Deficit Reduction Act of 1984
PL 98-369 (H.R.4170), enacted 07/18/1984

98 STAT. 494 
PUBLIC LAW 98-369—JULY 18, 1984 
July 18, 1984 
[H.R. 4170] 
Deficit 
Reduction Act of 
1984. 
26 u s e 1 note. 
Tax Reform Act 
of 1984. 
26 u s e 1 note. 
26 u s e 1 et seq. 
Public Law 98-369 
98th Congress 
An Act 
To provide for tax reform, and for deficit reduction. 
Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
(a) SHORT TITLE.—This Act may be cited as the "Deficit Reduction 
Act of 1984". 
(b) ACT DIVIDED INTO 2 DIVISIONS.—This Act consists of 2 divisions 
as follows: 
(1) DIVISION A.—Tax Reform Act of 1984. 
(2) DIVISION B.—Spending Reduction Act of 1984. 
DIVISION A—TAX REFORM ACT OF 1984 
SEC. 5. SHORT TITLE; ETC. 
(a) SHORT TITLE.—This division may be cited as the "Tax Reform 
Act of 1984". 
(b) AMENDMENT OF 1954 CODE.—Except as otherwise expressly 
provided, whenever in this division an amendment or repeal is 
expressed in terms of an amendment to, or repeal of, a section or 
other provision, the reference shall be considered to be made to a 
section or other provision of the Internal Revenue Code of 1954. 
SEC. 10. TABLE OF CONTENTS. 
Section 1. Short title. 
DIVISION A—TAX REFORM ACT OF 1984 
Sec. 5. Short title, etc. 
TITLE I—TAX FREEZE; TAX REFORMS GENERALLY 
Sec. 10. Table of contents. 
Subtitle A—Deferral of Certain Tax Reductions 
PART I—INCOME TAX PROVISIONS 
Sec. 11. Amount of used property eligible for investment tax credit. 
Sec. 12. Finance lease provisions. 
Sec. 13. Election to expense certain depreciable business assets. 
Sec. 14. Employee stock ownership credit. 
Sec. 15. Cost-of-living adjustments in pension plan limitations. 
Sec. 16. Repeal of partial interest exclusion. 
Sec. 17. Foreign earned income of individuals. 
Sec. 18. Effective date. 
PART II—ESTATE AND GIFT TAX RATES 
Sec. 21. Maximum rate. 
PART III—EXCISE TAXES 
Sec. 25. Tax rate on newly discovered oil. 
Sec. 26. Excise tax on communications services. 
Sec. 27. Excise tax on distilled spirits. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 495 
Subtitle B—Tax-Exempt Entity Leasing 
Sec. 31. Denial of tax incentives for property leased to governments and other tax-
exempt entities. 
Sec. 32. Motor vehicle operating leases. 
Subtitle C—Treatment of Bonds and Other Debt Instruments 
Sec. 41. Treatment of bonds and other debt instruments. 
Sec. 42. Technical and conforming amendments related to original issue discount 
changes. 
Sec. 43. Technical and conforming amendments related to treatment of market dis-
count and acquisition discount. 
Sec. 44. Effective dates. 
Subtitle D—Corporate Provisions 
PART I—LIMITATIONS ON DIVIDENDS RECEIVED DEDUCTION 
Sec. 51. Dividends received deduction reduced where portfolio stock is debt fi-
nanced. 
Sec. 52. Treatment of dividends from regulated investment companies. 
PART II—TREATMENT OF CERTAIN DISTRIBUTIONS 
Sec. 53. Corporate shareholder's basis in stock reduced by nontaxed portion of ex-
traordinary dividends. 
Sec. 54. Distribution of appreciated property by corporations. 
Sec. 55. Extension of holding period for losses attributable to capital gain dividends 
of regulated investment companies or real estate investment trusts. 
PART III—MISCELLANEOUS PROVISIONS 
Sec. 56. Denial of deductions for certain expenses incurred in connection with short 
sales. 
Sec. 57. Nonrecognition of gain or loss by corporation on options with respect to its 
stock. 
Sec. 58. Amendments to accumulated earnings tax. 
Sec. 59. Repeal of stock for debt exception for purposes of determining income from 
discharge of indebtedness. 
Sec. 60. Affiliated group defined. 
Sec. 61. Provisions relating to earnings and profits. 
Sec. 62. 2-year delay in application of the net operating loss rules added by the Tax 
Reform Act of 1976. 
Sec. 63. Target corporation must distribute assets after reorganization described in 
section 368(aXlXC). 
Sec. 64. Definition of control for purposes of nondivisive reorganizations under sec-
tion 368(aXlXD). 
Sec. 65. Collapsible corporations. 
Sec. 66. Phsise-out of graduated rates for large corporations. 
Sec. 67. Restrictions on golden parachute payments. 
Sec. 68. Increase in reduction in certain corporate preference items from 15 percent 
to 20 percent. 
Subtitle E—Partnership Provisions 
Sec. 71. Partnership allocations with respect to contributed property. 
Sec. 72. Determination of distributive shares when partner's interest changes. 
Sec. 73. Payments to partners for property or certain services. 
Sec. 74. Contributions to a partnership of unrealized receivables, inventory items, 
or capital loss property. 
Sec. 75. Transfers of partnership and trust interests by corporations. 
Sec. 76. Application of section 751 in the case of tiered partnerships. 
Sec. 77. Section 1031 not applicable to partnership interests; limitation on the 
period during which like kind exchanges may be made. 
Sec. 78. Elimination of basis strips under section 734(b). 
Sec. 79. Overruling of Raphan case. 
Subtitle F—Trust Provisions 
Sec. 81. Treatment of property distributed in kind. 
Sec. 82. Treatment of multiple trusts. 
Subtitle G—Accounting Changes 
Sec. 91. Certain amounts not treated as incurred before economic performance. 
Sec. 92. Treatment of certain deferred payments for use of property or services. 
98 STAT. 496 
PUBLIC LAW 98-369—JULY 18, 1984 
Sec. 93. Amortization of construction period interest and taxes for residential real 
property held by corporations. 
Sec. 94. Capitalization of start-up expenditures. 
Sec. 95. LIFO conformity rules applied on controlled group basis. 
Subtitle H—Provisions Relating to Tax Straddles 
Sec. 101. Repeal of exception from straddle rules for stock options and certain 
stock. 
Sec. 102. Section 1256 extended to certain options. 
Sec. 103. Regulations under section 1092(b). 
Sec. 104. Limitation on losses from hedging transactions. 
Sec. 105. Clarification that section 1234 applies to options on regulated futures con-
tracts and cash settlement options. 
Sec. 106. Wash sale rules to apply to losses on certain short sales. 
Sec. 107. Time for identification by taxpayer of certain transactions. 
Sec. 108. Treatment of certain losses on straddles entered into before effective date 
of Economic Recovery Tax Act of 1981. 
Subtitle I—Depreciation 
Sec. 111. Recovery period for certain real property extended to 18 years. 
Sec. 112. Recapture in case of installment sales. 
Sec. 113. Provisions relating to sound recordings and films. 
Sec. 114. Definition of section 38 property in sale-leaseback transactions. 
Subtitle J—Foreign Provisions 
PART I—CHANGES IN SOURCE AND CHARACTER RULES 
Sec. 121. Certain amounts treated as derived from United States sources for pur-
poses of limitation on foreign tax credit. 
Sec. 122. Certain amounts treated as interest for purposes of the limitation on the 
foreign tax credit. 
Sec. 123. Treatment of related person factoring income. 
Sec. 124. Treatment of certain transportation income. 
Sec. 125. Treatment of certain distributions received by United States-owned for-
eign corporations. 
Sec. 126. Allocation under section 861 of research and experimental expenditures. 
PART II—WITHHOLDING PROVISIONS 
Sec. 127. Repeal of 30 percent tax on interest received by foreign persons on certain 
portfolio investments. 
Sec. 128. Treatment of United States source original issue discount in case of for-
eign persons. 
Sec. 129. Withholding of tax on dispositions of United States real property inter-
ests. 
Sec. 130. Treatment of payments to Guam and Virgin Islands corporations. 
PART III—TAXATION OF CERTAIN TRANSFERS OF PROPERTY OUTSIDE THE UNITED 
STATES 
Sec. 131. Taxation of certain transfers of property outside the United States. 
PART IV—MISCELLANEOUS FOREIGN CORPORATE PROVISIONS 
Sec. 132. Amendments related to foreign personal holding companies. 
Sec. 133. Amendments related to section 1248. 
Sec. 134. Definition of foreign investment company. 
Sec. 135. Application of collapsible corporation rules to foreign corporations. 
Sec. 136. Stapled stock; stapled entities. 
Sec. 137. Services relating to insurance policies are treated as performed in country 
of risk. 
PART V—TREATMENT OF AUEN INDIVIDUALS 
Sec. 138. Definition of resident alien and nonresident alien. 
Sec. 139. Treatment of community income. 
Subtitle K—Reporting, Penalty, and Other Provisions 
PART I—PROVISIONS RELATING TO TAX SHELTERS 
Sec. 141. Registration of tax shelters. 
Sec. 142. Organizers and sellers of potentially abusive tax shelters must keep lists 
of investors. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 497 
Sec. 143. Increase in penalty for promoting abusive tax shelters; injunction against 
aiding or abetting understatement of tax liability. 
Sec. 144. Increased rate of interest on substantial underpayments attributable to 
certain tax motivated transactions. 
PART II—INFORMATION REPORTING PROVISIONS 
Sec. 145. Returns relating to mortgage interest received in trade or business from 
individuals. 
Sec. 146. Returns relating to cash received in trade or business. 
Sec. 147. Provisions relating to individual retirement accounts. 
Sec. 148. Returns relating to foreclosures and abandonments of security. 
Sec. 149. Returns relating to exchanges of partnership interests where unrealized 
receivables, etc., involved. 
Sec. 150. Statements required in case of certain substitute payments. 
Sec. 151. Reporting of State and local refunds not required with respect to non-
itemizers. 
Sec. 152. Furnishing of TIN under backup withholding. 
PART III—OTHER C!OMPUANCE PROVISIONS 
Sec. 155. Substantiation of charitable contributions; modifications of incorrect valu-
ation penalty. 
Sec. 156. Authorization to disregard appraisals of persons penalized for aiding in 
understatements of tax liability. 
Sec. 157. Limitation on mailing of deposits of taxes. 
Sec. 158. Interest on certain additions to tax. 
Sec. 159. Penalty for fraudulent withholding exemption certificate or failure to 
supply information. 
Sec. 160. Application of penalty for frivolous proceedings to pending Tax G)urt pro-
ceedings. 
Sec. 161. Failure to request change of method of accounting. 
Sec. 162. Clarification of change of venue for certain tax offenses. 
Sec. 163. Extension of statute of limitations with respect to certain expenditures 
relating to contributions in aid of construction. 
Subtitle L—Miscellaneous Provisions 
Sec. 171. Inclusion of tax benefit items in income. 
Sec. 172. Loans with below-market interest rates. 
Sec. 173. Eligibility for income averaging. 
Sec. 174. Amendments to section 267. 
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Sec. 175. Amendments to section 1239. 
Sec. 176. Recapture of net ordinary losses under section 1231. 
Sec. 177. Repeal of exemption from Federal tax of the Federal Home Loan Mort-
gage Corporation. 
Sec. 178. Special rule relating to sales or exchanges of certain economic interests in 
coal between related parties. 
Sec. 179. Limitation on amount of depreciation and investment tax credit for 
luxury automobiles; limitation where certain property used for personal 
purposes. 
TITLE II—LIFE INSURANCE PROVISIONS 
Sec. 201. Table of sections for part I of subchapter L. 
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Subtitle A—Taxation of Life Insurance Companies 
^' '~'^' 
PART I—AMENDMENT O^ SUBCHAPTER L 
Sec. 211. Amendment of subchapter L. 
Sec. 212. Certain reinsurance agreements. 
PART II—EFFECTIVE DATE; TRANSITIONAL RULES 
' 
SUBPART A — E F F E C T I V E DATE 
Sec. 215. Effective date. 
SUBPART B—TRANSITIONAL RULES 
^t; 
Sec. 216. Reserves computed on new basis; fresh start. 
Sec. 217. Other special rules. 
, o 
Sec. 218. Underpayments of estimated tax for 1984. 
Sec. 219. Clarification of authority to require certain information. 
31 194 0 - 86 - 18 : QL, 3 Part 1 
98 STAT. 498 
PUBLIC LAW 98-369—JULY 18, 1984 
Subtitle B—Taxation of Life Insurance Products 
Sec. 221. Definition of life insurance contract. 
Sec. 222. Treatment of certeiin annuity contracts. 
Sec. 223. Group-term life insurance purchased for employees. 
Sec. 224. Treatment of certain exchanges of insurance policies. 
Subtitle C—Studies 
Sec. 231. Studies. 
TITLE III—REVISION OF PRIVATE FOUNDATION PROVISIONS 
Sec. 301. Limitations on deduction for contributions to private foundations. 
Sec. 302. Exemption for certain operating foundations from excise tax on invest-
ment income. 
Sec. 303. Reduction in excise tax on investment income where private foundation 
meets certain distribution requirements. 
Sec. 304. Amendment to taxes on failure to distribute income. 
Sec. 305. Abatement of first tier taxes in certain cases. 
Sec. 306. Miscellaneous amendments. 
Sec. 307. 5-year extension of retjuirement to dispose of certain excess holdings at-
tributable to large gifts and bequests. 
Sec. 308. Decreases attributable to stock issuances not to reduce permitted percent-
age of holdings where decrease is 2 percent or less. 
Sec. 309. Aggregation of stock holdings of private foundation and disqualified per-
sons in applying 95 percent ownership test. 
Sec. 310. 5-year period to dispose of excess holdings resulting from certain acquisi-
tions by disqualified persons. 
Sec. 311. The conducting of certain games of chance not treated as unrelated trade 
or business. 
Sec. 312. Tax on self-dealing not to apply to certain stock purchases. 
Sec. 313. Person ceases to be substantial contributor after 10 years with no connec-
tion to foundation. 
Sec. 314. Technical amendments. 
TITLE IV—TAX SIMPLIFICATION 
Subtitle A—Revision and Simplification of Estimated Income Tax for Individuals 
Sec. 411. Revision of penalty for failure to pay estimated income tax. 
Sec. 412. Repeal of requirement of declarations, etc. 
Sec. 413. Crediting of income tax overpayment against estimated tax liability. 
Sec. 414. Effective dates. 
Subtitle B—Domestic Relations 
Sec. 421. Treatment of transfers of property between spouses or incident to divorce. 
Sec. 422. Tfix treatment of alimony and separate maintenance payments. 
Sec. 423. Dependency exemption in the case of child of divorced parents, etc. 
Sec. 424. Innocent spouse relieved of liability in certain cases. 
Sec. 425. Treatment of certain property settlements for purposes of estate and gift 
taxes. 
Sec. 426. Income from sheltered workshops not taken into account in determining 
dependency exemption. 
Subtitle C—Revision of At-Risk Rules 
Sec. 431. Revision of investment credit at-risk rules. 
Sec. 432. Exclusion of active businesses of qualified C corporations from at-risk 
rules, etc. 
Subtitle D—Miscellaneous Treasury Administrative Provisions 
PART I—PROVISIONS NOT RELATING TO DISTILLED SPIRPTS TAX 
Sec. 441. Simplification of certain reporting requirements. 
Sec. 442. Removal of $1,000,000 limitation on working capital fund. 
Sec. 443. Increase in limitation on revolving fund for redemption of real property. 
Sec. 444. Removal of $1,000,000 limitation on special authority to dispose of 
obligations. 
Sec. 445. Secretary of the Treasury authorized to accept gifts and bequests. 
Sec. 446. Extension of period for court review of jeopardy assessment where prompt 
service not made on the United States. 
Sec. 447. Extension of period during which additional tax shown on amended 
return may be assessed. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 499 
Sec. 448. Treatment of certain guaranteed drafts issued by flnancial institutions. 
Sec. 449. Disclosure of windfall profit tax information to State tax officials. 
Sec. 450. Finsincial reporting of investment tax credits. 
PART II—PROVISIONS RELATING TO DISTILLED SPIRFTS 
Sec. 451. Repeal of occupational tax on manufacturers of stills and condensers; no-
tices of manufacture and set up of stills. 
Sec. 452. Allowance of drawback claims even where certain requirements not met. 
Sec. 453. Disclosure of alcohol fuel producers to administrators of State alcohol 
laws. 
Sec. 454. Repeal of stamp requirement for distilled spirits. 
Sec. 455. Cooking wine may be fortified using distilled spirits. 
Sec. 456. Effective dates. 
Subtitle E—Tax Court Provisions 
Sec. 461. Increase in jurisdictional limit for small cases. 
Sec. 462. Annuities to survivors of Tsix Court judges. 
Sec. 463. Proceedings which may be assigned to commissioners. 
Sec. 464. Special trial judges. 
Sec. 465. Pliblicity of Tax Court proceedings. 
Subtitle F—Simplification of Income Tjix Credits 
Sec. 471. Credits grouped together in more logical order. 
Sec. 472. Uniform limitation on personal nonrefundable credits. 
Sec. 473. Uniform carryover provisions for business-related credits. 
Sec. 474. Technical and conforming amendments. 
Sec. 475. Effective dates. 
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Subtitle G—Miscellaneous Simplification Provisions 
Sec. 481. Preferred stock eligible under section 1244. 
Sec. 482. Medical care deduction allowed for lodging away from home in certain 
cases. 
Subtitle H—Repeal of Certain Obsolete Provisions 
Sec. 491. Termination of rules relating to qualified bond purchase plans and retire-
ment bonds with respect to bonds issued after December 31, 1983. 
Sec. 492. Repeal of rules relating to gains from disposition of property used in farm-
ing where farm losses offset nonfarm income. 
TITLE V—EMPLOYEE BENEFIT PROVISIONS 
Subtitle A—Welfare Benefit Plans 
Sec. 511. Treatment of funded welfare benefit plans. 
Sec. 512. Treatment of unfunded deferred benefits. 
Sec. 513. Additioned requirements for tax-exempt status of certain organizations. 
Subtitle B—Provisions Relating to Pension Plans 
Sec. 521. Required distributions. 
Sec. 522. Rollover of certain partial distributions permitted. 
Sec. 523. Treatment of distributions where substantially all contributions are em-
ployee contributions. 
Sec. 524. Provisions relating to top-heavy plans. 
Sec. 525. Repeal of estate tax exclusion for qualified pension plan benefits. 
Sec. 526. Affiliated service groups, employee leasing arrangements, and collective 
bargaining agreements. 
Sec. 527. Provisions relating to cash or deferred arrangements. 
Sec. 528. Treatment of certain medical, etc., benefits under section 415. 
Sec. 529. Certain alimony treated as compensation. 
Subtitle C—Tax Treatment of Fringe Benefits 
Sec. 531. Exclusion of certain fringe benefits from gross income. 
Sec. 532. Exclusion of certain reductions in tuition from gross income. 
Subtitle D—Employee Stock Ownership Plans 
Sec. 541. Nonrecognition of gain on stock sold to employee stock ownership plans or 
certain cooperatives if qualified replacement property acquired. 
Sec. 542. Deductibility of certain dividend distributions from employee stock owner-
ship plans. 
98 STAT. 500 
PUBLIC LAW 98-369—JULY 18, 1984 
Sec. 543. Exclusion of interest on loans used to finance acquisition of employer se-
curities by an ESOP. 
Sec. 544. Assumption of estate tax liability by employer stock ownership plan or co-
operative receiving employer securities. 
Sec. 545. Excise tax on certain dispositions of employer securities by employee stock 
ownership plans and certain cooperatives. 
Subtitle E—Miscellaneous 
Sec. 551. Treatment of certain distributions from a qualified terminated plan. 
Sec. 552. Partial termination for certain pension plans. 
Sec. 553. Distribution requirements for accounts and annuities of an insurer in a 
rehabilitation proceeding. 
Sec. 554. Extension of time for repayment of qualified refunding loans. 
Sec. 555. Technical amendments to the incentive stock option provisions. 
Sec. 556. Time for making certain section 83(b) elections. 
Sec. 557. Employer and employee benefit association treated as related persons 
under section 1239. 
Sec. 558. Elimination of retroactive application of amendments made by Multiem-
ployer Pension Plan Amendments Act of 1980. 
Sec. 559. Telecomniunication employees. 
Sec. 560. Study of employee welfare benefit plans. 
Sec. 561. Limitation accrual of vacation pay. 
TITLE VI—TAX-EXEMPT BOND PROVISIONS 
Subtitle A—Mortgage Subsidy Bonds 
Sec. 611. 4-year extension of mortgage subsidy bond authority. 
Sec. 612. Mortgage credit certificates. 
Sec. 613. Authority to borrow from Federal Financing Bank. 
Sec. 614. Elimination of certain exceptions to the application of the Mortgage 
Subsidy Bond Tax Act of 1980. 
Subtitle B—Private Activity Bonds 
PART I—GENERAL RESTRICTIONS 
Sec. 621. Limitation on aggregate amount of private activity bonds. 
Sec. 622. Tax exemption denied where obligation directly or indirectly guaranteed 
by Federal Government. 
Sec. 623. Aggregate limit per taxpayer for small issue exception. 
PART II—ARBITRAGE LIMITATIONS 
* 
Sec. 624. Arbitrage on nonpurpose obligations. 
Sec. 625. Student loan bonds. 
PART III—OTHER RESTRICTIONS 
Sec. 626. Denial of tax exemption to consumer loan bonds. 
Sec. 627. Limitations on acquisitions of land, existing facilities, etc. 
Sec. 628. Miscellaneous industrial development bond provisions. 
Sec. 629. Certain public utilities treated as exempted persons under section 103(b); 
special rules for certain railroads. 
Sec. 630. Extension of small issue industrial development bond exception. 
Sec. 631. Effective dates. 
Sec. 632. Miscellaneous exceptions and special rules. 
Subtitle C—Miscellaneous Provisions 
Sec. 641. Clarification of treatment of certain exemptions for purposes of the 
Federal estate and gift taxes. 
Sec. 642. Reports with transfers of public housing bonds. 
Sec. 643. Tax-exempt status of obligations of certain educational organizations. 
Sec. 644. Local furnishing of electricity or gas. 
Sec. 645. Local furnishing of electricity or gas where facility initially authorized by 
Federal Government. 
Sec. 646. Treasury Department decisions affecting tax-exempt bonds. 
Sec. 647. Special rule for possessions and District of Columbia. 
Sec. 648. Special arbitrage rule. 
TITLE VII—TECHNICAL CORRECTIONS 
Sec. 701. Coordination with other titles. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 501 
Subtitle A—Amendments Related to the Tax Equity and Fiscal Responsibility Act of 
1982 
Sec. 711. Technical corrections of provisions relating to individuals. 
Sec. 712. Technical corrections of provisions primarily relating to businesses. 
Sec. 713. Technical corrections of pension provisions. 
Sec. 714. Miscellaneous provisions. 
Sec. 715. Effective date. 
Subtitle B—Amendments Related to Subchapter S Revision Act of 1982; Etc. 
Sec. 721. Technical corrections of Subchapter S Revision Act of 1982. 
Sec. 722. Miscellaneous provisions. 
Subtitle C—Amendments Relating to Highway Revenue Act of 1982 
Sec. 731. Value of used components furnished by first user not taken into account 
in determining price. 
Sec. 732. Clarification of application of gasoline excise tax to gasohol, etc. 
Sec. 733. Certain chain operators of retail gasoline stations treated as producers. 
Sec. 734. Other technical amendments. 
Sec. 735. Repeal of certain provisions made obsolete by Highway Revenue Act of 
1982. 
Sec. 736. Effective date. 
TITLE VIII—FOREIGN SALES CORPORATIONS 
w8 
Sec. 801. Foreign sales corporations. 
Sec. 802. Interest charge DISC. 
Sec. 803. Taxable year of DISC and FSC required to conform to taxable year of ma-
jority shareholder. 
Sec. 804. Reporting requirements. 
Sec. 805. Effective date; transition rules. 
TITLE IX—HIGHWAY REVENUE PROVISIONS 
Subtitle A—Provisions Relating to Heavy Vehicle Use Tax 
Sec. 901. Reduction of heavy vehicle use tax. 
Sec. 902. Special rule for trucks used in logging. 
^ 
Sec. 903. Special rule for certain agricultural vehicles. 
Subtitle B—Provisions Relating to Fuel Taxes 
Sec. 911. Increase in diesel fuel tax. 
Sec. 912. Decrease in tax imposed on gasohol. 
Sec. 913. Modification of tax imposed on methanol and ethanol. 
Sec. 914. Extension of reduction in tax for fuel used by taxicabs. 
Sec. 915. 3 cent tax on diesel fuel, etc., used in certain buses. 
Subtitle C—Temporary Reduction in Retail Tax on Certain Piggyback Trailers 
Sec. 921. Temporary reduction in tax. 
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Subtitle D—Studies 
PART I—STUDIES RELATING TO HEAVY VEHICLE USE TAX 
Sec. 931. Whether heavy vehicles bear fair share of highway costs. 
Sec. 932. Trans-border trucking. 
Sec. 933. Weight-distance teixes. 
Sec. 934. Reports, etc. 
PART II—OTHER STUDIES 
Sec. 935. Study of reduced fuel taxes for taxicabs. 
Sec. 936. Study of piggyback trailers. 
TITLE X—MISCELLANEOUS REVENUE PROVISIONS 
Subtitle A—Capital Gains and Losses 
Sec. 1001. Decrease in holding period required for long-term capital gain treatment. 
Sec. 1002. Repeal of special rule for pre-1970 losses. 
98 STAT. 502 
PUBLIC LAW 98-369—JULY 18, 1984 
1 
Subtitle B—Excise Tax Provisions -jsn Jwis,! / - A ^L-itsiyE 
PART I—BOATING SAFETY AND SPORT FISH RESTORATION 
SUBPART A—BOATING SAFETY AMENDMENTS 
Sec. 1010. Policy. 
Sec. 1011. General amendments to title 46. 
Sec. 1012. Authorization of funds for boating safety. 
Sec. 1013. Effective date. 
SUBPART B—SPORT FISH RESTORATION PROGRAM 
Sec. 1014. Amendments to the sport fish restoration program. 
Subpart C—Taxes on Sales of Sport Fishing Equipment, Etc. 
Sec. 1015. Tax on sale of sport fishing equipment. 
Sec. 1016. Establishment of Aquatic Resources Trust Fund. 
Sec. 1017. Tax on certain arrows. 
PART II—OTHER EXCISE TAXES 
Sec. 1018. Exemption from aviation excise tax for certain helicopter operations. 
Sec. 1019. Technical amendments to the Hazardous Substance Response Revenue 
Act of 1980. 
Subtitle C—Estate and Gift Tax Provisions 
Sec. 1021. Deferral of estate taxes for interest in holding company which owns 
stock in closely held operating company. 
Sec. 1022. Permanent rules for reforming governing instruments creating charita-
ble remainder trusts and other charitable interests. 
Sec. 1023. Alternate valuation election available only where it results in reduction 
of gross estate and estate tax. 
Sec. 1024. Alternate valuation election available on certain late returns. 
Sec. 1025. Modification of election or agreement under section 2082A. 
Sec. 1026. No gain recognized from net gifts made before March 4, 1981. 
Sec. 1027. Marital deduction for a usufruct. 
Sec. 1028. Credit against estate tax for transfers to Toiyabe National Forest. 
Subtitle D—Charitable Contributions and Exempt Organizations 
Sec. 1031. Increase in charitable volunteer mileage. 
Sec. 1032. Certain organizations providing child care included within the definition 
of tax-exempt organizations. 
Sec. 1033. Restrictions on church tax inquiries and examinations. 
Sec. 1034. Acquisition indebtedness of certain educational institutions. 
Sec. 1035. Transitional rule relating to the definition of qualified conservation 
contributions. 
Subtitle E—Income Tax Credits 
Sec. 1041. 1-year extension of targeted jobs credit. 
Sec. 1042. Increase in earned income credit. 
Sec. 1043. Alternative test for definition of qualified rehabilitated building. 
Subtitle F—Miscellaneous Housing Provisions 
Sec. 1051. Disaster loss deduction where taxpayer ordered to demolish or relocate 
residence in disaster area because of disaster. 
Sec. 1052. Allocation of expenses to parsonage allowances. 
Sec. 1053. Armed Forces overseas quarters. 
Sec. 1054. Treatment of home won in local radio contest and specially designed for 
handicapped foster child. 
Subtitle G—Extension of Existing Provisions and Transition Rules 
Sec. 1061. Extension of Payment-in-Kind Tax Treatment Act of 1983 to wheat for 
1984 crop year. 
Sec. 1062. Extension of increased deduction for eliminating architectural and trans-
portation barriers to the handicapped. 
Sec. 1063. Permanent disallowance of deduction for expenses of demolition of cer-
tain structures. 
Sec. 1064. Amortization of expenditures to rehabilitate low-income rental housing. 
Sec. 1065. Rules treating Indian tribal governments as States made permanent. 
Sec. 1066. Transitional rule for treatment of certain income from S corporations. 
Sec. 1067. Special leasing rules for certain coal gasification facilities. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 503 
Subtitle H—Additional Provisions 
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i 
Sec. 1071. Tax treatment of regulated investment companies. 
Sec. 1072. Technical modifications to tip reporting requirements. 
Sec. 1073. Tips treated as wages for purposes of Federal unemployment tax. 
? 
Sec. 1074. Exclusion of certain services from the Federal Unemployment Tax Act. 
Sec. 1075. Taxation of unemployment compensation not to apply to compensation 
paid for weeks of unemployment ending before December 1, 1978. 
Sec. 1076. Exclusion from gross income of cancellations of certain student loans. 
Sec. 1077. Migratory bird hunting stamps. 
Sec. 1078. Exclusion from gross income of payments from the United States Forest 
Service as a result of restricting motorized traffic in the boundary 
waters canoe area. 
Sec. 1079. Tax exemption of corporations organized under Acts of Congress. 
Subtitle I—Studies 
Sec. 1081. Study of alternative income tax systems. 
Sec. 1082. Study of taxation by foreign countries on services performed in the 
United States. 
Subtitle A—Deferral of Certain Tax Reductions 
PART I—INCOME TAX PROVISIONS 
SEC. 11. AMOUNT OF USED PROPERTY ELIGIBLE FOR INVESTMENT TAX 
CREDIT. 
(a) GENERAL RULE,—Subparagraph (A) of section 48(cX2) (relating 
26 use 48. 
to dollar limitation on amount of used section 38 property) is 
amended— 
(1) by striking out "$150,000 ($125,000 for taxable years begin-
ning in 1981, 1982, 1983, or 1984)" and inserting in lieu thereof 
"$125,000 ($150,000 for taxable years beginning after 1987)", 
and 
(2) by striking out "$150,000 (or $125,000" each place it ap-
pears and inserting in lieu thereof "$125,000 (or $150,000^'. 
(b) TECHNICAL AMENDMENT.—Subparagraph (B) of section 48(cX2) 
is amended by striking out "$75,000 ($62,500 for taxable years 
beginning in 1981,1982, 1983, or 1984)" and inserting in lieu thereof 
"$62,500 ($75,000 for taxable years beginning after 1987)". 
SEC. 12. FINANCE LEASE PROVISIONS. 
(a) FOUR-YEAR DEFERRAL OF FINANCE LEASE PROVISIONS.— 
(1) IN GENERAL.—Subparagraph (A) of section 209(dXl) of the 
Tax Equity and Fiscal Responsibility Act of 1982 is amended by 26 use 168 note. 
striking out "December 31, 1983" and inserting in lieu thereof 
"December 31,1987". 
(2) FINANCE LEASE PROVISIONS CONTINUE TO APPLY TO FARM 
PROPERTY.—Clause (i) of section 209(dXlXB) of such Act is 26 use 168 note. 
amended by striking out "January 1, 1984" and inserting in lieu 
thereof "January 1,1988". 
(3) TECHNICAL AMENDMENTS.— 
(A) Subclause (I) of section 168(fX8XBXii) (relating to re- 26 use 168. 
quirement that only 40 percent of lessee's property may be 
treated as qualified), as amended by section 209 of the Tax 
Equity and Fiscal Responsibility Act of 1982, is amended by 
striking out "1986" and inserting in lieu thereof "1990 . 
b 
(B) Paragraph (4) of section 168(i) (relating to limitations), 
as so amended, is amended by striking out "1985" each 
place it appears and inserting in lieu thereof "1989". 
98 STAT. 504 
. 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 168 note. 
Ot)) TERMINATION OF SAFE HARBOR LEASING RuLES.—Paragraph (8) 
of section 168(f) of the Internal Revenue Code of 1954 (relating to 
special rules for leasing), as in effect after the amendments made by 
96 Stat. 432. 
section 208 of the Tax Equity and Fiscal Responsibility Act of 1982 
96 Stat. 442. 
but before the amendments made by section 209 of such Act, shall 
not apply to agreements entered into after December 31, 1983. The 
preceding sentence shall not apply to property described in para-
Post, p. 1048. 
graph (3)(G) or (5) of section 208(d) of such Act. 
26 u s e 168 note. 
(c) TRANSITIONAL RULES.— 
(1) IN GENERAL.—The amendments made by subsection (a) 
shall not apply with respect to any property i
f
— 
(A) a binding contract to acquire or to construct such 
property was entered into by or for the lessee before March 
7,1984, or 
(B) such property was acquired by the lessee, or the 
construction of such property was begun, by or for the 
lessee, before March 7,1984. 
(2) SPECIAL RULE FOR CERTAIN AUTOMOTIVE PROPERTY.— 
(A) IN GENERAL.—The amendments made by subsection 
(a) shall not apply to property which is placed in service 
before January 1,1988— 
(i) which is automotive manufacturing property, and 
Y 
(ii) with respect to which the lessee is a qualified 
lessee (within the meaning of section 208(d)(6) of the 
26 use 168 note. 
Tax Equity and Fiscal Responsibility Act of 1982). 
(B) $150,000,000 LIMITATION.—The provisions of subpara-
graph (A) shall not apply to any agreement if the sum of— 
(i) the cost basis of the property subject to the agree-
ment, plus 
(ii) the cost basis of any property subject to an agree-
ment to which subparagraph (A) previously applied and 
with respect to which the lessee was the lessee under 
the agreement described in clause (i) (or any related 
person within the meaning of section 168(eX4)(D) of the 
Internal Revenue Code of 1954), 
exceeds $150,000,000. 
(C) AUTOMOTIVE MANUFACTURING PROPERTY.—For pur-
poses of this paragraph, the term "automotive manufactur-
ing property' means— 
(i) property used principally by the taxpayer directly 
in connection with the trade or business of the taxpay-
, 
er of the manufacturing of automobiles or trucks (other 
than truck tractors) with a gross vehicle weight of 
13,000 pounds or less, 
(ii) machinery, equipment, and special tools of the 
type included in former depreciation range guideline 
classes 37.11 and 37.12, and 
(iii) any special tools owned by the taxpayer which 
are used by a vendor solely for the production of compo-
nent parts for sale to the taxpayer. 
(3) SPECIAL RULE FOR CERTAIN COGENERATION FACIUTIES.—The 
amendments made by subsection (a) shall not apply with respect 
to any property which is part of a coal-fired cogeneration 
facility— 
(A) for which an application for certification was filed 
with the Federal Energy Regulatory Commission on Decem-
ber 30,1983, 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 505 
(B) for which an application for a construction permit was 
filed with a State environmental protection agency on Feb-
ruary 20,1984, and 
(C) which is placed in service before January 1, 1988. 
,., ,, 
SEC. 13. ELECTION TO EXPENSE CERTAIN DEPRECIABLE BUSINESS 
ASSETS. 
Paragraph (1) of section 1790)) (relating to dollar limitation) is 
26 USC 179. 
amended by striking out the table contained therein and inserting 
in lieu thereof the following: 
"If the taxable year begins in: 
The applicable amount is: 
1983,1984, 1985,1986, or 1987 
$5,000 
1988 or 1989 
7,500 
1990 or thereafter 
10,000." 
SEC. 14. EMPLOYEE STOCK OWNERSHIP CREDIT. 
Subparagraph (B) of section 44GKaX2) (relating to employee stock 
26 USC 44G. 
ownership credit), as in effect before the amendments made by title 
rV of this Act, is amended by striking out the table contained 
Post, p. 788. 
therein and inserting in lieu thereof the following: 
"For aggregate compensation paid or 
accrued during a portion of the 
taxable year occurring in calendar 
]u(f^ "
f
e
^
u fe 
yean 
The applicable percentage is: 
^j- » 
1983, 1984, 1985, 1986, or 1987 
0.5 " 
1988 or thereafter 
0." 
SEC. 15. COST-OF-LIVING ADJUSTMENTS IN PENSION PLAN LIMITATIONS. 
(a) GENERAL RULE.—Paragraph (3) of section 415(d) (relating to 26 use 415. 
freeze on adjustment to defined contribution and benefit plan limits) 
is amended by striking out "January 1, 1986" and inserting in lieu 
, 
thereof "January 1,1988". 
(b) TECHNICAL AMENDMENT.—Subparagraph (A) of section 415(dX2) 
(defining base periods), as amended by section 235(bX2XB) of the Tax 
Equity and Fiscal Responsibility Act of 1982, is amended by striking 96 Stat. 505. 
out "October 1, 1984" and inserting in lieu thereof "October 1, 
1986". 
SEC. 16. REPEAL OF PARTIAL INTEREST EXCLUSION. 
(a) GENERAL RULE.—Subsections (a) and (c) of section 302 of the 
26 USC 46, loi. 
Economic Recovery Tax Act of 1981 are hereby repealed, and the 128 and note, ^ 
Internal Revenue Code of 1954 shall be applied and administered as 
^^^^^21'^' 
if such subsections (and the amendments made by such subsections) 26 use 1 etseq. 
had not been enacted. 
(b) CONFORMING AMENDMENT.—Paragraph (1) of section 57(a) is 26 use 57. 
amended to read as follows: 
"(1) EXCLUSION OF DIVIDENDS.—Any amount excluded from 
gross income for the taxable year under section 116." 
SEC. 17. FOREIGN EARNED INCOME OF INDIVIDUALS. 
Subparagraph (A) of section 911(bX2) (relating to limitation on 26 USC 911. 
foreign earned income) is amended by striking out the table con-
tained therein and inserting in lieu thereof the following: 
"In the case of taxable years beginning in: 
The annual rate is: 
1983, 1984, 1985, 1986, or 1987 
$80,000 
. . . 
1988 
85,000 
- 
''' 
1989 
90,000 
1990 and thereafter 
95,000." 
98 STAT. 506 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 48 note. 
SEC. 18. EFFECTIVE DATE. 
(a) GENERAL RULE.—The amendments made by this part shall 
apply to taxable years ending after December 31,1983. 
Ante, p. 505. 
(b) SPECIAL RuLE FOR SECTION 14.—The amendment made by 
section 14 shall not apply in the case of a tax credit employee stock 
ownership plan if— 
(1) such plan was favorably approved on September 23, 1983, 
by employees, and 
(2) not later than January 11, 1984, the employer of such 
employees was 100 percent owned by such plan. 
PART II—ESTATE AND GIFT TAX RATES 
SEC. 21. MAXIMUM RATE. 
26 use 2001. 
(a) GENERAL RULE.—Paragraph (2) of section 2001(c) (relating to 
phase-in of 50 percent maximum rate) is amended— 
(1) by striking out "1985" in subparagraph (A) and inserting 
in lieu thereof "1988", and 
(2) by striking out "1984" each place it appears in subpara-
graph (D) and inserting in lieu thereof "1984, 1985, 1986, or 
1987". 
26 use 2001 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
note. 
shall apply to the estates of decedents dying after, and gifts made 
after, December 31,1983. 
PART III—EXCISE TAXES 
' 
SEC. 25. TAX RATE ON NEWLY DISCOVERED OIL. 
26 use 4987. 
(a) GENERAL RuLE.—Subparagraph (B) of section 4987(b)(3) (relat-
ing to rate of tax on newly discovered oil) is amended by striking 
out the table contained therein and inserting in lieu thereof the 
following: 
"For taxable periods beginning in: 
The applicable percentage is: 
1984, 1985, 1986, or 1987 
22^! 
1988 
20 
1989 aiid thereafter!!!!!"!!!!!!!"^ 
15." 
(b) CONTINUATION OF PERCENTAGE DEPLETION FOR OIL AND GAS 
FROM SECONDARY OR TERTIARY PROCESS.— 
26 use 613A. 
(1) Paragraph (2) of section 613A(c) (relating to exemption for 
independent producers and royalty owners) is amended by strik-
ing out the last sentence. 
(2) Subparagraph (A) of section 613A(c)(3) (defining depletable 
oil quantity) is amended by adding at the end thereof the 
following new sentence: 
"Clause (ii) shall not apply after December 31,1983." 
(3) Subparagraph (E) of section 613A(c)(7) is amended by 
adding at the end thereof the following new sentence: "This 
subparagraph shall not apply after December 31,1983." 
(4) Subparagraph (A) of section 613A(c)(9) (relating to transfer 
of oil or gas property) is amended by striking out "paragraph 
(1)" and inserting in lieu thereof "this subsection". 
(c) EFFECTIVE DATES.— 
26 use 4987 
(1) SUBSECTION (a).—The amendment made by subsection (a) 
note. 
shall apply to taxable periods beginning after December 31, 
1983. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 507 
1
^ 
(2) SUBSECTION (b).—The amendments made by subsection (b) 
26 use 613A. 
shall take effect on January 1,1984. 
SEC. 26. EXCISE TAX ON COMMUNICATIONS SERVICES. 
Paragraph (2) of section 4251(b) (relating to rate of tax on commu- 
26 USC 4251. 
nications services) is amended by striking out the table contained 
therein and inserting in lieu thereof the following: 
"With respect to amount paid pursu-
ant to bills first rendered: 
The applicable percentage is: 
During 1983, 1984, 1986, or 1987 
3 
During 1988 or thereafter 
0." 
SEC. 27. EXCISE TAX ON DISTILLED SPIRITS. 
(a) IMPOSITION OF TAX.— 
(1) IN GENERAL.—Paragraphs (1) and (3) of section 5001(a) 
26 use 5001. 
(relating to rate of tax on distilled spirits) are each amended by 
I 
striking out "$10.50" and inserting in lieu thereof "$12.50'\ 
(2) TECHNICAL AMENDMENT.—Paragraphs (1) and (2) of section 
5010(a) (relating to credit for wine content and for flavors 
26 USC 5010. 
content) are each amended by striking out "$10.50" and insert-
ing in lieu thereof "$12.50". 
* O
t
>
) FLOOR STOCKS TAXES ON DISTILLED SPIRITS.— 
26 use 500i 
(1) IMPOSITION OF TAX.—On distilled spirits on which tax was note. 
imposed under section 5001 or 7652 of the Internal Revenue 
Code of 1954 before October 1, 1985, and which were held on 
such date for sale by any person, there shall be imposed a tax at 
the rate of $2.00 for each proof gallon and a proportionate tax at 
the like rate on all fractional parts of a proof gallon. 
(2) EXCEPTION FOR CERTAIN SMALL WHOLESALE OR RETAIL DEAL-
ERS.—No tax shall be imposed by paragraph (1) on distilled 
spirits held on October 1,1985, by any dealer i
f
— 
(A) the aggregate liquid volume of distilled spirits held by 
such dealer on such date does not exceed 500 wine gallons, 
and 
(B) such dealer submits to the Secretary (at the time and 
f
: 
in the manner required by the Secretary) such information 
as the Secretary shall require for purposes of this 
paragraph. 
(3) CREDIT AGAINST TAX.—Each dealer shall be allowed as a 
credit against the taxes imposed by paragraph (1) an amount 
equal to $800. Such credit shall not exceed the amount of taxes 
imposed by paragraph (1) for which the dealer is liable. 
(4) LlABIUTY FOR TAX AND METHOD OF PAYMENT.— 
j
= 
(A) LIABILITY FOR TAX.—A person holding distilled spirits 
on October 1, 1985, to which the tax imposed by paragraph 
..;r, 
(1) applies shall be liable for such tax. 
" ' 
(B) METHOD OF PAYMENT.—The tax imposed by paragraph 
(1) shall be paid in such manner as the Secretary shall by 
regulations prescribe. 
(C) T I M E FOR PAYMENT.— 
(i) IN GENERAL.—Except as provided in clause (ii), the 
tax imposed by paragraph (1) shall be paid on or before 
- - '-^ 
• 
April 1, 1986. 
(ii) INSTALLMENT PAYMENT OF TAX IN CASE OF SMALL 
^" 
O
R MIDDLE-SIZED DEALERS.—In the case of any small or 
- 
middle-sized dealer, the tax imposed by paragraph (1) 
may be paid in 3 equal installments due as follows: 
98 STAT. 508 
PUBLIC LAW 98-369—JULY 18, 1984 
(I) The first installment shall be paid on or 
before April 1,1986. 
(II) The second installment shall be paid on or 
before July 1,1986. 
(III) The third installment shall be paid on or 
before October 1,1986. 
If the taxpayer does not pay any installment under this 
clause on or before the date prescribed for its payment, 
the whole of the unpaid tax shall be paid upon notice 
and dememd from the Secretary. 
(iii) SMALL OR MIDDLE-SIZED DEALER.—For purposes of 
clause (ii), the term "smsdl or middle-sized dealer" 
means any dealer if the aggregate gross sales receipts 
of such dealer for its most recent taxable year ending 
before October 1,1985, does not exceed $500,000. 
(5) CONTROLLED GROUPS.— 
(A) CONTROLLED GROUPS OF CORPORATIONS.—In the case of 
a controlled group— 
(i) the 500 wine gallon amount specified in paragraph 
(2), 
(ii) the $800 amount specified in paragraph (3), and 
(iii) the $500,000 amount specified in paragraph 
(4)(C)(iii), 
shall be apportioned among the dealers who are component 
members of such group in such manner as the Secretary 
shall by regulations prescribe. For purposes of the preced-
ing sentence, the term "controlled group" has the meaning 
given to such term by subsection (a) of section 1563 of the 
Internal Revenue Code of 1954; except that for such pur-
poses the phrase "more than 50 percent" shall be substi-
t; 
tuted for the phrase "at least 80 percent" each place it 
1 I
f : 
appears in such subsection. 
(B) NONINCORPORATED DEALERS UNDER C
O
M
M
O
N CON-
TROL.—Under regulations prescribed by the Secretary, prin-
ciples similar to the principles of subparagraph (A) shall 
apply to a group of dealers under common control where 1 
or more of such dealers is not a corporation. 
(6) OTHER LAWS APPUCABLE.—All provisions of law, including 
penalties, applicable with respect to the taxes imposed by sec-
tion 5001 of the Internal Revenue Code of 1954 shall, insofar as 
applicable and not inconsistent with the provisions of this 
subsection, apply in respect of the taxes imposed by paragraph 
(1) to the same extent as if such taxes were imposed by such 
section 5001. 
(7) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
subsection— 
(A) DEALER.—The term "dealer" means— 
(i) any wholesale dealer in liquors (as defined in 
.
J 
section 5112(b) of the Internal Revenue Code of 1954), 
and 
(ii) any retail dealer in liquors (as defined in section 
5122(a) of such Code). 
(B) DISTILLED SPIRITS.—The term "distilled spirits" hsis 
the meaning given such term by section 5002(a)(8) of the 
Internal Revenue Code of 1954. , 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 509 
"' '• 
(C) PERSON.—The term "person" includes any State or 
political subdivision thereof, or any agency or instrumental-
ity of a State or political subdivision thereof. 
(D) SECRETARY.—The term "Secretary" means the Secre-
tary of the Treasury or his delegate. 
(E) TREATMENT OF IMPORTED PERFUMES CONTAINING DIS-
TILLED SPIRITS.—Any article described in section 5001(aX3) 
of such Code shall be treated as distilled spirits; except that 
the tax imposed by paragraph (1) shall be imposed on a 
wine gallon basis in lieu of a proof gallon basis. To the 
extent provided in regulations prescribed by the Secretary, 
' 
the preceding sentence shall not apply to any article 
held on October 1, 1985, on the premises of a retail 
establishment. 
(c) REQUIREMENT OF ELECTRONIC FUNDS TRANSFER FOR ALCOHOL 
AND TOBACCO EXCISE TAXES.— 
(1) ALCOHOL TAXES.—Section 5061 (relating to method of col- 
26 use 5061. 
lecting tax on distilled spirits) is amended by adding at the end 
thereof the following new subsection: 
"(e) PAYMENT BY ELECTRONIC FUND TRANSFER.— 
"(1) IN GENERAL.—Any person who in any 12-month period 
ending December 31, was liable for a gross amount equal to or 
exceeding $5,000,000 in taxes imposed on distilled spirits, wines, 
or beer by sections 5001, 5041, and 5051 (or 7652), respectively, 
shall pay such taxes during the succeeding calendar year by 
electronic fund transfer to a Federal Reserve Bank. 
"(2) ELECTRONIC FUND TRANSFER.—The term 'electronic fund 
transfer' means any transfer of funds, other than a transaction 
originated by check, draft, or similar paper instrument, which is 
initiated through an electronic terminal, telephonic instrument, 
or computer or magnetic tape so as to order, instruct, or author-
ize a financial institution to debit or credit an account." 
(2) TOBACCO TAXES.—Subsection (b) of section 5703 (relating to 26 use 5703. 
method of payment of tobacco taxes) is amended by adding at 
the end thereof the following new paragraph: 
"(3) PAYMENT BY ELECTRONIC FUND TRANSFER.—Any person 
who in any 12-month period, ending December 31, was liable for 
a gross amount equal to or exceeding $5,000,000 in taxes im-
posed on tobacco products and cigarette papers and tubes by 
section 5701 (or 7652) shall pay such taxes during the succeeding 
calendar year by electronic fund transfer (as defined in section 
5061(e)(2)) to a Federal Reserve Bank." 
Supra. 
(d) EFFECTIVE DATES.— 
26 use 500i 
(1) IN GENERAL.—Except as provided in paragraph (2), the note. 
amendments made by this section shall take effect on October 1, 
; 
1985. 
(2) ELECTRONIC 
TRANSFER 
PROVISIONS.—The 
amendments 
made by subsection (c) shall apply to taxes required to be paid 
on or after September 30,1984. 
Subtitle B—Tax-Exempt Entity Leasing 
SEC. 31. DENIAL OF TAX INCENTIVES FOR PROPERTY LEASED TO GOV- 
"
^
^
.
k 
ERNMENTS AND OTHER TAX-EXEMPT ENTITIES. 
(a) GENERAL RULE.—Section 168 (relating to accelerated cost re- 26 use 168. 
covery system) is amended by redesignating subsection (j) as subsec-
98 STAT. 510 
PUBLIC LAW 98-369—JULY 18, 1984 
tion (k) and by inserting after subsection (i) the following new 
subsection: 
"(j) PROPERTY LEASED TO GOVERNMENTS AND OTHER TAX-EXEMPT 
ENTITIES.— 
"(1) IN GENERAL.—Notwithstanding any other provision of 
this section, the deduction allowed under subsection (a) (and any 
other deduction allowable for depreciation or amortization) for 
any taxable year with respect to tax-exempt use property shall 
be determined— 
"(A) by using the straight-line method (without regard to 
salvage value), and 
"(B) by using a recovery period determined under the 
following table: 
"In the case of: 
The recovery period shall be: 
(I) Property not described in sub-
clause (II) or subclause (III) 
The present class life. 
(II) Personal property with no 
present class life 
12 years. 
(III) 18-year real property 
40 years. 
"(2) OPERATING RULES.— 
"(A) RECOVERY PERIOD MUST AT LEAST EQUAL 125 PERCENT 
OF LEASE TERM.—In the case of any tax-exempt use prop-
erty, the recovery period used for purposes of paragraph (1) 
shall not be less than 125 percent of the lease term. 
"(B) CONVENTIONS.— 
"(i) PROPERTY OTHER THAN 18-YEAR REAL PROPERTY.— 
In the case of property other than 18-year real prop-
erty, the half-year convention shall apply for purposes 
of paragraph (1). 
(ii) 18-YEAR REAL PROPERTY.—In the case of 18-year 
real property, the amount determined under paragraph 
(1) shall be determined on the basis of the number of 
months (using a mid-month, convention) in the year in 
which the property is in service. 
"(C) 
EXCEPTION WHERE LONGER RECOVERY PERIOD AP-
PLIES.—Paragraph (1) shall not apply to any recovery prop-
erty if the recovery period which applies to such property 
(without regard to this subsection) exceeds the recovery 
period for such property determined under this subsection. 
"(D) DETERMINATION OF CLASS FOR REAL PROPERTY WHICH 
IS NOT RECOVERY PROPERTY.—In the case of any real prop-
erty which is not recovery property, for purposes of this 
subsection, the determination of whether such property is 
18-year real property shall be made as if such property were 
recovery property. 
"(E) COORDINATION WITH SUBSECTION (f) (12) .—Paragraph 
(12) of subsection (f) shall not apply to any tax-exempt use 
property to which this subsection applies. 
"(F) 18-YEAR REAL PROPERTY.—For purposes of this subsec-
tion, the term '18-year real property' includes— 
"(i) low-income housing, and 
"(ii) any property which was treated as 15-year real 
property under this section (as in effect before the 
Ante, p. 494. 
. jros ifi - : amendments made by the Tax Reform Act of 1984). 
W' 
i*:\ 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 511 
"(3) 
TAX-EXEMPT USE PROPERTY.—For purposes of this 
subsection— 
"(A) PROPERTY OTHER THAN i 8-YEAR REAL PROPERTY.— 
Except as otherwise provided in this subsection, the term 
'tax-exempt use property' means that portion of any tangi-
ble property (other than 18-year real property) leased to a 
tax-exempt entity. 
"(B) 18-YEAR REAL PROPERTY.— 
"(i) IN GENERAL.—In the case of 18-year real prop-
erty, the term 'tax-exempt use property' means that 
portion of the property leased to a tax-exempt entity in 
a disqualified lease. 
"(ii) DiSQUAUFiED LEASE.—For purposes of this sub-
paragraph, the term 'disqualified lease' means any 
lease of the property to a tax-exempt entity, but only 
if— 
"(I) part or all of the property was financed 
ji / : o 
(directly or indirectly) by an obligation the interest 
on which is exempt from tax under section 103 and 
such entity (or a related entity) participated in 
such financing, 
"(II) under such lease there is a fixed or deter-
minable price purchase or sale option which in-
volves such entity (or a related entity) or there is 
the equivalent of such an option, 
"(III) such lease has a lease term in excess of 20 
years, or 
"(IV) such lease occurs after a. sale (or other 
transfer) of the property by, or lease of the prop-
erty from, such entity (or a related entity) and such 
property has been used by such entity (or a related 
entity) before such sale (or other transfer) or lease, 
"(iii) 35-PERCENT THRESHOLD TEST.—Clause (i) shall 
apply to any property only if the portion of such prop-
erty leased to tax-exempt entities in disqualified leases 
is more than 35 percent of the property. 
"(iv) TREATMENT OF IMPROVEMENTS.—For purposes of 
this subparagraph, improvements to a property (other 
than land) shall not be treated as a separate property. 
"(v) LEASEBACKS DURING IST 3 MONTHS OF USE NOT 
TAKEN INTO ACCOUNT.—Subclause (IV) of clause (ii) 
*
" • i ^""^^• 
shall not apply to any property which is leased within 3 
months after the date such property is first used by the 
tax-exempt entity (or a related entity). 
"(C) EXCEPTION FOR SHORT-TERM LEASES.— 
"(i) IN GENERAL.—Property shall not be treated as 
'••" ' 
tax-exempt use property merely by reason of a short-
term lease. 
"(ii) SHORT-TERM LEASE.—For purposes of clause (i), 
the term 'short-term lease' means any lease the term of 
' 
which is— 
"(I) less than 3 years, and 
*
: ^
^ *
^
^ 
"(II) less than the greater of 1 year or 30 percent 
of the property's present class life. 
In the case of 18-year real property and property with 
no present class life, subclause (II) shall not apply. 
98 STAT. 512 
PUBLIC LAW 98-369—JULY 18, 1984 
"(D) 
EXCEPTION WHERE PROPERTY USED IN UNRELATED 
TRADE O
R BUSINESS.—The term 'tax-exempt use property' 
shall not include any portion of a property if such portion is 
predominantly used by the tax-exempt entity (directly or 
through a partnership of which such entity is a partner) in 
an unrelated trade or business the income of which is 
subject to tax under section 511. 
"(4) TAX-EXEMPT ENTITY.— 
"(A) IN GENERAL.—For purposes of this subsection, the 
term 'tax-exempt entity' means— 
"(i) the United States, any State or political subdivi-
sion thereof, any possession of the United States, or 
any agency or instrumentality of any of the foregoing, 
"(ii) an organization (other than a cooperative de-
scribed in section 521) which is exempt from tax im-
posed by this chapter, and 
"(iii) any foreign person or entity. 
"(B) EXCEPTIONS FOR CERTAIN PROPERTY USED BY FOREIGN 
PERSON OR ENTITY.— 
"(i) INCOME FROM PROPERTY SUBJECT TO UNITED STATES 
TAX.—Clause (iii) of subparagraph (A) shall not apply 
with respect to any property if more than 50 percent of 
the gross income for the taxable year derived by the 
foreign person or entity from the use of such property 
is— 
"(I) subject to tax under this chapter, or 
"(II) included under section 951 in the gross 
income of a United States shareholder for the tax-
able year with or within which ends the taxable 
year of the controlled foreign corporation in which 
such income was derived. 
For purposes of the preceding sentence, any exclusion 
or exemption shall not apply for purposes of determin-
ing the amount of the gross income so derived, but shall 
apply for purposes of determining the portion of such 
gross income subject to tax under this chapter. 
"(ii) MOVIES AND SOUND RECORDINGS.—Clause (iii) of 
subparagraph (A) shall not apply with respect to any 
qualified film (as defined in section 48(k)(l)(B)) or any 
Post, p. 635. 
sound recording (as defined in section 48(r)). 
"(C) FOREIGN PERSON OR ENTITY.—For purposes of this 
paragraph, the term 'foreign person or entity' means— 
"(i) any foreign government, any international orga-
nization, or any agency or instrumentality of any of the 
foregoing, and 
"(ii) any person who is not a United States person. 
Such term does not include any foreign partnership or 
other foreign pass-thru entity. 
Ck)rporations. 
"(D) TREATMENT OF CERTAIN TAXABLE INSTRUMENTAL-
ITIES.—For purposes of this subsection and paragraph (5) of 
Post, p. 635. 
section 48(a), a corporation shall not be treated as an 
instrumentality of the United States or of any State or 
political subdivision thereof if— 
"(i) all of the activities of such corporation are subject 
to tax under this chapter, and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 513 
"(ii) a majority of the board of directors of such 
corporation is not selected by the United States or any 
State or political subdivision thereof. 
"(E) CERTAIN PREVIOUSLY TAX-EXEMPT ORGANIZATIONS.— 
"(i) IN GENERAL.—For purposes of this subsection and 
paragraph (4) of section 48(a), an organization shall be 
treated as an organization described in subparagraph 
(A)(ii) with respect to any property of which such orga-
nization is the lessee if such organization was an orga-
nization (other than a cooperative described in section 
521) exempt from tax imposed by this chapter at any 
time during the 5-year period ending on the date such 
property was first leased to such organization. The 
preceding sentence shall not apply to the Federal 
Home Loan Mortgage Corporation, 
"(ii) ELECTION NOT TO HAVE CLAUSE (i) APPLY.— 
"(I) IN GENERAL.—In the case of an organization 
formerly exempt from tax under section 501(a) as 
I, 
an organization described in section 501(c)(12), 
clause (i) shall not apply to such organization with 
. . 
respect to any property of which such organization 
• 
is the lessee if such organization elects not to be 
^ 
exempt from tax under section 501(a) during the 
tax-exempt use period with respect to such 
property. 
"(II) TAX-EXEMPT USE PERIOD.—For purposes of 
'^"^^^ 
' 
subclause (I), the term 'tax-exempt use period' 
means the period beginning with the taxable year 
' 
in which the property described in subclause (I) is 
J 
placed in service under the lease and ending with 
Sim;' 
^jjg close of the 15th taxable year following the 
last taxable year of the recovery period of such 
property. 
= ' 
"(III) ELECTION.—Any election under subclause 
,,, 
(I), once made, shall be irrevocable, 
"(iii) TREATMENT OF SUCCESSOR ORGANIZATIONS.—Any 
organization which is engaged in activities substan-
tially similar to those engaged in by a predecessor 
organization shall succeed to the treatment under this 
subparagraph of such predecessor organization. 
"(5) 
SPECIAL RULES FOR CERTAIN HIGH TECHNOLOGY EQUIP-
MENT.— 
"(A) EXEMPTION WHERE LEASE TERM IS 5 YEARS OR LESS.— 
For purposes of this subsection, the term 'tax-exempt use 
property' shall not include any qualified technological 
equipment if the lease to the tax-exempt entity has a lease 
term of 5 years or less. 
"(B) 
RECOVERY PERIOD WHERE LEASE TERM IS GREATER 
I 
THAN 5 YEARS.—In the case of any qualified technological 
equipment not described in subparagraph (A) and which is 
not property to which subsection (fX2) applies, the recovery 
period used for purposes of paragraph (1) shall be 5 years. 
"(C) 
QUAUFIED TECHNOLOGICAL EQUIPMENT.—For 
pur-
^ 
poses of this paragraph— 
"(i) IN GENERAL.—Except as otherwise provided in 
this subparagraph, the term 'qualified technological 
equipment' means— 
98 STAT. 514 
PUBLIC LAW 98-369—JULY 18, 1984 
Federal 
Register, 
publication. 
"(I) any computer or peripheral equipment, 
"(II) any high technology telephone station 
equipment installed on the customer's premises, 
and 
"(III) any high technology medical equipment, 
"(ii) EXCEPTION FOR CERTAIN PROPERTY.—The term 
'qualified technological equipment' shall not include 
any property leased to a tax-exempt entity if— 
"(I) part or all of the property was financed 
(directly or indirectly) by an obligation the interest 
on which is exempt from tax under section 103, 
"(II) such lease occurs after a sale (or other 
transfer) of the property by, or lease of such prop-
erty from, such entity (or related entity) and such 
property has been used by such entity (or a related 
entity) before such sale (or other transfer) or lease, 
or 
"(III) such tax-exempt entity is the United States 
or any agency or instrumentality of the United 
States. 
"(iii) LEASEBACKS DURING 1ST 3 MONTHS OF USE NOT 
TAKEN INTO ACCOUNT.—Subclause (II) of clause (ii) shall 
not apply to any property which is leased within 3 
months after the date such property is first used by the 
tax-exempt entity (or a related entity). 
"(iv) PROPERTY NOT SUBJECT TO RAPID OBSOLESCENCE 
M
A
Y BE EXCLUDED.—The term 'qualified technological 
equipment' shall not include any equipment described 
in subclause (II) or (III) of clause (i)— 
"(I) which the Secretary determines by regula-
tions is not subject to rapid obsolescence, and 
"(II) which is placed in service after the date on 
which final regulations implementing such deter-
mination are published in the Federal Register. 
"(D) COMPUTER OR PERIPHERAL EQUIPMENT DEFINED.—For 
purposes of this paragraph— 
"(i) IN GENERAL.—The term 'computer or peripheral 
equipment' means— 
"(I) any computer, and 
"(II) any related peripheral equipment, 
"(ii) COMPUTER.—The term 'computer' means a pro-
grammable electronically activated device which— 
"(I) is capable of accepting information, applying 
prescribed processes to the information, and sup-
plying the results of these processes with or with-
out human intervention, and 
"(II) consists of a central processing unit contain-
ing extensive storage, logic, arithmetic, and control 
capabilities, 
"(iii) RELATED PERIPHERAL EQUIPMENT.—The term 're-
lated peripheral equipment' means any auxiliary ma-
chine (whether on-line or off-line) which is designed to 
be placed under the control of the central processing 
unit of a computer. 
"(iv) EXCEPTIONS.—The term 'computer or peripheral 
equipment' shall not include— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 515 
"(I) any equipment which is an integral part of 
other property which is not a computer, 
"(II) typewriters, calculators, adding and ac-
counting machines, copiers, duplicating equipment, 
and similar equipment, and 
"(III) equipment of a kind used primarily for 
amusement or entertainment of the user. 
"(E) HIGH TECHNOLOGY MEDICAL EQUIPMENT.—For pur-
poses of this paragraph, the term 'high technology medical 
equipment' means any electronic, electromechanical, or 
computer-based high technology equipment used in the 
screening, monitoring, observation, diagnosis, or treat-
ment of patients in a laboratory, medical, or hospital 
environment. 
"(6) OTHER SPECIAL RULES.—For purposes of this subsection— 
"(A) LEASE.—The term 'lease' includes any grant of a 
right to use property. 
"(B) LEASE TERM.—In determining a lease term— 
"(i) there shall be taken into account options to 
renew, and 
; u. 
"(ii) 2 or more successive leases which are part of the 
same transaction (or a series of related transactions) 
with respect to the same or substantially similar prop-
erty shall be treated as 1 lease. 
"(C) SPECIAL RULE FOR FAIR RENTAL OPTIONS ON 18-YEAR 
REAL PROPERTY.—For purposes of clause (i) of subparagraph 
(B), in the case of 18-year real property, there shall not be 
taken into account any option to renew at fair market 
value, determined at the time of renewal. 
"(7) RELATED ENTITIES.—For purposes of this subsection— 
"(A)(i) Each governmental unit and each agency or in-
strumentality of a governmental unit is related to each 
other such unit, agency, or instrumentality which directly 
or indirectly derives its powers, rights, and duties in whole 
or in part from the same sovereign authority. 
"(ii) For purposes of clause (i), the United States, each 
State, and each possession of the United States shall be 
treated as a separate sovereign authority. 
"(B) Any entity not described in subparagraph (A)(i) is 
related to any other entity if the 2 entities have— 
"(i) significant common purposes and substantial 
lijfcfi,, 
common membership, or 
,. ^ ., ^^i 
"(ii) directly or indirectly substantial common direc-
, * ^^ 
tion or control. 
"(C)(i) An entity is related to another entity if either 
entity owns (directly or through 1 or more entities) a 50 
percent or greater interest in the capital or profits of the 
other entity. 
"(ii) For purposes of clause (i), entities treated as related 
under subparagraph (A) or (B) shall be treated as 1 entity. 
"(D) An entity is related to another entity with respect to 
a transaction if such transaction is part of an attempt by 
such entities to avoid the application of this subsection, 
section 46(e), paragraph (4) or (5) of section 48(a), or clause Post, p. 517. 
(vi) of section 48(g)(2)(B). 
Post, p. 518. 
98 STAT. 516 
PUBLIC LAW 98-369—JULY 18, 1984 
"(8) TAX-EXEMPT USE OF PROPERTY LEASED TO PARTNERSHIPS, 
ETC., DETERMINED AT PARTNER LEVEL.—For purposes of this sub-
Post, p. 517. 
section and paragraphs (4) and (5) of section 48(a)— 
"(A) IN GENERAL.—In the case of any property which is 
leased to a partnership, the determination of whether any 
portion of such property is tax-exempt use property shall be 
made by treating each tax-exempt entity partner's propor-
tionate share (determined under paragraph (9)(C)) of such 
property as being leased to such partner. 
"(B) OTHER PASS-THRU ENTITIES; TIERED ENTITIES.—Rules 
similar to the rules of subparagraph (A) shall also apply in 
the case of any pass-thru entity other than a partnership 
and in the case of tiered partnerships and other entities. 
"(C) PRESUMPTION WITH RESPECT TO FOREIGN ENTITIES.— 
Unless it is otherwise established to the satisfaction of the 
Secretary, it shall be presumed that the partners of a 
foreign partnership (and the beneficiaries of any other 
foreign pass-thru entity) are persons who are not United 
States persons. 
"(9) TREATMENT OF PROPERTY OWNED BY PARTNERSHIPS, ETC.— 
"(A) IN GENERAL.—For purposes of this subsection and 
paragraphs (4) and (5) of section 48(a), if— 
"(i) any property which (but for this subparagraph) is 
not tax-exempt use property is owned by a partnership 
which has both a tax-exempt entity and a person who is 
not a tax-exempt entity as partners, and 
"(ii) any allocation to the tax-exempt entity of part-
nership items is not a qualified allocation, 
an amount equal to such tax-exempt entity's proportionate 
share of such property shall (except as provided in para-
graph (3)(D)) be treated as tax-exempt use property. 
"(B) QuAUFiED ALLOCATION.—For purposes of subpara-
graph (A), the term 'qualified allocation' means any alloca-
tion to a tax-exempt entity which— 
"(i) is consistent with such entity's being allocated 
the same distributive share of each item of income, 
gain, loss deduction, credit, and basis and such share 
remains the same during the entire period the entity is 
a partner in the partnership, and 
"(ii) has substantial economic effect within the mean-
ing of section 704(b)(2). 
For purposes of this subparagraph, items allocated under 
Post, p. 589. 
section 704(c) shall not be taken into account. 
"(C) DETERMINATION OF PROPORTIONATE SHARE.— 
"(i) IN GENERAL.—For purposes of subparagraph (A), 
a tax-exempt entity's proportionate share of any prop-
erty owned by a partnership shall be determined on the 
basis of such entity's share of partnership items of 
income or gain (excluding gain allocated under section 
704(c)), whichever results in the largest proportionate 
share. 
"(ii) DETERMINATION WHERE ALLOCATIONS VARY.—For 
purposes of clause (i), if a tax-exempt entity's share of 
partnership items of income or gain (excluding gain 
allocated under section 704(c)) may vary during the 
period such entity is a partner in the partnership, such 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 517 
share shall be the highest share such entity may 
receive. 
"(D) OTHER PASS-THRU ENTITIES; TIERED ENTITIES.—Rules 
similar to the rules of subparagraphs (A), (B), and (C) shall 
also apply in the case of any pass-thru entity other than a 
partnership and in the case of tiered partnerships and other 
entities. 
"(E) REGULATIONS.—For purposes of determining whether 
there is a qualified allocation under subparagraph (B), the 
regulations prescribed under paragraph (10) for purposes of 
this paragraph— 
"(i) shall set forth the proper treatment for partner-
ship guaranteed payments, and 
"(ii) may provide for the exclusion or segregation of 
items. 
"(10) REGULATIONS.—The Secretary shall prescribe such regu-
lations as may be necessary or appropriate to carry out the 
purposes of this subsection." 
O
b
) DENIAL OF INVESTMENT TAX CREDIT FOR PROPERTY USED BY 
FOREIGN GOVERNMENTS AND OTHER FOREIGN PERSONS.—Paragraph 
* 
^" 
(5) of section 48(a) (relating to property used by governmental units) 
26 USC 48. 
is amended to read as follows: 
"(5) 
PROPERTY USED BY GOVERNMENTAL UNITS OR FOREIGN 
,, 
PERSONS O
R ENTITIES.— 
> 
"(A) IN GENERAL.—Property used— 
"(i) by the United States, any State or political subdi-
vision thereof, any possession of the United States, or 
any agency or instrumentality of any of the foregoing, 
or 
"(ii) by any foreign person or entity (as defined in 
section 168(j)(4)(C)), but only with respect to property to Ante, p. 509. 
which section 168(jX4)(AXiii) applies (determined after 
the application of section 168(jX4)(B)), 
* K c
r *jh.i\ 
shall not be treated as section 38 property. 
"(B) EXCEPTION FOR SHORT-TERM LEASES.— 
"(i) IN GENERAL.—This paragraph and paragraph (4) 
shall not apply to any property by reason of use under 
a lease with a term of less than 6 months (determined 
under section 168(jX6)). 
"(ii) EXCEPTION FOR CERTAIN OIL DRILLING PROPERTY 
AND CERTAIN CONTAINERS.—For purposes of this para-
^ 
graph and paragraph (4), clause (i) shall be applied by 
substituting the lease term limitation in section 
168(jX3XC)(ii) for the lease term limitation in clause (i) 
in the case of property which is leased to a foreign 
' > >
C
;
L ^;S 
person or entity and— 
"(I) which is used in offshore drilling for oil and 
gas (including drilling vessels, barges, platforms, 
and drilling equipment) and support vessels with 
respect to such property, or 
"(II) which is a container described in section 
48(a)(2)(BXv) (without regard to whether such con-
tainer is used outside the United States) or con-
tainer chassis or trailer but only if such container, 
chassis, or trailer has a present class life of not 
more than 6 years, 
"(iii) EXCEPTION FOR CERTAIN AIRCRAFT.— 
98 STAT. 518 
PUBLIC LAW 98-369—JULY 18, 1984 
"(I) IN GENERAL.—In the case of any aircraft used 
under a qualifying lease (as defined in section 
47(a)(7)(C)) and which is leased to a foreign person 
or entity before January 1, 1990, clause (i) shall be 
applied by substituting '3 years' for '6 months'. 
"(II) RECAPTURE PERIOD EXTENDED.—For purposes 
of applying subparagraph (B) of section 47(a)(5) and 
paragraph (1) of section 47(a), there shall not be 
taken into account any period of a lease to which 
subclause (I) applies. 
"(C) EXCEPTION FOR QUAUFIED REHABILITATED BUILDINGS 
LEASED T
O GOVERNMENTS, ETC.—If any qualified rehabili-
tated building is leased to a governmental unit (or a foreign 
person or entity), this paragraph shall not apply to that 
portion of the basis of such building which is attributable to 
qualified rehabilitation expenditures. 
"(D) CROSS REFERENCE.— 
"For provisions providing special rules for the application of this para-
Ante, p. 509. 
graph and paragraph (4), see section 168(j)." 
(c) REHABILITATION CREDIT NOT TO APPLY WHERE PROPERTY USED 
B
Y TAX-EXEMPT ENTITY.— 
26 use 48. 
(1) IN GENERAL.—Subparagraph (B) of section 48(g)(2) (relating 
to certain expenditures not treated as qualified rehabilitation 
expenditures) is amended by adding at the end thereof the 
following new clause: 
"(vi) TAX-EXEMPT USE PROPERTY.— 
"(I) IN GENERAL.—Any expenditure in connection 
with the rehabilitation of a building which is allo-
cable to that portion of such building which is (or 
may reasonably be expected to be) tax-exempt use 
Ante, p. 509. 
property (within the meaning of section 168(j)(3)). 
"(II) CLAUSE NOT TO APPLY FOR PURPOSES OF PARA-
GRAPH (i)(c).—This clause shall not apply for 
purposes of determining under paragraph (IXC) 
whether a building has been substantially rehabili-
tated." 
(2) TECHNICAL AMENDMENT.—Clause (i) of section 48(g)(2)(B) is 
amended by adding at the end thereof the following new sen-
tence: "The preceding sentence shall not apply to any expendi-
ture to the extent subsection (f)(12) or (j) of section 168 applies to 
such expenditure." 
(d) AUTHORITY TO PRESCRIBE PRESENT CLASS LIFE FOR CERTAIN 
26 use 168. 
PROPERTY.—Paragraph (2) of section 168(g) (defining present class 
life) is amended by adding at the end thereof the following new 
sentence: "If any property (other than section 1250 class property) 
does not have a present class life within the meaning of the preced-
ing sentence, the Secretary may prescribe a present class life for 
such property which reasonably reflects the anticipated useful life of 
such property to the industry or other group." 
(e) TREATMENT OF CERTAIN CONTRACTS FOR PROVIDING SERVICES, 
26 use 7701. 
ETC.—Section 7701 (relating to definitions), as amended by this Act, 
Post, p. 672. 
is amended by redesignating subsection (e) as subsection (f) and by 
inserting after subsection (d) the following new subsection: 
"(e) TREATMENT OF CERTAIN CONTRACTS FOR PROVIDING SERVICES, 
26 use 1 et seq. 
ETC.—For purposes of chapter 1— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 519 
"(1) IN GENERAL.—A contract which purports to be a service 
contract shall be treated as a lease of property if such contract 
is properly treated as a lease of property, taking into account all 
relevant factors including whether or not— 
"(A) the service recipient is in physical possession of the 
property, 
J: 
t 
"(B) the service recipient controls the property, 
"(C) the service recipient has a significant economic or 
possessory interest in the property, 
"(D) the service provider does not bear any risk of sub-
stantially diminished receipts or substantially increased 
expenditures if there is nonperformance 
under the 
contract, 
"(E) the service provider does not use the property 
concurrently to provide significant services to entities 
unrelated to the service recipient, and 
"(F) the total contract price does not substantially exceed 
the rental value of the property for the contract period. 
"(2) OTHER ARRANGEMENTS.—An arrangement (including a 
partnership or other pass-thru entity) which is not described in 
paragraph (1) shall be treated as a lease if such arrangement is 
properly treated as a lease, taking into account all relevant 
factors including factors similar to those set forth in paragraph 
(1). 
"(3) 
SPECIAL 
RULES FOR CONTRACTS OR ARRANGEMENTS 
INVOLVING SOLID WASTE DISPOSAL, ENERGY, AND CLEAN WATER 
FACILITIES.— 
"(A) IN GENERAL.—Notwithstanding paragraphs (1) and 
(2), and except as provided in paragraph (4), any contract or 
arrangement between a service provider and a service re-
' 
cipient— 
"(i) with respect to— 
"(I) the operation of a qualified solid waste dis-
posal facility, 
.'!!.. i jc 
"(ij) the sale to the service recipient of electrical 
or thermal energy produced at a cogeneration or 
i^AF; *' 
alternative energy facility, or 
"(III) the operation of a water treatment works 
• 
facility, and 
"(ii) which purports to be a service contract, 
shall be treated as a service contract. 
"(B) QUALIFIED SOLID WASTE DISPOSAL FACILITY.—For pur-
poses of subparagraph (A), the term 'qualified solid waste 
disposal facility' means any facility if such facility provides 
solid waste disposal services for residents of part or all of 1 
or more governmental units and substantially all of the 
solid waste processed at such facility is collected from the 
general public. 
"(C) COGENERATION FACIUTY.—For purposes of subpara-
graph (A), the term 'cogeneration facility means a facility 
which uses the same energy source for the sequential gen-
eration of electrical or mechanical power in combination 
with steam, heat, or other forms of useful energy. 
"(D) ALTERNATIVE ENERGY FACIUTY.—For purposes of sub-
paragraph (A), the term 'alternative energy facility' means 
a facility for producing electrical or thermal energy if the 
98 STAT. 520 
PUBLIC LAW 98-369—JULY 18, 1984 
primary energy source for the facility is not oil, natural gas, 
coal, or nuclear power. 
"(E) WATER TREATMENT WORKS FACILITY.—For purposes of 
subparagraph (A), the term 'water treatment works facility' 
means any treatment works within the meaning of section 
33 use 1292. 
212(2) of the Federal Water Pollution Control Act. 
"(4) PARAGRAPH (3) NOT TO APPLY IN CERTAIN CASES.— 
i I 
"(A) IN GENERAL.—Paragraph (3) shall not apply to any 
qualified solid waste disposal facility, cogeneration facility, 
alternative energy facility, or water treatment works faci-
lity used under a contract or arrangement if^ 
"(i) the service recipient (or a related entity) operates 
such facility, 
"(ii) the service recipient (or a related entity) bears 
s-^i ij ;:, 
any significant financial burden if there is nonperform-
ance under the contract or arrangement (other than for 
reasons beyond the control of the service provider), 
"(iii) the service recipient (or a related entity) re-
ceives any significant financial benefit if the operating 
costs of such facility are less than the standards of 
performance or operation under the contract or ar-
rangement, or 
^ 
"(iv) the service recipient (or a related entity) has an 
' 
option to purchase, or may be required to purchase, all 
or a part of such facility at a fixed and determinable 
jj' 
price (other than for fair market value). 
"(B) SPECIAL RULES FOR APPLICATION OF SUBPARAGRAPH 
(A) WITH RESPECT TO CERTAIN RIGHTS AND ALLOCATIONS 
UNDER THE CONTRACT.—For purposes of subparagraph (A), 
^•^ 
there shall not be taken into account— 
"(i) any right of a service recipient to inspect any 
facility, to exercise any sovereign power the service 
.»"lTi ,' 
recipient may possess, or to act in the event of a breach 
of contract by the service provider, or 
r 
"(ii) any allocation of any financial burden or bene-
fits in the event of any change in any law. 
"(C) SPECIAL RULES FOR APPLICATION OF SUBPARAGRAPH 
f. 7r V J <A) IN THE CASE OF CERTAIN EVENTS.— 
"(i) TEMPORARY SHUT-DOWNS, ETC.—For purposes of 
clause (ii) of subparagraph (A), there shall not be taken 
into account any temporary shut-down of the facility 
for repairs, maintenance, or capital improvements, or 
any financial burden caused by the bankruptcy or 
similar financial difficulty of the service provider. 
"(ii) REDUCED COSTS.—For purposes of clause (iii) of 
subparagraph (A), there shall not be taken into account 
any significant financial benefit merely because pay-
ments by the service recipient under the contract or 
arrangement are decreased by reason of increased pro-
duction or efficiency or the recovery of energy or other 
products. 
"(5) EXCEPTION FOR CERTAIN LOW-INCOME HOUSING.—This sub-
section shall not apply to any low-income housing (within the 
Post, p. 682. 
meaning of section 168(C)(2)(F)) if— 
"(A) such property is operated by or for an organization 
described in paragraph (3) or (4) of section 501(c), and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 521 
"(B) at least 80 percent of the units in such property are 
leased to low-income tenants (within the meaning of section 
167(k)(3)(B)). 
"(6) REGULATIONS.—The Secretary may prescribe such regula-
tions as may be necessary or appropriate to carry out the 
provisions of this subsection." 
(f) INVESTMENT TAX CREDIT FOR PROPERTY LEASED BY CERTAIN 
PERSONS NOT TO EXCEED CREDIT ALLOWED IF SUCH PERSONS OWNED 
PROPERTY.—Section 46(e) (relating to limitations with respect to 26 USC 46. 
certain persons) is amended by adding at the end thereof the 
following new paragraph: 
"(4) SPECIAL RULES WHERE SECTION 593 ORGANIZATION IS 
"(A) IN GENERAL.—For purposes of paragraph (1)(A), if an 
organization described in section 593 is the lessee of any 
section 38 property, the lessor of such property shall be 
treated as an organization described in section 593 with 
respect to such property. 
"(B) EXCEPTION FOR SHORT-TERM LEASES.—This paragraph 
shall not apply to any property by reason of use under a 
lease with a term of less than 6 months (determined under 
section 168(j)(6)). 
Ante, p. 509. 
"(C) ELECTION NOT TO HAVE SUBPARAGRAPH (A) APPLY.— 
Subparagraph (A) shall not apply for any taxable year to an 
organization described in section 593 if such organization 
elects to compute for such year and all subsequent taxable 
years the amount of the deduction for a reasonable addition 
to a reserve for bad debts on the basis of actual experience. 
Any such election shall apply to any successor organization 
engaged in substantially similar activities and, once made, 
shall be irrevocable." 
(g) EFFECTIVE DATES.— 
26 use 168 note. 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply— 
(A) to property placed in service by the taxpayer after 
May 23, 1983, in taxable years ending after such date, and 
(B) to property placed in service by the taxpayer on or 
before May 23, 1983, if the lease to the tax-exempt entity is 
entered into after May 23,1983. 
(2) LEASES ENTERED INTO ON OR BEFORE MAY 23, 1983.—The 
amendments made by this section shall not apply with respect 
to any property leased to a tax-exempt entity if the property is 
leased pursuant to— 
(A) a lease entered into on or before May 23, 1983 (or a 
sublease under such a lease), or 
(B) any renewal or extension of a lease entered into on or 
before May 23, 1983, if such renewal or extension is pursu-
ant to an option exercisable by the tax-exempt entity which 
was held by the tax-exempt entity on May 23,1983. 
(3) BINDING CONTRACTS, ETC.— 
(A) The amendments made by this section shall not apply 
with respect to any property leased to a tax-exempt entity if 
such lease is pursuant to 1 or more written binding con-
tracts which, on May 23, 1983, and at all times thereafter, 
required— 
98 STAT. 522 
PUBLIC LAW 98-369—JULY 18, 1984 
(i) the taxpayer (or his predecessor in interest under 
f 
the contract) to acquire, construct, reconstruct, or reha-
biUtate such property, and 
(ii) the tax-exempt entity (or a tax-exempt predeces-
sor thereof) to be the lessee of such property. 
(B) The amendments made by this section shall not apply 
with respect to any property owned by a partnership i
f
— 
(i) such property was acquired by such partnership 
M , 
on or before October 21, 1983, or 
(ii) such partnership entered into a written binding 
contract which, on October 21, 1983, and at all times 
m i^/ 
thereafter, required the partnership to acquire or con-
struct such property. 
(C) The amendments made by this section shall not apply 
with respect to any property leased to a tax-exempt entity 
(other than any foreign person or entity)— 
^i-iv, ,. 
(i)if^ 
(I) on or before May 23, 1983, the taxpayer (or his 
predecessor in interest under the contract) or the 
, 
tax-exempt entity entered into a written binding 
contract to acquire, construct, reconstruct, or reha-
(
i
O
?
, Q AJv 
bilitate such property and such property had not 
previously been used by the tax-exempt entity, or 
(II) the taxpayer or the tax-exempt entity ac-
quired the property after June 30, 1982, and on or 
* 
before May 23,1983, or completed the construction, 
reconstruction, or rehabilitation of the property 
after December 31, 1982, and on or before May 23, 
1983, and 
(ii) if such lease is pursuant to a written binding 
contract entered into before January 1, 1985, which 
, ., 
„ 
requires the tax-exempt entity to be the lessee of such 
property. 
(4) OFFICIAL GOVERNMENTAL ACTION ON OR BEFORE NOVEMBER 
1, 1983.— 
(A) IN GENERAL.—The amendments made by this section 
shall not apply with respect to any property leased to a tax-
exempt entity (other than the United States, any agency or 
instrumentality thereof, or any foreign person or entity) 
-^'"' 
(i) on or before November 1, 1983, there was signifi-
cant official governmental action with respect to the 
project or its design, and 
(ii) the lease to the tax-exempt entity is pursuant to a 
^ '5 
written binding contract entered into before January 1, 
1985, which requires the tax-exempt entity to be the 
lessee of the property. 
(B) SIGNIFICANT OFFICIAL GOVERNMENTAL ACTION.—For 
i' 
purposes of subparagraph (A), the term "significant official 
governmental action" does not include granting of permits, 
zoning changes, environmental impact statements, or simi-
lar governmental actions. 
(5) MASS COMMUTING VEHICLES.—The amendments made by 
this section shall not apply to any qualified mass commuting 
vehicle (as defined in section 103(b)(9) of the Internal Revenue 
Code of 1954) which is financed in whole or in part by obliga-
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 523 
tions the interest on which is excludable from gross income 
under section 103(a) of such Code i
f
— 
(A) such vehicle is placed in service before January 1, 
1988, or 
^^ 
(B) such vehicle is placed in service on or after such 
L.^.. 
date— 
(i) pursuant to a binding contract or commitment 
•itm] 
entered into before April 1, 1983, and 
(ii) solely because of conditions which, as determined 
by the Secretary of the Treasury or his delegate, are 
not within the control of the lessor or lessee. 
(6) CERTAIN TURBINES AND BOILERS.—The amendments made 
by this section shall not apply to any property described in 
J 
section 208(d)(3)(E) of the Tax Equity and Fiscal Responsibility 
Act of 1982. 
96 Stat. 439. 
(7) CERTAIN FACILITIES FOR WHICH RULING REQUESTS FILED ON 
O
R BEFORE MAY 23, 1983.—The amendments made by this section 
shall not apply with respect to any facilities described in clause 
(ii) of section 168(f)(12)(C) of the Internal Revenue Code of 1954 
(relating to certain sewage or solid waste disposal facilities), as 
in effect on the day before the date of the enactment of this Act, 
if a ruling request with respect to the lease of such facility to 
., . 
the tax-exempt entity was filed with the Internal Revenue 
''•'• "''* 
Service on or before May 23,1983. 
(8) 
RECOVERY 
PERIOD 
FOR 
CERTAIN 
QUALIFIED 
SEWAGE 
FACILITIES.— 
(A) IN GENERAL.—In the case of any property (other than 
15-year real property) which is part of a qualified sewage 
facility, the recovery period used for purposes of paragraph 
(1) of section 168(j) of the Internal Revenue Code of 1954 (as Ante, p. 509. 
added by this section) shall be 12 years. For purposes of the 
preceding sentence, the term "15-year real property" in-
cludes 18-year real property. 
(B) QUALIFIED SEWAGE FACILITY.—For purposes of sub-
paragraph (A), the term "qualified sewage facility" means 
any facility which is part of the sewer system of a city, i
f
— 
(i) on June 15, 1983, the City Council approved a 
resolution under which the city authorized the procure-
'^' 
ment of equity investments for such facility, and 
^ 
^ ^ 
(ii) on July 12, 1983, the Industrial Development 
•
"
*
" *"' 
Board of the city approved a resolution to issue a 
$100,000,000 industrial development bond issue to pro-
vide funds to purchase such facility. 
(9) PROPERTY USED BY THE POSTAL SERVICE.—In the case of 
property used by the United States Postal Service, paragraphs 
(1) and (2) shall be applied by substituting "October 31" for 
"May 23". 
(10) EXISTING APPROPRIATIONS.—The amendments made by 
this section shall not apply to personal property leased to or 
used by the United States if^ 
(A) an express appropriation has been made for rentals 
under such lease for the fiscal year 1983 before May 23, 
1983, and 
(B) the United States or an agency or instrumentality 
thereof has not provided an indemnification against the loss 
of all or a portion of the tax benefits claimed under the 
lease or service contract. 
98 STAT. 524 
PUBLIC LAW 98-369—JULY 18, 1984 
^„^,. 
(11) SPECIAL RULE FOR CERTAIN PARTNERSHIPS.— 
(A) PARTNERSHIPS FOR WHICH QUAUFYiNG ACTION EXISTED 
r 
BEFORE O
C
T
O
B
E
R 21, 1983.—Paragraph (9) of section 168(j) of 
Ante, p. 509. 
the Internal Revenue Code of 1954 (as added by this section) 
shall not apply to any property acquired, directly or indi-
rectly, before January 1,1985, by any partnership described 
in subparagraph (B). 
(B) APPLICATION FILED BEFORE OCTOBER 21, 1983.—A part-
nership is described in this subparagraph i
f
— 
(i) before October 21, 1983, the partnership was orga-
nized, a request for exemption with respect to such 
partnership w£is filed with the Department of Labor, 
and a private placement memorandum stating the 
maximum number of units in the partnership that 
Mt- Jf;.' V 
would be offered had been circulated, 
(ii) the interest in the property to be acquired, di-
rectly or indirectly (including through acquiring an 
interest in another partnership) by such partnership 
was described in such private placement memorandum, 
and 
Federal 
(iii) the marketing of partnership units in such part-
Register, 
nership is completed not later than two years after the 
publication. 
.^ 
jg^^gj. Qf ^j^g jjg^^g Qf ^j^g enactment of this Act or the 
date of publication in the Federal Register of such 
r*'?/;w."- 
exemption by the Department of Labor and the aggre-
gate number of units in such partnership sold does not 
exceed the amount described in clause (i). 
(C) PARTNERSHIPS FOR WHICH QUAUFYING ACTION EXISTED 
BEFORE MARCH 6, 1984.—Paragraph (9) of section 168(j) of 
Ante, p. 509. 
the Internal Revenue Code of 1954 (as added by this section) 
shall not apply to any property acquired directly or indi-
rectly, before January 1, 1986, by any partnership described 
in subparagraph (D). For purposes of this subparagraph, 
property shall be deemed to have been acquired prior to 
January 1, 1986, if the partnership had entered into a 
written binding contract to acquire such property prior to 
January 1,1986 and the closing of such contract takes place 
within 6 months of the date of such contract (24 months in 
the case of new construction). 
(D) PARTNERSHIP ORGANIZED BEFORE MARCH 6, 1984.—A 
partnership is described in this subparagraph if— 
'"''* 
(i) before March 6, 1984, the partnership was orga-
nized and publicly announced the maximum amount 
(as shown in the registration statement, prospectus or 
^ ^ 
partnership agreement, whichever is greater) of inter-
ests which would be sold in the partnership, and 
(ii) the marketing or partnership interests in such 
partnership was completed not later than the 90th day 
after the date of the enactment of this Act and the 
gf. ,,,. 
aggregate amount of interest in such partnership sold 
does not exceed the maximum amount described in 
clause (i). 
(12) SPECIAL RULE FOR AMENDMENT MADE BY SUBSECTION 
(c) (2).—The amendment made by subsection (c)(2) to the extent 
it relates to subsection (f)(12) of section 168 of the Internal 
Revenue Code of 1954 shall take effect as if it had been included 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 525 
in the amendments made by section 216(a) of the Tax Equity 
and Fiscal Responsibility Act of 1982. 
96 Stat. 470. 
(13) SPECIAL RULE FOR SERVICE CONTRACTS NOT INVOLVING TAX-
EXEMPT ENTITIES.—In the case of a service contract or other 
arrangement described in section 7701(e) of the Internal Reve-
nue Code of 1954 (as added by this section) with respect to which 
Ante, p. 518. 
no party is a tax-exempt entity, such section 7701(e) shall not 
apply to— 
(A) such contract or other arrangement if such contract 
or other arrangement was entered into before November 5, 
1983, or 
(B) any renewal or other extension of such contract or 
other arrangement pursuant to an option contained in such 
contract or other arrangement on November 5,1983. 
(14) PROPERTY LEASED TO SECTION 593 ORGANIZATIONS.—For 
purposes of the amendment made by subsection (f), paragraphs 
(1), (2), and (4) shall be applied by substituting— 
(A) "November 5, 1983" for "May 23, 1983" and "Novem-
ber 1,1983", as the case may be, and 
(B) "organization described in section 593 of the Internal 
Revenue Code of 1954" for "tax-exempt entity". 
(15) 
SPECIAL 
RULES 
RELATING 
TO 
FOREIGN 
PERSONS OR 
ENTITIES— 
(A) IN GENERAL.—In the case of tax-exempt use property 
which is used by a foreign person or entity, the amend-
ments made by this section shall not apply to any property 
which— 
^ 
(i) is placed in service by the taxpayer before January 
^ ' 
1,1984, and 
(ii) is used by such foreign person or entity pursuant 
to a lease entered into before January 1,1984. 
(B) SPECIAL RULE FOR SUBLEASES.—If tax-exempt use prop-
erty is being used by a foreign person or entity pursuant to 
a sublease under a lease described in subparagraph (A)(ii), 
subparagraph (A) shall apply to such property only if such 
property was used before January 1, 1984, by any foreign 
person or entity pursuant to such lease. 
(C) BINDING CONTRACTS, ETC.—The amendments made by 
this section shall not apply with respect to any property 
(other than aircraft described in subparagraph (D)) leased 
to a foreign person or entity— 
(i) if-
(I) on or before May 23, 1983, the taxpayer (or a 
predecessor in interest under the contract) or the 
foreign person or entity entered into a written 
binding contract to acquire, construct, or rehabili-
tate such property and such property had not pre-
viously been used by the foreign person or entity, 
or 
(II) the taxpayer or the foreign person or entity 
acquired the property or completed the construc-
tion, reconstruction, or rehabilitation of the prop-
erty after December 31, 1982 and on or before May 
23, 1983, and 
(ii) if such lease is pursuant to a written binding 
contract entered into before January 1, 1984, which 
98 STAT. 526 
PUBLIC LAW 98-369—JULY 18, 1984 
^itupH 
requires the foreign person or entity to be the lessee of 
.O'^i .teja "
r
t
^ 
such property. 
(D) CERTAIN AIRCRAFT.—The amendments made by this 
section shall not apply with respect to any wide-body, four-
engine, commercial aircraft used by a foreign person or 
>i^ q "*':,! 
entity i
f
— 
(i) on or before November 1, 1983, the foreign person 
or entity entered into a written binding contract to 
; ,^. 
> 
acquire such aircraft, and 
% 
(ii) such aircraft is placed in service before January 1, 
1986. 
(E) USE AFTER 1983.—Qualified container 
equipment 
placed in service before January 1, 1984, which is used 
before such date by a foreign person shall not, for purposes 
of section 47 of the Internal Revenue Code of 1954, be 
treated as ceasing to be section 38 property by reason of the 
use of such equipment before January 1, 1985, by a foreign 
person or entity. For purposes of this subparagraph, the 
term "qualified container equipment" means any con-
tainer, container chassis, or container trailer of a United 
States person with a present class life of not more than 6 
, , 
years. 
(16) O R G A N I Z A T I O N S ELECTING EXEMPTION FROM RULES RELAT-
I N G TO PREVIOUSLY TAX-EXEMPT ORGANIZATIONS MUST ELECT TAX-
ATION OF EXEMPT ARBITRAGE PROFITS.— 
(A) IN GENERAL.—An organization may make the election 
under section 168(j)(4)(E)(ii) of the Internal Revenue Code of 
Ante, p. 509. 
^ 
1954 (relating to election not to have rules relating to 
'®' 
previously tax-exempt organizations apply) only if such 
organization elects the tax treatment of exempt arbitrage 
tiif 
profits described in subparagraph (B). 
(B) TAXATION OF EXEMPT ARBITRAGE PROFITS.— 
(i) IN GENERAL.—In the case of an organization which 
elects the application of this subparagraph, there is 
hereby imposed a tax on the exempt arbitrage profits of 
such organization. 
(ii) RATE OF TAX, ETC.—The tax imposed by clause 
(i)-
(I) shall be the amount of tax which would be 
imposed by section 11 of such Code if the exempt 
arbitrage profits were taxable income (and there 
were no other taxable income), and 
(II) shall be imposed for the first taxable year of 
the tax-exempt use period (as defined in section 
168(j)(4)(E)(ii) of such Code). 
(C) EXEMPT ARBITRAGE PROFITS.— 
(i) IN GENERAL.—For purposes of this paragraph, the 
term exempt arbitrage profits means the aggregate 
amount described in clauses (i) and (ii) of subparagraph 
Post, p. 922. 
(D) of section 103(c)(6) of such Code for all taxable years 
':: 
for which the organization was exempt from tax under 
section 501(a) of such Code with respect to obligations— 
(I) associated with property described in section 
168(j)(4)(E)(i)(I), and 
(II) issued before January 1,1985. 
(ii) APPLICATION OF SECTION IO3 (B) (6).—For purposes 
of this paragraph, section 103(b)(6) of such Code shall 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 527 
yj 
apply to obligations issued before January 1, 1985, but 
the amount described in clauses (i) and (ii) of subpara-
si a 
graph (D) thereof shall be determined without regard to 
clauses (iXII) and (ii) of subparagraph (F) thereof. 
(D) OTHER LAWS APPLICABLE.— 
(i) IN GENERAL.—Except as provided in clause (ii), all 
provisions of law, including penalties, applicable with 
' ' 
respect to the tax imposed by section 11 of such Code 
shall apply with respect to the tax imposed by this 
^- ' * 
paragraph. 
(ii) No CREDITS AGAINST TAX, ETC.—The tax imposed 
by this paragraph shall not be treated as imposed by 
section 11 of such Code for purposes of— 
'^ '• 
(I) part VI of subchapter A of chapter 1 of such 
Code (relating to minimum tax for tax prefer- 
26 USC 55. 
ences), and 
(II) determining the amount of any credit allow-
able under subpart A of part IV of such sub-
; - . ^ 
chapter. 
26 USC 31. 
M
. - , 
(E) ELECTION.—Any election under subparagraph (A)— 
(i) shall be made at such time and in such manner as 
the Secretary may prescribe, 
1„ 
,, 
(ii) shall apply to any successor organization which is 
engaged in substantially similar activities, and 
(iii) once made, shall be irrevocable. 
(17) CERTAIN TRANSITIONAL LEASED PROPERTY.—The amend-
ments made by this section shall not apply to property described 
in section 168(c)(2)(D) of the Internal Revenue Code of 1954, as 
in effect on the day before the date of the enactment of this Act, 
and which is described in any of the following subparagraphs: 
(A) Property is described in this subparagraph if such 
^ 
property is leased to a university, and— 
(i) on June 16, 1983, the Board of Administrators of 
the university adopted a resolution approving the reha-
bilitation of the property in connection with an overall 
campus development program; and 
' 
(ii) the property houses a basketball arena and uni-
versity offices. 
(B) Property is described in this subparagraph if such 
*' 
property is leased to a charitable organization, and— 
(i) on August 21, 1981, the charitable organization 
"'^--'•- 
acquired the property, with a view towards rehabilitat-
r<r-. : j. 
ing the property; and 
(ii) on June 12, 1982, an arson fire caused substantial 
r:-''- T
. 
damage to the property, delaying the planned rehabili-
tation. 
(C) Property is described in this subparagraph if such 
*, 
property is leased to a corporation that is described in 
section 501(c)(3) of the Internal Revenue Code of 1954 (relat-
ing to organizations exempt from tax) pursuant to a con-
tract— 
(i) which was entered into on August 3, 1983; and 
d 
-
» 
* 
(ii) under which the corporation first occupied the 
property on December 22,1983. 
(D) Property is described in this subparagraph if such 
^
1 
property is leased to an educational institution for use as an 
Arts and Humanities Center and with respect to which— 
98 STAT. 528 
PUBLIC LAW 98-369—JULY 18, 1984 
(i) in November 1982, an architect was engaged to 
design a planned renovation; 
(ii) in January 1983, the architectural plans were 
completed; 
(iii) in December 1983, a demolition contract was 
entered into; and 
(iv) in March 1984, a renovation contract was entered 
into. 
(E) Property is described in this subparagraph if such 
property is used by a college as a dormitory, and— 
(i) in October 1981, the college purchased the prop-
erty with a view towards renovating the property; 
(ii) renovation plans were delayed because of a zoning 
dispute; and 
(iii) in May 1983, the court of highest jurisdiction in 
the State in which the college is located resolved the 
zoning dispute in favor of the college. 
,I':.''JPA; 
(F) Property is described in this subparagraph if such 
property is a fraternity house related to a university with 
respect to which— 
(i) in August 1982, the university retained attorneys 
to advise the university regarding the rehabilitation of 
the property; 
(ii) on January 21, 1983, the governing body of the 
university established a committee to develop rehabili-
tation plans; 
(iii) on January 10, 1984, the governor of the state in 
which the university is located approved historic dis-
trict designation for an area that includes the property; 
and 
(iv) on February 2, 1984, historic preservation certifi-
cation applications for the property were filed with a 
historic landmarks commission. 
(G) Property is described in this subparagraph if such 
property is leased to a retirement community with respect 
to which— 
(i) on January 5, 1977, a certificate of incorporation 
was filed with the appropriate authority of the state in 
which the retirement community is located; and 
(ii) on November 22, 1983, the Board of Trustees 
adopted a resolution evidencing the intention to begin 
immediate construction of the property. 
(H) Property is described in this subparagraph if such 
property is used by a university, and— 
(i) in July 1982, the Board of Trustees of the univer-
sity adopted a master plan for the financing of the 
property; and 
.i..j .. 
(ii) as of August 1, 1983, at least $60,000 in private 
expenditures had been expended in connection with the 
property. 
(I) Property is described in this subparagraph if such 
property is used by a university as a fine arts center and 
the Board of Trustees of such university authorized the 
sale-leaseback agreement with respect to such property on 
March 7,1984. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 529 
(J) Property is described in this subparagraph if such 
property is used by a tax-exempt entity as an international 
trade center, and 
(i) prior to 1982, an environmental impact study for 
such property was completed; 
(ii) on June 24, 1981, a developer made a written 
commitment to provide one-third of the financing for 
the development of such property; and 
(iii) on October 20, 1983, such developer was approved 
by the Board of Directors of the tax-exempt entity. 
(K) Property is described in this subparagraph if such 
property is used by university of osteopathic medicine and 
health sciences, and on or before December 31, 1983, the 
Board of Trustees of such university approved the construc-
tion of such property. 
(L) Property is described in this subparagraph if such 
property is used by a tax-exempt entity, and— 
(i) such use is pursuant to a lease with a taxpayer 
fO.; a ^%s^i-, 
which placed substantial improvements in service; 
(ii) on May 23, 1983, there existed architectural plans 
and 
specifications 
(within 
the 
meaning 
of sec. 
48(g)(l)(C)(ii) of the Internal Revenue Code of 1954); and 
(iii) prior to May 23, 1983, at least 10 percent of the 
total cost of such improvements was actually paid or 
incurred. 
.nm'ji .^j i-
(M) Property is described in this subparagraph if such 
property is used as a convention center and on June 2,1983, 
the City Council of the city in which the center is located 
provided for over $6 million for the project. 
ML IBU iS 
(18) 
SPECIAL RULE FOR AMENDMENT MADE BY SUBSECTION 
(c)(1).— 
(A) IN GENERAL.—The amendment made by subsection 
(c)(1) shall not apply to property— 
(i) leased by the taxpayer on or before November 1, 
1983, or 
(ii) leased by the taxpayer after November 1, 1983, if 
on or before such date the taxpayer entered into a 
written binding contract requiring the taxpayer to 
lease such property. 
(B) LIMITATION.—Subparagraph (A) shall apply to the 
amendment made by subsection (c)(1) only to the extent 
such amendment relates to property described in subclause 
(II), (III), or (IV) of section 168(j)(3)(B)(ii) of the Internal 
Revenue Code of 1954 (as added by this section). 
Ante, p. 509. 
(19) 
SPECIAL 
RULE 
FOR 
CERTAIN 
ENERGY 
MANAGEMENT 
CONTRACTS.— 
(A) IN GENERAL.—The amendments made by subsection 
(e) shall not apply to property used pursuant to an energy 
management contract that was entered into prior to May 1, 
1984. 
(B) DEFINITION OF ENERGY MANAGEMENT CONTRACT.—For 
purposes of subparagraph (A), the term "energy manage-
ment contract" means a contract for the providing of 
energy conservation or energy management services. 
(20) DEFINITIONS.—For purposes of this subsection— 
(A) TAX-EXEMPT ENTITY.—The term "tax-exempt entity" 
has the same meaning as when used in section 168(j) of the 
31-194 0 - 86 - 19 : OL 
3 Part 1 
98 STAT. 530 
PUBLIC LAW 98-369—JULY 18, 1984 
Internal Revenue Code of 1954 (as added by this section), 
except that such term shall include any related entity 
(within the meaning of such section). 
(B) TREATMENT OF IMPROVEMENTS.— 
(i) IN GENERAL.—For purposes of this subsection, an 
improvement to property shall not be treated as a 
separate property unless such improvement is a sub-
stantial improvement with respect to such property. 
(ii) SUBSTANTIAL IMPROVEMENT.—For purposes of 
clause (i), the term "substantial improvement' has the 
meaning given such term by section 168(f)(1)(C) of such 
Code determined— 
(I) by substituting "20 percent" for "25 percent" 
in clause (ii) thereof, and 
(II) without regard to clause (iii) thereof. 
(C) FOREIGN PERSON OR ENTITY.—The term 
"foreign 
person or entity" has the meaning given to such term by 
Ante, p. 509. 
subparagraph (C) of section 168(j)(4) of such Code (as added 
by this section). For purposes of this subparagraph and 
subparagraph (A), such subparagraph (C) shall be applied 
without regard to the last sentence thereof. 
(D) 
LEASES AND SUBLEASES.—The 
determination 
of 
whether there is a lease or sublease to a tax-exempt entity 
shall take into account sections 168(j)(6)(A), 168(j)(8)(A), and 
Ante, p. 518. 
7701(e) of the Internal Revenue Code of 1954 (as added by 
this section). 
SEC. 32. MOTOR VEHICLE OPERATING LEASES. 
26 use 168. 
(a) IN GENERAL.—Section 168(f) (relating to special rules) is 
amended by adding at the end thereof the following new paragraph: 
"(13) MOTOR VEHICLE OPERATING LEASES.— 
"(A) IN GENERAL.—For purposes of this title, in the case of 
a qualified motor vehicle operating agreement which con-
tains a terminal rental adjustment clause— 
"(i) such agreement shall be treated as a lease if (but 
for such terminal rental adjustment clause) such agree-
ment would be treated as a lease under this title, and 
"(ii) the lessee shall not be treated as the owner of 
the property subject to an agreement during any period 
such agreement is in effect. 
"(B) QUAUFIED MOTOR VEHICLE OPERATING AGREEMENT 
DEFINED.—For purposes of this paragraph— 
"(i) IN GENERAL.—The term qualified motor vehicle 
.€!u'; q ,/i.K 
operating agreement' means any agreement with re-
spect to a motor vehicle (including a trailer) which 
meets the requirements of clauses (ii), (iii), and (iv) of 
this subparagraph. 
"(ii) MINIMUM LIABILITY OF LESSOR.—An agreement 
meets the requirements of this clause if under such 
agreement the sum o
f
— 
"(I) the amount the lessor is personally liable to 
repay, and 
(II) the net fair market value of the lessor's 
interest in any property pledged as security for 
property subject to the agreement, 
equals or exceeds all amounts borrowed to finance the 
acquisition of property subject to the agreement. There 
dH ~ 0 f'CI-
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 531 
shall not be taken into account under subclause (II) any 
property pledged which is property subject to the agree-
ment or property directly or indirectly financed by 
indebtedness secured by property subject to the 
agreement. 
"(iii) CERTIFICATION BY LESSEE; NOTICE OF TAX OWNER-
SHIP.—An agreement meets the requirements of this 
clause if such agreement contains a separate written 
statement separately signed by the lessee— 
"(I) under which the lessee certifies, under 
ys -re sie? 
penalty of perjury, that it intends that more than 
50 percent of the use of the property subject to 
such agreement is to be in a trade or business of 
the lessee, and 
-irmBi M
o 
"(II) which clearly and legibly states that the 
lessee has been advised that it will not be treated 
as the owner of the property subject to the agree-
g|4 
ment for Federal income tax purposes. 
rr ^ o j dk 
"(iv) LESSOR MUST HAVE NO KNOWLEDGE THAT CERTIFI-
CATION IS FALSE.—An agreement meets the require-
ments of this clause if the lessor does not know that the 
certification described in clause (iii)(I) is false. 
"(C) TERMINAL RENTAL ADJUSTMENT CLAUSE DEFINED.— 
1 
"(i^ I^ GENERAL.—For purposes of this paragraph, the 
-iMJ V) 
term 'terminal rental adjustment clause' means a pro-
vision of an agreement which permits or requires the 
rental price to be adjusted upward or downward by 
reference to the amount realized by the lessor under 
the agreement upon sale or other disposition of such 
property. 
"(ii) SPECIAL RULE FOR LESSEE DEALERS.—The term 
'terminal rental adjustment clause' also includes a pro-
vision of an agreement which requires a lessee who is a 
^^. q ^_,^^ 
dealer in motor vehicles to purchase the motor vehicle 
for a predetermined price and then resell such vehicle 
where such provision achieves substantially the same 
results as a provision described in clause (i).' 
(b) TERMINATION OF SECTION 210.—Section 210(a) of the Tax 
26 use 168 note. 
Equity and Fiscal Responsibility Act of 1982 is amended by inserting 
"entered into on or before the 90th day after the date of the 
enactment of the Tax Reform Act of 1984" after "agreement" the 
first place it appears. 
(c) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
26 use 168 note. 
apply to agreements described in section 168(6(13) of the Internal 
Revenue Code of 1954 (as added by subsection (a)) entered into more 
than 90 days after the date of the enactment of this Act. 
Subtitle C—Treatment of Bonds and Other 
Debt Instruments 
SEC. 41. TREATMENT OF BONDS AND OTHER DEBT INSTRUMENTS. 
(a) GENERAL RULE.—Subchapter P of chapter 1 (relating to special 
rules for capital gains and losses) is amended by adding at the end 
thereof the following new part: 
98 STAT. 532 
PUBLIC LAW 98-369—JULY 18, 1984 
"PART V—SPECIAL RULES FOR BONDS AND 
OTHER DEBT INSTRUMENTS 
"Subpart A. Original issue discount. 
"Subpart B. Market discount. 
"Subpart C. Discount on short-term obligations. 
"Subpart D. Miscellaneous provisions. 
'^' 
"Subpart A—Original Issue Discount 
"Sec. 1271. Treatment of amounts received on retirement or sale or ex-
change of debt instruments. 
"Sec. 1272. Current inclusion in income of original issue discount. 
"Sec. 1273. Determination of amount of original issue discount. 
"Sec. 1274. Determination of issue price in the case of certain debt instru-
I 
ments issued for property. 
"Sec. 1275. Other definitions and special rules. 
26 use 1271. 
"SEC. 1271. TREATMENT OF AMOUNTS RECEIVED ON RETIREMENT OR 
SALE OR EXCHANGE OF DEBT INSTRUMENTS. 
"(a) GENERAL RULE.—For purposes of this title— 
"(1) RETIREMENT.—Amounts received by the holder on retire-
ment of any debt instrument shall be considered as amounts 
received in exchange therefor. 
"(2) ORDINARY INCOME ON SALE OR EXCHANGE WHERE INTEN-
TION TO CALL BEFORE MATURITY.— 
"(A) IN GENERAL.—If at the time of original issue there 
was an intention to call a debt instrument before maturity, 
any gain realized on the sale or exchange thereof which 
does not exceed an amount equal to— 
"(i) the original issue discount, reduced by 
"(ii) the portion of original issue discount previously 
includible in the gross income of any holder (without 
Post, p. 533. 
regard to subsection (aX6) or (b)(4) of section 1272 (or 
the corresponding provisions of prior law)), 
shall be treated as ordinary income. 
"(B) EXCEPTIONS.—This paragraph (and paragraph (2) of 
subsection (c)) shall not apply to— 
» 
"(i) any tax-exempt obligation, or 
"(ii) any holder who has purchased the debt instru-
ment at a premium. 
"(3) CERTAIN SHORT-TERM GOVERNMENT OBUGATIONS.— 
"(A) IN GENERAL.—On the sale or exchange of any short-
term Government obligation, any gain realized which does 
not exceed an amount equal to the ratable share of the 
acquisition discount shall be treated as ordinary income. 
"(B) SHORT-TERM GOVERNMENT OBUGATION.—For purposes 
of this paragraph, the term 'short-term Government obliga-
tion' means any obligation of the United States or any of its 
possessions, or of a State or any political subdivision there-
of, or of the District of Columbia which is— 
"(i) issued on a discount basis, and 
"(ii) payable without interest at a fixed maturity date 
not more than 1 year from the date of issue. 
Such term does not include any tax-exempt obligation. 
i. 
"(C) ACQUISITION DISCOUNT.—For purposes of this para-
graph, the term 'acquisition discount' means the excess of 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 533 
the stated redemption price at maturity over the taxpayer's 
basis for the obligation. 
"(D) RATABLE SHARE.—For purposes of this paragraph, 
the ratable share of the acquisition discount is an amount 
which bears the same ratio to such discount as— 
f
^
- V 
"(i) the number of days which the taxpayer held the 
obligation, bears to 
?i^.' 
"(ii) the number of days after the date the taxpayer 
acquired the obligation and up to (and including) the 
date of its maturity. 
"(b) EXCEPTIONS.—This section shall not apply to— 
"(1) NATURAL PERSONS.—Any obligation issued by a natural 
person. 
"(2) OBLIGATIONS ISSUED BEFORE JULY 2, 1982, BY CERTAIN 
ISSUERS.—Any obligation issued before July 2, 1982, by an issuer 
which— 
"(A) is not a corporation, and 
"(B) is not a government or political subdivision thereof. 
"(c) TRANSITION RULES.— 
"(1) SPECIAL RULE FOR CERTAIN OBLIGATIONS ISSUED BEFORE 
JANUARY 1, 1955.—Paragraph (1) of subsection (a) shall apply to 
a debt instrument issued before January 1, 1955, only if such 
instrument was issued with interest coupons or in registered 
form, or was in such form on March 1, 1954. 
"(2) SPECIAL RULE FOR CERTAIN OBLIGATIONS WITH RESPECT TO 
WHICH ORIGINAL ISSUE DISCOUNT NOT CURRENTLY INCLUDIBLE.— 
i,; 
"(A) IN GENERAL.—On the sale or exchange of debt instru-
ments issued by a government or political subdivision 
thereof after December 81, 1954, and before July 2, 1982, or 
by a corporation after December 31, 1954, and on or before 
May 27, 1969, any gain realized which does not exceed— 
"(i) an amount equal to the original issue discount, or 
"(ii) if at the time of original issue there was no 
i
v
> 
> 
intention to call the debt instrument before maturity, 
an amount which bears the same ratio to the original 
t 
issue discount as the number of complete months that 
the debt instrument was held by the taxpayer bears to 
the number of complete months from the date of origi-
nal issue to the date of maturity, 
shall be considered as ordinary income. 
"(B) SUBSECTION (a) (2) (A) NOT TO APPLY.—Subsection 
(a)(2)(A) shall not apply to any debt instrument referred to 
j ^ j 
in subparagraph (A) of this paragraph. 
"(C) CROSS REFERENCE.— 
"For current inclusion of original issue discount, see section 1272. 
"(d) DOUBLE INCLUSION IN INCOME NOT REQUIRED.—This section 
and sections 1272 and 1286 shall not require the inclusion of any Post, p. 551. 
amount previously includible in gross income. 
"SEC. 1272. CURRENT INCLUSION IN INCOME OF ORIGINAL ISSUE DIS- 
26 USC 1272. 
COUNT. 
"(a) ORIGINAL ISSUE DISCOUNT ON DEBT INSTRUMENTS ISSUED 
AFTER JULY 1, 1982, INCLUDED IN INCOME ON BASIS OF CONSTANT 
INTEREST RATE.— 
"(1) GENERAL RULE.—For purposes of this title, there shall be 
included in the gross income of the holder of any debt instru-
98 STAT. 534 
PUBLIC LAW 98-369—JULY 18, 1984 
ment having original issue discount issued after July 1, 1982, an 
amount equal to the sum of the daily portions of the original 
issue discount for each day during the taxable year on which 
such holder held such debt instrument. 
"(2) EXCEPTIONS.—Paragraph (1) shall not apply to— 
"(A) TAX-EXEMPT OBLIGATIONS.—Any tax-exempt obliga-
tion. 
"(B) UNITED STATES SAVINGS BONDS.—Any United States 
savings bond. 
"(C) SHORT-TERM OBUGATIONS.—Any debt instrument 
which has a fixed maturity date not more than 1 year from 
the date of issue. 
"(D) OBUGATIONS ISSUED BY NATURAL PERSONS BEFORE 
MARCH 2, 1984.—Any obligation issued by a natural person 
before March 2,1984. 
"(E) LOANS BETWEEN NATURAL PERSONS.— 
' 
"(i) IN GENERAL.—Any loan made by a natural person 
to another natural person if— 
"(I) such loan is not made in the course of a trade 
or business of the lender, and 
"(II) the amount of such loan (when increased by 
the outstanding amount of prior loans by such 
natural person to such other natural person) does 
not exceed $10,000. 
"(ii) CLAUSE (i) NOT TO APPLY WHERE TAX AVOIDANCE A 
PRINCIPAL PURPOSE.—Clause (i) shall not apply if the 
loan has as 1 of its principal purposes the avoidance of 
any Federal tax. 
"(iii) TREATMENT OF HUSBAND AND WIFE.—For pur-
poses of this subparagraph, a husband and wife shall be 
treated as 1 person. The preceding sentence shall not 
apply where the spouses lived apart at all times during 
the taxable year in which the loan is made. 
"(3) 
DETERMINATION OF DAILY PORTIONS.—For purposes of 
paragraph (1), the daily portion of the original issue discount on 
any debt instrument shall be determined by allocating to each 
day in any accrual period its ratable portion of the increase 
during such accrual period in the adjusted issue price of the 
debt instrument. For purposes of the preceding sentence, the 
increase in the adjusted issue price for any accrual period shall 
be an amount equal to the excess (if any) of— 
"(A) the product of^ 
"(i) the adjusted issue price of the debt instrument at 
the beginning of such accrual period, and 
"(ii) the yield to maturity (determined on the basis of 
compounding at the close of each accrual period and 
properly adjusted for the length of the accrual period), 
.LfC. " 'I'-H 
\a., 
.- :• 
over 
"(B) the sum of the amounts payable as interest on such 
< - 
^ 
, 
debt instrument during such accrual period. 
"(4) ADJUSTED ISSUE PRICE.—For purposes of this subsection, 
the adjusted issue price of any debt instrument at the beginning 
'• 
of any accrual period is the sum o
f
— 
"(A) the issue price of such debt instrument, plus 
"(B) the adjustments under this subsection to such issue 
price for all periods before the first day of such accrual 
period. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 535 
"(5) ACCRUAL PERIOD.—Except as otherwise provided in regu-
' 
lations prescribed by the Secretary, the term 'accrual period' 
means a 6-month period (or shorter period from the date of 
original issue of the debt instrument) which ends on a day in 
the calendar year corresponding to the maturity date of the 
debt instrument or the date 6 months before such maturity 
date. 
^ 
"(6) REDUCTION WHERE SUBSEQUENT HOLDER PAYS ACQUISITION 
PREMIUM.— 
1 
"(A) REDUCTION.—For purposes of this subsection, in the 
f
, 
case of any purchase after its original issue of a debt 
, 
f,Q3 
instrument to which this subsection applies, the daily por-
tion for any day shall be reduced by an amount equal to the 
amount which would be the daily portion for such day 
g; y 
(without regard to this paragraph) multiplied by the frac-
tion determined under subparagraph (B). 
"(B) DETERMINATION OF FRACTION.—For purposes of sub-
. 
paragraph (A), the fraction determined under this subpara-
r, 
graph is a fraction— 
"(i) the numerator of which is the excess (if any) of^ 
"(I) the cost of such debt instrument incurred by 
. ^.j,,,, ,^ 
the purchaser, over 
^ 
"(11) the issue price of such debt instrument, 
increased by the portion of original issue discount 
previously includible in the gross income of any 
holder (computed without regard to this para-
graph), and 
"(ii) the denominator of which is th^ sum of the daily 
portions for such debt instrument for all days after the 
date of such purchase and ending on the stated matu-
rity date (computed without regard to this paragraph). 
"(b) RATABLE INCLUSION RETAINED FOR CORPORATE DEBT INSTRU-
MENTS ISSUED BEFORE JULY 2,1982.— 
"(1) GENERAL RULE.—There shall be included in the gross 
income of the holder of any debt instrument issued by a corpora-
tion after May 27,1969, and before July 2,1982— 
--» 
"(A) the ratable monthly portion of original issue dis-
count, multiplied by 
"(B) the number of complete months (plus any fractional 
part of a month determined under paragraph (3)) such 
holder held such debt instrument during the taxable year. 
"(2) DETERMINATION OF RATABLE MONTHLY PORTION.—Except 
as provided in paragraph (4), the ratable monthly portion of 
original issue discount shall equal— 
"(A) the original issue discount, divided by 
"(B) the number of complete months from the date of 
original issue to the stated maturity date of the debt instru-
ment. 
1 
"(3) MONTH DEFINED.—For purposes of this subsection— 
"(A) COMPLETE MONTH.—A complete month commences 
with the date of original issue and the corresponding day of 
each succeeding calendar month (or the last day of a calen-
dar month in which there is no corresponding day). 
"(B) TRANSFERS DURING MONTH.—In any case where a 
debt instrument is acquired on any day other than a day 
s; 
; 
determined under subparagraph (A), the ratable monthly 
portion of original issue discount for the complete month 
,Otv 
98 STAT. 536 
PUBLIC LAW 98-369—JULY 18, 1984 
(or partial month) in which such acquisition occurs shall be 
allocated between the transferor and the transferee in 
accordance with the number of days in such complete (or 
partial) month each held the debt instrument. 
"(4) REDUCTION WHERE SUBSEQUENT HOLDER PAYS ACQUISITION 
PREMIUM.— 
"(A) REDUCTION.—For purposes of this subsection, the 
ratable monthly portion of original issue discount shall not 
include its share of the acquisition premium. 
"(B) SHARE OF ACQUISITION PREMIUM.—For purposes of 
subparagraph (A), any month's share of the acquisition 
premium is an amount (determined at the time of the 
purchase) equal to— 
"(i) the excess o
f
— 
"(I) the cost of such debt instrument incurred by 
the holder, over 
"(II) the issue price of such debt instrument, 
increased by the portion of original issue discount 
previously includible in the gross income of any 
holder (computed without regard to this para-
graph), 
"(ii) divided by the number of complete months (plus 
any fractional part of a month) from the date of such 
purchase to the stated maturity date of such debt 
instrument. 
"(c) EXCEPTIONS.—This section shall not apply to any holder— 
"(1) who has purchased the debt instrument at a premium, or 
Post, p. 740. 
"(2) which is a life insurance company to which section 811(b) 
applies. 
"(d) DEFINITION AND SPECIAL RULE.— 
"(1) PURCHASE DEFINED.—For purposes of this section, the 
term 'purchase' means— 
"(A) any acquisition of a debt instrument, where 
"(B) the basis of the debt instrument is not determined in 
whole or in part by reference to the adjusted basis of such 
debt instrument in the hands of the person from whom 
acquired. 
"(2) BASIS ADJUSTMENT.—The basis of any debt instrument in 
the hands of the holder thereof shall be increased by the 
amount included in his gross income pursuant to this section. 
26 use 1273. 
"SEC. 1273. DETERMINATION OF AMOUNT OF ORIGINAL ISSUE DISCOUNT. 
"(a) GENERAL RULE.—For purposes of this subpart— 
"(1) IN GENERAL.—The term 'original issue discount' means 
the excess (if any) o
f
— 
"(A) the stated redemption price at maturity, over 
"(B) the issue price. 
"(2) STATED REDEMPTION PRICE AT MATURITY.—The term 
'stated redemption price at maturity' means the amount fixed 
by the last modification of the purchase agreement and includes 
interest and other amounts payable at that time (other than 
any interest based on a fixed rate, and payable unconditionally 
at fixed periodic intervals of 1 year or less during the entire 
term of the debt instrument). 
"(3) V* OF 1 PERCENT D
E MINIMIS RULE.—If the Original issue 
discount determined under paragraph (1) is less than— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 537 
"(A) Vi of 1 percent of the stated redemption price at 
maturity, multiplied by 
"(B) the number of complete years to maturity, 
then the original issue discount shall be treated as zero. 
"(b) ISSUE PRICE.—For purposes of this subpart— 
"(1) PUBUCLY OFFERED DEBT INSTRUMENTS NOT ISSUED FOR 
PROPERTY.—In the case of any issue of debt instruments— 
"(A) publicly offered, and 
"(B) not issued for property, 
the issue price is the initial offering price to the public (exclud-
ing bond houses and brokers) at which price a substantial 
amount of such debt instruments was sold. 
"(2) OTHER DEBT INSTRUMENTS NOT ISSUED FOR PROPERTY.—In 
the case of any issue of debt instruments not issued for property 
and not publicly offered, the issue price of each such instrument 
is the price paid by the first buyer of such debt instrument. 
"(3) DEBT INSTRUMENTS ISSUED FOR PROPERTY WHERE THERE IS 
PUBUC TRADING.—In the case of a debt instrument which is 
! 
issued for property and which— 
"(A) is part of an issue a portion of which is traded on an 
m.^. 
established securities market, or 
"(B) is issued for stock or securities which are traded on 
an established securities market, 
the issue price of such debt instrument shall be the fair market 
value of such property. 
"(4) OTHER CASES.—Except in any case— 
"(A) to which paragraph (1), (2), or (3) of this subsection 
applies, or 
•' 
"(B) to which section 1274 applies. 
Post, p. 538. 
the issue price of a debt instrument which is issued for property 
^ 
shall be the stated redemption price at maturity. 
"(5) PROPERTY.—In applying this subsection, the term 'prop-
erty' includes services and the right to use property, but such 
term does not include money. 
"(c) SPECIAL RULES FOR APPLYING SUBSECTION (b).—For purposes of 
subsection (b)— 
"(1) INITIAL OFFERING PRICE; PRICE PAID BY THE FIRST BUYER.— 
The terms 'initial offering price' and 'price paid by the first 
buyer' include the aggregate payments made by the purchaser 
under the purchase agreement, including modifications thereof. 
"(2) TREATMENT OF INVESTMENT UNITS.—In the case of any 
debt instrument and an option, security, or other property 
issued together as an investment unit— 
"(A) the issue price for such unit shall be determined in 
accordance with the rules of this subsection and subsection 
iitu 
(b) as if it were a debt instrument, 
"(B) the issue price determined for such unit shall be 
allocated to each element of such unit on the basis of the 
relationship of the fair market value of such element to the 
I 
fair market value of all elements in such unit, and 
"(C) the issue price of any debt instrument included in 
such unit shall be the portion of the issue price of the unit 
allocated to the debt instrument under subparagraph (B). 
98 STAT. 538 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 1274. 
"SEC. 1274. DETERMINATION OF ISSUE PRICE IN THE CASE OF CERTAIN 
DEBT INSTRUMENTS ISSUED FOR PROPERTY. 
"(a) IN GENERAL.—In the case of any debt instrument to which 
this section appHes, for purposes of this subpart, the issue price shall 
be— 
"(1) where there is adequate stated interest, the stated princi-
pal amount, or 
"(2) in any other CEise, the imputed principal amount. 
"(h) IMPUTED PRINCIPAL AMOUNT.—For purposes of this section— 
"(1) IN GENERAL.—Except as provided in paragraph (3), the 
imputed principal amount of any debt instrument shall be equal 
to the sum of the present values of all payments due under such 
debt instrument. 
"(2) 
DETERMINATION OF PRESENT VALUE.—For purposes of 
paragraph (1), the present value of a payment shall be deter-
mined in the manner provided by regulations prescribed by the 
Secretary— 
"(A) as of the date of the sale or exchange, and 
"(B) by using a discount rate equal to 120 percent of the 
applicable Federal rate, compounded semiannually. 
"(3) 
FAIR MARKET VALUE RULE IN POTENTIALLY ABUSIVE 
SITUATIONS.— 
"(A) IN GENERAL.—In the case of any potentially abusive 
situation, the imputed principal amount of any debt instru-
ment received in exchange for property shsill be the fair 
market value of such property adjusted to take into account 
other consideration involved in the transaction. 
"(B) POTENTIALLY ABUSIVE SITUATION DEFINED.—For pur-
,c,, 
poses of subparagraph (A), the term 'potentially abusive 
situation' means— 
"(i) 
a 
tax 
shelter 
(as 
defined 
in 
section 
6661(b)(2)(C)(ii)), and 
"(ii) any other situation which, by reason of— 
"(I) recent sales transactions, 
,
^ 
"(II) nonrecourse financing, 
'•^ 
"(III) financing with a term in excess of the 
economic life of the property, or 
"(IV) other circumstances, 
is of a type which the Secretary specifies by regulations 
as having potential for tax avoidance. 
"(c) DEBT INSTRUMENTS TO WHICH SECTION APPLIES.— 
"(1) In GENERAL.—Except as otherwise provided in this subsec-
tion, this section shall apply to any debt instrument given in 
consideration for the sale or exchange of property if— 
"(A) the stated redemption price at maturity for such 
debt instrument exceeds— 
"(i) where there is adequate stated interest, the 
stated principal amount, or 
"(ii) in any other case, the testing amount, and 
"(B) some or all of the payments due under such debt 
instrument are due more than 6 months after the date of 
such sale or exchange. 
"(2) ADEQUATE STATED INTEREST.—For purposes of this section, 
there is adequate stated interest with respect to any debt 
instrument if the stated principal amount for such debt instru-
ment is less than or equal to the testing amount. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 539 
"(3) TESTING AMOUNT.—For purposes of this section, the term 
'testing amount' means, with respect to any debt instrument, 
• « 
the imputed principal amount of such debt instrument which 
would be determined under subsection (b) (including paragraph 
(3) thereof) if a discount rate equal to 110 percent of the 
applicable Federal rate were used. 
"(4) EXCEPTIONS.—This section shall not apply to— 
"(A) SALES FOR LESS THAN $1,000,000 OF FARMS BY INDIVID-
UALS O
R SMALL BUSINESSES.— 
"(i) IN GENERAL.—Any debt instrument arising from 
the sale or exchange of a farm (within the meaning of 
'; 
section 6420(c)(2))— 
"(I) by an individual, estate, or testamentary 
.:; •! :. - - . 
t r U S t , 
"(II) by a corporation which as of the date of the 
sale or exchange is a small business corporation (as 
f.ib 
i''>('L 
defined in section 1244(c)(3)), or 
"(III) by a partnership which as of the date of the 
. *
( 1 :/ 
sale or exchange meets requirements similar to 
those of section 1244(cX3). 
i'-u/i. !^ 
"(ii) $1,000,000 UMITATION.—Clause (i) shall apply 
only if it can be determined at the time of the sale or 
^ 
exchange that the sales price cannot exceed $1,000,000. 
For purposes of the preceding sentence, all sales and 
u,. . 
exchanges which are part of the same transaction (or a 
series of related transactions) shall be treated as 1 sale 
or exchange. 
"(B) SALES OF PRINCIPAL RESIDENCES.—Any debt instru-
ment arising from the sale or exchange by an individual of 
his principal residence (within the meaning of section 1034). 
"(C) SALES INVOLVING TOTAL PAYMENTS OF $250,000 OR 
LESS.— 
"(i) IN GENERAL.—Any debt instrument arising from 
-ivM ' 
the sale or exchange of property if the sum of the 
following amounts does not exceed $250,000: 
r 
' ' 
"(I) the aggregate amount of the payments due 
under such debt instrument and all other debt 
instruments received as consideration for the sale 
or exchange, and 
"(II) the aggregate amount of any other consider-
ation to be received for the sale or exchange. 
*»'^' 
"(ii) CONSIDERATION OTHER THAN DEBT INSTRUMENT 
t 
TAKEN INTO ACCOUNT AT FAIR MARKET VALUE.—For pur-
j .. 
poses of clause (i), any consideration (other than a debt 
instrument) shall be taken into account at its fair 
market value. 
"(iii) AGGREGATION OF TRANSACTIONS.—For purposes 
of this subparagraph, all sales and exchanges which are 
part of the same transaction (or a series of related 
I 
transactions) shall be treated as 1 sale or exchange. 
"(D) DEBT INSTRUMENTS WHICH ARE PUBLICLY TRADED OR 
t;: 
ISSUED FOR PUBUCLY TRADED PROPERTY.—Any debt instru-
ment to which section 1273(b)(3) applies. 
Ante, p. 536. 
"(E) CERTAIN SALES OF PATENTS.—In the case of any trans-
fer described in section 1235(a) (relating to sale or exchange 
of patents), any amount contingent on the productivity, use, 
or disposition of the property transferred. 
98 STAT. 540 
PUBLIC LAW 98-369—JULY 18, 1984 
"(F) SALES OR EXCHANGES TO WHICH SECTION 483(e) AP-
POSE, p. 553. 
PLIES.—Any debt instrument to the extent section 483(e) 
(relating to certain land transfers between related persons) 
applies to such instrument. 
"(d) DETERMINATION OF APPLICABLE FEDERAL RATE.—For purposes 
of this section— 
"(1) APPLICABLE FEDERAL RATE.— 
"(A) IN GENERAL.— 
"In the case of a debt instrument 
The applicable Federal rate is: 
with a term of: 
Not over 3 years 
The Federal short-term rate. 
Over 3 years but not over 9 
The Federal mid-term rate, 
years. 
Over 9 years 
The Federal long-term rate. 
"(B) DETERMINATION OF RATES.—Within 15 days after the 
close o
f
— 
"(i) the 6-month period ending on September 30 of 
any calendar year, or 
"(ii) the 6-month period ending on March 31 of any 
calendar year, 
the Secretary shall determine the Federal short-term rate, 
mid-term rate, and long-term rate for such 6-month period. 
"(C) EFFECTIVE DATE OF DETERMINATION.—Any Federal 
rate determined under subparagraph (A) shall— 
"(i) apply during the 6-month period beginning on 
January 1 of the succeeding calendar year in the case 
of a determination made under subparagraph (B)(i), 
and 
,,. 
"(ii) apply during the 6-month period beginning on 
July 1 of the calendar year in the case of a determina-
tion made under subparagraph (B)(ii). 
"(D) FEDERAL RATE FOR ANY 6-MONTH PERIOD.—For pur-
poses of this paragraph— 
"(i) FEDERAL SHORT-TERM RATE.—The Federal short-
term rate for any 6-month period shall be the rate 
determined by the Secretary based on the average 
market yield (during such 6-month period) on outstand-
ing marketable obligations of the United States with 
remaining periods to maturity of 3 years or less. 
"(ii) FEDERAL MID-TERM AND LONG-TERM RATES.—The 
Federal mid-term rate and long-term rate shall be 
determined in accordance with the principles of clause 
(i). 
"(2) RATE APPLICABLE TO ANY SALE OR EXCHANGE.—In the case 
of any sale or exchange, the determination of the applicable 
Federal rate shall be made as of the first day on which there is a 
binding contract in writing for the sale or exchange. 
"(3) TERM OF DEBT INSTRUMENT.—In determining the term of a 
debt instrument for purposes of this subsection, under regula-
tions prescribed by the Secretary, there shall be taken into 
account options to renew or extend. 
26 u s e 1275. 
"SEC. 1275. OTHER DEFINITIONS AND SPECIAL RULES. 
"(a) DEFINITIONS.—For purposes of this subpart— 
"(1) DEBT INSTRUMENT.— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 541 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the term 'debt instrument' means a bond, debenture, 
note, or certificate or other evidence of indebtedness. 
"(B) EXCEPTION FOR CERTAIN ANNUITY CONTRACTS.—The 
term 'debt instrument' shall not include any annuity con-
tract to which section 72 applies and which— 
"(i) depends (in whole or in substantial part) on the 
life expectancy of 1 or more individuals, or 
"'- 
"(ii) is issued by an insurance company subject to tax 
^ 
A 
under subchapter L— 
"(I) in a transaction in which there is no consid-
eration other than cash or another annuity con- 
'- 
^ *
^ 
tract meeting the requirements of this clause, 
"(II) pursuant to the exercise of an election 
under an insurance contract by a beneficiary 
''' 
' 
thereof on the death of the insured party under 
such contract, or 
"(III) in a transaction involving a qualified pen-
sion or employee benefit plan. 
"(2) ISSUE DATE.— 
in' '-1 
"^^^ PUBUCLY OFFERED DEBT INSTRUMENTS.—In the CaSe of 
any debt instrument which is publicly offered, the term 
'date of original issue' means the date on which the issue 
.
^ ,^. 
was first issued to the public. 
"(B) ISSUES NOT PUBUCLY OFFERED AND NOT ISSUED FOR 
PROPERTY.—In the case of any debt instrument to which 
section 1273(b)(2) applies, the term 'date of Original issue' 
Ante, p. 536. 
f.- 
means the date on which the debt instrument was sold by 
the issuer. 
,-j, 
"(C) OTHER DEBT INSTRUMENTS.—In the case of any debt 
n ?. \-.^'^ 
instrument not described in subparagraph (A) or (B), the 
term 'date of original issue' means the date on which the 
debt instrument was issued in a sale or exchange. 
"(3) TAX-EXEMPT OBUGATION.—The term 'tax-exempt obliga-
tion' means any obligation i
f
— 
"(A) the interest on such obligation is not includible in 
gross income under section 103, or 
"(B) the interest on such obligation is exempt from tax 
(without regard to the identity of the holder) under any 
other provision of law. 
"(4) SPECIAL RULE FOR DETERMINATION OF ISSUE PRICE IN CASE 
OF EXCHANGE OF DEBT INSTRUMENTS IN REORGANIZATIONS.— 
"(A) IN GENERAL.—If— 
"(i) any debt instrument is issued pursuant to a plan 
feufi jiiuo 
of reorganization (within the meaning of section 
368(a)(1)) for another debt instrument (hereinafter in 
this paragraph referred to as the 'old debt instrument'), 
and 
"(ii) the amount which (but for this paragraph) would 
be the issue price of the debt instrument so issued is 
less than the adjusted issue price of the old debt instru-
ment, 
then the issue price of the debt instrument so issued shall 
be treated as equal to the adjusted issue price of the old 
' 
debt instrument. 
"(B) DEFINITIONS.—For purposes of this paragraph— 
98 STAT. 542 
PUBLIC LAW 98-369—JULY 18, 1984 
"(i) DEBT INSTRUMENT.—The term 'debt instrument' 
includes an investment unit. 
"(ii) ADJUSTED ISSUE PRICE.— 
"(I) IN GENERAL.—The adjusted issue price of the 
old debt instrument is its issue price, increased by 
the portion of any original issue discount previ-
ously includible in the gross income of any holder 
(without regard to subsection (a)(6) or (b)(4) of sec-
Ante, p. 533. 
tion 1272 (or the corresponding provisions of prior 
law)). 
"(II) 
SPECIAL 
RULE 
FOR 
APPLYING 
SECTION 
Pos«, pp. 556,654. 
163(e).—For purposes of section 163(e), the ad-
justed issue price of the old debt instrument is its 
issue price, increased by any original issue dis-
count previously allowed as a deduction. 
"(b) TREATMENT OF BORROWER IN THE CASE OF CERTAIN LOANS FOR 
PERSONAL USE.— 
"(1) SECTIONS 1274 AND 483 NOT TO APPLY.—In the case of the 
obligor under any debt instrument given in consideration for 
Ante, p. 538. 
the sale or exchange of property, sections 1274 and 483 shall not 
Post, p. 553. 
apply if such property is personal use property. 
"(2) ORIGINAL ISSUE DISCOUNT DEDUCTED ON CASH BASIS IN 
CERTAIN CASES.—In the case of any debt instrument, i
f
— 
"(A) such instrument— 
"(i) is incurred in connection with the acquisition or 
carrying of personal use property, and 
"(ii) has original issue discount (determined after the 
application of paragraph (1)), and 
"(B) the obligor under such instrument uses the cash 
receipts and disbursements method of accounting, 
Posf, pp. 556,654. 
notwithstanding section 163(e), the original issue discount on 
such instrument shall be deductible only when paid. 
"(3) PERSONAL USE PROPERTY.—For purposes of this subsection, 
the term 'personal use property' means any property substan-
tially all of the use of which by the taxpayer is not in connection 
with a trade or business of the taxpayer or an activity described 
in section 212. The determination of whether property is de-
scribed in the preceding sentence shall be made as of the time of 
issuance of the debt instrument. 
"(c) INFORMATION REQUIREMENTS.— 
"(1) 
INFORMATION REQUIRED TO BE SET FORTH ON INSTRU-
MENT.— 
"(A) IN GENERAL.—In the case of any debt instrument 
having original issue discount, the Secretary may by regu-
lations require that— 
"(i) the amount of the original issue discount, and 
"(ii) the issue date, 
be set forth on such instrument. 
"(B) 
SPECIAL RULE FOR INSTRUMENTS NOT PUBLICLY OF-
FERED.—In the case of any issue of debt instruments not 
publicly offered, the regulations prescribed under subpara-
graph (A) shall not require the information to be set forth 
on the debt instrument before any disposition of such in-
strument by the first buyer. 
"(2) INFORMATION REQUIRED TO BE SUBMITTED TO SECRETARY.— 
In the case of any issue of publicly offered debt instruments 
having original issue discount, the issuer shall (at such time and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 543 
in such manner as the Secretary shall by regulation prescribe) 
furnish the Secretary the following information: 
"(A) The amount of the original issue discount. 
"(B) The issue date. 
"(C) Such other information with respect to the issue as 
the Secretary may by regulations require. 
For purposes of the preceding sentence, any person who makes 
a public offering of stripped bonds (or stripped coupons) shall be 
treated as the issuer of a publicly offered debt instrument 
having original issue discount. 
, 
"(3) EXCEPTIONS.—This subsection shall not apply to any obli-
gation referred to in section 1272(a)(2) (relating to exceptions 
Ante, p. 533. 
from current inclusion of original issue discount). 
"(4) CROSS REFERENCE.— 
"For civil penalty for failure to meet requirements of this subsection, 
see section 6706. 
Post, p. 555. 
"(d) REGULATION AUTHORITY.—The Secretary may prescribe regu-
lations providing that where, by reason of varying rates of interest, 
put or call options, indefinite maturities, contingent payments, as-
sumptions of debt instruments, or other circumstances, the tax 
treatment under this subpart (or section 163(e)) does not carry out 
Post, pp. 556, 
the purposes of this subpart (or section 163(e)), such treatment shall 
654. 
be modified to the extent appropriate to carry out the purposes of 
this subpart (or section 163(e)). 
"Subpart B—Market Discount on Bonds 
SiJ; 
"Sec. 1276. Disposition gain representing accrued market discount treated 
as ordinary income. 
"Sec. 1277. Deferral of interest deduction allocable to accrued market dis-
count. 
"Sec. 1278. Definitions and special rules. 
"SEC. 1276. DISPOSITION GAIN REPRESENTING ACCRUED MARKET DIS- 
26 USC 1276. 
COUNT TREATED AS ORDINARY INCOME. 
"(a) ORDINARY INCOME.— 
"(1) IN GENERAL.—Except as otherwise provided in this sec-
tion, gain on the disposition of any market discount bond shall 
be treated as ordinary income to the extent it does not exceed 
the accrued market discount on such bond. Such gain shall be 
recognized notwithstanding any other provision of this subtitle. 
"(2) DISPOSITIONS OTHER THAN SALES, ETC.—For purposes of 
paragraph (1), a person disposing of any market discount bond 
in any transaction other than a sale, exchange, or involuntary 
conversion shall be treated as realizing an amount equal to the 
fair market value of the bond. 
"(3) GAIN TREATED AS INTEREST FOR CERTAIN PURPOSES.— 
Except for purposes of sections 871(a), 881, 1441, 1442, and 6049 
(and such other provisions as may be specified in regulations), 
any amount treated as ordinary income under paragraph (1) 
shall be treated as interest for purposes of this title. 
"(b) ACCRUED MARKET DISCOUNT.—For purposes of this section— 
"(1) RATABLE ACCRUAL.—Except as otherwise provided in this 
subsection or subsection (c), the accrued market discount on any 
bond shall be an amount which bears the same ratio to the 
market discount on such bond as— 
"(A) the number of days which the taxpayer held the 
bond, bears to 
98 STAT. 544 
PUBLIC LAW 98-369—JULY 18, 1984 
"(B) the number of days after the date the taxpayer 
acquired the bond and up to (and including) the date of its 
maturity. 
"(2) ELECTION OF ACCRUAL ON BASIS OF CONSTANT INTEREST 
RATE (IN LIEU OF RATABLE ACCRUAL).— 
"(A) IN GENERAL.—At the election of the taxpayer with 
respect to any bond, the accrued market discount on such 
bond shall be the aggregate amount which would have been 
includible in the gross income of the taxpayer under section 
Ante, p. 533. 
1272(a) (determined without regard to paragraph (2) there-
of) with respect to such bond for all periods during which 
the bond was held by the taxpayer if such bond had been— 
"(i) originally issued on the date on which such bond 
was acquired by the taxpayer, 
"(ii) for an issue price equal to the basis of the 
taxpayer 
in 
such 
bond 
immediately 
after 
its 
acquisition. 
"(B) COORDINATION WHERE BOND HAS ORIGINAL ISSUE DIS-
COUNT.—In the case of any bond having original issue 
discount, for purposes of applying subparagraph (A)— 
"(i) the stated redemption price at maturity of such 
bond shall be treated as equal to its revised issue price, 
and 
"(ii) the determination of the portion of the original 
issue discount which would have been includible in the 
gross income of the taxpayer under section 1272(a) 
shall be made under regulations prescribed by the 
Secretary. 
"(C) ELECTION IRREVOCABLE.—An election under subpara-
graph (A), once made with respect to any bond, shall be 
irrevocable. 
"(c) TREATMENT OF NONRECOGNITION TRANSACTIONS.—Under regu-
lations prescribed by the Secretary— 
"(1) TRANSFERRED BASIS PROPERTY.—If a market discount bond 
is transferred in a nonrecognition transaction and such bond is 
transferred basis property in the hands of the transferee, for 
purposes of determining the amount of the accrued market 
discount with respect to the transferee— 
"(A) the transferee shall be treated as having acquired 
the bond on the date on which it was acquired by the 
transferor for an amount equal to the basis of the transfer-
or, and 
"(B) proper adjustments shall be made for gain recog-
nized by the transferor on such transfer (and for any origi-
nal issue discount or market discount included in the gross 
income of the transferor). 
"(2) EXCHANGED BASIS PROPERTY.—If any market discount 
bond is disposed of by the taxpayer in a nonrecognition transac-
tion and paragraph (1) does not apply to such transaction, any 
accrued market discount determined with respect to the prop-
erty disposed of to the extent not theretofore treated as ordi-
nary income under subsection (a)— 
"(A) shall be treated as accrued market discount with 
respect to the exchanged basis property received by the 
taxpayer in such transaction if such property is a market 
discount bond, and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 545 
"(B) shall be treated as ordinary income on the disposi-
tion of the exchanged basis property received by the tax-
payer in such exchange if such property is not a market 
discount bond. 
"(3) PARAGRAPH (i) TO APPLY TO CERTAIN DISTRIBUTIONS BY 
CORPORATIONS O
R PARTNERSHIPS.—For purposes of paragraph (1), 
if the basis of any market discount bond in the hands of a 
transferee is determined under section 334(c), 732(a), or 732(b), 
such property shall be treated as transferred basis property in 
the hands of such transferee. 
"(d) 
SPECIAL 
RULES.—Under regulations prescribed by 
the 
Secretary— 
"(1) rules similar to the rules of subsection (b) of section 1245 
shall apply for purposes of this section; except that— 
"(A) paragraph (1) of such subsection shall not apply, and 
"(B) an exchange qualifying under section 354(a), 355(a), 
or 356(a) (determined without regard to subsection (a) of 
j„. 
this section) shall be treated as an exchange described in 
paragraph (3) of such subsection, and 
"(2) appropriate adjustments shall be made to the basis of any 
property to reflect gain recognized under subsection (a). 
frrs q :i\nk. 
"(e) SECTION NOT TO APPLY TO MARKET DISCOUNT BONDS ISSUED ON 
O
R BEFORE DATE OF ENACTMENT OF SECTION.—This section shall not 
apply to any market discount bond issued on or before the date of 
the enactment of this section. 
"SEC. 1277. DEFERRAL OF INTEREST DEDUCTION ALLOCABLE TO AC- 
26 USC 1277. 
CRUED MARKET DISCOUNT. 
"(a) GENERAL RULE.—Except as otherwise provided in this section, 
the net direct interest expense with respect to any market discount 
bond shall be allowed as a deduction for the taxable year only to the 
extent that such expense exceeds the portion of the market discount 
allocable to the days during the taxable year on which such bond 
was held by the taxpayer (as determined under the rules of section 
1276(b)). 
Ante, p. 543. 
"(b) DISALLOWED DEDUCTION ALLOWED FOR LATER YEARS.— 
"(1) ELECTION TO TAKE INTO ACCOUNT IN LATER YEAR WHERE 
NET INTEREST INCOME FROM BOND.— 
"(A) IN GENERAL.—If— 
"(i) there is net interest income for any taxable year 
with respect to any market discount bond, and 
"(ii) the taxpayer makes an election under this sub-
paragraph with respect to such bond, 
any disallowed interest expense with respect to such bond 
shall be treated as interest paid or accrued by the taxpayer 
during such taxable year to the extent such disallowed 
interest expense does not exceed the net interest income 
with respect to such bond. 
"(B) DETERMINATION OF DISALLOWED INTEREST EXPENSE.— 
' " 
''*^' 
For purposes of subparagraph (A), the amount of the disal-
lowed interest expense— 
"(i) shall be determined as of the close of the preced-
ing taxable year, and 
"(ii) shall not include any amount previously taken 
into account under subparagraph (A). 
"(C) NET INTEREST INCOME.—For purposes of this para-
gaph, the term 'net interest income' means the excess of the 
98 STAT. 546 
PUBLIC LAW 98-369—JULY 18, 1984 
amount determined under paragraph (2) of subsection (c) 
over the amount determined under paragraph (1) of subsec-
tion (c). 
"(2) REMAINDER OF DISALLOWED INTEREST EXPENSE ALLOWED 
FOR YEAR OF DISPOSITION.— 
"(A) IN GENERAL.—Except as otherwise provided in this 
paragraph, the amount of the disallowed interest expense 
with respect to any market discount bond shall be treated 
as interest paid or accrued by the taxpayer in the taxable 
year in which such bond is disposed of. 
"(B) NONRECOGNITION TRANSACTIONS.—If any market dis-
count bond is disposed of in a nonrecognition transaction— 
"(i) the disallowed interest expense with respect to 
such bond shall be treated as interest paid or accrued 
in the year of disposition only to the extent of the 
amount of gain recognized on such disposition, and 
"(ii) the disallowed interest expense with respect to 
such property (to the extent not so treated) shall be 
treated as disallowed interest expense— 
"(I) in the case of a transaction described in 
Ante, p. 543. 
section 1276(c)(1), of the transferee with respect to 
the transferred basis property, or 
"(II) in the case of a transaction described in 
• 
section 1276(c)(2), with respect to the exchanged 
basis property. 
"(C) 
DISALLOWED 
INTEREST 
EXPENSE 
REDUCED 
FOR 
AMOUNTS PREVIOUSLY TAKEN INTO ACCOUNT UNDER PARA-
GRAPH 1.—For purposes of this paragraph, the amount of 
the disallowed interest expense shall not include any 
amount previously taken into account under paragraph (1). 
"(3) DISALLOWED INTEREST EXPENSE.—For purposes of this sub-
section, the term 'disallowed interest expense' means the aggre-
gate amount disallowed under subsection (a) with respect to the 
market discount bond. 
"(c) NET DIRECT INTEREST EXPENSE.—For purposes of this section, 
the term 'net direct interest expense' means, with respect to any 
market discount bond, the excess (if any) of— 
"(1) the amount of interest paid or accrued during the taxable 
year on indebtedness which is incurred or continued to pur-
chase or carry such bond, over 
"(2) the aggregate amount of interest (including original issue 
discount) includible in gross income for the taxable year with 
respect to such bond. 
In the case of any financial institution to which section 585 or 593 
applies, the determination of whether interest is described in para-
graph (1) shall be made under principles similar to the principles of 
section 291(eXl)(B)(ii). Under rules similar to the rules of section 
Post, p. 574. 
265(5), short sale expenses shall be treated as interest for purposes of 
determining net direct interest expense. 
"(d) 
SPECIAL RULE FOR GAIN RECOGNIZED ON DISPOSITION OF 
MARKET DISCOUNT BONDS ISSUED ON OR BEFORE DATE OF ENACTMENT 
OF SECTION.—In the case of a market discount bond issued on or 
before the date of the enactment of this section, any gain recognized 
by the taxpayer on any disposition of such bond shall be treated as 
ordinary income to the extent the amount of such gain does not 
exceed the amount allowable with respect to such bond under 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 547 
subsection (bX2) for the taxable year in which such bond is disposed 
of. 
"SEC. 1278. DEFINITIONS AND SPECIAL RULES. 
26 USC 1278. 
"(a) IN GENERAL.—For purposes of this part— 
"(1) MARKET DISCOUNT BOND.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the term 'market discount bond' means any bond 
having market discount. 
"(B) EXCEPTIONS.—The term 'market discount bond' shall 
not include— 
"(i) SHORT-TERM OBLIGATIONS.—Any obligation with a 
fixed maturity date not exceeding 1 year from the date 
of issue. 
"(ii) TAX-EXEMPT OBUGATIONS.—Any tax-exempt obli-
gation (as defined in section 1275(aX3)). 
Ante, p. 540. 
"(iii) UNITED STATES SAVINGS BONDS.—Any United 
States savings bond. 
"(iv) INSTALLMENT OBLIGATIONS.—Any installment 
obligation to which section 453B applies. 
mif 
"(2) M A R K E T DISCOUNT.— 
,.;< 
"(A) IN GENERAL.—The term 'market discount' means the 
excess (if any) of— 
y J 
"(i) the stated redemption price of the bond at matu- 
; ? 
rity, over 
"(ii) the basis of such bond immediately after its 
' *
" 
acquisition by the taxpayer. 
"(B) COORDINATION WHERE BOND HAS ORIGINAL ISSUE DIS-
COUNT.—In the case of any bond having original issue 
discount, for purposes of subparagraph (A), the stated re-
demption price of such bond at maturity shall be treated as 
equal to its revised issue price. 
ii J- 
»
<
^
Q
) j)g MINIMIS RULE.—If the market discount is less 
than Vi of 1 percent of the stated redemption price of the 
iv f 
bond at maturity multiplied by the number of complete 
,r^^ 
years to maturity (after the taxpayer acquired the bond), 
' *
^ 
then the market discount shall be considered to be zero. 
"(3) BOND.—The term 'bond' means any bond, debenture, 
note, certificate, or other evidence of indebtedness. 
"(4) REVISED ISSUE PRICE.—The term 'revised issue price' 
; , means of the sum of— 
"(A) the issue price of the bond, and 
:,a^r-- 
"(B) the aggregate amount of the original issue discount 
includible in the gross income of all holders for periods 
before the acquisition of the bond by the taxpayer (deter-
mined without regard to section 1272 (a)(6) or (b)(4)). 
Ante, p. 533. 
"(5) ORIGINAL ISSUE DISCOUNT, ETC.—The terms 'original issue 
discount', 'stated redemption price at maturity', and 'issue 
price' have the respective meanings given such terms by sub-
part A of this part. 
"(b) ELECTION TO INCLUDE MARKET DISCOUNT CURRENTLY.— 
"(1) IN GENERAL.—If the taxpayer makes an election under 
this subsection— 
"(A) sections 1276 and 1277 shall not apply, and 
Ante, pp. 543, 
"(B) market discount on any market discount bond shall 545. 
be included in the gross income of the taxpayer for the 
98 STAT. 548 
PUBLIC LAW 98-369—JULY 18, 1984 
taxable years to which it is attributable (as determined 
Ante, p. 543. 
under the rules of subsection (b) of section 1276). 
Except for purposes of sections 871(a), 881, 1441, 1442, and 6049 
(and such other provisions as may be specified in regulations), 
any amount included in gross income under subparagraph (B) 
shall be treated as interest for purposes of this title. 
"(2) SCOPE OF ELECTION.—An election under this subsection 
shall apply to all market discount bonds acquired by the tax-
payer on or after the 1st day of the 1st taxable year to which 
such election applies. 
