lowest price at which the 
residence was ever offered for sale." 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 35 
(b) 
SUITS TO RECOVER AMOUNTS or PRICE INCREASES.—If— 
(1) any person certifies under section 44(e) (4) of the Internal 
Revenue Code of 1954 that the price for which a residence was Ante, p. 32. 
sold is the lowest price at which the residence was ever offered for 
sale, and 
(2) the price for which the residence Avas sold exceeded the 
lowest price at which the residence was ever offered for sale, 
such person shall be liable to the purchaser of such residence in an 
amount equal to three times the amount of such excess. The United 
States district courts shall have jurisdiction of suits to recover such 
amounts without regard to any other provision of law. In any suit 
brought under this subsection in which judgment is entered for the 
purchaser, he shall also be entitled to recover a reasonable attorney's 
fee. 
(c) DENIAL OF DEDUCTION.—Notwithstanding the provisions of sec-
tion 162 or 212 of the Internal Revenue Code of 1954, no deduction 
26 USC 162, 
shall be allowed in computing taxable income for two-thirds of any 212. 
amount paid or incurred on a judgment entered against any person in 
a suit brought under subsection (b). 
(d) 
TECHNICAL AND CLERICAL AMENDMENTS.— 
(1) The table of sections for such subpart is amended by strik-
ing out the last item and inserting in lieu thereof the following: 
"Sec. 44. Credit for purchase of new principal residence. 
"Sec. 45. Overpayments of tax." 
(2) Section 56(a) (2) (relating to imposition of minimum tax) 
26 USC 56. 
is amended by striking out "and" at the end of clause (v), by 
striking out "; and" at the end of clause (vi) and inserting in lieu 
thereof ", and", and by inserting after clause (vi) the following 
new clause: 
"(vii) section 44 (relating to credit for purchase of new 
principal residence); and". 
(3) Section 56(c) (1) (relating to tax carryovers) is amended 
by striking out "and" at the end of subparagraph ( E ) , by striking 
out "exceed" at the end of subparagraph (F) and inserting in lieu 
thereof "and", and by inserting after subparagraph (F) the fol-
lowing new subparagraph: 
"(G) section 44 (relating to credit for purchase of new 
principal residence), exceed". 
(4) Section 6096(b) (relating to designation of income tax pay- 
26 USC 6096. 
ments to Presidential Election Campaign Fund) is amended by 
striking out "and 42" and inserting in lieu thereof "42, and 44". 
SEC. 209. EFFECTIVE DATES. 
(a) SECTIONS 201, 202 (a), AND 203.—The amendments made by sec- 26 USC 42 note, 
tions 201, 202(a), and 203 shall apply to taxable years ending after 
December 31, 1974. Such amendments shall cease to apply to taxable 
years ending after December 31,1975. 
(b) 
SECTION 204.—The amendments made by section 204 shall 
26 USC 43 note, 
apply to taxable years beginning after December 31, 1974, and before 
January 1,1976. 
(c) SECTIONS 202(b) AND 205.—The amendments made by sections 
26 USC 3402 
202(b) and 205 shall apply to wages paid after April 30, 1975, and 
note, 
before January 1,1976. 
(d) SECTION 206.—The amendments made by section 206 apply to 
26 USC 214 note, 
taxable years beginning after the date of enactment of this Act. 
(e) SECTION 207.—The amendments made by section 207 shall apply 
26 USC 1034 
to old residences (within the meaning of section 1034 of the Internal 
note. 
Revenue Code of 1954) sold or exchanged after December 31,1974, in 
26 USC 1034. 
taxable years ending after such date. 
89 STAT. 36 
PUBLIC LAW 94-12—MAR. 29, 1975 
TITLE III—CERTAIN CHANGES IN 
BUSINESS TAXES 
SEC. 301. INCREASE IN INVESTMENT CREDIT. 
(a) INCREASE OF INVESTMENT CREDIT.—Paragraph (1) of section 46 
26 use 46. 
(a) (determining the amount of the investment credit) is amended to 
read as follows: 
" (1) GENERAL RULE.— 
"(A) T E N PERCENT CREDIT.—Except as otherwise provided 
in this paragraph, in the case of a property described in sub-
paragraph (D), the amount of the credit allowed by section 
38 for the taxable year shall be an amount equal to 10 percent 
of the qualified investment (as determined under subsections 
(c) and ( d ) ) . 
" ( B ) 
ELEVEN PERCENT CREDIT.—Except as otherwise pro-
vided in this paragraph, in the case of a corporation which 
elects to have the provisions of this subparagraph apply, the 
26 use 38. 
amount of the credit allowed by section 38 for the taxable year 
with respect to property described in subparagraph (D) shall 
be an amount equal to 11 percent of the qualified investment 
(as determined under subsections (c) and ( d ) ) . An election 
may not be made to have the provisions of this subparagraph 
apply for the taxable year unless the corporation meets the 
requirements of section 301(d) of tlie Tax Reduction Act of 
Supra. 
1975. An election by a corporation to have the provisions of 
this subparagraph apply shall be made at such time, in such 
form, and in such manner as the Secretary or his delegate 
may prescribe. 
"(C) SEVEN PERCENT CREDIT.—Except as otherwise provided 
in this paragraph, the amount of credit allowed by section 
38 for the taxable year shall be an amount equal to 7 percent 
of the qualified investment (as determined under subsections 
(c) and ( d ) ) . 
"(D) 
TRANSITIONAL RULES.—The provisions of subpara-
graphs (A) and (B) shall apply only to— 
"(i) property to which subsection (d) does not apply, 
the construction, reconstruction, or erection of which is 
completed by the taxpayer after January 21, 1975, but 
only to the extent of the basis thereof attributable to the 
construction, reconstruction, or erection after 
Janu-
ary 21,1975, and before January 1,1977. 
"(ii) property to which subsection (d) does not apply, 
acquired by the taxpayer after January 21, 1975, and 
before January 1, 1977, and placed in service by the tax-
payer before January 1.1977, and 
"(iii) property to which subsection (d) applies, but 
only to the extent of the qualified investment (as deter-
mined under subsections (c) and (d)) wdth respect to 
qualified progress expenditures made after January 21, 
1975, and before January 1,1977." 
(b) PUBLIC UTILITY PROPERTY.— 
(1) DETERMINATION OF QUALIFIED INVESTMENT.—Subparagraph 
26 use 46. 
(A) of section 46(c)(3) (relating to determination of qualified 
investment in the case of public utility property) is amended to 
read as follows: 
" ( A ) To the extent that subsection (a) (1) (C) applies to 
property which is public utility property, the amount of the 
qualified investment shall be fj of the amount determined 
under paragraph (1).". 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 37 
(2) 
INCREASE 
I N 
SO-PERCENT 
LIMITATION.—Section 
46(a) 
26 USC 46. 
(relating to determination of amount of credit) is amended by 
adding at the end thereof the folloAving new paragraph: 
"(6) ALTERNATIVE LIMITATION I N THE CASE or CERTAIN UTILITIES.— 
"(A) I N GENERAL.—If, for a taxable year ending after 
calendar year 1974 and before calendar year 1981, the amount 
of the qualified investment of the taxpayer which is attribut-
able to public utility property is 25 percent or more of his 
aggregate qualified investment, then subparagraph (C) of 
paragraph (2) of this subsection shall be applied by sub-
stituting for 50 percent his applicable percentage for such 
year. 
" ( B ) APPLICABLE PERCENTAGE.—The applicable percentage 
of any taxpayer for any taxable year is— 
" (i) 50 percent, plus 
"(ii) that portion of the tentative percentage for the 
taxable year which the taxpayer's amount of qualified 
investment which is public utility property bears to his 
aggregate qualified investment. 
If the proportion referred to in clause (ii) is 75 percent or 
more, the applicable percentage of the taxpayer for the year 
shall be 50 percent plus the tentative percentage for such 
year. 
" ( C ) TENTATIVE PERCENTAGE.—For purposes of subpara-
graph ( B ) , the tentative percentage shall be determined 
under the following table: 
"If the taxable year 
The tentative 
ends in: 
percentage is: 
1975 or 1976 
50 
1977 
40 
1978 
30 
1979 
20 
1980 
10 
" ( I ) ) PUP.LTC T'''TLT'T PROPEPTY DEFINED. 
FoP purpOSCS of 
this paragraph, the term 'public utility property' has the 
meanmg given to such term by the first sentence of subsec-
tion ( c ) ( 3 ) ( B ) . " 
(3) LIMITATION IN (I\SE OF CERTAIN REGULATED COMPANIES.— 
Section 46 (f), as redesignated by section 302 (a) of this Act (relat- Post, p. 40. 
ing to limitation h^ c^°o '-" ror*'f\'r^ rejjulated companies), is 
amended by adding at the end thereof the following new 
paragraph: 
"(8) 
PROHIBITION or IMMEDIATE FLOWTHROUGH.—An election 
made under paragraph (3) shall apply only to the amount of the 
credit allowable under section 38 with respect to public utility 26 USC 38. 
property (within the meanin^r of subsection ( a ) ( 6 ) ( D ) ) deter-
mined as if the Tax Keduction Act of 1975 had not been enacted. 
Any taxpayer who had timely made an election under paragraph 
(3) may, at his own option and AA'ithout regard to any requirement 
imposed by an agency described in subsection ( c ) ( 3 ) ( B ) , elect 
within 90 days after the date of the enactment of the Tax Reduc-
tion Act of 1975 (in such manner as the Secretary or his delegate Ante, p. 26. 
shall prescribe) to have the provisions of paragraph (3) apply 
with respect to the amount of the credit allowable under section 
38 with respect to such property which is in excess of the amount 
determined under the preceding sentence. If such taxpayer does 
not make such an election, paragraph (1) or (2) (whichever para-
graph is applicable without regard to this paragraph) shall apply 
to such excess credit, except that if neither paragraph (1) nor (2) 
89 STAT. 38 
PUBLIC LAW 94-12—MAR. 29, 1975 
is applicable (without regard to this paragraph), paragraph (1) 
shall apply unless the taxpayer elects (in such manner as the Sec-
retary or his delegate shall prescribe) within 90 days after the date 
Ante, p. 26. 
of the enactment of the Tax Reduction Act of 1975 to have the 
provisions of paragraph (2) apply. The provisions of this para-
graph shall not be applied to disallow such excess credit before 
the first final determination which is inconsistent with such 
requirements is made, determined in the same manner as under 
paragraph (4)." 
26 use 46 note. 
(4) EFFECTIVE DATES.—The amendment made by paragraph (1) 
of this subsection shall apply to property placed in service after 
January 21, 1975, in taxable years ending after January 21, 1975. 
The amendments made by paragraphs (2) and (3) shall apply to 
taxable years ending after December 31,1974. 
(c) INCREASE FROM $50,000 TO $100,000 OF DOLLAR LIMITATION ON 
USED PROPERTY.— 
26 use 48. 
(1) I N GENERAL.—Paragraph (2) of subsection 48(c) (relating 
26 use 38. 
to dollar limitation in case of used section 38 property) is 
amended— 
(A) by striking out "$50,000" each place it appears and 
inserting in lieu thereof "$100,000", and 
(B) by striking out "$25,000" and inserting in lieu thereof 
"$50,000". 
26 use 48 note. 
(£) EFFECTIVE DATE.—The amendments made by paragraph (1) 
shall apply only to taxable years beginning after December 31, 
1974, and before January 1,1977. 
26 use 46 note. 
(d) 
PLAN REQUIREMENTS FOR TAXPAYERS ELECTING 11-PERCENT 
CREDIT.—In order to meet the requirements of this subsection— 
Employee stock 
^^^ j ^ corporation (hereinafter in this subsection referred to as 
ownership plan. 
^j^g "employer") must establish an employee stock ownership plan 
(described in paragraph (2)) which is funded by transfers of 
employer securities in accordance with the provisions of para-
graph (6) and which meets all other requirements of this 
subsection. 
(2) The plan referred to in paragraph (I) must be a defined 
contribution plan established in writing which— 
(A) is a stock bonus plan, a stock bonus and a money pur-
chase pension plan, or a profit-sharing plan, 
(B) is designed to invest primarily in employer securities, 
and 
(C) meets such other requirements (similar to require-
ments applicable to employee stock ownership plans as defined 
26 use 4975. 
in section 4975(e) (7) of the Internal Revenue Code of 1954) 
as the Secretary of the Treasury or his delegate may 
prescribe. 
(3) The plan must provide for the allocation of all employer 
securities transferred to it or purchased by it (because of the 
requirements of section 46(a)(1)(B) of the Internal Revenue 
Ante, p. 36. 