"(3) PERIOD TO WHICH ELECTION APPLIES.—An election under 
this subsection shall apply to the taxable year for which it is 
made and for all subsequent taxable years, unless the taxpayer 
secures the consent of the Secretary to the revocation of such 
election. 
"(c) REGULATIONS.—The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this subpart. 
"Subpart C—Discount on Short-Term Obligations 
"Sec. 1281. Current inclusion in income of discount on certain short-term 
obligations. 
"Sec. 1282. Deferral of interest deduction allocable to accrued discount. 
"Sec. 1283. Definitions and special rules. 
26 u s e 1281. 
"SEC. 1281. CURRENT INCLUSION IN INCOME OF DISCOUNT ON CERTAIN 
SHORT-TERM OBLIGATIONS. 
"(a) IN GENERAL.—In the case of any short-term obligation to 
which this section applies, for purposes of this title, there shall be 
included in the gross income of the holder an amount equal to the 
sum of the daily portions of the acquisition discount for each day 
during the taxable year on which such holder held such obligation. 
"(b) SHORT-TERM OBLIGATIONS TO WHICH SECTION APPLIES.— 
"(1) IN GENERAL.—This section shall apply to any short-term 
obligation which— 
"(A) is held by a taxpayer using an accrual method of 
accounting, 
"(B) is held primarily for sale to customers in the ordi-
nary course of the taxpayer's trade or business, 
"(C) is held by a bank (as defined in section 581), 
"(D) is held by a regulated investment company or a 
common trust fund, or 
"(E) is identified by the taxpayer under section 1256(e)(2) 
as being part of a hedging transaction. 
"(2) 
TREATMENT 
OF 
OBUGATIONS 
HELD 
BY 
PASS-THRU 
ENTITIES.— 
"(A) IN GENERAL.—This section shall apply also to— 
"(i) any short-term obligation which is held by a pass-
thru entity which is formed or availed of for purposes 
of avoiding the provisions of this section, and 
"(ii) any short-term obligation which is acquired by a 
pass-thru entity (not described in clause (i)) during the 
required accrual period. 
"(B) REQUIRED ACCRUAL PERIOD.—For purposes of sub-
paragraph (A), the term 'required accrual period' means the 
period— 
"(i) which begins with the first taxable year for 
which the ownership test of subparagraph (C) is met 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 549 
with respect to the pass-thru entity (or a predecessor), 
and 
"(ii) which ends with the first taxable year after the 
taxable year referred to in clause (i) for which the 
ownership test of subparagraph (C) is not met and with 
respect to which the Secretary consents to the termina-
tion of the required accrual period. 
"(C) OWNERSHIP TEST.—The ownership test of this sub- 
' 
^ *
^ 
paragraph is met for any taxable year if, on at least 90 days 
during the taxable year, 20 percent or more of the value of 
the interests in the pass-thru entity are held by persons 
described in paragraph (1) or by other pass-thru entities to 
^ ' q vtk 
which subparagraph (A) applies. 
"(D) PASS-THRU ENTITY.—The term 'pass-thru entity' 
" 
means any partnership, S corporation, trust, or other pass-
thru entity. 
"(c) CROSS REFERENCE.— 
"For special rules limitinf^ the application of this section to ori^^inal 
issue discount in the case of nonj^overnmental obli^^ations, see section 
1283(c). 
"SEC. 1282. DEFERRAL OF INTEREST DEDUCTION ALLOCABLE TO AC- 
26 USC 1282. 
CRUED DISCOUNT. 
"(a) GENERAL RULE.—Except as otherwise provided in this section, 
the net direct interest expense with respect to any short-term 
obligation shall be allowed as a deduction for the taxable year only 
to the extent that such expense exceeds the sum of the daily 
portions of the acquisition discount for each day during the taxable 
year on which the taxpayer held such obligation. 
"(b) SECTION NOT TO APPLY TO OBLIGATIONS TO WHICH SECTION 
1281 APPLIES.— 
Ante, p. 548. 
"(1) IN GENERAL.—This section shall not apply to any short-
term obligation to which section 1281 applies. 
"(2) 
ELECTION TO H A V E SECTION 
1 2 8 1 APPLY TO ALL OBLIGA-
T I O N S . — 
"(A) IN GENERAL.—A taxpayer may make an election 
under this paragraph to have section 1281 apply to all 
,• , {
^
. * 
short-term obligations acquired by the taxpayer on or after 
the 1st day of the 1st taxable year to which such election 
applies. 
,Hr 
"(B) 
PERIOD TO WHICH ELECTION APPLIES.—An election 
under this paragraph shall apply to the taxable year for 
which it is made and for all subsequent taxable years, 
unless the taxpayer secures the consent of the Secretary to 
the revocation of such election. 
"(c) CERTAIN RULES MADE APPLICABLE.—Rules similar to the rules 
of subsections (b) and (c) of section 1277 shall apply for purposes of 
Ante, p. 545. 
this section. 
"(d) CROSS REFERENCE.— 
"For special rules limiting the application of this section to original 
issue discount in the case of nongovernmental obligations, see section 
1283(c). 
"SEC. 1283. DEFINITIONS AND SPECIAL RULES. 
26 USC 1283. 
"(a) DEFINITIONS.—For purposes of this subpart— 
"(1) SHORT-TERM OBLIGATION.— 
98 STAT. 550 
PUBLIC LAW 98-369—JULY 18, 1984 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the term 'short-term obUgation' means any bond, de-
benture, note, certificate, or other evidence of indebtedness 
which has a fixed maturity date not more than 1 year from 
the date of issue. 
"(B) EXCEPTIONS FOR TAX-EXEMPT OBLIGATIONS.—The term 
'short-term obUgation' shall not include any tax-exempt 
Ante, p. 540. 
obligation (as defined in section 1275(a)(3)). 
"(2) ACQUISITION DISCOUNT.—The term 'acquisition discount' 
means the excess o
f
— 
"(A) the stated redemption price at maturity (as defined 
Ante, p. 536. 
in section 1273), over 
"(B) the taxpayer's basis for the obligation. 
"(b) DAILY PORTION.—For purposes of this subpart— 
"(1) RATABLE ACCRUAL.—Except as otherwise provided in this 
subsection, the daily portion of the acquisition discount is an 
amount equal to— 
"(A) the amount of such discount, divided by 
"(B) the number of days after the day on which the 
taxpayer acquired the obligation and up to (and including) 
the day of its maturity. 
"(2) ELECTION OF ACCRUAL ON BASIS OF CONSTANT INTEREST 
RATE (IN UEU OF RATABLE ACCRUAL).— 
"(A) IN GENERAL.—At the election of the taxpayer with 
respect to any obligation, the daily pjortion of the acquisi-
tion discount for any day is the portion of the acquisition 
discount accruing on such day determined (under regula-
tions prescribed by the Secretary) on the basis o
f
— 
"(i) the taxpayer's yield to maturity based on the 
taxpayer's cost of acquiring the obligation, and 
"(ii) compounding daily. 
"(B) ELECTION IRREVOCABLE.—An election under subpara-
graph (A), once made with respect to any obligation, shall 
be irrevocable. 
"(c) SPECIAL RULES FOR NONGOVERNMENTAL OBUGATIONS.— 
"(1) IN GENERAL.—In the case of any short-term obligation 
which is not a short-term Government obligation (£is defined in 
Ante, p. 532. 
section 1271(aX3)(B))— 
Ante, pp. 548, 
"(A) sections 1281 and 1282 shall be applied by taking 
549. 
into account original issue discount in lieu of acquisition 
discount, and 
"(B) appropriate adjustments shall be made in the appli-
cation of subsection (b) of this section. 
"(2) ELECTION T
O HAVE PARAGRAPH ( D NOT APPLY.— 
"(A) IN GENERAL.—A taxpayer may make an election 
under this paragraph to have paragraph (1) not apply to all 
obligations acquired by the taxpayer on or after the first 
day of the first taxable year to which such election applies. 
"(B) 
PERIOD TO WHICH ELECTION APPLIES.—An election 
under this paragraph shall apply to the taxable year for 
which it is made and for all subsequent taxable years, 
unless the taxpayer secures the consent of the Secretary to 
the revocation of such election. 
"(d) OTHER SPECIAL RULES.— 
"(1) BASIS ADJUSTMENTS.—The basis of any short-term obliga-
tion in the hands of the holder thereof shall be increased by the 
amount included in his gross income pursuant to section 1281. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 551 
"(2) DOUBLE INCLUSION IN INCOME NOT REQUIRED.—Section 
1281 shall not require the inclusion of any amount previously 
Ante, p. 548. 
includible in gross income. 
"(3) COORDINATION WITH OTHER PROVISIONS.—Section 454(b) 
and section 1271(aX3) shall not apply to any short-term obliga- 
Ante, p. 532. 
tion to which section 1281 applies. 
"Subpart D—Miscellaneous Provisions 
"Sec. 1286. Tax treatment of stripped bonds. 
"Sec. 1287. Denial of capital geiin treatment for gains on certain obligations 
not in registered form. 
"Sec. 1288. Treatment of original issue discount on tax-exempt obligations. 
"SEC. 1286. TAX TREATMENT OF STRIPPED BONDS. 
26 USC 1286. 
"(a) INCLUSION IN INCOME AS IF BOND AND COUPONS WERE ORIGI-
NAL ISSUE DISCOUNT BONDS.—If any person purchases after July 1, 
1982, a stripped bond or a stripped coupon, then such bond or 
coupon while held by such purchaser (or by any other person whose 
;,;.., 
. ,..,\ 
basis is determined by reference to the basis in the hands of such 
purchaser) shall be treated for purposes of this part as a bond 
originally issued on the purchase date and having an original issue 
discount equal to the excess (if any) of— 
"(1) the stated redemption price at maturity (or, in the case of 
coupon, the amount payable on the due date of such coupon), 
over 
"(2) such bond's or coupon's ratable share of the purchase 
price. 
For purposes of paragraph (2), ratable shares shall be determined on 
the basis of their respective fair market values on the date of 
purchase. 
"(b) TAX TREATMENT OF PERSON STRIPPING BOND.—For purposes of 
this subtitle, if any person strips 1 or more coupons from a bond and 
after July 1,1982, disposes of the bond or such coupon— 
"(1) such person shall include in gross income an amount 
equal to the interest accrued on such bond while held by such 
person and before the time that such coupon or bond was 
disposed of (to the extent such interest has not theretofore been 
included in such person's gross income), 
"(2) the basis of the bond and coupons shall be increased by 
the amount of the accrued interest described in paragraph (1), 
"(3) the basis of the bond and coupons immediately before the 
disposition (as adjusted pursuant to paragraph (2)) shall be 
allocated among the items retained by such person and the 
items disposed of by such person on the basis of their respective 
fair market values, and 
"(4) for purposes of subsection (a), such person shall be treated 
as having purchased on the date of such disposition each such 
item which he retains for an amount equal to the basis allocated 
to such item under paragraph (3). 
A rule similar to the rule of paragraph (4) shall apply in the case of 
any person whose basis in any bond or coupon is determined by 
reference to the basis of the person described in the preceding 
sentence. 
"(c) RETENTION OF EXISTING LAW FOR STRIPPED BONDS PURCHASED 
BEFORE JULY 2, 1982.—If a bond issued at any time with interest 
coupons— 
«h 
98 STAT. 552 
PUBLIC LAW 98-369—JULY 18, 1984 
"(1) is purchased after August 16, 1954, and before January 1, 
, , ., ,. -, 
1958, and the purchaser does not receive all the coupons which 
first become payable more than 12 months after the date of the 
purchase, or 
"(2) is purchased after December 31, 1957, and before July 2, 
1982, and the purchaser does not receive all the coupons which 
first become payable after the date of the purchase, 
then the gain on the sale or other disposition of such bond by such 
purchaser (or by a person whose basis is determined by reference to 
the basis in the hands of such purchaser) shall be considered as 
ordinary income to the extent that the fair market value (deter-
mined as of the time of the purchase) of the bond with coupons 
attached exceeds the purchase price. If this subsection and section 
Ante, p. 532. 
1271(a)(2)(A) apply with respect to gain realized on the sale or 
exchange of any evidence of indebtedness, then section 1271(a)(2)(A) 
shall apply with respect to that part of the gain to which this 
subsection does not apply. 
"(d) SPECIAL RULES FOR TAX-EXEMPT OBLIGATIONS.—In the case of 
Ante, p. 540. 
any tax-exempt obligation (as defined in section 1275(a)(3))— 
"(1) subsections (a) and (b)(1) shall not apply, 
"(2) the rules of subsection (b)(4) shall apply for purposes of 
subsection (c), and 
"(3) subsection (c) shall be applied without regard to the 
requirement that the bond be purchased before July 2, 1982. 
"(e) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
"(1) BOND.—The term 'bond' means a bond, debenture, note, 
or certificate or other evidence of indebtedness. 
"(2) STRIPPED BOND.—The term 'stripped bond' means a bond 
issued at any time with interest coupons where there is a 
separation in ownership between the bond and any coupon 
which has not yet become payable. 
"(3) STRIPPED COUPON.—The term 'stripped coupon' means 
any coupon relating to a stripped bond. 
"(4) STATED REDEMPTION PRICE AT MATURITY.—The term 
'stated redemption price at maturity' has the meaning given 
Ante, p. 536. 
such term by section 1273(a)(2). 
"(5) COUPON.—The term 'coupon' includes any right to receive 
interest on a bond (whether or not evidenced by a coupon). This 
paragraph shall apply for purposes of subsection (c) only in the 
case of purchases after July 1,1982. 
"(6) PURCHASE.—The term 'purchase' has the meaning given 
Ante, p. 533. 
such term by section 1272(d)(1). 
"(f) REGULATION AUTHORITY.—The Secretary may prescribe regu-
lations providing that where, by reason of varying rates of interest, 
put or call options, or other circumstances, the tax treatment under 
this section does not accurately reflect the income of the holder of a 
stripped coupon or stripped bond, or of the person disposing of such 
bond or coupon, as the case may be, for any period, such treatment 
shall be modified to require that the proper amount of income be 
included for such period. 
26 u s e 1287. 
"SEC. 1287. DENIAL OF CAPITAL GAIN TREATMENT FOR GAINS ON CER-
TAIN OBLIGATIONS NOT IN REGISTERED FORM. 
"(a) IN GENERAL.—If any registration-required obligation is not in 
registered form, any gain on the sale or other disposition of such 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 553 
obligation shall be treated as ordinary income (unless the issuance 
of such obligation was subject to tax under section 4701). 
j 
"(b) DEFINITIONS.—For purposes of subsection (a)— 
"(1) REGISTRATION-REQUIRED OBLIGATION.—The term 'registra-
tion-required obligation' has the meaning given to such term by 
section 163(f)(2) except that clause (iv) of subparagraph (A), and 
subparagraph (B), of such section shall not apply. 
"(2) REGISTERED FORM.—The term 'registered form' has the 
same meaning as when used in section 163(f). 
"SEC. 1288. TREATMENT OF ORIGINAL ISSUE DISCOUNT ON TAX-EXEMPT 
26 USC 1288. 
OBLIGATIONS. 
"(a) GENERAL RULE.—Original issue discount on any tax-exempt 
obligation shall be treated as accruing— 
"(1) for purposes of section 163, in the manner provided by 
section 1272(a) (determined without regard to paragraph (6) 
Ante, p. 533. 
thereof), and 
"(2) for purposes of determining the adjusted basis of the 
holder, in the manner provided by section 1272(a) (determined 
with regard to paragraph (6) thereof). 
"(b) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
"(1) ORIGINAL ISSUE DISCOUNT.—The term 'original issue dis-
count' has the meaning given to such term by section 1273(a) 
Ante, p. 536. 
without regard to paragraph (3) thereof. In applying section 483 
Infra. 
or 1274, under regulations prescribed by the Secretary, appro- 
Ante, p. 538. 
priate adjustments shall be made to the applicable Federal rate 
to take into account the tax exemption for interest on the 
obligation. 
"(2) TAX-EXEMPT OBLIGATION.—The term 'tax-exempt obliga-
tion' has the meaning given to such term by section 1275(a)(3). 
Ante, p. 540. 
"(3) SHORT-TERM OBLIGATIONS.—In applying this section to 
obligations with maturity of 1 year or less, rules similar to the 
rules of section 1283(b) shall apply." 
Ante, p. 549. 
(b) AMENDMENT OF SECTION 483.—Section 483 (relating to interest 
26 use 483. 
on certain deferred payments) is amended to read as follows: 
"SEC. 483. INTEREST ON CERTAIN DEFERRED PAYMENTS. 
"(a) AMOUNT CONSTITUTING INTEREST.—For purposes of this title, 
in the case of any payment— 
"(1) under any contract for the sale or exchange of any 
property, and 
"(2) to which this section applies, 
there shall be treated as interest that portion of the total unstated 
interest under such contract which, as determined in a manner 
consistent with the method of computing interest under section 
1272(a), is properly allocable to such payment. 
"(b) TOTAL UNSTATED INTEREST.—For purposes of this section, the 
term 'total unstated interest' means, with respect to a contract for 
the sale or exchange of property, an amount equal to the excess of— 
"(1) the sum of the payments to which this section applies 
^, , 
which are due under the contract, over 
"(2) the sum of the present values of such payments and the 
present values of any interest payments due under the contract. 
For purposes of the preceding sentence, the present value of a 
payment shall be determined under the rules of section 1274(b)(2) 
Ante, p. 538. 
98 STAT. 554 
PUBLIC LAW 98-369—JULY 18, 1984 
using a discount rate equal to 120 percent of the applicable Federal 
Ante, p. 538. 
rate determined under section 1274(d). 
"(c) PAYMENTS TO WHICH SUBSECTION (a) APPLIES.— 
"(1) IN GENERAL.—Except as provided in subsection (d), this 
section shall apply to any payment on account of the sale or 
exchange of property which constitutes part or all of the sales 
price and which is due more than 6 months after the date of 
such sale or exchange under a contract— 
"(A) under which some or all of the payments are due 
more than 1 year after the date of such sale or exchange, 
and 
"(B) under which, using a discount rate equal to 110 
percent of the applicable Federal rate determined under 
section 1274(d), there is total unstated interest. 
"(2) TREATMENT OF OTHER DEBT INSTRUMENTS.—For purposes 
of this section, a debt instrument of the purchaser which is 
given in consideration for the sale or exchange of property shall 
not be treated as a payment, and any payment due under such 
debt instrument shall be treated as due under the contract for 
the sale or exchange. 
"(3) DEBT INSTRUMENT DEFINED.—For purposes of this subsec-
tion, the term 'debt instrument' has the meaning given such 
Ante, p. 540. 
term by section 1275(a)(1). 
"(d) EXCEPTIONS AND LIMITATIONS.— 
"(1) COORDINATION WITH ORIGINAL ISSUE DISCOUNT RULES.— 
This section shall not apply to any debt instrument to which 
Ante, p. 533. 
section 1272 applies. 
"(2) SALES PRICES OF $3,000 OR LESS.—This section shall not 
apply to any payment on account of the sale or exchange of 
property if it can be determined at the time of such sale or 
exchange that the sales price cannot exceed $3,000. 
"(3) CARRYING CHARGES.—In the case of the purchaser, the tax 
treatment of amounts paid on account of the sale or exchange of 
property shall be made without regard to this section if any 
such amounts are treated under section 163(b) as if they 
included interest. 
"(4) CERTAIN SALES OF PATENTS.—In the case of any transfer 
described in section 1235(a) (relating to sale or exchange of 
patents), this section shall not apply to any amount contingent 
on the productivity, use, or disposition of the property 
transferred. 
"(e) INTEREST RATES IN CASE OF SALES OF PRINCIPAL RESIDENCES OR 
FARM LANDS.— 
"(1) IN GENERAL.—In the case of any debt instrument arising 
from a sale or exchange to which this subsection applies, subsec-
tions (b) and (c)(1)(B) shall be applied by using, in lieu of the 
discount rates determined under such subsections, discount 
rates determined under subsections (b) and (cXD, respectively, of 
this section as it was in effect before the amendments made by 
Ante, p. 494. 
the Tax Reform Act of 1984. 
"(2) SALES OR EXCHANGES TO WHICH SUBSECTION APPUES.—This 
subsection shall apply— 
"(A) to any sale or exchange by an individual of his 
principal residence (within the meaning of section 1034), 
Mn,H'A:st. 
.- 
^nd 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 555 
"(B) to any sale or exchange by a person of land used by 
such person as a farm (within the meaning of section 
6420(cX2)). 
"(3) LIMITATION.—Paragraph (1) shall apply to any sale or 
exchange by an individual of his principal residence (within the 
meaning of section 1034), only to the extent the purchase price 
of such residence does not exceed $250,000. For purposes of the 
preceding sentence, the purchase price of a residence shall be 
determined without regard to this section. 
"(0 MAXIMUM RATE OF INTEREST ON CERTAIN TRANSFERS OF LAND 
BETWEEN RELATED PARTIES.— 
"(1) IN GENERAL.—In the case of any qualified sale, the dis-
count rate used in determining the total unstated interest rate 
under subsection 0?) shall not exceed 7 percent, compounded 
semiannually. 
"(2) QUALIFIED SALE.—For purposes of this subsection, the 
term 'qualified sale' means any sale or exchange of land by an 
individual to a member of such individual's family (within the 
meaning of section 267(cX4)). 
"(3) $500,000 LIMITATION.—Paragraph (1) shall not apply to 
any qualified sale between individuals made during any calen-
dar year to the extent that the sales price for such sale (when 
added to the aggregate sales price for prior qualified sales 
between such individuals during the calendar year) exceeds 
$500,000. 
"(4) NONRESIDENT AUEN INDIVIDUALS.—Paragraph (1) shall 
* 
not apply to any sale or exchange if any party to such sale or 
exchange is a nonresident alien individual. 
"(g) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposes 
of this section including regulations providing for the application of 
this section in the case of— 
"(1) any contract for the sale or exchange of property under 
which the liability for, or the amount or due date of, a payment 
cannot be determined at the time of the sale or exchange, or 
"(2) any change in the liability for, or the amount or due date 
of, £my payment (including interest) under a contract for the 
sale or exchange of property, 
i "(h) CROSS REFERENCE.— 
"For special rules in the case of the borrower under certain loans for 
2 
personal use, see section 1275(b)." 
(c) PENALTY FOR FAILURE TO MEET INFORMATION REQUIREMENTS.— 
< 
(1) IN GENERAL.—Subchapter B of chapter 68 (relating to 
assessable penalties) is amended by adding at the end thereof 
the following new section: 
"SEC. 6706. ORIGINAL ISSUE DISCOUNT INFORMATION REQUIREMENTS. 
"(a) FAILURE TO SHOW INFORMATION ON DEBT INSTRUMENT.—In 
the case of a failure to set forth on a debt instrument the informa-
tion required to be set forth on such instrument under section 
1275(cXl), unless it is shown that such failure is due to reasonable 
cause and not to willful neglect, the issuer shall pay a penalty of $50 
for each instrument with respect to which such a failure exists. 
"Ot)) FAILURE TO FURNISH INFORMATION TO SECRETARY.—Any 
issuer who fails to furnish information required under section 
1275(cX2) with respect to any issue of debt instruments on the date 
prescribed therefor (determined with regard to any extension of 
Ante, p. 540. 
26 use 6706. 
Penalty. 
Ante, p. 540. 
Penalty. 
98 STAT. 556 
PUBLIC LAW 98-369—JULY 18, 1984 
Repeals. 
26 u s e 1232, 
1232A, 1232B. 
26 u s e 103A. 
26 u s e 163. 
Post, p. 654. 
time for filing) shall pay a penalty equal to 1 percent of the 
aggregate issue price of such issue, unless it is shown that such 
failure is due to reasonable cause and not willful neglect. The 
amount of the penalty imposed under the preceding sentence with 
respect to any issue of debt instruments shall not exceed $50,000 for 
such issue. 
"(c) DEFICIENCY PROCEDURES NOT TO APPLY.—Subchapter B of 
26 use 6211. 
chapter 63 (relating to deficiency procedures for income, estate, gift, 
and certain excise taxes) shall not apply in respect of the assessment 
or collection of any penalty imposed by this section." 
(2) CLERICAL AMENDMENT.—The table of sections for subchap-
ter B of chapter 68 is amended by adding at the end thereof the 
following new item: 
"Sec. 6706. Original issue discount information requirements." 
SEC. 42. TECHNICAL AND CONFORMING AMENDMENTS RELATED TO 
ORIGINAL ISSUE DISCOUNT CHANGES. 
(a) IN GENERAL.— 
(1) Sections 1232, 1232A, and 1232B are hereby repealed. 
(2) Clause (i) of section 103A(i)(2)(C) (defining yield on the 
issue) is amended by striking out "section 1232(b)(2)" and insert-
ing in lieu thereof "sections 1273(b) and 1274". 
(3) Subsection (e) of section 163 (relating to original issue 
discount) is amended to read as follows: 
"(e) ORIGINAL ISSUE DISCOUNT.— 
"(1) IN GENERAL.—In the case of any debt instrument issued 
after July 1,1982, the portion of the original issue discount with 
respect to such debt instrument which is allowable as a deduc-
tion to the issuer for any taxable year shall be equal to the 
aggregate daily portions of the original issue discount for days 
during such taxable year. 
"(2) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
subsection— 
"(A) DEBT INSTRUMENT.—The term 'debt instrument' has 
the meaning given such term by section 1275(a)(1). 
"(B) DAILY PORTIONS.—The daily portion of the original 
issue discount for any day shall be determined under sec-
tion 1272(a) (without regard to paragraph (6) thereof and 
without regard to section 1273(a)(3)). 
"(3) EXCEPTIONS.—This subsection shall not apply to any debt 
instrument described in— 
"(A) subparagraph (D) of section 1272(a)(2) (relating to 
obligations issued by natural persons before March 2, 1984), 
and 
"(B) subparagraph (E) of section 1272(a)(2) (relating to 
loans between natural persons). 
'
<
; te-' '
*
^ 
"(4) CROSS REFERENCES.— 
"For provision relating to deduction of original issue discount on tax-
Ante, p. 553. 
exempt obligation, see section 1288. 
"For special rules in the case of the borrower under certain loans for 
Ante, p. 540. 
personal use, see section 1275(b)." 
26 use 165. 
(4) Paragraph (3) of section 165(j) (relating to denial of deduc-
tions for losses on certain obligations not in registered form) is 
amended by striking out "subsection (d) of section 1232" and 
inserting in lieu thereof "section 1287". 
Ante, p. 540. 
Ante, p. 533. 
Ante, p. 536. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 557 
(5) Paragraph (1) of section 249(b) (relating to limitation on 
26 USC 249. 
deduction of bond premium on repurchase) is amended by strik-
ing out "section 1232(b)" and inserting in lieu thereof "sections 
1273(b) and 1274". 
(6) Paragraph (1) of section 405(d) (relating to taxability of 
26 USC 405. 
beneficiary of qualified bond purchase plan) is amended by 
striking out "section 1232 (relating to bonds and other evidences 
of indebtedness)" and inserting in lieu thereof "section 1271 
(relating to treatment of amounts received on retirement or sale 
or exchange of debt instruments)". 
(7) Paragraph (1) of section 409(b) (relating to income tax 
26 use 409. 
treatment of bonds) is amended by striking out "section 1232 
P^^t, p. 852. 
(relating to bonds and other evidences of indebtedness)" and 
inserting in lieu thereof "section 1271 (relating to treatment of 
amounts received on retirement or sale or exchange of debt 
instruments)". 
(8) Paragraph (3) of section 811(b) (relating to amortization of 
Post, p. 740. 
premium and accrual of discount), as amended by this Act, is 
amended by striking out "section 1232(b)" and inserting in lieu 
thereof "section 1273". 
(9) Subparagraph (A) of section 871(a)(1) (relating to income 
26 use 871. 
other than capital gains) is amended by striking out "section 
1232(b)" and inserting in lieu thereof "section 1273". 
(10) Paragraph (1) of section 881(a) (relating to imposition of 
26 use 881. 
tax) is amended by striking out "section 1232(b)" and inserting 
in lieu thereof "section 1273". 
(11) Subsection (b) of section 1037 (relating to application of 
26 use 1037. 
section 1232) is amended— 
(A) by striking out "section 1232(a)(2XB)" In paragraph (1) 
'-
and inserting in lieu thereof "section 1271(cX2)", 
(B) by striking out "section 1232" in paragraphs (1) and 
(2) and inserting in lieu thereof "subpart A of part V of 
subchapter P", and 
(C) by striking out "SECTION 1232" in the subsection 
heading and inserting in lieu thereof "ORIGINAL ISSUE DIS-
COUNT RULES". 
(12) Subsection (h) of section 1351 (relating to special rule for 
26 use 1351. 
evidences of indebtedness) is amended by striking out "section 
1232(a)(2)" and inserting in lieu thereof "section 1273(a)". 
(13) Subsection (b) of section 1441 (relating to withholding of 
26 use 1441. 
tax on nonresident alien) is amended by striking out "section 
1232(b)" and inserting in lieu thereof "section 1273". 
(14) Paragraph (6) of section 6049(d) (relating to treatment of 
26 use 6049. 
original issue discount) is amended— 
(A) by striking out "section 1232A" each place it appears 
in subparagraph (A) and inserting in lieu thereof "section 
1272", and 
(B) by striking out "section 1232(bXl)" and inserting in 
lieu thereof "section 1273(a)". 
(b) CLERICAL AMENDMENTS.— 
(1) The table of parts for subchapter P of chapter 1 is amended 
by adding at the end thereof the following new item: 
"PART V. Special rules for bonds and other debt instruments." 
(2) The table of sections for part IV of subchapter P of chapter 
1 is amended by striking out the items relating to sections 1232, 
1232A, and 1232B. 
98 STAT. 558 
PUBLIC LAW 98-369—JULY 18, 1984 
SEC. 43. TECHNICAL AND CONFORMING AMENDMENTS RELATED TO 
TREATMENT OF MARKET DISCOUNT AND ACQUISITION DIS-
COUNT. 
(a) DEFINITION OF SUBSTITUTED BASIS PROPERTY; ETC.— 
97 Stat. 379. 
(1) IN GENERAL.—Section 7701(a) (relating to definitions) is 
26 use 7701. 
amended by adding at the end thereof the following new 
paragraphs: 
"(42) SUBSTITUTED BASIS PROPERTY.—The term 'substituted 
basis property' means property which is— 
"(A) transferred basis property, or 
"(B) exchanged basis property. 
"(43) TRANSFERRED BASIS PROPERTY.—The term 'transferred 
basis property' means property having a basis determined 
under any provision of subtitle A (or under any corresponding 
provision of prior income tax law) providing that the basis shall 
be determined in whole or in part by reference to the basis in 
the hands of the donor, grantor, or other transferor. 
"(44) EXCHANGED BASIS PROPERTY.—The term 'exchanged basis 
property' means property having a basis determined under any 
provision of subtitle A (or under any corresponding provision of 
prior income tax law) providing that the basis shall be deter-
mined in whole or in part by reference to other property held at 
any time by the person for whom the basis is to be determined. 
"(45) NoNRECOGNiTioN TRANSACTION.—The term 'nonrecogni-
tion transaction' means any disposition of property in a transac-
tion in which gain or loss is not recognized in whole or in part 
for purposes of subtitle A." 
26 use 1016. 
(2) TECHNICAL AMENDMENT.—Subsection (b) of section 1016 is 
amended by striking out the last sentence. 
26 u s e 7805. 
(b) ELECTIONS M A D E IN MANNER PRESCRIBED BY SECRETARY.— 
Section 7805 (relating to rules and regulations) is amended by 
adding at the end thereof the following new subsection: 
"(d) MANNER OF MAKING ELECTIONS PRESCRIBED BY SECRETARY.— 
Except to the extent otherwise provided by this title, any election 
under this title shall be made at such time and in such manner as 
the Secretary shall by regulations or forms prescribe." 
(c) OTHER TECHNICAL AMENDMENTS.— 
26 use 341. 
(1) Paragraph (12) of section 341(e) (related to nonapplication 
of section 1254(a)) is amended by striking out "and 1254(a)" and 
inserting in lieu thereof "1254(a), and 1276(a)". 
26 use 453B. 
(2) Paragraph (2) of section 453B(d) (relating to liquidations to 
which section 337 applies) is amended by striking out "or 
1254(a)" and inserting in lieu thereof "1254(a), or 1276(a)". 
26 use 751. 
(3) Subsection (c) of section 751 (defining unrealized receiv-
ables) is amended by adding at the end thereof the following 
new sentence: "For purposes of this section and sections 731, 
736, and 741, such term also includes any market discount bond 
Ante, p. 547. 
(as defined in section 1278) and any short-term obligation (as 
Ante, p. 549. 
defined in section 1283) but only to the extent of the amount 
which would be treated as ordinary income if (at the time of the 
transaction described in this section or section 731, 736, or 741, 
as the case may be) such property had been sold by the 
partnership." 
i l k 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 559 
SEC. 44. EFFECTIVE DATES. 
26 USC 1271 
(a) GENERAL RULE.—Except as otherwise provided in this section, 
the amendments made by this subtitle shall apply to taxable years 
. SAI. 
ending after the date of the enactment of this Act. 
(b) TREATMENT OF DEBT INSTRUMENTS RECEIVED IN EXCHANGE FOR 
PROPERTY.— 
(1) IN GENERAL.— 
(A) Except as otherwise provided in this subsection, sec- 
Ante, p. 538. "
'
-
tion 1274 of the Internal Revenue Code of 1954 (as added by 
section 41) and the amendment made by section 41(b) (relat-
ing to amendment of section 483) shall apply to sales or 
Ante, p. 553. 
exchanges after December 31,1984. 
(B) Section 1274 of such Code and the amendment made 
by section 41(b) shall not apply to any sale or exchange 
pursuant to a written contract which was binding on March 
1, 1984, and at all times thereafter before the sale or 
' ' ' 
exchange. 
(2) REVISION OF SECTION 482 REGULATIONS.—Not later than 180 
days after the date of the enactment of this Act, the Secretary of 
the Treasury or his delegate shall modify the safe harbor 
interest rates applicable under the regulations prescribed under 
section 482 of the Internal Revenue Code of 1954 so that such 
rates are consistent with the rates applicable under section 483 
of such Code by reason of the amendments made by section 41. 
Ante, p. 531. 
(3) CLARIFICATION OF INTEREST ACCRUAL; FAIR MARKET VALUE 
RULE IN CASE OF POTENTIALLY ABUSIVE SITUATIONS.— 
(A) IN GENERAL.— 
(i) CLARIFICATION OF INTEREST ACCRUAL.—In the case 
of any sale or exchange— 
(I) after March 1, 1984, and before January 1, 
1985, nothing in section 483 of the Internal Reve-
nue Code of 1954 shall permit any interest to be 
Ante, p. 553. 
deductible before the period to which such interest 
; 
is properly allocable, or 
(II) after June 8, 1984, and before January 1, 
i( ;;, 
1985, notwithstanding section 483 of the Internal 
Revenue Code of 1954 or any other provision of 
': 
law, no interest shall be deductible before the 
&,. . 
period to which such interest is properly allocable. 
(ii) FAIR MARKET RULE.—In the case of any sale or 
exchange after March 1, 1984, and before January 1, 
1985, such section 483 shall be treated as including 
l&mrKm ' 
provisions similar to the provisions of section 1274(b)(3) 
of such Code (as added by section 41). 
Ante, p. 538. 
(B) EXCEPTION FOR BINDING CONTRACTS.—Subparagraph 
'iri 
(A) shall not apply to any sale or exchange pursuant to a 
written contract which was binding on March 1, 1984, and 
at all times thereafter before the sale or exchange. 
(C) INTEREST ACCRUAL RULE NOT TO APPLY WHERE SUBSTAN-
TIALLY EQUAL ANNUAL PAYMENTS.—Clause (i) of subpara-
graph (A) shall not apply to any debt instrument with 
substantially equal annual payments. 
(c) MARKET DISCOUNT RULES.— 
(1) ORDINARY INCOME TREATMENT.—Section 1276 of the Inter-
nal Revenue Code of 1954 (as added by section 41) shall apply to 
Ante, p. 543. 
98 STAT. 560 
PUBLIC LAW 98-369—JULY 18, 1984 
obligations issued after the date of the enactment of this Act in 
taxable years ending after such date. 
Ante, p. 545. 
(2) INTEREST DEFERRAL RULES.—Section 1277 of such Code (as 
added by section 41) shall apply to obligations acquired after the 
date of the enactment of this Act in taxable years ending after 
such date. 
(d) RULES RELATING TO DISCOUNT ON SHORT-TERM OBLIGATIONS.— 
Ante, p. 548. 
Subpart C of part V of subchapter P of chapter 1 of such Code (as 
added by section 41) shall apply to obligations acquired after the 
date of the enactment of this Act. 
(e) 5-YEAR SPREAD OF ADJUSTMENTS REQUIRED BY REASON OF AC-
CRUAL OF DISCOUNT ON CERTAIN SHORT-TERM OBUGATIONS.— 
(1) ELECTION TO HAVE SECTION 1281 APPLY TO ALL OBUGATIONS 
HELD DURING TAXABLE YEAR.—A taxpayer may elect for his first 
taxable year ending after the date of the enactment of this Act 
Ante, p. 548. 
to have section 1281 of the Internal Revenue Code of 1954 apply 
to all short-term obligations described in subsection (b) of such 
section which were held by the taxpayer at any time during 
such first taxable year. 
(2) 5-YEAR SPREAD.— 
(A) IN GENERAL.—In the case of any taxpayer who makes 
an election under paragraph (1)— 
(i) the provisions of section 1281 of the Internal Reve-
nue Code of 1954 (as added by section 41) shall be 
treated £is a change in the method of accounting of the 
taxpayer, 
(ii) such change shall be treated as having been made 
with the consent of the Secretary, and 
(iii) the net amount of the adjustments required by 
section 481(a) of such Code to be taken into account by 
the taxpayer in computing taxable income (hereinafter 
in this paragraph referred to as the "net adjustments") 
shall be taken into account during the spread period 
with the amount taken into account in each taxable 
year in such period determined under subparagraph 
(B). 
(B) AMOUNT TAKEN INTO ACCOUNT DURING EACH YEAR OF 
SPREAD PERIOD.— 
(i) FIRST YEAR.—The amount taken into account for 
the first taxable year in the spread period shall be the 
sum of^ 
(I) one-fifth of the net adjustments, and 
(II) the excess (if any) of— 
(a) the cash basis income over the accrual 
,... ,. ,j,,|. 
basis income, over 
(b) one-fifth of the net adjustments. 
(ii) FOR SUBSEQUENT YEARS IN SPREAD PERIOD.—The 
amount taken into account in the second or any suc-
ceeding taxable year in the spread period shall be the 
sum of^ 
(I) the portion of the net adjustments not taken 
into account in the preceding taxable year of the 
spread period divided by the number of remaining 
taxable years in the spread period (including the 
year for which the determination is being made), 
* " * 
(II) the excess (if any) of— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 561 
V 
(a) the excess of the cash basis income over 
^*i' •' 
the accrual basis income, over 
(b) one-fifth of the net adjustments, multi- 
"
* ' 
plied by 5 minus the number of years remain-
ing in the spread period (not including the 
current year). 
.^^ 
The excess described in subparagraph (B)(ii)(II)(a) 
'let 
shall be reduced by any amount taken into account 
under this subclause or clause (i)(II) in any prior 
(C) SPREAD PERIOD.—For purposes of this paragraph, the 
term "spread period" means the period consisting of the 5 
* ' 
taxable years beginning with the year for which the elec-
tion is made under paragraph (1), 
(D) CASH BASIS INCOME.—For purposes of this paragraph, 
^y.. 
the term "cash basis income" means for any taxable year 
/;'*> 
-j jiv 
the aggregate amount which would be includible in the 
gross income of the taxpayer with respect to short-term 
^ ' " 
obligations described in subsection (b) of section 1281 of 
such Code if the provisions of section 1281 of such Code did 
Ante, p. 548. 
not apply to such taxable year and all prior taxable years 
within the spread period. 
(E) ACCRUAL BASIS INCOME.—For purposes of this para-
graph, the term "accrual basis income" means for any 
" 
taxable year the aggregate amount includible in gross 
• 
income under section 1281(a) of such Code for such a tax-
able year and all prior taxable years within the spread 
period. 
(f) TREATMENT OF ORIGINAL ISSUE DISCOUNT ON TAX-EXEMPT OBLI-
GATIONS.—Section 1288 of such Code (as added by section 41) shall 
Ante, p. 553. 
apply to obligations issued after September 3, 1982, and acquired 
after March 1,1984. 
(g) REPEAL OF CAPITAL ASSET REQUIREMENT.—Section 1272 of such 
Code (as added by section 41) shall not apply to any obligation issued 
Ante, p. 533. 
before December 31, 1984, which is not a capital asset in the hands 
of the taxpayer. 
(h) REPORTING REQUIREMENTS.—Section 1275(c) of such Code (as 
Ante, p. 540. 
added by section 41) and the amendments made by section 41(c) shall 
Ante, p. 531. 
take effect on the day 30 days after the date of the enactment of this 
Act. 
(i) OTHER MISCELLANEOUS CHANGES.— 
(1) ACCRUAL PERIOD.—In the case of any obligation issued 
after July 1, 1982, and before January 1, 1985, the accrual 
period, for purposes of section 1272(a) of the Internal Revenue 
Ante, p. 533. 
s 
Code of 1954 (as amended by section 41(a)), shall be a 1-year 
period (or shorter period to maturity) beginning on the day in 
the calendar year which corresponds to the date of original 
issue of the obligation. 
(2) CHANGE IN REDUCTION FOR PURCHASE AFTER ORIGINAL 
ISSUE.—Section 1272(a)(6) of such Code (as so amended) shall not 
apply to any purchase on or before the date of the enactment of 
this Act, and the rules of section 1232A(a)(6) of such Code (as in 
effect on the day before the date of the enactment of this Act) 
shall continue to apply to such purchase. 
(j) CLARIFICATION THAT PRIOR EFFECTIVE DATE RULES NOT AF-
FECTED.—Nothing in the amendment made by section 41(a) shall 
Ante, p. 531. 
affect the application of any effective date provision (including any 
31-194 0 - 86 - 20 : OL. 3 Part- 1 
98 STAT. 562 
PUBLIC LAW 98-369—JULY 18, 1984 
transitional rule) for any provision which was a predecessor to any 
provision contained in part V of subchapter P of chapter 1 of the 
Ante, p. 531. 
Internal Revenue Code of 1954 (as added by section 41). 
Subtitle D—Corporate Provisions 
PART I—LIMITATIONS ON DIVIDENDS RECEIVED 
DEDUCTION 
SEC. 51. DIVIDENDS RECEIVED DEDUCTION REDUCED WHERE PORTFOLIO 
STOCK IS DEBT FINANCED. 
(a) GENERAL RULE.—Part VIII of subchapter B of chapter 1 (relat-
ing to special deductions for corporations) is amended by inserting 
after section 246 the following new section: 
26 use 246A. 
"SEC. 246A. DIVIDENDS RECEIVED DEDUCTION REDUCED WHERE PORT-
FOLIO STOCK IS DEBT FINANCED. 
"(a) GENERAL RULE.—In the case of any dividend on debt-financed 
portfolio stock, there shall be substituted for the percentage which 
(but for this subsection) would be used in determining the amount of 
the deduction allowable under section 243, 244, or 245 a percentage 
equal to the product o
f
— 
"(1) 85 percent, and 
"(2) 100 percent minus the average indebtedness percentage. 
"(b) SECTION NOT To APPLY TO DIVIDENDS FOR WHICH 100 PERCENT 
DIVIDENDS RECEIVED DEDUCTION ALLOWABLE.—Subsection (a) shall 
not apply to— 
"(1) qualifying dividends (as defined in section 2430t)) without 
regard to section 243(c)(4)), and 
"(2) dividends received by ^a small business investment com-
pany operating under the Small Business Investment Act of 
15 use 661 note. 
1958. 
"(c) DEBT FINANCED PORTFOLIO STOCK.—For purposes of this 
section— 
"(1) IN GENERAL.—The term 'debt financed portfolio stock' 
means any portfolio stock if at some time during the base period 
there is portfolio indebtedness with respect to such stock. 
"(2) PoRTFOuo STOCK.—The term 'portfolio stock' means any 
stock of a corporation unless— 
"(A) as of the beginning of the ex-dividend date, the 
taxpayer owns stock of such corporation— 
"(i) possessing at least 50 percent of the total voting 
Mb /I *3. i 
power of the stock of such corporation, and 
"(ii) having a value equal to at least 50 percent of the 
total value of the stock of such corporation, or 
"(B) as of the beginning of the ex-dividend date— 
"(i) the taxpayer owns stock of such corporation 
which would meet the requirements of subparagraph 
(A) if '20 percent' were substituted for '50 percent' each 
place it appears in such subparagraph, and 
"(ii) stock meeting the requirements of subparagraph 
(A) is owned by 5 or fewer corporate shareholders. 
"(3) SPECIAL RULE FOR STOCK IN A BANK OR BANK HOLDING 
COMPANY.— 
;
;
f
; , Sill 
"(A) IN GENERAL.—If, as of the beginning of the ex-
dividend date, the taxpayer owns stock of any bank or bank 
ii e.
- Q ^ei-it 
>58r>8Tj Jjt: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 563 
rii c ^ 
holding company having a value equal to at least 80 percent 
of the total value of the stock of such bank or bank holding 
company, for purposes of paragraph (2XAXi), the taxpayer 
shall be treated as owning any stock of such bank or bank 
; q ;;,rf\ 
holding company which the taxpayer has an option to 
acquire. 
^ 
"(B) DEFINITIONS.—For purposes of subparagraph (A)— 
"(i) BANK.—The term 'bank' has the meaning given 
If, \:T>r 
such term by section 581. 
.,' 
"(ii) BANK HOLDING COMPANY.—The term 'bank hold-
ing company' means a bank holding company (within 
the meaning of section 2(a) of the Bank Holding Compa-
•Ai /> 
ny Ac|. Qf 1956). 
12 use 1841. 
"(4) TREATMENT OF CERTAIN PREFERRED STOCK.—For purposes 
of determining whether the requirements of subparagraph (A) 
*
"
'
^ 
^ '' '*i^' 
or (B) of paragraph (2) or of subparagraph (A) of paragraph (3) 
are met, stock described in section 1504(a)(4) shall not be taken 
Post, p. 577. 
into account. 
"(d) AVERAGE INDEBTEDNESS PERCENTAGE.—For purposes of this 
section— 
"(1) IN GENERAL.—Except as provided in paragraph (2), the 
' 
term 'average indebtedness percentage' means the percentage 
obtained by dividing— 
"(A) the average amount (determined under regulations 
prescribed by the Secretary) of the portfolio indebtedness 
ol s 
with respect to the stock during the base period, by 
"(B) the average amount (determined under regulations 
prescribed by the Secretary) of the adjusted basis of the 
^ 
stock during the base period. 
"(2) SPECIAL RULE WHERE STOCK NOT HELD THROUGHOUT BASE 
PERIOD.—In the case of any stock which was not held by the 
taxpayer throughout the base period, paragraph (1) shall be 
applied as if the base period consisted only of that portion of the 
base period during which the stock was held by the taxpayer. 
"(3) PORTFOUO INDEBTEDNESS.— 
"(A) IN GENERAL.—The term 'portfolio indebtedness' 
means any indebtedness directly attributable to investment 
"
J
^
f *
v 
in the portfolio stock. 
'^ 
"(B) 
CERTAIN AMOUNTS RECEIVED FROM 
SHORT SALE 
p 
TREATED AS INDEBTEDNESS.—For purposes of subparagraph 
(A), any amount received from a short sale shall be treated 
as indebtedness for the period beginning on the day on 
which such amount is received and ending on the day the 
short sale is closed. 
"(4) BASE PERIOD.—The term 'base period' means, with respect 
to any dividend, the shorter of— 
"(A) the period beginning on the ex-dividend date for the 
most recent previous dividend on the stock and ending on 
the day before the ex-dividend date for the dividend in-
volved, or 
"(B) the 1-year period ending on the day before the ex-
dividend date for the dividend involved. 
"(e) 
REDUCTION IN DIVIDENDS RECEIVED DEDUCTION NOT TO 
EXCEED ALLOCABLE INTEREST.—Under regulations prescribed by the 
Secretary, any reduction under this section in the amount allowable 
as a deduction under section 243, 244, or 245 with respect to any 
dividend shall not exceed the amount of any interest deduction 
98 STAT. 564 
PUBLIC LAW 98-369—JULY 18, 1984 
(including any deductible short sale expense) allocable to such 
dividend. 
"(f) REGULATIONS.—The regulations prescribed for purposes of this 
Post, p. 567. 
section under section 7701(f) shall include regulations providing for 
the disallowance of interest deductions or other appropriate treat-
ment (in lieu of reducing the dividend received deduction) where the 
obligor of the indebtedness is a person other than the person 
receiving the dividend." 
(b) CLERICAL AMENDMENT.—The table of sections for part VIII of 
subchapter B of chapter 1 is amended by inserting after the item 
relating to section 246 the following new item: 
"Sec. 246A. Dividends received deduction reduced where portfolio stock is 
debt financed." 
26 use 246A 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
"°*^- 
apply with respect to stock the holding period for which begins after 
the date of the enactment of this Act in taxable years ending after 
such date. 
SEC. 52. TREATMENT OF DIVIDENDS FROM REGULATED INVESTMENT 
COMPANIES. 
(a) INCREASE IN REQUIRED AMOUNT OF DIVIDENDS.—Paragraph (1) 
26 use 854. 
of section 854(b) (relating to other dividends) is amended to read as 
follows: 
"(1) AMOUNT TREATED AS DIVIDEND.— 
"(A) DEDUCTION UNDER SECTION 243.—In any case in 
which— 
"(i) a dividend is received from a regulated invest-
ment company (other than a dividend to which subsec-
tion (a) applies), and 
"(ii) such investment company meets the require-
ments of section 852(a) for the taxable year during 
which it paid such dividend, 
then, in computing any deduction under section 243, there 
shall be taken into account only that portion of such divi-
dend designated under this subparagraph by the regulated 
investment company. 
"(B) EXCLUSION UNDER SECTION II6.—If the aggregate 
dividends received by a regulated investment company 
during any taxable year are less than 95 percent of its gross 
income, then, in computing the exclusion under section 116, 
rules similar to the rules of subparagraph (A) shall apply. 
"(C) LIMITATION.—The aggregate amount which may be 
designated as dividends under subparagraph (A) or (B) shall 
not exceed the aggregate dividends received by the com-
pany for the taxable year." 
(b) CERTAIN DIVIDENDS NOT TAKEN INTO ACCOUNT FOR PURPOSES 
OF COMPUTING DEDUCTION UNDER SECTION 243.—Subsection (b) of 
section 854 is amended by adding at the end thereof the following 
new paragraph: 
"(4) SPECIAL RULE FOR COMPUTING DEDUCTION UNDER SECTION 
243.—For purposes of subparagraph (A) of paragraph (1), an 
amount shall be treated as a dividend for the purpose of para-
graph (1) only if a deduction would have been allowable under 
section 243 to the regulated investment company determined— 
"(A) as if section 243 applied to dividends received by a 
regulated investment company, 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 5(35 
m et 
"(B) after the application of section 246 (but without 
regard to subsection (b) thereof), and 
"(C) after the appHcation of section 246A." 
Ante, p. 562. 
(c) GROSS INCOME INCLUDES NET SHORT-TERM CAPITAL GAIN.— 
Paragraph (3)(A) of section 854(b) is amended to read as follows: 
26 use 854. 
"(A) In the case of 1 or more sales or other dispositions of 
stock and securities, the term 'gross income' includes only the 
excess of^ 
"(i) the net short-term capital gain from such sales or 
g,,. 
dispositions, over 
"(ii) the net long-term capital loss from such sales or 
dispositions." 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 854 note. 
apply to taxable years of regulated investment companies beginning 
after the date of the enactment of this Act. 
PART II—TREATMENT OF CERTAIN DISTRIBUTIONS 
SEC. 53. CORPORATE SHAREHOLDER'S BASIS IN STOCK REDUCED BY NON-
TAXED PORTION OF EXTRAORDINARY DIVIDENDS. 
(a) GENERAL RULE.—Part IV of subchapter O of chapter 1 
(relating to special rules for gain or loss on disposition of property) is 
amended by redesignating section 1059 as section 1060 and by 
26 use 1060. 
inserting after section 1058 the following new section: 
"SEC. 1059. CORPORATE SHAREHOLDER'S BASIS IN STOCK REDUCED BY 
26 USC 1059. 
NONTAXED PORTION OF EXTRAORDINARY DIVIDENDS. 
"(a) GENERAL RULE.—If any corporation— 
"(1) receives an extraordinary dividend with respect to any 
share of stock, and 
"(2) sells or otherwise disposes of such stock before such stock 
has been held for more than 1 year, 
the basis of such corporation in such stock shall be reduced by the 
nontaxed portion of such dividend. If the nontaxed portion of such 
dividend exceeds such basis, such excess shall be treated as gain 
from the sale or exchange of such stock. 
"(b) NONTAXED PORTION.—For purposes of this section— 
"(1) IN GENERAL.—The nontaxed portion of any dividend is the 
excess (if any) of— 
"(A) the amount of such dividend, over 
"(B) the taxable portion of such dividend. 
"(2) TAXABLE PORTION.—The taxable portion of any dividend 
is— 
"(A) the portion of such dividend includible in gross 
income, reduced by 
"(B) the amount of any deduction allowable with respect 
to such dividend under section 243, 244, or 245. 
"(c) EXTRAORDINARY DIVIDEND DEFINED.—For purposes of this 
section— 
"(1) IN GENERAL.—The term 'extraordinary dividend' means 
any dividend with respect to a share of stock if the amount of 
such dividend equals or exceeds the threshold percentage of the 
taxpayer's adjusted basis in such share of stock (determined 
without regard to this section). 
I 
"(2) THRESHOLD PERCENTAGE.—The term 'threshold percent-
age' means— 
98 STAT. 566 
PUBLIC LAW 98-369—JULY 18, 1984 
•my 
.eaoi :
)
B
L
' m 
jiiorf ; 
"(A) 5 percent in the case of stock which is preferred as to 
dividends, and 
A
H
H 
-/na'. 
"(B) 10 percent in the case of any other stock. 
"(3) AGGREGATION OF DIVIDENDS.— 
to- )6U 02 
"(A) AGGREGATION WITHIN 
85-DAY PERIOD.—All divi-
dends— 
"(i) which are received by the taxpayer (or a person 
described in subparagraph (O) with respect to any 
ic ;3! i 
share of stock, and 
"(ii) which have ex-dividend dates within the same 
T
O ' ' 
period of 85 consecutive days, 
^, 
shall be treated as 1 dividend. 
aionit^'Fii Bi 
i: 
"(B) AGGREGATION WITHIN i 
YEAR WHERE DIVIDENDS 
EXCEED 20 PERCENT OF ADJUSTED BASIS.—All dividends— 
"(i) which are received by the taxpayer (or a person 
described in subparagraph (O) with respect to any 
share of stock, and 
"(ii) which have ex-dividend dates during the same 
period of 365 consecutive days, 
shall be treated as extraordinary dividends if the aggregate 
of such dividends exceeds 20 percent of the taxpayer's 
adjusted basis in such stock (determined without regard to 
this section). 
"(C) SUBSTITUTED BASIS TRANSACTIONS.—In the case of any 
^, 
stock, a person is described in this subparagraph i
f
— 
"(i) the basis of such stock in the hands of such 
person is determined in whole or in part by reference to 
the basis of such stock in the hands of Ihe taxpayer, or 
'^^-" ^ ' 
"(ii) the basis of such stock in the hands of the 
taxpayer is determined in whole or in part by reference 
to the basis of such stock in the hands of such person. 
"(d) SPECIAL RULES.—For purposes of this section— 
"(1) TIME FOR REDUCTION.—Any reduction in basis under sub-
section (a) by reason of any distribution which is an extraordi-
nary dividend shall occur at the beginning of the ex-dividend 
date for such distribution. 
"(2) DISTRIBUTIONS IN KIND.—To the extent any dividend con-
sists of property other than cash, the amount of such dividend 
shall be treated as the fair market value of such property (as of 
the date of the distribution) reduced as provided in section 
301(bX2). 
"(3) 
DETERMINATION OF HOLDING PERIOD.—For purposes of 
determining the holding period of stock under subsection (aX2), 
rules similar to the rules of paragraphs (3) and (4) of section 
246(c) shall apply; except that '1 year' shall be substituted for 
the number of days specified in subparagraph (B) of section 
246(cX3). 
"(4) EX-DIVIDEND DATE.—The term 'ex-dividend date' means 
the date on which the share of stock becomes ex-dividend. 
"(5) EXTENSION TO CERTAIN PROPERTY DISTRIBUTIONS.—In the 
case of any distribution of property (other than cash) to which 
section 301 applies— 
"(A) such distribution shall be treated as a dividend 
J J.. 
without regard to whether the corporation has earnings 
and profits, and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 567 
f 
"(B) the amount so treated shall be reduced by the 
•' 
amount of any reduction in basis under section 301(c)(2) by 
reason of such distribution. 
"(e) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be appropriate to carry out the purposes of this section, 
including regulations providing for the application of this section in 
the case of stock dividends, stock splits, reorganizations, and other 
:ii • J>T 
similar transactions." 
(b) HOLDING PERIODS.— 
(1) 45-DAY HOLDING PERIOD.—Subsection (c) of section 246 (re- 
26 use 246. 
lating to the exclusion of certain dividends) is amended by 
striking out "15" each place it appears and inserting in lieu 
thereof "45". 
(2) RULES FOR COMPUTING HOLDING PERIODS.—Subsection (c) of 
section 246 (relating to the exclusion of certain dividends) is 
• 
amended by adding at the end thereof the following new para- 
I'-r, ,; •:>• 
graph: 
"(4) HOLDING PERIOD REDUCED FOR PERIODS WHERE RISK OF LOSS 
• • 
DIMINISHED.—The holding periods determined under paragraph 
(3) shall be appropriately reduced (in the manner provided in 
regulations prescribed by the Secretary) for any period (during 
such periods) in which— 
'' 
"(A) the taxpayer has an option to sell, is under a contrac-
tual obligation to sell, or has made (and not closed) a short 
sale of, substantially identical stock or securities, 
"(B) the taxpayer is the grantor of an option to buy 
substantially identical stock or securities, or 
.i-^: 
"(C) under regulations prescribed by the Secretary, a 
., 
taxpayer has diminished his risk of loss by holding 1 or 
more other positions with respect to substantially similar or 
related property. 
., 
.r 
^. 
The preceding sentence shall not apply in the case of any 
qualified covered call (as defined in section 1092(c)(4) but with- 
Post, p. 616. 
out regard to the requirement that gain or loss with respect to 
,.; 
the option not be ordinary income or loss)." 
j 
(3) Subparagraph (B) of section 246(c)(1) is amended to read as 
follows: 
.. 
"(B) to the extent that the taxpayer is under an obliga-
tion (whether pursuant to a short sale or otherwise) to 
make related payments with respect to positions in substan-
tially similar or related property." 
(4) Paragraph (3) of section 246(c) is amended by striking out 
the last sentence. 
(c) APPLICATION OF RELATED PERSON RULES TO SECTION 246(c) AND 
CERTAIN OTHER PROVISIONS.—Section 7701 is amended by redesig-
nating subsection (f) as (g) and by inserting after subsection (e) the Ante, p. 518. 
following new subsection: 
"(f) USE OF RELATED PERSONS OR PASS-THRU ENTITIES.—The Secre- Regulations, 
tary shall prescribe such regulations as may be necessary or appro-
priate to prevent the avoidance of those provisions of this title which 
deal with— 
"(1) the linking of borrowing to investment, or 
"(2) diminishing risks, 
through the use of related persons, pass-thru entities, or other 
intermediaries." 
(d) CONFORMING AMENDMENTS.— 
'•s 
98 STAT. 568 
PUBLIC LAW 98-369—JULY 18, 1984 
(1) The table of sections for part IV of subchapter O of chapter 
1 is amended by striking out the item relating to section 1059 
and inserting in lieu thereof the following new items: 
"Sec. 1059. Corporate shareholder's basis in stock reduced by nontaxed por-
tion of extraordinary dividends. 
"Sec. 1060. Cross references." 
26 use 246. 
(2) Paragraph (1) of section 246(b) (relating to limitation on 
aggregate amount of deduction) is amended by striking out "and 
without regard" and inserting in lieu thereof "without regard to 
any adjustment under section 1059, and without regard". 
26USC1016. 
(3) Section 1016(a) (relating to adjustments to basis) is 
amended by striking out "and" at the end of paragraph (24), by 
striking out the period at the end of paragraph (25) and insert-
ing in lieu thereof ", and" and by adding at the end thereof the 
following new paragraph: 
Ante, p. 565. 
"(26) to the extent provided in section 1059 (relating to reduc-
tion in basis for extraordinary dividends)." 
26 use 1059 
(e) EFFECTIVE DATE.— 
note. 
(1) IN GENERAL.—Except as provided in this subsection, the 
amendments made by this section shall apply to distributions 
after March 1, 1984, in taxable years ending after such date. 
(2) SUBSECTION (b).—The amendments made by subsection (b) 
shall apply to stock acquired after the date of the enactment of 
this Act in taxable years ending after such date. 
(3) RELATED PERSON PROVISIONS.—The amendment made by 
subsection (c) shsdl take effect on the date of the enactment of 
this Act. 
SEC. 54. DISTRIBUTIONS OF APPRECIATED PROPERTY BY CORPORATIONS. 
(a) 
GAIN 
RECOGNIZED 
ON 
DISTRIBUTIONS 
OF 
APPRECIATED 
PROPERTY.— 
26 use 311. 
(1) IN GENERAL.—Paragraph (1) of section 311(d) (relating to 
^ 
, 
appreciated property used to redeem stock) is amended to read 
-d 
. -. 
as follows: 
-- • 
"(1) I N GENERAL.—If— 
"(A) a corporation distributes property (other than an 
obligation of such corporation) to a shareholder in a distri-
bution to which subpart A applies, and 
"(B) the fair market value of such property exceeds its 
adjusted bsisis (in the hands of the distributing corporation), 
then gain shall be recognized to the distributing corporation in 
an amount equal to such excess as if the property distributed 
had been sold at the time of the distribution. This subsection 
shall be applied after the application of subsections (b) and (c)." 
(2) EXCEPTIONS.— 
(A) Paragraph (2) of section 311(d) is amended by striking 
' ' > ^ *
i 
out subparagraphs (A) and (B) and inserting in lieu thereof 
the following: 
.taAm'-i>j-<^iil 
"(A) a distribution which is made with respect to quali-
fied stock if— 
"(i) section 302(b)(4) applies to such distribution, or 
"(ii) such distribution is a qualified dividend;". 
(B) Paragraph (2) of section 311(d) is amended by redesig-
nating subparagraphs (C), (D), (E), and (F) as subparagraphs 
T'jiito 
(B), (C), (D), and (E), respectively. 
/ 
(C) Subsection (e) of section 311 is amended by adding at 
the end thereof the following new paragraph: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 569 
"(3) QUALIFIED 
DIVIDEND.—The term 'qualified 
dividend' 
means any distribution of property to a shareholder other than 
a corporation i
f
— 
"(A) such distribution is a dividend, 
"(B) such property was used by the distributing corpora-
f
' 
tion in the active conduct of a qualified business (as defined 
in paragraph (2)), and 
"(C) such property is not property described in paragraph 
(Dor (4) of section 1221." 
(3) CLERICAL AMENDMENT.—The subsection heading of subsec-
tion (d) of section 311 is amended to read as follows: 
26 use 311. 
"(d) DISTRIBUTIONS OF APPRECIATED PROPERTY.—". 
(b) HOLDING PERIOD OF CORPORATE DISTRIBUTEE OF APPRECIATED 
PROPERTY.—Section 301 (relating to distributions of property) is 
26 USC 301. 
amended by redesignating subsection (e) as subsection (f) and by 
inserting after subsection (d) the following new subsection: 
"(e) SPECIAL RULE FOR HOLDING PERIOD OF APPRECIATED PROPERTY 
DISTRIBUTED TO CORPORATION.—For purposes of this subtitle— 
"(1) WHERE GAIN RECOGNIZED UNDER SECTION 3ii(d).—If— 
"(A) property is distributed to a corporation, and 
"(B) gain is recognized on such distribution under para-
' 
graph (1) of section 311(d), 
Ante, p. 568. 
then such corporation's holding period in the distributed prop-
l 
erty shall begin on the date of such distribution. 
"(2) WHERE GAIN NOT RECOGNIZED UNDER SECTION 3ii(d).— 
If— 
i 
"(A) property is distributed to a corporation, 
; 
"(B) gain is not recognized on such distribution under 
ja^ ,-. t. A 
paragraph (1) of section 311(d), and 
"(C) the basis of such property in the hands of such 
J 
corporation is determined under subsection (d)(2)(B), 
c 
then (except for purposes of section 1248) such corporation shall 
not be treated as holding the distributed property during any 
period before the date on which such corporation's holding 
period in the stock began." 
(c) CROSS REFERENCE.—Paragraph (13) of section 1223 (relating to 
Post, p. 890. 
holding period of property) is amended to read as follows: 
"(13) CROSS REFERENCES.— 
"(A) For special holding period provision relating to certain partnership 
distributions, see section 735(b). 
"(B) For special holding period provision relating to distributions of ap-
preciated property to corporations, see section 301(e)." 
Supra. 
(d) EFFECTIVE DATES.— 
26 use 3ii note. 
(1) SUBSECTION (a).—Except as otherwise provided in this 
subsection, the amendments made by subsection (a) shall apply 
to distributions declared on or after June 14, 1984, in taxable 
years ending after such date. 
(2) SUBSECTION (b).—The amendment made by subsection (b) 
f 
shall apply to distributions after the date of the enactment of 
this Act in taxable years ending after such date. 
(3) EXCEPTION FOR DISTRIBUTIONS BEFORE JANUARY i, 1985, TO 
( 
80-PERCENT CORPORATE SHAREHOLDERS.— 
(A) IN GENERAL.—The amendments made by subsection 
(a) shall not apply to any distribution before January 1, 
1985, to an 80-percent corporate shareholder if the basis of 
98 STAT. 570 
PUBLIC LAW 98-369—JULY 18, 1984 
the property distributed is determined under section 
. . 
301(d)(2) of the Internal Revenue Code of 1954. 
(B) 80-PERCENT CORPORATE SHAREHOLDER.—The term "80-
percent corporate shareholder" means, with respect to any 
distribution, any corporation which owns— 
(i) stock in the corporation making the distribution 
possessing at least 80 percent of the total combined 
voting power of all classes of stock entitled to vote, and 
(ii) at least 80 percent of the total number of shares 
, J. 
of all other classes of stock of the distributing corpora-
i 1 'jj^. 1 ai. 
tion (except nonvoting stock which is limited and pre-
ferred as to dividends). 
(C) SPECIAL RULE FOR AFFILIATED GROUP FIUNG CONSOLI-
,,,. ,
f
p J J 
DATED RETURN.—For purposes of this paragraph and para-
graph (4), all members of the same affiliated group (as 
defined in section 1504 of the Internal Revenue Code of 
1954) which file a consolidated return for the taxable year 
which includes the date of the distribution shall be treated 
as 1 corporation. 
(4) EXCEPTION FOR CERTAIN DISTRIBUTIONS WHERE TENDER 
OFFER COMMENCED ON MAY 23, 1984.— 
(A) IN GENERAL.—The amendments made by subsection 
'
^ * " —"'" 
(a) shall not apply to any distribution made before Septem-
ber 1,1986, if— 
(i) such distribution consists of qualified stock held 
" 
'^' * 
(directly or indirectly) on June 15, 1984, by the distrib-
uting corporation, 
(ii) control of the distributing corporation (as defined 
Post, p. 584. 
lebnrj r 
in section 368(c) of the Internal Revenue Code of 1954) 
is acquired other than in a tax-free transaction after 
(
^ 3' f
^
. • 
January 1,1984, but before January 1,1985, 
(iii) a tender offer for the shares of the distributing 
corporation was commenced on May 23, 1984, and was 
amended on May 24,1984, and 
3iiK> , 
(iv) the distributing corporation and the distributee 
corporation are members of the same affiliated group 
,; 8 - c
A 
r* 
(as defined in section 1504 of such Code) which filed a 
consolidated return for the taxable year which includes 
the date of the distribution. 
If the common parent of any affiliated group filing a consoli-
dated return meets the requirements of clauses (ii) and (iii), 
, each other member of such group shall be treated as meeting 
.«,>!i 
' 
such requirements. 
(B) QUALIFIED STOCK.—For purposes of subparagraph (A), 
-4o; : :
< ki i ifii 
the term "qualified stock" means any stock in a corporation 
which on June 15, 1984, was a member of the same affili-
ated group as the distributing corporation and which filed a 
consolidated return with the distributing corporation for 
the taxable year which included June 15,1984. 
(5) EXCEPTION FOR CERTAIN DISTRIBUTIONS.— 
(A) IN GENERAL.—The amendments made by this section 
shall not apply to distributions before February 1,1986, if— 
or , '.Si 
(i) the distribution consists of property held on March 
7, 1984 (or property acquired thereafter in the ordinary 
nc.; + «>" 
course of a trade or business) by— 
(I) the controlled corporation, or 
(II) any subsidiary controlled corporation, 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 571 
?3r 
- 
(ii) a group of 1 or more shareholders (acting in 
i • 
concert)— 
h 
(I) acquired, during the 1-year period ending on 
February 1, 1984, at least 10 percent of the out-
10 > } r : 
standing stock of the controlled corporation, 
(II) held at least 10 percent of the outstanding 
sr> ' 
'A-j 
HS 
?>"^eoq '• 
stock of the common parent on February 1, 1984, 
lo I 
and 
; 
(III) submitted a proposal for distributions of 
r^a A
? .'«;. 
interests in a royalty trust from the common 
r. 
parent or the controlled corporation, and 
(iii) the common parent acquired control of the con-
K;,o >,. 
trolled corporation during the 1-year period ending on 
• ; - 
February 1,1984. 
(B) DEFINITIONS.—For purposes of this paragraph— 
(i) The term "common parent" has the meaning 
given such term by section 1504(a) of the Internal 
j^ 
Revenue Code of 1954. 
Post, p. 577. 
, 
(ii) The term "controlled corporation" means a corpo-
ration with respect to which 50 percent or more of the 
outstanding stock of its common parent is tendered for 
;, 
pursuant to a tender offer outstanding on March 7, 
1984. 
; , ^, 1, 
(iii) The term "subsidiary controlled corporation" 
^ ' ' . 
means any corporation with respect to which the con- 
„. ,,,, .,^, 
trolled corporation has control (within the meaning of 
section 368(c) of such Code) on March.7,1984. 
^''-' "'^' (6) EXCEPTION FOR CERTAIN DISTRIBUTION OF PARTNERSHIP IN-
TERESTS.—The amendments made by this section shall not apply 
to any distribution before February 1, 1986, of an interest in a 
partnership the interests of which were being traded on a 
national securities exchange on March 7,1984, if— 
(A) such interest was owned by the distributing corpora-
tion (or any member of an affiliated group within the 
meaning of section 1504(a) of such Code of which the distrib-
'• 
uting corporation was a member) on March 7,1984, 
• 
(B) the distributing corporation (or any such affiliated 
member) owned more than 80 percent of the interests in 
such partnership on March 7,1984, and 
(C) more than 10 percent of the interests in such partner-
ship was offered for sale to the public during the 1-year 
'i »*«" 
period ending on March 7,1984. 
SEC. 55. EXTENSION OF HOLDING PERIOD FOR LOSSES ATTRIBUTABLE TO 
CAPITAL GAIN DIVIDENDS OF REGULATED INVESTMENT COM-
PANIES OR REAL ESTATE INVESTMENT TRUSTS. 
(a) REGULATED INVESTMENT COMPANIES.— 
(1) IN GENERAL.—Subparagraph (A) of section 852(bX4) (relat- 
26 USC 852. 
ing to loss attributable to capital gain dividend) is amended to 
1 
read as follows: 
"(A) Loss ATTRIBUTABLE TO CAPITAL GAIN DIVIDEND.—If— 
ihu'- 
"(i) subparagraph (B) or (D) of paragraph (3) provides 
y 
M J i 
that any amount with respect to any share is to be 
treated as long-term capital gain, and 
"(ii) such share is held by the taxpayer for 6 months 
or less, 
!
<
) 
98 STAT. 572 
PUBLIC LAW 98-369—JULY 18, 1984 
fii . 
then any loss (to the extent not disallowed under subpara-
graph (B)) on the sale or exchange of such share shall, to 
the extent of the amount described in clause (i), be treated 
as a long-term capital loss." 
(2) DETERMINATION OF HOLDING PERIODS.—Subparagraph (C) of 
26 use 852. 
section 852(b)(4) is amended to read as follows: 
"(C) DETERMINATION OF HOLDING PERIODS.—For purposes 
of this paragraph, the rules of paragraphs (3) and (4) of 
Ante, p. 567. 
section 246(c) shall apply in determining the period for 
which the taxpayer held any share of stock; except that for 
the number of days specified in subparagraph (B) of section 
246(c)(3) there shall be substituted— 
"(i)'6 months'for purposes of subparagraph (A), and 
"(ii) '30 days' for purposes of subparagraph (B)." 
(3) EXCEPTION FOR LOSSES INCURRED UNDER PERIODIC LIQUIDA-
TION PLANS.—Paragraph (4) of section 852(b) is amended by 
adding at the end thereof the following new subparagraph: 
' 
' -^'- 
"(D) LOSSES INCURRED UNDER A PERIODIC LIQUIDATION 
PLAN.—To the extent provided in regulations, subparagraph 
(A) shall not apply to losses incurred on the sale or ex-
change of shares of stock in a regulated investment compa-
ny pursuant to a plan which provides for the periodic 
liquidation of such shares." 
(b) REAL ESTATE INVESTMENT TRUST.—Paragraph (7) of section 
26 use 857. 
857(b) (relating to loss on sale or exchange of stock in real estate 
investment trust) is amended to read as follows: 
"(7) Loss ON SALE OR EXCHANGE OF STOCK HELD 6 MONTHS OR 
LESS.— 
"(A) IN GENERAL.—If— 
"(i) subparagraph (B) of paragraph (3) provides that 
any amount with respect to any share or beneficial 
interest is to be treated as a long-term capital gain, and 
"(ii) the taxpayer has held such share or interest for 
6 months or less, 
then any loss on the sale or exchange of such share or 
interest shall, to the extent of the amount described in 
clause (i), be treated as a long-term capital loss. 
"(B) DETERMINATION OF HOLDING PERIOD.—For purposes of 
this paragraph, the rules of paragraphs (3) and (4) of section 
Ante, p. 567. 
246(c) shall apply in determining the period for which the 
taxpayer has held any share of stock or beneficial interest; 
except that '6 months' shall be substituted for the number 
of days specified in subparagraph (B) of section 246(c)(3). 
"(C) EXCEPTION FOR LOSSES INCURRED UNDER PERIODIC LIQ-
UIDATION PLANS.—To the extent provided in regulations, 
subparagraph (A) shall not apply to any loss incurred on 
. >
«
; OHi- f ^ 
the sale or exchange of shares of stock of, or beneficial 
'.. 
v
^
i 
interest in, a real estate investment trust pursuant to a 
plan which provides for the periodic liquidation of such 
shares or interests." 
26 use 852 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to losses incurred with respect to shares of stock and benefi-
cial interests with respect to which the taxpayer's holding period 
begins after the date of the enactment of this Act. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 573 
PART III—MISCELLANEOUS PROVISIONS 
SEC. 56. DENIAL OF DEDUCTIONS FOR CERTAIN EXPENSES INCURRED IN 
CONNECTION WITH SHORT SALES. 
(a) SHORT SALE PAYMENTS ATTRIBUTABLE TO DIVIDENDS.—Section 
263 (relating to capital expenditures) is amended by adding at the 
26 USC 263. 
end thereof the following new subsection: 
"(h) PAYMENTS IN LIEU OF DIVIDENDS IN CONNECTION WITH SHORT 
SALES.— 
"(1) IN GENERAL.—If— 
"(A) a taxpayer makes any payment with respect to any 
stock used by such taxpayer in a short sale and such 
payment is in lieu of a dividend payment on such stock, and 
, 
"(B) the closing of such short sale occurs on or before the 
45th day after the date of such short sale, 
. 
then no deduction shall be allowed for such payment. The basis 
Mii :j^ro '-,'-. 
of the stock used to close the short sale shall be increased by the 
amount not allowed as a deduction by reason of the preceding 
sentence. 
5 
"(2) LONGER PERIOD IN CASE OF EXTRAORDINARY DIVIDENDS.—If 
the payment described in paragraph (1)(A) is in respect of an 
extraordinary dividend, paragraph (1)(B) shall be applied by 
substituting 'the day 1 year after the date of such short sale' for 
'the 45th day after the date of such short sale'. 
"(3) EXTRAORDINARY DIVIDEND.—For purposes of this subsec-
i 
tion, the term 'extraordinary dividend' has the meaning given 
to such term by section 1059(c); except that such section shall be 
Ante, p. 565. 
applied by treating the amount realized by the taxpayer in the 
short sale as his adjusted basis in the stock. 
"(4) SPECIAL RULE WHERE RISK OF LOSS DIMINISHED.—The run-
ning of any period of time applicable under paragraph (1)(B) (as 
•' 
modified by paragraph (2)) shall be suspended during any period 
in which— 
"(A) the taxpayer holds, has an option to buy, or is under 
\: 
a contractual obligation to buy, substantially identical stock 
rw . H 
Qj. securities, or 
"(B) under regulations prescribed by the Secretary, a 
.*fO H 
taxpayer has diminished his risk of loss by holding 1 or 
more other positions with respect to substantially similar or 
^^ . . 
related property. 
"(5) DEDUCTION ALLOWABLE TO EXTENT OF ORDINARY INCOME 
FROM AMOUNTS PAID BY LENDING BROKER FOR USE OF COL-
LATERAL.— 
"(A) IN GENERAL.—Paragraph (1) shall apply only to the 
extent that the payments or distributions with respect to 
any short sale exceed the amount which— 
"(i) is treated as ordinary income by the taxpayer, 
and 
"(ii) is received by the taxpayer as compensation for 
the use of any collateral with respect to any stock used 
in such short sale. 
"(B) EXCEPTION NOT TO APPLY TO EXTRAORDINARY DIVI-
DENDS.—Subparagraph (A) shall not apply if one or more 
payments or distributions is in respect of an extraordinary 
dividend. 
-too fjBl 'JSII K 
98 STAT. 574 
PUBLIC LAW 98-369—JULY 18, 1984 
"(6) APPUCATION OF THIS SUBSECTION WITH SUBSECTION (g).— 
In the case of any short sale, this subsection shall be applied 
before subsection (g)." 
(b) INVESTMENT INTEREST TO INCLUDE CERTAIN EXPENSES INVOLV-
26 use 163. 
iNG SHORT SALES.—Subparagraph (D) of section 163(d)(3) (defining 
investment interest) is amended to read as follows: 
"(D) INVESTMENT INTEREST.— 
"(i) IN GENERAL.—The term 'investment interest' 
means interest paid or accrued on indebtedness in-
curred or continued to purchase or carry property held 
for investment. 
"(ii) CERTAIN EXPENSES INCURRED IN CONNECTION 
WITH SHORT SALES.—For purposes of clause (i), the term 
'interest' includes any amount allowable as a deduction 
in connection with personal property used in a short 
sale." 
26 use 265. 
(c) APPUCATION OF SECTION 265(2) TO SHORT SALES.—Section 265 
(relating to denial of deduction of interest relating to tax-exempt 
income) is amended by adding at the end thereof the following new 
paragraph: 
"(5) SPECIAL RULES FOR APPUCATION OF PARAGRAPH (2) IN THE 
CASE OF SHORT SALES.—For purposes of paragraph (2)— 
"(A) IN GENERAL.—The term 'interest' includes any 
amount paid or incurred— 
"(i) by any person making a short sale in connection 
with personal property used in such short sale, or 
"(ii) by any other person for the use of any collateral 
.:? • q ittk 
with respect to such short sale. 
y,; 
"(B) EXCEPTION WHERE NO RETURN ON CASH COLLATERAL.— 
If— 
"(i) the taxpayer provides cash as collateral for any 
short sale, and 
"(ii) the taxpayer receives no material earnings on 
such cash during the period of the sale, 
subparagraph (A)(i) shall not apply to such short sale." 
26 use 163 note. 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply to short sales after the date of the enactment of this Act in 
taxable years ending after such date. 
SEC. 57. NONRECOGNITION OF GAIN OR LOSS BY CORPORATION ON OP-
TIONS WITH RESPECT TO ITS STOCK. 
26 use 1032. 
(a) GENERAL RULE.—Subsection (a) of section 1032 (relating to 
exchange of stock of property) is amended by adding at the end 
thereof the following new sentence: "No gain or loss shall be recog-
nized by a corporation with respect to any lapse or acquisition of an 
option to buy or sell its stock (including treasury stock)." 
26 use 1032 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
^°^^- 
shall apply to options acquired or lapsed after the date of the 
enactment of this Act in taxable years ending after such date. 
SEC. 58. AMENDMENTS TO ACCUMULATED EARNINGS TAX. 
(a) CLARIFICATION THAT TAX APPUES TO CORPORATIONS WHICH ARE 
26 use 532. 
NOT CLOSELY HELD.—Section 532 (relating to corporations subject to 
accumulated earnings tax) is amended by adding at the end thereof 
the following new subsection: 
"(c) APPUCATION DETERMINED WITHOUT REGARD TO NUMBER OF 
SHAREHOLDERS.—The application of this part to a corporation shall 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 575 
be determined without regard to the number of shareholders of such 
corporation." 
(b) TREATMENT OF CAPITAL GAINS AND LOSSES.—Subsection (b) of 
section 535 (defining accumulated taxable income) is amended by 
26 USC 535. 
striking out paragraphs (5), (6), and (7) and inserting in lieu thereof 
the following: 
"(5) CAPITAL LOSSES.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), there shall be allowed as a deduction an amount equal 
to the net capital loss for the taxable year (determined 
,. ,/ 
, ^ 
without regard to paragraph (7)(A)). 
^ 
".., ,. 
"(B) RECAPTURE OF PREVIOUS DEDUCTIONS FOR CAPITAL 
GAINS.—The aggregate amount allowable as a deduction 
under subparagraph (A) for any taxable year shall be re-
Hi) •: 
duced by the lesser o
f
— 
"(i) the nonrecaptured capital gains deductions, or 
"(ii) the amount of the accumulated earnings and 
crrDStja' 
,,,^1 
profits of the corporation as of the close of the preced-
ing taxable year. 
"(C) NONRECAPTURED CAPITAL GAINS DEDUCTIONS.—For 
purposes of subparagraph (B), the term'nonrecaptured cap-
ital gains deductions' means the excess o
f
— 
"(i) the aggregate amount allowable as a deduction 
under paragraph (6) for preceding taxable years begin-
ning after the date of the enactment of the Tax Reform 
'' 
' ' 
Act of 1984, over 
>irate, p. 494. 
"(ii) the aggregate of the reductions under subpara-
graph (B) for preceding taxable years. 
;' 
"(6) NET CAPITAL GAINS.— 
^' * 
"(A) IN GENERAL.—There 
shall be allowed 
as a 
deduction— 
J 
"(i) the net capital gain for the taxable year (deter-
^\ "• 
mined with the application of paragraph (7)), reduced 
-n:. 
by 
'(ii) the taxes attributable to such net capital gain. 
— ar 
"(B) ATTRIBUTABLE TAXES.—For purposes of subparagraph 
'c'QQ 
(A), the taxes attributable to the net capital gain shall be an 
amount equal to the difference between— 
"(i) the taxes imposed by this subtitle (except the tax 
imposed by this part) for the taxable year, and 
tc .:,;.',, 
"(ii) such taxes computed for such year without in-
cluding in taxable income the net capital gain for the 
taxable year (determined without the application of 
I 
paragraph (7)). 
"(7) CAPITAL LOSS CARRYOVERS.— 
"(A) UNLIMITED CARRYFORWARD.—The net capital loss for 
'^^:•^ 
any taxable year shall be treated as a short-term capital 
loss in the next taxable year. 
"(B) SECTION 1212 INAPPLICABLE.—No allowance shall be 
made for the capital loss carryback or carryforward pro-
vided in section 1212. 
"(8) SPECIAL RULES FOR MERE HOLDING OR INVESTMENT COMPA-
NIES.—In the case of a mere holding or investment company— 
"(A) CAPITAL LOSS DEDUCTION, ETC., NOT ALLOWED.—Para-
graphs (5) and (7)(A) shall not apply. 
r»> 
"(B) DEDUCTION FOR CERTAIN OFFSETS.—There shall be 
allowed as a deduction the net short-term capital gain for 
\
<
» 10 i '?8iJ n 
98 STAT. 576 
PUBLIC LAW 98-369—JULY 18, 1984 
the taxable year to the extent such gain does not exceed the 
amount of any capital loss carryover to such taxable year 
under section 1212 (determined without regard to para-
.Sgd:>P-jn 
graph (7)(B)). 
"(C) EARNINGS AND PROFITS.—For purposes of subchapter 
C, the accumulated earnings and profits at any time shall 
not be less than they would be if this subsection had applied 
to the computation of earnings and profits for all taxable 
years beginning after the date of the enactment of the T^x 
Ante, p. 494. 
Reform Act of 1984." 
26 use 532 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act. 
SEC. 59. REPEAL OF STOCK FOR DEBT EXCEPTION FOR PURPOSES OF 
DETERMINING INCOME FROM DISCHARGE OF INDEBTEDNESS. 
26 use 108. 
(a) GENERAL RULE.—Subsection (e) of section 108 (relating to 
income from discharge of indebtedness) is amended by adding at the 
end thereof the following new paragraph: 
"(10) INDEBTEDNESS SATISFIED BY CORPORATION'S STOCK.— 
"(A) IN GENERAL.—For purposes of determining income of 
a debtor from discharge of indebtedness, if a debtor corpora-
tion transfers stock to a creditor in satisfaction of its indebt-
edness, such corporation shall be treated as having satisfied 
the indebtedness with an amount of money equal to the fair 
"* 
• 
market value of the stock. 
"(B) EXCEPTION FOR TITLE ii CASES AND INSOLVENT DEBT-
ORS.—Subparagraph (A) shall not apply in the case of a 
11 use 101 et 
,, 
debtor in a title 11 case or to the extent the debtor is 
s^9- 
" 
insolvent." 
(b) EXCEPTION FOR CERTAIN WORKOUTS.— 
(1) I N GENERAL.—Paragraph (10) of section 108(e) (as added by 
subsection (a)) is amended by adding at the end thereof the 
following new subparagraph: 
"(C) EXCEPTION FOR TRANSFERS IN CERTAIN WORKOUTS.— 
"(i) I N GENERAL.—Subparagraph (A) shall not apply 
to any transfer of stock in a qualified workout. 
"(ii) QUALIFIED WORKOUT.—For purposes of clause (i), 
the term 'qualified workout' means any plan under 
which stock is transferred to creditors in satisfaction of 
indebtedness if— 
K ;; 
"(I) because of cash flow and credit problems, the 
corporation making such transfer will have trouble 
in meeting liabilities coming due during the next 
f
- ^ ' 
12 months to such an extent that there is a sub-
stantial threat of involuntary proceedings relating 
to insolvency or bankruptcy, 
"(II) such corporation in any report to its share-
-
w 
holders for the period during which such transfer 
occurs includes a statement that such corporation 
believes it meets the requirement of subclause (I) 
and that it is availing itself of the workout provi-
-fc 
sions of this subparagraph, 
"(III) the holders of more than 50 percent of the 
total indebtedness of the corporation approve such 
plan, and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 577 
"(IV) at least 25 percent of the total indebtedness 
of the corporation is extinguished by transfers pur-
suant to such plan." 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall take effect as if it had been included in the amendments 
made by subsections (e) and (f) of section 806 of the Tax Reform 
Act of 1976. 
(b) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendment made by subsection (a) shall apply to 
transfers after the date of the enactment of this Act in taxable 
years ending after such date. 
(2) TRANSITIONAL RULE.—The amendment made by subsection 
(a) shall not apply to the transfer by a corporation of its stock in 
exchange for debt of the corporation after the date of the 
enactment of this Act if such transfer is— 
(A) pursuant to a written contract requiring such transfer 
which was binding on the corporation at all times on June 
7, 1984, and at all times after such date but only if the 
transfer takes place before January 1, 1985, and only if the 
transferee held the debt at all times on June 7, 1984, or 
(B) pursuant to the exercise of an option to exchange debt 
for stock but only if such option was in effect at all times on 
June 7, 1984, and at all times after such date and only if at 
all times on June 7,1984, the option and the debt were held 
by the same person. 
(3) CERTAIN TRANSFERS TO CONTROLLING SHAREHOLDER.—The 
amendment made by subsection (a) shall not apply to any 
transfer before January 1, 1985, by a corporation of its stock in 
exchange for debt of such corporation if— 
(A) such transfer is to another corporation which at all 
times on June 7,1984, owned 75 percent or more of the total 
value of the stock of the corporation making such transfer, 
and 
(B) immediately after such transfer, the transferee corpo-
ration owns 80 percent or more of the total value of the 
stock of the transferor corporation. 
(4) 
CERTAIN TRANSFERS PURSUANT TO DEBT RESTRUCTURE 
AGREEMENT.—The amendment made by subsection (a) shall not 
apply to the transfer by a corporation of its stock in exchange 
for debt of the corporation after the date of the enactment of 
this Act and before January 1,1985, if— 
(A) such transfer is covered by a debt restructure agree-
ment entered into by the corporation during November 
1983, and 
(B) such agreement was specified in a registration state-
ment filed with the Securities and Exchange Commission 
by the corporation on March 7,1984. 
SEC. 60. AFFILIATED GROUP DEFINED. 
(a) IN GENERAL.—Subsection (a) of section 1504 (defining affiliated 
group) is amended to read as follows: 
"(a) AFFILIATED GROUP DEFINED.—For purposes of this subtitle— 
"(1) IN GENERAL.—The term 'affiliated group' means— 
"(A) 1 or more chains of includible corporations con-
nected through stock ownership with a common parent 
corporation which is an includible corporation, but only i
f
— 
26 use 108 note. 
26 use 368, 382, 
383. 
26 use 108 note. 
26 use 1504. 
98 STAT. 578 
PUBLIC LAW 98-369—JULY 18, 1984 
J 
"(B)(i) the common parent owns directly stock meeting 
the requirements of paragraph (2) in at least 1 of the other 
a o. 
includible corporations, and 
"(ii) stock meeting the requirements of paragraph (2) in 
each of the includible corporations (except the common 
^6Z 
parent) is owned directly by 1 or more of the other includ-
ible corporations. 
.9 » ^ 
- • 
"(2) 80-PERCENT VOTING AND VALUE TEST.—The Ownership of 
stock of any corporation meets the requirements of this para-
graph if it— 
"(A) possesses at least 80 percent of the total voting 
power of the stock of such corporation, and 
"(B) has a value equal to at least 80 percent of the total 
value of the stock of such corporation. 
"(3) 5 YEARS MUST ELAPSE BEFORE RECONSOLIDATION.— 
"(A) IN GENERAL.—If— 
"(i) a corporation is included (or required to be in-
cluded) in a consolidated return filed by an affiliated 
group for a taxable year which includes any period 
• 
after December 31,1984, and 
"(ii) such corporation ceases to be a member of such 
group in a taxable year beginning after December 31, 
1984, 
with respect to periods after such cessation, such corpora-
tion (and any successor of such corporation) may not be 
included in any consolidated return filed by the affiliated 
group (or by another affiliated group with the same 
common parent or a successor of such common parent) 
before the 61st month beginning after its first taxable year 
in which it ceased to be a member of such affiliated group. 
"(B) 
SECRETARY MAY WAIVE APPLICATION OF SUBPARA-
GRAPH (A).—The Secretary may waive the application of 
subparagraph (A) to any corporation for any period subject 
to such conditions as the Secretary may prescribe. 
"(4) STOCK NOT TO INCLUDE CERTAIN PREFERRED STOCK.—For 
purposes of this subsection, the term 'stock' does not include 
any stock which— 
"(A) is not entitled to vote, 
"(B) is limited and preferred as to dividends and does not 
; 
participate in corporate growth to any significant extent, 
"(C) has redemption and liquidation rights which do not 
exceed the paid-in capital or par value represented by such 
stock (except for a reasonable redemption premium in 
excess of such paid-in capital or par value), and 
"(D) is not convertible into another class of stock. 
"(5) REGULATIONS.—The Secretary shall prescribe such regu-
lations as may be necessary or appropriate to carry out the 
purposes of this subsection, including (but not limited to) 
regulations— 
t 
i . )
^ 
"(A) which treat warrants, obligations convertible into 
stock, and other similar interests as stock, and stock as not 
stock, 
"(B) which treat options to acquire or sell stock as having 
.f.A'. 
been exercised, 
"(C) which provide that the requirements of paragraph 
(2XB) shall be treated as met if the affiliated group, in 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 579 
reliance on a good faith determination of value, treated 
such requirements as met, 
"(D) which disregard an inadvertent ceasing to meet the 
requirements of paragraph (2XB) by reason of changes in 
relative values of different classes of stock, 
"(E) which provide that transfers of stock within the 
group shall not be taken into account in determining 
whether a corporation ceases to be a member of an affili-
to b-r 
ated group, and 
"(F) which disregard changes in voting power to the 
oi 
extent such changes are disproportionate to related changes 
in value." 
(b) EFFECTIVE DATE.— 
26 use 1504 
^. .„ 
(1) IN GENERAL.—Except as otherwise provided in this subsec- note. 
tion, the amendment made by subsection (a) shedl apply to 
taxable years beginning after December 31,1984. 
(2) SPECIAL RULE FOR CORPORATIONS AFFIUATED ON JUNE 22, 
1984.—In the case of a corporation which on June 22, 1984, is a 
bm member of an affiliated group which files a consolidated return 
;v:! • for such corporation's taxable year which includes June 22, 
1984, for purposes of determining whether such corporation 
continues to be a member of such group for taxable years 
r beginning before January 1, 1988, the amendment made by 
subsection (a) shall not apply. 
(3) SPECIAL RULE NOT TO APPLY TO SELL-DOWNS AFTER JUNE 22, 
1984.—If— 
(A) the requirements of subsection (bX2) are satisfied with 
respect to a corporation, 
(B) more than a de minimis amount of the stock of such 
corporation is sold or exchanged (including in a redemp-
tion), or issued (other than in the ordinary course of busi-
KroiTi ffc ness) after June 22,1984, and 
(C) the requirements of the amendment made by subsec-
/^rfJQ.Krd tion (a) are not satisfied after such sale, exchange, or issu-
ance, then the amendments made by subsection (a) shall 
apply for purposes of determining whether such corpora-
tion continues to be a member of such group. 
(4) EXCEPTION FOR CERTAIN SELL-DOWNS.—Subsection 
(bX2) 
(and not subsection (bX3)) will apply to a corporation if such 
corporation issues or sells stock after June 22,1984, pursuant to 
a registration statement filed with the Securities and Exchange 
Commission on or before June 22, 1984, but only if the require-
ments of the amendment made by subsection (a) (substituting 
"more than 50 percent" for "at least 80 percent" in paragraph 
(2XB) of section 1504(a) of the Internal Revenue Code of 1954) Ante, p. 577. 
«fi* are satisfied immediately after such issuance or sale and at all 
times thereafter until the first day of the first taxable year 
?rt; beginning after December 31,1987. 
(5) NATIVE CORPORATIONS.—The amendments made by subsec-
i)u 
tion (a) shall not apply to any Native Corporation established 
under the Alaska Native Claims Settlement Act (43 U.S.C. 1601 
et seq.) during any taxable year beginning before 1992 or any 
part thereof in which such Corporation is subject to the provi-
sions of section 7(hXl) of such Act (43 U.S.C. 1606 (hXD). 
SEC. 61. PROVISIONS RELATING TO EARNINGS AND PROFITS. 
, 
, , 
(a) ADJUSTMENTS TO EARNINGS AND PROFITS.— 
98 STAT. 580 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 312. 
(1) IN GENERAL.—Section 312 (relating to effect on earnings 
and profits) is amended by adding at the end thereof the follow-
ing new subsection: 
"(n) ADJUSTMENTS TO EARNINGS AND PROFITS TO MORE ACCU-
RATELY REFLECT ECONOMIC GAIN AND LOSS.—For purposes of com-
puting the earnings and profits of a corporation, the following 
adjustments shall be made: 
"(1) CONSTRUCTION PERIOD CARRYING CHARGES.— 
"(A) IN GENERAL.—In the case of any amount paid or 
incurred for construction period carrying charges— 
"(i) no deduction shall be allowed with respect to 
such amount, and 
H'-, •.,:••. 
"(ii) the basis of the property with respect to which 
such charges are allocable shall be increased by such 
amount. 
"(B) CONSTRUCTION PERIOD CARRYING CHARGES DEFINED.— 
For purposes of this paragraph, the term 'construction 
period carrying charges means all— 
"(i) interest paid or accrued on indebtedness incurred 
or continued to acquire, construct, or carry property, 
"(ii) property taxes, and 
"(iii) similar carrying charges, 
to the extent such interest, taxes, or charges are attributa-
ble to the construction period for such property and would 
be allowable as a deduction in determining taxable income 
under this chapter for the taxable year in which paid or 
incurred (determined without regard to section 189). 
"(C) 
CONSTRUCTION PERIOD.—The term 
'construction 
period' has the meaning given such term by section 189(e)(2) 
(determined without regard to any real property limita-
tion). 
"(2) INTANGIBLE DRILLING COSTS AND MINERAL EXPLORATION 
AND DEVELOPMENT COSTS.— 
"(A) INTANGIBLE DRILLING COSTS.—Any amount allowable 
as a deduction under section 263(c) in determining taxable 
income (other than costs incurred in connection with a 
nonproductive well)— 
"(i) shall be capitalized, and 
"(ii) shall be allowed as a deduction ratably over the 
60-month period beginning with the month in which 
the production from the well begins. 
"(B) MINERAL EXPLORATION AND DEVELOPMENT COSTS.— 
Any amount allowable as a deduction under section 616(a) 
or 617 in determining taxable income— 
,?T<' q ! 
"(i) shall be capitalized, and 
"(ii) shall be allowed as a deduction ratably over the 
120-month period beginning with the later o
f
— 
"(I) the month in which production from the 
3 
deposit begins, or 
"(II) the month in which such amount was paid 
or incurred. 
"(3) CERTAIN AMORTIZATION PROVISIONS NOT TO APPLY.—Sec-
tions 173,177, and 248 shall not apply. 
"(4) 
CERTAIN UNTAXED APPRECIATION OF DISTRIBUTED PROP-
ERTY.—In the case of any distribution of property by a corpora-
Ante, p. 568. 
tion described in section 311(d), earnings and profits shall be 
increased by the amount of any gain which would be includible 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 581 
in gross income for any taxable year if section 311(d)(2) did not 
Ante, p. 568. 
apply. 
"(5) LIFO INVENTORY ADJUSTMENTS.—Earnings and profits 
shall be increased or decreased by the amount of any increase or 
decrease in the LIFO recapture amount (determined under 
section 336(b)(3)) as of the close of each taxable year; except that 
any decrease below the LIFO recapture amount as of the close 
of the taxable year preceding the first taxable year to which this 
*-^ .<i, M-.K 
paragraph applies to the taxpayer shall be taken into account 
only to the extent provided in regulations prescribed by the 
Secretary. 
"(6) INSTALLMENT SALES.—In the case of any installment sale, 
earnings and profits shall be computed as if the corporation did 
not use the installment method. 
"(7) COMPLETED CONTRACT METHOD OF ACCOUNTING.—In 
the 
case of a taxpayer who uses the completed contract method of 
accounting, earnings and profits shall be computed as if 
such taxpayer used the percentage of completion method of 
/ r .^ 
aj^ 
accounting. 
"(8) REDEMPTIONS.—If a corporation distributes amounts in a 
redemption to which section 302(a) or 303 applies, the part of 
such distribution which is properly chargeable to earnings and 
profits shall be an amount which is not in excess of the ratable 
share of the earnings and profits of such corporation accumu-
lated after February 28, 1913, attributable to the stock so 
redeemed. 
"(9) SPECIAL RULE FOR CERTAIN FOREIGN CORPORATIONS.—In 
the case of a foreign corporation described in subsection (k)(4), 
paragraphs (5), (6), and (7) shall apply only in the case of taxable 
years beginning after December 31,1985." 
(2) CONFORMING AMENDMENTS.— 
(A) Section 312(j) (relating to earnings and profits of 26USC312. 
foreign investment companies) is amended by striking out 
paragraph (3). 
(B) Subsection (e) of section 312 is hereby repealed. 
(b) ADJUSTMENT TO EFFECT OF DEPRECIATION ON EARNINGS AND 
CQ^I?: w j a : 
PROFITS.—The table contained in section 312(k)(3)(A) (relating to 
recovery property), as amended by this Act, is amended by striking 
out "35 years" in the item relating to 15-year real property and 20-
year real property and inserting in lieu thereof "40 years". 
.;}». ..i fiink 
(c) 
DISTRIBUTIONS OF OBUGATIONS 
HAVING 
ORIGINAL ISSUE 
DISCOUNT.— 
(1) EFFECT ON EARNINGS AND PROFITS.— 
(A) Paragraph (2) of section 312(a) (relating to effect of 
earnings and profits) is amended to read as follows: 
"(2) the principal amount of the obligations of such corpora-
tion (or, in the case of obligations having original issue discount, 
^-'^ • >sti 
the aggregate issue price of such obligations), and". 
(B) Section 312, as amended by subsection (a), is amended Ante, p. 580. 
by adding at the end thereof the following new subsection: 
"(o) DEFINITION OF ORIGINAL ISSUE DISCOUNT AND ISSUE PRICE FOR 
PURPOSES OF SUBSECTION (a)(2).—For purposes of subsection (a)(2), 
the terms 'original issue discount' and 'issue price' have the same 
respective meanings as when used in subpart A of part V of sub-
chapter P of this chapter." 
Ante, p. 531. 
(2) TREATMENT UNDER ORIGINAL ISSUE DISCOUNT RULES.—Sub-
section (a) of section 1275 (relating to other definitions and Ante, p. 540. 
98 STAT. 582 
PUBLIC LAW 98-369—JULY 18, 1984 
- 
-; 
special rules), as added by this Act, is amended by adding at the 
end thereof the following new paragraph: 
"(4) 
TREATMENT OF OBUGATIONS DISTRIBUTED TO CORPORA-
TIONS.—Any debt obligation of a corporation distributed by such 
corporation with respect to its stock shall be treated as if it had 
been issued by such corporation for property." 
(d) SPECIAL RULE IN CASE OF DISTRIBUTIONS RECEIVED BY 20 PER-
Ante, p. 569. 
CENT CORPORATE SHAREHOLDER.—Scction 301 (relating to distribu-
tions of property) is amended by redesignating subsection (0 as 
subsection (g) and by inserting after subsection (e) the following new 
subsection: 
"(f) SPECIAL RULE FOR CERTAIN DISTRIBUTIONS RECEIVED BY 20 
PERCENT CORPORATE SHAREHOLDER.— 
"(1) IN GENERAL.—Except to the extent otherwise provided in 
regulations, solely for purposes of determining the taxable 
income of any 20 percent corporate shareholder (and its 
adjusted basis in the stock of the distributing corporation), 
Ante, p. 580. 
section 312 shall be applied with respect to the distributing 
corporation as if it did not contain subsection (n) thereof. 
"(2) 20 PERCENT CORPORATE SHAREHOLDER.—For purpOSeS of 
this subsection, the term '20 percent corporate shareholder' 
means, with respect to any distribution, any corporation which 
owns (directly or through the application of section 318)— 
"(A) stock in the corporation making the distribution 
possessing at least 20 percent of the total combined voting 
power of all classes of stock entitled to vote, or 
"(B) at least 20 percent of the total value of all stock of 
the distributing corporation (except nonvoting stock which 
is limited and preferred as to dividends), 
but only if, but for this subsection, the distributee corporation 
would be entitled to a deduction under section 243, 244, or 245 
.£' 8 J 
with respect to such distribution. 
"(3) REGULATIONS.—The Secretary shall prescribe such regu-
lations as may be necessary or appropriate to carry out the 
purposes of this section." 
26 u s e 312 note. 
(e) EFFECTIVE D A T E S . — 
(1) ADJUSTMENTS TO EARNINGS AND PROFITS.— 
(A) PARAGRAPHS (i), (2), AND (3) OF SECTION 3i2(n).— 
The provisions of paragraphs (1), (2), and (3) of section 312(n) 
Ante, p. 580. 
of the Internal Revenue Code of 1954 (as added by subsec-
tion (a)) shall apply to amounts paid or incurred in taxable 
years beginning after September 30,1984. 
(B) PARAGRAPH (4) OF SECTION 312 (n).—The provisions of 
paragraph (4) of section 312(n) of such Code (as so added) 
shall apply to distributions after September 30,1984; except 
that such provisions shall not apply to any distribution to 
Ante, p. 568. 
which the amendments made by section 54(a) of this Act do 
not apply. 
i 
(C) LIFO INVENTORY.—The provisions of paragraph (5) of 
section 312(n) of such Code (as so added) shall apply to 
taxable years beginning after September 30,1984. 
(D) INSTALLMENT SALES.—The provisions of paragraph (6) 
of section 312(n) of such (Dode (as so added) shall apply to 
i 
sales after September 30, 1984, in taxable years ending 
IK5 i: Mnh 
after such date. 
(E) COMPLETED CONTRACT METHOD.—The provisions of 
ty ' 
, ^ 
i 
paragraph (7) of section 312(n) of such Code (as so added) 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 583 
shall apply to contracts entered into after September 30, 
1984, in taxable years ending after such date. 
(2) SUBSECTION (b).—The amendments made by subsection (b) 
shall apply to property placed in service in taxable years begin-
ning after September 30,1984. 
(3) SUBSECTION (O .—The amendments made by subsection (c) 
shall apply with respect to distributions declared after March 
15,1984, in taxable years ending after such date. 
(4) SUBSECTION (d).—The amendment made by subsection (d) 
26 use 30i note, 
shall apply to distributions after the date of the enactment of 
this Act in taxable years ending after such date. 
SEC. 62. 2-YEAR DELAY IN APPLICATION OF THE NET OPERATING LOSS 
RULES ADDED BY THE TAX REFORM ACT OF 1976. 
'' 
80 9; 
(a) IN GENERAL.—Subsection (g) of section 806 of the Tax Reform 
Act of 1976 (26 U.S.C. 382 note) (relating to effective dates for the 
amendments to sections 382 and 383 of the Internal Revenue Code of 
1954) is amended— 
26 use 382, 383. 
(1) by striking out "June 30, 1984" in paragraph (2) and 
v 
jv 
inserting in lieu thereof "December 31,1985"; 
(2) by striking out "January 1, 1984" in paragraph (2)(B) and 
inserting in lieu thereof "January 1,1986"; and 
(3) by striking out "January 1, 1984" in paragraph (3) and 
inserting in lieu thereof "January 1,1986". 
(b) TECHNICAL AMENDMENT.— 
(1) Paragraph (1) of section 382(b) (as amended by the Tax 
26 use 382. 
Reform Act of 1976) is amended by striking out "section 
368(a)(1) (A), (B), (C), (D) (but only if the requirements of section 
354(b)(1) are met), or (F)" and inserting in lieu thereof "subpara-
graph (A), (B), (C), or (F) of section 368(a)(1) or subparagraph (D) 
or (G) of section 368(a)(1) (but only if the requirements of section 
354(b)(1) are met)". 
(2) The amendment made by paragraph (1) shall take effect as 
26 USe 382 note. 
if included in the amendments made by section 4 of the Bank-
ruptcy Tax Act of 1980. 
94 Stat. 3401. i 
SEC. 63. TARGET CORPORATION MUST DISTRIBUTE ASSETS AFTER REOR-
GANIZATION DESCRIBED IN SECTION 368(a)(1)(C). 
(a) IN GENERAL.—Paragraph (2) of section 368(a) (relating to spe- 
26 use 368. 
cial rules for paragraph (1)) is amended by adding at the end thereof 
cS 
the following new subparagraph: 
"(G) 
DISTRIBUTION 
REQUIREMENT 
FOR 
PARAGRAPH 
(1) (C).— 
"(i) IN GENERAL.—A transaction shall fail to meet the 
requirements of paragraph (1)(C) unless the acquired 
corporation distributes the stock, securities, and other 
' 
properties it receives, as well as its other properties, in 
pursuance of the plan of reorganization. 
"(ii) EXCEPTION.—The Secretary may waive the appli-
cation of clause (i) to any transaction subject to any 
conditions the Secretary may prescribe." 
(b) ALLOCATION IN CERTAIN CORPORATE SEPARATIONS AND REORGA-
NIZATIONS.—Subsection (h) of section 312 (relating to allocation in 
26 use 312. 
certain corporate separations) is amended to read as follows: 
^ 
"(h) ALLOCATION IN CERTAIN CORPORATE SEPARATIONS AND REOR-
GANIZATIONS.— 
98 STAT. 584 
PUBLIC LAW 98-369—JULY 18, 1984 
"(1) SECTION 355.—In the case of a distribution or exchange to 
which section 355 (or so much of section 356 as relates to section 
355) applies, proper allocation with respect to the earnings and 
profits of the distributing corporation and the controlled corpo-
ration (or corporations) shall be made under regulations pre-
scribed by the Secretary. 
"(2) SECTION 368(a) (i) (c) OR (D).—In the case of a reorgani-
zation described in subparagraph (C) or (D) of section 368(a)(1), 
proper allocation with respect to the earnings and profits of the 
acquired corporation shall, under regulations prescribed by the 
Secretary, be made between the acquiring corporation and the 
acquired corporation (or any corporation which had control of 
the acquired corporation before the reorganization)." 
26 use 312 note. 
(c) EFFECTIVE DATE.—The amendment made by this section shall 
apply to transactions pursuant to plans adopted after the date of the 
enactment of this Act. 
SEC. 64. DEFINITION OF CONTROL FOR PURPOSES OF NONDIVISIVE REOR-
GANIZATIONS UNDER SECTION 368(a)(1)(D). 
26 use 368. 
(a) IN GENERAL.—Subsection (c) of section 368 (defining control) is 
amended to read as follows: 
"(c) CONTROL DEFINED.— 
26 use 301. 
"(1) IN GENERAL.—For purposes of part I (other than section 
26 use 331, 351, 
304), part II, this part, and part V, the term 'control' means the 
ownership of stock possessing at least 80 percent of the total 
combined voting power of all classes of stock entitled to vote and 
at least 80 percent of the total number of shares of all other 
classes of stock of the corporation. 
"(2) SPECIAL RULE FOR DETERMINING WHETHER CERTAIN TRANS-
ACTIONS ARE DESCRIBED IN SUBSECTION (a) (i) (D).—In the case of 
any transaction with respect to which the requirements of 
subparagraphs (A) and (B) of section •354(b)(1) are met, for 
purposes of determining whether such transaction is described 
in subparagraph (D) of subsection (a)(1), the term 'control' has 
the meaning given to such term by section 304(c)." 
26 use 368 note. 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
apply to transactions pursuant to plans adopted after the date of the 
enactment of this Act. 
SEC. 65. COLLAPSIBLE CORPORATIONS. 
26 use 341. 
(a) DEFINITION.—Subparagraph (A) of section 341(b)(1) (relating to 
collapsible corporations) is amended by striking out "a substantial 
part" and inserting in lieu thereof "%". 
(b) LIMITATIONS.—Subsection (d) of section 341 (relating to limita-
tions on application of section) is amended by adding at the end 
thereof the following sentence: "In determining whether property is 
described in subsection (b)(1) for purposes of applying paragraph (2), 
all property described in section 1221(1) shall, to the extent provided 
in regulations prescribed by the Secretary, be treated as one item of 
property." 
(c) CONFORMING AMENDMENT.—Paragraph (2) of section 341(d) is 
amended by striking out "so manufactured, constructed, produced, 
or purchased" and inserting in lieu thereof "described in subsection 
(b)(1)". 
26 use 341 note. 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to sales, exchanges, and distributions made after 
the date of the enactment of this Act. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 585 
SEC. 66. PHASE-OUT OF GRADUATED RATES FOR LARGE CORPORATIONS. 
(a) IN GENERAL.—Subsection (b) of section 11 (relating to amount 
26 use li. 
of tax imposed on corporations) is amended by adding at the end 
thereof the following new flush sentence: "In the case of a corpora-
tion with taxable income in excess of $1,000,000 for any taxable 
year, the amount of tax determined under the preceding sentence 
for such taxable year shall be increased by the lesser of (A) 5 percent 
of such excess, or (B) $20,250." 
Ot)) C!oNFORMiNG AMENDMENT.—Section 1561(a) (relating to limita- 
26 USC 1561. 
tions on certain multiple tax benefits in the case of certain control 
corporations) is amended by adding at the end thereof the following 
new sentence: "Notwithstanding paragraph (1), in applying the last 
sentence of section 11(b) to such component members, the taxable 
income of all such component members shall be taken into account 
and any increase in tax under such last sentence shall be divided 
among such component members in the same manner as amounts 
under paragraph (1)." 
(c) EFFECTIVE DATE.— 
26 use ii note. 
(1) IN GENERAL.—The amendments made by this section shall 
apply to taxable years beginning after December 31,1983. 
(2) AMENDMENTS NOT TREATED AS CHANGED IN RATE OF TAX.— 
The amendments made by this subsection shall not be treated 
as a change in a rate of tax for purposes of section 21 of the 
Internal Revenue Code of 1954. 
Post, p. 830. 
SEC. 67. RESTRICTIONS ON GOLDEN PARACHUTE PAYMENTS. 
(a) DENIAL OF DEDUCTION.—Part IX of subchapter B of chapter 1 
(relating to items not deductible) is amended by adding after section 
280F the following new section: 
"SEC. 280G. GOLDEN PARACHUTE PAYMENTS. 
26 USC 280G. 
"(a) GENERAL RULE.—No deduction shall be allowed under this 
chapter for any excess parachute payment. 
"(b) EXCESS PARACHUTE PAYMENT.—For purposes of this section— 
"(1) IN GENERAL.—The term 'excess parachute payment' 
means an amount equal to the excess of any parachute payment 
over the portion of the base amount allocated to such payment. 
"(2) PARACHUTE PAYMENT DEFINED.— 
"(A) IN GENERAL.—The term 'parachute payment' means 
g«A5 
any payment in the nature of compensation to (or for the 
benefit of) a disqualified individual if— 
"(i) such payment is contingent on a change— 
"(I) in the ownership or effective control of the 
; 
corporation, or 
"(II) in the ownership of a substantial portion of 
bmulBm- 
the assets of the corporation, and 
"(ii) the aggregate present value of the payments in 
i • 
! 
the nature of compensation to (or for the benefit of) 
such individual which are contingent on such change 
equals or exceeds an amount equal to 3 times the base 
amount. 
a 
"(B) AGREEMENTS.—The term 'parachute payment' shall 
also include any payment in the nature of compensation to 
(or for the benefit of) a disqualified individual if such 
payment is pursuant to an agreement which violates any 
.&uli 
securities laws or regulations. 
98 STAT. 586 
PUBLIC LAW 98-369—JULY 18, 1984 
"(C) TREATMENT OF CERTAIN AGREEMENTS ENTERED INTO 
WITHIN 1 YEAR BEFORE CHANGE OF OWNERSHIP.—For pur-
poses of subparagraph (A)(i), any payment pursuant to— 
"(i) an agreement entered into within 1 year before 
the change described in subparagraph (A)(i), or 
"(ii) an amendment made within such 1-year period 
of a previous agreement, 
shall be presumed to be contingent on such change unless 
the contrary is established by clear and convincing evi-
dence. 
"(3) BASE AMOUNT.— 
"(A) IN GENERAL.—The term 'base amount' means the 
individual's annualized includible compensation for the 
base period. 
"(B) ALLOCATION.—The portion of the base amount allo-
cated to any parachute payment shall be an amount which 
bears the same ratio to the base amount as— 
"(i) the present value of such payment, bears to 
"(ii) the aggregate present value of all such pay-
ments. 
"(4) EXCESS PARACHUTE PAYMENTS REDUCED TO EXTENT TAX-
PAYER ESTABLISHES REASONABLE COMPENSATION.—In the case of 
any parachute payment described in paragraph (2)(A), the 
amount of any excess parachute payment shall be reduced by 
the portion of such payment which the taxpayer establishes by 
clear and convincing evidence is reasonable compensation for 
personal services actually rendered. For purposes of the preced-
ing sentence, reasonable compensation shall be first offset 
against the base amount. 
"(c) DISQUALIFIED INDIVIDUALS.—For purposes of this section, the 
term 'disqualified individual' means any individual who is— 
"(1) an employee, independent contractor, or other person 
specified in regulations by the Secretary who performs personal 
services for any corporation, and 
"(2) is an officer, shareholder, or highly-compensated individ-
ual. 
For purposes of this section, a personal service corporation (or 
similar entity) shall be treated as an individual. 
"(d) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
"(1) 
ANNUALIZED 
INCLUDIBLE 
COMPENSATION 
FOR BASE 
PERIOD.—The term 'annualized includible compensation for the 
base period' means the average annual compensation which— 
"(A) was payable by the corporation with respect to which 
the change in ownership or control described in paragraph 
(2)(A) of subsection (b) occurs, and 
"(B) was includible in the gross income of the disqualified 
individual for taxable years in the base period. 
"(2) BASE PERIOD.—The term 'base period' means the period 
consisting of the most recent 5 taxable years ending before the 
date on which the change in ownership or control described in 
paragraph (2)(A) of subsection (b) occurs (or such portion of such 
period during which the disqualified individual was an em-
ployee of the corporation). 
' (3) PROPERTY TRANSFERS.—Any transfer of property— 
"(A) shall be treated as a payment, and 
"(B) shall be taken into account as its fair market value. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 587 
M ^ 
"(4) PRESENT VALUE.—Present value shall be determined in 
accordance with section 1274(bX2). 
^nte, p. 538. 
"(e) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposes 
,•^, ,., ^^ 
of this section (including regulations for the application of this 
section in the case of related corporations and in the case of personal 
service corporations)." 
(b) EXCISE TAX ON AMOUNTS RECEIVED.— 
(1) IN GENERAL.—Subtitle D (relating to miscellaneous excise 
taxes) is amended by adding at the end thereof the following 
new chapter: 
S^O ,<| ^irAfl. 
'CHAPTER 46—GOLDEN PARACHUTE PAYMENTS 
"Sec. 4999. Grolden parachute payments. 
"SEC. 4999. GOLDEN PARACHUTE PAYMENTS. 
26 USC 4999. 
"(a) IMPOSITION OF TAX.—There is hereby imposed on any person 
who receives an excess parachute payment a tax equal to 20 percent 
of the amount of such paionent. 
"(b) EXCESS PARACHUTE PAYMENT DEFINED.—For purposes of this 
section, the term 'excess parachute payment' has the meaning given 
to such term by section 280Gr(b). 
Ante, p. 585. 
"(c) ADMINISTRATIVE PROVISIONS.— 
"(1) WITHHOLDING.—In the case of any excess parachute pay-
ment which is wages (within the meaning of section 3401) the 
amount deducted and withheld under section 3402 shall be 
increased by the amount of the tax imposed by this section on 
such payment. 
"(2) OTHER ADMINISTRATIVE PROVISIONS.—For purposes of sub-
title F, any tax imposed by this section shall be treated £is a tax 
26 use 6001. 
imposed by subtitle A." 
26 use l. 
(2) DENIAL OF DEDUCTION.—Paragraph (6) of section 275(a) 
26 use 275. 
(relating to denial of deduction for certain taxes) is amended bv 
striking out "and 44" and inserting in lieu thereof "44, and 46'. 
(c) FICA TAXES.—Subparagraph (A) of section 3121(vX2) (relating 
97 Stat 122. 
to treatment of certain nonqualified deferred compensation plans) is 
26 USe 3121. 
amended by adding at the end thereof the following new sentence: 
"The preceding sentence shall not apply to any excess 
parachute payment (as defined in section 280Gr(b))." 
(d) CLERICAL AMENDMENTS.— 
^^ « -«- ^^'^ 
(1) The table of sections for part IX of subchapter B of chapter 
1 is amended by adding after the item relating to section 280F 
the following new item: 
t 
"Sec. 280G. Golden parachute payments." 
^ 
(2) The table of chapters for subtitle D is amended by adding 
at the end thereof the following new item: 
, 
"CHAPTER 46. Golden parachute payments." 
(e) EFFECTIVE DATES.— 
26 use 280G 
(1) IN GENERAL.—The amendments made by this section shall 
note. 
apply to payments under agreements entered into or renewed 
after June 14, 1984, in taxable years ending after such date. 
(2) SPECIAL RULE FOR CONTRACT AMENDMENTS.—Any contract 
' 
entered into before June 15, 1984, which is amended after June 
14, 1984, in any significant relevant aspect shall be treated as a 
contract entered into after June 14,1984. 
98 STAT. 588 
PUBLIC LAW 98-369—JULY 18, 1984 
SEC. 68. INCREASE IN REDUCTION IN CERTAIN CORPORATE PREFERENCE 
ITEMS FROM 15 PERCENT TO 20 PERCENT. 
(a) IN GENERAL.—Each subsection (other than subsection (a)(2)) of 
26 use 291. 
section 291 (relating to special rules for corporate preference items) 
is amended by striking out "15 percent" each place it appears and 
inserting in lieu thereof "20 percent". 
(b) DEFERRED F S C INCOME.—Paragraph (4) of section 291(a) (relat-
ing to certain deferred DISC income) is amended to read as follows: 
"(4) CERTAIN DEFERRED FSC INCOME.—If a corporation is a 
shareholder of the FSC, in the case of taxable years beginning 
Post, p. 986. 
after December 31, 1984, section 923(a) shall be applied with 
respect to such corporation by substituting— 
"(A) '30 percent' for '32 percent' in paragraph (2), and 
"(B) '15/23' for '16/23' in paragraph (3). 
(c) MINIMUM TAX.— 
26 use 57. 
(1) IN GENERAL.—Paragraph (1) of section 57(b) is amended to 
read as follows: 
"(1) IN GENERAL.— 
"(A) POLLUTION CONTROL FACILITIES; BAD DEBT RESERVES.— 
In the case of any item of tax preference of a corporation 
described in paragraph (4) or (7) of subsection (a), only 59% 
percent of the amount of such item of tax preference (deter-
mined without regard to this subsection) shall be taken into 
account as an item of tax preference. 
"(B) IRON ORE AND COAL.—In the case of any item of tax 
preference of a corporation described in paragraph (8) of 
subsection (a) (but only to the extent such item is allocable 
to a deduction for depletion for iron ore and coal (including 
legnite)), 
only 71.6 percent of the amount of such item of tax preference 
(determined without regard to this subsection) shall be taken 
into account as an item of tax preference.". 
(2) CERTAIN CAPITAL GAINS.—Paragraph (2) of section 57(h) 
(relating to capital gains) is amended by striking out "71.6 
percent" and inserting in lieu thereof "59% percent". 
26 use 995. 
(d) DEFERRED DISC INCOME.—Section 995(b)(l)(F)(i) (relating to 
deemed distributions) is amended by striking out "one/half and 
inserting in lieu thereof "one-seventeenth". 
26 u s e 291 note. 
(e) EFFECTIVE D A T E S . — 
(1) IN GENERAL.—Except as provided in this subsection, the 
amendments made by this section shall apply to taxable years 
beginning after December 31, 1984. 
(2) 1250 GAIN.—The amendments made by this section to 
section 291(a)(1) of the Internal Revenue Code of 1954 shall 
apply to sales or other dispositions after December 31, 1984, in 
taxable years ending after such date. 
(3) POLLUTION CONTROL FACILITIES.—The amendments made 
by this section to section 291(a)(5) of such Code shall apply to 
property placed in service after December 31, 1984, in taxable 
years ending after such date. 
(4) DRILLING AND MINING COSTS.—The amendments made by 
this section to section 291(b) of such Code shall apply to expendi-
tures after December 31, 1984, in taxable years ending after 
such date. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 589 
Subtitle E—Partnership Provisions 
SEC. 71. PARTNERSHIP ALLOCATIONS WITH RESPECT TO CONTRIBUTED 
PROPERTY. 
(a) GENERAL RULE.—Subsection (c) of section 704 (relating to 
26 use 704. 
contributed property) is amended to read as follows: 
"(c) CONTRIBUTED PROPERTY.—Under regulations prescribed by the 
Secretary, income, gain, loss, and deduction with respect to property 
contributed to the partnership by a partner shall be shared among 
partners so as to take account of the variation between the basis of 
the property to the partnership and its fair market value at the time 
of contribution. Under regulations prescribed by the Secretary, rules 
similar to the rules of the preceding sentence shall apply to contri-
butions by a partner (using the cash receipts and disbursements 
method of accounting) of accounts payable and other accrued but 
unpaid items." 
(b) CONFORMING AMENDMENTS.—The fourth sentence of section 
613A(c)(7)(D) and the third sentence of section 743(b) are each 
26USC613A, 
amended by striking out "an agreement described in section 
743. 
704(c)(2) (relating to effect of partnership agreement on contributed 
property), such share shall be determined by taking such agreement 
into account" and inserting in lieu thereof "property contributed to 
the partnership by a partner, section 704(c) (relating to contributed 
property) shall apply in determining such share". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 704 note. 
apply with respect to property contributed to the partnership after 
March 31, 1984, in taxable years ending after such date. 
SEC. 72. DETERMINATION OF DISTRIBUTIVE SHARES WHEN PARTNER'S 
INTEREST CHANGES. 
(a) GENERAL RULE.—Section 706 (relating to taxable years of 26 use 706. 
partner and partnership) is amended by adding at the end thereof 
the following new subsection: 
"(d) DETERMINATION OF DISTRIBUTIVE SHARE WHEN PARTNER'S 
INTEREST CHANGES.— 
"(1) IN GENERAL.—Except as provided in paragraphs (2) and 
(3), if during any taxable year of the partnership there is a 
change in any partner's interest in the partnership, each part-
ner's distributive share of any item of income, gain, loss, deduc-
tion, or credit of the partnership for such taxable year shall be 
determined by the use of any method prescribed by the Secre-
^ 
tary by regulations which takes into account the varying inter-
ests of the partners in the partnership during such taxable year. 
"(2) CERTAIN CASH BASIS ITEMS PRORATED OVER PERIOD TO 
WHICH ATTRIBUTABLE.— 
"(A) IN GENERAL.—If during any taxable year of the 
partnership there is a change in any partner's interest in 
the partnership, then (except to the extent provided in 
regulations) each partner's distributive share of any alloca-
ble cash basis item shall be determined— 
"(i) by assigning the appropriate portion of each such 
item to each day in the period to which it is attributa-
ble, and 
"(ii) by allocating the portion assigned to any such 
day among the partners in proportion to their interests 
in the partnership at the close of such day. 
,:«0f) t-ftTOB^J^ 
98 STAT. 590 
PUBLIC LAW 98-369—JULY 18, 1984 
"(B) ALLOCABLE CASH BASIS ITEM.—For purposes of this 
paragraph, the term 'allocable cash basis item' means any 
of the following items which are described in paragraph (1) 
and with respect to which the partnership uses the cash 
receipts and disbursements method of accounting: 
A-ifi ji^j i?' 
"(i)Interest. 
"(ii) Taxes. 
"(iii) Payments for services or for the use of property. 
"(iv) Any other item of a kind specified in regulations 
prescribed by the Secretary as being ein item with 
respect to which the application of this paragraph is 
appropriate to avoid significant misstatements of the 
income of the partners. 
"(C) ITEMS ATTRIBUTABLE TO PERIODS NOT WITHIN TAXABLE 
YEAR.—If any portion of any allocable cash basis item is 
attributable to— 
"(i) any period before the beginning of the taxable 
• 
year, such portion shall be assigned under subpara-
-AJ^io 
graph (AXi) to the first day of such taxable year, or 
"(ii) any period after the close of the taxable year, 
such portion shall be assigned under subparagraph 
(AXi) to the last day of the taxable year. 
"(D) 
TREATMENT OF DEDUCTIBLE ITEMS ATTRIBUTABLE TO 
PRIOR PERIODS.—If any portion of a deductible cash basis 
item is assigned under subparagraph (C)(i) to the first day of 
any taxable year— 
"(i) such portion shall be allocated among persons 
who are partners in the partnership during the period 
RUtfi'Tif 
to which such portion is attributable in accordance 
with their varying interests in the partnership during 
such period, and 
"(ii) any amount allocated under clause (i) to a person 
who is not a partner in the partnership on such first 
day shall be capitalized by the partnership and treated 
in the manner provided for in section 755. 
"(3) ITEMS ATTRIBUTABLE TO INTEREST IN LOWER TIER PARTNER-
SHIP PRORATED OVER ENTIRE TAXABLE YEAR.—If— 
"(A) during any taxable year of the partnership there is a 
change in any partner's interest in the partnership (herein-
after in this paragraph referred to as the 'upper tier part-
nership'), and 
"(B) such partnership is a partner in another partnership 
(hereinafter in this paragraph referred to as the 'lower tier 
partnership'), 
then (except to the extent provided in regulations) each part-
ner's distributive share of any item of the upper tier partner-
ship attributable to the lower tier partnership shall be deter-
mined by assigning the appropriate portion (determined by 
applying principles similar to the principles of subparagraphs 
(C) and (D) of paragraph (2)) of each such item to the appropriate 
days during which the upper tier partnership is a partner in the 
lower tier partnership and by allocating the portion assigned to 
any such day among the partners in proportion to their inter-
ests in the upper tier partnership at the close of such day. 
"(4) TAXABLE YEAR DETERMINED WITHOUT REGARD TO SUBSEC-
TION (c) (2) (A).—For purposes of this subsection, the taxable 
SOV J 8 ' J 3S 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 591 
year of a partnership shall be determined without regard to 
subsection (c)(2)(A)." 
(b) CONFORMING AMENDMENTS.—Paragraph (2) of section 706(c) is 
amended— 
(1) by striking out the last sentence of subparagraph (A), and 
(2) by striking out ", but such partner's distributive share of 
items described in section 702(a) shall be determined by taking 
into account his varying interests in the partnership during the 
taxable year" in subparagraph (B). 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply— 
(1) in the case of items described in section 706(d)(2) of the 
Internal Revenue Code of 1954 (as added by subsection (a)), to 
amounts attributable to periods after March 31, 1984, and 
(2) in the case of items described in section 706(d)(3) of such 
Code (as added by subsection (a)), to amounts paid or accrued by 
the other partnership after March 31,1984. 
SEC. 73. PAYMENTS TO PARTNERS FOR PROPERTY OR CERTAIN SERVICES. 
(a) GENERAL RULE.—Subsection (a) of section 707 (relating to 
transactions between partner and partnership) is amended to read 
as follows: 
"(a) PARTNER NOT ACTING IN CAPACITY AS PARTNER.— 
"(1) IN GENERAL.—If a partner engages in a transaction with a 
partnership other than in his capacity as a member of such 
partnership, the transaction shall, except as otherwise provided 
in this section, be considered as occurring between the partner-
ship and one who is not a partner. 
"(2) TREATMENT OF PAYMENTS TO PARTNERS FOR PROPERTY OR 
SERVICES.—Under regulations prescribed by the Secretary— 
"(A) TREATMENT OF CERTAIN SERVICES AND TRANSFERS OF 
PROPERTY.—If — 
"(i) a partner performs services for a partnership or 
transfers property to a partnership, 
"(ii) there is a related direct or indirect allocation 
- • ' ' ^ 
and distribution to such partner, and 
"(iii) the performance of such services (or such trans-
fer) and the allocation and distribution, when viewed 
together, are properly characterized as a transaction 
occurring between the partnership and a partner 
acting other than in his capacity as a member of the 
partnership, 
such allocation and distribution shall be treated as a trans-
action described in paragraph (1). 
"(B) TREATMENT OF CERTAIN PROPERTY TRANSFERS.—If— 
"(i) there is a direct or indirect transfer of money or 
other property by a partner to a partnership, 
"(ii) there is a related direct or indirect transfer of 
money or other property by the partnership to such 
partner (or another partner), and 
"(iii) the transfers described in clauses (i) and (ii), 
when viewed together, are properly characterized as a 
sale of property, 
such transfers shall be treated either as a transaction 
described in paragraph (1) or as a transaction between 2 or 
more partners acting other than in their capacity as mem-
bers of the partnership." 
^flfc 
iO 
26 use 706. 
26 use 706 note. 
Ante, p. 589. 
26 use 707. 
liST ORIJ 0'ii 
rOT DS-
98 STAT. 592 
PUBLIC LAW 98-369—JULY 18, 1984 
26 u s e 707 note. 
(b) EFFECTIVE D A T E . — '"^'"---' ^^'' -'••'•*'' ->irir>vayi.m 
u .0 ^r,;.; 
(1) IN GENERAL.—The amendment made by subsection (a) 
shall apply— 
(A) in the case of arrangements described in section 
^"te, P-591. 
707(a)(2)(A) of the Internal Revenue Code of 1954 (as 
amended by subsection (a)), to services performed or prop-
erty transferred after February 29, 1984, and 
(B) in the case of transfers described in section 707(a)(2)(B) 
of such Code (as so amended), to property transferred after 
^•'> « • " • * • 
March 31,1984. 
(2) BINDING CONTRACT EXCEPTION.—The amendment made by 
subsection (a) shall not apply to a transfer of property described 
*
• 
in section 707(aX2)(B)(i) if such transfer is pursuant to a binding 
contract in effect on March 31, 1984, and at all times thereafter 
before the transfer. 
(3) 
EXCEPTION FOR CERTAIN TRANSFERS.—The amendment 
made by subsection (a) shall not apply to a transfer of property 
described in section 707(a)(2)(B)(i) that is made before December 
31,1984, if— 
(A) such transfer was proposed in a written private offer-
ing memorandum circulated before February 28,1984; 
(B) the out-of-pocket costs incurred with respect to such 
offering exceeded $250,000 as of February 28,1984; 
(C) the encumbrances placed on such property in antici-
pation of such transfer all constitute obligations for which 
neither the partnership nor any partner is liable; and 
(D) the transferor of such property is the sole general 
partner of the partnership. 
SEC. 74. CONTRIBUTIONS TO A PARTNERSHIP OF UNREALIZED RECEIV-
ABLES, INVENTORY ITEMS, OR CAPITAL LOSS PROPERTY. 
(a) GENERAL RULE.—Subpart A of part II of subchapter K of 
chapter 1 (relating to contributions to a partnership) is amended by 
adding at the end thereof the following new section: 
26 u s e 724. 
"SEC. 724. CHARACTER OF GAIN OR LOSS ON CONTRIBUTED UNREALIZED 
RECEIVABLES, INVENTORY ITEMS, AND CAPITAL LOSS PROP-
ERTY. 
"(a) CONTRIBUTIONS OF UNREALIZED RECEIVABLES.—In the case of 
any property which— 
"(1) was contributed to the partnership by a partner, and 
"(2) was an unrealized receivable in the hands of such partner 
immediately before such contribution, 
any gain or loss recognized by the partnership on the disposition of 
such property shall be treated as ordinary income or ordinary loss, 
as the case may be. 
"(b) CONTRIBUTIONS OF INVENTORY ITEMS.—In the case of any 
property which— 
"(1) was contributed to the partnership by a partner, and 
"(2) was an inventory item in the hands of such partner 
immediately before such contribution, 
any gain or loss recognized by the partnership on the disposition of 
such property during the 5-year period beginning on the date of such 
contribution shall be treated as ordinary income or ordinary loss, as 
the case may be. 
"(c) CONTRIBUTIONS OF CAPITAL Loss PROPERTY.—In the case of any 
property which— 
. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 593 
"(1) was contributed by a partner to the partnership, and 
'' 
"(2) was a capital asset in the hands of such partner immedi-
ately before such contribution, 
any loss recognized by the partnership on the disposition of such 
' 
' 
property during the 5-year period beginning on the date of such 
contribution shall be treated as a loss from the sale of a capital asset 
to the extent that, immediately before such contribution, the 
adjusted basis of such property in the hands of the partner exceeded 
the fair market value of such property. 
"(d) DEFINITIONS.—For purposes of this section— 
"(1) UNREALIZED RECEIVABLE.—The term 'unrealized receiva-
ble' has the meaning given such term by section 751(c) (deter-
mined by treating any reference to the partnership as referring 
to the partner). 
"(2) INVENTORY ITEM.—The term 'inventory item' has the 
meaning given such term by section 751(d)(2) (determined by 
treating any reference to the partnership as referring to the 
K sHfig 
partner and by applying section 1231 without regard to any 
holding period therein provided). 
"(3) SUBSTITUTED BASIS PROPERTY.— 
"(A) IN GENERAL.—If any property described in subsection 
(a), (b), or (c) is disposed of in a nonrecognition transaction, 
the tax treatment which applies to such property under 
such subsection shall also apply to any substituted basis 
5 '
• 
property resulting from such transaction. A similar rule 
shall also apply in the case of a series of non-recognition 
transactions. 
"(B) EXCEPTION FOR STOCK IN C CORPORATION.—Subpara-
gaph (A) shall not apply to any stock in a C corporation 
received in an exchange described in section 351." 
(b) AMENDMENT OF SECTION 735.—Section 735 (relating to charac- 
26 use 735. 
ter of gain or loss on disposition of distributed property) is amended 
by adding at the end thereof the following new subsection: 
"(c) SPECIAL RULES.— 
"(1) 
WAIVER OF HOLDING PERIODS CONTAINED IN SECTION 
1231.—For purposes of this section, section 751(d)(2) (defining 
inventory item) shall be applied without regard to any holding 
period in section 1231(b). 
"(2) SUBSTITUTED BASIS PROPERTY.— 
"(A) IN GENERAL.—If any property described in subsection 
(a) is disposed of in a nonrecognition transaction, the tax 
treatment which applies to such property under such sub-
section shall also apply to any substituted basis property 
resulting from such transaction. A similar rule shall also 
apply in the case of a series of nonrecognition transactions. 
"(B) EXCEPTION FOR STOCK IN C CORPORATION.—Subpara-
graph (A) shall not apply to any stock in a C corporation 
received in an exchange described in section 351." 
(c) CLERICAL AMENDMENT.—The table of sections for subpart A of 
part II of subchapter K of chapter 1 is amended by adding at the end 
thereof the following new item: 
"Sec. 724. Character of gain or loss on contributed unrealized receivables, 
inventory items, and capital loss property." 
(d) EFFECTIVE DATES.— 
31-194 O - 8fi - 
91 
98 STAT. 594 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 724 note. 
(1) SUBSECTION (a).—The amendment made by subsection (a) 
shall apply to property contributed to a partnership after 
March 31, 1984, in taxable years ending after such date. 
26 use 735 note. 
(2) SUBSECTION (b).—The amendment made by subsection (b) 
shall apply to property distributed after March 31, 1984, in 
taxable years ending after such date. 
SEC. 75. TRANSFERS OF PARTNERSHIP A
N
D TRUST INTERESTS B
Y CORPO-
RATIONS. 
(a) GENERAL RULE.—Subchapter C of chapter 1 (relating to corpo-
rate distributions and adjustments) is amended by adding at the end 
thereof the following new part: 
PART VII—MISCELLANEOUS CORPORATE PROVISIONS 
"Sec. 386. Transfers of partnership and trust interests by corporations. 
26 u s e 386. 
"SEC. 386. TRANSFERS OF PARTNERSHIP AND TRUST INTERESTS BY COR-
PORATIONS. 
"(a) CORPORATE DISTRIBUTIONS.—For purposes of determining the 
amount (and character) of gain recognized by a corporation on any 
distribution of an interest in a partnership, the distribution shall be 
treated in the same manner as if it included a property distribution 
consisting of the corporation's proportionate share of the recognition 
property of such partnership. 
"(b) SALES OR EXCHANGE TO WHICH SECTION 337 APPLIES.—For 
purposes of determining the amount (and character) of gain recog-
nized on a sale or exchange described in section 337, any sale or 
exchange by a corporation of an interest in a partnership shall be 
treated as a sale or exchange of the corppration's proportionate 
share of the recognition property of such partnership. 
,,j_.r') >
: 
"(c) RECOGNITION PROPERTY.—For purposes of this section, the 
term 'recognition property' means any property with respect to 
which gain would be recognized to the corporation if such prop-
erty— 
"(1) were distributed by the corporation in a distribution 
described in section 311 or 336, or 
"(2) were sold in a sale described in section 337, 
whichever is appropriate. In determining whether property of a 
partnership is recognition property, such partnership shall be 
treated as owning its proportionate share of the property of any 
other partnership in which it is a partner. 
"(d) EXTENSION TO TRUSTS.—Under regulations, rules similar to 
the rules of this section shall also apply in the case of the distribu-
tion or sale or exchange by a corporation of an interest in a trust." 
(b) DISTRIBUTIONS TREATED AS EXCHANGES FOR PURPOSES OF SUB-
26 use 761. 
CHAPTER K.—Section 761 (relating to definitions) is amended by 
redesignating subsection (e) as subsection (f) and by inserting after 
subsection (d) the following new subsection: 
"(e) DISTRIBUTIONS TREATED AS EXCHANGES.—For purposes o
f
— 
"(1) section 708 (relating to continuation of partnership), 
"(2) section 743 (relating to optional adjustment to basis of 
partnership property), and 
"(3) any other provision of this subchapter specified in regula-
tions prescribed by the Secretary, 
any distribution (not otherwise treated as an exchange) shall be 
treated as an exchange." 
i^ei-.i£ 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 595 
(c) CLARIFICATION OF FAIR MARKET VALUE IN THE CASE OF NONRE-
COURSE INDEBTEDNESS.—Section 7701 (relating to definitions), as 
26 use 7701. 
amended by this Act, is amended by redesignating subsection (g) as 
^nte, p. 567. 
subsection (h) and by inserting after subsection (f) the following new 
subsection: 
"(g) CLARIFICATION OF FAIR MARKET VALUE IN THE CASE OF NONRE-
COURSE INDEBTEDNESS.—For purposes of subtitle A, in determining 
the amount of gain or loss (or deemed gain or loss) with respect to 
any property, the fair market value of such property shall be treated 
as being not less than the amount of any nonrecourse indebtedness 
to which such property is subject." 
(d) CLERICAL AMENDMENT.—The table of parts for subchapter C of 
chapter 1 is amended by adding at the end thereof the following new 
item: 
"Part VII. Miscellaneous corporate provisions." 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 386 note. 
apply to distributions, sales, and exchanges made after March 31, 
1984, in taxable years ending after such date. 
SEC. 76. APPLICATION OF SECTION 751 IN THE CASE OF TIERED PARTNER- 
r; r j . j ;
< 
SHIPS. 
(a) GENERAL RULE.—Section 751 (relating to unrealized receiv- 
26 use 751. 
ables and inventory items) is amended by adding at the end thereof 
the following new subsection: 
"(f) SPECIAL RULES IN THE CASE OF TIERED PARTNERSHIPS, ETC.—In 
determining whether property of a partnership is— 
"(1) an unrealized receivable, or 
"'"^"' ^ -^^''^ 
"(2) an inventory item, 
such partnership shall be treated as owning its proportionate share 
of the property of any other partnership in which it is a partner. 
Under regulations, rules similar to the rules of the preceding sen-
tence shall also apply in the case of interests in trusts.' 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
26 use 751 note. 
shall apply to distributions, sales, and exchanges made after March 
31,1984, in taxable years ending after such date. 
SEC. 77. SECTION 1031 NOT APPLICABLE TO PARTNERSHIP INTERESTS; 
LIMITATION ON THE PERIOD DURING WHICH LIKE KIND EX-
CHANGES M
A
Y BE MADE. 
(a) IN GENERAL.—Subsection (a) of section 1031 (relating to nonrec- 
26 use 1031. 
ognition of gain or loss from exchanges solely in kind) is amended to 
read as follows: 
"(a) NONRECOGNITION OF GAIN OR Loss FROM EXCHANGES SOLELY 
IN KIND.— 
"(1) IN GENERAL.—No gain or loss shall be recognized on the 
exchange of property held for productive use in a trade or 
business or for investment if such property is exchanged solely 
for property of like kind which is to be held either for produc-
tive use in a trade or business or for investment. 
"(2) EXCEPTION.—This subsection shall not apply to any ex-
change of— 
, 
"(A) stock in trade or other property held primarily for 
sale, 
"(B) stocks, bonds, or notes, 
"(C) other securities or evidences of indebtedness or inter-
est, 
"(D) interests in a partnership, 
98 STAT. 596 
PUBLIC LAW 98-369—JULY 18, 1984 
"(E) certificates of trust or beneficial interests, or 
'; 
"(F) choses in action. 
"(3) REQUIREMENT THAT PROPERTY BE IDENTIFIED AND THAT 
EXCHANGE BE COMPLETED NOT MORE THAN 180 DAYS AFTER TRANS-
FER OF EXCHANGED PROPERTY.—For purposes of this subsection, 
any property received by the taxpayer shall be treated as 
property which is not like-kind property if— 
"(A) such property is not identified as property to be 
received in the exchange before the day which is 45 days 
after the date on which the taxpayer transfers the property 
relinquished in the exchange, or 
"(B) such property is received after the earlier of— 
"(i) the day which is 180 days after the date on which 
the taxpayer transfers the property relinquished in the 
exchange, or 
"(ii) the due date (determined with regard to exten-
sion) for the transferor's return of the tax imposed by 
this chapter for the taxable year in which the transfer 
of the relinquished property occurs." 
26 use 1031 
(b) EFFECTIVE DATES.— 
^°^- 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendment made by subsection (a) shall apply to 
transfers made after the date of the enactment of this Act in 
taxable years ending after such date. 
(2) BINDING CONTRACT EXCEPTION FOR TRANSFER OF PARTNER-
SHIP INTERESTS.—Paragraph (2)(D) of section 1031(a) of the Inter-
Ante, p. 595. 
nal Revenue Code of 1954 (as amended by subsection (a)) shall 
not apply in the case of any exchange pursuant to a binding 
contract in effect on March 1, 1984, and at all times thereafter 
before the exchange. 
(3) REQUIREMENT THAT PROPERTY BE IDENTIFIED WITHIN 45 DAYS 
AND THAT EXCHANGE BE COMPLETED WITHIN 180 DAYS.—PARA-
graph (3) of section 1031(a) of the Internal Revenue Code of 1954 
(£is amended by subsection (a)) shall apply— 
(A) to transfers after the date of the enactment of this 
Act, and 
(B) to transfers on or before such date of enactment if the 
property to be received in the exchange is not received 
before January 1,1987. 
'^-•^ 'i • 
In the case of any transfer on or before the date of the enact-
ment of this Act which the taxpayer treated as part of a like-
kind exchange, the period for assessing any deficiency of tax 
attributable to the amendment made by subsection (a) shall not 
expire before January 1,1988. 
(4) SPECIAL RULE WHERE PROPERTY IDENTIFIED IN BINDING CON-
TRACT.—If the property to be received in the exchange is identi-
fied in a binding contract in effect on June 13, 1984, and at all 
times thereafter before the transfer, paragraph (3) shall be 
applied— 
(A) by substituting "January 1, 1989" for "January 1, 
1987", and 
(B) by substituting "January 1, 1990" for "January 1, 
1988". 
(5) SPECIAL RULE FOR LIKE-KIND EXCHANGE OF PARTNERSHIP 
INTERESTS.—Paragraph (2)(D) of section 1031(a) of the Internal 
Revenue Code of 1954 (as amended by subsection (a)) shall not 
apply to any exchange of an interest as general partner pursu-
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 597 
ant to a plan of reorganization of ownership interest under a 
contract which took effect on March 29, 1984, and which was 
executed on or before March 31, 1984, but only if all the 
exchanges contemplated by the reorganization plan are com-
pleted on or before December 31,1984. 
SEC. 78. ELIMINATION OF BASIS STRIPS UNDER SECTION 734(b). 
(a) GENERAL RULE.—Subsection (b) of section 734 is amended by 
26 use 734. 
adding at the end thereof the following new sentence: "Paragraph 
(IXB) shall not apply to any distributed property which is an interest 
in another partnership with respect to which the election provided 
in section 754 is not in effect." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 734 note. 
shall apply to distributions after March 1, 1984, in taxable years 
ending after such date. 
SEC. 79. OVERRULING OF RAPHAN CASE. 
(a) GENERAL RULE.—Section 752 of the Internal Revenue Code of 
26 use 752 note. 
1954 (and the regulations prescribed thereunder) shall be applied 
without regard to the result reached in the case of Raphan vs the 
United States, 3 CI. Ct. 457 (1983). 
(b) REGULATIONS.—In amending the regulations prescribed under 
section 752 of such Code to reflect subsection (a), the Secretary of the 
Treasury or his delegate shall prescribe regulations relating to 
liabilities, including the treatment of guarantees, assumptions, in- 
H;$ ;4U ; 
demnity agreements, and similar arrangements. 
Subtitle F—Trust Provisions 
SEC. 81. TREATMENT OF PROPERTY DISTRIBUTED IN KIND. 
(a) GENERAL RULE.—Section 643 (relating to definitions applicable 
26 use 643. 
to subchapters A, B, C, and D) is amended by adding at the end Post, p. 975. 
thereof the following new subsection: 
"(d) TREATMENT OF PROPERTY DISTRIBUTED IN KIND.— 
"(1) BASIS OF BENEFICIARY.—The basis of any property re-
ceived by a beneficiary in a distribution from an estate or trust 
shall be— 
-ac-ri sta OH'}^>k 
"(A) the adjusted basis of such property in the hands of 
the estate or trust immediately before the distribution, 
adjusted for 
'(B) any gain or loss recognized to the estate or trust on 
the distribution. 
"(2) AMOUNT OF DISTRIBUTION.—In the case of any distribution 
of property (other than cash), the amount taken into account 
under sections 661(aX2) and 662(aX2) shall be the lesser of— 
. -i ' r.i . 
"(A) the basis of such property in the hands of the 
beneficiary (as determined under paragraph (1)), or 
iis*i 
"(B) the fair market value of such property. 
"(3) ELECTION TO RECOGNIZE GAIN.— 
x;:-:- 
"(A) IN GENERAL.—In the case of any distribution of 
', 
property (other than cash) to which an election under this 
L 
paragraph applies— 
"(i) paragraph (2) shall not apply, 
"(ii) gain or loss shall be recognized by the estate or 
trust in the same manner as if such property had been 
sold to the distributee at its fair market value, and 
98 STAT. 598 
PUBLIC LAW 98-369—JULY 18, 1984 
"(iii) the amount taken into account under sections 
661(a)(2) and 662(a)(2) shall be the fair market value of 
such property. 
V 
"(B) ELECTION.—Any election under this paragraph shall 
be made by the estate or trust on its return for the taxable 
year for which the distribution was made. 
Any such election, once made, may be revoked only with the 
^'' 
consent of the Secretary. 
"(4) 
EXCEPTION FOR DISTRIBUTIONS DESCRIBED IN SECTION 
663(a).—This subsection shall not apply to any distribution 
described in section 663(a)." 
26 u s e 643 note. 
(b) EFFECTIVE D A T E . — 
(1) IN GENERAL.—The amendment made by subsection (a) 
shall apply to distributions after June 1, 1984, in taxable years 
ending after such date. 
(2) TIME FOR MAKING ELECTION.—In the case of any distribu-
tion before the date of the enactment of this Act— 
(A) the time for making an election under section 
Ante, p. 597. 
643(dX3) of the Internal Revenue Code of 1954 (as added by 
this section) shall not expire before January 1, 1985, and 
(B) the requirement that such election be made on the 
return of the estate or trust shall not apply. 
SEC. 82. TREATMENT OF MULTIPLE TRUSTS. 
26 use 643. 
(a) GENERAL RULE.—Section 643 (relating to definitions applicable 
to subparts A, B, C, and D) is amended by adding at the end thereof 
the following new subsection: 
"(e) TREATMENT OF MULTIPLE TRUSTS.—For purposes of this sub-
chapter, under regulations prescribed by the Secretary, 2 or more 
trusts shall be treated as 1 trust if— 
"(1) such trusts have substantially the same grantor or gran-
^
f 
> 
tors and substantially the same primary beneficiary or benefici-
aries, and 
"(2) a principal purpose of such trusts is the avoidance of the 
tax imposed by this chapter. 
For purposes of the preceding sentence, a husbcuid and wife shall be 
treated as 1 person. 
26 use 643 note. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to taxable years beginning after March 1,1984. 
Subtitle G—Accounting Changes 
SEC. 91. CERTAIN AMOUNTS NOT TREATED AS INCURRED BEFORE ECO-
NOMIC PERFORMANCE. 
26 use 461. 
(a) IN GENERAL.—Section 461 (relating to general rule for taxable 
year of deduction) is amended by adding at the end thereof the 
following new subsections: 
"(h) CERTAIN LIABIUTIES NOT INCURRED BEFORE ECONOMIC PER-
FORMANCE.— 
"(1) IN GENERAL.—For purpjoses of this title, in determining 
whether an amount has been incurred with respect to any item 
during any taxable year, the all events test shall not be treated 
as met any earlier than when economic performance with 
respect to such item occurs. 
"(2) TIME WHEN ECONOMIC PERFORMANCE OCCURS.—Except as 
provided in regulations prescribed by the Secretary, the time 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 599 
•I' 
when economic performance occurs shall be determined under 
< 
the following principles: 
"(A) 
SERVICES AND PROPERTY PROVIDED TO THE TAX-
PAYER.—If the liability of the taxpayer arises out of— 
~ 
"(i) the providing of services to the taxpayer by an-
"' 
other person, economic performance occurs as such 
person provides such services, 
"(ii) the providing of property to the taxpayer by 
another person, economic performance occurs as the 
person provides such property, or 
"(iii) the use of property by the taxpayer, economic 
"
t
J
*
7 ( I ii 
performance occurs as the taxpa3rer uses such property. 
"(B) 
SERVICES AND PROPERTY PROVIDED BY THE TAX-
PAYER.—If the liability of the taxpayer requires the taxpay-
er to provide property or services, economic performance 
' 
'^ 
occurs as the taxpayer provides such property or services. 
•it; K : . 
w
^
Q
^ WORKERS COMPENSATION AND TORT UABIUTIES OF THE 
,, 
TAXPAYER.—If the liability of the taxpayer requires a pay-
V !i, V
t 'i jjjgjj^ ^
Q another person and— 
"(i) arises under any workers compensation act, or 
"(ii) arises out of any tort, 
economic performance occurs as the payments to such 
' 
person are made. Subparagraphs (A) and (B) shall not apply 
to any liability described in the preceding sentence. 
"(D) OTHER ITEMS.—In the case of any other liability of 
the taxpayer, economic performance occurs at the time 
determined under regulations prescribed by the Secretary. 
"(3) EXCEPTION FOR CERTAIN RECURRING ITEMS.— 
"(A) IN GENERAL.—Notwithstanding paragraph (1) an 
^ .,,, ,,^ , item shall be treated as incurred during any taxable year 
;• 
" " 
i f -
"(i) the all events test with respect to such item is 
met during such taxable year (determined without 
^. ' 
1 
regard to paragraph (1)), 
"(ii) economic performance with respect to such item 
occurs within the shorter of— 
"(I) a reasonable period after the close of such 
taxable year, or 
"(II) SVa months after the close of such taxable 
year, 
5 
"(iii) such item is recurring in nature and the tax-
payer consistently treats items of such kind as incurred 
in the taxable year in which the requirements of clause 
iAiiii.io J. 
(i) are met, and 
"(iv) either— 
"(I) such item is not a material item, or 
c 
"(II) the accrual of such item in the taxable year 
-i;«i3-;. 
in which the requirements of clause (i) are met 
results in a more proper match against income 
than accruing such item in the taxable year in 
~.% ^iji ^ 
which economic performance occurs. 
"(B) FINANCIAL STATEMENTS CONSIDERED UNDER SUBPARA-
< 
GRAPH (A) (iv).—In making a determination under sub-
paragraph (A)(iv), the treatment of such item on financial 
.
V 
statements shall be taken into account. 
98 STAT. 600 
PUBLIC LAW 98-369—JULY 18, 1984 
"(C) PARAGRAPH NOT TO APPLY TO WORKERS COMPENSATION 
AND TORT UABILITIES.—This paragraph shall not apply to 
any item described in subparagraph (C) of paragraph (2). 
"(4) ALL EVENTS TEST.—For purposes of this subsection, the all 
events test is met with respect to any item if all events have 
occurred which determine the fact of liability and the amount of 
such liability can be determined with reasonable accuracy. 
"(5) SUBSECTION NOT TO APPLY TO CERTAIN CASES TO WHICH 
OTHER PROVISIONS OF THIS TITLE SPECIFICALLY APPLY.—This Sub-
section shall not apply to any item to which any of the following 
provisions apply: 
"(A) Subsection (c) or (0 of section 166 (relating to re-
serves for bad debts). 
"(B) Section 463 (relating to vacation pay). 
"(C) Section 466 (relating to discount coupons). 
"(D) Any other provisions of this title which specifically 
provides for a deduction for a reserve for estimated ex-
penses, 
"(i) TAX SHELTERS MAY NOT DEDUCT ITEMS EARLIER THAN WHEN 
ECONOMIC PERFORMANCE OCCURS.— 
"(1) IN GENERAL.—In the case of a tax shelter computing 
taxable income under the cash receipts and disbursements 
method of accounting, such tax shelter shall not be allowed a 
deduction under this chapter with respect to any item any 
earlier than the time when such item would be treated as 
incurred under subsection (h) (determined without regard to 
paragraph (3) thereof). 
"(2) EXCEPTION (TO EXTENT OF CASH BASIS) WHEN ECONOMIC 
PERFORMANCE OCCURS WITHIN 90 DAYS AFTER THE CLOSE OF THE 
TAXABLE YEAR.— 
"(A) IN GENERAL.—Paragraph (1) shall not apply to any 
item if economic performance with respect to such item 
occurs within 90 days after the close of the taxable year. 
"(B) DEDUCTION LIMITED TO CASH BASIS.— 
"(i) TAX SHELTER PARTNERSHIPS.—In the case of a tax 
^
* 
shelter which is a partnership, in applying section 
704(d) to a deduction or loss for any taxable year 
attributable to an item which is deductible by reason of 
subparagraph (A), the term 'cash basis' shall be substi-
tuted for the term 'adjusted basis'. 
"(ii) OTHER TAX SHELTERS.—Under regulations pre-
scribed by the Secretary, in the case of a tax shelter 
other than a partnership, the aggregate amount of the 
deductions allowable by reason of subparagraph (A) for 
any taxable year shall be limited in a manner similar 
to the limitation under clause (i). 
"(C) CASH BASIS DEFINED.—For purposes of subparagraph 
(B), a partner's cash basis in a partnership shall be equal to 
the adjusted basis of such partner's interest in the partner-
ship, determined without regard to— 
"(i) any liability of the partnership, and 
"(ii) any amount borrowed by the partner with re-
spect to such partnership which— 
"(I) was arranged by the partnership or by any 
person who participated in the organization, sale, 
or management of the partnership (or any person 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 601 
related to such person within the meaning of sec-
1 
r 
tion 168(e)(4)), or 
"(II) was secured by any assets of the partner-
ship. 
- 
"(D) SPECIAL CASH BASIS RULE FOR SPUDDING OF OIL OR GAS 
WELLS.—Solely for purposes of applying subparagraph (A), 
,.^l 
economic performance with respect to the act of drilling of 
an oil or gas well shall be treated as occurring when the 
gj.^ ,, .4,6 
drilling of the well is commenced. 
"(3) TAX SHELTER DEFINED.—For purposes of this subsection, 
the term 'tax shelter' means— 
"(A) any enterprise (other than a C corporation) if at any 
time interests in such enterprise have been offered for sale 
in any offering required to be registered with any Federal 
or State agency having the authority to regulate the offer-
:8t SIB- 
ing of securities for sale, 
f^ 
"(B) any syndicate (within the meaning of section 
1256(e)(3)(B)), and 
,T/> 
"(C) any tax shelter (within the meaning of section 
6661(b)(2)(C)(ii)). 
"(4) SPECIAL RULES FOR FARMING.—In the case of the trade or 
business of farming (as defined in section 464(e))— 
"(A) section 464 shall be applied to any tax shelter de-
scribed in paragraph (3)(C), 
. - 
"(B) section 464 shall be applied before this subsection, 
9, 
and 
"(C) in determining whether an entity is a tax shelter, the 
ijlf^i 
definition of farming syndicate in section 464(c) shall be 
substituted for subparagraphs (A) and (B) of paragraph (3). 
31 
"(5) ECONOMIC PERFORMANCE.—For purposes of this subsec-
tion, the term 'economic performance' has the meaning given 
such term by subsection (h)." 
(b) SPECIAL RULES FOR MINING AND SOLID WASTE RECLAMATION 
AND CLOSING COSTS.— 
(1) IN GENERAL.—Subpart C of part II of subchapter E of 
chapter 1 (relating to taxable year for which deduction taken), 
as amended by section 92, is amended by adding at the end 
thereof the following new section: 
"SEC. 468. SPECIAL RULES FOR MINING AND SOLID WASTE RECLAMATION 26 USC 468. 
AND CLOSING COSTS. 
"(a) ESTABLISHMENT OF RESERVES FOR RECLAMATION AND CLOSING 
COSTS.— 
"(1) ALLOWANCE OF DEDUCTION.—If a taxpayer elects the a p 
plication of this subsection with respect to any mining or solid 
waste disposal property, the amount of any deduction for quali-
fied reclamation or closing costs for any taxable year to which 
such election applies shall be equal to the current reclamation 
'^ 
or closing costs allocable to— 
"(A) in the case of qualified reclamation costs, the portion 
of the reserve property which was disturbed during such 
taxable year, and 
"(B) in the case of qualified closing costs, the production 
from the reserve property during such taxable year. 
"(2) OPENING BALANCE AND ADJUSTMENTS TO RESERVE.— 
"(A) OPENING BALANCE.—The opening balance of any 
reserve for its first taxable year shall be zero. 
98 STAT. 602 
PUBLIC LAW 98-369—JULY 18, 1984 
"(B) INCREASE FOR INTEREST.— 
"(i) IN GENERAL.—A reserve shall be increased each 
taxable year by an amount equal to the amount of 
interest which would be earned during such taxable 
year on the opening balance of such reserve for such 
taxable year if such interest were computed— 
"(I) at the Federal short-term rate or rates (de-
Ante, p. 538. 
termined under section 1274) in effect, and 
"(II) by compounding semiannually, 
"(ii) PHASE-IN OF INTEREST RATE.—In the case of tax-
able years ending before 1987, the rate determined 
under clause (i)(I) shall be equal to the following per-
centage of such rate (determined without regard to this 
clause): 
"In the case of taxable years ending in: 
The percentage is: 
1984 or 1985 
70 
1986 
85. 
"(C) RESERVE TO BE CHARGED FOR AMOUNTS PAID.— Any 
amount paid by the taxpayer during any taxable year for 
qualified reclamation or closing costs allocable to portions 
of the reserve property for which the election under para-
graph (1) was in effect shall be charged to the appropriate 
reserve as of the close of the taxable year. 
"(3) ALLOWANCE OF DEDUCTION FOR EXCESS AMOUNTS PAID.— 
There shall be allowed as a deduction for any taxable year the 
excess of— 
"(A) the amounts described in paragraph (2XC) paid 
during such taxable year, over 
"(B) the closing balance of the reserve for such taxable 
year (determined without regard to paragraph (2XC)). 
"(4) LIMITATION ON BALANCE AS OF THE CLOSE OF ANY TAXABLE 
YEAR.— 
"(A) RECLAMATION RESERVES.—In the case of any reserve 
for qualified reclamation costs, there shall be included in 
gross income for any tsixable year an amount equal to the 
excess of^ 
"(i) the closing balance of the reserve for such tax-
;r; ; 
>» 
able year, over 
"(ii) the current reclamation costs of the taxpayer for 
. ,^ 
all portions of the reserve property disturbed during 
any taxable year to which the election under para-
graph (1) applies. 
"(B) CLOSING COSTS RESERVES.—In the case of any reserve 
for qualified closing costs, there shall be included in gross 
income for any taxable year an amount equal to the excess 
of-
"(i) the closing balance of the reserve for such tax-
able year, over 
"(ii) the current closing cost of the taxpayer with 
respect to the reserve property, determined as if all 
01 
production with respect to the reserve property for any 
taxable year to which the election under paragraph (1) 
applies had occurred in such taxable year. 
van lo 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 603 
^ 
"(C) ORDER OF APPLICATION.—This paragraph shall be 
• 
applied after all adjustments to the reserve have been made 
for the taxable year. 
, 
s f o; 
"(5) INCOME INCLUSIONS ON COMPLETION OR DISPOSITION.— 
" • ' 
i 
Proper inclusion in income shall be made upon— 
t< 
"(A) the revocation of an election under paragraph (1), or 
"(B) completion of the closing, or disposition of any por- 
i2'^' >S'J J 
tion, of a reserve property. 
"(b) ALLOCATION FOR PROPERTY WHERE ELECTION NOT IN EFFECT 
FOR ALL TAXABLE YEARS.—If the election under subsection (a)(1) is 
not in effect for 1 or more taxable years in which the reserved 
property is disturbed (or production occurs), items with respect to 
the reserve property shall be allocated to the reserve in such 
manner as the Secretary may prescribe by regulations. 
"(c) REVOCATION OF ELECTION; SEPARATE RESERVES.— 
"(1) REVOCATION OF ELECTION.— 
"(A) IN GENERAL.—The taxpayer may revoke an election 
if 
' 
under subsection (a)(1) with respect to any property. Such 
ihi- 
revocation, once made, shall be irrevocable. 
r«fei' -M'J Hu 
"(B) TIME AND MANNER OF REVOCATION.—Any revocation 
''^' '• 
' 
under subparagraph (A) shall be made at such time and in 
such manner as the Secretary may prescribe. 
"(2) SEPARATE RESERVES REQUIRED.—If a taxpayer makes an 
election under subsection (a)(1), the taxpayer shall establish 
' 
with respect to the property for which the election was made— 
"(A) a separate reserve for qualified reclamation costs, 
and 
"(B) a separate reserve for qualified closing costs. 
"(d) DEFINITIONS AND SPECIAL RULES RELATING TO RECLAMATION 
AND CLOSING COSTS.—For purposes of this section— 
'''' ')'^-lJ SI 
"(1) CURRENT RECLAMATION AND CLOSING COSTS.— 
"(A) CURRENT RECLAMATION COSTS.—The-term 'current 
f 
reclamation costs' means the amount which the taxpayer 
o; 
would be required to pay for qualified reclamation costs if 
the reclamation activities were performed currently. 
^ 
"(B) CURRENT CLOSING COSTS.— 
"(i) IN GENERAL.—The term 'current closing costs' 
means the amount which the taxpayer would be re-
j
^
a
i
.
%
<
*
f
o ?. B 
quired to pay for qualified closing costs if the closing 
activities were performed currently. 
-MooaCiXi 
"(ii) COSTS COMPUTED ON UNIT-OF-PRODUCTION OR CA-
PACITY METHOD.—Estimated closing costs shall— 
> 
"(I) in the case of the closing of any mine site, be 
computed on the unit-of-production method of ac-
ly '/.- 
.. 
counting, and 
"(II) in the case of the closing of any solid waste 
disposal site, be computed on the unit-of-capacity 
•'-''-'• 
method. 
.A.f!M)i'li ^
n
.
: 
"(2) QUALIFIED RECLAMATION OR CLOSING COSTS.—The term 
'qualified reclamation or closing costs' means any of the follow-
ing expenses: 
"(A) MINING RECLAMATION AND CLOSING COSTS.—Any ex-
penses incurred for any land reclamation or closing activity 
ti; 
which is conducted in accordance with a reclamation plan 
(including an amendment or modification thereof)— 
"(i) which— 
98 STAT. 604 
PUBLIC LAW 98-369—JULY 18, 1984 
"(I) is submitted pursuant to the provisions of 
^ - 
section 511 or 528 of the Surface Mining Control 
30 use 1261, 
and Reclamation Act of 1977 (as in effect on Janu-
1278. 
-v^v^Ti. 
ary 1,1984), and 
"(II) is part of a surface mining and reclamation 
permit granted under the provisions of title V of 
30 use 1251. 
such Act (as so in effect), or 
"(ii) which is submitted pursuant to any other Feder-
al or State law which imposes surface mining reclama-
tion and permit requirements substantially similar to 
the requirements imposed by title V of such Act (as so 
in effect). 
t, u-. 
"(B) SOUD WASTE DISPOSAL AND CLOSING COSTS.— 
"(i) IN GENERAL.—Any expenses incurred for any 
land reclamation or closing activity in connection with 
any solid waste disposal site which is conducted in 
accordance with any permit issued pursuant to— 
"(I) any provision of the Solid Waste Disposal 
42 use 6901 
Act (as in effect on January 1, 1984) requiring such 
note. 
,, ....•'•- 
activity, or 
rj :Ksh *
^ 
"(II) any other Federal, State, or local law which 
imposes requirements substantially similar to the 
requirements imposed by the Solid Waste Disposal 
Act (as so in effect). 
"(ii) 
EXCEPTION 
FOR CERTAIN 
HAZARDOUS 
WASTE 
,
<
; . 
SITES.—Clause (i) shall not apply to that portion of any 
property which is disturbed after the property is listed 
in the national contingency plan established under 
section 105 of the Comprehensive Environmental, Com-
42 use 9605. 
pensation, and Liability Act of 1980. 
"(3) PROPERTY.—The term 'property' has the meaning given 
such term by section 614. 
"(4) RESERVE PROPERTY.—The term 'reserve property' means 
any property with respect to which a reserve is established 
under subsection (aXl).' 
(2) CONFORMING AMENDMENT.—The table of sections for sub-
part C of part II of subchapter E of chapter 1 is amended by 
adding at the end thereof the following new item: 
"Sec. 468. Special rules for mining and solid waste reclamation and closing 
costs." 
(c) SPECIAL RULE FOR LIABILITIES IN CONNECTION WITH THE DECOM-
MISSIONING OF A NUCLEAR POWERPLANT.— 
(1) IN GENERAL.—Subpart C of part II of subchapter E of 
chapter 1 (relating to taxable year for which deduction taken), 
as amended by subsection (b), is amended by adding at the end 
thereof the following new section: 
26 use 468A. 
"SEC. 468A. SPECIAL RULES FOR NUCLEAR DECOMMISSIONING COSTS. 
"(a) IN GENERAL.—If the taxpayer elects the application of this 
subsection, there shall be allowed as a deduction for any taxable 
year the amount of payments made by the taxpayer to a Nuclear 
Decommissioning Reserve Fund (hereinafter referred to as the 
'Fund') during such taxable year. 
"Ot>) LIMITATION ON AMOUNTS PAID INTO FUND.—The amount 
which a taxpayer may pay into the Fund for any taxable year shall 
not exceed the lesser o
f
— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 605 
"(1) the amount of nuclear decommissioning costs allocable to 
the Fund which is included in the taxpayer's cost of service for 
ratemaking purposes for such taxable year, or 
"(2) the ruling amount applicable to such taxable year. 
"(c) INCOME AND DEDUCTIONS OF THE TAXPAYER.— 
"(1) INCLUSION OF AMOUNTS DISTRIBUTED.—There shall be in-
cludible in the gross income of the taxpayer for any taxable 
year— 
"(A) any amount distributed from the Fund during such 
taxable year, other than any amount distributed to pay 
costs described in subsection (e)(2XB), and 
' 
"(B) except to the extent provided in regulations, 
amounts properly includible in gross income in the case of 
p. 
any deemed distribution under subsection (e)(6), any termi-
nation under subsection (e)(7), or the disposition of any 
interest in the nuclear powerplant. 
i 
"(2) DEDUCTION WHEN ECONOMIC PERFORMANCE OCCURS.—In 
addition to any deduction under subsection (a), there shall be 
allowable as a deduction for any taxable year the amount of the 
nuclear decommissioning costs with respect to which economic 
performance (within the meaning of section 461(hX2)) occurs Ante, p. 598. 
during such taxable year. 
f "(d) RuuNG AMOUNT.—For purposes of this subsection— 
"(1) REQUEST REQUIRED.—No deduction shall be allowed for 
any payment to the Fund unless the taxpayer requests, and 
receives, from the Secretary a schedule of ruling amounts. 
"(2) RuuNG AMOUNT.—The term 'ruling amount' means, with 
respect to any taxable year, the amount which the Secretary 
determines under paragraph (1) to be necessary to— 
"(A) fund that portion of the nuclear decommissioning 
costs of the taxpayer with respect to the nuclear power-
-^ * 
plant which bears the same ratio to the total nuclear 
decommissioning costs with respect to such nuclear power-
plant as the period for which the Fund is in effect bears to 
-sQ 
the estimated useful life of such nuclear powerplant, and 
"(B) prevent any excessive funding of such costs or the 
r 
funding of such costs at a rate more rapid than level 
^: JJ- i 
funding, taking into account such discount rates as the 
Secretary deems appropriate. 
•; 
"(3) REVIEW OF AMOUNT.—The Secretary shall at least once 
during the useful life of the nuclear powerplant (or, more 
frequently, upon the request of the taxpayer) review, and revise 
if necessary, the schedule of ruling amounts determined under 
paragraph (1). 
' "(e) NUCLEAR DECOMMISSIONING TRUST FUND.— 
"(1) IN GENERAL.—Each taxpayer who elects the application of 
this subsection shall establish a Nuclear Decommissioning 
Trust Fund with respect to each nuclear powerplant to which 
- • -^^^ f
'
^ 
such election applies. 
"(2) TAXATION OF FUND.—There is imposed on the gross 
income of the Fund for any taxable year a tax at a rate equal to 
the maximum rate in effect under section 11(b), except that— 
"(A) there shall not be included in the gross income of the 
Fund any payment to the Fund with respect to which a 
deduction is allowable under subsection (a), and 
98 STAT. 606 
PUBLIC LAW 98-369—JULY 18, 1984 
"(B) there shall be allowed as a deduction any amount 
paid by the Fund described in paragraph (4)(B) (other than 
to the taxpayer). 
"(3) CONTRIBUTIONS TO FUND.—The Fund shall not accept any 
payments (or other amounts) other than payments with respect 
to which a deduction is allowable under subsection (a). 
"(4) USE OF FUND.—The Fund shall be used exclusively for— 
"(A) satisfying, in whole or in part, any liability of any 
person contributing to the Fund for the decommissioning of 
a nuclear powerplant (or unit thereof), and 
"(B) to pay administrative costs (including taxes) and 
other incidental expenses of the Fund (including legal, 
accounting, actuarial, and trustee expenses) in connection 
with the operation of the Fund. 
"(5) PROHIBITIONS AGAINST SELF-DEAUNG.—Under regulations 
prescribed by the Secretary, for purposes of section 4951 (and so 
much of this title as relates to such section), the Fund shall be 
treated in the same manner £is a trust described in section 
501(c)(21). 
"(6) DiSQUAUFiCATiON OF FUND.—In any case in which the 
Fund violates any provision of this subsection or section 4951, 
the Secretary may disqualify such Fund from the application of 
this subsection. In any case to which this subparagraph applies, 
the Fund shall be treated as having distributed all of its funds 
on the date such determination takes effect. 
"(7) TERMINATION UPON COMPLETION.—Upon substantial com-
pletion of the nuclear decommissioning of the nuclear* power-
plant with respect to which a Fund relates, the taxpayer shall 
terminate such Fund. 
"(f) NUCLEAR POWERPLANT.—The term 'nuclear powerplant' in-
cludes any unit thereof." 
(2) CONFORMING AMENDMENT.—The table of sections for sub-
part C of part II of subchapter E of chapter 1 is amended by 
adding at the end thereof the following new item: 
"Sec. 468A. Special rules for nuclear decommissioning costs." 
(d) 10-YEAR NET OPERATING Loss CARRYBACK PERIOD FOR DE-
FERRED STATUTORY OR TORT LIABIUTY DEDUCTIONS.— 
26 use 172. 
(1) IN GENERAL.—Paragraph (1) of section 1720b) (relating to 
years to which loss may be carried) is amended by adding at the 
end thereof the following new subparagraph: 
"(K) SPECIAL RULE FOR DEFERRED STATUTORY OR TORT U-
ABILITY LOSSES.—In the case of a taxpayer which has a 
deferred statutory or tort liability loss (as defined in subsec-
tion (k)) for any taxable year beginning after December 31, 
1983, the deferred statutory or tort liability loss shall be a 
net operating loss carryback to each of the 10 taxable years 
preceding the taxable year of such loss." 
(2) DEFERRED STATUTORY OR TORT LIABIUTY LOSSES.—Section 
26 use 172. 
172 is amended by redesignating subsection (k) as subsection (1) 
and by inserting after subsection (j) the following new subsec-
tion: 
"(k) DEFINITIONS AND SPECIAL RULES RELATING TO DEFERRED STAT-
UTORY O
R TORT LIABIUTY LOSSES.—For purposes of this section— 
"(1) DEFERRED STATUTORY OR TORT UABILITY LOSS.—The term 
'deferred statutory or tort liability loss' means, for any taxable 
year, the lesser of— 
muii ia|.D8lJf« 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 607 
"(A) the net operating loss for such taxable year, reduced 
by any portion thereof attributable to— 
"(i) a foreign expropriation loss, or 
"(ii) a product liability loss, or 
,^,, ,
^ 
"(B) the sum of the amounts allowable as a deduction 
" 
?u 
under this chapter (other than any deduction described in 
3 r - 
subsection (j)(1 )(B)) which— 
"(i) is taken into account in computing the net oper-
ating loss for such taxable year, and 
; 4 
i,,j 
"(ii) is for an amount incurred with respect to a 
liability which arises under a Federal or State law or 
out of any tort of the taxpayer and— 
; , 
"(I) in the case of a liability arising out of a 
Federal or State law, the act (or failure to act) 
'• ate 5 aiik'o. 
giving rise to such liability occurs at least 3 years 
before the beginning of such taxable year, or 
"(II) in the case of a liability arising out of a tort, 
such liability arises out of a series of actions (or 
failures to act) over an extended period of time a 
substantial portion of which occurs at least 3 years 
before the beginning of such taxable year. 
A liability shall not be taken into account under the preceding 
sentence unless the taxpayer used an accrual method of ac- 
„,,. , 
counting throughout the period or periods during which the acts 
or failures to act giving rise to such liability occurred. 
"(2) SPECIAL RULE FOR NUCLEAR POWERPLANTS.—Except as 
^o.. „ 
provided in regulations prescribed by the Secretary, that por-
tion of a deferred statutory or tort liability loss which is attrib-
utable to amounts incurred in the decommissioning of a nuclear 
powerplant (or any unit thereof) may, for purposes of subsection 
(b)(l)(K), be carried back to each of the taxable years during the 
period— 
"(A) beginning with the taxable year in which such plant 
(or unit thereof) was placed in service, and 
"(B) ending with the taxable year preceding the loss year. 
"(3) COORDINATION WITH SUBSECTION (b)(2).—In applying 
paragraph (2) of subsection (b), a deferred statutory or tort 
liability loss shall be treated in a manner similar to the manner 
in which a foreign expropriation loss is treated. 
"(4) No C
A
R
R
Y
B
A
C
K TO TAXABLE YEARS BEGINNING BEFORE JAN-
U
A
R
Y 1, 1984.—No deferred statutory or tort liability loss may 
be carried back to a taxable year beginning before January 1, 
1984, unless such loss may be carried back to such year without 
regard to subsection (b)(l)(K)." 
(3) CONFORMING AMENDMENTS.— 
(A) Clause (i) of section 172(b)(1)(A) is amended by striking 
26 USC 172 
out "and (J)" and inserting in lieu thereof "(J), and (K)". 
(B) Subsections (h) and (j) of section 172 are each amended 
by striking out "subsection (b)" in the matter preceding 
paragraph (1) and inserting in lieu thereof "this section". 
(e) (CONFORMING AMENDMENT.—Paragraph (4) of section 461(f) (re- 
26 use 461 
lating to contested liabilities) is amended by inserting "determined 
after application of subsection (h)" after "taxable year)". 
(f) INCLUSION IN INCOME OF NUCLEAR DECOMMISSIONING C!OSTS 
INCLUDED IN THE TAXPAYER'S RATE BASE.— 
''•6 .'• d& 
98 STAT. 608 
PUBLIC LAW 98-369—JULY 18, 1984 
(1) IN GENERAL.—Part II of subchapter B of chapter 1 (relating 
to items specifically included in gross income) is amended by 
adding at the end thereof the following new section: 
26 u s e 88. 
"SEC. 88. CERTAIN AMOUNTS WITH RESPECT TO NUCLEAR DECOMMIS-
SIONING COSTS. 
"In the case of any taxpayer who is required to include the 
amount of any nuclear decommissioning costs in the taxpayer's cost 
of service of ratemaking purposes, there shall be includible in the 
gross income of such taxpayer the amount so included for any 
taxable year." 
(2) CONFORMING AMENDMENT.—The table of sections for part 
II of subchapter B of chapter 1 is amended by adding at the end 
thereof the following new item: 
"Sec. 88. Certain amounts with respect to nuclear decommissioning costs." 
26 u s e 461 note. 
(g) EFFECTIVE D A T E S . — 
(1) IN GENERAL.—Except as provided in this subsection and 
subsections (h) and (i), the amendments made by this section 
shall apply to amounts with respect to which a deduction would 
be allowable under chapter 1 of the Internal Revenue Code of 
26 use 1 et seq. 
1954 (determined without regard to such amendments) after— 
(A) in the case of amounts to which section 461(h) of such 
Ante, p. 598. 
Code (as added by such amendments) applies, the date of 
the enactment of this Act, and 
(B) in the case of amounts to which section 461(i) of such 
Ante, p. 598. 
Code (as so added) applies, after March 31,1984. 
(2) TAXPAYER MAY ELECT EARLIER APPLICATION.— 
(A) IN GENERAL.—In the case of amounts described in 
paragraph (1)(A), a taxpayer may elect to have the amend-
ments made by this section apply to amounts which— 
(i) are incurred before the date of the enactment of 
. 
this Act (determined without regard to such amend-
"
^ • 
ments), and 
(ii) are incurred on or after the date of the enactment 
of this Act (determined with regard to such amend-
ments). 
(B) ELECTION TREATED AS CHANGE IN THE METHOD OF AC-
COUNTING.—For purposes of section 481 of the Internal 
Revenue Code of 1954, if an election is made under subpara-
graph (A) with respect to any amount, the application of the 
amendments made by this section shall be treated as a 
change in method of accounting— 
(i) initiated by the taxpayer, 
(ii) made with the consent of the Secretary of the 
Treasury, and 
•71 oau?!: 
(iii) with respect to which section 481 of such Code 
shall be applied by substituting a 3-year adjustment 
period for a 10-year adjustment period. 
(3) SECTION 461(h) TO APPLY IN CERTAIN CASES.—Notwith-
standing paragraph (1), section 461(h) of the Internal Revenue 
Ante, p. 598. 
Code of 1954 (as added by this section) shall be treated as being 
in effect to the extent necessary to carry out any amendments 
made by this section which take effect before section 461(h). 
26 u s e 461 note. 
(h) EXCEPTION FOR CERTAIN 
EXISTING ACTIVITIES AND CON-
TRACTS.—If— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 609 
(1) EXISTING ACCOUNTING PRACTICES.—If, on March 1, 1984, 
any taxpayer was regularly computing his deduction for mining 
reclamation activities under a current cost method of account-
ing (as determined by the Secretary of the Treasury or his 
delegate), the liability for reclamation activities— 
(A) for land disturbed before the date of the enactment of 
this Act, or 
(B) to which paragraph (2) applies, 
shall be treated as having been incurred when the land was 
disturbed. 
(2) FIXED PRICE SUPPLY CONTRACT.— 
•
»
*
* 
(A) IN GENERAL.—In the case of any fixed price supply 
contract entered into before March 1, 1984, the amend-
ments made by subsection (b) shall not apply to any miner-
als extracted from such property which are sold pursuant to 
such contract. 
(B) No EXTENSION OR RENEGOTIATION.—Subparagraph (A) 
' ^ 
shall not apply— 
^, 
(i) to any extension of any contract beyond the period 
SIB J'- 
guch contract was in effect on March 1,1984, or 
f 
(ii) to any renegotiation of, or other change in, the 
•inc' It 
terms and conditions of such contract in effect on 
March 1,1984. 
(i) TRANSITIONAL RULE FOR ACCRUED VACATION PAY.— 
26 use 461 note. 
(1) IN GENERAL.—In the case of any taxpayer— 
(A) with respect to whom a deduction was allowable 
(other than under section 463 of the Internal Revenue Code 
of 1954) for vested accrued vacation pay for the last taxable 
year ending before the date of the enactment of this Act, 
and 
(B) who elects the application of section 463 of such Code 
for the first taxable year ending after the date of the 
enactment of this Act, 
then, for purposes of section 463(b) of such Code, the opening 
balance of the taxpayer with respect to any vested accrued 
,-; „,;•: -i 
vacation pay shall be determined under section 463(b)(1) of such 
Code. 
(2) VESTED ACCRUED VACATION PAY.—For purposes of this sub-
section, the term "vested accrued vacation pay" means any 
amount allowable under section 162(a) of such Code with respect 
to vacation pay of employees of the taxpayer (determined with-
out regard to section 463 of such Code). 
SEC. 92. TREATMENT OF CERTAIN DEFERRED PAYMENTS FOR USE OF 
PROPERTY OR SERVICES. 
(a) GENERAL RULE.—Subpart C of part II of subchapter E of 
chapter 1 (relating to taxable year for which deduction is taken) is 
amended by adding at the end thereof the following new section: 
"SEC. 467. CERTAIN PAYMENTS FOR THE USE OF PROPERTY OR SERVICES. 
26 USC 467. 
"(a) ACCRUAL METHOD ON PRESENT VALUE BASIS.—In the case of 
the lessor or lessee under any section 467 rental agreement, there 
shall be taken into account for purposes of this title for any taxable 
year the sum of— 
"(1) the amount of the rent which accrues during such taxable 
year as determined under subsection (b), and 
98 STAT. 610 
PUBLIC LAW 98-369—JULY 18, 1984 
"(2) interest for the year on the amounts which were taken 
into account under this subsection for prior taxable years and 
which are unpaid. 
"(b) ACCRUAL OF RENTAL PAYMENTS.— 
"(1) ALLOCATION FOLLOWS AGREEMENT.—Except as provided in 
paragraph (2), the determination of the amount of the rent 
under any section 467 rental agreement which accrues during 
any taxable year shall be made— 
"(A) by allocating rents in accordance with the agree-
ment, and 
"(B) by taking into account any rent to be paid after the 
close of the period in an amount determined under regula-
tions which shall be based on present value concepts. 
"(2) 
CONSTANT RENTAL ACCRUAL IN CASE OF CERTAIN TAX 
AVOIDANCE TRANSACTIONS, ETC.—In the case of any section 467 
rental agreement to which this paragraph applies, the portion 
of the rent which accrues during any taxable year shall be that 
portion of the constant rental amount with respect to such 
agreement which is allocable to such taxable year. 
"(3) AGREEMENTS TO WHICH PARAGRAPH (2) 
APPLIES.—Para-
graph (2) applies to any rental payment agreement if— 
"(A) such agreement is a disqualified leaseback or long-
term agreement, or 
"(B) such agreement does not provide for the allocation 
^*^'' 
' 
referred to in paragraph (1)(A). 
"(4) DISQUALIFIED LEASEBACK OR LONG-TERM AGREEMENT.—For 
purposes of this subsection, the term 'disqualified leaseback or 
long-term agreement' means any section 467 rental agreement 
if— 
"(A) such agreement is part of a leaseback transaction or 
such agreement is for a term in excess of 75 percent of the 
statutory recover period for the property, and 
"(B) a principal purpose for providing increasing rents 
under the agreement is the avoidance of tax imposed by 
this subtitle. 
Regulations. 
"(5) EXCEPTIONS TO DISQUALIFICATION IN CERTAIN CASES.—The 
Secretary shall prescribe regulations setting forth circum-
stances under which agreements will not be treated as disquali-
fied leaseback or long-term agreements, including circum-
stances relating to— 
"(A) changes in amounts paid determined by reference to 
price indices, 
"(B) rents based on a fixed percentage of lessee receipts or 
similar amounts, 
"(C) reasonable rent holidays, or 
"(D) changes in amounts paid to unrelated 3rd parties. 
"(c) RECAPTURE OF PRIOR UNDERSTATED INCLUSIONS UNDER LEASE-
BACK O
R LONG-TERM AGREEMENTS.— 
"(1) IN GENERAL.—If— 
"(A) the lessor under any section 467 rental agreement 
' 
disposes of any property subject to such agreement during 
the term of such agreement, and 
"(B) such agreement is a leaseback or long-term agree-
ment to which paragraph (2) of subsection (b) did not apply, 
the recapture amount shall be treated as ordinary income. Such 
gain shall be recognized notwithstanding any other provision of 
this subtitle. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 611 
"(2) RECAPTURE AMOUNT.—For purposes of paragraph (1), the 
term 'recapture amount' means the lesser of^ 
"(A) the prior understated inclusions, or 
"(B) the excess of the amount realized (or in the case of a 
disposition other than a sale, exchange, or involuntary 
conversion, the fair market value of the property) over the 
adjusted basis of such property. 
The amount determined under subparagraph (B) shall be re-
duced by the amount of any gain treated as ordinary income on 
the disposition under any other provision of this subtitle. 
"(3) PRIOR UNDERSTATED INCLUSIONS.—For purposes of this 
subsection, the term 'prior understated inclusion' means the 
excess (if any) of^ 
"(A) the amount which would have been taken into ac-
count by the lessor under subsection (a) for periods before 
the disposition if subsection (b)(2) had applied to the agree-
ment, over 
"(B) the amount taken into account under subsection (a) 
by the lessor for periods before the disposition. 
"(4) LEASEBACK OR LONG-TERM AGREEMENT.—For purposes of 
this subsection, the term 'leaseback or long-term agreement' 
means any agreement described in subsection (b)(3)(A). 
"(5) SPECIAL RULES.—Under regulations prescribed by the 
Secretary— 
"(A) exceptions similar to the exceptions applicable under 
section 1245 or 1250 (whichever is appropriate) shall apply 
for purposes of this subsection, 
"(B) any transferee in a disposition excepted by reason of 
subparagraph (A) who has a transferred basis in the proper-
ty shall be treated in the same manner as the transferor, 
and 
"(C) for purposes of sections 163(d), 170(e), 341(e)(12), 
i3ihi f.if 453B(d)(2), and 751(c), amounts treated as ordinary income 
under this section shall be treated in the same manner as 
amounts treated as ordinary income under section 1245 or 
1250. 
"(d) SECTION 467 RENTAL AGREEMENTS.— 
"(1) IN GENERAL.—Except as otherwise provided in this sub-
section, the term 'section 467 rental agreements' means any 
rental agreement for the use of tangible property under 
which— 
"(A) there is at least one amount allocable to the use of 
property during a calendar year which is to be paid after 
the close of the calendar year following the calendar year in 
which such use occurs, or 
"(B) there are increases in the amount to be paid as rent 
under the agreement. 
"(2) SECTION NOT TO APPLY TO AGREEMENTS INVOLVING PAY-
MENTS OF $250,000 O
R LESS.—This section shall not apply to any 
amount to be paid for the use of property if the sum of the 
following amounts does not exceed $250,000— 
"(A) the aggregate amount of payments received as con-
sideration for such use of property, and 
1. 
"(B) the aggregate value of any other consideration to be 
received for such use of property. 
For purposes of the preceding sentence, rules similar to the 
rules of clauses (ii) and (iii) of section 1274(c)(2)(C) shall apply. Ante, p. 538. 
M'^- -
V
i r;mk 
98 STAT. 612 
PUBLIC LAW 98-369—JULY 18, 1984 
"(e) DEFINITIONS.—For purposes of this section— 
"(1) CONSTANT RENTAL AMOUNT.—The term 'constant rental 
amount' means, with respect to any section 467 rental agree-
ment, the amount which, if paid as of the close of each lease 
period under the agreement, would result in an aggregate 
present value equal to the present value of the aggregate pay-
ments required under the agreement. 
"(2) LEASEBACK TRANSACTION.—A transaction is a leaseback 
transaction if it involves a leaseback to any person who had an 
interest in such property at any time within 2 years before such 
leaseback (or to a related person). 
"(3) STATUTORY RECOVERY PERIOD.— 
;
> 
"(A) IN GENERAL.— 
"In the case of property which is: 
The statutory recovery period is: 
3-year property 
3 years 
5-year property 
5 years 
10-year property 
10 years 
Low-income housing 
15 years 
15-year public utility property 
15 years 
18-year real property 
18 years 
"(B) SPECIAL RULE FOR PROPERTY WHICH IS NOT RECOVERY 
PROPERTY.—In the case of any property which is not recov-
ery property, subparagraph (A) shall be applied as if such 
property were recovery property. 
"(4) DISCOUNT AND INTEREST RATE.—For purposes of comput-
ing present value and interest under subsection (a)(2), the rate 
used shall be equal to 110 percent of the applicable Federal rate 
Ante, p. 538. 
determined under section 1274(d) (compounded semiannually) 
which is in effect at the time the agreement is entered into with 
respect to debt instruments having a maturity equal to the term 
of the agreement. 
"(5) RELATED PERSON.—The term 'related person' has the 
meaning given to such term by section 168(d)(4)(D). 
"(6) CERTAIN OPTIONS OF LESSEE TO RENEW NOT TAKEN INTO 
ACCOUNT.—Except as provided in regulations prescribed by the 
Secretary, there shall not be taken into account in computing 
the term of any agreement for purposes of this section any 
extension which is solely at the option of the lessee. 
"(f) COMPARABLE RULES WHERE AGREEMENT FOR DECREASING PAY-
MENTS.—Under regulations prescribed by the Secretary, rules com-
parable to the rules of this section shall also apply in the case of any 
agreement where the amount paid under the agreement for the use 
of property decreases during the term of the agreement. 
"(g) COMPARABLE RULES FOR SERVICES.—Under regulations pre-
scribed by the Secretary, rules comparable to the rules of subsection 
(a)(2) shall also apply in the case of payments for services which 
meet requirements comparable to the requirements of subsection 
(d). 
"(h) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be appropriate to carry out the purposes of this section, 
including regulations providing for the application of this section in 
the case of contingent payments." 
(b) CLERICAL AMENDMENT.—The table of sections for subpart C of 
part II of subchapter E of chapter 1 is amended by adding at the end 
thereof the following new item: 
Sec. 467. Certain payments for use of property or servicee.' 
26 u s e 467 note. 
(c) EFFECTIVE D A T E S . — 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 613 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply with 
respect to agreements entered into after June 8,1984. 
(2) EXCEPTIONS.—The amendments made by this section shall 
not apply— 
(A) to any agreement entered into pursuant to a written 
agreement which was binding on June 8, 1984, and at all 
times thereafter, 
.-,., 
(B) subject to the provisions of paragraph (3), to any 
agreement to lease property i
f
— 
(i) there was in effect a firm plan, evidenced by a 
board of directors' resolution, memorandum of agree-
ment, or letter of intent on March 15, 1984, to enter 
0; 
into such an agreement, and 
ff 
(ii) construction of the property was commenced (but 
i:i 
such property was not placed in service) on or before 
Ml 
March 15, 1984, and 
-csd a 
(C) to any agreement to lease property if— 
(i) the lessee of such property adopted a firm plan to 
lease the property, evidenced by a resolution of the 
Finance Committee of the Board of Directors of such 
lessee, on February 10, 1984, 
(ii) the sum of the present values of the rents payable 
, 
by the lessee under the lease at the inception thereof 
equals at least $91,223,034, assuming for purposes of 
this clause— 
(I) the annual discount rate is 12.6 percent, 
(II) the initial payment of rent occurs 12 months 
after the commencement of the lease, and 
(III) subsequent payments of rents occur on the 
anniversary date of the initial payment, and 
(iii) during— 
(I) the first 5 years of the lease, at least 9 percent 
of the rents payable by the lessee under the agree-
ment are paid, and 
(II) the second 5 years of the lease, at least 16.25 
percent of the rents payable by the lessee under 
the agreement are paid. 
,v,r n- 
Paragraph (3)(B)(ii)(II) shall apply for purposes of 
-i >-^ d-
clauses (ii) and (iii) of subparagraph (C), as if, as of the 
beginning of the last stage, the separate agreements 
were treated as 1 single agreement relating to all 
property covered by the agreements, including any 
property placed in service before the property to which 
=
; «, 
the agreement for the last stage relates. If the lessor 
under the agreement described in subparagraph (C) 
leases the property from another person, this exception 
shall also apply to any agreement between the lessor 
irfi ; : . ' 
and such person which is integrally related to, and 
,'!;}:'•& 
entered into at the same time as, such agreement, and 
which calls for comparable payments of rent over the 
primary term of the agreement. 
(3) SCHEDULE OF DEEMED RENTAL PAYMENTS.— 
(A) IN GENERAL.—In any case to which paragraph (2)(B) 
applies, for purposes of the Internal Revenue Code of 1954, 26 USC i et seq. 
the lessor shall be treated as having received or accrued 
98 STAT. 614 
PUBLIC LAW 98-369—JULY 18, 1984 
(and the lessee shall be treated as having paid or incurred) 
rents equal to the greater of— 
(i) the amount of rents actually paid under the agree-
ment during the taxable year, or 
(ii) the amount of rents determined in accordance 
" 
with the schedule under subparagraph (B) for such 
taxable year, 
(B) SCHEDULE.— 
(i) IN GENERAL.—The schedule under this subpara-
graph is as follows: 
Cumulative percentage 
of total rent 
> 
Portion of lease term: 
deemed paid: 
1st V
s 
10 
:. 
2nd % 
25 
3rd 1
/
5 
45 
'•^.^,U\ 
4^Jj ^ 
rjQ 
Last V
k 
100. 
(ii) OPERATING RULES.—For purposes of this sched-
ule— 
(I) the rent allocable to each taxable year within 
any portion of a lease term described in such sched-
ule shall be a level pro rata amount properly allo-
cable to such taxable year, and 
(II) any agreement relating to property which is 
to be placed in service in 2 or more stages shall be 
treated as 2 or more separate agreements. 
(C) PARAGRAPH NOT TO APPLY.—This paragraph shall not 
apply to any agreement if the sum of the present values of 
all payments under the agreement is greater than the sum 
of the present value of all the payments deemed to be paid 
or received under the schedule under subparagraph (B). For 
purposes of computing any present value under this sub-
paragraph, the annual discount rate shall be equal to 12 
percent, compounded semiannually. 
SEC. 93. AMORTIZATION OF CONSTRUCTION PERIOD INTEREST AND 
TAXES FOR RESIDENTIAL REAL PROPERTY HELD BY CORPO-
RATIONS. 
26 use 189. 
(a) IN GENERAL.—Subsection (d) of section 189 (relating to amorti-
zation of real property construction period interest and taxes) is 
amended— 
(1) by striking out paragraph (2), and 
(2) by redesignating paragraph (3) as paragraph (2). 
26 use 189 note. 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31, 1984, with 
respect to construction beginning after March 15,1984. 
SEC. 94. CAPITALIZATION OF START-UP EXPENDITURES. 
26 use 195. 
(a) IN GENERAL.—Section 195 (relating to start-up expenditures) is 
amended to read as follows: 
"SEC. 195. START-UP EXPENDITURES. 
"(a) CAPITAUZATION OF EXPENDITURES.—Except as otherwise pro-
vided in this section, no deduction shall be allowed for start-up 
\»t Vi i 3e 
expenditures. 
"(b) ELECTION TO AMORTIZE.— 
3 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. (315 
•
3 J 
«Q) jjj GENERAL.—Start-up expenditures may, at the election 
of the taxpayer, be treated as deferred expenses. Such deferred 
expenses shall be allowed as a deduction prorated equally over 
such period of not less than 60 months as may be selected by the 
taxpayer (beginning with the month in which the active trade 
or business begins). 
"(2) DISPOSITIONS BEFORE CLOSE OF AMORTIZATION PERIOD.—In 
any case in which a trade or business is completely disposed of 
by the taxpayer before the end of the period to which paragraph 
(1) applies, any deferred expenses attributable to such trade or 
business which were not allowed as a deduction by reason of 
this section may be deducted to the extent allowable under 
section 165. 
"(c) DEFINITIONS.—For purposes of this section— 
"(1) START-UP EXPENDITURES.—The term 'start-up expenditure' 
means any amount— 
f 
. i«>. 
"(A) paid or incurred in connection with— 
'O 
"(i) investigating the creation or acquisition of an 
active trade or business, or 
"(ii) creating an active trade or business, or 
to.-- 
)ri ? &. 
"(iii) any activity engaged in for profit and for the 
production of income before the day on which the 
active trade or business begins, in anticipation of such 
>: 
activity becoming an active trade or business, and 
"(B) which, if paid or incurred in connection with the 
operation of an existing active trade or business (in the 
same field as the trade or business referred to in subpara-
>"» 
graph (A)), would be allowable as a deduction for the tax-
able year in which paid or incurred. 
The term 'start-up expenditure' does not include any amount 
with respect to which a deduction is allowable under section 
..(, 
,> . ..^ 
163(a), 164, or 174. 
-rj 
"(2) BEGINNING OF TRADE OR BUSINESS.— 
ifii- 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the determination of when an active trade or business 
begins shall be made in accordance with such regulations as 
the Secretary may prescribe. 
"(B) ACQUIRED TRADE OR BUSINESS.—An acquired active 
trade or business shall be treated as beginning when the 
taxpayer acquires it. 
"(d) ELECTION.— 
"(1) TIME FOR MAKING ELECTION.—An election under subsec-
tion (b) shall be made not later than the time prescribed by law 
for filing the return for the taxable year in which the trade or 
business begins (including extensions thereof). 
"(2) SCOPE OF ELECTION.—The period selected under subsection 
(b) shall be adhered to in computing taxable income for the 
taxable year for which the election is made and all subsequent 
taxable years." 
(b) CONFORMING AMENDMENT.—The table of sections for part VI of 
subchapter B of chapter 1 is amended by striking out the item 
relating to section 195 and inserting in lieu thereof the following: 
"Sec. 195. Start-up expenditures." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 195 note. 
apply to taxable years beginning after June 30,1984. 
98 STAT. 616 
PUBLIC LAW 98-369—JULY 18, 1984 
SEC. 95. LIFO CONFORMITY RULES APPLIED ON CONTROLLED GROUP 
BASIS. 
26 use 472. 
(a) GENERAL RULE.—Section 472 (relating to last-in, flrst-out in-
ventories) is amended by adding at the end thereof the following 
new subsection: 
"(g) CONFORMITY RULES APPLIED ON CONTROLLED GROUP BASIS.— 
"(1) IN GENERAL.—Except as otherwise provided in regula-
tions, all members of the same group of financially related 
corporations shall be treated as 1 taxpayer for purposes of 
subsections (c) and (e)(2). 
"(2) GROUP OF FINANCIALLY RELATED CORPORATIONS.—For pur-
poses of paragraph (1), the term 'group of financially related 
corporations' means— 
"(A) any affiliated group as defined in section 1504 deter-
mined by substituting '50 percent' for '80 percent' each 
Ante, p. 577. 
place it appears in section 1504(a) and without regard to 
section 1504(b), and 
r. 
"(B) any other group of corporations which consolidate or 
combine for purposes of financial statements." 
26 use 472 note. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to taxable years beginning after the date of the enact-
ment of this Act. 
Subtitle H—Provisions Relating to Tax 
Straddles 
SEC. 101. REPEAL OF EXCEPTION FROM STRADDLE RULES FOR STOCK 
OPTIONS AND CERTAIN STOCK. 
(a) REPEAL OF EXCEPTION FOR STOCK OPTIONS.— 
26 use 1092. 
(1) IN GENERAL.—Paragraph (2) of section 1092(d) (defining 
position) is amended to read as follows: 
"(2) POSITION.—The term 'position' means an interest (in-
cluding a futures or forward contract or option) in personal 
property." 
(2) SECTIONS IO92 AND 263(g) NOT TO APPLY TO STRADDLES 
CONSISTING OF QUAUFIED COVERED CALL OPTIONS AND THE OP-
TIONED STOCK.—Subsection (c) of section 1092 (defining straddle) 
is amended by adding at the end thereof the following new 
paragraph: 
"(4) EXCEPTION FOR CERTAIN STRADDLES CONSISTING OF QUAU-
FIED COVERED CALL OPTIONS AND THE OPTIONED STOCK.— 
"(A) IN GENERAL.—If^ 
"(i) all the offsetting positions making up any strad-
dle consist of 1 or more qualified covered call options 
and the stock to be purchased from the taxpayer under 
such options, and 
"(ii) such straddle is not part of a larger straddle, 
such straddle shall not be treated as a straddle for purposes 
;, 
of this section and section 263(g). 
"(B) QUAUFIED COVERED CALL OPTION DEFINED.—For pur-
poses of subparagraph (A), the term 'qualified covered call 
option' means any option granted by the taxpayer to pur-
chase stock held by the taxpayer (or stock acquired by the 
.mo<i 3
4 M : :u' %
: 
isffe 
taxpayer in connection with the granting of the option) but 
only i
f
— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 617 
i - : 
"(i) such option is traded on a national securities 
exchange which is registered with the Securities and 
Exchange Commission or other market which the Sec-
retary determines has rules adequate to carry out the 
purposes of this paragraph, 
. • c
i i A 
"(ii) such option is granted more than 30 days before 
, < 
the day on which the option expires, 
"(iii) such option is not a deep-in-the-money option, 
"(iv) such option is not granted by an options dealer 
(within the meaning of section 1256(g)(8)) in connection Post, p. 620. 
with his activity of dealing in options, and 
"(v) gain or loss with respect to such option is not 
ordinary income or loss. 
"(C) DEEP-IN-THE-MONEY OPTION.—For purposes of sub-
paragraph (B), the term 'deep-in-the-money option' means 
, 
an option having a strike price lower than the lowest 
qualified bench mark. 
"(D) LOWEST QUALIFIED BENCH MARK.— 
"(i) IN GENERAL.—Except as otherwise provided in 
5. . 
this subparagraph, for purposes of subparagraph (C), 
the term 'lowest qualified bench mark' means the high-
est available strike price which is less than the applica-
ble stock price. 
"(ii) SPECIAL RULE WHERE OPTION IS FOR PERIOD MORE 
^, .
^
^ 
THAN 90 DAYS AND STRIKE PRICE EXCEEDS $50.—In the 
case of an option— 
"(I) which is granted more than 90 days before 
; 
the date on which such option expires, and* 
i-joi r
^ j H 
"(II) with respect to which the strike price is 
more than $50, 
the lowest qualified bench mark is the second highest 
available strike price which is less than the applicable 
stock price. 
"(iii) 85 PERCENT RULE WHERE APPUCABLE STOCK PRICE 
$25 OR LESS.—If— 
q. .. 
"(I) the applicable stock price is $25 or less, and 
"(II) but for this clause, the lowest qualified 
bench mark would be less than 85 percent of the 
applicable stock price, 
the lowest qualified bench mark shall be treated as 
equal to 85 percent of the applicable stock price. 
"(iv) LIMITATION WHERE APPLICABLE STOCK PRICE $ 1 5 0 
OR LESS.—If— 
fjj^.;, T, , 
"(I) the applicable stock price is $150 or less, and 
"(II) but for this clause, the lowest qualified 
.^ 
bench mark would be less than the applicable stock 
,. 
price reduced by $10, 
the lowest qualified bench mark shall be treated as 
equal to the applicable stock price reduced by $10. 
"(E) SPECIAL YEAR-END RULE.—Subparagraph (A) shall not 
apply to any straddle for purposes of section 1092(a) if— 
"(i) the qualified covered call options referred to in 
such subparagraph are closed during any taxable year, 
"(ii) gain on disposition of the stock to be purchased 
from the taxpayer under such options is includible in 
gross income for a later taxable year, and 
98 STAT. 618 
PUBLIC LAW 98-369—JULY 18, 1984 
"(iii) such stock was not held by the taxpayer for 30 
days or more after the closing of such options. 
For purposes of the preceding sentence, the rules of para-
graphs (3) (other than subparagraph (B) thereof) and (4) of 
Ante, p. 567. 
section 246(c) shall apply in determining the period for 
which the taxpayer holds the stock. 
"(F) STRIKE PRICE.—For purposes of this paragraph, the 
term 'strike price' means the price at which the option is 
exercisable. 
' 
- \ 
"(G) APPLICABLE STOCK PRICE.—For purposes of subpara-
graph (D), the term 'applicable stock price' means, with 
respect to any stock for which an option has been granted— 
"(i) the closing price of such stock on the most recent 
day on which such stock was traded before the date on 
which such option was granted, or 
"(ii) the opening price of such stock on the day on 
which such option was granted, but only if such price is 
greater than 110 percent of the price determined under 
clause (i). 
"(H) REGULATIONS.—The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out 
the purposes of this paragraph. Such regulations may 
include modifications to the provisions of this paragraph 
which are appropriate to take account of changes in the 
practices of option exchanges or to prevent the use of 
options for tax avoidance purposes." 
O
t
)
) REPEAL OF EXCEPTION FOR STOCK.— 
26 use 1092. 
(1) IN GENERAL.—Paragraph (1) of section 1092(d) (defining 
personal property) is amended by striking out "(other than 
stock)". 
(2) EXCEPTION WHERE STRADDLE CONSISTS OF HOLDING STOCK.— 
Subsection (d) of section 1092 is amended by redesignating 
paragraphs (3), (4), and (5) as paragraphs (4), (5), and (6), respec-
tively, and by inserting after paragraph (2) the following new 
paragraph: 
"(3) SPECIAL RULES FOR STOCK.—For purposes of paragraph 
( D -
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the term 'personal property' does not include stock. 
"(B) 
EXCEPTIONS.—The 
term 
'personal 
property' 
includes— 
"(i) any stock which is part of a straddle at least 1 of 
the offsetting positions of which is— 
"(I) an option with respect to such stock or sub-
stantially identical stock or securities, or 
"(II) under regulations, a position with respect to 
substantially similar or related property (other 
than stock), and 
"(ii) any stock of a corporation formed or availed of to 
take positions in personal property which offset posi-
tions taken by any shareholder. 
"(C) SPECIAL RULES.— 
"(i) For purposes of subparagraph (B), subsection (c) 
and paragraph (4) shall be applied as if stock described 
in clause (i) or (ii) of subparagraph (B) were personal 
property. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 619 
"(ii) For purposes of determining whether subsection 
(e) applies to any transaction with respect to stock 
8i-4 ! T
O 
described in clause (ii) of subparagraph (B), all includ- 
" 
,{ 
ible corporations of an affiliated group (within the 
f
f 
meaning of section 1504(a)) shall be treated £is 1 
Ante, p. 517. 
taxpayer." 
(c) TREATMENT OF GAIN OR LOSS AND SUSPENSION OF HOLDING 
PERIOD WHERE TAXPAYER GRANTOR OF OPTION TO BUY STOCK.— 
Section 1092 is amended by redesignating subsection (f) as subsec- 
26 use 1092. 
tion (g) and by inserting after subsection (e) the following new 
subsection: 
"(f) TREATMENT OF GAIN OR LOSS AND SUSPENSION OF HOLDING 
PERIOD WHERE TAXPAYER GRANTOR OF QUALIFIED COVERED CALL 
OPTION.—If a taxpayer holds any stock and grants a qualified 
covered call option to purchase such stock with a strike price less 
than the applicable stock price— 
"(1) TREATMENT OF LOSS.—Any loss with respect to such option 
: 
shall be treated as long-term capital loss if, at the time such loss 
is realized, gain on the sale or exchange of such stock would be 
treated as long-term capital gain. 
"(2) SUSPENSION OF HOLDING PERIOD.—Except for purposes of 
section 851(b)(3), the holding period of such stock shall not 
include any period during which the taxpayer is the grantor of 
such option." 
(d) TREATMENT OF IDENTIFIED STRADDLES INVOLVING SECTION 1256 
CONTRACTS.—Paragraph (4) of subsection (d) of section 1092 is Ante, p. 618. 
amended to read as follows: 
"(4) SPECIAL RULE FOR SECTION 1256 CONTRACTS.— 
"(A) GENERAL RULE.—In the case of a straddle at least 1 
(but not all) of the positions of which are section 1256 
contracts, the provisions of this section shall apply to any 
* 
section 1256 contract and any other position making up 
such straddle. 
i 
"(B) SPECIAL RULE FOR IDENTIFIED STRADDLES.—For pur-
poses of subsection (aX2) (relating to identified straddles), 
subparagraph (A) and section 1256(a)(4) shall not apply to a 
straddle all of the offsetting positions of which consist of 
section 1256 contracts." 
(e) EFFECTIVE DATES.— 
26 use 1092 
(1) IN GENERAL.—Except as otherwise provided in this subsec- "o^e. 
tion, the amendments made by this section shall apply to 
positions established after December 31, 1983, in taxable years 
ending after such date. 
(2) SPECIAL RULE FOR OFFSETTING POSITION STOCK.—In the case 
of any stock of a corporation formed or availed of to take 
positions in personal property which offset positions taken by 
any shareholder, the amendments made by this section shall 
apply to positions established on or after May 23, 1983, in 
taxable years ending on or after such date. 
(3) SUBSECTION (C) .—The amendment made by subsection (c) 
shall apply to positions established after June 30, 1984, in 
taxable years ending after such date. 
(4) SUBSECTION (d).—The amendment made by subsection (d) 
shall apply to positions established after the date of the enact-
ment of this Act in taxable years ending after such date. 
98 STAT. 620 
PUBLIC LAW 98-369—JULY 18, 1984 
SEC. 102. SECTION 1256 EXTENDED TO CERTAIN OPTIONS. 
(a) GENERAL RULE.— 
26 use 1256. 
(1) Section 1256 (relating to regulated futures contracts 
marked to market) is amended— 
V; i.s-f 
(A) by striking out "regulated futures contract" each 
place it appears and inserting in lieu thereof "section 1256 
contract", and 
(B) by striking out "regulated futures contracts" each 
-i; 
* 
place it appears and inserting in lieu thereof "section 1256 
contracts". 
(2) Subsection (b) of section 1256 is amended to read as follows: 
"(b) SECTION 1256 CONTRACT DEFINED.—For purposes of this sec-
tion, the term 'section 1256 contract' means— 
"(1) any regulated futures contract, 
"(2) any foreign currency contract, 
"(3) any nonequity option, and 
"(4) any dealer equity option." 
(3) Subsection (g) of section 1256 is amended to read as follows: 
"(g) DEFINITIONS.—For purposes of this section— 
"(1) REGULATED FUTURES CONTRACTS DEFINED.—The term 'reg-
ulated futures contract' means a contract— 
"(A) with respect to which the amount required to be 
deposited and the amount which may be withdrawn de-
pends on a system of marking to market, and 
"(B) which is traded on or subject to the rules of a 
i; 
. u 
qualified board or exchange. 
"(2) FOREIGN CURRENCY CONTRACT DEFINED.— 
"(A) FOREIGN CURRENCY CONTRACT.—The term 'foreign 
currency contract' means a contract— 
"(i) which requires delivery of, or the settlement of 
which depends on the value of, a foreign currency 
which is a currency in which positions are also traded 
through regulated futures contracts, 
"(ii) which is traded in the interbank market, and 
"(iii) which is entered into at arm's length at a price 
determined by reference to the price in the interbank 
market. 
"(B) REGULATIONS.—The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out 
the purposes of subparagraph (A), including regulations 
excluding from the application of subparagraph (A) any 
contract (or type of contract) if its application thereto would 
be inconsistent with such purposes. 
"(3) NONEQUITY OPTION.—The term 'nonequity option' means 
any listed option which is not an equity option. 
"(4) DEALER EQUITY OPTION.—The term 'dealer equity option' 
means, with respect to an options dealer, any listed option 
£,. 
which— 
"(A) is an equity option, 
"(B) is purchased or granted by such options dealer in the 
normal course of his activity of dealing in options, and 
"(C) is listed on the qualified board or exchange on which 
such options dealer is registered. 
"(5) LISTED OPTION.—The term 'listed option' means any 
, option (other than a right to acquire stock from the issuer) 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 621 
which is traded on (or subject to the rules of) a qualified board 
or exchange. 
"(6) EQUITY OPTION.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the term 'equity option' means any option— 
"(i) to buy or sell stock, or 
"(ii) the value of which is determined directly or 
^
-
* 
indirectly by reference to any stock (or group of stocks) 
or stock index. 
ji 1^ 
«^g^ EXCEPTION FOR CERTAIN OPTIONS REGULATED BY COM-
MODITIES FUTURES TRADING COMMISSION.—The term 'equity 
^' 
option' does not include any option with respect to any 
group of stocks or stock index if— 
"(i) there is in effect a designation by the Commod- 
... ,^,, ,. 
I 
ities Futures Trading Commission of a contract market 
^ " '
~
^ ' ' " 
- 
for a contract based on such group of stocks, or index, or 
"(ii) the Secretary determines that such option meets 
the requirements of law for such a designation. 
"(7) QUALIFIED BOARD OR EXCHANGE.—The term 'qualified 
board or exchange' means— 
"(A) a national securities exchange which is registered 
with the Securities and Exchange Commission, 
"(B) a domestic board of trade designated as a contract 
market by the Commodity Futures Trading Commission, or 
j ^ ; , 
"(C) any other exchange, board of trade, or other market 
which the Secretary determines has rules adequate to carry 
out the purposes of this section. 
tjfl' g "(8) OPTIONS DEALER.— 
"(A) IN GENERAL.—The term 'options dealer' means any 
y^g Q .i^siu. 
person registered with an appropriate national securities 
exchange as a market maker or specialist in listed options. 
"(B) PERSONS TRADING IN OTHER MARKETS.—In any case in 
which the Secretary makes a determination under subpara-
graph (C) of paragraph (7), the term 'options dealer' also 
includes any person whom the Secretary determines per-
it 
forms functions similar to the persons described in subpara-
graph (A). Such determinations shall be made to the extent 
SJ).« yji.. 
appropriate to carry out the purposes of this section." 
(b) CAPITAL GAIN TREATMENT FOR TRADERS IN SECTION 1256 CON-
TRACTS.—Subsection (f) of section 1256 (relating to special rules) is 
26 USC 1256. 
amended by adding at the end thereof the following new 
paragraphs: 
"(3) CAPITAL GAIN TREATMENT FOR TRADERS IN SECTION 1256 
CONTRACTS.— 
"(A) IN GENERAL.—For purposes of this title, gain or loss 
• ' 
from trading of section 1256 contracts shall be treated as 
gain or loss from the sale or exchange of a capital asset. 
"(B) EXCEPTION FOR CERTAIN HEDGING TRANSACTIONS.— 
Subparagraph (A) shall not apply to any section 1256 con-
^ 
tract to the extent such contract is held for purposes of 
hedging property if any loss with respect to such property 
''' 
' 
in the hands of the taxpayer would be ordinary loss. 
"(C) TREATMENT OF UNDERLYING PROPERTY.—For purposes 
of determining whether gain or loss with respect to any 
property is ordinary income or loss, the fact that the tax-
payer is actively engaged in dealing in or trading section 
98 STAT. 622 
PUBLIC LAW 98-369—JULY 18, 1984 
1256 contracts related to such property shall not be taken 
into account. 
"(4) SPECIAL RULE FOR DEALER EQUITY OPTIONS OF LIMITED 
PARTNERS O
R LIMITED ENTREPRENEURS.—In the case of any gain 
or loss with respect to dealer equity options which are allocable 
to limited partners or limited entrepreneurs (within the mean-
ing of subsection (e)(3))— 
"(A) paragraph (3) of subsection (a) shall not apply to any 
such gain or loss, and 
"(B) all such gains or losses shall be treated as short-term 
capital gains or losses, as the case may be." 
(c) APPLICATION OF SELF-EMPLOYMENT INCOME TAX TO OPTIONS AND 
COMMODITIES DEALERS.— 
(1) AMENDMENT TO THE INTERNAL REVENUE CODE OF 1954.— 
26 use 1402. 
Section 1402 (relating to definitions for tax on self-employment 
income) is amended by adding at the end thereof the following 
new subsection: 
"(i) SPECIAL RULES FOR OPTIONS AND COMMODITIES DEALERS.— 
"(1) IN GENERAL.—In determining the net earnings from self-
employment of any options dealer or commodities dealer— 
"(A) notwithstanding subsection (a)(3)(A), there shall not 
be excluded any gain or loss (in the normal course of the 
taxpayer's activity of dealing in or trading section 1256 
contracts) from section 1256 contracts or property related to 
such contracts, and 
"(B) the deduction provided by section 1202 shall not 
apply. 
"(2) DEFINITIONS.—For purposes of this subsection— 
"(A) OPTIONS DEALER.—The term 'options dealer' has the 
Ante, p. 620. 
meaning given such term by section 1256(g)(8). 
"(B) 
COMMODITIES 
DEALER.—The term 
'commodities 
dealer' means a person who is actively engaged in trading 
section 1256 contracts and is registered with a domestic 
board of trade which is designated as a contract market by 
the Commodities Futures Trading Commission. 
"(C) SECTION 1256 CONTRACTS.—The term 'section 1256 
contract' has the meaning given to such term by section 
Ante, p. 620. 
1256(b)." 
(2) AMENDMENT TO THE SOCIAL SECURITY ACT.—Section 211 of 
42 use 411. 
the Social Security Act is amended by adding at the end thereof 
the following new subsection: 
"(h)(1) In determining the net earnings from self-employment of 
any options dealer or commodities dealer— 
"(A) notwithstanding subsection (a)(3)(A), there shall not be 
excluded any gain or loss (in the normal course of the taxpayer's 
26 use 1256. 
activity of dealing in or trading section 1256 contracts) from 
section 1256 contracts or property related to such contracts, and 
"(B) the deduction provided by section 1202 of the Internal 
26 use 1202. 
Revenue Code of 1954 shall not apply. 
"(2) For purposes of this subsection— 
"(A) The term 'options dealer' has the meaning given such 
Ante, p. 620. 
term by section 1256(g)(8) of such Code. 
"(B) The term 'commodities dealer' means a person who is 
actively engaged in trading section 1256 contracts and is regis-
tered with a domestic board of trade which is designated as a 
contract 
market 
by the Commodities 
Futures 
Trading 
Commission. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 623 
"(C) The term 'section 1256 contracts' has the meaning given 
to such term by section 1256(b) of such Code." 
Ante, p. 620. 
(d) TREATMENT UNDER SUBCHAPTER S OF OPTIONS AND COMMOD-
ITIES DEALERS.— 
(1) TAX IMPOSED ON CERTAIN CAPITAL GAINS NOT TO APPLY.— 
Subsection (c) of section 1374 (relating to tax imposed on certain 
26 USC 1374. 
capital gains) is amended by adding at the end thereof the 
following new paragraph: 
"(4) TREATMENT OF CERTAIN GAINS OF OPTIONS AND COMMOD- 
.':ji(n om fiu 
ITIES DEALERS.— 
"(A) EXCLUSION OF CERTAIN CAPITAL GAINS.—For purposes 
of this section, the net capital gain of any options dealer or 
\ 
f' 
commodities dealer shall be determined by not taking into 
' 
account any gain or loss (in the normal course of the 
taxpayer's activity of dealing in or trading section 1256 
contracts) from any section 1256 contract or property 
i. 
related to such a contract. 
"(B) DEFINITIONS.—For purposes of this paragraph— 
T
' 
"(i) OPTIONS DEALER.—The term 'options dealer' has 
the meaning given to such term by section 1256(g)(8). Ante, p. 620. 
"(ii) COMMODITIES DEALER.—The term 'commodities 
dealer' means a person who is actively engaged in 
trading section 1256 contracts and is registered with a 
domestic board of trade which is designated as a con-
tract market by the Commodities Futures Trading 
-; 
Commission. 
"(iii) SECTION 1256 CONTRACTS.—The term 'section 
e^fiR )! '. 
j^256 contracts' has the meaning given to such term by 
* 
section 1256(b)." 
Ante, p. 620. 
(2) CERTAIN GAINS NOT TREATED AS PASSIVE INVESTMENT 
INCOME.—Subparagraph (D) of section 1362(d)(3) (defining pas- 26 use 1362. 
sive investment income) is amended by adding at the end 
thereof the following new clause: 
"(v) SPECIAL RULE FOR OPTIONS AND COMMODITIES 
DEALERS.—In the case of any options or commodities 
4 
dealer, passive investment income shall be determined 
by not taking into account any gain or loss described in 
section 1374(c)(4)(A)." 
Supra. 
(3) SUBCHAPTER S ELECTION.—If a commodities dealer or an 
26 use 1362 
options dealer— 
(A) becomes a small business corporation (as defined in 
section 1361(b) of the Internal Revenue Code of 1954) at any 
time before the close of the 75th day after the date of the 
J 
enactment of this Act, and 
(B) makes the election under section 1362(a) of such Code 
before the close of such 75th day, 
then such dealer shall be treated as having received approval 
for and adopted a taxable year beginning on the first day during 
1984 on which it was a small business corporation (as so defined) 
and ending on the date determined under section 1378 of such 
Code and such election shall be effective for such taxable year. 
(e) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) Subsection (c) of section 1256 (relating to terminations, 
etc.) is amended— 
(A) by striking out "by taking or making delivery," in 
paragraph (1) and inserting in lieu thereof "by taking or 
note. 
98 STAT. 624 
PUBLIC LAW 98-369—JULY 18, 19^4 
26 u s e 1092. 
Ante, p. 620. 
26 use 1212. 
26 use 1234A. 
26 use 1256. 
26 u s e 263. 
Ante, pp. 532, 
547, 548. 
making delivery, by exercise or being exercised, by assign-
ment or being assigned, by lapse,", 
(B) by striking out "takes delivery under" in paragraph 
(2) and inserting in lieu thereof "takes delivery under or 
exercises", and 
(C) by striking out "TAKES DELIVERY ON" in the heading of 
paragraph (2) and inserting in lieu thereof "TAKES DELIVERY 
ON OR EXERCISES". 
(2) Paragraph (5) of section 1092(d) is amended to read as 
follows: 
"(5) SECTION 1256 CONTRACT.—The term 'section 1256 contract' 
has the meaning given such term by section 1256(b)." 
(3) Subsection (c) of section 1212 (relating to carryback of 
losses from regulated futures contracts to offset prior gains from 
such contracts) is amended— 
(A) by striking out "net commodity futures loss" each 
place it appears (including in any headings) and inserting 
in lieu thereof "net section 1256 contracts loss", 
(B) by striking out "regulated futures contracts" each 
place it appears (including in any headings) and inserting 
in lieu thereof "section 1256 contracts", 
(C) by striking out "regulated futures contract" each 
place it appears in paragraph (7)(A) (including the heading) 
and inserting in lieu thereof "section 1256 contract", and 
(D) by striking out "net commodity futures gain" each 
place it appears (including in any headings) and inserting 
in lieu thereof "net section 1256 contract gain". 
(4) Paragraph (2) of section 1234A (relating to gains or losses 
from certain terminations) is amended by striking out "a regu-
lated futures contract" and inserting in lieu thereof "a section 
1256 contract". 
(5) The section heading for section 1256 is amended by strik-
ing out "REGULATED FUTURES CONTRACTS" and inserting 
in lieu thereof "SECTION 1256 CONTRACTS". 
(6) The table of sections for part IV of subchapter P of chapter 
1 is amended by striking out "Regulated futures contracts' in 
the item relating to section 1256 and inserting in lieu thereof 
"Section 1256 contracts". 
(7) Paragraph (2) of section 263(g) (defining interest and carry-
ing charges) is amended to read as follows: 
"(2) INTEREST AND CARRYING CHARGES DEFINED.—For purposes 
of paragraph (1), the term 'interest and carrying charges' means 
the excess of— 
"(A) the sum of— 
"(i) interest on indebtedness incurred or continued to 
purchase or carry the personal property, and 
"(ii) all other amounts (including charges to insure, 
store, or transport the personal property) paid or in-
curred to carry the personal property, over 
"(B) the sum of— 
"(i) the amount of interest (including original issue 
discount) includible in gross income for the taxable 
year with respect to the property described in subpara-
graph (A), 
"(ii) any amount treated as ordinary income under 
section 1271(a)(3)(A), 1278, or 1281(a) with respect to 
such property for the taxable year, and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 625 
"(iii) the excess of any dividends includible in gross 
income with respect to such property for the taxable 
year over the amount of any deduction allowable with 
respect to such dividends under section 243, 244, or 245. 
For purposes of subparagraph (A), the term 'interest' includes 
• 
any amount paid or incurred in connection with personal prop-
erty used in a short sale." 
(8) Subsection (g) of section 263 (relating to certain interest 
and carrying charges in the case of straddles) is amended by 
adding at the end thereof the following new paragraph: 
"(4) APPLICATION WITH OTHER PROVISIONS.— 
"(A) SUBSECTION (C) .—In the case of any short sale, this 
subsection shall be applied after subsection (h). 
"(B) SECTION 1277 OR 1282.—In the case of any obligation 
to which section 1277 or 1282 applies, this subsection shall 
be applied after section 1277 or 1282." 
(9) Section 1234A (relating to gains or losses from certain 
terminations) is amended by adding at the end thereof the 
following new sentence: "The preceding sentence shall not 
apply to the retirement of any debt instrument (whether or not 
through a trust or other participation arrangement)." 
(f) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion or subsection (g), the amendments made by this section 
shall apply to positions established after the date of the enact-
ment of this Act, in taxable years ending after such date. 
(2) SPECIAL RULE FOR OPTIONS ON REGULATED FUTURES CON-
TRACTS.—In the case of any option with respect to a regulated 
futures contract (within the meaning of section 1256 of the 
Internal Revenue Code of 1954), the amendments made by this 
section shall apply to positions established after October 31, 
1983, in taxable years ending after such date. 
(3) SPECIAL RULE FOR SELF-EMPLOYMENT TAX.—Except as pro-
vided in subsection (g)(2), the amendments made by subsection 
(c) shall apply to taxable years beginning after the date of the 
enactment of this Act. 
(4) 
GAINS OR LOSSES FROM CERTAIN TERMINATIONS.—The 
amendment made by subsection (d)(9) shall apply as if included 
in the amendment made by section 505(a) of the Economic 
Recovery Tax Act of 1981, as amended by section 105(e) of the 
Technical Corrections Act of 1982. 
(g) ELECTIONS WITH RESPECT TO PROPERTY HELD ON OR BEFORE THE 
DATE OF THE ENACTMENT OF THIS ACT.—At the election of the 
taxpayer— 
(1) the amendments made by this section shall apply to all 
section 1256 contracts held by the taxpayer on the date of the 
enactment of this Act, effective for periods after such date in 
taxable years ending after such date, or 
(2) in lieu of an election under paragraph (1), the amendments 
made by this section shall apply to all section 1256 contracts 
held by the taxpayer at any time during the taxable year of the 
taxpayer which includes the date of the enactment of this Act. 
(h) ELECTIONS FOR INSTALLMENT PAYMENT OF TAX ATTRIBUTABLE 
TO STOCK OPTIONS.— 
(1) IN GENERAL.—If the taxpayer makes an election under 
subsection (g)(2) and under this subsection— 
26 use 263. 
Ante, pp. 545, 
549. 
26 use 1234A. 
26 use 1256 
note. 
20 use 237 note, 
238 
26 use 1234A. 
26 use 1256 
note. 
26 use 1256 
note. 
98 STAT. 626 
PUBLIC LAW 98-369—JULY 18, 1984 
(A) the taxpayer may pay part or all the tax for the 
taxable year referred to in subsection (g)(2) in 2 or more 
(but not exceeding 5) equal installments, and 
(B) the maximum amount of tax which may be paid in 
installments under this subsection shall be the excess of^ 
(i) the tax for such taxable year determined by taking 
into account subsection (g)(2), over 
(ii) the tax for such taxable year determined by 
taking into account subsection (g)(2) and by treating— 
(I) all section 1256 contracts which are stock 
options, and 
(II) any stock which was a part of a straddle 
including any such stock options, 
as having been acquired for a purchase price equal to 
their fair market value on the last business day of the 
preceding taxable year. Stock options and stock shall 
be taken into account under subparagraph (B)(ii) only if 
such options or stock were held on the last day of the 
preceding taxable year and only if income on such 
options or stock would have been ordinary income if 
such options or stock were sold at a gain on such last 
day. 
(2) DATE FOR PAYMENT OF INSTALLMENT.— 
(A) If an election is made under this subsection, the first 
installment under paragraph (1) shall be paid on or before 
the due date for filing the return for the taxable year 
described in paragraph (1), and each succeeding installment 
shall be paid on or before the date which is 1 year after the 
date prescribed for payment of the preceding installment. 
(B) If a bankruptcy case or insolvency proceeding involv-
ing the taxpayer is commenced before the final installment 
is paid, the total amount of any unpaid installments shall 
be treated as due and payable on the day preceding the day 
on which such case or proceeding is commenced. 
(3) INTEREST IMPOSED.—For purposes of section 6601 of the 
Internal Revenue Code of 1954, the time for payment of any tax 
with respect to which an election is made under this subsection 
shall be determined without regard to this subsection. 
(4) FORM OF ELECTION.—An election under this subsection 
shall be made not later than the time for filing the return for 
the taxable year described in paragraph (1) and shall be made in 
the manner and form required by regulations prescribed by 
Secretary of the Treasury or his delegate. The election shall set 
forth— 
(A) the amount determined under paragraph (IXB) and 
the number of installments elected by the taxpayer, 
(B) the property described in paragraph (l)(B)(ii), and the 
date on which such property was acquired, 
(C) the fair market value of the property described in 
paragraph (l)(B)(ii) on the last business day of the taxable 
year preceding the taxable year described in paragraph (1), 
and 
(D) such other information for purposes of carrying out 
the provisions of this subsection as may be required by such 
regulations. 
(5) 
DELAY 
OF 
IDENTIFICATION 
REQUIREMENT.—Section 
1256(e)(2)(C) of the Internal Revenue Code of 1954 shall not 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 627 
apply to any stock option or stock acquired on or before the 60th 
day after the date of the enactment of this Act. 
(i) DEFINITIONS.—For purposes of subsections (g) and (h)— 
26 use 1256 
(1) SECTION 1256 CONTRACT.—The term "section 1256 contract" 
"ote. 
has the meaning given to such term by section 1256(b) of the 
Internal Revenue Code of 1954 (£is amended by this section). 
Ante, p. 620. 
(2) STOCK OPTION.—The term "stock option" means any option 
to buy or sell stock. 
,v.. 
SEC. 103. REGULATIONS UNDER SECTION 1092(b). 
(a) GENERAL RULE.—Subsection (b) of section 1092 (relating to 
26 use 1092. 
character of gain or loss; wash sales) is amended to read as follows: 
"(b) REGULATIONS.— 
"(1) IN GENERAL.—The Secretary shall prescribe such regula- 
... 
-. . ,-
tions with respect to gain or loss on positions which are a part of 
a straddle as may be appropriate to carry out the purposes of 
this section and section 263(g). To the extent consistent with 
such purposes, such regulations shall include rules applying the 
principles of subsections (a) and (d) of section 1091 and of 
subsections (b) and (d) of section 1233. 
"(2) REGULATIONS RELATING TO MIXED STRADDLES.— 
"(A) ELECTIVE PROVISIONS IN LIEU OF SECTION 1233(d) 
PRINCIPLES.—The regulations prescribed under paragraph 
(1) shall provide that— 
"(i) the taxpayer may offset gains and losses from 
positions which are part of mixed straddles— 
"(I) by straddle-by-straddle identification, or 
"(II) by the establishment (with respect to any 
class of activities) of a mixed straddle account for 
-'^" • 
which gains and losses would be recognized (and 
offset) on a periodic basis, 
"(ii) such offsetting will occur before the application 
of section 1256, and section 1256(a)(3) will only apply to 
net gain or net loss attributable to section 1256 con-
tracts, and 
"(iii) the principles of section 1233(d) shall not apply 
with respect to any straddle identified under clause 
;; 
(i)(I) or part of an account established under clause 
(i)(II). 
"(B) LIMITATION ON NET GAIN OR NET LOSS FROM MIXED 
STRADDLE ACCOUNT.—In the case of any mixed straddle 
account referred to in subparagraph (AXiXII)— 
"(i) NOT MORE THAN 50 PERCENT OF NET GAIN MAY BE 
TREATED AS LONG-TERM CAPITAL GAIN.—In nO event 
shall more than 50 percent of the net gain from such 
• = 
account for any taxable year be treated as long-term 
capital gain, 
"(ii) NOT MORE THAN 40 PERCENT OF NET LOSS MAY BE 
TREATED AS SHORT-TERM CAPITAL LOSS.—In nO event 
(. 
shall more than 40 percent of the net loss from such 
account for any taxable year be treated as short-term 
ji 
capital loss. 
"(C) AUTHORITY TO TREAT CERTAIN POSITIONS AS MIXED 
STRADDLES.—The regulations prescribed under paragraph 
,- 
.^ ^. 
(1) may treat as a mixed straddle positions not described in 
section 1256(d)(4)." 
98 STAT. 628 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 1092 
(b) REQUIREMENT THAT REGULATIONS BE ISSUED WITHIN 6 MONTHS 
^°^- 
AFTER THE DATE OF ENACTMENT.—The Secretary of the Treasury or 
his delegate shall prescribe initial regulations under section 1092(b) 
Ante, p. 627. 
of the Internal Revenue Code of 1954 (including regulations relating 
to mixed straddles) not later than the date 6 months after the date 
of the enactment of this Act. 
26 use 1092 
(c) EFFECTIVE DATE OF REGULATIONS WITH RESPECT TO MIXED 
^°^^- 
STRADDLES.—The regulations described in subsection (b) with respect 
to the application of section 1233 of the Internal Revenue Code of 
1954 to mixed straddles shall not apply to mixed straddles all of the 
positions of which were established before January 1,1984. 
SEC. 104. LIMITATION ON LOSSES FROM HEDGING TRANSACTIONS. 
26 use 1256. 
(a) GENERAL RULE.—Subsection (e) of section 1256 (relating to 
mark to market not to apply to hedging transactions) is amended by 
adding at the end thereof the following new paragraph: 
"(5) LIMITATION ON LOSSES FROM HEDGING TRANSACTIONS.— 
"(A) IN GENERAL.— 
"(i) LIMITATION.—Any hedging loss for a taxable year 
which is allocable to any limited partner or limited 
entrepreneur (within the meaning of paragraph (3)) 
shall be allowed only to the extent of the taxable 
income of such limited partner or entrepreneur for 
such taxable year attributable to the trade or business 
in which the hedging transactions were entered into. 
For purposes of the preceding sentence, taxable income 
shall be determined by not taking into account items 
attributable to hedging transactions. 
"(ii) CARRYOVER OF DISALLOWED LOSS.—Any hedging 
loss disallowed under clause (i) shall be treated as a 
deduction attributable to a hedging transaction allow-
able in the first succeeding taxable year. 
"(B) EXCEPTION WHERE ECONOMIC LOSS.—Subparagraph 
(A)(i) shall not apply to any hedging loss to the extent that 
such loss exceeds the aggregate unrecognized gains from 
hedging transactions as of the close of the taxable year 
attributable to the trade or business in which the hedging 
transactions were entered into. 
"(C) EXCEPTION FOR CERTAIN HEDGING TRANSACTIONS.—In 
the case of any hedging transaction relating to property 
other than stock or securities, this paragraph shall apply 
only in the case of a taxpayer described in section 465(a)(1). 
"(D) HEDGING LOSS.—The term 'hedging loss' means the 
excess of— 
"(i) the deductions allowable under this chapter for 
the taxable year attributable to hedging transactions 
(determined without regard to subparagraph (AXi)), 
over 
"(ii) income received or accrued by the taxpayer 
during such taxable year from such transactions. 
"(E) UNRECOGNIZED GAIN.—The term 'unrecognized gain' 
has the meaning given to such term by section 1092(a)(3)." 
26 use 1256 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
note. 
shall apply to taxable years beginning after December 31, 1984. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 629 
SEC. 105. CLARIFICATION THAT SECTION 1234 APPLIES TO OPTIONS ON 
REGULATED FUTURES CONTRACTS AND CASH SETTLEMENT 
OPTIONS. 
(a) GENERAL RULE.—Section 1234 (relating to options to buy or 
26 use 1234. 
sell) is amended by adding at the end thereof the following new 
subsection: 
"(c) TREATMENT OF OPTIONS ON SECTION 1256 CONTRACTS AND CASH 
SETTLEMENT OPTIONS.— 
; c i s 
"(1) SECTION 1256 CONTRACTS.—Gain or loss shall be recog-
nized on the exercise of an option on a section 1256 contract 
(within the meaning of section 1256(b)). 
Ante, p. 620. 
"(2) TREATMENT OF CASH SETTLEMENT OPTIONS.— 
"(A) IN GENERAL.—For purposes of subsections (a) and (b), 
a cash settlement option shall be treated as an option to 
buy or sell property. 
-f»b i 
"(B) CASH SETTLEMENT OPTION.—For purposes of subpara- 
-^ >
'
^
-
J '-
graph (A), the term 'cash settlement option' means any 
option which on exercise settles in (or could be settled in) 
cash or property other than the underlying property." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 1234 
shall apply to options purchased or granted after October 31, 1983, note. 
in taxable years ending after such date. 
SEC. 
1
0
6
. 
WASH 
SALE 
RULES 
TO 
APPLY 
TO 
LOSSES 
ON 
CERTAIN 
SHORT 
SALES. 
(a) IN GENERAL.—Section 1091 (relating to losses from w£ish sales 
26 use 1091. 
of stock or securities) is amended by adding at the end thereof the 
following new subsection: 
„,. 
"(e) CERTAIN SHORT SALES OF STOCK OR SECURITIES.—Rules similar 
to the rules of subsection (a) shall apply to any loss realized on the 
closing of a short sale of stock or securities if, within a period 
beginning 30 days before the date of such closing and ending 30 days 
' 
'•" 
after such date— 
"(1) substantially identical stock or securities were sold, or 
"(2) another short sale of substantially identical stock or 
securities was entered into." 
(b) LOSSES FROM WASH SALES ONLY IN CASE OF DEALER LOSSES.— 
Section 1091(a) (relating to disallowance of loss deduction for wash 
sales) is amended by striking out all that follows "then" and insert-
ing in lieu thereof "no deduction shall be allowed under section 165 
unless the taxpayer is a dealer in stock or securities and the loss is 
sustained in a transaction made in the ordinary course of such 
business." 
(c) EFFECTIVE DATE.— 
26 use I09i 
(1) SUBSECTION (a) .—The amendment made by subsection (a) ^°^-
shall apply to short sales of stock or securities after the date of 
the enactment of this Act in taxable years ending after such 
date. 
(2) SUBSECTION (b).—The amendment made by subsection (b) 
shall apply to sales after December 31, 1984, in taxable years 
ending after such date. 
SEC. 107. TIME FOR IDENTIFICATION BY TAXPAYER OF CERTAIN TRANS-
ACTIONS. 
(a) IDENTIFIED STRADDLES.—Clause (i) of section 1092(a)(2)(B) (defm- 
26 use 1092. 
ing identified straddles) is amended to read as follows: 
98 STAT. 630 
PUBLIC LAW 98-369—JULY 18, 1984 
"(i) which is clearly identified on the taxpayer's records 
••-'••• 
as an identified straddle before the earlier of— 
"(I) the close of the day on which the straddle is 
M'&i 3PJi ys 
acquired, or 
"(II) such time as the Secretary may prescribe by 
regulations." 
(b) DEALERS IN SECURITIES.— 
" 
26 use 1236. 
(1) Paragraph (1) of section 1236(a) (relating to capital gain of 
dealers in securities) is amended to read as follows: 
"(1) the security was, before the close of the day on which it 
0
£
^
) 4 .lij^k 
was acquired (or such earlier time as the Secretary may pre-
scribe by regulations), clearly identified in the dealer's records 
as a security held for investment; and". 
(2) Paragraph (2) of section 1236(a) is amended by inserting 
"(or such earlier time)" after "such day". 
26 use 1256. 
(c) MIXED STRADDLES.—Subparagraph (B) of section 1256(d)(4) (de-
fining mixed straddles) is amended by inserting "(or such earlier 
time as the Secretary may prescribe by regulations)" after 
"acquired". 
km. >6i' Bi 
(d) 
HEDGING 
TRANSACTIONS.—Subparagraph 
(C) 
of 
section 
<:;t., 
1256(eX2) (defining hedging transactions) is amended by inserting 
"(or such earlier time as the Secretary may prescribe by regula-
tions)" after "entered into". 
26 use 1092 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply to positions entered into after the date of the enactment of 
this Act, in taxable years ending after such date. 
26 use 1092 
SEC. 108. TREATMENT OF CERTAIN LOSSES ON STRADDLES ENTERED INTO 
note. 
BEFORE EFFECTIVE DATE OF ECONOMIC RECOVERY TAX ACT 
OF 1981. 
(a) GENERAL RULE.—For purposes of the Internal Revenue Code of 
26 use 1 et seq. 1954, in the case of any disposition of 1 or more positions— 
(1) which were entered into before 1982 and form part of a 
straddle, and 
(2) to which the amendments made by title V of the Economic 
95 Stat. 323. 
Recovery Tax Act of 1981 do not apply, 
any loss from such disposition shall be allowed for the taxable year 
of the disposition if such position is part of a transaction entered 
into for profit. 
(b) PRESUMPTION THAT TRANSACTION ENTERED INTO FOR PROFIT.— 
For purposes of subsection (a), any position held by a commodities 
dealer or any person regularly engaged in investing in regulated 
futures contracts shall be rebuttably presumed to be part of a 
i? O
f OP'u ds 
transaction entered into for profit. 
-ijof 
(c) NET Loss ALLOWED WHETHER OR NOT TRANSACTION ENTERED 
INTO FOR PROFIT.—If any loss with respect to a position described in 
paragraphs (1) and (2) of subsection (a) is not allowable as a deduc-
tion (after applying subsections (a) and (b)), such loss shall be 
allowed in determining the gain or loss from dispositions of other 
positions in the straddle to the extent required to accurately reflect 
the taxpayer's net gain or loss from all positions in such straddle, 
(d) OTHER RULES.—Except as otherwise provided in subsections (a) 
and (c) and in sections 1233 and 1234 of such Code, the determina-
tion of whether there is recognized gain or loss with respect to a 
S®; "yF-'j. K: position, and the amount and timing of such gain or loss, and the 
treatment of such gain or loss as long-term or short-term shall be 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 631 
made without regard to whether such position constitutes part of a 
straddle. 
J -
(e) STRADDLE.—For purposes of this section, the term "straddle" 
has the meaning given to such term by section 1092(c) of the 
Internal Revenue Code of 1954 as in effect on the day after the date 
of the enactment of the Economic Recovery Tax Act of 1981, and 
26 USC l note. 
shall include a straddle all the positions of which are regulated 
futures contracts. 
(f) COMMODITIES DEALER.—For purposes of this section, the term 
"commodities dealer" has the meaning given to such term by section 
1402(i)(2)(B) of the Internal Revenue Code of 1954 (as added by this Ante, p. 622. 
subtitle). 
(g) REGULATED FUTURES CONTRACTS.—For purposes of this section, 
the term "regulated futures contracts" has the meaning given to 
such term by section 1256(b) of the Internal Revenue Code of 1954 Ante, p. 620. 
(as in effect before the date of enactment of this Act). 
(h) SYNDICATES.—Subsection (b) shall not apply to any syndicate 
(as defined in section 1256(e)(3)(B) of the Internal Revenue Code of 
1954). 
26 USC 1256. 
Subtitle I—Depreciation 
SEC. 
1
1
1
. 
RECOVERY 
PERIOD 
FOR 
CERTAIN 
REAL 
PROPERTY 
EXTENDED 
TO 
1
8 
YEARS. 
(a) IN GENERAL.—Paragraph (2) of section 168(b) (relating to 15- 26 use 168. 
year real property) is amended— 
(1) by striking out "15-year real property" each place it 
appears in the text and heading thereof and inserting in lieu 
thereof "18-year real property", 
(2) by striking out "15-year recovery period" in subparagraph 
(A)(i) and inserting in lieu thereof "18-year recovery period", 
and 
(3) by striking out "(200 percent declining balance method in 
the case of low-income housing)". 
(h) LOW-INCOME HOUSING.— 
(1) DETERMINATION OF RECOVERY PERCENTAGE.—Subsection (h) 
of section 168 (relating to the amount of deduction) is amended 
by adding at the end thereof the following new paragraph: 
"(4) LOW-INCOME HOUSING.— 
"(A) IN GENERAL.—In the case of low-income housing, the 
applicable percentage shall be determined in accordance 
with the table prescribed in paragraph (2) (without regard 
to the mid-month convention), except that in prescribing 
such table, the Secretary shall— 
"(i) assign to the property a 15-year recovery period, 
t 
and 
fci - 
"(ii) assign percentages generally determined in ac-
cordance with use of the 200 percent declining balance 
method, switching to the method described in section 
V 
167(b)(1) at a time to maximize the deduction allowable 
under subsection (a). 
"(B) SPECIAL RULE FOR YEAR OF DISPOSITION.—In the case 
of a disposition of low-income housing, the deduction allow-
i 
able under subsection (a) for the taxable year in which the 
i 
disposition occurs shall reflect only the months during such 
year the property was placed in service." 
98 STAT. 632 
PUBLIC LAW 98-369—JULY 18, 1984 
e ] 
(2) LOW-INCOME HOUSING DEFINED.—Paragraph (2) of section 
26 use 168. 
168(c) (defining recovery property) is amended by redesignating 
subparagraph (F) as subparagraph (G) and by inserting after 
subparagraph (E) the following new subparagraph: 
"(F) LOW-INCOME HOUSING.—The term 'low-income hous-
iJo i .aiJ dJ: 
ing' means property described in clause (i), (ii), (iii), or (iv) of 
section 1250(a)(1)(B)." 
(3) CONFORMING AMENDMENTS.— 
'"• 
(A) Subparagraph (A) of section 168(b)(2) is amended by 
striking out the last sentence thereof. 
SSH c .\ ! 
(B) Subparagraph (D) of section 168(c)(2) is amended to 
read as follows: 
' 
"(D) 18-YEAR REAL PROPERTY.—The term '18-year real 
property' means section 1250 class property which— 
(K; .q juvft 
"(i) does not have a present class life of 12.5 years or 
less, and 
"(ii) is not low-income housing." 
(c) TRANSITIONAL RULE FOR COMPONENTS.—Subparagraph (B) of 
ooSl DBli &
S section 168(f)(1) is amended to read as follows: 
"(B) TRANSITIONAL RULES.— 
"(i) BUILDINGS PLACED IN SERVICE BEFORE 1981.—In 
the case of any building placed in service by the tax-
frjfi/ T5 
payer before January 1, 1981, for purposes of applying 
subparagraph (A) to components of such buildings 
placed in service after December 31, 1980, and before 
;d( >
f J w - - •
" : 
March 16, 1984, the deduction allowable under subsec-
tion (a) with respect to such components shall be com-
jf i .:• 
puted in the same manner as the deduction allowable 
^'-'' ' ' 
with respect to the first such component placed in 
service after December 31,1980. 
"(ii) BUILDINGS PLACED IN SERVICE BEFORE MARCH 16, 
1984.—In the case of any building placed in service by 
n't b 't 
^^® taxpayer before March 16, 1984, for purposes of 
" '^ 
applying subparagraph (A) to components of such 
buildings placed in service after March 15, 1984, the 
deduction allowable under subsection (a) with respect 
to such components shall be computed in the same 
manner as the deduction allowable with respect to the 
first such component placed in service after March 15, 
1984. 
"(iii) FIRST COMPONENT TREATED AS SEPARATE BUILD-
ING.—For purposes of clause (i) or (ii), the method of 
computing the deduction allowable with respect to the 
first component described in such clause shall be deter-
mined as if it were a separate building." 
(d) USE OF MID-MONTH CONVENTION.—Subparagraphs (A) and 
(B) 
of section 168(b)(2) are each amended by inserting "(using a mid-
month convention)" after "months". 
(e) CONFORMING AMENDMENTS.— 
(1) Subsections (b)(3)(B)(iii), (f)(2)(B), (f)(2)(C)(ii)(II), (f)(2)(E), and 
(f)(5) of section 168 are each amended by striking out "15-year 
5
«
a
f real property" each place it appears and inserting in lieu 
thereof "18-year real property or low-income housing". 
(2) Clause (ii) of section 168(b)(3)(B) is amended by striking out 
iit»i "15-year real property" and inserting in lieu thereof "18-year 
real property or low-income housing,". 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 633 
(3) Subparagraph (B) of section 168(d)(2) is amended by strik- 
26 USC 168. 
ing out "15-year real property" and inserting in lieu thereof 
"18-year real property or low-income housing". 
(4) Clause (i) of section 168(f)(2)(C) (relating to recovery period 
for property used outside United States) is amended by striking 
out the item relating to 15-year real property in the table and 
inserting in lieu thereof the following new item: 
"18-year real property or low-income housing 
35 or 45 years.". 
(5) Sections 57(a)(12)(A) and 312(k)(3)(A) and subparagraphs 
(A), (B), and (C) of section 1245(A)(5) are each amended by 
26 use 57, 312, 
striking out "15-year real property" each place it appears in the 
1245. 
text and headings and inserting in lieu thereof "18-year real 
property and low-income housing". 
(6) Subparagraph (B) of section 57(a)(12) (relating to items of 26 use 57. 
t 
tax preference) is amended to read as follows: 
"(B) 18-YEAR REAL PROPERTY AND LOW-INCOME HOUSING.— 
With respect to each recovery property which is 18-year 
^ 
real property or low-income housing, the amount (if any) by 
J 
which the deduction allowed under section 168(a) for the 
taxable year exceeds the deduction which would have been 
allowable for a taxable year had the property been depreci-
ated using the straight-line method (without regard to sal-
vage value) over a recovery period of— 
"(i) 18 years in the case of 18-year real property, and 
n':«. . 
"(ii) 15 years in the case of low-income housing 
property." 
(7) Subparagraph (E) of section 57(aX12) is amended by strik-
ing out " '15-year real property'," and inserting in lieu thereof 
s 
" '18-year real property , 'low-income housing',". 
(8) Paragraph (2) of section 48(g) (relating to qualified rehabili- 26 USC 48. 
tation expenditure) is amended— 
(A) by striking out "property" each place it appears in 
subparagraph (A)(i) and inserting in lieu thereof "real 
property", 
l'^^ 
(B) by striking out "15" in subparagraph (AXi) and insert-
ing in lieu thereof "18 (15 years in the case of low-income 
, ,,. 
housing), 
(C) by striking out "15 years" in subparagraph (B)(v) and 
cf-.^,{.^ inserting in lieu thereof "18 years (15 years in the case of 
low-income housing)", and 
.
^ 
(D) by adding at the end thereof the following new sub-
paragraph: 
"(D) Low-iNCOME HOUSING.—For purposes of subpara-
graph (B), the term 'low-income housing has the meaning 
given such term by section 168(cX2)(F)." 
Ante, p. 632. 
(9) Subparagraph (A) of section 168(b)(3) (relating to election 
26 USC 168. 
of different recovery percentage) is amended— 
(A) by striking out "under paragraphs (1) and (2)" and 
inserting in lieu thereof "under paragraph (1), (2), or (4)", 
and 
(B) by striking out the item in the table relating to 15-
year real property and inserting in lieu thereof the follow-
ing new item: 
"18-year real property and low-income housing 
18, 35, or 45." 
(10) Section 1245(aX5XD) is amended to read as follows: 
26 USC 1245. 
10 
98 STAT. 634 
PUBLIC LAW 98-369—JULY 18, 1984 
"(D) low-income housing (within the meaning of section 
Ante, p. 632. 
168(c)(2)(F))." 
26 u s e 168 note. 
(g) EFFECTIVE D A T E . — 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply with 
respect to property placed in service by the taxpayer after 
March 15,1984. 
(2) EXCEPTION.—The amendments made by this section shall 
not apply to property placed in service by the taxpayer before 
. , ,. 
January 1,1987, if— 
(A) the taxpayer or a qualified person entered into a 
binding contract to purchase or construct such property 
before March 16,1984, or 
(B) construction of such property was commenced by or 
for the taxpayer or a qualified person before March 16, 
1984. 
For purposes of this paragraph the term "qualified person" 
means any person who transfers his rights in such a contract or 
such property to the taxpayer, but only if such property is not 
placed in service by such person before such rights are trans-
ferred to the taxpayer. 
( 3 ) S P E C I A L R U L E S F 0 R APPLICATION OF PARAGRAPH (2).— 
(A) CERTAIN INVENTORY.—In the case of any property 
which— 
(i) is held by a person as property described in section 
1221(1), and 
(ii) is disposed of by such person before January 1, 
1985, 
such person shall not, for purposes of paragraph (2), be 
•' 3fr,f 
treated as having placed such property in service before 
such property is disposed of merely because such person 
rented such property or held such property for rental. No 
deduction for depreciation or amortization shall be allowed 
to such person with respect to such property, 
(B) CERTAIN PROPERTY FINANCED BY BONDS.—In the C£ise of 
any property with respect to which— 
(i) bonds were issued to finance such property before 
1984, and 
(ii) an architectural contract was entered into before 
March 16,1984, 
paragraph (2) shall be applied by substituting "May 2" for 
"March 16". 
(4) SPECIAL RULE FOR COMPONENTS.—For purposes of applying 
Ante, p. 632. 
section 168(f)(1)(B) of the Internal Revenue Code of 1954 (as 
amended by this section) to components placed in service after 
December 31, 1986, property to which paragraph (2) applies 
shall be treated as placed in service by the taxpayer before 
March 16,1984. 
(5) SPECIAL RULE FOR MID-MONTH CONVENTION.—In the case of 
the amendment made by subsection (d)— 
(A) paragraph (1) shall be applied by substituting "June 
22,1984" for "March 15,1984", and 
,.., 
, 
(B) paragraph (2) shall be applied by substituting "June 
23, 1984" for "March 15, 1984" each place it appears. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 635 
SEC. 112. RECAPTURE IN CASE OF INSTALLMENT SALES. 
(a) GENERAL RULE.—Subsection (i) of section 453 (relating to in- 26 use 453. 
stallment method) is amended to read as follows: 
"(i) RECOGNITION OF RECAPTURE INCOME IN YEAR OF DISPOSITION.— 
"(1) IN GENERAL.—In the case of any installment sale of 
:H.i ? 
property to which subsection (a) applies— 
"(A) notwithstanding subsection (a), any recapture 
income shall be recognized in the year of the disposition, 
^;-;; 
and 
i!i !
>
4
i 
«(g) ^jjy gg^jjj jj^ excess of the recapture income shall be 
taken into account under the installment method. 
"(2) RECAPTURE INCOME.—For purposes of paragraph (1), the 
' 
term 'recapture income' means, with respect to any installment 
sale, the aggregate amount which would be treated as ordinary 
^ 
income under section 1245 or 1250 for the taxable year of the 
- 
disposition if all pajrments to be received were received in the 
taxable year of disposition." 
(b) EFFECTIVE DATE.— 
26 use 453 note. 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply with 
respect to dispositions made after June 6,1984. 
; 
(2) EXCEPTION.—The amendments made by this section shall 
not apply with respect to any disposition conducted pursuant to 
a contract which was binding on March 22, 1984, and at all 
^ 
times thereafter. 
(3) SPECIAL RULE FOR CERTAIN DISPOSITIONS BEFORE OCTOBER i, 
1984.—The amendments made by this section shall not apply to 
any disposition before October 1, 1984, of all or substantially all 
of the personal property of a cable television business pursuant 
to a written offer delivered by the seller on June 20, 1984, but 
only if the last payment under the installment contract is due 
no later than October 1,1989. 
SEC. 113. PROVISIONS RELATING TO SOUND RECORDINGS AND FILMS. 
(a) SOUND RECORDINGS.— 
(1) IN GENERAL.—Section 48 (defining section 38 property) is 26 use 48. 
'i 
amended by redesignating subsection (r) as subsection (s) and by 
' 
inserting after subsection (q) the following new subsection: 
"(r) SPECIAL RULES RELATING TO SOUND RECORDINGS.— 
"(1) IN GENERAL.—For purposes of this title, in the case of any 
sound recording, the original use of which commences with the 
taxpayer, the taxpayer may elect to treat such recording as 
' 
recovery property which is 3-year property to the extent that 
the taxpayer has an ownership interest in such recording. 
* 
"(2) FAILURE TO MAKE ELECTION.—If a taxpayer does not make 
an election under paragraph (1) with respect to any sound 
recording— 
"(A) no credit shall be allowed under section 38 with 
Post, p. 827. 
'J 
respect to such recording, and 
"(B) such recording shall not be treated as recovery 
s i
»
5 w 
property. 
I 
"(3) PREDOMINANT USE TEST AND AT RISK RULES NOT TO APPLY; 
^ ; au 
QUALIFIED INVESTMENT.—In the case of any sound recording— 
"(A) sections 46(c)(8), 46(c)(9), and 48(a)(2) shall not apply. Post, p. 807. 
and 
"(B) in determining the qualified investment under sec-
tion 46(cXl), there shall be used (in lieu of the basis of the 
i a J oi 
98 STAT. 636 
PUBLIC LAW 98-369—JULY 18, 1984 
property) an amount equal to the production costs which 
ft^j 
-;; 
are allocable to the United States (as determined under 
rules similar to the rules of section 48(k)(5)(D)). 
"(4) OWNERSHIP INTEREST.—For purposes of determining the 
Post, p. 827. 
credit allowable under section 38, the ownership interest of any 
person in a sound recording shall be determined on the basis of 
his proportionate share of any loss which may be incurred with 
respect to the production costs of such sound recording. 
"(5) SOUND RECORDING.—For purposes of this subsection, the 
term 'sound recording' means any sound recording described in 
section 280(c)(2). 
"(6) PRODUCTION COSTS— 
"(A) IN GENERAL.—For purposes of this subsection, the 
term 'production costs' includes— 
"(i) a reasonable allocation of general overhead costs, 
"(ii) compensation for services performed by song 
writers, artists, production personnel, directors, produc-
, ,,; 
f 
ers, and similar personnel, 
"(iii) costs of 'first' distribution of records or tapes, 
and 
"(iv) the cost of the material being recorded. 
"(B) CERTAIN COSTS NOT TAKEN INTO ACCOUNT.—Except as 
provided in subparagraph (C), the term 'production costs' 
shall not include— 
"(i) 'residuals' payable under contracts with labor 
organizations, or 
"(ii) participations or royalties payable as compensa-
tion to song writers, artists, production personnel, 
directors, producers, and similar personnel, or 
"(iii) any other contingent amounts. 
"(C) 
CERTAIN 
CONTINGENT 
AMOUNTS 
TAKEN 
INTO 
ACCOUNT.—In the case of any amount which is described in 
subparagraph (B) and which is incurred in the taxable year 
in which the sound recording is placed in service or the 
next taxable year— 
j^i O
E .; s 
^ 
"(i) subparagraph (B) shall not apply, and 
"(ii) for purposes of sections 38 and 168, the taxpayer 
shall be treated as having placed in service in each 
such taxable year 3-year recovery property with a basis 
equal to the amount so incurred in such taxable year. 
"(7) ELECTION MADE SEPARATELY.—An election under para-
graph (1) shall be made separately with respect to each sound 
recording and must be made by all persons having an ownership 
interest in such recording. 
"(8) UNITED STATES.—For purposes of this subsection, the 
term 'United States' includes the possessions of the United 
States." 
26 use 168. 
(2) CONFORMING AMENDMENTS.—Section 168(f) (relating to spe-
cial rules), as amended by this Act, is amended by adding at the 
end thereof the following new paragraph: 
"(14) SPECIAL RULES FOR SOUND RECORDINGS.—In the case of a 
Ante, p. 635. 
sound recording (within the meaning of section 48(r)), the unad-
justed basis of such property shall be equal to the production 
. - Ai,!. t - 
costs (within the meaning of section 48(r)(6))." 
(b) FILMS AND OTHER PROPERTY.— 
(1) FILMS AND VIDEO TAPES NOT TREATED AS RECOVERY PROP-
26 use 168. 
ERTY.—Section 168(e) (relating to property excluded from appli-
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 637 
cation of this section) is amended by adding at the end thereof 
the following new paragraph: 
"(5) FILMS AND VIDEO TAPES NOT RECOVERY PROPERTY.—The 
term 'recovery property' shall not include any motion picture 
film or video tape." 
(2) APPLICATION OF RECOVERY PROPERTY EXCEPTIONS.— 
(A) Section 168(e) is amended by striking out "section" 
26 USC 168. 
and inserting in lieu thereof "title" in the matter preceding 
paragraph (1). 
(B) Subparagraph (A) of section 46(c)(7) is amended by 26 use 46. 
inserting "recovery" before "property" the first place it 
- 
appears. 
(3) FILMS NOT SUBJECT TO INVESTMENT CREDIT AT-RISK RULES.— 
Paragraph (4) of section 48(k) is amended— 
26 use 48. 
(A) by inserting ", section 46(c)(8), or section 46(c)(9)" after 
"section 48(a)(2)" in subparagraph (A), 
;' 
(B) by inserting "or at-risk rules" after "test" in the 
i t . . 
heading thereof, and 
(C) by striking out "issued" and inserting in lieu thereof 
il3ii 
"used". 
(4) BASIS ADJUSTMENT FOR FILMS.—Section 48(q) (relating to 
basis adjustment) is amended by adding at the end thereof the 
following new paragraph: 
"(6) SPECIAL RULE FOR QUALIFIED FILMS.—If a credit is allowed 
under section 38 with respect to any qualified film (within the Post, p. 827. 
meaning of subsection (k)(l)(B)) then, in lieu of any reduction 
' 
under paragraph (1)— 
j 
"(A) to the extent that the credit is determined with 
respect to any amount described in clause (v) or (vi) of 
. 
subsection (k)(5)(B), any deduction allowable under this 
chapter with respect to such amount shall be reduced by 50 
'; 
percent of the amount of the credit so determined, and 
'^ 
"(B) the basis of the taxpayer's ownership interest (within 
^ 
the meaning of subsection (k)(l)(C)) shall be reduced by the 
^ 
excess of^ 
"(i) 50 percent of the amount of the credit determined 
under subsection (k), over 
"(ii) the amount of the reduction under subparagraph 
(A)." 
(c) EFFECTIVE DATES.— 
, 
(1) SOUND RECORDINGS.—The amendments made by subsection 26 use 48 note. 
t 
(a) shall apply to property placed in service after March 15, 
* 
1984, in taxable years ending after such date. 
(2) FILMS AND OTHER PROPERTY.— 
26 use 168 note. 
(A) The amendments made by paragraphs (1) of subsec-
tion (b) shall apply to any motion picture film or video tape 
placed in service before, on, or after the date of the enact-
ment of this Act, except that such amendment shall not 
apply to— 
(i) any qualified film placed in service by the tax-
> 
payer before March 15, 1984, if the taxpayer treated 
such film as recovery property for purposes of section 
168 of the Internal Revenue Code of 1954 on a return of 
tax under chapter 1 of such Code filed before March 16, 26 USC l et sea. 
1984, or 
' • " 
(ii) any qualified film placed in service by the tax-
payer before January 1,1985, i
f
— 
98 STAT. 638 
PUBLIC LAW 98-369—JULY 18, 1984 
tc-j^ 
(I) 20 percent or more of the production costs of 
such film were incurred before March 16,1984, and 
(II) the taxpayer treats such film as recovery 
property for purposes of section 168 of such Code. 
Post, p. 827. 
No credit shall be allowable under section 38 of such Code 
with respect to any qualified film described in clause (ii), 
except to the extent provided in section 48(k) of such Code. 
(B) The amendment made by paragraph (2) and (3) of 
subsection (b) shall apply as if included in the amendments 
made by section 201(a), 211(aXl), and 211(f)(1) of the Eco-
26 use 168, 46. 
nomic Recovery Tax Act of 1981. 
(C) The amendment made by paragraph (4) of subsection 
(b) shall take effect as if included in the amendments made 
by section 205(a)(1) of the Tax Equity and Fiscal Responsi-
26 use 48. 
bility Act of 1982. 
(D) For purposes of this paragraph, the terms "qualified 
film" and "production costs" have the same respective 
meanings as when used in section 48(k) of the Internal 
Revenue Code of 1954. 
SEC. 114. DEFINITION OF SECTION 38 PROPERTY IN SALE-LEASEBACK 
TRANSACTIONS. 
26 use 48. 
(a) IN GENERAL.—Subsection (b) of section 48 (defining new section 
38 property) is amended to read as follows: 
"(b) NEW SECTION 38 PROPERTY.—For purposes of this subpart— 
Post, p. 827. 
"(1) IN GENERAL.—The term 'new section 38 property' means 
section 38 property the original use of which commences with 
the taxpayer. 
"(2) SPECIAL RULE FOR SALE-LEASEBACKS.—For purposes of 
paragraph (1), in the case of any section 38 property which— 
"(A) is originally placed in service by a person, and 
"(B) is sold and leased back by such person, or is leased to 
such person, within 3 months of the date such property was 
originally placed in service, 
such property shall be treated as originally placed in service not 
earlier than the date on which such property is used under the 
lease. 
"(3) SPECIAL RULE FOR ENERGY PROPERTY.—The principles of 
paragraph (2) shall be applicable in determining whether the 
original use of property commences with the taxpayer for pur-
poses of section 48(l)(2)(B)(ii)." 
26 use 48 note. 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
apply to property originally placed in service after April 11, 1984 
'33f>a ?<> 
(determined without regard to such amendment). 
Subtitle J—Foreign Provisions 
PART 
I—CHANGES 
IN 
SOURCE 
AND 
CHARACTER 
RULES 
SEC. 121. CERTAIN AMOUNTS TREATED AS DERIVED FROM UNITED 
STATES SOURCES FOR PURPOSES OF LIMITATION ON FOR-
EIGN TAX CREDIT. 
26 use 904. 
(a) GENERAL RULE.—Section 904 (relating to limitation on foreign 
Post, p. 843. 
tax credit) is amended by redesignating subsections (g) and (h) as 
subsections (h) and (i), respectively, and by inserting after subsection 
(f) the following new subsection: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 639 
"(g) SOURCE RULES IN CASE OF UNITED STATES-OWNED FOREIGN 
CORPORATIONS.— 
"(1) IN GENERAL.—The following amounts which are derived 
from a United States-owned foreign corporation and which 
would be treated as derived from sources outside the United 
States without regard to this subsection shall, for purposes of 
this section, be treated as derived from sources within the 
United States to the extent provided in this subsection: 
"(A) Any amount included in gross income under— 
"(i) section 951(a) (relating to amounts included in 
gross income of United States shareholders), or 
"(ii) section 551 (relating to foreign personal holding 
company income taxed to United States shareholders). 
"(B) Interest. 
"(C) Dividends. 
"(2) SUBPART F AND FOREIGN PERSONAL HOLDING COMPANY 
INCLUSIONS.—Any amount described in subparagraph (A) of 
paragraph (1) shall be treated as derived from sources within 
the United States to the extent such amount is attributable to 
income of the United States-owned foreign corporation from 
sources within the United States. 
"(3) CERTAIN INTEREST ALLOCABLE TO UNITED STATES SOURCE 
INCOME.—Any interest which— 
"(A) is paid or accrued by a United States-owned foreign 
corporation during any taxable year, 
"(B) is paid or accrued to a United States shareholder (as 
E 
defined in section 951(b)) or a related person (within the 
meaning of section 267(b)) to such a shareholder, and 
"(C) is properly allocable (under regulations prescribed by 
ti m i u ) sj a
& 
the Secretary) to income of such foreign corporation for the 
taxable year from sources within the United States, 
shall be treated as derived from sources within the United 
States. 
"(4) DIVIDENDS.— 
"(A) IN GENERAL.—The United States source ratio of any 
dividend paid or accrued by a United States-owned foreign 
corporation shall be treated as derived from sources within 
the United States. 
.bm q d\ni 
"(B) UNITED STATES SOURCE RATIO.—For purposes of sub-
paragraph (A), the term 'United States source ratio' means, 
with respect to any dividend paid out of the earnings and 
if, 
profits for any taxable year, a fraction— 
"(i) the numerator of which is the portion of the 
earnings and profits for such taxable year from sources 
bjvi ij^ 
within the United States, and 
"(ii) the denominator of which is the total amount of 
earnings and profits for such taxable year. 
"(5) EXCEPTION WHERE UNITED STATES-OWNED FOREIGN CORPO-
RATION HAS SMALL AMOUNT OF UNITED STATES SOURCE INCOME.— 
Paragraph (3) shall not apply to interest paid or accrued during 
any taxable year (and paragraph (4) shall not apply to any 
dividends paid out of the earnings and profits for such taxable 
year) i
f
— 
"(A) the United States-owned foreign corporation has 
earnings and profits for such taxable year, and 
"(B) less than 10 percent of such earnings and profits is 
attributable to sources within the United States. 
98 STAT. 640 
PUBLIC LAW 98-369—JULY 18, 1984 
For purposes of the preceding sentence, earnings and profits 
shall be determined without any reduction for interest de-
scribed in paragraph (3) (determined without regard to subpara-
graph (C) thereof). 
"(6) UNITED STATES-OWNED FOREIGN CORPORATION.—For pur-
poses of this subsection, the term 'United States-owned foreign 
corporation' means any foreign corporation if 50 percent or 
more of— 
"(A) the total combined voting power of all classes of 
stock of such corporation entitled to vote, or 
"(B) the total value of the stock of such corporation, 
is held directly (or indirectly through applying paragraphs (2) 
and (3) of section 958(a) and paragraph (4) of section 318(a)) by 
United States persons (as defined in section 7701(a)(30)). 
"(7) DIVIDEND.—For purposes of this subsection, the term 
'dividend' includes any gain treated as ordinary income under 
section 1246 or as a dividend under section 1248. 
"(8) COORDINATION WITH SUBSECTION (f).—This subsection shall 
be applied before subsection (D. 
"(9) REGULATIONS.—The Secretary shall prescribe such regu-
lations as may be necessary or appropriate for purposes of this 
subsection, including— 
"(A) regulations for the application of this subsection in 
the case of interest or dividend payments through 1 or more 
entities, and 
"(B) regulations providing that this subsection shall apply 
to interest paid or accrued to any person (whether or not a 
United States shareholder)." 
26 u s e 904 note. 
(b) EFFECTIVE D A T E . — 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendment made by subsection (a) shall take effect on 
the date of the enactment of this Act. In the case of any tsixable 
year of any United States-owned foreign corporation ending 
after the date of the enactment of this Act— 
(A) only income received or accrued by such foreign 
corporation after such date of enactment shall be taken into 
account under section 904(g) of the Internal Revenue Code 
Ante, p. 638. 
of 1954 (as added by subsection (a)); except that 
(B) paragraph (5) of such section 904(g) (relating to excep-
tion where small amount of United States source income) 
shall be applied by taking into account all income received 
or accrued by such foreign corporation during such taxable 
year. 
(2) SPECIAL RULE FOR APPUCABLE CFC.— 
(A) IN GENERAL.—In the case of qualified interest received 
or accrued by an applicable CFC before January 1, 1992— 
(i) such interest shall not be taken into account under 
section 904(g) of the Internal Revenue Code of 1954 (as 
added by subsection (a)), except that 
(ii) such interest shall be taken into account for 
purposes of applying paragraph (5) of such section 
•^i-.i.,.- > 
904(g) (relating to exception where small amount of 
United States source income). 
(B) QUALIFIED INTEREST.—For purposes of subparagraph 
(A), the term "qualified interest" means— 
(i) the aggregate amount of interest received or ac-
crued during any taxable year by an applicable CFC on 
8Brs 
Bi 
Biil^..J. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 641 
United States affiliate obligations held by such applica-
ble CFC, multiplied by, 
(ii) a fraction (not in excess of 1)— 
(I) the numerator of which is the sum of the 
aggregate principal amount of United States affili-
ate obligations held by the applicable CFC on 
March 31, 1984, but not in excess of the applicable 
limit, and 
(II) the denominator of which is the average 
daily principal amount of United States affiliate 
obligations held by such applicable CFC during the 
^ „ 
^ 
taxable year. 
-^H q,>*n.i 
Proper adjustments shall be made to the numerator de-
scribed in clause (ii)(I) for original issue discount accruing 
after March 31, 1984, on CFC obligations and United States 
affiliate obligations. 
i 
(C) ADJUSTMENT FOR RETIREMENT OF CFC OBLIGATIONS.— 
The amount described in subparagraph (B)(ii)(I) for any 
taxable year shall be reduced by the sum of— 
^ -I, 
(i) the excess of (I) the aggregate principal amount of 
« ' 
CFC obligations which are outstanding on March 31, 
1984, but only with respect to obligations issued before 
March 8, 1984, or issued after March 7, 1984, by the 
applicable CFC pursuant to a binding commitment in 
effect on March 7, 1984, over (II) the average daily 
,j, 
outstanding principal amount during the teixable year 
of the CFC obligations described in subclause (I), and 
(ii) the portion of the equity of such applicable CFC 
allocable to the excess described in clause (i) (deter- 
^gy ,, 
,, 
mined on the basis of the debt-equity ratio of such 
applicable CFC on March 31,1984). 
(D) APPLICABLE CFC.—For purposes of this paragraph, the 
term "applicable CFC" means any controlled foreign corpo-
ration (within the meaning of section 957)— 
(i) which was in existence on March 31, 1984, and 
(ii) the principal purpose of which on such date con-
sisted of the issuing of CFC obligations or the holding of 
short-term obligations and lending the proceeds of such 
obligations to affiliates. 
(E) AFFIUATES; UNITED STATES AFFILIATES.—For purposes 
>
"
r 
of this paragraph— 
(i) AFFIUATE.—The term "affiliate" 
means any 
person who is a related person (within the meaning of 
section 482 of the Internal Revenue Code of 1954) to the 
applicable CFC. 
y.n •• - 
(ii) UNITED STATES AFFILIATE.—The term "United 
States affiliate" means any United States person which 
, f:." ' 
is an affiliate of the applicable CFC. 
(F) UNITED STATES AFFILIATE OBLIGATIONS.—For purposes 
of this paragraph, the term "United States affiliate obliga-
tions" means any obligation of (and payable by) a United 
States affiliate. 
(G) CFC OBUGATiON.—For purposes of this paragraph, the 
term "CFC obligation" means any obligation of (and issued 
by) a CFC if— 
98 STAT. 642 
PUBLIC LAW 98-369—JULY 18, 1984 
Ante, p. 547. 
Ante, p. 638. 
(i) the requirements of clause (i) of section 163(f)(2)(B) 
of the Internal Revenue Code of 1954 are met with 
respect to such obligation, and 
(ii) in the case of an obligation issued after December 
31, 1982, the requirements of clause (ii) of such section 
163(f)(2)(B) are met with respect to such obligation. 
(H) TREATMENT OF OBLIGATIONS WITH ORIGINAL ISSUE DIS-
COUNT.—For purposes of this paragraph, in the case of any 
obligation with original issue discount, the principal 
amount of such obligation as of any day shall be treated as 
equal to the revised issue price as of such day (as defined in 
section 1278(a)(4) of the Internal Revenue Code of 1954). 
(I) APPUCABLE UMIT.—For purposes of subparagraph 
(BXii)(I), the term "applicable limit" means the sum of— 
(i) the equity of the applicable CFC on March 31, 
1984, and 
(ii) the aggregate principal amount of CFC obliga-
tions outstanding on March 31,1984, which were issued 
by an applicable CFC— 
(I) before March 8,1984, or 
(II) after March 7, 1984, pursuant to a binding 
commitment in effect on March 7,1984. 
(3) EXCEPTION FOR CERTAIN TERM OBLIGATIONS.—The amend-
ments made by subsection (a) shall not apply to interest on any 
term obligations held by a foreign corporation on March 7,1984. 
The preceding sentence shall not apply to any United States 
affiliate obligation (as defined in paragraph (2)(F)) held by an 
applicable CFC (as defined in paragraph (2)(D)). 
(4) DEFINITIONS.—Any term used in this subsection which is 
also used in section 904(g) of the Internal Revenue Code of 1954 
(£is added by subsection (a)) shall have the meaning given such 
term by such section 904(g). 
(5) SEPARATE APPUCATION OF SECTION 904 IN CASE OF INCOME 
COVERED BY TRANSITIONAL RULES.—Subsections (a), (b), and (c) of 
section 904 of the Internal Revenue Code of 1954 shall be 
applied separately to any amount not treated as income derived 
from sources within the United States but which (but for the 
provisions of paragraph (2) or (3) of this subsection) would be so 
treated under the amendments made by subsection (a). Any 
such separate application shall be made before any separate 
application required under section 904(d) of such Code. 
(6) APPLICATION OF PARAGRAPH 
(5) 
DELAYED IN CERTAIN 
CASES.—In the case of a foreign corporation— 
(A) which is a subsidiary of a domestic corporation which 
has been engaged in manufacturing for more than 50 years, 
and 
(B) which issued certificates with respect to obligations 
on— 
(i) September 24, 1979, denominated in French 
francs, 
(ii) September 10, 1981, denominated in Swiss francs, 
(iii) July 14, 1982, denominated in Swiss francs, and 
(iv) December 1, 1982, denominated in United States 
dollars, 
with a total principal amount of less than 200,000,000 
United States dollars. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 643 
then paragraph (5) shall not apply to the proceeds from relend-
ing such obligations or related capital before January 1, 1986. 
SEC. 122. CERTAIN AMOUNTS TREATED AS INTEREST FOR PURPOSES OF 
THE LIMITATION ON THE FOREIGN TAX CREDIT. 
(a) GENERAL RULE.—Subsection (d) of section 904 (relating to 
26 use 904. 
limitation on foreign tax credit) is amended by adding at the end 
thereof the following new paragraph: 
"(3) CERTAIN AMOUNTS ATTRIBUTABLE TO UNITED STATES-OWNED 
FOREIGN CORPORATIONS, ETC., TREATED AS INTEREST.— 
"(A) IN GENERAL.—For purposes of this subsection, divi-
dends and interest— 
J 
"(i) paid or accrued by a designated payor corpora-
tion, and 
,»,.^,,* 
"(ii) attributable to any taxable year of such corpora-
tion, 
~
_
p
^
£
j
i
^ 
shall be treated as interest income described in paragraph 
(2) to the extent that the aggregate amount of such divi-
j,-»;^ 
dends and interest does not exceed the separate limitation 
interest of the designated payor corporation for such tax-
able year. 
"(B) SEPARATE LIMITATION INTEREST.—For purposes of this 
I 
subsection, the term 'separate limitation interest' means, 
with respect to any taxable year— 
0 
"(i) the aggregate amount of the interest income 
described in paragraph (2) (including amounts treated 
as so described by reason of this paragraph) which is 
received or accrued by the designated payor corpora-
tion during the taxable year, reduced by 
"(ii) the deductions properly allocable (under regula-
. 
. 
tions prescribed by the Secretary) to such income. 
"(C) 
EXCEPTION WHERE DESIGNATED CORPORATION HAS 
SMALL A M O U N T OF SEPARATE LIMITATION INTEREST.—Sub- 
i
^
" ) il* .ft: 
(E ' 
paragraph (A) shall not apply to any amount attributable to 
t:- 
the taxable year of a designated payor corporation, if^ 
"(i) such corporation has earnings and profits for 
such taxable year, and 
"(ii) less than 10 percent of such earnings and profits 
is attributable to separate limitation interest. 
"(D) TREATMENT OF CERTAIN INTEREST.—For purposes of 
this paragraph, the amount of the separate limitation inter-
est and the earnings and profits of any designated payor 
corporation shall be determined without any reduction for 
interest paid or accrued to a United States shareholder (as 
defined in section 951(b)) or a related person (within the 
meaning of section 267(b)) to such a shareholder. 
"(E) DESIGNATED PAYOR CORPORATION.—For purposes of 
this paragraph, the term 'designated payor corporation' 
means— 
"(i) any United States-owned foreign corporation 
(within the meaning of subsection (g)(6)), 
^ s 'iVrtie. 
•^" 
"(ii) any other foreign corporation in which a United 
States person is a United States shareholder (as defined 
in section 9510>)) at any time during the taxable year of 
such foreign corporation, and 
, ., ^ « 
"(iii) any regulated investment company. 
" '" 
98 STAT. 644 
PUBLIC LAW 98-369—JULY 18, 1984 
"(F) DETERMINATION OF YEAR TO WHICH AMOUNT IS ATTRIB-
UTABLE.—For purposes of determining whether an amount 
is attributable to a taxable year of a designated payor 
corporation— 
"(i) any amount includible in gross income under 
*' 
section 551 or 951 in respect of such taxable year, 
"(ii) any interest paid or accrued by such corporation 
during such taxable year, and 
"(iii) any dividend paid out of the earnings and prof-
its of such corporation for such taxable year, 
shall be treated as attributable to such taxable year. 
"(G) ORDERING RULES.—Subparagraph (A) shall be ap-
plied to amounts described therein in the order in which 
such amounts are described in subparagraph (F). 
"(H) DIVIDEND.—For purposes of this paragraph, the term 
'dividend' includes— 
"(i) any amount includible in gross income under 
section 551 or 951, and 
"(ii) any gain treated as ordinary income under sec-
tion 1246 or as a dividend under section 1248. 
"(I) DISTRIBUTIONS THROUGH OTHER ENTITIES.—The Secre-
tary shall prescribe such regulations as may be necessary to 
carry out the purposes of this paragraph in the case of 
distributions or payments through 1 or more entities. 
"(J) 
INTEREST 
FROM 
MEMBERS 
OF 
SAME 
AFFILIATED 
GROUP.—For purposes of this paragraph, interest received 
or accrued by the designated payor corporation from an-
other member of the same affiliated group (determined 
under section 1504 without regard to subsection (b)(3) 
thereof) shall not be treated as separate limitation interest, 
unless such interest is attributable directly or indirectly to 
separate limitation interest of such other member." 
26 u s e 904 note. 
(b) EFFECTIVE D A T E . — 
(1) IN GENERAL.—The amendment made by subsection (a) 
shall take effect on the date of the enactment of this Act. 
(2) SPECIAL RULES FOR INTEREST INCOME.— 
(A) IN GENERAL.—Interest income received or accrued by 
a designated payor corporation shall be taken into account 
for purposes of the amendment made by subsection (a) only 
in taxable years beginning after the date of the enactment 
of this Act. 
(B) EXCEPTION FOR INVESTMENT AFTER JUNE 22, 1984.— 
Notwithstanding subparagraph (A), the amendment made 
by subsection (a) shall apply to interest income received or 
accrued by a designated payor corporation after the date of 
enactment of this Act if it is attributable to investment in 
> 
the designated payor corporation after June 22,1984. 
(3) TERM OBLIGATIONS OF DESIGNATED PAYOR CORPORATION 
WHICH IS NOT APPLICABLE CFC.—In the case of any designated 
payor corporation which is not an applicable CFC (as defined in 
Ante, p. 638. 
section 121(b)(2)(D)), any interest received or accrued by such 
corporation on a term obligation held by such corporation on 
March 7,1984, shall not be taken into account. 
SEC. 123. TREATMENT OF RELATED PERSON FACTORING INCOME. 
26 use 864. 
(a) GENERAL RULE.—Section 864 (relating to source definitions) is 
amended by adding at the end thereof the following new subsection: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 645 
'(d) TREATMENT OF RELATED PERSON FACTORING INCOME.— 
"(1) IN GENERAL.—For purposes of the provisions set forth in 
paragraph (2), if any person acquires (directly or indirectly) a 
trade or service receivable from a related person, any income of 
such person from the trade or service receivable so acquired 
shall be treated as if it were interest on a loan to the obligor 
under the receivable. 
"(2) PROVISIONS TO WHICH PARAGRAPH (D APPLIES.—The provi-
sions set forth in this paragraph are as follows: 
"(A) Part III of subchapter G of this chapter (relating to 
26 USC 551. 
foreign personal holding companies). 
"(B) Section 904 (relating to limitation on foreign tax 
i 
credit). 
"(C) Subpart F of part III of this subchapter (relating to 
26 use 951. 
controlled foreign corporations). 
"(3) TRADE OR SERVICE RECEIVABLE.—For purposes of this sub-
section, the term 'trade or service receivable' means any ac-
count receivable or evidence of indebtedness arising out of— 
"(A) the disposition by a related person of property de-
scribed in section 1221(1), or 
"(B) the performance of services by a related person. 
"(4) RELATED PERSON.—For purposes of this subsection, the 
term 'related person' means— 
"(A) any person who is a related person (within the 
meaning of section 267(b)), and 
"(B) any United States shareholder (as defined in section 
951(b)) and any person who is a related person (within the 
meaning of section 267(b)) to such a shareholder. 
"(5) CERTAIN PROVISIONS NOT TO APPLY.— 
"(A) CERTAIN EXCEPTIONS.—The following provisions shall 
not apply to any amount treated as interest under para-
graph (1) or (6): 
"(i) Subparagraphs (A), (B), (C), and (D) of section 
904(d)(2) (relating to interest income to which separate 
limitation applies). 
"(ii) Subparagraph (A) of section 954(b)(3) (relating to 
exception where foreign base company income is less 
than 10 percent). 
"(iii) Subparagraph (B) of section 954(c)(3) (relating to 
certain income derived in active conduct of trade or 
business). 
"(iv) Subparagraphs (A) and (B) of section 954(c)(4) 
(relating to exception for certain income received from 
related persons). 
"(B) SPECIAL RULES FOR POSSESSIONS.— 
"(i) PUERTO RICO AND POSSESSIONS TAX CREDIT.—Any 
amount treated as interest under paragraph (1) shall 
not be treated as income described in subparagraph (A) 
or (B) of section 936(a)(1) unless such amount is from 
;M; JB' f ^: 
sources within a possession of the United States (deter-
mined after the application of paragraph (1)). 
"(ii) VIRGIN ISLANDS CORPORATIONS.—Subsection (b) of 
section 934 shall not apply to any amount treated as 
interest under paragraph (1) unless such amount is 
from sources within the Virgin Islands (determined 
after the application of paragraph (1)). 
98 STAT. 646 
PUBLIC LAW 98-369—JULY 18, 1984 
"(6) SPECIAL RULE FOR CERTAIN INCOME FROM LOANS OF A 
CONTROLLED FOREIGN CORPORATION.—Any income of a controlled 
foreign corporation (within the meaning of section 957(a)) from 
a loan to a person for the purpose of financing— 
"(A) the purchase of property described in section 1221(1) 
of a related person, or 
"(B) the payment for the performance of services by a 
related person, 
shall be treated as interest described in paragraph (1). 
I • ")HU 
i 
"(7) REGULATIONS.—The Secretary shall prescribe such regu-
lations as may be necessary to prevent the avoidance of the 
Infra. 
provisions of this subsection or section 956(b)(3)." 
(h) TREATMENT AS UNITED STATES PROPERTY.—Subsection (b) of 
26 use 956. 
section 956 (defining United States property) is amended by adding 
at the end thereof the following new paragraph: 
"(3) CERTAIN TRADE OR SERVICE RECEIVABLES ACQUIRED FROM 
RELATED UNITED STATES PERSONS.— 
"(A) IN GENERAL.—Notwithstanding paragraph (2), the 
term 'United States property' includes any trade or service 
receivable i
f
— 
"(i) such trade or service receivable is acquired (di-
rectly or indirectly) from a related person who is a 
United States person, and 
.tfj- 
"(ii) the obligor under such receivable is a United 
States person. 
"(B) DEFINITIONS.—For purposes of this paragraph, the 
term 'trade or service receivable' and 'related person' have 
the respective meanings given to such terms by section 
Ante, p. 644. 
864(d)." 
26 u s e 864 note. 
(c) EFFECTIVE D A T E . — 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to accounts re-
ceivable and evidences of indebtedness transferred after March 
1,1984, in taxable years ending after such date. 
(2) TRANSITIONAL RULE.—The amendments made by this sec-
tion shall not apply to accounts receivable and evidences of 
indebtedness acquired after March 1, 1984, and before March 1, 
1994, by a Belgian corporation in existence on March 1, 1984, in 
any taxable year ending after such date, but only to the extent 
that the amount includible in gross income by reason of section 
956 of the Internal Revenue Code of 1954 with respect to such 
corporation for all such taxable years is not reduced by reason 
of this paragraph by more than the lesser o
f
— 
(A) $15,000,000 or 
(B) the amount of the Belgian corporation's adjusted basis 
on March 1, 1984, in stock of a foreign corporation formed 
to issue bonds outside the United States to the public. 
SEC. 124. TREATMENT OF CERTAIN TRANSPORTATION INCOME. 
26 use. 863. 
(a) GENERAL RULE.—Section 863 (relating to items not specified in 
section 861 or 862) is amended by adding at the end thereof the 
following new subsection: 
"(c) SOURCE RULE FOR CERTAIN TRANSPORTATION INCOME.— 
"(1) TRANSPORTATION BEGINNING AND ENDING IN THE UNITED 
STATES.—All transportation income attributable to transporta-
tion which begins and ends in the United States shall be treated 
as derived from sources within the United States. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 647 
"(2) TRANSPORTATION BETWEEN UNITED STATES AND ANY POSSES-
SION.— 
"(A) IN GENERAL.—50 percent of all transportation 
income attributable to transportation which— 
"(i) begins in the United States and ends in a posses- 
- 
•* 
sion of the United States, or 
"(ii) begins in a possession of the United States and 
ends in the United States, 
shall be treated as derived from sources within the United 
States. 
"(B) SPECIAL RULE FOR CERTAIN LESSORS OF AIRCRAFT.—If— 
-ICW^ 
"(i) the taxpayer owns an aircraft which is section 38 
Post, p. 827. 
,. 
property and leases such aircraft to a United States 
person (other than a member of the same controlled 
fone 
group of corporations (as defined in section 1563) as the 
taxpayer), and 
"(ii) such United States person is a regularly sched-
uled air carrier, 
subparagraph (A) shall be applied by substituting '100 per-
cent'for'50 percent'. 
"(3) TRANSPORTATION INCOME.—For purposes of this subsec-
tion, the term 'transportation income' means any income de-
rived from, or in connection with— 
"(A) the use (or hiring or leasing for use) of a vessel or 
aircraft, or 
"(B) the performance of services directly related to the 
use of a vessel or aircraft. 
For purposes of the preceding sentence, the term 'vessel or 
aircraft' includes any container used in connection with a vessel 
or aircraft." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
26 use 863 note. 
shall apply with respect to transportation beginning after the date 
of the enactment of this Act in taxable years ending after such date. 
SEC. 125. TREATMENT OF CERTAIN DISTRIBUTIONS RECEIVED BY UNITED 
STATES-OWNED FOREIGN CORPORATIONS. 
(a) GENERAL RULE.—Section 535 (defining accumulated taxable 
26 use 535. 
income) is amended by adding at the end thereof the following new 
subsection: 
"(d) INCOME DISTRIBUTED TO UNITED STATES-OWNED FOREIGN COR-
PORATION RETAINS UNITED STATES CONNECTION.— 
"(1) IN GENERAL.—For purposes of this part, if 10 percent or 
more of the earnings and profits of any foreign corporation for 
any taxable year— 
'-
"(A) is derived from sources within the United States, or 
^ 
"(B) is effectively connected with the conduct of a trade or 
business within the United States, 
any distribution out of such earnings and profits (and any 
interest payment) received (directly or through 1 or more other 
entities) by a United States-owned foreign corporation shall be 
treated as derived by such corporation from sources within the 
United States. 
"(2) UNITED STATES-OWNED FOREIGN CORPORATION.—The term 
'United States-owned foreign corporation' has the meaning 
given to such term by section 904(g)(6)." 
Ante, p. 638. 
(b) EFFECTIVE DATE.— 
26 use 535 note. 
98 STAT. 648 
PUBLIC LAW 98-369—JULY 18, 1984 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendment made by subsection (a) shall apply to distributions 
and interest payments received by a United States-owned for-
eign corporation (within the meaning of section 535(d) of the 
Ante, p. 647. 
Internal Revenue Code of 1954) on or after May 23, 1983, in 
taxable years ending on or after such date. 
(2) CORPORATIONS IN EXISTENCE ON MAY 23, 1983.—In the case 
of a United States-owned foreign corporation (as so defined) in 
existence on May 23, 1983, the amendment made by subsection 
(a) shall apply to taxable years beginning after December 31, 
1984. 
26 u s e 861 note. SEC. 126. ALLOCATION UNDER SECTION 861 OF RESEARCH AND EXPERI-
MENTAL EXPENDITURES. 
(a) IN GENERAL.—For purposes of section 861(b), section 862(b), and 
section 863(b) of the Internal Revenue Code of 1954, all amounts 
allowable as a deduction for qualified research and experimental 
expenditures shall be allocated to income from sources within the 
United States and deducted from such income in determining the 
amount of taxable income from sources within the United States. 
(b) QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDITURES.—For 
purposes of this section— 
(1) IN GENERAL.—The term "qualified research and experi-
mental expenditures" means amounts— 
(A) which are research and experimental expenditures 
within the meaning of section 174 of such Code, and 
(B) which are attributable to activities conducted in the 
United States. 
(2) TREATMENT OF DEPRECIATION, ETC.—Rules similar to the 
rules of subsection (c) of section 174 of such Code shall apply. 
(c) EFFECTIVE DATES.— 
(1) IN GENERAL.—This section shall apply to taxable years 
beginning after August 13, 1983, and on or before August 1, 
1985. 
(2) SPECIAL RULE.—If the taxpayer's 3rd taxable year begin-
ning after August 13, 1981, is not described in paragraph (1), 
this section shall apply also to such 3rd taxable year. 
PART II—WITHHOLDING PROVISIONS 
SEC. 127. REPEAL OF THE 30 PERCENT TAX ON INTEREST RECEIVED BY 
FOREIGNERS ON CERTAIN PORTFOLIO INVESTMENTS. 
(a) REPEAL OF TAX ON NONRESIDENT INDIVIDUALS.— 
26 use 871. 
(1) IN GENERAL.—Section 871 (relating to 30 percent tax on 
Post, p. 653. 
income not connected with United States business), as amended 
by this Act, is amended by redesignating subsection (h) as 
subsection (i) and by inserting after subsection (g) the following 
new subsection: 
"(h) REPEAL OF TAX ON INTEREST OF NONRESIDENT ALIEN INDIVID-
UALS RECEIVED FROM CERTAIN PORTFOUO DEBT INVESTMENTS.— 
"(1) IN GENERAL.—In the case of any portfolio interest re-
ceived by a nonresident individual from sources within the 
United States, no tax shall be imposed under paragraph (1)(A) 
or (1)(C) of subsection (a). 
"(2) PORTFOLIO INTEREST.—For purposes of this subsection, the 
.J 
term 'portfolio interest' means any interest (including original 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 649 
i^v 
issue discount) which is described in any of the following sub-
paragraphs: 
"(A) CERTAIN OBUGATIONS WHICH ARE NOT REGISTERED.— 
Interest which is paid on any obligation which— 
"(i) is not in registered form, and 
"(ii) is described in section 163(f)(2)(B). 
"(B) CERTAIN REGISTERED OBLIGATIONS.—Interest which is 
paid on an obligation— 
"(i) which is in registered form, and 
"(ii) with respect to which the United States person 
who would otherwise be required to deduct and with-
hold tax from such interest under section 1441(a) has 
received a statement (which meets the requirements of 
paragraph (4)) that the beneficial owner of the obliga-
tion is not a United States person. 
"(3) PORTFOUO INTEREST NOT TO INCLUDE INTEREST RECEIVED B
Y 
10-PERCENT SHAREHOLDERS.— For purposes of this subsection— 
"(A) IN GENERAL.—The term 'portfolio interest' shall not 
„ ,.,i,, 
include any interest described in subparagraph (A) or (B) 
of paragraph (2) which is received by a 10-percent share-
holder. 
. i,. 
"(B) 10-PERCENT SHAREHOLDER.—The term '10-percent 
shareholder'means— 
"(i) in the case of an obligation issued by a corpora-
tion, any person who owns 10 percent or more of the 
total combined voting power of all classes of stock of 
such corporation entitled to vote, or 
IT- ;-:; f-s 
"(ii) in the case of an obligation issued by a partner-
, 
ship, any person who owns 10 percent or more of the 
capital or profits interest in such partnership. 
"(C) ATTRIBUTION RULES.—For puiT)oses of determining 
%,. & 
ownership of stock under subparagraph (BXi) the rules of 
i.-j;- • 
section 318(a) shall apply, except that— 
"(i) section 318(aX2XC) shall be applied without 
'c.^y , j , . 
regard to the 50-percent limitation therein, and 
"(ii) any stock which a person is treated as owning 
gwft rAgr 
after application of section 318(aX4) shall not, for pur-
poses of applying paragraphs (2) and (3) of section 
318(a), be treated as actually owned by such person. 
Under regulations prescribed by the Secretary, rules simi-
lar to the rules of the preceding sentence shall be applied in 
determining the ownership of the capital or profits interest 
in a partnership for purposes of subparagraph (BXii). 
"(4) CERTAIN STATEMENTS.—A statement with respect to any 
obligation meets the requirements of this paragraph if such 
statement is made by— 
"(A) the beneficial owner of such obligation, or 
"(B) a securities clearing organization, a bank, or other 
financial institution that holds customers' securities in the 
ordinary course of its trade or business. 
The preceding sentence shall not apply to any statement with 
respect to pajonent of interest on any obligation by any person 
if, at least one month before such payment, the Secretary has 
published a determination that any statement from such person 
(or any class including such person) does not meet the require-
ments of this paragraph. 
'M .q ,S5*!;i\ 
98 STAT. 650 
PUBLIC LAW 98-369—JULY 18, 1984 
"(5) SECRETARY MAY PROVIDE SUBSECTION NOT TO APPLY IN 
CASES OF INADEQUATE INFORMATION EXCHANGE.— 
"(A) IN GENERAL.—If the Secretary determines that the 
exchange of information between the United States and a 
foreign country is inadequate to prevent evasion of the 
United States income tax by United States persons, the 
Secretary may provide in writing (and pubUsh a statement) 
that the provisions of this subsection shall not apply to 
payments of interest to any person within such foreign 
country (or payments addressed to, or for the account of, 
persons within such foreign country) during the period— 
"(i) beginning on the date specified by the Secretary, 
and 
"(ii) ending on the date that the Secretary deter-
mines that the exchange of information between the 
i' 
United States and the foreign country is adequate to 
prevent the evasion of United States income tax by 
United States persons. 
"(B) 
EXCEPTION FOR CERTAIN OBUGATIONS.—Subpara-
graph (A) shall not apply to the payment of interest on any 
obligation which is issued on or before the date of the 
> 
publication of the Secretary's determination under such 
subparagraph. 
"(6) REGISTERED FORM.—For purposes of this subsection, the 
term 'registered form' has the same meaning given such term 
by section 163(f).". 
26 use 871. 
(2) CJONFORMING AMENDMENT.—Paragraph (1) of section 871(a) 
(relating to tax on income other than capital gains) is amended 
by striking out "There" and inserting in lieu thereof "Except as 
provided in subsection (i), there", 
(b) FOREIGN CORPORATIONS.— 
26 use 881. 
(1) IN GENERAL.—Section 881 (relating to tax on income of 
Post, p. 654. 
foreign corporations not connected with United States business), 
as amended by this Act, is amended by redesignating subsection 
(c) as subsection (d) and by adding after subsection (b) the 
following new subsection: 
"(c) 
REPEAL OF TAX ON INTEREST OF FOREIGN CORPORATIONS 
RECEIVED FROM CERTAIN PORTFOUO DEBT INVESTMENTS.— 
"(1) IN GENERAL.—In the case of any portfolio interest 
received by a foreign corporation from sources within the 
United States, no tax shall be imposed under paragraph (1) or 
(3) of subsection (a). 
"(2) PORTFOUO INTEREST.—For purposes of this subsection, the 
term 'portfolio interest' means any interest (including original 
issue discount) which is described in any of the following sub-
paragraphs: 
"(A) CERTAIN OBUGATIONS WHICH ARE NOT REGISTERED.— 
Interest which is paid on any obligation which is described 
Ante, p. 648. 
in section 871(h)(2)(A). 
"(B) CERTAIN REGISTERED OBLIGATIONS.—Interest which is 
paid on an obligation— 
"(i) which is in registered form, and 
"(ii) with respect to which the person who would 
otherwise be required to deduct and withhold tax from 
such interest under section 1442(a) has received a state-
Ante, p. 648. 
ment which meets the requirements of section 871(hX4) 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 651 
-t'^t" = 
that the beneficial owner of the obligation is not a 
United States person. 
"(3) PORTFOLIO INTEREST SHALL NOT INCLUDE INTEREST RE-
CEIVED B
Y CERTAIN PERSONS.—For purposes of this subsection, 
the term 'portfolio interest' shall not include any portfolio 
interest which— 
"(A) except in the case of interest paid on an obligation of 
^^'* <
3 '^J.^i* 
the United States, is received by a bank on an extension of 
credit made pursuant to a loan agreement entered into in 
the ordinary course of its trade or business, 
"(B) is received by a 10-percent shareholder (within the 
meaning of section 871(h)(3)(B)), or 
Ante, p. 648. 
= 
"(C) is received by a controlled foreign corporation from a 
related person (within the meaning of section 864(d)(4). Ante, p. 644. 
"(4) SPECIAL RULES FOR CONTROLLED FOREIGN CORPORATIONS.— 
-^ ' 
"(A) IN GENERAL.—In the case of any portfolio interest 
received by a controlled foreign corporation, the following 
provisions shall not apply: 
^*** -5 '
"
^ ^' 
"(i) Subparagraph (A) of section 954(b)(3) (relating to 
exception where foreign base company income is less 
than 10 percent), 
"(ii) Paragraph (4) of section 954(b) (relating to corpo-
ooiS'Sti.^ 
rations not formed or availed of to avoid tax). 
"(iii) Subparagraph (B) of section 954(c)(3) (relating to 
•^^^'i "-^^ ^ 
certain income derived in active conduct of trade or 
business), 
"(iv) Subparagraph (C) of section 954(c)(3) (relating to 
S« 
certain income derived by an insurance company). 
"(v) Subparagraphs (A) and (B) of section 954(c)(4) 
^' 
(relating to exception for certain income received from 
' 
related persons). 
"(B) CONTROLLED FOREIGN CORPORATION.—For purposes of 
this subsection, the term 'controlled foreign corporation' 
has the meaning given to such term by section 957(a). 
"(5) SECRETARY MAY CEASE APPLICATION OF THIS SUBSECTION.— 
Under rules similar to the rules of section 871(h)(5), the Secre- Ante, p. 648. 
tary may provide that this subsection shall not apply to pay-
ments of interest described in section 871(h)(5). 
"(6) REGISTERED FORM.—For purposes of this subsection, the 
term 'registered form' has the meaning given such term by 
i-^ 
-y 
section 163(f)." 
(2) CONFORMING AMENDMENT.—Subsection (a) of section 881 
26 use 881. 
(relating to imposition of tax) is amended by striking out 
"There' and inserting in lieu thereof "Except as provided in 
subsection (c), there". 
(c) AMENDMENT OF SECTION 864(c)(2).—Paragraph (2) of section 
26 use 864. 
864(c) (relating to effectively connected income, etc.) is amended by 
striking out "section 871(a)(1) or section 881(a)" and inserting in lieu 
thereof "section 871(a)(1), section 871(h) section 881(a), or section 
881(c)". 
(d) AMENDMENT OF SECTION 2105.—Subsection (b) of section 2105 26 use 2105. 
(relating to property without the United States) is amended to read 
as follows: 
"(b) BANK DEPOSITS AND CERTAIN OTHER DEBT OBUGATIONS.—For 
purposes of this subchapter— 
"(1) amounts described in section 861(c), if any interest 
thereon would be treated by reason of section 861(a)(1)(A) as 
Ml 
98 STAT. 652 
PUBLIC LAW 98-369—JULY 18, 1984 
income from sources without the United States were such inter-
est received by the decedent at the time of his death, 
"(2) deposits with a foreign branch of a domestic corporation 
or domestic partnership, if such branch is engaged in the com-
mercial banking business, and 
"(3) debt obligations, if, without regard to whether a state-
Ante, p. 648. 
ment meeting the requirements of section 871(h)(4) has been 
received, any interest thereon would be eligible for the exemp-
tion from tax under section 871(h)(1) were such interest received 
by the decedent at the time of his death, 
shall not be deemed property within the United States.". 
(e) WITHHOLDING.— 
26 use 1441. 
(1) NONRESIDENT ALIENS.—Subsection (c) of section 1441 (relat-
ing to withholding of tax on nonresident aliens) is amended by 
adding at the end thereof the following new paragraph: 
"(9) INTEREST INCOME FROM CERTAIN PORTFOLIO DEBT INVEST-
MENTS.—In the case of portfolio interest (within the meaning of 
Ante, p. 648. 
871(h)(2)), no tax shall be required to be deducted and withheld 
from such interest unless the person required to deduct and 
withhold tax from such interest knows, or h£is reason to know, 
that such interest is not portfolio interest by reason of section 
871(h)(3).". 
(2) FOREIGN CORPORATIONS.—The last sentence of section 
26 use 1442. 
1442(a) is amended— 
(A) by striking out "and" after "section 881(a)(4)," and 
(B) by inserting before the period at the end thereof the 
following: ", and the references in section 1449(c)(9) to 
sections 871(h)(2) and 871(h)(3) shall be treated as referring 
to sections 881(c)(2) and 881(c)(3)". 
(f) REGISTERED OBUGATIONS.—Subparagraph (C)(i) of section 
26 use 163. 
163(f)(2) (relating to authority to include other obligations) is 
amended to read as follows: 
"(i) in the case of— 
"(I) subparagraph (A), such obligation is of a type 
which the Secretary has determined by regulations 
to be used frequently in avoiding Federal taxes, or 
"(II) subparagraph (B), such obligation is of a 
type specified by the Secretary in regulations, 
and". 
26 u s e 871 note. 
(g) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply to 
interest received after the date of the enactment of this Act 
with respect to obligations issued after such date, in taxable 
years ending after such date. 
(2) SUBSECTION (d).—The amendment made by subsection (d) 
shall apply to obligations issued after the date of the enactment 
of this Act with respect to the estates of decedents dying after 
such date. 
(3) 
SPECIAL RULE FOR CERTAIN UNITED STATES AFFILIATE 
OBLIGATIONS.— 
(A) IN GENERAL.—For purposes of the Internal Revenue 
26 use 1 et seq. 
Code of 1954, payments of interest on a United States 
affiliate obligation to an applicable CFC in existence on or 
before June 22, 1984, shall be treated as payments to a 
resident of the country in which the applicable CFC is 
incorporated. 
„, -: - s.*:«5,;.:.>-ij ^
t
-
-
* DIJ-OV;' i!i.-:i«nT 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 653 
(B) EXCEPTION.—Subparagraph (A) shall not apply to any 
applicable CFC which did not meet requirements which are 
based on the principles set forth in Revenue Rulings 69-501, 
69-377, 70-645, and 73-110. 
" > 
(C) DEFINITIONS.— 
(i) The term "applicable CFC" has the meaning given 
f 
such term by section 121(b)(2)(D) of this Act, except that 
Ante, p. 638. 
such section shall be applied by substituting "the date 
of interest payment" for "March 31, 1984," in clause (i) 
thereof. 
(ii) The term "United States affiliate obligation" 
lox L
J .'-?-
means an obligation described in section 121(b)(2)(F) of 
this Act which was issued before June 22,1984. 
SEC. 128. TREATMENT OF UNITED STATES SOURCE ORIGINAL ISSUE DIS-
COUNT IN CASE OF FOREIGN PERSONS. 
, . ,5,,, .„ 
(a) NONRESIDENT AUEN INDIVIDUALS.— 
(1) IN GENERAL.—Subparagraph (C) of section 871(a)(1) (relat- 
26 USC 871. 
ing to income not connected with United States business) is 
amended to read as follows: 
"(C) in the case of— 
"(i) a sale or exchange of an original issue discount 
obligation, the amount of any gain not in excess of the 
•; 
original issue discount accruing while such obligation 
was held by the nonresident alien individual (to the 
K 
extent such discount was not theretofore taken into 
account under clause (ii)), and 
"(ii) the payment of interest on an original issue 
discount obligation, an amount equal to the original 
issue discount accrued on such obligation since the last 
payment of interest thereon (except that such origmal 
J, , 
issue discount shall be taken into account under this 
clause only to the extent that the tax thereon does not 
exceed the interest payment less the tax imposed by 
subparagraph (A) thereon), and". 
(2) DEFINITIONS AND SPECIAL RULES.—Section 871 is amended 
by redesignating subsection (g) as subsection (h) and by insert-
ing after subsection (f) the following new subsection: 
"(g) SPECIAL RULES FOR ORIGINAL ISSUE DISCOUNT.—For purposes 
of this section and section 881— 
•'*•' '
^ "'* ' 
"(1) ORIGINAL ISSUE DISCOUNT OBUGATION.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
i .3 J f
x 
(B), the term 'original issue discount obligation' means any 
bond or other evidence of indebtedness having original 
issue discount (within the meaning of section 1273). 
Ante, p. 536. 
•'1 
"(B) EXCEPTIONS.—The term 'original issue discount obli-
gation' shall not include— 
"(i) CERTAIN SHORT-TERM OBUGATIONS.—Any obliga-
tion payable 183 days or less from the date of original 
issue (without regard to the period held by the tax-
paver). 
'(ii) TAX-EXEMPT OBLIGATIONS.—Any obligation the 
interest on which is exempt from tax under section 103 
or under any other provision of law without regard to 
the identity of the holder. 
"(2) DETERMINATION OF PORTION OF ORIGINAL ISSUE DISCOUNT 
ACCRUING DURING A
N
Y PERIOD.—The determination of the 
98 STAT. 654 
PUBLIC LAW 98-369—JULY 18, 1984 
amount of the original issue disfcount which accrues during any 
Ante, p. 533. 
period shall be made under the rules of section 1272 (or the 
corresponding provisions of prior law) without regard to any 
exception for short-term obligations. 
"(3) SOURCE OF ORIGINAL ISSUE DISCOUNT.—Except to the 
extent provided in regulations prescribed by the Secretary, the 
K
?
: q ,,a 
determination of whether any amount described in subsection 
(a)(1)(C) is from sources within the United States shall be made 
at the time of the payment (or sale or exchange) as if such 
payment (or sale or exchange) involved the payment of interest. 
Ante, p. 551. 
"(4) STRIPPED BONDS.—The provisions of section 1286 (relating 
to the treatment of stripped bonds and stripped coupons as 
obligations with original issue discount) shall apply for purposes 
of this section." 
(b) FOREIGN CORPORATIONS.— 
26 use 881. 
(1) IN GENERAL.—Paragraph (3) of section 881(a) (relating to 
tax on income of foreign corporations not connected with 
United States business) is amended to read as follows: 
"(3) in the case of— 
"(A) a sale or exchange of an original issue discount 
obligation, the amount of any gain not in excess of the 
original issue discount accruing while such obligation was 
held by the foreign corporation (to the extent such discount 
was not therefore taken into account under subparagraph 
(B)), and 
"(B) the payment of interest on an original issue discount 
obligation, an amount equal to the original issue discount 
accrued on such obligation since the last payment of inter-
est thereon (except that such original issue discount shall 
be taken into account under this subparagraph only to the 
extent that the tax thereon does not exceed the interest 
payment less the tax imposed by paragraph (1) thereon), 
and". 
(2) CROSS REFERENCE.—Subsection (c) of section 881 (relating 
to doubling of tax) is amended to read as follows: 
"(c) CROSS REFERENCE.— 
"For doubling of tax on corporations of certain foreign countries, see 
section 891. 
Ante, p. 653. 
"For special rules for original issue discount, see section 871(g)." 
(c) DEDUCTION FOR ORIGINAL ISSUE DISCOUNT HELD BY RELATED 
Ante, p. 556. 