Code of 1954) to the account of each participant (who was a par-
ticipant at any time during the plan year, whether or not he is a 
participant at the close of the plan year) as of the close of each 
plan year in an amount which bears substantially the same pro-
portion to the amount of all such securities allocated to all partici-
pants in the plan for that plan year as the amount of compensation 
paid to such participant (disregarding any compensation in excess 
of the first $100,000 per year) bears to the compensation paid to all 
such participants during that year (disregarding any compensa-
tion in excess of the first $100,000 with respect to any participant). 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 39 
Notwithstanding the first sentence of this paragraph, the alloca-
tion to participants' accounts may be extended over whatever 
period may be necessary to comply with the requirements of sec-
tion 415 of the Internal Revenue Code of 1954. 
(4) The plan must provide that each participant has a nonfor-
feitable right to any stock allocated to his account under para-
graph (3), and that no stock allocated to a participant's account 
may be distributed from that account before the end of the eighty-
fourth month beginning after the month in which the stock is 
allocated to the account except in the case of separation from 
the service, death, or disability. 
(5) The plan must provide that each participant is entitled to 
direct the plan as to the manner in which any employer securities 
allocated to the account of the participant are to be voted. 
(6) On making a claim for credit, adjustment, or refund under 
section 38 of the Internal Revenue Code of 1954, the employer 
states in such claim that it agrees, as a condition of receiving any 
such credit, adjustment, or refund, to transfer employer securities 
forthwith to the plan having an aggregate value at the time of the 
claim of 1 percent of the amount of the qualified investment (as 
determined under section 46 (c) and (d) of such Code) of the tax-
payer for the taxable year. For purposes of meeting the require-
ments of this paragraph, a transfer of cash shall be treated as a 
transfer of employer securities if the cash is, under the plan, used 
to purchase employer securities. 
(7) Notwithstanding any other provision of law to the contrary, 
if the plan does not meet the requirements of section 401 of the 
Internal Revenue Code of 1954— 
(A) stock transferred under paragraph (6) and allocated 
to the account of any participant under paragraph (3) and 
dividends thereon shall not be considered income of the par-
ticipant or his beneficiary under the Internal Revenue Code 
of 1954 until actually distributed or made available to the 
participant or his beneficiary and, at such time, shall be 
taxable under section 72 of such Code (treating the par-
ticipant or his beneficiary as having a basis of zero in the 
contract), 
(B) no amount shall be allocated to any participant in 
excess of the amount which might be allocated if the plan met 
the requirements of section 401 of such Code, and 
(C) the plan must meet the requirements of sections 410 
and 415 of such Code. 
(8) If the amount of the credit determined under section 46(a) 
(1) (B) of the Internal Revenue Code of 1954, is recaptured in 
accordance with the provisions of such Code, the amounts trans-
ferred to the plan under this subsection and allocated under the 
plan shall remain in the plan or in participant accounts, as the case 
may be and continue to be allocated in accordance with the origi-
nal plan agreement. 
(9) For purposes of this subsection, the term— 
(A) "employer securities" means common stock issued by 
the employer or a corporation which is in control of the 
employer (within the meaning of section 368(c) of the 
Internal Revenue Code of 1954) with voting power and 
dividend rights no less favorable than the voting power and 
dividend rights of other common stock issued by the 
employer or such controlling corporation, or securities issued 
by the employer or such controlling corporation, convertible 
into such stock, and 
26 use 415. 
26 use 38. 
Post, p. 40. 
26 use 401. 
26 use 1 et seq. 
26 use 72. 
26 use 410, 
415. 
Ante, p. 36. 
"Employer 
securities." 
26 use 368. 
Regulations and 
reports. 
Penalty. 
"Amount 
involved." 
Ante, p. 36. 
89 STAT. 40 
PUBLIC LAW 94-12—MAR. 29, 1975 
"Value." 
(B) "value" means the average of closing prices of the 
employer's securities, as reported by a national exchange on 
which securities are listed, for the 20 consecutive trading days 
immediately preceding the date of transfer or allocation of 
such securities or, in the case of securities not listed on a 
national exchange, the fair market value as determined in 
good faith and in accordance with regulations issued by the 
Secretary of the Treasury or his delegate. 
(10) The Secretary of the Treasury or his delegate shall pre-
scribe such regulations and require such reports as may be neces-
sary to carry out the provisions of this subsection. 
(11) If the employer fails to meet any requirement imposed 
under this subsection or under any obligation undertaken to com-
ply with the requirement of this subsection, he is liable to the 
United States for a civil penalty of an amount equal to the amount 
involved in such failure. The preceding sentence shall not apply 
if the taxpayer corrects such failure (as determined by the Secre-
tary of the Treasury or his delegate) within 90 days after notice 
thereof. For purposes of this paragraph, the term "amount 
involved" means an amount determined by the Secretary or his 
delegate, but not in excess of 1 percent of the qualified investment 
©
f the taxpayer for the taxable year under section 46(a) (1)(B) 
and not less than the product of one-half of one percent of such 
amount multiplied by the number of months (or parts thereof) 
during which such failure continues. The amount of such pen-
alty may be collected by the Secretary of the Treasury in the 
same manner in which a deficiency in the payment of Federal 
income tax may be collected. 
(12) Notwithstanding any provision of the Internal Revenue 
Code of 1954 to the contrary, no deductions shall be allowed under 
section 162, 212, or 404 of such Code for amounts transferred to 
an employee stock ownership plan and taken into account under 
this subsection. 
SEC. 302. ALLOWANCE OF INVESTMENT CREDIT WHERE CONSTRUC-
TION OF PROPERTY WILL TAKE MORE THAN 2 YEARS. 
(a) GENERAL RULE.—Section 46 (relating to amount of credit) is 
amended by redesignating subsections (d) and (e) as subsections (e) 
and (f), respectively, and by inserting after subsection (c) the follow-
ing new subsection: 
"(d) QUALIFIED PROGRESS EXPENDITURES.— 
"(1) I N GENERAL.—In the case of any taxpayer who has made 
an election under paragraph (6), the amount of his qualified 
investment for the taxable year (^determined under subsection (c) 
without regard to this subsection) shall be increased by an amount 
equal to his aggregate qualified progress expenditures for the 
taxable year with respect to progress expenditure property. 
"(2) PROGRESS EXPENDITURE PROPERTY DEFINED.— 
"(A) I N GENERAL.—For purposes of this subsection, the 
term 'progress expenditure property' means any property 
which is being constructed by or for the taxpayer and 
which— 
"(i) has a normal construction period of two years 
or more, and 
26 use 38. 
"(ii) it is reasonable to believe will be new section 38 
property having a useful life of 7 years or more in the 
hands of the taxpayer when it is placed in service. 
Clauses (i) and (ii) of the preceding sentence shall be 
applied on the basis of facts known at the close of the taxable 
26 use 1 et seq. 
26 use 162, 
212, 404. 
26 use 46. 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 41 
year of the taxpayer in which construction begins (or,^ if 
later, at the close of the first taxable year to which an election 
under this subsection applies). 
" ( B ) NORMAL CONSTRUCTION PERIOD.—For purposes of sub-
paragraph ( A ) , the term 'normal construction period' means 
the period reasonably expected to be required for the con-
struction of the property— 
"(i) beginning with the date on which physical work 
on the construction begins (or, if later, the first day of 
the first taxable year to which an election under this 
subsection applies), and 
"(ii) ending on the date on which it is expected that 
the property will be available for placing in service. 
" (3) QUALIFIED PROGRESS EXPENDITURES DEEINED.—For purposes 
of this subsection— 
" ( A ) 
SELF-CONSTRUCTED PROPERTY.—In the case of any 
self-constructed property, the term 'qualified progress expend-
itures' means the amount which, for purposes of this sub-
part, is, properly chargeable (during such taxable year) to 
capital account with respect to such property. 
" ( B ) 
NON-SELF-CONSTRUCI'ED PROPERTY.—In the case of 
non-self-constructed property, the term 'qualified progress 
expenditures' means the lesser of— 
"(i) the amount paid during the taxable year to 
another person for the construction of such property, or 
"(ii) the amount which represents that proportion of 
the overall cost to the taxpayer of the construction by 
such other person which is properly attributable to that 
portion of such construction which is completed during 
such taxable year. 
"(4) SPECIAL RULES FOR APPLYING PARAGRAPH (3).—For pur-
poses of paragraph (3)— 
" ( A ) 
COMPONENT PARTS, ETC.—Property which is to be a 
component part of, or is otherwise to be included in, any 
progress expenditure property shall be taken into account— 
"(i) at a time not earlier than the time at which it 
becomes irrevocably devoted to use in the progress 
expenditure property, and 
"(ii) as if (at the time referred to in clause (i)) the 
taxpayer had expended an amount equal to that portion 
of the cost to the taxpayer of such component or other 
property which, for purposes of this subpart, is properly 
chargeable (during such taxable year) to capital account 
with respect to such property. 
" ( B ) CERTAIN BORROWINGS DISREGARDED.—Any amount bor-
rowed directly or indirectly by the taxpayer from the person 
constructing the property for him shall not be treated as an 
amount expended for such construction. 
" ( C ) CERTAIN UNUSED EXPENDITURES CARRIED OVER.—In the 
case of non-self-constructed property, if for the taxable 
year— 
"(i) the amount under clause (i) of paragraph (3) (B) 
exceeds the amount under clause (ii) of paragraph (3) 
(B), then the amount of such excess shall be taken into 
account under such clause (i) for the succeeding taxable 
year, or 
"(ii) the amount under clause (ii) of paragraph (3) 
(B) exceeds the amount under clause (i) of paragraph 
89 STAT. 42 
PUBLIC LAW 94-12—MAR. 29, 1975 
(3) (B), then the amount of such excess shall be taken 
into account under such clause (ii) for the succeeding 
taxable year. 
" ( D ) DEITIRMINATION OF PKRCENTAGE OF COMPLETION.—In 
the case of non-self-constructed property, the determination 
under paragraph (3) (B) (ii) of the proportion of the overall 
cost to the taxpayer of the construction of any property 
which is properly attributable to construction completed dur-
ing any taxable year shall be made, under regulations pre-
scribed by the Secretary or his delegate, on the basis of 
engineering or architectural estimates or on the basis of cost 
accounting records. Unless the taxpayer establishes otherwise 
by clear and convincing evidence, the con'^truction shall be 
deemed to be completed not more rapidly than ratably over 
the normal construction period. 
" ( E ) No QUALIFIED PROGRESS EXPENDITURES FOR CERTAIN 
PRIOR PERIODS.—In the case of any property, no qualified 
progress expenditures shall be taken into account under this 
subsection for any period before January 22,1975 (or, if later, 
before the first day of the first taxable year to which an elec-
tion under this subsection applies). 
" ( F ) No QUALIFIED PROGRESS EXPENDITURES FOR PROPERTY 
FOR YEAR IT IS PLACED IN SERVICE, ETC.—In the case of any 
property, no qualified progress expenditures shall be taken 
into account under this subsection for the earlier of— 
"(i) the taxable year in which the property is placed 
in service, or 
"(ii) the first taxable year for which recapture is 
Post, p . 4^. 
required under section 47(a)(3) with respect to such 
property, 
or for any taxable year thereafter. 
"(5) OTHER DEFINITIONS.—For purposes of this subsection— 
" ( A ) 
SELF-CONSTRUCTED PROPERTY.—The term 'self-con-
structed property' means property more than half of the 
construction expenditures for which it is reasonable to 
believe will be made directly by the taxpayer. 
" ( B ) 
NON-SELF-CONSTRUCTED PROPERTY.—The term 'non-
self-constructed property' means property which is not self-
constructed property. 
"(C) CONSTRUCTION, ETC.—The term 'construction' includes 
reconstruction and erection, and the term 
'constructed' 
includes reconstructed and erected. 
" ( D ) 
O N L Y CONSTRUCTION OF SECTION 38 PROPERTY TO BE 
TAKEN INTO ACCOUNT.—Construction shall be taken into 
account only if, for purposes of this subpart, expenditures 
therefor are properly chargeable to capital account with 
respect to the property. 
"(6) ELECTION.—A election under this subsection may be made 
at such time and in such manner as the Secretary or his delegate 
may by regulations prescribe. Such an election shall apply to the 
taxable year for which made and to all subsequent taxable years. 
Such an election, once made, may not be revoked except with the 
consent of the Secretary or his delegate. 