FOREIGN PERSON.—Subsection (e) of section 163 (relating to original 
issue discount), as amended by this Act, is amended by redesignating 
paragraph (3) as paragraph (4), and by inserting after paragraph (2) 
a<,c 
the following new paragraph: 
"(3) SPECIAL RULE FOR ORIGINAL ISSUE DISCOUNT ON OBLIGATION 
HELD BY RELATED FOREIGN PERSON.— 
"(A) IN GENERAL.—If any debt instrument having original 
issue discount is held by a related foreign person, any 
portion of such original issue discount shall not be allow-
able as a deduction to the issuer until paid. 
"(B) RELATED FOREIGN PERSON.—For purposes of subpara-
graph (A), the term 'related foreign person' means any 
person— 
"(i) who is not a United States person, and 
"(ii) who is related (within the meaning of section 
Oiii w im.. 267(b)) to the issuer." 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 655 
(d) EFFECTIVE DATE.— 
26 use 871 note. 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to payments made 
on or after the 60th day after the date of the enactment of this 
Act with respect to obligations issued after March 31, 1972. 
(2) SUBSECTION (C).—The amendment made by subsection (c) 
shall apply to obligations issued after June 9,1984. 
SEC. 129. WITHHOLDING OF TAX ON DISPOSITIONS OF UNITED STATES 
REAL PROPERTY INTERESTS. 
(a) WITHHOLDING OF TAX.— 
(1) IN GENERAL.—Subchapter A of chapter 3 (relating to with-
holding of tax on nonresident aliens and foreign corporations) is 
amended by adding at the end thereof the following new section: 
"SEC. 1445. WITHHOLDING OF TAX ON DISPOSITIONS OF UNITED STATES 
26 USC 1445. 
REAL PROPERTY INTERESTS. 
"(a) GENERAL RULE,—Except as otherwise provided in this section, 
in the case of any disposition of a United States real property 
interest (as defined in section 897(c)) by a foreign person, the trans-
feree shall be required to deduct and withhold a tax equal to 10 
percent of the amount realized on the disposition. 
"(b) EXEMPTIONS.— 
"(1) IN GENERAL.—No person shall be required to deduct and 
withhold any amount under subsection (a) with respect to a 
disposition if paragraph (2), (3), (4), (5), or (6) applies to the 
transaction. 
"(2) TRANSFEROR FURNISHES NONFOREIGN AFFIDAVIT.—Except 
as provided in paragraph (7), this paragraph applies to the 
disposition if the transferor furnishes to the transferee an 
affidavit by the transferor stating, under penalty of perjury, the 
transferor's United States taxpayer identification number and 
that the transferor is not a foreign person. 
"(3) NONPUBLICLY TRADED DOMESTIC CORPORATION FURNISHES 
AFFIDAVIT THAT IT IS NOT A UNITED STATES REAL PROPERTY HOLD-
ING CORPORATION.—Except as provided in paragraph (7), this 
paragraph applies in the case of a disposition of any interest in 
any domestic corporation, if the domestic corporation furnishes 
to the transferee an affidavit by the domestic corporation stat-
ing, under penalty of perjury, that the domestic corporation is 
not and has not been a United States real property holding 
corporation (as defined in section 897(c)(2)) during the applicable 
period specified in section 897(c)(l)(AXii). 
"(4) TRANSFEREE RECEIVES QUAUFYING STATEMENT.— 
"(A) IN GENERAL.—This paragraph applies to the disposi-
tion if the transferee receives a qualifying statement at 
such time, in such manner, and subject to such terms and 
conditions as the Secretary may by regulations prescribe. 
"(B) QUAUFYING STATEMENT.—For purposes of subpara-
y^ 5 
graph (A), the term 'qualifying statement' means a state-
ment by the Secretary that— 
"(i) the transferor either— 
"(I) has reached agreement with the Secretary 
(or such agreement has been reached by the trans-
feree) for the payment of any tax imposed by sec-
tion 871(bXl) or 882(aXl) on any gain recognized by 
98 STAT. 656 
PUBLIC LAW 98-369—JULY 18, 1984 
the transferor on the disposition of the United 
States real property interest, or 
"(II) is exempt from any tax imposed by section 
871(b)(1) or 882(a)(1) on any gain recognized by the 
transferor on the disposition of the United States 
real property interest, and 
"(ii) the transferor or transferee has satisfied any 
transferor's unsatisfied withholding liability or has pro-
vided adequate security to cover such liability. 
"(5) RESIDENCE WHERE AMOUNT REALIZED DOES NOT EXCEED 
$300,000.—This paragraph applies to the disposition if^ 
"(A) the property is acquired by the transferee for use by 
him as a residence, and 
"(B) the amount realized for the property does not exceed 
$300,000. 
"(6) STOCK REGULARLY TRADED ON ESTABLISHED SECURITIES 
MARKET.—This paragraph applies if the disposition is of a share 
of a class of stock that is regularly traded on an established 
securities market. 
"(7) SPECIAL RULES FOR PARAGRAPHS (2) AND (3).—Paragraph 
(2) or (3) (as the case may be) shall not apply to any disposition— 
"(A) if-
"(i) the transferee has actual knowledge that the 
affidavit referred to in such paragraph is false, or 
"(ii) the transferee receives a notice (as described in 
subsection (d)) from a transferor's agent or a trans-
feree's agent that such affidavit is false, or 
"(B) if the Secretary by regulations requires the trans-
feree to furnish a copy of such affidavit to the Secretary and 
the transferee fails to furnish a copy of such affidavit to the 
Secretary at such time and in such manner as required by 
such regulations. 
"(c) LIMITATIONS ON AMOUNT REQUIRED TO BE WITHHELD.— 
"(1) CANNOT EXCEED TRANSFEROR'S MAXIMUM TAX LIABILITY.— 
"(A) IN GENERAL.—The amount required to be withheld 
under this section with respect to any disposition shall not 
exceed the amount (if any) determined under subparagraph 
(B) as the transferor's maximum tax liability. 
"(B) REQUEST.—At the request of the transferor or trans-
feree, the Secretary shall determine, with respect to any 
disposition, the transferor's maximum tax liability. 
"(C) REFUND OF EXCESS AMOUNTS WITHHELD.—Subject to 
such terms and conditions as the Secretary may by regula-
tions prescribe, a transferor may seek and obtain a refund 
of any amounts withheld under this section in excess of the 
transferor's maximum tax liability. 
"(2) 
AUTHORITY 
OF 
SECRETARY 
TO 
PRESCRIBE 
REDUCED 
AMOUNT.—At the request of the transferor or transferee, the 
Secretary may prescribe a reduced amount to be withheld under 
this section if the Secretary determines that to substitute such 
reduced amount will not jeopardize the collection of the tax 
imposed by section 871(b)(1) or 882(a)(1). 
"(3) PROCEDURAL RULES.— 
"(A) REGULATIONS.—Requests for— 
"(i) qualifying statements under subsection (b)(4), 
"(ii) determinations of transferor's maximum tax li-
<
.
; 
ability under paragraph (1), and 
PUBLIC LAW 98-369-JULY 18, 1984 
98 STAT. 657 
"(iii) reductions under paragraph (2) in the amount 
required to be withheld, 
shall be made at the time and manner, and shall include 
such information, as the Secretary shall prescribe by 
regulations. 
"(B) REQUESTS TO BE HANDLED WITHIN 90 DAYS.—The Sec-
retary shall take action with respect to any request de-
scribed in subparagraph (A) within 90 days after the 
-' 
Secretary receives the request. 
"(d) 
LiABiuTY 
OF 
TRANSFEROR'S 
AGENTS 
OR 
TRANSFEREE'S 
AGENTS.— 
"(1) NOTICE OF FALSE AFFIDAVIT; FOREIGN CORPORATIONS.—If— 
t 
"(A) the transferor furnishes the transferee an affidavit 
described in paragraph (2)(A) of subsection (b) or a domestic 
sd. t 
corporation furnishes the transferee an affidavit described 
in paragraph (3) of subsection (b), and 
aomm. 
"(B) in the case of— 
"(i) any transferor's agent, the transferor is a foreign 
corporation or such agent has actual knowledge that 
such affidavit is false, or 
"(ii) any transferee's agent, such agent has actual 
knowledge that such affidavit is false, 
such agent shall so notify the transferee at such time and in 
such manner as the Secretary shall require by regulations. 
"(2) FAILURE TO FURNISH NOTICE.— 
"(A) IN GENERAL.—If any transferor's agent or transfer-
ee's agent is required by paragraph (1) to furnish notice, but 
fails to furnish such notice at such time or times and in 
such manner as may be required by regulations, such agent 
shall have the same duty to deduct and withhold that the 
transferee would have had if such agent had complied with 
paragraph (1). 
"(B) LIABILITY LIMITED TO AMOUNT OF COMPENSATION.—An 
agent's liability under subparagraph (A) shall be limited to 
the amount of compensation the agent derives from the 
transaction. 
"(3) TRANSFEROR'S AGENT.—For purposes of this subsection, 
the term 'transferor's agent' means any person who represents 
the transferor— 
"(A) in any negotiation with the transferee or any trans-
feree's agent related to the transaction, or 
"(B) in settling the transaction. 
"(4) TRANSFEREE'S AGENT.—For purposes of this subsection, 
the term 'transferee's agent' means any person who represents 
the transferee— 
"(A) in any negotiation with the transferor or any trans-
feror's agent related to the transaction, or 
"(B) in settling the transaction. 
"(5) 
SETTLEMENT OFFICER NOT TREATED AS TRANSFEROR'S 
AGENT.—For purposes of this subsection, a person shall not be 
treated as a transferor's agent or transferee's agent with respect 
to any transaction merely because such person performs 1 or 
more of the following acts: 
"(A) The receipt and the disbursement of any portion of 
the consideration for the transaction. 
"(B) The recording of any document in connection with 
the transaction. 
•>•[] 
31-194 0 - 86 - 23 : 
QL. 3 
Part 
1 
98 STAT. 658 
PUBLIC LAW 98-369—JULY 18, 1984 
"(e) SPECIAL RULES RELATING TO DISTRIBUTIONS, ETC., BY CORPORA-
TIONS, PARTNERSHIPS, TRUSTS, OR ESTATES.— 
"(1) CERTAIN DOMESTIC PARTNERSHIPS, TRUSTS, AND ESTATES.— 
A domestic partnership, the trustee of a domestic trust, or the 
executor of a domestic estate shall be required to deduct and 
withhold under subsection (a) a tax equal to 10 percent of any 
amount of which such partnership, trustee, or executor has 
custody which is— 
"(A) attributable to the disposition of a United States real 
property interest (as defined in section 897(c), other than a 
disposition described in paragraph (4) or (5)), and 
"(B) either— 
"(i) includible in the distributive share of a partner of 
the partnership who is a foreign person, 
"(ii) includible in the income of a beneficiary of the 
trust or estate who is a foreign person, or 
"(iii) includible in the income of a foreign person 
under the provisions of section 671. 
"(2) CERTAIN DISTRIBUTIONS BY FOREIGN CORPORATIONS.—In the 
case of any distribution by a foreign corporation on which gain 
is recognized under subsection (d) or (e) of section 897, the 
foreign corporation shall deduct and withhold under subsection 
(a) a tax equal to 28 percent of the amount of gain recognized on 
such distribution under such subsection. 
"(3) 
DISTRIBUTIONS BY CERTAIN DOMESTIC CORPORATIONS TO 
FOREIGN SHAREHOLDERS.—If a domestic corporation which is or 
has been a United States real property holding corporation (as 
defined in section 897(c)(2)) during the applicable period speci-
fied in section 897(c)(l)(A)(ii) distributes property to a foreign 
person in a transaction to which section 302 or part II of 
26 use 331. 
subchapter C applies, such corporation shall deduct and with-
hold under subsection (a) a tax equal to 10 percent of the 
amount realized by the foreign shareholder. 
"(4) TAXABLE DISTRIBUTIONS BY DOMESTIC OR FOREIGN PARTNER-
SHIPS, TRUSTS, OR ESTATES.—A domestic or foreign partnership, 
the trustee of a domestic or foreign trust, or the executor of a 
domestic or foreign estate shall be required to deduct and 
withhold under subsection (a) a tax equal to 10 percent of the 
fair market value (as of the time of the taxable distribution) of 
any United States real property interest distributed to a part-
ner of the partnership or a beneficiary of the trust or estate, as 
the case may be, who is a foreign person in a transaction which 
would constitute a taxable distribution under the regulations 
promulgated by the Secretary pursuant to section 897(g). 
"(5) RULES RELATING TO DISPOSITIONS OF INTEREST IN PARTNER-
SHIPS, TRUSTS, O
R ESTATES.—To the extent provided in regula-
tions, the transferee of a partnership interest or of a beneficial 
interest in a trust or estate shall be required to deduct and 
withhold under subsection (a) a tax equal to 10 percent of the 
amount realized on the disposition. 
"(6) REGULATIONS.—The Secretary shall prescribe such regu-
lations as may be necessary to carry out the purposes of this 
subsection, including regulations providing for exceptions from 
provisions of this subsection. 
"(f) DEFINITIONS.—For purposes of this section— 
"(1) TRANSFEROR.—The term 'transferor' means the person 
disposing of the United States real property interest. 
i J"S:s1 t 
,JC 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 659 
"(2) TRANSFEREE.—The term 'transferee' means the person 
acquiring the United States real property interest. 
"(3) FOREIGN PERSON.—The term 'foreign person' means any 
person other than a United States person. 
"(4) TRANSFEROR'S MAXIMUM TAX LIABILITY.—The term 'trans-
feror's maximum tax liability' means, with respect to the dispo-
sition of any interest, the sum of— 
"(A) the maximum amount which the Secretary deter-
j, 
mines could be imposed as tax under section 871(b)(1) or 
882(a)(1) by reason of the disposition, plus 
"(B) the amount the Secretary determines to be the 
transferor's unsatisfied withholding liability with respect to 
such interest. 
"(5) TRANSFEROR'S UNSATISFIED WITHHOLDING LIABILITY.—The 
term 'transferor's unsatisfied withholding liability' means the 
withholding obligation imposed by this section on the transfer-
or's acquisition of the United States real property interest or on 
the acquisition of a predecessor interest, to the extent such 
obligation has not been satisfied." 
(2) CLERICAL AMENDMENT.—The table of sections for subchap-
ter A of chapter 3 is amended by adding at the end thereof the 
following new item: 
"Sec. 1445. Withholding of tax on dispositions of United States real prop-
erty interests." 
(b) REPORTING REQUIREMENTS LIMITED TO FOREIGN PERSONS HOLD-
ING DIRECT INVESTMENTS IN UNITED STATES REAL PROPERTY.— 
(1) IN GENERAL.—Section 6039C (relating to returns with re- 
26 USC 6039C. 
spect to United States real property interests) is amended to 
read as follows: 
"SEC. 6039C. RETURNS WITH RESPECT TO FOREIGN PERSONS HOLDING 
DIRECT INVESTMENTS IN UNITED STATES REAL PROPERTY 
INTERESTS. 
"(a) GENERAL RULE.—To the extent provided in regulations, any 
foreign person holding direct investments in United States real 
property interests for the calendar year shall make a return setting 
forth— 
"(1) the name and address of such person, 
"(2) a description of all United States real property interests 
s. c: 
held by such person at any time during the calendar year, and 
.: -.i 
"(3) such other information as the Secretary may by regula- 
. „ ,, ,. 
tions prescribe. 
5,r 
"(b) DEFINITION OF FOREIGN PERSONS HOLDING DIRECT INVEST-
MENTS IN UNITED STATES REAL PROPERTY INTERESTS.—For purposes 
of this section, a foreign person shall be treated as holding direct 
investments in United States real property interests during any 
calendar year i
f
— 
HU m 
"(1) such person did not engage in a trade or business in the 
United States at any time during such calendar year, and 
"(2) the fair market value of the United States real property 
interests held directly by such person at any time during such 
year equals or exceeds $50,000. 
"(c) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
"(1) UNITED STATES REAL PROPERTY INTEREST.—The term 
'United States real property interest' has the meaning given to 
such term by section 897(c). 
98 STAT. 660 
PUBLIC LAW 98-369—JULY 18, 1984 
"(2) FOREIGN PERSON.—The term 'foreign person' means any 
person who is not a United States person. 
"(3) ATTRIBUTION OF OWNERSHIP.—For purposes of subsection 
(b)(2)-
"(A) INTERESTS HELD BY PARTNERSHIPS, ETC.—United 
States real property interests held by a partnership, trust, 
or estate shall be treated as owned proportionately by its 
partners or beneficiaries. 
"(B) INTERESTS HELD BY FAMILY MEMBERS.—United States 
real property interests held by the spouse or any minor 
child of an individual shall be treated as owned by such 
individual. 
"(4) TIME AND MANNER OF FIUNG RETURN.—All returns re-
quired to be made under this section shall be made at such time 
and in such manner as the Secretary shall by regulations 
prescribe. 
"(d) SPECIAL RULE FOR UNITED STATES INTEREST AND VIRGIN 
ISLANDS INTEREST.—A nonresident alien individual or foreign corpo-
ration subject to tax under section 897(a) shall pay any tax and file 
any return required by this title— 
"(1) to the United States, in the case of any interest in real 
property located in the United States and an interest (other 
than an interest solely as a creditor) in a domestic corporation 
(with respect to the United States) described in section 
897(c)(lXAXii), and 
"(2) to the Virgin Islands, in the case of any interest in real 
property located in the Virgin Islands and an interest (other 
than an interest solely as a creditor) in a domestic corporation 
(with respect to the Virgin Islands) described in section 
897(cXlXAXii)." 
(2) CLERICAL AMENDMENT.—The table of sections for subpart A 
of part III of subchapter A of chapter 61 is amended by striking 
out the item relating to section 6039C and inserting in lieu 
thereof the following: 
"Sec. 6039C. Returns with respect to foreign persons holding direct invest-
ments in United States real property interests." 
(c) EFFECTIVE DATES.— 
26 use 1445 
(1) IN GENERAL.—The amendments made by subsection (a) 
note. 
shall apply to any disposition on or after January 1, 1985. 
26USC6039C 
(2) REPORTING REQUIREMENTS.—The amendments made by 
note. 
subsection (b) shall apply to calendar year 1980 and subsequent 
calendar years. 
SEC. 130. TREATMENT OF PAYMENTS TO G
U
A
M AND VIRGIN ISLANDS 
CORPORATIONS. 
26 use 881. 
(a) GENERAL RULE.—Subsection (b) of section 881 (relating to 
exception for Guam corporations) is amended to read as follows: 
"(b) 
EXCEPTION 
FOR CERTAIN 
GUAM 
AND VIRGIN 
ISLANDS 
CORPORATIONS.— 
"(1) IN GENERAL.—For purposes of this section, a corporation 
created or organized in Guam or the Virgin Islands or under the 
law of Guam or the Virgin Islands shall not be treated as a 
foreign corporation for any taxable year i
f
— 
"(A) at all times during such taxable year less than 25 
percent in value of the stock of such corporation is owned 
(directly or indirectly) by foreign persons, and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 661 
"(B) at least 20 percent of the gross income of such 
corporation is shown to the satisfaction of the Secretary to 
have been derived from sources within Guam or the Virgin 
3! I 
Islands (as the case may be) for the 3-year period ending 
with the close of the preceding taxable year of such corpora-
tion (or for such part of such period as the corporation has 
• '-> • -
r 
been in existence). 
"(2) PARAGRAPH (i) NOT TO APPLY TO TAX IMPOSED IN GUAM.— 
For purposes of applying this subsection with respect to income 
tax liability incurred to Guam— 
"(A) Paragraph (1) shall not apply, and 
"(B) for purposes of this section, the term 'foreign corpo-
; 
ration' does not include a corporation created or organized 
in Guam or under the law of Guam. 
"(3) DEFINITIONS.— 
0 ^ 
"(A) FOREIGN PERSON.—For purposes of paragraph (1), the 
term 'foreign person' means any person other than— 
1 
"(i) a United States person, or 
"(ii) a person who would be a United States person if 
references to the United States in section 7701 included 
Ki ij^A':- > 
references to a possession of the United States. 
"(B) INDIRECT OWNERSHIP RULES.—For purposes of para-
graph (1), the rules of section 318(a)(2) shall apply except 
that '5 percent' shall be substituted for *50 percent' in 
subparagraph (C) thereof. 
"(4) CROSS REFERENCE.— 
"For tax imposed in the Virgin Islands, see sections 934 and 934A." 
Co) WITHHOLDING OF TAX.—Subsection (c) of section 1442 (relating 26 USC 1442. 
to exception for Guam corporations) is amended to read as follows: 
"(c) EXCEPTION FOR CERTAIN GUAM AND VIRGIN ISLANDS CORPORA-
TIONS.— 
"(1) IN GENERAL.—For purposes of this section, the term 
'foreign corporation' does not include a corporation created or 
organized in Guam or the Virgin Islands or under the law of 
Guam or the Virgin Islands if the requirements of subpara-
graphs (A) and (B) of section 881(b)(1) are met with respect to Ante, p. 660. 
such corporation. 
"(2) PARAGRAPH (i) NOT TO APPLY TO TAX IMPOSED IN GUAM.— 
For purposes of applying this subsection with respect to income 
tax liability incurred to Guam— 
"(A) paragraph (1) shall not apply, and 
"(B) for purposes of this section, the term 'foreign corpo-
ration' does not include a corporation created or organized 
in Guam or under the law of Guam. 
"(3) CROSS REFERENCE.— 
"For tax imposed in the Virgin Islands, see sections 934 and 934A." 
(c) TECHNICAL AMENDMENT.—Subparagraph (B) of section 7651(5) 26 use 7651. 
is amended by inserting "(other than section 881(b)(1))" after "For 
purposes of this title". 
(d) EFFECTIVE DATE.—The amendments made by this section shall 26 use 881 note. 
apply to payments made after March 1, 1984, in taxable years 
ending after such date. 
98 STAT. 662 
PUBLIC LAW 98-369—JULY 18, 1984 
PART III—TAXATION OF CERTAIN TRANSFERS OF 
PROPERTY OUTSIDE THE UNITED STATES 
SEC. 131. TAXATION OF CERTAIN TRANSFERS OF PROPERTY OUTSIDE THE 
UNITED STATES. 
26 use 367. 
(a) IN GENERAL.—Subsection (a) of section 367 (relating to trans-
fers of property from the United States) is amended to read as 
follows: 
"(a) TRANSFERS OF PROPERTY FROM THE UNITED STATES.— 
"(1) GENERAL RULE.—If, in connection with any exchange 
described in section 332, 351, 354, 355, 356, or 361, a United 
States person transfers property to a foreign corporation, such 
foreign corporation shall not, for purposes of determining the 
extent to which gain shall be recognized on such transfer, be 
considered to be a corporation. 
"(2) EXCEPTION FOR CERTAIN STOCK OR SECURITIES.—Except to 
the extent provided in regulations, paragraph (1) shall not apply 
to the transfer of stock or securities of a foreign corporation 
which is a party to the exchange or a party to the reorganiza-
tion. 
"(3) EXCEPTION FOR TRANSFERS OF CERTAIN PROPERTY USED IN 
THE ACTIVE CONDUCT OF A TRADE OR BUSINESS.— 
"(A) IN GENERAL.—Except as provided in regulations pre-
scribed by the Secretary, paragraph (1) shall not apply to 
any property transferred to a foreign corporation for use by 
such foreign corporation in the active conduct of a trade or 
business outside of the United States. 
"(B) PARAGRAPH NOT TO APPLY TO CERTAIN PROPERTY.— 
Except as provided in regulations prescribed by the Secre-
tary, subparagraph (A) shall not apply to any— 
"(i) property described in paragraph (1) or (3) of 
section 1221 (relating to inventory and copyrights, etc.), 
"(ii) installment obligations, accounts receivable, or 
similar property, 
"(iii) foreign currency or other property denominated 
in foreign currency, 
- 
I •' 
"(iv) intangible property (within the meaning of sec-
tion 936(h)(3)(B)), or 
"(v) property with respect to which the transferor is a 
lessor at the time of the transfer, except that this 
clause shall not apply if the transferee was the lessee. 
"(C) TRANSFER OF FOREIGN BRANCH WITH PREVIOUSLY DE-
DUCTED LOSSES.—Except as provided in regulations pre-
scribed by the Secretary, subparagraph (A) shall not apply 
to gain realized on the transfer of the assets of a foreign 
branch of a United States person to a foreign corporation in 
an exchange described in paragraph (1) to the extent that— 
"(i) the sum of losses— 
"(I) which were incurred by the foreign branch 
before the transfer, and 
"(II) with respect to which a deduction was al-
lowed to the taxpayer, exceeds 
"(ii) the sum o
f
— 
"(I) any taxable income of such branch for a 
taxable year after the taxable year in which the 
Afk 
D8I 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 663 
loss was incurred and through the close of the 
taxable year of the transfer, and 
"(11) the amount which is recognized under sec-
tion 904(f)(3) on account of the transfer. 
Any gain recognized by reason of the preceding sentence 
shall be treated for purposes of this chapter as income from 
sources outside the United States having the same charac-
ter as such losses had. 
"(4) SPECIAL RULE FOR TRANSFER OF PARTNERSHIP INTERESTS.— 
Except as provided in regulations prescribed by the Secretary, a 
transfer by a United States person of an interest in a partner-
ship to a foreign corporation in an exchange described in para-
s
' 
graph (1) shall, for purposes of this subsection, be treated as a 
r 
transfer to such corporation of such person's pro rata share of 
the assets of the partnership. 
"(5) SECRETARY MAY EXEMPT CERTAIN TRANSACTIONS FROM AP-
pucATiON OF THIS SUBSECTION.—Paragraph (1) shall not apply to 
the transfer of any property which the Secretary, in order to 
carry out the purposes of this subsection, designates by regula-
tion." 
(b) SPECIAL RULES FOR TRANSFERS OF INTANGIBLES.—Subsection (d) 
of section 367 (relating to special rule for transfer of intangibles by 
26 USC 367. 
possession corporations) is amended to read as follows: 
"(d) SPECIAL RULES RELATING TO TRANSFERS OF INTANGIBLES.— 
"(1) IN GENERAL.—Except as provided in regulations pre-
scribed by the Secretary, if a United States person transfers any 
intangible property (within the meaning of section 936(h)(3XB)) 
to a foreign corporation in an exchange described in section 351 
or 361— 
"(A) subsection (a) shall not apply to the transfer of such 
property, and 
"(B) the provisions of this subsection shall apply to such 
transfer. 
"(2) TRANSFER OF INTANGIBLES TREATED AS TRANSFER PURSU-
ANT T
O SALE OF CONTINGENT PAYMENTS.— 
"(A) IN GENERAL.—If paragraph (1) applies to any trans-
fer, the United States person transferring such property 
shall be treated as— 
;' 
"(i) having sold such property in exchange for pay-
ments which are contingent upon the productivity, use, 
^ 
or disposition of such property, and 
"(ii) receiving amounts which reasonably reflect the 
amounts which would have been received— 
. , 
"(I) annually in the form of such payments over 
' 
*;\, 
the useful life of such property, or 
"(II) in the case of a disposition following such 
^
f 
transfer (whether direct or indirect), at the time of 
the disposition. 
^ 
"(B) EFFECT ON EARNINGS AND PROFITS.—For purposes of 
^' 
.his chapter, the earnings and profits of a foreign corpora-
tion to which the intangible property was transferred shall 
be reduced by the amount required to be included in the 
income of the transferor of the intangible property under 
subparagraph (A)(ii). 
"(C) AMOUNTS RECEIVED TREATED AS UNITED STATES SOURCE 
ORDINARY INCOME.—For purposes of this chapter, any 
amount included in gross income by reason of this subsec-
98 STAT. 664 
PUBLIC LAW 98-369—JULY 18, 1984 
siii iu tion shall be treated as ordinary income from sources 
within the United States." 
26 use 367. 
(c) TREATMENT OF LIQUIDATIONS UNDER SECTION 336.—Section 367 
is amended by redesignating subsection (e) as subsection (f) and by 
inserting after subsection (d) the following new subsection: 
"(e) TREATMENT OF LIQUIDATIONS UNDER SECTION 336.—In the case 
of any distribution described in section 336 by a domestic corpora-
tion which is made to a person who is not a United States person, to 
the extent provided in regulations, gain shall be recognized under 
principles similar to the principles of this section." 
(d) SECRETARY MUST BE NOTIFIED OF TRANSACTIONS DESCRIBED IN 
SECTION 367.— 
(1) NOTIFICATION REQUIREMENT.—Subpart A of part III of 
' 
subchapter A of chapter 61 is amended by adding after section 
6038A the following new section: 
26USC6038B. 
"SEC. 6038B. NOTICE OF CERTAIN TRANSFERS TO FOREIGN PERSONS. 
"(a) IN GENERAL.—Each United States person who— 
"(1) transfers property to a foreign corporation in an ex-
change described in section 332, 351, 354, 355, 356, or 361, or 
"(2) makes a distribution described in section 336 to a person 
?
&
f >
r a : 
^j^Q jg j^Q^ a United States person, 
shall furnish to the Secretary, at such time and in such manner as 
the Secretary shall by regulations prescribe, such information with 
respect to such exchange or distribution as the Secretary may 
require in such regulations. 
"(b) PENALTY FOR FAILURE TO FURNISH INFORMATION.— 
"(1) IN GENERAL.—If any United States person fails to furnish 
the information described in subsection (a) at the time and in 
the manner required by regulations, such person shall pay a 
penalty equal to 25 percent of the amount of the gain realized 
on the exchange. 
"(2) REASONABLE CAUSE EXCEPTION.—Paragraph (1) shall not 
apply to any failure if the United States person shows such 
failure is due to reasonable cause and not to willful neglect." 
(2) EXTENSION OF PERIOD FOR ASSESSMENT AND COLLECTION 
Post, p. 817. 
WHERE SECRETARY NOT NOTIFIED.—Subsection (c) of section 6501 
26 use 6501. 
(relating to exceptions to limitations on assessment and collec-
tion) is amended by adding at the end thereof the following new 
paragraph: 
^5, 
"(8) FAILURE TO NOTIFY SECRETARY UNDER SECTION 6038B.—In 
^^' the case of any tax imposed on any exchange by reason of 
Ante, pp. 662, 
subsection (a) or (d) of section 367, the time for assessment of 
663. 
such tax shall not expire before the date which is 3 years after 
the date on which the Secretary is notified of such exchange 
under section 6038B(a)." 
(3) CONFORMING AMENDMENT.—The table of sections for sub-
part A of part III of subchapter A of chapter 61 is amended by 
adding after the item relating to section 6038A the following 
new item: 
"Sec. 6038B. Notice of certain transfers to foreign persons." 
(e) REPEAL OF DECLARATORY JUDGMENT PROVISIONS INVOLVING 
TRANSFERS OF PROPERTY FROM THE UNITED STATES.— 
26 use 7477. 
(1) IN GENERAL.—Section 7477 is hereby repealed. 
(2) CONFORMING AMENDMENTS.— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 665 
(A) Section 7482(b)(1) (relating to venue for review of Tax 
26 use 7482. 
Court decisions) is amended by striking out subparagraph 
(D) and by redesignating subparagraphs (E) and (F) as 
• < ' 
subparagraphs (D) and (E), respectively. 
(B) The table of sections for part IV of subchapter C of 
chapter 76 is amended by striking out the item relating to 
section 7477. 
- (f) TRANSFERS TO AVOID INCOME TAX.— 
f 
(1) IN GENERAL.—Section 1492 (relating to nontaxable trans- 
26 use 1492. 
fers) is amended— 
(A) by striking out paragraphs (2) and (3) and by inserting 
^!. 
in lieu thereof— 
"(2) To a transfer— 
"(A) described in section 367, or 
"(B) not described in section 367 but with respect to which 
the taxpayer elects (before the transfer) the application of 
principles similar to the principles of section 367, or", and 
(B) by redesignating paragraph (4) as paragraph (3). 
(2) CONFORMING AMENDMENT.—Subsection (b) of section 1494 
26 use 1494. 
(relating to abatement or refund) is amended to read as follows: 
"(b) ABATEMENT OR REFUND.—Under regulations prescribed by the 
Secretary, the tax may be abated, remitted, or refunded if the 
taxpayer, after the transfer, elects the application of principles 
similar to the principles of section 367." 
(g) EFFECTIVE DATES.— 
26 use 367 note'. 
(1) IN GENERAL.—The amendments made by this section shall 
apply to transfers or exchanges after December 31, 1984, in 
taxable years ending after such date. 
i* 
(2) SPECIAL RULE FOR CERTAIN TRANSFERS OF INTANGIBLES.— 
(A) IN GENERAL.—If, after June 6, 1984, and before Janu-
ary 1,1985, a United States person transfers any intangible 
property (within the meaning of section 936(h)(3)(B) of the 
Internal Revenue Code of 1954) to a foreign corporation or 
in a transfer described in section 1491, such transfer shall 
be treated for purposes of sections 367(a), 1492(2), and Ante, p. 662. 
'> 
1494(b) of such Code as pursuant to a plan having as 1 of its -Supra. 
principal purposes the avoidance of Federal income tax. 
ol 
(B) WAIVER.—Subject to such terms and conditions as the 
-: J c 
' ' 
Secretary of the Treasury or his delegate may prescribe, the 
Secretary may waive the application of subparagraph (A) 
with respect to any transfer. 
(3) RuuNG REQUEST BEFORE MARCH 1, 1984.—The amendments 
made by this section (and the provisions of paragraph (2) of this 
subsection) shall not apply to any transfer or exchange of 
property described in a request filed before March 1, 1984, 
under section 367(a), 1492(2), or 1494(b) of the Internal Revenue 
Code of 1954 (as in effect before such amendments). 
PART IV—MISCELLANEOUS FOREIGN CORPORATE 
PROVISIONS 
W. ;^:U Si; 
SEC. 132. AMENDMENTS RELATED TO FOREIGN PERSONAL HOLDING COM-
PANIES. 
(a) ATTRIBUTION FROM FAMILY MEMBERS AND PARTNERSHIPS.— 
Section 554 (relating to stock ownership) is amended by adding at 
26 USC 554. 
the end thereof the following new subsection: 
98 STAT. 666 
PUBLIC LAW 98-369—JULY 18, 1984 
, - 
-,J 
"(c) SPECIAL RULES FOR APPLICATION OF SUBSECTION (a) (2).—For 
purposes of the stock ownership requirement provided in section 
552(a)(2)— 
"(1) stock owned by a nonresident alien individual (other than 
a foreign trust or foreign estate) shall not be considered by 
reason of so much of subsection (a)(2) as relates to attribution 
through family membership as owned by a citizen or by a 
resident alien individual who is not the spouse of the nonresi-
1 4 >s J :fi, 
dent individual and who does not otherwise own stock in such 
corporation (determined after the application of subsection (a), 
other than attribution through family membership), and 
"(2) stock of a corporation owned by any foreign person shall 
not be considered by reason of so much of subsection (a)(2) as 
relates to attribution through partners as owned by a citizen or 
resident of the United States who does not otherwise own stock 
in such corporation (determined after application of subsec-
tion (a) and paragraph (1), other than attribution through 
partners)." 
(b) INCLUSION IN INCOME OF UNITED STATES PERSONS HOLDING 
26 use 551. 
INTEREST THROUGH FOREIGN ENTITY.—Section 551 (relating to for-
eign personal holding company income taxed to United States share-
holders) is amended by redesignating subsection (f) as subsection (g) 
and by inserting after subsection (e) the following new subsection: 
"(f) STOCK HELD THROUGH FOREIGN ENTITY.—For purposes of this 
-£',.« as' ai m 
section, stock of a foreign personal holding company owned (directly 
or through the application of this subsection) by— 
"(1) a partnership, estate, or trust which is not a United 
States shareholder, or 
"(2) a foreign corporation which is not a foreign personal 
holding company, 
shall be considered as being owned proportionately by its partners, 
beneficiaries, or shareholders. In any case to which the preceding 
sentence applies, the Secretary may by regulations provide for such 
adjustments in the application of this part as may be necessary to 
r.,^. 
carry out the purposes of the preceding sentence." 
(c) COORDINATION OF SUBPART F WITH FOREIGN PERSONAL HOLDING 
COMPANY PROVISIONS.— 
26 use 951. 
(1) IN GENERAL.—Subsection (d) of section 951 (relating to 
coordination with foreign personal holding company provisions) 
is amended to read as follows: 
"(d) COORDINATION WITH FOREIGN PERSONAL HOLDING COMPANY 
PROVISIONS.—If, but for this subsection, an amount would be 
included in the gross income of a United States shareholder for any 
taxable year both under subsection (a)(l)(A)(i) and under section 
551(b) (relating to foreign personal holding company income in-
cluded in gross income of United States shareholder), such amount 
shall be included in the gross income of such shareholder only 
under subsection (a)(1)(A)." 
(2) CERTAIN DIVIDENDS AND INTEREST NOT TAKEN INTO ACCOUNT 
26 u s e 552. 
FOR PERSONAL HOLDING COMPANY DETERMINATION.—Section 552 
(defining foreign personal holding company) is amended by 
adding at the end thereof the following new subsection: 
"(c) 
CERTAIN DIVIDENDS AND INTEREST NOT TAKEN INTO AC-
COUNT.—For purposes of subsection (a)(1) and section 553(a)(1), gross 
income and foreign personal holding company income shall not 
K' fc ^ ii*i include any dividends and interest which— 
"(1) are described in subparagraph (A) of section 954(c)(4), and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 667 
"(2) are received from a related person which is not a foreign 
personal holding company (determined without regard to this 
subsection)." 
(d) EFFECTIVE DATES.— 
26 use 551 note. 
(1) SUBSECTIONS (a) AND (b).— 
(A) IN GENERAL.—Except as provided in subparagraph (B), 
^ 
the amendments made by subsections (a) and (b) shall apply 
to taxable years of foreign corporations beginning after 
December 31,1983. 
(B) 1-YEAR EXTENSION FOR CERTAIN TRUSTS CREATED BEFORE 
JUNE 30, 1953.— 
(i) IN GENERAL.—The amendment made by subsection 
^ 
(b) shall apply to taxable years of a foreign corporation 
beginning after December 31, 1984, with respect to 
"• "^ ^ - • 
stock of such corporation which is held (directly or 
?'i u n ? 
indirectly, within the meaning of section 554 of the 
Internal Revenue Code of 1954) by a trust created 
. - 
before June 30,1953, if— 
(I) none of the beneficiaries of such trust was a 
citizen or resident of the United States at the time 
of its creation or within 5 years thereafter, and 
^iu > J :. 
(II) such trust does not, after July 1, 1983, ac-
quire (directly or indirectly) stock of any foreign 
personal holding company other than a company 
'f- 
described in clause (ii). 
i-j 
: < 
'i 
; 
(ii) 
DESCRIPTION OF COMPANY.—A company is 
de-
scribed in this clause i
f
— 
"-- ' 
(I) substantially all of the assets of such company 
.
> > • 
are stock or assets previously held by such trust, or 
(II) such company ceases to be a foreign personal 
c- 
holding company before January 1,1985. 
(2) SUBSECTION (C).— 
(A) The amendment made by paragraph (1) of subsection 
26 USC 951 note, 
(c) shall apply to taxable years of United States sharehold-
ers beginning after the date of the enactment of this Act. 
(B) The amendment made by paragraph (2) of subsection 
26 use 552 note, 
(c) shall apply to taxable years of foreign corporations 
beginning after March 15,1984. 
SEC. 133. AMENDMENTS RELATED TO SECTION 1248. 
(a) SECTION 1248 To APPLY TO CERTAIN INDIRECT TRANSFERS OF 
STOCK IN A FOREIGN CORPORATION.—Section 1248 (relating to gain 
26 use 1248. 
from certain sales or exchanges of stock in foreign corporations) is 
amended by adding at the end thereof the following new subsection: 
"(i) TREATMENT OF CERTAIN INDIRECT TRANSFERS.— 
"(1) IN GENERAL.—If any shareholder of a 10-percent corpo-
rate shareholder of a foreign corporation exchanges stock of the 
10-percent corporate shareholder for stock of the foreign corpo-
ration, for purposes of this section, the stock of the foreign 
corporation received in such exchange shall be treated as if it 
had been— 
"(A) issued to the 10-percent corporate shareholder, and 
"(B) then distributed by the 10-percent corporate share-
holder to such shareholder in redemption of his stock. 
''(2) 10-PERCENT CORPORATE SHAREHOLDER DEFINED.—For pur-
' ' 
poses of this subsection, the term '10-percent corporate share- 
- 
;u <
?
; 
holder' means any domestic corporation which, as of the day 
98 STAT. 668 
PUBLIC LAW 98-369—JULY 18, 1984 
before the exchange referred to in paragraph (1), satisfies the 
stock ownership requirements of subsection (a)(2) with respect 
to the foreign corporation." 
(b) EUMINATION OF DoUBLE TAXATION OF EARNINGS AND PROFITS 
OF CERTAIN FOREIGN CORPORATIONS.— 
26 use 959. 
(1) Section 959 (relating to exclusion from gross income of 
previously taxed earnings and profits) is amended by adding at 
the end thereof the following new subsection: 
"(e) COORDINATION WITH AMOUNTS PREVIOUSLY TAXED UNDER SEC-
TION 1248.—For purposes of this section and section 960(b), any 
amount included in the gross income of any person as a dividend by 
reason of subsection (a) or (f) of section 1248 shall be treated as an 
amount included in the gross income of such person under section 
951(a)(1)(A)." 
Ante, p. 667. 
(2) Section 1248 is amended by adding at the end thereof the 
following new subsection: 
"(j) CROSS REFERENCE.— 
"For provision excluding amounts previously taxed under this section 
Supra. 
from gross income when subsequently distributed, see section 959(e)." 
(c) CLARIFICATION OF SECTION 1248(cX2)(D).—Subparagraph (D) of 
26 use 1248. 
section 1248(c)(2) (relating to earnings and profits of subsidiaries of 
foreign corporations) is amended by striking out "section 958(a)(2)" 
and inserting in lieu thereof "section 958(a)". 
(d) EFFECTIVE DATES.— 
26 use 1248 
(1) SUBSECTION (a).—The amendment made by subsection (a) 
note. 
• shall apply to exchanges after the date of the enactment of this 
Act in taxable years ending after such date. 
26 use 959 note. 
(2) SUBSECTIONS (b) AND (c) .—Except as provided in para-
graph (3), the amendments made by subsections (b) and (c) shall 
apply with respect to transactions to which subsection (a) or (f) 
of section 1248 of the Internal Revenue Code of 1954 applies 
occurring after the date of the enactment of this Act. 
26 u s e 959 note. 
(3) ELECTION OF EARUER DATE FOR CERTAIN TRANSACTIONS.— 
(A) IN GENERAL.—If the appropriate election is made 
under subparagraph (B), the amendments made by subsec-
.«t.-r laa r)3U ?;: 
tion (b) shall apply with respect to transactions to which 
s.r? 
subsection (a) or (f) of section 1248 of such Code applies 
occurring after October 9,1975. 
(B) ELECTION.— 
(i) Subparagraph (A) shall apply with respect to 
transactions to which subsection (a) of section 1248 of 
^Hi&l •MU 8£ 
such Code applies if the foreign corporation described 
in such subsection (or its successor in interest) so elects. 
(ii) Subparagraph (A) shall apply with respect to 
transactions to which subsection (f) of section 1248 of 
such Code applies if the domestic corporation described 
in section 1248(f)(1) of such Code (or its successor) so 
elects. 
(iii) Any election under clause (i) or (ii) shall be made 
T .
> . 
not later than 180 days after the date of the enactment 
of this Act and shall be made in such manner as the 
Secretary of the Treasury or his delegate shall 
prescribe. 
SEC. 134. DEFINITION OF FOREIGN INVESTMENT COMPANY. 
26 use 1246. 
(a) GENERAL RULE.—Paragraph (2) of section 1246(b) (defining 
foreign investment company) is amended to read as follows: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 669 
"(2) engaged (or holding itself out as being engaged) primarily 
in the business of investing, reinvesting, or trading in— 
"(A) securities (as defined in section 2(a)(36) of the Invest-
ment Company Act of 1940, as amended), 
15 USC 80a-2. 
"(B) commodities, or 
"(C) any interest (including a futures or forward contract 
or option) in property described in subparagraph (A) or (B), 
? 
at a time when 50 percent or more of the total combined voting 
power of all classes of stock entitled to vote, or the total value of 
all classes of stock, was held directly (or indirectly through 
applying paragraphs (2) and (3) of section 958(a) and paragraph 
(4) of section 318(a)) by United States persons (as defined in 
section 7701(a)(30))." 
(b) EFFECTIVE DATES.— 
26 USC 1246 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
note. 
amendment made by subsection (a) shall apply to sales and 
exchanges (and distributions) on or after September 29, 1983, in 
.
;
> taxable years ending on or after such date. 
(2) STOCK HELD ON SEPTEMBER 29, 1983.—In the case of a sale 
or exchange (or distribution) not later than the date which is 1 
year after the date of the enactment of this Act, the amendment 
made by subsection (a) shall not apply with respect to stock held 
by the taxpayer continuously from September 29, 1983, to the 
date of such sale or exchange (or distribution). 
SEC. 135. APPLICATION OF COLLAPSIBLE CORPORATION RULES TO FOR-
EIGN CORPORATIONS. 
(a) IN GENERAL.—Subsection (f) of section 341 (relating to collapsi- 26 USC 341. 
ble corporations) is amended by adding at the end thereof the 
following new paragraph: 
'' 
''^y 
"(8) SPECIAL RULE FOR FOREIGN CORPORATIONS.—Except to the 
extent provided in regulations prescribed by the Secretary— 
"(A) any consent given by a foreign corporation under 
paragraph (1) shall not be effective, and 
"(B) paragraph (3) shall not apply if the transferee is a 
foreign corporation." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC 341 note, 
shall take effect on the date of the enactment of this Act. 
SEC. 136. STAPLED STOCK; STAPLED ENTITIES. 
(a) GENERAL RULE.—Part IX of subchapter B of chapter 1 is 
amended by inserting after section 269A the following new section: 
"SEC. 269B. STAPLED ENTITIES. 
26 USC 269B. 
"(a) GENERAL RULE.—Except as otherwise provided by regulations, 
for purposes of this title— 
"(1) if a domestic corporation and a foreign corporation are 
stapled entities, the foreign corporation shall be treated as a 
Bi- domestic corporation. 
"(2) in applying section 1563, stock in a second corporation 
which constitutes a stapled interest with respect to stock of a 
first corporation shall be treated as owned by such first corpora-
tion, and 
"(3) in applying subchapter M for purposes of determining 
whether any stapled entity is a regulated investment company 
or a real estate investment trust, all entities which are stapled 
entities with respect to each other shall be treated as 1 entity. 
98 STAT. 670 
PUBLIC LAW 98-369—JULY 18, 1984 
"(b) SECRETARY TO PRESCRIBE REGULATIONS.—The Secretary shall 
prescribe such regulations as may be necessary to prevent avoidance 
or evasion of Federal income tax through the use of stapled entities. 
£ jwd'iBU < 
Such regulations may include (but shall not be limited to) regula-
tions providing the extent to which 1 of such entities shall be treated 
as owning the other entity (to the extent of the stapled interest). 
"(c) DEFINITIONS.—For purposes of this section— 
"(1) ENTITY.—The term 'entity' means any corporation, part-
nership, trust, association, estate, or other form of carrying on a 
business or activity. 
"(2) STAPLED ENTITIES.—The term 'stapled entities' means any 
group of 2 or more entities if more than 50 percent in value of 
the beneficial ownership in each of such entities consists of 
dhSl ')a= 
stapled interests. 
"(3) STAPLED INTERESTS.—Two or more interests are stapled 
interests if, by reason of form of ownership, restrictions on 
transfer, or other terms or conditions, in connection with the 
transfer of 1 of such interests the other such interests are also 
transferred or required to be transferred. 
"(d) 
SPECIAL RULE FOR TREATIES.—Nothing in section 894 
or 
7852(d) or in any other provision of law shall be construed as 
permitting an exemption, by reason of any treaty obligation of the 
United States heretofore or hereafter entered into, from the provi-
sions of this section." 
(b) CLERICAL AMENDMENT.—The table of sections for part IX of 
subchapter B of chapter 1 is amended by inserting after the item 
relating to section 269A the following new item": 
'^" " 
"Sec. 269B. Stapled entities." 
"• , . 
26 u s e 269B 
(c) EFFECTIVE D A T E S . — 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall take effect on 
the date of the enactment of this Act. 
(2) INTERESTS STAPLED AS OF JUNE 30, 1983.—Except as other-
,i 
wise provided in this subsection, in the case of any interests 
which on June 30, 1983, were stapled interests (as defined in 
Ante, p. 669. fi ^ B] section 269B(c)(3) of the Internal Revenue Code of 1954 (as added 
by this section)), the amendments made by this section shall 
take effect on January 1, 1985 (January 1, 1987, in the case of 
stapled interests in a foreign corporation). 
(3) CERTAIN STAPLED ENTITIES WHICH INCLUDE REAL ESTATE 
INVESTMENT TRUST.—Paragraph (3) of section 269B(a) of such 
Code shall not apply in determining the application of the 
26 use 856. 
provisions of part II of subchapter M of chapter 1 of such Code 
to any real estate investment trust which is part of a group of 
stapled entities if— 
(A) all members of such group were stapled entities as of 
June 30,1983, and 
(B) as of June 30, 1983, such group included one or more 
real estate investment trusts. 
(4) CERTAIN STAPLED ENTITIES WHICH INCLUDE PUERTO RICAN 
CORPORATIONS.— 
(A) Paragraph (1) of section 269B(a) of such Code shall not 
apply to a domestic corporation and a qualified Puerto 
Rican corporation which, on June 30, 1983, were stapled 
entities. 
PUBLIC LAW 98-369-JULY 18, 1984 
98 STAT. 671 
(B) For purposes of subparagraph (A), the term "qualified 
, 
Puerto Rican corporation" means any corporation orga-
nized in Puerto Rico— 
(i) which is described in section 957(c) of such Code or 
': 
would be so described if any dividends it received from 
any other corporation described in such section 957(c) 
were treated as gross income of the type described in 
^., ^uiT'> 
such section 957(c), and 
(ii) does not, at any time during the taxable year, own 
(within the meaning of section 958 of such Code but 
before applying paragraph (2) of section 269B(a) of such 
Ante, p. 669. 
Code) any stock of any corporation which is not de-
scribed in such section 957(c). 
(5) TREATY RULE NOT TO APPLY TO STAPLED ENTITIES ENTITLED 
T
O TREATY BENEFITS AS OF JUNE 30, 1983.—In the case of any 
it q n r 
\ 
entity which was a stapled entity as of June 30, 1983, subsection 
(d) of section 269B of such Code shall not apply to any treaty 
; 
benefit to which such entity was entitled as of June 30, 1983. 
J 
(6) 
ELECTIONS TO 
TREAT 
STAPLED 
FOREIGN 
ENTITIES AS 
r; T ,q v*^ 
SUBSIDIARIES.— 
(A) IN GENERAL.—In the case of any foreign corporation 
^
^
^
H :^P QH • ;i£ 
^ 
and domestic corporation which as of June 30, 1983, were 
stapled entities, such domestic corporation may elect (in 
lieu of applying paragraph (1) of section 269B(a) of such 
Code) to be treated as owning all interests in the foreign 
corporation which constitute stapled interests with respect 
to stock of the domestic corporation. 
(B) ELECTION.—Any election under subparagraph (A) 
i 
shall be made not later than 180 days after the date of the 
;^i; ° - !,^, 
* 
enactment of this Act and shall be made in such manner as 
'' 
'
-
^ -^ 
B. 
the Secretary of the Treasury or his delegate shall 
prescribe. 
(C) ELECTION IRREVOCABLE.—Any election under subpara-
graph (A), once made, may be revoked only with the con-
sent of the Secretary of the Treasury or his delegate. 
r 
(7) OTHER STAPLED ENTITIES WHICH INCLUDE REAL ESTATE 
INVESTMENT TRUST.— 
(A) IN GENERAL.—Paragraph (3) of section 269B(a) of such 
Code shall not apply in determining the application of the 
:; . 
provisions of part II of subchapter M of chapter 1 of such 
26 USC 856. 
Code to any qualified real estate investment trust which is 
I. 
a part of a group of stapled entities— 
(i) which was created pursuant to a written board of 
|,., 
..,, 
directors resolution adopted on April 5,1984, and 
(ii) all members of such group were stapled entities 
as of June 16,1985. 
(B) QUALIFIED REAL ESTATE INVESTMENT TRUST.—The term 
"qualified real estate investment trust" means any real 
estate trust— 
— YC, 
(i) at least 75 percent of the gross income of which is 
derived from interest on obligations secured by mort-
t: 
gages on real property (as defined in section 856 of such 
Code), 
(ii) with respect to which the interest on the obliga-
tions described in clause (i) made or acquired by such 
trust (other than to persons who are independent con-
7 
tractors, as defined in section 856(d)(3) of such Code) is 
98 STAT. 672 
PUBLIC LAW 98-369—JULY 18, 1984 
at an arm's length rate or a rate not more than 1 
percentage point greater than the associated borrowing 
cost of the trust, and 
t-> " • 
(iii) with respect to which any real property held by 
the trust is not used in the trade or business of any 
other member of the group of stapled entities. 
SEC. 137. SERVICES RELATING TO INSURANCE POLICIES ARE TREATED AS 
PERFORMED IN COUNTRY OF RISK. 
26 use 954. 
(a) IN GENERAL.—Subsection (e) of section 954 (defining foreign 
base company services income) is amended by adding at the end 
thereof the following new sentence: "For purposes of paragraph (2), 
any services performed with respect to any policy of insurance or 
reinsurance with respect to which the primary insured is a related 
Ante, p. 644. 
person (within the meaning of section 864(d)(4)) shall be treated as 
having been performed in the country within which the insured 
hazards, risks, losses, or liabilities occur, and except as provided in 
regulations prescribed by the Secretary, rules similar to the rules of 
Post, p. 755. 
section 953(b) shall be applied in determining the income from such 
services." 
26 use 954 note. 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply to taxable years of controlled foreign corporations begin-
ning after the date of the enactment of this Act. 
PART V—TREATMENT OF ALIEN INDIVIDUALS 
SEC. 138. DEFINITION OF RESIDENT ALIEN AND NONRESIDENT ALIEN. 
Ante, p. 518. 
(a) GENERAL RuLE.—Section 7701 (relating to definitions) is 
26 use 7701. 
amended by redesignating subsections (b), (c), and (d) as subsections 
(c), (d), and (e), respectively, and by inserting after subsection (a) the 
following new subsection: 
"(b) 
DEFINITION OF RESIDENT ALIEN AND NONRESIDENT ALIEN.— 
"(1) IN GENERAL.—For purposes of this title (other than sub-
title B)— 
"(A) RESIDENT ALIEN.—An alien individual shall be 
treated as a resident of the United States with respect to 
any calendar year if (and only if) such individual meets the 
requirements of clause (i) or (ii): 
JJ3J, 
"(i) 
LAWFULLY 
ADMITTED 
FOR 
PERMANENT 
RESI-
DENCE.—Such individual is a lawful permanent resi-
dent of the United States at any time during such 
calendar year. 
"(ii) SUBSTANTIAL PRESENCE TEST.—Such individual 
meets the substantial presence test of paragraph (3). 
"(B) NONRESIDENT ALIEN.—An individual is a nonresident 
alien if such individual is neither a citizen of the United 
States nor a resident of the United States (within the 
meaning of subparagraph (A)). 
"(2) SPECIAL RULES FOR FIRST AND LAST YEAR OF RESIDENCY.— 
"(A) FIRST YEAR OF RESIDENCY.— 
n 
"(i) IN GENERAL.—If an alien individual is a resident 
of the United States under paragraph (1)(A) with re-
spect to any calendar year, but was not a resident of 
the United States at any time during the preceding 
calendar year, such alien individual shall be treated as 
a resident of the United States only for the portion of 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 673 
such calendar year which begins on the residency start-
ing date. 
"(ii) RESIDENCY STARTING DATE FOR INDIVIDUALS LAW-
FULLY ADMITTED FOR PERMANENT RESIDENCE.—In t h e 
f
' 
case of an individual who is a lawfully permanent 
resident of the United States at any time during the 
0' 
calendar year, but does not meet the substantial pres-
I 
ence test of paragraph (3), the residency starting date 
r 
shall be the first day in such calendar year on which he 
was present in the United States while a lawful perma-
nent resident of the United States. 
aoi-K 
"(iii) RESIDENCY STARTING DATE FOR INDIVIDUALS 
MEETING SUBSTANTIAL PRESENCE TEST.—In the case of an 
individual who meets the substantial presence test of 
paragraph (3) with respect to any calendar year, the 
rbjja i»j 
residency starting date shall be the first day during 
such calendar year on which the individual is present 
-isiitba 
in the United States. 
"(B) LAST YEAR OF RESIDENCY.—An alien individual shall 
i( 
not be treated as a resident of the United States during a 
b .J 
portion of any calendar year i
f
— 
"(i) such portion is after the last day in such calendar 
r: 
year on which the individual was present in the United 
States (or, in the case of an individual described in 
paragraph (l)(A)(i), the last day on which he was so 
ffo0e if 
described), 
"(ii) during such portion the individual has a closer 
\y.,-,i,^\s 
connection to a foreign country than to the United 
r 
States, and 
. 
"(iii) the individual is not a resident of the United 
States at any time during the next calendar year. 
.,j,,,. , , ^ 5 "(C) CERTAIN NOMINAL PRESENCE DISREGARDED.— 
"(i) IN GENERAL.—For purposes of subparagraphs 
(A)(iii) and (B), an individual shall not be treated as 
present in the United States during any period for 
which the individual establishes that he has a closer 
connection to a foreign country than to the United 
States. 
"(ii) NOT MORE THAN lO DAYS DISREGARDED.—Clause 
(i) shall not apply to more than 10 days on which the 
individual is present in the United States. 
'(3) SUBSTANTIAL PRESENCE TEST.— 
"(A) IN GENERAL.—Except as otherwise provided in this 
paragraph, an individual meets the substantial presence 
test of this paragraph with respect to any calendar year 
(hereinafter in this subsection referred to as the 'current 
year') i
f
— 
"(i) such individual was present in the United States 
on at least 31 days during the calendar year, and 
"(ii) the sum of the number of days on which such 
individual was present in the United States during the 
current year and the 2 preceding calendar years (when 
multiplied by the applicable multiplier determined 
under the following table) equals or exceeds 183 days* 
"In the case of days in: 
The applicable multiplier is: 
Current year 
1 
1st preceding year 
V
s 
2nd preceding year 
V
e 
IBiiv 
mXV- .Af. 
iF."iOrc. 
98 STAT. 674 
PUBLIC LAW 98-369—JULY 18, 1984 
. .4 
"(B) 
EXCEPTION WHERE INDIVIDUAL IS PRESENT IN THE 
UNITED STATES DURING LESS THAN ONE-HALF OF CURRENT 
Y
E
A
R AND C
L
O
S
E
R CONNECTION TO FOREIGN COUNTRY IS ESTAB-
LISHED.—An individual shall not be treated as meeting the 
J, 
substantial presence test of this paragraph with respect to 
any current year i
f
— 
"(i) such individual is present in the United States on 
'; 
fewer than 183 days during the current year, and 
"(ii) it is established that for the current year such 
., 
individual has a tax home (as defined in section 
911(d)(3) without regard to the second sentence thereof) 
in a foreign country and has a closer connection to such 
foreign country than to the United States. 
"(C) SUBPARAGRAPH (B) NOT TO APPLY IN CERTAIN CASES.— 
Subparagraph (B) shall not apply to any individual with 
respect to any current year if at any time during such 
year— 
"(i) such individual had an application for adjust-
' # 
ment of status pending, or 
u 
"(ii) such individual took other steps to apply for 
status as a lawful permanent resident of the United 
States. 
i 
"(D) EXCEPTION FOR EXEMPT INDIVIDUALS OR FOR CERTAIN 
MEDICAL CONDITIONS.—An individual shall not be treated as 
being present in the United States on any day if— 
"(i) such individual is an exempt individual for such 
;
^ 
day, or 
^ 
"(ii) such individual was unable to leave the United 
States on such day because of a medical condition 
which arose while such individual was present in the 
United States. 
"(4) EXEMPT INDIVIDUAL DEFINED.—For purposes of this sub-
section— 
"(A) IN GENERAL.—An individual is an exempt individual 
for any day if, for such day, such individual is— 
. 
"(i) a foreign government-related individual, 
^''' 
"(ii) a teacher or trainee, or 
"(iii) a student. 
^
^ 
"(B) 
FOREIGN GOVERNMENT-RELATED INDIVIDUAL.—The 
^ 
term 'foreign government-related individual' means any 
individual temporarily present in the United States by 
reason o
f
— 
"(i) diplomatic status, or a visa which the Secretary 
^ 
(after consultation with the Secretary of State) deter-
mines represents full-time diplomatic or consular 
status for purposes of this subsection, 
"(ii) being a full-time employee of an international 
organization, or 
"(iii) being a member of the immediate family of an 
individual described in clause (i) or (ii). 
y, 
"(C) TEACHER OR TRAINEE.—The term 'teacher or trainee' 
'. 
means any individual— 
'^ 
"(i) who is temporarily present in the United States 
' 
under subparagraph (J) of section 101(15) of the Immi-
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 675 
gration and Nationality Act (other than as a student), 
8 use iioi. 
and 
"(ii) who substantially complies with the require-
ments for being so present. 
"(D) STUDENT.—The term 'student' means any indi-
vidual— 
"(i) who is temporarily present in the United 
States— 
"(I) under subparagraph (F) of section 101(15) of 
the Immigration and Nationality Act, or 
8 USC llOl. 
^ ' ' 
"(II) as a student under subparagraph (J) of such 
section 101(15), and 
"(ii) who substantially complies with the require-
ments for being so present. 
"(E) 
SPECIAL 
RULES 
FOR 
TEACHERS, 
TRAINEES, 
AND 
STUDENTS.— 
"(i) LIMITATION ON TEACHERS AND TRAINEES.—An in-
dividual shall not be treated as an exempt individual 
by reason of clause (ii) of subparagraph (A) for the 
current year if, for any 2 calendar years during the 
preceeding 6 calendar years, such person was an 
exempt person under clause (ii) or (iii) of subparagraph 
(A). 
"(ii) 
LIMITATION ON STUDENTS.—For any 
calendar 
year after the 5th calendar year for which an individ-
ual was an exempt individual under clause (ii) or (iii) of 
subparagraph (A), such individual shall not be treated 
as an exempt individual by reason of clause (iii) of 
"^'^ • 
subparagraph (A), unless such individual establishes to 
the satisfaction of the Secretary that such individual 
does not intend to permanently reside in the United 
States and that such individual meets the requirements 
' 
of subparagraph (D)(ii). 
"(5) LAWFUL PERMANENT RESIDENT.—For purposes of this sub-
section, an individual is a lawful permanent resident of the 
United States at any time i
f
— 
"(A) such individual has the status of having been law-
fully accorded the privilege of residing permanently in the 
United States as an immigrant in accordance with the 
immigration laws, and 
"(B) such status has not been revoked (and has not been 
administratively or judicially determined to have been 
abandoned). 
"(6) PRESENCE IN THE UNITED STATES.—For purposes of this 
subsection— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B) or (C), an individual shall be treated as present in the 
.. 
j-
United States on any day if such individual is physically 
' 
: ' 
present in the United States at any time during such day. 
"(B) COMMUTERS FROM CANADA OR MEXICO.—If an individ-
ual regularly commutes to employment (or self-employ-
ment) in the United States from a place of residence in 
Canada or Mexico, such individual shall not be treated as 
present in the United States on any day during which he so 
commutes. 
"(C) TRANSIT BETWEEN 2 FOREIGN POINTS.—If an individ- 
. .
^ 
^^^^.._ 
ual, who is in transit between 2 points outside the United 
'^ ^ * * 
98 STAT. 676 
PUBLIC LAW 98-369—JULY 18, 1984 
States, is physically present in the United States for less 
than 24 hours, such individual shall not be treated as 
present in the United States on any day during such 
transit. 
"(7) ANNUAL STATEMENTS.—The Secretary may prescribe reg-
ulations under which an individual who (but for subparagraph 
(B) or (D) of paragraph (3)) would meet the substantial presence 
test of paragraph (3) is required to submit an annual statement 
I 
, , 
setting forth the basis on which such individual claims the 
'' 
benefits of subparagraph (B) or (D) of paragraph (3), as the case 
maybe. 
"(8) TAXABLE YEAR.— 
"(A) IN GENERAL.—For purposes of this title, an alien 
P^, 
individual who has not established a taxable year for any 
prior period shall be treated as having a taxable year which 
is the calendar year. 
"(B) FISCAL YEAR TAXPAYER.—If— 
"(i) an individual is treated under paragraph (1) as a 
resident of the United States for any calendar year, 
and 
, 
"(ii) after the application of subparagraph (A), such 
individual has a taxable year other than a calendar 
year, 
he shall be treated as a resident of the United States with 
respect to any portion of a taxable year which is within 
such calendar year. 
"(9) COORDINATION WITH SECTION 877.—If— 
"(A) an alien individual was treated as a resident of the 
United States during any period which includes at least 3 
consecutive calendar years (hereinafter referred to as the 
'initial residency period'), and 
"(B) such individual ceases to be treated as a resident of 
the United States but subsequently becomes a resident of 
the United States before the close of the 3rd calendar year 
beginning after the close of the initial residency period, 
such individual shall be taxable for the period after the close of 
the initial residency period and before the day on which he 
subsequently became a resident of the United States in the 
manner provided in section 877(b). The preceding sentence shall 
apply only if the tax imposed pursuant to section 877(b) exceeds 
the tax which, without regard to this paragraph, is imposed 
pursuant to section 871. 
"(10) REGULATIONS.—The Secretary shall prescribe such regu-
lations as may be necessary or appropriate to carry out the 
purposes of this subsection." 
26 use 7701 
(b) EFFECTIVE DATES.— 
note. 
(1) IN GENERAL.—The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1984. 
(2) TRANSITIONAL RULE FOR APPLYING SUBSTANTIAL PRESENCE 
TEST.— 
(A) If an alien individual was not a resident of the United 
States as of the close of calendar year 1984, the determina-
tion of whether such individual meets the substantial pres-
ence test of section 7701(b)(3) of the Internal Revenue Code 
Ante, p. 672. 
of 1954 (as added by this section) shall be made by only 
taking into account presence after 1984. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 677 
(B) If an alien individual was a resident of the United 
States as of the close of calendar year 1984, but was not a 
resident of the United States as of the close of calendar year 
1983, the determination of whether such individual meets 
such substantial presence test shall be made by only taking 
into account presence in the United States after 1983. 
(3) TRANSITIONAL RULE FOR APPLYING LAWFUL RESIDENCE 
TEST.—In the case of any individual who— 
"(A) was a lawful permanent resident of the United 
States (within the meaning of section 7701(b)(5) of the Inter-
nal Revenue Code of 1954, as added by this section) through- 
Ante, p. 672. 
out calendar year 1984, or 
^ 
(B) was present in the United States at any time during 
1984 while such individual was a lawful permanent resident 
of the United States (within the meaning of such section 
7701(b)(5)), 
for purposes of section 7701(b)(2)(A) of such Code (as so added), 
such individual shall be treated as a resident of the United 
States during 1984. 
SEC. 139. TREATMENT OF COMMUNITY INCOME. 
(a) GENERAL RULE.—Subsection (a) of section 879 (relating to tax 
26 use 879. 
treatment of certain community income in the case of a resident or 
citizen of the United States who is married to a nonresident alien 
individual) is amended by striking out so much of such subsection as 
precedes paragraph (1) thereof and inserting in lieu thereof the 
following: 
"(a) GENERAL RULE.—In the case of a married couple 1 or botli of 
whom are nonresident alien individuals and who have community 
income for the taxable year, such community income shall be 
treated as follows:". 
(b) CLERICAL AMENDMENTS.— 
(1) The heading of section 879 is amended to read as follows: 
"SEC. 879. TAX TREATMENT OF CERTAIN COMMUNITY INCOME IN THE 
CASE OF NONRESIDENT ALIEN INDIVIDUALS." 
(2) The table of sections for subpart A of part II of subchapter 
N of chapter 1 is amended by striking out the item relating to 
section 879 and inserting in lieu thereof the following: 
"Sec. 879. Tax treatment of certain community income in the case of non-
resident alien individuals." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 879 note. 
apply to taxable years beginning after December 31,1984. 
Subtitle K—Reporting, Penalty, and Other 
Provisions 
PART I—PROVISIONS RELATING TO TAX SHELTERS 
SEC. 141. REGISTRATION OF TAX SHELTERS. 
(a) IN GENERAL.—Subchapter B of chapter 61 (relating to miscella-
neous provisions involving information and returns) is amended by 
redesignating section 6111 as section 6112 and by inserting after 
26 USC 6112. 
section 6110 the following new section: 
Post, p. 681. 
98 STAT. 678 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 6111. 
"SEC. 6111. REGISTRATION OF TAX SHELTERS. 
"(a) REGISTRATION.— 
"(1) IN GENERAL.—Any tax shelter organizer shall register the 
tax shelter with the Secretary (in such form and in such 
manner as the Secretary may prescribe) not later than the day 
on which the first offering for sale of interests in such tax 
shelter occurs. 
"(2) INFORMATION INCLUDED IN REGISTRATION.—Any registra-
tion under paragraph (1) shall include— 
, 
"(A) information identifying and describing the tax 
" "
^ 
shelter, 
"(B) information describing the tax benefits of the tax 
: ' 
shelter represented (or to be represented) to investors, and 
"(C) such other information as the Secretary may 
prescribe. 
"(b) FURNISHING OF TAX SHELTER IDENTIFICATION NUMBER; INCLU-
SION ON RETURN.— 
"(1) SELLERS, ETC.—Any person who sells (or otherwise trans-
fers) an interest in a tax shelter shall (at such times and in such 
manner as the Secretary shall prescribe) furnish to each inves-
,, 
tor who purchases (or otherwise acquires) an interest in such 
tax shelter from such person the identification number assigned 
by the Secretary to such tax shelter. 
"(2) INCLUSION OF NUMBER ON RETURN.—Any person claiming 
any deduction, credit, or other tax benefit by reason of a tax 
shelter shall include (in such manner as the Secretary may 
prescribe) on the return of tax on which such deduction, credit, 
or other benefit is claimed the identification number assigned 
by the Secretary to such tax shelter. 
"(c) TAX SHELTER.—For purposes of this section— 
"(1) IN GENERAL.—The term 
'tax shelter' means 
any 
investment— 
"(A) with respect to which any person could reasonably 
•"' 
infer from the representations made, or to be made, in 
connection with the offering for sale of interests in the 
investment that the tax shelter ratio for any investor as of 
oj 
the close of any of the first 5 years ending after the date on 
which such investment is offered for sale may be greater 
than 2 to 1, and 
''""'•' 
"(B) which is— 
, . , 
"(i) required to be registered under a Federal or State 
law regulating securities, 
"(ii) sold pursuant to an exemption from registration 
requiring the filing of a notice with a Federal or State 
1 
agency regulating the offering or sale of securities, or 
"(iii) a substantial investment. 
"(2) TAX SHELTER RATIO DEFINED.—For purposes of this subsec-
tion, the term 'tax shelter ratio' means, with respect to any 
year, the ratio which— 
"(A) the aggregate amount of the deductions and 200 
percent of the credits which are represented to be potential-
ly allowable to any investor under subtitle A for all periods 
up to (and including) the close of such year, bears to 
? 
105 
"(B) the investment base as of the close of such year. 
"(3) INVESTMENT BASE.— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 679 
"(A) IN GENERAL.—Except as provided in this paragraph, 
the term 'investment base' means, with respect to any year, 
the amount of money and the adjusted basis of other prop-
erty (reduced by any habiUty to which such other property 
a r 
jg subject) contributed by the investor as of the close of such 
year. 
"(B) CERTAIN BORROWED AMOUNTS EXCLUDED.—For pur-
poses of subparagraph (A), there shall not be taken into 
account any amount borrowed from any person— 
"(i) who participated in the organization, sale, or 
management of the investment, or 
"(ii) who is a related person (as defined in section 
168(e)(4)) to any person described in clause (i), 
J5fK 
unless such amount is unconditionally required to be repaid 
' 
by the investor before the close of the year for which the 
determination is being made. 
,; '. 
"(C) CERTAIN OTHER AMOUNTS INCLUDED OR EXCLUDED.— 
"(i) AMOUNTS HELD IN CASH EQUIVALENTS, ETC.—No 
«
• 
,. ^
i 
amount shall be taken into account under subpara-
graph (A) which is to be held in cash equivalent or 
' * ' 
marketable securities. 
"(ii) 
AMOUNTS INCLUDED OR EXCLUDED BY SECRE-
TARY.—The Secretary may by regulation— 
"(I) exclude from the investment base any 
' 
"
^ =
» 
amount described in subparagraph (A), or 
"(II) include in the investment base any amount 
not described in subparagraph (A), 
if the Secretary determines that such exclusion or 
inclusion is necessary to carry out the purposes of this 
section. 
"(4) SUBSTANTIAL INVESTMENT.—An investment is a substan-
tial investment if— 
"(A) the aggregate amount which may be offered for sale 
exceeds $250,000, and 
"(B) there are expected to be 5 or more investors. 
"(d) OTHER DEFINITIONS.—For purposes of this section— 
"(1) TAX SHELTER ORGANIZER.—The term 'tax shelter orga-
nizer' means— 
"(A) the person principally responsible for organizing the 
, 
tax shelter, 
"(B) if the requirements of subsection (a) are not met by a 
person described in subpargraph (A) at the time prescribed 
. ^.. 
therefor, any other person who participated in the organiza-
tion of the tax shelter, and 
"(C) if the requirements of subsection (a) are not met by a 
person described in subparagraph (A) or (B) at the time 
in" 
prescribed therefor, any person participating in the sale or 
management of the investment at a time when the tax 
shelter was not registered under subsection (a). 
"(2) YEAR.—The term 'year' means— 
"(A) the taxable year of the tax shelter, or 
"(B) if the tax shelter has no taxable year, the calendar 
year. 
"(e) REGULATIONS.—The Secretary may prescribe regulations 
which provide— 
' 
:^ 
98 STAT. 680 
PUBLIC LAW 98-369—JULY 18, 1984 
"(1) rules for the aggregation of similar investments offered 
by the same person or persons for purposes of applying subsec-
tion (c)(4), 
"(2) that only 1 person shall be required to meet the require-
ments of subsection (a) in cases in which 2 or more persons 
would otherwise be required to meet such requirements, 
"(3) exemptions from the requirements of this section, and 
"(4) such rules as may be necessary or appropriate to carry 
out the purposes of this section in the case of foreign tax 
shelters." 
(b) PENALTIES.—Subchapter B of chapter 68 (relating to assessable 
penalties) is amended by adding at the end thereof the following 
new section: 
26 u s e 6707. 
"SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING TAX SHEL-
TERS. 
"(a) FAILURE TO REGISTER TAX SHELTER.— 
"(1) IMPOSITION OF PENALTY.—If a person who is required to 
Ante, p. 677. 
register a tax shelter under section 6111(a)— 
"(A) fails to register such tax shelter on or before the date 
described in section 6111(a)(1), or 
"(B) files false or incomplete information with the Secre-
tary with respect to such registration, 
such person shall pay a penalty with respect to such registra-
tion in the amount determined under paragraph (2). No penalty 
shall be imposed under the preceding sentence with respect to 
any failure which is due to reasonable cause. 
"(2) AMOUNT OF PENALTY.—The penalty imposed under para-
graph (1) with respect to any tax shelter shall be an amount 
equal to the greater o
f
— 
"(A) $500, or 
"(B) the lesser of (i) 1 percent of the aggregate amount 
invested in such tax shelter, or (ii) $10,000. 
The $10,000 limitation in subparagraph (B) shall not apply 
where there is an intentional disregard of the requirements of 
section 6111(a). 
"(b) FAILURE TO FURNISH TAX SHELTER IDENTIFICATION NUMBER.— 
"(1) SELLERS, ETC.—Any person who fails to furnish the identi-
fication number of a tax shelter which such person is required 
to furnish under section 6111(b)(1) shall pay a penalty of $100 
for each such failure. 
"(2) FAILURE TO INCLUDE NUMBER ON RETURN.—Any person 
who fails to include an identification number on a return on 
which such number is required to be included under section 
6111(b)(2) shall pay a penalty of $50 for each such failure, unless 
such failure is due to reasonable cause." 
(c) CONFORMING AMENDMENTS.— 
(1) The table of sections for subchapter B of chapter 61 is 
amended by striking out the item relating to section 6111 and 
inserting in lieu thereof the following new items: 
"Sec. 6111. Registration of tax shelters. 
"Sec. 6112. Cross references." 
(2) The table of sections for subchapter B of chapter 68 is 
amended by adding at the end thereof the following new item: 
"Sec. 6707. Failure to furnish information regarding tax shelters." 
26 u s e 6111 
(d) EFFECTIVE D A T E . — 
„ 
j 
1^ 
note. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 681 
Ante, p. 677. 
^to 
(1) IN GENERAL.—The amendments made by this section shall 
apply to any tax shelter (within the meaning of section 6111 of 
the Internal Revenue Code of 1954, as added by this section) any 
interest in which is first sold to any investor after August 31, 
1984. 
(2) SUBSTANTIAL INVESTMENT TEST.—For purposes of determin-
ing whether any investment is a tax shelter by reason of section 
6111(c)(l)(B)(iii) of such Code (as added by this section), only 
offers for sale after August 31, 1984, shall be taken into account. 
(3) FURNISHING OF SHELTER IDENTIFICATION NUMBER FOR INTER-
ESTS S
O
L
D BEFORE SEPTEMBER 1, 1984.—With respect to interests 
sold before September 1, 1984, any liability to act under para-
graph (1) of section 6111(b) of such Code (as added by this 
section) which would (but for this sentence) arise before such 
date shall be deemed to arise on December 31,1984. 
SEC. 142. ORGANIZERS AND SELLERS OF POTENTIALLY ABUSIVE TAX 
SHELTERS MUST KEEP LISTS OF INVESTORS. 
(a) IN GENERAL.—Subchapter B of chapter 61 (relating to miscella-
neous provisions involving information and returns) is amended by 
redesignating section 6112 as section 6113 and by inserting after 
Ante, p. 677. 
section 6111 the following new section: 
^^ USC 6113. 
"SEC. 6112. ORGANIZERS AND SELLERS OF POTENTIALLY ABUSIVE TAX 
26 USC 6112. 
SHELTERS MUST KEEP LISTS OF INVESTORS. 
"(a) IN GENERAL.—Any person who— 
"(1) organizes any potentially abusive tax shelter, or 
^ • r;- Or' i 
"(2) sells any interest in such a shelter, 
-
^ 
shall maintain (in such manner as the Secretary may by regulations 
prescribe) a list identifying each person who was sold an interest in 
such shelter and containing such other information as the Secretary 
may by regulations require. 
"(b) POTENTIALLY ABUSIVE TAX SHELTER.—For purposes of this 
section, the term 'potentially abusive tax shelter' means— 
"(1) any tax shelter (as defined in section 6111) with respect to 
which registration is required under section 6111, and 
"(2) any entity, investment plan or arrangement, or other 
plan or arrangement which is of a type which the Secretary 
determines by regulations as having a potential for tax avoid-
ance or evasion. 
"(c) SPECIAL RULES.— 
"(1) AVAILABILITY FOR INSPECTION; RETENTION OF INFORMATION 
ON LIST.—Any person who is required to maintain a list under 
subsection (a)— 
"(A) shall make such list available to the Secretary for 
inspection upon request by the Secretary, and 
; 
"(B) except as otherwise provided under regulations pre- 
,.,. 
i 
; 
scribed by the Secretary, shall retain any information 
which is required to be included on such list for 7 years. 
"(2) LISTS WHICH WOULD BE REQUIRED TO BE MAINTAINED BY 2 
O
R MORE PERSONS.—The Secretary shall prescribe regulations Regulations. 
which provide that, in cases in which 2 or more persons are 
required under subsection (a) to maintain the same list (or 
portion thereof), only 1 person shall be required to maintain 
such list (or portion)." 
Ante, p. 677. 
,a5>? D8i> 
98 STAT. 682 
PUBLIC LAW 98-369—JULY 18, 1984 
(b) PENALTY FOR FAILURE TO MAINTAIN LIST.—Subchapter B of 
chapter 68 (relating to assessable penalties) is amended by adding at 
"': 
the end thereof the following new section: 
26 use 6708. 
"SEC. 6708. FAILURE TO MAINTAIN LISTS OF INVESTORS IN POTENTIALLY 
Post, p. 912. 
ABUSIVE TAX SHELTERS. 
"(a) IN GENERAL.—Any person who fails to meet any requirement 
Ante, p. 681. 
imposed by section 6112 shall pay a penalty of $50 for each person 
with respect to whom there is such a failure, unless it is shown that 
such failure is due to reasonable cause and not due to willful 
neglect. The maximum penalty imposed under this subsection for 
any calendar year shall not exceed $50,000. 
"(b) PENALTY IN ADDITION TO OTHER PENALTIES.—The penalty 
imposed by this section shall be in addition to any other penalty 
provided by law." 
(c) CONFORMING AMENDMENTS.— 
(1) The table of sections for subchapter B of chapter 61 is 
amended by striking out the item relating to section 6112 and 
inserting in lieu thereof the following new items: 
"Sec. 6112. Organizers and sellers of potentially abusive tax shelters must 
keep lists of investors. 
"Sec. 6113. Cross reference." 
(2) The table of sections for subchapter B of chapter 68 is 
.
S
.
J 
«
: X
A
* amended by adding at the end thereof the following new item: 
"Sec. 6708. Failure to maintain lists of investors in potentially abusive tax 
shelters." 
26 use 6112 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply to any interest which is first sold to any investor after 
August 31, 1984. 
SEC. 143. INCREASE IN PENALTY FOR PROMOTING ABUSIVE TAX SHEL-
TERS; INJUNCTION AGAINST AIDING OR ABETTING UNDER-
STATEMENT OF TAX LIABILITY. 
(a) INCREASE IN PROMOTER PENALTY.—Subsection (a) of section 
26 use 6700. 
6700 (relating to promotion of abusive tax shelters) is amended bv 
striking out "10 percent" and inserting in lieu thereof "20 percent'. 
(b) INJUNCTION AGAINST AIDING OR ABETTING UNDERSTATEMENTS 
OF TAX LIABIUTY.— 
26 use 7408. 
(1) Subsections (a) and O
t
>
) of section 7408 (relating to action to 
enjoin promoters of abusive tax shelters, etc.) are each amended 
by inserting "or section 6701 (relating to penalties for aiding 
and abetting understatement of tax liability)" after "etc.)". 
(2) Subsection (a) of section 7408 is amended by inserting 
"or section 6701" before the period at the end of the second 
sentence. 
(3) Subsection (b) of section 7408 is amended by inserting 
before the period "or section 6701". 
26 use 6700 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
take effect on the day after the date of the enactment of this Act. 
SEC. 144. INCREASED RATE OF INTEREST ON SUBSTANTIAL UNDER-
_ 
. n 
PAYMENTS ATTRIBUTABLE TO CERTAIN TAX MOTIVATED 
TRANSACTIONS. 
26 use 6621. 
(a) GENERAL RULE.—Section 6621 (relating to determination of 
rate of interest) is amended by adding at the end thereof the 
following new subsection: 
•'iU 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 683 
"(d) INTEREST ON SUBSTANTIAL UNDERPAYMENTS ATTRIBUTABLE TO 
TAX MOTIVATED TRANSACTIONS.— 
"(1) IN GENERAL.—In the case of interest payable under sec-
tion 6601 with respect to any substantial underpayment attrib-
utable to tax motivated transactions, the annual rate of interest 
established under this section shall be 120 percent of the 
adjusted rate established under subsection (b). 
"(2) SUBSTANTIAL UNDERPAYMENT ATTRIBUTABLE TO TAX MOTI-
" 
VATED TRANSACTIONS.—For purposes of this subsection, the term 
'substantial underpayment attributable to tax motivated trans-
actions' means any underpayment of taxes imposed by subtitle 
A for any taxable year which is attributable to 1 or more tax 
V 
motivated transactions if the amount of the underpayment for 
such year so attributable exceeds $1,000. 
.^ 
"(3) TAX MOTIVATED TRANSACTIONS.— 
"(A) IN GENERAL.—For purposes of this subsection, the 
term 'tax motivated transaction' means— 
"(i) any valuation overstatement (within the meaning 
of section 6659(c)), 
Post, p. 693. 
'"'• "
^
•
- ' 
' 
"(ii) any loss disallowed by reason of section 465(a) 
•" ' 
and any credit disallowed under section 46(c)(8), 
Post, pp. 805,810. 
"(iii) any straddle (as defined in section 1092(c) with-
out regard to subsections (d) and (e) of section 1092), 
and 
"(iv) any use of an accounting method specified in 
-; ; ;.^\: ". 
regulations prescribed by the Secretary as a use which 
may result in a substantial distortion of income for any 
period. 
"(B) REGULATORY AUTHORITY.—The Secretary may by reg-
ulations specify other types of transactions which will be 
treated as tax motivated for purposes of this subsection and 
may by regulations provide that specified transactions 
being treated as tax motivated will no longer be so treated. 
X^w 
In prescribing regulations under the preceding sentence, 
the Secretary shall take into account— 
-^' 
• 
"(i) the ratio of tax benefits to cash invested, 
"(ii) the methods of promoting the use of this type of 
v_fis k- 
transaction, and 
"(iii) other relevant considerations. 
' 
"(C) EFFECTIVE DATE FOR REGULATIONS.—Any regulations 
prescribed under subparagraph (A)(iv) or (B) shall apply 
SffI <
v 
only to interest accruing after a date (specified in such 
regulations) which is after the date on which such regula-
'•'• 
tions are prescribed. 
"(4) JURISDICTION OF TAX COURT.—In the case of any proceed-
ing in the Tax Court for a redetermination of a deficiency, the 
Tax Court shall also have jurisdiction to determine the portion 
(if any) of such deficiency which is a substantial underpayment 
attributable to tax motivated transactions." 
O
b
) CROSS REFERENCE.—Section 6214 (relating to determinations by 
26 use 6214. 
Tax Court) is amended by adding at the end thereof the following 
new subsection: 
"(e) CROSS REFERENCE.— 
'I M" 
98 STAT. 684 
PUBLIC LAW 98-369—JULY 18, 1984 
(Yf 
"For provision giving Tax Court jurisdiction to determine whether any 
portion of deficiency is a substantial underpayment attributable to tax 
Ante, p. 682. 
motivated transactions, see section 6621(d)(4)." 
notY^^ ^^^^ 
^^^ EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to interest accruing after December 31, 1984. 
PART II—INFORMATION REPORTING PROVISIONS 
SEC. 145. RETURNS RELATING TO MORTGAGE INTEREST RECEIVED IN 
TRADE OR BUSINESS FROM INDIVIDUALS. 
(a) IN GENERAL.—Subpart B of part III of subchapter A of chapter 
61 (relating to information concerning transactions with other per-
sons) is amended by adding at the end thereof the following new 
section: 
26 use 6050H. 
"SEC. 6050H. RETURNS RELATING TO MORTGAGE INTEREST RECEIVED IN 
TRADE OR BUSINESS FROM INDIVIDUALS. 
"(a) MORTGAGE INTEREST OF $600 OR MORE.—Any person— 
"(1) who is engaged in a trade or business, and 
"(2) who, in the course of such trade or business, receives from 
01 . 
" 
any individual interest aggregating $600 or more for any calen-
dar year on any mortgage, 
shall make the return described in subsection (b) with respect to 
each individual from whom such interest was received at such time 
as the Secretary may by regulations prescribe. 
"(b) FORM AND MANNER OF RETURNS.—A return is described in 
this subsection if such return— 
"(1) is in such form as the Secretary may prescribe, 
"(2) contains— 
"(A) the name and address of the individual from whom 
the interest described in subsection (a)(2) was received, 
"(B) the amount of such interest received for the calendar 
year, and 
"(C) such other information as the Secretary may 
prescribe. 
"(c) APPLICATION TO GOVERNMENTAL UNITS.—For purposes of sub-
section (a)— 
"(1) TREATED AS PERSONS.—The term 'person' includes any 
governmental unit (and any agency or instrumentality thereof). 
"(2) SPECIAL RULES.—In the case of a governmental unit or 
any agency or instrumentality thereof^ 
"(A) subsection (a) shall be applied without regard to the 
trade or business requirement contained therein, and 
"(B) any return required under subsection (a) shall be 
made by the officer or employee appropriately designated 
for the purpose of making such return. 
"(d) STATEMENTS TO BE FURNISHED TO INDIVIDUALS WITH RESPECT 
TO WHOM INFORMATION IS FURNISHED.—Every person making a 
return under subsection (a) shall furnish to each individual whose 
M
S
;
> ) I ' 
name is set forth in such return a written statement showing— 
"(1) the name and address of the person making such return, 
and 
"(2) the aggregate amount of interest described in subsection 
(aX2) received by the person making such return from the 
individual to whom the statement is furnished. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 685 
The written statement required under the preceding sentence shall 
be furnished on or before January 31 of the year following the 
calendar year for which the return under subsection (a) was made. 
"(e) MORTGAGE DEFINED.—For purposes of this section, except as 
provided in regulations prescribed by the Secretary, the term 'mort-
gage' means any obligation secured by real property. 
"(f) RETURNS WHICH WOULD BE REQUIRED TO BE MADE BY 2 OR 
MORE PERSONS.—Except to the extent provided in regulations pre-
scribed by the Secretary, in the case of interest received by any 
person on behalf of another person, only the person first receiving 
such interest shall be required to make the return under subsection 
(a)." 
(b) PENALTIES— 
(1) Subparagraph (B) of section 6652(a)(1) (relating to failure to 
26 USC 6652. 
^ file certain information returns, etc.) is amended— 
(A) by striking out "or" at the end of clause (iii), 
(B) by inserting "or" at the end of clause (iv), and 
aoilc 
(C) by inserting after clause (iv) the following new clause: 
'(v) section 6050H(a) (relating to mortgage interest 
received in trade or business from individuals),". 
(2) Clause (iii) of section 6652(a)(3)(A) (relating to penalty in 
97 Stat. 381. 
case of intentional disregard) is amended by inserting "or sec-
tion 6050H" after "section 6041A(b)". 
(3) Paragraph (1) of section 6678(a) (relating to failure to 26 use 6678. 
furnish certain statements) is amended— 
(A) by striking out "or 6052(b)" and inserting in lieu 
thereof "6052(b), or 6050H(d)", and 
(B) by striking out "or 6052(a)" and inserting in lieu 
thereof "6052(a), or 6050H(a)". 
(c) CONFORMING AMENDMENT.—The table of sections for subpart B 
of part III of subchapter A of chapter 61 is amended by adding at the 
end thereof the following new item: 
"Sec. 6050K. Returns relating to mortgage interest received in trade or 
business from individuals." 
(d) EFFECTIVE DATES.— 
26 u s e 6050H 
(1) IN GENERAL.—Except as provided in paragraph (2), the note. 
amendments made by this section shall apply to amounts re-
ceived after December 31,1984. 
(2) SPECIAL RULE FOR OBUGATIONS IN EXISTENCE ON DECEMBER 
31, 1984.—In the case of any obligation in existence on Decem-
ber 31, 1984, no penalty shall be imposed under section 6652 of 
the Internal Revenue Code of 1954 by reason of the amendments 
made by this section on any failure to supply a taxpayer 
identification number with respect to amounts received before 
January 1,1986. 
.-^ ,, ^v.vl^ 
SEC. 146. RETURNS RELATING TO CASH RECEIVED IN TRADE OR BUSI-
NESS. 
(a) IN GENERAL.—Subpart B of part III of subchapter A of chapter 
61 (relating to information concerning transactions with other per-
sons) is amended by adding at the end thereof the following new 
section: 
;, 
^, ^ 
"SEC. 60501. RETURNS RELATING TO CASH RECEIVED IN TRADE OR BUSI- 
26 USC 60501. 
NESS. 
"(a) CASH RECEIPTS OF MORE THAN $10,000.—Any person— 
"(1) who is engaged in a trade or business, and 
.SV3(J •>«-" 
98 STAT. 686 
PUBLIC LAW 98-369—JULY 18, 1984 
"(2) who, in the course of such trade or business, receives 
more than $10,000 in cash in 1 transaction (or 2 or more related 
transactions), 
shall make the return described in subsection (b) with respect to 
such transaction (or related transactions) at such time as the Secre-
tary may by regulations prescribe. 
"(b) FORM AND MANNER OF RETURNS.—A return is described in 
this subsection if such return— 
"(1) is in such form as the Secretary may prescribe, 
"(2) contains— 
"(A) the name, address, and TIN of the person from 
whom the cash was received, 
"(B) the amount of cash received, 
, - . <
; . 
i 
"(C!) the date and nature of the transaction, and 
"(D) such other information as the Secretary may 
prescribe. 
"(c) EXCEPTIONS.— 
"(1) CASH RECEIVED BY FINANCIAL INSTITUTIONS.—Subsection 
(a) shall not apply to— 
"(A) cash received in a transaction reported under title 
,j^, 
, 
31, United States Code, if the Secretary determines that 
reporting under this section would duplicate the reporting 
to the Treasury under title 31, United States Code, or 
"(B) cash received by any financial institution (as defined 
in subparagraphs (A), (B), (C), (D), (E), (F), (G), (J), (K), (R), 
and (S) of section 5312(a)(2) of title 31, United States Code). 
"(2) TRANSACTIONS OCCURRING OUTSIDE THE UNITED STATES.— 
Except to the extent provided in regulations prescribed by the 
Secretary, subsection (a) shall not apply to any transaction if 
the entire transaction occurs outside the United States. 
"(d) CASH INCLUDES FOREIGN CURRENCY.—For purposes of this 
section, the term 'cash' includes foreign currency. 
"(e) STATEMENTS TO BE FURNISHED TO PERSONS WITH RESPECT TO 
WHOM INFORMATION IS FURNISHED.—Every person making a return 
under subsection (a) shall furnish to each person whose name is set 
forth in such return a written statement showing— 
"(1) the name and address of the person making such return, 
and 
"(2) the aggregate amount of cash described in subsection (a) 
received by the person making such return. 
The written statement required under the preceding sentence shall 
be furnished to the person on or before January 31 of the year 
following the calendar year for which the return under subsection 
(a) was made." 
(b) PENALTIES— 
Ante, p. 685. 
(1) Subparagraph (B) of section 6652(a)(1) (relating to failure t:o 
file certain information returns, etc.) is amended— 
(A) by striking out "or" at the end of clause (iv), 
(B) by inserting "or" at the end of clause (v), and 
(C) by inserting after clause (v) the following new clause: 
"(vi) section 60501(a) (relating to cash received in 
trade or business),". 
Ante, p. 685. 
(2) Clause (iii) of section 6652(a)(3)(A) (relating to penalty in 
;• 
.-i case of intentional disregard) is amended by striking out "or 
section 6050H" and inserting in lieu thereof ", 6050H or 60501". 
Ante, p. 685. 
(3) Paragraph (1) of section 6678(a) (relating to failure to 
furnish certain statements) is amended— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 687 
(A) by striking out "or 6050H(d)" and inserting in lieu 
thereof "6050H(d), or 60501(e)", and 
(B) by striking out "or 6050H(a)" and inserting in lieu 
thereof "6050H(a), or 60501(a)". 
(c) CONFORMING AMENDMENT.—The table of sections for subpart B 
of part III of subchapter A of chapter 61 is amended by adding at the 
end thereof the following new item: 
"Sec. 60501. Returns relating to cash received in trade or business." 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 6050i 
apply to amounts received after December 31,1984. 
note. 
SEC. 147. PROVISIONS RELATING TO INDIVIDUAL RETIREMENT AC-
COUNTS. 
(a) CLARIFICATION THAT REGULATIONS MAY REQUIRE REPORTS TO 
IDENTIFY YEARS TO WHICH CONTRIBUTIONS RELATE.—Subsection (i) of 
section 408 (relating to individual retirement accounts) is amended 
26 USC 408. 
by inserting "(and the years to which they relate)" 
after 
"contributions". 
(b) INCREASE IN PENALTY FOR FAILURE TO FILE REPORTS.—Subsec-
tion (a) of section 6693 (relating to failure to provide reports on 26 use 6693. 
individual retirement accounts and annuities) is amended by strik-
ing out "$10" and inserting in lieu thereof "$50". 
(c) CONTRIBUTIONS REQUIRED TO BE MADE ON OR BEFORE UNEX-
TENDED RETURN FIUNG DATE.—Subparagraph (A) of section 219(f)(3) 
26 use 219. 
(relating to time when contributions deemed made) is amended by 
striking out "including" and inserting in lieu thereof "not 
including". 
(d) EFFECTIVE DATES.— 
26 use 219 not(3. 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to contributions 
made after December 31,1984. 
(2) SUBSECTION (b).—The amendment made by subsection (b) 
shall apply to failures occurring after the date of the enactment 
of this Act. 
SEC. 148. RETURNS RELATING TO FORECLOSURES AND ABANDONMENTS 
OF SECURITY. 
(a) IN GENERAL.—Subpart B of part III of subchapter A of chapter 
61 (relating to information concerning transactions with other per-
sons) is amended by adding at the end thereof the following new 
section: 
"SEC. 6050J. RETURNS RELATING TO FORECLOSURES AND ABANDON- 
26 USC 6050J. 
MENTS OF SECURITY. 
"(a) IN GENERAL.—Any person who, in connection with a trade or 
business conducted by such person, lends money secured by property 
and who— 
"(1) in full or partial satisfaction of any indebtedness, ac- 
-gj^ ^ .^t 
quires an interest in any property which is security for such 
indebtedness, or 
"(2) has reason to know that the property in which such 
person has a security interest has been abandoned, 
shall make a return described in subsection (c) with respect to each 
of such acquisitions or abandonments, at such time as the Secretary 
may by regulations prescribe. 
ni. 
"(b) EXCEPTION.—Subsection (a) shall not apply to any loan to an 
individual secured by an interest in tangible personal property 
98 STAT. 688 
PUBLIC LAW 98-369—JULY 18, 1984 
which is not held for investment and which is not used in a trade or 
business. 
"(c) FORM AND MANNER OF RETURN.—The return required under 
subsection (a) with respect to any acquisition or abandonment of 
property— 
, 
"(1) shall be in such form as the Secretary may prescribe, 
^ 
"(2) shall contain— 
"(A) the name and address of each person who is a 
W
"
, ;; "i* V 
i 
borrower with respect to the indebtedness which is secured, 
.,: 
"(B) a general description of the nature of such property 
and such indebtedness, 
"(C) in the case of a return required under subsection 
(a)(1)-
"(i) the amount of such indebtedness at the time of 
such acquisition, and 
"(ii) the amount of indebtedness satisfied in such 
acquisition, 
"(D) in the case of a return required under subsection 
(a)(2), the amount of such indebtedness at the time of such 
abandonment, and 
"(E) such other information as the Secretary may 
prescribe. 
"(d) APPLICATIONS TO GOVERNMENTAL UNITS.—For purposes of this 
• 
section— 
"(1) TREATED AS PERSONS.—The term 'person' includes any 
governmental unit (and any agency or instrumentality thereof). 
"(2) SPECIAL RULES.—In the case of a governmental unit or 
'' 
any agency or instrumentality thereof— 
"(A) subsection (a) shall be applied without regard to the 
trade or business requirement contained therein, and 
"(B) any return under this section shall be made by the 
officer or employee appropriately designated for the pur-
pose of making such return. 
"(e) STATEMENTS TO BE FURNISHED TO PERSONS WITH RESPECT TO 
WHOM INFORMATION IS REQUIRED TO BE FURNISHED.—Every person 
required to make a return under subsection (a) shall furnish to each 
person whose name is required to be set forth in such return a 
written statement showing the name and address of the person 
required to make such return. The written statement required 
under the preceding sentence shall be furnished to the person on or 
before January 31 of the year following the calendar year for which 
the return under subsection (a) was made. 
"(0 TREATMENT OF OTHER DISPOSITIONS.—To the extent provided 
by regulations prescribed by the Secretary, any transfer of the 
property which secures the indebtedness to a person other than the 
lender shall be treated as an abandonment of such property." 
(b) PENALTIES.— 
Ante, p. 686. 
(1) Subparagraph (B) of section 6652(a)(1) (relating to failure 
to file certain information returns, etc.) is amended— 
(A) by striking out "or" at the end of clause (v), 
(B) by adding "or" at the end of clause (vi), and 
(C) by inserting after clause (vi) the following new clause: 
"(vii) section 6050J(a) (relating to foreclosures and 
abandonments of security),". 
Ante, p. 686. 
(2) Clause (iii) of section 6652(a)(3)(A) (relating to penalty 
in case of intentional disregard) is amended by striking out 
"or 60501" and inserting in lieu thereof ", 60501, or 6050J". 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 689 
(3) Paragraph (1) of section 6678(a) (relating to failure 
Ante, p. 686. 
to furnish certain statements) is amended— 
(A) by striking out "or 60501(e)" and inserting in 
lieu thereof "60501(e), or 6050J(e)", and 
(B) by striking out "or 60501(a)" and inserting in 
lieu thereof "60501(a), or 6050J(a)". 
(c) CONFORMING AMENDMENT.—The table of sections for subpart B 
of part III of subchapter A of chapter 61 is amended by adding at the 
end thereof the following new item: 
"' •' 
"Sec. 
6050J. Returns relating to foreclosures and abandonments of 
security." 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 6050J 
apply with respect to acquisitions of property and abandonments of note. 
property after December 31,1984. 
SEC. 149. RETURNS RELATING TO EXCHANGES OF PARTNERSHIP INTER-
ESTS WHERE UNREALIZED RECEIVABLES, ETC., INVOLVED. 
(a) IN GENERAL.—Subpart B of part III of subchapter A of chapter 
61 (relating to information and returns) is amended by adding at the 
end thereof the following new section. 
"SEC. 6050K. RETURNS RELATING TO EXCHANGES OF CERTAIN PARTNER- 
26 USC 6050K. 
SHIP INTERESTS. 
"(a) IN GENERAL.—Except as provided in regulations prescribed by 
the Secretary, if there is an exchange described in section 751(a) of 
any interest in a partnership during any calendar year, such part-
nership shall make a return for such calendar year stating— 
"(1) the name and address of the transferee and transferor in 
'
^ -
"
^ 
such exchange, and 
"(2) such other information as the Secretary may by regula-
tions prescribe. 
Such return shall be made at such time and in such manner as the 
Secretary may require by regulations. 
"(b) STATEMENT TO BE FURNISHED TO TRANSFEROR AND TRANS-
FEREE.—Every partnership making a return under subsection (a) 
shall furnish to each person whose name is set forth in such return 
a written statement showing— 
"(1) the name and address of the partnership making the 
return, and 
"(2) the information shown on the return with respect to such 
person. 
The statement required under the preceding sentence shall be fur-
nished to the person on or before January 31 following the calendar 
year for which the return under subsection (a) was made. 
"(c) REQUIREMENT THAT TRANSFEROR NOTIFY PARTNERSHIP.— 
"(1) IN GENERAL.—In the case of any exchange described in 
subsection (a), the transferor of the partnership interest shall 
promptly notify the partnership of such exchange. 
"(2) 
PARTNERSHIP NOT REQUIRED TO MAKE RETURN UNTIL 
NOTICE.—A partnership shall not be required to make a return 
under this subsection with respect to any exchange until the 
partnership is notified of such exchange." 
O
t
)
) PENALTIES.— 
(1) Subparagraph (B) of section 6652(a)(1) (relating to failure to Ante, p. 688. 
file certain information returns, etc.) is amended by striking out 
"or" at the end of clause (vi), by adding "or" at the end of clause 
(vii), and by inserting after clause (vii) the following new clause: 
31-194 0 - 86 - 24 : QL. 3 Part 1 
98 STAT. 690 
PUBLIC LAW 98-369—JULY 18, 1984 
Ante, p. 689. 
97 Stat. 381. 
Ante, p. 689. 
26 u s e 6050K 
note. 
26 u s e 6045. 
26 u s e 6045 
note. 
26 u s e 6050E. 
26 u s e 1 et seq. 
'fy 
"(viii) section 6050K (relating to exchanges of certain 
partnership interests),". 
(2) Paragraph (1) of section 6678(a) (relating to failure to 
furnish certain statements) is amended— 
(A) by striking out "or 6050J(e)" and inserting in lieu 
thereof "6050J(e), or 6050K(b)", and 
(B) by striking out "or 6050J(a)" and inserting in lieu 
thereof "6050J(a), or 6050K(a)". 
(3) Section 6678 (relating to failure to furnish certain state-
ments) is amended by adding at the end thereof the following 
new subsection: 
"(c) FAILURE TO NOTIFY PARTNERSHIP OF EXCHANGE OF PARTNER-
SHIP INTEREST.—In the case of any person who fails to furnish the 
notice required by section 6050K(c)(l) on the date prescribed there-
for, unless it is shown that such failure is due to reasonable cause 
and not to willful neglect, such person shall pay a penalty of $50 for 
each such failure." 
(c) CONFORMING AMENDMENT.—The table of sections for subpart B 
of part III of subchapter A of chapter 61 is amended by adding at the 
end thereof the following new item: 
"Sec. 6050K. Returns relating to exchanges of certain partnership inter-
ests." 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to exchanges after December 31,1984. 
SEC. 150. STATEMENTS REQUIRED IN CASE OF CERTAIN SUBSTITUTE PAY-
MENTS. 
(a) IN GENERAL.—Section 6045 (relating to returns of brokers) is 
amended by adding at the end thereof the following new subsection: 
"(d) STATEMENTS REQUIRED IN CASE OF CERTAIN SUBSTITUTE PAY-
MENTS.—If any broker— 
"(1) transfers securities of a customer for use in a short sale or 
similar transaction, and 
"(2) receives (on behalf of the customer) a payment in lieu of— 
"(A) a dividend, 
"(B) tax-exempt interest, or 
"(C) such other items as the Secretary may prescribe by 
regulations, 
during the period such short sale or similar transaction is open, 
the broker shall furnish such customer a written statement (at such 
time and in the manner as the Secretary shall prescribe by regula-
tions) identifying such payment as being in lieu of the dividend, tax-
exempt interest, or such other item. The Secretary may prescribe 
regulations which require the broker to make a return which in-
cludes the information contained in such written statement." 
Ot)) EFFECTIVE DATE.—The amendment made by this section shall 
apply to payments received after December 31,1984. 
SEC. 151. REPORTING OF STATE AND LOCAL REFUNDS NOT REQUIRED 
WITH RESPECT TO NON-ITEMIZERS. 
(a) IN GENERAL.—Subsection Ot)) of section 6050E (relating to State 
and local income tax refunds) is amended by adding at the end 
thereof the following: "No statement shall be required under this 
subsection with respect to any individual if it is determined (in the 
manner provided by regulations) that such individual did not claim 
itemized deductions under chapter 1 for the taxable year giving rise 
to the refund, credit, or offset." 
:J76^ i 
u i^ei i
*
^ 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 691 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to payments of refunds, and credits and offsets made, 
after December 31,1982. 
SEC. 152. FURNISHING OF TIN UNDER BACKUP WITHHOLDING. 
(a) IN GENERAL.—Section 3406(e)(1) (relating to backup withhold-
ing) is amended by inserting at the end thereof the following new 
sentence: "The Secretary may require that a TIN required to be 
furnished under subsection (a)(1)(A) be provided under penalties of 
perjury only with respect to interest, dividends, patronage divi-
dends, and amounts subject to broker reporting." 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
take effect on the date of the enactment of this Act. 
26 use 6050E 
note. 
97 Stat. 371. 
26 use 3406. 
26 use 3406 
note. 
PART III—OTHER COMPLIANCE PROVISIONS 
SEC. 155. SUBSTANTIATION OF CHARITABLE CONTRIBUTIONS; MODIFICA-
TIONS OF INCORRECT VALUATION PENALTY. 
(a) SUBSTANTIATION OF CONTRIBUTIONS OF PROPERTY.— 
(1) IN GENERAL.—Not later than December 31,1984, the Secre-
tary shall prescribe regulations under section 170(a)(1) of the 
Internal Revenue Code of 1954, which require any individual, 
closely held corporation, or personal service corporation claim-
ing a deduction under section 170 of such Code for a contribu-
tion described in paragraph (2)— 
(A) to obtain a qualified appraisal for the property con-
tributed, 
ix^ 
(B) to attach an appraisal summary to the return on 
which such deduction is first claimed for such contribution, 
and 
(C) to include on such return such additional information 
(including the cost basis and acquisition date of the contrib-
uted property) as the Secretary may prescribe in such 
regulations. 
Such regulations shall require the taxpayer to retain any quali-
fied appraisal. 
(2) CONTRIBUTIONS TO WHICH PARAGRAPH (i) APPLIES.—For 
purposes of paragraph (1), a contribution is described in this 
paragraph— 
(A) if such contribution is of property (other than publicly 
traded securities), and 
(B) if the claimed value of such property (plus the claimed 
value of all similar items of property donated to 1 or more 
donees) exceeds $5,000. 
In the case of any property which is nonpublicly traded stock, 
subparagraph (B) shall be applied by substituting "$10,000" for 
"$5,000". 
(3) APPRAISAL SUMMARY.—For purposes of this subsection, the 
appraisal summary shall be in such form and include such 
information as the Secretary prescribes by regulations. Such 
summary shall be signed by the qualified appraiser preparing 
the qualified appraisal and shall contain the TIN of such ap-
praiser. Such summary shall be acknowledged by the donee of 
the property appraised in such manner as the Secretary pre-
scribes in such regulations. 
26 use 170 note. 
Regulations. 
Corporations. 
98 STAT. 692 
PUBLIC LAW 98-369—JULY 18, 1984 
(4) QUALIFIED APPRAISAL,—The term "qualified appraisal" 
means an appraisal prepared by a qualified appraiser which 
includes— 
(A) a description of the property appraised, 
(B) the fair market value of such property on the date of 
contribution and the specific basis for the valuation, 
(C) a statement that such appraisal was prepared for 
income tax purposes, 
(D) the qualifications of the qualified appraiser, 
(E) the signature and TIN of such appaiser, and 
(F) such additional information as the Secretary pre-
scribes in such regulations. 
(5) QUAUFIED APPRAISER.— 
(A) IN GENERAL.—For purposes of this subsection, the 
term "qualified appraiser" means an appraiser qualified to 
make appraisals of the type of property donated, who is 
•
^ 
^ >i - •• 
n o t — 
(i) the taxpayer, 
(ii) a party to the transaction in which the taxpayer 
acquired the property, 
(iii) the donee, 
(iv) any person employed by any of the foregoing 
persons or related to any of the foregoing persons 
under section 267(b) of the Internal Revenue Code of 
1954, or 
(v) to the extent provided in such regulations, any 
person whose relationship to the taxpayer would cause 
a reasonable person to question the independence of 
such appraiser. 
(B) APPRAISAL FEES.—For purposes of this subsection, an 
appraisal shall not be treated £is a qualified appraisal if all 
or part of the fee paid for such appraisal is based on a 
percentage of the appraised value of the property. The 
preceding sentence shall not apply to fees based on a sliding 
scale that are paid to a generally recognized association 
regulating appraisers. 
(6) OTHER DEFINITIONS.—For purposes of this subsection— 
(A) CLOSELY HELD CORPORATION.—The term "closely held 
corporation" means any corporation (other than an S corpo-
ration) with respect to which the stock ownership require-
ment of paragraph (2) of section 542(a) of such Code is met. 
(B) PERSONAL SERVICE CORPORATION.—The term "personal 
service corporation" means any corporation (other than an 
S corporation) which is a service organization (within the 
meaning of section 414(m)(3) of such Code). 
(C) PuBUCLY TRADED SECURITIES.—The term "publicly 
traded securities" means securities for which (as of the date 
of the contribution) market quotations are readily available 
on an established securities market. 
(D) NoNPUBLiCLY TRADED STOCK.—The term "nonpublicly 
traded stock" means any stock of a corporation which is not 
a publicly traded security. 
(E) THE SECRETARY.—The term "Secretary" means the 
Secretary of the Treasury or his delegate. 
(b) INFORMATION REPORT REQUIRED ON DISPOSITION BY DONEE.— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 693 
(1) IN GENERAL.—Subpart B of part III of subchapter A of 
chapter 61 (relating to information and returns) is amended by 
adding at the end thereof the following new section: 
"SEC. 6050L. RETURNS RELATING TO CERTAIN DISPOSITIONS OF DONATED 
26 USC 6050L. 
PROPERTY. 
"(a) GENERAL RULE.—If the donee of any charitable deduction 
property sells, exchanges, or otherwise disposes of such property 
A; 
within 2 years after its receipt, the donee shall make a return (in 
accordance with forms and regulations prescribed by the Secretary) 
showing— 
"(1) the name, address, and TIN of the donor, 
"(2) a description of the property, 
"(3) the date of the contribution, 
"(4) the amount received on the disposition, and 
"(5) the date of such disposition. 
"(b) CHARITABLE DEDUCTION PROPERTY.—For purposes of this sec-
tion, the term 'charitable deduction property' means any property 
(other than publicly traded securities) contributed in a contribution 
for which a deduction was claimed under section 170 if the claimed 
value of such property (plus the claimed value of all similar items of 
property donated by the donor to 1 or more donees) exceeds $5,000, 
"(c) STATEMENT TO BE FURNISHED TO DONORS.—Every person 
making a return under subsection (a) shall furnish a copy of such 
return to the donor at such time and in such manner as the 
Secretary may by regulations prescribe. 
"(d) DEFINITION OF PUBLICLY TRADED SECURITIES.—The term 'pub-
licly traded securities' means securities for which (as of the date of 
the contribution) market quotations are readily available on an 
established securities market." 
(2) PENALTIES.— 
(A) Subparagraph (B) of section 6652(a)(1) (relating to 26 use 6652. 
failure 
to file 
certain 
information 
returns, etc.) is 
amended— 
(i) by striking out "or" at the end of clause (vii), 
(ii) by adding "or" at the end of clause (viii), and 
(iii) by inserting after clause (viii) the following new 
-qe 
clause: 
1 
"(ix) section 6050L (relating to returns relating to Supra. 
certain dispositions of donated property),". 
.«!«.-•' 
(B) Paragraph (1) of section 6678(a) (relating to failure to 
26 USC 6678. 
furnish certain statements) is amended— 
(i) by striking out "or 6050K(b)" and inserting in lieu 
iy 
,., 
thereof "6050K(b), or 6050L(c)", and 
(ii) by striking out "or 6050K(a)" and inserting in lieu 
thereof "6050K(a), or 6050L(a)". 
(3) CLERICAL AMENDMENT.—The table of sections of subpart B 
^w 
'' 
of part III of subchapter A of chapter 61 is amended by adding 
at the end thereof the following new item: 
"Sec. 6050L. Returns relating to certain dispositions of donated property." 
»' '. 
'j' 'i 
(c) MODIFICATIONS OF INCORRECT VALUATION PENALTY.— 
(1) MODIFICATIONS OF SECTION 6659.— 
(A) EUMINATION OF REQUIREMENT THAT PROPERTY BE AC-
QUIRED WITHIN THE LAST 5 YEARS.—Subsection (c) of section 
6659 is amended to read as follows: 
26 USC 6659. 
98 STAT. 694 
PUBLIC LAW 98-369—JULY 18, 1984 
"(c) VALUATION OVERSTATEMENT DEFINED.—For purposes of this 
section, there is a valuation overstatement if the value of any 
property, or the adjusted basis of any property, claimed on any 
return is 150 percent or more of the amount determined to be the 
correct amount of such valuation or adjusted basis (as the case may 
be)." 
(B) SPECIAL RULES FOR OVERSTATEMENT OF CHARITABLE 
26 use 6659. 
DEDUCTION.—Section 6659 is amended by redesignating sub-
section (f) as subsection (g) and by inserting after subsection 
(e) the following new subsection: 
"(f) 
SPECIAL 
RULES 
FOR 
OVERSTATEMENT 
OF 
CHARITABLE 
DEDUCTION.— 
"(1) AMOUNT OF APPLICABLE PERCENTAGE.—In the case of any 
underpayment attributable to a valuation overstatement with 
respect to charitable deduction property, the applicable percent-
age for purposes of subsection (a) shall be 30 percent. 
"(2) LIMITATION ON AUTHORITY TO WAIVE.—In the case of any 
underpayment attributable to a valuation overstatement with 
respect to charitable deduction property, the Secretary may not 
waive any portion of the addition to tax provided by this section 
unless the Secretary determines that— 
"(A) the claimed value of the property was based on a 
qualified appraisal made by a qualified appraiser, and 
"(B) in addition to obtaining such appraisal, the taxpayer 
made a good faith investigation of the value of the contrib-
uted property. 
"(3) DEFINITIONS.—For purposes of this subsection— 
"(A) CHARITABLE DEDUCTION PROPERTY.—The term 'chari-
table deduction property' means any property contributed 
by the taxpayer in a contribution for which a deduction was 
claimed under section 170. For purposes of paragraph (2), 
'•'- --' 
such term shall not include any securities for which (as of 
the date of the contribution) market quotations are readily 
available on an established securities market. 
"(B) QUAUFIED 
APPRAISER.—The term 'qualified ap-
praiser' means any appraiser meeting the requirements of 
the regulations prescribed under section 170(a)(1). 
"(C) QUALIFIED APPRAISAL.—The term 'qualified ap-
praisal' means any appraisal meeting the requirements of 
the regulations prescribed under section 170(a)(1)." 
(2) EXTENSION OF INCORRECT VALUATION PENALTY TO ESTATE 
AND GIFT TAX.— 
(A) Subchapter A of chapter 68 (relating to additions to 
the tax and additional amounts) is amended by inserting 
after section 6659 the following new section: 
26 use 6660. 
"SEC. 6660. ADDITION TO TAX IN THE CASE OF VALUATION UNDERSTATE-
MENT FOR PURPOSES OF THE ESTATE OR GIFT TAXES. 
"(a) ADDITION TO THE TAX.—In the case of any underpayment of a 
26 use 2001. 
tax imposed by subtitle B (relating to estate and gift taxes) which is 
attributable to a valuation understatement, there shall be added to 
the tax an amount equal to the applicable percentage of the under-
payment so attributed. 
"(b) APPLICABLE PERCENTAGE.—For purposes of subsection (a), the 
*:3) [:c'j m 
applicable percentage shall be determined under the following table: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 695 
"If the valuation claimed is the following percent of 
The applicable 
the correct valuation— 
percentage is: 
., j v
,
r
< 
50 percent or more but not more than 66% percent 
10 
" 
' 
40 percent or more but less than 50 percent 
20 
Less than 40 percent 
30. 
"(c) VALUATION UNDERSTATEMENT DEFINED.—For purposes of this 
section, there is a valuation understatement if the value of any 
property claimed on any return is 66% percent or less of the amount 
determined to be the correct amount of such valuation. 
"(d) UNDERPAYMENT MUST BE AT LEAST $1,000.—This section shall 
not apply if the underpajnnent is less than $1,000 for any taxable 
period (or, in the case of the tax imposed by chapter 11, with respect 
26 use 2001 et 
to the estate of the decedent). 
^^Q-
"(e) AUTHORITY TO WAIVE.—The Secretary may waive all or any 
part of the addition to the tax provided by this section on a showing 
by the taxpayer that there was a reasonable basis for the valuation 
claimed on the return and that such claim was made in good faith." 
(B) CLERICAL AMENDMENT.—The table of sections for sub-
chapter A of chapter 68 is amended by inserting after the 
item relating to section 6659 the following new item: 
"Sec. 6660. Addition to tax in the case of valuation understatement for pur-
poses of estate or gift taxes." 
(d) EFFECTIVE DATES.— 
(1) SUBSECTIONS (a) AND (b).—The amendments made by 26USC6050L 
subsections (a) and O
t
>
) shall apply to contributions made after 
note. 
December 31, 1984, in taxable years ending after such date. 
(2) SUBSECTION (C) .—The amendments made by subsection (c) 
26 use 6659 
shall apply to returns filed after December 31,1984. 
note. 
SEC. 156. AUTHORIZATION TO DISREGARD APPRAISALS OF PERSONS 
PENALIZED FOR AIDING IN UNDERSTATEMENTS OF TAX 
LIABILITY. 
vr . ^ f a 
(a) IN GENERAL.—Section 330 of title 31, United States Code, is 
amended by adding at the end thereof the following new subsection: 
"(c) After notice and opportunity for a hearing to any appraiser 
with respect to whom a penalty has been assessed under section 
6701(a) of the Internal Revenue Code of 1954, the Secretary may— 26 USC 6701. 
"(1) provide that appraisals by such appraiser shall not have 
any probative effect in any administrative proceeding before the 
Department of the Treasury or the Internal Revenue Service, 
and 
"(2) bar such appraiser from presenting evidence or testimony 
in any such proceeding." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a; 31 USC 330 note, 
shall apply to penalties assessed after the date of the enactment of 
this Act. 
SEC. 157. LIMITATION ON MAILING OF DEPOSITS OF TAXES. 
(a) IN GENERAL.—Subsection (e) of section 7502 (relating to mail- 
26 use 7502. 
ing of deposits) is amended by adding at the end thereof the follow-
ing new paragraph: 
"(3) NO APPLICATION TO CERTAIN DEPOSITS.—Paragraph (1) 
^
< 
' 
shall not apply with respect to any deposit of $20,000 or more by 
any person who is required to deposit the tax more than once a 
month." 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
26 USC 7502 
apply to deposits required to be made after July 31, 1984. 
note. 
98 STAT. 696 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 6601. 
Ante, p. 694. 
26 use 6601 
note. 
26 use 7205. 
26 use 7205 
note. 
SEC. 158. INTEREST ON CERTAIN ADDITIONS TO TAX. 
(a) IN GENERAL,—Paragraph (2) of section 6601(e) (relating to 
interest on penalties and additions to tax) is amended to read as 
follows: 
"(2) INTEREST ON PENALTIES, ADDITIONAL AMOUNTS, OR ADDI-
TIONS TO THE TAX.— 
"(A) IN GENERAL.—Interest shall be imposed under sub-
section (a) in respect of any assessable penalty, additional 
amount, or addition to the tax (other than an addition to 
tax imposed under section 6651(a)(1), 6659, 6660, or 6661) 
only if such assessable penalty, additional amount, or addi-
tion to the tax is not paid within 10 days from the date of 
notice and demand therefor, and in such case interest shall 
be imposed only for the period from the date of the notice 
and demand to the date of payment. 
"(B) INTEREST ON CERTAIN ADDITIONS TO TAX.—Interest 
shall be imposed under this section with respect to any 
addition to tax imposed by section 6651(a)(1), 6659, 6660, or 
6661 for the period which— 
"(i) begins on the date on which the return of the tax 
:~ . 
with respect to which such addition to tax is imposed is 
required to be filed (including any extensions), and 
"(ii) ends on the date of payment of such addition to 
tax." 
Ot)) EFFECTIVE DATE.—The amendment made by this section shall 
apply to interest accrued after the date of the enactment of this Act, 
except with respect to additions to tax for which notice and demand 
is made before such date. 
SEC. 159. PENALTY FOR FRAUDULENT WITHHOLDING EXEMPTION CER-
TIFICATE OR FAILURE TO SUPPLY INFORMATION. 
(a) IN GENERAL.—Section 7205 (relating to penalty for fraudulent 
withholding exemption certificate) is amended— 
(1) by striking out "in lieu o f each place it appears and 
inserting in lieu thereof "in addition to", and 
(2) by striking out "(except the penalty provided by section 
6682)" each place it appears. 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
apply to actions and failures to act occurring after the date of the 
enactment of this Act. 
SEC. 160. APPLICATION OF PENALTY FOR FRIVOLOUS PROCEEDINGS TO 
PENDING TAX COURT PROCEEDINGS. 
Paragraph (2) of section 292(e) of the Tax Equity and Fiscal 
26 use 7430 
Responsibility Act of 1982 is amended to read as follows: 
note. 
"(2) PENALTY.—The amendments made by subsections (b) and 
(d)(2) shall apply to any action or proceeding in the United 
States Tax Court which— 
"(A) is commenced after December 31,1982, or 
"(B) is pending in the United States Tax Court on the day 
which is 120 days after the date of the enactment of the Tax 
Ante, p. 494. 
Reform Act of 1984." 
SEC. 161. FAILURE TO REQUEST CHANGE OF METHOD OF ACCOUNTING. 
26 use 446. 
(a) IN GENERAL.—Section 446 (relating to general rule for methods 
of accounting) is amended by adding at the end thereof the following 
new subsection: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 697 
"(f) FAILURE TO REQUEST CHANGE OF METHOD OF ACCOUNTING.—If 
the taxpayer does not file with the Secretary a request to change the 
method of accounting, the absence of the consent of the Secretary to 
a change in the method of accounting shall not be taken into 
account— 
"(1) to prevent the imposition of any penalty, or the addition 
of any amount to tax, under this title, or 
"(2) to diminish the amount of such penalty or addition to 
'= tax." 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
26 use 446 note. 
apply to taxable years beginning after the date of the enactment of 
this Act. 
-
SEC. 162. CLARIFICATION OF CHANGE OF VENUE FOR CERTAIN TAX OF-
FENSES. 
, . .
-
M -.^-j-.j,; 
Section 3237(b) of title 18 of the United States Code is amended to 
read as follows: 
"(b) Notwithstanding subsection (a), where an offense is described 
in section 7203 of the Internal Revenue Code of 1954, or where venue 
26 use 7203. 
for prosecution of an offense described in section 7201 or 7206 (1), (2), 
or (5) of such Code (whether or not the offense is also described in 26 use 7201, 
another provision of law) is based solely on a mailing to the Internal 
7206. 
Revenue Service, and prosecution is begun in a judicial district other 
than the judicial district in which the defendant resides, he may 
* 
upon motion filed in the district in which the prosecution is begun, 
elect to be tried in the district in which he was residing at the time 
the alleged offense was committed: Provided, That the motion is 
filed within twenty days after arraignment of the defendant upon 
indictment or information." 
SEC. 163. EXTENSION OF STATUTE OF LIMITATIONS WITH RESPECT TO 
CERTAIN EXPENDITURES RELATING TO CONTRIBUTIONS IN 
AID OF CONSTRUCTION. 
(a) IN GENERAL.—Section 118 (relating to contributions to the 26 use 118. 
capital of a corporation) is amended by redesignating subsection (c) 
as subsection (d) and by inserting after subsection (b) the following 
new subsection: 
"(c) STATUTE OF LIMITATIONS.—If the taxpayer for any taxable 
year treats an amount as a contribution to the capital of the 
taxpayer described in subsection (b), then— 
"(1) the statutory period for the assessment of any deficiency 
attributable to any part of such amount shall not expire before 
the expiration of 3 years from the date the Secretary is notified 
by the taxpayer (in such manner as the Secretary may pre-
scribe) o
f
— 
"(A) the amount of the expenditure referred to in sub-
paragraph (A) of subsection (b)(2), 
"(B) the taxpayer's intention not to make the expendi-
tures referred to in such subparagraph, or 
"(C) a failure to make such expenditure within the period 
described in subparagraph (B) of subsection (b)(2); and 
K 
"(2) such deficiency may be assessed before the expiration of 
such 3-year period notwithstanding the provisions of any other 
law or rule of law which would otherwise prevent such assess-
ment." 
(b) TECHNICAL AMENDMENTS.— 
98 STAT. 698 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 6501. 
(1) Section 6501 is amended by striking out subsections (1) and 
(o) and by redesignating subsection (m), (n), and (p) as subsec-
tions (k), (1), and (m), respectively, and by inserting after subsec-
tion (m) (as so redesignated) the following new subsection: 
"(n) CROSS REFERENCES.— 
"(1) For period of limitations for assessment and collection in the case 
of a joint income return filed after separate returns have been filed, see 
section 6013(b) (3) and (4). 
"(2) For extension of period in the case of partnership items (as defined 
in section 6231(a)(3)), see section 6229. 
"(3) For extension of period in the case of certain contributions in aid 
Ante, p. 697. 
of construction, see section 118(c)." 
26 use 6511. 
(2) Subsection (f) of section 6511 is amended by striking out 
"section 6501(nXl)" and inserting in lieu thereof "section 
6501(1X1)". 
26 use 118 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to expenditures with respect to which the second taxable year 
described in section 118(bX2)(B) of the Internal Revenue Code of 1954 
ends after December 31,1984. 
Subtitle L—Miscellaneous Provisions 
SEC. 171. INCLUSION OF TAX BENEFIT ITEMS IN INCOME. 
26 use 111. 
(a) IN GENERAL.—Section 111 (relating to recovery of bad debts, 
prior taxes, and delinquency amounts) is amended to read as follows: 
"SEC. 111. RECOVERY OF TAX BENEFIT ITEMS. 
"(a) DEDUCTIONS.—Gross income does not include income attribut-
able to the recovery during the taxable year of any amount deducted 
in any prior taxable year to the extent such amount did not reduce 
income subject to tax. 
"(b) CREDITS.— 
"(1) IN GENERAL.—If—• 
"(A) a credit was allowable with respect to any amount 
• 
for any prior tsixable year, and 
"(B) during the taxable year there is a downward price 
adjustment or similar adjustment, 
the tax imposed by this chapter for the taxable year shall be 
increased by the amount of the credit attributable to the 
adjustment. 
(2) EXCEPTION WHERE CREDIT DID NOT REDUCE TAX.—Para-
graph (1) shall not apply to the extent that the credit allowable 
for the recovered amount did not reduce the amount of tax 
imposed by this chapter. 
"(3) EXCEPTION FOR INVESTMENT TAX CREDIT AND FOREIGN TAX 
CREDIT.—This subsection shall not apply with respect to the 
credit determined under section 46 and the foreign tax credit. 
"(c) TREATMENT OF CARRYOVERS.—For purposes of this section, an 
increase in a carryover which has not expired before the beginning 
of the taxable year in which the recovery or adjustment takes place 
shall be treated as reducing income subject to tax or reducing tax 
imposed by this chapter, as the case may be. 
"(d) SPECIAL RULES FOR ACCUMULATED EARNINGS TAX AND FOR 
PERSONAL HOLDING COMPANY TAX.—In applying subsection (a) for 
the purpose of determining the accumulated earnings tax under 
section 531 or the tax under section 541 (relating to personal holding 
companies)— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 699 
"(1) any excluded amount under subsection (a) allowed for the 
purposes of this subtitle (other than section 531 or section 541) 
shall be allowed whether or not such amount resulted in a 
reduction of the tax under section 531 or the tax under section 
541 for the prior taxable year; and 
"(2) where any excluded amount under subsection (a) was not 
allowable as a deduction for the prior taxable year for purposes 
of this subtitle other than of section 531 or section 541 but was 
allowable for the same taxable year under section 531 or section 
541, then such excluded amount shall be allowable if it did not 
result in a reduction of the tax under section 531 or the tax 
under section 541." 
(b) CLERICAL AMENDMENT.—The table of sections for part III of 
subchapter B of chapter 1 (relating to items specifically excluded 
from gross income) is amended by striking out the item relating to 
section 111 and inserting in lieu thereof: 
"Sec. 111. Recovery of tax benefit items." 
'•- (c) EFFECTIVE DATE.—The amendments made by this section shall 
26 use ill note, 
apply to amounts recovered after December 31, 1983, in taxable 
years ending after such date. 
SEC. 172. LOANS WITH BELOW-MARKET INTEREST RATES. 
(a) GENERAL RULE.—Subchapter C of chapter 80 (relating to provi-
sions affecting more than 1 subtitle) is amended by adding at the 
end thereof the following new section: 
"SEC. 7872. TREATMENT OF LOANS WITH BELOW-MARKET INTEREST 
26 USC 7872. 
RATES. 
"(a) TREATMENT OF GIFT LOANS AND DEMAND LOANS.— 
"(1) IN GENERAL.—For purposes of this title, in the case of any 
below-market loan to which this section applies and which is a 
gift loan or a demand loan, the foregone interest shall be 
treated as— 
"(A) transferred from the lender to the borrower, and 
"(B) retransferred by the borrower co the lender as 
interest. 
"(2) TIME WHEN TRANSFERS MADE.—Except as otherwise pro-
vided in regulations prescribed by the Secretary, any foregone 
interest attributable to periods during any calendar year shall 
I
- 
be treated as transferred (and retransferred) under paragraph 
(1) on the last day of such calendar year. 
, "(b) TREATMENT OF OTHER BELOW-MARKET LOANS.— 
"(1) IN GENERAL.—For purposes of this title, in the case of any 
below-market loan to which this section applies and to which 
subsection (a)(1) does not apply, the lender shall be treated as 
having transferred on the date the loan was made (or, if later, 
on the first day on which this section applies to such loan), and 
the borrower shall be treated as having received on such date, 
cash in an amount equal to the excess of— 
"(A) the amount loaned, over 
"(B) the present value of all payments which are required 
to be made under the terms of the loan. 
"(2) 
OBLIGATION TREATED AS HAVING ORIGINAL ISSUE DIS-
COUNT.—For purposes of this title— 
"(A) IN GENERAL.—Any below-market loan to which para-
graph (1) applies shall be treated £is having original issue 
98 STAT. 700 
PUBLIC LAW 98-369—JULY 18, 1984 
discount in an amount equal to the excess described in 
paragraph (1). 
"(B) AMOUNT IN ADDITION TO OTHER ORIGINAL ISSUE DIS-
COUNT.—Any original issue discount which a loan is treated 
as having by reason of subparagraph (A) shall be in addi-
tion to any other original issue discount on such loan 
(determined without regard to subparagraph (A)). 
"(c) BELOW-MARKET LOANS TO WHICH SECTION APPLIES.— 
"(1) IN GENERAL.—Except as otherwise provided in this sub-
section, this section shall apply to— 
"(A) GIFTS.—Any below-market loan which is a gift loan. 
"(B) COMPENSATION-RELATED LOANS.—Any below-market 
loan directly or indirectly between— 
"(i) an employer and an employee, or 
"(ii) an independent contractor and a person for 
whom such independent contractor provides services. 
"(C) 
CORPORATION-SHAREHOLDER 
LOANS.—Any 
below-
market loan directly or indirectly between a corporation 
and any shareholder of such corporation. 
"(D) TAX AVOIDANCE LOANS.—Any below-market loan 1 of 
the principal purposes of the interest arrangements of 
which is the avoidance of any Federal tax. 
"(E) OTHER BELOW-MARKET LOANS.—To the extent pro-
vided in regulations, any below-market loan which is not 
described in subparagraph (A), (B), or (C) if the interest 
arrangements of such loan have a significant effect on any 
Federal tax liability of the lender or the borrower. 
"(2) $10,000 DE MINIMIS EXCEPTION FOR GIFT LOANS BETWEEN 
INDIVIDUALS.— 
"(A) IN GENERAL.—In the case of any gift loan directly 
between individuals, this section shall not apply to any day 
on which the aggregate outstanding amount of loans be-
tween such individuals does not exceed $10,000. 
"(B) DE MINIMIS EXCEPTION NOT TO APPLY TO LOANS ATTRIB-
UTABLE TO ACQUISITION OF INCOME-PRODUCING ASSETS.—Sub-
paragraph (A) shall not apply to any gift loan directly 
attributable to the purchase or carrying of income-produc-
ing assets. 
"(C) CROSS REFERENCE.— 
"For limitation on amount treated as interest where loans do not exceed 
$100,000, see subsection (d)(1). 
"(3) $10,000 DE MINIMIS EXCEPTION FOR COMPENSATION-RELATED 
AND CORPORATE-SHAREHOLDER LOANS.— 
"(A) IN GENERAL.—In the case of any loan described in 
subparagraph (B) or (C) of paragraph (1), this section shall 
not apply to any day on which the aggregate outstanding 
amount of loans between the borrower and lender does not 
exceed $10,000. 
"(B) 
EXCEPTION NOT TO APPLY WHERE i OF PRINCIPAL 
PURPOSES IS T
A
X AVOIDANCE.—Subparagraph (A) shall not 
apply to any loan the interest arrangements of which have 
as 1 of their principal purposes the avoidance of any Fed-
eral tax. 
"(d) SPECIAL RULES FOR GIFT LOANS.— 
"(1) 
LIMITATION ON INTEREST ACCRUAL FOR PURPOSES OF 
INCOME TAXES WHERE LOANS DO NOT EXCEED $100,000.— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 701 
"(A) IN GENERAL.—For purposes of subtitle A, in the case 
of a gift loan directly between individuals, the amount 
treated as retransferred by the borrower to the lender as of 
the close of any year shall not exceed the borrower's net 
investment income for such year. 
"(B) 
LIMITATION NOT TO APPLY WHERE i OF PRINCIPAL 
PURPOSES IS TAX AVOIDANCE.—Subparagraph (A) shall not 
apply to any loan the interest arrangements of which have 
as 1 of their principal purposes the avoidance of any Fed-
-^' 
eral tax. 
"(C) SPECIAL RULE WHERE MORE THAN i GIFT LOAN OUT-
STANDING.—For purposes of subparagraph (A), in any case 
^' 
in which a borrower has outstanding more than 1 gift loan, 
the net investment income of such borrower shall be allo-
cated among such loans in proportion to the respective 
amounts which would be treated as retransferred by the 
borrower without regard to this paragraph. 
, , 
,j-
^ii^ 
"(D) LIMITATION NOT TO APPLY WHERE AGGREGATE AMOUNT 
t- * •! • 
OF LOANS EXCEED $100,000.—This paragraph shall not apply 
to any loan made by a lender to a borrower for any day on 
' 
which the aggregate outstanding amount of loans between 
the borrower and lender exceeds $100,000. 
"(E) NET INVESTMENT INCOME.—For purposes of this 
" 
paragraph— 
"(i) IN GENERAL.—The term 'net investment income' 
,,^l 
has the meaning given such term by section 163(d)(3). 
-' 
" 
"(ii) DE MINIMIS RULE.—If the net investment income 
of any borrower for any year does not exceed $1,000, 
the net investment income of such borrower for such 
year shall be treated as zero. 
"(iii) ADDITIONAL AMOUNTS TREATED AS INTEREST.—In 
determining the net investment income of a person for 
any year, any amount which would be included in the 
gross income of such person for such year by reason of 
J' 
section 1272 if such section applied to all deferred Ante, p. 533. 
payment obligations shall be treated as interest re-
IJ/TJ >
^ 
ceived by such person for such year. 
"(iv) DEFERRED PAYMENT OBLIGATIONS.—The term 
- 
'deferred payment obligation' includes any market dis-
u ^,i 
count bond, short-term obligation. United States sav- 
. q, 
A 
ings bond, annuity, or similar obligation. 
sc, 
"(2) SPECIAL RULE FOR GIFT TAX.—In the case of any gift loan 
which is a term loan, subsection (b)(1) (and not subsection (a)) 
shall apply for purposes of chapter 12. 
26 USC 2501 et 
"(e) DEFINITIONS OF BELOW-MARKET LOAN AND FOREGONE INTER- 
S^9-
EST.—For purposes of this section— 
"(1) BELOW-MARKET LOAN.—The term 'below-market loan' 
means any loan if— 
"(A) in the case of a demand loan, interest is payable on 
the loan at a rate less than the applicable Federal rate, or 
"(B) in the case of a term loan, the amount loaned 
exceeds the present value of all payments due under the 
loan. 
"(2) FOREGONE INTEREST.—The term 'foregone interest' means, 
with respect to any period during which the loan is outstanding, 
the excess of— 
98 STAT. 702 
PUBLIC LAW 98-369—JULY 18, 1984 
"(A) the amount of interest which would have been pay-
able on the loan for the period if interest accrued on the 
loan at the applicable Federal rate and were payable annu-
ally on the day referred to in subsection (a)(2), over 
"(B) any interest payable on the loan properly allocable 
to such period. 
"(f) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
"(1) PRESENT VALUE.—The present value of any payment shall 
be determined in the manner provided by regulations pre-
scribed by the Secretary— 
"(A) as of the date of the loan, and 
"(B) by using a discount rate equal to the applicable 
Federal rate. 
"(2) APPLICABLE FEDERAL RATE.— 
"(A) TERM LOANS.—In the case of any term loan, the 
applicable Federal rate shall be the applicable Federal rate 
Ante, p. 538. 
in effect under section 1274(d) (as of the day on which the 
loan was made), compounded semiannually. 
"(B) DEMAND LOANS.—In the case of a demand loan, the 
applicable Federal rate shall be the Federal short-term rate 
in effect under section 1274(d) for the period for which the 
amount of foregone interest is being determined. 
"(3) GIFT LOAN.—The term 'gift loan' means any below-
market loan where the foregoing of interest is in the nature of a 
gift. 
"(4) AMOUNT LOANED.—The term 'amount loaned' means the 
amount received by the borrower. 
"(5) DEMAND LOAN.—The term 'demand loan' means any loan 
which is payable in full at any time on the demand of the 
lender. Such term also includes (for purposes other than deter-
mining the applicable Federal rate under paragraph (2)) any 
loan which is not transferable and the benefits of the interest 
arrangements of which is conditioned on the future perform-
ance of substantial services by an individual. 
"(6) TERM LOAN.—The term 'term loan' means any loan which 
is not a demand loan. 
"(7) HUSBAND AND WIFE TREATED AS i PERSON.—A husband 
and wife shall be treated as 1 person. 
"(8) 
LOANS TO WHICH SECTION 483 OR 1274 
APPLIES.—This 
Ante, pp. 553, 
section shall not apply to any loan to which section 483 or 1274 
538. 
applies. 
"(9) No WITHHOLDING.—No amount shall be withheld under 
26 use 3401 et 
chapter 24 with respect to any amount treated as transferred or 
«^9- 
retransferred under subsection (a). 
"(10) SPECIAL RULE FOR TERM LOANS.—If this section applies to 
any term loan on any day, this section shall continue to apply to 
such loan notwithstanding paragraphs (2) and (3) of subsection 
(c). In the case of a gift loan, the preceding sentence shall only 
26 use 2501 et 
apply for purposes of chapter 12. 
seg. 
"(g) REGULATIONS.— 
"(1) IN GENERAL.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the 
purposes of this section, including— 
"(A) regulations providing that where, by reason of vary-
ing rates of interest, conditional interest payments, waivers 
of interest, disposition of the lender's or borrower's interest 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 703 
in the loan, or other circumstances, the provisions of this 
section do not carry out the purposes of this section, adjust-
,, 
ments to the provisions of this section will be made to the 
extent necessary to carry out the purposes of this section, 
^nj i
<
: 
"(B) regulations for the purpose of assuring that the 
positions of the borrower and lender are consistent as to the 
application (or nonapplication) of this section, and 
"(C) regulations exempting from the application of this 
section any class of transactions the interest arrangements 
of which have no significant effect on any Federal tax 
If • 
liability of the lender or the borrower. 
"(2) ESTATE TAX COORDINATION.—Under regulations pre-
scribed by the Secretary, any loan which is made with donative 
'"' 
I 
intent and which is a term loan shall be taken into account for 
purposes of chapter 11 in a manner consistent with the provi- 
26 USC 2001 et 
sions of subsection (b)." 
seq. 
(b) CLERICAL AMENDMENT.—The table of sections for subchapter C 
of chapter 80 is amended by adding at the end thereof the following 
new item: 
"Sec. 7872. Treatment of loans with below-market interest rates." 
< (c) EFFECTIVE DATES.— 
26 use 7872 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
note. 
^ 
amendments made by this section shall apply to— 
(A) term loans made after June 6,1984, and 
(B) demand loans outstanding after June 6,1984. 
(2) EXCEPTION FOR DEMAND LOANS OUTSTANDING ON JUNE 6, 
1984, AND REPAID WITHIN 60 DAYS AFTER DATE OF ENACTMENT.— 
The amendments made by this section shall not apply to any 
demand loan which— 
',. •^jau i' 
(A) was outstanding on June 6,1984, and 
(B) was repaid before the date 60 days after the date of 
the enactment of this Act. 
? 
(3) EXCEPTION FOR CERTAIN EXISTING LOANS TO CONTINUING 
CARE FACILITIES.—Nothing in this subsection shall be construed 
to apply the amendments made by this section to any loan made 
before June 6,1984, to a continuing care facility by a resident of 
such facility which is contingent on continued residence at such 
facility. 
(4) A P P U C A B L E FEDERAL RATE FOR PERIODS BEFORE JANUARY 1, 
J 
1985.—For periods before January 1, 1985, the applicable Fed-
eral rate under paragraph (2) of section 7872(f) of the Internal 
Revenue Code of 1954, as added by this section, shall be 10 Ante, p. 699. 
percent, compounded semiannually. 
(5) TREATMENT OF RENEGOTIATIONS, ETC.—For purposes of this 
subsection, any loan renegotiated, extended, or revised after 
June 6, 1984, shall be treated as a loan made after such date. 
(6) DEFINITION OF TERM AND DEMAND LOANS.—For purposes of 
this subsection, the terms 'demand loan' and 'term loan' have 
the respective meanings given such terms by paragraphs (5) and 
(6) of section 7872(f) of the Internal Revenue Code of 1954, as 
added by this section, but the second sentence of such para-
graph (5) shall not apply. 
SEC. 173. ELIGIBILITY FOR INCOME AVERAGING. 
(a) BASE PERIOD SHORTENED TO 3 YEARS.—Paragraph (2) of section 
1302(c) (relating to definition of averagable income; related defini- 26 USC 1302. 
98 STAT. 704 
PUBLIC LAW 98-369—JULY 18, 1984 
tions) is amended by striking out "4 taxable years" and inserting in 
lieu thereof "3 taxable years". 
(b) INCREASE IN PERCENTAGE OF AVERAGE BASE INCOME TAKEN 
26 use 1301. 
INTO ACCOUNT.—Section 1301 (relating to limitation on tax) is 
amended by striking out "120 percent" and inserting in lieu thereof 
"140 percent". 
(c) TECHNICAL AND CONFORMING AMENDMENTS,— 
(1) Section 1301 (relating to limitation on tax) is amended— 
(A) by striking out "5 times" and inserting in lieu thereof 
"4 times", and 
(B) by striking out "20 percent" and inserting in lieu 
thereof "25 percent". 
26 use 1302. 
(2) Paragraph (1) of section 1302(a) (defining averagable 
income) is amended by striking out "120 percent" and inserting 
in lieu thereof "140 percent". 
(3) Paragraph (1) of section 1302(b) (defining average base 
period income) is amended by striking out "one-fourth" and 
inserting in lieu thereof "Va". 
(4) Paragraph (3) of section 1302(c) is amended by striking out 
"4 taxable years" and inserting in lieu thereof "3 taxable 
years". 
26 use 1302 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply to computation years beginning after December 31, 1983, and 
to base period years applicable to such computation years. 
SEC. 174. AMENDMENTS TO SECTION 267. 
(a) ALLOWANCE OF DEDUCTION WHERE EXPENSES AND INTEREST ARE 
PAID 
TO RELATED 
CASH-BASIS 
TAXPAYERS 
AFTER 
2y2-MoNTH 
PERIOD.— 
26 use 267. 
(1) IN GENERAL.—Subsection (a) of section 267 (relating to 
losses, expenses, and interest with respect to transactions be-
tween related taxpayers) is amended to read as follows: 
"(a) IN GENERAL.— 
"(1) DEDUCTION FOR LOSSES DISALLOWED.—No deduction shall 
be allowed in respect of any loss from the sale or exchange of 
property (other than a loss in case of a distribution in corporate 
liquidation), directly or indirectly, between persons specified in 
any of the paragraphs of subsection (b). 
"(2) MATCHING OF DEDUCTION AND PAYEE INCOME ITEM IN THE 
CASE OF EXPENSES AND INTEREST.—If— 
"(A) by reason of the method of accounting of the person 
to whom the payment is to be made, the amount thereof is 
not (unless paid) includible in the gross income of such 
person, and 
"(B) at the close of the taxable year of the taxpayer for 
which Ot>ut for this paragraph) the amount would be deduct-
ible under this chapter, both the taxpayer and the person to 
whom the payment is to be made are persons specified in 
any of the paragraphs of subsection (b), 
then any deduction allowable under this chapter in respect of 
such amount shall be allowable as of the day as of which such 
amount is includible in the gross income of the person to whom 
the payment is made (or, if later, as of the day on which it would 
be so allowable but for this paragraph)." 
(2) CONFORMING AMENDMENT.—Subsection (e) of section 267 
(relating to rule where last day of 2y2-month period falls on 
Sunday, etc.) is hereby repealed. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 705 
(b) EXTENSION OF SECTION 267 TO CERTAIN RELATED ENTRIES.— 
(1) PASS-THRU ENTITIES.—Section 267 is amended by striking 
26 use 267. 
out subsection (f) and inserting in lieu thereof the following: 
"(e) SPECIAL RULES FOR PASS-THRU ENTITIES.— 
"(1) IN GENERAL.—In the case of any amount paid or incurred 
by, to, or on behalf of, a pass-thru entity, for purposes of 
applying subsection (a)(2)— 
"(A) such entity, 
"(B) in the case of— 
"(i) a partnership, any person who owns (directly or 
indirectly) any capital interest or profits interest of 
such partnership, or 
"(ii) an S corporation, any person who owns (directly 
or indirectly) any of the stock of such corporation, 
to ~ 
"(C) any person who owns (directly or indirectly) any 
capital interest or profits interest of a partnership in which 
such entity owns (directly or indirectly) any capital interest 
' 
or profits interest, and 
"(D) any person related (within the meaning of subsection 
(b) of this section or section 707(bXl)) to a person described 
in subparagraph (B) or (C), 
shall be treated as persons specified in a paragraph of subsec-
tion (b). Subparagraph (C) shall apply to a transaction only if 
such transaction is related either to the operations of the 
• 
partnership described in such subparagraph or to an interest in 
such partnership. 
"(2) PASS-THRU ENTITY.—For purposes of this section, the term 
'pass-thru entity' means— 
"(A) a partnership, and 
"(B) an S corporation. 
"(3) CONSTRUCTIVE OWNERSHIP IN THE CASE OF PARTNERSHIPS.— 
For purposes of determining ownership of a capital interest or 
profits interest of a partnership, the principles of subsection (c) 
shall apply, except that— 
-^-^-'r': 
(A) paragraph (3) of subsection (c) shall not apply, and 
"(B) interests owned (directly or indirectly) by or for a C 
corporation shall be considered as owned by or for any 
tos' 
shareholder only if such shareholder owns (directly or indi-
rectly) 5 percent or more in value of the stock of such 
^'^ 
corporation. 
"(4) SUBSECTION (a) (2) NOT TO APPLY TO CERTAIN GUARANTEED 
PAYMENTS OF PARTNERSHIPS.—In the case of any amount paid or 
incurred by a partnership, subsection (aX2) shall not apply to 
the extent that section 707(c) applies to such amount. 
"(5) EXCEPTION FOR CERTAIN EXPENSES AND INTEREST OF PART-
NERSHIPS OWNING LOW-INCOME HOUSING.— 
"(A) IN GENERAL.—This subsection shall not apply with 
, 
respect to qualified expenses and interest paid or incurred 
by a partnership owning low-income housing to— 
"(i) any qualified 5-percent or less partner of such 
partnership, or 
"(ii) any person related (within the meaning of sub-
section O
t
>
) of this section or section 7070t)Xl)) to any 
qualified 5-percent or less partner of such partnership. 
"(B) QUAUFIED 5-PERCENT OR LESS PARTNER.—For pur-
poses of this paragraph, the term 'qualified 5-percerit or less 
partner' means any partner who has (directly or indirectly) 
98 STAT. 706 
PUBLIC LAW 98-369—JULY 18, 1984 
an interest of 5 percent or less in the aggregate capital and 
profits interests of the partnership but only if^ 
"(i) such partner owned the low-income housing at all 
times during the 2-year period ending on the date such 
housing was transferred to the partnership, or 
"(ii) such partnership acquired the low-income hous-
ing pursuant to a purchase, assignment, or other trans-
fer from the Department of Housing and Urban 
Development or any State or local housing authority. 
For purposes of the preceding sentence, a partner shall be 
treated as holding any interest in the partnership which is 
held (directly or indirectly) by any person related (within 
the meaning of subsection (b) of this section or section 
707(b)(1)) to such partner. 
"(C) QUAUFIED EXPENSES AND INTEREST.—For purpOSe of 
this paragraph, the term 'qualified expenses and interest' 
means any expense or interest incurred by the partnership 
with respect to low-income housing held by the partnership 
but— 
"(i) only if the amount of such expense or interest (as 
the case may be) is unconditionally required to be paid 
by the partnership not later than 10 years after the 
date such amount was incurred, and 
"(ii) in the case of such interest, only if such interest 
is incurred at an annual rate not in excess of 12 
percent. 
"(D) LOW-INCOME HOUSING.—For purposes of this para-
graph, the term 'low-income housing' means— 
"(i) any interest in low-income housing (as defined in 
paragraph (5) of section 189(e)), and 
"(ii) any interest in a partnership owning low-income 
housing (as so defined)." 
(2) CERTAIN CONTROLLED GROUPS.— 
26 use 267. 
(A) Paragraph (3) of section 267(b) is amended to read as 
follows: 
"(3) Two corporations which are members of the same con-
trolled group (as defined in subsection (f));". 
(B) Section 267 is amended by adding at the end thereof 
the following new subsection: 
"(f) CONTROLLED GROUP DEFINED; SPECIAL RULES APPUCABLE TO 
CONTROLLED GROUPS.— 
"(1) CONTROLLED GROUP DEFINED.—For purposes of this sec-
tion, the term 'controlled group' has the meaning given to such 
term by section 1563(a), except that— 
(A) 'more than 50 percent' shall be substituted for 'at 
least 80 percent' each place it appears in section 1563(a), 
and 
"(B) the determination shall be made without regard to 
subsections (a)(4) and (e)(3)(C) of section 1563. 
"(2) DEFERRAL (RATHER THAN DENIAL) OF LOSS FROM SALE OR 
EXCHANGE BETWEEN MEMBERS.—In the case of any loss from the 
sale or exchange of property which is between members of the 
same controlled group and to which subsection (a)(1) applies 
(determined without regard to this paragraph but with regard 
to paragraph (3))— 
"(A) subsections (aXD and (d) shall not apply to such loss, 
but 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 707 
"(B) such loss shall be deferred until the property is 
transferred outside such controlled group and there would 
be recognition of loss under consolidated return principles 
or until such other time as may be prescribed in 
regulations. 
"(3) Loss 
DEFERRAL 
RULES 
NOT 
TO 
APPLY 
IN 
CERTAIN 
CASES.— 
"(A) TRANSFER TO DISC.—For purposes of applying subsec-
tion (a)(1), the term 'controlled group' shall not include a 
DISC. 
"(B) CERTAIN SALES OF INVENTORY.—Except to the extent 
provided in regulations prescribed by the Secretary, subsec-
tion (a)(1) shall not apply to the sale or exchange of prop-
erty between members of the same controlled group if^ 
"' ' 
"(i) such property in the hands of the transferor is 
property described in section 1221(1), 
•
^ 
"(ii) such sale or exchange is in the ordinary course of 
the transferor's trade or business, 
"(iii) such property in the hands of the transferee is 
^ • "
^ 
property described in section 1221(1), and 
"(iv) the transferee or the transferor is a foreign 
-rtre.f; 
corporation. 
"(C) CERTAIN FOREIGN CURRENCY LOSSES.—To the extent 
^'^^ " 
provided in regulations, subsection (a)(1) shall not apply to 
'^ 
any loss sustained by a member of a controlled group on the 
repayment of a loan made to another member of such group 
if such loan is payable in a foreign currency or is denomi-
nated in such a currency and such loss is attributable to a 
reduction in value of such foreign currency." 
(3) CORPORATION AND PARTNERSHIP OWNED BY SAME PERSONS.— 
Paragraph (10) of section 2670t)) is amended— 
26 USC 267. 
(A) by striking out "An S corporation" and inserting in 
lieu thereof "A corporation", and 
(B) by striking out "the S corporation" and inserting in 
lieu thereof "the corporation". 
(4) S CORPORATION AND C CORPORATION OWNED BY SAME PER-
SONS.—Paragraph (12) of section 2670?) is amending by striking 
' 
V 
out "the same individual" and inserting in lieu thereof "the 
same persons". 
(5)'TECHNICAL AMENDMENTS.— 
(A) Paragraph (3) of section 170(a) is amended by striking 
26 use 170. 
out "section 267(b)" and inserting in lieu thereof "section 
267(b) or 707(b)". 
(B) Clause (iii) of section 514(c)(9)(B) is amended by strik- Post, p. 1039. 
.«a 
ing out "section 2670t))" and inserting in lieu thereof "sec-
;; 
tion 267(b) or 707(b)". 
j^^, , 
(C) Subsection (d) of section 1235 is amended— 
26 use 1235. 
(i) by striking out "section 267(b)" in the matter 
preceding paragraph (1) and inserting in lieu thereof 
K-,;^ 
jr 
"section 267(b) or persons described in section 70703)", 
(ii) by striking out "section 267 (b) and (c)" and 
., 
inserting in lieu thereof "section 267 (b) and (c) and 
section 707(b)", and 
(iii) by striking out "section 2670t))" in paragraph (1) 
and inserting in lieu thereof "section 267(b) or 7070t))". 
(D) Subparagraph (F) of section 368(a)(2) is amended by 26 use 368. 
striking out clause (viii). 
(c) EFFECTIVE DATES.— 
26 use 267 note. 
98 STAT. 708 
PUBLIC LAW 98-369—JULY 18, 1984 
(1) SUBSECTIONS (a) AND (b) (i).—The amendments made by 
subsections (a) and (b)(1) shall apply to amounts allowable as 
deductions under chapter 1 of the Internal Revenue Code of 
26 use 1 et seq. 
1954 for taxable years beginning after December 31, 1983. For 
purposes of the preceding sentence, the allowability of a deduc-
tion shall be determined without regard to any disallowance or 
postponement of deductions under section 267 of such Code. 
(2) SUBSECTION (b) (OTHER THAN PARAGRAPH ( D ) . — 
(A) IN GENERAL.—Except as provided in subparagraph (B), 
the amendments made by subsection (b) (other than para-
graph (1) thereof) shall apply to transactions after Decem-
ber 31,1983, in taxable years ending after such date. 
(B) EXCEPTION FOR TRANSFERS TO FOREIGN CORPORATIONS 
ON O
R BEFORE MARCH 1, 1984.—The amendments made by 
subsection (b)(2) shall not apply to property transferred to a 
foreign corporation on or before March 1,1984. 