" (7) TRANSITIONAL RULES.—The qualified investment taken into 
account under this subsection for any taxable year beginning 
before January 1, 1980, with respect to any property shall be (in 
lieu of the full amount) an amount equal to the sum of— 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 43 
" ( A ) 
the applicable percentage of the full 
amount 
determined under the following table: 
"For a taxable year 
The applicable 
beginning in: 
percentage is: 
1974 or 1975 
20 
1976 
40 
1977 
60 
1978 
80 
1979 
100; 
plus 
"(B) in the case of any property to which this subsection 
applied for one or more preceding taxable years, 20 percent of 
the full amount for each such preceding taxable year. 
For purposes of this paragraph, the term 'full amount', when used "Full amount, 
with respect to any property for any taxable year, means the 
amount of the qualified investment for such property for such year 
determined 
under 
this 
subsection 
without 
regard to this 
paragraph.-' 
(b) CONFORMING AMENDMENTS.— 
(1) AMENDMENT OF SECTION 4 6(C) .—Section 46 (c) (relating to 
26 USC 46. 
qualified investment) is amended by adding at the end thereof 
the folloAving new paragraph: 
"(4) COORDINATION WITH SUBSECTION (d).—The amount which 
would (but for this paragraph) be treated as qualified investment 
under this subsection with respect to any property shall be reduced 
(but not below zero) by any amount treated by the taxpayer or a 
predecessor of the taxpayer (or, in the case of a sale and leaseback 
described in section 4 7 ( a ) ( 3 ) ( C ) , by the lessee) as qualified Infra-
investment with respect to such property under subsection (d), to 
the extent the amount so treated has not been required to be recap-
tured by reason of section 47(a) (3)." 
(2) DISPOSITION, ETC.— 
(A) Subsection (a) of section 47 (relating to certain dis- 26 USC 47. 
positions, etc., of section 38 property) is amended by redesig-
nating paragraph (3) as paragraph (4) and by inserting 
after paragraph (2) the following new paragraph: 
"(3) PROPERTY CEASES TO BE PROGRESS EXPENDITURE PROPERTY.— 
" ( A ) I N GENERAL.—If during any taxable year any prop-
erty taken into account in determining qualified investment 
under section 46 (d) ceases (by reason of sale or other disposi- Ante, p. 40. 
tion, cancellation or abandonment of contract, or otherwise) 
to be, with respect to the taxpayer, property Avhich, when 
placed in service, will be new section 38 property, then the 
tax under this chapter for such taxable year shall be increased 
by an amount equal to the aggregate decrease in the credits 
allowed under section 38 for all prior taxable years which 
would have resulted solely from reducing to zero the quali-
fied investment taken into account with respect to such 
property. 
" ( B ) 
CERTAIN EXCESS CREDIT RECAPTURED.—Any amount 
which would have been applied as a reduction of the qualified 
investment in property by reason of paragraph (4) of sec-
tion 46(c) but for the fact that a reduction under such para-
graph cannot reduce qualified investment below zero shall be 
treated as an amount required to be recaptured under sub-
paragraph (A) for the taxable year in which the property is 
placed in service. 
" ( C ) CERTAIN SALES AND LEASEBACKS.—Under regulations 
prescribed by the Secretary or his delegate, a sale by, and 
89 STAT. 44 
PUBLIC LAW 94-12—MAR. 29, 1975 
leaseback to, a taxpayer who, when the property is placed in 
26 use 48. 
service, will be a lessee to whom section 48(d) applies shall 
not be treated as a cessation described in sulaparagraph (A) 
to the extent that the qualified investment w^hich will be 
passed through to the lessee under section 48(d) with respect 
to such property is not less than the qualified 
progress 
expenditures properly taken into account by the lessee with 
respect to such property. 
"(D) COORDINATION WITH PARAGRAPH (i).—If, after prop-
erty is placed in service, there is a disposition or other cessa-
tion described in paragraph (1), paragraph (1) shall be 
applied as if any credit which was allowable by reason of 
Ante, p. 40. 
Section 46(d) and which has not been required to be recap-
tured before such cessation were allowable for the taxable 
year the property was placed in service." 
(c) 
CLERICAL AMENDMENTS.— 
Ante, p. 43. 
(1) Paragraph (4) of section 47(a) (as redesignated by sub-
section ( b ) ( 2 ) ( A ) of this section) is amended by striking out 
"paragraph (1)" and insertino- in lieu thereof "paragraph (1) or 
(3)". 
(2) Paragraphs (5) and (6) (B) of section 47(a) are each 
amended by striking out "paragraph (3)" and inserting in lieu 
thereof "paragraph (4)". 
26 use 48. 
(3) Paragraphs (1) and (2) of section 48(d) are each amended 
by striking out "section 46(d) (1)" and inserting in lieu thereof 
"section 46 (e)(1)". 
26 use SOB. 
(4) Subsection (f) of section 50B is amended by striking out 
"section 4 6 ( d ) " and inserting in lieu thereof "section 46(e)". 
SEC. 303. CHANGE IN CORPORATE TAX RATES AND INCREASE IN SUR-
TAX EXEMPTION. 
26 use 11. 
(a) TAX RATES.—Section 11(b) (relating to corporate normal tax) 
is amended to read as follows: 
"(b) NORMAL TAX.—The normal tax is equal to— 
"(1) in the case of a taxable year ending before January 1, 
1975, or after December 31,1975, 22 percent of the taxable income, 
and 
"(2) in the case of a taxable year ending after December 31, 
1974, and before January 1,1976, the sum of— 
"(A) 20 percent of so much of the taxable income as does-
not exceed $25,000, plus 
" ( B ) 22 percent of so much of the taxable income as 
exceeds $25,000.". 
(b) SURTAX EXEMPTION.—Section 11 (d) (relating to surtax exemp-
tion) is amended by striking out "$25,000" and inserting in lieu thereof 
"$50,000". 
(c) 
TECHNICAL AND CONFORMING AMENDMENTS.— 
26 use 1561. 
(1) Paragraph (1) of section 1561(a) (as in effect for taxable 
years beginning after December 31,1974) (relating to limitations 
on certain multiple tax benefits in the case of certain controlled 
corporations) is amended by striking out "$25,000" and inserting 
26 use 11 note. 
in lieu thereof "$50,000". In applying subsection (b) (2) of sec-
tion 11, the first $25,000 of taxable income and the second $25,000 
of taxable income shall each be allocated among the component 
members of a controlled group of corporations in the same manner 
as the surtax exemption is allocated. 
26 use 12. 
(2) Paragraph (7) of section 12 (relating to cross references 
for tax on corporations) is amended by striking out "$25,000" 
and inserting in lieu thereof "$50,000". 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT, 45 
26 use 962. 
26 use 243. 
26 use 1551 
26 use 1561. 
26 use 46 note. 
26 use 11 note. 
26 use 21. 
(3) Section 962(c) 
(relating to surtax exemj^tion for indi-
viduals electing to be subject to tax at corporate rates) is amended 
by striking out "$25,000" and inserting in lieu thereof "$50,000". 
SEC. 304. INCREASE IN MINIMUM ACCUMULATED EARNINGS CREDIT 
FROM $100,000 TO $150,000. 
(a) INCREASE.—Paragraphs (2) and (3) of section 535(c) (relating 26 USe 535. 
to accumulated earnings credit) are each amended by striking out 
"$100,000" and inserting in lieu thereof "$150,000". 
(b) CONFORMING AMENDMENTS.—Sections 243 ( b ) ( 3 ) ( C ) ( i ) (relat-
ing to qualifying dividends for purposes of the dividends received 
deduction), 1551 (a) (relating to disallowance of surtax exemption and 
accumulated earnings credit) and 1561(a) (2) (relating to limitations 
on certain multiple tax benefits in the case of certain controlled cor-
porations) are each amended by striking out "$100,000" and inserting 
in lieu thereof "$150,000". 
SEC. 305. EFFECTIVE DATES. 
(a) SECTION 302.—The amendments made by section 302 shall apply 
to taxable years ending after December 31.1974. 
(b) SECTION 303.— 
(1) I N GENERAL.—The amendments made by section 303 shall 
apply to taxable years ending after December 31,1974. The amend-
ments made by subsections (b) and (c) of such section shall cease 
to apply for taxable years ending after December 31,1975. 
(2) 
CHANGES TOEATED AS CHANGES IN TAX RATE.—Section 21 
(relating to change in rates during taxable year) is amended by 
adding at the end thereof the following new subsection: 
"(f) INCREASE IN SURTAX EXEMPTION.—In applying subsection (a) 
to a taxable year of a taxpayer which is not a calendar year, the change 
made by section 303(b) of the Tax Reduction Act of 1975 in section 
11(d) (relating to corporate surtax exemption) shall be treated as a 
change in a rate of tax." 
(c) SECTION 304.—The amendments made by section 304 apply to 
taxable years beginning after December 31,1974. 
TITLE IV—CHANGES AFFECTING INDI-
VIDUALS AND BUSINESSES 
SEC. 401. FEDERAL WELFARE RECIPIENT EMPLOYMENT INCENTIVE 
TAX CREDIT. 
(a) I N GENERAL.— 
(1) Section 50A (a) (relating to determination of amount of 
credit) is amended by adding at the end thereof the following new 
paragraph: 
"(6) 
LIMITATION 
WITH 
RESPECT TO NONBUSINESS 
ELIGIBLE 
EMPLOYEES.—Notwithstanding paragraph (1), the credit allowed 
by section 40 with respect to Federal welfare recipient employment 
incentive expenses paid or incurred by the taxpayer during the 
taxable year to an eligible employee whose services are not per-
formed in connection with a trade or business of the taxpayer 
shall not exceed $1,000." 
(2) Section 50A (c) (2) (A) (relating to amount of credit) is 
amended—• 
(A) by striking out "or" at the end of clause (ii), 
(B) by striking out the period at the end of clause (iii) 
and inserting in lieu thereof a comma and "or", and 
Ante, p. 44. 
26 use 535 note. 
26 use 50A. 
26 use 40. 
89 STAT. 46 
PUBLIC LAW 94-12—MAR. 29, 1975 
(C) by inserting at the end thereof the following new 
clause: 
"(iv) a termination of employment of an individual 
with respect to whom Federal welfare recipient employ-
ment incentive expenses (as described in section 50B 
infra. 
(a)(2)) are taken into account under subsection (a)." 
26 use SOB. 
(3) Section 50B(a) (relating to definitions; special rules) is 
amended to read as follows: 
"(a) WORK INCENTIVE PROGRAM EXPENSES.— 
" (1) IN GENERAL.—For purposes of this subpart, the term 'work 
incentive program expenses' means the sum of— 
" (A) the amount of waj^es paid or incurred by the taxpayer 
for services rendered during the first 12 months of employ-
ment (whether or not consecutive) of employees who are 
cei'tified by the Secretary of Labor as— 
"(i) having been placed in employment under a work 
incentive program established under section 432(b) (1) 
42 use 632. 
of the Social Security Act, and 
"(ii) not having displaced any individual from 
employment, plus 
"(B) the amount of Federal welfare recipient employment 
incentive expenses paid or incurred by the taxpayer during 
the taxable year. 
"(2) DEFINITION.—For purposes of this section, the term 'Fed-
eral welfare recipient employment incentive expenses' means the 
amount of wages paid or incurred by the taxpayer for services 
rendered to the taxpayer before July 1, 1976, by an eligible 
employee. 
"(3) EXCLUSION.—No item taken into account under paragraph 
(1) (A) shall be taken into account under paragraph (1) (B), No 
item taken into account under paragraph (1) (B) shall be taken 
into account under paragraph 1 (A)." 
(4) Section 50B(c) is amended— 
(A) by striking out "subsection (a)" in paragraph (1) and 
inserting in lieu thereof "subsection (a)(1)(A)", and 
(B) by striking out "subsection (a)" in paragraph (4) and 
inserting in lieu thereof "subsection (a) (1) (A)". 
(5) Section 50B is amended by redesignating subsection (g) 
as (h) and by inserting immediately after subsection (f) the 
following new subsection: 
"(g) 
ELIGIBLE EMPLOYEE.— 
"(1) ELIGIBLE EMPLOYEE.—For purposes of subsection (a)(1) 
(B), the term 'eligible employee' means an individual— 
"(A) who has been certified by the appropriate agency of 
State or local government as being eligible for financial 
42 use 601. 
assistance under part A of title IV of the Social Security Act 
and as having continuously received such financial assistance 
during the 90 day period which immediately precedes the date 
on which such individual is hired by the taxpayer, 
"(B) who has been employed by the taxpayer for a period 
in excess of 30 consecutive days on a substantially full-time 
basis, 
"(C) who has not displaced any other individual from 
employment by the taxpayer, and 
"(D) who is not a migrant worker. 
The term 'eligible employee' includes an employee of the taxpayer 
whose services are not performed in connection with a trade or 
business of the taxpayer. 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 47 
"(2) MIGRANT WORKER.—For purposes of paragraph (1), the 
term 'migrant worker' means an individual who is employed for 
services for which the customary period of employment by one 
employer is less than 30 days if the nature of such services requires 
that such individual travel from place to place over a short period 
of time." 
(b) EFFECTIVE DATE.—The amendments made by this section with 26 USC 50A 
respect to federal welfare recipient employment incentive expenses "ot^-
shall apply to such expenses paid or incurred by a taxpayer to an 
eligible employee whom such taxpayer hires after the date of the 
enactment of this Act. 
SEC. 402. TIME WHEN CONTRIBUTIONS DEEMED MADE TO CERTAIN 
PENSION PLANS. 
Section 1017 of the Employee Retirement Income Security Act of 
1974 (relating to effective dates for funding, etc., provisions of that 
26 USC 410 note. 
Act) is amended— 
(1) in subsection (b) by striking out "(c) through (h)," and 
inserting in lieu thereof " (c) through (i),"; and 
(2) by adding at the end thereof the following new subsection: 
"(i) CONTRIBUTIONS TO H . R . 10 PT^NS.—Notwithstanding subsec-
tions (b) and (c) (2), in the case of a plan in existence on January 1, 
1974, the amendment made by section 1013(c)(2) of this Act shall 88 Stat. 914. 
apply, with respect to a plan which provides contributions or benefits 
26 USC 412. 
for employees some or all of whom are employees within the meaning 
of section 401(c) (1) of the Internal Revenue Code of 1954, for plan 
26 USC 401. 
years beginning after December 31, 1974, but only if the employer 
(within the meaning of section 401 (c) (4) of such Code) elects in such 
manner and at such time as the Secretary of the Treasury or his dele-
gate shall by regulations prescribe, to have such amendment so apply. 
Any election made under this subsection, once made, shall be 
irrevocable." 
TITLE V—PERCENTAGE DEPLETION 
SEC. 501. LIMITATIONS ON PERCENTAGE DEPLETION FOR OIL AND 
GAS. 
(a) I N GENERAL.—Part I of subchapter I of chapter 1 (relati)ig to 
natural resources) is amended by inserting after section 613 the follow-
ing new section: 
"SEC. 613A. LIMITATIONS ON PERCENTAGE DEPLETION IN CASE OF 26 USC 613A. 
OIL AND GAS WELLS. 
"(a) GENERAL RULE.—Except as otherwise provided in this sec-
tion, the allowance for depletion under section 611 with respect to any 
26 USC 611. 
oil or gas well shall be computed without regard to section 613. 
26 USC 613. 
"(b) 
EXEMPTION FOR CERTAIN DOMESTIC GAS WEI^LS.— 
"(1) I N GENERAL.—The allowance for depletion under section 
611 shall be computed in accordance with section 613 with respect 
to— 
" ( A ) regulated natural gas, 
" ( B ) natural gas sold under a fixed contract, and 
"(C) any geothermal deposit in the United States or in a 
possession of the United States which is determined to be a 
gas well within the meaning of section 613(b) (1) (A), 
and 22 percent shall be deemed to be specified in subsection (b) 
of section 613 for purposes of subsection (a) of that section. 
89 STAT. 48 
PUBLIC LAW 94-12—MAR. 29, 1975 
"(2) DEFINITIONS.—For purposes of this subsection— 
''(A) 
NATURAL GAS SOLD UNDER A FIXED CONTRACT.—The 
term 'natural gas sold under a fixed contract' means domestic 
natural gas sold by the producer under a contract, in effect 
on February 1, 1975, and at all times thereafter before such 
sale, under which the price for such gas cannot be adjusted 
to reflect to any extent the increase in liabilities of the seller 
for tax under this chapter by reason of the repeal of percent-
age depletion for gas. Price increases after February 1,1975, 
shall be presumed to take increases in tax liabilities into 
account unless the taxpayer demonstrates to the contrary by 
clear and convincing evidence. 
" ( B ) KEGULATED NATURAL GAS.—The term 'regulated natu-
ral gas' means domestic natural gas produced and sold by 
the producer, before July 1, 1976, subject to the jurisdiction 
of the Federal Power Commission, the price for which has 
not been adjusted to reflect to any extent the increase in 
liability of the seller for tax under this chapter by reason of 
the repeal of percentage depletion for gas. Price increases 
after February 1, 1975, shall be presumed to take increases 
in tax liabilities into account unless the taxpayer demon-
strates the contrary by clear and convincing evidence. 
"(c) 
EXEMPTION 
FOR INDEPENDENT 
PRODUCERS AND ROYALTY 
OWNERS.— 
"(1) I N GENERAL.—Except as provided in subsection (d), the 
26 use 611. 
allowance for depletion under section 611 shall be computed in 
26 use 613. 
accordance with section 613 with respect to— 
"(A) so much of the taxpayer's average daily production 
of domestic crude oil as does not exceed the taxpayer's deplet-
able oil quantity; and 
"(B) so much of the taxpayer's average daily production 
of domestic natural gas as does not exceed the taxpayer's 
depletable natural gas quantity; 
and the applicable percentage (determined in accordance with 
the table contained in paragraph (5)) shall be deemed to be 
specified in subsection (b) of section 613 for purposes of sub-
section (a) of that section. 
"(2) AVERAGE DAILY PRODUCTION.—For purposes of paragraph 
"(A) the taxpayer's average daily production of domestic 
crude oil or natural gas for any taxable year, shall be deter-
mined by dividing his aggregate production of domestic 
crude oil or natural gas, as the case may be, during the tax-
able year by the number of days in such taxable year, and 
"(B) in the case of a taxpayer holding a partial interest 
in the production from any property (including an interest 
held in a partnership) such taxpayer's production shall be 
considered to be that amount of such production determined 
by multiplying the total production of such property by the 
taxpayers percentage participation in the revenues from such 
property. 
In applying this paragraph, there shall not be taken into account 
any production of crude oil or natural gas resulting from second-
ary or tertiary processes (as defined in regulations prescribed by 
the Secretary or his delegate). 
" (3) DEPLETABLE OIL QUANTITY.— 
" ( A ) I N GENERAL.—For purposes of paragraph (1), the 
taxpayer's depletable oil quantity shall be equal to— 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT, 49 
"(i) the tentative quantity determined under the table 
contained in subparagraph (B), reduced (but not below 
zero) by 
" (ii) the taxpayer's average daily secondary or tertiary 
production for the taxable year. 
" ( B ) 
PHASE-OUT TABLE.—For purposes of subparagraph 
( A ) -
"In the case of production 
The tentative quantity 
during the calendar year: 
in barrels is: 
1975 
2, 000 
1976 
1, 800 
1977 
1, 600 
1978 
1, 400 
1979 
1, 200 
1980 and thereafter 
1, 000 
"(4) DAILY DEPLETABLE NATURAL GAS QUANTITY.—For purposes 
of paragraph (1), the depletable natural gas quantity of any 
taxpayer for any taxable year shall be equal to 6,000 cubic feet 
multiplied by the number of barrels of the taxpayer's depletable 
oil quantity to which the taxpayer elects to have this paragraph 
apply. The taxpayer's depletable oil quantity for any taxable 
year shall be reduced by the number of barrels with respect to 
which an election under this paragraph applies. Such election 
shall be made at such time and in such manner as the Secretary 
or his delegate shall by regulations prescribe. 
"(5) APPLICABLE PERCENTAGE.—For purposes of 
paragraph 
( 1 ) -
"In the case of production 
The applicable 
during the calendar year: 
percentage is: 
1975 
22 
1976 
22 
1977 
22 
1978 
22 
1979 
22 
1980 
22 
1981 
20 
1982 
18 
1983 
16 
1984 and thereafter 
15 
"(6) O I L AND NATURAL GAS RESULTING FROM SECONDARY OR TER-
TIARY PROCESSES.— 
"(A) I N GENERAL.—Except as provided in subsection (d), 
the allowance for depletion under section 611 shall be com- 26 USC 611. 
puted in accordance with section 613 with respect to— 
^6 USC 613. 
" (i) so much of the taxpayer's average daily secondary 
or tertiary production of domestic crude oil as does not 
exceed the taxpayer's depletable oil quantity 
(deter-
mined with regard to paragraph ( 3 ) ( A ) ( i i ) ) ; and 
"(ii) so much of the taxpayer's average daily second-
ary or tertiary production of domestic natural gas as does 
not exceed the taxpayer's depletable natural gas quantity 
(determined without regard to paragraph (3) (A) ( i i ) ) ; 
and 22 percent shall be deemed to be specified in subsection 
(b) of section 613 for purposes of subsection (a) of that 
section. 
" ( B ) AVERAGE DAILY SECONDARY OR TERTIARY PRODUCTION.— 
For purposes of this subsection— 
"(i) the taxpayer's average daily secondary or tertiary 
production of domestic crude oil or natural gas for any 
taxable year shall be determined by dividing his aggre-
gate production of domestic crude oil or natural gas, as 
89 STAT. 50 
PUBLIC LAW 94-12--MAR. 29, 1975 
the case may be, resulting from secondary or tertiary 
processes during the taxable year by the number of days 
in such taxable year, and 
"(ii) in the case of a taxpayer holding a partial inter-
est in the production from any property (including any 
interest held in any partnership) such taxpayer's pro-
duction shall be considered to be that amount of such 
production determined by multiplying the total produc-
tion of such property by the taxpayer's percentage par-
ticipation in the revenues from such property. 
"(C) TERMINATION.—This paragraph shall not apply after 
December 31,1983. 
" (7) SPECIAL RULES.— 
" ( A ) 
PRODUCTION OF CRUDE OIL I N EXCESS or DEPLETABLE 
OIL QUANTITY.—If the taxpayer's average daily production 
of domestic crude oil exceeds his depletable oil quantity, the 
allowance under paragraph (1) (A) with respect to oil pro-
duced during the taxable year from each property in the 
United States shall be that amount which bears the same ratio 
to the amount of depletion which would have been.allowable 
26 use 613. 
under section 613(a) for all of the taxpayer's oil produced 
from such property during the taxable year (computed as if 
section 613 applied to all of such production at the rate 
specified in paragraph (5) or (6), as the case may be) as his 
depletable oil quantity bears to the aggregate number of 
barrels representing the average daily production of domestic 
crude oil of the taxpayer for such year. 
" ( B ) PRODUCTION or NATURAL GAS I N EXCESS OF DEPLETABLE 
NATURAL GAS QUANTITY.—If the taxpayer's average daily pro-
duction of domestic natural gas exceeds his depletable natural 
gas quantity, the allowance under paragraph (1) (B) with 
respect to natural gas produced during the taxable year from 
each property in the United States shall be that amount 
which bears the same ratio to the amount of depletion which 
would have been allowable under section 613(a) for all of the 
taxpayers natural gas produced from such property during 
the taxable year (computed as if section 613 applied to all of 
such production at the rate specified in paragraph (5) or 
(6), as the case may be) as the amount of his depletable 
natural gas quantity in cubic feet bears to the aggregate 
number of cubic feet representing the average daily produc-
tion of domestic natural gas of the taxpayer for such year. 
" ( C ) 
TAXABLE INCOME FROM THE PROPERTY.—If both oil 
and gas are produced from the property during the taxable 
year, for purposes of subparagraphs (A) and (B) the tax-
able income from the property, in applying the 50-percent 
limitation in section 613(a), shall be allocated between the 
oil production and the gas production in proportion to the 
gross income during the taxable year from each. 
" ( D ) PARTNERSHIPS.—In the case of a partnership, the 
depletion allowance in the case of oil and gas wells to which 
this subsection applies shall be computed separately by the 
partners and not by the partnership. 
" ( E ) 
SECONDARY OR TERTIARY PRODUCTION.—If the taxpayer 
has production from secondary or tertiary recovery processes 
during the taxable year, this paragraph (under regulations 
prescribed by the Secretary or his delegate) shall be applied 
separately with respect to such production. 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 51 
" (8) BUSINESSES UNDER COMMON CONTROL ; MEMBERS or THE SAME 
FAMILY. 
" (A) COMPONENT MEMBERS OF CONTROLLED GROUP TREATED AS 
ONE TAXPAYER.—For purposes of this subsection, persons who 
are members of the same controlled group of corporations 
shall be treated as one taxpayer. 