(3) EXCEPTION FOR EXISTING INDEBTEDNESS, ETC.— 
(A) IN GENERAL.—The amendments made by this section 
shall not apply to any amount paid or incurred— 
(i) on indebtedness incurred on or before Septem-
ber 29, 1983, or 
(ii) pursuant to a contract which was binding on 
September 29, 1983, and at all times thereafter before 
the amount is paid or incurred. 
(B) TREATMENT OF RENEGOTIATIONS, EXTENSIONS, ETC.—If 
any indebtedness (or contract described in subparagraph 
(A)) is renegotiated, extended, renewed, or revised after 
September 29, 1983, subparagraph (A) shall not apply to 
any amount paid or incurred on such indebtedness (oi 
pursuant to such contract) after the date of such renegoti 
ation, extension, renewal, or revision. 
SEC. 175. AMENDMENTS TO SECTION 1239. 
(a) PATENT APPLICATIONS TREATED AS DEPRECIABLE PROPERTY.— 
Post, p. 898. 
Section 1239 (relating to gain from sale of depreciable property 
between certain related taxpayers) is amended by adding at the end 
thereof the following new subsection: 
"(e) PATENT APPUCATIONS TREATED AS DEPRECIABLE PROPERTY.— 
For purposes of this section, a patent application shall be treated as 
property which, in the hands of the transferee, is of a character 
which is subject to the allowance for depreciation provided in sec-
tion 167." 
(b) TAXPAYER AND CERTAIN TRUSTS TREATED AS RELATED PER-
SONS.—Subsection (b) of section 1239 is amended to read as follows: 
"(b) RELATED PERSONS.—For purposes of subsection (a), the term 
'related persons' means— 
"(1) a husband and wife, 
"(2) a person and all entities which are 80-percent owned 
entities with respect to such person, 
"(3) a taxpayer and any trust in which such taxpayer (or his 
spouse) is a beneficiary, unless such beneficiary's interest in the 
trust is a remote contingent interest (within the meaning of 
section 318(a)(3)(BXi))." 
26 use 1239 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply to sales or exchanges after March 1, 1984, in taxable years 
ending after such date. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 709 
SEC. 176. RECAPTURE OF NET ORDINARY LOSSES UNDER SECTION 1231. 
(a) GENERAL RULE.—Section 1231 (relating to property used in the 
26 use 1231. 
trade or business and involuntary conversions) is amended by 
adding at the end thereof the following new subsection: 
"(c) RECAPTURE OF NET ORDINARY LOSSES.— 
"(1) IN GENERAL.—The net section 1231 gain for any taxable 
- 
year shall be treated as ordinary income to the extent such gain 
does not exceed the non-recaptured net section 1231 losses. 
"(2) NON-RECAPTURED NET SECTION 1231 LOSSES.—For purpOSes 
of this subsection, the term 'non-recaptured net section 1231 
losses' means the excess of— 
"(A) the aggregate amount of the net section 1231 losses 
for the 5 most recent preceding taxable years beginning 
• 
after December 31,1981, over 
3i 
"(B) the portion of such losses taken into account under 
paragraph (1) for such preceding taxable years. 
' 
"(3) NET SECTION 1231 GAIN.—For purposes of this subsection, 
t 
the term 'net section 1231 gain' means the excess o
f
— 
"(A) the section 1231 gains, over 
J ^ •
< 
"(B) the section 1231 losses. 
"(4) NET SECTION 1231 LOSS.—For purposes of this subsection, 
the term 'net section 1231 loss' means the excess of^ 
"(A) the section 1231 losses, over 
"(B) the section 1231 gains. 
"(5) SPECIAL RULES.—For purposes of determining the amount 
1 
of the net section 1231 gain or loss for any taxable year, the 
Post, p. 944. 
• 
rules of paragraph (4) of subsection (a) shall apply." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
26 use I23i 
shall apply to net section 1231 gains for taxable years beginning 
note. 
after December 31,1984. 
SEC. 177. REPEAL OF EXEMPTION FROM FEDERAL TAX OF THE FEDERAL 
HOME LOAN MORTGAGE CORPORATION. 
(a) REPEAL OF EXEMPTION.—Subsection (d) of section 303 of the 
Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1452(d)) is 
amended— 
(1) by striking out "by the United States,", 
- 
(2) by striking out "possession thereof," and inserting in lieu 
thereof "possession of the United States", and 
(3) by striking out the last sentence. 
- 
-
(b) TREATMENT OF DIVIDENDS PAID BY FEDERAL HOME LOAN BANK 
WHICH ARE ALLOCABLE TO DIVIDENDS FROM THE FEDERAL HOME 
LOAN MORTGAGE CORPORATION.—Subsection (a) of section 246 (relat- 
26 use 246. 
ing to denial of dividends received deduction for dividends from 
certain corporations) is amended to read as follows: 
"(a) 
DEDUCTION NOT ALLOWED FOR DIVIDENDS FROM CERTAIN 
CORPORATIONS.— 
"(1) IN GENERAL.—The deductions allowed by sections 243, 
244, and 245 shall not apply to any dividend from a corporation 
which, for the taxable year of the corporation in which the 
distribution is made, or for the next preceding taxable year of 
the corporation, is a corporation exempt from tax under section 
501 (relating to certain charitable, etc., organizations) or section 
521 (relating to farmers' cooperative associations). 
"(2) SUBSECTION NOT TO APPLY TO CERTAIN DIVIDENDS OF FED-
ERAL HOME LOAN BANKS.— 
98 STAT. 710 
PUBLIC LAW 98-369—JULY 18, 1984 
"(A) DIVIDENDS OUT OF CURRENT EARNINGS AND PROFITS,— 
In the case of any dividend paid by any FHLB out of 
earnings and profits of the FHLB for the taxable year in 
which such dividend was paid, paragraph (1) shall not apply 
to that portion of such dividend which bears the same ratio 
to the total dividend as— 
"(i) the dividends received by the FHLB from the 
FHLMC during such taxable year, bears to 
"(ii) the total earnings and profits of the FHLB for 
such taxable year. 
"(B) DIVIDENDS OUT OF ACCUMULATED EARNINGS AND PROF-
ITS.—For purposes of subparagraph (A), in the case of any 
dividend which is paid out of any accumulated earnings and 
profits of any FHLB, paragraph (1) shall not apply to that 
portion of the dividend which bears the same ratio to the 
total dividend as— 
"(i) the amount of dividends received by such FHLB 
from the FHLMC which are out of earnings and profits 
of the FHLMC— 
"(I) for taxable years ending after December 31, 
1984, and 
"(II) which were not taken into account under 
subparagraph (A), bears to 
"(ii) the total accumulated earnings and profits of the 
FHLB as of the time such dividend is paid. 
For purposes of clause (ii), the accumulated earnings and 
profits of the FHLB as of January 1, 1985, shall be treated 
£is equal to its retained earnings as of such date. 
"(C) DEFINITIONS.—For purposes of this paragraph— 
"(i) FHLB.—The term 'FHLB' means any Federal 
Home Loan Bank. 
"(ii) FHLMC—The term 'FHLMC means the Fed-
eral Home Loan Mortgage Corporation. 
"(iii) TAXABLE YEAR OF FHLB.—The taxable year of an 
FHLB shall, except as provided in regulations pre-
scribed by the Secretary, be treated as the calendar 
year." 
(c) TREATMENT OF NET OPERATING LOSSES OF THE FEDERAL HOME 
LOAN MORTGAGE CORPORATION.— 
26 use 172. 
(1) IN GENERAL.—Subparagraph (H) of section 172(b)(1) (relat-
ing to years to which net operating losses may be carried) is 
amended— 
(A) by inserting ", or a net operating loss of the Federal 
Home Loan Mortgage Corporation for any taxable year 
beginning after December 31,1984" after "1981", 
(B) by striking out "the FNMA mortgage disposition loss 
(within the meaning of subsection (i))" in clause (i) and 
inserting in lieu thereof "the mortgage disposition loss 
(within the meaning of subsection (i))", and 
(C) by striking out "FNMA mortgage disposition loss" in 
clause (ii) and inserting in lieu thereof "mortgage disposi-
tion loss". 
(2) CONFORMING AMENDMENT.—Subsection (i) of section 172 is 
amended— 
(A) by striking out "FNMA mortgage disposition loss" 
each place it appears in paragraphs (1) and (2) (including in 
^PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 711 
headings) and inserting in lieu thereof "mortgage disposi-
tion loss", and 
(B) by striking out "FNMA MORTGAGE DISPOSITION Loss" 
in the subsection heading and inserting in lieu thereof 
• 
"MORTGAGE DISPOSITION LOSS OF THE FEDERAL NATIONAL 
MORTGAGE ASSOCIATION OR THE FEDERAL HOME LOAN MORT-
GAGE CORPORATION". 
(d) EFFECTIVE DATES.— 
26 use 172 note. 
(1) IN GENERAL.—The amendments made by this section shall 
take effect on January 1,1985. 
(2) ADJUSTED BASIS OF ASSETS.— 
(A) IN GENERAL.—Except as otherwise provided in sub-
paragraph (B), the adjusted basis of any asset of the Federal 
Home Loan Mortgage Corporation held on January 1, 1985, 
shall— 
, 
(i) for purposes of determining any loss, be equal to 
the lesser of the adjusted basis of such asset or the fair 
market value of such asset as of such date, and 
^- ' 
(ii) for purposes of determining any gain, be equal to 
'^-'^ ^
<
^ ' " 
the higher of the adjusted basis of such asset or the fair 
ri-" 
market value of such asset as of such date. 
(B) SPECIAL RULE FOR TANGIBLE DEPRECIABLE PROPERTY.— 
In the case of any tangible property which— 
^' 
' 3 / ; 
-
>
* • 
(i) is of a character subject to the allowance for 
B' 
depreciation provided by section 167 of the Internal 
Revenue Code of 1954, and 
(ii) is held by the Federal Home Loan Mortgage 
!iu f
* : - 
Corporation on January 1,1985, 
the adjusted basis of such property shall be equal to the 
I 
lesser of the basis of such property or the fair market value 
of such property as of such date. 
diiv/ 
(3) TREATMENT OF PARTICIPATION CERTIFICATES.— 
(A) IN GENERAL.—Paragraph (2) shall not apply to any 
right to receive income with respect to any mortgage pool 
participation certificate or other similar interest in any 
mortgage (not including any mortgage). 
(B) TREATMENT OF CERTAIN SALES AFTER MARCH 15, 1984, 
AND BEFORE JANUARY 1, 1985.—If any gain is realized on the 
;.,. 
sale or exchange of any right described in subparagraph (A) 
after March 15, 1984, and before January 1, 1985, the gain 
f — 
shall not be recognized when realized but shall be recog-
nized on January 1,1985. 
(4) NO ACCUMULATED EARNINGS AND PROFITS ON JANUARY i, 
1985.—For purposes of the Internal Revenue Code of 1954, the 
26 use i et seq. 
accumulated profits of the Federal Home Loan Mortgage Corpo-
ration as of January 1,1985, shall be treated as zero. 
(5) ADJUSTED BASIS.—For purposes of this subsection, the ad-
justed basis of any asset shall be determined under part II of 
subchapter O of the Internal Revenue Code of 1954. 
, » >
;
^ j ,« 
(6) No CARRYBACKS FOR YEARS BEFORE 1985.—No net Operating 
loss, capital loss, or excess credit of the Federal Home Loan 
Mortgage Corporation for any taxable year beginning after 
December 31, 1984, shall be allowed as a carryback to any 
taxable year beginning before January 1,1985. 
(7) N o DEDUCTION ALLOWED FOR INTEREST ON REPLACEMENT 
OBLIGATIONS.— 
98 STAT. 712 
PUBLIC LAW 98-369—JULY 18, 1984 
(A) IN GENERAL.—The Federal Home Loan Mortgage Cor-
poration shall not be allowed any deduction for interest 
accruing after December 31, 1984, on any replacement 
obligation. 
(B) REPLACEMENT OBLIGATION DEFINED.—For purposes of 
subparagraph (A), the term "replacement 
obligation" 
means any obligation to any person created after March 15, 
1984, which the Secretary of the Treasury or his delegate 
determines replaces any equity or debt interest of a Federal 
Home Loan Bank or any other person in the Federal Home 
Loan Mortgage Corporation existing on such date. The 
preceding sentence shall not apply to any obligation with 
respect to which the Federal Home Loan Mortgage Corpo-
ration establishes that there is no tax avoidance effect. 
SEC. 178. SPECIAL RULE RELATING TO SALES OR EXCHANGES OF CER-
TAIN ECONOMIC INTERESTS IN COAL BETWEEN RELATED 
PARTIES. 
26 use 631. 
(a) IN GENERAL.—The last sentence of section 631(c) (relating to 
disposal of coal or domestic iron ore with a retained economic 
interest) is amended by inserting "or coal" after "iron ore" each 
place it appears. 
26 u s e 631 note. 
(b) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendment made by subsection (a) shall apply to dispositions 
after September 30,1985. 
(2) SPECIAL RULE FOR FIXED CONTRACTS.— 
(A) IN GENERAL.—The amendment made by subsection (a) 
shall not apply to any disposition of an interest in coal by a 
person to a related person if such coal is subsequently sold 
before January 1,1990, by either such person— 
(i) to a person who is not a related person with 
respect to either such person, and 
(ii) pursuant to a qusdified fixed contract. 
(B) ALLOCATION WHERE MORE THAN i CONTRACT.—If, for 
any taxable year, there is a disposition described in sub-
paragraph (A) which is not specifically allocable to a quali-
fied fixed contract or to a contract which is not a qualified 
fixed contract, such disposition shall be treated as first 
allocable to the qualified fixed contract. 
(C) QuAUFiED FIXED CONTRACT DEFINED.—The term 
"qualified fixed contract" means any contract for the sale 
of coal which— 
(i) was entered into before June 12,1984, 
(ii) is binding at all times thereafter, and 
(iii) cannot be adjusted to reflect to any extent the 
increase in liabilities of the person disposing of the coal 
for tax under chapter 1 of the Internal Revenue Code of 
26 use 1 et seq. 
1954 by reason of the amendment made by subsection 
(a). 
(D) RELATED PERSON.—For purposes of this paragraph, the 
term "related person" means a person who bears a relation-
ship to another person described in the last sentence of 
section 631(c). 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 713 
SEC. 179. LIMITATION ON AMOUNT OF DEPRECIATION AND INVESTMENT 
TAX CREDIT FOR LUXURY AUTOMOBILES; LIMITATION 
WHERE CERTAIN PROPERTY USED FOR PERSONAL PURPOSES. 
(a) IN GENERAL.—Part IX of subchapter B of chapter 1 (relating to 
items not deductible) is amended by adding after section 280E the 
following new section: 
"SEC. 280F. LIMITATION ON INVESTMENT TAX CREDIT AND DEPRECIA- 26 USC 280F. 
TION FOR LUXURY AUTOMOBILES; LIMITATION WHERE 
CERTAIN PROPERTY USED FOR PERSONAL PURPOSES. 
"(a) 
LIMITATION ON AMOUNT OF INVESTMENT TAX CREDIT AND 
DEPRECIATION FOR LUXURY AUTOMOBILES.— 
"(1) INVESTMENT TAX CREDIT.—The amount of the credit deter-
mined under section 46(a) for any passenger automobile shall Post, p. 834. 
not exceed $1,000. 
"(2) DEPRECIATION.— 
mm:-'' 
"(A) LIMITATION.—The amount of the recovery deduction 
for any taxable year for any passenger automobile shall not 
r 
exceed— 
"(i) $4,000 for the first taxable year in the recovery 
period, and 
"(ii) $6,000 for each succeeding taxable year in the 
recovery period. 
r 
"(B) DISALLOWED DEDUCTIONS ALLOWED FOR YEARS AFTER 
* 
RECOVERY PERIOD.— 
f 
"(i) IN GENERAL.—Except as provided in clause (ii), 
the unrecovered basis of any passenger automobile 
shall be treated as an expense for the 1st taxable year 
after the recovery period. Any excess of the unreco-
V 
vered basis over the limitation of clause (ii) shall be 
• 
treated as an expense in the succeeding taxable year. 
"(ii) $6,000 LIMITATION.—The amount treated £is an 
expense under clause (i) for any taxable year shall not 
exceed $6,000. 
"(iii) PROPERTY MUST BE DEPRECIABLE.—No amount 
shall be allowable as a deduction by reason of this 
subparagraph with respect to any property for any 
taxable year unless a depreciation deduction would be 
allowable with respect to such property for such tax-
able year. 
"(iv) AMOUNT TREATED AS RECOVERY DEDUCTION.—For 
purposes of this subtitle, any amount allowable as a 
deduction by reason of this subparagraph shall be 
treated as a recovery deduction allowable under section 
( 
168. 
"(3) COORDINATION WITH REDUCTIONS IN AMOUNT ALLOWABLE 
B
Y REASON OF PERSONAL USE, ETC.—This subsection shall be 
applied before— 
"(A) the application of subsection (b), and 
"(B) the application of any other reduction in the amount 
of the credit determined under section 46(a) or any recovery 
deduction allowable under section 168 by reason of any use 
not qualifying the property for such credit or recovery 
deduction. 
"(4) SPECIAL RULE WHERE ELECTION OF REDUCED CREDIT IN UEU 
OF THE BASIS ADJUSTMENT.—In the case of any election under 
section 48(qX4) with respect to any passenger automobile, the 
98 STAT. 714 
PUBLIC LAW 98-369—JULY 18, 1984 
limitation of paragraph (1) applicable to such passenger automo-
bile shall be % of the amount which would be so applicable but 
for this paragraph. 
"(b) LIMITATION WHERE BUSINESS USE OF LISTED PROPERTY NOT 
GREATER THAN 50 PERCENT.— 
"(1) INVESTMENT TAX CREDIT.—For purposes of this subtitle, 
Post, p. 827. 
any listed property shall not be treated as section 38 property 
for any taxable year unless such property is predominantly used 
in a qualified business use for such taxable year. 
"(2) DEPRECIATION.—If any listed property is not predomi-
nantly used in a qualified business use for any taxable year, the 
deduction allowed under section 168 with respect to such prop-
erty for such taxable year and any subsequent taxable year 
shall be determined under the straight line method over the 
earnings and profits life for such property. 
"(3) RECAPTURE.— 
"(A) WHERE BUSINESS USE PERCENTAGE DOES NOT EXCEED 
50 PERCENT.—If— 
"(i) property is predominantly used in a qualified 
business use in a taxable year in which it is placed in 
service, and 
"(ii) such property is not predominantly used in a 
qualified business use for any subsequent taxable year, 
then any excess depreciation shall be included in gross 
income for the taxable year referred to in clause (ii), and 
the recovery deduction for the taxable year referred to in 
clause (ii) and any subsequent taxable years shall be deter-
mined under the straight line method over the earnings 
and profits life. 
"(B) EXCESS DEPRECIATION.—For purposes of subpara-
graph (A), the term 'excess depreciation means the excess 
(if any) of— 
"(i) the amount of the recovery deductions allowable 
with respect to the property for taxable years before 
the 1st taxable year in which the property was not 
predominantly used in a qualified business use, over 
"(ii) the amount which would have been so allowable 
if the property had not been predominantly used in a 
qualified business use for the taxable year in which it 
was placed in service. 
"(4) DEFINITIONS.—For purposes of this subsection— 
"(A) PROPERTY PREDOMINANTLY USED IN QUALIFIED BUSI-
NESS USE.—Property shall be treated as predominantly used 
in a qualified business use for any taxable year if the 
business use percentage for such taxable year exceeds 50 
percent. 
"(B) STRAIGHT LINE METHOD OVER EARNINGS AND PROFITS 
LIFE.—The amount determined under the straight line 
method over the earnings and profits life with respect to 
any property shall be the amount which would be deter-
mined with respect to such property under the principles of 
section 312(k)(3). If the recovery period applicable to any 
property under section 168 is longer than the recovery 
period applicable to such property under section 312(k)(3), 
such longer recovery period shall be used for purposes of 
the preceding sentence. 
"(c) TREATMENT OF LEASES.— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 715 
"(1) LESSOR'S CREDITS AND DEDUCTIONS NOT AFFECTED.—This 
section shall not apply to any listed property leased or held for 
leasing by any person regularly engaged in the business of 
leasing such property. 
"(2) LESSEE'S DEDUCTIONS REDUCED.—For purposes of deter-
mining the amount allowable as a deduction under this chapter 
for rentals or other payments under a lease for a period of 30 
days or more of listed property, only the allowable percentage of 
such payments shall be taken into account. 
"(3) ALLOWABLE PERCENTAGE.—For purposes of paragraph (2), 
the allowable percentage shall be determined under tables pre-
scribed by the Secretary. Such tables shall be prescribed so that 
the reduction in the deduction under paragraph (2) is substan-
tially equivalent to the applicable restrictions contained in 
subsections (a) and (b). 
"(4) LEASE TERM.—In determining the term of any lease for 
purposes of paragraph (2), the rules of section 168(j)(6)(B) shall 
Ante, p. 509. 
apply. 
"(5) LESSEE RECAPTURE.—Under regulations prescribed by the 
Secretary, rules similar to the rules of subsection (b)(3) shall 
apply to any lessee to which paragraph (2) applies. 
"(d) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
"(1) COORDINATION WITH SECTION 179.—Any deduction allow-
able under section 179 with respect to any listed property shall 
be subject to the limitations of subsections (a) and (b) in the 
same manner as if it were a recovery deduction allowable under 
section 168. 
"(2) SUBSEQUENT DEPRECIATION DEDUCTIONS REDUCED FOR DE-
DUCTIONS ALLOCABLE TO PERSONAL USE.—Solely for purposes of 
determining the amount of the recovery deduction for subse-
quent taxable years, if less than 100 percent of the use of any 
listed property during any taxable year is not use described in 
section 168(c)(1) (defining recovery property), all of the use of 
such property during such taxable year shall be treated as use 
so described. 
"(3) DEDUCTIONS OF EMPLOYEE.— 
"(A) IN GENERAL.—Any employee use of listed property 
"o r 
shall not be treated as use in a trade or business for 
purposes of determining the amount of any credit allowable 
i 
under section 38 to the employee or the amount of any 
Post, p. 827. 
J 
recovery deduction allowable to the employee unless such 
use is for the convenience of the employer and required as a 
condition of employment. 
"(B) EMPLOYEE USE.—For purposes of subparagraph (A), 
the term 'employee use' means any use in connection with 
the performance of services as an employee. 
"(4) LISTED PROPERTY.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
-^ Ok 
i 
(B), the term 'listed property' means— 
y
»
« 
"(i) any passenger automobile, 
"(ii) any other property used as a means of transpor-
tation, 
"(iii) any property of a type generally used for pur-
poses of entertainment, recreation, or amusement, 
"(iv) any computer or peripheral equipment (as de-
fined in section 168(jX5)(D)), and 
Ante, p. 509. 
98 STAT. 716 
PUBLIC LAW 98-369—JULY 18, 1984 
"(v) any other property of a type specified by the 
Secretary by regulations. 
"(B) ExciSPTiON FOR CERTAIN COMPUTERS.—The term 
'listed property' shall not include any computer or periph-
eral equipment (as so defined) used exclusively at a regular 
business establishment. For purposes of the preceding sen-
tence, any portion of a dwelling unit shall be treated as a 
regular business establishment if (and only if) the require-
ments of section 280A(c)(l) are met with respect to such 
portion. 
"(5) PASSENGER AUTOMOBILE.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the term 'passenger automobile' means any 4-wheeled 
vehicle— 
"(i) which is manufactured primarily for use on 
public streets, roads, and highways, and 
"(ii) which is rated at 6,000 pounds gross vehicle 
weight or less. 
"(B) EXCEPTION FOR CERTAIN VEHICLES.—The term 'pas-
senger automobile' shall not include— 
"(i) any ambulance, hearse, or combination ambu-
lance-hearse used by the taxpayer directly in a trade or 
business, 
"(ii) any vehicle used by the taxpayer directly in the 
trade or business of transporting persons or property 
for compensation or hire, and 
"(iii) under regulations, any truck or van. 
"(6) BUSINESS USE PERCENTAGE.— 
"(A) IN GENERAL.—The term 'business use percentage' 
means the percentage of the use of any listed property 
during any taxable year which is a qualified business use. 
"(B) QuAUFiED BUSINESS USE.—Exccpt as provided in sub-
paragraph (C), the term 'qualified business use' means any-
use in a trade or business of the taxpayer. 
"(C) EXCEPTION FOR CERTAIN USE BY 5-PERCENT OWNERS 
AND RELATED PERSONS.— 
"(i) IN GENERAL.—The term 'qualified business use' 
shall not include— 
"(I) leasing property to any 5-percent owner or 
related person, 
"(II) use of property provided as compensation 
for the performance of services by a 5-percent 
owner or related person, or 
"(III) use of property provided as compensation 
for the performance of services by any person not 
described in subclause (II) unless an amount is 
included in the gross income of such person with 
respect to such use, and, where required, there was 
26 use 3401 et 
withholding under chapter 24. 
seq. 
"(ii) SPECIAL RULE FOR AIRCRAFT.—Clause (i) shall not 
apply with respect to any aircraft if at least 25 percent 
of the total use of the aircraft during the taxable year 
consists of qualified business use not described in 
claused). 
"(D) DEFINITIONS.—For purposes of this paragraph— 
"(i) 5-PERCENT OWNER.—The term '5-percent owner' 
.evS : ,i si' 
means any person who is a 5-percent owner with re-
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 717 
spect 
to 
the 
taxpayer 
(as 
defined 
in 
section 
- ' 
- 
416(i)(l)(B)(i)). 
"(ii) RELATED PERSON.—The term 'related person' 
means any person related to the taxpayer (within the 
meaning of section 267(b)). 
"(7) AUTOMOBILE PRICE INFLATION ADJUSTMENT,— 
"(A) IN GENERAL.—In the case of any passenger automo-
bile, subsection (a) shall be applied by increasing each 
dollar amount contained in such subsection by the automo-
bile price inflation adjustment for the calendar year in 
which such automobile is placed in service. Any increase 
under the preceding sentence shall be rounded to the near-
est multiple of $100 (or if the increase is a multiple of $50, 
such increase shall be increased to the next higher multiple 
of $100). 
"(B) AUTOMOBILE PRICE INFLATION ADJUSTMENT.—For pur-
• > ' 
poses of this paragraph— 
"(i) IN GENERAL.—The automobile price inflation ad- 
'' 
-' -
justment for any calendar year is the percentage (if 
any) by which— 
"(I) the CPI automobile component for October of 
the preceding calendar year, exceeds 
"(II) the CPI automobile component for October 
of 1983. 
In the case of calendar year 1984, the automobile price 
^ 
inflation adjustment shall be zero. 
'^' 
"(ii) CPI AUTOMOBILE COMPONENT.—The term 'CPI 
automobile component' means the automobile compo-
nent of the Consumer Price Index for All Urban Con-
**'-^ 
sumers published by the Department of Labor. 
"(8) UNRECOVERED BASIS.—For purposes of subsection (a)(2), 
the term 'unrecovered basis' means the excess (if any) o
f
— 
"(A) the 
unadjusted 
basis (as defined 
in 
section 
168(d)(1)(A)) of the passenger automobile, over 
"(B) the amount of the recovery deductions which would 
have been allowable for taxable years in the recovery 
-'^ 
period determined after the application of subsection (a) 
and as if all use during the recovery period were use 
described in section 168(c)(1). 
"(9) ALL TAXPAYERS HOLDING INTERESTS IN PASSENGER AUTOMO-
BILE TREATED AS 1 TAXPAYER.—All taxpayers holding interests in 
any passenger automobile shall be treated as 1 taxpayer for 
purposes of applying subsection (a) to such automobile, and the 
limitations of subsection (a) shall be allocated among such 
taxpayers in proportion to their interests in such automobile, 
"(10) SPECIAL RULE FOR PROPERTY ACQUIRED IN NONRECOGNI-
TION TRANSACTIONS.—For purposes of subsection (a)(2), notwith-
standing any regulations prescribed under section 168(f)(7), any 
property acquired in a nonrecognition transaction shall be 
treated as a single property originally placed in service in the 
taxable year in which it was placed in service after being so 
acquired. 
"(e) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposes 
of this section, including regulations with respect to items properly 
included in, or excluded from, the adjusted basis of any listed 
property." 
'HS. 
98 STAT. 718 
PUBLIC LAW 98-369—JULY 18, 1984 
(b) COMPLIANCE PROVISIONS.— 
26 use 274. 
(1) AMENDMENT OF SECTION 274 (d).—Subsection (d) of section 
274 (relating to substantiation requirements) is amended— 
(A) by striking out "No deduction" and inserting in lieu 
thereof "No deduction or credit", 
(B) by striking out "or" at the end of paragraph (2), by 
inserting "or" at the end of paragraph (3), and by inserting 
after paragraph (3) the following new paragraph: 
"(4) with respect to any listed property (as defined in section 
280F(d)(4)),", 
(C) by striking out "adequate records or by sufficient 
evidence corroborating his own statement" and inserting in 
lieu thereof "adequate contemporaneous records", and 
(D) by striking out "the facility" each place it appears 
following paragraph (4) (as added by subparagraph (B)) and 
inserting in lieu thereof "the facility or property . 
(2) DUTIES OF RETURN PREPARERS.—Subsection (b) of section 
26 use 6695. 
6695 (relating to failure to sign return) is amended to read as 
follows: 
"(b) FAILURE TO INFORM TAXPAYER OF CERTAIN RECORDKEEPING 
REQUIREMENTS OR TO SIGN RETURN.—Any person who is an income 
tax return preparer with respect to any return or claim for refund 
and who is required by regulations to sign such return or claim— 
"(1) shall advise the taxpayer of the substantiation require-
ments of section 274(d) and obtain written confirmation from 
the taxpayer that such requirements were met with respect to 
any deduction or credit claimed on such return or claim for 
refund, and 
"(2) shall sign such return or claim for refund. 
Any person who fails to comply with the requirements of the 
preceding sentence with respect to any return or claim shall pay a 
penalty of $25 for such failure, unless it is shown that such failure is 
due to reasonable cause and not to willful neglect." 
(3) UNDERPAYMENT ATTRIBUTABLE TO FAILURE TO MEET SUB-
STANTIATION REQUIREMENTS TREATED AS DUE TO NEGLIGENCE.— 
26 use 6653. 
Section 6653 (relating to failure to pay tax) is amended by 
adding at the end thereof the following new subsection: 
"(h) SPECIAL RULE IN THE CASE OF UNDERPAYMENT ATTRIBUTABLE 
T
O FAILURE TO MEET CERTAIN SUBSTANTIATION REQUIREMENTS.— 
"(1) IN GENERAL.—Any portion of an underpayment attributa-
ble to a failure to comply with the requirements of section 
274(d) shall be treated, for purposes of subsection (a), as due to 
negligence in the absence of clear and convincing evidence to 
the contrary. 
"(2) PENALTY TO APPLY ONLY TO PORTION OF UNDERPAYMENT 
DUE TO F A I L U R E TO MEET SUBSTANTIATION REQUIREMENTS.—If a n y 
penalty is imposed under subsection (a) by reason of paragraph 
(1), the amount of the penalty imposed by paragraph (1) of 
subsection (a) shall be 5 percent of the portion of the underpay-
ment which is attributable to the failure described in paragraph 
(1)." 
(c) CLERICAL AMENDMENT.—The table of sections for part IX of 
subchapter B of chapter 1 is amended by adding after the item 
relating to section 280E the following new item: 
"Sec. 280F. Limitation on investment tax credit and depreciation for luxury 
automobiles; limitation where certain property used for per-
sonal purposes." 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 719 
(d) EFFECTIVE DATES.— 
26 use 280F 
(1) IN GENERAL.— 
note. 
(A) Except as provided in subparagraph (B), the amend-
ments made by subsections (a) and (c) shall apply to— 
(i) property placed in service after June 18, 1984, in 
taxable years ending after such date, and 
(ii) property leased after June 18, 1984, in taxable 
years ending after such date. 
(B) The amendments made by subsections (a) and (c) shall 
not apply to any property— 
(i) acquired by the taxpayer pursuant to a binding 
'4 ^ 
contract in effect on June 18, 1984, and at all times 
thereafter (or under construction on such date) but 
only if the property is placed in service before Janu-
ary 1, 1985 (January 1, 1987, in the case of 15-year real 
property), or 
(ii) of which the taxpayer is the lessee but only if 
the lease is pursuant to a binding contract in effect on 
June 18, 1984, and at all times thereafter and only if 
the taxpayer first uses such property under the lease 
before January 1, 1985 (January 1, 1987, in the case of 
15-year real property). 
For purposes of the preceding sentence, the term "15-year 
real property" includes 18-year real property. 
(2) CoMPUANCE PROVISIONS.—The amendments made by sub-
section (b) shall apply to taxable years beginning after Decem- 
> • >SIJ 'fH 
ber 31,1984. 
TITLE II—LIFE INSURANCE PROVISIONS 
SEC. 201. TABLE OF SECTIONS FOR PART I OF SUBCHAPTER L. 
Under the amendment to part I of subchapter L made by section 
211(a), the subparts and sections of such part I will be as follows: 
PART I—LIFE INSURANCE COMPANIES 
SUBPART A—TAX IMPOSED 
Sec. 801. Tax imposed. 
SUBPART B—LIFE INSURANCE GROSS INCOME 
Sec. 803. Life insurance gross income. 
SUBPART C—LIFE INSURANCE DEDUCTIONS 
Sec. 804. Life insurance deductions. 
Sec. 805. Greneral deductions. 
Sec. 806. Special deductions. 
Sec. 807. Rules for certain reserves. 
Sec. 808. Policyholder dividends deduction. 
Sec. 809. Reduction in certain deductions of mutual life insurance companies. 
Sec. 810. Operations loss deduction. 
SUBPART D—ACCOUNTING, ALLOCATION, AND FOREIGN PROVISIONS 
, ... 
, 
„ 
.;--•.-'• 
. q 
,-•,«"=. 
Sec. 811. Accounting provisions. 
Sec. 812. Definition of company's share and policyholders' share. 
Sec. 813. Foreign life insurance companies. 
Sec. 814. Contiguous country branches of domestic life insurance companies. 
Sec. 815. Distributions to shareholders from pre-1984 policyholders surplus account. 
SUBPART E—DEFINITIONS AND SPECIAL RULES 
Sec. 816. Life insurance company defined. 
98 STAT. 720 
PUBLIC LAW 98-369—JULY 18, 1984 
Sec. 817. Treatment of variable contracts. 
" -8 
Sec. 818. Other definitions and special rules. 
Subtitle A—Taxation of Life Insurance 
Companies 
PART I—AMENDMENT OF SUBCHAPTER L 
SEC. 211. AMENDMENT OF SUBCHAPTER L. 
(a) GENERAL RULE.—Part I of subchapter L of chapter 1 is 
amended to read as follows: 
"PART I—LIFE INSURANCE COMPANIES 
"Subpart A. Tax imposed. 
"Subpart B. Life insurance gross income. 
^'; 
"Subpart C. Life insurance deductions. 
"Subpart D. Accounting, allocation, and foreign provisions. 
'-' 
"Subpart E. Definitions and special rules. 
"Subpart A—Tax Imposed 
"Sec. 801. Tax imposed. 
26 u s e 801. 
"SEC. 801. TAX IMPOSED. 
"(a) TAX IMPOSED.— 
"(1) IN GENERAL.—A tax is hereby imposed for each taxable 
year on the life insurance company taxable income of every life 
insurance company. Such tax shall consist of a tax computed as 
provided in section 11 as though the life insurance company 
taxable income were the taxable income referred to in section 
11-
"(2) ALTERNATIVE TAX IN CASE OP CAPITAL GAINS.— 
"(A) IN GENERAL.—If a life insurance company has a net 
capital gain for the taxable year, then (in lieu of the tax 
imposed by paragraph (1)), there is hereby imposed a tax (if 
such tax is less than the tax imposed by paragraph (1)). 
"(B) AMOUNT OF TAX.—The amount of the tax imposed by 
this paragraph shall be the sum of— 
"(i) a partial tax, computed as provided by paragraph 
(1), on the life insurance company taxable income re-
duced by the amount of the net capital gain, and 
"(ii) an amount determined as provided in section 
1201(a) on such net capital gain. 
"(C) NET CAPITAL GAIN NOT TAKEN INTO ACCOUNT IN DE-
TERMINING SPECIAL UFE INSURANCE COMPANY DEDUCTION 
AND SMALL U F E INSURANCE COMPANY DEDUCTION.—For pur-
poses of subparagraph (B)(i), the amounts allowable as de-
Post, p. 722. 
ductions under paragraphs (2) and (3) of section 804 shall be 
determined by reducing the tentative LICTI by the amount 
of the net capital gain (determined without regard to items 
attributable to noninsurance businesses). 
"(b) LIFE INSURANCE COMPANY TAXABLE INCOME.—For purposes of 
this part, the term 'life insurance company taxable income' means— 
"(1) life insurance gross income, reduced by 
"(2) life insurance deductions. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 721 
"(c) TAXATION OF DISTRIBUTIONS FROM PRE-1984 POLICYHOLDERS 
'^ 
SURPLUS ACCOUNT.— 
"For provision taxing distributions to shareholders from pre-1984 pol-
icyholders surplus account, see section 815. 
Post, p. 747. 
"Subpart B—Life Insurance Gross Income 
. . . 
"Sec. 803. Life insurance gross income. 
"SEC. 803. LIFE INSURANCE GROSS INCOME. 
26 USC 803. 
"(a) IN GENERAL.—For purposes of this part, the term 'life insur-
ance gross income' means the sum of the following amounts: 
"(1) PREMIUMS.— 
-3 
"(A) The gross amount of premiums and other consider-
ation on insurance and annuity contracts, less 
-'^ 
"(B) return premiums, and premiums and other consider-
ation arising out of indemnity reinsurance. 
"(2) DECREASES IN CERTAIN RESERVES.—Each net decrease in 
reserves which is required by section 807(a) to be taken into Post, p. 726. 
account under this paragraph. 
"(3) OTHER AMOUNTS.—All amounts not includible under 
' 
paragraph (1) or (2) which under this subtitle are includible in 
gross income. 
"(b) SPECIAL RULES FOR PREMIUMS.— 
"(1) CERTAIN ITEMS INCLUDED.—For purposes of subsection 
(a)(1)(A), the term 'gross amount of premiums and other consid-
eration' includes— 
"(A) advance premiums, 
"(B) deposits, 
"(C) fees, 
"(D) assessments, 
• 
"(E) consideration in respect of assuming liabilities under 
j _ 
contracts not issued by the taxpayer, and 
O
f 
It 
<
<
^
p
) ^Yie amount of policyholder dividends reimbursable 
to the taxpayer by a reinsurer in respect of reinsured 
'^ 
policies, 
on insurance and annuity contracts. 
"(2) POLICYHOLDER DIVIDENDS EXCLUDED FROM RETURN PREMI-
UMS.—For purposes of subsection (a)(1)(B)— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the term'return premiums'does not include any policy-
"' 
' 
holder dividends. 
"(B) EXCEPTION FOR INDEMNITY REINSURANCE.—Subpara-
' * 
graph (A) shall not apply to amounts of premiums or other 
consideration returned to another life insurance company 
in respect of indemnity reinsurance. 
"Subpart C—Life Insurance Deductions 
"Sec. 804. Life insurance deductions. 
"Sec. 805. General deductions. 
"Sec. 806. Special deductions. 
"Sec. 807. Rules for certain reserves. 
"Sec. 808. Policyholder dividends deduction. 
"Sec. 809. Reduction in certain deductions of mutual life insurance compa-
' ' 
, 
nies. 
"Sec. 810. Operations loss deduction. 
31-194 0 - 8 6 
25 : QL. 3 Part 1 
98 STAT. 722 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 804. 
"SEC. 804. LIFE INSURANCE DEDUCTIONS. 
"For purposes of this part, the term 'life insurance deductions' 
means— 
T
f V q JMA 
"(1) the general deductions provided in section 805, 
"(2) the special life insurance company deduction determined 
Post, p. 724. 
under section 806(a), and 
"(3) the small life insurance company deduction (if any) deter-
mined under section 806(b). 
26 use 805. 
"SEC. 805. GENERAL DEDUCTIONS. 
"(a) GENERAL RULE.—For purposes of this part, there shall be 
allowed the following deductions: 
"(1) DEATH BENEFITS, ETC.—All claims and benefits accrued, 
and all losses incurred (whether or not ascertained), during the 
taxable year on insurance and annuity contracts. 
"(2) INCREASES IN CERTAIN RESERVES.—The net increase in 
Post, p. 726. 
reserves which is required by section 807(b) to be taken into 
account under this paragraph. 
"(3) POLICYHOLDER DIVIDENDS.—The deduction for policy-
Post, p. 732. 
holder dividends (determined under section 808(c)). 
"(4) DIVIDENDS RECEIVED BY COMPANY.— 
"(A) IN GENERAL.—The deductions provided by sections 
243, 244, and 245 (as modified by subparagraph (B))— 
"(i) for 100 percent dividends received, and 
"(ii) for the life insurance company's share of the 
dividends (other than 100 percent dividends) received. 
"(B) APPLICATION OF SECTION 246 (b).—In applying section 
246(b) (relating to limitation on aggregate amount of deduc-
tions for dividends received) for purposes of subparagraph 
(A), the limit on the aggregate amount of the deductions 
allowed by sections 243(a)(1), 244(a), and 245 shall be 85 
percent of the life insurance company taxable income, com-
puted without regard to— 
"(i) the special life insurance company deduction and 
the small life insurance company deduction, 
"(ii) the operations loss deduction provided by section 
810, 
"(iii) the deductions allowed by sections 243(a)(1), 
244(a), and 245, and 
"(iv) any capital loss carryback to the taxable year 
under section 1212(a)(1), 
but such limit shall not apply for any taxable year for 
which there is a loss from operations. 
"(C) 100 PERCENT DIVIDEND.—For purposes of subpara-
graph (A), the term '100 percent dividend' means any divi-
dend if the percentage used for purposes of determining the 
deduction allowable under section 243 or 244 is 100 percent. 
Such term does not include any dividend to the extent it is 
a distribution out of tax-exempt interest or out of dividends 
which are not 100 percent dividends (determined with the 
application of this sentence). 
"(D) CERTAIN DIVIDENDS RECEIVED BY FOREIGN CORPORA-
TIONS.—Subparagraph (A)(i) (and not subparagraph (A)(ii)) 
shall apply to any dividend received by a foreign corpora-
tion from a domestic corporation which would be a 100 
percent dividend if section 1504(b)(3) did not apply for 
purposes of applying section 243(b)(5). 
j l t 
..;-) : .:: 
-C - 0 i-^'l-Jc 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 723 
"(5) OPERATIONS LOSS DEDUCTION.—The operations loss deduc-
- 
tion (determined under section 810). 
Post, p. 738. 
"(6) ASSUMPTION BY ANOTHER PERSON OF LIABILITIES UNDER 
INSURANCE, ETC., CONTRACTS.—The consideration (other than 
consideration arising out of indemnity reinsurance) in respect of 
the assumption by another person of liabilities under insurance 
and annuity contracts. 
"(7) REIMBURSABLE DIVIDENDS.—The amount of policyholder 
dividends which— 
* ; 
"(A) are paid or accrued by another insurance company 
in respect of policies the taxpayer has reinsured, and 
"(B) are reimbursable by the taxpayer under the terms of 
the reinsurance contract. 
"(8) OTHER DEDUCTIONS.—Subject to the modifications pro-
vided by subsection (b), all other deductions allowed under this 
subtitle for purposes of computing taxable income. 
Except as provided in paragraph (3), no amount shall be allowed as a 
deduction under this part in respect of policyholder dividends. 
"(b) MODIFICATIONS.—The modifications referred to in subsection 
(aX8) are as follows: 
"(1) INTEREST.—In applying section 163 (relating to deduction 
for interest), no deduction shall be allowed for interest in 
i respect of items described in section 807(c). 
Post, p. 726. 
"(2) BAD DEBTS.—Section 166(c) (relating to reserve for bad 
-i debts) shall not apply. 
"(3) CHARITABLE, ETC., CONTRIBUTIONS AND GIFTS.—In applying 
1' section 170— 
"(A) the limit on the total deductions under such section 
t? 
provided by section 170(b)(2) shall be 10 percent of the life 
ii> 1 . 
insurance company taxable income computed without 
regard to— 
iiMA £ 
"(i) the deduction provided by section 170, 
"(ii) the deductions provided by paragraphs (3) and (4) 
3fi loo 
of subsection (a), 
"(iii) the special life insurance company deduction 
and the small life insurance company deduction, 
"(iv) any operations loss carryback to the taxable 
year under section 810, and 
"(v) any capital loss carryback to the taxable year 
under section 1212(a)(1), and 
u- , " 
"(B) under regulations prescribed by the Secretary, a rule 
similar to the rule contained in section 170(d)(2)(B) (relating 
biiK ,; to special rule for net operating loss carryovers) shall be 
applied. 
"(4) AMORTIZABLE BOND PREMIUM.— 
"(A) IN GENERAL.—Section 171 shall not apply. 
'> 
"(B) CROSS REFERENCE.— 
"For rules relating to amortizable bond premium, see section 811(b). 
Post, p. 740. 
"(5) NET OPERATING LOSS DEDUCTION.—Except as provided by 
section 844, the deduction for net operating losses provided in 
section 172 shall not be allowed. 
"(6) DIVIDENDS RECEIVED DEDUCTION.—Except as provided in 
subsection (aX4), the deductions for dividends received provided 
by sections 243, 244, and 245 shall not be allowed. 
98 STAT. 724 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 806. 
"SEC. 806. SPECIAL DEDUCTIONS. 
"(a) SPECIAL LIFE INSURANCE COMPANY DEDUCTION.—For purposes 
Ante, p. 722. 
of section 804, the special life insurance company deduction for any 
taxable year is 20 percent of the excess of the tentative LICTI for 
such taxable year over the small life insurance company deduction 
(if any). 
"(h) SMAIX LIFE INSURANCE COMPANY DEDUCTION.— 
"(1) IN GENERAL.—For purposes of section 804, the small life 
insurance company deduction for any taxable year is 60 percent 
of so much of the tentative LICTI for such taxable year as does 
not exceed $3,000,000. 
"(2) PHASEOUT 
BETWEEN 
$3,OOO,OOO AND $15,000,000.—The 
amount of the small life insurance company deduction deter-
mined under paragraph (1) for any taxable year shall be re-
duced (but not below zero) by 15 percent of so much of the 
tentative LICTI for such taxable year as exceeds $3,000,000. 
"(3) SMALL U F E INSURANCE COMPANY DEDUCTION NOT ALLOW-
ABLE TO COMPANY WITH ASSETS OP $500,000,000 OR MORE.— 
"(A) IN GENERAL.—The small life insurance company 
deduction shall not be allowed for any taxable year to any 
life insurance company which, at the close of such taxable 
year, has assets equal to or greater than $500,000,000. 
"(B) ASSETS.—For purposes of this paragraph, the term 
'assets' means all assets of the company. 
"(C) VALUATION OF ASSETS.—For purposes of this para-
graph, the amount attributable to— 
"(i) real property and stock shall be the fair market 
value thereof, and 
"(ii) any other asset shall be the adjusted basis of 
such asset for purposes of determining gain on sale or 
other disposition. 
"(D) SPECIAL RULE FOR INTERESTS IN PARTNERSHIPS AND 
TRUSTS.—For purposes of this paragraph— 
"(i) an interest in a partnership or trust shall not be 
treated as an asset of the company, but 
"(ii) the company shall be treated as actually owning 
its proportionate share of the assets held by the part-
nership or trust (as the case may be). 
"(c) TENTATIVE LICTI.—For purposes of this part— 
"(1) IN GENERAL.—The term 'tentative LICTI' means life in-
surance company taxable income determined without regard 
to— 
"(A) the special life insurance company deduction, and 
"(B) the small life insurance company deduction. 
"(2) EXCLUSION OF ITEMS ATTRIBUTABLE TO NONINSURANCE 
BUSINESSES.—The amount of the tentative LICTI for any taxable 
year shall be determined without regard to all items attributa-
^, ^ 
ble to noninsurance businesses. 
' ' * ••' " 
" 
"(3) NONINSURANCE BUSINESS.— 
"v 
"(A) IN GENERAL.—The term 'noninsurance business' 
*' 
means any activity which is not an insurance business. 
"(B) CERTAIN ACTIVITIES TREATED AS INSURANCE BUSI-
NESSES.—For purposes of subparagraph (A), any activity 
which is not an insurance business shall be treated as an 
insurance business i
f
— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 725 
rWj|,, 
«^^ -^ j
^
g Q£ ^ ^ypg traditionally carried on by life 
insurance companies for investment purposes, but only 
if the carrying on of such activity (other than in the 
^' 
case of real estate) does not constitute the active con-
duct of a trade or business, or 
"(ii) it involves the performance of administrative 
services in connection with plans providing life insur-
ance, pension, or accident and health benefits. 
^ 
"(C) LIMITATION ON AMOUNT OF LOSS FROM NONINSURANCE 
BUSINESS WHICH M
A
Y OFFSET INCOME FROM INSURANCE BUSI-
NESS.—In computing the life insurance company taxable 
c>i 
income of any life insurance company, any loss from a 
noninsurance business shall be limited under the principles 
of section 1503(c). 
"(d) SPECIAL RULE FOR CONTROLLED GROUPS.— 
"(1) SPECIAL LIFE INSURANCE COMPANY DEDUCTION AND SMALL 
LIFE INSURANCE COMPANY DEDUCTION DETERMINED ON CON-
TROLLED GROUP BASIS.—For purposes of subsections (a) and (b)— 
"(A) all life insurance companies which are members of 
the same controlled group shall be treated as 1 life insur- 
„ , 
\ 
ance company, and 
!i 
"(B) any special life insurance company deduction and 
any small life insurance company deduction determined 
^ic 
with respect to such group shall be allocated among the life 
insurance companies which are members of such group in 
proportion to their respective tentative LICTI's. 
"(2) NONUFE INSURANCE MEMBERS INCLUDED FOR ASSET TEST.— 
For purposes of subsection (b)(3), all members of the same 
controlled group (whether or not life insurance companies) shall 
be treated as 1 company. 
, .,,;. 
"(3) CONTROLLED GROUP.—For purposes of this subsection, the 
term 'controlled group' means any controlled group of corpora-
tions (as defined in section 1563(a)); except that subsections (a)(4) 
and (b)(2)(D) of section 1563 shall not apply. 
"(4) 
ELECTION WITH RESPECT TO LOSS FROM OPERATIONS OF 
MEMBER OF GROUP.— 
"(A) IN GENERAL.—Any life insurance company which is a 
,j^, 
member of a controlled group may elect to have its loss 
from operations for any taxable year not taken into account 
^ 
for purposes of determining the amount of the special life 
insurance company deduction for the life insurance compa-
nies which are members of such group and which do not file 
a consolidated return with such life insurance company for 
the taxable year. 
"(B) LIMITATION ON AMOUNT OF LOSS WHICH MAY OFFSET 
NONLiFE INCOME.—In the case of that portion of any loss 
from operations for any taxable year of a life insurance 
company which (but for subparagraph (A)) would have 
reduced tentative LICTI of other life insurance companies 
for such taxable year— 
'" 
"(i) only 80 percent of such portion may be used to 
offset nonlife income, and 
"(ii) to the extent such portion is used to offset 
nonlife income, the loss shall be treated as used at a 
rate of $1 for each 80 cents of income so offset. 
For purposes of the preceding sentence, any such portion 
shall be used before the remaining portion of the loss from 
iLV vij .a't.r J
"
.
. 
98 STAT. 726 
PUBLIC LAW 98-369—JULY 18, 1984 
the same year and shall be treated as first being offset 
against income which is not nonlife income. 
"(C) NONUFE INCOME.— 
"(i) IN GENERAL.—The term 'nonlife income' means 
the portion of the life insurance company's taxable 
income for which the special life insurance company 
deduction was not allowable and any income of a corpo-
ration not subject to tax under this part. 
"(ii) SPECIAL RULE FOR TAXABLE YEARS BEGINNING 
BEFORE JANUARY 1, 1984.—In the case of a taxable year 
beginning before January 1, 1984, all life insurance 
company taxable income shall be treated as nonlife 
income. 
"(5) ADJUSTMENTS TO PREVENT EXCESS DETRIMENT OR BENE-
FIT.—Under regulations prescribed by the Secretary, proper 
adjustments shall be made in the application of this subsection 
to prevent any excess detriment or benefit (whether from year-
to-year or otherwise) arising from the application of this subsec-
tion. 
26 use 807. 
"SEC. 807. RULES FOR CERTAIN RESERVES. 
"(a) DECREASE TREATED AS GROSS INCOME.—If for any taxable 
year— 
"(1) the opening balance for the items described in subsection 
(c), exceeds 
"(2)(A) the closing balance for such items, reduced by 
"(B) the sum of (i) the amount of the policyholders' share of 
tax-exempt interest, plus (ii) any excess described in section 
Post, p. 733. 
809(a)(2) for the taxable year. 
Ante, p. 721. 
such excess shall be included in gross income under section 803(aX2). 
"(b) INCREASE TREATED AS DEDUCTION.—If for any teixable year— 
"(1)(A) the closing balance for the items described in subsec-
tion (c), reduced by 
"(B) the sum of (i) the amount of the policyholders' share of 
tax-exempt interest, plus (ii) any excess described in section 
809(a)(2) for the taxable year, exceeds 
"(2) the opening balance for such items, 
such excess shall be taken into account as a deduction under section 
Ante, p. 722. 
805(a)(2). 
"(c) ITEMS TAKEN INTO ACCOUNT.—The items referred to in subsec-
tions (a) and (b) are as follows: 
Post, p. 748. 
"(1) The life insurance reserves (as defined in section 816(b)). 
"(2) The unearned premiums and unpaid losses included in 
total reserves under section 816(c)(2). 
"(3) The amounts (discounted at the appropriate rate of inter-
est) necessary to satisfy the obligations under insurance and 
annuity contracts, but only if such obligations do not involve (at 
the time with respect to which the computation is made under 
this paragraph) life, accident, or health contingencies. 
"(4) Dividend accumulations, and other amounts, held at 
interest in connection with insurance and annuity contracts. 
"(5) Premiums received in advance, and liabilities for pre-
mium deposit funds. 
"(6) Reasonable special contingency reserves under contracts 
of group term life insurance or group accident and health 
insurance which are established and maintained for the provi-
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 727 
5 
sion of insurance on retired lives, for premium stabilization, or 
for a combination thereof. 
For purposes of paragraph (3), the appropriate rate of interest for 
any obligation is the higher of the prevailing State assumed interest 
rate as of the time such obligation first did not involve life, accident, 
or health contingencies or the rate of interest assumed by the 
company (as of such time) in determining the guaranteed benefit. 
"(d) METHOD OF COMPUTING RESERVES FOR PURPOSES OF DETERMIN-
ING INCOME.— 
"(1) IN GENERAL.—For purposes of this part (other than sec-
tion 816), the amount of the life insurance reserves for any Post, p. 748. 
contract shall be the greater of— 
"(A) the net surrender value of such contract, or 
^ 
"(B) the reserve determined under paragraph (2). 
In no event shall the reserve determined under the preceding 
g 
sentence for any contract as of any time exceed the amount 
which would be taken into account with respect to such contract 
3 
as of such time in determining statutory reserves (as defined in 
-1, 
section 809(b)(4)(B)). 
Post, p. 733. 
"(2) AMOUNT OF RESERVE.—The amount of the reserve deter-
mined under this paragraph with respect to any contract shall 
J 
be determined by using— 
"(A) the tax reserve method applicable to such contract, 
"(B) the prevailing State assumed interest rate, and 
"(C) the prevailing commissioners' standard tables for 
mortality and morbidity adjusted as appropriate to reflect 
the risks (such as substandard risks) incurred under the 
contract which are not otherwise taken into account. 
"(3) TAX RESERVE METHOD.—For purposes of this subsection— 
"(A) IN GENERAL.—The term 'tax reserve method' 
means— 
"(i) LIFE INSURANCE CONTRACTS.—The CRVM in the 
case of a contract covered by the CRVM. 
"(ii) ANNUITY CONTRACTS.—The CARVM in the case 
j ix. • 
of a contract covered by the CARVM. 
"(iii) NONCANCELLABLE ACCIDENT AND HEALTH INSUR-
ANCE CONTRACTS.—In the case of any noncancellable 
accident and health insurance contract, a 2-year full 
preliminary term method. 
"(iv) OTHER CONTRACTS.—In the case of any contract 
not described in clause (i), (ii), or (iii)— 
"(I) the reserve method prescribed by the Na-
tional Association of Insurance Commissioners 
which covers such contract (as of the date of issu-
ance), or 
"(II) if no reserve method has been prescribed by 
-m f *ti>1- 
the National Association of Insurance Commission-
ers which covers such contract, a reserve method 
Vi 
which is consistent with the reserve method re-
quired under clause (i), (ii), or (iii) or under sub-
clause (I) of this clause as of the date of the issu-
ance of such contract (whichever is most appropri-
ate). 
"(B) DEFINITION OF CRVM AND CARVM.—For purposes of 
this paragraph— 
"(i) CRVM.—The term 'CRVM' means the Commis-
sioners' Reserve Valuation Method prescribed by the 
98 STAT. 728 
PUBLIC LAW 98-369—JULY 18, 1984 
•1' 
National Association of Insurance 
Commissioners 
which is in effect on the date of the issuance of the 
"(ii) CARVM.—The term 'CARVM' means the Com-
missoners' Annuities Reserve Valuation Method pre-
scribed by the National Association of Insurance Com-
missioners which is in effect on the date of the issuance 
of the contract. 
"(C) No ADDITIONAL RESERVE DEDUCTION ALLOWED FOR 
DEFICIENCY RESERVES.—Nothing in any reserve method de-
scribed under this paragraph shall permit any increase in 
the reserve because the net premium (computed on the 
basis of assumptions required under this subsection) ex-
ceeds the actual premiums or other consideration charged 
for the benefit. 
"(4) PREVAILING STATE ASSUMED INTEREST RATE.—For purposes 
of this subsection— 
"(A) IN GENERAL.—The term 'prevailing State assumed 
^« " ' ' 
interest rate' means, with respect to any contract, the 
highest assumed interest rate permitted to be used in com-
puting life insurance reserves for insurance contracts or 
annuity contracts (as the case may be) under the insurance 
laws of at least 26 States. For purposes of the preceding 
sentence, the effect of the nonforfeiture laws of a State on 
interest rates for reserves shall not be taken into account. 
"(B) WHEN RATE DETERMINED.—Except as provided in 
subparagraph (C), the prevailing State assumed rate with 
respect to any contract shall be determined as of the begin-
ning of the calendar year in which the contract was issued. 
"(C) ELECTION FOR NONANNUITY CONTRACTS.—In the case 
of a contract other than an annuity contract, the issuer 
may elect (at such time and in such manner as the Secre-
tary shall by regulations prescribe) to determine the pre-
vailing State assumed rate as of the beginning of the calen-
dar year preceding the calendar year in which the contract 
was issued. 
"(D) RATE FOR NONCANCELLABLE ACCIDENT AND HEALTH 
INSURANCE CONTRACTS.—If there is no prevailing State as-
sumed^ interest rate applicable under subparagraph (A) to 
any noncancellable accident and health insurance contract 
when it is issued, the prevailing State assumed interest rate 
for such contract shall be the prevailing State assumed 
interest rate which would be determined under subpara-
graph (A) for a whole life insurance contract issued on the 
date on which the noncancellable accident and health in-
surance contract is issued. 
"(5) PREVAILING COMMISSIONERS' STANDARD TABLES.—For pur-
poses of this subsection— 
"(A) IN GENERAL.—The term 'prevailing commissioners' 
standard tables' means, with respect to any contract, the 
most recent commissioners' standard tables prescribed by 
the National Association of Insurance Commissioners 
which are permitted to be used in computing reserves for 
that type of contract under the insurance laws of at least 26 
States when the contract was issued. 
"(B) INSURER MAY USE OLD TABLES FOR 3 YEARS WHEN 
TABLES CHANGE.—If the prevailing commissioners' standard 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 729 
tables as of the beginning of any calendar year (hereinafter 
in this subparagraph referred to as the 'year of change') is 
different from the prevailing commissioners' standard 
tables as of the beginning of the preceding calendar year, 
the issuer may use the prevailing commissioners' standard 
tables as of the beginning of the preceding calendar year 
with respect to any contract issued after the change and 
before the close of the 3-year period beginning on the first 
day of the year of change. 
(C) SPECIAL RULE FOR CONTRACTS FOR WHICH THERE ARE 
NO COMMISSIONERS' STANDARD TABLES.—If there are no com-
missioners' standard tables applicable to any contract when 
it is issued, the mortality and morbidity tables used for 
purposes of paragraph (2)(C) shall be determined under 
regulations prescribed by the Secretary. 
it 
"(D) SPECIAL RULE FOR CONTRACTS ISSUED BEFORE 1948.— 
If— 
10 iut: 
"(i) a contract was issued before 1948, and 
"(ii) there were no commissioners' standard tables 
> 
applicable to such contract when it was issued, 
the mortality and morbidity tables used in computing statu-
tory reserves for such contracts shall be used for purposes 
-1 
of paragraph (2)(C). 
"(E) SPECIAL RULE WHERE MORE THAN i TABLE OR OPTION 
APPLICABLE.—If, with respect to any category of risks, there 
are 2 or more tables (or options under 1 or more tables) 
which meet the requirements of subparagraph (A) (or, 
where applicable, subparagraph (B) or (O), the table (and 
option thereunder) which generally yields the lowest re-
serves shall be used for purposes of paragraph (2)(C). 
"(e) SPECIAL RULES FOR COMPUTING RESERVES.— 
"(1) NET SURRENDER VALUE.—For purposes of this section— 
"(A) IN GENERAL.—The net surrender value of any con-
tract shall be determined— 
"(i) with regard to any penalty or charge which 
would be imposed on surrender, but 
"(ii) without regard to any market value adjustment 
on surrender. 
"(B) SPECIAL RULE FOR PENSION PLAN CONTRACTS.—In the 
case of a pension plan contract, the balance in the policy-
holder's fund shall be treated as the net surrender value of 
such contract. For purposes of the preceding sentence, such 
balance shall be determined with regard to any penalty or 
forfeiture which would be imposed on surrender but with-
out regard to any market value adjustment. 
"(2) ISSUANCE DATE IN CASE OF GROUP CONTRACTS.—For pur-
poses of this section, in the case of a group contract, the date on 
which such contract is issued shall be the date as of which the 
master plan is issued (or, with respect to a benefit guaranteed to 
a participant after such date, the date as of which such benefit 
is guaranteed). 
'f^' "(3) SUPPLEMENTAL BENEFITS.— 
"(A) 
QUAUFIED SUPPLEMENTAL BENEFITS TREATED SEPA-
RATELY.—For purposes of this part, the amount of the life 
insurance reserve for any qualified supplemental benefit— 
"(i) shall be computed separately as though such 
benefit were under a separate contract, and 
98 STAT. 730 
PUBLIC LAW 98-369—JULY 18, 1984 
"(ii) shall, except to the extent otherwise provided 
in regulations, be the reserve taken into account for 
purposes of the annual statement approved by the Na-
tional Association of Insurance Commissioners. 
"(B) SUPPLEMENTAL BENEFITS WHICH ARE NOT QUALIFIED 
SUPPLEMENTAL BENEFITS.—In the case of any supplemental 
benefit described in subparagraph (D) which is not a quali-
fied supplemental benefit, the amount of the reserve deter-
mined under paragraph (2) of subsection (d) shall, except to 
the extent otherwise provided in regulations, be the reserve 
taken into account for purposes of the annual statement 
approved by the National Association of Insurance Commis-
sioners. 
"(C) QUALIFIED SUPPLEMENTAL BENEFIT.—For purposes of 
this paragraph, the term 'qualified supplemental benefit' 
means any supplemental benefit described in subparagraph 
(D)if-
"(i) there is a separately identified premium or 
I '.,-7 
charge for such benefit, and 
"(ii) any net surrender value under the contract 
attributable to any other benefit is not available to 
fund such benefit. 
"(D) SUPPLEMENTAL BENEFITS.—For purposes of this para-
graph, the supplemental benefits described in this subpara-
graph are any— 
"(i) guaranteed insurability, 
"(ii) accidental death or disability benefit, 
"(iii) convertibility, 
"(iv) disability waiver benefit, or 
"(v) other benefit prescribed by regulations, 
which is supplemental to a contract for which there is a 
reserve described in subsection (c). 
"(4) 
CERTAIN CONTRACTS ISSUED BY FOREIGN BRANCHES OF 
DOMESTIC LIFE INSURANCE COMPANIES.— 
"(A) IN GENERAL.—In the case of any qualified foreign 
contract, the amount of the reserve shall be not less than 
the minimum reserve required by the laws, regulations, or 
administrative guidance of the regulatory authority of the 
foreign country referred to in subparagraph (B) (but not to 
exceed the net level reserves for such contract). 
"(B) QUALIFIED FOREIGN CONTRACT.—For purposes of sub-
paragraph (A), the term 'qualified foreign contract' means 
any contract issued by a foreign life insurance branch 
(which has its principal place of business in a foreign 
country) of a domestic life insurance company if— 
(i) such contract is issued on the life or health of a 
resident of such country, 
"(ii) such domestic life insurance company was re-
quired by such foreign country (as of the time it began 
.
^ 
operations in such country) to operate in such country 
through a branch, and 
"(iii) such foreign country is not contiguous to the 
United States. 
"(5) TREATMENT OF SUBSTANDARD RISKS.— 
"(A) SEPARATE COMPUTATION.—Except to the extent pro-
vided in regulations, the amount of the life insurance re-
serve for any qualified substandard risk shall be computed 
gfj 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 731 
separately under subsection (dXl) from any other reserve 
under the contract. 
^ 
"(B) QUALIFIED SUBSTANDARD RISK.—For purposes of sub-
paragraph (A), the term 'qualified substandard risk' means 
any substandard risk if— 
"(i) the insurance company maintains a separate 
^ 
reserve for such risk, 
* 
"(ii) there is a separately identified premium or 
- 
charge for such risk, 
e* 
"(iii) the amount of the net surrender value under 
the contract is not increased or decreased by reason of 
--^ i 3i»f 
ff' 
such risk, and 
"(iv) the net surrender value under the contract is 
not regularly used to pay premium charges for such 
!;, 
risk. 
"(C) 
LIMITATION ON AMOUNT OF LIFE INSURANCE RE- 
ii.i < anK 
SERVE.—The amount of the life insurance reserve deter-
mined for any qualified substandard risk shall in no event 
exceed the sum of the separately identified premiums 
charged for such risk plus interest less mortality charges 
for such risk. 
"(D) LIMITATION ON AMOUNT OF CONTRACTS TO WHICH 
PARAGRAPH APPUES.—The aggregate amount of insurance 
in force under contracts to which this paragraph applies 
< c 'Sii -
L 
shall not exceed 10 percent of the insurance in force (other 
than term insurance) under life insurance contracts of the 
company. 
"(6) SPECIAL RULES FOR CONTRACTS ISSUED BEFORE JANUARY i, 
1989, UNDER EXISTING PLANS OF INSURANCE, WITH TERM INSUR-
ANCE O
R ANNUITY BENEFITS.—For purposes of this part— 
"(A) IN GENERAL.—In the case of a life insurance contract 
issued before January 1, 1989, under an existing plan of 
insurance, the life insurance reserve for any benefit to 
which this paragraph applies shall be computed separately 
under subsection (d)(1) from any other reserve under the 
contract. 
"(B) BENEFITS TO WHICH THIS PARAGRAPH APPLIES.—This 
paragraph applies to any term insurance or annuity benefit 
with respect to which the requirements of clauses (i) and (ii) 
of paragraph (3)(C) are met. 
:
< 
"(C) EXISTING PLAN OF INSURANCE.—For purposes of this 
paragraph, the term 'existing plan of insurance' means, 
with respect to any contract, any plan of insurance which 
was filed by the company using such contract in one or 
more States before January 1, 1984, and is on file in the 
appropriate State for such contract. 
s
>
g
i o •leo* 
"(f) ADJUSTMENT FOR CHANGE IN COMPUTING RESERVES.— 
"(1) 10-YEAR SPREAD,— 
"(A) IN GENERAL.—For purposes of this part, if the basis 
^.4 
for determining any item referred to in subsection (c) as of 
the close of any taxable year differs from the basis for such 
.^ 
determination as of the close of the preceding taxable year, 
*
^
" 
then so much of the difference between— 
"(i) the amount of the item at the close of the taxable 
year, computed on the new basis, and 
"(ii) the amount of the item at the close of the 
taxable year, computed on the eld basis. 
98 STAT. 732 
PUBLIC LAW 98-369—JULY 18, 1984 
as is attributable to contracts issued before the taxable year 
shall be taken into account under the method provided in 
subparagraph (B). 
"(B) METHOD.—The method provided in this subpara-
graph is as follows: 
"(i) if the amount determined under subparagraph 
(A)(i) exceeds the amount determined under subpara-
graph (A)(ii), Vio of such excess shall be taken into 
account, for each of the succeeding 10 taxable years, as 
Ante, p. 722. 
a deduction under section 805(aX2); or 
"(ii) if the amount determined under subparagraph 
(A)(ii) exceeds the amount determined under subpara-
graph (A)(i), Vio of such excess shall be included in 
gross income, for each of the 10 succeeding taxable 
Ante, p. 721. 
years, under section 803(a)(2). 
"(2) TERMINATION AS UFE INSURANCE COMPANY.—Except as 
provided in section 381(c)(22) (relating to carryovers in certain 
corporate readjustments), if for any taxable year the taxpayer is 
not a life insurance company, the balance of any adjustments 
under this subsection shall be taken into account for the preced-
ing taxable year. 
26 use 808. 
"SEC. 808. POLICYHOLDER DIVIDENDS DEDUCTION. 
"(a) POLICYHOLDER DIVIDEND DEFINED.—For purposes of this part, 
the term 'policyholder dividend' means any dividend or similar 
distribution to policyholders in their capacity as such. 
"(b) CERTAIN AMOUNTS INCLUDED.—For purposes of this part, the 
term 'policyholder dividend' includes— 
"(1) any amount paid or credited (including as an increase in 
benefits) where the amount is not fixed in the contract but 
depends on the experience of the company or the discretion of 
the management, 
"(2) excess interest, 
"(3) premium adjustments, and 
"(4) experience-rated refunds. 
"(c) AMOUNT OF DEDUCTION.— 
"(1) IN GENERAL.—Except as limited by paragraph (2), the 
deduction for policyholder dividends for any taxable year shall 
be an amount equal to the policyholder dividends paid or ac-
crued during the taxable year. 
"(2) REDUCTION IN CASE OF MUTUAL COMPANIES.—In the case of 
a mutual life insurance company, the deduction for policyholder 
dividends for any taxable year shall be reduced by the amount 
Post, p. 733. 
determined under section 809. 
"(d) DEFINITIONS.—For purposes of this section— 
"(1) EXCESS INTEREST.—The term 'excess interest' means any 
amount in the nature of interest— 
"(A) paid or credited to a policyholder in his capacity as 
such, and 
"(B) determined at a rate in excess of the prevailing State 
assumed interest rate for such contract. 
"(2) PREMIUM ADJUSTMENT.—The term 'premium adjustment' 
means any reduction in the premium under an insurance or 
annuity contract which (but for the reduction) would have been 
required to be paid under the contract. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 733 
"(3) EXPERIENCE-RATED REFUND.—The term 'experience-rated 
refund' means any refund or credit based on the experience of 
the contract or group involved. 
"(e) TREATMENT OF POLICYHOLDER DIVIDENDS.—For purposes of 
this part, any policyholder dividend which— 
"(1) increases the cash surrender value of the contract or 
other benefits payable under the contract, or 
"(2) reduces the premium otherwise required to be paid, 
shall be treated as paid to the policyholder and returned by the 
policyholder to the company as a premium. . 
"SEC. 809. REDUCTION IN CERTAIN DEDUCTIONS OF MUTUAL LIFE INSUR- 
26 USC 809. 
ANCE COMPANIES. 
"(a) GENERAL RULE.— 
^ 
"(1) PoucYHOLDER DIVIDENDS.—In the case of any mutual life 
c 
insurance company, the amount of the deduction allowed under 
section 808 shall be reduced (but not below zero) by the differen- 
Ante, p. 732. 
, 
tial earnings amount. 
r 
"(2) REDUCTION IN RESERVE DEDUCTION IN CERTAIN CASES.—In 
the case of any mutual life insurance company, if the differen-
j 
tial earnings amount exceeds the amount allowable as a deduc-
tion under section 808 for the taxable year (determined without 
regard to this section), such excess shall be taken into account 
under subsections (a) and (b) of section 807. 
Ante, p. 726. 
"(3) DIFFERENTIAL EARNINGS AMOUNT.—For purposes of this 
section, the term 'differential earnings amount' means, with 
I 
respect to any taxable year, an amount equal to the product 
of— 
"(A) the life insurance company's average equity base for 
the taxable year, multiplied by 
"(B) the differential earnings rate for such taxable year. 
. "(b) AVERAGE EQUITY BASE.—For purposes of this section— 
"(1) IN GENERAL.—The term 'average equity base' means, with 
« 
respect to any taxable year, the average of^ 
"(A) the equity base determined as of the close of the 
taxable year, and 
"(B) the equity base determined as of the close of the 
„. 
preceding taxable year. 
"(2) EQUITY BASE.—The term 'equity base' means an amount 
determined in the manner prescribed by regulations equal to— 
"(A) the surplus and capital, 
"(B) adjusted as provided in paragraphs (3), (4), (5), and (6) 
of this subsection. 
"(3) INCREASE FOR NONADMITTED FINANCIAL ASSETS.— 
fejiic 
"(A) IN GENERAL.—The amount of the surplus and capital 
shall be increased by the amount of the nonadmitted finan-
ni tjf 
cial assets. 
"(B) NONADMITTED FINANCIAL ASSETS.—For purposes of 
subparagraph (A), the term 'nonadmitted financial asset' 
means any nonadmitted asset of the company which is— 
"(i) a bond, 
"(ii) stock, 
- ; 
"(iii) real estate, 
"(iv) a mortgage loan on real estate, or 
"(v) any other invested asset. 
"(4) INCREASE WHERE STATUTORY RESERVES EXCEED TAX RE-
SERVES.— 
98 STAT. 734 
PUBLIC LAW 98-369—JULY 18, 1984 
iO ?-i 
ID 
Ante, p. 726. 
Post, p. 740. 
-BUfJKt ^: 
srf',? 
•^B 
"(A) IN GENERAL.—If^ 
"(i) the aggregate amount of statutory reserves, 
exceeds 
"(ii) the aggregate amount of tax reserves, 
the amount of the surplus and capital shall be increased by 
the amount of such excess. 
"(B) DEFINITIONS.—For purposes of this paragraph— 
"(i) STATUTORY RESERVES.—The term 'statutory re-
serves' means the aggregate amount set forth in the 
annual statement with respect to items described in 
section 807(c). Such term shall not include any reserve 
attributable to a deferred and uncollected premium if 
the establishment of such reserve is not permitted 
under section 811(c). 
"(ii) TAX RESERVES.—The term 'tax reserves' means 
the aggregate of the items described in section 807(c) as 
determined for purposes of section 807. 
"(5) INCREASE BY AMOUNT OF CERTAIN OTHER RESERVES.—The 
amount of the surplus and capital shall be increased by the sum 
of— 
"(A) the amount of any mandatory securities valuation 
reserve, 
"(B) the amount of any deficiency reserve, and 
"(C) the amount of any voluntary reserve or similar 
liability not described in subparagraph (A) or (B). 
"(6) ADJUSTMENT FOR NEXT YEAR'S POLICYHOLDER DIVIDENDS.— 
The amount of the surplus and capital shall be increased by 50 
percent of the amount of any provision for policyholder divi-
dends (or other similar liability) payable in the following tax-
able year. 
(c) DIFFERENTIAL EARNINGS RATE.— 
"(1) IN GENERAL.—For purposes of this section, the differen-
tial earnings rate for any taxable year is the excess of— 
"(A) the imputed earnings rate for the taxable year, over 
"(B) the average mutual earnings rate for the second 
calendar year preceding the calendar year in which the 
taxable year begins. 
"(2) TRANSITIONAL RULE.—The differential earnings rate— 
"(A) for any taxable year beginning in 1984, or 
"(B) for purposes of computing the amount of underpay-
ment under section 6655 (including the application of sec-
tion 6655(d)(3)) for any taxable year beginning in 1985, 
shall be equal to 7.8 percent. 
(d) IMPUTED EARNINGS RATE.— 
"(1) IN GENERAL.—For purposes of this section, the imputed 
earnings rate for any taxable year is— 
"(A) 16.5 percent in the case of taxable years beginning in 
1984, and 
"(B) in the case of taxable years beginning after 1984, an 
- amount which bears the same ratio to 16.5 percent as the 
current stock earnings rate for the taxable year bears to the 
base period stock earnings rate. 
"(2) CURRENT STOCK EARNINGS RATE.—For purposes of this 
subsection, the term 'current stock earnings rate' means, with 
respect to any taxable year, the average of the stock earnings 
rates determined under paragraph (4) for the 3 calendar years 
preceding the calendar year in which the taxable year begins. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 735 
"(3) BASE PERIOD STOCK EARNINGS RATE.—For purposes of this 
subsection, the base period stock earnings rate is the average of 
the stock earnings rates determined under paragraph (4) for 
- 
calendar years 1981,1982, and 1983. 
"(4) STOCK EARNINGS RATE.— 
- 
"(A) IN GENERAL.—For purposes of this subsection, the 
J 
stock earnings rate for any calendar year is the numerical 
I, 
average of the earnings rates of the 50 largest stock 
1 
companies. 
"(B) EARNINGS RATE.—For purposes of subparagraph (A), 
^•. 
the earnings rate of any stock company is the percentage 
(determined by the Secretary) which— 
"(i) the statement gain or loss from operations for the 
^ 
calendar year of such company, is of 
"(ii) such company's average equity base for such 
pr . 
year. 
"(C) 50 LARGEST S
T
O
C
K COMPANIES.—For purposes of this 
•iiu ). 
paragraph, the term '50 largest stock companies' means a 
: 
group (as determined by the Secretary) of stock life insur-
er 
ance companies which consists of the 50 largest stock life 
insurance companies which are subject to tax under this 
"O0e t 
part. The Secretary may by regulations provide for exclu-
sion from the group determined under the preceding sen-
ffrie^ 
tence of any stock life insurance company if (i) the equity of 
4 
such company is not great enough for such company to be 1 
:, 
of the 50 largest stock life insurance companies if the 
determination were made on the basis of equity, and (ii) by 
gj. 
f 
reason of the small equity base of such company, it has an 
jj 
earnings rate which would seriously distort the stock earn- 
r; -
^ _
^
, ,^jj.| 
ings rate. 
fsrijfc 
"(D) TREATMENT OF AFFILIATED GROUPS.—For purposes of 
this paragraph, all stock life insurance companies which 
aamol 
^^^ members of the same affiliated group shall be treated as 
one stock life insurance company. 
"(e) AVERAGE MUTUAL EARNINGS RATE.—For purposes of this 
section, the average mutual earnings rate for any calendar year is 
the percentage (determined by the Secretary) which— 
"(1) the aggregate statement gain or loss from operations for 
such year of mutual life insurance companies, is of 
"(2) their aggregate average equity bases for such year. 
"(f) RECOMPUTATION IN SUBSEQUENT YEAR.— 
"(1) 
INCLUSION IN 
INCOME WHERE RECOMPUTED AMOUNT 
'•^ GREATER.—In the case of any mutual life insurance company, 
if— 
«. 
"(A) the recomputed differential earnings amount for any 
taxable year, exceeds 
"(B) the differential earnings amount determined under 
this section for such taxable year, 
such excess shall be included in life insurance gross income for 
the succeeding taxable year. 
"(2) 
DEDUCTION WHERE RECOMPUTED AMOUNT SMALLER.—In 
the case of any mutual life insurance company, i
f
— 
"(A) the differential earnings amount determined under 
this section for any taxable year, exceeds 
"(B) the recomputed differential earnings amount for 
such taxable year. 
98 STAT. 736 
PUBLIC LAW 98-369—JULY 18, 1984 
such excess shall be allowed as a life insurance deduction for 
the succeeding taxable year. 
"(3) RECOMPUTED DIFFERENTIAL EARNINGS AMOUNT.—For pur-
poses of this subsection, the term 'recomputed differential earn-
ings amount' means, with respect to any taxable year, the 
amount which would be the differential earnings amount for 
such taxable year if the average mutual earnings rate taken 
into account under subsection (c)(2) were the average mutual 
earnings rate for the calendar year in which the taxable year 
begins. 
"(4) SPECIAL RULE WHERE COMPANY CEASES TO BE MUTUAL UFE 
INSURANCE COMPANY.—Except as provided in section 381(cX22), 
if— 
"(A) a life insurance company is a mutual life insurance 
company for any taxable year, but 
"(B) such life insurance company is not a mutual life 
insurance company for the succeeding taxable year, 
any adjustment under paragraph (1) or (2) by reason of the 
recomputed differential earnings amount for the first of such 
taxable years shall be taken into account for the first of such 
taxable years. 
"(g) DEFINITIONS AND SPECIAL RULES.—For purposes of this sec-
tion— 
"(1) STATEMENT GAIN OR LOSS FROM OPERATIONS.—The term 
'statement gain or loss from operations' means the net gain or 
loss from operations required to be set forth in the annual 
statement— 
"(A) determined with regard to policyholder dividends (£is 
Ante, p. 732. 
defined in section 808) but without regard to Federal 
income taxes, 
"(B) determined on the basis of the tax reserves rather 
than statutory reserves, and 
"(C) properly adjusted for realized capital gains and losses 
and other relevant items. 
"(2) OTHER TERMS.—Except as otherwise provided in this sec-
tion, the terms used in this section shall have the same respec-
tive meanings as when used in the annual statement. 
"(3) DETERMINATIONS BASED ON AMOUNT SET FORTH IN ANNUAL 
STATEMENT.—Except as otherwise provided in this section or in 
regulations, all determinations under this section shall be made 
on the basis of the amounts required to be set forth on the 
annual statement. 
"(4) ANNUAL STATEMENT.—The term 'annual statement' 
means the annual statement for life insurance companies ap-
proved by the National Association of Insurance Commission-
ers. 
"(5) REDUCTION IN EQUITY BASE FOR PORTION OF EQUITY ALLOCA-
BLE TO LIFE INSURANCE BUSINESS IN NONCONTIGUOUS WESTERN 
HEMISPHERE COUNTRIES.—The equity base of any mutual life 
insurance company shall be reduced by an amount equal to the 
portion of the equity base attributable to the life insurance 
business multiplied by a fraction— 
<H 
"(A) the numerator of which is the portion of the tax 
reserves which is allocable to life insurance contracts issued 
foj 
Qj^ ^jjg jjfg Qf residents of countries in the Western Hemi-
sphere which are not contiguous to the United States, and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 737 
jfil : 
"(B) the denominator of which is the amount of the tax 
reserves allocable to life insurance contracts. 
The preceding sentence shall not apply unless the fraction 
determined under the preceding sentence exceeds V20. 
"(6) SPECIAL RULE FOR CERTAIN CONTRACTS ISSUED BEFORE JAN-
UARY 1, 1985.—In determining the amount of tax reserves of a 
subsidiary of a mutual insurance company for purposes of 
subsection (b)(4), section 811(d) shall not apply with respect to 
Post, p. 740. 
any life insurance contract issued before January 1, 1985, under 
a plan of life insurance in existence on July 1,1983. 
"(h) TREATMENT OF STOCK COMPANIES OWNED BY MUTUAL LIFE 
INSURANCE COMPANIES.— 
"(1) TREATMENT AS MUTUAL LIFE INSURANCE COMPANIES FOR 
PURPOSES OF DETERMINING STOCK EARNINGS RATES AND MUTUAL 
EARNINGS RATES.—Solely for purposes of subsections (d) and (e), 
a stock life insurance company shall be treated as a mutual life 
insurance company if stock possessing— 
"(A) at least 80 percent of the total combined voting 
power of all classes of stock of such stock life insurance 
•
^ 
company entitled to vote, or 
:!*; 
"(B) at least 80 percent of the total value of shares of all 
classes of stock of such stock life insurance company, 
is owned at any time during the calendar year directly (or 
through the application of section 318) by one or more mutual 
life insurance companies. 
"(2) 
TREATMENT OF AFFILIATED GROUP WHICH INCLUDES 
MUTUAL PARENT AND S
T
O
C
K SUBSIDIARY,—In the case of an affili-
ated group of corporations which includes a common parent 
which is a mutual life insurance company and one or more 
stock life insurance companies, for purposes of determining the 
average equity base of such common parent (and the statement 
gain or loss from operations)— 
"(A) stock in such stock life insurance companies held by 
such common parent (and dividends on such stock) shall not 
be taken into account, and 
In •> 
"(B) such common parent and such stock life insurance 
companies shall be treated as though they were one mutual 
fc * 
life insurance company. 
"(3) ADJUSTMENT WHERE STOCK COMPANY NOT MEMBER OF AF-
FILIATED GROUP.—In the case of any stock life insurance com-
pany which is described in paragraph (1) but is not a member of 
an affiliated group described in paragraph (2), under regula-
tions, proper adjustments shall be made in the average equity 
bases (and statement gains or losses from operations) of mutual 
(,, y ^: 1 ^v 
life insurance companies owning stock in such company as may 
be necessary or appropriate to carry out the purposes of this 
section. 
"(i) TRANSITIONAL RULE FOR CERTAIN HIGH SURPLUS MUTUAL LIFE 
INSURANCE COMPANIES.— 
"(1) IN GENERAL.—For purposes of subsection (a)(3), the aver-
age equity base of a high surplus mutual life insurance com-
pany for any taxable year shall not include the applicable 
percentage of the excess equity base of such company for such 
taxable year. 
"(2) DEFINITIONS.—For purposes of this subsection— 
"(A) EXCESS EQUITY BASE.—The term 'excess equity base' 
means the excess of— 
98 STAT. 738 
PUBLIC LAW 98-369—JULY 18, 1984 
yjii mi ; 
"(i) the average equity base of the company for the 
taxable year, over 
fioftfifiil 
"(ii) the amount which would be its average equity 
base if its equity percentage equaled the following 
K ' T
, Tfjfc 
percentage: 
"For taxable years beginning in: 
The percentage is: 
1984 
14.5 
0fc, .. V.-; 
1985 or 1986 
14 
• • 
' " 
1987 or 1988 
13.5 
In no case shall the excess equity base for any taxable year 
be greater than the excess equity base for the company's 
first taxable year beginning in 1984. 
"(B) APPLICABLE PERCENTAGE.—The term 'applicable per-
centage' means the percentage determined in accordance 
with the following table: 
"For 
taxable 
years 
The 
applicable 
beginning 
in: 
percentage is: 
1984 
100 
1985 
80 
1986 
60 
1987 
40 
1988 
20 
1989 
or 
thereafter 
0. 
"(C) HIGH SURPLUS MUTUAL LIFE INSURANCE COMPANY.— 
The term 'high surplus mutual life insurance company' 
means any mutual life insurance company if, for the tax-
able year beginning in 1984, its equity percentage exceeded 
14.5 percent. 
"(D) EQUITY PERCENTAGE.—The term 'equity percentage' 
means, with respect to any mutual life insurance company, 
the percentage which— 
"(i) the average equity base of such company (deter-
mined under this section without regard to this subsec-
tion) for a taxable year bears to 
"(ii) the average of— 
"(I) the assets of such company as of the close of 
the preceding taxable year, and 
"(II) the assets of such company as of the close of 
the taxable year. 
For purposes of the preceding sentence, the assets of a 
company shall include all assets taken into account under 
this section in determining its equity base (after applying 
the principles of subsection (h)). 
26 u s e 810. 
"SEC. 810. OPERATIONS LOSS DEDUCTION. 
"(a) DEDUCTION ALLOWED.—There shall be allowed as a deduction 
for the taxable year an amount equal to the aggregate of— 
"(1) the operations loss carryovers to such year, plus 
"(2) the operations loss carrybacks to such year. 
For purposes of this part, the term 'operations loss deduction' means 
the deduction allowed by this subsection. 
"(b) OPERATIONS Loss CARRYBACKS AND CARRYOVERS.— 
"(1) YEARS TO WHICH LOSS MAY BE CARRIED.—The loss from 
operations for any taxable year (hereinafter in this section 
referred to as the 'loss year') shall be— 
"(A) an operations loss carryback to each of the 3 taxable 
years preceding the loss year, 
, „ _ . _ 
^. _ 
'H 33U m 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 739 
-le :; 
"(B) an operations loss carryover to each of the 15 taxable 
years following the loss year, and 
"(C) if the life insurance company is a new company for 
the loss year, an operations loss carryover to each of the 3 
t-. ^ ,, -•. 
r 
taxable years following the 15 taxable years described in 
subparagraph (B). 
"(2) AMOUNT OF CARRYBACKS AND CARRYOVERS.—The entire 
amount of the loss from operations for any loss year shall be 
carried to the earliest of the taxable years to which (by reason of 
paragraph (1)) such loss may be carried. The portion of such loss 
which shall be carried to each of the other taxable years shall 
be the excess (if any) of the amount of such loss over the sum of 
the offsets (as defined in subsection (d)) for each of the prior 
taxable years to which such loss may be carried. 
"(3) ELECTION FOR OPERATIONS LOSS CARRYBACKS.—In the case 
of a loss from operations for any taxable year, the taxpayer may 
elect to relinquish the entire carryback period for such loss. 
Such election shall be made by the due date (including exten-
sions of time) for filing the return for the taxable year of the 
loss from operations for which the election is to be in effect, and, 
once made for any taxable year, such election shall be irrevoca-
ble for that taxable year. 
"(c) COMPUTATION OF Loss FROM OPERATIONS.—For purposes of 
this section— 
"(1) IN GENERAL.—The term 'loss from operations' means the 
excess of the life insurance deductions for any taxable year over 
the life insurance gross income for such taxable year. 
"(2) MODIFICATIONS.—For purposes of paragraph (1)— 
wv. 
"(A) the operations loss deduction shall not be allowed, 
and 
"(B) the deductions allowed by sections 243 (relating to 
dividends received by corporations), 244 (relating to divi-
dends received on certain preferred stock of public utilities), 
and 245 (relating to dividends received from certain foreign 
* 
corporations) shall be computed without regard to section 
246(b) as modified by section 805(a)(4). 
Ante, p. 722. 
"(d) OFFSET DEFINED.— 
"(1) IN GENERAL.—For purposes of subsection (b)(2), the term 
1 
'offset' means, with respect to any taxable year, an amount 
equal to that increase in the operations loss deduction for the 
I 
taxable year which reduces the life insurance company taxable 
income (computed without regard to paragraphs (2) and (3) of 
section 804) for such year to zero. 
. 
Ante, p. 722. 
"(2) OPERATIONS LOSS DEDUCTION.—For purposes of paragraph 
(1), the operations loss deduction for any taxable year shall be 
computed without regard to the loss from operations for the loss 
year or for any taxable year thereafter. 
"(e) NEW COMPANY DEFINED.—For purposes of this part, a life 
insurance company is a new company for any taxable year only if 
such taxable year begins not more than 5 years after the first day on 
which it (or any predecessor, if section 381(c)(22) applies) was author-
ized to do business as an insurance company. 
"(f) APPLICATION OF SUBTITLES A AND F IN RESPECT OF OPERATION 
LOSSES.—Except as provided in section 805(b)(5), subtitles A and F 
26 USC l, 6001. 
shall apply in respect of operation loss carrybacks, operation loss 
carryovers, and the operations loss deduction under this part, in the 
same manner and to the same extent as such subtitles apply in 
98 STAT. 740 
PUBLIC LAW 98-369—JULY 18, 1984 
respect of net operating loss carrybacks, net operating loss car-
ryovers, and the net operating loss deduction. 
"(g) TRANSITIONAL RULE.—For purposes of this section and section 
Post, p. 741. 
812 (as in effect before the enactment of the Life Insurance Tax Act 
of 1984), this section shall be treated as a continuation of such 
section 812. 
"Subpart D—Accounting, Allocation, and Foreign 
Provisions 
"Sec. 811. Accounting provisions. 
"Sec. 812. Definition of company's share and policyholders' share. 
"Sec. 813. Foreign life insurance companies. 
"Sec. 814. Contiguous country branches of domestic hfe insurance compa-
nies. 
"Sec. 815. Distributions to shareholders from pre-1984 policyholders sur-
plus account. 
26 use 811. 
"SEC. 811. ACCOUNTING PROVISIONS. 
"(a) METHOD OF ACCOUNTING.—All computations entering into the 
determination of the taxes imposed by this part shall be made— 
"(1) under an accrual method of accounting, or 
"(2) to the extent permitted under regulations prescribed by 
the Secretary, under a combination of an accrual method of 
accounting with any other method permitted by this chapter 
(other than the cash receipts and disbursements method). 
To the extent not inconsistent with the preceding sentence or any 
other provision of this part, all such computations shall be made in a 
manner consistent with the manner required for purposes of the 
annual statement approved by the National Association of Insur-
ance Commissioners. 
"(b) AMORTIZATION OF PREMIUM AND ACCRUAL OF DISCOUNT.— 
"(1) IN GENERAL.—The appropriate items of income, deduc-
tions, and adjustments under this part shall be adjusted to 
reflect the appropriate amortization of premium and the appro-
priate accrual of discount attributable to the taxable year on 
£
< , ,v 
bonds, notes, debentures, or other evidences of indebtedness 
held by a life insurance company. Such amortization and ac-
crual shall be determined— 
"(A) in accordance with the method regularly employed 
by such company, if such method is reasonable, and 
"(B) in all other cases, in accordance with regulations 
prescribed by the Secretary. 
-irv G >tr» 
"(2) SPECIAL RULES.— 
"(A) AMORTIZATION OF BOND PREMIUM.—In the case of any 
bond (£is defined in section 171(d)), the amount of bond 
premium, and the amortizable bond premium for the tax-
able year, shall be determined under section 171(b) as if the 
election set forth in section 171(c) had been made. 
"(B) CONVERTIBLE EVIDENCE OF INDEBTEDNESS.—In no case 
shall the amount of premium on a convertible evidence of 
indebtedness include any amount attributable to the con-
version features of the evidence of indebtedness. 
"(3) EXCEPTION.—No accrual of discount shall be required 
i>¥'-). 
»^'i m 
under paragraph (1) on any bond (as defined in section 171(d)), 
except in the case of discount which is— 
"(A) interest to which section 103 applies, or 
"(B) original issue discount (as defined in section 1232(b)). 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 741 
"(c) No DOUBLE COUNTING.—Nothing in this part shall permit— 
"(1) a reserve to be established for any item unless the gross 
amount of premiums and other consideration attributable to 
such item are required to be included in life insurance gross 
income, 
"(2) the same item to be counted more than once for reserve 
purposes, or 
"(3) any item to be deducted (either directly or as an increase 
in reserves) more than once. 
"(d) METHOD OF COMPUTING RESERVES ON CONTRACT WHERE INTER-
EST Is GUARANTEED BEYOND END OF TAXABLE YEAR.—For purposes 
of this part (other than section 816), amounts in the nature of 
Post, p. 748. 
interest to be paid or credited under any contract for any period 
^J^ 
which is computed at a rate which— 
" ' 
"(1) exceeds the prevailing State assumed interest rate for the 
contract for such period, and 
"(2) is guaranteed beyond the end of the taxable year on 
which the reserves are being computed, 
shall be taken into account in computing the reserves with respect 
to such contract as if such interest were guaranteed only up to the 
end of the taxable year. 
"(e) SHORT TAXABLE YEARS.—If any return of a corporation made 
under this part is for a period of less than the entire calendar year 
(referred to in this subsection as 'short period'), then section 443 
shall not apply in respect to such period, but life insurance company 
taxable income shall be determined, under regulations prescribed by 
the Secretary, on an annual basis by a ratable daily projection of the 
appropriate figures for the short period. 
"SEC. 812. DEFINITION OF COMPANY'S SHARE AND POLICYHOLDERS' 
26 USC 812. 
SHARE. 
i "(a) GENERAL RULE.— 
"(1) COMPANY'S SHARE.—For purposes of section 805(a)(4), the 
Ante, p. 722. 
term 'company's share' means, with respect to any taxable year, 
the percentage obtained by dividing— 
"(A) the company's share of the net investment income 
^
; 
for the taxable year, by 
"(B) the net investment income for the taxable year. 
t 
"(2) POLICYHOLDERS' SHARE.—For purposes of section 807, the 
Ante, p. 726. 
t 
term 'policyholders' share' means, with respect to any taxable 
year, the excess of 100 percent over the percentage determined 
1 
under paragraph (1). 
"(b) COMPANY'S SHARE OF NET INVESTMENT INCOME.— 
"(1) IN GENERAL.—For purposes of this section, the company's 
share of net investment income is the excess (if any) o
f
— 
"(A) the net investment income for the taxable year, over 
"(B) the sum of^ 
"(i) the policy interest, for the taxable year, plus 
"(ii) the gross investment income's proportionate 
share of policyholder dividends for the taxable year. 
"(2) POLICY INTEREST.—For purposes of this subsection, the 
term 'policy interest' means— 
"(A) required interest (at the prevailing State assumed 
rate) on reserves under section 807(c) (other than paragraph 
(2) thereof), 
"(B) the deductible portion of excess interest, and 
98 STAT. 742 
PUBLIC LAW 98-369—JULY 18, 1984 
—
*
f
' 
"(C) the deductible portion of any amount (whether or not 
a poUcyholder dividend), and not taken into account under 
subparagraph (A) or (B), credited to— 
"(i) a poHcyholder's fund under a pension plan con-
tract for employees (other than retired employees), or 
"(ii) a deferred annuity contract before the annuity 
starting date. 
"(3) 
GROSS INVESTMENT INCOME'S PROPORTIONATE SHARE OF 
POLICYHOLDER DIVIDENDS.—For purposes of paragraph (1), the 
gross investment income's proportionate share of policyholder 
dividends is— 
"(A) the deduction for policyholders' dividends deter-
Ante, pp. 732, 
mined under sections 808 and 809 for the taxable year, but 
"^33. 
not including— 
"(i) the deductible portion of excess interest, 
"(ii) the deductible portion of policyholder dividends 
„. 
on contracts referred to in clauses (i) and (ii) of para-
graph (2)(C), and 
"(iii) the deductible portion of the premium and mor-
tality charge adjustments with respect to contracts 
paying excess interest for such year, 
multiplied by 
"(B) the fraction— 
"(i) the numerator of which is gross investment 
income for the taxable year (reduced by the policy 
interest for such year), and 
"(ii) the denominator of which is life insurance gross 
income (including tax-exempt interest) reduced by the 
excess (if any) of the closing balance for the items 
Ante, p. 726. 
described in section 807(c) over the opening balance for 
such items for the taxable year. 
"(c) NET INVESTMENT INCOME.—For purposes of this section, the 
term 'net investment income' means 90 percent of gross investment 
income. 
"(d) GROSS INVESTMENT INCOME.—For purposes of this section, the 
term 'gross investment income' means the sum of the following: 
"(1) INTEREST, ETC.—The gross amount of income from— 
"(A) interest (including tax-exempt interest), dividends, 
rents, and royalties, 
* <
i ' 
"(B) the entering into of any lease, mortgage, or other 
instrument or agreement from which the life insurance 
company derives interest, rents, or royalties, and 
"(C) the alteration or termination of any instrument or 
agreement described in subparagraph (B). 
"(2) SHORT-TERM CAPITAL GAIN.—The amount (if any) by which 
the net short-term capital gain exceeds the net long-term cap-
ital loss. 
"(3) TRADE OR BUSINESS INCOME.—The gross income from any 
trade or business (other than an insurance business) carried on 
by the life insurance company, or by a partnership of which the 
life insurance company is a partner. In computing gross income 
under this paragraph, there shall be excluded any item de-
scribed in paragraph (1). 
Except as provided in paragraph (2), in computing gross investment 
income under this subsection, there shall be excluded any gain from 
the sale or exchange of a capital asset, and any gain considered as 
gain from the sale or exchange of a capital asset. 
^^ 
.S«ii 
.1., 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 743 
"(e) 
DIVIDENDS FROM CERTAIN SUBSIDIARIES NOT INCLUDED IN 
GROSS INVESTMENT INCOME.—For purposes of this section, the term 
'gross investment income' shall not include any dividend received by 
the life insurance company which is a 100-percent dividend (as 
defined in section 805(a)(4)(C)). Such term also shall not include any 
Ante, p. 722. .
. 
dividend described in section 805(a)(4)(D) (relating to certain divi-
dends in the case of foreign corporations). 
"(f) No DOUBLE COUNTING.—Under regulations, proper adjust-
ments shall be made in the application of this section to prevent an 
item from being counted more than once. 
"SEC 813. FOREIGN LIFE INSURANCE COMPANIES. 
26 USC 813. 
"(a) ADJUSTMENT WHERE SURPLUS HELD IN THE UNITED STATES IS 
LESS THAN SPECIFIED MINIMUM.— 
"(1) IN GENERAL.—In the case of any foreign company taxable 
under this part, if— 
"(A) the required surplus determined under paragraph 
(2), exceeds 
"(B) the surplus held in the United States, 
then its income effectively connected with the conduct of an 
insurance business within the United States shall be increased 
by an amount determined by multiplying such excess by such 
company's current investment yield. 
"(2) REQUIRED SURPLUS.—For purposes of this subsection— 
"(A) IN GENERAL.—The term 'required surplus' means the 
gj;: a ,>v > h 
amount determined by multiplying the taxpayer's total 
insurance liabilities on United States business by a percent-
age for the taxable year determined and proclaimed by the 
Secretary under subparagraph (B). 
"(B) DETERMINATION OF PERCENTAGE.—The percentage de-
•mmk 
termined and proclaimed by the Secretary under this sub-
paragraph shall be based on such data with respect to 
domestic life insurance companies for the preceding taxable 
year as the Secretary considers representative. Such per-
I ,^ 
centage shall be computed on the basis of a ratio the 
^" 
numerator of which is the excess of the assets over the total 
insurance liabilities, and the denominator of which is the 
j^ 
total insurance liabilities. 
* 
"(3) CURRENT INVESTMENT YIELD.—For purposes of this subsec-
tion— 
"(A) IN GENERAL.—The term 'current investment yield' 
[- 
means the percent obtained by dividing— 
"(i) the net investment income on assets held in the 
^ 
- 
United States, by 
"(ii) the mean of the assets held in the United States 
during the taxable year. 
"(B) DETERMINATIONS BASED ON AMOUNT SET FORTH IN THE 
p 
ANNUAL STATEMENT.—Except as otherwise provided in regu-
lations, determinations under subparagraph (A) shall be 
, 
made on the basis of the amounts required to be set forth on 
the annual statement approved by the National Association 
of Insurance Commissioners. 
"(4) OTHER DEFINITIONS.—For purposes of this subsection— 
"(A) SURPLUS HELD IN THE UNITED STATES.—The surplus 
held in the United States is the excess of the assets (deter-
mined under section 8060t)X3XC)) held in the United States 
Ante, p. 724. 
.|i{?i 'fSfJ ^te 
;')J5*J ;•!<; 
98 STAT. 744 
PUBLIC LAW 98-369—JULY 18, 1984 
M
l 0 
over the total insurance liabilities on United States busi-
ness. 
"(B) TOTAL INSURANCE LIABILITIES.—For purposes of this 
subsection, the term 'total insurance liabilities' means the 
Post, p. 748. 
sum of the total reserves (as defined in section 816(c)) plus 
" 
(to the extent not included in total reserves) the items 
Ante, p. 726. 
referred to in paragraphs (3), (4), (5), and (6) of section 807(c). 
"(5) REDUCTION OF SECTION 881 TAXES.—In the case of any 
foreign company taxable under this part, there shall be deter-
mined— 
"(A) the amount which would be subject to taxes under 
section 881 if the amount taxable under such section were 
8l m 
determined without regard to sections 103 and 894, and 
"(B) the amount of the increase provided by paragraph 
The tax under section 881 (determined without regard to this 
paragraph) shall be reduced (but not below zero) by an amount 
which is the same proportion of such tax as the amount referred 
to in subparagraph (B) is of the amount referred to in subpara-
graph (A); but such reduction in taxes shall not exceed the 
increase in taxes under this part by reason of the increase 
provided by paragraph (1). 
"(b) ADJUSTMENT TO LIMITATION ON DEDUCTION FOR POLICYHOLDER 
DIVIDENDS IN THE CASE OF FOREIGN MUTUAL LIFE INSURANCE COMPA-
Ante, p. 733. 
NiES.—For purposes of section 809, the equity base of any foreign 
mutual life insurance company as of the close of any taxable year 
shall be increased by the amount of any excess determined under 
paragraph (1) of subsection (a) with respect to such taxable year. 
"(c) CROSS REFERENCE.— 
"For taxation of foreign corporations carrying on life insurance busi-
ness within the United States, see section 842. 
26 use 814. 
"SEC. 814. CONTIGUOUS COUNTRY BRANCHES OF DOMESTIC LIFE INSUR-
ANCE COMPANIES. 
"(a) EXCLUSION OF ITEMS.—In the case of a domestic mutual 
insurance company which— 
"(1) is a life insurance company, 
"(2) has a contiguous country life insurance branch, and 
"(3) makes the election provided by subsection (g) with respect 
to such branch, 
there shall be excluded from each item involved in the determina-
tion of life insurance company taxable income the items separately 
accounted for in accordance with subsection (c). 
"(b) CONTIGUOUS COUNTRY LIFE INSURANCE BRANCH.—For pur-
poses of this section, the term contiguous country life insurance 
branch means a branch which— 
"(1) issues insurance contracts insuring risks in connection 
with the lives or health of residents of a country which is 
contiguous to the United States, 
"(2) h£is its principal place of business in such contiguous 
country, and 
"(3) would constitute a mutual life insurance company if such 
branch were a separate domestic insurance company. 
For purposes of this section, the term 'insurance contract' means 
any life, health, accident, or annuity contract or reinsurance con-
.
i
^
S
T q M 
tract or any contract relating thereto. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 745 
"(c) SEPARATE ACCOUNTING REQUIRED.—Any taxpayer which 
makes the election provided by subsection (g) shall establish and 
maintain a separate account for the various income, exclusion, 
deduction, asset, reserve, liability, and surplus items properly attrib-
utable to the contracts described in subsection (b). Such separate 
accounting shall be made— 
"(1) in accordance with the method regularly employed by 
such company, if such method clearly reflects income derived 
from, and the other items attributable to, the contracts de-
scribed in subsection (b), and 
"(2) in all other cases, in accordance with regulations pre-
scribed by the Secretary. 
,
^ . ,,,, ,g 
"(d) RECOGNITION OF GAIN ON ASSETS IN BRANCH ACCOUNT.—If the 
" 
' ' 
aggregate fair market value of all the invested assets and tangible 
property which are separately accounted for by the domestic life 
insurance company in the branch account established pursuant to 
subsection (c) exceeds the aggregate adjusted basis of such £issets for 
purposes of determining gain, then the domestic life insurance 
company shall be treated as having sold all such assets on the first 
day of the first taxable year for which the election is in effect at 
their fair market value on such first day. Notwithstanding any 
other provision of this chapter, the net gain shall be recognized to 
the domestic life insurance company on the deemed sale described in 
the preceding sentence. 
"(e) TRANSACTIONS BETWEEN CONTIGUOUS COUNTRY BRANCH AND 
DOMESTIC LIFE INSURANCE COMPANY.— 
"(1) REIMBURSEMENT FOR HOME OFFICE SERVICES, ETC.—Any 
payment, transfer, reimbursement, credit, or allowance which is 
made from a separate account established pursuant to subsec-
tion (c) to one or more other accounts of a domestic life insur-
ance company as reimbursement for costs incurred for or with 
respect to the insurance (or reinsurance) of risks accounted for 
in such separate account shall be taken into account by the 
domestic life insurance company in the same manner as if such 
payment, transfer, reimbursement, credit, or allowance had 
been received from a separate person. 
"(2) REPATRIATION OF INCOME.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), any amount directly or indirectly transferred or cred-
ited from a branch account established pursuant to subsec-
tion (c) to one or more other accounts of such company 
shall, unless such transfer or credit is a reimbursement to 
which paragraph (1) applies, be added to the income of the 
domestic life insurance company. 
"(B) LIMITATION.—The addition provided by subpara-
graph (A) for the taxable year with respect to any contigu-
ous country life insurance branch shall not exceed the 
amount by which— 
"(i) the aggregate decrease in the tentative LICTI of 
the domestic life insurance company for the taxable 
year and for all prior taxable years resulting solely 
from the application of subsection (a) of this section 
with respect to such branch, exceeds 
"(ii) the amount of additions to tentative LICTI pur-
suant to subparagraph (A) with respect to such contigu-
ous country branch for all prior taxable years. 
98 STAT. 746 
PUBLIC LAW 98-369—JULY 18, 1984 
"(C) TRANSITIONAL RULE.—For purposes of this para-
; 
graph, in the case of a prior taxable year beginning before 
January 1, 1984, the term 'tentative LICTI' means Hfe 
insurance company taxable income determined under this 
part (as in effect for such year) without regard to this 
paragraph. 
"(f) OTHER RULES.— 
J.±-. 
?. ^^. J 
"(1) TREATMENT OF FOREIGN TAXES.— 
"(A) IN GENERAL.—No income, war profits, or excess prof-
its taxes paid or accrued to any foreign country or posses-
.^, 
sion of the United States which is attributable to income 
^ 
excluded under subsection (a) shall be taken into account 
26 use 901. 
for purposes of subpart A of part III of subchapter N 
(relating to foreign tax credit) or allowable as a deduction, 
"(B) TREATMENT OF REPATRIATED AMOUNTS.—For purposes 
of sections 78 and 902, where any amount is added to the 
life insurance company taxable income of the domestic life 
insurance company by reason of subsection (e)(2), the con-
tiguous country life insurance branch shall be treated as a 
foreign corporation. Any amount so added shall be treated 
as a dividend paid by a foreign corporation, and the taxes 
paid to any foreign country or possession of the United 
States with respect to such amount shall be deemed to have 
been paid by such branch. 
"(2) UNITED STATES SOURCE INCOME ALLOCABLE TO CONTIGUOUS 
^'-^•'' COUNTRY BRANCH.—For purposes of sections 881, 882, and 1442, 
each contiguous country life insurance branch shall be treated 
as a foreign corporation. Such sections shall be applied to each 
such branch in the same manner as if such sections contained 
the provisions of any treaty to which the United States and the 
contiguous country are parties, to the same extent such provi-
sions would apply if such branch were incorporated in such 
contiguous country. 
"(g) ELECTION.—A taxpayer may make the election provided by 
this subsection with respect to any contiguous country for any 
taxable year. An election made under this subsection for any tax-
able year shall remain in effect for all subsequent taxable years, 
except that it may be revoked with the consent of the Secretary. The 
election provided by this subsection shall be made not later than the 
time prescribed by law for filing the return for the taxable year 
(including extensions thereof) with respect to which such election is 
made, and such election and any approved revocation thereof shall 
be made in the manner provided by the Secretary. 
"(h) SPECIAL RULE FOR DOMESTIC STOCK LIFE INSURANCE COMPA-
NIES.—At the election of a domestic stock life insurance company 
which has a contiguous country life insurance branch described in 
subsection (b) (without regard to the mutual requirement in subsec-
tion (b)(3)), the assets of such branch may be transferred to a foreign 
corporation organized under the laws of the contiguous country 
without the application of section 367 or 1491. Subsection (a) shall 
apply to the stock of such foreign corporation as if such domestic 
company were a mutual company and as if the stock were an item 
described in subsection (c). Subsection (e)(2) shall apply to amounts 
transferred or credited to such domestic company as if such domes-
tic company and such foreign corporation constituted one domestic 
mutual life insurance company. The insurance contracts which may 
be transferred pursuant to this subsection shall include only those 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 747 
which are similar to the types of insurance contracts issued by a 
mutual life insurance company. Notwithstanding the first sentence 
of this subsection, if the aggregate fair market value of the invested 
assets and tangible property which are separately accounted for by 
the domestic life insurance company in the branch account exceeds 
the aggregate adjusted basis of such assets for purposes of determin-
ing gain, the domestic life insurance company shall be deemed to 
have sold all such assets on the first day of the taxable year for 
which the election under this subsection applies and the net gain 
shall be recognized to the domestic life insurance company on the 
deemed sale, but not in excess of the proportion of such net gain 
which equals the proportion which the aggregate fair market value 
of such assets which are transferred pursuant to this subsection is of 
the aggregate fair market value of all such assets. 
: 3^»^^ 
"SEC. 815. DISTRIBUTIONS TO SHAREHOLDERS FROM PRE.1984 POLICY- 
26 USC 815. 
HOLDERS SURPLUS ACCOUNT. 
"(a) GENERAL RULE.—In the case of a stock life insurance company 
which has an existing policyholders surplus account, the tax im-
posed by section 801 for any taxable year shall be the amount which 
Ante, p. 720. 
would be imposed by such section for such year on the sum of— 
"(1) life insurance company taxable income for such year (but 
*
" 
not less than zero), plus 
"(2) the amount of direct and indirect distributions during 
such year to shareholders from such account. 
"(b) ORDERING RULE.—For purposes of this section, any distribu-
tion to shareholders shall be treated as made— 
"(1) first out of the shareholders surplus account, to the 
extent thereof, 
"(2) then out of the policyholders surplus account, to the 
extent thereof, and 
"(3) finally, out of other accounts. 
"(c) SHAREHOLDERS SURPLUS ACCOUNT.— 
'H3 )8U di 
"(1) IN GENERAL.—Each stock life insurance company which 
has an existing policyholders surplus account shall continue its 
shareholders surplus account for purposes of this part. 
"(2) ADDITIONS TO ACCOUNT.—The amount added to the share-
holders surplus account for any taxable year beginning after 
December 31,1983, shall be the excess of— 
"(A) the sum of— 
"(i) the life insurance company's taxable income (but 
*
• 
not below zero), 
f 
"(ii) the special deductions provided by section 806, 
Ante, p. 724. 
and 
"(iii) the deductions for dividends received provided 
by sections 243, 244, and 245 (as modified by section 
•
'
* 
805(a)(4)) and the amount of interest excluded from 
Ante, p. 722. 
gross income under section 103, over 
"(B) the t£ixes imposed for the taxable year by section 801 
Ante, p. 720. 
(determined without regard to this section). 
"(3) SUBTRACTIONS FROM ACCOUNT.—There shall be subtracted 
from the shareholders surplus account for any taxable year the 
amount which is treated under this section as distributed out of 
such account. 
"(d) POUCYHOLDERS SURPLUS ACCOUNT.— 
98 STAT. 748 
PUBLIC LAW 98-369—JULY 18, 1984 
"(1) IN GENERAL.—Each stock life insurance company which 
has an existing policyholders surplus account shall continue 
such account. 
"(2) No ADDITIONS TO ACCOUNT.—No amount shall be added to 
the policyholders surplus account for any taxable year begin-
ning after December 31,1983. 
"(3) SUBTRACTIONS FROM ACCOUNT.—There shall be subtracted 
from the policyholders surplus account for any taxable year an 
amount equal to the sum o
J
F
— 
"(A) the amount which (without regard to subparagraph 
(B)) is treated under this section as distributed out of the 
policyholders surplus account, and 
"(B) the amount by which the tax imposed for the taxable 
Ante, p. 720. 
year by section 801 is increeised by reason of this section. 
"(e) EXISTING POUCYHOLDERS SURPLUS ACCOUNT.—For purposes of 
' ' 
this section, the term 'existing policyholders surplus account means 
any policyholders surplus account which has a balance as of the 
close of December 31,1983. 
"(f) OTHER RULES APPUCABLE TO POUCYHOLDERS SURPLUS AC-
COUNT CONTINUED.—Except to the extent inconsistent with the pro-
visions of this part, the provisions of subsections (d), (e), (f), and (g) of 
Ante, p. 747. 
section 815 (and of sections 6501(c)(6), 6501(k), 6511(d)(6), 6601(d)(3), 
and 6611(fK4)) as in effect before the enactment of the Tax Reform 
Act of 1984 are hereby made applicable in respect of any policyhold-
ers surplus account for which there was a balance as of December 
31,1983. 
••'•ail 
...„ 
"Subpart E—Dennitions and Special Rules 
sni 
"Sec. 816. Life insurance company defined. 
"Sec. 817. Treatment of variable contracts. 
"Sec. 818. Other definitions and special rules. 
26 use 816. 
"SEC. 816. LIFE INSURANCE COMPANY DEFINED. 
"(a) LIFE INSURANCE COMPANY DEFINED.—For purposes of this 
subtitle, the term 'life insurance company' means an insurance 
company which is engaged in the business of issuing life insurance 
and annuity contracts (either separately or combined with accident 
and health insurance), or noncancellable contracts of health and 
accident insurance, if^ 
"(1) its life insurance reserves (as defined in subsection (b)), 
plus 
"(2) unearned premiums, and unpaid losses (whether or not 
^s; I v
>
f
t
/ 
ascertained), on noncancellable life, accident, or health policies 
not included in life insurance reserves, 
comprise more than 50 percent of its total reserves (as defined in 
subsection (c)). For purposes of the preceding sentence, the term 
V
. 
„ , 
'insurance company means any company more than half of the 
business of which during the taxable year is the issuing of insurance 
J. 
or annuity contracts or the reinsuring of risks underwritten by 
insurance companies. 
"(b) LIFE INSURANCE RESERVES DEFINED.— 
"(1) IN GENERAL.—For purposes of this part, the term 'life 
insurance reserves' means amounts— 
"(A) which are computed or estimated on the basis of 
recognized mortality or morbidity tables and assumed rates 
of interest, and 
MV 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 749 
"(B) which are set aside to mature or liquidate, either by 
payment or reinsurance, future unaccrued claims arising 
from life insurance, annuity, and noncancellable accident 
and health insurance contracts (including life insurance or 
annuity contracts combined with noncancellable accident 
and health insurance) involving, at the time with respect to 
which the reserve is computed, life, accident, or health 
'^ 
contingencies. 
"(2) RESERVES MUST BE REQUIRED B
Y LAW.—Except— 
-ir K 
"(A) in the case of policies covering life, accident, and 
health insurance combined in one policy issued on the 
weekly premium payment plan, continuing for life and not 
subject to cancellation, and 
"(B) as provided in paragraph (3), 
in addition to the requirements set forth in paragraph (1), life 
insurance reserves must be required by law. 
"(3) ASSESSMENT COMPANIES.—In the case of an assessment 
life insurance company or association, the term 'life insurance 
reserves' includes— 
"(A) sums actually deposited by such company or associa-
tion with State officers pursuant to law as guaranty or 
reserve funds, and 
"(B) any funds maintained, under the charter or articles 
.; , ^^%-,^h^ 
of incorporation or eissociation (or bylaws approved by a 
State insurance commissioner) of such company or associa-
tion, exclusively for the payment of claims arising under 
certificates of membership or policies issued on the assess-
ment plan and not subject to any other use. 
"(4) AMOUNT OF RESERVES.—For purposes of this subsection, 
subsection (a), and subsection (c), the amount of any reserve (or 
portion thereof) for any taxable year shall be the mean of such 
reserve (or portion thereof) at the beginning and end of the 
taxable year. 
"(c) TOTAL RESERVES DEFINED.—For purposes of subsection (a), the 
term 'total reserves' means— 
"(1) life insurance reserves, 
"(2) unearned premiums, and unpaid losses (whether or not 
ascertained), not included in life insurance reserves, and 
"(3) all other insurance reserves required by law. 
& 
"(d) ADJUSTMENTS IN RESERVES FOR POUCY LOANS.—For purposes 
only of determining under subsection (a) whether or not an insur-
ance company is a life insurance company, the life insurance re-
serves, and the total reserves, shall each be reduced by an amount 
equal to the mean of the eiggregates, at the beginning and end of the 
taxable year, of the policy loans outstanding with respect to con-
tracts for which life insurance reserves are maintained. 
"(e) GUARANTEED RENEWABLE CONTRACTS.—For purposes of this 
part, guaranteed renewable life, accident, and health insurance 
shall be treated in the same manner as noncancellable life, accident, 
and health insurance. 
"(f) AMOUNTS NOT INVOLVING LIFE, ACCIDENT, OR HEALTH CONTIN-
GENCIES.—For purposes only of determining under subsection (a) 
whether or not an insurance company is a life insurance company, 
amounts set aside and held at interest to satisfy obligations under 
contracts which do not contain permanent guarantees with respect 
to life, accident, or health contingencies shall not be included in 
reserves described in paragraph (1) or (3) of subsection (c). 
98 STAT. 750 
PUBLIC LAW 98-369—JULY 18, 1984 
"(g) 
BURIAL AND FUNERAL BENEFIT INSURANCE COMPANIES.—A 
burial or funeral benefit insurance company eng£iged directly in the 
manufacture of funeral supplies or the performance of funeral 
services shall not be taxable under this part but shall be taxable 
under section 821 or section 831. 
26 use 817. 
"SEC. 817. TREATMENT OF VARIABLE CONTRACTS. 
"(a) INCREASES AND DECREASES IN RESERVES.—For purposes of 
Ante, p. 726. 
subsections (a) and (b) of section 807, the sum of the items described 
in section 807(c) taken into account as of the close of the taxable 
year with respect to any variable contract shall, under regulations 
prescribed by the Secretary, be adjusted— 
"(1) by subtracting therefrom an amount equal to the sum of 
the amounts added from time to time (for the taxable year) to 
the reserves separately accounted for in accordance with subsec-
tion (c) by reason of appreciation in value of assets (whether or 
not the assets have been disposed of), and 
"(2) by adding thereto an amount equal to the sum of the 
amounts subtracted from time to time (for the tsixable year) 
from such reserves by reason of depreciation in value of assets 
(whether or not the assets have been disposed of). 
The deduction allowable for items described in paragraphs (1) and 
Ante, p. 722. 
(6) of section 805(a) with respect to variable contracts shall be 
reduced to the extent that the amount of such items is increased for 
the taxable year by appreciation (or increased to the extent that the 
amount of such items is decreased for the taxable year by deprecia-
tion) not reflected in adjustments under the preceding sentence. 
"(b) ADJUSTMENT TO BASIS OF ASSETS HELD IN SEGREGATED ASSET 
ACCOUNT.—In the case of variable contracts, the basis of each asset 
in a segregated asset account shall (in addition to all other adjust-
ments to basis) be— 
"(1) increased by the amount of any appreciation in value, 
and 
"(2) decreased by the amount of any depreciation in value, 
to the extent such appreciation and depreciation are from time to 
time reflected in the increases and decreases in reserves or other 
items referred to in subsection (a) with respect to such contracts. 
"(c) SEPARATE ACCOUNTING.—For purposes of this part (other than 
Ante, p. 733. 
section 809), a life insurance company which issues variable con-
tracts shall separately account for the various income, exclusion, 
deduction, asset, reserve, and other liability items properly attribut-
able to such variable contracts. For such items as are not accounted 
for directly, separate accounting shall be made— 
"(1) in accordance with the method regularly employed by 
such company, if such method is reasonable, and 
"(2) in all other cases, in accordance with regulations pre-
scribed by the Secretary. 
"(d) VARIABLE CONTRACT DEFINED.—For purposes of this part, the 
term 'variable contract' means a contract— 
"(1) which provides for the allocation of all or part of the 
amounts received under the contract to an account which, 
pursuant to State law or regulation, is segregated from the 
general asset accounts of the company, 
"(2) which— 
"(A) provides for the payment of annuities, or 
1. 
"(B) is a life insurance contract, and 
"(3) under which— 
KS.-
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 751 
"(A) in the case of an annuity contract, the amounts paid 
in, or the amount paid out, reflect the investment return 
and the market value of the segregated asset account, or 
"(B) in the case of a life insurance contract, the amount of 
the death benefit (or the period of coverage) is adjusted on 
the basis of the investment return and the market value 
of the segregated asset account. 
If a contract ceases to reflect current investment return and current 
market value, such contract shall not be considered as meeting the 
requirements of paragraph (3) after such cessation. 
"(e) PENSION PLAN CONTRACTS TREATED AS PAYING ANNUITY.—A 
pension plan contract which is not a life, accident, or health, 
property, casualty, or liability insurance contract shall be treated as 
a contract which provides for the payments of annuities for purposes 
of subsection (d). 
r^ inn <
)
<
: 
"(f) OTHER SPECIAL RULES.— 
"(1) LIFE INSURANCE RESERVES.—For purposes of subsection 
(b)(1)(A) of section 816, the reflection of the investment return 
Ante, p. 748. 
and the market value of the segregated asset account shall be 
considered an assumed rate of interest. 
"(2) ADDITIONAL SEPARATE COMPUTATIONS.—Under regulations 
prescribed by the Secretary, such additional separate computa-
tions shall be made, with respect to the items separately ac-
counted for in accordance with subsection (c), as may be neces-
sary to carry out the purposes of this section and this part. 
"(g) VARIABLE ANNUITY CONTRACTS TREATED AS ANNUITY CON-
TRACTS.—For purposes of this part, the term 'annuity contract' 
includes a contract which provides for the payment of a variable 
annuity computed on the basis of^ 
"(1) recognized mortality tables, and 
"(2)(A) the investment experience of a segregated asset 
account, or 
"(B) the 
company-wide 
investment 
experience 
of 
the 
company. 
Paragraph (2)(B) shall not apply to any company which issues 
contracts which are not variable contracts. 
"(h) TREATMENT OF CERTAIN NONDIVERSIFIED CONTRACTS.— 
"(1) IN GENERAL.—For purposes of subchapter L, section 72 
(relating to annuities), and section 7702(a) (relating to definition 
Post, p. 767 
of life insurance contract), a variable contract (other than a 
pension plan contract) which is otherwise described in this 
section and which is based on a segregated asset account shall 
not be treated as an annuity, endowment, or life insurance 
contract for any period (and any subsequent period) for which 
the investments made by such account are not, in accordance 
with regulations prescribed by the Secretary, adequately diver-
sified. For purposes of this paragraph and paragraph (2), benefi-
cial interests in a regulated investment company or in a trust 
shall not be treated as 1 investment if all of the beneficial 
interests in such company or trust are held by 1 or more 
segregated asset accounts of 1 or more insurance companies. 
"(2) SAFE HARBOR FOR DIVERSIFICATION.—A segregated asset 
account shall be treated as meeting the requirements of para-
graph (1) for any quarter of a taxable year if as of the close of 
such quarter— 
"(A) it meets the requirements of section 851(b)(4), and 
98 STAT. 752 
PUBLIC LAW 98-369—JULY 18, 1984 
"(B) no more than 55 percent of the value of the total 
assets of the account are assets described in section 
851(b)(4)(A)(i). 
"(3) SPECIAL RULE FOR VARIABLE LIFE INSURANCE CONTRACTS 
INVESTING IN UNITED STATES OBUGATiONS.—In the case of a 
segregated asset account with respect to variable life insurance 
contracts, paragraph (1) shall not apply in the case of securities 
issued by the United States Treasury which are owned by a 
regulated investment company or by a trust all the beneficial 
interests in which are held by 1 or more segregated asset 
accounts of the company issuing the contract, 
"(4) INDEPENDENT INVESTMENT ADVISORS PERMITTED.—Nothing 
in this subsection shall be construed as prohibiting the use of 
independent investment advisors. 
26 u s e 818. 
"SEC. 818. OTHER DEFINITIONS AND SPECIAL RULES. 
"(a) PENSION PLAN CONTRACTS.—For purposes of this part, the 
,. , ^ 
term 'pension plan contract' means any contract— 
• ' 
"(1) entered into with trusts which (as of the time the con-
tracts were entered into) were deemed to be trusts described in 
section 401(a) and exempt from tax under section 501(a) (or 
trusts exempt from tax under section 165 of the Internal Reve-
53 Stat. 67. 
nue Code of 1939 or the corresponding provisions of prior reve-
nue laws); 
"(2) entered into under plans which (as of the time the 
contracts were entered into) were deemed to be plans described 
in section 403(a), or plans meeting the requirements of para-
graphs (3), (4), (5), and (6) of section 165(a) of the Internal 
Revenue Code of 1939; 
"(3) provided for employees of the life insurance company 
under a plan which, for the taxable year, meets the require-
ments of paragraphs (3), (4), (5), (6), (7), (8), (11), (12), (13), (14), 
(15), (16), (19), (20), and (22) of section 401(a); 
"(4) purchased to provide retirement annuities for its employ-
ees by an organization which (as of the time the contracts were 
purchased) WEIS an organization described in section 501(cX3) 
which was exempt from tax under section 501(a) (or was an 
organization exempt from tax under section 101(6) of the Inter-
53 Stat. 83. 
nal Revenue Code of 1939 or the corresponding provisions of 
prior revenue laws), or purchased to provide retirement annu-
ities for employees described in section 403(bXl)(A)(ii) by an 
employer which is a State, a political subdivision of a State, or 
an agency or instrumentality of any one or more of the 
foregoing; 
"(5) entered into with trusts which (at the time the contracts 
were entered into) were individual retirement accounts de-
scribed in section 408(a) or under -contracts entered into with 
individual retirement annuities described in section 408(b); or 
"(6) purchased by— 
"(A) a governmental plan (within the meaning of section 
414(d)), or 
"(B) the Government of the United States, the govern-
ment of any State or political subdivision thereof, or by any 
agency or instrumentality of the foregoing, for use in satis-
fying an obligation of such government, political subdivi-
sion, or agency or instrumentality to provide a benefit 
Ln^ 
under a plan described in subparagraph (A). 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 753 
"(b) TREATMENT OF CAPITAL GAINS AND LOSSES, ETC.—In the case 
of a life insurance company— 
"(1) in applying section 1231(a), the term 'property used in the 
Post, p. 944. 
trade or business shall be treated as including only— 
"(A) property used in carrying on an insurance business, 
of a character which is subject to the allowance for depre-
ciation provided in section 167, held for more than 1 year, 
and real property used in carrying on an insurance busi-
ness, held for more than 1 year, which is not described in 
section 1231(b)(1) (A), (B), or (C), and 
"(B) property described in section 1231(b)(2), and 
"(2) in applying section 1221(2), the reference to property used 
in trade or business shall be treated as including only property 
used in carrying on an insurance business. 
"(c) GAIN ON PROPERTY HELD ON DECEMBER 31, 1958 AND CERTAIN 
SUBSTITUTED PROPERTY ACQUIRED AFTER 1958.— 
"(1) PROPERTY HELD ON DECEMBER 31, 1958.—In the case of 
property held by the taxpayer on December 31,1958, if^ 
"(A) the fair market value of such property on such date 
exceeds the adjusted basis for determining gain as of such 
date, and 
"(B) the taxpayer has been a life insurance company at 
all times on and after December 31,1958, 
the gain on the sale or other disposition of such property shall 
be treated as an amount (not less than zero) equal to the 
amount by which the gain (determined without regard to this 
subsection) exceeds the difference between the fair market 
value on December 31, 1958, and the adjusted basis for deter-
mining gain as of such date. 
"(2) CERTAIN PROPERTY ACQUIRED AFTER DECEMBER 31, 1958.— 
In the case of property acquired after December 31, 1958, and 
having a substituted basis (within the meaning of section 
1016(b))— 
"(A) for purposes of paragraph (1), such property shall be 
deemed held continuously by the taxpayer since the begin-
ning of the holding period thereof, determined with refer-
ence to section 1223, 
"(B) the fair market value and adjusted basis referred to 
in paragraph (1) shall be that of that property for which the 
holding period taken into account includes December 31, 
1958, 
"(C) paragraph (1) shall apply only if the property or 
propenrties the holding periods of which are taken into 
account were held only by life insurance companies after 
December 31,1958, during the holding periods so taken into 
account, 
"(D) the difference between the fair market value and 
adjusted basis referred to in paragraph (1) shall be reduced 
(to not less than zero) by the excess of (i) the gain that 
would have been recognized but for this subsection on all 
prior sales or dispositions after December 31, 1958, of prop-
erties referred to in subparagraph (C), over (ii) the gain 
which was recognized on such sales or other dispositions, 
and 
"(E) the basis of such property shall be determined as if 
the gain which would have been recognized but for this 
subsection were recognized gain. 
31 194 0 - 86 - 26 : QL. 3 Part 1 
98 STAT. 754 
PUBLIC LAW 98-369—JULY 18, 1984 
"(3) PROPERTY DEFINED.—For purposes of paragraphs (1) and 
(2), the term 'property' does not include insurance and annuity 
contracts and property described in paragraph (1) of section 
1221. 
"(d) INSURANCE OR ANNUITY CONTRACT INCLUDES CONTRACTS SUP-
PLEMENTARY THERETO.—For purposes of this part, the term 'insur-
ance or annuity contract' includes any contract supplementary 
thereto. 
"(e) SPECIAL RULE FOR CONSOUDATED RETURNS.—If an election 
under section 1504(c)(2) is in effect with respect to an affiliated 
group for the taxable year, all items of the members of such group 
which are not life insurance companies shall not be taken into 
account in determining the amount of the tentative LICTI of mem-
bers of such group which are life insurance companies. 
"(f) ALLOCATION OF CERTAIN ITEMS FOR PURPOSES OF FOREIGN TAX 
CREDIT, ETC.— 
"(1) IN GENERAL.—Under regulations, in applying sections 
861, 862, and 863 to a life insurance company, the deduction for 
Ante, p. 732. 
policyholder dividends (determined under section 808(c)), re-
Ante, p. 726. 
serve adjustments under subsections (a) and (b) of section 807, 
and death benefits and other amounts described in section 
Ante, p. 722. 
805(a)(1) shall be treated as items which cannot definitely be 
allocated to an item or class of gross income. 
"(2) ELECTION OF ALTERNATIVE ALLOCATION.— 
"(A) IN GENERAL.—On or before September 15, 1985, any 
life insurance company may elect to treat items described 
in paragraph (1) as properly apportioned or allocated 
among items of gross income to the extent (and in the 
manner) prescribed in regulations. 
"(B) ELECTION IRREVOCABLE.—Any election under sub-
paragraph (A), once made, may be revoked only with the 
consent of the Secretary." 
O
t
)
) TECHNICAL AND CONFORMING AMENDMENTS.— 
26 use 72. 
(1) Subclause (IV) of section 72(e)(5)(D)(i) is amended by strik-
ing out "section 805(d)(3)" and inserting in lieu thereof "section 
818(a)(3)". 
26 use 80. 
(2) Subsection (a) of section 80 (relating to restoration of value 
of certain securities) is amended by striking out "802" and 
inserting in lieu thereof "801". 
26 use 243. 
(3)(A) Subparagraph (C) of section 243(bX3) (relating to effect 
of election) is amended by striking out clause (iii), by adding 
"and" at the end of clause (ii), and by redesignating clause (iv) 
as clause (iii). 
(B) Paragraph (6) of section 243(b) (relating to special rules for 
insurance companies) is amended by striking out "section 802" 
and inserting in lieu thereof "section 801". 
26 use 381. 
(4) Subsection (d) of section 381 (relating to carryover in 
certain corporate acquisitions) is amended by striking out "sec-
tion 812(f)" and inserting in lieu thereof "section 810". 
26 use 401. 
(5) Paragraph (24) of section 401(a) (relating to qualified pen-
sion, profit-sharing, and stock bonus plans) is amended by strik-
ing out "section 805(d)(6)" and inserting in lieu thereof "section 
818(a)(6)". 
26 use 453B. 
(6)(A) Paragraph (1) of section 453B(e) (relating to life insur-
ance companies) is amended by striking out "section 801(a)" and 
inserting in lieu thereof "section 816(a)'. 
I jss'i £ 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 755 
(B) Paragraph (2) of section 453B(e) is amended to read as 
26 use 453B. 
follows: 
"(2) SPECIAL RULE WHERE UFE INSURANCE COMPANY ELECTS TO 
TREAT INCOME AS NOT RELATED T
O INSURANCE BUSINESS.—Para-
graph (1) shall not apply to any transfer or deemed transfer of 
an installment obligation if the life insurance company elects 
(at such time and in such manner as the Secretary may by 
regulations prescribe) to determine its life insurance company 
taxable income— 
"(A) by returning the income on such installment obliga-
tion under the installment method prescribed in section 
453, and 
"(B) as if such income were an item attributable to a 
noninsurance business (as defined in section 806(cX3))." 
Ante, p. 724^ 
(7) Paragraph (5) of section 542(b) (relating to certain dividend 
26 use 542. 
income received from a nonincludible life insurance company) is 
amended by striking out "section 802" and inserting in lieu 
thereof "section 801 . 
(8) Subsection (b) of section 594 (relating to alternative tax for 
26 use 594. 
mutual savings banks conducting life insurance business) is 
amended by striking out "section 801" and inserting in lieu 
thereof "section 816 . 
(9) Paragraph (4) of section 832(b) (defining premiums earned) 
26 use 832. 
is amended by striking out "section 801(b)" and inserting in lieu 
thereof "section 816(b) but determined as provided in section 
807" and by striking out "section 801" and inserting in lieu 
thereof "section 816". 
(10) Section 841 (relating to credit for foreign taxes) is 
26 use 841. 
amended— 
(A) by striking out "section 802", each place it appears 
and inserting in lieu thereof "section 801", and 
(B) by striking out "section 802(b)" and inserting in lieu 
thereof "section 801(b)". 
(UXA) Subsection (a) of section 844 (relating to special loss 
26 use 844. 
carryover rules) is amended— 
(i) by striking out "section 812", and inserting in lieu 
thereof "section 810 (or the corresponding provisions of 
prior law),", and 
(ii) by striking out "section 812(a)" and inserting in lieu 
thereof "section 810(a)". 
(B) Subsection (b) of section 844 is amended— 
(i) by striking out "section 812(a)" and inserting in lieu 
thereof "section 810(a)", and 
(ii) by striking out "section 812(bXlXC)" in paragraph (2) 
and inserting in lieu thereof "section 810(bXlXC)". 
(12) Section 891 (relating to doubling of rates of tax on citizens 
26 use 891. 
and corporations of certain foreign countries) is amended by 
striking out "802" and inserting in lieu thereof "801". 
(13XA) Subsection (b) of section 953 (relating to income from 
26 use 953. 
insurance of United States risks) is amended by striking out 
paragraph (1) and by redesignating paragraphs (2), (3), (4), and 
(5) as paragraphs (1), (2), (3), and (4), respectively. 
(B) Paragraph (2) of section 953(b), as redesignated by sub-
paragraph (A), is amended to read as follows: 
"(2) The following provisions of subchapter L shall not apply: 
"(A) The special life insurance company deduction and 
the small life insurance company deduction. 
98 STAT. 756 
PUBLIC LAW 98-369—JULY 18, 1984 
Ante, p. 722. 
"(B) Section 805(a)(5) (relating to operations loss deduc-
tion). 
"(C) Section 832(cX5) (relating to certain capital losses)." 
Ante, p. 755. 
(C) Paragraph (3) of section 953(b), as redesignated by sub-
paragraph (A), is amended by— 
(i) striking out "section 809(c)(1)" and inserting in lieu 
thereof "section 803(aXl)", and 
(ii) by striking out "section 809(cX2)" and inserting in lieu 
thereof "section 803(aX2)", and 
(iii) by striking out "section 809(dX2)" and inserting in 
lieu thereof "section 805(aX2)". 
(D) Paragraph (2) of section 953(a) is amended by striking out 
", (2), and (3)" and inserting in lieu thereof "and (2)". 
(E) Paragraph (4) of section 953(b), as redesignated by sub-
paragraph (A), is amended by striking out "paragraph (4)" and 
inserting in lieu thereof "paragraph (3)", 
26 use 1016. 
(14) Paragraph (17) of section 1016(a) is amended by striking 
out "section 818(b)" each place it appears and inserting in lieu 
thereof "section 811(b)". 
26 use 1035. 
(15) Paragraph (1) of section 1035(b) (defining endowment 
contract) is amended by striking out "section 801" and inserting 
in lieu thereof "section 816". 
26 use 1201. 
(16) Paragraph (1) of section 1201(b) (relating to cross refer-
ences) is amended by striking out "section 802(aX2)" and insert-
ing in lieu thereof "section 801(aX2)". 
26 use 1232A. 
(17) Subparagraph (B) of section 1232A(cX4) (relating to origi-
nal issue discount) is amended by striking out "section 818(b)" 
and inserting in lieu thereof "section 811(b)". 
26 use 1351. 
(18)(A) Paragraph (1) of section 1351(a) (relating to treatment 
of recoveries of foreign expropriation losses) is amended by 
striking out "802" each place it appears and inserting in lieu 
thereof "801". 
(B) Paragraph (2) of section 1351(c) (relating to amount of 
recovery) is amended by striking out "section 810(c)" and insert-
ing in lieu thereof "section 807(c)". 
(C) Paragraph (3) of section 1351(i) (relating to adjustments for 
succeeding years) is amended by striking out "section 812" and 
inserting in lieu thereof "section 810". 
26 use 1503. 
(19XA) Subsection (c) of section 1503 (relating to special rules 
for application of certain losses against income of insurance 
companies t£ixed under section 802) is amended by striking out 
"section 802" each place it appears and inserting in lieu thereof 
"section 801". 
(B) Paragraph (1) of section 1503(c) is amended by striking out 
the third sentence. 
(C) The subsection heading of section 1503(c) is amended by 
striking out "SECTION 802" and inserting in lieu thereof "SEC-
TION 801". 
26 use 1504. 
(20) Subsections (bX2), (cXD, and (cX2XA) of section 1504 (defin-
ing affiliated group) are each amended by striking out "section 
802" and inserting in lieu thereof "section 801". 
26 use 1561. 
(21XA) Subsection (a) of section 1561 (relating to limitations 
on certain multiple tax benefits in the case of certain controlled 
corporations) is amended— 
(i) by striking out paragraphs (3) and (4), by adding "and" 
at the end of paragraph (1), and by striking out the comma 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 757 
at the end of paragraph (2) and inserting in lieu thereof a 
period, and 
(ii) by striking out "paragraphs (2), (3), and (4)" in the last 
sentence and inserting in lieu thereof "paragraph (2)", 
(B) Subsection (b) of section 1561 is amended— 
26 use 1561. 
(i) by striking out paragraphs (3) and (4) and by adding 
"and" at the end of paragraph (1), and 
(ii) by striking out ", (2), (3), or (4)" and inserting in lieu 
thereof "or (2)". 
(22) Subsections (a)(4) and (b)(2XD) of section 1563 (defining 
26 use 1563. 
controlled group of corporations) are each amended by striking 
out "section 802" and inserting in lieu thereof "section 801'. 
(23) Paragraph (2) of section 4371 (relating to imposition of tax 
26 use 4371. 
on policies issued by foreign insurers) is amended by striking 
out "section 819" and inserting in lieu thereof "section 813 . 
(24)(A) Subsection (c) of section 6501 (relating to limitations on 
26 use 6501. 
assessment and collection) is amended by striking out para-
graph (6) and by redesignating paragraph (7) as paragraph (6). 
(B) Subsection (k) of section 6501 (relating to reductions of 
policyholders surplus account of life insurance companies) is 
hereby repealed. 
(25) Subsection (d) of section 6511 (relating to limitations on 
26 use 6511. 
credit or refund) is amended by striking out paragraph (6) and 
by redesignating paragraph (7) as paragraph (6). 
(26) Subsection (d) of section 6601 (relating to interest on 
26 use 6601. 
underpayments, etc.) is amended by striking out paragraph (3) 
and by redesignating paragraph (4) as paragraph (3). 
(27) Subsection (0 of section 6611 (relating to interest on 
26 use 6611. 
overpayments) is amended by striking out paragraph (4). 
SEC. 212. CERTAIN REINSURANCE AGREEMENTS. 
(a) IN GENERAL.—Part IV of subchapter L of chapter 1 (relating to 
provisions of general application) is amended by adding at the end 
thereof the following new section: 
"SEC. 845. CERTAIN REINSURANCE AGREEMENTS. 
26 USC 845. 
"(a) ALLOCATION IN CASE OP REINSURANCE AGREEMENT INVOLVING 
TAX 
AVOIDANCE OR EVASION.—In the case of 2 or more related 
persons (within the meaning of section 482) who are parties to a 
reinsurance agreement (or where one of the parties to a reinsurance 
agreement is, with respect to any contract covered by the agree-
ment, in effect an agent of another party to such agreement or a 
conduit between related persons), the Secretary may— 
"(1) allocate between or among such persons income (whether 
investment income, premium, or otherwise), deductions, assets, 
reserves, credits, and other items related to such agreement, 
"(2) recharacterize any such items, or 
"(3) make any other adjustment, 
if he determines that such allocation, recharacterization, or adjust-
ment is necessary to reflect the proper source and character of the 
taxable income (or any item described in paragraph (1) relating to 
such taxable income) of each such person. 
"(b) REINSURANCE CONTRACT HAVING SIGNIFICANT TAX AVOIDANCE 
EFFECT.—If the Secretary determines that any reinsurance contract 
has a significant tax avoidance effect on any party to such contract, 
the Secretary may make proper adjustments with respect to such 
party to eliminate such tax avoidance effect (including treating such 
98 STAT. 758 
PUBLIC LAW 98-369—JULY 18, 1984 
contract with respect to such party as terminated on December 31 of 
each year and reinstated on January 1 of the next year)." 
(b) CLERICAL AMENDMENT.—The table of sections for such part IV 
is amended by adding at the end thereof the following new item: 
"Sec. 845. Certain reinsurance agreements." 
PART II—EFFECTIVE DATE; TRANSITIONAL RULES 
Subpart A—Effective Date 
26 u s e 801 note. SEC. 215. EFFECTIVE DATE. 
The amendments made by this subtitle shall apply to taxable 
years beginning after December 31,1983. 
Subpart B—Transitional Rules 
26 use 801 note. 
SEC. 216. RESERVES COMPUTED ON NEW BASIS; FRESH START. 
(a) RECOMPUTATION OF RESERVES.— 
(1) IN GENERAL.—As of the beginning of the first taxable year 
beginning after December 31,1983, for purposes of subchapter L 
26 use 801. 
of the Internal Revenue Code of 1954 (other than section 816 
Ante, p. 748. 
thereof), the reserve for any contract shall be recomputed as if 
the amendments made by this subtitle had applied to such 
contract when it was issued. 
(2) PREMIUMS EARNED.—For the first taxable year beginning 
after December 31, 1983, in determining "premiums earned on 
insurance contracts during the taxable year" as provided in 
section 832(b)(4) of the Internal Revenue Code of 1954, life 
insurance reserves which are included in unearned premiums 
on outstanding business at the end of the preceding taxable year 
shall be determined as provided in section 807 of the Internal 
Ante, p. 726. 
Revenue Code of 1954, as amended by this subtitle, as though 
section 807 was applicable to such reserves in such preceding 
taxable year. 
(3) ISSUANCE DATE FOR GROUP CONTRACTS.—For purposes of 
this subsection, the issuance date of any group contract shall be 
determined under section 807(e)(2) of the Internal Revenue Code 
of 1954 (as added by this subtitle), except that if such issuance 
date cannot be determined, the issuance date shall be deter-
mined on the basis prescribed by the Secretary of the Treasury 
or his delegate for purposes of this subsection. 
(b) FRESH START.— 
(1) IN GENERAL.—Except as provided in paragraph (2), in the 
case of any insurance company, any change in the method of 
accounting (and any change in the method of computing re-
serves) between such company's first taxable year beginning 
after December 31, 1983, and the preceding taxable year which 
is required solely by the amendments made by this subtitle 
shall be treated as not being a change in the method of account-
ing (or change in the method of computing reserves) for pur-
26 use 1 et seq. 
poses of the Internal Revenue Code of 1954. 
(2) TREATMENT OF ADJUSTMENTS FROM YEARS BEFORE 1984.— 
(A) ADJUSTMENTS ATTRIBUTABLE TO DECREASES IN RE-
SERVES.—No adjustment under section 810(d) of the Inter-
nal Revenue Code of 1954 (as in effect on the day before the 
date of the enactment of this Act) attributable to any 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 759 
decrease in reserves as a result of a change in a taxable 
year beginning before 1984 shall be taken into account in 
any taxable year beginning after 1983. 
(B) ADJUSTMENTS ATTRIBUTABLE TO INCREASES IN RE-
SERVES.— 
(i) IN GENERAL.—Any adjustment under section 
810(d) of the Internal Revenue Code of 1954 (as so in 
effect) attributable to an increase in reserves as a 
result of a change in a taxable year beginning before 
1984 shall be taken into account in taxable years begin-
ning after 1983 to the extent that— 
(I) the amount of the adjustments which would 
be taken into account under such section in tax-
able years beginning after 1983 without regard to 
this subparagraph, exceeds 
(II) the amount of any fresh start adjustment 
attributable to contracts for which there was such 
an increase in reserves as a result of such change. 
(ii) FRESH START ADJUSTMENT.—For purposes of clause 
(i), the fresh start adjustment with respect to any 
contract is the excess (if any) of— 
(I) the reserve attributable to such contract as of 
the close of the taxpayer's last taxable year begin-
ning before January 1,1984, over 
(II) the reserve for such contract as of the begin-
ning of the taxpayer's first taxable year beginning 
after 1983 as recomputed under subsection (a) of 
this section. 
(C) RELATED INCOME INCLUSIONS NOT TAKEN INTO ACCOUNT 
TO THE EXTENT DEDUCTION DISALLOWED UNDER SUBPARA-
GRAPH (b).—No premium shall be included in income to the 
extent such premium is directly related to an increase in a 
reserve for which a deduction is disallowed by subpara-
graph (B). 
(3) REINSURANCE TRANSACTIONS, AND RESERVE STRENGTHENING, 
AFTER SEPTEMBER 27, 1983.— 
(A) IN GENERAL.—Paragraph (1) shall not apply (and 
section 807(f) of the Internal Revenue Code of 1954 as Ante, p. 726. 
amended by this subtitle shall apply)— 
(i) to any reserve transferred pursuant to— 
(I) a reinsurance agreement entered into after 
September 27, 1983, and before January 1, 1984, or 
(II) a modification of a reinsurance agreement 
made after September 27,1983, and before January 
1,1984, and 
(ii) to any reserve strengthening reported for Federal 
income tax purposes after September 27, 1983, for a 
taxable year ending before January 1,1984. 
Clause (ii) shall not apply to the computation of reserves on 
any contract issued if such computation employs the re-
serve practice used for purposes of the most recent annual 
statement filed before September 27, 1983, for the type of 
contract with respect to which such reserves are set up. 
(B) TREATMENT OF RESERVE ATTRIBUTABLE TO SECTION 
818(c) ELECTION.—In the case of any reserve described in 
subparagraph (A), for purposes of section 807(f) of the Inter-
nal Revenue Code of 1954, any change in the treatment of 
98 STAT. 760 
PUBLIC LAW 98-369—JULY 18, 1984 
any contract to which an election under section 818(c) of 
such Code (as in effect on the day before the date of the 
enactment of this Act) appUed shall be treated as a change 
in the basis for determining the amount of any reserve. 
(C) 10-YEAR SPREAD INAPPLICABLE WHERE NO 10-YEAR 
SPREAD UNDER PRIOR LAW.—In the case of any item to which 
Ante, p. 726. 
section 807(f) of such Code applies by reason of subpara-
graph (A) or (B), such item shall be taken into account for 
the first taxable year beginning after December 31,1983 (in 
lieu of over the 10-year period otherwise provided in such 
section) unless the item was required to have been taken 
into account over a period of 10 taxable years under section 
810(d) of such Code (as in effect on the day before the date of 
the enactment of this Act). 
(D) DISALLOWANCE OF SPECIAL LIFE INSURANCE COMPANY 
DEDUCTION AND SMALL UFE INSURANCE COMPANY DEDUC-
TION.—Any amount included in income under section 807(f) 
of such Code by reason of subparagraph (A) or (B) (and any 
income attributable to expenses transferred in connection 
with the transfer of reserves described in subparagraph (A)) 
shall not be taken into account for purposes of determining 
the amount of special life insurance company deduction and 
the small life insurance company deduction. 
(E) 
DISALLOWANCE 
OF 
DEDUCTIONS 
UNDER 
SECTION 
809 (d).—No deduction shall be allowed under paragraph (5) 
or (6) of section 809(d) of such Code (as in effect before the 
amendments made by this subtitle) with respect to any 
amount described in either such paragraph which is trans-
ferred in connection with the transfer of reserves described 
in subparagraph (A). 
(4) ELECTIONS UNDER SECTION 818(C) AFTER SEPTEMBER 27, 
1983, NOT TO TAKE EFFECT.— 
(A) IN GENERAL.—Except as provided in subparagraph (B), 
any election after September 27, 1983, under section 818(c) 
of the Internal Revenue Code of 1954 (EIS in effect on the day 
before the date of the enactment of this Act) shall not take 
effect. 
" 5 '^ 
(B) EXCEPTION FOR CERTAIN CONTRACTS ISSUED UNDER PLAN 
OF INSURANCE FIRST FILED AFTER MARCH 1, 1982, AND BEFORE 
SEPTEMBER 28, 1983.—Subparagraph (A) shall not apply to 
Ante, p. 752. 
any election under such section 818(c) if more than 95 
percent of the reserves computed in accordance with such 
election are attributable to risks under life insurance con-
tracts issued by the taxpayer under a plan of insurance first 
filed after March 1, 1982, and before September 28, 1983. 
(5) RECAPTURE OF REINSURANCE AFTER DECEMBER 31, 1983.—If 
(A) insurance or annuity contracts in force on December 31, 
1983, are subject to a conventional coinsurance agreement en-
tered into after December 31, 1981, and before January 1, 1984, 
and (B) such contracts are recaptured by the reinsured in any 
taxable year beginning after December 31,1983, then— 
(i) if the amount of the reserves with respect to the 
recaptured contracts, computed at the date of recapture, 
that the reinsurer would have taken into account under 
section 810(c) of the Internal Revenue Code of 1954 (as in 
effect on the day before the date of the enactment of this 
Act) exceeds the amount of the reserves with respect to the 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 761 
recaptured contracts, computed at the date of recapture, 
taken into account by the reinsurer under section 807(c) of 
the Internal Revenue Code of 1954 (as amended by this 
Ante, p. 726. 
subtitle), such excess (but not greater than the amount of 
such excess if computed on January 1, 1984) shall be taken 
into account by the reinsurer under the method described 
in section 807(f)(l)(B)(ii) of the Internal Revenue Code of 
1954 (as amended by this subtitle) commencing with the 
taxable year of recapture, and 
(ii) the amount, if any, taken into account by the re-
insurer under clause (i) for purposes of part I of subchapter 
L of chapter 1 of the Internal Revenue Code of 1954 shall be Ante, p. 720. 
taken into account by the reinsured under the method 
described in section 807(f)(l)(B)(i) of the Internal Revenue 
Code of 1954 (as amended by this subtitle) commencing with 
the taxable year of recapture. 
The excess described in clause (i) shall be reduced by any 
portion of such excess to which section 807(f) of the Internal 
Revenue Code of 1954 applies by reason of paragraph (3) of this 
subsection. For purposes of this paragraph, the term "re-
insurer" refers to the taxpayer that held reserves with respect 
to the recaptured contracts as of the end of the taxable year 
preceding the first taxable year beginning after December 31, 
1983, and the term "reinsured" refers to the taxpayer to which 
such reserves are ultimately transferred upon termination. 
(c) ELECTION NOT TO HAVE RESERVES RECOMPUTED.— 
(1) IN GENERAL.—If a qualified life insurance company makes 
an election under this paragraph— 
(A) subsection (a) shall not apply to such company, and 
(B) as of the beginning of the first taxable year beginning 
after December 31,1983, and thereafter, the reserve for any 
contract issued before the first day of such taxable year by 
such company shall be the statutory reserve for such con-
tract (within the meaning of section 809(b)(4)(B)(i) of the 
Internal Revenue Code of 1954). 
Ante, p 733. 
(2) ELECTION WITH RESPECT TO CONTRACTS ISSUED AFTER 1983 
AND BEFORE 1989.— 
(A) IN GENERAL.—If— 
(i) a qualified life insurance company makes an elec-
tion under paragraph (1), and 
(ii) the tentative LICTI (within the meaning of sec-
tion 806(c) of such Code) of such company for its first Ante, p. 724. 
taxable year beginning after December 31, 1983, does 
not exceed $3,000,000, 
such company may elect under this paragraph to have the 
reserve for any contract issued on or after the first day of 
such first taxable year and before January 1,1989, be equal 
to the statutory reserve for such contract, adjusted as pro-
vided in subparagraph (B). 
(B) ADJUSTMENT TO RESERVES.—If this paragraph applies 
to any contract, the statutory reserves for such contract 
shall be adjusted as provided under section 805(c)(1) of such 
Code (as in effect for taxable years beginning in 1982 and 
1983), except that section 805(c)(l)(B)(ii) of such Code (as so 
in effect) shall be applied by substituting— 
(i) the prevailing State assumed interest rate (within 
the meaning of section 807(c)(4) of such Code), for 
Ante, p. 726. 
98 STAT. 762 
PUBLIC LAW 98-369—JULY 18, 1984 
(ii) the adjusted reserves rate. 
(3) QuAUFiED UFE INSURANCE COMPANY.—For purposes of this 
subsection, the term "qualified life insurance company" means 
any life insurance company which, as of December 31,1983, had 
assets of less than $100,000,000 (determined in the same manner 
as under section 806(b)(3) of such Code). 
(4) SPECIAL RULES FOR CONTROLLED GROUPS.—For purposes of 
applying the dollar limitations of paragraphs (2) and (3), rules 
Ante, p. 724. 
similar to the rules of section 806(d) of such Code shall apply. 
(5) ELECTIONS.—Any election under paragraph (1) or (2)— 
(A) shall be made at such time and in such manner as the 
Secretary of the Treasury may prescribe, and 
(B) once made, shall be irrevocable. 
SEC. 217. OTHER SPECIAL RULES. 
26 u s e 814 note. 
(a) N E W SECTION 814 TREATED AS CONTINUATION OF SECTION 
Ante, p. 744. 