" ( B ) 
AGGREGATION OF BUSINESS ENTITIES UNDER COMMON 
CONTROL.—If 50 percent or more of the beneficial interest in 
two or more corporations, trusts, or estates is owned by the 
same or related persons (taking into account only persons 
who own at least 5 percent of such beneficial interest), the 
tentative quantity determined under the table in paragraph 
(3) (B) shall be allocated among all such entities in propor-
tion to the respective production of domestic crude oil during 
the period in question by such entities. 
" ( C ) ALLOCATION AMONG MEMBERS OF THE SAME FAMILY.— 
In the case of individuals who are members of the same 
family, the tentative quantity determined under the table in 
paragraph (3) (B) shall be allocated among such individuals 
in proportion to the respective production of domestic crude 
oil during the period in question by such individuals. 
" ( D ) DEFINITION AND SPECIAL RULES.—For purposes of this 
paragraph— 
"(i) the term 'controlled group of corporations' has 
the meaning given to such term by section 1563(a), except 26 USC 1563. 
that section 1563(b) (2) shall not apply and except that 
'more than 50 percent' shall be substituted for 'at least 80 
percent' each place it appears in section 1563 (a), 
"(ii) a person is a related person to another person if 
such persons are members of the same controlled group 
of corporations or if the relationship between such per-
sons would result in a disallowance of losses under section 
267 or 707(b), except that for this purpose the family of 26 USC 267, 
an individual includes only his spouse and minor chil- ^O^-
dren, 
"(iii) the family of an individual includes only his 
spouse and minor children, and 
" (iv) each 6,000 cubic feet of domestic natural gas shall 
be treated as 1 barrel of domestic crude oil. 
" (9) TRANSFER OF OIL OR GAS PROPERTY.— 
" ( A ) In the case of a transfer (including the subleasing of 
a lease) after December 31, 1974 of an interest (including an 
interest in a partnership or trust) in any proven oil or gas 
property, paragraph (1) shall not apply to the transferee (or 
sublessee) with respect to production of crude oil or natural 
gas attributable to such interest, and such production shall 
not be taken into account for any computation by the trans-
feree (or sublessee) under this subsection. A property shall 
be treated as a proven oil or gas property if at the time of 
the transfer the principal value of the property has been 
demonstrated by prospecting or exploration or discovery 
work. 
"(B) Subparagraph (A) shall not apply in the case of— 
" (i) a transfer of property at death, or 
"(ii) the transfer in an exchange to which section 351 26 USC 351. 
applies if following the exchange the tentative quantity 
89 STAT. 52 
PUBLIC LAW 94-12—MAR. 29, 1975 
determined under the table contained in paragraph (3) 
(B) is allocated under paragraph (8) between the trans-
feror and transferee. 
"(10) SPECIAL RUUE FOR FISCAL YEAR TAXPAYERS.—In applying 
this subsection to a taxable year which is not a calendar year, each 
portion of such taxable year which occurs during a single calendar 
year shall be treated as if it were a short taxable year. 
" ( 1 1 ) 
CERTAIlSr PRODUCTION NOT TAKEN INTO ACCOUNT.—In 
applying this subsection, there shall not be taken into account 
the production of natural gas with respect to which subsection 
(b) applies. 
" ( d ) LIMITATIONS ON APPLICATION OF SUBSECTION ( C ) . — 
"(1) 
LIMITATION BASED ON TAXABLE INCOME.—The deduction 
for the taxable year attributable to the application of subsection 
(C) shall not exceed 65 percent of the taxpayer's taxable income 
for the year computed without regard to— 
(A) depletion with respect to production of oil and gas 
subject to the provisions of subsection (c), 
" ( B ) any net operating loss carryback to the taxable year 
26 use 172. 
under section 172, and 
"(C) any capital loss carryback to the taxable year under 
26 use 1212. 
section 1212. 
If an amount is disallowed as a deduction for the taxable year by 
reason of application of the preceding sentence, the disallowed 
amount shall be treated as an amount allowable as a deduction 
under subsection (c) for the following taxable year, subject to the 
application of the preceding sentence to such taxable year. For 
purposes of basis adjustments and determining whether cost 
depletion exceeds percentage depletion with respect to the produc-
tion from a property, any amount disallowed as a deduction on 
the application of this paragraph shall be allocated to the 
respective properties from which the oil or ^as was produced in 
proportion to the percentage depletion otherwise allowable to such 
properties under subsection (c). 
"(2) RETAILERS EXCLUDED.—Subsection (c) shall not apply in 
the case of any taxpayer Avho directly, or through a related person, 
sells oil or natural gas, or any product derived from oil or natural 
gas— 
" ( A ) through any retail outlet operated by the taxpayer 
or a related person, or 
" ( B ) to any person— 
"(i) obligated under an agreement or contract with 
the taxpayer or a related person to use a trademark, trade 
name, or service mark or name owned by such taxpayer or 
a related person, in marketing or distributing oil or natu-
ral gas or any product derived from oil or natural gas, or 
" (ii) given authority, pursuant to an agreement or con-
tract with the taxpayer or a related person, to occupy any 
retail outlet owned, leased, or in any way controlled by 
the taxpayer or a related person. 
"(3) RELATED PERSON.—For purposes of this subsection, a per-
son is a related person with respect to the taxpayer if a significant 
ownership interest in either the taxpayer or such person is held 
by the other, or if a third person has a significant ownership 
interest in both the taxpayer and such person. For purposes of the 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 53 
preceding sentence, the term 'significant 
ownership 
interest' 
means— 
"Significant 
ownership 
interest." 
26 use 611. 
26 use 613. 
" (A) with respect to any corporation, 5 percent or more in 
value of the outstanding stock of such corporation, 
" ( B ) with respect to a partnership, 5 percent or more 
interest in the profits or capital of such partnership, and 
"(C) with respect to an estate or trust, 5 percent or more of 
the beneficial interests in such estate or trust. 
"(4) CERTAIN REFINERS EXCLUDED.—If the taxpayer or a related 
person engages in the refining of crude oil, subsection (c) shall 
not apply to such taxpayer if on any day during the taxable year 
the refinery runs of the taxpayer and such person exceed 50,000 
barrels. 
" (e) DEFINITIONS.—For purposes of this section— 
"(1) CRUDE OIL.—The term 'crude oil' includes a natural gas 
liquid recovered from a gas well in lease separators or field 
facilities. 
"(2) NATURAL GAS.—The term 'natural gas' means any product 
(other than crude oil) of an oil or gas well if a deduction for 
depletion is allowable under section 611 with respect to such 
product. 
" (3) DOMESTIC.—The term 'domestic' refers to production from 
an oil or gas well located in the United States or in a possession 
of the United States. 
"(4) 
BARREL.—The term 'barrel' means 42 United 
States 
gallons." 
(b) TECHNICAL AMENDMENTS.— 
(1) 
Section 613(d) 
(relating to percentage depletion) is 
amended to read as follows: 
" ( d ) DENIAL OF PERCENTAGE DEPLETION I N CASE OF O I L AND GAS 
WELLS.—Except as provided in section 613A, in the case of any oil or Ante, p. 47. 
gas well, the allowance for depletion shall be computed without refer-
ence to this section." 
(2) Section 613_(b) is amended— 
(A) by striking out subparagraph (A) of paragraph (1) 
and redesignating subparagraphs (B) and (C) as subpara-
graphs (A) and (B), respectively, 
(B) by striking out " ( 1 ) ( C ) " each place it appears in 
paragraphs (3), (4), and (7) and inserting in lieu thereof 
" ( 1 ) ( B ) " , and 
(C) by amending the last sentence of paragraph (7)— 
(i) by striking out "or" at the end of clause (A), 
(ii) by striking out the period at the end of clause 
(B) and inserting in lieu thereof " ; or", and 
(iii) by adding at the end thereof the following new 
clause: 
"(C) oil and gas wells." 
(3) Section 703 (a) (2) (relating to deductions not allowable 26 USC 703,. 
to a partnership) is amended by striking out "and" at the end 
of subparagraph ( E ) , by striking out the period at the end of 
subparagraph (F) and inserting in lieu ", and", and by adding 
at the end thereof the following new subparagraph: 
"(G) the deduction for depletion under section 611 with 
respect to oil and gas production subject to the provisions of 
section 613A(c)."^ 
(c) EFFECTIVE DATES.—The amendments made by this section shall 
take effect on January 1,1975, and shall apply to taxable years ending 
after December 31, 1974. 
26 USC 613A 
note. 
89 STAT. 54 
PUBLIC LAW 94-12—MAR. 29, 1975 
TITLE VI—TAXATION OF FOREIGN OIL 
AND 
GAS AND 
OTHER 
FOREIGN 
INCOME 
SEC. 691. LIMITATIONS ON FOREIGN TAX CREDIT FOR TAXES PAID IN 
CONNECTION WITH FOREIGN OIL AND GAS INCOME. 
(a) I N GENPIRAL.—Subpart A of part I I I of subchapter N of chap-
ter 1 (relating to foreign tax credit) is amended by adding at the end 
thereof the following new section: 
26 use 907. 
"SEC. 907. SPECIAL RULES IN CASE OF FOREIGN OIL AND GAS INCOME. 
"(a) 
REDUCTION I N AMOUNT ALLOWED AS FOREIGN TAX UNDER SEC-
26 use 901. 
TiON 901.—In applying section 901, the amount of any income, war 
profits, and excess profits taxes paid or accrued (or deemed to have 
been paid) during the taxable year with respect to foreign oil and gas 
extraction income which would (but for this subsection) be taken into 
account for purposes of section 901 shall be reduced by the amount 
(if any) by which the amount of such taxes exceeds the product of— 
"(1) the amount of the foreign oil and gas extraction income 
for the taxable year, multiplied by 
"(2) the percentage which is— 
"(A) in taxable years ending in 1975, 110 percent of, 
"(B) in taxable years ending in 1976, 105 percent of, and 
"(C) in taxable years ending after 1976, 2 percentage 
points above, 
the sum of the normal tax rate and the surtax rate for the taxable year 
26 use 11. 
specified in section 11. 
26 use 904. 
"(b) 
APPLICATION OF SECTION 904 LIMITATION,—The provisions 
of section 904 shall be applied separately with respect to— 
" (1) foreign oil related income, and 
" (2) other taxable income. 
With respect to foreign oil related income, the overall limitation pro-
vided by section 904(a)(2) shall apply and the per-country limita-
tion provided by section 904(a) (1) shall not apply. 
"(c) FOREIGN INCOME DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section— 
"(1) FOREIGN OIL AND GAS EXTRACTION INCOME.—The term 'for-
eign oil and gas extraction income' means the taxable income 
derived from sources without the United States and its possessions 
from— 
"(A) the extraction (by the taxpayer or any other person) 
of minerals from oil or gas wells, or 
"(B) the sale or exchange of assets used by the taxpayer 
in the trade or business described in subparagraph ( A ) . 
"(2) 
FOREIGN OIL RELATED INCOME.—The term 'foreign oil 
related income' means the taxable income derived from sources 
outside the United States and its possessions from— 
" (A) the extraction (by the taxpayer or any other person) 
of minerals from oil or gas wells, 
"(B) the processing of such minerals into their primary 
products, 
"(C) the transportation of such minerals or primary 
products, 
" ( D ) the distribution or sale of such minerals or primary 
products, or 
" ( E ) the sale or exchange of assets used by the taxpayer 
in the trade or business described in subparagraph ( A ) , 
( B ) , ( C ) , o r ( D ) . 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 55 
"(3) 
DIVIDENDS, INTEREST, PARTNERSHIP DISTRIBUTION, ETC.— 
The term 'foreign oil and gas extraction income' and the term 
'foreign oil related income' include— 
"(A) dividends and interest from a foreign corporation 
in respect of which taxes are deemed paid by the taxpayer 
under section 902, 
26 USC 902. 
"(B) dividends from a domestic corporation which are 
treated under section 861(a) (2) (A) as income from sources 26 USC 861. 
without the United States, 
"(C) amounts with respect to which taxes are deemed paid 
under section 960(a), and 
26 USC 960. 
" ( D ) the taxpayer's distributive share of the income of 
partnerships, 
to the extent such dividends, interest, amounts, or distributive 
share is attributable to foreign oil and gas extraction income, or 
to foreign oil related income, as the case may be; except that 
interest described in subparagraph (A) and dividends described 
in subparagraph (B) shall not be taken into account in computing 
foreign oil and gas extraction income but shall be taken into 
account in computing foreign oil-related income. 
"(4) CERTAIN LOSSES.—If for any foreign country for any tax-
able year the taxpayer would have a net operating loss if only 
items from sources within such country (including deductions 
properly apportioned or allocated thereto) which relate to the 
extraction of minerals from oil or gas wells were taken into 
account, such items— 
" ( A ) shall not be taken into account in computing foreign 
oil and gas extraction income for such year, but 
"(B) shall be taken into account in computing foreign oil 
related income for such year. 