819A.—For purposes of section 814 of the Internal Revenue Code of 
1954 (relating to contiguous country branches of domestic life insur-
ance companies)— 
(1) any election under section 819A of such Code (as in effect 
on the day before the date of the enactment of this Act) shall be 
treated as an election under such section 814, and 
(2) any reference to a provision of such section 814 shall be 
treated as including a reference to the corresponding provision 
of such section 819A. 
26USC453B 
Ot)) TREATMENT OF ELECTIONS U N D E R SECTION 453B(e)(2).—If a n 
note. 
election is made under section 453B(eX2) before January 1, 1984, 
Ante, p. 755. 
^i^h respect to any installment obligation, any income from such 
obligation shall be treated as attributable to a noninsurance busi-
Ante, p. 724. 
ness (as defined in section 806(c)(3) of the Internal Revenue Code of 
1954). 
26 u s e 806 note. 
(c) DETERMINATION OF TENTATIVE LICTI 
W H E R E CORPORATION 
MADE CERTAIN ACQUISITIONS IN 1980, 1981, 1982, AND 1983.—If— 
(1) a corporation domiciled or having its principal place of 
business in Alabama, Arkansas, Oklahoma, or Texas acquired 
the assets of 1 or more insurance companies after 1979 and 
before April 1,1983, and 
(2) the bases of such assets in the hands of the corporation 
were determined under section 3340t))(2) of the Internal Revenue 
Code of 1954 or such corporation made an election under section 
338 of such Code with respect to such assets, 
then the tentative LICTI of the corporation holding such assets for 
taxable years beginning after December 31,1983, shall, for purposes 
of determining the amount of the special deductions under section 
806 of such Code, be increased by the deduction allowable under 
chapter 1 of such Code for the amortization of the cost of insurance 
contracts acquired in such asset acquisition (and any portion of any 
operations loss deduction attributable to such amortization). 
26 u s e 845 note. 
(d) EFFECTIVE D A T E FOR N E W SECTION 845.— 
(1) Subsection (a) of section 845 of the Internal Revenue Code 
Ante, p. 757. 
of 1954 (as added by this title) shall apply with respect to any 
risk reinsured on or after September 27,1983. 
(2) Subsection Ot)) of section 845 of such Code (as so added) 
shall apply with respect to risks reinsured after December 31, 
1984. 
26 u s e 801 note. 
(e) TREATMENT OF CERTAIN COMPANIES OPERATING BOTH AS STOCK 
AND MUTUAL COMPANY.—If, during the 10-year period ending on 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 763 
December 31, 1983, a company has, as authorized by the law of the 
State in which the company is domiciled, been operating as a 
mutual life insurance company with shareholders, such company 
shall be treated as a stock life insurance company. 
(f) TREATMENT OF CERTAIN ASSESSMENT LIFE INSURANCE COMPA- 
26 use 807 note. 
NIES.— 
(1) MoRTAUTY AND MORBIDITY TABLES.—In the case of a con-
tract issued by an assessment life insurance company, the 
mortality and morbidity tables used in computing statutory 
reserves for such contract shall be used for purposes of para-
graph (2XC) of section 807(d) of the Internal Revenue Code of 
1954 (as amended by this subtitle) if such tables were— 
Ante, p. 726. 
(A) in use since 1965, and 
(B) developed on the basis of the experience of assessment 
life insurance companies in the State in which such assess-
ment life insurance company is domiciled. 
(2) TREATMENT OF CERTAIN MUTUAL ASSESSMENT LIFE INSUR-
ANCE COMPANIES.—In the case of any contract issued by a 
mutual assessment life insurance company which— 
(A) has been in existence since 1965, and 
(B) operates under chapter 13 or 14 of the Texas Insur-
ance Code, 
for purposes of part I of subchapter L of chapter 1 of the 
Internal Revenue Code of 1954, the amount of the life insurance 
reserves for such contract shall be equal to the amount taken 
into account with respect to such contract in determining statu-
tory reserves. 
(3) STATUTORY RESERVES.—For purposes of this subsection, the 
term "statutory reserves" has the meaning given to such term 
by section 809(b)(4)(B) of such Code. 
(g) 
TREATMENT OF REINSURANCE AGREEMENTS REQUIRED BY 
NAIC.—Effective for taxable years beginning after December 31, 
1981, and before January 1, 1984, subsections (cXlXF) and (dX12) of 
section 809 of the Internal Revenue Code of 1954 (as in effect on the 
day before the date of the enactment of this Act) shall not apply to 
dividends to policyholders reimbursed to the taxpayer by a reinsurer 
in respect of accident and health policies reinsured under a reinsur-
ance agreement entered into before June 30, 1955, pursuant to the 
direction of the National Association of Insurance Commissioners 
and approved by the State insurance commissioner of the taxpayer's 
State of domicile. For purposes of subchapter L of chapter 1 of such 
CJode (as in effect on the day before the date of the enactment of this 
Act) any such dividends shall be treated as dividends of the re-
insurer and not the taxpayer. 
(h) DETERMINATION OF ASSETS OF CONTROLLED GROUP FOR PUR- 
26 use 806 note. 
POSES OF SMALL LIFE INSURANCE COMPANY DEDUCTION FOR 1984.— 
(1) IN GENERAL.—For purposes of applying paragraph (2) of 
section 806(d) of the Internal Revenue Code of 1954 (relating to Ante, p. 724. 
nonlife insurance members included for asset test) for the first 
taxable year beginning after December 31,1983, the members of 
the controlled group referred to in such paragraph shall be 
treated as including only those members of such group which 
are described in paragraph (2) of this subsection i
f
— 
(A) an election under section 1504(cX2) of such Code is not 
in effect for the controlled group for such taxable year, 
(B) during such taxable year, the controlled group does 
not include a member which is taxable under part I of 
Ante, p. 720. 
Ante, p. 733. 
26 u s e 801 note. 
98 STAT. 764 
PUBLIC LAW 98-369—JULY 18, 1984 
Ante, p. 720. 
subchapter L of chapter 1 of such Code and which became a 
member of such group after September 27,1983, and 
(C) the sum of the contributions to capital received by 
members of the controlled group which are taxable under 
.;i 
such part I during such taxable year from the members of 
the controlled group which are not taxable under such part 
does not exceed the aggregate dividends paid during such 
taxable year by the members of such group which are 
taxable under such part L 
(2) MEMBERS OF GROUP TAKEN INTO ACCOUNT.—For purposes of 
paragraph (1), the members of the controlled group which are 
described in this paragraph are— 
(A) any financial institution to which section 585 or 593 of 
such Code applies, 
(B) any lending or finance business (as defined by section 
542(d)), 
(C) any insurance company subject to tax imposed by 
subchapter L of chapter 1 of such Code, and 
(D) any securities broker. 
26 u s e 816 note. 
(i) SPECIAL ELECTION To TREAT INDIVIDUAL NONCANCELLABLE ACCI-
DENT AND HEALTH CONTRACTS AS CANCELLABLE.— 
(1) IN GENERAL.—A mutual life insurance company may elect 
to treat all individual noncancellable (or guaranteed renewable) 
accident and health insurance contracts as though they were 
cancellable for purposes of section 816 of subchapter L of chap-
Ante, p. 748. 
ter 1 of the Internal Revenue Code of 1954. 
(2) 
EFFECT OF ELECTION ON SUBSIDIARIES OF ELECTING 
PARENT.— 
(A) TREATED AS MUTUAL UFE INSURANCE COMPANY.—Any 
;». 
stock life insurance company which is a member of an 
affiliated group which has a common parent which made an 
election under paragraph (1), for purposes of part I of 
Ante, p. 720. 
subchapter L of the Internal Revenue Code of 1954, such 
stock life insurance company shall be treated as though it 
were a mutual life insurance company. 
(B) INCOME OF ELECTING PARENT TAKEN INTO ACCOUNT IN 
DETERMINING SMALL LIFE INSURANCE COMPANY DEDUCTION OF 
ANY SUBSIDIARY.—For purposes of determining the amount 
of the small life insurance company deduction of any con-
trolled group which includes a mutual company which 
made an election under paragraph (1), the taxable income 
of such electing company shall be taken into account under 
Ante, p. 724. 
section 806(bX2) of the Internal Revenue Code of 1954 (relat-
ing to phase-out of small life insurance company deduction). 
(3) ELECTION.—An election under paragraph (1) shall apply to 
the company's first taxable year beginning after December 31, 
1983, and all taxable years thereafter, 
(4) TIME AND MANNER.—An election under paragraph (1) shall 
be made— 
(A) on the return of the taxpayer for its first taxable year 
beginning after December 31,1983, and 
(B) in such manner as the Secretary of the Treeisury or 
his delegate may prescribe. 
26 use 809 note. 
(j) REDUCTION IN EQUITY BASE FOR MuTUAL SUCCESSOR OF FRATER-
NAL BENEFIT SOCIETY.—In the case of any mutual life insurance 
company which— 
(1) is the successor to a fraternal benefit society, and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 765 
(2) which assumed the surplus of such fraternal benefit so-
ciety in 1950 or in March of 1961, 
for purposes of section 809 of the Internal Revenue Code of 1954 (as 
Ante, p. 733. 
amended by this subtitle), the equity base of such mutual life 
insurance company shall be reduced by the amount of the surplus so 
assumed plus earnings thereon, (i) for taxable years before 1984, at a 
7 percent interest rate, and (ii) for taxable years 1984 and following, 
at the average mutual earnings rate for such year. 
(k) SPECIAL RULE FOR CERTAIN DEBT-FINANCED ACQUISITION OF 
26 use 806 note. 
STOCK.—If— 
(1) a life insurance company owns the stock of another corpo-
ration through a partnership of which it is a partner, 
(2) the stock of the corporation was acquired on January 14, 
1981, and 
(3) such stock was acquired by debt financing, 
then, for purposes of determining the special deductions under 
section 806 of the Internal Revenue Code of 1954 (as amended by Ante, p. 724. 
this subtitle), the amount of tentative LICTI of such life insurance 
company shall be computed without taking into account any income, 
gain, loss, or deduction attributable to the ownership of such stock. 
(1) TREATMENT OF LOSSES FROM CERTAIN GUARANTEED INTEREST 
26 use 806 note. 
CONTRACTS.— 
(1) IN GENERAL.—For purposes of determining the amount of 
the special deductions under section 806 of the Internal Reve-
nue Code of 1954 (as amended by this subtitle), for any taxable 
year beginning before January 1, 1988, the amount of tentative 
LICTI of any qualified life insurance company shall be com-
puted without taking into account any income, gain, loss, or 
deduction attributable to a qualified GIC. 
(2) QuAUFiED LIFE INSURANCE COMPANY.—For purposes of this 
subsection, the term "qualified life insurance company" means 
any life insurance company if— 
(A) the accrual of discount less amortization of premium 
for bonds and short-term investments (as shown in the first 
footnote to Exhibit 3 of its 1983 annual statement for life 
insurance companies approved by the National Association 
of Insurance Commissioners (but excluding separate ac-
counts) filed in its State of domicile) exceeds $72,000,000 but 
does not exceed $73,000,000, and 
(B) such life insurance company makes an election under 
this subsection on its return for its first taxable year begin-
ning after December 31,1983. 
(3) QuAUFiED GIC.—The term "qualified GIC" means any 
group contract— 
(A) which is issued before January 1,1984, 
(B) which specifies the contract maturity or renewal date, 
(C) under which funds deposited by the contract holder 
plus interest guaranteed at the inception of the contract for 
the term of the contract and net of any specified expenses 
are paid as directed by the contract holder, and 
(D) which is a pension plan contract (as defined in section 
818(a) of the Internal Revenue Code of 1954). 
Ante, p. 752. 
(4) SCOPE OF ELECTION.—An election under this subsection 
shall apply to all qualified GIC's of a qualified life insurance 
company. Any such election, once made, shall be irrevocable. 
(5) INCOME ON UNDERLYING ASSETS TAKEN INTO ACCOUNT.—In 
determining the amount of any income attributable to a quali-
98 STAT. 766 
PUBLIC LAW 98-369—JULY 18, 1984 
fled GIC, income on any asset attributable to such contract (as 
determined in the manner provided by the Secretary of the 
Treasury or his delegate) shall be taken into account. 
(6) LIMITATION ON TAX BENEFIT,—The amount of any reduction 
in tax for any taxable year by reason of this subsection for any 
qualified life insurance company (or controlled group within the 
Ante, p. 724. 
meaning of section 806(dX3) of the Internal Revenue Code of 
1954) shall not exceed the applicable amount set forth in the 
following table: 
In the case of taxable 
The reduction may 
years beginning in: 
not exceed: 
1984 
$4,500,000 
1985 
$4,500,000 
1986 
$3,000,000 
1987 
$2,000,000 
26 use 806 note. 
(m) SPECIAL RULE FOR CERTAIN INTERESTS IN OiL AND GAS PROPER-
TIES.— 
(1) IN GENERAL.—For purposes of section 806 of the Internal 
Revenue Code of 1954, the ownership by a qualified life insur-
ance company of any undivided interest in operating mineral 
interests with respect to any oil or gas properties held on 
December 31, 1983, shall be treated as an insurance business. 
(2) QUAUFIED UFE INSURANCE COMPANY.—For purpOSeS of 
paragraph (1), the term "qualified life insurance company" 
means a mutual life insurance company which— 
(A) was originally incorporated in March of 1857, and 
(B) has a cost to such company (as of December 31, 1983) 
in the operating mineral interests described in paragraph 
(1) in excess of $250,000,000. 
26 use 807 note. 
(n) SPECIAL RULE FOR COMPANIES USING N E T LEVEL RESERVE 
METHOD FOR NONCANCELLABLE ACCIDENT AND HEALTH INSURANCE 
CONTRACTS.—A company shall be treated as meeting the require-
Ante, p. 726. 
ment of section 807(dX3XAXiii) of the Internal Revenue Code of 1954, 
as amended by this Act, with respect to any noncancellable accident 
and health insurance contract for any taxable year if such com-
pany— 
(1) uses the net level reserve method to compute its tax 
reserves under section 807 of such Code on such contracts for 
such taxable year, 
(2) was using the net level reserve method to compute its 
statutory reserves on such contracts as of December 31, 1982, 
and 
(3) has continuously used such method for computing such 
reserves on such contracts after December 31,1982, and through 
such taxable year. 
26 use 6655 
SEC. 218. UNDERPAYMENTS OF ESTIMATED TAX FOR 1984. 
"° • 
No addition to the tax shall be made under section 6655 of the 
Internal Revenue Code of 1954 (relating to failure by corporation to 
pay estimated tax) with respect to any underpayment of an install-
ment required to be paid before the date of the enactment of this 
Act to the extent— 
(1) such underpayment was created or increased by any provi-
sion of this subtitle, and 
(2) such underpayment is paid in full on or before the last 
date prescribed for payment of the first installment of estimated 
tax required to be paid after the date of the enactment of this 
Act. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 767 
SEC. 219. CLARIFICATION OF AUTHORITY TO REQUIRE CERTAIN INFORMA- 
26 USC 809 note 
TION. 
Nothing in any provision of law shall be construed to prevent the 
Secretary of the Treasury or his delegate from requiring (from time 
to time) life insurance companies to provide such data with respect 
to taxable years beginning before January 1, 1984, as may be 
necessary to carry out the provisions of section 809 of such Code (as Ante, p. 733. 
added by this title). 
Subtitle B—Taxation of Life Insurance 
Products 
SEC. 221. DEFINITION OF LIFE INSURANCE CONTRACT. 
(a) GENERAL RULE.—Chapter 79 (relating to definitions) is 
amended by adding at the end thereof the following new section: 
"SEC. 7702. LIFE INSURANCE CONTRACT DEFINED. 
26 USC 7702. 
"(a) GENERAL RULE.—For purposes of this title, the term 'life 
insurance contract' means any contract which is a life insurance 
contract under the applicable law, but only if such contract— 
"(1) meets the cash value accumulation test of subsection (b), 
or 
"(2)(A) meets the guideline premium requirements of subsec-
tion (c), and 
"(B) falls within the cash value corridor of subsection (d). 
"(b) CASH VALUE ACCUMULATION TEST FOR SUBSECTION (a)(1).— 
"(1) IN GENERAL.—A contract meets the cash value accumula-
tion test of this subsection if, by the terms of the contract, the 
cash surrender value of such contract may not at any time 
exceed the net single premium which would have to be paid at 
such time to fund future benefits under the contract. 
"(2) RULES FOR APPLYING PARAGRAPH (D.—Determinations 
under paragraph (1) shall be made— 
"(A) on the basis of interest at the greater of an annual 
effective rate of 4 percent or the rate or rates guaranteed on 
issuance of the contract, 
"(B) on the basis of the rules of subparagraph (B)(i) (and, 
in the case of qualified additional benefits, subparagraph 
(B)(ii)) of subsection (c)(3), and 
"(C) by taking into account under subparagraphs (A) and 
(C) of subsection (e)(1) only current and future death bene-
fits and qualified additional benefits. 
"(c) GUIDELINE PREMIUM REQUIREMENTS.—For purposes of this 
section— 
"(1) IN GENERAL.—A contract meets the guideline premium 
requirements of this subsection if the sum of the premiums paid 
under such contract does not at any time exceed the guideline 
premium limitation as of such time. 
"(2) GUIDELINE PREMIUM LIMITATION.—The term 'guideline 
premium limitation' means, as of any date, the greater o
f
— 
"(A) the guideline single premium, or 
"(B) the sum of the guideline level premiums to such 
date. 
"(3) GUIDEUNE SINGLE PREMIUM.— 
98 STAT. 768 
PUBLIC LAW 98-369—JULY 18, 1984 
^ 
"(A) IN GENERAL.—The term 'guideline single premium' 
means the premium at issue with respect to future benefits 
under the contract. 
"(B) BASIS ON WHICH DETERMINATION IS MADE.—The deter-
mination under subparagraph (A) shall be based on— 
"(i) the mortality charges specified in the contract 
(or, if none is specified, the mortality charges used in 
determining the statutory reserves for such contract), 
"(ii) any charges (not taken into account under clause 
(i)) specified in the contract (the amount of any charge 
not so specified shall be treated as zero), and 
"(iii) interest at the greater of an annual effective 
rate of 6 percent or the rate or rates guaranteed on 
issuance of the contract. 
"(C) WHEN DETERMINATION MADE.—Except as provided in 
subsection (f)(7), the determination under subparagraph (A) 
shall be made as of the time the contract is issued. 
"(4) GUIDELINE LEVEL PREMIUM.—The term 'guideline level 
premium' means the level annual amount, payable over a 
period not ending before the insured attains age 95, computed 
on the same basis as the guideline single premium, except that 
paragraph (3)(B)(iii) shall be applied by substituting '4 percent' 
for '6 percent'. 
"(d) 
CASH 
VALUE 
CORRIDOR 
FOR PURPOSES 
OF 
SUBSECTION 
(a)(2)(B).—For purposes of this section— 
"(1) IN GENERAL.—A contract falls within the cash value 
corridor of this subsection if the death benefit under the con-
tract at any time is not less than the applicable percentage of 
the cash surrender value. 
"(2) APPLICABLE PERCENTAGE.— 
"In the case of an insured with an The applicable percentage shall de-
attained age as of the beginning of 
crease by a ratable portion for 
the contract year of: 
each full year: 
But not 
More than: 
more than: 
0 
40 
40 
45 
45 
50 
50 
55 
55 
60 
60 
65 
65 
70 
70 
75 
75 
90 
90 
95 
"(e) COMPUTATIONAL RULES.— 
"(1) IN GENERAL.—For purposes of this section— 
"(A) the death benefit (and any qualified additional bene-
fit) shall be deemed not to increase, 
"(B) the maturity date, including the date on which any 
benefit described in subparagraph (C) is payable, shall be no 
earlier than the day on which the insured attains age 95, 
and no later than the day on which the insured attains age 
100, and 
;TiKi.'yi'. sjiinm z/-
From: 
250 
250 
215 
185 
150 
130 
120 
115 
105 
105 
To: 
250 
215 
1
8
5 
150 
1
3
0 
1
2
0 
1
1
5 
1
0
5 
1
0
5 
100. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 769 
"(C) the amount of any endowment benefit (or sum of 
endowment benefits, including any cash surrender value on 
the maturity date described in subparagraph (B)) shall be 
deemed not to exceed the least amount payable as a death 
benefit at any time under the contract. 
"(2) LIMITED INCREASES IN DEATH BENEFIT PERMITTED.—Not-
withstanding paragraph (IXA)— 
"(A) for purposes of computing the guideline level pre-
mium, an increase in the death benefit which is provided in 
the contract may be taken into account but only to the 
extent necessary to prevent a decrease in the excess of the 
death benefit over the cash surrender value of the contract, 
and 
"(B) for purposes of the cash value accumulation test, the 
increase described in subparagraph (A) may be taken into 
account if the contract will meet such test at all times 
assuming that the net level reserve (determined as if level 
annual premiums were paid for the contract over a period 
not ending before the insured attains age 95) is substituted 
for the net single premium. 
"(f) OTHER DEFINITIONS AND SPECIAL RULES,—For purposes of this 
section— 
"(1) PREMIUMS PAID.— 
"(A) IN GENERAL.—The term 'premiums paid' means the 
premiums paid under the contract less amounts (other than 
amounts includible in gross income) to which section 72(e) 
applies and less any other amounts received with respect to 
the contract which are specified in regulations. 
"(B) TREATMENT OF CERTAIN PREMIUMS RETURNED TO POL-
ICYHOLDER.—If, in order to comply with the requirements of 
subsection (a)(2)(A), any portion of any premium paid 
during any contract year is returned by the insurance 
company (with interest) within 60 days after the end of a 
contract year, the amount so returned (excluding interest) 
shall be deemed to reduce the sum of the premiums paid 
under the contract during such year. 
"(C) INTEREST RETURNED INCLUDIBLE IN GROSS INCOME.— 
Notwithstanding the provisions of section 72(e), the amount 
of any interest returned as provided in subparagraph (B) 
shall be includible in the gross income of the recipient. 
"(2) CASH VALUES.— 
"(A) CASH SURRENDER VALUE.—The cash surrender value 
of any contract shall be its cash value determined without 
regard to any surrender charge, policy loan, or reasonable 
termination dividends. 
"(B) NET SURRENDER VALUE.—The net surrender value of 
any contract shall be determined with regard to surrender 
charges but without regard to any policy loan. 
"(3) DEATH BENEFIT.—The term death benefit' means the 
amount payable by reason of the death of the insured (deter-
mined without regard to any qualified additional benefits). 
"(4) FUTURE BENEFITS.—The term 'future benefits' means 
death benefits and endowment benefits. 
"(5) QUALIFIED ADDITIONAL BENEFITS.— 
"(A) IN GENERAL.—The term 'qualified additional bene-
fits' means any— 
"(i) guaranteed insurability, 
98 STAT. 770 
PUBLIC LAW 98-369—JULY 18, 1984 
"(ii) accidental death or disability benefit, 
"(iii) family term coverage, 
"(iv) disability waiver benefit, or 
"(v) other benefit prescribed under regulations. 
"(B) TREATMENT OF QUALIFIED ADDITIONAL BENEFITS,—For 
purposes of this section, qualified additional benefits shall 
not be treated as future benefits under the contract, but the 
charges for such benefits shall be treated as future benefits. 
"(C) TREATMENT OP OTHER ADDITIONAL BENEFITS.—In the 
case of any additional benefit which is not a qualified 
additional benefit— 
"(i) such benefit shall not be treated as a future 
benefit, and 
"(ii) any charge for such benefit which is not pre-
funded shall not be treated as a premium. 
"(6) PREMIUM PAYMENTS NOT DISQUAUFYING CONTRACT.—The 
payment of a premium which would result in the sum of the 
premiums paid exceeding the guideline premium limitation 
shall be disregarded for purposes of subsection (a)(2) if the 
amount of such premium does not exceed the amount necessary 
to prevent the termination of the contract on or before the end 
of the contract year (but only if the contract will have no cash 
surrender value at the end of such extension period). 
"(7) ADJUSTMENTS.— 
"(A) IN GENERAL.—In the event of a change in the future 
benefits or any qualified additional benefit (or in any other 
terms) under the contract which was not reflected in any 
previous determination made under this section, under reg-
ulations prescribed by the Secretary, there shall be proper 
adjustments in future determinations made under this 
section. 
"(B) CERTAIN CHANGES TREATED AS EXCHANGE.—In the 
case of any change which reduces the future benefits under 
the contract, such change shall be treated as an exchange of 
the contract for another contract. 
"(8) CORRECTION OF ERRORS.—If the tgixpayer establishes to the 
satisfaction of the Secretary that— 
"(A) the requirements described in subsection (a) for any 
contract year were not satisfied due to reasonable error, 
and 
"(B) reasonable steps are being taken to remedy the 
error, 
the Secretary may waive the failure to satisfy such require-
ments. 
"(9) SPECIAL RULE FOR VARIABLE LIFE INSURANCE CONTRACTS.— 
In the case of any contract which is a variable contract (as 
Ante, p. 750. 
defined in section 817), the determination of whether such 
contract meets the requirements of subsection (a) shall be made 
whenever the death benefits under such contract change but 
not less frequently than once during each 12-month period. 
"(g) TREATMENT OF CONTRACTS WHICH DO NOT MEET SUBSECTION 
(a) TEST.— 
"(1) INCOME INCLUSION.— 
"(A) IN GENERAL.—If at any time any contract which is a 
life insurance contract under the applicable law does not 
meet the definition of life insurance contract under subsec-
tion (a), the income on the contract for any taxable year of 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 771 
the policyholder shall be treated as ordinary income 
received or accrued by the policyholder during such year. 
"(B) INCOME ON THE CONTRACT.—For purposes of this 
paragraph, the term 'income on the contract means, with 
respect to any taxable year of the policyholder, the excess 
of— 
"(i) the sum of— 
"(I) the increase in the net surrender value of the 
contract during the taxable year, and 
"(II) the cost of life insurance protection provided 
under the contract during the taxable year, over 
"(ii) the amount of premiums paid under the contract 
during the taxable year reduced by any policyholder 
dividends received during such taxable year. 
"(C) CONTRACTS WHICH CEASE TO MEET DEFINITION.—If, 
during any taxable year of the policyholder, a contract 
which is a life insurance contract under the applicable law 
ceases to meet the definition of life insurance contract 
under subsection (a), the income on the contract for all 
i (-:)?;.'"£ 
prior taxable years shall be treated as received or accrued 
during the taxable year in which such cessation occurs. 
"(D) COST OF UFE INSURANCE PROTECTION.—For purposes 
of this paragraph, the cost of life insurance protection 
X
v r„ 
provided under the contract shall be the lesser of— 
"(i) the cost of individual insurance on the life of the 
insured as determined on the basis of uniform premi-
ums (computed on the basis of 5-year age brackets) 
prescribed by the Secretary by regulations, or 
"(ii) the mortality charge (if any) stated in the 
contract. 
"(2) TREATMENT OF AMOUNT PAID ON DEATH OF INSURED.—If 
any contract which is a life insurance contract under the appli-
cable law does not meet the definition of life insurance contract 
under subsection (a), the excess of the amount paid by the 
reason of the death of the insured over the net surrender value 
of the contract shall be deemed to be paid under a life insurance 
contract for purposes of section 101 and subtitle B. 
26 use 2001. 
"(3) CONTRACT CONTINUES TO BE TREATED AS INSURANCE CON-
TRACT.—If any contract which is a life insurance contract under 
the applicable law does not meet the definition of life insurance 
contract under subsection (a), such contract shall, notwithstand-
ing such failure, be treated as an insurance contract for pur-
poses of this title. 
"(h) ENDOWMENT CONTRACTS RECEIVE SAME TREATMENT.— 
"(1) IN GENERAL.—References in subsections (a) and (g) to a 
life insurance contract shall be treated as including references 
to a contract which is an endowment contract under the appli-
cable law. 
"(2) DEFINITION OF ENDOWMENT CONTRACT.—For purposes of 
this title (other than paragraph (1)), the term 'endowment 
contract' means a contract which is an endowment contract 
under the applicable law and which meets the requirements of 
subsection (a), 
"(i) TRANSITIONAL RULE FOR CERTAIN 20-PAY CONTRACTS.— 
"(1) IN GENERAL.—In the case of a qualified 20-pay contract, 
this section shall be applied by substituting '3 percent' for '4 
percent' in subsection (b)(2). 
98 STAT. 772 
PUBLIC LAW 98-369—JULY 18, 1984 
"(2) QuAUFiED 20-PAY CONTRACT.—For purposes of paragraph 
(1), the term 'qualified 20-pay contract' means any contract 
which— 
"(A) requires at least 20 nondecreasing annual premium 
payments, and 
"(B) is issued pursuant to an existing plan of insurance. 
"(3) EXISTING PLAN OF INSURANCE.—For purposes of this sub-
section, the term 'existing plan of insurance' means, with 
respect to any contract, any plan of insurance which was filed 
by the company issuing such contract in 1 or more States before 
September 28, 1983, and is on file in the appropriate State for 
such contract. 
"0") REGULATIONS.—The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section,". 
(b) 1-YEAR EXTENSION OF FLEXIBLE PREMIUM CONTRACT PROVI-
SIONS.— 
(1) IN GENERAL.—Paragraph (1) of section 266(c) of the Tax 
26 use 101 note. 
Equity and Fiscal Responsibility Act of 1982 is amended by 
striking out "January 1, 1984" and inserting in lieu thereof 
"January 1,1985". 
(2) TECHNICAL AMENDMENTS.— 
26 use 101. 
(A) Paragraph (1) of section 101(f) is amended by striking 
out "flexible premium life insurance contract" and insert-
ing in lieu thereof "flexible premium life insurance con-
tract issued before January 1,1985". 
(B) The subsection heading of subsection (f) of section 101 
is amended by striking out "FLEXIBLE PREMIUM CONTRACTS" 
and inserting in lieu thereof "FLEXIBLE PREMIUM CON-
TRACTS ISSUED BEFORE JANUARY 1,1985". 
(c) CLERICAL AMENDMENT.—The table of sections for chapter 79 is 
amended by adding at the end thereof the following new item: 
"Sec. 7702. Life insurance contract defined.". 
26 u s e 7702 
(d) EFFECTIVE DATE.— 
note. 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply to 
contracts issued after December 31, 1984, in taxable years 
ending after such date. 
(2) SPECIAL RULE FOR CERTAIN CONTRACTS ISSUED AFTER JUNE 
30, 1984.— 
(A) GENERAL RULE.—Except as otherwise provided in this 
paragraph, the amendments made by this section shall 
apply also to any contract issued after June 30,1984, which 
provides an increasing death benefit and has premium 
funding more rapid that 10-year level premium payments. 
(B) EXCEPTION FOR CERTAIN CONTRACTS.—Subparagraph 
(A) shall not apply to any contract if— 
(i) such contract (whether or not a flexible premium 
contract) would meet the requirements of section 101(f) 
of the Internal Revenue Code of 1954, 
(ii) such contract is not a flexible premium life insur-
ance contract (within the meaning of section 101(f) of 
such Code) and would meet the requirements of section 
7702 of such Code determined by— 
(I) substituting "3 percent" for "4 percent" in 
section 7702(b)(2) of such Code, and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 773 
(II) 
treating 
subparagraph 
(B) 
of 
section 
7702(eXl) of such Code as if it read as follows: "the 
Ante, p. 767. 
maturity date shall be the latest maturity date 
permitted under the contract, but not less than 20 
years after the date of issue or (if earlier) age 95", 
or 
(iii) under such contract— 
(I) the premiums (including any policy fees) will 
be adjusted from time-to-time to reflect the level 
amount necessary (but not less than zero) at the 
time of such adjustment to provide a level death 
benefit assuming interest crediting and an annual 
effective interest rate of not less than 3 percent, or 
(II) at the option of the insured, in lieu of an 
adjustment under subclause (I) there will be a 
comparable adjustment in the amount of the death 
benefit. 
(C) CERTAIN CONTRACTS ISSUED BEFORE OCTOBER i, 1984.— 
(i) IN GENERAL.—Subparagraph (A) shall be applied 
by substituting "September 30, 1984" for "June 30, 
1984" in clause (i) thereof in the case of a contract— 
(I) which would meet the requirements of section 
7702 of such Code if "3 percent" were substituted 
for "4 percent" in section 7702(bX2) of such Code, 
and the rate or rates guaranteed on issuance of the 
contract were determined without regard to any 
mortality charges, and 
(II) the cash surrender value of which does not at 
any time exceed the net single premium which 
would have to be paid at such time to fund future 
benefits under the contract, 
(ii) DEFINITIONS.—For purposes of clause (i)— 
(I) IN GENERAL.—Except as provided in subclause 
(II), terms used in clause (i) shall have the same 
meanings as when used in section 7702 of such 
Code. 
(II) NET SINGLE PREMIUM.—The term "net single 
premium" shall be determined by substituting "3 
percent" for "4 percent" in section 7702(b)(2) of 
such Code, by using the 1958 standard ordinary 
mortality and morbidity tables of the National 
Association of Insurance Commissioners, and by 
Eissuming a level death benefit. 
(3) TRANSITIONAL RULE FOR CERTAIN EXISTING PLANS OF INSUR-
ANCE.—A plan of insurance on file in 1 or more States before 
September 28, 1983, shall be treated for purposes of section 
7702(i)(3) of such Code as a plan of insurance on file in 1 or more 
States before September 28, 1983, without regard to whether 
such plan of insurance is modified after September 28, 1983, to 
permit the crediting of excess interest or similar amounts annu-
ally and not monthly under contracts issued pursuant to such 
plan of insurance. 
(4) EXTENSION OF FLEXIBLE PREMIUM CONTRACT PROVISIONS.— 
The amendments made by subsection (b) shall take effect on 
January 1, 1984. 
(5) SPECIAL RULE FOR MASTER CONTRACT.—For purposes of this 
subsection, in the case of a master contract, the date taken into 
98 STAT. 774 
PUBLIC LAW 98-369—JULY 18, 1984 
account with respect to any insured shall be the first date on 
which such insured is covered under such contract. 
SEC. 222. TREATMENT OF CERTAIN ANNUITY CONTRACTS. 
(a) PENALTY ON PREMATURE DISTRIBUTIONS.—Paragraph (1) of sec-
26 use 72. 
tion 72(q) (relating to 5-percent penalty for premature distributions 
from annuity contracts) is amended to read as follows: 
"(1) IMPOSITION OF PENALTY.—If any taxpayer receives any 
amount under an annuity contract, the taxpayer's tax under 
this chapter for the taxable year in which such amount is 
received shall be increased by an amount equal to 5 percent of 
the portion of such amount which is includible in gross income." 
(b) REQUIRED DISTRIBUTIONS WHERE HOLDER DIES BEFORE ENTIRE 
INTEREST IS DISTRIBUTED.—Section 72 (relating to annuities; certain 
proceeds of endowment and life insurance contracts) is amended by 
redesignating subsection (s) and subsection (t) and by inserting after 
subsection (r) the following new subsection: 
"(s) REQUIRED DISTRIBUTIONS WHERE HOLDER DIES BEFORE ENTIRE 
INTEREST IS DISTRIBUTED.— 
"(1) IN GENERAL.—A contract shall not be treated as an 
annuity contract for purposes of this title unless it provides 
that— 
"(A) if the holder of such contract dies on or after the 
annuity starting date and before the entire interest in such 
contract has been distributed, the remaining portion of 
such interest will be distributed at least as rapidly as under 
the method of distributions being used as of the date of his 
death, and 
"(B) if the holder of such contract dies before the annuity 
starting date, the entire interest in such contract will be 
distributed within 5 years after the death of such holder. 
"(2) EXCEPTION FOR CERTAIN AMOUNTS PAYABLE OVER LIFE OF 
BENEFICIARY.—If— 
"(A) any portion of the holder's interest is payable to (or 
for the benefit of) a designated beneficiary, 
"(B) such portion will be distributed (in accordance with 
regulations) over the life of such designated beneficiary (or 
over a period not extending beyond the life expectancy of 
such beneficiary), and 
"(C) such distributions begin not later than 1 year after 
the date of the holder's death or such later date as the 
Secretary may by regulations prescribe, 
then for purposes of paragraph (1), the portion referred to in 
subparagraph (A) shall be treated as distributed on the day on 
which such distributions begin. 
"(3) SPECIAL RULE WHERE SURVIVING SPOUSE BENEFICIARY.—If 
the designated beneficiary referred to in paragraph (2)(A) is the 
surviving spouse of the holder of the contract, paragraphs (1) 
and (2) shall be applied by treating such spouse as the holder of 
such contract. 
"(4) DESIGNATED BENEFICIARY.—For purposes of this subsec-
tion, the term 'designated beneficiary' means any individual 
designated a beneficiary by the holder of the contract." 
26 u s e 72 note. 
(c) EFFECTIVE DATES.— 
(1) IN GENERAL.—The amendments made by this section shall 
apply to contracts issued after the day which is 6 months after 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 775 
the date of the enactment of this Act in taxable years ending 
after such date. 
(2) TRANSITIONAL RULES FOR CONTRACTS ISSUED BEFORE EFFEC-
TIVE DATE.—In the case of any contract (other than a single 
premium contract) which is issued on or before the day which is 
6 months after the date of the enactment of this Act, for 
purposes of section 72(q)(lXA) of the Internal Revenue Code of 
1954 (as in effect on the day before the date of the enactment of 
this/Act), any investment in such contract which is made during 
any calendar year shall be treated as having been made on 
January 1 of such calendar year. 
SEC. 223. GROUP-TERM LIFE INSURANCE PURCHASED FOR EMPLOYEES. 
(a) SECTION 79 EXTENDED TO FORMER EMPLOYEES.— 
26 use 79. 
(1) Section 79 (relating to group-term insurance purchased for 
employees) is amended by adding at the end thereof the follow-
ing new subsection: 
"(e) EMPLOYEE INCLUDES FORMER EMPLOYEE.—For purposes of this 
section, the term 'employee' includes a former employee.' 
(2) Paragraph (1) of section 79(b) is amended to read as 
follows: 
"(1) the cost of group-term life insurance on the life of an 
individual which is provided under a policy carried directly or 
indirectly by an employer after such individual has terminated 
his employment with such employer and is disabled (within the 
meaning of section 72(m)(7)),". 
(b) AMOUNT OF INCLUSION IN CASE OF DISCRIMINATORY PLANS.— 
Paragraph (1) of section 79(d) (relating to nondiscrimination require- 
. 
^ -
ments) is amended to read as follows: 
-
"(1) IN GENERAL.—In the case of a discriminatory group-term 
life insurance plan— 
"(A) subsection (a)(1) shall not apply with respect to any 
kev employee, and 
'(B) the cost of group-term life insurance on the life of 
any key employee shall be determined without regard to 
subsection (c)." 
(c) CLARIFICATION OF COORDINATION WITH SECTION 83.—Subsection 
(e) of section 83 (relating to application of section) is amended by 
26 use 83. 
striking out "or" at the end of paragraph (3), by striking out the 
period at the end of paragraph (4) and inserting in lieu thereof 
', or", and by adding at the end thereof the following new para-
graph: 
! 
"(5) the cost of group-term life insurance to which section 79 
applies.". 
(d) EFFECTIVE DATE.— 
26 use 79 note. 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to taxable years 
beginning after December 31,1983. 
(2) INCLUSION OF FORMER EMPLOYEES IN THE CASE OF EXISTING 
GROUP-TERM INSURANCE PLANS.— 
(A) IN GENERAL.—The amendments made by subsection 
(a) shall not apply— 
(i) to any group-term life insurance plan of the 
employer in existence on January 1,1984, or 
(ii) to any group-term life insurance plan of the 
employer (or a successor employer) which is a compara-
ble successor to a plan described in clause (i), 
98 STAT. 776 
PUBLIC LAW 98-369—JULY 18, 1984 
but only with respect to an individual who attained age 55 
on or before January 1, 1984, and either was employed by 
such employer at any time during 1983 or retired from 
employment with such employer on or before January 1, 
1984. 
(B) SPECIAL RULE IN THE CASE OF DISCRIMINATORY GROUP-
TERM UFE INSURANCE PLAN.—In the case of any plan which, 
after December 31,1986, is a discriminatory group-term life 
insurance plan (as defined in section 79(d) of the Internal 
Revenue Code of 1954), subparagraph (A) shall not apply in 
the case of any individual retiring under such plan after 
December 31,1986. 
(C) BENEFITS TO CERTAIN RETIRED INDIVIDUALS NOT TAKEN 
INTO ACCOUNT FOR PURPOSES OF DETERMINING WHETHER PLAN 
IS DISCRIMINATORY.—For purposes of determining whether 
after December 31, 1986, a plan described in subparagraph 
(A) meets the requirements of section 79(d) of the Internal 
Revenue Code of 1954 with respect to group-term life insur-
ance for former employees, coverage provided to employees 
who retired on or before December 31, 1986, shall not be 
taken into account. 
SEC. 224. TREATMENT OF CERTAIN EXCHANGES OF INSURANCE POLICIES. 
26 use 1035. 
(a) GENERAL RULE.—Paragraph (1) of section 1035(b) (defining 
endowment contract) is amended by striking out "a life insurance 
company as defined in section 801" and inserting in lieu thereof "an 
insurance company subject to tax under subchapter L". 
26 use 1035 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
note. 
shall apply to all exchanges whether before, on, or after the date of 
the enactment of this Act. 
Subtitle C—Studies 
26 u s e 801 note. 
SEC. 231. STUDIES. 
(a) REVENUE REPORTS.—Not later than July 1, 1985, and July 1 of 
each calendar year thereafter, the Secretary of the Treasury shall 
submit to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate a 
report on— 
(1) the aggregate amount of revenue received under part I of 
Ante, p. 720. 
subchapter L of chapter 1 of the Internal Revenue Code of 1954 
for the most recent taxable years for which data are available, 
(2) a comparison between the amount of such revenue and the 
amount anticipated by reason of changes made by the Tax 
26 use 1 note. 
Equity and Fiscal Responsibility Act of 1982 or the Life Insur-
ance Tax Act of 1984, and 
(3) the reasons for any difference between such aggregate 
revenues and anticipated revenues. 
(b) REPORT WITH RESPECT TO SEGMENT BALANCE, ETC.— 
(1) IN GENERAL.—The Secretary of the Treasury (in consulta-
tion with the Joint Committee on Taxation, the Committee on 
Ways and Means of the House of Representatives, and the 
Committee on Finance of the Senate) shall conduct a full and 
complete study of the operation of part I of subchapter L of 
chapter 1 of the Internal Revenue Code of 1954 during 1984, 
1985, and 1986. Such study shall also include an analysis of life 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 777 
insurance products and the taxation thereof. Such study shall 
also include an analysis of whether part I of such subchapter L 
operates as a disincentive to growing companies. 
**' 
(2) ITEMS TO BE INCLUDED.—The study conducted under para-
graph (1) shall include— 
(A) an analysis of the portion of the taxes paid by mutual 
life insurance companies and stock life insurance compa-
;: 
nies, and 
(B) any other data considered relevant by either stock life 
insurance companies or mutual life insurance companies in 
determining appropriate segment balance, such as the 
respective amounts of the following items held by each 
segment of the industry— 
(i) equity, 
(ii) life insurance reserves, 
(iii) other types of reserves, 
(iv) dividends paid to policyholders and shareholders, 
(v) pension business, 
(vi) total assets, and 
(vii) gross receipts. 
Such report shall also include an analysis of the extent to which 
taxes paid by stockholders of life insurance companies shall be 
included in analyzing segment balance. 
(3) REPORTS.— 
(A) INTERIM REPORTS.—The Secretary of the Tre£isury 
shall submit interim reports on the study conducted under 
this subsection to the Committee on Ways and Means of the 
House of Representatives and the Committee on Finance of 
the Senate not later than July 1, 1986, 1987, and 1988. 
(B) FINAL REPORT.—Not later than January 1, 1989, the 
Secretary of the Treasury shall submit a final report on the 
study conducted under this subsection to the Committee on 
Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate. 
(c) AUTHORITY TO REQUIRE DATA.—The Secretary of the Treasury 
shall have authority to require reporting of such data with respect 
to life insurance companies and their products as may be necessary 
to carry out the purposes of this section. 
TITLE III—REVISION OF PRIVATE 
FOUNDATION PROVISIONS 
SEC. 301. LIMITATIONS ON DEDUCTION FOR CONTRIBUTIONS TO PRIVATE 
FOUNDATIONS. 
(a) INCREASE IN PERCENTAGE LIMITATION FOR INDIVIDUALS.— 
(1) IN GENERAL.—Clause (i) of section 170(bXlXB) (relating to 
26 use 170. 
percentage limitations for individuals) is amended by striking 
out "20 percent" and inserting in lieu thereof "30 percent'. 
(2) CARRYOVER OF EXCESS CONTRIBUTIONS.—Subparagraph (B) 
of section 170(b)(1) is amended by adding at the end thereof the 
following new sentence: 
"If the aggregate of such contributions exceeds the limita-
tion of the preceding sentence, such excess shall be treated 
(in a manner consistent with the rules of subsection (dXl)) 
as a charitable contribution (to which subparagraph (A) 
98 STAT. 778 
PUBLIC LAW 98-369—JULY 18, 1984 
does not apply) in each of the 5 succeeding taxable years in 
order of time." 
(b) DEDUCTION ALLOWED FOR FULL FAIR MARKET VALUE OF CER-
TAIN STOCK CONTRIBUTED TO PRIVATE FOUNDATIONS.—Subsection (e) 
26 use 170. 
of section 170 (relating to certain contributions of ordinary income 
and capital gain property) is amended by adding at the end thereof 
the following new paragraph: 
"(5) SPECIAL RULE FOR CONTRIBUTIONS OF STOCK FOR WHICH 
MARKET QUOTATIONS ARE READILY AVAILABLE.— 
"(A) IN GENERAL.—Subparagraph (B)(ii) of paragraph (1) 
shall not apply to any contribution of qualified appreciated 
stock. 
"(B) QUALIFIED APPRECIATED STOCK.—Except as provided 
in subparagraph (C), for purposes of this paragraph, the 
term 'qualified appreciated stock' means any stock of a 
corporation— 
"(i) for which (as of the date of the contribution) 
market quotations are readily available on an estab-
lished securities market, and 
"(ii) which is capital gain property (as defined in 
subsection (b)(l)(C)(iv)). 
"(C) DONOR MAY NOT CONTRIBUTE MORE THAN lo PERCENT 
OF STOCK OF CORPORATION.— 
"(i) IN GENERAL.—In the case of any donor, the term 
'qualified appreciated stock' shall not include any stock 
of a corporation contributed by the donor in a contribu-
tion to which paragraph (l)(B)(ii) applies (determined 
without regard to this paragraph) to the extent that the 
amount of the stock so contributed (when increased by 
the aggregate amount of all prior such contributions by 
the donor of stock in such corporation) exceeds 10 
percent (in value) of all of the outstanding stock of such 
corporation. 
"(ii) SPECIAL RULE.—For purposes of clause (i), an 
individual shall be treated as making all contributions 
made by any member of his family (as defined in 
section 267(c)(4)). 
"(D) TERMINATION.—This paragraph shall not apply to 
contributions made after December 31,1994." 
(c) 20-PERCENT LIMITATION RETAINED FOR CONTRIBUTIONS OF CAP-
ITAL GAIN PROPERTY.— 
(1) IN GENERAL.—Paragraph (1) of section 170(b) (relating to 
percentage limitations for individuals) is amended by redesig-
nating subparagraphs (D) and (E) as subparagraphs (E) and (F), 
respectively, and by inserting after subparagraph (C) the follow-
ing new subparagraph: 
"(D) SPECIAL LIMITATION WITH RESPECT TO CONTRIBUTIONS 
OF CAPITAL GAIN PROPERTY TO ORGANIZATIONS NOT DESCRIBED 
IN SUBPARAGRAPH 
(A).— 
"(i) IN GENERAL.—In the case of charitable contribu-
tions (other than charitable contributions to which sub-
paragraph (A) applies) of capital gain property, the 
total amount of such contributions of such property 
taken into account under subsection (a) for any taxable 
year shall not exceed the lesser of— 
"(I) 20 percent of the taxpayer's contribution 
base for the taxable year, or 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 779 
"(ID the excess of 30 percent of the taxpayer's 
contribution base for the taxable year over the 
amount of the contributions of capital gain pro-
perty to which subparagraph (C) applies. 
For purposes of this subsection, contributions of capital 
gain property to which this subparagraph applies shall 
be taken into account after all other charitable contri-
butions. 
"(ii) CARRYOVER.—If the aggregate amount of contri-
butions described in clause (i) exceeds the limitation of 
clause (i), such excess shall be treated (in a manner 
consistent with the rules of subsection (d)(1)) as a chari-
table contribution of capital gain property to which 
clause (i) applies in each of the 5 succeeding taxable 
years in order of time." 
(2) TECHNICAL AMENDMENTS.— 
(A) Clause (vii) of section 170(bXlXA) is amended by strik- 26 USC 170. 
ing out "subparagraph (D)" and inserting in lieu thereof 
"subparagraph (E)". 
(B) The subparagraph heading and clause (i) of subpara-
graph (C) of section 170(b)(1) are amended to read as follows: 
... 
"(C) SPECIAL UMITATION WITH RESPECT TO CONTRIBUTIONS 
DESCRIBED IN SUBPARAGRAPH (A) OF CERTAIN CAPITAL GAIN 
PROPERTY.— 
"(i) In the case of charitable contributions described 
in subparagraph (A) of capital gain property to which 
subsection (e)(1)(B) does not apply, the total amount of 
contributions of such property which may be taken into 
account under subsection (a) for any taxable year shall 
not exceed 30 percent of the taxpayer's contribution 
base for such year. For purposes of this subsection, 
contributions of capital gain property to which this 
subparagraph applies shall be taken into account after 
all other charitable contributions (other than charita-
ble contributions to which subparagraph (D) applies)." 
(C) Subparagraph (B) of section 170(eXl) is amended by 
striking out "subsection (bXlXD)" and inserting in lieu 
thereof "subsection (bXl)(E)". 
(d) EFFECTIVE DATES.— 
26 use 170 
(1) SUBSECTIONS (a) AND (C).—The amendments made by sub- note. 
sections (a) and (c) shall apply to contributions made in taxable 
years ending after the date of the enactment of thfe Act. 
(2) SUBSECTION (b).—The amendment made by subsection (b) 
shall apply to contributions made after the date of the enact- 
MJ, ; n v 
ment of this Act in taxable years ending after such date. 
SEC. 302. EXEMPTION FOR CERTAIN OPERATING FOUNDATIONS FROM 
EXCISE TAX ON INVESTMENT INCOME. 
(a) GENERAL RULE.—Section 4940 (relating to excise tax based on 26 use 4940. 
investment income) is amended by adding at the end thereof the 
following new subsection: 
"(d) EXEMPTION FOR CERTAIN OPERATING FOUNDATIONS.— 
"(1) IN GENERAL.—No tax shall be imposed by this section on 
any private foundation which is an exempt operating founda-
tion for the taxable year. 
98 STAT. 780 
PUBLIC LAW 98-369—JULY 18, 1984 
"(2) EXEMPT OPERATING FOUNDATION.—For purposes of this 
subsection, the term 'exempt operating foundation' means, with 
respect to any taxable year, any private foundation if— 
"(A) such foundation is an operating foundation (as de-
fined in section 4942(j)(3)), 
"(B) such foundation has been publicly supported for at 
least 10 taxable years, 
"(C) at all times during the taxable year, the governing 
body of such foundation— 
"(i) consists of individuals at least 75 percent of 
whom are not disqualified individuals, and 
"(ii) is broadly representative of the general public, 
and 
"(D) at no time during the taxable year does such founda-
tion have an officer who is a disqualified individual. 
"(3) DEFINITIONS.—For purposes of this subsection— 
"(A) PuBUCLY SUPPORTED.—A private foundation is pub-
licly supported for a taxable year if it meets the require-
ments of section 170(bXl)(A)(vi) or 509(a)(2) for such taxable 
year. 
"(B) DISQUAUFIED INDIVIDUAL.—The term 'disqualified in-
dividual' means, with respect to any private foundation, an 
individual who is— 
"(i) a substantial contributor to the foundation, 
"(ii) an owner of more than 20 percent of— 
"(I) the total combined voting power of a corpora-
tion, 
"(II) the profits interest of a partnership, or 
"(III) the beneficial interest of a trust or unincor-
porated enterprise, 
which is a substantial contributor to the foundation, or 
"(iii) a member of the family of any individual de-
scribed in clause (i) or (ii). 
"(C) SUBSTANTIAL CONTRIBUTOR.—The term 'substantied 
contributor' means a person who is described in section 
507(d)(2). 
"(D) FAMILY.—The term 'family' has the meaning given 
Post, p. 784. 
to such term by section 4946(d). 
"(E) CONSTRUCTIVE OWNERSHIP.—The rules of paragraphs 
(3) and (4) of section 4946(a) shall apply for purposes of 
subparagraph (BXii)." 
(b) REQUIREMENT OF EXPENDITURE RESPONSIBIUTY NOT TO APPLY 
TO CERTAIN OPERATING FOUNDATIONS.—Paragraph (4) of section 
26 use 4945. 
4945(d) (defining taxable expenditure) is amended to read as follows: 
"(4) as a grant to an organization unless— 
"(A) such organization is described in paragraph (1), (2), 
or (3) of section 509(a) or is an exempt operating foundation 
Ante, p. 779. 
(as defined in section 4940(d)(2)), or 
"(B) the private foundation exercises expenditure respon-
sibility with respect to such grant in accordance with sub-
section (h), or". 
26 u s e 4940. 
(c) EFFECTIVE D A T E . — 
"^ote. 
(1) FOR SUBSECTION (a).—The amendment made by subsection 
(a) shall apply to taxable years beginning after December 31, 
1984. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 781 
(2) FOR SUBSECTION (b).—The amendment made by subsection 
26 use 4945 
(b) shall apply to grants made after December 31, 1984, in note. 
taxable years ending after such date. 
(3) CERTAIN EXISTING FOUNDATIONS.—A foundation which was 
26 use 4940 
an operating foundation (as defined in section 4942(j)(3) of the 
^°^-
Internal Revenue Code of 1954) as of January 1, 1983, shall be 
treated as meeting the requirements of section 4940(d)(2)(B) of 
such Code (as added by subsection (a)). 
Ante, p. 779. 
SEC. 303. REDUCTION IN EXCISE TAX O
N INVESTMENT INCOME WHERE 
PRIVATE FOUNDATION MEETS CERTAIN DISTRIBUTION RE-
QUIREMENTS. 
(a) GENERAL RULE.—Section 4940 (relating to excise tax based on 26 use 4940. 
investment income) is amended by adding at the end thereof the 
following new subsection: 
"(e) REDUCTION IN TAX WHERE PRIVATE FOUNDATION MEETS CER-
TAIN DISTRIBUTION REQUIREMENTS.— 
"(1) IN GENERAL.—In the case of any private foundation which 
meets the requirements of paragraph (2) for any taxable year, 
subsection (a) shall be applied with respect to such taxable year 
by substituting '1 percent' for '2 percent'. 
"(2) REQUIREMENTS.—A private foundation meets the require-
ments of this paragraph for any taxable year i
f
— 
"(A) the amount of the qualifying distributions made by 
the private foundation during such taxable year equals or 
exceeds the sum of— 
"(i) an amount equal to the assets of such foundation 
for such taxable year multiplied by the average per-
centage payout for the base period, plus 
"(ii) 1 percent of the net investment income of such 
foundation for such taxable year, and 
"(B) the average percentage payout for the base period 
equals or exceeds 5 percent. 
In the case of an operating foundation (as defined in section 
4942(j)(3)), subparagraph (B) shall be applied by substituting 'SVs 
percent' for '5 percent. 
"(3) AVERAGE PERCENTAGE PAYOUT FOR BASE PERIOD.—For pur-
poses of this subsection— 
"(A) IN GENERAL.—The average percentage payout for the 
base period is the average of the percentage payouts for 
taxable years in the base period. 
"(B) PERCENTAGE PAYOUT.—The term 'percentage payout' 
means, with respect to any taxable year, the percentage 
determined by dividing— 
"(i) the amount of the qualifying distributions made 
by the private foundation during the taxable year, by 
"(ii) the assets of the private foundation for the 
taxable year. 
"(C) SPECIAL RULE WHERE TAX REDUCED UNDER THIS SUB-
SECTION.—For purposes of this paragraph, if the amount of 
the tax imposed by this section for any taxable year in the 
base period is reduced by reason of this subsection, the 
amount of the qualifying distributions made by the private 
foundation during such year shall be reduced by the 
amount of such reduction in tax. 
"(4) BASE PERIOD.—For purposes of this subsection— 
98 STAT. 782 
PUBLIC LAW 98-369—JULY 18, 1984 
"(A) IN GENERAL.—The term 'base period' means, with 
respect to any taxable year, the 5 taxable years preceding 
such taxable year. 
"(B) NEW PRIVATE FOUNDATIONS, ETC.—If an organization 
has not been a private foundation throughout the base 
period referred to in subparagraph (A), the base period 
shall consist of the taxable years during which such founda-
tion has been in existence. 
"(5) OTHER DEFINITIONS.—For purposes of this subsection— 
"(A) QUALIFYING DISTRIBUTION.—The term 'qualifying dis-
tribution' has the meaning given such term by section 
4942(g). 
"(B) ASSETS.—The assets of a private foundation for any 
taxable year shall be treated as equal to the excess deter-
mined under section 4942(e)(1). 
"(6) TREATMENT OF SUCCESSOR ORGANIZATIONS, ETC.—In 
the 
case of— 
"(A) a private foundation which is a successor to another 
private foundation, this subsection shall be applied with 
respect to such successor by taking into account the experi-
ence of such other foundation, and 
"(B) a merger, reorganization, or division of a private 
foundation, this subsection shall be applied under regula-
tions prescribed by the Secretary." 
26 use 4940 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
note. 
shall apply to taxable years beginning after December 31, 1984. 
SEC. 304. AMENDMENT TO TAXES ON FAILURE TO DISTRIBUTE INCOME. 
(a) LIMIT ON AMOUNT OF CERTAIN ADMINISTRATIVE EXPENSES 
TAKEN INTO ACCOUNT AS QUALIFYING DISTRIBUTIONS.— 
26 use 4942. 
(1) Subsection (g) of section 4942 (defining qualified distribu-
tions) is amended by adding at the end thereof the following 
new paragraph: 
"(4) LIMITATION ON ADMINISTRATIVE EXPENSES ALLOCABLE TO 
MAKING OF CONTRIBUTIONS, GIFTS, AND GRANTS.— 
"(A) IN GENERAL.—The amount of the grant administra-
tive expenses paid during any taxable year which may be 
taken into account as qualif3dng distributions shall not 
exceed the excess (if any) of— 
"(i) .65 percent of the sum of the net assets of the 
private foundation for such taxable year and the imme-
diately preceding 2 taxable years, over 
"(ii) the aggregate amount of grant administrative 
expenses paid during the 2 preceding taxable years 
which were taken into account as qualifying distribu-
tions. 
"(B) GRANT ADMINISTRATIVE EXPENSES.—For purposes of 
this paragraph, the term 'grant administrative expenses' 
means any administrative expenses which are allocable to 
the making of qualified grants. 
"(C) QuAUFiED GRANTS.—For purposes of this paragraph, 
the term 'qualified grant' means any contribution, gift, or 
grant which is a qualifying distribution. 
"(D) NET ASSET.—For purposes of this paragraph, the 
term 'net assets' means, with respect to any taxable year, 
the excess determined under subsection (e)(1) for such tax-
able year. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 783 
"(E) TRANSITIONAL RULE.—In the case of any preceding 
taxable year which begins before January 1, 1985, the 
amount of the grant administrative expenses taken into 
account under subparagraph (AXii) shall not exceed .65 
percent of the net assets of the private foundation for such 
taxable year. 
"(F) TERMINATION.—This paragraph shall not apply to 
taxable years beginning after December 31,1990." 
(2) Subparagraph (A) of section 4942(g)(1) (defining qualifying 26 use 4942. 
distribution) is amended by striking out "including administra-
tive expenses" and inserting in lieu thereof "including that 
portion of reasonable and necessary administrative expenses". 
(b) REQUIRED DISTRIBUTION INCREASED BY AMOUNT OF CERTAIN 
REPAYMENTS, ETC.—Paragraph (1) of section 4942(d) (defining dis-
tributable amount) is amended to read as follows: 
"(1) the sum of the minimum investment return plus the 
amounts described in subsection (f)(2)(C), reduced by". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 use 4942 
apply to taxable years beginning after December 31,1984. 
^°^-
SEC. 305. ABATEMENT OF FIRST TIER TAXES IN CERTAIN CASES. 
(a) GENERAL RULE.—Subchapter C of chapter 42 (relating to abate-
ment of second tier taxes) is amended by redesignating section 4962 
as section 4963 and by inserting after section 4961 the following new 
26 use 4963. 
section: 
"SEC. 4962. ABATEMENT OF PRIVATE FOUNDATION FIRST TIER TAXES IN 26 USC 4962. 
CERTAIN CASES. 
"(a) GENERAL RULE.—If it is established to the satisfaction of the 
Secretary that— 
"(1) a taxable event was due to reasonable cause and not to 
willful neglect, and 
"(2) such event was corrected within the correction period for 
such event, 
then any private foundation first tier tax imposed with respect to 
such event (including interest) shall not be assessed and, if assessed, 
the assessment shall be abated and, if collected, shall be credited or 
refunded as an overpa5mient. 
"(b) PRIVATE FOUNDATION FIRST TIER TAX.—For purposes of this 
section, the term 'private foundation first tier tax' means any first 
tier tax imposed by subchapter A of chapter 42, except that such 26 use 4940. 
term shall not include the tax imposed by section 4941(a) (relating to 
initial tax on self-dealing)." 
(b) CONFORMING AMENDMENTS.— 
26 use prec. 
(1) The heading of subchapter C of chapter 42 is amended to 4961. 
read as follows: 
"Subchapter C—Abatement of First and Second Tier 
Taxes in Certain Cases". 
(2) The table of sections for subchapter C of chapter 42 is 
amended by striking out the item relating to section 4962 and 
inserting in lieu thereof the following: 
"Sec. 4962. Abatement of private foundation first tier taxes in certain cases. 
"Sec. 4963. Definitions." 
98 STAT. 784 
PUBLIC LAW 98-369—JULY 18, 1984 
(3) The table of subchapters for chapter 42 is amended by 
striking out the item relating to subchapter C and inserting in 
lieu thereof the following: 
"SUBCHAPTER C. Abatement of first and second tier taxes in certain cases." 
26 use 4942, 
(4) Sections 4942(g)(2)(C), 6213(e), and 6503(g) are each 
6213, 6503. 
amended by striking out "section 4962(e)" and inserting in lieu 
thereof "section 4963(e)". 
26 use 4962 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply to taxable events occurring after December 31,1984. 
SEC. 306. MISCELLANEOUS AMENDMENTS. 
26 use 4946. 
(a) DEFINITION OF FAMILY MEMBER.—Subsection (d) of section 4946 
(defining members of family) is amended to read as follows: 
"(d) MEMBERS OF FAMILY.—For purposes of subsection (aXD, the 
family of any individual shall include only his spouse, ancestors, 
children, grandchildren, great grandchildren, and the spouses of 
children, grandchildren, and great grandchildren." 
(b) REQUIREMENT THAT ANNUAL NOTICE INCLUDE TELEPHONE 
NUMBER OF THE PRIVATE FOUNDATION.—Subsection (d) of section 
26 use 6104. 
6104 (relating to public inspection of private foundations' annual 
returns) is amended by striking out "shall state the address of the 
private foundation's principal office" and inserting in lieu thereof 
shall state the address and the telephone number of the private 
foundation's principal office". 
26 use 4946 
(c) EFFECTIVE DATES.—The amendments made by this subsection 
note. 
shall take effect on January 1,1985. 
SEC. 307. 5-YEAR EXTENSION OF REQUIREMENT TO DISPOSE OF CERTAIN 
EXCESS HOLDINGS ATTRIBUTABLE TO LARGE GIFTS AND BE-
QUESTS. 
26 use 4943. 
(a) GENERAL RULE.—Subsection (c) of section 4943 (relating to 
taxes on excess business holdings) is amended by adding at the end 
thereof the following new paragraph: 
"(7) 5-YEAR EXTENSION OF PERIOD TO DISPOSE OF CERTAIN LARGE 
GIFTS AND BEQUESTS.—The Secretary may extend for an addi-
tional 5-year period the period under paragraph (6) for disposing 
of excess business holdings in the case of an unusually large gift 
or bequest of diverse business holdings or holdings with complex 
corporate structures i
f
—
• 
"(A) the foundation establishes that— 
"(i) diligent efforts to dispose of such holdings have 
been made within the initial 5-year period, and 
"(ii) disposition within the initial 5-year period has 
not been possible (except at a price substantially below 
fair market value) by reason of such size and complex-
ity or diversity of such holdings, 
"(B) before the close of the initial 5-year period— 
"(i) the private foundation submits to the Secretary a 
plan for disposing of all of the excess business holdings 
involved in the extension, and 
"(ii) the private foundation 
submits the plan 
described in clause (i) to the Attorney General (or other 
appropriate State official) having administrative or 
supervisory authority or responsibility with respect to 
the foundation's disposition of the excess business hold-
ings involved and submits to the Secretary any re-
sponse received by the private foundation from the 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 785 
.-,: >-.. 
Attorney General (or other appropriate State official) 
to such plan during such 5-year period, and 
"(C) the Secretary determines that such plan can reason-
ably he expected to be carried out before the close of the 
'^*' 
extension period." 
(b) EFFECTIVE DATE.— 
26 use 4943 
(1) IN GENERAL.—The amendment made by subsection (a) ^°^^-
shall apply to business holdings with respect to which the 5-year 
period described in section 4943(c)(6) of the Internal Revenue 
Code of 1954 ends on or after November 1,1983. 
' 
' ^' 
(2) TRANSITIONAL RULE.—Any plan submitted to the Secretary 
of the Treasury or his delegate on or before the 60th day after 
the date of the enactment of this Act shall be treated as 
submitted before the close of the initial 5-year period referred to 
in section 4943(c)(7)(B) of the Internal Revenue Code of 1954 (as Ante, p. 784. 
added by subsection (a)). 
SEC. 308. DECREASES ATTRIBUTABLE TO STOCK ISSUANCES NOT TO 
REDUCE PERMITTED PERCENTAGE OF HOLDINGS WHERE 
DECREASE IS 2 PERCENT OR LESS. 
(a) GENERAL RULE.—The second sentence of clause (ii) of section 
4943(c)(4)(A) (relating to present holdings) is amended to read as 26 use 4943. 
follows: 
"For purposes of the preceding sentence, any decrease 
in percentage holdings attributable to issuances of 
stock (or to issuances of stock coupled with redemptions 
i |('.. 
of stock) shall be disregarded so long as— 
"(I) the net percentage decrease disregarded 
.
^ 
, , ~
. 
under this sentence does not exceed 2 percent, and 
.., .,, 
"(Il)thenumberof shares held by the foundation 
',;,; 
is not affected by any such issuance or redemp-
tion." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 4943 
shall apply to increases and decreases occurring after the date of the note. 
enactment of this Act. 
SEC. 3C9. AGGREGATION OF STOCK HOLDINGS OF PRIVATE FOUNDATION 
AND DISQUALIFIED PERSONS IN APPLYING 95 PERCENT OWN-
ERSHIP TEST. 
(a) GENERAL RULE.—Clause (i) of section 4943(cX4)(B) (relating to 
26 use 4943. 
present holdings) is amended by striking out "the private foundation 
has" and inserting in lieu thereof "the private foundation and all 
disqualified persons have". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 4943 
shall take effect as if included in the amendment made by section T^°^-
101(b) of the Tax Reform Act of 1969. 
26 use prec. 
4940, 4940-4948. 
SEC. 310. 5-YEAR PERIOD TO DISPOSE OF EXCESS HOLDINGS RESULTING 
FROM CERTAIN ACQUISITIONS BY DISQUALIFIED PERSONS. 
(a) GENERAL RULE.—Paragraph (6) of section 4943(c) (relating to 5- 26 use 4943. 
year period to dispose of gifts, bequests, etc.) is amended by adding 
at the end thereof the following new sentence: 
"In any case where an acquisition by a disqualified person 
would result in a substitution under clause (i) or (ii) of subpara- 
>
r :*nj s; 
graph (D) of paragraph (4), the preceding sentence shall be 
applied with respect to such acquisition as if it did not contain 
31-194 0 - 86 - 27 : QL. 3 Part I 
.a ,5h»i\ 
.KM' 
98 STAT. 786 
PUBLIC LAW 98-369—JULY 18, 1984 
the phrase 'or by a disquaUfled person' in the material preced-
ing subparagraph (A)." 
26 use 4943 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
•^o**- 
shall apply to acquisitions after the date of the enactment of this 
Act. 
SEC. 311. THE CONDUCTING OF CERTAIN GAMES OF CHANCE NOT 
TREATED AS UNRELATED TRADE OR BUSINESS. 
(a) GENERAL RULE.—For purposes of section 513 of the Internal 
26 use 513 note. Revenue Code of 1954 (defining unrelated trade or business), the 
term "unrelated trade or business" does not include any trade or 
business which consists of conducting any game of chance if— 
(1) such game of chance is conducted by a nonprofit organiza-
tion, 
(2) the conducting of such game by such organization does not 
violate any State or local law, and 
(3) as of October 5,1983— 
(A) there was a State law in effect which permitted the 
conducting of such game of chance by such nonprofit orga-
nization, but 
(B) the conducting of such game of chance by organiza-
tions which were not nonprofit organizations would have 
violated such law. 
(b) EFFECTIVE DATE.—Subsection (a) shall apply to games of 
chance conducted after June 30, 1981, in taxable years ending after 
such date. 
SEC. 312. TAX ON SELF-DEALING NOT TO APPLY TO CERTAIN STOCK 
PURCHASES. 
26 use 4941 
(a) GENERAL RULE.—Section 4941 of the Internal Revenue Code of 
note. 
1954 (relating to taxes on self-dealing) shall not apply to the pur-
chase during 1978 of stock from a private foundation (and to any 
note issued in connection with such purchase) if— 
(1) consideration for such purchase equaled or exceeded the 
fair market value of such stock, 
(2) the purchaser of such stock did not make any contribution 
to such foundation at any time during the 5-year period ending 
on the date of such purchase, 
(3) the aggregate contributions to such foundation by the 
purchaser before such date were less than $10,000 and less than 
2 percent of the total contributions received by the foundation 
as of such date, and 
(4) such purchase was pursuant to the settlement of litigation 
involving the purchaser. 
(b) STATUTE OF LIMITATIONS.—If credit or refund of any overpay-
ment of tax resulting from subsection (a) is prevented at any time 
before the close of the 1-year period beginning on the date of the 
~^ 
enactment of this Act by the operation of any law or rule of law, 
refund or credit of such overpayment may, nevertheless, be made or 
allowed if claim therefor is filed before the close of such 1-year 
'
•
> 
period. 
SEC. 313. PERSON CEASES TO BE SUBSTANTIAL CONTRIBUTOR AFTER 10 
YEARS WITH NO CONNECTION TO FOUNDATION. 
26 use 507. 
(a) GENERAL RULE.—Paragraph (2) of section 507(d) (defining sub-
stantial contributor) is amended by adding at the end thereof the 
following new subparagraph: 
.Jf 
: T'" - iii- ' O 191 
££ 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 787 
w :i 
"(C) PERSON CEASES TO BE SUBSTANTIAL CONTRIBUTOR IN 
CERTAIN CASES.— 
} 
"(i) IN GENERAL.—A person shall cease to be treated 
as a substantial contributor with respect to any private 
foundation as of the close of any taxable year of such 
foundation if— 
"(I) during the 10-year period ending at the close 
'''" -'' ^ '' 
-A.. 
of such taxable year such person (and all related 
"'' 
persons) have not made any contribution to such 
private foundation, 
^ 
"(II) at no time during such 10-year period was 
such person (or any related person) a foundation 
r^ 
manager of such private foundation, and 
"(III) the aggregate contributions made by such 
person (and related persons) are determined by the 
Secretary to be insignificant when compared to the 
, 
, 
aggregate amount of contributions to such founda-
*'*" ' 
tion by one other person. 
For purposes of subclause (III), appreciation on contri-
-" 
butions while held by the foundation shall be taken 
* • W
I
L
J t?': 
into account. 
"(ii) RELATED PERSON.—For purposes of clause (i), the 
term 'related person' means, with respect to any 
person, any other person who would be a disqualified 
person (within the meaning of section 4946) by reason 
,^. 
of his relationship to such person. In the case of a 
.. J 
contributor which is a corporation, the term also in-
cludes any officer or director of such corporation." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 507 note. 
shall apply to taxable years beginning after December 31, 1984. 
SEC. 314. TECHNICAL AMENDMENTS. 
(a) AMENDMENTS OF INTERNAL REVENUE CODE OF 1954.— 
(1) Subparagraph (B) of section 4942(a)(2) (relating to taxes on 26 use 4942. 
failure to distribute income) is amended by striking out "subsec-
tion (j)(4)" and inserting in lieu thereof "subsection (jX2)". 
(2) Paragraph (1) of section 4942(f) (defining adjusted net 
income) is amended by striking out "subsection (d)" and insert-
ing in lieu thereof "subsection (j)"-
(3) Paragraph (3) of section 6501(n) (relating to special rule for Ante, p. 698. 
chapter 42 and similar taxes) is amended by striking out "sec-
tion 4942(gX2)(BXi)(II)" and inserting in lieu thereof "section 
4942(gX2XBXii)". 
(4) The amendments made by this subsection shall take effect 26 use 4942 
on the date of the enactment of this Act. 
note. 
(b) AMENDMENT OF 1969 TAX REFORM ACT.— 
(1) Subparagraph (A) of section 101(1X4) of the Tax Reform Act 26 use 4940 
of 1969 is amended by striking out "by substituting '51 percent' note. 
for '50 percent' " and inserting in lieu thereof "as if it did not 
contain the phrase ', but in no event shall the percentage so 
substituted be more than 50 percent' ". 
(2) The amendment made by paragraph (1) shall apply as if 26 use 4940 
included in section 101(1X4) of the Tax Reform Act of 1969. note. 
(c) EXCEPTION TO DEFINITION OF DISQUALIFIED PERSONS.— 
(1) Subsection (d) of section 4943 (relating to definitions and 26 use 4943. 
special rules with respect to taxes on excess business holdings) 
98 STAT. 788 
PUBLIC LAW 98-369—JULY 18, 1984 
is amended by adding at the end thereof the following new 
paragraph: 
"(4) DISQUALIFIED PERSON.—The term 'disqualified person' (as 
defined in section 4946(a)) does not include a plan described in 
section 4975(e)(7) with respect to the holdings of a private 
foundation described in paragraphs (4) and (5) of subsection (c).". 
26 use 4943 
(2) The amendment made by paragraph (1) shall apply with 
note. 
respect to taxable years beginning after the date of the enact-
ment of this Act. 
TITLE IV—TAX SIMPLIFICATION 
Subtitle A—Revision and SimpliHcation of 
Estimated Income Tax for Individuals 
SEC. 411. REVISION OF PENALTY FOR FAILURE TO PAY ESTIMATED 
INCOME TAX. 
26 use 6654. 
Section 6654 (relating to addition to the tax for failure by individ-
ual to pay estimated income tax) is amended to read as follows: 
"SEC. 6654. FAILURE BY INDIVIDUAL TO PAY ESTIMATED INCOME TAX. 
"(a) ADDITION TO THE TAX.—Except as otherwise provided in this 
section, in the case of any underpayment of estimated tax by an 
26 use 1 et seq. 
individual, there shall be added to the tax under chapter 1 and the 
26 use 1401 et 
^^^ under chapter 2 for the taxable year an amount determined by 
*^^- 
applying— 
"(1) the applicable annual rate established under section 6621, 
"(2) to the amount of the underpayment, 
"(3) for the period of the underpa5rment. 
"(b) AMOUNT OF UNDERPAYMENT; PERIOD OF UNDERPAYMENT.—For 
purposes of subsection (a)— 
"(1) AMOUNT.—The amount of the underpayment shall be the 
excess o
f
— 
"(A) the required installment, over 
"(B) the amount (if any) of the installment paid on or 
before the due date for the installment. 
"(2) PERIOD OF UNDERPAYMENT.—The period of the underpay-
ment shall run from the due date for the installment to which-
ever of the following dates is the earlier— 
"(A) the 15th day of the 4th month following the close of 
the taxable year, or 
"(B) with respect to any portion of the underpajrment, the 
date on which such portion is paid. 
"(3) ORDER OF CREDITING PAYMENTS.—For purposes of para-
graph (2)(B), a pa)mient of estimated tax shall be credited 
against unpaid required installments in the order in which such 
installments are required to be paid. 
"(c) NUMBER OF REQUIRED INSTALLMENTS; DUE DATES.—For pur-
poses of this section— 
"(1) PAYABLE IN 4 INSTALLMENTS.—There shall be 4 required 
installments for each taxable year. 
"(2) TIME FOR PAYMENT OF INSTALLMENTS.— 
M4i^ :¥• 
04 Si 'Jt 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 789 
"In the case of the following re-
quired installments:. 
The due date is: 
1st 
April 15 
2nd 
June 15 
» 
3rd 
September 15 
' 
4th 
January 15 of the following tax-
able year. 
"(d) AMOUNT OF REQUIRED INSTALLMENTS.—For purposes of this 
section— 
"(1) AMOUNT.— 
"(A) IN GENERAL.—Except as provided in paragraph (2), 
the amount of any required installment shall be 25 percent 
fiiiw 
of the required annual payment. 
"(B) REQUIRED ANNUAL PAYMENT.—For purposes of sub-
paragraph (A), the term 'required annual payment' means 
1
?
^ 
the lesser of— 
"(i) 80 percent of the tax shown on the return for the 
taxable year (or, if no return is filed, 80 percent of the 
, 
tax for such year), or 
"(ii) 100 percent of the tax shown on the return of the 
individual for the preceding taxable year. 
Clause (ii) shall not apply if the preceding taxable year was 
not a taxable year of 12 months or if the individual did not 
file a return for such preceding taxable year. 
"(2) 
LOWER 
REQUIRED INSTALLMENT WHERE ANNUALIZED 
INCOME INSTALLMENT IS LESS THAN AMOUNT DETERMINED UNDER 
PARAGRAPH (1) .— 
i 
"(A) IN GENERAL.—In the case of any required install-
ment, if the individual establishes that the annualized 
income installment is less than the amount determined 
1
^ 
under paragraph (1)— 
"(i) the amount of such required installment shall be 
the annualized income installment, and 
"(ii) any reduction in a required installment result-
ed, 
ing from the application of this subparagraph shall be 
^^' 
recaptured by increasing the amount of the next re-
quired installment determined under paragraph (1) by 
the amount of such reduction (and by increasing subse-
quent required installments to the extent that the 
reduction has not previously been recaptured under 
this clause). 
"(B) 
DETERMINATION OF ANNUALIZED INCOME INSTALL-
MENT.—In the case of any required installment, the annua-
lized income installment is the excess (if any) o
f
— 
"(i) an amount equal to the applicable percentage of 
the tax for the taxable year computed by placing on an 
annualized basis the taxable income, alternative mini-
"""• 
mum taxable income, and adjusted self-employment 
income for months in the taxable year ending before 
'^ ^ 
* 
the due date for the installment, over 
"(ii) the aggregate amount of any prior required 
installments for the taxable year. 
"(C) SPECIAL RULES.—For purposes of this paragraph— 
"(i) ANNUALIZATION.—The taxable income, alterna-
tive minimum taxable income, and adjusted self-em-
ployment income shall be placed on an annualized 
^ 
• 
basis under regulations prescribed by the Secretary, 
"(ii) APPLICABLE PERCENTAGE.— 
98 STAT. 790 
PUBLIC LAW 98-369—JULY 18, 1984 
"In the case of the following 
The applicable 
required installments: 
percentage is: 
1st 
20 
2nd 
40 
3rd 
60 
. ::.v • 
4th 
80. 
"(iii) ADJUSTED SELF-EMPLOYMENT INCOME.—The term 
'adjusted self-employment income' means self-employ-
ment income (as defined in section 1402(b)); except that 
section 1402(b) shall be applied by placing wages 
(within the meaning of section 1402(b)) for months in 
the taxable year ending before the due date for the 
installment on an annualized basis consistent with 
clause (i). 
"(e) EXCEPTIONS.— 
"(1) WHERE TAX IS SMALL AMOUNT.—No addition to tax shall 
be imposed under subsection (a) for any taxable year if the tax 
shown on the return for such taxable year (or, if no return is 
filed, the tax), reduced by the credit allowable under section 31, 
is less than $500. 
"(2) WHERE NO TAX LIABILITY FOR PRECEDING TAXABLE YEAR.— 
No addition to tax shall be imposed under subsection (a) for any 
taxable year if^ 
"(A) the preceding taxable year was a taxable year of 12 
months, 
"(B) the individual did not have any liability for tax for 
the preceding taxable year, and 
"(C) the individual was a citizen or resident of the United 
States throughout the preceding taxable year. 
"(3) WAIVER IN CERTAIN CASES.— 
"(A) IN GENERAL.—No addition to tax shall be imposed 
under subsection (a) with respect to any underpayment to 
the extent the Secretary determines that by reason of 
casualty, disaster, or other unusual circumstances the im-
position of such addition to tax would be against equity and 
good conscience. 
"(B) NEWLY RETIRED OR DISABLED INDIVIDUALS.—No addi-
tion to tax shall be imposed under subsection (a) with 
respect to any underpayment if the Secretary determines 
that— 
"(i) the t£ixpayer— 
"(I) retired after having attained age 62, or 
"(II) became disabled, 
in the taxable year for which estimated payments were 
required to be made or in the taxable year preceding 
such taxable year, and 
"(ii) such underpayment was due to resisonable cause 
and not to willful neglect. 
"(f) TAX COMPUTED AFTER APPUCATION OF CREDITS AGAINST 
TAX.—For purposes of this section, the term 'tax' means— 
26 use 1 et seq. 
"(1) the tax imposed by chapter 1, plus 
26 use 1401 et 
"(2) the tax imposed by chapter 2, minus 
««9- 
"(3) the sum of— 
"(A) the credits against tax allowed by part IV of sub-
Post, p. 826. 
chapter A of chapter 1, other than the credit against tax 
provided by section 31 (relating to tax withheld on wages), 
plus 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 791 
"(B) to the extent allowed under regulations prescribed 
by the Secretary, any overpayment of the tax imposed by 
section 
4986 (determined 
without 
regard 
to 
section 
4995(a)(4)(B)). 
"(g) 
APPLICATION OF SECTION IN CASE OF TAX WITHHELD ON 
WAGES.— 
"(1) IN GENERAL.—For purposes of applying this section, the 
amount of the credit allowed under section 31 for the taxable 
year shall be deemed a payment of estimated tax, and an equal 
part of such amount shall be deemed paid on each due date for 
such taxable year, unless the taxpayer establishes the dates on 
,, >8j xi 
which all amounts were actually withheld, in which case the 
amounts so withheld shall be deemed payments of estimated tax 
-.i , > 'tu 
on the dates on which such amounts were actually withheld. 
"(2) SEPARATE APPLICATION.—The taxpayer may apply para- 
. ;
< P j ,4 
graph (1) separately with respect to— 
"(A) wage withholding, and 
"(B) all other amounts withheld for which credit is al- 
i :
>
« ' ;;;s 
lowed under section 31. 
"(h) SPECIAL RULE WHERE RETURN FILED ON OR BEFORE JANUARY 
31.—If^ on or before January 31 of the following taxable year, the 
>vm. fisu s 
taxpayer files a return for the taxable year and pays in full the 
amount computed on the return as payable, then no addition to tax 
^. > i is 
shall be imposed under subsection (a) with respect to any underpa}'-
ment of the 4th required installment for the taxable year. 
no •jr:,i} M 
"(i) SPECIAL RULES FOR FARMERS AND FISHERMEN.—For purposes of 
this section— 
"(1) IN GENERAL.—If an individual is a farmer or 
fisherman 
, :; •jcu m. 
for any taxable year— 
"(A) there shall be only 1 required installment for the 
b 
taxable year, 
r^" q tup 
"(B) the due date for such installment shall be January 
15 of the following taxable year, 
H ^ ^ s m 
"(C) the amount of such installment shall be equal to the 
•i 
required annual payment (determined under subsection 
(d)(1)(B) by substituting '66% percent' for '80 percent', and 
eii i 
"(D) subsection (h) shall be applied— 
; f h'l 
"(i) by substituting 'March 1' for 'January 31', and 
"(ii) by treating the required installment described in 
subparagraph (A) of this paragraph as the 4th required 
installment. 
' 
"(2) FARMER OR FISHERMAN DEFINED.—An individual is a 
;
^ 
farmer or fisherman for any tsixable year if— 
"(A) the individual's gross income from farming or fish-
ing (including oyster farming) for the taxable year is at 
«^. 
B it I 
least 66% percent of the total gross income from all sources 
m 
for the taxable year, or 
"(B) such individual's gross income from farming or 
fish- 
:T • J .S 
ing (including oyster farming) shown on the return of the 
individual for the preceding taxable year is at least 66% 
1:- 
percent of the total gross income from all sources shown on 
such return, 
"(j) FISCAL YEARS AND SHORT YEARS.— 
t'TV xsi^ ?£ 
"(1) FISCAL YEARS.—In applying this section to a taxable year 
beginning on any date other than January 1, there shall be 
substituted, for the months specified in this section, the months 
which correspond thereto. 
98 STAT. 792 
PUBLIC LAW 98-369—JULY 18, 1984 
"(2) SHORT TAXABLE YEAR.—This section shall be applied to 
taxable years of less than 12 months in accordance with regula-
tions prescribed by the Secretary, 
"(k) ESTATES AND TRUSTS.—This section shall not apply to any 
estate or trust. 
"(1) REGULATIONS.—The Secretary shall prescribe such regulations 
£is may be necessary to carry out the purposes of this section." 
SEC. 412. REPEAL OF REQUIREMENT OF DECLARATIONS, ETC. 
(a) GENERAL RULE.—The following provisions are hereby repealed: 
26 use 6015. 
(1) Section 6015 (relating to declaration of estimated income 
tax by individuals). 
26 use 6073. 
(2) Section 6073 (relating to time for filing declarations of 
estimated income tax by individuals). 
26 use 6153. 
(3) Section 6153 (relating to installment payments of esti-
mated income tax by individuals). 
(b) TECHNICAL AND CONFORMING AMENDMENTS.— 
26 use 871. 
(1) Subsection (g) of section 871 is amended by striking out 
paragraph (6) and by redesignating paragraphs (7) and (8) as 
paragraphs (6) and (7), respectively. 
26 use 1403. 
(2) Subsection (b) of section 1403 is amended by striking out 
paragraph (3). 
26 use 6012. 
(3) Paragraph (2) of section 6012(b) is amended by striking out 
"or section 6015(a)". 
26 use 6020. 
(4) Paragraph (1) of section 6020(b) is amended by striking out 
"(other than a declaration of estimated tax required under 
section 6015)". 
26 use 6201. 
(5) Paragraph (1) of section 6201(b) is amended to read as 
follows: 
"(1) ESTIMATED INCOME TAX.—No unpaid amount of estimated 
Ante, p. 788. 
income tax required to be paid under section 6154 or 6654 shall 
be assessed." 
26 use 6362. 
(6) Paragraph (5) of section 6362(e) is amended by striking out 
"and section 6015 and other provisions relating to declarations 
of estimated income" and inserting in lieu thereof "and provi-
sions relating to estimated income tax". 
26 use 6601. 
(7) Subsection (h) of section 6601 is amended to read as 
follows: 
"(h) EXCEPTION AS TO ESTIMATED TAX.—This section shall not 
apply to any failure to pay any estimated tax required to be paid by 
Ante, p. 788. 
section 6154 or 6654." 
26 use 6651. 
(8) Subsection (d) of section 6651 is amended to read as follows: 
"(d) EXCEPTION FOR ESTIMATED TAX.—This section shall not apply 
to any failure to pay any estimated tax required to be paid by 
Ante, p. 788. 
section 6154 or 6654." 
26 use 7203. 
(9) Section 7203 is amended by striking out "(other than a 
return required under the authority of section 6015)". 
26 use 7216. 
(10) Subsection (a) of section 7216 is amended— 
(A) by striking out "or declarations or amended declara-
tions of estimated tax under section 6015,", and 
(B) by striking out "return or declaration" each place it 
appears and inserting in lieu thereof "return". 
26 use 7701. 
(11) Paragraph (34) of section 7701(a) is hereby repealed. 
(c) CLERICAL AMENDMENTS.— 
(1) The table of sections for subpart B of part II of subchapter 
A of chapter 61 is amended by striking out the item relating to 
section 6015. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 793 
(2) The table of sections for part V of subchapter A of chapter 
61 is amended by striking out the item relating to section 6073. 
(3) The table of sections for subchapter A of chapter 62 is 
amended by striking out the item relating to section 6153. 
SEC. 413. CREDITING OF INCOME TAX OVERPAYMENT AGAINST ESTI-
MATED TAX LIABILITY. 
V 
The application of the Internal Revenue Code of 1954 with respect 
26 use i et seq. 
to the crediting of a prior year overpayment of income tax against 
the estimated tax shall be determined— 
(1) without regard to Revenue Ruling 83-111 (and without 
' ^ 
regard to any other regulation, ruling, or decision reaching the 
same result as, or a result similar to, the result set forth in such 
Revenue Ruling); and 
r 
(2) with full regard to the rules (including Revenue Ruling 77-
475) before Revenue Ruling 83-111. 
8«v. > sn is 
SEC. 414. EFFECTIVE DATES. 
(a) SECTIONS 411 AND 412.— 
26 use 6654 
(1) IN GENERAL.—The amendments made by sections 411 and "ote. 
412 shall apply with respect to taxable years beginning after ^«/«' PP- '''88, 
December 31,1984. 
^^2. 
(2) WAIVER AUTHORITY.—The provisions of paragraph (3) of 
section 6654(e) of the Internal Revenue Code of 1954 (as Ante, p. 788. 
amended by section 411) shall also apply with respect to under-
payments for taxable years beginning in 1984. 
(b) SECTION 413.—The provisions of section 413 shall take effect on Supra. 
January 1,1984. 
Subtitle B—Domestic Relations 
' 
SEC. 421. TREATMENT OF TRANSFERS OF PROPERTY BETWEEN SPOUSES 
OR INCIDENT TO DIVORCE. 
(a) GENERAL RULE.—Part III of subchapter 0 of chapter 1 (relating 
to common nontaxable exchanges) is amended by adding at the end 
thereof the following new section: 
"SEC. 1041. TRANSFERS OF PROPERTY BETWEEN SPOUSES OR INCIDENT 26 USC 1041. 
TO DIVORCE. 
"(a) GENERAL RULE.—No gain or loss shall be recognized on a 
transfer of property from an individual to (or in trust for the benefit 
ofl-
"(1) a spouse, or 
"(2) a former spouse, but only if the transfer is incident to the 
divorce. 
"(b) TRANSFER TREATED AS GIFT; TRANSFEREE HAS TRANSFEROR'S 
- '^' 
BASIS.—In the case of any transfer of property described in subsec-
tion (a)— 
"(1) for purposes of this subtitle, the property shall be treated 
as acquired by the transferee by gift, and 
"(2) the basis of the transferee in the property shall be the 
adjusted basis of the transferor. 
"(c) INCIDENT TO DIVORCE.—For purposes of subsection (a)(2), a 
transfer of property is incident to the divorce if such transfer— 
"(1) occurs within 1 year after the date on which the marriage 
ceases, or 
•ymk 
98 STAT. 794 
PUBLIC LAW 98-369—JULY 18, 1984 
"(2) is related to the cessation of the marriage. 
"(d) SPECIAL RULE WHERE SPOUSE IS NONRESIDENT AUEN.—Para-
graph (1) of subsection (a) shall not apply if the spouse of the 
individual making the transfer is a nonresident alien." 
(b) TECHNICAL AMENDMENTS.— 
26 use 72. 
(1) REPEAL OF SECTION 72 (k).—Subsection (k) of section 72 
(relating to payments in discharge of alimony) is hereby 
repealed. 
26 use 101. 
(2) REPEAL OF SECTION lOi (e) .—Subsection (e) of section 101 
(relating to alimony, etc., payments) is hereby repealed. 
26 use 453B. 
(3) COORDINATION WITH SECTION 453B.—Section 453B (relating 
to gain or loss on disposition of installment obligations) is 
amended by adding at the end thereof the following new 
subsection: 
"(g) TRANSFERS BETWEEN SPOUSES OR INCIDENT TO DIVORCE.—In 
Ante, p. 793. 
the case of any transfer described in subsection (a) of section 1041— 
"(1) subsection (a) of this section shall not apply, and 
"(2) the same tax treatment with respect to the transferred 
installment obligation shall apply to the transferee as would 
have applied to the transferor.' 
26 use 1001. 
(4) TERM INTERESTS.—Paragraph (1) of section 1001(e) (relating 
to certain term interest) is amended by striking out "section 
1014 or 1015" and inserting in lieu thereof "section 1014, 1015, 
or 1041". 
26 use 1015. 
(5) COORDINATION WITH SECTION IOI5.—Section 1015 (relating 
to basis of property acquired by gifts and transfers in trust) is 
amended by adding at the end thereof the following new 
subsection: 
"(e) GIFTS BETWEEN SPOUSES.—In the case of any property ac-
Ante, p. 793. 
quired by gift in a transfer described in section 1041(a), the basis of 
such property in the hands of the transferee shall be determined 
under section 1041(bX2) and not this section." 
(6) COORDINATION WITH SECTION 1239.— 
Ante, p. 708. 
(A) Subsection (b) of section 1239, as amended by this Act, 
is amended by striking out paragraph (1) and by redesignat-
ing paragraphs (2) and (3) as paragraphs (1) and (2), 
respectively. 
26 use 453. 
(B) Subparagraph (C) of section 453(hXl) (relating to spe-
cial rule where obligor and shareholder are related persons) 
is amended by striking out "the obligor of any installment 
obligation and the shareholder are related persons" and 
inserting in lieu thereof "the obligor of any installment 
obligation and the shareholder are married to each other or 
are related persons". 
(C) The subsection heading for section 453(g) is amended 
by striking out "SPOUSE OR". 
26 use 47. 
(7) COORDINATION WITH SECTION 47.—Section 47 (relating to 
certain dispositions, etc., of section 38 property) is amended by 
adding at the end thereof the following new subsection: 
"(e) TRANSFERS BETWEEN SPOUSES OR INCIDENT TO DIVORCE.—In 
Ante, p. 793. 
the case of any transfer described in subsection (a) of section 1041— 
"(1) subsection (a) of this section shall not apply, and 
"(2) the same tax treatment under this section with respect to 
the transferred property shall apply to the transferee as would 
have applied to the transferor." 
(c) CLERICAL AMENDMENT.—The table of sections for such part III 
is amended by adding at the end thereof the following: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 795 
"Sec. 1041. Transfers of property between spouses or incident to divorce." 
(d) EFFECTIVE DATES.— 
26 u s e I04i 
(1) IN GENERAL.—Except as otherwise provided in this subsec- 
"ot« 
tion, the amendments made by this section shall apply to 
transfers after the date of the enactment of this Act in taxable 
years ending after such date. 
(2) ELECTION TO HAVE AMENDMENTS APPLY TO TRANSFERS AFTER 
1983.—If both spouses or former spouses make an election under 
this paragraph, the amendments made by this section shall 
apply to all transfers made by such spouses (or former spouses) 
after December 31,1983. 
(3) EXCEPTION FOR TRANSFERS PURSUANT TO EXISTING DE-
CREES.—Except in the case of an election under paragraph (2), 
the amendments made by this section shall not apply to trans-
fers under any instrument in effect on or before the date of the 
enactment of this Act unless both spouses (or former spouses) 
elect to have such amendments apply to transfers under such 
instrument. 
(4) ELECTION.—Any election under paragraph (2) or (3) shall 
be made in such manner, at such time, and subject to such 
conditions, £is the Secretary of the Treasury or his delegate may 
by regulations prescribe. 
SEC. 
4
2
2
. 
TAX 
TREATMENT 
OF 
ALIMONY 
AND 
SEPARATE 
MAINTENANCE 
PAYMENTS. 
(a) GENERAL RULE.—Section 71 (relating to alimony and separate 
26 use 71. 
maintenance payments) is amended to read as follows: 
"SEC. 71. ALIMONY AND SEPARATE MAINTENANCE PAYMENTS. 
"(a) GENERAL RULE.—Gross income includes amounts received as 
,^ 
alimony or separate maintenance payments. 
" • 
' '' 
"(b) ALIMONY OR SEPARATE MAINTENANCE PAYMENTS DEFINED.— 
For purposes of this section— 
"(1) IN GENERAL.—The term 'alimony or separate mainte-
nance pa3mient' means any payment in cash i
f
— 
*(A) such payment is received by (or on behalf of) a 
spouse under a divorce or separation instrument, 
"(B) the divorce or separation instrument does not desig-
nate such pa3mient as a pajrment which is not includible in 
gross income under this section and not allowable as a 
deduction under section 215, 
Post, p. 797. 
"(C) in the case of an individual legally separated from 
his spouse under a decree of divorce or of separate mainte-
^
^ 
nance, the payee spouse and the payor spouse are not 
members of the same household at the time such payment 
is made, and 
"(D) there is no liability to make any such payment for 
- 
any period after the death of the payee spouse and there is 
no liability to make any pajmtient (in cash or property) as a 
' 
substitute for such payments after the death of the payee 
spouse (and the divorce or separation instrument states 
that there is no such liability). 
"(2) DIVORCE OR SEPARATION INSTRUMENT.—The term 'divorce 
or separation instrument' means— 
"(A) a decree of divorce or separate maintenance or a 
written instrument incident to such a decree, 
"(B) a written separation agreement, or 
98 STAT. 796 
PUBLIC LAW 98-369—JULY 18, 1984 
"(C) a decree (not described in subparagraph (A)) requir-
< 
ing a spouse to make payments for the support or mainte-
nance of the other spouse. 
"(c) PAYMENTS TO SUPPORT CHILDREN.— 
"(1) IN GENERAL.—Subsection (a) shall not apply to that part 
of any payment which the terms of the divorce or separation 
instrument fix (in terms of an amount of money or a part of the 
payment) as a sum which is payable for the support of children, 
of the payor spouse. 
^ 
"(2) TREATMENT OF CERTAIN REDUCTIONS RELATED TO CONTIN-
GENCIES INVOLVING CHILD.—For purposes of paragraph (1), if 
any amount specified in the instrument will be reduced— 
"(A) on the happening of a contingency specified in the 
instrument relating to a child (such as attaining a specified 
age, marrying, dying, leaving school, or a similar contin-
gency), or 
"(B) at a time which can clearly be associated with a 
contingency of a kind specified in paragraph (1), 
an amount equal to the amount of such reduction will be 
treated as an amount fixed as payable for the support of chil-
dren of the payor spouse, 
"(3) SPECIAL RULE WHERE PAYMENT IS LESS THAN AMOUNT 
SPECIFIED IN INSTRUMENT.—For purposes of this subsection, if 
any payment is less than the amount specified in the instru-
ment, then so much of such payment as does not exceed the sum 
payable for support shall be considered a payment for such 
support. 
"(d) SPOUSE.—For purposes of this section, the term 'spouse' in-
cludes a former spouse. 
Post, p. 797. 
"(e) EXCEPTION FOR JOINT RETURNS.—This section and section 215 
shall not apply if the spouses make a joint return with each other. 
"(f) SPECIAL RULES TO PREVENT EXCESS FRONT-LOADING OF A U -
MONY PAYMENTS.— 
"(1) 
REQUIREMENT THAT PAYMENTS BE FOR MORE THAN 6 
YEARS.—Alimony or separate maintenance payments (in excess 
of $10,000 during any calendar year) paid by the payor spouse to 
the payee spouse shall not be treated as alimony or separate 
maintenance payments unless such payments are to be made by 
the payor spouse to the payee spouse in each of the 6 post-
separation years (not taking into account any termination con-
tingent on the death of either spouse or the remarriage of the 
payee spouse). 
"(2) 
RECOMPUTATION WHERE PAYMENTS DECREASE BY MORE 
THAN $10,000.—If there is an excess amount determined under 
paragraph (3) for any computation year— 
"(A) the payor spouse shall include such excess amount in 
gross income for the payor spouse's taxable year beginning 
in the computation year, and 
"(B) the payee spouse shall be allowed a deduction in 
computing adjusted gross income for such excess amount 
for the payee spouse's taxable year beginning in the compu-
tation year. 
"(3) DETERMINATION OF EXCESS AMOUNT.—The excess amount 
determined under this paragraph for any computation year is 
the sum of— 
"(A) the excess (if any) of— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 797 
"(i) the amount of alimony or separate maintenance 
payments paid by the payor spouse during the immedi-
ately preceding post-separation year, over 
"(ii) the amount of the alimony or separate mainte-
nance payments paid by the payor spouse during the 
computation year increased by $10,000, plus 
"(B) a like excess for each of the other preceding post-
separation years. 
In determining the amount of the alimony or separate mainte-
nance payments paid by the payor spouse during any preceding 
post-separation year, the amount paid during such year shall be 
reduced by any excess previously determined in respect of such 
year under this paragraph. 
"(4) DEFINITIONS.—For purposes of this subsection— 
•'•:>,• : v , & ; 
"(A) POST-SEPARATION YEAR.—The term 'post-separation 
year' means any calendar year in the 6 calendar year 
t: 
period beginning with the first calendar year in which the 
payor spouse paid to the payee spouse alimony or separate 
• ^ ^ • i i 
maintenance payments to which this section applies. 
^3. 
"(B) COMPUTATION YEAR,—The term 'computation year' 
means the post-separation year for which the excess under 
J.JJ, J 4 
paragraph (3) is being determined. 
"(5) EXCEPTIONS.— 
"(A) 
WHERE PAYMENTS CEASE BY REASON OF DEATH OR 
REMARRIAGE.—Paragraph (2) shall not apply to any post-
separation year (and subsequent post-separation years) if^ 
"(i) either spouse dies before the close of such post-
separation year or the payee spouse remarries before 
the close of such post-separation year, and 
%i:: lay i K 
"(ii) the alimony or separate maintenance payments 
cease by reason of such death or remarriage. 
"(B) SUPPORT PAYMENTS.—For purposes of this subsection, 
the term 'alimony or separate maintenance payment' shall 
not include any payment received under a decree described 
in subsection 0^)(2)(C). 
"(C) 
FLUCTUATING PAYMENTS NOT WITHIN CONTROL OF 
V
W
^
^ QR- .,J 
P
A
Y
O
R SPOUSE.—For purposes of this subsection, the term 
'alimony or separate maintenance payment' shall not in-
clude any payment to the extent it is made pursuant to a 
continuing liability (over a period of not less than 6 years) 
to pay a fixed portion of the income from a business or 
property or from compensation for employment or self-
employment." 
(b) AMENDMENT OF SECTION 215.—Section 215 (relating to deduc- 
26 use 215. 
tion for alimony, etc., payments) is amended to read as follows: 
"SEC. 215. ALIMONY, ETC., PAYMENTS. 
"(a) GENERAL RULE.—In the case of an individual, there shall be 
' 
>i. 
allowed as a deduction an amount equal to the alimony or separate 
maintenance payments paid during such individual's taxable year. 
"(b) ALIMONY OR SEPARATE MAINTENANCE PAYMENTS DEFINED.— 
For purposes of this section, the term 'alimony or separate mainte-
nance payment' means any alimony or separate maintenance pay-
ment (as defined in section 71(b)) which is includible in the gross 
Ante, p. 795. 
income of the recipient under section 71. 
"(c) 
REQUIREMENT OF IDENTIFICATION NUMBER.—The Secretary 
may prescribe regulations under which— 
/^ 
98 STAT. 798 
PUBLIC LAW 98-369—JULY 18, 1984 
"(1) any individual receiving alimony or separate mainte-
nance payments is required to furnish such individual's tax-
payer identification number to the individual making such 
payments, and 
"(2) the individual making such payments is required to 
include such taxpayer identification number on such individ-
ual's return for the taxable year in which such payments are 
made. 
"(d) COORDINATION WITH SECTION 682.—No deduction shall be 
allowed under this section with respect to any payment if, by reason 
of section 682 (relating to income of alimony trusts), the amount 
thereof is not includible in such individual's gross income." 
(c) PENALTY FOR FAILURE TO SUPPLY IDENTIFYING NUMBER.—Sec-
26 use 6676. 
tion 6676 (relating to failure to supply identifying number) is 
amended by redesignating subsection (c) as subsection (d) and by 
inserting after subsection (b) the following new subsection: 
"(c) PENALTY FOR FAILURE TO SUPPLY IDENTIFYING NUMBER UNDER 
Ante, p. 797. 
SECTION 215.—If any person who is required by regulations pre-
scribed under section 215— 
"(1) to furnish his taxpayer identification number to another 
person, or 
"(2) to include on his return the taxpayer identification 
number of another person, 
fails to comply with such requirement at the time prescribed by 
such regulations, such person shall, unless it is shown that such 
failure is due to reasonable cause and not to willful neglect, pay a 
penalty of $50 for each such failure." 
(d) TECHNICAL AMENDMENTS.— 
26 use 219. 
(1) Subparagraph (B) of section 219(b)(4) (relating to certain 
divorced individuals) is amended by striking out all that follows 
"gross income" and inserting in lieu thereof "under section 71 
(relating to alimony and separate maintenance payments) by 
reason of a payment under a decree of divorce or separate 
maintenance or a written instrument incident to such a 
decree." 
26 use 682. 
(2) Subsection (b) of section 682 (relating to income of an 
estate or trust in case of divorce, etc.) is amended— 
(A) by striking out "or section 71", and 
(B) by striking out the last sentence. 
26 use 7701. 
(3) Paragraph (17) of section 7701(a) (defining husband and 
wife) is amended by striking out "71,152(b)(4), 215, and 682" and 
inserting in lieu thereof "152(b)(4) and 682". 
26 u s e 71 note. 
(e) EFFECTIVE D A T E . — 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply with 
respect to divorce or separation instruments (as defined in 
Ante, p. 795. 
section 71(b)(2) of the Internal Revenue Code of 1954, as 
amended by this section) executed after December 31, 1984. 
(2) MODIFICATIONS OF INSTRUMENTS EXECUTED BEFORE JANUARY 
1, 1985.—The amendments made by this section shall also apply 
to any divorce or separation instrument (as so defined) executed 
before January 1, 1985, but modified on or after such date if the 
• j^^. . 
,, 
modification expressly provides that the amendments made by 
this section shall apply to such modification. 
(3) REQUIREMENT OF IDENTIFICATION NUMBER.—Section 215(c) 
Ante, p. 797. 
of the Internal Revenue Code of 1954 (as amended by subsection 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 799 
(b)) and the amendments made by subsection (c) shall apply to 
payments made after December 31,1984. 
SEC. 423. DEPENDENCY EXEMPTION IN THE CASE OF CHILD OF DIVORCED 
PARENTS. ETC. 
(a) GENERAL RULE.—Subsection (e) of section 152 (relating to 26 use 152. 
support test in case of child of divorced parents, etc.) is amended to 
read as follows: 
"(e) SUPPORT TEST IN CASE OF CHILD OF DIVORCED PARENTS, ETC.— 
"(1) CUSTODIAL PARENT GETS EXEMPTION.—Except as otherwise 
provided in this subsection, i
f
— 
jj, 
"(A) a child (as defined in section 151(e)(3)) receives over 
half of his support during the calendar year from his 
.^ 
parents— 
"(i) who are divorced or legally separated under a 
decree of divorce or separate maintenance, 
"(ii) who are separated under a written separation 
agreement, or 
"(iii) who live apart at all times during the last 6 
months of the calendar year, and 
"(B) such child is in the custody of one or both of his 
pt^rents for more than one-half of the calendar year, 
such child shall be treated, for purposes of subsection (a), as 
receiving over half of his support during the calendar year from 
the parent having custody for a greater portion of the calendar 
year (hereinafter in this subsection referred to as the 'custodial 
parent'). 
"(2) EXCEPTION WHERE CUSTODIAL PARENT RELEASES CLAIM TO 
EXEMPTION FOR THE YEAR.—A child of parents described in 
paragraph (1) shall be treated as having received over half of his 
support during a calendar year from the noncustodial parent 
if— 
••''" '
-
^ '~'-''^-
"(A) the custodial parent signs a written declaration (in 
such manner and form as the Secretary may by regulations 
prescribe) that such custodial parent will not claim such 
child as a dependent for any taxable year beginning in such 
calendar year, and 
"(B) the noncustodial parent attaches such written decla-
ration to the noncustodial parent's return for the taxable 
year beginning during such calendar year. 
For purposes of this subsection, the term 'noncustodial parent' 
means the parent who is not the custodial parent. 
"(3) EXCEPTION FOR MULTIPLE-SUPPORT AGREEMENT.—This sub- 
i^^ -^eu at 
section shall not apply in any case where over half of the 
support of the child is treated as having been received from a 
taxpayer under the provisions of subsection (c). 
"(4) EXCEPTION FOR CERTAIN PRE-I985 INSTRUMENTS.— 
"(A) IN GENERAL.—A child of parents described in para-
graph (1) shall be treated as having received over half his 
support during a calendar year from the noncustodial 
parent i
f
— 
"(i) a qualified pre-1985 instrument between the par-
!i 
ents applicable to the taxable year beginning in such 
calendar year provides that the noncustodial parent 
• ; i .i^^ 
shall be entitled to any deduction allowable under 
section 151 for such child, and 
'i .«K, 
98 STAT. 800 
PUBLIC LAW 98-369—JULY 18, 1984 
"(ii) the noncustodial parent provides at least $600 
for the support of such child during such calendar year. 
For purposes of this subparagraph, amounts expended for 
the support of a child or children shall be treated as 
received from the noncustodial parent to the extent that 
f -' • '- 
such parent provided amounts for such support. 
"(B) QUALIFIED PRE-1985 INSTRUMENT.—For purposes of 
this paragraph, the term 'qualified pre-1985 instrument' 
means any decree of divorce or separate maintenance or 
written agreement— 
"(i) which is executed before January 1,1985, 
"(ii) which on such date contains the provision de-
scribed in subparagraph (A)(i), and 
"(iii) which is not modified on or after such date in a 
modification which expressly provides that this para-
graph shall not apply to such decree or agreement. 
"(5) SPECIAL RULE FOR SUPPORT RECEIVED FROM NEW SPOUSE OF 
PARENT.—For purposes of this subsection, in the case of the 
remarriage of a parent, support of a child received from the 
parent's spouse shall be treated as received from the parent. 
"(6) CROSS REFERENCE.— 
"For provision treating child as dependent of both parents for purposes 
of medical expense deduction, see section 213(d)(4)." 
(b) TREATMENT AS DEPENDENT OF BOTH PARENTS FOR MEDICAL 
EXPENSE DEDUCTION.— 
26 use 213. 
(1) Subsection (d) of section 213 (relating to definitions) is 
Post, p. 847. 
amended by redesignating paragraphs (4), (5), and (6) as para-
graphs (5), (6), and (7), respectively, and by inserting after 
paragraph (3) the following new paragraph: 
"(4) SPECIAL RULE IN THE CASE OF CHILD OF DIVORCED PARENTS, 
Ante, p. 799. 
ETC.—Any child to whom section 152(e) applies shall be treated 
as a dependent of both parents for purposes of this section." 
26 use 105. 
(2) Subsection (b) of section 105 is amended by adding at the 
end thereof the following new sentence: "Any child to whom 
section 152(e) applies shall be treated as a dependent of both 
parents for purposes of this subsection." 
(3) Paragraph (6) of section 213(d) (as redesignated by para-
graph (D) is amended by striking out "the limitations of para-
graph (4)" and inserting in lieu thereof "the limitations of 
paragraph (5)". 
(c) TREATMENT OF CERTAIN MARRIED INDIVIDUALS LIVING APART.— 
26 use 143. 
(1) Subsection (b) of section 143 (relating to certain married 
individuals living apart) is amended to read as follows: 
"(b) CERTAIN MARRIED INDIVIDUALS LIVING APART.—For purposes 
of those provisions of this title which refer to this subsection, if— 
"(1) an individual who is married (within the meaning of 
subsection (a)) and who files a separate return maintains as his 
home a household which constitutes for more than one-half of 
the taxable year the principal place of abode of a child (within 
the meaning of section 151(e)(3)) with respect to whom such 
individual is entitled to a deduction for the taxable year under 
section 151 (or would be so entitled but for paragraph (2) or (4) of 
Ante, p. 799. 
section 152(e)), 
"(2) such individual furnishes over one-half of the cost of 
maintaining such household during the taxable year, and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 801 
•i 
"(3) during the last 6 months of the taxable year, such individ-
ual's spouse is not a member of such household, 
such individual shall not be considered as married." 
(2) Subparagraph (A) of section 2(b)(1) (defining head of house- 26 USC 2. 
hold) is amended— 
(A) by striking out "which constitutes for such taxable 
year" and inserting in lieu thereof "which constitutes for 
,,:- 
more than one-half of such taxable year", and 
(B) by striking out "under section 151" in clause (i) and 
inserting in lieu thereof "under section 151 (or would be so 
entitled but for paragraph (2) or (4) of section 152(e))". 
(3) Paragraph (1) of section 43(c) (defining eligible individual) 26 use 43. 
; 
is amended— 
Post, p. 826. 
(A) by inserting after "section 151(e)(3))" in subparagraph 
(A)(i) the following: "or would be so entitled but for para-
graph (2) or (4) of section 152(e)", and 
^vi 
(B) by striking out "the child has the same principal place 
of abode as the individual" in subparagraph (B) and insert-
's 
ing in lieu thereof "the child has the same principal place 
of abode as the individual for more than one-half of the 
c 
taxable year". 
(4) Paragraph (5) of section 44A(f) (relating to special depend- 26 USC 44A. 
ency test in case of divorced parents, etc.) is amended to read as Post, p. 826. 
follows: 
"(5) SPECIAL DEPENDENCY TEST IN CASE OF DIVORCED PARENTS, 
ETC.—If^ 
"(A) paragraph (2) or (4) of section 152(e) applies to any Ante, p. 799. 
child with respect to any calendar year, and 
"(B) such child is under the age of 15 or is physically or 
mentally incapable of caring for himself, 
in the case of any taxable year beginning in such calendar year, 
such child shall be treated as a qualifying individual described 
in subparagraph (A) or (B) of subsection (c)(1) (whichever is 
appropriate) with respect to the custodial parent (within the 
meaning of section 152(eXl)), and shall not be treated as a 
qualifying individual with respect to the noncustodial parent." 
(d) EFFECTIVE DATE.—The amendments made by this section shall 26 use 2 note. 
apply to taxable years beginning after December 31,1984. 
SEC. 424. INNOCENT SPOUSE RELIEVED OF LIABILITY IN CERTAIN CASES. 
(a) GENERAL RULE.—Subsection (e) of section 6013 (relating to 26 use 6013. 
spouse relieved of liability in certain cases) is amended to read as 
follows: 
"(e) SPOUSE REUEVED OF LIABIUTY IN CERTAIN CASES.— 
"(1) IN GENERAL.—Under regulations prescribed by the Secre-
tary, if— 
"(A) a joint return has been made under this section for a 
taxable year, 
"(B) on such return there is a substantial understatement 
of tax attributable to grossly erroneous items of one spouse, 
"(C) the other spouse establishes that in signing the 
return he or she did not know, and had no reason to know, 
that there was such substantial understatement, and 
"(D) taking into account all the facts and circumstances, 
it is inequitable to hold the other spouse liable for the 
-u- 
deficiency in tax for such taxable year attributable to such 
substantial understatement, 
Tj ;jg' 
98 STAT. 802 
PUBLIC LAW 98-369—JULY 18, 1984 
then the other spouse shall be relieved of liability for tax 
(including interest, penalties, and other amounts) for such tax-
able year to the extent such liability is attributable to such 
substantial understatement. 
"(2) GROSSLY ERRONEOUS ITEMS.—For purposes of this subsec-
tion, the term 'grossly erroneous items' means, with respect to 
any spouse— 
"(A) any item of gross income attributable to such spouse 
which is omitted from gross income, and 
"(B) any claim of a deduction, credit, or basis by such 
spouse in an amount for which there is no basis in fact or 
law. 
"(3) SUBSTANTIAL UNDERSTATEMENT.—For purposes of this 
subsection, the term 'substantial understatement' means any 
understatement (as defined in section 6661(b)(2)(A)) which ex-
ceeds $500. 
"(4) UNDERSTATEMENT MUST EXCEED SPECIFIED PERCENTAGE OF 
SPOUSE'S INCOME.— 
"(A) ADJUSTED GROSS INCOME OF $20,000 OR LESS.—If the 
spouse's adjusted gross income for the preadjustment year 
is $20,000 or less, this subsection shall apply only if the 
liability described in paragraph (1) is greater than 10 per-
cent of such adjusted gross income. 
"(B) ADJUSTED GROSS INCOME OF. MORE THAN $20,000.—If 
the spouse's adjusted gross income for the preadjustment 
year is more than $20,000, subparagraph (A) shall be ap-
r; 
plied by substituting '25 percent for '10 percent'. 
"(C) PREADJUSTMENT YEAR.—For purposes of this para-
graph, the term 'preadjustment year means the most 
recent taxable year of the spouse ending before the date the 
deficiency notice is mailed. 
"(D) COMPUTATION OF SPOUSE'S ADJUSTED GROSS INCOME.— 
If the spouse is married to another spouse at the close of the 
preadjustment year, the spouse's adjusted gross income 
shall include the income of the new spouse (whether or not 
they file a joint return). 
"(E) EXCEPTION FOR OMISSIONS FROM GROSS INCOME.—This 
paragraph shall not apply to any liability attributable to 
the omission of an item from gross income. 
"(5) SPECIAL RULE FOR COMMUNITY PROPERTY INCOME.—For 
purposes of this subsection, the determination of the spouse to 
whom items of gross income (other than gross income from 
property) ai^e attributable shall be made without regard to 
community property laws." 
(b) TREATMENT OF COMMUNITY INCOME.— 
26 use 66. 
(1) IN GENERAL.—Section 66 (relating to treatment of commu-
nity income where spouses live apart) is amended by redesignat-
ing subsection (b) as subsection (d) and by inserting after subsec-
tion (a) the following new subsections: 
"(b) 
SECRETARY MAY DISREGARD COMMUNITY PROPERTY LAWS 
WHERE SPOUSE NOT NOTIFIED OF COMMUNITY INCOME.— The Secre-
tary may disallow the benefits of any community property law to 
any taxpayer with respect to any income if such taxpayer acted as if 
solely entitled to such income and failed to notify the taxpayer's 
spouse before the due date (including extensions) for filing the 
return for the taxable year in which the income was derived of the 
nature and amount of such income. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 803 
"(c) SPOUSE REUEVED OF LIABIUTY IN CERTAIN OTHER CASES.— 
Under regulations prescribed by the Secretary, if— 
"(1) an individual does not file a joint return for any taxable 
year, 
"(2) such individual does not include in gross income for such 
taxable year an item of community income properly includible 
therein which, in accordance with the rules contained in section 
879(a), would be treated as the income of the other spouse, 
••"• 
' ' 
"(3) the individual establishes that he or she did not know of, 
and had no reason to know of, such item of community income, 
and 
"(4) taking into account all facts and circumstances, it is 
inequitable to include such item of community income in such 
individual's gross income, 
then, for purposes of this title, such item of community income shall 
be included in the gross income of the other spouse (and not in the 
gross income of the individual)." 
(2) CLERICAL AMENDMENTS.— 
(A) The section heading of section 66 is amended by 26 use 66. 
striking out "WHERE SPOUSES LIVE APART". 
(&' • 
(B) The subsection heading of subsection (a) of section 66 
is amended by striking out "GENERAL RULE" and inserting 
^ ' ' 
in lieu thereof "TREATMENT OF COMMUNITY INCOME WHERE 
SPOUSES LIVE APART". 
' 
; 
(C) The table of sections for part I of subchapter B of 
chapter 1 is amended by striking out "where spouses live 
apart" in the item relating to section 66. 
(c) EFFECTIVE DATES.— 
26 use 6013 
(1) IN GENERAL.—Except as provided in paragraph (2), the note. 
amendments made by subsections (a) and (b) shall apply to all 
^ 
taxable years to which the Internal Revenue Code of 1954 26 use i et seq. 
applies. Corresponding provisions shall be deemed to be includ-
ed in the Internal Revenue Code of 1939 and shall apply to all 
53 Stat. i. 
taxable years to which such Code applies. 
(2) AUTHORITY TO DISREGARD COMMUNITY PROPERTY LAWS.— 
Subsection (b) of section 66 of the Internal Revenue Code of Ante, p. 802. 
1954, as added by subsection (b), shall apply to taxable years 
beginning after December 31,1984. 
SEC. 425. TREATMENT OF CERTAIN PROPERTY SETTLEMENTS FOR PUR-
POSES OF ESTATE AND GIFT TAXES. 
(a) DEDUCTION ALLOWED AGAINST ESTATE TAX FOR TRANSFERS 
SATISFYING SECTION 2516.— 
(1) IN GENERAL.—Subsection (b) of section 2043 (relating to 26 use 2043. 
' 
transfers for insufficient consideration) is amended to read as 
follows: 
"(b) MARITAL RIGHTS NOT TREATED AS CONSIDERATION.— 
"(1) IN GENERAL.—For purposes of this chapter, a relinquish-
ment or promised relinquishment of dower or curtesy, or of a 
statutory estate created in lieu of dower or curtesy, or of other 
marital rights in the decedent's property or estate, shall not be 
considered to any extent a consideration 'in money or money's 
worth'. 
"(2) EXCEPTION.—For purposes of section 2053 (relating to 
expenses, indebtedness, and taxes), a transfer of property which 
satisfies the requirements of paragraph (1) of section 2516 (relat-
ing to certain property settlements) shall be considered to be 
98 STAT. 804 
PUBLIC LAW 98-369—JULY 18, 1984 
™. made for an adequate and full consideration in money or 
money's worth." 
26 use 2053. 
(2) CROSS REFERENCE.—Subsection (e) of section 2053 (relating 
to deduction for expenses, indebtedness, and taxes) is amended 
to read as follows: 
"(e) MARITAL RIGHTS.— 
"For provisions treating certain relinquishments of marital rights as 
Ante, p. 803. 
consideration in money or money's worth, see section 2043(b)(2)." 
(b) SECTION 2516 EXTENDED TO AGREEMENTS ENTERED INTO WITHIN 
1 YEAR AFTER DIVORCE.—Section 2516 (relating to certain property 
settlements) is amended by striking out so much of such section as 
precedes paragraph (1) thereof and inserting in lieu thereof the 
following: 
"Where a husband and wife enter into a written agreement 
relative to their marital and property rights and divorce occurs 
within the 3-year period beginning on the date 1 year before such 
agreement is entered into (whether or not such agreement is ap-
proved by the divorce decree), any transfers of property or interests 
in property made pursuant to such agreement—". 
(c) EFFECTIVE DATES.— 
(1) SUBSECTION (a).—The amendments made by subsection (a) 
shall apply to estates of decedents dying after the date of the 
enactment of this Act. 
(2) SUBSECTION (b) .—The amendment made by subsection (b) 
shall apply to transfers after the date of the enactment of this 
Act. 
SEC. 426. INCOME FROM SHELTERED WORKSHOPS NOT TAKEN INTO AC-
COUNT IN DETERMINING DEPENDENCY EXEMPTION. 
(a) IN GENERAL.—Subsection (e) of section 151 (relating to addi-
. -..^^ 
tional personal exemption for dependents) is amended by adding at 
the end thereof the following new paragraph: 
i jtiiit K 
i«H 
"(5) CERTAIN INCOME OF HANDICAPPED DEPENDENTS NOT TAKEN 
INTO ACCOUNT.— 
"(A) IN GENERAL.—For purposes of paragraph (IXA), the 
S08 q ^mk 
gross income of an individual who is permanently and 
:-tJc 
totally disabled shall not include income attributable to 
services performed by the individual at a sheltered work-
shop if— 
"(i) the availability of medical care at such workshop 
is the principal reason for his presence there, and 
"(ii) the income arises solely from activities at such 
workshop which are incident to such medical care. 
K
M
)
S 03i f ?
»
i K--: 
"(B) SHELTERED WORKSHOP DEFINED.—For purposes of sub-
paragraph (A), the term 'sheltered workshop' means a 
school— 
"(i) which provides special instruction or training 
-
^ 
designed to alleviate the disability of the individual, 
and 
"(ii) which is operated by— 
"(I) an organization described in section 501(cX3) 
o V
' 
and exempt from tax under section 501(a), or 
"(II) a State, a possession of the United States, 
any political subdivision of any of the foregoing, 
the United States, or the District of Columbia. 
"(C) PERMANENT AND TOTAL DISABIUTY DEFINED.—An indi-
vidual shall be treated as permanently and totally disabled 
26 use 2043 
note. 
26 use 2516 
note. 
26 use 151. 
-ail' 
&ai-
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 805 
t
= 
for purposes of this paragraph if such individual would be 
so treated under paragraph (3) of section 37(e)." 
97 Stat. 85. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) Post, p. 826. 
shall apply to taxable years beginning after December 31, 1984. 26 USC 151 note. 
Subtitle C—Revision of At-Risk Rules 
SEC. 431. REVISION OF INVESTMENT CREDIT AT-RISK RULES. 
(a) IN GENERAL.—So much of paragraph (8) of section 46(c) (relat- 26 use 46. 
ing to limitation to amount at risk) as precedes subparagraph (F) 
thereof is amended to read as follows: 
"(8) CERTAIN NONRECOURSE FINANCING EXCLUDED FROM CREDIT 
BASE.— 
"(A) LIMITATION.—The credit base of any property to 
•
; i. 
which this paragraph applies shall be reduced by the non-
qualified nonrecourse financing with respect to such prop-
erty (£is of the close of the taxable year in which placed in 
service). 
"(B) PROPERTY TO WHICH PARAGRAPH APPUES.—This para-
• 
graph applies to any property which— 
& 
"(i) is placed in service during the taxable year by a 
taxpayer described in section 465(a)(1), and 
"(ii) is used in connection with an activity with re-
spect to which any loss is subject to limitation under 
section 465. 
"(C) CREDIT BASE DEFINED.—For purposes of this para-
graph, the term 'credit base' means— 
"(i) in the case of new section 38 property, the basis of Post, p. 827. 
the property, or 
~ ^'i-i^ 
"(ii) in the case of used section 38 property, the cost 
of such property. 
"(D) NONQUAUFIED NONRECOURSE FINANCING.— 
"(i) IN GENERAL.—For purposes of this paragraph and 
paragraph (9), the term 'nonqualified nonrecourse fi-
nancing means any nonrecourse financing which is not 
» 
, ,;,«;,. 
qualified commercial financing. 
"(ii) QUAUFIED COMMERCIAL FINANCING.—For pUr-
poses of this paragraph, the term 'qualified commercial 
financing' 
means any financing with respect to any 
property if^ 
"(I) such property is acquired by the taxpayer 
from a person who is not a related person, 
isteb' J t 
"(II) the amount of the nonrecourse 
financing 
with respect to such property does not exceed 80 
percent of the credit base of such property, and 
"(III) such financing is borrowed from a qualified 
person or represents a loan from any Federal, 
State, or local government or instrumentality 
thereof, or is guaranteed by any Federal, State, or 
' 
local government. 
Such term shall not include any convertible debt. 
^' 
"(iii) NONRECOURSE FINANCING.—For purposes of this 
subparagraph, the term 'nonrecourse financing' in-
cludes— 
"(I) any amount with respect to which the tax-
payer is protected against loss through guarantees. 
98 STAT. 806 
PUBLIC LAW 98-369—JULY 18, 1984 
wi hhi'^^ li 
stop-loss agreements, or other similar arrange-
" : 
ments, and 
"(ID except to the extent provided in regulations, 
^^' ' 
any amount borrowed from a person who has an 
interest (other than as a creditor) in the activity in 
which the property is used or from a related person 
to a person (other than the taxpayer) having such 
an interest. 
In the case of amounts borrowed by a corporation from 
Hf ^>aTT .*; 
a shareholder, subclause (II) shall not apply to an 
interest as a shareholder. 
"(iv) QuAUFiED PERSON.—For purposes of this para-
m
o ^
* 
graph, the term 'qualified person' means any person 
which is actively and regularly engaged in the business 
f 
of lending money and which is not— 
"(I) a related person with respect to the 
taxpayer, 
r.t 
"(II) a person from which the taxpayer acquired 
the property (or a related person to such person), 
- ' l i ^ v - .:.-y.' 
• 
o r 
"(III) a person who receives a fee with respect to 
:
•
: 
the taxpayer's investment in the property (or a 
related person to such person). 
"(v) RELATED PERSON.—For purposes of clause (i), the 
term 'related person' has the meaning given such term 
by section 168(e)(4). Except as otherwise provided in 
>! 
regulations prescribed by the Secretary, the determina-
tion of whether a person is a related person shall be 
?I8 .c ,!f«A *
^ 'jv;' 
made as of the close of the taxable year in which the 
property is placed in service. 
^
€
:
«
> 
ft 
"(E) APPUCATION TO PARTNERSHIPS AND S CORPORATIONS.— 
For purposes of this paragraph and paragraph (9)— 
"(i) IN GENERAL.—Except as otherwise provided in 
this subparagraph, in the case of any partnership or S 
corporation, the determination of whether a partner's 
« 
or shareholder's allocable share of any financing is 
nonqualified nonrecourse financing shall be made at 
the partner or shareholder level. 
"(ii) SPECIAL RULE FOR CERTAIN RECOURSE FINANCING 
OF s CORPORATION.—A shareholder of an S corporation 
shgdl be treated as liable for his allocable share of any 
ji_. 
financing 
provided by a qualified person to such corpo-
ration if^ 
"(I) such financing is recourse financing (deter-
mined at the corporate level), and 
"(II) such financing is provided with respect to 
qualified business property of such corporation. 
"(iii) QuAUFiED BUSINESS PROPERTY.—For purposes of 
clause (ii), the term 'qualified business property means 
J ,. ^ 
any property if— 
"(I) such property is used by the corporation in 
the active conduct of a trade or business, 
J.;,; 
"(II) during the entire 12-month period ending on 
^ ^ 
the last day of the taxable year, such corporation 
had at least 3 full-time employees who were not 
owner-employees 
(EIS 
defined 
in 
section 
Post, p. 811. 
465(c)(7)(E)(i)) and substantially all the services of 
-til. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 807 
whom were services directly related to such trade 
or business, and 
"(HI) during the entire 12-month period ending 
on the last day of such taxable year, such corpora-
tion had at least 1 full-time employee substamtially 
all of the services of whom were in the active 
management of the trade or business. 
Such term shall not include any master sound record-
ing or other tangible or intangible asset associated with 
literary, artistic, or musical properties. 
"(iv) DETERMINATION OF ALLOCABLE SHARE.—The de-
termination of any partner's or shareholder's allocable 
share of any financing shall be made in the same 
manner as the credit allowable by section 38 with Post, p. 827. 
respect to such property." 
(b) TREATMENT OF SUBSEQUENT INCREASES AND DECREASES IN NON-
QUALIFIED NONRECOURSE FINANCING.— 
(1) SUBSEQUENT DECREASES.—Paragraph (9) of section 46(c) 26 use 46. 
(relating to subsequent increases in the taxpayer's amount at 
. ;, 
risk with respect to the property) is amended to read as follows: 
"(9) SUBSEQUENT DECREASES IN NONQUAUFIED NONRECOURSE 
FINANCING WITH RESPECT TO THE PROPERTY.— 
"(A) IN GENERAL.—If, at the close of a taxable year 
following the taxable year in which the property was placed 
in service, there is a net decrease in the amount of nonqual-
r, 
ifled nonrecourse financing with respect to such property, 
such net decrease shall be taken into account as additional 
qualified investment in such property in accordance with 
subparagraph (C). 
"(B) CERTAIN TRANSACTIONS NOT TAKEN INTO ACCOUNT.— 
For purposes of this paragraph, nonqualified nonrecourse 
financing shall not be treated as decreased through the 
surrender or other use of property financed by nonqualified 
nonrecourse financing. 
"(C) MANNER IN WHICH TAKEN INTO ACCOUNT.— 
"(i) CREDIT DETERMINED BY REFERENCE TO TAXABLE 
YEAR PROPERTY PLACED IN SERVICE.—For purposes of 
determining the amount of credit allowable under sec-
tion 38 and the amount of credit subject to the early 
disposition or cessation rules under section 47, any 
increase in a taxpayer's qualified investment in prop-
erty by reason of this paragraph shall be deemed to be 
additional qualified investment made by the taxpayer 
in the year in which the property referred to in sub- 
;;. , - .
f
:
^ 
paragraph (A) was first placed in service. 
"(ii) CREDIT ALLOWED FOR YEAR OF DECREASE IN NON-
QUAUFIED NONRECOURSE FINANCING.—Any credit allow-
able under this subpart for any increase in qualified 
investment by reason of this paragraph shall be treated 
as earned during the taxable year of the decrease in the 
amount of nonqualified nonrecourse financing." 
(2) SUBSEQUENT INCREASES.—So much of subsection (d) of sec-
tion 47 (relating to property ceasing to be at risk) as precedes 26 use 47. 
paragraph (3) thereof is amended to read as follows: 
"(d) INCREASES IN NONQUAUFIED NONRECOURSE FINANCING.— 
"(1) IN GENERAL.—If, as of the close of the taxable year, there 
is a net increase with respect to the taxpayer in the amount of 
98 STAT. 808 
PUBLIC LAW 98-369—JULY 18, 1984 
nonqualified nonrecourse financing (within the meaning of sec-
tion 46(c)(8)) with respect to any property to which section 
46(c)(8) applied, then the tax under this chapter for such taxable 
year shall be increased by an amount equal to the aggregate 
decrease in credits allowed under section 38 for all prior taxable 
years which would have resulted from reducing the qualified 
investment taken into account with respect to such property by 
the amount of such net increase. 
"(2) TRANSFERS OF DEBT MORE THAN i YEAR AFTER INITIAL 
BORROWING NOT TREATED AS INCREASING NONQUALIFIED NONRE-
COURSE FINANCING.—For purposes of paragraph (1), the amount 
of nonqualified nonrecourse financing (within the meaning of 
Ante, p. 805. 
section 46(c)(8)(D)) with respect to the taxpayer shall not be 
treated as increased by reason of a transfer of (or agreement to 
transfer) any evidence of an indebtedness if such transfer occurs 
(or such agreement is entered into) more than 1 year after the 
date such indebtedness was incurred." 
(c) CLARIFICATION OF COORDINATION OF SECTION 48(d) WITH AT-
26 use 48. 
RISK RULES.—Subsection (d) of section 48 (relating to certain leased 
property) is amended by adding at the end thereof the following new 
paragraph: 
"(6) COORDINATION WITH AT-RISK RULES.— 
"(A) EXTENSION OF AT-RISK RULES TO CERTAIN LESSORS.— 
"(i) IN GENERAL.—If^ 
"(I) a lessor makes an election under this subsec-
tion with respect to any at-risk property leased to 
an at-risk lessee, and 
"(II) but for this clause, section 46(c)(8) would not 
apply to such property in the hands of the lessor, 
section 46(c)(8) shall apply to the lessor with respect to 
such property, 
"(ii) EXCEPTIONS.—Clause (i) shall not apply— 
"(I) if the lessor manufactured or produced the 
property, 
"(II) if the property has a readily ascertainable 
fair market value, or 
"(III) in circumstances which the Secretary de-
termines by regulations to be circumstances where 
the application of clause (i) is not necessary to 
carry out the purposes of section 46(c)(8). 
"(B) REQUIREMENT THAT LESSOR BE AT RISK.—In the case of 
any property which, in the hands of the lessor, is property 
to which section 46(c)(8) applies, the amount of the credit 
Post, p. 827. 
allowable to the lessee under section 38 with respect to such 
property by reason of an election under this subsection 
shall at no time exceed the credit which would have been 
allowable to the lessor with respect to such property (deter-
mined without regard to section 46(e)(3)) i
f
— 
"(i) the lessor's basis in such property were equal to 
the lessee acquisition amount, and 
"(ii) no election had been made under this subsection. 
"(C) LESSEE SUBJECT TO AT-RISK LIMITATIONS.— 
.7|i :).r: I (iS. 
"(i) IN GENERAL.—In the case of any lease where— 
"(I) the lessee is an at-risk lessee, 
"(II) the property is at-risk property, and 
,^" 
"(III) the at-risk percentage is less than the re-
quired percentage, 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 809 
any credit allowable under section 38 to the lessee by Post, p. 827. 
reason of an election under this subsection (hereinafter 
in this paragraph referred to as the 'total credit') shall 
be allowable only as provided in subparagraph (D). 
"(ii) AT-RISK PERCENTAGE.—For purposes of this para-
graph, the term 'at-risk percentage' means the percent-
age obtained by dividing— 
"(I) the present value (as of the time the lease is 
entered into) of the aggregate lease at-risk pay-
ments, by 
"(II) the lessee acquisition amount. 
For purposes of subclause (I), the present value shall be 
determined by using a discount rate equal to the rate in 
"
"
^ • ! ^ -' 
effect under section 6621 as of the time the lease is 
entered into. 
"(iii) REQUIRED PERCENTAGE.—For purposes of clause 
(iXIII), the term 'required percentage' means the sum 
of— 
"(I) 2 times the sum of the percentages applica-
ble to the property under section 46(a), plus 
Post, p. 834. 
"(II) 10 percent. 
In the case of 3-year property, such term means 60 
percent of the required percentage determined under 
the preceding sentence. 
"(iv) LESSEE ACQUISITION AMOUNT.—For purposes of 
this paragraph, the term 'lessee acquisition amount' 
means the amount for which the lessee is treated as 
having acquired the property by reason of an election 
under this subsection. 
"(v) LEASE AT-RISK PAYMENT.—For purposes of this 
paragraph, the term 'lease at-risk payment' means any 
rental pa3mient— 
'(I) which the lessee is required to vaake under 
; i r
s 
the lease in all events, and 
"(II) with respect to which the lessee is not pro-
tected against loss through nonrecourse financing, 
guarantees, stop-loss agreements, or other similar 
arrangements. 
'(D) YEAR FOR WHICH CREDIT ALLOWABLE.— 
"(i) IN GENERAL.—Except as provided in clause (ii), in 
any case to which subparagraph (CXi) applies, the por-
tion of the total credit eillowable for any taxable year 
shall be an amount which bears the same ratio to such 
total credit as— 
"(I) the aggregate rental payments made by the 
lessee under the lease during such taxable year, 
bears to 
"(II) the lessee acquisition amount, 
"(ii) 
REMAINING AMOUNT ALLOWABLE FOR YEAR IN 
WHICH AGGREGATE RENTAL PAYMENTS EXCEED REQUIRED 
PERCENTAGE OF ACQUISITION AMOUNT.—The total credit 
(to the extent not allowable for a preceding taxable 
year) shall be allowable for the first taxable year as of 
the close of which the aggregate rental payments made 
by the lessee under the lease equal or exceed the 
required percentage (as defined in 
subparagraph 
(CXiii)) of the lessee acquisition amount. 
98 STAT. 810 
PUBLIC LAW 98-369—JULY 18, 1984 
T
i
f
e q S
B
C
\ 
"(E) DEFINITION OF AT-RISK LESSEE AND AT-RISK PROP-
ERTY.—For purposes of this paragraph— 
"(i) AT-RISK LESSEE.—The term 'at-risk lessee' means 
any lessee who is a taxpayer described in section 
465(a)(1). 
"(ii) AT-RISK PROPERTY.—The term 'at-risk property' 
means any property used by an at-risk lessee in connec-
tion with an activity with respect to which any loss is 
suWect to limitation under section 465. 
"(F) SPECIAL RULES FOR SUBPARAGRAPHS (C) AND (D).— 
"(i) SUBPARAGRAPHS (C) AND (D) APPLY IN UEU OF 
OTHER AT-RISK RULES.—In the case of any election under 
Ante, p. 807. 
this subsection, paragraphs (8) and (9) of section 46(c) 
«i 
and subsection (d) of section 47 shall only apply with 
respect to the lessor. 
' (ii) APPUCATION TO PARTNERSHIPS AND S CORPORA-
TIONS.—For purposes of subparagraphs (C) and (D), 
rules similar to the rules of subparagraph (E) of section 
Ante, p. 805. 
.i^:^iiq: 
46(c)(8) shall apply. 
"(iii) SUBSEQUENT REDUCTIONS IN AT-RISK AMOUNT.— 
Under regulations prescribed by the Secretary, the 
principles of subsection (d) of section 47 shall apply for 
purposes of subparagraphs (C) and (D). 
"(G) REGULATIONS.—The Secretary shall prescribe such 
regulations as may be necessary to carry out the purposes 
of this paragraph, including regulations— 
"(i) providing for such adjustments as may be appro-
priate where expenses connected with the lease are 
borne by the lessor, and 
"(ii) providing the extent to which contingencies in 
the lease will be disregarded." 
(d) TECHNICAL AMENDMENTS.— 
26 use 46. 
(1) Clause (i) of section 46(c)(8)(F) (relating to special rule for 
certain energy property) is amended to read as follows: 
"(i) IN GENERAL.—Subparagraph (A) shall not apply with 
respect to qualified energy property." 
(2) Subclause (III) of section 46(c)(8XF)(ii) (defining qualified 
energy property) is amended to read as follows: 
"(III) as of the close of the taxable year in which 
the property is placed in service, not more than 75 
percent of the basis of such property is attributable 
to nonqualified nonrecourse financing, and". 
(3) Subclause (IV) of section 46(c)(8)(F)(ii) is amended by strik-
ing out "nonrecourse financing (other than financing described 
in section 46(cX8)(BXii))" and inserting in lieu thereof "nonquali-
fied nonrecourse financing". 
26 use 47. 
(4) Subparagraph (A) of section 47(dX3) is amended by striking 
out "ceasing to be at risk" and inserting in lieu thereof "in-
« 
creasing the amount of nonqualified nonrecourse 
financing 
(within the meaning of section 46(cX8))". 
(5) Clause (i) of section 47(d)(3)(B) is amended by striking out 
"other than a loan described in section 46(c)(8XBXii)"-
26 u s e 46 note. 
(e) EFFECTIVE D A T E S . — 
(1) IN GENERAL.—The amendments made by this section shall 
apply to property placed in service after the date of the enact-
ment of this Act in taxable years ending after such date; except 
that such amendments shall not apply to any property to which 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 811 
fi 
the amendments made by section 211(f) of the Economic Recov-
ery Tax Act of 1981 do not apply. 
26 use 46, 47. 
(2) AMENDMENTS MAY BE ELECTED RETROACTIVELY.—At the 
election of the taxpayer, the amendments made by this section 
shall apply as if included in the amendments made by section 
I 
211(f) of the Economic Recovery Tax Act of 1981. Any election 
made under the preceding sentence shall apply to all property 
of the taxpayer to which the amendments made by such section 
211(f) apply and shall be made at such time and in such manner 
as the Secretary of the Treasury or his delegate may by regula-
tions prescribe. 
SEC. 432. EXCLUSION OF ACTIVE BUSINESSES OF QUALIFIED C CORPORA-
TIONS FROM AT-RISK RULES, ETC. 
(a) EXCLUSION OF ACTIVE BUSINESSES OF QUALIFIED C CORPORA-
TIONS FROM AT-RISK RULES.—Subsection (c) of section 465 (relating 26 USC 465. 
to deductions limited to amount at risk) is amended by adding at the 
end thereof the following new paragraph: 
"(7) EXCLUSION OF ACTIVE BUSINESSES OF QUAUFIED C CORPORA-
TIONS.— 
"(A) IN GENERAL.—In the case of a taxpayer which is a 
qualified C corporation— 
''^^ *
"
^ 
"(i) each qualifying business carried on by such tax-
^ 
•. 
payer shall be treated as a separate activity, and 
' | f 
"(ii) subsection (a) shall not apply to losses from such 
'' 
business. 
"(B) QUALIFIED C CORPORATION.—For purposes of subpara-
'^. 
graph (A), the term 'qualified C corporation' means any 
^'; 
corporation described in subparagraph (B) of subsection 
(a)(1) which is not— 
^ - 
"(i) a personal holding company (as defined in section 
;'^^,, . 
542(a)), 
"(ii) a foreign personal holding company (as defined 
in section 552(a)), or 
"(iii) a personal service corporation (as defined in 
section 269A(b) but determined by substituting '5 per-
cent' for '10 percent' in section 269A(b)(2)). 
"(C) QuAUFYiNG BUSINESS.—For purposes of this para-
graph, the term 'qualifying business' means any active 
business if— 
"(i) during the entire 12-month period ending on the 
2
f 
last day of the taxable year, such corporation had at 
Kir 
least 1 full-time employee substantially all the services 
Q- 
of whom were in the active management of such 
business, 
"(ii) during the entire 12-month period ending on the 
ga,, 
last day of the taxable year, such corporation had at 
least 3 full-time, nonowner employees substantially all 
^ 
of the services of whom were services directly related to 
such business, 
"(iii) the amount of the deductions attributable to 
such business which are allowable to the taxpayer 
solely by reason of sections 162 and 404 for the taxable 
year exceeds 15 percent of the gross income from such 
business for such year, and 
- < i 
"(iv) such business is not an excluded business. 
98 STAT. 812 
PUBLIC LAW 98-369—JULY 18, 1984 
*on>}^ 
"(D) SPECIAL RULES FOR APPUCATION OF SUBPARAGRAPH 
.\: -u '>:t;-L 
<C).— 
"(i) PARTNERSHIPS IN WHICH TAXPAYER IS A QUALIFIED 
CORPORATE PARTNER.—In the case of an active business 
of a partnership, if— 
"(I) the taxpayer is a qualified corporate partner 
in the partnership, and 
"(II) during the entire 12-month period ending on 
the last day of the partnership s taxable year, 
,,.,.,.^., 
there was at least 1 full-time employee of the 
partnership (or of a qualified corporate partner) 
substantially all the services of whom were in the 
••^- 
active management of such business, 
then the taxpayer's proportionate share (determined on 
, 
the basis of its profits interest) of the activities of the 
ri\^ 
;;• 
partnership in such business shall be treated as activi-
ties of the taxpayer (and clause (i) of subparagraph (C) 
shall not apply in determining whether such business 
~s <ii-M v. ( 
is a qualifying business of the taxpayer). 
"(ii) QUALIFIED CORPORATE PARTNER.—For purposes of 
• ,. 
clause (i), the term 'qualified corporate partner means 
any corporation if^ 
_
,
^
^ , 
"(I) such corporation is a general partner in the 
partnership, 
„',..^ 
"(II) such corporation has an interest of 10 per-
cent or more in the profits and losses of the part-
nership, and 
"(III) such corporation has contributed property 
to the partnership in an amount not less than the 
lesser of $500,000 or 10 percent of the net worth of 
the corporation. 
For purposes of subclause (III), any contribution of 
property other than money shall be taken into account 
at its fair market value. 
"(iii) DEDUCTION FOR OWNER EMPLOYEE COMPENSATION 
NOT TAKEN INTO ACCOUNT.—For purposes of clause (iii) 
' f-G 
Qf subparagraph (C), there shall not be taken into 
account any deduction in respect of compensation for 
personal services rendered by any employee (other 
than a non-owner employee) of the taxpayer or any 
member of such employee s family (within the meaning 
* ' 
of section 318(a)(1)). 
"(iv) 
SPECIAL RULE FOR BANKS.—For purposes of 
clause (iii) of subparagraph (C), in the case of a bank (as 
defined in section 581) or a financial institution to 
which section 591 applies— 
"(I) gross income shall be determined without 
regard to the exclusion of interest from gross 
income under section 103, and 
>
- 
"(II) in addition to the deductions described in 
such clause, there shall also be taken into account 
the amount of the deductions which are allowable 
for amounts paid or credited to the accounts of 
depositors or holders of accounts as dividends or 
interest on their deposits or withdrawable accounts 
under section 163 or 591. 
"(v) SPECIAL RULE FOR UFE INSURANCE COMPANIES.— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 813 
ai K ml'' 
"(I) IN GENERAL.—Clause (iii) of subparagraph (C) 
shall not apply to any insurance business of a 
qualified life insurance company. 
n 
"(II) INSURANCE BUSINESS.—For purposes of sub-
clause (I), the term 'insurance business' means any 
: 
business which is not a noninsurance business 
(within the meaning of section 806(c)(3)). 
Ante, p. 724. 
"(Ill) QUAUFIED LIFE INSURANCE COMPANY.—For 
purposes of subclause (I), the term 'qualified life 
insurance company' means any company which 
would be a life insurance company as defined in 
section 816 if unearned premiums were not taken Ante, p. 748. 
into account under subsections (a)(2) and (c)(2) of 
section 816. 
' i '.^ 
"(E) DEFINITIONS.—For purposes of this paragraph— 
"(i) NON-OWNER EMPLOYEE.—The term 'non-owner 
employee' means any employee who does not own, at 
"-
- 
any time during the taxable year, more than 5 percent 
in value of the outstanding stock of the taxpayer. For 
purposes of the preceding sentence, section 318 shall 
.i«|iji::iK 
apply, except that '5 percent' shall be substituted for 
'50 percent' in section 318(a)(2XC). 
"(ii) EXCLUDED BUSINESS.—The term 'excluded busi-
'': - • 
.. ness' means— 
"(I) equipment leasing (as defined in paragraph 
(6)), and 
i'->',-«• :• 
"(II) any business involving the use, exploitation, 
sale, lease, or other disposition of master sound 
I- f ^.j 
' 
recordings, motion picture films, video tapes, or 
tangible or intangible assets associated with liter-
ary, artistic, musical, or similar properties, 
"(iii) SPECIAL RULES RELATING TO COMMUNICATIONS 
INDUSTRY, ETC.— 
?'r 
"(I) 
BUSINESS NOT EXCLUDED WHERE TAXPAYER 
iijr.v 
NOT COMPLETELY AT RISK.—A business involving the 
use, exploitation, sale, lease, or other disposition of 
property described in subclause (II) of clause (ii) 
tt ;;;- 
•-. 
shall not constitute an excluded business by reason 
of such subclause if the taxpayer is at risk with 
respect to all amounts paid or incurred (or chargea-
ble to capital account) in such business. 
t' i 
* 
"(II) 
CERTAIN 
UCENSED 
BUSINESSES NOT EX-
CLUDED.—For purposes of subclause (II) of clause 
(ii), the provision of radio, television, cable televi-
sion, or similar services pursuant to a license or 
r . 
J i ;. 
franchise granted by the Federal Communications 
Commission or any other Federal, State, or local 
authority shall not constitute an excluded business 
f s! s« ftr h.:. 
by reason of such subclause. 
"(F) AFFIUATED GROUP TREATED AS 1 TAXPAYER.—For pur-
poses of this paragraph— 
"(i) IN GENERAL.—Except as provided in subpara-
graph (G), the component members of an affiliated 
.3«. 
group of corporations shall be treated as a single tax-
payer. 
'(ii) AFFILIATED GROUP OF CORPORATIONS.—The term 
'affiliated group of corporations' means an affiliated 
98 STAT. 814 
PUBLIC LAW 98-369—JULY 18, 1984 
Ante, p. 577. 
,'); 
gToup (as defined in section 1504(a)) which files or is 
ft k 
required to file consolidated income tax returns. 
"(iii) COMPONENT MEMBER.—The term 'component 
member' means an includible corporation (as defined in 
section 1504) which is a member of the affiliated group. 
^
>
; 
"(G) Loss OF 1 MEMBER OF AFFIUATED GROUP MAY NOT 
ST q a-.'. 
OFFSET INCOME OF PERSONAL HOLDING COMPANY OR PERSONAL 
SERVICE CORPORATION.—Nothing in this paragraph shall 
permit any loss of a member of an affiliated group to be 
used as an offset against the income of any other member of 
such group which is a personal holding company (as defined 
.8*T .q ,^&is 
in section 542(a)) or a personal service corporation (as de-
fined in section 269A(b) but determined by substituting '5 
percent' for '10 percent' in section 269A(b)(2))." 
(b) ACTIVITIES TREATED AS SEPARATE ACTIVITIES BY STATUTE MAY 
BE AGGREGATED WHERE TAXPAYER ACTIVELY PARTICIPATES IN THE 
26 use 465. 
MANAGEMENT OF EACH ACTIVITY.—Paragraph (2) of section 465(c) 
(relating to activities to which risk applies) is amended to read as 
follows: 
"(2) SEPARATE ACTIVITIES.—For purposes of this section— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), a taxpayer's activity with respect to each— 
fa*ju .. 
"(i) film or video tape, 
"(ii) section 1245 property which is le£ised or held for 
dcifiT^iHi^'-:: leasing, 
.,„.., :... ,. ^ 
"(iii) farm, 
"(iv) oil and gas property (as defined under section 
614), or 
"(v) geothermal property (as defined under section 
614), 
shall be treated as a separate activity. 
Ri^o * 
"(B) AGGREGATION RULES.— 
"(i) SPECIAL RULE FOR LEASES OF SECTION 1245 PROP-
ERTY B
Y PARTNERSHIPS O
R s CORPORATIONS.—In the case 
of any partnership or S corporation, all activities with 
respect to section 1245 properties which— 
"(I) are leased or held for lease, and 
"(II) are placed in service in any taxable year of 
the partnership or S corporation, 
shall be treated as a single activity. 
"(ii) OTHER AGGREGATION RULES.—Rules similar to 
the rules of subparagraphs (B) and (C) of paragraph (3) 
shall apply for purposes of this paragraph.' 
(c) CORPORATIONS CONSIDERED AT RISK WITH RESPECT TO AMOUNTS 
BORROWED FROM SHAREHOLDERS, ETC.—Paragraph (3) of section 
465(b) (relating to certain borrowed amounts excluded) is amended 
to read as follows: 
j
p
^ 
"(3) CERTAIN BORROWED AMOUNTS EXCLUDED.— 
"(A) IN GENERAL.—Except to the extent provided in regu-
..^y;^ . latfons, for purposes of paragraph (1)(B), amounts borrowed 
shall not be considered to be at risk with respect to an 
activity if such amounts are borrowed from any person who 
has an interest in such activity or from a related person to 
. ^, 
a person (other than the taxpayer) having such an interest. 
"(B) EXCEPTIONS.— 
,-.. 
"(i) INTEREST AS CREDITOR.—Subparagraph (A) shall 
fc&s ... . 
not apply to an interest as a creditor in the activity. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 
"(ii) INTEREST AS SHAREHOLDER WITH RESPECT TO 
AMOUNTS BORROWED B
Y CORPORATION.—In the case of 
amounts borrowed by a corporation from a sharehold-
er, subparagraph (A) shall not apply to an interest as a 
shareholder. 
"(C) RELATED PERSON DEFINED.—For purposes of subpara-
' " 
graph (A), the term 'related person' has the meaning given 
such term by section 168(e)(4)." 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31, 1983; except 
that any loss from an activity described in section 465(cX7XA) of the 
Internal Revenue Code of 1954 (as amended by this section) which 
(but for the amendments made by this section) would have been 
treated as a deduction for the taxpayer's first taxable year begin-
ning after December 31, 1983, under section 465(aX2) of such Code 
shall be allowed as a deduction for such first taxable year notwith-
standing such amendments. 
'HM'-
Subtitle D—Miscellaneous Treasury 
Administrative Provisions 
26 use 465 note. 
Ante, p. 811. 
J 
PART I—PROVISIONS NOT RELATING TO DISTILLED 
SPIRITS TAX 
SEC. 441. SIMPLIFICATION OF CERTAIN REPORTING REQUIREMENTS. 
26 USC 936 note. 
(a) REPORT ON POSSESSIONS CORPORATIONS.—The Secretary of the 
Treasury shall, for the calendar year 1981 and each second calendar 
year thereafter, submit a report to the Congress within 24 months 
following the close of such calendar year setting forth an analysis of 
, ^
_ ,,, , 
the operation and effect of sections 936 and 934(b) of the Internal 
" 
"'^ 
Revenue Code of 1954. 
(b) HIGH INCOME TAXPAYER REPORT.— 
(1) Section 2123 of the Tax Reform Act of 1976 is amended to 26 use 56 note. 
read as follows: 
"SEC. 2123. HIGH INCOME TAXPAYER REPORT. 
"The Secretary of the Treasury shall publish annually informa-
tion on the amount of tax paid by individual taxpayers with high 
total incomes. Total income for this purpose is to be calculated and 
set forth by adding to adjusted gross income any items of tax 
preference excluded from, or deducted in arriving at, adjusted gross 
income, and by subtracting any investment expenses incurred in the 
production of such income to the extent of the investment income. 
These data are to include the number of such individuals with total 
income over $200,000 who owe no Federal income tax (after credits) 
and the deductions, exclusions, or credits used by them to avoid 
tax." 
(2) The amendment made by paragraph (1) shall apply to 26 USe 56 note. 
information published after the date of the enactment of this 
Act. 
(c) INTERNATIONAL BOYCOTT REPORTS.— 
(1) Section 1067 of the Tax Reform Act of 1976 is amended to 26 use 999 note. 
read as follows: 
98 STAT. 816 
PUBLIC LAW 98-369—JULY 18, 1984 
"SEC. 1067. REPORTS BY THE SECRETARY, f 
j^d :«/ 
"(a) GENERAL RULE.—As soon after the close of each 4-year period 
as the data become available, the Secretary shall transmit a report 
to the Committee on Ways and Means of the House of Representa-
tives and to the Committee on Finance of the Senate setting forth 
for such 4-year period— 
"(1) the number of reports filed under section 999(a) of the 
Internal Revenue Code of 1954 for taxable years ending with or 
.-iu . 5h' "Z'' o? 
within each calendar year in such 4-year period, 
"(2) the number of such reports with respect to each such 
calendar year on which the taxpayer indicated international 
i'-. 
,. 
boycott participation or cooperation (within the meaning of 
section 999(b)(3) of such Code), and 
"(3) a detailed description of the manner in which the provi-
sions of such Code relating to international boycott activity 
have been administered during such 4-year period. 
"(b) 4-YEAR PERIOD.—For purposes of subsection (a), the term 
'4-year period' means the period consisting of 4 calendar years 
beginning with calendar year 1982 and each subsequent fourth 
calendar year." 