" ( d ) 
DISREGARD OF CERTAIN POSTED PRICES, ETC.—For purposes 
of this chapter, in determining the amount of taxable income in the 
case of foreign oil and gas extraction income, if the oil or gas is dis-
posed of, or is acquired other than from the government of a foreign 
country, at a posted price (or other pricing arrangement) which 
differs from the fair market value for such oil or gas, such fair mar-
ket value shall be used in lieu of such posted price (or other pricing 
arrangement). 
"(e) TRANSITIONAL RULES.— 
"(1) 
TAXABLE YEARS ENDING AFTER DECEMBER SI, 1974.—In 
applying subsections (d) and (e) of section 904 for purposes of 26 USC 904. 
determining the amount which may be carried over from a tax-
able year ending before January 1, 1975, to any taxable year 
ending after December 31,1974— 
"(A) subsection (a) of this section shall be deemed to have 
been in effect for such prior taxable year and for all taxable 
years thereafter, and 
"(B) the carryover from such prior year shall be divided 
(effective as of the first day of the first taxable year ending 
after December 31,1974) into— 
" (i) a foreign oil related carryover, and 
"(ii) another carryover, 
on the basis of the proportionate share of the foreign oil 
related income, or the other taxable income, as the case may 
be, of the total taxable income taken into account in comput-
ing the amount of such carryover. 
"(2) TAXABLE YEARS ENDING AFTER DECEMBER 31, 1975.—In 
applying subsections (d) and (e) of section 904 for purposes of 
determining the amount which may be carried over from a tax-
89 STAT. 56 
PUBLIC LAW 94-12—MAR. 29, 1975 
able year ending before January 1, 1976. to any taxable year end-
ing after December 81.1975, if the per-country limitation provided 
26 use 904. 
by section 904(a)(1) applied to such prior taxable year and to 
the taxpayer's last taxable year ending before January 1, 1976, 
then in the case of any foreign oil related carryover— 
"(A) the first sentence of section 904(e)(2) shall not 
apply, but 
" (B) such amount may not exceed the amount which could 
have been used in such "succeeding taxable year if the per-
country limitation continued to apply. 
"(f) RECAPTURE OF FOREIGN O I L RELATED LOSS.— 
" (1) GENERAL RULE.—For purposes of this subpart, in the case 
of any taxpayer who sustains a foreign oil related loss for any 
taxable year— 
" (A) that portion of the foreign oil related income for each 
succeeding taxable year which is equal to the lesser of— 
"(i) the amount of such loss (to the extent not used 
under this paragraph in prior years), or 
"(ii) 50 percent of the foreign oil related income for 
such succeeding taxable year, 
shall be treated as income from sources within the United 
States (and not as income from sources without the United 
States), and 
"(B) the amount of the income, war profits, and excess 
profits taxes paid or accrued (or deemed to have been paid) 
to a foreign country for such succeeding taxable year with 
respect to foreign oil related income shall be reduced by an 
amount which bears the same proportion to the total amount 
of such foreign taxes as the amount treated as income from 
sources within the United States under subparagraph (A) 
bears to the total foreign oil related income for such succeed-
ing taxable year. 
For purposes of this chapter, the amount of any foreign taxes for 
which credit is denied under subparagraph (B) of the preceding 
sentence shall not be allowed as a deduction for any taxable year. 
For purposes of this subsection, foreign oil related income shall 
be determined without regard to this subsection. 
"(2) FOREIGN OIL RELATED LOSS DEFINED.—For purposes of this 
subsection, the term 'foreign oil related loss' means the amount 
by which the gross income for the taxable year from sources 
without the United States and its possessions (whether or not 
the taxpayer chooses the benefits of this subpart for such taxable 
year) taken into account in determining the foreign oil related 
income for such year is exceeded by the sum of the deductions 
properly apportioned or allocated thereto, except that there shall 
not be taken into account— 
"(A) any net operating loss deduction allowable for such 
26 use 172. 
year under section 172(a) or any capital loss carrybacks and 
26 use 1212. 
carryovers to such year under section 1212, and 
"(B) any— 
"(i) 
foreign expropriation loss for such year, as 
defined in section 172(k) (1), or 
"(ii) loss for such year which arises from fire, storm, 
shipwreck, or other casualty, or from theft, 
to the extent such loss is not compensated for by insurance 
or otherwise. 
"(3) DISPOSITIONS.— 
"(A) I N GENERAL.—For purposes of this chapter, if prop-
erty used in a trade or business described in subparagraph 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 57 
(A), (B), (C), or (D) of subsection (c) (2) is disposed of 
during any taxable year— 
" (i) the taxpayer notwithstanding any other provision 
of this chapter (other than paragraph (1)) shall be 
deemed to have received and recognized foreign oil 
related income in the taxable year of the disposition, 
by reason of such disposition, in an amount equal to the 
lesser of the excess of the fair market value of such 
property over the taxpayer's adjusted basis in such 
property or the remaining amount of the foreign oil 
related losses which were not used under paragraph 
(1) for such taxable year or any prior taxable year, and 
"(ii) paragraph (1) shall be applied with respect to 
such income by substituting '100 percent' for '50 percent'. 
" ( B ) DISPOSITION DEFINED.—For purposes of this subsec-
tion, the term 'disposition' includes a sale, exchange, distri-
bution, or gift of property, whether or not gain or loss is 
recognized on the transfer. 
"(C) EXCEPTIONS.—Notwithstanding subparagraph (B), 
the term 'disposition' does not include— 
"(i) a disposition of property which is not a material 
factor in the realization of income by the taxpayer, or 
"(ii) a disposition of property to a domestic corpora-
tion in a distribution or transfer described in section 
381(a). 
26 use 381. 
"(g) WESTERN HEMISPHERE TRADE CORPORATIONS W H I C H ARE M E M -
BERS OF AN AFFILIATED GROUP.—If a Western Hemisphere trade cor-
poration is a member of an affiliated group for the taxable year, then 
in applying section 901, the amount of any income, war profits, and 26 USC 901. 
excess pronts taxes paid or accrued (or deemed to have been paid) 
during the taxable year with respect to foreign oil and gas extraction 
income which would (but for this section and section 1503(b)) be 26 USC 1503. 
taken into account for purposes of section 901 shall be reduced by the 
greater of— 
"(1) the reduction with respect to such taxes provided by sub-
section (a) of this section, or 
"(2) 
the reduction determined under section 1503(b) 
by 
applying section 1503(b) separately with respect to such taxes, 
but not by both such reductions." 
(b) CERTAIN PAYMENTS NOT T O B E CONSIDERED AS TAXES.—Section 
901 is amended by redesignating subsection (f) as subsection (g), and 
by adding after subsection (e) the following new subsection: 
"(f) 
CERTAIN 
PAYMENTS FOR O I L OR GAS NOT CONSIDERED AS 
TAXES.—Notwithstanding subsection (b) and sections 902 and 960, the 26 USC 902, 
amount of any income, or profits, and excess profits taxes paid or ^^O. 
accrued during the taxable year to any foreign country in connection 
with the purchase and sale of oil or gas extracted in such country is not 
to be considered as tax for purposes of section 275 (a) and this section 26 USC 275. 
if— 
"(1) the taxpayer has no economic interest in the oil or gas to 
which section 611 (a) applies, and 
26 USC 611. 
"(2) either such purchase or sale is at a price which differs from 
the fair market value for such oil or gas at the time of such pur-
chase or sale." 
(c) CLERICAL AMENDMENT.—The table of sections for subpart A of 
part I I I of subchapter N of chapter 1 is amended by adding at the end 
thereof the following new item: 
"Sec. 907. Special rules in case of foreign oil and gas income." 
89 STAT. 58 
PUBLIC LAW 94-12—MAR. 29, 1975 
26 use907 note. 
(d) EFFECTIVE DATES.—The amendments made by this section shall 
apply to taxable years ending after December 31, 1974; except that— 
(1) the second sentence of section 907(b) shall apply to taxable 
years ending after December 31,1975, and 
Ante, p. 54:. 
(2) the provisions of section 907(f) shall apply to losses 
sustained in taxable years ending after December 31, 1975. 
SEC. 602. TAXATION OF EARNINGS AND PROFITS OF CONTROLLED 
FOREIGN CORPORATIONS AND THEIR SHAREHOLDERS. 
(a) 
REPEAL OF M I N I M U M DISTRIBUTION EXCEPTION TO REQUIRE-
MENT or CURRENT TAXATION OF SUBPART F INCOME.— 
26 use 963. 
(1) REPEAL, OF MINIMUM DISTRIBUTION PROVISIONS.—Section 963 
(relating to receipt of minimum distributions by domestic corpo-
rations) is hereby repealed. 
(2) CERTAIN DISTRIBUTIONS BY CONTROLLED FOREIGN CORPORA-
TIONS TO REGULATED INVESTMENT COMPANIES TREATED AS DIVIDENDS. 
26 use 851. 
Subsection (b) of section 851 (relating to limitations on definition 
of regulated investment company) is amended by adding at the 
end thereof the following new sentence: 
"For purposes of paragraph (2), there shall be treated as dividends 
26 use 951. 
amounts included in gross income under section 951(a) (1) (A) (i) for 
26 use 959. 
the taxable year to the extent that, under section 959(a) (1), there is a 
distribution out of the earnings and profits of the taxable year which 
are attributable to the amounts so included." 
(3) CONFORMING AMENDMENTS.— 
(A) The table of sections for subpart F of part I I I of sub-
chapter N of chapter 1 is amended by striking out the item 
relating to section 963. 
(B) Subparagi^aph (A) (i) of section 951(a) (1) (relating 
to general rule for amounts included in gross income of 
United States shareholders) is amended by striking out 
"except as provided in section 963.". 
(b) LIMITATION ON DEFINITION OF FOREIGN BASE COMPANY SALES 
26 use 954. 
INCOME.—Paragraph (1) of section 954(d) (relating to definition of 
foreign base company sales income) is amended by adding at the end 
thereof the following new sentence: "For purposes of this subsection, 
personal property does not include agricultural commodities which are 
not 
grown in the United 
States in commercially 
marketable 
quantities." 
(c) REPEAL OF EXCEPTION TO REQUIREMENT OF CURRENT TAXATION 
OF SUBPART F INCOME FOR REINVESTMENT I N LESS DEVELOPED COUN-
TRIES.— 
(1) REPEAL OF SECTION 954(b) (1).—Paragraph (1) of subsec-
tion (b) of section 954 (relating to exclusions and special rules 
regarding foreign base company income) is hereby repealed. 
(2) REPEAL OF SECTION 954(f).—Subsection (f) of section 954 
(relating to increase in qualified investments in less developed 
countries) is hereby repealed. 
(3) AMENDMENT OF SECTION 951(a) (1) (A) (ii).—Clause (ii) 
of section 951(a)(1)(A) is amended by striking out "(deter-
26 use 955. 
mined under section 9 5 5 ( a ) ( 3 ) ) " and inserting m lieu thereof 
" (determined under section 955 (a)(3) as in effect before the enact-
ment of the Tax Reduction Act of 1975)". 
(4) REPEAL OF SECTION 951(a)(3).—Paragraph (3) of section 
951(a) (relating to limitation on pro rata share of previously 
excluded subpart F income withdrawn from investment) is 
hereby repealed. 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 59 
(5) REPEAL OF SECTION 955.—Section 955 (relating to with- 26 USC 955. 
drawal of previously excluded subpart F income from qualified 
investment) is hereby repealed. 
(6) 
LESS DEVELOPED COUNTRY CORPORATION DEFINED.—Subsec-
tion (d) of section 902 is amended to read as follows: 
26 USC 902. 
" ( d ) LESS DEVELOPED COUNTRY CORPORATION DEFINED.—For pur-
poses of this section, the term 'less developed country corporation' 
means— 
"(1) a foreign corporation which, for its taxable year, is a less 
developed country corporation within the meaning of paragraph 
(3) or (4), and 
"(2) a foreign corporation which owns 10 percent or more of 
the total combined voting power of all classes of stock entitled to 
vote of a foreign corporation which is a less developed country 
corporation within the meaning of paragraph (3), and— 
" ( A ) 80 percent or more of the gross income of which for 
its taxable year meets the requirement of paragraph (3) (A), 
and 
"(B) 80 percent or more in value of the assets of which on 
each day of such vear consists of property described in para-
graph (3) (B). 