26 use 999 note. 
(2) The amendment made by paragraph (1) shall apply to 
reports for periods after December 31,1981. 
SEC. 442. REMOVAL OF $1,000,000 LIMITATION ON WORKING CAPITAL 
FUND. 
The last sentence of section 322(a) of title 31, United States Code 
"
^
* *' 
(placing a $1,000,000 limitation on the working capital fund for the 
Department of the Treasury), is hereby repealed. 
SEC. 443. INCREASE IN LIMITATION ON REVOLVING FUND FOR REDEMP-
TION OF REAL PROPERTY. 
26 use 7810. 
Subsection (a) of section 7810 (relating to revolving fund for 
redemption of real property) is amended by striking out "$1,000,000" 
and inserting in lieu thereof "$10,000,000". 
5 on -hi :MJ < SEC. 444. REMOVAL OF $1,000,000 LIMITATION ON SPECIAL AUTHORITY TO 
DISPOSE OF OBLIGATIONS. 
Subsection (b) of section 324 of title 31, United States Code (relat-
ing to disposing and extending the maturity of obligations), is 
amended by striking out the last sentence. 
SEC. 445. SECRETARY OF THE TREASURY AUTHORIZED TO ACCEPT GIFTS 
AND BEQUESTS. 
Section 321 of title 31, United States Code, is amended by adding 
at the end thereof the following new subsection: 
"(d)(1) The Secretary of the Treasury may accept, hold, adminis-
ter, and use gifts and bequests of property, both real and personal, 
for the purpose of aiding or facilitating the work of the Department 
of the Treasury. Gifts and bequests of money and the proceeds from 
sales of other property received as gifts or bequests shall be deposit-
'- n ;, .,. . 
ed in the Treasury in a separate fund and shall be disbursed on 
order of the Secretary of the Treasury. Property accepted under this 
paragraph, and the proceeds thereof, shall be used as nearly as 
possible in accordance with the terms of the gift or bequest. 
,9to£ «»; f)**.a'K 
"(2) For purposes of the Federal income, estate, and gift taxes, 
property accepted under paragraph (1) shall be considered as a gift 
or bequest to or for the use of the United States. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 817 
"(3) The Secretary of the Treasury may invest and reinvest the 
fund in public debt securities with maturities suitable for the needs 
of the fund and bearing interest at rates determined by the Secre-
tary of the Treasury, taking into consideration the current average 
market yield on outstanding marketable obligations of the United 
States of comparable maturities. Income accruing from the securi-
ties, and from any other property accepted under paragraph (1), 
• •
-
. ' ; 
shall be deposited to the credit of the fund, and shall be disbursed on 
order of the Secretary of the Treasury for purposes as nearly as 
possible in accordance with the terms of the gifts or bequests. 
"(4) The Secretary of the Treasury shall, not less frequently than 
., 
annually, make a public disclosure of the amount (and sources) of 
the gifts and bequests received under this subsection, and the 
purposes for which amounts in the separate fund established under 
, ,. 
. 
this subsection are expended." 
. r," 
SEC. 446. EXTENSION OF PERIOD FOR COURT REVIEW OF JEOPARDY AS-
SESSMENT WHERE PROMPT SERVICE NOT MADE ON THE 
UNITED STATES. 
(a) GENERAL RULE.—Paragraph (2) of section 7429(b) (relating to 26 use 7429. 
judicial review) is amended by adding at the end thereof the follow-
ing new sentence: 
"If the court determines that proper service was not made on 
the United States within 5 days after the date of the commence-
ment of the action, the running of the 20-day period set forth in 
the preceding sentence shall not begin before the day on which 
proper service was made on the United States." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 7429 
shall apply to actions commenced after the date of the enactment of "ote. 
this Act. 
SEC. 447. EXTENSION OF PERIOD DURING WHICH ADDITIONAL TAX 
SHOWN ON AMENDED RETURN M
A
Y BE ASSESSED. 
(a) GENERAL RULE.—Subsection (c) of section 6501 (relating to Ante, p. 757. 
exceptions) is amended by adding at the end thereof the following 
new paragraph: 
"(7) SPECIAL RULE FOR CERTAIN AMENDED RETURNS.—Where, 
within the 60-day period ending on the day on which the time 
prescribed in this section for the assessment of any tax imposed 
by subtitle A for any taxable year would otherwise expire, the 
Secretary receives a written document signed by the taxpayer 
showing that the taxpayer owes an additional amount of such 
'--^3 "XJJ &% 
tax for such taxable year, the period for the assessment of such 
additional amount shall not expire before the day 60 days after 
the day on which the Secretary receives such document." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 6501 
shall apply wiuh respect to documents received by the Secretary of note. 
the Treasury (or his delegate) after the date of the enactment of this 
Act. 
SEC. 448. TREATMENT OF CERTAIN GUARANTEED DRAFTS ISSUED BY FI-
NANCIAL INSTITUTIONS. 
(a) GENERAL RULE.—Paragraph (2) of section 63110)) (relating to 26 use 6311. 
liability of banks and others) is amended— 
(1) by striking out "or cashier's check" and inserting in lieu 
thereof "or cashier's check (or other guaranteed draft)", 
31-194 0 - 86 - 28 : QL. 3 Part 1 
98 STAT. 818 
PUBLIC LAW 98-369—JULY 18, 1984 
(2) by striking out "the amount of such check" and inserting 
in lieu thereof "the amount of such check (or draft)", 
(3) by striking out "the bank or trust company" and inserting 
in Ueu thereof "the financial institution", and 
(4) by striking out "such bank" each place it appears and 
inserting in lieu thereof "such financial institution". 
26 use 6311 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
note. 
shall take effect on the date of the enactment of this Act. 
SEC. 449. DISCLOSURE OF WINDFALL PROFIT TAX INFORMATION TO 
STATE TAX OFFICIALS. 
26 use 6103. 
(a) GENERAL RULE.—Paragraph (1) of section 6103(d) (relating to 
disclosure to State tax officials) is amended by striking out "44, 5 1 " 
and inserting in lieu thereof "44, 45, 51". 
26 use 6103 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
"°^® 
shall take effect on the date of the enactment of this Act. 
SEC. 450. FINANCIAL REPORTING OF INVESTMENT TAX CREDITS. 
26 use 38 note. 
(a) I N GENERAL—Paragraph (1) of section 101(c) of the Revenue 
Act of 1971 (85 Stat. 499) (relating to accounting for investment 
credit in certain financial reports and reports to Federal agencies) is 
amended— 
(1) by inserting "and" at the end of subparagraph (A), 
(2) by striking out ", and" at the end of subparagraph (B) and 
inserting in lieu thereof a period, and 
(3) by striking out subparagraph (C). 
26 use 38 note. 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 1 note. 
take effect as if included in the Revenue Act of 1971. 
PART II—PROVISIONS RELATING TO DISTILLED SPIRITS 
SEC. 451. REPEAL OF OCCUPATIONAL TAX ON MANUFACTURERS OF 
STILLS AND CONDENSERS; NOTICES OF MANUFACTURE AND 
SET UP OF STILLS. 
(a) IN GENERAL.—Subpart C of part II of subchapter A of chapter 
51 (relating to manufacturers of stills) is amended to read as follows: 
"Subpart C—Manufacturers of Stills 
"Sec. 5101. Notice of manufacture of still; notice of set up of still. 
"Sec. 5102. Definition of manufacturer of stills. 
26 use 5101. 
"SEC. 5101. NOTICE OF MANUFACTURE OF STILL; NOTICE OF SET UP OF 
STILL. 
"(a) NOTICE REQUIREMENTS.— 
"(1) NOTICE OF MANUFACTURE OF STILL.—The Secretary may, 
t
O
o
c
) Do. r 9i 
pursuant to regulations, require any person who manufactures 
e
;
<
>
a 
gjjjy g^iii^ boiler, or other vessel to be used for the purpose of 
distilling, to give written notice, before the still, boiler, or other 
vessel is removed from the place of manufacture, setting forth 
by whom it is to be used, its capacity, and the time of removal 
from the place of manufacture. 
"(2) NOTICE OF SET UP OF STILL.—The Secretary may, pursuant 
?^ 'i J >
: 
to regulations, require that no still, boiler, or other vessel be set 
up without the manufacturer of the still, boiler, or other vessel 
first giving written notice to the Secretary of that purpose. 
"(b) PENALTIES, ETC.— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 819 
"(1) For penalty and forfeiture for failure to give notice of manufacture, 
5 
or for setting up a still without first giving notice, when required by the 
Secretary, see sections 5615(2) and 5687. 
Infra. 
"(2) For penalty and forfeiture for failure to register still or distilling 
apparatus when set up, see section 5601(a)(1) and 5615(1). 
"SEC. 5102. DEFINITION OF MANUFACTURER OF STILLS. 
26 USC 5102. 
"Any person who manufactures any still or condenser to be used 
in distilling shall be deemed a manufacturer of stills." 
(b) TECHNICAL AMENDMENTS.— 
(1) Paragraph (2) of section 5179(b) (relating to registration of 26 USC 5179. 
stills) is amended to read as follows: 
^- 
"(2) For provisions requiring notification to set up a still, boiler, or other 
; 
vessel for distilling, see section 5101(a)(2)." 
Ante, p. 818. 
^ 
(2) Paragraph (2) of section 5615 (relating to property subject 26 USC 5615. 
to forfeiture) is amended to read as follows: 
"(2) DISTILLING APPARATUS REMOVED WITHOUT NOTICE OR SET 
' 
UP WITHOUT NOTICE.—Any still, boiler, or other vessel to be used 
"^ for the purpose of distilling— 
"(A) which is removed without notice having been given 
when required by section 5101(aXl), or 
Ante, p. 818. 
mruxr 
"(B) which is set up without notice having been given 
to -c 
when required by section 5101(a)(2); and". 
(3) Subsection (a) of section 5691 (relating to penalties for 26 use 5691. 
*
; 
nonpayment of special taxes relating to liquors) is amended by 
^ 
striking out "limited retail dealer, or manufacturer of stills" 
and inserting in lieu thereof "or limited retail dealer". 
SEC. 452. ALLOWANCE OF DRAWBACK CLAIMS EVEN WHERE CERTAIN 
REQUIREMENTS NOT MET. 
Section 5134 (relating to drawback) is amended by adding at the 26 USC 5134. 
end thereof the following new subsection: 
"(c) ALLOWANCE OF DRAWBACK EVEN WHERE CERTAIN REQUIRE- 
K
» jafici: 
MENTS NOT MET.— 
"(1) IN GENERAL.—No claim for drawback under this section 
'^ shall be denied in the case of a failure to comply with any 
requirement imposed under this subpart or any rule or regula-
tion issued thereunder upon the claimant's establishing to the 
satisfaction of the Secretary that distilled spirits on which the 
V tax has been paid or determined were in fact used in the 
•' 
" 
manufacture or production of medicines, medicinal prepara-
f- 
tions, food products, flavors, or flavoring extracts, which were 
^ 
unfit for beverage purposes. 
iWuDHU'iS 
"(2) PENALTY.— 
"(A) IN GENERAL.—In the case of a failure to comply with 
any requirement imposed under this subpart or any rule or 
regulation issued thereunder, the claimant shall be liable 
for a penalty of $1,000 for each failure to comply unless it is 
6 
shown that the failure to comply was due to reasonable 
cause. 
"(B) PENALTY MAY NOT EXCEED AMOUNT OF CLAIM.—The 
vn ' 
aggregate amount of the penalties imposed under subpara- 
•' • ^'-i; :i 
•. 
graph (A) for failures described in paragraph (1) in respect 
of any claim shall not exceed the amount of such claim 
(determined without regard to subparagraph (A)). 
98 STAT. 820 
PUBLIC LAW 98-369—JULY 18, 1984 
"(3) PENALTY TREATED AS TAX.—The penalty imposed by para-
graph (2) shall be assessed, collected, and paid in the same 
manner as taxes, as provided in section 6662(a)." 
SEC. 453. DISCLOSURE OF ALCOHOL FUEL PRODUCERS TO ADMINISTRA-
TORS OF STATE ALCOHOL LAWS. 
26 use 6103. 
(a) IN GENERAL.—Subsection (1) of section 6103 (relating to confi-
dentiality and disclosure of returns and return information) is 
amended by adding at the end thereof the following new paragraph: 
"(9) DISCLOSURE OF ALCOHOL FUEL PRODUCERS TO ADMINISTRA-
TORS OF STATE ALCOHOL LAWS.—Notwithstanding any other pro-
vision of this section, the Secretary may disclose— 
"(A) the name and address of any person who is qualified 
'-'i' . 
s 
to produce alcohol for fuel use under section 5181, and 
,, 
. 
"(B) the location of any premises to be used by such 
person in producing alcohol for fuel, 
to any State agency, body, or commission, or its legal represent-
ative, which is charged under the laws of such State with 
responsibility for administration of State alcohol laws solely for 
use in the administration of such laws." 
., 
O
t
)
) TECHNICAL AMENDMENTS.— 
(1) Subparagraph (A) of section 6103(p)(3) (relating to records 
of inspection and disclosure) is amended by striking out "(5), or 
jPjvr; ->;- •: 
(7)" and inserting in lieu thereof "(5), (7), (8), or (9)". 
(2) The material preceding subparagraph (A) of paragraph (4) 
of section 6103(p) is amended by striking out "or (7)" and 
inserting in lieu thereof "(7), (8), or (9)". 
(3) Clause (i) of section 6103(p)(4)(F) is amended by striking out 
"(1) (6) or (7)" and inserting in lieu thereof "(1) (6), (7), (8), or (9)". 
26 use 7213. 
(4) Paragraph (2) of section 7213(a) (relating to unauthorized 
disclosure of information) is amended by striking out "or (8)" 
and inserting in lieu thereof "(8), or (9)". 
26 use 6103. 
(5) Section 127(a)(1) of Public Law 96-249 is amended by 
striking out "Subsection (i)" and inserting in lieu thereof "Sub-
section (1)". 
26 use 6103. 
(6) The paragraph (7) of section 6103(1) added by Public Law 
94 Stat. 468. 
96-265 is hereby redesignated as paragraph (8). 
SEC. 454. REPEAL OF STAMP REQUIREMENT FOR DISTILLED SPIRITS. 
26 use 5205. 
(a) IN GENERAL.—Section 5205 (relating to stamps) is hereby 
repealed. 
O
t
)
) BOTTLES MUST HAVE OTHER ANTITAMPERING CLOSURE.—Section 
26 use 5301. 
5301 is amended by redesignating subsection (d) as subsection (e) and 
by inserting after subsection (c) the following new subsection: 
"(d) CLOSURES.—The immediate container of distilled spirits with-
drawn from bonded premises, or from customs custody, on determi-
nation of tax shall bear a closure or other device which is designed 
so as to require breaking in order to gain access to the contents of 
such container. The preceding sentence shall not apply to containers 
of bulk distilled spirits.'' 
(c) TECHNICAL AND CONFORMING AMENDMENTS.— 
26 use 5062. 
(D The second sentence of section 50620t)) (relating to draw-
back in case of exportation) is amended by striking out 
"stamped or restamped, and". 
26 use 5066. 
(2) Paragraph (2) of section 5066(a) (relating to bottled distilled 
spirits eligible for export with benefit of drawback) is amended 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 821 
by striking out "stamped or restamped, and marked," and 
inserting in lieu thereof "marked". 
(3) Subsection (b) of section 5116 (relating to cross references) 
26 use 5116. 
is amended to read as follows: 
"(b) CROSS REFERENCE.— 
"For provisions relating to containers of distilled spirits, see section 
5206." 
(4) Subsection (c) of section 5204 (relating to gauging) is 26 use 5204. 
amended— 
(A) by striking out "STAMPING," in the heading, and 
(B) by striking out "stamping," in the text. 
(5)(A) Section 5206 (relating to containers) is amended by 26 use 5206. 
redesignating subsections (d) and (e) as subsections (e) and (f), 
respectively, and by inserting after subsection (c) the following 
new subsection: 
"(d) EFFACEMENT OF MARKS AND BRANDS ON EMPTIED CONTAIN-
ERS.—Every person who empties, or causes to be emptied, any 
container of distilled spirits bearing any mark or brand required by 
law (or regulations pursuant thereto) shall at the time of emptying 
such container efface and obliterate such mark or brand; except that 
the Secretary may, by regulations, waive any requirement of this 
subsection where he determines that no jeopardy to the revenue will 
be involved." 
(B) Subsection (f) of section 5206, as redesignated by subpara-
graph (A), is amended by adding at the end thereof the following 
new paragraphs: 
"(3) For provisions relating to the marking and branding of containers of 
distilled spirits by proprietors, see section 5204(c). 
"(4) For penalties and forfeitures relating to marks and brands, see 
sections 5604 and 5613." 
Infra. 
(6) Paragraph (4) of section 5207(a) (relating to records and 
26 use 5207. 
reports) is amended by striking out subparagraph (D), by adding 
"and" at the end of subparagraph (B), and by striking out 
< 
", and" at the end of subparagraph (C) and inserting in lieu 
thereof a period. 
(7) Subsection (c) of section 5215 (relating to return of tax 
26 use 5215. 
determined distilled spirits to bonded premises) is amended— 
(A) by striking out "RESTAMPING" in the heading and 
inserting in lieu thereof "RECLOSING", and 
(B) by striking out "restamping" in the text and inserting 
in lieu thereof "reclosing". 
(8) Section 5235 (relating to bottling of alcohol for industrial 
26 USC 5235. 
purposes) is amended by striking out "stamped," in the first 
sentence and by striking out the second sentence. 
(9) Subsection (c) of section 5301 (relating to regulation of 26 use 5301. 
traffic in containers of distilled spirits) is amended— 
(A) by striking out "stamping" in paragraphs (1) and (3) 
and inserting in lieu thereof "tax determination", and 
(B) by striking out ", if the liquor bottles are to be again 
stamped under the provisions of this chapter". 
(10) Subsection (a) of section 5555 (relating to records, state- 26 use 5555. 
ments, and returns) is amended by striking out "or for the 
affixing of any stamp required to be affixed by this chapter,". 
(11)(A) Section 5604 (relating to penalties relating to stamps, 26 USC 5604. 
marks, brands, and containers) is amended to read as follows: 
98 STAT. 822 
PUBLIC LAW 98-369—JULY 18, 1984 
"SEC, 5604. PENALTIES RELATING TO MARKS, BRANDS, AND CONTAINERS. 
"(a) IN GENERAL.—Any person who shall— 
..MfSr^iUi" 
"(1) transport, possess, buy, sell, or transfer any distilled 
spirits unless the immediate container bears the type of closure 
Ante, p. 820. 
or Other device required by section 5301(d), 
^, 
"(2) with intent to defraud the United States, empty a con-
tainer bearing the closure or other device required by section 
hi' • V- c s, 
5301(d) without breaking such closure or other device, 
' •
" ' ' '" 
' 
"(3) empty, or cause to be emptied, any distilled spirits from 
t^., an immediate container bearing any mark or brand required by 
*"""" law without effacing and obliterating such mark or brand as 
Ante, p. 821. 
required by section 5206(d), 
"(4) place any distilled spirits in any bottle, or reuse any 
bottle for the purpose of containing distilled spirits, which has 
once been filled and fitted with a closure or other device under 
,^. the provisions of this chapter, without removing and destroying 
such closure or other device, 
"(5) willfully and unlawfully remove, change, or deface any 
mark, brand, label, or seal affixed to any case of distilled spirits, 
or to any bottle contained therein, 
"(6) with intent to defraud the United States, purchase, sell, 
receive with intent to transport, or transport any empty cask or 
package having thereon any mark or brand required by law to 
be affixed to any cask or package containing distilled spirits, or 
"(7) change or alter any mark or brand on any cask or 
package containing distilled spirits, or put into any cask or 
package spirits of greater strength than is indicated by the 
''•''' inspection mark thereon, or fraudulently use any cask or pack-
age having any inspection mark thereon, for the purpose of 
selling other spirits, or spirits of quantity or quality different 
V v- \ 
from the spirits previously inspected, 
shall be fined not more than $10,000 or imprisoned not more than 5 
years, or both, for each such offense. 
"(b) CROSS REFERENCES.— 
"For provisions relating to the authority of internal revenue officers to 
enforce provisions of this section, see sections 5203, 5557, and 7608." 
.aiSc; :)8U y£ 
(B) The table of sections for part I of subchapter J of chapter 
51 is amended by striking out the item relating to section 5604 
-1 
and inserting in lieu thereof the following: 
"Sec. 5604. Penalties relating to marks, brands, and containers." 
26 use 5613. 
(12)(A) Subsection (b) of section 5613 (relating to forfeiture of 
distilled spirits not stamped, marked, or branded as required by 
law) is amended to read as follows: 
"
O
t
>
) CONTAINERS WITHOUT CLOSURES.—All distilled spirits found in 
any container which is required by this chapter to bear a closure or 
other device and which does not bear a closure or other device in 
compliance with this chapter shall be forfeited to the United 
States." 
(B) The section heading of section 5613 is amended by striking 
out "STAMPED" and inserting in lieu thereof "CLOSED". 
(C) The item relating to section 5613 in the table of sections 
for part I of subchapter J of chapter 51 is amended by striking 
out "stamped" and inserting in lieu thereof "closed". 
26 use 6801. 
(13) Subsection (b) of section 6801 (relating to authority for 
establishment, alteration, and distribution) is amended by strik-
::.i;. -.loO oi, 
'.)BIJ ftli 
.G6PS XU 
m 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 823 
ing out "several stamp taxes;" and all that follows and inserting 
in lieu thereof "several stamp taxes." 
(14) The table of sections for part I of subchapter C of chapter 
51 is amended by striking out the item relating to section 5205. 
SEC. 455. COOKING WINE MAY BE FORTIFIED USING DISTILLED SPIRITS. 
(a) IN GENERAL.—Subsection (a) of section 5214 (relating to with- 26 use 5214. 
drawal of distilled spirits from bonded premises free of tax or 
without payment of tax) is amended by striking out the period at the 
end of paragraph (12) and inserting in lieu thereof "; or", and by 
adding at the end thereof the following new paragraph: 
-A-T 
••:... 
"(13) without payment of tax for use on bonded wine cellar 
premises in the production of wine or wine products which will 
be rendered unfit for beverage use and removed pursuant to 
section 5362(d)." 
(b) LIABILITY FOR TAX.— 
(1) Paragraph (1) of section 5005(e) (relating to withdrawals 26 use 5005. 
without payment of tax) is amended by striking out "or (10)" 
and inserting in lieu thereof "(10), or (13)". 
(2) Paragraph (2) of section 5005(e) is amended by inserting 
"used in the production of nonbeverage wine or wine products," 
after "used in the production of wine,". 
(c) TECHNICAL AMENDMENT.—Section 5354 (relating to bonds for 26 use 5354. 
bonded wine cellars) is amended by striking out "wine spirits" each 
place it appears and inserting in lieu thereof "distilled spirits". 
SEC. 456. EFFECTIVE DATES. 
(a) IN GENERAL.—Except as otherwise provided in this section the 
amendments made by this part shall take effect on the first day of 
the first calendar month which begins more than 90 days after the 
date of the enactment of this Act. 
(b) REPEAL OF STAMP REQUIREMENT.—The amendments made by 
section 454 shall take effect on July 1,1985. 
Ante, p. 820. 
(c) FORTIFICATION OF COOKING WINE.—The amendments made by 
section 455 shall take effect on the date of the enactment of this Act. Supm. 
Subtitle E—Tax Court Provisions 
26 use 5101 
note. 
mi a
s 
SEC. 461. INCREASE IN JURISDICTIONAL LIMIT FOR SMALL CASES. 
(a) INCREASE IN JURISDICTIONAL LIMIT FOR SMALL TAX CASES.— 
(1) IN GENERAL.—Subsection (a) of section 7463 (relating to 26 use 7463 
disputes involving $5,000 or less) is amended by striking out 
"$5,000" each place it appears and inserting in lieu thereof 
"$10,000". 
(2) CLERICAL AMENDMENTS.— 
(A) The section heading for section 7463 is amended by 
striking out "$5,000" and inserting in lieu 
thereof 
"$10,000". 
(B) The table of sections for part II of subchapter C of 
chapter 76 is amended by striking out "$5,000" in the item 
relating to section 7463 and inserting in lieu thereof 
"$10,000". 
(b) EFFECTIVE DATE.—The amendments made by this section shall 26 use 7463 
take effect on the date of the enactment of this Act. 
note. 
!iiiVJ<^> 
98 STAT. 824 
PUBLIC LAW 98-369—JULY 18, 1984 
SEC. 462. ANNUITIES TO SURVIVORS OF TAX COURT JUDGES. 
26 use 7448. 
(a) ENTITLEMENT TO ANNUITY.—Subsection (h) of section 7448 
(relating to entitlement to annuity) is amended— 
(1) by striking out "$900 per year divided by the number of 
such children or $360 per year," in paragraph (2) and inserting 
in lieu thereof "$4,644 per year divided by the number of such 
' 
children or $1,548 per year,'; and 
(2) by striking out "$480 per year" in paragraph (3) and 
inserting in lieu thereof "$5,580 per year divided by the number 
of such children or $1,860 per year, whichever is lesser". 
26 use 7448 
(b) EFFECTIVE DATE.—The amendments made by this subsection 
note. 
(a) shall apply to annuities payable with respect to months begin-
ning after the date of the enactment of this Act. 
SEC. 463. PROCEEDINGS WHICH M
A
Y BE ASSIGNED TO COMMISSIONERS. 
26 use 7456. 
(a) IN GENERAL.—Subsection (d) of section 7456 (relating to pro-
ceedings which may be assigned to commissioners) is amended to 
read as follows: 
"(d) PROCEEDINGS WHICH MAY BE ASSIGNED TO COMMISSIONERS.— 
The chief judge may assign— 
"(1) any declaratory judgment proceeding, 
"(2) any proceeding under section 7463, 
"(3) any proceeding where neither the amount of the defi-
ciency placed in dispute (within the meaning of section 7463) 
nor the amount of any claimed overpajnnent exceeds $10,000; 
and 
• 
"(4) any other proceeding which the chief judge may 
designate, 
to be heard by the commissioners of the court, and the court may 
authorize a commissioner to make the decision of the court with 
respect to any proceeding described in paragraph (1), (2), or (3), 
subject to such conditions and review as the court may provide." 
26 use 7456 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
note. 
shall take effect as if enacted as part of the Miscellaneous Revenue 
26 use 1 note. 
Act of 1982. 
SEC. 464. SPECIAL TRIAL JUDGES. 
26 use 7456. 
(a) IN GENERAL.—Subsection (a) of section 7456 (relating to admin-
istration of oaths and procurement of testimony) is amended by 
striking out "commissioner" each place it appears and inserting in 
lieu thereof "special trial judge". 
(b) APPOINTMENT AND COMPENSATION.—Subsection (c) of section 
;.3 j , . ,j, . 
7456 (relating to commissioners) is amended— 
' 
' " 
(1) by striking out "COMMISSIONERS" in the heading and in-
serting in lieu thereof "SPECIAL TRIAL JUDGES"; 
(2) by striking out "commissioners" and inserting in lieu 
thereof "special trial judges"; and 
(3) by striking out commissioner" and inserting in lieu there-
of "special trial judge". 
(c) PROCEEDINGS WHICH MAY BE ASSIGNED TO SPECIAL TRIAL 
Supra. 
JUDGES.—Subsection (d) of section 7456 (relating to proceedings 
which may be assigned to commissioners), as amended by section 
463, is amended— 
(1) by striking out "COMMISSIONERS" in the heading and in-
serting in lieu thereof "SPECIAL TRIAL JUDGES"; 
S&ir >; J r 
(2) by striking out "commissioners" and inserting in lieu 
^"' 
thereof "special trial judges"; and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 825 
(3) by striking out "commissioner" and inserting in lieu there-
of ' 'special trial judge". 
(d) CONFORMING AMENDMENT.—Subsection (c) of section 7471 
26 use 7471. 
(cross reference relating to compensation and travel and subsistence 
allowances of commissioners) is amended by striking out "COMMIS-
SIONERS" in the heading and inserting in lieu thereof "SPECIAL TRIAL 
JUDGES", and by striking out "commissioners" and inserting in lieu 
thereof "special trial judges". 
(e) EFFECTIVE DATE.— 
26 use 7456 
(1) The amendments made by this section shall take effect on note. 
the date of the enactment of this Act. 
(2) Any reference in any law to a commissioner of the Tax 
Court shall be treated as a reference to a special trial judge of 
the Tax Court. 
SEC. 465. PUBLICITY OF TAX COURT PROCEEDINGS. 
(a) IN GENERAL.—Section 7461 (relating to publicity of proceed- 
26 use 7461. 
ings) is amended to read as follows: 
"SEC. 7461. PUBLICITY OF PROCEEDINGS. 
"(a) GENERAL RULE.—Except as provided in subsection (b), all 
reports of the Tax Court and all evidence received by the Tax Court 
and its divisions, including a transcript of the stenographic report of 
the hearings, shall be public records open to the inspection of the 
public. 
"(b) EXCEPTIONS.— 
"(1) TRADE SECRETS OR OTHER CONFIDENTIAL INFORMATION.— 
The Tax Court may make any provision which is necessary to 
prevent the disclosure of trade secrets or other confidential 
information, including a provision that any document or infor-
mation be placed under seal to be opened only as directed by the 
court. 
^
: 
"(2) EVIDENCE, ETC.—After the decision of the Tax Court in 
lii'Jc /ci 
any proceeding has become final, the Tax Court may, upon 
motion of the taxpayer or the Secretary, permit the withdrawal 
by the party entitled thereto of originals of books, documents, 
and records, and of models, diagrams, and other exhibits, intro-
duced in evidence before the Tax Court or any division; or the 
Tax Court may, on its own motion, make such other disposition 
thereof as it deems advisable." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 7461 
shall take effect on the date of the enactment of this Act. 
"^o*®-
Subtitle F—SimpliHcation of Income Tax 
Credits 
SEC. 47L CREDITS GROUPED TOGETHER IN MORE LOGICAL ORDER. 
(a) CREDITS DIVIDED INTO 4 CATEGORIES.—The table of subparts for 
part IV of subchapter A of chapter 1 (relating to credits against tax) 
is amended to read as follows: 
"Subpart A. Nonrefundable personal credits. 
"Subpart B. Foreign tax credit, etc. 
"Subpart C. Refundable credits. 
"Subpart D. Business-related credits." 
(b) EXISTING CREDITS ASSIGNED TO APPROPRIATE CATEGORY.—Part 
IV of subchapter A of chapter 1 is amended by striking out the 
' f f j " ; 
98 STAT. 826 
PUBLIC LAW 98-369—JULY 18, 1984 
heading and table of sections for subpart A and inserting in lieu 
thereof the following: 
• ^ 
^ 
"Subpart A—Nonrefundable Personal Credits 
"Sec. 21. Expenses for household and dependent care services necessary for 
gainful employment. 
"Sec. 22. Credit for the elderly and the permanently and totally disabled. 
"Sec. 23. Residential energy credit. 
. ,j 
,
^ , .., 
"Sec. 24. Contributions to candidates for public office. 
^ 
*' ' '^'. i
^
^
'
f
j 
_., .^ "Sec. 25. Limitation based on tax liability; definition of tax liability. 
"Subpart B—Foreign Tax Credit, Etc. 
"Sec. 27. Taxes of foreign countries and possessions of the United States; 
possession tax credit. 
"Sec. 28. Clinical testing expenses for certain drugs for rare diseases or 
conditions. 
"Sec. 29. Credit for producing fuel from a nonconventional source. 
[dt. jc* > i.*i. 
b«5£ 
"Sec. 30. Credit for increasing research activities. 
' 
"Subpart C—Refundable Credits 
"Sec. 31. Tax withheld on wages. 
"• 
"Sec. 32. Earned income. 
"Sec. 33. Tax withheld at source on nonresident aliens and foreign corpora-
tions. 
9CS. 
"Sec. 34. Certain uses of gasoline and special fuels. 
- -
"Sec. 35. Overpayments of tax. 
"Subpart D—Business Related Credits 
"Sec. 38. Greneral business credit. 
"Sec. 39. Carryback and carryforward of unused credits. 
"Sec. 40. Alcohol used as fuel. 
"Sec. 41. Employee stock ownership credit." 
(c) SECTIONS MOVED TO APPROPRIATE PLACE IN PART IV.— 
26 use 21 et seq. 
(1) DESIGNATION.—The foUowing soctions of such part IV are 
henceforth to be designated in accordance with the following 
table: 
New subpart 
Old section number: 
New section number: 
designation: 
44A 
21 
A 
37 
22 
A 
44C 
23 
A 
41 
24 
A 
I • 
33 
27 
B 
44H 
28 
B 
44D 
29 
B 
44F 
30 
B 
31 
31 
C 
43 
32 
C 
32 
33 
C 
39 
34 
C 
45 
35 
C 
44E 
40 
D 
44G 
41 
D 
(2) PLACED IN APPROPRIATE SUBPARTS.—Each section for which 
paragraph (1) provides a new section number is hereby moved to 
the appropriate place in the appropriate subpart of such part 
IV. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 827 
SEC. 472. UNIFORM 
LIMITATION 
ON 
PERSONAL 
NONREFUNDABLE 
CREDITS. 
;s 
,; ?
^
f 
Subpart A of part IV of subchapter A of chapter 1 is amended by 
adding after section 24 the following new section: 
"SEC. 25. LIMITATION BASED ON TAX LIABILITY; DEFINITION OF TAX 
26 USC 25. 
LIABILITY. 
Post, p. 905. 
"(a) 
LIMITATION BASED ON AMOUNT OF TAX.—The aggregate 
amount of credits allowed by this subpart for the taxable year shall 
not exceed the taxpayer's tax liability for such taxable year. 
"(b) TAX LIABILITY.—For purposes of this section— 
^ 
"(1) IN GENERAL.—The term 'tax liability' means the tax 
r:i8 Q dni, 
imposed by this chapter for the taxable year. 
"(2) EXCEPTION FOR CERTAIN TAXES.—For purposes of para-
graph (1), any tax imposed by any of the following provisions 
shall not be treated as tax imposed by this chapter: 
"(A) section 56 (relating to corporate minimum tax), 
"(B) subsection (m)(5)(B), (o)(2), or (q) of section 72 (relat-
ing to additional tax on certain distributions), 
"(C) section 408(f) (relating to additional tax on income 
from certain retirement accounts), 
"(D) section 531 (relating to accumulated earnings tax), 
• * 
"(E) section 541 (relating to personal holding company 
tax), 
"(F) section 1351(d)(1) (relating to recoveries of foreign 
expropriation losses), 
"(G) section 1374 (relating to tax on certain capital gains 
of S corporations), and 
"(H) section 1375 (relating to tax imposed when passive 
investment income of corporation having subchapter C 
earnings and profits exceeds 25 percent of gross receipts). 
"(c) SIMILAR RULE FOR ALTERNATIVE MINIMUM TAX FOR TAXPAY-
ERS OTHER THAN CORPORATIONS.— 
"For treatment of tax imposed by section 55 as not imposed by this 
chapter, see section 55(c)." 
SEC. 473. UNIFORM CARRYOVER PROVISIONS FOR BUSINESS-BELATED 
CREDITS. 
Subpart D of part IV of subchapter A of chapter 1 is amended by 
inserting before section 40 the following new sections: 
"SEC. 38. GENERAL BUSINESS CREDIT. 
26 USC 38. 
"(a) ALLOWANCE OF CREDIT.—There shall be allowed as a credit 
"*' ^ 
against the tax imposed by this chapter for the taxable year an 
amount equal to the sum of— 
"(1) the business credit carr3rforwards carried to such taxable : - • , • -j\ 
year, 
"(2) the amount of the current year business credit, plus 
"(3) the business credit carrybacks carried to such taxable 
year. 
"(b) CURRENT YEAR BUSINESS CREDIT.—For purposes of this sub-
part, the amount of the current year business credit is the sum of 
• x 
i 
the following credits determined for the taxable year: 
' 
'' 
'\ 
"(1) the investment credit determined under section 46(a), Post, p. 834. 
"(2) the targeted jobs credit determined under section 51(a), Post, p. 837. 
"(3) the alcohol fuels credit determined under section 40(a), Ante, p. 826. 
plus 
98 STAT. 828 
PUBLIC LAW 98-369—JULY 18, 1984 
"(4) the employee stock ownership credit determined under 
Ante, p. 826. 
section 41(a). 
"(c) LIMITATION BASED ON AMOUNT OF TAX.— 
"(1) IN GENERAL.—The credit allowed under subsection (a) for 
any taxable year shall not exceed the sum o
f
— 
-'; 
. ', ; ^ 
"(A) so much of the taxpayer's net tax liability for the 
taxable year as does not exceed $25,000, plus 
"(B) 85 percent of so much of the taxpayer's net tax 
liability for the taxable year as exceeds $25,000. 
"(2) NET TAX UABILITY.—For purposes of paragraph (1), the 
term 'net tax liability' means the tax liability (as defined in 
Ante, p. 827. 
section 25(b)), reduced by the sum of the credits allowable under 
subparts A and B of this part. 
"(3) SPECIAL RULES.— 
"(A) MARRIED INDIVIDUALS.—In the case of a husband or 
wife who files a separate return, the amount specified 
under subparagraphs (A) and (B) of paragraph (1) shall be 
;.-* 
$12,500 in lieu of $25,000. This subparagraph shall not 
apply if the spouse of the taxpayer has no business credit 
carryforward or carryback to, and has no current year 
business credit for, the taxable year of such spouse which 
ends within or with the taxpayer s taxable year. 
V' 
"(B) CONTROLLED GROUPS.—In the case of a controlled 
group, the $25,000 amount specified under subparagraphs 
li'^K- 
(A) and (B) of paragraph (1) shall be reduced for each 
component member of such group by apportioning $25,000 
fe 
among the component members of such group in such 
manner as the Secretary shall by regulations prescribe. For 
purposes of the preceding sentence, the term 'controlled 
group' has the meaning given to such term by section 
1563(a). 
"(C) LIMITATIONS WITH RESPECT TO CERTAIN PERSONS.—In 
the case of a person described in subparagraph (A) or (B) of 
,.,.f , 
section 46(e)(1), the $25,000 amount specified under sub-
paragraphs (A) and (B) of paragraph (1) shall equal such 
person's ratable share (as determined under section 46(e)(2)) 
1. # 
of such amount. 
"(D) ESTATES AND TRUSTS.—In the case of an estate or 
trust, the $25,000 amount specified under subparagraphs 
(A) and (B) of paragraph (1) shall be reduced to an amount 
^„, 
, ,, 
which bears the same ratio to $25,000 as the portion of the 
• J
* ;^ ' : 
income of the estate or trust which is not allocated to 
beneficiaries bears to the total income of the estate or trust. 
"(d) SPECIAL RULES FOR CERTAIN REGULATED COMPANIES.—In the 
case of any taxpayer to which section 46(f) applies, for purposes of 
Post, pp. 840,842. sections 46(f), 47(a), 196(a), and 404(i) and any other provision of this 
title where it is necessary to ascertain the extent to which the 
Post, p. 832; 
credits determined under section 40(a), 41(a), 46(a), or 51(a) are used 
ante, p. 826; 
in a taxable year or as a carryback or carryforward, the order in 
post, pp. 834, 
which such credits are used shall be determined on the basis of the 
order in which they are listed in subsection (b). 
26 
use 
3
9
. 
"SEC. 
3
9
. 
CARRYBACK 
AND 
CARRYFORWARD 
OF 
UNUSED 
CREDITS. 
Ante, 
p
. 
8
2
6
. 
«
/ 
\ 
T n 
(
a
) 
IN 
GENERAL.— 
"(1) 3-YEAR CARRYBACK AND 15-YEAR CARRYFORWARD.—If the 
f
< s 
,. ,y 
sum of the business credit carryforwards to the taxable year 
plus the amount of the current year business credit for the 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 829 
taxable year exceeds the amount of the limitation imposed by 
subsection (c) of section 38 for such taxable year (hereinafter in Ante, p. 827. 
this section referred to as the 'unused credit year'), such excess 
(to the extent attributable to the amount of the current year 
business credit) shall be— 
"(A) a business credit carryback to each of the 3 taxable 
years preceding the unused credit year, and 
. M
>
* 
"(B) a business credit carryforward to each of the 15 
. r.t-
taxable years following the unused credit year, 
and, subject to the limitations imposed by subsections (b) and (c), 
. . yk 
shall be taken into account under the provisions of section 38(a) 
in the manner provided in section 38(a). 
"(2) AMOUNT CARRIED TO EACH YEAR.— 
"(A) ENTIRE AMOUNT CARRIED TO FIRST YEAR.—The entire 
H 
amount of the unused credit for an unused credit year shall 
be carried to the earliest of the 18 taxable years to which 
(by reason of paragraph (1)) such credit may be carried. 
"(B) AMOUNT CARRIED TO OTHER 17 YEARS.—The amount of 
^- 
i . 
the unused credit for the unused credit year shall be carried 
1^ 
to each of the other 17 taxable years to the extent that such 
-. 
; ,-
unused credit may not be taken into account under section 
1,-. 
38(a) for a prior taxable year because of the limitations of 
subsections (b) and (c). 
i ,, >.. i -^^ 
"(b) LIMITATION ON CARRYBACKS.—The amount of the unused 
credit which may be taken into account under section 38(a)(3) for 
any preceding taxable year shall not exceed the amount by which 
the limitation imposed by section 38(c) for such taxable year exceeds 
the sum of— 
"(1) the amounts determined under paragraphs (1) and (2) of 
• . section 38(a) for such taxable year, plus 
., . ' " 
"(2) the amounts which (by reason of this section) are carried 
back to such taxable year and are attributable to taxable years 
preceding the unused credit year. 
"(c) LIMITATION ON CARRYFORWARDS.—The amount of the unused 
credit which may be taken into account under section 38(a)(1) for 
any succeeding taxable year shall not exceed the amount by which 
the limitation imposed by section 38(c) for such taxable year exceeds 
the sum of the amounts which, by reason of this section, are carried 
to such taxable year and are attributable to teixable years preceding 
the unused credit year. 
"(d) TRANSITIONAL RULES.— 
"(1) CARRYFORWARDS.— 
"(A) IN GENERAL.—Any carryforward from an unused 
^ 
credit year under section 46, 50A, 53, 44E, or 44G which has Post, p. 838; ante, 
not expired before the beginning of the first taxable year 
P 826. 
beginning after December 31, 1983, shall be aggregated 
with other such carryforwards from such unused credit 
year and shall be a business credit carryforward to each 
ji 
taxable year beginning after December 31, 1983, which is 1 
•; M 
of the first 15 taxable years after such unused credit year. 
"(B) AMOUNT CARRIED FORWARD.—The amount carried 
forward under subparagraph (A) to any taxable year shall 
be properly reduced for any amount allowable as a credit 
with respect to such carryforward for any taxable year 
before the year to which it is being carried. 
"(2) CARRYBACKS.—In determining the amount allowable as a 
credit for any taxable year beginning before January 1, 1984, as 
98 STAT. 830 
PUBLIC LAW 98-369—JULY 18, 1984 
V the result of the carryback of a general business tax credit from 
:^i .'4 ,ai a. 
a taxable year beginning after December 31,1983— 
"(A) paragraph (1) of subsection (b) shall be applied as if it 
read as follows: 
" *(1) the sum of the credits allowable for such taxable year 
under sections 38, 40, 44B, 44E, and 44G (as in effect before 
Ante, p. 494. 
enactment of the Tax Reform Act of 1984), plus', and 
Ante, p. 827. 
. 
"(B) for purposes of section 38(c) the net tax liability for 
such taxable year shall be the tax liability (as so defined in 
Ante, p. 827. 
section 2503)) reduced by the sum of the credits allowable 
for such taxable year under sections 33, 37, 41, 44A, 44C, 
44D, 44F, and 44H (as so in effect)." 
SEC. 474. TECHNICAL AND CONFORMING AMENDMENTS. 
(a) REFERENCES TO OLD AND NEW PROVISIONS.—Whenever in this 
section reference is made to an old or new section or other provision, 
the reference is to the provision before (in the case of "old") or after 
Ante, p. 825. 
(in the case of "new") the changes made by section 471 of this Act. 
(h) OLD SECTION 21.— 
26 use 15, 21. 
(1) REDESIGNATiON.—Old section 21 (relating to effect of 
changes) is redesignated as section 15. 
26 use 441. 
(2) CONFORMING 
AMENDMENTS.—Sections 441(f)(2)(A) 
and 
26 use 6013. 
6013(c) are each amended by striking out "21" and inserting in 
lieu thereof "15". 
(3) TABLE OF SECTIONS.—The table of sections for part III of 
subchapter A of chapter 1 is amended by striking out the item 
relating to section 21 and inserting in lieu thereof the following: 
"Sec. 15. Effect of changes." 
26 use 21. 
(c) NEW SECTION 21.—New section 21 (relating to expenses for 
Ante, p. 826. 
household and dependent care services necessary for gainful em-
ployment) is amended— 
(1) by striking out subsection (b) and by redesignating subsec-
, 
tions (c), (d), (e), (f), and (g) as subsections (b), (c), (d), (e), and (f), 
respectively, 
(2) by striking out "subsection (c)(1)" in subsection (a) and 
inserting in lieu thereof "subsection Ot>)(l)", 
(3) by striking out "subsection (c)(2)" in subsection (a) and 
inserting in lieu thereof "subsection Ot>)(2)", 
(4) by striking out "subsection (c)(1)(C)" in paragraph (2) of 
subsection (d) (as redesignated by paragraph (1)) and inserting 
in lieu thereof "subsection (bXl)(C)", 
(5) by striking out "subsection (d)(1)" in subparagraph (A) of 
•
V
M
' •
? R
f
t 
subsection (d)(2) (as redesignated by paragraph (D) and inserting 
in lieu thereof, "subsection (c)(1)", 
(6) by striking out "subsection (dX2)" in subparagraph (B) of 
subsection (d)(2) (as redesignated by paragraph (D) and inserting 
in lieu thereof "subsection (c)(2)", and 
(7) by striking out "subsection (c)(1)" in subsection (e)(5) (as 
redesignated by paragraph (1)) and inserting in lieu thereof 
"subsection (bXl)'^ 
26 use 22. 
(d) NEW SECTION 22.—New Section 22 (relating to the credit for 
Ante, p. 826. 
the elderly and the permanently and totally disabled) is amended— 
(1) by striking out "Section 37 amount" each place it appears 
in the text and inserting in lieu thereof "section 22 amount", 
(2) by striking out the heading of subsection (c) and inserting 
in lieu thereof "(c) SECTION 22 AMOUNT.—", and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 831 
(3) by amending subsection (d) to read as follows: 
"(d) ADJUSTED GROSS INCOME LIMITATION.—If the adjusted gross 
income of the taxpayer exceeds— 
"(1) $7,500 in the case of a single individual, 
"(2) $10,000 in the case of a joint return, or 
"(3) $5,000 in the case of a married individual filing a separate 
return, 
the section 22 amount shall be reduced by one-half of the excess of 
the adjusted gross income over $7,500, $10,000, or $5,000, as the case 
~ 
may be." 
(e) NEW SECTION 23.—Subsection (b) of new section 23 (relating to 26 use 23. 
i 
residential energy credit) is amended by striking out paragraphs (5) ^"^e- P- 826. 
and (6) and inserting in lieu thereof the following: 
"(5) CARRYFORWARD OF UNUSED CREDIT.— 
"(A) IN GENERAL.—If the credit allowable under subsec- 
\ 
tion (a) for any taxable year exceeds the limitation imposed 
by section 25(a) for such taxable year reduced by the sum of Ante, p. 827. 
the credits allowable under this subpart (other than this 
section), such excess shall be carried to the succeeding 
taxable year and added to the credit allowable under sub- 
: ' :h 
J . 
section (a) for such succeeding taxable year. 
u;; >
i .u^nh 
"(B) No CARRYFORWARD T
O TAXABLE YEARS BEGINNING 
AFTER DECEMBER 31, 1987.—No amount may be carried 
^- " 
under subparagraph (A) to any taxable year beginning after 
December 31,1987." 
(f) NEW SECTION 24.—Subsection (b) of new section 24 (relating to 26 use 24. 
contributions to candidates for political office) is amended by strik- ^"^^. P 826. 
ing out paragraph (2) and by redesignating paragraph (3) as para- 
£ 
graph (2). 
(g) NEW SECTION 28.— 
26 use 28. 
(1) New section 28 is amended— 
^«^«' P- 826. 
(A) by striking out "section 44F" each place it appears 
and inserting in lieu thereof "section 30", and 
(B) by striking out "section 44F(b)" in subsection (c)(2) and 
inserting in lieu thereof "section 30(b)," and 
(C) by striking out "section 44F(f)" in subsection (dX4) and 
inserting in lieu thereof "section 30(f)". 
(2) Paragraph (2) of new section 28(d) is amended to read as 
follows: 
"(2) LIMITATION BASED ON AMOUNT OF TAX.—The credit 
allowed by this section for any taxable year shall not exceed the 
taxpayer's tax liability for the taxable year (as defined in 
section 25(b)), reduced by the sum of the credits allowable under Ante, p. 827. 
subpart A and section 27." 
Ante, pp. 825, 
(h) NEW SECTION 29.—Paragraph (5) of new section 29(h) (relating 826. 
to credit for producing fuel from a nonconventional source) is ^^ Y^^ coc 
amended to read as follows: 
^"^^' ^ ^''^• 
"(5) APPUCATION WITH OTHER CREDITS.—The credit allowed by 
subsection (a) for a taxable year shall not exceed the taxpayer's 
tax liability for the taxable year (as defined in section 25(b)), 
Ss8,q.>; 
reduced by the sum of the credits allowable under subpart A 
and sections 27 and 28." 
(i) NEW SECTION 30.— 
26 use 30 
(1) New section 30 (relating to credit for increasing research Ante, p. 826. 
activities) is amended— 
i 
(A) by striking out "in computing the credit under section 
40 or 44B" in subsection Ot))(2)(D)(iii) and inserting in lieu 
,Slf!l\ 
98 STAT. 832 
PUBLIC LAW 98-369—JULY 18, 1984 
Ante, p. 827. 
Ante, pp. 825, 
826. 
26 u s e 30 note. 
Ante, p. 826. 
26 u s e 33. 
Ante, p. 826. 
26 u s e 1441. 
26 u s e 40. 
Ante, p. 826. 
Post, p. 833. 
Ante, p. 827. 
Ante, p. 828. 
thereof "in determining the targeted jobs credit under sec-
ggo'j. 
tion 51(a)", and 
(B) by amending subparagraph (A) of subsection (g)(1) to 
read as follows: 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the credit allowed by subsection (a) for any taxable year 
shall not exceed the taxpayer's tax liability for the taxable 
year (as defined in section 25(b)), reduced by the sum of the 
credits allowable under subpart A and sections 27, 28, and 
29." 
(2) NEW SECTION 30 TREATED AS CONTINUATION OF OLD SECTION 
44F.—For purposes of determining— 
(A) whether any excess credit under old section 44F for a 
taxable year beginning before January 1, 1984, is allowable 
£is a carryover under new section 30, and 
(B) the period during which new section 30 is in effect, 
new section 30 shall be treated as a continuation of old section 
44F (and shall apply only to the extent old section 44F would 
have applied). 
(j) NEW SECTION 33.—New section 33 (relating to tax withheld at 
source on nonresident aliens and foreign corporations and on tax-
free covenant bonds) is amended to read as follows: 
"SEC. 33. TAX WITHHELD AT SOURCE ON NONRESIDENT ALIENS AND 
FOREIGN CORPORATIONS. 
"There shall be allowed as a credit against the tax imposed by this 
subtitle the amount of tax withheld at source under subchapter A of 
chapter 3 (relating to withholding of tax on nonresident aliens and 
on foreign corporations)." 
(k) NEW SECTION 40.—New section 40 (relating to alcohol used as 
fuel) is amended— 
(1) by amending subsection (a) to read as follows: 
"(a) GENERAL RULE.—For purposes of section 38, the alcohol fuels 
credit determined under this section for the taxable year is an 
amount equal to the sum of— 
"(1) the alcohol mixture credit, plus 
"(2) the alcohol credit.", 
(2) by striking out "the credit allowable under this section" in 
subsection (c) and inserting in lieu thereof "the credit deter-
mined under this section", 
(3) by striking out "credit was allowable" each place it ap-
pears in paragraph (3) of subsection (d) and inserting in lieu 
thereof "credit was determined", 
(4) by striking out subsection (e) and redesignating subsection 
(f) as subsection (e), 
(5) by amending paragraph (2) of subsection (e) (as redesig-
nated by paragraph (4)) to read as follows: 
"(2) NO CARRYOVERS TO YEARS AFTER 1994.—No amount may 
be carried under section 39 by reason of this section (treating 
the amount allowed by reason of this section as the first amount 
allowed by this subpart) to any taxable year beginning after 
December 31,1994.", and 
(6) by adding at the end thereof the following new subsection: 
"(f) ELECTION TO HAVE ALCOHOL FUELS CREDIT NOT APPLY.— 
"(1) IN GENERAL.—A taxpayer may elect to have this section 
not apply for any taxable year. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 833 
"(2) TIME FOR MAKING ELECTION.—An election under para-
graph (1) for any taxable year may be made (or revoked) at any 
time before the expiration of the 3-year period beginning on the 
last date prescribed by law for filing the return for such taxable 
year (determined without regard to extensions). 
"(3) MANNER OF MAKING ELECTION.—An election under para-
graph (1) (or revocation thereof) shall be made in such manner 
as the Secretary may by regulations prescribe." 
(1) NEW SECTION 41.—New section 41 (relating to employee stock 26 use 4i. 
ownership plan) is amended— 
^"^^' P- ^^^- ^ 
(1) by amending paragraph (1) of subsection (a) to read as 
follows: 
"(1) AMOUNT OF CREDIT.—In the case of a corporation which 
'•-'' » '^''*^ 
elects to have this section apply for the taxable year and which 
meets the requirements of subsection (c)(1), for purposes of 
section 38, the amount of the employee stock ownership credit Ante, p. 827. 
determined under this section for the taxable year is an amount 
equal to the amount of the credit determined under paragraph 
(2) for such taxable year.", 
(2) by amending subsection (b) to read as follows: 
"(b) CERTAIN REGULATED COMPANIES.—No credit attributable to 
compensation taken into account for the ratemaking purposes 
involved shall be determined under this section with respect to a 
taxpayer if— 
"(1) the taxpayer's cost of service for ratemaking purposes or 
in its regulated books of account is reduced by reason of any 
portion of such credit which results from the transfer of em-
ployer securities or cash to a tax credit employee stock owner-
ship plan which meets the requirements of section 409; 
Post, p. 852. 
"(2) the base to which the taxpayer's rate of return for 
ratemaking purposes is applied is reduced by reason of any 
portion of such credit which results from a transfer described in 
paragraph (1) to such employee stock ownership plan; or 
"(3) any portion of the amount of such credit which results 
from a transfer described in paragraph (1) to such employee 
stock ownership plan is treated for ratemaking purposes in any 
way other than as though it had been contributed by the 
taxpayer's common shareholders. 
Under regulations prescribed by the Secretary, rules similar to the 
rules of paragraphs (4) and (7) of section 46(f) shall apply for 
purposes of the preceding sentence.", and 
(3) by striking out "the credit allowed under this section" in 
subsection (c)(3) and inserting in lieu thereof "the credit deter-
mined under this section". 
(m) REPEAL OF CERTAIN OLD PROVISIONS.— 
(1) Old sections 38, 40, 44, and 44B are hereby repealed. 26USC38,40, 
(2) Old subpart C of part IV of subchapter A of chapter 1 is ^4 44B. 
hereby repealed. 
^6^^^^ ^^^> 
(n) REDESIGNATION OF OLD SUBPARTS.— 
(1) Old subparts B and D of part IV of subchapter A of chapter 
1 are redesignated as subparts E and F, respectively. 
(2) The subpart heading for subpart F of part IV of subchapter 
A of chapter 1 (as so redesignated) is amended to read as follows: 
98 STAT. 834 
PUBLIC LAW 98-369—JULY 18, 1984 
26 u s e 46. 
Ante, p. 827. 
<\ -' 
"Subpart F—Rules for Computing Targeted Jobs Credit". 
(3) The table of subparts for such part IV (as amended by subsec-
tion (a) of section 471) is amended by adding at the end thereof the 
following: 
"Subpart E. Rules for computing credit for investment in certain deprecia-
ble property. 
"Subpart F. Rules for computing targeted jobs credit." 
(o) INVESTMENT TAX CREDIT.— 
(1) Section 46 (relating to amount of investment tax credit) is 
amended by striking out subsections (a) and (b) and inserting in 
lieu thereof the following: 
"(a) AMOUNT OF INVESTMENT CREDIT.—For purposes of section 38, 
the amount of the investment credit determined under this section 
for any taxable year shall be an amount equal to the sum of the 
following percentages of the qualified investment .(as determined 
under subsections (c) and (d)): 
"(1) the regular percentage, 
"(2) in the case of energy property, the energy percentage, and 
"(3) in the case of that portion of the basis of any property 
which is attributable to qualified rehabilitation expenditures, 
the rehabilitation percent^e. 
"(b) DETERMINATION OF PERCENTAGES.—For purposes of subsection 
( a ) -
"(1) REGULAR PERCENTAGE.—The regular percentage is 10 per-
cent. 
"(2) ENERGY PERCENTAGE.— 
"(A) IN GENERAL.—The energy percentage shall be deter-
mined in accordance with the following table: 
"Column A—Description 
In the case of: 
Column B— 
Percentage 
The energy 
percentage is: 
Column C—Period 
For the period: 
Beginning on: 
And ending on: 
(i) GENERAL RULE.—Property not described 10 percent 
in any of the following provisions of this 
column, 
(ii) SOLAR WIKD, OR GEOTHERMAL PROPER- A. 10 percent 
TY.—Property 
described 
in 
section B. 15 percent 
48(lX2XAXii) or 48(lX3XAXvii). 
(iii) OCEAN THERMAL PROPERTY.—Property 15 percent 
described in section 48(lX3XAXbc). 
(iv) QUAUFIED HYDROELECTRIC GENERATING U percent 
PROPERTY.—Property described in section 
48(lX2XAXvii). 
(v) QUALIFIED INTERCTTY BUSES.—Property 10 percent 
described in section 48(lX2XAXix). 
(vi) B
i
O
M
A
S
S PROPERTY.—Property described 10 percent 
in section 48(1X15). 
(vii) CHLOR-ALKAU ELECTROLYTIC CELLS.— 10 percent 
Property described in section 48(IX5XM). 
Oct. 
1,1978 
Dec. 
31,1982 
Oct. 
1,1978 
Dec. 
31,1979 
Jan. 
1,1980 
Dec. 
31,1985 
Jan. 
1,1980 
Dec. 
31.1985 
Jan. 
1,1980 
Dec. 
31,1985 
Jan. 
1,1980 
Dec. 
31,1985 
Oct. 
1,1978 
Dec. 
31,1985 
Jan. 
1,1980 
Dec. 
31,1982 
"Kiii 
"(B) PERIODS FOR WHICH PERCENTAGE NOT SPECIFIED.—In 
the case of any energy property, the energy percentage 
shall be zero for any period for which an energy percentage 
is not specified for such property under subparagraph (A) 
(as modified by subparagraphs (C) and (D)). 
"(C) LONGER PERIOD FOR CERTAIN LONG-TERM PROJECTS.— 
For the purpose of applying the energy percentage con-
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 835 
" 
tained in clause (i) of subparagraph (A) with respect to 
property which is part of a project with a normal construc-
tion period of 2 years or more (within the meaning of 
subsection (d)(2)(A)(i)), 'December 31, 1990' shall be substi-
tuted for 'December 31,1982' if— 
"(i) before January 1, 1983, all engineering studies in 
'. • 
connection with the commencement of the construction 
;« jc-
x^sy 
of the project have been completed and all environmen-
tal and construction permits required under Federal, 
State, or local law in connection with the commence-
^^ 
ment of the construction of the project have been 
applied for, and 
"(ii) before January 1, 1986, the taxpayer has entered 
into binding contracts for the acquisition, construction, 
^,. 
reconstruction, or erection of equipment specially 
5 
designed for the project and the aggregate cost to the 
taxpayer of that equipment is at least 50 percent of the 
reasonably estimated cost for all such equipment which 
is to be placed in service as part of the project upon its 
completion. 
"(D) LONGER PERIOD FOR CERTAIN HYDROELECTRIC GENER-
ATING PROPERTY.—If an application has been docketed by 
the Federal Energy Regulatory Commission before Jan-
uary 1, 1986, with respect to the installation of any quali-
fied hydroelectric generating property, for purposes of ap-
plying the energy percentage contained in clause (iv) of 
subparagraph (A) with respect to such property, 'December 
31,1988' shall be substituted for 'December 31,1985'. 
"(3) SPECIAL RULE FOR CERTAIN ENERGY PROPERTY.—The regu-
lar percentage shall not apply to any energy property which, 
but for section 48(1)(1), would not be section 38 property. In the Ante, p. 827. 
^ 
case of any qualified hydroelectric generating property which is 
a fish passageway, the preceding sentence shall not apply to any 
period after 1979 for which the energy percentage for such 
property is greater than zero. 
"(4) REHABILITATION PERCENTAGE.— 
"(A) IN GENERAL.— 
"In the case of qualified 
j ; 
rehabilitation ex-
t'JS'iiX 4 ,» 
penditures 
The rehabilitation 
with respect to a: 
percentage is: 
30-year building 
15 
40-year building 
20 
-f:';?"? 
Certified historic structure 
25. 
"(B) REGULAR AND ENERGY PERCENTAGES NOT TO APPLY.— 
The regular percentages and the energy percentages shall 
not apply to that portion of the basis of any property which 
"
^ 
is attributable to qualified rehabilitation expenditures. 
"(C) DEFINITIONS.—For purpose of this paragraph— 
"(i) 30-YEAR BUILDING.—The term '30-year building' 
' 
means a qualified rehabilitated building other than a 
' -
50 
40-year building and other than a certified historic 
structure. 
"(ii) 40-YEAR BUILDING.—The term '40-year building' 
means a qualified rehabilitated building (other than a 
certified historic structure) which would meet the re-
quirements of section 48(g)(1)(B) if '40' were substituted 
98 STAT. 836 
PUBLIC LAW 98-369—JULY 18, 1984 
-u fj .. w< 
for '30' each place it appears in subparagraph (B) 
^. 
thereof. 
"(iii) CERTIFIED HISTORIC STRUCTURE.—The term 'cer-
!,-?', 
tified historic structure' means a quaUfied rehabiU-
tated building which meets the requirements of section 
48(g)(3)." 
26 use 46. 
(2) Subclause (II) of section 46(c)(8)(F)(ii) is amended by strik-
ing out "section 46(a)(2)(C)" and inserting in lieu thereof "sub-
section (b)(2)". 
(3)(A) Paragraph (1) of section 46(e) is amended— 
(i) by striking out "and the $25,000 amount specified 
under subparagraphs (A) and (B) of subsection (a)(3)", and 
^ 
(ii) by striking out "such items" and inserting in lieu 
thereof "such qualified investment". 
(B) Paragraph (2) of section 46(e) is amended by striking out 
"the items described therein" and inserting in lieu thereof 
"qualified investment". 
(4)(A) Paragraphs (1) and (2) of section 46(f) are each amended 
" 
by striking out "no credit shall be allowed by section 38" and 
inserting in lieu thereof "no credit determined under subsection 
(a) shall be allowed by section 38". 
(B) Paragraphs (1) and (2) of section 46(D are each amended by 
striking out "the credit allowable by section 38" each place it 
appears and inserting in lieu thereof "the credit determined 
under subsection (a) and allowable by section 38". 
,jj 
(C) Subparagraph (B) of section 46(f)(4) is amended by striking 
out "the credit allowed by section 38" and inserting in lieu 
thereof "the credit determined under subsection (a) and allowed 
by section 38". 
ii- .u ,&ii.k 
(5) Paragraph (8) of section 46(f) is amended— 
(A) by striking out "the credit allowable under section 
38" each place it appears and inserting in lieu thereof "the 
credit determined under subsection (a) and allowable under 
section 38", and 
(B) by striking out "(within the meaning of subsection 
(a)(7XC))" and inserting in lieu thereof "(within the mean-
ing of the first sentence of subsection (cX3)(B))". 
(6) Paragraph (2) of section 46(g) is amended by striking out 
"the limitation of subsection (a)(3)" and inserting in lieu thereof 
"the limitation of section 38(c)". 
.;.: 
C
^
) Paragraph (1) of section 46(h) is amended— 
;
V 
(A) by striking out "the credit allowable to the organiza-
tion under section 38" and inserting in lieu thereof "the 
credit determined under subsection (a) and allowable to the 
organization under section 38", and 
(B) by striking out "the limitation contained in subsection 
(a)(3)" and inserting in lieu thereof "the limitation con-
tained in section 38(c)". 
26 use 47. 
(8) Paragraphs (5) and (6) of section 47(a) are each amended by 
_, 
striking out "under section 46(b)" and inserting in lieu thereof 
"under section 39". 
(9) Subsection (c) of section 47 is amended by striking out 
"subpart A" and inserting in lieu thereof "subpart A, B, or D". 
26 use 48. 
(10) Subparagraph (B) of section 48(c)(3) is amended by strik-
ing out "section 46(b)" and inserting in lieu thereof "section 39". 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 837 
(11) Subparagraph (B) of section 48(d)(1) is amended bv strik- 
26 USC 48. 
ing out "section 46(a)(6)" and inserting in lieu thereof ' section 
38(c)(3)(B)". 
(12) Subsection (f) of section 48 is amended— 
(A) by adding "and" at the end of paragraph (1), 
(B) striking out ", and" at the end of paragraph (2) and 
inserting in lieu thereof a period, and 
(C) by striking out paragraph (3). 
(13) Paragraph (1) of section 48(1) is amended by striking out 
"section 46(a)(2)(C)" and inserting in lieu thereof "section 
46(b)(2)". 
(14) Subsection (m) of section 48 is amended by striking out 
"subsection (a)(2)" and inserting in lieu thereof "subsection (b)". 
(15) Subsection (n) of section 48 (relating to requirements for 
allowance of employee plan percentage) is hereby repealed; 
^' 
except that paragraph (4) of section 48(n) of the Internal Reve-
nue Code of 1954 (as in effect before its repeal by this para-
graph) shall continue to apply in the case of any recapture 
under section 47(f) of such Code of a credit allowable for a 
taxable year beginning before January 1,1984. 
(16) Subsection (o) of section 48 (defining certain credits) is 
amended by striking out paragraphs (3), (4), (5), (6), and (7) and 
by redesignating paragraph (8) as paragraph (3). 
(17) Subsection (q) of section 48 is amended— 
(A) by striking out "section 46(a)(2)" each place it appears 
and inserting in lieu thereof "section 46(a)", and 
(B) by striking out "section 46(a)(2)(B)" each place it 
appears and inserting in lieu thereof "section 46(b)(1)". 
(18) Subsection (r) of section 48 is amended by striking out Ante, p. 635. 
"section 381(c)(23)" and inserting in lieu thereof "section 
381(c)(26)". 
(p) TARGETED JOBS CREDIT.— 
(1) Subsection (a) of section 51 (relating to amount of targeted 
26 USC 51. 
jobs credit) is amended to read £is follows: 
"(a) DETERMINATION OF AMOUNT.—For purposes of section 38, the 
amount of the targeted jobs credit determined under this section for 
the taxable year shall be the sum of— 
"(1) 50 percent of the qualified first-year wages for such year, 
and 
"(2) 25 percent of the qualified second-year wages for such 
year." 
(2) Subsection (g) of section 51 is amended by striking out "the 
credit provided by section 44B" and inserting in lieu thereof 
"the targeted jobs credit determined under this subpart". 
'- "
* - " ^ ^ 
(3) Section 51 is amended by adding at the end thereof the 
following new subsection: 
"(j) ELECTION TO HAVE TARGETED JOBS CREDIT NOT APPLY.— 
"(1) IN GENERAL.—A taxpayer may elect to have this section 
not apply for any taxable year. 
"(2) TIME FOR MAKING ELECTION.—An election under para-
graph (1) for any taxable year may be made (or revoked) at any 
time before the expiration of the 3-year period beginning on the 
last date prescribed by law for filing the return for such taxable 
year (determined without regard to extensions). 
"(3) MANNER OF MAKING ELECTION.—An election under para-
graph (1) (or revocation thereof) shall be made in such manner 
as the Secretary may by regulations prescribe." 
98 STAT. 838 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 52. 
(4) Subsection (a) of section 52 is amended by striking out "the 
credit (if any) allowable by section 44B to each such member" 
and inserting in lieu thereof "the credit (if any) determined 
under section 51(a) with respect to each such member". 
(5) Subsection (b) of section 52 is amended by striking out "the 
fen credit (if any) allowable by section 44B" and inserting in lieu 
thereof "the credit (if any) determined under section 51(a)". 
(6) Subsection (c) of section 52 is amended by striking out 
"credit shall be allowed under section 44B" and inserting in lieu 
thereof "credit shall be allowed under section 38 for any target-
ed jobs credit determined under this subpart". 
(7) Paragraph (2) of section 52(d) is amended by striking out 
", subject to section 53, a credit under section 44B" and insert-
ing in lieu thereof ", subject to section 38(c), a credit under 
section 38(a)". 
Repeal. 
(8) Section 53 (relating to limitation based on amount of tax) is 
26 use 53. 
hereby repealed. 
(9) The table of sections for old subpart D of part IV of 
subchapter A of chapter 1 is amended by striking out the item 
relating to section 53. 
(q) SECTION 55.— 
26 use 55. 
,,,: 
(1) Paragraph ^ (1) of section 55(c) (relating to credits) is 
amended— 
(A) by striking out "subpart A of part IV" and inserting 
;i iB««5c in lieu thereof "subpart A, B, or D of part IV", and 
(B) by striking out "section 33(a)" each place it appears 
and inserting in lieu thereof "section 27(a)". 
(2) Clause (i) of section 55(c)(2)(B) is amended by striking out 
x\m q Mwi- 
"section 33(a)" and inserting in lieu thereof "section 27(a)". 
(3) Paragraph (3) of section 55(c) is amended to read as follows: 
"(3) CARRYOVER AND CARRYBACK OF CERTAIN CREDITS.—In the 
case of any tsixable year for which a tax is imposed by this 
..In 'WSm 
li * section, for purposes of determining the amount of any carry-
over or carryback to any other taxable year of any credit 
Ante, p. 826. 
allowable under section 23, 30, or 38, the amount of the limita-
Ante, p. 827. 
tion Under section 25, 30(g), or 38(c) (as the case may be) shall be 
deemed to be— 
jf 
"(A) the amount of such limitation for such taxable year 
(determined without regard to this paragraph), reduced (but 
^ 
dm.m J not below zero) by 
"(B) the amount of the tax imposed by this section for the 
£
,
*
f i' , taxable year, reduced by— 
1,9, 
"(i) the amount of the credit allowable under section 
Ante, p. 826. 
27(a), 
^fit ;,•< 
"(ii) in the case of the limitation under section 30(g), 
the amount of such tax taken into account under this 
subparagraph with respect to the limitation under sec-
i!Oi j'Ji* 
tion 25, and 
"(iii) in the case of the limitation under section 38(c), 
the amount of such tax taken into account under this 
subparagraph with respect to limitations under sec-
tions 25 and 30(g)." 
(4) Paragraph (2) of section 55(f) is amended by striking out 
"allowable under subpart A of part IV of this subchapter (other 
-iy. than under sections 31, 39, and 43)" and inserting in lieu thereof 
»r5 "allowable under subparts A, B, and D of part IV of this 
subchapter". 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 839 
(r) TECHNICAL AND CONFORMING AMENDMENTS TO OTHER PROVI-
SIONS.— 
(1) SECTION 56.— 
(A) Subsection (c) of section 56 (defining regular tax 26 USC 56. 
deduction) is amended— 
*-
(i) by striking out "subpart A of part IV other than 
sections 39 and 44G" and inserting in lieu thereof 
"subparts A, B, and D of part IV", and 
(ii) by amending the last sentence to read as follows: 
"For purposes of the preceding sentence, the amount of 
the credit determined under section 38 for any taxable Ante, p. 827. 
year shall be determined without regard to the em-
ployee stock ownership credit determined under section 
•" • 
4 1 . " 
Ante, p. 826. 
(B) Subparagraph (A) of section 56(eXl) is amended by 
striking out clauses (i), (ii), (iii), and (iv) and inserting in lieu 
>' ' - 
thereof the following: 
"(i) section 27 (relating to foreign tax credit), and Ante, p. 826. 
y 
"(ii) section 38 (relating to general business credit), 
;' 
exceed". 
' 
(2) SECTION 86.—Paragraph (1) of section 86(f) (relating to Pos^, p. 1158. 
treatment as pension or annuity for certain purposes) is 
amended by striking out "section 43(c)(2)" and inserting in lieu 
thereof "section 32(c)(2)". 
(3) SECTION 87.—Section 87 (relating to alcohol fuel credit 26 use 87. 
included in income) is amended to read as follows: 
"SEC. 87. ALCOHOL FUEL CREDIT. 
"Gross income includes the amount of the alcohol fuel credit 
determined with respect to the taxpayer for the taxable year under 
section 40(a)." 
Ante, p. 832. 
(4) SECTION I03.—Clause (iv) of section 103(b)(6)(F) (relating to 26 use 103. 
certain capital expenditures not taken into account) is amended 
by striking out "section 44F(b)(2)(A)" and inserting in lieu 
thereof "section 30(b)(2)(A)". 
(5) SECTION 108.—Subparagraph (B) of section 108(b)(2) (relat- 26 use 108. 
ing to reduction of tax attributes in title 11 case or insolvency) is 11 use 101 et 
"' 
amended to read as follows: 
*^9-
"(B) RESEARCH CREDIT AND GENERAL BUSINESS CREDIT.— 
"l 
Any carryover to or from the taxable year of a discharge of 
an amount for purposes of determining the amount allow-
able as a credit under— 
P 
"(i) section 30 (relating to credit for increasing re- Ante, p. 826. 
search activities), or 
"(ii) section 38 (relating to general business credit). Ante, p. 827. 
^
-
j , 
For purposes of this subparagraph, there shall not be taken 
into account any portion of a carryover which is attributa-
ble to the employee stock ownership credit determined 
under section 41." 
Ante, p. 826. 
(6) SECTION 129.— 
(A) Paragraph (2) of section 129(b) (relating to earned 26 USC 129. 
income limitation) is amended by striking out "section 
.. •' 
44A(e)(2)" and inserting in lieu thereof "section 21(d)(2)". 
(B) Paragraph (1) of section 129(e) (defining dependent 
care assistance) is amended by striking out "section 
44A(c)(2)" and inserting in lieu thereof "section 21(b)(2)". 
98 STAT. 840 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 168. 
asd. 
.dKh .q .^-^i^ K 
.is'J'. .q .fetft 
•S 081J 9S; 
Ji&*' 
26use 129. 
./Of?' 
(C) Paragraph (2) of section 129(e) (defining earned 
income) is amended by striking out "section 43(c)(2)" and 
inserting in lieu thereof "section 32(c)(2)". 
(7) SECTION 168.— 
(A) Clause (i) of section 168(i)(l)(D), as added by section 
208(a) of the Tax Equity and Fiscal Responsibility Act of 
1982, is amended by striking out "subpart A of part IV" and 
inserting in lieu thereof "subparts A, B, and D of part IV". 
(B) Clause (iii) of section 168(i)(l)(D), as added by section 
208(a) of the Tax Equity and Fiscal Responsibility Act of 
1982, is amended by striking out "under the last sentence of 
section 53(a)" and inserting in lieu thereof "under section 
25(b)(2)". 
(C) Subparagraph (A) of section 168(i)(4), as added by 
section 208(a) of the Tax Equity and Fiscal Responsibility 
Act of 1982, is amended by striking out "subpart A of part 
IV of subchapter A of this chapter" and inserting in lieu 
thereof "section 38". 
(D) Clause (i) of section 168(i)(l)(D), as added by section 
20903) of the Tax Equity and Fiscal Responsibility Act of 
1982, is amended by striking out "subpart A of part IV" and 
inserting in lieu thereof "subparts A, B, and D of part IV". 
(E) Clause (iii) of section 168(i)(l)(D), as added by section 
2090b) of the Tax Equity and Fiscal Responsibility Act of 
1982, is amended by striking out "under the last sentence of 
section 53(a)" and inserting in lieu thereof "under section 
250b)(2)". 
(8) SECTION I96.— 
26 use 196. 
(A) Section 196 (relating to deduction for certain unused 
investment credits) is amended to read as follows: 
"SEC. 196. DEDUCTION FOR CERTAIN UNUSED BUSINESS CREDITS. 
"(a) ALLOWANCE OF DEDUCTION.—If any portion of the qualified 
business credits determined for any taxable year has not, after the 
Ante, p. 827. 
application of section 38(c), been allowed to the taxpayer as a credit 
under section 38 for any taxable year, an amount equal to the credit 
not so allowed shall be allowed to the taxpayer as a deduction for 
the first t£ixable year following the last taxable year for which such 
Ante, p. 828. 
Credit could, under section 39, have been allowed as a credit. 
"Ob) TAXPAYER'S DYING OR CEASING TO EXIST.—If a taxpayer dies 
or ceases to exist before the first taxable year following the last 
taxable year for which the qualified business credits could, under 
section 39, have been allowed as a credit, the amount described in 
•&> q 
subsection (a) (or the proper portion thereof) shall, under regulations 
prescribed by the Secretary, be allowed to the taxpayer as a deduc-
7
*
:
f q 
tion for the taxable year in which such death or cessation occurs. 
"(c) QUALIFIED BUSINESS CREDITS.—For purposes of this section, 
the term 'qualified business credits' means— 
Ante, p. 834. 
"(1) the investment credit determined under section 46(a) (but 
only to the extent attributable to property the basis of which is 
reduced by section 48(q)), 
Ante, p. 837. 
r 
"(2) the targeted jobs credit determined under section 51(a), 
and 
Ante, p. 832. 
"(3) the alcohol fuels credit determined under section 40(a). 
"(d) SPECIAL RULE FOR INVESTMENT TAX CREDIT.—In the case of 
the investment credit determined under section 46(a) (other than a 
credit to which section 48(q)(3) applies), subsection (a) shall be 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 841 
applied by substituting 'an amount equal to 50 percent of for 'an 
amount equal to'." 
(B) The table of sections for part VI of subchapter B of 
chapter 1 is amended by striking out the item relating to 
section 196 and inserting in lieu thereof: 
"Sec. 196. Deduction for certain unused business credits." 
r 
(9) SECTION 213.—Subsection (e) of section 213 (relating to 26 use 213. 
exclusion of amounts allowed for care of certain dependents) is 
} 
amended by striking out "section 44A" and inserting in lieu 
thereof "section 21". 
a 
(10) SECTION 280C.— 
(A) Section 280C (relating to certain expenses for which 
26 use 28oe. 
; 
credits are allowable) is amended by striking out subsection 
(a) and by redesignating subsections (b) and (c) as subsec-
tions (a) and (b), respectively. 
^
* 
(B) Subsection (a) of section 280C (as so redesignated) is 
^' '
^
^ '•' 
amended— 
* 
(i) by striking out the first sentence and inserting in 
lieu thereof the following: "No deduction shall be al-
lowed for that portion of the wages or salaries paid or 
incurred for the taxable year which is equal to the 
amount of the credit determined for the taxable year 
under section 51(a).", and 
Ante, p. 837. 
(ii) by striking out "SECTION 44B CREDIT" in the 
li lij < 
subsection heading and inserting in lieu thereof "TAR-
*•* ^ 
GETED JOBS CREDIT". 
(C) Subsection (b) of section 280C (as so redesignated) is 
amended by striking out "44H" each place it appears and 
inserting in lieu thereof "29". 
(D) Paragraph (3) of section 280C(b) (as so redesignated) is 
amended— 
(i) by striking out "section 44F(f)(5)" and inserting in 
,j..,j. 
lieu thereof "section 30(fK5)", 
(ii) by striking out "section 44F(fKlXB)" and inserting 
in lieu thereof "section 30(f)(1)(B)", 
, : ,. ; .
< 
(iii) by striking out "section 44F(f)(l)" and inserting 
in lieu thereof "section 30(f)(1)". 
(11) SECTION 381.—Subsection (c) of section 381 is amended— 26 use 381. 
(A) by striking out paragraphs (23), (24), (26), (27), and (30), 
(B) by redesignating paragraphs (25), (28), and (29) as 
paragraphs (23), (24), and (25), respectively, 
- #j' 
(C) by striking out "44F" each place it appears in para-
graph (25) (as so redesignated) and inserting in lieu thereof 
"30", and 
(D) by adding at the end thereof the following new para-
graph: 
"(26) CREDIT LENDER SECTION 38.—The acquiring corporation 
shall take into account (to the extent proper to carry out the 
purposes of this section and section 38, and under such regula- Ante, p. 827. 
tions as may be prescribed by the Secretary) the items required 
to be taken into account for purposes of section 38 in respect of 
the distributor or transferor corporation." 
(12) SECTION 383.— 
(A) Section 383 (as in effect on the day before the date of 26 use 383. 
the enactment of the Tax Reform Act of 1976) is amended— 26 use 1 et seq. 
98 STAT. 842 
PUBLIC LAW 98-369—JULY 18, 1984 
us lol "m ; 
(i) by striking out "with respect to any unused invest-
ment credit" and all that follows and inserting in lieu 
1o 3 1' 
thereof the following: "with respect to any unused 
<
>
j sfi ji>i : business credit of the corporation which can otherwise 
Ante, p. 828. 
be Carried forward under section 39, to any unused 
credit of the corporation which could otherwise be 
Ante, p. 826. 
Carried forward under section 30(g)(2), to any excess 
^*^' 
foreign taxes of the corporation which could otherwise 
be carried forward under section 904(c), and to any net 
;,; J a. ,-;. 
capital loss of the corporation which can otherwise be 
carried forward under section 1212.", and 
(ii) by striking out the section heading and inserting 
0
(
;
^
>
S ;feU «; -f- J" • 
in lieu thereof the following: 
"SEC. 383. SPECIAL LIMITATIONS ON UNUSED BUSINESS CREDITS, RE-
SEARCH CREDITS, FOREIGN TAXES, AND CAPITAL LOSSES." 
26 use 383. 
^ (|5j_^^ 
(B) Section 383 (as amended by the Tax Reform Act of 
1976) is amended— 
.: ..- 
(i) by striking out "with respect to any unused invest-
ment credit" and all that follows and inserting in lieu 
thereof the following: "with respect to any unused 
business credit of the corporation under section 39, to 
any unused credit of the corporation under section 
^p;, 
. 
' *''' ' 
30(g)(2), to any excess foreign taxes of the corporation 
' ^ '* " 
under section 904(c), and to anv net capital loss of the 
corporation under section 1212.', and 
(ii) by striking out the section heading and inserting 
in lieu thereof the following: 
"SEC. 383. SPECIAL LIMITATIONS ON UNUSED BUSINESS CREDITS, RE-
SEARCH CREDITS, FOREIGN TAXES, AND CAPITAL LOSSES." 
SI 'bf ' 
(C) The table of sections for part V of subchapter C of 
chapter 1 is amended by striking out the item relating to 
section 383 and inserting in lieu thereof the following: 
"Sec. 383. Special limitations on unused business credits, research credits, 
B^ 
foreign taxes, and capital losses." 
26 use 401. 
(13) Paragraph (21) of section 401(a) is amended by striking 
1^ out "allowable—" and all that follows and inserting in lieu 
thereof "allowable under section 41 if the employer made the 
transfer described in section 41(c)(1)(B)." 
26 use 404. 
(14) SECTION 404.—Subsection (i) of section 404 (relating to 
deductibility of unused portions of employee stock ownership 
credit) is amended to read as follows: 
"(i) DEDUCTIBILITY OF UNUSED PORTIONS OF EMPLOYEE STOCK OWN-
ERSHIP CREDIT.— 
"(1) UNUSED CREDIT CARRYOVERS.—If any portion of the 
em-
Ante, p. 826. 
f 
ployee stock ownership credit determined under section 41 for 
Ante, p. 827. 
any taxable year has not, after the application of section 38(c), 
A
*
^ been allowed under section 38 for any taxable year, such portion 
shall be allowed as a deduction (without regard to any limita-
T
^
r
.
Q „ „ „t 
tions provided under this section) for the last taxable year to 
which such portion could have been allowed as a credit under 
Ante, p. 828. 
section 39. 
"(2) REDUCTIONS IN CREDIT.—There shall be allowed as a 
deduction (subject to the limitations provided under this section) 
an amount equal to any reduction of the credit allowed under 
^gi. 5 
section 41 resulting from a final determination of such credit to 
J<tU 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 843 
the extent such reduction is not taken into account under 
section 41(c)(3)." 
Ante, p. 826. 
(15) SECTION 409.— 
(A) Section 409 (relating to qualifications for tax credit Post, p. 852. 
employee stock ownership plans), as redesignated by section 
491 of this Act, is amended by striking out "44G" each place Ante, p. 848. 
;(9;j 
it appears in subsections (b), (g), (i), (m), and (n) and insert-
ing in lieu thereof "41". 
,; ,
^
{ 
(B) Paragraph (1) of section 409(b), as so redesignated, is 
amended by striking out "48(n)(l)(A) or". 
^,^..- 
(C) Subsection (g) of section 409, as so redesignated, is 
amended by adding at the end thereof the following new 
sentence: "For purposes of the preceding sentence, the 
references to section 48(n)(l) and the employee plan credit Ante, p. 837. 
, 
shall refer to such section and credit as in effect before the 
enactment of the Tax Reform Act of 1984." 
Ante, p. 494. 
(D) Subparagraph (A) of section 409(i)(l), as so redesig-
nated, is amended by striking out "48(n)(l) or". 
i
^
>
^ -
C -. 'i 
(E) Subsection (k) of section 409, as so redesignated, is 
Ly.; 
amended by adding at the end thereof the following new 
sentence: "For' purposes of this subsection, the reference to 
the matching employee plan credit shall refer to such credit 
as in effect before the enactment of the Tax Reform Act of 
1984." 
(16) SECTION 527 (g) (i) .—Paragraph (1) of section 527(g) (relat- 26 USC 527. 
ing to treatment of newsletter funds) is amended by striking out 
"section 41(cX2)" and inserting in lieu thereof "section 24(c)(2)". 
r 
(17) SECTION 642 (a) (2) .—Paragraph (2) of section 642(a) (relat- 26 use 642. 
^ 
ing to credit for political contributions) is amended by striking 
out "section 41" and inserting in lieu thereof "section 24'. 
(18) SECTION 691 (b) .—Subsection (b) of section 691 (relating to 26 use 691. 
allowance of deductions and credit) is amended by striking out 
"section 33" each place it appears and inserting in lieu thereof 
"section 27". 
(19) SECTIONS 874(a) 
AND 882(C) (2).—Sections 874(a) and 26 use 874,882. 
-: 
882(c)(2) are each amended— 
t 
(A) by striking out "32" and inserting in lieu thereof 
V 
"33", and 
-
(B) by striking out "section 39" and inserting in lieu 
w* 
thereof "section 34", 
t 
(20) SECTION 901 (a) .—Subsection (a) of section 901 (relating to 26 use 90i. 
allowance of foreign tax credit) is amended by striking out the 
last sentence and inserting in lieu thereof the following: "The 
credit shall not be allowed against any tax treated as a tax not 
5 
imposed by this chapter under section 25(b)." 
Ante, p. 821. 
(21) SECTION 904 (g) .—Subsection (g) of section 904 (relating to 26 use 904. 
limitation on foreign tax credit) is amended to read as follows: 
"(g) COORDINATION WITH NONREFUNDABLE PERSONAL CREDITS.—In 
the case of an individual, for purposes of subsection (a), the tax 
against which the credit is taken is such tax reduced by the sum of 
si r
?
J
^
j
i
f ?\ 
the credits allowable under subpart A of part IV of subchapter A of 
this chapter." 
Ante, p. 826. 
(22) SECTION 936.— 
(A) Clause (i)(I)(a) of section 936(hX5)(C) is amended by 26 USC 936. 
striking out "section 44F(b)" and inserting in lieu thereof 
^ 
"section 30(b)". 
(B) Clause (i)(IVXc) of section 936(hX5XC) is amended— 
.
-
'
.
J .'sink 
98 STAT. 844 
PUBLIC LAW 98-369—JULY 18, 1984 
lebao i 
(i) by striking out "section 44F" and inserting in lieu 
MS I Mmis. 
thereof "section 30", and 
(ii) by striking out "section 44F(f)" and inserting in 
lieu thereof "section 30(f)". 
26use 1016. 
^23) SECTION I0i6(a) (21).—Paragraph (21) of section 1016(a) 
' 4 -- 
(relating to adjustments to basis) is amended— 
(A) by striking out "section 44C(e)" and inserting in lieu 
thereof "section 23(e)", and 
'-' 
(B) by striking out "section 44C" and inserting in lieu 
thereof "section 23". 
(24) SECTION 1033(g)(3)(A).—Subparagraph (A) of section 
26 use 1033. 
1033(g)(3) (relating to election to treat outdoor advertising dis-
plays as real property) is amended by striking out "the credit 
' 
' 
allowed by section 38 (relating to investment in certain depre-
ciable property)" and inserting in lieu thereof "the investment 
credit determined under section 46(a)". 
26 use 1351. 
(25) SECTION 1351 (i) .—Subsection (i) of section 1351 (relating 
^o adjustments for succeeding years) is amended— 
(A) by striking out "section 33" and inserting in lieu 
thereof "section 27", and 
(B) by striking out "section 38 (relating to investment 
^
, 
credit)" and inserting in lieu thereof "section 38 (relating to 
general business credit)". 
26 use 1366. 
(26) SECTION 1366 (f) .—Paragraph (1) of section 1366(f) (relat-
ing to special rules) is amended by striking out "section 39" 
each place it appears and inserting in lieu thereof "section 34". 
26 use 1374. 
(27) SECTION 1374 (b) .—Subsection (b) of section 1374 (relating 
to amount of tax imposed on certain capital gains) is amended 
by striking out "section 39" and inserting in lieu thereof "sec-
tion 34". 
26 use 1375. 
(28) SECTION 1375 (c) .—Paragraph (1) of section 1375(c) (relat-
ing to disallowance of credit) is amended by striking out "sec-
tion 39" and inserting in lieu thereof "section 34". 
(29) SECTION 1451.— 
26 use 1451. 
(A) Chapter 3 (relating to withholding of tax on nonresi-
26 use prec. 
iGGiK 
dent aliens and foreign corporations and tax-free covenant 
^^^^- 
bonds) is amended by striking out subchapter B and by 
redesignating subchapter C as subchapter B. 
(B) The table of subchapters for chapter 3 is amended by 
0
^ gij V
: 
striking out the items relating to subchapters B and C and 
inserting in lieu thereof the following: 
"SUBCHAPTER B. Application of withholding provisions." 
26 u s e prec. - 
(C) The heading of chapter 3 is amended by striking out 
1441 
"AND TAX-FREE COVENANT BONDS". 
(D) The table of chapters for subtitle A is amended by 
striking out "and tax-free covenant bonds" in the item 
relating to chapter 3. 
26 use 12. 
(E) Section 12 is amended by striking out paragraph (6) 
and by redesignating paragraphs (7) and (8) as paragraphs 
i. 
(6) and (7), respectively. 
26 use 164. 
(F) Subsection (f) of section 164 (as in effect before its 
97 Stat. 65. 
redesignation by the Social Security Amendments of 1983) 
42 use 1305 
is amended by striking out paragraph (1) and by redesignat-
ing paragraphs (2) and (3) as paragraphs (1) and (2), respec-
—t«*{7::i tively. 
note. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 845 
(G) Subsection (a) of section 1441 is amended by striking 
26 use 1441. 
out "except in the cases provided for in section 1451 and". 
(H) Paragraph (3) of section 1441(c) is amended by strik-
ing out "section 1451" and inserting in lieu thereof "section 
1451 (as in effect before its repeal by the Tax Reform Act of 
1984)". 
Ante, p. 494. 
(I) Subsection (a) of section 1442 is amended— 
26 use 1442. 
(i) by striking out "or section 1451", and 
(ii) by striking out "; except that, in the case of 
interest described in section 1451 (relating to tax-free 
covenant bonds), the deduction and withholding shall 
be at the rate specified therein". 
i ^ 
(J) Paragraph (2) of section 6049(b) (relating to amounts 
26 use 6049. 
not treated as interest) is amended— 
(i) by adding "and" at the end of subparagraph (C), 
(ii) by striking out ", and" at the end of subparagraph 
(D) and inserting in lieu thereof a period, and 
(iii) by striking out subparagraph (E). 
(K) Paragraph (16) of section 7701(a) is amended by strik- 
26 use 7701. 
ing out "1451,". 
(30) SECTION 350?.—Subsections (b), (c), and (e) of section 3507 
26 use 3507. 
(relating to advanced pajmient of earned income credit) are each 
amended by striking out "section 43" each place it appears and 
inserting in lieu thereof "section 32". 
(31) SECTION 6096 (b) .—Subsection (b) of section 6096 (defining 
26 use 6096. 
income tax liability) is amended by striking out "allowable 
under sections 33, 37, 38, 40, 41, 42, 44, 44A, 44B, 44C, 44D, 44E, 
44F, 44G, and 44H" and inserting in lieu thereof "allowable 
under part IV of subchapter A of chapter 1 (other than subpart 
C thereof)". 
(32) SECTION 6201(a) (4).—Paragraph (4) of section 6201(a) 26 use 6201. 
(relating to erroneous credit under section 39 or 43) is 
amended— 
(A) by striking out "section 39" and inserting in lieu 
thereof "section 34", 
(B) by striking out "section 43" and inserting in lieu 
thereof "section 32", and 
(C) by striking out "SECTION 39 OR 43" in the paragraph 
heading and inserting in lieu thereof "SECTION 32 OR 34". 
(33) SECTION 6211(b).— 
26use62ii. 
(A) Paragraph (1) of section 6211(b) is amended by strik-
ing out "without regard to so much of the credit under 
section 32 as exceeds 2 percent of the interest on obligations 
described in section 1451" and inserting in lieu thereof 
"without regard to the credit under section 33". 
(B) Paragraph (4) of section 6211(b) is amended by strik-
ing out "section 39" and inserting in lieu thereof "section 
34". 
(34) SECTION 6213 (h) (3) .—Paragraph (3) of section 6213(h) is 26 use 6213. 
amended by striking out "section 39" and inserting in lieu 
thereof "section 32 or 34". 
(35) SECTION 6362(c) (i).—Paragraph (1) of section 6362(c) 26 use 6362. 
(relating to qualified resident tax which is a percentage of the 
Federal tax) is amended by striking out "sections 31 and 39" 
and inserting in lieu thereof "sections 31 and 34". 
98 STAT. 846 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 6401. 
(36) SECTION 6401 (b).—Subsection (b) of section 6401 (relating 
to excessive credits treated as overpayments) is amended to read 
as follows: 
"(b) EXCESSIVE CREDITS.— 
"(1) IN GENERAL.—If the amount allowable as credits under 
Ante, p. 825. 
subpart C of part IV of subchapter A of chapter 1 (relating to 
refundable credits) exceeds the tax imposed by subtitle A (re-
duced by the credits allowable under subparts A, B, and D of 
such part IV), the amount of such excess shall be considered an 
overpayment. 
"(2) SPECIAL RULE FOR CREDIT UNDER SECTION 33.—For pur-
Ante, p. 832. 
poses of paragraph (1), any credit allowed under section 33 
(relating to withholding of tax on nonresident aliens and on 
«iv. ./o ' .=. 
foreign corporations) for any taxable year shall be treated as a 
credit allowable under subpart C of part IV of subchapter A of 
chapter 1 only if an election under subsection (g) or (h) of section 
6013 is in effect for such taxable year." 
(37) SECTION 64ii.— 
26 use 6411. 
(A) So much of subsection (a) of section 6411 £is precedes 
paragraph (2) thereof (relating to tentative carryback and 
refund adjustments) is amended to read as follows: 
•'^'''•--'i'^''' '•'• 
"(a) APPLICATION FOR ADJUSTMENT.—A taxpayer may file an appli-
cation for a tentative carryback adjustment of the tax for the prior 
taxable year affected by a net operating loss carryback provided in 
Ante, p. 828. 
section 172(b), by a business credit carryback provided in section 39, 
Ante, p. 826. 
by a research credit carryback provided in section 30(g)(2) or by a 
capital loss carryback provided in section 1212(a)(1), from any tax-
able year. The application shall be verified in the manner prescribed 
by section 6065 in the case of a return of such taxpayer and shall be 
filed, on or after the date of filing for the return for the taxable year 
of the net operating loss, net capital loss, or unused business credit 
from which the carryback results and within a period of 12 months 
after such taxable year or, with respect to any portion of a research 
credit carryback or a business credit carryback attributable to a net 
operating loss carryback or a net capital loss carryback from a 
subsequent taxable year, within a period of 12 months from the end 
of such subsequent taxable year (or, with respect to any portion of a 
business credit carryback attributable to a research credit carryback 
from a subsequent taxable year within a period of 12 months from 
the end of such subsequent taxable year), in the manner and form 
required by regulations prescribed by the Secretary. The applica-
tions shall set forth in such detail and with such supporting data 
and explanation as such regulations shall require— 
"(1) The amount of the net operating loss, net capital loss, 
unused research credit, or unused business credit;". 
(B) Subsections (b) and (c) of section 6411 are each amend-
ed by striking out "unused investment credit, unused work 
incentive program credit, unused new employee credit, 
unused research credit, or unused employee stock owner-
ship credit" each place it appears and inserting in lieu 
"^ ' '- *'' ; 
thereof "unused research credit, or unused business credit". 
26 use 6420, 
--^' 
(38) SECTIONS 6420(g) (2), ETC.—Sections 6420(g)(2), 6421(i)(3), 
6421. 
and 6427(i)(3) are each amended by striking out "section 39" and 
Post, p. 1005. 
inserting in lieu thereof "section 34". 
26 use 6501. 
(39) SECTION 6501 (p) .—Section 6501 is amended by striking 
*
;
^ out subsection (p) and by redesignating subsection (q) as subsec-
tion (p). 
<m Dai 
.irsdOBii 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 847 
(40) SECTION 65ii(d) (4) (C).—Subparagraph (C) of section 
26use6511. 
6511(d)(4) (defining credit carryback) is amended to read as 
follows: 
"(C) CREDIT CARRYBACK DEFINED.—For purposes of this 
paragraph, the term 'credit carryback' means any business 
carryback under section 39 and any research credit carry- Ante, p. 828. 
^ * '' 
back under section 30(g)(2)." 
Ante, p. 826. 
(41) SECTION 7871.—Subparagraph (A) of section 7871(a)(6) is 97 Stat. 87. 
amended by striking out "section 41(c)(4)" and inserting in lieu 26 use 7871. 
thereof "section 24(c)(4)". 
'- 
(42) SECTION 9502 (d) .—Paragraph (3) of section 9502(d) (relat- 26 use 9502. 
ing to transfers from the Airport and Airway Trust Fund on 
account of certain section 39 credits) is amended— 
(A) by striking out "section 39" and inserting in lieu 
thereof "section 34", and 
,,j, 
,^ ^ 
t 
(B) by striking out "SECTION 39 CREDITS" in the heading 
and inserting in lieu thereof "SECTION 34 CREDITS". 
(43) SECTION 9503 (c) .—Clause (ii) of section 9503(c)(2)(A) (relat- 26 use 9503. 
ing to transfers' from the Highway Trust Fund for certain 
repayments and credits) is amended by striking out "section 39" 
and inserting in lieu thereof "section 34". 
,.^ gi j. -,,»{] ^v 
SEC. 475. EFFECTIVE DATES. 
(a) GENERAL RULE.—The amendments made by this title shall 26 use 2i note. 
apply to taxable years beginning after December 31, 1983, and to 
carrybacks from such years. 
(b) TAX-FREE COVENANT BONDS.—The amendments made by sub- 26 use 33 note. 
sections 0) and (r)(29) of section 474 shall not apply with respect to Ante, p. 830. 
obligations issued before January 1,1984. 
(c) CLARIFICATION OF EFFECT OF AMENDMENTS ON INVESTMENT TAX 26 use 46 note. 
CREDIT.—Nothing in the amendments made by section 474(o) shall Ante, p. 830. 
be construed as reducing the amount of any credit allowable for 
qualified investment in taxable years beginning before January 1, 
1984. 
Mhj-y^bi 
^
* Subtitle G—Miscellaneous Simplification 
Provisions 
SEC. 481. PREFERRED STOCK ELIGIBLE UNDER SECTION 1244. 
(a) GENERAL RULE.—Subsections (c)(1) and (d)(2) of section 1244 26 use 1244. 
(relating to losses on small business stock) are each amended by 
striking out "common stock" and inserting in lieu thereof "stock . 
O
b
) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 1244 
shall apply to stock issued after the date of the enactment of this note. 
Act in taxable years ending after such date. 
"v^ a ^m\ 
SEC. 482. MEDICAL CARE DEDUCTION ALLOWED FOR LODGING A
W
A
Y 
FROM HOME IN CERTAIN CASES. 
(a) IN GENERAL.—Subsection (d) of section 213 (relating to defini- Ante, p. 800. 
tions for purposes of the deduction for medical, dental, etc., ex-
penses), as amended by section 423(b), is amended by redesignating 
paragraphs (2), (3), (4), (5), (6), and (7) as paragraphs (3), (4), (5), (6), 
'' ' ' '• 
(7), and (8), respectively, and by inserting after paragraph (1) the 
following new paragraph: 
98 STAT. 848 
PUBLIC LAW 98-369—JULY 18, 1984 
;i.:;, :
-
> .
^ 
"(2) AMOUNTS PAID F
O
R CERTAIN LODGING A
W
A
Y FROM HOME 
TREATED AS PAID FOR MEDICAL CARE.—Amounts paid for lodging 
(not lavish or extravagant under the circumstances) while away 
from home primarily for and essential to medical care referred 
to in paragraph (1)(A) shall be treated as amounts paid for 
medical care i
f
— 
J 
"(A) the medical care referred to in paragraph (1)(A) is 
provided by a physician in a licensed hospital (or in a 
medical care facility which is related to, or the equivalent 
of, a licensed hospital), and 
,.,, , . , ,. 
"(B) there is no significant element of personal pleasure, 
recreation, or vacation in the travel away from home. 
The amount taken into account under the preceding sentence 
shall not exceed $50 for each night for each individual." 
(b) TECHNICAL AMENDMENT.— 
Ante, p. 847. 
(1) Paragraph (7) of section 213(d), as redesignated by subsec-
tion (a), is amended by striking out "paragraph (5)" and insert-
ing in lieu thereof "paragraph (6)". 
Ante, p. 799. 
(2) Paragraph (6) of section 152(e), as amended by section 423 
of this Act, is amended by striking out "section 213(d)(4)" and 
inserting in lieu thereof "section 213(d)(5)". 
26 use 213 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to tEixable years beginning after December 31,1983. 
Subtitle H—Repeal of Certain Obsolete 
Provisions 
SEC. 491. TERMINATION OF RULES RELATING TO QUALIFIED BOND PUR-
CHASE PLANS AND RETIREMENT BONDS WITH RESPECT TO 
BONDS ISSUED AFTER DECEMBER 31,1983. 
26 use 405. 
(a) QUALIFIED BOND PURCHASE PLANS.—Section 405 (relating to 
qualified bond purchase plans) is hereby repealed. 
26 use 409. 
(b) RETIREMENT BONDS.—Section 409 (relating to retirement 
bonds) is hereby repealed. 
(c) EXISTING BONDS MAY BE ROLLED OVER INTO QUALIFIED EM-
PLOYER PLANS.— 
(1) Subparagraph (A) of section 405(d)(3) (as in effect before its 
repeal by subsection (a)) is amended to read as follows: 
"(A) IN GENERAL.—If— 
.,.., 
"(i) any qualified bond is redeemed. 
Jit 
'^'j: dt i "
"
^ 
"(ii) any portion of the excess of the proceeds from 
such redemption over the basis of such bond is trans-
ferred to an individual retirement plan which is main-
ly, 
tained for the benefit of the individual redeeming such 
bond, or to a qualified trust (as defined in section 
Post, p. 869. 
402(a)(5)(D)(iii)) for the benefit of such individual, and 
"(iii) such transfer is made on or before the 60th day 
¥i #A 
41 
after the individual received the proceeds of such 
redemption, 
u
»
> o i
S
s iv -ism^fl 
then gross income shall not include the proceeds to the 
extent so transferred and the transfer shall be treated as a 
rollover contribution described in section 408(d)(3)." 
26 use 402. 
(2) Subsection (e) of section 402 (relating to tax on lump-sum 
distributions) is amended by adding at the end thereof the 
following new paragraph: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 849 
"(5) SPECIAL RULE WHERE PORTION OF LUMP-SUM DISTRIBUTION 
ATTRIBUTABLE TO ROLLOVER OF BOND PURCHASED UNDER QUALI-
FIED BOND PURCHASE PLAN.—If any portion of a lump-sum distri-
bution is attributable to a transfer described in section 
405(d)(3)(A)(ii) (as in effect before its repeal by the Tax Reform 
Act of 1984), paragraphs (1) and (3) of this subsection and Ante, p. 494. 
paragraph (2) of subsection (a) shall not apply to such portion." 
(d) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) Paragraph (2) of section 55(f) (defining regular tax) is 26 use 55. 
amended by striking "409(c),". 
(2) Paragraph (7) of section 62 (defining adjusted gross income) 26 use 62. 
is amended— 
(A) by striking out "the deductions allowed by section 404 
and section 405(c)" and inserting in lieu thereof "the deduc-
tion allowed by section 404", and 
(B) by striking out "ANNUITY, AND BOND PURCHASE" in the 
heading and inserting in lieu thereof "AND ANNUITY". 
(3) Paragraph (1) of section 72(o) is amended by striking out 26 use 72. 
"402, 403, and 405" and inserting in lieu thereof "402 and 403". 
(4) Paragraph (4) of section 72(o) is amended by striking out 
"408(d)(3), and 409(b)(3)(C)" and inserting in lieu thereof "and 
408(d)(3)". 
(5) Subparagraph (D) of section 172(d)(4) is amended by strik- 26 use 172. 
ing out "or section 405(c)". 
(6) Paragraph (2) of section 219(d) is amended by striking out 26 use 219. 
"405(d)(3), 408(d)(3), or 409(b)(3)(C)" and inserting in lieu thereof 
"or 408(d)(3)". 
(7) Paragraph (1) of section 219(e) is amended by striking out 
the last sentence. 
(8) Paragraph (3) of section 219(e) is amended by striking out 
subparagraph (C), by adding "and" at the end of subparagraph 
(B) and by redesignating subparagraph (D) as subparagraph (C). 
(9) Clause (iv) of section 402(a)(5)(D) is amended by striking Post, p. 869. 
out subclause (III) and by redesignating subclauses (IV) and (V) 
as subclauses (III) and (IV), respectively. 
(10) Clause (i) of section 402(a)(5)(F), as amended by this Act, is 
amended by striking out ", (II), or (III)" and inserting in lieu 
thereof "or (II)". 
(11) Clause (ii) of section 402(a)(5)(F), as amended by this Act, 
is amended by striking out "(IV) or (V)" and inserting in lieu 
thereof "(III) or (IV)". 
(12) The last sentence of section 403(b)(1) is amended by 26 use 403. 
striking out "or 409a))(3)(C)". 
(13) Subsection (a) of section 406 is amended by striking out 26 USe 406. 
", an annuity plan described in section 403(a), or a bond pur-
chase plan described in section 405(a)" and inserting in lieu 
thereof "or an annuity plan described in section 403(a)". 
(14) Paragraph (3) of section 406(a) is amended by striking out 
", 403(a), or 405(a)" and inserting in lieu thereof "or 403(a)". 
(15) Subsection (d) of section 406 is amended— 
(A) by striking out "sections 404 and 405(c)" and inserting 
in lieu thereof "section 404", 
(B) by striking out "annuity, or bond purchase" and 
inserting in lieu thereof "or annuity", and 
(C) by striking out "(or section 405(c))" in paragraph (2) 
thereof. 
31-194 0 - 86 - 29 : QL. 3 Part 1 
98 STAT. 850 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 407. 
(16) Paragraph (1) of section 407(a) is amended by striking out 
", an annuity plan described in section 403(a), or a bond pur-
chase plan described in section 405(a)" and inserting in lieu 
thereof "or an annuity plan described in section 403(a)". 
(17) Subparagraph (B) of section 407(a)(1) is amended by strik-
ing out ", 403(a), or 405(a)" and inserting in lieu thereof "or 
403(a)". 
(18) Subsection (d) of section 407 is amended— 
(A) by striking out "sections 404 and 405(c)" and inserting 
in lieu thereof "section 404", 
(B) by striking out "annuity, or bond purchase" and 
inserting in lieu thereof "or annuity", and 
(C) by striking out "(or section 405(c))" in paragraph (2) 
thereof. 
26 use 408. 
(19) Paragraph (1) of section 408(a) is am.ended by striking out 
"403(b)(8), 405(d)(3), or 409(b)(3)(C)" and inserting in lieu thereof 
"or403a))(8)". 
(20) Clause (i) of section 408(d)(3)(A) is amended by striking 
out "or retirement bond". 
(21) Subparagraph (B) of section 408(d)(3) is amended by strik-
ing out ", individual retirement annuity, or a retirement bond" 
and inserting in lieu thereof "or an individual retirement 
annuity". 
(22) Clause (ii) of section 408(d)(3)(D) (relating to partial rollov-
ers) is amended by striking out "bond,". 
(23) Paragraph (6) of section 408(d) is amended— 
(A) by striking out ", individual retirement annuity, or 
retirement bond and inserting in lieu thereof "or an indi-
vidual retirement annuity", and 
(B) by striking out ", annuity, or bond" and inserting in 
lieu thereof "or annuity". 
(24) Subparagraph (E) of section 408(k)(3) is amended by strik-
ing out ", 403(a), or 405(a)" and inserting in lieu thereof "or 
403(a)". 
26 use 412. 
(25) Paragraph (2) of section 412(a) is amended by striking out 
"or 405(a)". 
26 use 414. 
(26) Subsection (h) of section 414 is amended by striking out 
"or 405(a)". 
(27) Subsection (1) of section 414 is amended by striking out 
"or 405". 
26 use 415. 
(28) Paragraph (2) of section 415(a) is amended by striking out 
sulDparagraph (D), by striking out "or" at the end of subpara-
graph (C), by adding "or" at the end of subparagraph (B), and by 
striking out "405(a),". 
(29) Subparagraph (A) of section 415(b)(2) is amended by strik-
ing out "408(d)(3), and 409(b)(3)(C)" and inserting in lieu thereof 
"and 408(d)(3)". 
(30) Subparagraph (B) of section 415(b)(2) is amended by strik-
ing out "408(d)(3) and 409(b)(3)(C)" and inserting in lieu thereof 
"and 408(d)(3)". 
(31) Paragraph (2) of section 415(c) is amended by striking out 
"405(d)(3), 408(d)(3), and 4090t))(3)(C)" and inserting in lieu 
thereof "and 408(d)(3)". 
(32) Paragraph (1) of section 415(k) is amended by striking out 
subparagraphs (C) and (H), by redesignating subparagraphs (D), 
(E), (F), and (G) as subparagraphs (C), (D), (E), and (F), respec-
tively, by striking out , or' at the end of subparagraph (F) (as 
I 
t2EB? Z .JC 
: ?:;. - <^ii " '•' 
^<ii~i^ 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 851 
so redesignated) and inserting in lieu thereof a period, and by 
adding "or" at the end of subparagraph (E) (as so redesignated). 
(33) Paragraph (2) of section 457(e) is amended by striking out 26 USC 457. 
subparagraph (C) and by redesignating subparagraphs (D) and 
(E) as subparagraphs (C) and (D), respectively. 
(34) Subsection (e) of section 2039 is amended— 
26 USC 2039. 
(A) by striking out paragraph (3), 
(B) by striking out ", or" at the end of paragraph (2) and 
inserting in lieu thereof a period, 
(C) by adding "or" at the end of paragraph (1), 
(D) by striking out "405(d)(3), 408(d)(3), or 409(b)(3)(C)" and 
- - '
^
^ <
'
^ 
inserting in lieu thereof "or 408(d)(3)", and 
(E) by striking out ", annuity, or bond" each place it 
appears and inserting in lieu thereof "or annuity". 
(35) Paragraph (5) of section 2517(a) is amended by striking 
26 use 2517. 
out ", an individual retirement annuity described in section 
408(b), or a retirement bond described in section 409(a)" and 
inserting in lieu tl\ereof "or an individual retirement annuity 
described in section 408(b)". 
(36) Paragraph (5) of section 3121(a) is amended by striking 
26 use 3i2i. 
out subparagraph (C) and by redesignating subparagraphs (D) 
through (G) as subparagraphs (C) through (F), respectively. 
(37) Paragraph (5) of section 3306(b) is amended by striking 
26 use 3306. 
out subparagraph (C) and by redesignating subparagraphs (D) 
through (G) as subparagraphs (C) through (F), respectively. 
(38) Paragraph (12) of section 3401(a) is amended by striking 
26 use 3401. 
out subparagraph (C) and by redesignating subparagraph (D) as 
subparagraph (C). 
(39) Subsection (e) of section 209 of the Social Security Act is 26 use 409. 
amended by inserting "(as in effect before the enactment of the 
Tax Reform Act of 1984)" after "Internal Revenue Code of 1954" 
in paragraph (4) thereof. 
(40) Subsection (a) of section 4972 is amended by striking out 
26 use 4972. -
the last sentence and inserting in lieu thereof "This section 
applies only to plans which include a trust described in section 
401(a) or which are described in section 403(a)." 
(41) Subsection (a) of section 4973 is amended— 
26 use 4973. 
(A) by striking out paragraph (3), 
(B) by striking out "or" at the end of paragraph (2), 
(C) by adding "or" at the end of paragraph (1), 
(D) by striking out ", annuities, or bonds" and inserting 
in lieu thereof "or annuities", and 
(E) by striking out ", annuity, or bond" and inserting in 
- •' ' 
'-' 
lieu thereof "or annuity". 
(42) Subparagraph (A) of section 49730t))(l) is amended by 
striking out "408(d)(3), and 409(b)(3)(C)" and inserting in lieu 
thereof "and 408(d)(3)". 
(43) The last sentence of section 4973(b) is amended by strik-
ing out ", individual retirement annuity, or bond" and inserting 
in lieu thereof "or the individual retirement annuity". 
(44) Paragraph (1) of section 4973(c) is amended by striking 
out ", 408(d)(3)(A)(iii), or 409(b)(3)(C)" and inserting in lieu 
thereof "or 408(d)(3)(A)(iii)". 
(45) The last sentence of section 4975(d) is amended by strik- 26 use 4975. 
ing out ", individual retirement annuity, or an individual retire-
ment bond (as defined in section 408 or 409)" and inserting in 
98 STAT. 852 
PUBLIC LAW 98-369—JULY 18, 1984 
lieu thereof "or an individual retirement annuity (as defined in 
section 408)". 
26 use 4975. 
(46) Paragraph (1) of section 4975(e) is amended— 
(A) by striking out "or 405(a)", 
(B) by striking out "or a retirement bond described in 
section 409", 
(C) by striking out "annuity, or bond" and inserting in 
lieu thereof "or annuity", and 
(D) by striking out "account, or bond" and inserting in 
lieu thereof "or account". 
26 use 6047. 
(47) Section 6047 is amended by striking out subsection (c) and 
by redesignating subsections (d), (e), and (0 as subsections (c), (d), 
and (e), respectively. 
26 use 6058. 
(48) Subsection (e) of section 6058 is amended by striking out 
paragraph (2) and by redesignating paragraphs (3) and (4) as 
paragraphs (2) and (3), respectively. 
26 use 6104. 
(49) Clause (i) of section 6104(a)(1)(B) is amended by striking 
out ", 403(a), or 405(a)" and inserting in lieu thereof "or 403(a)". 
26 use 6652. 
(50) Subsection (f) of section 6652 is amended by striking out 
"and bond purchase". 
26 use 7207. 
(51) Section 7207 is amended by striking out "or (c)". 
26 use 7476. 
(52) Subsection (c) of section 7476 is amended by striking out 
paragraph (3), by striking out ", or" at the end of paragraph (2) 
and inserting in lieu thereof a period, and by adding ", or" at 
the end of paragraph (1). 
26 use 7701. 
(53) Paragraph (37) of section 7701(a) is amended by striking 
out subparagraph (C), by striking out ", and" at the end of 
subparagraph (B) and inserting in lieu thereof a period, and by 
adding "and" at the end of subparagraph (A). 
(54) The table of sections of subpart A of part I of subchapter 
D of chapter 1 is amended by striking out the items relating to 
sections 405 and 409. 
26 use 4973. 
(55) The section heading for section 4973 is amended by 
striking out "CERTAIN INDIVIDUAL RETIREMENT ANNU-
ITIES, AND CERTAIN RETIREMENT BONDS" and inserting 
in lieu thereof "AND CERTAIN INDIVIDUAL RETIREMENT 
ANNUITIES". 
(56) The table of sections for chapter 43 is amended by strik-
ing out "certain individual retirement annuities, and certain 
retirement bonds" in the item relating to section 4973 and 
inserting in lieu thereof "and certain individual retirement 
annuities". 
26 use 6047. 
(57) The section heading for section 6047 is amended by 
striking out "AND BOND PURCHASE". 
(58) The table of sections for subpart B of part III of subchap-
ter A of chapter 61 is amended by striking out "and bond 
purchase" in the item relating to section 6047. 
(59) The first sentence of section 3107 of title 31, United States 
Code, is amended by inserting before the period ", as in effect 
before the enactment of the Tax Reform Act of 1984". 
26 use 409, 
(e) SECTION 409A REDESIGNATED AS SECTION 409.— 
409A. 
(1) The section heading for section 409A is amended by strik-
Ante, p. 848. 
j^g out "SEC. 409A." and inserting in lieu thereof "SEC. 409.". 
26 use 41. 
(2) Subsection (c)(l)(A)(i) of old section 44G is amended by 
Ante, p. 826. 
striking out "section 409A" and inserting in lieu thereof "sec-
tion 409". 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 853 
(3) Paragraph (6) of old section 44G(c) is amended by striking 
26 USC 41. 
out "section 409A(1)" and inserting in lieu thereof "section 
^"^e, p. 826. 
409(1)". 
(4) Paragraph (22) of section 401(a) is amended by striking out 
26 USC 401. 
"section 409A" and inserting in lieu thereof "section 409". 
(5) Paragraph (23) of section 401(a) is amended by striking out 
"section 409A(h)" each place it appears and inserting in lieu 
thereof "section 409(h)". 
(6) Clause (ii) of section 415(c)(6)(B) is amended by striking out 
26 USC 415. 
"section 409A" and inserting in lieu thereof 
section 409". 
(7) Paragraph (7) of section 4975(e) is amended— 
26 USC 4975. 
(A) by striking out "section 409A(h)" and inserting in lieu 
thereof "section 409(h)", 
(B) by striking out "section 409A(e)(4)" and inserting in 
lieu thereof "section 409(e)(4)", and 
(C) by striking out "section 409A(e)" and inserting in lieu 
thereof "section 409(e)". 
(8) Paragraph (8) of section 4975(e) is amended by striking out 
"section 409A(1)" and inserting in lieu thereof "section 409(1)". 
(9) Paragraphs (1) and (3) of section 6699(a) are each amended 
26 use 6699. 
by striking out "section 409A" and inserting in lieu thereof 
"section 409". 
(10) The table of sections for subpart A of part I of subchapter 
D of chapter 1 is amended by striking out "Sec. 409A" and 
inserting in lieu thereof "Sec. 409", 
(f) EFFECTIVE DATES.— 
(1) IN GENERAL.—The amendments and repeals made by sub- 
26 use 55 note, 
sections (a), (b), and (d) shall apply to obligations issued after 
December 31,1983. 
(2) SUBSECTION (C) .—The amendment made by subsection (c) 
26 use 402 note, 
shall apply to redemptions after the date of the enactment of 
this Act in taxable years ending after such date. 
(3) SUBSECTION (e).—The amendments made by subsection (e) 
26 use 41 note. 
shall take effect on January 1,1984. 
(4) BONDS UNDER QUAUFIED BOND PURCHASE PLANS MAY BE 
26 use 405 note. 
REDEEMED AT ANY TIME.—Notwithstanding— 
(A) subparagraph (D) of section 405(b)(1) of the Internal 
Revenue Code of 1954 (as in effect before its repeal by this 
section), and 
(B) the terms of any bond described in subsection O
t
>
) of 
such section 405, 
such a bond may be redeemed at any time after the date of the 
enactment of this Act in the same manner as if the individual 
redeeming the bond had attained age 59^2. 
(5) TREATMENT OF TAX IMPOSED UNDER SECTION 409 (c).—For 
26 use 26 note. 
purposes of section 260t>) of the Internal Revenue Code of 1954 
(as amended by this Act), any tax imposed by section 409(c) of 
such Code (as in effect before its repeal by this section) shall be 
treated as a tax imposed by section 408(f) of such Code. 
SEC. 492. REPEAL OF RULES RELATING TO GAINS FROM DISPOSITION OF 
PROPERTY USED IN FARMING WHERE FARM LOSSES OFFSET 
NONFARM INCOME. 
(a) I N GENERAL.—Section 1251 (relating to gain from disposition of 
26 use 1251. 
property used in farming where farm losses offset nonfarm income) 
is hereby repealed. 
O
t
)
) TECHNICAL AND CONFORMING AMENDMENTS.— 
98 STAT. 854 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 170. 
(1) SECTION I70.— 
(A) The second sentence of section 170(e)(1) (relating to 
certain contributions of ordinary income and capital gain 
property) is amended by striking out "1251(c),". 
(B) Subparagraph (C) of section 170(e)(3) (relating to spe-
cial rule for certain contributions of inventory and other 
property) is amended by striking out "1251,". 
26 use 341. 
(2) SECTION 341.—Paragraph (12) of section 341(e) (relating to 
nonapplication of section 1245(a)) is amended by striking out 
"1251(c),". 
26 use 453B. 
(3) SECTION 453B.—The second sentence of section 453B(dX2) 
(relating to liquidations to which section 337 applies) is 
amended by striking out "1251(c),". 
26 use 751. 
(4) SECTION 751.—The second sentence of subsection (c) of 
section 751 (defining unrealized receivables) is amended— 
(A) by striking out "farm recapture property (as defined 
in section 1251(eXl)),", and 
(B) by striking out "1251(c),". 
26 use 1252. 
(5) SECTION 1252.—The second sentence of section 1252(a)(1) 
(relating to gains from disposition of farm land) is amended by 
striking out ", except that this section shall not apply to the 
extent section 1251 applies to such gain". 
(c) CLERICAL AMENDMENT.—The table of sections for part IV of 
subchapter P of chapter 1 is amended by striking out the item 
relating to section 1251. 
26 use 170 note. 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31,1983. 
TITLE V—EMPLOYEE BENEFIT 
PROVISIONS 
Subtitle A—Welfare Benefit Plans 
SEC. 511. TREATMENT OF FUNDED WELFARE BENEFIT PLANS. 
(a) GENERAL RULE.—Part I of subchapter D of chapter 1 (relating 
to pension, profit sharing, stock bonus plans, etc.) is amended by 
adding at the end thereof the following new subpart: 
"Subpart D—Treatment of Welfare Benefit Funds 
"Sec. 419. Treatment of funded welfare benefit plans. 
"Sec. 419A. Qualified asset account; limitation on additions to account. 
26 use 419. 
"SEC. 419. TREATMENT OF FUNDED WELFARE BENEFIT PLANS. 
"(a) GENERAL RULE.—Contributions paid or accrued by an em-
ployer to a welfare benefit fund— 
"(1) shall not be deductible under section 162 or 212, but 
"(2) if they satisfy the requirements of either of such sections, 
shall (subject to the limitation of subsection (b)) be deductible 
under this section for the taxable year in which paid. 
"(b) LIMITATION.—The amount of the deduction allowable under 
subsection (aX2) for any taxable year shall not exceed the welfare 
benefit fund's qualified cost for the taxable year. 
"(c) QUAUFIED COST.—For purposes of this section— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 855 
"(1) IN GENERAL.—Except as otherwise provided in this sub-
section, the term 'qualified cost' means, with respect to any 
taxable year, the sum of— 
"(A) the qualified direct cost for such taxable year, and 
"(B) subject to the limitation of section 419A(b), any Post, p. 856. 
addition to a qualified asset account for the taxable year. 
"(2) REDUCTION FOR FUNDS AFTER-TAX INCOME.—In the case of 
any welfare benefit fund, the qualified cost for any taxable year 
shall be reduced by such fund's after-tax income for such tax-
able year. 
"(3) QUALIFIED DIRECT COST.— 
"(A) IN GENERAL.—The term 'qualified direct cost' means, 
with respect to any taxable year, the aggregate amount 
(including administrative expenses) which would have been 
allowable as a deduction to the employer with respect to the 
benefits provided during the taxable year, if— 
"(i) such benefits were provided directly by the em-
ployer, and 
"(ii) the employer used the cash receipts and dis-
bursements method of accounting. 
"(B) 
TIME WHEN BENEFITS PROVIDED.—For purposes of 
subparagraph (A), a benefit shall be treated as provided 
when such benefit would be includible in the gross income 
of the employee if provided directly by the employer (or 
would be so includible but for any provision of this chapter 
excluding such benefit from gross income). 
"(C) 60-MONTH AMORTIZATION OF CHILD CARE FACILITIES.— 
"(i) IN GENERAL.—In determining qualified direct 
costs with respect to any child care facility for purposes 
of subparagraph (A), in lieu of depreciation the ad-
justed basis of such facility shall be allowable as a 
deduction ratably over a period of 60 months beginning 
with the month in which the facility is placed in serv-
ice. 
"(ii) CHILD CARE FACILITY.—The term 'child care facil-
ity' means any tangible property which qualifies under 
regulations prescribed by the Secretary as a child care 
center primarily for children of employees of the em-
ployer; except that such term shall not include any 
property— 
"(I) not of a character subject to depreciation; or 
"(II) located outside the United States. 
"(4) AFTER-TAX INCOME.— 
"(A) IN GENERAL.—The term 'after-tax income' means, 
with respect to any taxable year, the gross income of the 
welfare benefit fund reduced by the sum o
f
— 
"(i) the deductions allowed by this chapter which are 
directly connected with the production of such gross 
income, and 
"(ii) the tax imposed by this chapter on the fund for 
the taxable year. 
"(B) TREATMENT OF CERTAIN AMOUNTS.—In determining 
the gross income of any welfare benefit fund— 
"(i) contributions and other amounts received from 
employees shall be taken into account, but 
* (ii) contributions from the employer shall not be 
taken into account. 
98 STAT. 856 
PUBLIC LAW 98-369—JULY 18, 1984 
"(5) ITEM ONLY TAKEN INTO ACCOUNT ONCE.—No item may be 
taken into account more than once in determining the qualified 
cost of any welfare benefit fund. 
"(d) CARRYOVER OF EXCESS CONTRIBUTIONS.—If— 
"(1) the amount of the contributions paid (or deemed paid 
under this subsection) by the employer during any taxable year 
to a welfare benefit fund, exceeds 
"(2) the limitation of subsection (b), 
such excess shall be treated as an amount paid by the employer to 
such fund during the succeeding taxable year. 
"(e) WELFARE BENEFIT FUND.—For purposes of this section— 
"(1) IN GENERAL.—The term 'welfare benefit fund' means any 
fund— 
"(A) which is part of a plan of an employer, and 
"(B) through which the employer provides welfare bene-
fits to employees or their beneficiaries. 
"(2) WELFARE BENEFIT.—The term 'welfare benefit' means any 
benefit other than a benefit with respect to which— 
"(A) section 83(h) applies, 
"(B) section 404 applies (determined without regard to 
section 404(b)(2)), 
"(C) section 404A applies, or 
"(D) an election under section 463 applies. 
"(3) FUND.—The term 'fund' means— 
"(A) any organization described in paragraph (7), (9), (17), 
or (20) of section 501(c), 
"(B) any trust, corporation, or other organization not 
exempt from the tax imposed by this chapter, and 
"(C) to the extent provided in regulations, any account 
held for an employer by any person. 
"(f) METHOD OF CONTRIBUTIONS, ETC., HAVING THE EFFECT OF A 
PLAN.—If— 
"(1) there is no plan, but 
"(2) there is a method or arrangement of employer contribu-
tions or benefits which has the effect of a plan, 
this section shall apply as if there were a plan. 
"(g) EXTENSION TO PLANS FOR INDEPENDENT CONTRACTORS.—If any 
fund would be a welfare benefit fund (as modified by subsection (f)) 
but for the fact that there is no employee-employer relationship— 
"(1) this section shall apply as if there were such a plan, and 
"(2) any reference in this section to the employer shall be 
treated as a reference to the person for whom services are 
provided, and any reference in this section to an employee shall 
be treated as a reference to the person providing the services. 
26 u s e 419A. 
"SEC. 419A. QUALIFIED ASSET ACCOUNT; LIMITATION ON ADDITIONS TO 
ACCOUNT. 
"(a) GENERAL RULE.—For purposes of this subpart, the term 
'qualified asset account' means any account consisting of assets set 
aside to provide for the pajnnent of— 
"(1) disability benefits, 
"(2) medical benefits, 
"(3) SUB or severance pay benefits, or 
"(4) life insurance benefits. 
"(b) LIMITATION ON ADDITIONS TO ACCOUNT.—No addition to any 
qualified asset account may be taken into account under section 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 857 
419(c)(1)(B) to the extent such addition results in the amount in such 
account exceeding the account Hmit. 
"(c) ACCOUNT LIMIT.—For purposes of this section— 
"(1) IN GENERAL.—Except as otherwise provided in this sub-
section, the account limit for any qualified asset account for any 
taxable year is the amount reasonably and actuarially neces-
sary to fund— 
"(A) claims incurred but unpaid (as of the close of such 
taxable year) for benefits referred to in subsection (a), and 
"(B) administrative costs with respect to such claims. 
"(2) ADDITIONAL RESERVE FOR POST-RETIREMENT MEDICAL AND 
LIFE INSURANCE BENEFITS.—The account limit for any taxable 
year may include a reserve funded over the working lives of the 
covered employees and actuarially determined on a level basis 
(using assumptions that are reasonable in the aggregate) as 
necessary for— 
"(A) post-retirement medical benefits to be provided to 
covered employees (determined on the basis of current 
medical costs), or 
"(B) post-retirement life insurance benefits to be provided 
to covered employees. 
"(3) AMOUNT TAKEN INTO ACCOUNT FOR SUB OR SEVERENCE PAY 
BENEFITS.— 
"(A) IN GENERAL.—The account limit for any taxable year 
with respect to SUB or severance pay benefits is 75 percent 
of the average annual qualified direct costs for SUB or 
severance pay benefits for any 2 of the immediately preced-
ing 7 taxable years (as selected by the fund). 
"(B) SPECIAL RULE FOR CERTAIN NEW PLANS.—In the case 
of any new plan for which SUB or severance pay benefits 
are not available to any key employee, the Secretary shall, 
by regulations, provide for an interim amount to be taken 
into account under paragraph (1). 
"(4) LIMITATION ON AMOUNTS TO BE TAKEN INTO ACCOUNT.— 
"(A) DISABILITY BENEFITS,—For purposes of paragraph (1), 
disability benefits payable to any individual shall not be 
taken into account to the extent such benefits are payable 
at an annual rate in excess of the lower of— 
"(i) 75 percent of such individual's average compensa-
tion for his high 3 years (within the meaning of section 
415(b)(3)), or 
"(ii) the limitation in effect under section 415(b)(1)(A). 
"(B) LIMITATION ON SUB OR SEVERANCE PAY BENEFITS.—For 
purposes of paragraph (3), any SUB or severance pay bene-
fit payable to any individual shall not be taken into account 
to the extent such benefit is payable at an annual rate in 
excess of 150 percent of the limitation in effect under 
section 415(c)(1)(A). 
"(5) SPECIAL LIMITATION WHERE NO ACTUARIAL CERTIFICA-
TION.— 
"(A) IN GENERAL.—Unless there is an actuarial certifica-
tion of the account limit determined under paragraph (1) 
for any taxable year, the account limit for such taxable 
year shall not exceed the sum of the safe harbor limits for 
such taxable year. 
"(B) SAFE HARBOR LIMITS.— 
Ante, p. 854. 
98 STAT. 858 
PUBLIC LAW 98-369—JULY 18, 1984 
"(i) SHORT-TERM DISABILITY BENEFITS.—In the case of 
short-term disability benefits, the safe harbor limit for 
any taxable year is 17.5 percent of the qualified direct 
costs (other than insurance premiums) for the immedi-
ately preceding taxable year with respect to such bene-
fits. 
"(ii) MEDICAL BENEFITS.—In the case of medical bene-
fits, the safe harbor limit for any taxable year is 35 
percent of the qualified direct costs (other than insur-
ance premiums) for the immediately preceding taxable 
year with respect to medical benefits. 
"(iii) SUB O
R SEVERANCE PAY BENEFITS.—In the case 
of SUB or severance pay benefits, the safe harbor limit 
for any taxable year is the amount determined under 
paragraph (3). 
"(iv) LONG-TERM DISABILITY OR LIFE INSURANCE BENE-
FITS.—In the case of any long-term disability benefit or 
life insurance benefit, the safe harbor limit for any 
taxable year shall be the amount prescribed by regula-
tions. 
"(d) REQUIREMENT OF SEPARATE ACCOUNTS FOR POST RETIREMENT 
MEDICAL OR LIFE INSURANCE BENEFITS PROVIDED TO KEY EMPLOY-
EES.— 
"(1) IN GENERAL.—In the case of any employee who is a key 
employee— 
"(A) a separate account shall be established for any 
medical benefits or life insurance benefits provided with 
respect to such employee after retirement, and 
"(B) medical benefits and life insurance benefits provided 
with respect to such employee after retirement may only be 
paid from such separate account. 
"(2) COORDINATION WITH SECTION 415.—For purposes of section 
415, any amount attributable to medical benefits allocated to an 
account established under paragraph (1) shall be treated as an 
annual addition to a defined contribution plan for purposes of 
section 415(c). 
"(3) KEY EMPLOYEE.—For purposes of this section, the term 
'key employee' means any employee who, at any time during 
the plan year or any preceding plan year, is or was a key 
employee as defined in section 416(i). 
"(e) SPECIAL LIMITATIONS ON RESERVES FOR MEDICAL BENEFITS OR 
LIFE INSURANCE BENEFITS PROVIDED TO RETIRED EMPLOYEES.— 
"(1) BENEFITS MUST BE NONDISCRIMINATORY.—No reserve may 
be taken into account under subsection (c)(2) for post-retirement 
medical benefits or life insurance benefits to be provided to 
covered employees unless the plan meets the requirements of 
Post, p. 864. 
section 505(b)(1) with respect to such benefits. 
"(2) TAXABLE UFE 
INSURANCE BENEFITS NOT TAKEN INTO 
ACCOUNT.—No life insurance benefit may be taken into account 
under subsection (c)(2) to the extent— 
"(A) such benefit is includible in gross income under 
section 79, or 
"(B) such benefit would be includible in gross income 
under section 101(b) (determined by substituting '$50,000' 
for '$5,000'). 
"(f) DEFINITIONS AND OTHER SPECIAL RULES.—For purposes of this 
section— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 869 
"(1) SUB O
R SEVERANCE P
A
Y BENEFIT.—The term 'SUB or 
severance pay benefit' means— 
"(A) any supplemental unemployment compensation ben-
efit (as defined in section 501(c)(17)(D)), and 
"(B) any severance pay benefit. 
"(2) MEDICAL BENEFIT.—The term 'medical benefit' means a 
benefit which consists of the providing (directly or through 
insurance) of medical care (as defined in section 213(d)). 
"(3) LIFE INSURANCE BENEFIT.—The term 'life insurance bene-
fit' includes any other death benefit. 
"(4) VALUATION.—For purposes of this section, the amount of 
the qualified asset account shall be the value of the assets in 
such account (as determined under regulations). 
"(5) HIGHER LIMIT IN CASE OF COLLECTIVELY BARGAINED 
PLANS.—Not later than July 1, 1985, the Secretary shall by 
regulations provide for special account limits in the case of any 
qualified asset account under a welfare benefit fund established 
under a collective bargaining agreement. 
"(6) EXCEPTION FOR IO-OR-MORE EMPLOYER PLANS.— 
"(A) IN GENERAL.—This subpart shall not apply in the 
case of any welfare benefit fund which is part of a 10 or 
more employer plan. The preceding sentence shall not 
apply to any plan which maintains experience-rating ar-
rangements with respect to individual employers. 
"(B) 10 O
R MORE EMPLOYER PLAN.—For purposes of sub-
paragraph (A), the term '10 or more employer plan' means 
a plan— 
-MM" 
"(i) to which more than 1 employer contributes, and 
"(ii) to which no employer normally contributes more 
u 
than 10 percent of the total contributions contributed 
*
; i )£ 
under the plan by all employers. 
"(7) ADJUSTMENTS FOR EXISTING EXCESS RESERVES.— 
"(A) INCREASE IN ACCOUNT UMIT.—The account limit for 
any of the first 4 taxable years to which this section applies 
shall be increased by the applicable percentage of any 
existing excess reserves. 
"(B) APPLICABLE PERCENTAGE.—For purposes of subpara-
graph (A)— 
u 
««in the case of: 
The applicable 
'3d ' 
percentage is: 
The first taxable year to which this section applies 
80 
The second taxable year to which this section applies 
60 
The third taxable year to which this section applies... 
40 
The fourth taxable year to which this section applies 
20. 
.., 
"(C) EXISTING EXCESS RESERVE.—For purposes of this para-
graph, the term 'existing excess reserve' means the excess 
(if any) o
f
— 
"(i) the amount of assets set aside for purposes de-
scribed in subsection (a) as of the close of the first 
taxable year ending after the date of the enactment of 
the Tax Reform Act of 1984, over 
Ante, p. 494. 
"(ii) the account limit which would have applied 
under this section to such taxable year if this section 
had applied to such taxable year. 
"(g) EMPLOYER 'TAXED ON INCOME OF WELFARE BENEFIT FUND IN 
CERTAIN CASES.— 
98 STAT. 860 
PUBLIC LAW 98-369—JULY 18, 1984 
"(1) IN GENERAL.—In the case of any welfare benefit fund 
which is not an organization described in paragraph (7), (9), (17), 
or (20) of section 501(c), the employer shall include in gross 
income for any taxable year an amount equal to such fund's 
deemed unrelated income for the fund's taxable year ending 
within the employer's taxable year. 
"(2) DEEMED UNRELATED INCOME.—For purposes of paragraph 
(1), the deemed unrelated income of any welfare benefit fund 
shall be the amount which would have been its unrelated 
business taxable income under section 512(a)(3) if such fund 
were an organization described in paragraph (7), (9), (17), or (20) 
of section 501(c). 
"(h) AGGREGATION RULES.—For purposes of this subpart— 
"(1) AGGREGATION OF FUNDS.—At the election of the employer, 
2 or more welfare benefit funds of such employer may be 
treated as 1 fund. 
"(2) TREATMENT OF RELATED EMPLOYERS.—Rules similar to the 
rules of subsections (b), (c), (m), and (n) of section 414 shall 
apply, 
"(i) REGULATIONS.—The Secretary shall prescribe such regulations 
as may be appropriate to carry out the purposes of this subpart. 
Such regulations may provide that the plan administrator of any 
welfare benefit fund which is part of a plan to which more than 1 
employer contributes shall submit such information to the employ-
ers contributing to the fund as may be necessary to enable the 
employers to comply with the provisions of this section." 
(b) AMENDMENTS TO TAX ON UNRELATED BUSINESS INCOME.— 
(1) EXTENSION OF SECTION 512(A) (3) TO SUPPLEMENTAL UNEM-
PLOYMENT BENEFIT AND GROUP LEGAL TRUSTS.— 
26 use 512. 
(A) Paragraph (3) of section 512(a) (relating to special 
rules applicable to organizations described in section 501(c) 
(7) or (9)) is amended by striking out "section 501(c) (7) or 
(9)" each place it appears (including in the paragraph head-
ing) and inserting in lieu thereof "paragraph (7), (9), (17), or 
(20) of section 501(c)". 
(B) Clause (ii) of section 512(a)(3)(B) is amended by strik-
ing out "section 501(c)(9)" and inserting in lieu thereof 
"paragraph (9), (17), or (20) of section 501(c)". 
(2) LIMITATION ON DEDUCTION FOR SET-ASIDE.—Paragraph (3) of 
section 512(a) is amended by adding at the end thereof the 
following new subparagraph: 
"(E) LIMITATION ON AMOUNT OF SETASIDE IN THE CASE OF 
ORGANIZATIONS DESCRIBED IN PARAGRAPH (9), (17), O
R (20) 
OF SECTION 501 (C).— 
"(i) IN GENERAL.—In the case of any organization 
described in paragraph (9), (17), or (20) of section 501(c), 
a set-aside for any purpose specified in clause (ii) of 
subparagraph (B) may be taken into account under 
subparagraph (B) only to the extent that such set-aside 
does not result in an amount of assets set aside for such 
purpose in excess of the account limit determined 
Ante, p. 856. 
under section 419A(c) for the taxable year (not taking 
into 
account 
any reserve 
described 
in 
section 
419A(c)(2)(A) for post-retirement medical benefits). 
"(ii) No SET ASIDE FOR FACILITIES.—No set aside for 
assets used in the provision of benefits described in 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 861 
clause (ii) of subparagraph 
(B) shall 
be 
taken 
into account. 
"(iii) TREATMENT OF EXISTING RESERVES FOR POST-RE-
TIREMENT MEDICAL OR LIFE INSURANCE BENEFITS.— 
. 
"(I) Clause (i) shall not apply to any income 
.:' 
attributable to a existing reserve for post-retire-
'" '^' 
ment medical or life insurance benefits. 
"(II) For purposes of subclause (I), the term 'ex-
isting reserve or post-retirement medical or life 
insurance benefit' means the amount of assets set 
(: 
? • ftS 
aside as of the close of the last plan year ending 
before the date of the enactment of the Tax Reform 
Act of 1984 for purposes of post-retirement medical Ante, p. 494. 
benefits or life insurance benefits to be provided to 
covered employees. 
"(Ill) All payments during plan years ending on 
or after the date of the enactment of the Tax 
t; 
' 
Reform Act of 1984 of post-retirement medical ben-
efits or life insurance benefits shall be charged 
i 
against the reserve referred to in subclause (II). 
Except to the extent provided in regulations pre-
scribed by the Secretary, all plans of an employer 
shall be treated as 1 plan for purposes of the 
preceding sentence, 
"(iv) TREATMENT OF TAX EXEMPT ORGANIZATIONS.— 
This paragraph shall not apply to any organization if 
substantially all of the contributions to such organiza-
tion are made by employers who were exempt from tax 
under this chapter throughout the 5-taxable year 
period ending with the taxable year in which the con-
tributions are made." 
(c) TAX ON CERTAIN FUNDED WELFARE BENEFIT PLANS.— 
(1) IN GENERAL.—Chapter 43 (relating to qualified pension, 
etc., plans) is amended by adding at the end thereof the follow-
ing new section: 
"SEC. 4976. TAXES WITH RESPECT TO FUNDED WELFARE BENEFIT PLANS. 
26 USC 4976. 
"(a) GENERAL RULE.—If— 
"(1) an employer maintains a welfare benefit fund, and 
"(2) there is a disqualified benefit provided during any taxable 
year, 
there is hereby imposed on such employer a tax equal to 100 percent 
of such disqualified benefit. 
"(b) DISQUALIFIED BENEFIT.—For purposes of subsection (a), the 
term 'disqualified benefit' means— 
"(1) any medical benefit or life insurance benefit provided 
with respect to a key employee other than from a separate 
account established for such owner under section 419A(d), and Ante, p. 856. 
"(2) any post-retirement medical or life insurance benefit 
unless the plan meets the requirements of section 505(b)(1) with 
Post, p. 864. 
respect to such benefit, and 
"(3) any portion of such fund reverting to the benefit of the 
employer. 
"(c) DEFINITIONS.—For purposes of this section, the terms used in 
this section shall have the same respective meanings as when used 
in subpart D of part I of subchapter D of chapter 1." 
Ante, p. 854. 
98 STAT. 862 
PUBLIC LAW 98-369—JULY 18, 1984 
(2) CONFORMING AMENDMENT.—The table of sections for chap-
ter 43 (relating to qualified pension, etc., plans) is amended by 
adding at the end thereof the following new item: 
"Sec. 4976. Taxes with respect to funded welfare benefit plans." 
(d) CLERICAL AMENDMENT.—The table of subparts for part I of 
subchapter D of chapter 1 is amended by adding at the end thereof 
the following new item: 
"Subpart D. Treatment of welfare benefit funds." 
26 use 419 note. 
(e) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply to 
contributions paid or accrued after December 31, 1985, in tax-
able years ending after such date. 
(2) SPECIAL RULE FOR COLLECTIVE BARGAINING AGREEMENTS.— 
In the case of plan maintained pursuant to 1 or more collective 
bargaining agreements— 
(A) between employee representatives and 1 or more 
employers, and 
(B) in effect on July 1, 1985 (or ratified on or before such 
date), 
the amendments made by this section and section 514 shall not 
apply to years beginning before the date on which the last of the 
collective bargaining agreements relating to the plan termi-
nates (determined without regard to any extension thereof 
agreed to after July 1,1985). 
(3) SPECIAL RULE FOR PARAGRAPH (2).—For purposes of para-
graph (2), any plan amendment made pursuant to a collective 
bargaining agreement relating to the plan which amends the 
plan solely to conform to any requirement added by this section 
shall not be treated as a termination of such collective bargain-
ing agreement. 
(4) SPECIAL EFFECTIVE DATE FOR CONTRIBUTIONS OF FACILI-
TIES.—Notwithstanding paragraphs (1) and (2), the amendments 
made by this section shall apply in the case of— 
(A) any contribution after June 22, 1984, of a facility to a 
welfare benefit fund, and 
(B) any other contribution after June 22, 1984, to a 
welfare benefit fund to be used to acquire or improve a 
facility. 
(5) BINDING CONTRACT EXCEPTIONS TO PARAGRAPH (4).—Para-
graph (4) shall not apply to any facility placed in service before 
January 1,1987— 
(A) which is acquired or improved by the fund (or contrib-
uted to the fund) pursuant to a binding contract in effect on 
June 22,1984, and at all times thereafter, or 
(B) the construction of which by or for the fund began 
before June 22,1984. 
SEC. 512. TREATMENT OF UNFUNDED DEFERRED BENEFITS. 
26 use 404. 
(a) GENERAL RULE.—Subsection (b) of section 404 (relating to 
method of contributions, etc., having the effect of a plan) is amended 
to read as follows: 
"(b) METHOD OF CONTRIBUTIONS, ETC., HAVING THE EFFECT OF A 
PLAN; UNFUNDED DEFERRED BENEFITS.— 
"(1) METHOD OF CONTRIBUTIONS, ETC., HAVING THE EFFECT OF A 
PLAN.—If— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 863 
"(A) there is no plan, but 
"(B) there is a method or arrangement of employer con-
tributions or compensation which has the effect of a stock 
bonus, pension, profit-sharing, or annuity plan, or other 
plan deferring the receipt of compensation (including a plan 
described in paragraph (2)), 
subsection (a) shall apply as if there were such a plan. 
"(2) PLANS PROVIDING UNFUNDED DEFERRED BENEFITS.— 
"(A) IN GENERAL.—For purposes of this section, any plan 
providing for deferred benefits (other than compensation) 
for employees, their spouses, or their dependents shall be 
treated as a plan deferring the receipt of compensation. In 
the case of such a plan, for purposes of this section, the 
determination of when an amount is includible in gross 
income shall be made without regard to any provisions of 
this chapter excluding such benefits from gross income. 
"(B) EXCEPTION FOR CERTAIN BENEFITS.—Subparagraph 
(A) shall not apply to— 
"(i) any benefit provided through a welfare benefit 
fund (as defined in section 419(e)), or 
Ante, p. 854. 
"(ii) to any benefit with respect to which an election 
under section 463 applies." 
(b) CROSS REFERENCE.—Subsection (j) of section 162 (relating to 26 use 162. 
cross references) is amended by adding at the end thereof the 
following new paragraph: 
"(3) For special rules relating to— 
"(A) funded welfare benefit plans, see section 419, and Ante, p. 854. 
"(B) deferred compensation and other deferred benefits, 
see section 404." 
(c) EFFECTIVE DATE.— 
26 use 404 note. 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to amounts paid 
or incurred after the date of the enactment of this Act in 
taxable years ending after such date. 
(2) EXCEPTION FOR CERTAIN EXTENDED VACATION PAY PLANS.— 
In the case of any extended vacation pay plan maintained 
pursuant to a collective bargaining agreement— 
(A) between employee representatives and 1 or more 
employers, and 
(B) in effect on June 22,1984, 
the amendments made by this section shall not apply before the 
date on which such collective bargaining agreement terminates 
(determined without regard to any extension thereof agreed to 
after June 22, 1984). For purposes of the preceding sentence, 
any plan amendment made pursuant to a collective bargaining 
agreement relating to the plan which amends the plan solely to 
conform to any requirement added by this section shall not be 
treated as a termination of such collective bargaining agree-
ment. 
SEC. 513. ADDITIONAL REQUIREMENTS FOR TAX-EXEMPT STATUS OF CER-
TAIN ORGANIZATIONS. 
(a) GENERAL RULE.—Part I of subchapter F of chapter 1 (relating 
to exempt organizations) is amended by adding at the end thereof 
the following new section: 
98 STAT. 864 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 505. 
"SEC. 505. ADDITIONAL 
REQUIREMENTS 
FOR 
ORGANIZATIONS DE-
SCRIBED IN PARAGRAPH (9), (17), OR (20) OF SECTION 501(c). 
"(a) CERTAIN REQUIREMENTS MUST BE MET IN THE CASE OF ORGA-
NIZATIONS DESCRIBED IN PARAGRAPH (9) OR (20) OF SECTION 501(C).— 
"(1) VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATIONS, ETC.— 
An organization described in paragraph (9) or (20) of subsection 
(c) of section 501 which is part of a plan of an employer shall not 
be exempt from tax under section 501(a) unless such plan meets 
the requirements of subsection (b) of this section. 
"(2) EXCEPTION FOR COLLECTIVE BARGAINING AGREEMENTS.— 
Paragraph (1) shall not apply to any organization which is part 
of a plan maintained pursuant to 1 or more collective bargain-
ing agreements between 1 or more employee organizations and 
1 or more employers. 
"(b) NONDISCRIMINATION REQUIREMENTS.— 
"(1) IN GENERAL.—Except as provided in paragraph (2), a plan 
meets the requirements of this subsection only i
f
— 
"(A) each class of benefits under the plan is provided 
under a classification of employees which is set forth in the 
plan and which is found by the Secretary not to be discrimi-
natory in favor of employees who are highly compensated 
individuals, and 
"(B) in the case of each class of benefits, such benefits do 
not discriminate in favor of employees who are highly 
compensated employees. 
A life insurance, disability, severance pay, or supplemental 
unemployment compensation benefit shall not be considered to 
fail to meet the requirements of subparagraph (B) merely be-
cause the benefits available bear a uniform relationship to the 
total compensation, or the basic or regular rate of compensa-
tion, of employees covered by the plan. 
"(2) EXCLUSION OF CERTAIN EMPLOYEES.—For purposes of para-
graph (1), there may be excluded from consideration— 
"(A) employees who have not completed 3 years of 
service, 
"(B) employees who have not attained age 21, 
"(C) seasonal employees or less than half-time employees, 
"(D) employees not included in the plan who are included 
in a unit of employees covered by an agreement between 
employee representatives and 1 or more employers which 
the Secretary finds to be a collective bargaining agreement 
if the class of benefits involved was the subject of good faith 
bargaining between such employee representatives and 
such employer or employers, and 
"(E) employees who are nonresident aliens and who re-
ceive no earned income (within the meaning of section 
911(d)(2)) from the employer which constitutes income from 
sources within the United States (within the meaning of 
section 861(a)(3)). 
"(3) APPUCATION OF SUBSECTION WHERE OTHER NONDISCRIMINA-
TION R
U
L
E
S PROVIDED.—In the case of any benefit for which a 
provision of this chapter other than this subsection provides 
nondiscrimination rules, paragraph (1) shall not apply but the 
requirements of this subsection shall be met only if the nondis-
crimination rules so provided are satisfied with respect to such 
benefit. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 865 
"(4) AGGREGATION RULES.—For purposes of this subsection— 
"(A) AGGREGATION OF PLANS.—At the election of the em-
ployer, 2 or more plans of such employer may be treated as 
1 plan. 
"(B) TREATMENT OF RELATED EMPLOYERS.—Rules similar to 
the rules of subsections (b), (c), (m), and (n) of section 414 
• -" 
shall apply. For purposes of the preceding sentence, section 
414(n) shall be applied without regard to paragraph (5). 
"(5) HIGHLY COMPENSATED INDIVIDUAL.—For purposes of this 
subsection, the term 'highly compensated individual' has the 
meaning given such term by section 105(h)(5). For purposes of 
the preceding sentence, section 105(h)(5) shall be applied by 
substituting '10 percent' for '25 percent'. 
"(c) REQUIREMENT THAT ORGANIZATION NOTIFY SECRETARY THAT IT 
Is APPLYING FOR TAX-EXEMPT STATUS.— 
"(1) IN GENERAL.—An organization shall not be treated as an 
organization described in paragraph (9), (17), or (20) of section 
501(c)— 
"(A) unless it has given notice to the Secretary, in such 
manner as the Secretary may by regulations prescribe, that 
it is applying for recognition of such status, or 
"(B) for any period before the giving of such notice, if 
such notice is given after the time prescribed by the Secre-
tary by regulations for giving notice under this subsection. 
"(2) SPECIAL RULE FOR EXISTING ORGANIZATIONS.—In the case 
of any organization in existence on the date of the enactment of 
the Tax Reform Act of 1984, the time for giving notice under Ante, p. 494. 
paragraph (1) shall not expire before the date 1 year after such 
date of the enactment." 
Ot)) CLERICAL AMENDMENT.—The table of sections for part I of 
subchapter F of chapter 1 is amended by adding at the end thereof 
the following new item: 
"Sec. 505. Additional requirements for organizations described in paragraph 
(9), (17), or (20) of section 501(c)." 
(c) EFFECTIVE DATE.— 
26 use 505 note. 
(1) IN GENERAL.—The amendments made by this section shall 
apply to years beginning after December 31,1984. 
(2) TREATMENT OF CERTAIN BENEFITS IN PAY STATUS AS OF 
JANUARY 1, 1985.—For purposes of determining whether a plan 
meets the requirements of section 5O50b) of the Internal Reve-
nue Code of 1954 (as added by subsection (a)), there may (at the Ante, p. 864. 
election of the employer) be excluded from consideration all 
disability or severance payments payable to individuals who are 
in pay status as of January 1, 1985. The preceding sentence 
shall not apply to any payment to the extent such payment is 
increased by any plan amendment adopted after June 22, 1984. 
Subtitle B—Provisions Relating to Pension 
Plans 
SEC. 521. REQUIRED DISTRIBUTIONS. 
(a) QuAUFiED PENSION PLANS.— 
(1) IN GENERAL.—Paragraph (9) of section 401(a) (relating to 26 USC 401. 
required distributions), as in effect before the amendments 
98 STAT. 866 
PUBLIC LAW 98-369—JULY 18, 1984 
made by section 242 of the Tax Equity and Fiscal Responsibility 
Act of 1982, is amended to read as follows: 
"(9) REQUIRED DISTRIBUTIONS.— 
"(A) IN GENERAL.—A trust shall not constitute a qualified 
trust under this subsection unless the plan provides that 
the entire interest of each employee— 
"(i) will be distributed to such employee not later 
than the required beginning date, or 
"(ii) will be distributed, beginning not later than the 
required beginning date, in accordance with regula-
tions, over the life of such employee or over the lives of 
such employee and a designated beneficiary (or over a 
period not extending beyond the life expectancy of such 
employee or the life expectancy of such employee and a 
designated beneficiary). 
"(B) REQUIRED DISTRIBUTION WHERE EMPLOYEE DIES BEFORE 
ENTIRE INTEREST IS DISTRIBUTED.— 
"(i) WHERE DISTRIBUTIONS HAVE BEGUN UNDER SUB-
PARAGRAPH (A)(ii).—A trust shall not constitute a 
qualified trust under this section unless the plan pro-
vides that if^ 
"(I) the distribution of the employee's interest 
has begun in accordance with subparagraph (A)(ii), 
and 
"(II) the employee dies before his entire interest 
has been distributed to him, 
the remaining portion of such interest will be distrib-
uted at least as rapidly as under the method of distribu-
tions being used under subparagraph (A)(ii) as of the 
date of his death. 
"(ii) 5-YEAR RULE FOR OTHER CASES.—A trust shall not 
constitute a qualified trust under this section unless 
the plan provides that, if an employee dies before the 
distribution of the employee's interest has begun in 
accordance with subparagraph (A)(ii), the entire inter-
est of the employee will be distriljuted within 5 years 
after the death of such employee, 
"(iii) 
EXCEPTION TO 5-YEAR 
RULE 
FOR CERTAIN 
AMOUNTS PAYABLE OVER LIFE OF BENEFICIARY.—If— 
"(I) any portion of the employee's interest is 
payable to (or for the benefit of) a designated bene-
ficiary, 
"(II) such portion will be distributed (in accord-
ance with regulations) over the life of such desig-
nated beneficiary (or over a period not extending 
beyond the life expectancy of such beneficiary), 
and 
"(III) such distributions begin not later than 
year after the date of the employee's death or such 
later date as the Secretary may by regulations 
prescribe, 
for purposes of clause (ii), the portion referred to in 
subclause (I) shall be treated as distributed on the date 
on which such distributions begin. 