A foreign corporation which is a less developed country corporation 
for its first taxable year beginning after December 31, 1962, shall, for 
purposes of this section, be treated as having been a less developed 
country corporation for each of its taxable years beginning before 
January 1, 1963. 
"(3) The term 'less developed country corporation' means a 
foreign corporation which during the taxable year is engaged in 
the active conduct of one or more trades or businesses and— 
"(A) 80 percent or more of the gross income of which for 
the taxable year is derived from sources within less developed 
countries; and 
"(B) 80 percent or more in value of the assets of which on 
each day of the taxable year consists of— 
"(i) property used in such trades or businesses and 
located in less developed countries, 
"(ii) money, and deposits with persons carrying on 
the banking business, 
" (iii) stock, and obligations which, at the time of their 
acquisition, have a maturity of one year or more, of any 
other less develoj^ed country corporation, 
"(iv) an obligation of a less developed country, 
"(v) an investment which is required because of 
restrictions imposed by a less developed country, and 
"(vi) property describsd in section 956(b) (2). 
26 USC 956. 
For purposes of subparagraph ( A ) , the determination as to 
whether income is derived from sources within less developed 
countries shall be made under regulations prescribed by the Secre-
tary or his delegate. 
"(4) The term 'less developed country corporation' also means 
a foreign corporation— 
"(A) 80 percent or more of the gross income of w^hich for 
the taxable year consists of— 
"(i) gross income derived from, or in connection with, 
the using (or hiring or leasing for use) in foreign com-
merce of aircraft or vessels registered under the laws of 
a less developed country, or from, or in connection with, 
the performance of services directly related to use of 
89 STAT. 60 
PUBLIC LAW 94-12—MAR. 29, 1975 
such aircraft or vessels, or from the sale or exchange of 
such aircraft or vessels, and 
"(ii) dividends and interest received from foreign cor-
porations which are less developed country corporations 
within the meaning of this paragraph and 10 percent or 
more of the total combined voting power of all classes of 
stock of which are owned by the foreign corporation, and 
gain from the sale or exchange of stock or obligations of 
foreign corporations which are such less developed coun-
try corporations, and 
"(B) 80 percent or more of the assets of which on each day 
of the taxable year consists of (i) assets used, or held for 
use, for or in connection with the production of income 
described in subparagraph (A), and (ii) property described 
26 use 956. 
in section 956(b) (2). 
"Less developed 
" (5) Xhe term 'less developed country' means (in respect to any 
country. 
foreign corporation) any foreign country (other than an area 
within the Sino-Soviet bloc) or any possession of the United 
States with respect to which, on the first day of the taxable year, 
there is in effect an Executive order by the President of the United 
States designating such country or possession as an economically 
less developed country for purposes of this section. For purposes 
of the preceding sentence, an overseas territory, department, prov-
ince, or possession may be treated as a separate country. No 
designation shall be made under this paragraph with respect to— 
Australia 
Luxembourg 
Austria 
Monaco 
Belgium 
Netherlands 
Canada 
New Zealand 
Denmark 
Norway 
France 
Union of South Africa 
Germany (Federal Re- 
San Marino 
public) 
Sweden 
Hong Kong 
Switzerland 
Italy 
United Kingdom 
Japan 
Liechtenstein 
iifter the President has designated any foreign country or any pos-
session of the LTnited States as an economically less developed country 
for purposes of this section, he shall not terminate such designation 
(either by issuing an Executive order for that purpose or by issuing an 
Executive order under the first sentence of this paragraph which has 
the effect of terminating such designation) unless, at least 30 days 
prior to such termination, he has notified the Senate and the House of 
Representatives of his intention to terminate such designation. Any 
26 use 955. 
designation in effect on March 26, 1975, under section 955(c) (3) (as 
in effect before the enactment of the Tax Reduction Act of 1975) shall 
be treated as made under this paragraph." 
(7) CLERICAL AMENDMENT.—The table of sections for subpart 
F of part I I I of subchapter N of chapter 1 is amended by striking 
out the item relating to section 955. 
(d) 
SHIPPING PROFITS OF CONTROLLED FOREIGN CORPORATION To B E 
TAXED 
CURRENTLY EXCEPT 
TO EXTENT REINVESTED IN 
SHIPPING 
OPERATIONS— 
(1) 
SHIPPING PROFITS INCLUDED IN GROSS INCOME OF UNITED 
STATES SHAREHOLDERS.— 
26 use 954. 
(A) Section 954(a) (relating to foreign base company 
income) is amended by striking out "and" at the end of para-
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 61 
graph (2), by striking out the period at the end of paragraph 
(3) and inserting in heu thereof ", and", and by adding at the 
end thereof the following new paragraph: 
" (4) the foreign base company shipping income for the taxable 
year (determined under subsection (f) and reduced as provided 
in subsection (b) (5))." 
(B) Paragraph (2) of section 954(b) is amended to read 
26 USC 954, 
as follows: 
"(2) 
EXCLUSION FOR REINVESTED SHIPPING INCOME.—For pur-
poses of subsection ( a ) , foreign base company income does not 
include foreign base company shipping income to the extent that 
the amount of such income does not exceed the increase for the 
taxable year in qualified investments in foreign base company 
shipping operations of the controlled foreign corporation (as 
determined under subsection ( g ) ) . " 
(C) Subparagraphs (A) and (B) of section 954(b)(3) 
are each amended by striking out "paragraphs (1) and ( 5 ) " 
and inserting in lieu thereof "paragraphs (2) and (5)". 
(D) Subparagraph (B) of section 954(b)(3) is amended 
by striking out "paragraphs (1), (2)," and inserting in lieu 
thereof "paragraph (2),". 
(E) Paragraph (5) of section 954(b) is amended by strik-
ing out "and the foreign base company services income" and 
inserting in lieu thereof "the foreign base company services 
income, and the foreign base company shipping income". 
(F) Section 954(b) is amended by adding at the end thereof 
the following new paragraph: 
"(6) 
SPECIAL RULES FOR FOREIGN BASE COMPANY SHIPPING I N -
COME.—Income of a corporation which is foreign base company 
shipping income under paragraph (4) of subsection (a) (deter-
mined without regard to the exclusion under paragraph (2) of 
this subsection) — 
" ( A ) shall not be considered foreign base company income 
of such corporation under any other paragraph of subsection 
(a) and 
" ( B ) if distributed through a chain of ownership described 
under section 958(a), shall not be included in foreign base 
26 USC 958. 
company income of another controlled foreign corporation in 
such chain." 
(G) Section 954 is amended by adding at the end thereof 
the following new subsections: 
"(f) FOREIGN BASE COMPANY SHIPPING INCOME.—For purposes of 
subsection (a) (4), the term 'foreign base company shipping income' 
means income derived from, or in connection with, the use (or hiring 
or leasing for use) of any aircraft or vessel in foreign commerce, or 
from, or in connection with, the performance of services directly 
related to the use of any such aircraft, or vessel, or from the sale, 
exchange, or other disposition of any such aircraft or vessel. Such term 
includes, but is not limited to— 
" (1) dividends and interest received from a foreign corporation 
in respect of which taxes are deemed paid under section 902, and 26 USC 902. 
gain from the sale, exchange, or other disposition of stock or obli-
gations of such a foreign corporation to the extent that such divi-
dends, interest, and gains are attributable to foreign 
base 
company shipping income, and 
"(2) that portion of the distributive share of the income of a 
partnership 
attributable to foreign 
base company 
shipping 
income. 
89 STAT. 62 
PUBLIC LAW 94-12—MAR. 29, 1975 
"(g) 
INCREASE IN QUALIFIED INVESTMENTS IN FOREIGN BASE COM-
PANY SHIPPING OpEPtATioNS.—For purposes of subsection (b) (2), the 
increase for any taxable year in qualified investments in foreign base 
company shipping operations of any controlled foreign corporation is 
the amount by which— 
"(1) the qualified investments in foreign base company ship-
Infra. 
ping operations (as defined in section 955(b)) of the controlled 
foreign corporation at the close of the taxable year, exceed 
"(2) the qualified investments in foreign base company ship-
ping operations (as so defined) of the controlled foreign corpora-
tion at the close of the preceding taxable year." 
(2) 
AMOUNTS INCLUDED IN GROSS INCOME or 
UNITED STATES 
SHAREHOLDERS. 
Ante, p. 58. 
(A) Subparagraph (A) of section 951(a) (1) is amended 
by striking out "and" at the end of clause (i), by striking out 
the semicolon at the end of clause (ii) and inserting in lieu 
thereof a comma, and by adding at the end thereof the follow-
ing new clause: 
"(iii) his pro rata share (determined under section 
955(a) (3)) of the corporation's previously excluded sub-
part F income withdrawn from foreign base company 
shipping operations for such year; and". 
(B) Section 951(a) is amended by inserting after para-
graph (2) the following new paragraph: 
"(3) 
LIMITATION ON PRO RATA SHARE or PREVIOUSLY EXCLUDED 
SUBPART F INCOME WITHDRAWN FROM INVESTMENT. 
F o r p u r p O S e S 
of paragraph ( l ) ( A ) ( i i i ) , the pro rata share of any United 
States shareholder of the previously excluded subpart F income 
of a controlled foreign corporation withdrawn from investment 
in foreign base company shipping operations shall not exceed an 
amount— 
"(A) which bears the same ratio to his pro rata share of 
such income withdrawn (as determined under section 955(a) 
(3)) for the taxable year, as 
"(B) the part of such year during which the corporation is 
a controlled foreign corporation bears to the entire year." 
(3) 
WITHDRAWAL OF PREVIOUSLY EXCLUDED SUBPART F INCOME 
FROM QUAIiiriED INVESTMENT. 
(A) Subpart F of part I I I of subchapter N of chapter 1 
is amended by inserting after section 954 the following new 
section: 
26 use 955. 
"SEC. 955. WITHDRAWAL OF PREVIOUSLY EXCLUDED SUBPART F 
INC03IE FROM QUALIFIED INVESTMENT. 
"(a) 
GENERAL RULES.— 
"(1) AMOUNT WITHDRAWN.—For purposes of this subpart, the 
amount of previously excluded subpart F income of any controlled 
foreign corporation withdrawn from investment in foreign base 
company shipping operations for any taxable year is an amount 
equal to the decrease in the amount of qualified investments in 
foreign base company shipping operations of the controlled for-
eign corporation for such year, but only to the extent that the 
amount of such decrease does not exceed an amount equal to— 
"(A) the sum of the amounts excluded under section 954 
Ante, p. 61. 
(b) (2) from the foreign base company income of such cor-
poration for all prior taxable years, reduced by 
" ( B ) the sum of the amounts of previously excluded sub-
part F income withdrawn from investment in foreign base 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 63 
company shipping operations of such corporation determined 
under this subsection for all prior taxable years. 
"(2) DECREASE I N QUALIFIED INVESTMENTS.—For purposes of 
paragraph (1), the amount of the decrease in qualified investments 
in foreign base company sliipping operations of any controlled 
foreign corporation for any taxable year is the amount by which— 
" ( A ) the amount of qualified investments in foreign base 
company shipping operations of the controlled foreign corpo-
ration at the close of the preceding taxable year, exceeds 
"(B) the amount of qualified investments in foreign base 
company shipping operations of the conti'olled foreign corpo-
ration at the close of the taxable year, 
to the extent that the amount of such decrease does not exceed 
the sum of the earnings and profits for the taxable year and the 
earnings and profits accumulated for prior taxable years begin-
ning after December 31, 1975, and the amount of previously 
excluded subpart F income invested in less developed country 
corporations described in section 955 (c)(2) (as in effect before the 
enactment of the Tax Keduction Act of 1975) to the extent attrib- Ante, p. 59. 
utable to earnings and profits accumulated for taxable years 
beginning after December 31, 1962. For purposes of this para-
graph, if qualified investments in foreign base company shipping 
operations are disposed of by the controlled foreign corporation 
during the taxable year, the amount of the decrease in qualified 
investments in foreign base company shipping operations of such 
controlled foreign corporation for such year shall be reduced by 
an amount equal to the amount (if any) by which the losses on 
such dispositions during such year exceed the gains on such dis-
positions during such year. 
"(3) PRO RATA SHARE or AMOUNT WITHDRAWN.—In the case of 
any United States shareholder, the pro rata share of the amount 
of previously excluded subpart F income of any controlled for-
eign corporation withdrawn from investment in foreign base 
company shipping operations for any taxable year is his pro rata 
share of the amount determined under paragraph (1). 
"(b) QUALIFIED INVESTMENTS IN FoREioif BASE COMPANY SHIPPING 
OPERATIONS.— 
"(1) I N GENERAL.—For purposes of this subpart, the term 
'qualified investments in foreign base company shipping opera-
tions' means investments in— 
"(A) any aircraft or vessel used in foreign commerce, and 
"(B) other assets which are u?ed in connection with the 
performance of services directly related to the use of any 
such aircraft or vessel. 
Such term includes, but is not limited to, investments by a con-
trolled foreign corporation in stock or obligations of another 
controlled foreign corporation which is a related person (within 
the meaning of section 954(d)(3)) and which holds assets 
26 USC 954. 
described in the preceding sentence, but only to the extent that 
such assets are so used. 
"(2) QUALIFIED INVESTMENTS BY RELATED PERSONS.—For pur-
poses of determining the amount of qualified investments in 
foreign base company shipping operations, an investment (or 
a decrease in investment) in such operations by one or more con-
trolled foreign corporations may, under regulations prescribed 
by the Secretary or his delegate, be treated as an investment (or 
a decrease in investment) by another corporation which is a con-
trolled foreign corporation and is a related person (as defined 
89 STAT. 64 
PUBLIC LAW 94-12—MAR. 29, 1975 
26 use 954. 
in section 954(d)(3)) with respect to the corporation actually 
making or Avithdrawing the investment. 
"(3) SPECIAL RULE.—For purposes of this subpart, a United 
States shareholder of a controlled foreign corporation may, under 
regulations prescribed by the Secretary or his delegate, elect to 
make the determinations under subsection (a) (2) of this section 
Ante, p. 61. 
and under subsection (g) of section 954 as of the close of the years 
following the years referred to in such subsections, or as of the 
close of such longer period of time as such regulations may permit, 
in lieu of on the last day of such years. Any election under this 
paragraph made with respect to any taxable year shall apply to 
such year and to all succeeding taxable years unless the Secretary 
or his delegate consents to the revocation of such election. 
"(4) AMOUNT ATTRIBUTABLE TO PROPERTY.—The amount taken 
into account under this subpart with respect to any property 
described in paragraph (1) shall be its adjusted basis, reduced by 
any liability to which such property is subject, 
"(5) INCOME EXCLUDED UNDER PRIOR LAW.—Amounts invested 
in less developed country corporations described in section 955 
26 use 955. 
(c) (2) (as in effect before the enactment of the Tax Reduction 
Act of 1975) shall be treated as qualified investments in foreign 
base company shipping operations and shall not be treated as 
investments in less developed countries for purposes of section 951 
Ante, p. 58. 
(a) (1) (A) (ii)." 
(B) The table of sections of subpart F of part I I I of sub-
chapter N of chapter 1 is amended by inserting after the item 
relating to section 954 the following new item: 
"Sec. 955. Withdrawal of previously excluded subpart F income from 
qualified investment." 
(e) EXCLUSION FROM FOREIGN BASE COMPANY INCOME W H E R E FOR-
EIGN BASE COINIPANY INCOME Is LESS T H A N 10 I'ERCENT or GROSS 
INCOME.—Paragraph (3) of section 954(b) is amended by striking out 
"30 percent" each place it appears and inserting in lieu thereof "10 
percent". 
26use955 note. 
(f) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after Decem-
ber 31, 1975, and to taxable years of United States shareholders 
(within the meaning of 951(b) of the Internal Revenue Code of 1954) 
within which or with which such taxable years of such foreign corpo-
rations end. 
SEC. 603. DENIAL OF DISC BENEFITS WITH RESPECT TO ENERGY 
RESOURCES AND OTHER PRODUCTS. 
26 use 993. 
(a) AMENDMENT OF SECTION 993 (c)(2) .—Section 993(c) (2) (relat-
ing to property excluded from export property) is amended by strik-
ing out "or" at the end of subparagraph ( A ) , by striking out the 
period at the end of subparagraph (B) and inserting in lieu thereof 
", or", and by adding at the end thereof the following: 
"(C) products of a character with respect to which a deduc-
tion for depletion is allowable (including oil, gas, coal, or 
26 use 611. 
uranium products) under section 611, or 
" ( D ) products the export of which is prohibited or cur-
tailed under section 4(b) of the Export Administration Act 
of 1969 (50 U.S.C. App. 2403(b)) to effectuate the policy set 
50 use app. 
forth in paragraph (2) (A) of section 3 of such Act (relating 
2402. 
to the protection of the dbmestic economy). 
Subparagraph (C) shall not apply to any commodity or product at 
least 50 percent of the fair market value of which is attributable to 
manufacturing or processing, except that subparagraph (C) shall 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 65 
apply to any primary product from oil, gas, coal, or iiranium. For 
purposes of the preceding sentence, the term 'processing' does not 
include extracting or handling, packing, packaging, grading, storing, 
or transporting." 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 26USC993note, 
shall apply to sales, exchanges, and other dispositions made after 
March 18,1975, in taxable years ending after such date. 
SEC. 604. TREATMENT FOR PURPOSES OF THE INVESTMENT CREDIT 
OF CERTAIN PROPERTY USED IN INTERNATIONAL OR 
TERRITORIAL WATERS. 
(a) AMENDMENT TO 1954 CODE.— 
26 USC 1 et seq. 
(1) I N GENERAL.—Clause (x) of section 48(a) (2) (B) (relating 
26 USC 48. 
to property used outside the United States) is amended by strik-
ing out "territorial waters" and inserting in lieu thereof "terri-
torial waters within the northern portion of the Western 
Hemisphere". 
(2) DEFINITION.—Subparagraph (B) of section 48(a)(2) is 
amended by adding at the end thereof the following new sentence: 
"For purposes of clause (x), the term 'northern portion of the 
Western Hemisphere' means the area lying west of the 30th merid-
ian west of Greenwich, east of the international dateline, and 
north of the Equator, but not including any foreign coimtry which 
is a country of South America.". 
(b) EFFECTIVE DATE.— 
26 USC 48 note. 
(1) I N GENERAL.—The amendments made by subsection (a) 
shall apply to property, the construction, reconstruction, or erec-
tion of which was completed after March 18, 1975, or the acquisi-
tion of which by the taxpayer occurred after such date. 
(2) BINDING CONTRACT.—The amendments made by subsection 
(a) 
shall not apply to property constructed, 
reconstructed, 
erected, or acquired pursuant to a contract which was on April 1, 
1974, and at all times thereafter, binding on the taxpayer. 
(3) CERTAIN LEASE-BACK TRANSACTIONS, ETC.—Where a person 
who is a party to a binding contract described in paragraph (2) 
transfers rights in such contract (or in the property to which 
such contract relates) to another person but a party to such con-
tract 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 (2), succeed to the 
position of the transferor with respect to such binding contract 
and such property. The preceding sentence shall apply, in any 
case in w^hich the lessor does not make an election under section 
48(d) of the Internal Revenue Code of 1954, only if a party to 
such contract retains a right to use the property under a long-
term lease. 
TITLE VII—MISCELLANEOUS 
PROVISIONS 
SEC. 701. CERTAIN UNEMPLOYMENT COMPENSATION. 
(a) 
AMENDMENT OF EMERGENCY UNEMPLOYMENT COMPENSATION 
ACT OF 1974.—Section 102(e) of the Emergency Unemployment Com- 26 USC 3304 
pensation Act of 1974 is amended— 
* 
note. 
(1) in paragraph (2) thereof, by striking out "The amount" 
and inserting m lieu thereof "Except as provided in paragraph 
(3), the amount"; and 
89 STAT. 66 
PUBLIC LAW 94-12—MAR. 29, 1975 
26 use 3304 
note 
26 use 3304 
note. 
26 use 3304 
note. 
26 use 3304 
note. 
42 use 402 note. 
42 use 402, 
423. 
45 use 231d. 
42 use 401. 
45 use 215 note. 
45 use 228a, 
231. 
42 use 1381. 
42 use 410. 
"Resident." 
(2) by adding at the end thereof the following new paragraph: 
"(3) Effective only with respect to benefits for weeks of uneni-
ployment ending before July 1, 1975, the amount established in 
such account for any individual shall be equal to the lesser of— 
" (A) 100 per centum of the total amount of regular com-
pensation (including dependents' allowances) payable to him 
with respect to the benefit year (as determined under the 
State law) on the basis of which he most recently received 
regular compensation; or 
" ( B ) twenty-six times his average weekly benefit amount 
(as determined for purposes of section 202(b) (1) (C) of the 
Federal-State Extended Unemployment Compensation Act 
of 1970) for his benefit year." 
(b) MODIFICATION or AGREEMENTS.—The Secretary of Labor shall, 
at the earliest practicable date after the enactment of this Act, pro-
pose to each State with which he has in effect an agreement entered 
into pursuant to section 102 of the Emergency Unemployment Com-
pensation Act of 1974 a modification of such agreement designed to 
cause payments of emergency compensation thereunder to be made 
in the manner prescribed by such Act, as amended by subsection (a) 
of this section. Notwithstanding any provision of the Emergency 
Unemployment Compensation Act of 1974, if any such State shall fail 
or refuse, within a reasonable time after the date of the enactment of 
this Act, to enter into such a modification of such agreement, the Sec-
retary of Labor shall terminate such agreement. 
SEC. 702. SPECIAL PAYMENT TO RECIPIENTS OF BENEFITS UNDER 
CERTAIN RETIREMENT AND SURVIVOR BENEFIT PRO-
GRAMS. 
(a) PAYMENT.—The Secretary of the Treasury shall, at the earliest 
practicable date after the enactment of this Act, make a $50 payment 
to each individual, who for the month of March, 1975, was entitled 
(without regard to sections 202(j) (1) and 223(b) of title I I of the 
Social Security Act and without the application of section 5(a) (ii) 
of the Railroad Retirement Act of 1974) to— 
(1) a monthly insurance benefit payable under title I I of the 
Social Security Act, 
(2) a monthly annuity or pension payment under the Rail-
road Retirement Act of 1935, the Railroad Retirement Act of 
1937, or the Railroad Retirement Act of 1974, or 
(3) a benefit under the supplemental security income benefits 
program established by title X V I of the Social Security Act; 
except that, (A) such $50 payment shall be made only to individuals 
who were paid a benefit for March 1975 in a check issued no later 
than August 31, 1975; (B) no such $50 payment shall be made to any 
individual who is not a resident of the United States (as defined in 
section 210(i) of the Social Security Act) ; and (C) if an individual 
is entitled under two or more of the programs referred to in clauses 
(1), (2), and (3), such individual shall be entitled to receive only one 
such $50 payment. For purposes of this subsection, the term "resident" 
means an individual whose address of record for check payment 
purposes is located within the United States. 
(b) RECIPIENT InENTincATiON.—The Secretary of Health, Educa-
tion, and Welfare and the Railroad Retirement Board shall provide 
the Secretary of the Treasury with such information and data as may 
be needed to enable the Secretary of the Treasury to ascertain which 
individuals are entitled to the payment authorized under subsection 
(a). 
PUBLIC LAW 94-12—MAR. 29, 1975 
89 STAT. 67 
(c) COORDINATION WITH OTHER FEDERAL PROGRAMS.—Any payment 
made by the Secretary of the Treasury under this section to any indi-
vidual shall not be regarded as income (or, in the calendar year 1975, 
as a resource) of such individual (or of the family of which he is a 
member) for purposes of anj Federal or State program which under-
takes to furnish aid or assistance to individuals or families, where 
eligibility to receive such aid or assistance (or the amount of such aid 
or assistance) under such program is based on the need therefor of the 
individual or family involved. The requirement imposed by the pre-
ceding sentence shall be treated as a condition for Federal financial 
participation in any State (or local) welfare program for any calen-
dar quarter commencing after the date of enactment of this Act. 
(d) APPROPRIATIONS AUTHORIZATION.—There are hereby authorized 
to be appropriated, out of any funds in the Treasury not otherwise 
appropriated, such sums as may be necessary to carry out the provi-
sions of this section. 
(e) PAYMENT NOT To BE CONSIDERED INCOME.—Payments made 
under this section shall not be considered as gross income for purposes 
of the Internal Revenue Code of 1954. 
26 U
S
C 1 et xeq. 
Approved March 29, 1975. 
LEGISLATIVE HISTORY: 
HOUSE REPORT No. 94-19 (Comm. on Ways and Means). 
SENATE REPORT No. 94-36 (Comm. on Finance). 
CONGRESSIONAL RECORD, Vol. 121 (1975): 
Feb. 27, considered and passed House. 
Mar. 18-22, considered and passed Senate, amended. 
Mar. 26, House and Senate agreed to conference report. 
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 11, No. 14: 
Mar. 29, Presidential statement.