"(iv) SPECIAL RULE FOR SURVIVING SPOUSE OF EM-
PLOYEE.—If the designated beneficiary referred to in 
clause (iii)(I) is the surviving spouse of the employee— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 867 
"(I) the date on which the distributions are re-
quired to begin under clause (iiiXIII) shall not be 
earlier than the date on which the employee would 
have attained age 70 ¥2, and 
"(II) if the surviving spouse dies before the distri-
butions to such spouse begin, this subparagraph 
shall be applied as if the surviving spouse were the 
employee. 
"(C) REQUIRED BEGINNING DATE.—For purposes of this 
paragraph, the term 'required beginning date' means April 
1 of the calendar year following the later of— 
L, 
"(i) the calendar year in which the employee attains 
age 70 V2, or 
"(ii) the calendar year in which the employee retires. 
Except as provided in section 409(d), clause (ii) shall not Ante, p. 852. 
apply in the case of an employee who is a 5-percent owner 
(as defined in section 416) with respect to the plan year 
\ 
ending in the calendar year in which the employee attains 
701/2. 
"(D) LIFE EXPECTANCY.—For purposes of this paragraph, 
' ; 
the life expectancy of an employee and the employee's 
spouse (other than in the case of a life annuity) may be 
t 
redetermined but not more frequently than annually. 
"(E) DESIGNATED BENEFICIARY.—For purposes of this para-
graph, the term 'designated beneficiary' means any individ- 
*
^ '^ >
*
« '^ 
ual designated as a beneficiary by the employee. 
"(F) TREATMENT OF PAYMENTS TO CHILDREN.—Under regu-
lations prescribed by the Secretary, for purposes of this 
paragraph, any amount paid to a child shall be treated as if 
'? "^? ' -^' 
it had been paid to the surviving spouse if such amount will 
become payable to the surviving spouse upon such child 
reaching majority (or other designated event permitted 
under regulations)." 
(2) REPEAL OF SECTION 242.—Section 242 of the Tax Equity and 26 use 40i, 401 
Fiscal Responsibility Act of 1982 is hereby repealed. 
note. 
(b) INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES.— 
(1) INDIVIDUAL RETIREMENT ACCOUNTS.—Section 408(a) (relat- 26 use 408. 
ing to individual retirement accounts) is amended by striking 
out paragraphs (6) and (7) and inserting in lieu thereof the 
following new paragraph: 
"(6) Under regulations prescribed by the Secretary, rules 
similar to the rules of section 401(a)(9) (relating to required Ante, p. 865. 
distributions) shall apply to the distribution of the entire inter-
est of an individual for whose benefit the trust is maintained." 
(2) INDIVIDUAL RETIREMENT ANNUITIES.—Section 408(b) (relat-
ing to individual retirement annuities) is amended by striking 
out paragraphs (3) and (4), by redesignating paragraph (5) as 
paragraph (4), and by inserting after paragraph (2) the following 
new paragraph: 
"(3) Under regulations prescribed by the Secretary, rules 
similar to the rules of section 401(a)(9) (relating to required 
distributions) shall apply to the distribution of the entire inter-
est of the owner." 
(c) SPECIAL RULE FOR CUSTODIAL ACCOUNTS.—Paragraph (7) of 
section 403(b) (relating to custodial accounts for regulated invest- 26 use 403. 
ment company stock) is amended by adding at the end thereof the 
following new subparagraph: 
98 STAT. 868 
PUBLIC LAW 98-369—JULY 18, 1984 
"(D) DISTRIBUTION REQUIREMENTS.—For purposes of deter-
mining when the interest of an employee in a custodial 
account must be distributed, such account shall be treated 
in the same manner as an annuity contract." 
(d) CERTAIN DISTRIBUTION REQUIREMENTS TO APPLY TO 5-PERCENT 
Post, p. 957. 
OWNERS RATHER THAN KEY EMPLOYEES.—Section 72(m)(5) (relating 
to penalties applicable to certain amounts received by owner-em-
ployees) is amended— 
(1) by striking out "key employee" each place it appears in 
subparagraph (A) and inserting in lieu thereof "5-percent 
owner"; 
(2) by striking out "in a top-heavy plan" in clause (i) of sub-
paragraph (A); and 
(3) by striking out "the terms 'key employee' and 'top-heavy 
plan' " in subparagraph (C) and inserting in lieu thereof "the 
term '5 percent owner ". 
26 u s e 401 note. 
(e) EFFECTIVE D A T E S . — 
(1) IN GENERAL.—The amendments made by this section shall 
apply to years beginning after December 31,1984. 
Ante, p. 867. 
(2) REPEAL OF SECTION 242 OF TEFRA.—The amendment made 
by subsection (a)(2) shall take effect as if included in the Tax 
Equity and Fiscal Responsibility Act of 1982. 
(3) TRANSITION RULE.—A trust forming part of a plan shall not 
be disqualified under paragraph (9) of section 401(a) of the 
Ante, p. 865. 
Internal Revenue Code of 1954, as amended by subsection (a)(1), 
by reason of distributions under a designation (before January 
1, 1984) by any employee in accordance with a designation 
described in section 242(b)(2) of the Tax Equity and Fiscal 
26 use 401 note. 
Responsibility Act of 1982 (as in efffect before the amendments 
made by this Act). 
(4) SPECIAL RULE FOR GOVERNMENTAL PLANS.—In the case of a 
governmental plan (within the meaning of section 414(d) of the 
Internal Revenue Code of 1954), paragraph (1) shall be applied 
f o; \H ; I.. 
by substituting "1986" for "1984". 
*jo 
(5) SPECIAL RULE FOR COLLECTIVE BARGAINING AGREEMENTS.— 
In the case of a plan maintained pursuant to one or more 
;;: jf ' -;. 
collective bargaining agreements ratified on or before the date 
of the enactment of this Act between employee representatives 
and one or more employers, the amendments made by this 
section shall not apply to years beginning before the earlier of— 
(A) the date on which the last of the collective bargaining 
c
^
a
s c, AJ',-- 
agreements relating to the plan terminates (determined 
without regard to any extension thereof agreed to after the 
date of the enactment of this Act), or 
(B) January 1,1988. 
For purposes of subparagraph (A), any plan amendment made pur-
suant to a collective bargaining agreement relating to the plan 
which amends the plan solely to conform to any requirement added 
by this section shall not be treated as a termination of such collec-
tive bargaining agreement. 
SEC. 522. ROLLOVER OF CERTAIN PARTIAL DISTRIBUTIONS PERMITTED. 
(a) GENERAL RULE.— 
26 use 402. 
(1) QUALIFIED TRUSTS.—Clause (i) of section 402(a)(5)(A) (relat-
ing to rollover amounts) is amended to read as follows— 
_ 
"(i) any portion of the balance to the credit of 
an employee in a qualified trust is paid to him,". 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 869 
(2) QUALIFIED ANNUITIES.—Clause (i) of section 403(a)(4)(A) 26 use 403. 
(relating to rollover amounts) is amended to read as follows: 
"(i) any portion of the balance to the credit of 
an employee in an employee annuity described in para-
graph (1) is paid to him,'. 
(3) 
SECTION 403(b) 
ANNUITIES.—Clause 
(i) of 
section 
403(b)(8)(A) (relating to rollover amounts) is amended to read as 
follows: 
"(i) any portion of the balance to the credit of 
an employee in an annuity contract described in paragraph 
(1) is paid to him,". 
(b) SPECIAL RULES FOR ROLLOVERS OF PARTIAL DISTRIBUTIONS.— 
Paragraph (5) of section 402(a) is amended by redesignating subpara- 26 USC 402. 
graphs (D) and (E) as subparagraphs (E) and (F), respectively, and by 
inserting after subparagraph (C) the following new subparagraph: 
"(D) SPECIAL RULES FOR PARTIAL DISTRIBUTIONS.— 
"(i) REQUIREMENTS.—Subparagraph (A) shall apply to 
a partial distribution only i
f
— 
"(I) such distribution is of an amount equal to at 
least 50 percent of the balance to the credit of the 
employee in a qualified trust (determined immedi-
ately before such distribution and without regard 
to subsection (e)(4)(C)), 
"(II) such distribution is not one of a series of 
periodic payments, and 
"(III) the employee elects (at such time and in 
such manner as the Secretary shall by regulations 
prescribe) to have subparagraph (A) apply to such 
partial distribution. 
"(ii) PARTIAL DISTRIBUTIONS MAY BE TRANSFERRED 
O
N
L
Y TO INDIVIDUAL RETIREMENT PLANS.—In the case of 
a partial distribution, a plan described in subclause (IV) 
or (V) of subparagraph (E)(iv) shall not be treated as an 
eligible retirement plan. 
"(iii) DENIAL OF IO-YEAR AVERAGING AND CAPITAL 
-
< r< 
GAINS TREATMENT FOR SUBSEQUENT DISTRIBUTIONS.—If 
an election under clause (i) is made with respect to any 
partial distribution paid to any employee— 
"(I) paragraph (2) of this subsection, 
"(II) paragraphs (1) and (3) of subsection (e), and 
' '(III) paragraph (2) of section 403(a), 
shall not apply to any distribution (paid after such 
partial distribution) of the balance to the credit of such 
employee under the plan under which such partial 
distribution was made (or under any other plan which, 
under subsection (e)(4)(C), would be aggregated with 
such plan). 
"(iv) SPECIAL RULE FOR UNREALIZED APPRECIATION.—If 
an election under clause (i) is made with respect to any 
partial distribution, the second and third sentences of 
paragraph (1) shall not apply to such distribution." 
(c) PARTIAL DISTRIBUTIONS PAID TO SPOUSE OF EMPLOYEE AFTER 
EMPLOYEE'S DEATH ELIGIBLE FOR ROLLOVER.—Paragraph (7) of sec-
tion 402(a) (relating to rollover where spouse receives lump-sum 
distribution at death of employee) is amended to read as follows: 
"(7) ROLLOVER WHERE SPOUSE RECEIVES DISTRIBUTIONS AFTER 
DEATH OF EMPLOYEE.—If any distribution attributable to an 
98 STAT. 870 
PUBLIC LAW 98-369—JULY 18, 1984 
:;r i J r 
employee is paid to the spouse of the employee after the em-
ployee's death, paragraph (5) shall apply to such distribution in 
the same manner as if the spouse were the employee.", 
(d) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) The following provisions are each amended by striking out 
"qualifying rollover distribution" each place it appears and 
inserting in lieu thereof "qualified total distribution"— 
26 use 402. 
(A) section 402(a)(5)(B), 
Ante, p. 869. 
(B) Section 402(a)(5)(E)(i) (as redesignated by subsection 
(b)), and 
(C) section 402(a)(6)(E)(i). 
(2) Subparagraph (B) of section 402(a)(5) is amended by adding 
.; 
at the end thereof the following new sentence: "In the case of 
any partial distribution, the maximum amount transferred to 
which subparagraph (A) applies shall not exceed the portion of 
such distribution which is includible in gross income (deter-
mined without regard to subparagraph (A))." 
(3) Clause (ii) of section 402(a)(5)(E) (as redesignated by subsec-
tion (b)) is amended by striking out "gross income" and insert-
ing in lieu thereof "gross income (determined without regard to 
this paragraph)". 
(4) Clause (v) of subparagraph (E) of section 402(a)(5) (as 
redesignated by subsection 0^)) is amended to read as follows: 
"(v) PARTIAL DISTRIBUTION.—The term 'partial distribu-
tion' means any distribution to an employee of any portion 
of the balance to the credit of such employee in a qualified 
trust; except that such term shall not include any distribu-
tion which is a qualified total distribution." 
(5) Subparagraph (F) of section 402(a)(5) (as redesignated by 
subsection (b)) is amended by striking out "subparagraph 
(D)(iv)" each place it appears and inserting in lieu thereof 
"subparagraph (E)(iv)". 
(6) Paragraph (6) of section 402(a) is amended by striking out 
"paragraph (5)(D)(i)" each place it appears and inserting in lieu 
thereof "paragraph (5)(E)(i)^'. 
(7) Clauses (iii) and (iv) of section 402(a)(6)(D) are each 
amended by striking out "employee contributions" and insert-
ing in lieu thereof "employee contributions (or, in the case of a 
partial distribution, the amount not includible in gross 
income)". 
(8) Clause (i) of section 402(a)(6)(E) is amended by striking out 
"paragraph (5)(D)(i)(II)" and inserting in lieu thereof "para-
graph (5)(D) or (5)(E)(i)(II)". 
(9) Subparagraph (B) of section 403(a)(4) is amended by strik-
ing out "(B) through (E)" and inserting in lieu thereof "(B) 
through (F)". 
26 use 403. 
(10) Subparagraph (B) of section 4030t))(8) is amended to read 
as follows: 
"(B) SPECIAL RULES FOR PARTIAL DISTRIBUTIONS.— 
"(i) IN GENERAL.—In the case of any distribution 
other than a total distribution, rules similar to the 
Ante, p. 869. 
rules of clauses (i) and (ii) of section 402(a)(5)(D) shall 
apply. 
"(ii) TOTAL DISTRIBUTION.—For purposes of subpara-
graph (A), the term 'total distribution' means one or 
more distributions from an annuity contract described 
in paragraph (1) which would constitute a lump-sum 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 871 
distribution within the meaning of section 402(e)(4)(A) 
(determined without regard to subparagraphs (B) and 
(H) of section 402(e)(4)) if such annuity contract were 
described in subsection (a), or 1 or more distributions of 
accumulated deductible employee contributions (within 
the meaning of section 72(o)(5))." 
(11) Subparagraph (C) of section 403(b)(8) is amended by strik- 26 USC 403. 
ing out "(D)(v), and (E)(i)" and inserting in lieu thereof "(F)(i)". 
(12) Clause (ii) of section 408(d)(3)(A) is amended by striking 26 USC 408. 
out "rollover contribution from an employee's trust" and insert-
ing in lieu thereof "rollover contribution of a qualified total 
distribution (as defined in section 402(a)(5)(E)(i)) from an em-
ployee's trust". 
(13) Subparagraph (C) of section 4090t))(3) is amended by strik- Ante, p. 852. 
ing out the second sentence and inserting in lieu thereof the 
following new sentences: "This subparagraph does not apply in 
the case of a transfer to such an employee's trust or such an 
annuity unless no part of the value of such proceeds is attribut-
able to any source other than a qualified rollover contribution. 
For purposes of the preceding sentence, the term 'qualified 
rollover contribution' means any rollover contribution of a 
qualified total distribution (as defined in section 402(a)(5)(E)(i)) Ante, p. 869. 
which is from such an employee's trust or annuity plan (other 
than an annuity plan or a trust forming part of a plan under 
which the individual was an employee within the meaning of 
section 401(c)(1) at the time contributions were made on his 
behalf under such plan), and which did not qualify as a rollover 
contribution by reason of section 402(a)(7)." 
Ante, p. 869. 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 402 note. 
apply to distributions made after the date of the amendment of this 
Act, in taxable years ending after such date. 
SEC. 523. TREATMENT OF DISTRIBUTIONS WHERE SUBSTANTIALLY ALL 
CONTRIBUTIONS ARE EMPLOYEE CONTRIBUTIONS. 
(a) IN GENERAL.—Subsection (e) of section 72 (relating to amounts 
26 USC 72. 
not received as annuities) is amended by adding at the end thereof 
the following new paragraph: 
"(7) SPECIAL RULES FOR PLANS WHERE SUBSTANTIALLY ALL CON-
TRIBUTIONS ARE EMPLOYEE CONTRIBUTIONS.— 
"(A) IN GENERAL.—In the case of any plan or contract to 
which this paragraph applies, subparagraph (D) of para-
graph (5) shall not apply to any amount received from such 
plan or contract. 
"(B) PLANS OR CONTRACTS TO WHICH THIS PARAGRAPH AP-
PUES.—This paragraph shall apply to any trust or con-
tract— 
"(i) which is described in clause (i) or subclause (I), 
(II), or (III) of clause (ii) of paragraph (5)(D), and 
"(ii) with respect to which 85 percent of the total 
contributions during a representative period are de-
rived from employee contributions. 
"(C) SPECIAL RULE FOR CERTAIN FEDERAL PLANS.—If the 
Federal Government or an instrumentality thereof main-
tains more than 1 plan, subparagraph (B) shall be applied 
by aggregating all such plans which are actively adminis-
tered by the Federal Government or such instrumentality." 
O
t
>
) CONFORMING AMENDMENTS.— 
98 STAT. 872 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 72. 
(1) Subparagraph (D) of section 72(e)(5) (relating to contracts 
under qualified plans) is amended by striking out "This" and 
inserting in lieu thereof "Except as provided in paragraph (7), 
this". 
(2) Paragraph (3) of section 72(p) (defining qualified employer 
plan) is amended by inserting "other than a plan described in 
subsection (e)(7)" after "section 219(e)(3)". 
26 use 72 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to any amount received or loan made after the 90th day after 
the date of the enactment of this Act. 
SEC. 524. PROVISIONS RELATING TO TOP-HEAVY PLANS. 
(a) DEFINITION OF KEY EMPLOYEE.— 
26 use 416. 
(1) IN GENERAL.—Clause (i) of section 416(i)(l)(A) (defining key 
employee) is amended by inserting "having an annual compen-
sation greater than 150 percent of the amount in effect under 
section 415(c)(1)(A) for any such plan year" after "employer". 
26 use 416 note. 
(2) EFFECTIVE DATE.—The amendment made by this subsection 
shall apply to plan years beginning after December 31, 1983. 
(b) ACCRUED BENEFIT OF INDIVIDUAL NOT EMPLOYED WITHIN LAST 5 
YEARS DISREGARDED.— 
26 use 416. 
(1) IN GENERAL.—Paragraph (4) of section 416(g) (relating to 
other special rules) is amended by adding at the end thereof the 
following new subparagraph: 
"(E) BENEFITS NOT TAKEN INTO ACCOUNT IF EMPLOYEE NOT 
EMPLOYED FOR LAST 5 YEARS.—If any individual has not 
received any compensation from any employer maintaining 
the plan (other than benefits under the plan) at any time 
during the 5-year period ending on the determination date, 
any accrued benefit for such individual (and the account of 
such individual) shall not be taken into account." 
26 use 416 note. 
(2) EFFECTIVE DATE.—The amendment made by this subsection 
shall apply to plan years beginning after December 31, 1984. 
(c) SALARY REDUCTION ARRANGEMENTS MAY BE TAKEN INTO 
ACCOUNT.— 
26 use 416. 
(1) IN GENERAL.—Paragraph (2) of section 416(c) (relating to 
minimum benefits for defined contribution plans) is amended by 
striking out subparagraph (C). 
26 use 416 note. 
(2) EFFECTIVE DATE.—The amendment made by this subsection 
shall apply to plan years beginning after December 31, 1984. 
(d) CERTAIN GOVERNMENTAL PLANS EXEMPT FROM TOP-HEAVY 
PLAN RULES.— 
26 use 401. 
(1) IN GENERAL.—Paragraph (10)(B) of section 401(a) (relating 
to plan requirements regarding top-heavy plans) is amended by 
adding at the end thereof the following new clause: 
"(iii) EXEMPTION FOR GOVERNMENTAL PLANS.— 
This subparagraph shall not apply to any govern-
mental plan." 
26 use 401 note. 
(2) EFFECTIVE DATE.—The amendment made Vy this subsection 
shall apply to plan years beginning after December 31, 1983. 
26 u s e 401 note. 
(e) QUALIFICATION REQUIREMENTS MODIFIED IF REGULATIONS NOT 
ISSUED.— 
(1) IN GENERAL.—If the Secretary of the Treasury or his 
delegate does not publish final regulations under section 416 of 
the Internal Revenue Code of 1954 (as in effect on the day before 
the date of the enactment of this Act) before January 1, 1985, 
the Secretary shall publish before such date plan amendment 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 873 
provisions which may be incorporated in a plan to meet the 
requirements of section 401(a)(10)(B)(ii) of such Code. 
(2) EFFECT OF INCORPORATION.—If a plan is amended to incor-
porate the plan amendment provisions described in paragraph 
(1), such plan shall be treated as meeting the requirements of 
section 401(a)(10)(B)(ii) of the Internal Revenue Code of 1954 
during the period such amendment is in effect but not later 
than 6 months after the final regulations described in para-
graph (1) are published. 
(3) FAILURE BY SECRETARY TO PUBLISH.—If the Secretary of the 
Treasury or his delegate does not publish plan amendment 
provisions described in paragraph (1), the plan shall be treated 
as meeting the requirements of section 401(a)(10)(B) of the 
Internal Revenue Code of 1954 if— 
(A) such plan is amended to incorporate such require-
ments by reference, except that 
(B) in the case of any optional requirement under section 
416 of such Code, if such amendment does not specify the 
manner in which such requirement will be met, the em-
ployer shall be treated as having elected the requirement 
with respect to each employee which provides the maximum 
vested accrued benefit for such employee. 
SEC. 525. REPEAL OF ESTATE TAX EXCLUSION FOR QUALIFIED PENSION 
PLAN BENEFITS. 
(a) IN GENERAL.—Section 2039 (relating to inclusion in the gross 26 use 2039. 
estate of annuities) is amended by striking out subsections (c), (d), (e), 
if), and (g) and inserting in lieu thereof the following new subsection: 
"(c) EXCEPTION OF CERTAIN ANNUITY INTERESTS CREATED BY COM-
MUNITY PROPERTY LAWS.— 
"(1) IN GENERAL.—In the case of an employee on whose behalf 
contributions or payments were made by his employer or 
former employer under a trust, plan, or contract to which this 
subsection applies, if the spouse of such employee predeceases 
such employee, then notwithstanding any provision of law, 
there shall be excluded from the gross estate of such spouse the 
value of any interest of such spouse in such trust, plan, or 
contract, to the extent such interest— 
"(A) is attributable to such contributions or payments, 
and 
"(B) arises solely by reason of such spouse's interest in 
community income under the community property laws of a 
State. 
"(2) 
TRUSTS, PLANS, AND CONTRACTS TO WHICH SUBSECTION 
APPLIES.—This subsection shall apply to— 
"(A) any trust, plan, or contract which at the time of the 
decedent's separation from employment (by death or other-
wise), or if earlier, at the time of termination of the plan— 
"(i) formed part of a plan which met the require-
ments of section 401(a), or 
"(ii) was purchased pursuant to a plan described in 
section 403(a), or 
"(B) a retirement annuity contract purchased for an em-
ployee by an employer which is— 
"(i) an organization referred to in clause (ii) or (vi) of 
section 170(b)(1)(A), or 
98 STAT. 874 
PUBLIC LAW 98-369—JULY 18, 1984 
'^ff, is 
"(ii) a religious organization (other than a trust) 
exempt from taxation under section 501(a). 
"(3) AMOUNT CONTRIBUTED BY EMPLOYEE.—For purposes of this 
subsection— 
"(A) contributions or payments made by the decedent's 
employer or former employer under a trust, plan, or con-
tract described in paragraph (2)(A) shall not be considered 
to be contributed by the decedent, and 
"(B) contributions or payments made by the decedent's 
employer or former employer toward the purchase of an 
annuity contract described in paragraph (2)(B) shall not be 
considered to be contributed by the decedent to the extent 
excludable from gross income under section 403(b)." 
26 use 2039 
(b) EFFECTIVE DATES.— 
note. 
(1) IN GENERAL.—The amendments made by this section shall 
apply to the estates of decedents dying after December 31, 1984. 
(2) EXCEPTION FOR PARTICIPANTS IN PAY STATUS.—The amend-
ments made by this section shall not apply to the estate of any 
decedent who— 
(A) was a participant in any plan who was in pay status 
on December 31,1984, and 
(B) irrevocably elected the form of the benefit before the 
date of the enactment of this Act. 
(3) PAY STATUS RULE EXTENDED TO $100,000 LIMITATION.—Sub-
section (c) of section 245 of the Tax Equity and Fiscal Responsi-
26 use 2039 
bility Act of 1982 is amended by inserting ", except that such 
note. 
amendments shall not apply to the estate of any decedent who 
was a participant in any plan who was in pay status on Decem-
ber 31,1982, and irrevocably elected before January 1, 1983, the 
form of benefit". 
SEC. 526. AFFILIATED SERVICE GROUPS, EMPLOYEE LEASING ARRANGE-
MENTS, AND COLLECTIVE BARGAINING AGREEMENTS. 
(a) ATTRIBUTION RULES FOR AFFILIATED SERVICE GROUPS.— 
26 use 414. 
(1) IN GENERAL.—Subparagraph (B) of section 414(m)(6), as in 
effect for taxable years beginning after December 31, 1983, is 
amended by striking out "section 267(c)" and inserting in lieu 
thereof "section 318(a)". 
26 use 414 note. 
(2) EFFECTIVE DATE.—The amendment made by this subsection 
shall apply to taxable years beginning after December 31, 1984. 
(b) 
EMPLOYEE 
LEASING 
EXCEPTION 
ONLY 
APPLIES 
TO NON-
EMPLOYEES.— 
(1) IN GENERAL.—Paragraph (2) of section 414(n) (defining 
leased employee) is amended by striking out "any person" in 
the material preceding subparagraph (A) and inserting in lieu 
thereof "any person who is not an employee of the recipient 
and". 
26 use 414 note. 
(2) EFFECTIVE DATE.—The amendment made by this subsection 
shall apply to taxable years beginning after December 31, 1983. 
(c) DETERMINATION OF WHETHER THERE IS A COLLECTIVE BARGAIN-
ING AGREEMENT.— 
Ante, p. 558. 
(1) IN GENERAL.—Subsection (a) of section 7701 (relating to 
definitions) is amended by adding at the end thereof the follow-
-i 
ing new paragraph: 
"(46) DETERMINATION OF WHETHER THERE IS A COLLECTIVE 
I; 
BARGAINING AGREEMENT.—In determining whether there is a 
collective bargaining agreement between employee representa-
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 875 
tives and 1 or more employers, the term 'employee representa-
tives' shall not include any organization more than one-half of 
the members of which are employees who are owners, officers, 
or executives of the employer." 
(2) EFFECTIVE DATE.—The amendment made by this subsection 26 USC 7701 
shall take effect on April 1,1984. 
note, 
(d) ADDITIONAL REGULATIONS.— 
(1) IN GENERAL.—Section 414 (relating to definitions and spe- 26 use 414. 
cial rules) is amended by adding at the end thereof the following 
new subsection: 
"(o) REGULATIONS.—The Secretary shall prescribe such regula-
tions (which may provide rules in addition to the rules contained in 
subsections (m) and (n)) as may be necessary to prevent the avoid-
ance of any employee benefit requirement listed in subsection (m)(4) 
or (n)(3) through the use o
f
— 
"(1) separate organizations, 
"(2) employee leasing, or 
"(3) other arrangements." 
(2) CONFORMING AMENDMENT.—Subsection (m) of section 414 
is amended by striking out paragraph (6). 
(3) EFFECTIVE DATE.—The amendments made by this subsec- 26 use 414 note. 
tion shall take effect on the date of the enactment of this Act. 
SEC. 527. PROVISIONS RELATING TO CASH OR DEFERRED ARRANGE-
MENTS. 
(a) 
PARTICIPATION AND DISCRIMINATION STANDARDS.—Subpara-
graph (A) of section 401(k)(3) is amended to read as follows: 
26 use 40i. 
"(A) A cash or deferred arrangement shall not be treated 
as a qualified cash or deferred arrangement unless— 
"(i) those employees eligible to benefit under the 
arrangement satisfy the provisions of subparagraph (A) 
or (B) of section 410(bXl), and 
"(ii) the actual deferral percentage for highly com-
pensated employees (as defined in paragraph (4)) for 
such year bears a relationship to the actual deferral 
percentage for all other eligible employees for such 
plan year which meets either of the following tests: 
"(I) The actual deferral percentage for the group 
of highly compensated employees is not more than 
the actual deferral percentage of all other eligible 
employees multiplied by 1.5. 
"(II) The excess of the actual deferral percentage 
for the group of highly compensated employees 
over that of all other eligible employees is not more 
than 3 percentage points, and the actual deferral 
percentage for the group of highly compensated 
employees is not more than the actual deferral 
percentage of all other eligible employees multi-
plied by 2.5. 
v! 
• 
jf 2 or more plans which include cash or deferred 
arrangements are considered as 1 plan for purposes of 
section 401(a)(4) or 410(b), the cash or deferred arrange-
ments included in such plans shall be treated as 1 
arrangement for purposes of this subparagraph. 
The deferral percentage taken into account under this 
subparagraph for any employee who is a participant under 
2 or more cash or deferred arrangements of the employer 
98 STAT. 876 
PUBLIC LAW 98-369—JULY 18, 1984 
shall be the sum of the deferral percentages for such em-
ployee under each of such arrangements." 
(b) APPUCATION TO PRE-ERISA MONEY PURCHASE PLAN.— 
26 use 401. 
(1) GENERAL RULE.—Paragraphs (1) and (2) of section 401(k) 
(relating to cash or deferred arrangements) are each amended 
by inserting "(or a pre-ERISA money purchase plan)" after 
"stock bonus plan". 
(2) DEFINITION OP PRE-ERISA MONEY PURCHASE PLAN.—Subsec-
tion (k) of section 401 is amended by adding at the end thereof 
the following new paragraph: 
"(5) PRE-ERISA MONEY PURCHASE PLAN.—For purposes of this 
subsection, the term 'pre-ERISA money purchase plan' means a 
pension plan— 
"(A) which is a defined contribution plan (as defined in 
section 414(i)), 
"(B) which was in existence on June 27, 1974, and which, 
on such date, included a salary reduction arrangement, 
and 
"(C) under which neither the employee contributions nor 
the employer contributions may exceed the levels provided 
sjc I t 
81! • 
for by the contribution formula in effect under the plan 
on such date." 
(3) TECHNICAL AMENDMENT.—Subparagraph (B) of section 
401(k)(2) is amended by striking out ", hardship or the attain-
ment of age 59 Vz," and inserting in lieu thereof "(or in the case 
of a profit sharing or stock bonus plan, hardship or the attain-
ment of age 59 ¥2) . 
26 u s e 401 note. 
(c) EFFECTIVE D A T E S . — 
(1) SUBSECTION (a).— 
(A) IN GENERAL.—Except as provided in subparagraph (B), 
the amendment made by subsection (a) shall apply to plan 
years beginning after December 31,1984. 
(B) EXCEPTION FOR CERTAIN EXISTING PLANS.—The amend-
ment made by subsection (a) shall not apply to any plan— 
(i) which was maintained by a State on June 8,1984, 
and 
(ii) with respect to which a determination letter had 
been issued by the Secretary on December 6, 1982. 
(2) SUBSECTION (b).— 
(A) IN GENERAL.—The amendments made by this section 
shall apply with respect to plan years beginning after the 
date of the enactment of this Act. 
(B) TRANSITIONAL RULE.—Rules similar to the rules under 
26 use 401 note. 
section 135(c)(2) of the Revenue Act of 1978 shall apply with 
respect to any pre-ERISA money purchase plan (as defined 
Supra. 
in section 401(k)(5) of the Internal Revenue Code of 1954) for 
plan years beginning after December 31, 1979, and on or 
before the date of the enactment of this Act. 
SEC. 528. TREATMENT OF CERTAIN MEDICAL, ETC., BENEFITS UNDER SEC-
TION 415. 
26 use 415. 
(a) GENERAL RULE.—Section 415 (relating to limitations on bene-
fits and contributions under qualified plan) is amended by adding at 
the end thereof the following new subsection: 
"(1) TREATMENT OF CERTAIN MEDICAL BENEFITS.— 
"(1) IN GENERAL.—For purposes of this section, contributions 
allocated to any individual medical account which is part of a 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 877 
defined benefit plan shall be treated as an annual addition to a 
defined contribution plan for purposes of subsection (c). 
"(2) INDIVIDUAL MEDICAL BENEFIT ACCOUNT.—For purposes of 
paragraph (1), the term 'individual medical benefit account' 
means any separate account— 
"(A) which is established for a participant under a de-
fined benefit plan, and 
"(B) from which benefits described in section 401(h) are 
payable solely to such participant, his spouse, or his de-
pendents." 
(b) REQUIREMENT THAT SEPARATE ACCOUNT BE MAINTAINED FOR 5-
PERCENT OWNER,—Subsection (h) of section 401 (relating to medical, 26 use 40i. 
etc., benefits for retired employees and their spouses and depend-
ents) is amended by striking out "and" at the end of paragraph (4), 
by striking out the period at the end of paragraph (5) and inserting 
in lieu thereof ", and", and by adding at the end thereof the 
following new paragraph: 
"(6) in the case of an employee who is a 5-percent owner, a 
separate account is established and maintained for such bene-
fits payable to such employee (and his spouse and dependents) 
and such benefits (to the extent attributable to plan years 
beginning after March 31, 1984, for which the employee is a 5-
percent owner) are only payable to such employee (and his 
spouse and dependents) from such separate account. 
For purposes of paragraph (6), the term '5-percent owner' means any 
employee who, at any time during the plan year or any preceding 
plan year during which contributions were made on behalf of such 
employee, is or was a 5-percent owner (as defined in section 
416(i)(l)(B))." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 use 40i note. 
apply to years beginning after March 31,1984. 
SEC. 529. CERTAIN ALIMONY TREATED AS COMPENSATION. 
(a) IN GENERAL.—Paragraph (1) of section 219(f) (defining compen- 26 use 219. 
sation) is amended by adding at the end thereof the following new 
sentence: "The term 'compensation' shall include any amount in-
cludible in the individual's gross income under section 71 with Ante, p. 795. 
respect to a divorce or separation instrument described in subpara-
graph (A) of section 71(b)(2)." 
(b) CONFORMING AMENDMENT.—Subsection (b) of section 219 is 
amended by striking out paragraph (4). 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 use 219 note. 
apply to taxable years beginning after December 31,1984. 
Subtitle C—Tax Treatment of Fringe Benefits 
SEC. 531. EXCLUSION OF CERTAIN FRINGE BENEFITS FROM GROSS 
INCOME. 
(a) EXCLUSION OF CERTAIN FRINGE BENEFITS.— 
(1) IN GENERAL.—Part III of subchapter B of chapter 1 (relat-
ing to items specifically excluded from gross income) is amended 
by redesignating section 132 as section 133 and by inserting 26 use 133. 
after section 131 the following new section: 
98 STAT. 878 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 132. 
"SEC. 132. CERTAIN FRINGE BENEFITS. 
**(a) EXCLUSION FROM GROSS INCOME.—Gross income shall not 
include any fringe benefit which qualifies as a— 
"(1) no-additional-cost service, 
"(2) qualified employee discount, 
i 
"(3) working condition fringe, or 
"(4) de minimis fringe. 
"(b) No-ADDITIONAL-COST SERVICE DEFINED.—For purposes of this 
section, the term 'no-additional-cost service' means any service pro-
vided by an employer to an employee for use by such employee i
f
— 
"(1) such service is offered for sale to customers in the ordi-
nary course of the line of business of the employer in which the 
employee is performing services, and 
"(2) the employer incurs no substantial additional cost (in-
cluding forgone revenue) in providing such service to the em-
ployee (determined without regard to any amount paid by the 
employee for such service). 
"(c) QUALIFIED EMPLOYEE DISCOUNT DEFINED.—For purposes of 
this section— 
"(1) QUALIFIED EMPLOYEE DISCOUNT.—The term 'qualified em-
ployee discount' means any employee discount with respect to 
qualified property or services to the extent such discount does 
not exceed— 
"(A) in the case of property, the gross profit percentage of 
the price at which the property is being offered by the 
employer to customers, or 
"(B) in the case of services, 20 percent of the price at 
which the services are being offered by the employer to 
customers. 
.^ ., 
:^ 
"(2) GROSS PROFIT PERCENTAGE.— 
" ' • " 
' 
'^' 
"(A) IN GENERAL.—The term 'gross profit percentage' 
means the percent which— 
"(i) the excess of the aggregate sales price of property 
, _
^ 
sold by the employer to customers over the aggregate 
' ' 
' ' " 
cost of such property to the employer, is of 
"(ii) the aggregate sale price of such property. 
"(B) DETERMINATION OF GROSS PROFIT PERCENTAGE.—Gross 
.
t
;
<
'
V 
3 n; 
profit percentage shall be determined on the basis of— 
"(i) all property offered to customers in the ordinary 
course of the line of business of the employer in which 
'*' 
the employee is performing services (or a reasonable 
classification of property selected by the employer), and 
.SJORC1:!"J^:U i
K
: iif; 
"(ii) the employer's experience during a representa-
tive period. 
"(3) EMPLOYEE DISCOUNT DEFINED.—The term 'employee dis-
count' means the amount by which— 
"(A) the price at which the property or services are 
provided to the employee by the employer, is less than 
<*-»• 
"(B) the price at which such property or services are 
being offered by the employer to customers. 
"(4) QUALIFIED PROPERTY OR SERVICES.—The term 'qualified 
4 
property or services' means any property (other than real prop-
erty and other than personal property of a kind held for invest-
pt f )>Ti > 
ment)"br services which are offered for sale to customers in the 
ordinary course of the line of business of the employer in which 
the employee is peforming services. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 879 
"(d) WORKING CONDITION FRINGE DEFINED.—For purposes of this 
section, the term 'working condition fringe' means any property or 
services provided to an employee of the employer to the extent that, 
if the employee paid for such property or services, such payment 
would be allowable as a deduction under section 162 or 167. 
"(e) DE MINIMIS FRINGE DEFINED.—For purposes of this section— 
"(1) IN GENERAL.—The term 'de minimis fringe' means any 
property or service the value of which is (after taking into 
account the frequency with which similar fringes are provided 
by the employer to the employer's employees) so small as to 
make accounting for it unreasonable or administratively im-
practicable. 
"(2) TREATMENT OF CERTAIN EATING FACILITIES.—The oper-
ation by an employer of any eating facility for employees shall 
be treated as a de minimis fringe if— 
"(A) such facility is located on or near the business 
premises of the employer, and 
"(B) revenue derived from such facility normally equals 
or exceeds the direct operating costs of such facility. 
The preceding sentence shall apply with respect to any officer, 
owner, or highly compensated employee only if access to the 
facility is available on substantially the same terms to each 
member of a group of employees which is defined under a 
reasonable classification set up by the employer which does not 
discriminate in favor of officers, owners, or highly compensated 
employees. 
"(f) CERTAIN INDIVIDUALS TREATED AS EMPLOYEES FOR PURPOSES OF 
SUBSECTIONS (a) (1) AND (2).—For purposes of paragraphs (1) and (2) 
of subsection (a)— 
"(1) RETIRED AND DISABLED EMPLOYEES AND SURVIVING SPOUSE 
OF EMPLOYEE TREATED AS EMPLOYEE.—With respcct to a line of 
business of an employer, the term 'employee' includes— 
"(A) any individual who was formerly employed by such 
employer in such line of business and who separated from 
service with such employer in such line of business by 
reason of retirement or disability, and 
"(B) any widow or widower of any individual who died 
while employed by such employer in such line of business or 
while an employee within the meaning of subparagraph (A). 
"(2) SPOUSE AND DEPENDENT CHILDREN.— 
"(A) IN GENERAL.—Any use by the spouse or a depend-
ent child of the employee shall be treated as use by the 
employee. 
"(B) DEPENDENT CHILD.—For purposes of subparagraph 
(A), the term 'dependent child' means any child (as defined 
in section 151(e)(3)) of the employee— 
"(i) who is a dependent of the employee, or 
"(ii) both of whose parents are deceased. 
For purposes of the preceding sentence, any child to whom 
section 152(e) applies shall be treated as tne dependent of Ante, p. 799. 
both parents. 
"(g) SPECIAL RULES RELATING TO EMPLOYER.—For purposes of this 
section— 
"(1) CONTROLLED GROUPS, ETC.—All employees treated as em-
ployed by a single employer under subsection (b), (c), or (m) of 
section 414 shall be treated as employed by a single employer 
for purposes of this section. 
98 STAT. 880 
PUBLIC LAW 98-369—JULY 18, 1984 
"(2) RECIPROCAL AGREEMENTS.—For purposes of paragraph (1) 
of subsection (a), any service provided by an employer to an 
employee of another employer shall be treated as provided by 
the employer of such employee if— 
"(A) such service is provided pursuant to a written agree-
ment between such employers, and 
"(B) neither of such employers incurs any substantial 
additional cost (including forgone revenue) in providing 
such service or pursuant to such agreement. 
"(h) SPECIAL RULES.— 
"(1) EXCLUSIONS UNDER SUBSECTION (a) (i) AND (2) APPLY TO 
OFFICERS, ETC., O
N
L
Y IF NO DISCRIMINATION.—Paragraphs (1) and 
(2) of subsection (a) shall apply with respect to any fringe benefit 
described therein provided with respect to any officer, owner, or 
highly compensated employee only if such fringe benefit is 
available on substantially the same terms to each member of a 
group of employees which is defined under a reasonable classifi-
cation set up by the employer which does not discriminate in 
favor of officers, owners, or highly compensated employees. 
"(2) SPECIAL RULE FOR LEASED SECTIONS OF DEPARTMENT 
STORES.— 
"(A) IN GENERAL.—For purposes of paragraph (2) of sub-
section (a), in the case of a leased section of a department 
store— 
"(i) such section shall be treated as part of the line of 
business of the person operating the department store, 
and 
"(ii) employees in the leased section shall be treated 
as employees of the person operating the department 
store. 
"(B) LEASED SECTION OF DEPARTMENT STORE.—For pur-
poses of subparagraph (A), a leased section of a department 
store is any part of a department store where over-the-
counter sales of property are made under a lease or similar 
arrangement where it appears to the general public that 
individuals making such sales are employed by the person 
operating the department store. 
"(3) AUTO SALESMEN.— 
"(A) IN GENERAL.—For purposes of subsection (a)(3), quali-
fied automobile demonstration use shall be treated as a 
working condition fringe. 
"(B) QUALIFIED AUTOMOBILE DEMONSTRATION USE.—For 
purposes of subparagraph (A), the term 'qualified automo-
bile demonstration use' means any use of an automobile by 
a full-time automobile salesman in the sales area in which 
the automobile dealer's sales office is located i
f
— 
"(i) such use in provided primarily to facilitate the 
ci; 
,
^ 
salesman's performance of services for the employer, 
and 
"(ii) there are substantial restrictions on the personal 
use of such automobile by such salesman. 
"(4) PARKING.—The term 'working condition fringe' includes 
parking provided to an employee on or near the business prem-
ises of the employer. 
"(5) ON-PREMISES GYMS AND OTHER ATHLETIC FACILITIES.— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 881 
"(A) IN GENERAL.—Gross income shall not include the 
value of any on-premises athletic facility provided by an 
employer to his employees. 
"(B) 
ON-PREMISES ATHLETIC FACILITY.—For purposes of 
this paragraph, the term 'on-premises athletic facility' 
means any gym or other athletic facility— 
"(i) which is located on the premises of the employer, 
"(ii) which is operated by the employer, and 
"(iii) substantially all the use of which is by employ-
ees of the employer, their spouses, and their dependent 
children (within the meaning of subsection (f)). 
"(i) CUSTOMERS NOT TO INCLUDE EMPLOYEES.—For purposes of this 
section (other than subsection (c)(2)(B)), the term 'customers' shall 
only include customers who are not employees. 
"(j) SECTION NOT TO APPLY TO FRINGE BENEFITS EXPRESSLY PRO-
VIDED FOR ELSEWHERE.—This section (other than subsection (e)) shall 
not apply to any fringe benefits of a type the tax treatment of which 
is expressly provided for in any other section of this chapter, 
"(k) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposes 
of this section." 
(2) CLERICAL AMENDMENT.—The table of sections for such part 
III is amended by striking out the item relating to section 132 
and inserting in lieu thereof the following: 
"Sec. 132. Certain fringe benefits. 
"Sec. 133. Cross references to other Acts." 
(b) CAFETERIA PLAN.— 
(1) DEFINITION OF CAFETERIA PLAN.—Paragraph (1) of section 
125(d) (defining cafeteria plan) is amended to read as follows: 26 use 125. 
"(1) IN GENERAL.—The term 'cafeteria plan' means a written 
plan under which— 
"(A) all participants are employees, and 
"(B) the participants may choose among 2 or more bene-
fits consisting of cash and statutory nontaxable benefits." 
(2) DEFINITION OF STATUTORY NONTAXABLE BENEFIT.— 
(A) IN GENERAL,—Subsection (f) of section 125 is amended 
to read as follows: 
"(f) STATUTORY NONTAXABLE BENEFITS DEFINED.—For purposes of 
this section, the term 'statutory nontaxable benefit' means any 
benefit which, with the application of subsection (a) is not in'^ludible 
in the gross income of the employee by reason of an express provi-
sion of this chapter (other than section 117, 124, 127, or 132). Such Ante, p. 877. 
term includes any group term life insurance which is includible in 
gross income only because it exceeds the dollar limitation of section 
79." 
(B) CONFORMING AMENDMENT.—Subsection (c) of section 
125 is amended by striking out "nontaxable benefits" each 
place it appears and inserting in lieu thereof "statutory 
nontaxable benefits". 
(3) EXCEPTION FOR KEY EMPLOYEES.—Subsection (b) of section 
125 (relating to exception for highly compensated participants) 
is amended to read as follows: 
"(b) EXCEPTION FOR HIGHLY COMPENSATED PARTICIPANTS AND KEY 
EMPLOYEES.— 
"(1) HIGHLY COMPENSATED PARTICIPANTS.—In the case of a 
highly compensated participant, subsection (a) shall not apply 
31-194 0 - 86 - 30 : QL. 3 Part 1 
98 STAT. 882 
PUBLIC LAW 98-369—JULY 18, 1984 
to any benefit attributable to a plan year for which the plan 
discriminates in favor of— 
"(A) highly compensated individuals as to eligibility to 
participate, or 
"(B) highly compensated participants as to contributions 
and benefits. 
"(2) KEY EMPLOYEES.—In the case of a key employee (within 
the meaning of section 416(i)(l)), subsection (a) shall not apply to 
any benefit attributable to a plan for which the statutory 
nontaxable benefits provided to key employees exceed 25 per-
cent of the aggregate of such benefits provided for all employees 
under the plan. For purposes of the preceding sentence, statu-
tory nontaxable benefits shall be determined without regard to 
the last sentence of subsection (f). 
"(3) YEAR OF INCLUSION.—For purposes of determining the 
taxable year of inclusion, any benefit described in paragraph (1) 
or (2) shall be treated as received or accrued in the taxable year 
of the participant or key employee in which the plan year 
ends." 
(4) REPORTING REQUIREMENTS.— 
26 use 125. 
(A) Section 125 (relating to cafeteria plans) is amended by 
redesignating subsection (h) as subsection (i) and by insert-
ing after subsection (g) the following new subsection: 
"(h) REPORTING REQUIREMENTS.— 
"(1) IN GENERAL.—Each employer maintaining a cafeteria 
plan during any year which begins after December 31, 1984, and 
to which this section applies shall file a return (at such time and 
in such manner as the Secretary shall by regulations prescribe) 
with respect to such plan showing for such year— 
JS; if; 
ftl 
"(A) the number of employees of the employer, 
"(B) the number of employees participating under the 
plan, 
"(C) the total cost of the plan during the year, and 
M5 
"(D) the name, address, and taxpayer identification 
number of the employer and the type of business in which 
the employer is engaged. 
"(2) RECORDKEEPING REQUIREMENT.—Each employer maintain-
ing a cafeteria plan during any year shall keep such records as 
may be necessary for purposes of determining whether the 
requirements of this section are met. 
"(3) ADDITIONAL INFORMATION WHEN REQUIRED BY THE SECRE-
TARY.—Any employer— 
—H , ,,vi 
"(A) who maintains a cafeteria plan during any year for 
which a return is required under paragraph (1), and 
"(B) who is required by the Secretary to file an additional 
return for such year, 
shall file such additional return. Such additional return shall be 
filed at such time and in such manner as the Secretary shall 
prescribe and shall contain such information as the Secretary 
shall prescribe." 
26 use 6652. 
(B) Subsection (f) of section 6652 is amended— 
(i) by striking out "or 6047 (relating to information 
relating to certain trusts and annuity and bond pur-
y ,. {
^
^
^ 
chase plans)" and inserting in lieu thereof ", 6047 
(relating to information relating to certain trusts and 
annuity and bond purchase plans), or 125(h) (relating to 
information with respect to cafeteria plans)", and 
i^k l~i€ 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 883 
(ii) by striking out "DEFERRED COMPENSATION.—" in 
the subsection heading and inserting in lieu thereof 
"DEFERRED COMPENSATION; ETC.—". 
(5) EXCEPTION FOR CERTAIN CAFETERIA PLANS AND BENEFITS.— 
26 use 125 note. 
(A) GENERAL TRANSITIONAL RULE.—Any cafeteria plan in 
existence on February 10, 1984, which failed as of such date 
and continued to fail thereafter to satisfy the rules relating 
to section 125 under proposed Treasury regulations, and 
any benefit offered under such a cafeteria plan which failed 
as of such date and continued to fail thereafter to satisfy 
the rules of section 105, 106, 120, or 129 under proposed 
Treasury regulations, will not fail to be a cafeteria plan 
under section 125 or a nontaxable benefit under section 105, 
106, 120, or 129 solely because of such failures. The preced-
ing sentence shall apply only with respect to cafeteria plans 
and benefits provided under cafeteria plans before the ear-
lier of— 
(i) January 1,1985, or 
(ii) the effective date of any modification to provide 
additional benefits after February 10,1984. 
(B) SPECIAL TRANSITION RULE FOR ADVANCE ELECTION BEN-
EFIT BANKS.—Any benefit offered under a cafeteria plan in 
existence on February 10,1984, which failed as of such date 
and continued to fail thereafter to satisfy the rules of 
section 105, 106, 120, or 129 under proposed Treasury regu-
lations because an employee was assured of receiving (in 
cash or any other benefit) amounts available but unused for 
covered reimbursement during the year without regard to 
whether he incurred covered expenses, will not fail to be a 
nontaxable benefit under such applicable section solely 
because of such failure. The preceding sentence shall apply 
only with respect to benefits provided under cafeteria plans 
before the earlier of— 
(i) July 1,1985, or 
(ii) the effective date of any modification to provide 
additional benefits after February 10,1984. 
Except as provided in Treasury regulations, the special 
transition rule is available only for benefits with respect to 
which, after December 31, 1984, contributions are fixed 
before the period of coverage and taxable cash is not avail-
able until the end of such period of coverage. 
(C) PLANS FOR WHICH SUBSTANTIAL IMPLEMENTATION COSTS 
WERE INCURRED.—For purposes of this paragraph, any plan 
with respect to which substantial implementation costs had 
been incurred before February 10, 1984, shall be treated as 
in existence on February 10,1984. 
(6) STUDY OF EFFECTS OF CAFETERIA PLANS ON HEALTH CARE 
COSTS.— 
(A) STUDY.—The Secretary of Health and Human Serv-
ices, in cooperation with the Secretary of the Treasury, 
shall conduct a study of the effects of cafeteria plans 
(within the meaning of section 125 of the Internal Revenue 
Code of 1954) on the containment of health care costs. 
(B) REPORT.—The Secretary of Health and Human Serv-
ices, in cooperation with the Secretary of the Treasury, 
shall submit a report on the study conducted under sub-
paragraph (A) to the Committee on Ways and Means of the 
98 STAT. 884 
PUBLIC LAW 98-369—JULY 18, 1984 
House of Representatives and the Committee on Finance of 
the Senate by no later than April 1,1985. 
(c) CLARIFICATION THAT FRINGE BENEFITS NOT COVERED BY STATU-
TORY EXCLUSION INCLUDED IN GROSS INCOME.—Paragraph (1) of 
26 use 61. 
section 61(a) (defining gross income) is amended by striking out 
"commissions, and similar items" and inserting in lieu thereof 
"commissions, fringe benefits, and similar items". 
(d) CONFORMING AMENDMENTS TO EMPLOYMENT TAXES.— 
(1) SOCIAL SECURITY TAXES.— 
26 use 3121. 
(A) Subsection (a) of section 3121 (defining wages) is 
97 Stat. 126. 
amended— 
(i) by striking out "all remuneration paid in any 
medium" in the material preceding paragraph (1) and 
inserting in lieu thereof "all remuneration (including 
benefits) paid in any medium", and 
(ii) by striking out "or" at the end of paragraph (18), 
by striking out the period at the end of paragraph (19) 
, . 
and inserting in lieu thereof "; or", and by inserting 
after paragraph (19) the following new paragraph: 
"(20) any benefit provided to or on behalf of an employee if at 
the time such benefit is provided it is reasonable to believe that 
the employee will be able to exclude such benefit from income 
Ante, p. 877. 
Under section 117 or 132." 
42 use 409. 
(B) Section 209 of the Social Security Act is amended— 
97 Stat. 127. 
(j) by striking out "all remuneration paid in any 
medium" in the material preceding subsection (a) and 
inserting in lieu thereof "all remuneration (including 
benefits) paid in any medium", and 
(ii) by striking out "or" at the end of subsection (q), 
by striking out the period at the end of subsection (r) 
and inserting in lieu thereof "; or", and by inserting 
after subsection (r) the following new subsection: 
"(s) Any benefit provided to or on behalf of an employee if at 
the time such benefit is provided it is reasonable to believe that 
the employee will be able to exclude such benefit from income 
under section 117 or 132 of the Internal Revenue Code of 1954." 
26 use 3231. 
(2) RAILROAD RETIREMENT TAX.—Subsection (e) of section 3231 
(defining compensation) is amended by adding at the end 
thereof the following new paragraph: 
"(5) The term 'compensation' shall not include any benefit 
provided to or on behalf of an employee if at the time such 
benefit is provided it is reasonable to believe that the employee 
will be able to exclude such benefit from income under section 
117 or 132." 
26 use 3306. 
(3) UNEMPLOYMENT TAX.—Subsection (b) of section 3306 (defin-
97 Stat. 860. 
ing wages) is amended— 
(A) by striking out "all remuneration paid in any 
medium" in the material preceding paragraph (1) and 
inserting in lieu thereof "all remuneration (including bene-
fits) paid in any medium", and 
(B) by striking out "or" at the end of paragraph (14), by 
striking out the period at the end of paragraph (15) and 
inserting in lieu thereof "; or", and by inserting after 
paragraph (15) the following new paragraph: 
"(16) any benefit provided to or on behalf of an employee if at 
the time such benefit is provided it is reasonable to believe that 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 885 
the employee will be able to exclude such benefit from income 
under section 117 or 132." 
Ante, p. 877. 
(4) WITHHOLDING.—Subsection (a) of section 3401 (defining 
26USC3401. 
wages) is amended— 
(A) by striking out "all remuneration paid in any 
medium" in the material preceding paragraph (1) and in-
serting in lieu thereof "all remuneration (including bene-
fits) paid in any medium", and 
(B) by striking out "or" at the end of paragraph (18), by 
striking out the period at the end of paragraph (19) and 
inserting in lieu thereof "; or", and by adding at the end 
thereof the following new paragraph: 
"(20) any benefit provided to or on behalf of an employee if at 
the time such benefit is provided it is reasonable to believe that 
the employee will be able to exclude such benefit from income 
under section 117 or 132." 
(5) METHOD OF COLLECTING TAX FROM NON-CASH FRINGE BENE-
FITS.—Section 3501 (relating to collection and payment of taxes) 
26 USC 3501. 
is amended— 
(A) by striking out "The taxes" and inserting in lieu 
thereof the following: 
"(a) GENERAL RULE.—The taxes", and 
(B) by adding at the end thereof the following new subsec-
tion: 
"(b) TAXES WITH RESPECT TO NON-CASH FRINGE BENEFITS.—The 
taxes imposed by this subtitle with respect to non-cash fringe bene-
fits shall be collected (or paid) by the employer at the time and in 
the manner prescribed by the Secretary by regulations." 
(e) ELECTION WITH RESPECT TO CERTAIN EXISTING LINES OF BUSI- 
. ,.. j . 
NESS.— 
(1) IN GENERAL.—Chapter 43 (relating to qualified pension, 
etc., plans), as amended by this Act, is amended by adding at the 
end thereof the following new section: 
"SEC. 4977. TAX ON CERTAIN FRINGE BENEFITS PROVIDED BY AN 
26 USC 4977. 
EMPLOYER. 
"(a) IMPOSITION OF TAX.—In the case of an employer to whom an 
election under this section applies for any calendar year, there is 
hereby imposed a tax for such calendar year equal to 30 percent of 
the excess fringe benefits. 
"(b) EXCESS FRINGE BENEFITS.—For purposes of subsection (a), the 
term 'excess fringe benefits' means, with respect to any calendar 
year— 
"(1) the aggregate value of the fringe benefits provided by the 
employer during the calendar year which were not includible in 
gross income under paragraphs (1) and (2) of section 132(a), over Ante, p. 877. 
"(2) 1 percent of the aggregate amount of compensation— 
"(A) which was paid by the employer during such calen-
dar year to employees, and 
"(B) was includible in gross income for purposes of chap-
ter 1. 
"(c) EFFECT OF ELECTION ON SECTION 132(a).—If— 
"(1) an election under this section is in effect with respect to 
an employer for any calendar year, and 
"(2) as of January 1,1984, substantially all of the employees of 
the employer were entitled to employee discounts or services 
provided by the employer in 1 line of business. 
98 STAT. 886 
PUBLIC LAW 98-369—JULY 18, 1984 
Ante, p. 877. 
for purposes of paragraphs (1) and (2) of section 132(a) (but not for 
purposes of section 132(g)(2)), all employees of any line of business of 
the employer which was in existence on January 1, 1984, shall be 
treated as employees of the line of business referred to in paragraph 
(2). 
"(d) PERIOD OF ELECTION.—An election under this section shall 
apply to the calendar year for which made and all subsequent 
calendar years unless revoked by the employer. 
"(e) TREATMENT OF CONTROLLED GROUPS.—All employees treated 
as employed by a single employer under subsection (b), (c), or (m) of 
section 414 shall be treated as employed by a single employer for 
purposes of this section." 
(2) CLERICAL AMENDMENT.—The table of sections for chapter 
43 is amended by adding at the end thereof the following new 
item: 
"Sec. 4977. Tax on certain fringe benefits provided by an employer." 
26 u s e 132 note. 
(f) DETERMINATION OF LiNE OF BUSINESS IN C A S E OF AFFILIATED 
GROUP OPERATING RETAIL DEPARTMENT STORES.—If— 
(1) as of October 5, 1983, the employees of one member of an 
affiliated group (as defined in section 1504 of th^ Internal 
Revenue Code of 1954 without regard to subsections (b)(2) and 
(b)(4) thereof) were entitled to employee discounts at the retail 
department stores operated by another member of such affili-
ated group, and 
(2) the primary business of the affiliated group is the oper-
ation of retail department stores, 
then, for purpose of applying section 132(a)(2) of the Internal Reve-
Ante, p. 877. 
nue Code of 1954, with respect to discounts provided for such 
employees at the retail department stores operated by such other 
member, the employer shall be treated as engaged in the same line 
of business as such other member. 
(g) MORATORIUM ON ISSUANCE OF REGULATIONS RELATING TO FAC-
ULTY HOUSING.— 
(1) IN GENERAL.—Any regulation providing for the inclusion 
in gross income under section 61 of the Internal Revenue Code 
of 1954 of the excess (if any) of the fair market value of qualified 
campus lodging over the greater of— 
(A) the operating costs paid or incurred in furnishing 
such lodging, or 
(B) the rent received for such lodging, 
shall not be issued before January 1,1986. 
(2) QUALIFIED CAMPUS LODGING.—For purposes of this subsec-
tion, the term "qualified campus lodging" means lodging which 
•;•:,• ,. w . 
is— 
(A) located on (or in close proximity to) a campus of an 
educational institution (described in section 170(b)(l)(A)(ii) 
of the Internal Revenue Code of 1954), and 
(B) provide by such institution to an employee of such 
institution, or to a spouse or dependent (within the meaning 
of section 152 of such Code) of such employee. 
(3) APPLICATION OF SUBSECTION.—This subsection shall apply 
with respect to lodging furnished after December 31, 1983, and 
before January 1,1986. 
26 use 132 note. 
(h) EFFECTIVE DATE.—The amendments made by this section shall 
take effect on January 1, 1985. 
')Bl' 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 887 
SEC. 532. EXCLUSION OF CERTAIN REDUCTIONS IN TUITION FROM GROSS 
INCOME. 
(a) IN GENERAL.—Section 117 (relating to scholarships and fellow- 
26 use 117. 
ship grants) is amended by adding at the end thereof the following 
new subsection: 
"(d) QUALIFIED TUITION REDUCTIONS.— 
"(1) IN GENERAL.—Gross income shall not include any quali-
fied tuition reduction. 
, 
. ,, 
"(2) QUALIFIED TUITION REDUCTION.—For purposes of this sub-
section, the term 'qualified tuition reduction' means the amount 
of any reduction in tuition provided to an employee of an 
organization described in section 170(b)(l)(A)(ii) for the educa-
tion (below the graduate level) at such organization (or another 
organization described in section 170(b)(l)(A)(ii)) of— 
"(A) such employee, or 
"(B) any person treated as an employee (or whose use is 
treated as an employee use) under the rules of section 
' 
132(f). 
Ante, p. 877. 
"(3) REDUCTION MUST NOT DISCRIMINATE IN FAVOR OF HIGHLY 
COMPENSATED, ETC.—Paragraph (1) shall apply with respect to 
any qualified tuition reduction provided with respect to any 
officer, owner, or highly compensated employee only if such 
reduction is available on substantially the same terms to each 
member of a group of employees which is defined under a 
reasonable classification set up by the employer which does not 
discriminate in favor of officers, owners, or highly compensated 
employees." 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
26 use 117 note. 
apply to qualified tuition reductions (as defined in section 117(d)(2) 
of the Internal Revenue Code of 1954) for education furnished after Supra. 
June 30,1985, in taxable years ending after such date. 
Subtitle D—Employee Stock Ownership Plans 
SEC. 541. NONRECOGNITION OF GAIN O
N STOCK SOLD TO EMPLOYEE 
STOCK OWNERSHIP PLANS OR CERTAIN COOPERATIVES IF 
QUALIFIED REPLACEMENT PROPERTY ACQUIRED. 
(a) IN GENERAL.—Part III of subchapter 0 of chapter 1 (relating to 
nontaxable exchanges), as amended by this Act, is amended by 
adding at the end thereof the following new section: 
"SEC. 1042. SALES OF STOCK TO STOCK OWNERSHIP PLANS OR CERTAIN 26 USC 1042. 
COOPERATIVES. 
"(a) NONRECOGNITION OF GAIN.—If^ 
"(1) the taxpayer elects the application of this section with 
respect to any sale of qualified securities, 
"(2) the taxpayer purchases qualified replacement property 
within the replacement period, and 
"(3) the requirements of subsection (b) are met with respect to 
such sale, 
then the gain (if any) on such sale shall be recognized only to the 
extent that the amount realized on such sale exceeds the cost to the 
taxpayer of such qualified replacement property. 
"(b) REQUIREMENTS TO QUALIFY FOR NONRECOGNITION.—A sale of 
qualified securities meets the requirements of this subsection i
f
— 
.U:f-\ 
98 STAT. 888 
PUBLIC LAW 98-369—JULY 18, 1984 
"(1) SALE TO EMPLOYEE ORGANIZATIONS.—The qualified securi-
ties are sold to— 
"(A) an employee stock ownership plan (as defined in 
section 4975(e)(7)), or 
"(B) an eligible worker-owned cooperative. 
"(2) EMPLOYEES MUST OWN 30 PERCENT OF STOCK AFTER SALE.— 
The plan or cooperative referred to in paragraph (1) owns, 
immediately after the sale, at least 30 percent of the total value 
Ante, p. 852. 
of the employer securities (within the meaning of section 409(1)) 
outstanding as of such time. 
"(3) PLAN MAINTAINED FOR BENEFIT OF EMPLOYEES.—No por-
tion of the assets of the plan or cooperative attributable to 
employer securities (within the meaning of section 409(1)) ac-
quired by the plan or cooperative described in paragraph (1) 
accrue under such plan, or are allocated by such cooperative, for 
the benefit of— 
"(A) the taxpayer, 
"(B) any person who is a member of the family of the 
taxpayer (within the meaning of section 267(c)(4)), or 
"(C) any other person who owns (after application of 
section 318(a)) more than 25 percent in value of any class of 
outstanding employer securities (within the meaning of 
section 409(1)). 
"(4) WRITTEN STATEMENT REQUIRED.— 
"(A) IN GENERAL.—The taxpayer files with the Secretary 
the written statement described in subparagraph (B). 
"(B) STATEMENT.—A statement is described in this sub-
paragraph if it is a verified written statement of— 
-MQtf i 
> 
i 
"(i) the employer whose employees are covered by the 
plan described in paragraph (1), or 
"(ii) any authorized officer of the cooperative de-
scribed in paragraph (1), 
Post, p. 894. 
consenting to the application of section 4978(a) with respect 
to such employer or cooperative. 
"(c) DEFINITIONS; SPECIAL RULES.—For purposes of this section.— 
"(1) QUAUFIED SECURITIES.—The term 'qualified securities' 
means employer securities (as defined in section 409(1)) which— 
"(A) are issued by a domestic corporation that has no 
securities outstanding that are readily tradable on an estab-
lished securities market, 
"(B) at the time of the sale described in subsection (a)(1), 
have been held by the taxpayer for more than 1 year, and 
"(C) were not received by the taxpayer in— 
' 
' ' • 
"(i) a distribution from a plan described in section 
401(a), or 
"(ii) a transfer pursuant to an option or other right to 
acquire stock to which section 83, 422, 422A, 423, or 424 
applies. 
"(2) ELIGIBLE WORKER-OWNED COOPERATIVE.—The term 'eligi-
ble worker-owned cooperative' means any organization— 
"(A) to which part I of subchapter T applies, 
"(B) a majority of the membership of which is composed 
of employees of such organization, 
"(C) a majority of the voting stock of which is owned by 
members, 
"(D) a majority of the board of directors of which is 
elected by the members on the basis of 1 person 1 vote, and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 889 
"(E) a majority of the allocated earnings and losses of 
which are allocated to members on the basis o
f
— 
"(i) patronage, 
"(ii) capital contributions, or 
"(iii) some combination of clauses (i) and (ii). 
"(3) REPLACEMENT PERIOD.—The term 'replacement period' 
means the period which begins 3 months before the date on 
which the sale of qualified securities occurs and which ends 12 
months after the date of such sale. 
"(4) QuAUFiED REPLACEMENT PROPERTY.—The term 'qualified 
replacement property' means any securities (as defined in sec-
tion 165(g)(2)) issued by a domestic corporation which does not, 
for the taxable year in which such stock is issued, have passive 
investment income (as defined in section 1362(d)(3)(D)) that 
exceeds 25 percent of the gross receipts of such corporation for 
such taxable year. 
"(5) SECURITIES ACQUIRED BY UNDERWRITER.—No acquisition of 
securities by an underwriter in the ordinary course of his trade 
or business as an underwriter, whether or not guaranteed, shall 
be treated as a sale for purposes of subsection (a). 
"(6) TIME FOR FIUNG ELECTION.—An election under subsection 
(a) shall be filed not later than the last day prescribed by law 
iv-
(including extensions thereof) for filing the return of tax im-
posed by this chapter for the taxable year in which the sale 
occurs. 
"(d) BASIS OF QUAUFIED REPLACEMENT PROPERTY.—The basis of 
the taxpayer in qualified replacement property purchased by the 
taxpayer during the replacement period shall be reduced by the 
amount of gain not recognized by reason of such purchase and the 
application of subsection (a). If more than one item of qualified 
replacement property is purchased, the basis of each of such items 
shall be reduced by an amount determined by multiplying the total 
gain not recognized by reason of such purchase and the application 
of subsection (a) by a fraction— 
"(1) the numerator of which is the cost of such item of 
property, and 
"(2) the denominator of which is the total cost of all such 
items of property. 
"(e) STATUTE OF LIMITATIONS.—If any gain is realized by the 
taxpayer on the sale or exchange of any qualified securities and 
there is in effect an election under subsection (a) with respect to 
such gain, then— 
"(1) the statutory period for the assessment of any deficiency 
with respect to such gain shall not expire before the expiration 
of 3 years from the date the Secretary is notified by the tax-
payer (in such manner as the Secretary may by regulations 
* 
prescribe) of— 
"(A) the taxpayer's cost of purchasing qualified replace-
ment property which the taxpayer claims results in nonrec-
ognition of any part of such gain, 
"(B) the taxpayer's intention not to purchase qualified 
replacement property within the replacement period, or 
"(C) a failure to make such purchase within the replace-
ment period, and 
"(2) such deficiency may be assessed before the expiration of 
such 3-year period notwithstanding the provisions of any other 
98 STAT. 890 
PUBLIC LAW 98-369—JULY 18, 1984 
law or rule of law which would otherwise prevent such assess-
ment." 
(b) CONFORMING AMENDMENTS.— 
Ante, p. 569. 
(1) Section 1223 (relating to holding period of property) is 
26 use 1223. 
amended by redesignating paragraph (13) as paragraph (14) and 
by inserting after paragraph (12) the following: 
"(13) In determining the period for which the taxpayer has 
held qualified replacement property (within the meaning of 
Ante, p. 887. 
section 1042(b)) the acquisition of which resulted under section 
1042 in the nonrecognition of any part of the gain realized on 
the sale of qualified securities (within the meaning of section 
1042(b)), there shall be included the period for which such 
qualified securities had been held by the taxpayer." 
Ante, p. 568. 
(2) Subsection (a) of section 1016 (relating to adjustments to 
basis), as amended by this Act, is amended— 
(A) by striking out "and" at the end of paragraph (25), 
(B) by striking out the period at the end of paragraph (26) 
and inserting in lieu thereof ", and", and 
(C) by adding at the end thereof the following new para-
graph: 
"(27) in the case of qualified replacement property, the acqui-
Ante, p. 887. 
sition of which resulted under section 1042 in the nonrecogni-
tion of any part of the gain realized on the sale or exchange of 
any property, to the extent provided in section 1042(c)." 
(3) The table of sections for part III of subchapter O of chapter 
1 is amended by adding at the end thereof the following new 
item: 
"Sec. 1042. Sales of stock to employees." 
26 use 1042 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply to sales of securities in taxable years beginning after the date 
of enactment of this Act. 
SEC. 542. DEDUCTIBILITY OF CERTAIN DIVIDEND DISTRIBUTIONS FROM 
EMPLOYEE STOCK OWNERSHIP PLANS. 
26 use 404. 
(a) DEDUCTION.—Section 404 (relating to deductions for employer 
contributions to an employees' trust) is amended by adding at the 
end thereof the following new subsection: 
"(k) DIVIDENDS PAID DEDUCTIONS.—In addition to the deductions 
provided under subsection (a), there shall be allowed as a deduction 
to a corporation the amount of any dividend paid in cash by such 
corporation during the taxable year with respect to the stock of such 
corporation if— 
"(1) such stock is held on the record date for the dividend by a 
tax credit employee stock ownership plan (as defined in section 
Ante, p. 852. 
409) or an employee stock ownership plan (as defined in section 
4975(e)(7)) which is maintained by such corporation or by any 
other corporation that is a member of a controlled group of 
corporations (within the meaning of section 409(1)(4)) that in-
cludes such corporation, and 
"(2) in accordance with the plan provisions— 
"(A) the dividend is paid in cash to the participants in the 
plan, or 
"(B) the dividend is paid to the plan and is distributed in 
cash to participants in the plan not later than 90 days after 
the close of the plan year in which paid." 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 891 
(b) DENIAL OF PARTIAL EXCLUSION.—Section 116 (relating to par- 
26 use 116. 
tial exclusion of dividends) is amended by adding at the end thereof 
the following new subsection: 
"(e) DIVIDENDS FROM EMPLOYEE STOCK OWNERSHIP PLANS.—Sub-
section (a) shall not apply to any dividend described in section 
404(k)." 
Ante, p. 890. 
(c) No WITHHOLDING ON DIVIDEND DISTRIBUTION.—Subparagraph 
(B) of section 3405(d)(1) (relating to designated distributions) is Post, p. 963. 
amended— 
(1) by striking out "and" at the end of clause (i), 
(2) by striking out the period at the end of clause (ii) and 
inserting in lieu thereof ", or", and 
(3) by adding at the end thereof the following new clause: 
"(iii) any distribution described in section 404(k)(2)." 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 404 note. 
apply to taxable years beginning after the date of enactment of this 
Act. 
SEC. 543. EXCLUSION OF INTEREST ON LOANS USED TO FINANCE ACQUI-
SITION OF EMPLOYER SECURITIES BY A
N ESOP. 
(a) IN GENERAL.—Part III of subchapter B of chapter 1 (relating to 
items excluded from gross income), as amended by this Act, is 
amended by redesignating section 133 as section 134 and by insert- 
26 USe 134. 
ing after section 132 the following new section: 
^"^^' P- ^'^'^• 
"SEC. 133. INTEREST O
N CERTAIN LOANS USED TO ACQUIRE EMPLOYER 
26 USC 133. 
SECURITIES. 
"(a) IN GENERAL.—Gross income does not include 50 percent of the 
interest received by— 
"(1) a bank (within the meaning of section 581), 
"(2) an insurance company to which subchapter L applies, or 
"(3) a corporation actively engaged in the business of lending 
money, 
with respect to a securities acquisition loan. 
"(b) SECURITIES ACQUISITION LOAN.— 
"(1) IN GENERAL.—For purposes of this section, the term 
'securities acquisition loan' means any loan to a corporation, or 
to an employee stock ownership plan, to the extent that the 
proceeds are used to acquire employer securities (within the 
meaning of section 409(1)) for the plan. 
Ante, p. 852. 
"(2) LOANS BETWEEN RELATED PERSONS.—The term 'securities 
acquisition loan' shall not include— 
"(A) any loan made between corporations which are 
members of the same controlled group of corporations, or 
"(B) any loan made between an employee stock owner-
ship plan and any person that is— 
"(i) the employer of any employees who are covered 
by the plan; or 
"(ii) a member of a controlled group of corporations 
which includes such employer. 
"(3) CONTROLLED GROUP OF CORPORATIONS.—For purposes of 
this paragraph, the term 'controlled group of corporations' has 
the meaning given such term by section 409(1)(4). 
"(c) EMPLOYEE STOCK OWNERSHIP PLAN.—For purposes of this 
section, the term 'employee stock ownership plan' has the meaning 
given to such term by section 4975(e)(7)." 
98 STAT. 892 
PUBLIC LAW 98-369—JULY 18, 1984 
„ 
(b) CONFORMING AMENDMENT.—The table of sections for part III of 
subchapter B of chapter 1 is amended by striking out the item 
relating to section 133 and inserting in lieu thereof the following: 
"Sec. 133. Interest on certmn loans used to acquire employer securities. 
"Sec. 134. Cross references to other Act." 
26 use 133 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to loans used to acquire employer securities after the date of 
the enactment of this Act. 
SEC. 544. ASSUMPTION OF ESTATE TAX LIABILITY BY EMPLOYER STOCK 
OWNERSHIP PLAN OR COOPERATIVE RECEIVING EMPLOYER 
SECURITIES. 
(a) IN GENERAL.—Subchapter C of chapter 11 (relating to miscella-
< 
neous estate tax provisions) is amended by adding at the end thereof 
the following new section: 
26 use 2210. 
"SEC. 2210. LIABILITY FOR PAYMENT IN CASE OF TRANSFER OF EMPLOY-
ER SECURITIES TO A
N EMPLOYEE STOCK OWNERSHIP PLAN 
OR A WORKER-OWNED COOPERATIVE. 
"(a) IN GENERAL.—If— 
"(1) employer securities— 
"(A) are acquired from the decedent by an employee stock 
ownership plan or by an eligible worker-owned cooperative 
from any decedent, 
"(B) pass from the decedent to such a plan or cooperative, 
or 
"(C) are transferred by the executor to such a plan or 
cooperative, and 
"(2) the executor elects the application of this section and files 
the agreements described in subsection (e) before the due date 
(including extensions) for filing the return of tax imposed by 
section 2001, 
then the executor is relieved of liability for payment of that portion 
of the tax imposed by section 2001 which such employee stock 
ownership plan or cooperative is required to pay under subsection 
(b). 
"(b) PAYMENT OF TAX BY EMPLOYEE STOCK OWNERSHIP PLAN OR 
COOPERATIVE.— 
-•< 
"(1) IN GENERAL.—An employee stock ownership plan or eligi-
ble worker-owned cooperative— 
"(A) which has acquired employer securities from the 
decedent, or to which such securities have passed from the 
decedent or been transferred by the executor, and 
"(B) with respect to which an agreement described in 
subsection (e)(1) is in effect, 
shall pay that portion of the tax imposed by section 2001 with 
respect to the taxable estate of the decedent which is described 
in paragraph (2). 
"(2) AMOUNT OF TAX TO BE PAID.—The portion of the tax 
imposed by section 2001 with respect to the taxable estate of the 
decedent that is referred to in paragraph (1) is equal to the 
lesser of— 
"(A) the value of the employer securities described in 
subsection (a)(1) which is included in the gross estate of the 
decedent, or 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 893 
"(B) the tax imposed by section 2001 with respect to such 
taxable estate reduced by the sum of the credits allowable 
against such tax. 
"(c) INSTALLMENT PAYMENTS.— 
"(1) IN GENERAL.—If^ 
"(A) the executor of the estate of the decedent (without 
regard to this section) elects to have the provisions of 
section 6166 (relating to extensions of time for payment of 
estate tax where estate consists largely of interest in closely 
^, . 
held business) apply to payment of that portion of the tax 
imposed by section 2001 with respect to such estate which is 
attributable to employer securities, and 
"(B) the plan administrator or the cooperative provides to 
the executor the agreement described in subsection (eXD, 
then the plan administrator or the cooperative may elect, before 
the due date (including extensions) for filing the return of such 
tax, to pay all or part of the tax described in subsection (bX2) in 
installments under the provisions of section 6166. 
"(2) INTEREST ON INSTALLMENTS.—In determining the 4-per- 
.. ^
^ 
cent portion for purposes of section 6601(j)— 
"(A) the portion of the tax imposed by section 2001 with 
respect to an estate for which the executor is liable, and 
"(B) the portion of such tax for which an employee stock 
ownership plan or an eligible worker-owned cooperative is 
liable, 
shall be aggregated. 
"(d) GUARANTEE OF PAYMENTS.—Any employer— 
"(1) whose employees are covered by an employee stock own-
ership plan, and 
"(2) who has entered into an agreement described in subsec-
tion (eX2) which is in effect, 
'^ 
"* ' 
shall guarantee (in such manner as the Secretary may prescibe) 
the payment of any amount such plan is required to pay under 
subsection (b), including any interest payable under section 6601 
which is attributable to such amount. 
"(e) AGREEMENTS.—The agreements described in this subsection 
are as follows: 
"(1) A written agreement signed by the plan administrator, or 
by any authorized officer of the eligible worker-owned coopera-
tive, consenting to the application of subsection (b) to such plan 
or cooperative. 
' 
"(2) A written agreement signed by the employer whose 
employees are covered by the plan described in subsection (b) 
consenting to the application of subsection (d). 
"(f) EXEMPTION FROM TAX ON PROHIBITED TRANSACTIONS.—The 
assumption under this section by an employee stock ownership plan 
of any portion of the liability for the tax imposed by section 2001 
shall be treated as a loan described in section 4975(dX3). 
"(g) DEFINITIONS.—For purposes of this section— 
"(1) EMPLOYER SECURITIES.—The term 'employer securities' 
has the meaning given such term by section 409(1). 
Ante, p. 852. 
"(2) EMPLOYEE STOCK OWNERSHIP PLAN.—The term 'employee 
stock ownership plan' has the meaning given such term by 
section 4975(eX7). 
"(3) EuGiBLE WORKER-OWNED COOPERATIVE.—The term 'eligi-
ble worker-owned cooperative' has the meaning given to such 
term by section 1041(bX2). 
Ante, p. 793. 
98 STAT. 894 
PUBLIC LAW 98-369—JULY 18, 1984 
"(4) PLAN ADMINISTRATOR.—The term 'plan administrator' has 
the meaning given such term by section 414(g)," 
(b) CONFORMING AMENDMENTS.— 
26 use 2002. 
(1) Section 2002 (relating to liability for payment of estate tax) 
is amended to read as follows: 
"SEC. 2002. LIABILITY FOR PAYMENT. 
Ante, p. 892. 
"Except as provided in section 2210, the tax imposed by this 
chapter shall be paid by the executor." 
(2) The table of sections for subchapter C of chapter 11 is 
amended by adding at the end thereof the following: 
"Sec. 2210. Liability for payment in case of transfer of employer securities 
to an employee stock ownership plan or a worker-owned 
cooperative." 
26 use 6018. 
(3) Section 6018 (relating to estate tax returns) is amended by 
adding at the end thereof the following new subsection: 
"(c) ELECTION UNDER SECTION 2210.—In all cases in which subsec-
tion (a) requires the filing of a return, if an executor elects the 
Ante, p. 892. 
applications of section 2210— 
"(1) RETURN BY EXECUTOR.—The return which the executor is 
required to file under the provisions of subsection (a) shall be 
made with respect to that portion of estate tax imposed by 
subtitle B which the executor is required to pay. 
"(2) RETURN BY PLAN ADMINISTRATOR.—The plan administra-
tor of an employee stock ownership plan or the eligible worker-
owned cooperative, as the case may be, shall make a return with 
respect to that portion of the tax imposed by section 2001 which 
such plan or cooperative is required to pay under section 
2210(b)." 
26 use 6166. 
(4) Subsection (j) of section 6166 (relating to cross references) 
is amended by adding at the end thereof the following new 
paragraph: 
"(6) PAYMENT OF ESTATE TAX BY EMPLOYEE STOCK OWNERSHIP 
PLAN OR ELIGIBLE WORKER-OWNED COOPERATIVE.—For provision 
allowing plan administrator or eligible worker-owned coopera-
tive to elect to pay a certain portion of the estate tax in 
installments under the provisions of this section, see section 
Ante, p. 892. 
2210(c)." 
26 use 2210 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
note- 
apply to those estates of decedents which are required to file returns 
on a date (including any extensions) after the date of enactment of 
this Act. 
SEC. 545. EXCISE TAX ON CERTAIN DISPOSITIONS OF EMPLOYER SECURI-
TIES BY EMPLOYEE STOCK OWNERSHIP PLANS AND CERTAIN 
COOPERATIVES. 
(a) IN GENERAL.—Chapter 43 (relating to excise taxes on qualified 
pension plans), as amended by this Act, is amended by adding at the 
end thereof the following new section: 
26 use 4978. 
"SEC. 4978. TAX ON CERTAIN DISPOSITIONS BY EMPLOYEE STOCK OWN-
ERSHIP PLANS AND CERTAIN COOPERATIVES. 
"(a) TAX ON DISPOSITIONS OF SECURITIES TO WHICH SECTION 1042 
APPLIES BEFORE CLOSE OF MINIMUM HOLDING PERIOD.—If, during the 
3-year period after the date on which the employee stock ownership 
se? iji. 
plan or eligible worker-owned cooperative acquired any qualified 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 895 
securities in a sale to which section 1042 applied, such plan or 
Ante, p. 887. 
cooperative disposes of any qualified securities and— 
"(1) the total number of shares held by such plan or coopera-
tive after such disposition is less then the total number of 
employer securities held immediately after such sale, or 
"(2) except to the extent provided in regulations, the value of 
qualified securities held by such plan or cooperative after such 
disposition is less than 30 percent of the total value of all 
employer securities as of such disposition, 
there is hereby imposed a tax on the disposition equal to the amount 
determined under subsection (b). 
"(b) AMOUNT OF TAX.— 
"(1) IN GENERAL.—The amount of the tax imposed by para-
graph (1) shall be equal to 10 percent of the amount realized on 
the disposition. 
"(2) LIMITATION.—The amount realized taken into account 
under paragraph (1) shall not exceed that portion allocable to 
qualified securities acquired in the sale to which section 1042 
applied (determined as if such securities were disposed of before 
any other securities). 
"(3) DISTRIBUTIONS TO EMPLOYEES.—The amount realized on 
any distribution to an employee for less than fair market value 
shall be determined as if the qualified security had been sold to 
the employee at fair market value. 
"(c) LIABILITY FOR PAYMENT OF TAXES.—The tax imposed by this 
subsection shall be paid by— 
"(1) the employer, or 
"(2) the eligible worker-owned cooperative, 
that made the written statement described in section 1042(a)(2)(B). 
"(d) SECTION NOT TO APPLY TO CERTAIN DISPOSITIONS.— 
"(1) CERTAIN DISTRIBUTIONS TO EMPLOYEES.—This section shall 
not apply with respect to any distribution of qualified securities 
(or sale of such securities) which is made by reason of— 
"(A) the death of the employee, 
"(B) the retirement of the employee after the employee 
has attained 59V2 years of age, 
"(C) the disability of the employee (within the meaning of 
section 72(m)(5)), or 
"(D) the separation of the employee from service for any 
period which results in a 1-year break in service (within the 
meaning of section 411(a)(6)(A)). 
"(2) CERTAIN REORGANIZATIONS.—In the case of any exchange 
of qualified securities in any reorganization described in section 
368(a)(1) for stock of another corporation, such exchange shall 
not be treated as a disposition for purposes of this section. 
"(e) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
"(1) EMPLOYEE STOCK OWNERSHIP PLAN.—The term 'employee 
stock ownership plan' has the meaning given to such term by 
section 4975(e)(7). 
"(2) QUALIFIED SECURITIES.—The term 'qualified securities' 
has the meaning given to such term by section 1042(b)(1). 
"(3) ELIGIBLE WORKER-OWNED COOPERATIVE.—The term 'eligi-
ble worker-owned cooperative' has the meaning given to such 
term by section 1042(b)(1). 
"(4) DISPOSITION.—The term 'disposition' includes any dis-
tribution. 
98 STAT. 896 
PUBLIC LAW 98-369—JULY 18, 1984 
"(5) EMPLOYER SECURITIES.—The term 'employer securities' 
Ante, p. 852. 
has the meaning given to such term by section 409(1).". 
(b) CONFORMING AMENDMENT.—The table of sections for chapter 
43 is amended by adding at the end thereof the following new item: 
"Sec. 4978. Tax on certain dispositions and allocations by employee stock 
ownership plans and certain cooperatives." 
26 use 4978 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply to taxable years beginning after the date of enactment of this 
Act. 
Subtitle E—Miscellaneous 
26 u s e 402 note. SEC. 551. TREATMENT OF CERTAIN DISTRIBUTIONS FROM A QUALIFIED 
TERMINATED PLAN. 
26 use 1 et seq. 
(a) IN GENERAL.—For purposes of the Internal Revenue Code 1954, 
if— 
(1) a distribution was made from a qualified terminated plan 
to an employee on December 16, 1976, and on January 6, 1977, 
such employee transferred all of the property received in such 
distribution to an individual retirement account (within the 
meaning of section 408(a) of such Code) established for the 
benefit of such employee, and 
(2) the remaining balance to the credit of such employee in 
such qualified 
terminated 
plan was distributed to such 
employee on January 21, 1977, and all the property received by 
such employee in such distribution was transferred by such 
employee to such individual retirement account on January 21, 
1977, 
then such distributions shall be treated as qualifying rollover distri-
butions (within the meaning of section 402(a)(5) of such Code) and 
shall not be includible in the gross income of such employee for the 
taxable year in which paid. 
(b) QUALIFIED TERMINATED PLAN.—For purposes of this section, 
the term "qualified terminated plan" means a pension plan— 
(1) with respect to which a notice of sufficiency was issued by 
the Pension Benefit Guaranty Corporation on December 2,1976, 
and 
(2) which was terminated by corporate action on February 20, 
1976. 
(c) REFUND OR CREDIT OF OVERPAYMENT BARRED BY STATUTE OF 
LIMITATIONS.—Notwithstanding section 6511(a) of the Internal Reve-
nue Code of 1954 or any other period of limitation or lapse of time, a 
claim for credit or refund of overpayment of the tax imposed by such 
Code which arises by reason of this section may be filed by any 
person at any time within the 1-year period beginning on the date of 
enactment of this Act. Sections 6511(b) and 6514 of such Code shall 
not apply to any claim for credit or refund filed under this subsec-
tion within such 1-year period. 
SEC. 552. PARTIAL TERMINATION FOR CERTAIN PENSION PLANS. 
For purposes of section 411(d)(3) of the Internal Revenue Code of 
1954 (relating to minimum vesting standards in the case of partial 
terminations), a partial termination shall not be treated as occur-
ring if— 
(1) the partial termination is a result of a decline in plan 
participation which— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 897 
(A) occurs by reason of the completion of the Trans-
Alaska Oil Pipeline construction project, and 
(B) occurred after December 31, 1975, and before January 
1, 1980, with respect to participants employed in Alaska, 
(2) no discrimination prohibited by section 401(a)(4) of such 
Code occurred with respect to such partial termination, and 
(3) the plan administrator establishes to the satisfaction of the 
Secretary of the Treasury or his delegate that the benefits of 
this section will not accrue to the employers under the plan. 
SEC. 553, DISTRIBUTION REQUIREMENTS FOR ACCOUNTS AND ANNUITIES 
26 USC 401 note. 
OF AN INSURER IN A REHABILITATION PROCEEDING. 
(a) IN GENERAL.—For purposes of sections 401(a)(9), 408(a) (6) and 
(7), and 408(b) (3) and (4) of the Internal Revenue Code of 1954— Ante, pp. 865, 
(1) a trust, custodial account, or annuity or other contract 
^^'^• 
forming part of a pension or profit-sharing plan, or a retirement 
annuity, or 
(2) a grantor of an individual retirement account or an indi-
vidual retirement annuity, 
shall not be treated as failing to meet the requirements of such 
sections if such account, annuity, or contract was issued by an 
insurance company which, on March 15, 1984, was a party to a 
rehabilitation proceeding under the applicable State insurance law. 
(b) LIMITATION.—Subsection (a) shall apply only during the period 
during which— 
(1) the insurance company continues to be a party to the 
proceeding described in subsection (a), and 
(2) distributions under the trust, custodial account, or annuity 
or other contract may not be made by reason of such proceed-
ing. 
SEC. 554. EXTENSION OF TIME FOR REPAYMENT OF QUALIFIED REFUND-
ING LOANS. 
Paragraph (2) of section 236(c) of the Tax Equity and Fiscal 
Responsibility Act of 1982 is amended by adding at the end thereof 
26 use 72 note. 
the following new subparagraph: 
"(D) SPECIAL RULE FOR NON-KEY EMPLOYEES.—In the case 
of a non-key employee (within the meaning of section 
416(i)(2) of the Internal Revenue Code of 1954), this para-
graph shall be applied by substituting 'January 1, 1985' for 
'August 14,1983 each place it appears." 
SEC. 555. TECHNICAL AMENDMENTS TO THE INCENTIVE STOCK OPTION 
PROVISIONS. 
(a) DETERMINATION OF FAIR MARKET VALUE.— 
(1) IN GENERAL.—Subsection (c) of section 422A (relating to 
26 use 422A. 
special rules) is amended by adding at the end thereof of the 
following new paragraph: 
"(10) FAIR MARKET VALUE.—For purposes of this section, the 
fair market value of stock shall be determined without regard to 
any restriction other than a restriction which, by its terms, will 
never lapse." 
(2) INCENTIVE STOCK OPTION AS AN ITEM OF TAX PREFERENCE.— 
Paragraph (10) of section 57(a) (relating to items of tax prefer- 
26 USe 57. 
ence) is amended by adding at the end thereof the following new 
sentence: "For purposes of this paragraph, the fair market 
value of a share of stock shall be determined without regard to 
98 STAT. 898 
PUBLIC LAW 98-369—JULY 18, 1984 
any restriction other than a restriction which, by its terms, will 
never lapse." 
(b) MODIFICATION OP INCENTIVE STOCK OPTIONS.—Subparagraph 
26 use 425. 
(B) of section 425(h)(3) (relating to modifications) is amended by 
striking out "422A(b)(5),". 
(c) EFFECTIVE DATES.— 
26 use 422A 
(1) FAIR MARKET VALUE.—The amendment made by subsection 
note. 
(a) shall apply to options granted after March 20, 1984, except 
that such subsection shall not apply to any incentive stock 
option granted before September 20, 1984, pursuant to a plan 
adopted or corporate action taken by the board of directors of 
the grantor corporation before May 15, 1984. 
26 use 57 note. 
(2) ITEMS OF T
A
X PREFERENCE.—The amendment made by 
subsection (b) shall apply to options exercised after March 20, 
1984, In the case of an option issued after March 20, 1984, 
pursuant to a plan adopted or corporate action taken by the 
board of directors of the grantor corporation before May 15, 
1984, the preceding sentence shall be applied by substituting 
"December 31,1984" for "March 20,1984". 
26 use 425 note. 
(3) MODIFICATIONS.—The amendment made by subsection (c) 
shall apply with respect to modifications of options after March 
20,1984. 
26 u s e 83 note. 
SEC. 556. TIME FOR MAKING CERTAIN SECTION 83(b) ELECTIONS. 
In the case of any transfer of property in connection with the 
performance of services after June 30, 1976, and on or before 
November 18, 1982, the election permitted by section 83(b) of the 
Internal Revenue Code of 1954 may be made, notwithstanding para-
graph (2) of such section 83(b), with the income tax return for the 
first taxable year ending after the date of the enactment of this Act, 
i
f
— 
(1) the amount paid for such property was not less than its 
fair market value at the time of transfer (determined without 
regard to any restriction other than a restriction which by its 
terms will never lapse), and 
(2) the election is consented to by the person transferring such 
property. 
The election shall contain that information required by the Secre-
tary of the Treasury or his delegate for elections permitted by such 
section 83(b). The period for assessing any tax attributable to a 
transfer of property which is the subject of an election made pursu-
ant to this section shall not expire before the date which is 3 years 
after the date such election was made. 
SEC. 557. EMPLOYER AND EMPLOYEE BENEFIT ASSOCIATION TREATED 
AS RELATED PERSONS UNDER SECTION 1239. 
26 use 1239. 
(a) GENERAL RULE.—Section 1239 (relating to gain from sale of 
depreciable property between certain related taxpayers) is amended 
by adding at the end thereof the following new subsection: 
"(d) EMPLOYER AND RELATED EMPLOYEE ASSOCIATION.—For pur-
poses of subsection (a), the term 'related person' also includes— 
"(1) an employer and any person related to the employer 
:- 1
^
; ; H, 
(within the meaning of subsection (b)), and 
"(2) a welfare benefit fund (within the meaning of section 
Ante, p. 854. 
419(e)) which is controlled directly or indirectly by persons 
referred to in paragraph (1)." 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 899 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
26 USC 1239 
shall apply to sales or exchanges after the date of the enactment of note, 
this Act in taxable years ending after such date. 
SEC. 558. ELIMINATION OF RETROACTIVE APPLICATION OF AMENDMENTS 
MADE BY MULTIEMPLOYER PENSION PLAN AMENDMENTS 
ACT OF 1980. 
(a) IN GENERAL.— 
29 use 1381 
(1) LiABiUTY.—Any withdrawal liability incurred by an em- 
note. 
ployer pursuant to part 1 of subtitle E of title IV of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1381 et seq.) as a result of the complete or partial withdrawal of 
such employer from a multiemployer plan before September 26, 
1980, shall be void. 
(2) REFUNDS.—Any amounts paid by an employer to a plan 
sponsor as a result of such withdrawal liability shall be 
refunded by the plan sponsor to the employer with interest (in 
accordance with section 401(a)(2)), less a reasonable amount for 
26 USC 401. 
administrative expenses incurred by the plan sponsor (other 
than legal expenses incurred with respect to the plan) in calcu-
lating, assessing, and refunding such amounts. 
(b) CONFORMING AMENDMENTS.— 
(1) EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.— 
(A) Sections 4211 (b) and (c), 4217(a), and 4235(a) of the 
Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1391 (b) and (c), 1397(a), and 1415(a)) are amended by 
striking out "April 28, 1980" each place it appears and 
inserting in lieu thereof "September 25,1980". 
(B) Sections 4211 (b) and (c), 4217(a), 4219(c)(lXCXiii), and 
4402(e) of such Act (29 U.S.C. 1391 (b) and (c), 1397(a), 
1399(c)(l)(C)(iii), and 1461(e)) are amended by striking out 
"April 29, 1980" each place it appears and inserting in lieu 
thereof "September 26,1980". 
"(C) Section 4402(f)(1) of such Act (29 U.S.C. 1461(f)(1)) is 
amended by striking out "April 29, 1985" and inserting in 
lieu thereof "September 26,1985". 
(2) MULTIEMPLOYER PENSION PLAN AMENDMENTS ACT OF 1980.— 
Section 108(d) of the Multiemployer Pension Plan Amendments 
Act of 1980 (29 U.S.C. 1385 note) is amended— 
(A) by striking out "April 29, 1982" in paragraph (1) and 
inserting in lieu thereof "September 26,1982"; and 
(B) by striking out "April 29, 1980" each place it appears 
in paragraphs (2) and (3) and inserting in lieu thereof 
"September 26,1980". 
(c) No INCREASE IN LIABIUTY.—The amendments made by this 
29 USC 1381 
section shall not be construed to increase the liability incurred by note. 
any employer pursuant to part 1 of subtitle E of title IV of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1381 et 
seq.), as in effect immediately before the amendments made by 
subsection (b), as a result of the complete or partial withdrawal of 
such employer from a multiemployer plan prior to September 26, 
1980. 
(d) SPECIAL RULE FOR CERTAIN BINDING AGREEMENTS.—In the case 
29 USC 1381 
of an employer who, on September 26, 1980, has a binding agree- note. 
ment to withdraw from a multiemployer plan, subsection (a)(1) shall 
be applied by substituting "December 31, 1980" for "September 26, 
1980". 
98 STAT. 900 
PUBLIC LAW 98-369—JULY 18, 1984 
SEC. 559. TELECOMMUNICATION EMPLOYEES. 
(a) EMPLOYEE PROTECTION.—Notwithstanding any provisions of 
the divestiture interchange agreement to the contrary, in the case of 
any change in employment on or after January 1, 1985, by a covered 
employee, the recognition of service credit, and enforcement of such 
recognition, shall be governed in the same manner and to same 
extent as provided under the divestiture interchange agreement for 
a change in employment by a covered employee during calendar 
year 1984. 
(b) EMPLOYEES COVERED.—For purposes of this section, a covered 
employee is an individual— 
(1) who is an employee of an entity subject to the modified 
final judgment, 
(2) who is serving in an eligible position, and 
(3) who— 
(A) on December 31, 1983, was an employee of any such 
;i, ,;.;i] '!; 
entity serving in an eligible position, or 
(B) was a former employee with rehire or recall rights on 
such date and is rehired during the period of the employee's 
rehire or recall rights. 
(c) DEFINITIONS.—For purposes of this section— 
(1) The term "service credit" means service credit for benefit 
accrual, vesting, and eligibility for benefits under any pension 
plan, or any other employee benefits, including the interchange 
and treatment of associated benefit obligations and assets. 
(2) The term "change in employment" means the commence-
ment of employment of a covered employee by an entity subject 
to the modified final judgment after the termination of employ-
ment (with or without break in service) of such individual from 
an eligible position within another entity subject to the modi-
fied final judgment. 
(3) The term "eligible position" means any position (A) which 
is not a supervisory position, within the meaning of section 2(11) 
of the National Labor Relations Act (29 U.S.C. 152(11)) or (B) the 
annual base pay rate for which is not more than $50,000, 
adjusted by the percentage increase in the consumer price index 
since December 31,1983. 
(4) The term "modified final judgment" means the judgment 
of the United States District Court for the District of Columbia 
in the case. United States against Western Electric, et alia, No. 
82-0192, as modified. 
(5) The term "entity subject to the modified final judgment" 
means— 
(A) any carrier divested as a result of the modified final 
judgment, 
(B) the corporation owning such carrier before divesti-
ture, 
(C) any other communications common carrier owned, in 
whole or in part, by such corporation on December 31, 1983, 
or 
imi J' • »!.: 
^^^ ^^y Interchange Company (as defined in the divesti-
^jocf 
ture interchange agreement) excluding any subsidiary of 
such company other than any such subsidiary— 
,.;C: 
(i) which was established as of December 31, 1983, 
and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 901 
'
= 
(ii) which participates in a defined benefit pension 
• 
plan maintained by such Interchange Company. 
(6) The term "divestiture interchange agreement" refers to 
the agreement between entities subject to the modified final 
judgment which was executed as of November 1, 1983, and 
which provides for mutual reciprocal recognition of service 
credit. 
(7) The term "consumer price index" means the Consumer 
Price Index (all items—United States city average) published 
monthly by the Bureau of Labor Statistics. 
(d) COORDINATION WITH OTHER BENEFIT-RELATED PROVISIONS.— 
Nothing in this section shall be construed to limit benefits which 
would otherwise be available to any individual, whether provided 
under the modified final judgment, under applicable law, or 
otherwise. 
SEC. 560. STUDY OF EMPLOYEE WELFARE BENEFIT PLANS. 
(a) IN GENERAL,—The Secretary of the Treasury shall make a 
study of the problems relating to the use of employee welfare benefit 
plans for the provision of benefits to current and retired employees. 
Such study shall include a study of the need for participation, 
vesting, and funding standards. 
(b) REPORT.—A report of the study conducted under subsection (a), 
together with such recommendations for legislation as the Secretary 
deems appropriate, shall be made to the Congress by not later than 
February 1,1985. 
SEC. 561. LIMITATION ON ACCRUAL OF VACATION PAY. 
(a) GENERAL RULE.—Paragraph (1) of section 463(a) (relating to 
26 USC 463. 
accrual of vacation pay) is amended by striking out "and payable 
during" and inserting in lieu thereof "and expected to be paid 
during". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
26 USC 463 note. 
shall apply to taxable years beginning after March 31,1984. 
TITLE VI—TAX-EXEMPT BOND 
PROVISIONS 
Subtitle A—Mortgage Subsidy Bonds 
SEC. 611. 4-YEAR EXTENSION OF MORTGAGE SUBSIDY BOND AUTHORITY. 
(a) GENERAL RULE.—Subparagraph (B) of section 103A(c)(l) (defin- 
26 USC 103A. 
ing qualified mortgage bond) is amended by striking out "December 
31,1983" each place it appears and inserting in lieu thereof "Decem-
ber 31,1987". 
(b) 
REPORTING, ETC., REQUIREMENTS FOR MORTGAGE SUBSIDY 
BONDS.— 
(1) IN GENERAL.—Subsection (j) of section 103A (relating to 
other requirements) is amended by adding at the end thereof 
the following new paragraphs: 
"(3) INFORMATION REPORTING REQUIREMENT.— 
"(A) IN GENERAL.—An issue meets the requirements of 
this subsection only if the issuer submits to the Secretary, 
not later than the 15th day of the 2nd calendar month after 
the close of the calendar quarter in which the issue is 
98 STAT. 902 
PUBLIC LAW 98-369—JULY 18, 1984 
issued (or such later time as the Secretary may prescribe 
with respect to any portion of the statement) a statement 
concerning the issue which contains— 
"(i) the name and address of the issuer, 
"(ii) the date of the issue, the amount of the lendable 
proceeds of the issue, and the stated interest rate, term, 
and face amount of each obUgation which is part of the 
issue, 
"(iii) such information as the Secretary may require 
in order to determine whether such issue meets the 
requirements of this section and the extent to which 
proceeds of such issue have been made available to low-
income individuals, and 
"(iv) such other information as the Secretary may 
require. 
"(B) EXTENSION OF TIME.—The Secretary may grant an 
extension of time for the filing of any statement under 
subparagraph (A) if there is reasonable cause for the failure 
to file such statement in a timely fashion. 
"(4) STATE CERTIFICATION REQUIREMENTS.— 
"(A) IN GENERAL.—An issue meets the requirements of 
this subsection only if, before the issue, a State official 
designated by State law (or, where there is no such State 
official, the Governor) certifies in the manner prescribed by 
regulations that the issue meets the requirements of subsec-
tion (g). 
"(B) CERTIFICATION FURNISHED TO SECRETARY.—Any certi-
fication under subparagraph (A) shall be submitted to the 
Secretary at the same time as the statement with respect to 
such issue is submitted under paragraph (3) or such other 
time as the Secretary may prescribe. 
' 
"(C) 
SPECIAL RULE FOR CONSTITUTIONAL HOME RULE 
CITIES.—In the case of any constitutional home rule city (as 
defined in subsection (g)(5)(C)), the certification under sub-
paragraph (A) shall be made by the chief executive officer 
of such city. 
"(5) POLICY STATEMENT.— 
"(A) IN GENERAL.—An issue meets the requirements of 
this subsection only if the applicable elected representative 
of the governmental unit— 
"(i) which is the issuer, or 
"(ii) on whose behalf such issue was issued, 
has published (after a public hearing following reasonable 
public notice) a report described in subparagraph (B) by the 
last day of the year preceding the year in which such issue 
is issued and a copy of such report has been submitted to 
the Secretary on or before such last day. 
"(B) REPORT.—The report referred to in subparagraph (A) 
which is published by the applicable elected representative 
of the governmental unit shall include— 
"(i) a statement of the policies with respect to hous-
ing, development, and low-income housing assistance 
which such governmental unit is to follow in issuing 
qualified mortgage bonds and mortgage credit certifi-
cates, and 
• '0S ^
:
< ::iHnk 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 903 
"(ii) an assessment of the compliance of such govern-
mental unit during the preceding 1-year period preced-
ing the date of the report with— 
i» 
"(I) the statement of policy on qualified mortgage 
bonds and mortgage credit certificates that was set 
forth in the previous report, if any, of an applicable 
"^ 
elected representative of such governmental unit, 
and 
"(II) the intent of Congress that State and local 
governments are expected to use their authority to 
issue qualified mortgage bonds and mortgage 
credit certificates to the greatest extent feasible 
(taking into account prevailing interest rates and 
conditions in the housing market) to assist lower 
, 
income families to afford home ownership before 
' 
,, • 
assisting higher income families." 
(c) TREATMENT OF QUALIFIED VETERANS' MORTGAGE BONDS.— 
(1) Subparagraph (C) of section 103A(c)(3) (defining qualified 
26 USC 103A. 
veterans' mortgage bond) is amended by striking out "subsec-
tion (j)(l)" and inserting in lieu thereof "subsection (d), para-
graphs (1) and (3) of subsection (j), and subsection (o)". 
(2) Section 103A is amended by adding at the end thereof the 
following new subsection: 
"(o) ADDITIONAL REQUIREMENTS FOR QUAUFIED VETERANS' MORT-
GAGE BONDS.— 
"(1) VETERANS TO WHOM FINANCING MAY BE PROVIDED.—An 
obligation meets the requirements of this subsection only if 
each mortgagor to whom financing is provided under the issue 
is a qualified veteran. 
"(2) REQUIREMENT THAT STATE PROGRAM BE IN EFFECT BEFORE 
JUNE 22, 1984.—An issue meets the requirements of this subsec-
tion only if it is a general obligation of a State which issued 
qualified veterans' mortgage bonds before June 22,1984. 
"(3) VOLUME LIMITATION.— 
"(A) IN GENERAL.—An issue meets the requirements of 
this subsection only if the aggregate amount of bonds issued 
£. , -
? 
pursuant thereto (when added to the aggregate amount of 
qualified veterans' mortgage bonds previously issued by the 
State during the calendar year) does not exceed the State 
veterans limit for such calendar year. 
"(B) STATE VETERANS LIMIT.—A State veterans limit for 
any calendar year is the amount equal to— 
"(i) the aggregate amount of qualified veterans bonds 
issued by such State during the period beginning on 
January 1, 1979, and ending on June 22, 1984 (not 
including the amount of any qualified veterans bond 
issued by such State during the calendar year (or por-
tion thereof) in such period for which the amount of 
such bonds so issued was the lowest), divided by 
"(ii) the number (not to exceed 5) of calendar years 
after 1979 and before 1985 during which the State 
issued qualified veterans bonds (determined by only 
taking into account bonds issued on or before June 22, 
1984). 
"(4) QUAUFIED VETERAN.—For purposes of this subsection, the 
term 'qualified veteran' means any veteran— 
98 STAT. 904 
PUBLIC LAW 98-369—JULY 18, 1984 
"(A) who served on active duty at some time before 
January 1,1977, and 
"(B) who applied for the financing before the later o
f
— 
"(i) the date 30 years after the last date on which 
such veteran left active service, or 
"(ii) January 1,1985. 
"(5) GOOD FAITH EFFORT RULES MADE APPLICABLE.—Rules simi-
lar to the rules of subparagraphs (B) and (C) of subsection (c)(2) 
shall apply to the requirements of this subsection. 
"(6) SPECIAL RULE FOR CERTAIN SHORT-TERM OBUGATIONS.—In 
the case of any obligation which has a term of 1 year or less and 
which was issued to provide financing for property taxes, the 
amount taken into account under this subsection with respect to 
such obligation shall be Vis of its principal amount." 
26 use 103A 
(d) EFFECTIVE DATES.— 
note. 
(1) SUBSECTION (a).—The amendment made by subsection (a) 
shall apply with respect to obligations issued after December 31, 
1983. 
(2) SUBSECTION (b).—The amendments made by subsection (h) 
shall apply to obligations issued after December 31,1984. 
(3) SUBSECTION (C) .— 
(A) IN GENERAL.—Except as provided in subparagraph (B), 
the amendments made by subsection (c) shall apply to 
obligations issued after the date of the enactment of this 
Act. 
(B) VOLUME LIMITATION.—The requirements of paragraph 
Ante, p. 903. 
(3) of section 103A(o) of the Internal Revenue Code of 1954 
(as added by this section) shall apply to obligations issued 
after June 22, 1984. In applying such requirements to obli-
gations issued after such date, obligations issued on or 
before such date shall not be taken into account under such 
paragraph (3). 
(C) QUAUFIED VETERANS' MORTGAGE BONDS AUTHORIZED 
BEFORE OCTOBER 18, 1983, NOT TAKEN INTO ACCOUNT.—The 
requirements of section 103A(o)(3) of the Internal Revenue 
Code of 1954 shall not apply to any qualified veterans' 
mortgage bond if^ 
(i) the issuance of such bond was authorized by a 
State referendum before October 18,1983, or 
(ii) the issuance of such bond was authorized pursu-
ant to a State referendum before December 1, 1983, 
where such referendum was authorized by action of the 
State legislature before October 18,1983. 
(4) TRANSITIONAL RULE WHERE STATE FORMULA FOR ALLOCATING 
STATE CEIUNG EXPIRES.— 
(A) IN GENERAL.—If a State law which provided a formula 
for allocating the State ceiling under section 103A(g) of the 
Internal Revenue Code of 1954 for calendar year 1983 
expires £is of the close of calendar year 1983, for purposes of 
section 103A(g) of such Code, such State law shall be treated 
as remaining in effect after 1983. In any case to which the 
preceding sentence applies, where the State's expiring allo-
cation formula requires action by a State official to allocate 
the State ceiling among issuers, actions of such State offi-
cial in allocating such ceiling shall be effective. 
(B) TERMINATION.—Subparagraph (A) shall not apply on 
or after the effective date of any State legislation enacted 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 905 
after the date of the enactment of this Act with respect to 
the allocation of the State ceiling. 
(C) SPECIAL RULE FOR TEXAS.—In the case of Texas, the 
Governor of such State may take the actions described in 
subparagraph (A) pursuant to procedures established by the 
Governor consistent with the State laws of Texas. 
(5) SPECIAL RULE FOR DETERMINATIONS OF STATISTICAL AREA.— 
For purposes of applying section 103A of the Internal Revenue 
Code of 1954 and any other provision of Federal law— 
(A) RESCISSION.—The Director of the Office of Manage-
ment and Budget shall rescind the designation of the 
Kansas City, Missouri primary metropolitan statistical area 
(KCMO PMSA) and the designation of the Kansas City, 
Kansas primary metropolitan statistical area (Kansas City, 
KS PMSA), and shall not take any action to designate such 
two primary metropolitan statistical areas as a consolidated 
metropolitan statistical area. 
(B) DESIGNATION.—The Director of the Office of Manage-
rs 
ment and Budget shall designate a single metropolitan 
statistical area which includes the following: 
(i) Kansas City, Kansas, 
(ii) Kansas City, Missouri. 
(iii) The counties of Johnson, Wyandotte, Leaven-
worth, and Miami in Kansas. 
(iv) The counties of Cass, Clay, Jackson, Platte, Ray, 
»; 
and Lafayette in Missouri. 
• 
The metropolitan statistical area designation pursuant to 
this subsection shall be known as the "Kansas City Mis-
souri-Kansas Metropolitan Statistical Area". 
(6) TRANSITIONAL RULE FOR KENTUCKY AND NEVADA.—For pur-
poses of section 103A(g) of the Internal Revenue Code of 1954, in 
the case of Kentucky and Nevada, subclause (I) of section 
103A(g)(6)(B)(ii) of such Code shall be applied as if the first day 
referred to in such subclause were January 1,1987. 
(7) REPORT TO CONGRESS.—The Secretary of the Treasury, in 
consultation with the Secretary of Housing and Urban Develop-
ment, shall, not later than January 1, 1987, submit a report to 
the Committee on Finance of the Senate and the Committee on 
Ways and Means of the House of Representatives regarding the 
performance of issuers of qualified mortgage bonds and mort-
gage credit certificates relative to the intent of Congress de-
scribed in section 103A(j) of the Internal Revenue Code of 1954. 
SEC. 612. MORTGAGE CREDIT CERTIFICATES. 
(a) IN GENERAL.—Subpart A of part IV of subchapter A of chapter 
1 (relating to credits against tax) is amended by redesignating 
section 25 as section 26 and by inserting after section 24 the 26 USC 26. 
following new section: 
"SEC 25. INTEREST ON CERTAIN HOME MORTGAGES. 
26 USC 25. 
"(a) ALLOWANCE OF CREDIT.— 
"(1) IN GENERAL.—There shall be allowed as a credit against 
the tax imposed by this chapter for the taxable year an amount 
equal to the product of— 
"(A) the certificate credit rate, and 
98 STAT. 906 
PUBLIC LAW 98-369—JULY 18, 1984 
"(B) the interest paid or incurred by the taxpayer during 
the taxable year on the remaining principal of the certified 
indebtedness amount. 
"(2) LIMITATION WHERE CREDIT RATE EXCEEDS 20 PERCENT.— 
"(A) IN GENERAL.—If the certificate credit rate exceeds 20 
percent, the amount of the credit allowed to the taxpayer 
under paragraph (1) for any taxable year shall not exceed 
$2,000. 
"(B) SPECIAL RULE WHERE 2 OR MORE PERSONS HOLD INTER-
ESTS IN RESIDENCE.—If 2 or more persons hold interests in 
any residence, the limitation of subparagraph (A) shall be 
allocated among such persons in proportion to their respec-
tive interests in the residence. 
"
O
t
>
) 
CERTIFICATE 
CREDIT 
RATE; 
CERTIFIED 
INDEBTEDNESS 
AMOUNT.—For purposes of this section— 
"(1) CERTIFICATE CREDIT RATE.—The term 'certificate credit 
rate' means the rate of the credit allowable by this section 
which is specified in the mortgage credit certificate. 
"(2) CERTIFIED INDEBTEDNESS AMOUNT.—The term 'certified 
indebtedness amount' means the amount of indebtedness which 
is— 
"(A) incurred by the taxpayer— 
"(i) to acquire the principal residence of the taxpayer, 
"(ii) as a qualified home improvement loan (as de-
fined in section 103A(1)(6)) with respect to such resi-
dence, or 
"(iii) as a qualified rehabilitation loan (as defined in 
section 103A(1)(7)) with respect to such residence, and 
"(B) specified in the mortgage credit certificate. 
"(c) MORTGAGE CREDIT CERTIFICATE; QUAUFIED MORTGAGE CREDIT 
CERTIFICATE PROGRAM.—For purposes of this section— 
"(1) MORTGAGE CREDIT CERTIFICATE.—The term 'mortgage 
credit certificate' means any certificate which— 
"(A) is issued under a qualified mortgage credit certifi-
cate program by the State or political subdivision having 
the authority to issue a qualified mortgage bond to provide 
financing on the principal residence of the taxpayer, 
"(B) is issued to the taxpayer in connection with the 
acquisition, qualified rehabilitation, or qualified home im-
provement of the taxpayer's principal residence, 
"(C) specifies— 
"(i) the certificate credit rate, and 
"(ii) the certified indebtedness amount, and 
"(D) is in such form as the Secretary may prescribe. 
"(2) QUAUFIED MORTGAGE CREDIT CERTIFICATE PROGRAM.— 
"(A) IN GENERAL.—The term 'qualified mortgage credit 
certificate program' means any program— 
"(i) which is established by a State or political subdi-
vision thereof for any calendar year for which it is 
authorized to issue qualified mortgage bonds, 
"(ii) under which the issuing authority elects (in such 
manner and form as the Secretary may prescribe) not 
to issue an amount of qualified mortgage bonds which 
it may otherwise issue during such calendar year under 
section 103 
A, 
"(iii) under which the indebtedness certified by mort-
gage credit certificates meets the requirements of the 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 907 
following subsections of section 103A (as modified by 
subparagraph (B) of this paragraph): 
"(I) subsection (d) (relating to residence require-
ments), 
"(II) subsection (e) (relating to 3-year require-
i» ,- 
ment), 
"(III) subsection (f) (relating to purchase price 
requirement), 
- 
"(IV) subsection (h) (relating to portion of loans 
required to be placed in targeted areas), and 
"(V) paragraph (1) of subsection (j) (relating to 
; 
other requirements), 
"(iv) under which no mortgage credit certificate may 
be issued with respect to any residence any of the 
£
• Ir 
financing of which is provided from the proceeds of a 
qualified mortgage bond or a qualified veterans' mort-
gage bond, 
: 
"(v) except to the extent provided in regulations, 
which is not limited to indebtedness incurred from 
particular lenders, 
e 
"(vi) except to the extent provided in regulations, 
which provides that a mortgage credit certificate is not 
transferrable, and 
"(vii) if the issuing authority allocates a block of 
mortgage credit certificates for use in connection with 
a particular development, which requires the developer 
to furnish to the issuing authority and the homebuyer 
a certificate that the price for the residence is no 
: 
higher than it would be without the use of a mortgage 
credit certificate. 
: ,^1 
"(B) MODIFICATIONS OF SECTION 103A.—Under regulations 
prescribed by the Secretary, in applying section 103A for 
purposes of subclauses (II) and (IV) of subparagraph 
(A)(iii)-
"(i) each qualified mortgage certificate credit pro-
gram shall be treated as a separate issue, 
"(ii) the product determined by multiplying— 
"(I) the certified indebtedness amount of each 
mortgage credit certificate issued under such pro-
gram, by 
"(II) the certificate credit rate specified in such 
certificate, 
shall be treated as proceeds of such issue and the sum 
of such products shall be treated as the total proceeds 
of such issue, and 
i 
"(iii) paragraph (1) of section 103A(e) shall be applied 
by substituting '100 percent' for '90 percent or more'. 
Clause (iii) shall not apply if the issuing authority submits a 
plan to the Secretary for administering the 90-percent 
requirement of section 103A(e)(l) and the Secretary is satis- 
i
f ., 
fied that such requirement will be met under such plan. 
"(d) DETERMINATION OF CERTIFICATE CREDIT RATE.—For purposes 
of this section— 
"(1) IN GENERAL.—The certificate credit rate specified in any 
mortgage credit certificate shall not be less than 10 percent or 
more than 50 percent. 
"(2) AGGREGATE LIMIT ON CERTIFICATE CREDIT RATES.— 
98 STAT. 908 
PUBLIC LAW 98-369—JULY 18, 1984 
"(A) IN GENERAL.—In the case of each qualified mortgage 
credit certificate program, the sum of the products deter-
mined by multiplying— 
"(i) the certified indebtedness amount of each mort-
gage credit certificate issued under such program, by 
"(ii) the certificate credit rate with respect to such 
certificate, 
shall not exceed 20 percent of the nonissued bond amount. 
"(B) NONISSUED BOND AMOUNT.—For purposes of subpara-
graph (A), the term 'nonissued bond amount' means, with 
respect to any qualified mortgage credit certificate pro-
gram, the amount of qualified mortgage bonds which the 
issuing authority is otherwise authorized to issue and elects 
not to issue under subsection (c)(2XA)(ii). 
"(3) ADDITIONAL LIMIT IN CERTAIN CASES.—In the case of a 
qualified mortgage credit certificate program in a State which— 
"(A) has a State ceiling (as defined in section 103A(g)(4)) 
for the year an election is made that exceeds 20 percent of 
the average annual aggregate principal amount of mort-
gages executed during the immediately preceding 3 calen-
dar years for single family owner-occupied residences 
located within the jurisdiction of such State, or 
"(B) issued qualified mortgage bonds in an aggregate 
amount less than $150,000,000 for calendar year 1983, 
the certificate credit rate for any mortgage credit certificate 
shall not exceed 20 percent unless the issuing authority submits 
a plan to the Secretary to ensure that the weighted average of 
the certificate credit rates in such mortgage credit certificate 
program does not exceed 20 percent and the Secretary approves 
such plan. 
"(e) SPECIAL RULES AND DEFINITIONS.—For purposes of this 
section— 
"(1) CARRYFORWARD OF UNUSED CREDIT.— 
"(A) IN GENERAL.—If the credit allowable under subsec-
tion (a) for any taxable year exceeds the applicable tax limit 
for such taxable year, such excess shall be a carryover to 
each of the 3 succeeding taxable years and, subject to the 
limitations of subparagraph (B), shall be added to the credit 
allowable by subsection (a) for such succeeding taxable 
year. 
"(B) LIMITATION.—The amount of the unused credit 
which may be taken into account under subparagraph (A) 
for any taxable year shall not exceed the amount by which 
the applicable tax limit for such taxable year exceeds the 
sum of the amounts which, by reason of this paragraph, are 
carried to such taxable year and are attributable to taxable 
years before the unused credit year. 
"(C) APPLICABLE TAX LIMIT.—For purposes of this para-
graph, the term 'applicable tax limit means the limitation 
Ante, p. 905. 
imposed by section 26(a) for the taxable year reduced by the 
sum of the credits allowable under this subpart (other than 
this section). 
"(2) INDEBTEDNESS NOT TREATED AS CERTIFIED WHERE CERTAIN 
REQUIREMENTS NOT IN FACT MET.—Subsection (a) shall not apply 
to any indebtedness if all the requirements of subsection (d)(1), 
(e), (f), and (j) of section 103A and clauses (iv), (v), and (vii) of 
subsection (c)(2)(A)", were not in fact met with respect to such 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 909 
indebtedness. Except to the extent provided in regulations, the 
requirements described in the preceding sentence shall be 
treated as met if there is a certification, under penalty 
of perjury, that such requirements are met. 
"(3) PERIOD FOR WHICH CERTIFICATE IN EFFECT.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), a mortgage credit certificate shall be treated as in effect 
with respect to interest attributable to the period— 
"(i) beginning on the date such certificate is issued, 
and 
"(ii) ending on the earlier of the date on which— 
"(I) the certificate is revoked by the issuing 
authority, or 
"(ID the residence to which such certificate 
relates ceases to be the principal residence of the 
individual to whom the certificate relates. 
"(B) CERTIFICATE INVALID UNLESS INDEBTEDNESS INCURRED 
WITHIN CERTAIN PERIOD.—A certificate shall not apply to 
any indebtedness which is incurred after the close of the 
second calendar year following the calendar year for which 
the issuing authority made the applicable election under 
subsection (c)(2)(A)(ii). 
"(C) NOTICE TO SECRETARY WHEN CERTIFICATE REVOKED.— 
Any issuing authority which revokes any mortgage credit 
certificate shall notify the Secretary of such revocation at 
such time and in such manner as the Secretary shall 
prescribe by regulations. 
"(4) REISSUANCE OF MORTGAGE CREDIT CERTIFICATES.—The Sec-
retary may prescribe regulations which allow the administrator 
of a mortgage credit certificate program to reissue a mortgage 
credit certificate specifying a certified mortgage indebtedness 
that replaces the outstanding balance of the certified mortgage 
indebtedness specified on the original certificate to any tax-
payer to whom the original certificate was issued, under such 
terms and conditions as the Secretary determines are necessary to 
ensure that the amount of the credit allowable under subsection 
(a) with respect to such reissued certificate is equal to or less 
than the amount of credit which would be allowable under 
subsection (a) with respect to the original certificate for any 
taxable year ending after such reissuance. 
"(5) PUBLIC NOTICE THAT CERTIFICATES WILL BE ISSUED.—At 
least 90 days before any mortgage credit certificate is to be 
issued after a qualified mortgage credit certificate program, the 
issuing authority shall provide reasonable public notice of— 
"(A) the eligibility requirements for such certificate, 
"(B) the methods by which such certificates are to be 
issued, and 
"(C) such other information as the Secretary may require. 
"(6) 
INTEREST PAID OR ACCRUED TO RELATED PERSONS.—No 
credit shall be allowed under subsection (a) for any interest paid 
or accrued to a person who is a related person to the taxpayer 
(within the meaning of section 103G))(6)(C)(i)). 
"(7) PRINCIPAL RESIDENCE.—The term 'principal residence' has 
the same meaning as when used in section 1034. 
"(8) QUALIFIED REHABIUTATION AND HOME IMPROVEMENT.— 
98 STAT. 910 
PUBLIC LAW 98-369—JULY 18, 1984 
"(A) QUALIFIED REHABILITATION.—The term 'qualified re-
habilitation' has the meaning given such term by section 
103A(1)(7)(B). 
"(B) QUALIFIED HOME IMPROVEMENT.—The term 'qualified 
home improvement' means an alteration, repair, or im-
provement described in section 103A(1)(6). 
"(9) QuAUFiED MORTGAGE BOND.—The term 'qualified mort-
gage bond' has the meaning given such term by section 
103A(c)(l). 
"(10) MANUFACTURED HOUSING.—For purposes of this section, 
the term 'single family residence' includes any manufactured 
home which has a minimum of 400 square feet of living space 
and a minimum width in excess of 102 inches and which is of a 
kind customarily used at a fixed location. Nothing in the preced-
ing sentence shall be construed as providing that such a home 
will be taken into account in making determinations under 
section 103A. 
"(f) REDUCTION IN AGGREGATE AMOUNT OF QUALIFIED MORTGAGE 
BONDS WHICH MAY BE ISSUED WHERE CERTAIN REQUIREMENTS NOT 
MET.— 
"(1) IN GENERAL.—If for any calendar year any mortgage 
credit certificate program which satisfies procedural require-
ments with respect to volume limitations prescribed by the 
Secretary fails to meet the requirements of paragraph (2) of 
subsection (d), such requirements shall be treated as satisfied 
with respect to any certified indebtedness of such program, but 
the applicable State ceiling under paragraph (4) of section 
103A(g) for the State in which such program operates shall be 
reduced by 1.25 times the correction amount with respect to 
such failure. Such reduction shall be applied to such State 
ceiling for the calendar year following the calendar year in 
which the Secretary determines the correction amount with 
respect to such failure. 
"(2) CORRECTION AMOUNT.— 
"(A) IN GENERAL.—For purposes of paragraph (1), the 
term 'correction amount' means an amount equal to the 
excess credit amount divided by 0.20. 
"(B) EXCESS CREDIT AMOUNT.— 
"(i) IN GENERAL.—For purposes of subparagraph 
(A)(ii), the term 'excess credit amount' means the 
excess o
f
— 
"(I) the credit amount for any mortgage credit 
certificate program, over 
"(II) the amount which would have been the 
credit amount for such program had such program 
met the requirements of paragraph (2) of subsec-
tion (d). 
"(ii) CREDIT AMOUNT.—For purposes of clause (i), the 
term 'credit amount' means the sum of the products 
determined under clauses (i) and (ii) of subsection 
(d)(2)(A). 
"(3) SPECIAL RULE FOR STATES HAVING CONSTITUTIONAL HOME 
RULE CITIES.—In the case of a State having one or more constitu-
tional home rule cities (within the meaning of section 
103A(g)(5)(C)), the reduction in the State ceiling by reason of 
paragraph (1) shall be allocated to the constitutional home rule 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 911 
city, or to the portion of the State not within such city, which-
ever caused the reduction. 
"(4) EXCEPTION WHERE CERTIFICATION PROGRAM.—The provi-
sions of this subsection shall not apply in any case in which 
there is a certification program which is designed to insure that 
the requirements of this section are met and which meets such 
requirements as the Secretary may by regulations prescribe. 
"(5) WAIVER.—The Secretary may waive the application of 
paragraph (1) in any case in which he determines that the 
failure is due to reasonable cause. 
"(g) REPORTING REQUIREMENTS.—Each person who makes a loan 
which is a certified indebtedness amount under any mortgage credit 
certificate shall file a report with the Secretary containing— 
"(1) the name, address, and social security account number of 
the individual to which the certificate was issued, 
"(2) the certificate's issuer, date of issue, certified indebted-
ness amount, and certificate credit rate, and 
"(3) such other information as the Secretary may require by 
regulations. 
Each person who issues a mortgage credit certificate shall file a 
report showing such information as the Secretary shall by regula-
tions prescribe. Any such report shall be filed at such time and in 
such manner as the Secretary may require by regulations. 
"(h) TERMINATION.—No election may be made under subsection 
(c)(2)(A)(ii) for any calendar year after 1987. 
"(i) REGULATIONS; CONTRACTS.— 
"(1) REGULATIONS.—The Secretary shall prescribe such regu-
lations as may be necessary to carry out the purposes of this 
section, including regulations which may require recipients of 
mortgage credit certificates to pay a reasonable processing fee 
to defray the expenses incurred in administering the program. 
"(2) CONTRACTS.—The Secretary is authorized to enter into 
contracts with any person to provide services in connection with 
the administration of this section." 
(b) APPLICATION WITH SECTION 103A.—Subsection (g) of section 
103A (relating to limitation on aggregate amount of qualified mort- 
26 USC 103A. 
gage bonds issued during any calendar year) is amended by adding 
at the end thereof the following new paragraph: 
"(8) 
REDUCTION FOR MORTGAGE CREDIT CERTIFICATES.—The 
^ ^ .^ ^ 
applicable limit of any issuing authority for any calendar year 
' ''' 
shall be reduced by the sum of— 
"(A) the amount of qualified mortgage bonds which such 
^' 
authority elects not to issue under section 25(c)(2)(A)(ii) Ante, p. 905. 
during such year, plus 
"(B) the amount of any reduction in such ceiling under 
' 
section 25(f) applicable to such authority for such year." 
(c) DISALLOWANCE OF PORTION OF DEDUCTION FOR INTEREST WHERE 
CREDIT TAKEN.—Section 163 (relating to deduction for interest) is 
26 USC 163. 
amended by redesignating subsection (g) as subsection (h) and by 
inserting after subsection (f) the following new subsection: 
"(g) REDUCTION OF DEDUCTION WHERE SECTION 25 CREDIT TAKEN.— 
The amount of the deduction under this section for interest paid or 
accrued during any taxable year on indebtedness with respect to 
which a mortgage credit certificate has been issued under section 25 
shall be reduced by the amount of the credit allowable with respect 
to such interest under section 25 (determined without regard to 
section 26)." 
Ante, p. 905. 
98 STAT. 912 
PUBLIC LAW 98-369—JULY 18, 1984 
. (d) CIVIL PENALTIES.— 
(1) Subchapter B of chapter 68 (relating to assessable penal-
ties) is amended by adding at the end thereof the following new 
section: 
26 u s e 6708. 
"SEC. 6708. PENALTIES WITH RESPECT TO MORTGAGE CREDIT CERTIFI-
Ante, p. 682. 
GATES. 
"(a) NEGLIGENCE.—If^ 
"(1) any person makes a material misstatement in any veri-
fied written statement made under penalties of perjury with 
respect to the issuance of a mortgage credit certificate, and 
"(2) such misstatement is due to the negligence of such 
person, 
such person shall pay a penalty of $1,000 for each mortgage credit 
certificate with respect to which such a misstatement was made. 
"(b) FRAUD.—If a misstatement described in subsection (a)(1) is 
due to fraud on the part of the person making such misstatement, in 
addition to any criminal penalty, such person shall pay a penalty of 
$10,000 for each mortgage credit certificate with respect to which 
such a misstatement is made. 
Ante, p. 905. 
"(c) REPORTS.—Any person required by section 25(g) to file a report 
with the Secretary who fails to file the report with respect to any 
mortgage credit certificate at the time and in the manner required 
by the Secretary shall pay a penalty of $200 for such failure unless it 
is shown that such failure is due to reasonable cause and not to 
willful neglect. In the case of any report required under the second 
sentence of section 25(g), the aggregate amount of the penalty 
imposed by the preceding sentence shall not exceed $2,000. 
"(d) MORTGAGE CREDIT CERTIFICATE.—The term 'mortgage credit 
certificate' has the meaning given to such term by section 25(c)." 
(2) The table of sections for subchapter B of chapter 68 is 
amended by adding at the end thereof the following new item: 
"Sec. 6708. Penalties with respect to mortgage credit certificates." 
(e) TECHNICAL AMENDMENTS.— 
Ante, pp. 826, 
(D Sections 28(d)(2), 29(b)(5), 30(g)(1)(A), 38(c)(2), and 901(a), as 
827; 26 USC 901. 
amended by this Act, are each amended by striking out "section 
250t))" and inserting in lieu thereof "section 260t))". 
Ante, p. 826. 
(2) Section 23(b)(5), as amended by this Act, is amended by 
striking out "section 25(a)" and inserting in lieu thereof "sec-
tion 26(a)" and by striking out "(other than this section)" and 
inserting in lieu thereof "(other than this section and section 
25)". 
Ante, p. 838. 
(3) Paragraph (3) of section 55(c) is amended— 
(A) by striking out "25" each place it appears and insert-
ing in lieu thereof "26", and 
(B) by striking out "section 23, 30, or 38" and inserting in 
lieu thereof "section 23, 25, 30, or 38". 
26 USC 168. 
(4) Clause (iii) of section 168(i)(l)(D), as added by section 208(a) 
of the Tax Equity and Fiscal Responsibility Act of 1982 and 
amended by this Act, is amended by striking out "section 
25(b)(2)" and inserting in lieu thereof "section 26(b)(2)". 
(5) Clause (iii) of section 168(i)(l)(D), as added by section 209(b) 
ot the Tax Equity and Fiscal Responsibility Act of 1982 and 
amended by this Act, is amended by striking out "section 
25(b)(2)" and inserting in lieu thereof "section 26(b)(2)". 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 913 
(f) CONFORMING AMENDMENT.—The table of sections for subpart A 
of part IV of subchapter A of chapter 1 is amended by striking out 
the item relating to section 25 and inserting in lieu thereof the 
following: 
"Sec. 25. Interest on certain home mortgages. 
"Sec. 26. Limitation based on tax liability; definition of tax liability." 
(g) EFFECTIVE DATE.— 
26 use 25 note. 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply to 
interest paid or accrued after December 31, 1984, on indebted-
ness incurred after December 31, 1984. 
' 
; 
(2) ELECTIONS.—The amendments made by this section shall 
apply to elections under section 25(c)(2)(A)(ii) of the Internal 
> Revenue Code of 1954 (as added by this section) for calendar 
Ante, p. 905. 
years after 1983. 
SEC. 613. AUTHORITY TO BORROW FROM FEDERAL FINANCING BANK. 
] 
(a) GENERAL RULE.—Upon application by the appropriate State 
Housing Agency of Oregon, the Federal Financing Bank shall make 
qualified cash flow loans to such Agency. Such loans shall bear 
interest at a rate equal to the average rate on the applicable 
mortgage bonds with respect to which such loans were made. 
(b) QUALIFIED CASH FLOW LOANS.—For purposes of this section, 
the term "qualified cash flow loan" means any loan with respect to 
an applicable mortgage bond reasonably necessary to cover any 
excess determined under subsection (c)(2) on the basis of actual 
payments. The aggregate amount of such loans which may be 
outstanding at any 1 time shall not exceed $300,000,000. 
(c) APPLICABLE MORTGAGE BONDS.—For purposes of this section, 
the term "applicable mortgage bond" means any qualified veterans' 
mortgage bond issued as part of an issue— 
(1) which was outstanding on December 5,1980, 
(2) with respect to which the excess o
f
—
-
(A) the projected aggregate payments of principal on the 
applicable mortgage bonds during the 15-fiscal year period 
beginning with fiscal year 1984, over 
(B) the projected aggregate payments during such period 
of principal on mortgages financed by the applicable mort-
gage bonds, 
exceeds 12 percent of the aggregate principal amount of such 
bonds outstanding on July 1, 1983, 
(3) with respect to which the amount of the average annual 
prepayments during fiscal years 1981, 1982, and 1983 was less 
than 2 percent of the average of the loan balances as of the 
beginning of each of such fiscal years, and 
(4) which, for fiscal year 1983, had a prepayment experience 
rate that did not exceed 20 percent of the prepayment experi-
ence rate of the Federal Housing Administration in the State or 
region in which the issuer is located. 
(d) DEFINITIONS.— 
(1) ASSUMPTIONS USED IN MAKING PROJECTION.—The computa-
tion under subsection (c)(2) shall be made by using the following 
percentage of the prepayment experience of the Federal Hous-
ing Administration in the State or region in which the issuer of 
the applicable mortgage bonds is located: 
31-194 0 - 86 - 31 : QL. 3 Part 1 
98 STAT. 914 
PUBLIC LAW 98-369—JULY 18, 1984 
Fiscal Year: 
Percentage: 
1984 
15 
1985 
20 
1986 
25 
1987 and thereafter 
30. 
(2) QUALIFIED VETERANS' MORTGAGE BONDS.—The term "quali-
fied veterans' mortgage bonds" has the meaning given to such 
ekn c- 
term by section 103A(c)(3) of the Internal Revenue Code of 1954. 
SEC. 614. ELIMINATION OF CERTAIN EXCEPTIONS TO THE APPLICATION 
OF THE MORTGAGE SUBSIDY BOND TAX ACT OF 1980. 
26 use 103A 
Section 1104 of the Mortgage Subsidy Bond Tax Act of 1980 is 
^0*^6. 
amended by adding at the end thereof the following 
new 
subsections: 
"(p) MOST EXCEPTIONS NOT TO APPLY TO BONDS ISSUED AFTER 
DECEMBER 31, 1984.—In addition to any obligations to which the 
26 use 103A, 
amendments made by section 1102 apply by reason of the provisions 
prec. 101. 
of this section, the amendments made by section 1102 shall apply, 
notwithstanding any other provision of this section (other than 
subsection (n)), to obligations issued after December 31, 1984, all or a 
major portion of the proceeds of which are used to finance new 
mortgages on single-family residences that are owner occupied. 
"(q) REDUCTION OF STATE CEILING BY AMOUNT OF SPECIAL MORT-
GAGE BONDS ISSUED BEFORE 1985.— 
"(1) IN GENERAL.—Notwithstanding any other provision of 
this section (other than subsections (n) and (r)), any obligation— 
"(A) which is part of an issue all or a major portion of the 
proceeds of which are used to finance new mortgages in 
single-family residences that are owner occupied, 
"(B) which were issued by issuing authorities in such 
State after June 15, 1984, and before January 1, 1985, and 
"(C) to which the amendments made by section 1102 do 
not apply by reason of any provision of this section other 
than subsection (n), 
shall, for purposes of applying the Internal Revenue Code of 
26 use 1 et seq. 
1954, be treated as an obligation which is not described in 
section 103(a) of such Code if the aggregate face amount of such 
issue exceeds the portion of the State ceiling that is allocated by 
the State to such issue prior to the date of issuance of such 
issue. 
"(2) APPLICATION OF SECTION 103A (g).—For purposes of apply-
ing section 103A(g) of such (Dode, the State ceiling for calendar 
year 1984 shall be reduced by the aggregate amount allocated 
by the State to any issues described in paragraph (1). 
"(3) STATE CEILING.—For purposes of this subsection, the term 
'State ceiling' has the meaning given to such term by section 
103A(g)(4) of the Internal Revenue Code of 1954. 
"(r) EXCEPTIONS TO SUBSECTION (q).—Subsection (q) shall not apply 
with respect to— 
"(1) obligations— 
"(A) the proceeds of which are used to finance the River 
Place Project located in Minneapolis, Minnesota, and 
"(B) the aggregate face amount of which does not exceed 
$55,000,000, or 
"(2) obligations— 
"(A) the proceeds of which are used to finance the 
Waseca, Minnesota project, and 
1 j-tf.f € '.,jp • if - as ^
- c 
i'^i-ii 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 915 
"(B) the aggregate face amount of which does not exceed 
$7,800,000." 
Subtitle B—Private Activity Bonds 
PART I—GENERAL RESTRICTIONS 
SEC. 621. LIMITATION ON AGGREGATE AMOUNT OF PRIVATE ACTIVITY 
BONDS. 
Section 103 (relating to interest on certain governmental obliga- 
26 USC 103. 
tions) is amended by redesignating subsection (n) as subsection (o) Post, p. 926. 
and by inserting after subsection (m) the following new subsection: 
"(n) LIMITATION ON AGGREGATE AMOUNT OF PRIVATE ACTIVITY 
BONDS ISSUED DURING ANY CALENDAR YEAR.— 
"(1) IN GENERAL.—A private activity bond issued as part of an 
issue shall be treated as an obligation not described in subsec-
tion (a) if the aggregate amount of private activity bonds issued 
pursuant to such issue, when added to the aggregate amount of 
-• private activity bonds previously issued by the issuing authority 
during the calendar year, exceeds such authority's private activ-
ity bond limit for such calendar year. 
"(2) PRIVATE ACTIVITY BOND UMIT FOR STATE AGENCIES.—For 
purposes of this subsection— 
"(A) IN GENERAL.—The private activity bond limit for any 
agency of the State authorized to issue private activity 
'Y:.: 
bonds for any calendar year shall be 50 percent of the State 
ceiling for such calendar year. 
o 
"(B) 
SPECIAL RULE WHERE STATE HAS MORE THAN i 
AGENCY.—If more than 1 agency of the State is authorized 
r 
to issue private activity bonds, all such agencies shall be 
treated as a single agency. 
"(3) PRIVATE ACTIVITY BOND LIMIT FOR OTHER ISSUERS.—For 
purposes of this subsection— 
n 
"(A) IN GENERAL.—The private activity bond limit for any 
issuing authority (other than a State agency) for any calen-
dar year shall be an amount which bears the same ratio to 
5, 
50 percent of the State ceiling for such calendar year as— 
"(i) the population of the jurisdiction of such issuing 
,. 
authority, bears to 
"(ii) the population for the entire State. 
"(B) OVERLAPPING JURISDICTIONS.—For purposes of sub-
paragraph (A)(i), the rules of section 103A^)(3)(B) shall 
apply. 
"(4) STATE CEILING.—For purposes of this subsection— 
"(A) IN GENERAL.—The State ceiling applicable to any 
State for any calendar year shall be the greater of 
^
f 
"(i) an amount equal to $150 multiplied by the State's 
population, or 
"(ii) $200,000,000. 
"(B) 
PHASE IN OF LIMITATION WHERE AMOUNT OF I983 
PRIVATE ACTIVITY BONDS EXCEEDS THE CEIUNG.— 
' ' i^ ^ J 
"(i) IN GENERAL.—In the case of any State which has 
an excess bond amount for 1983, the State ceiling for 
calendar year 1984 shall be the sum of the State ceiling 
determined under subparagraph (A) plus 50 percent of 
j , 
the excess bond amount for 1983. 
98 STAT. 916 
PUBLIC LAW 98-369—JULY 18, 1984 
"(ii) EXCESS BOND AMOUNT FOR 1983.—For purposes of 
clause (i), the excess bond amount for 1983 in any State 
is the excess (if any) o
f
—
^ 
"(I) the aggregate amount of private activity 
bonds issued by issuing authorities in such State 
during the first 9 months of calendar year 1983 
multiplied by Va, over 
"(II) the State ceiling determined under subpara-
graph (A) for calendar year 1984. 
"(C) ADJUSTMENT OF CEIUNG TO REFLECT PARTIAL TERMI-
NATION OF SMALL ISSUE EXEMPTION.—In the case of calendar 
years after 1986, subparagraph (A) shall be applied by 
substituting '$100' for '$150 . 
"(5) SPECIAL RULE FOR STATES WITH CONSTITUTIONAL HOME 
RULE CITIES.—In the case of any State with 1 or more constitu-
tional home rule cities (as defined in section 103A(g)(5)(C)), the 
rules of paragraph (5) of section 103A(g) shall apply for purposes 
of this subsection. 
"(6) STATE MAY PROVIDE FOR DIFFERENT ALLOCATION.— 
"(A) IN GENERAL.—A State may, by law provide a differ-
ent formula for allocating the State ceiling among the 
governmental units in such State having authority to issue 
private activity bonds. 
"(B) INTERIM AUTHORITY FOR GOVERNOR.— 
"(i) IN GENERAL.—The Governor of any State may 
proclaim a different formula for allocating the State 
ceiling among the governmental units in such State 
having authority to issue private activity bonds. 
"(ii) TERMINATION OF AUTHORITY.—The authority pro-
vided in clause (i) shall not apply after the earlier o
f
— 
"(I) the first day of the first calendar year begin-
ning after the legislature has met in regular ses-
sion for more than 60 days after the date of the 
enactment of this paragraph, or 
"(II) the effective date of any State legislation 
] 
with respect to the allocation of the State ceiling. 
"(C) STATE MAY NOT ALTER ALLOCATION TO CONSTITUTIONAL 
HOME RULE CITIES.—The rules of paragraph (6)(C) of section 
103A(g) shall apply for purposes of this paragraph. 
"(7) PRIVATE ACTIVITY BOND.—For purposes of this sub-
section— 
"(A) IN GENERAL.—Except as otherwise provided in the 
paragraph, the term 'private activity bond' means any 
obligation the interest on which is exempt from tax under 
subsection (a) and which is— 
"(i) an industrial development bond, or 
"(ii) a student loan bond. 
"(B) EXCEPTION FOR MULTIFAMILY HOUSING.—The term 
'private activity bond' shall not include any obligation de-
scribed in subsection (b)(4)(A) nor any housing program 
obligation under section 11(b) of the United States Housing 
42 u s e 14371. 
Act of 1937. 
"(C) EXCEPTION FOR CERTAIN FACIUTIES DESCRIBED IN SEC-
TION 103(b) (4) (c) OR ( D ) . — 
"(i) IN GENERAL.—The term 'private activity bond' 
shall not include any obligation described in subpara-
graph (C) or (D) of subsection (b)(4), but only if the 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 917 
property described in such subparagraph is owned by 
or on behalf of a governmental unit. 
"(ii) EXCEPTION NOT TO APPLY TO CERTAIN PARKING 
FACILITIES.—For purposes of clause (i), subparagraph 
' 
(D) of subsection (b)(4) shall be applied as if it did not 
contain the phrase 'parking facilities'. 
"(iii) DETERMINATION OF WHETHER PROPERTY OWNED 
B
Y GOVERNMENTAL UNIT.—For purposes of clause (i), 
property shall not be treated as not owned by a govern-
mental unit solely by reason of the length of the lease 
to which it is subject if the lessee makes an irrevocable 
election (binding on the lessee and all successors in 
interest under the lease) not to claim depreciation or 
an investment credit with respect to such property. 
"(iv) RESTRICTION WHERE SIGNIFICANT FRONT END 
LOADING,—Under regulations prescribed by the Secre-
tary, clause (i) shall not apply in any case where the 
property is le£ised under a lease which has significant 
front end loading of rental accruals or payments. 
"(D) REFUNDING ISSUES.—The term 'private activity bond' 
shall not include any obligation which is issued to refund 
another obligation to the extent that the amount of such 
obligation does not exceed the amount of the refunded 
obligation. In the case of any student loan bond, the preced-
ing sentence shall apply only if the maturity date of the 
refunding obligation is not later than the later of— 
"(i) the maturity of the obligation to be refunded, or 
"(ii) the date 17 years after the date on which the 
refunded obligation was issued (or in the case of a 
series of refundings, the date on which the original 
obligation was issued). 
"(8) STUDENT LOAN BONDS.—For purposes of this subsection, 
the term 'student loan bond' means an obligation which is 
issued as part of an issue all or a major portion of the proceeds 
of which are to be used directly or indirectly to finance loans to 
individuals for educational expenses. 
"(9) POPULATION.—For purposes of this subsection, determina-
tions of the population of any State (or issuing authority) shall 
be made with respect to any calendar year on the basis of the 
most recent census estimate of the resident population of such 
State (or issuing authority) published by the Bureau of the 
Census before the beginning of such calendar year. 
"(10) ELECTIVE CARRYFORWARD OF UNUSED LIMITATION FOR 
SPECIFIED PROJECT.— 
"(A) I N GENERAL.—If— 
"(i) an issuing authority's private activity bond limit 
for any calendar year after 1983, exceeds 
"(ii) the aggregate amount of private activity bonds 
issued during such calendar year by such authority, 
such authority may elect to treat all (or any portion) of such 
excess as a carryforward for 1 or more carryforward 
projects. 
"(B) ELECTION MUST SPECIFY PROJECT.—In any election 
under subparagraph (A), the issuing authority shall— 
"(i) specify the project (or projects) for which the 
carryforward is elected, and 
98 STAT. 918 
PUBLIC LAW 98-369—JULY 18, 1984 
"(ii) specify the portion of the excess described in 
subparagraph (A) which is to be a carr3rforward for 
each such project. 
"(C) USE OF CARRYFORWARD.— 
"(i) IN GENERAL.—If any issuing authority elects a 
carryforward under subparagraph (A) with respect to 
any carryforward project, any private activity bonds 
issued by such authority with respect to such project 
during the 3 calendar years (or, in the case of a project 
described in subsection (b)(4XF), 6 calendar years) fol-
lowing the calendar year in which the carryforward 
arose shall not be taken into account under paragraph 
(1) to the extent the amount of such bonds do not 
exceed the amount of the carrjrforward elected for such 
project. 
"(ii) ORDER IN WHICH CARRYFORWARD USED.—Carry-
forwards elected with respect to any project shall be 
used in the order of the calendar years in which they 
arose. 
"(D) ELECTION.—Any election made under this paragraph 
shall be made at such time and in such manner as the 
Secretary shall by regulations prescribe. Any such election 
(and any specification contained therein), once made, shall 
be irrevocable. 
"(E) CARRYFORWARD PROJECT.—For purposes of this para-
graph, the term 'carr5rforward project' means— 
"(i) any project described in paragraph (4) or (5) of 
subsection (b), and 
"(ii) the purpose of issuing student loan bonds. 
"(11) 
TREATMENT 
OF 
QUAUFIED 
SCHOLARSHIP 
FUNDING 
BONDS.—In the case of a qualified scholarship funding bond (as 
defined in subsection (e)), such bond shall be treated for pur-
poses of this subsection as issued by a State or local issuing 
authority (whichever is appropriate). 
"(12) CERTIFICATION OF NO CONSIDERATION FOR ALLOCATION.— 
"(A) IN GENERAL.—Any private activity bond allocated 
any portion of the State limit shall not be exempt from tax 
under subsection (a) unless the public official if any respon-
sible for such allocation certifies under penalty of perjury 
that the allocation was not made in consideration of any 
bribe, gift, gratuity, or direct or indirect contribution to any 
political campaign. 
"(B) ANY CRIMINAL PENALTY MADE APPUCABLE.—Any 
person willfully making an allocation described in subpara-
graph (A) in consideration of any bribe, gift, gratuity, or 
direct or indirect contribution to any politicad campaign 
shall be subject to criminal penalty to the same extent as if 
such allocation were a willful attempt to evade tax imposed 
by this title." 
SEC. 622. TAX EXEMPTION DENIED WHERE OBLIGATION DIRECTLY OR 
INDIRECTLY GUARANTEED BY FEDERAL GOVERNMENT. 
26 use 103. 
Subsection (h) of section 103 (relating to certain obligations which 
must not be guaranteed or subsidized under a energy program) is 
amended to read as follows: 
"(h) OBUGATION MUST NOT BE GUARANTEED, ETC.— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 919 
"(1) IN GENERAL.—An obligation shall not be treated as an 
obligation described in subsection (a) if such obligation is feder-
ally guaranteed. 
"(2) FEDERALLY GUARANTEED DEFINED.—For purposes of para-
graph (1), an obligation is federally guaranteed if— 
"(A) the payment of principal or interest with respect to 
such obligation is guaranted (in whole or in part) by the 
ti; 
. ; •:; 
United States (or any agency or instrumentality thereof), 
"(B) such obligation is issued as part of an issue and a 
significant portion of the proceeds of such issue are to be— 
"(i) used in making loans the payment of principal or 
interest with respect to which are to be guaranteed (in 
whole or in part) by the United States (or any agency or 
instrumentality thereof), or 
"(ii) invested (directly or indirectly) in federally 
insured deposits or accounts, or 
"(C) the payment of principal or interest on such obliga-
tion is otherwise indirectly guaranteed (in whole or in part^ 
by the United States (or an agency or instrumentality 
thereof). 
"(3) EXCEPTIONS.— 
"(A) CERTAIN INSURANCE PROGRAMS.—An obligation shall 
not be treated as federally guaranteed by reason of— 
"(i) any guarantee by the Federal Housing Adminis-
tration, the Veterans' Administration, the Federal 
National Mortgage Association, the Federal Home 
Loan Mortgage Corporation, or the Government Na-
tional Mortgage Association, 
"(ii) any guarantee of student loans and any guaran-
tee by the Student Loan Marketing Association to 
finance student loans, 
"(iii) any guarantee by the Small Business Adminis-
tration with respect to qualified contracts for pollution 
control facilities (within the meaning of section 404(a) 
of the Small Business Investment Act of 1958, as in 
15 USC 694-1. 
effect on the date of the enactment of the Tax Reform 
Act of 1984) if— 
"(I) the Administrator of the Small Business 
Administration charges a fee for making such 
guarantee, and 
"(II) the amount of such fee equals or exceeds 1 
percent of the amount guaranteed, or 
"(iv) any guarantee by the Bonneville Power Author-
ity pursuant to the Northwest Power Act (16 U.S.C. 
839d) as in effect on the date of the enactment of the 
Tax Reform Act of 1984 with respect to any obligation 
issued before July 1,1989. 
"(B) DEBT SERVICE, ETC.—Paragraph (1) shall not apply 
to— 
"(i) proceeds of the issue invested for an initial tem-
porary period until such proceeds are needed for the 
purpose for which such issue was issued, 
"(ii) investments of a bona fide debt service fund, 
"(iii) investments of a reserve which meet the 
requirements of subsection (c)(4)(B), 
"(iv) investments in obligations issued by the United 
States Treasury, or 
98 STAT. 920 
PUBLIC LAW 98-369—JULY 18, 1984 
"(v) other investments permitted under regulations. 
"(C) EXCEPTION FOR HOUSING PROGRAMS.— 
"(i) IN GENERAL.—Except as provided in clause (ii), 
paragraph (1) shall not apply to— 
"(I) an obligation described in subsection (b)(4)(A) 
or a housing program obligation under section 
42 use 14371. 
11(b) of the United States Housing Act of 1937, 
"(II) a qualified mortgage bond (as defined in 
section 103A(cXl)), or 
"(III) a qualified veterans' mortgage bond (as 
defined in section 103A(cX3)). 
"(ii) 
EXCEPTION NOT TO APPLY WHERE OBUGATION 
INVESTED IN FEDERALLY INSURED DEPOSITS O
R AC-
COUNTS.—Clause (i) shall not apply to any obligation 
which is federally guaranteed within the meaning of 
paragraph (2)(B)(ii). 
"(D) LOANS TO, OR GUARANTEES BY, FINANCIAL INSTITU-
TIONS.—Except as provided in paragraph (2)(B)(ii), an obliga-
tion which is issued as part of an issue shall not be treated 
as federally guaranteed merely by reeison of the fact that 
the proceeds of such issue are used in making loans to a 
financial institution or there is a guarantee by a financial 
institution. 
"(4) DEFINITIONS.—For purposes of this subsection— 
"(A) TREATMENT OF CERTAIN ENTITIES WITH AUTHORITY TO 
B
O
R
R
O
W FROM UNITED STATES.—To the extent provided in 
regulations prescribed by the Secretary, any entity with 
statutory authority to borrow from the United States shall 
be treated as an instrumentality of the United States. 
Except in the case of a private activity bond (as defined in 
subsection (nX7)), nothing in the preceding sentence shall be 
construed as treating the District of Columbia or any pos-
session of the United States as an instrumentality of the 
United States. 
"(B) FEDERALLY INSURED DEPOSIT OR ACCOUNT.—The term 
'federeilly insured deposit or account' means any deposit or 
account in a financial institution to the extent such deposit 
or account is insured under Federal law by the Federal 
Deposit Insurance Corporation, the Federal Savings and 
Loan Insurance Corporation, the National Credit Union 
Administration, 
or 
any 
similar 
federally 
chartered 
corporation. 
"(5) 
CERTAIN OBUGATIONS SUBSIDIZED UNDER ENERGY PRO-
GRAM.— 
"(A) IN GENERAL.—An obligation to which this paragraph 
applies shall be treated as an obligation not described in 
subsection (a) if the pajnnent of the principal or interest 
with respect to such obligation is to be made (in whole or in 
part) under a program of the United States, a State, or a 
political subdivision of a State the principal purpose of 
which is to encourage the production or conservation of 
energy. 
"(B) 
OBLIGATIONS TO WHICH PARAGRAPH APPLIES.—This 
paragraph shall apply to any obligations to which para-
graph (1) of subsection (b) does not apply by reason of— 
"(i) subsection (bX4XH) (relating to qualified hydro-
electric generating facilities), or 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 921 
"(ii) subsection (g) (relating to qualified steam-gener-
ating or alcohol-producing facilities)." 
SEC. 623. AGGREGATE LIMIT PER TAXPAYER FOR SMALL ISSUE EXCEP-
TION. 
Subsection (b) of section 103 (relating to industrial development 
26 USC 103. 
bonds) is amended by adding at the end thereof the following new 
paragraph: 
"(15) 
AGGREGATE UMIT 
PER TAXPAYER FOR SMALL ISSUE 
EXCEPTION.— 
"(A) IN GENERAL.—Paragraph (6) of this subsection shall 
not apply to any issue if the aggregate authorized face 
amount of such issue allocated to any test-period benefici-
ary (when increased by the outstanding tax-exempt IDE's of 
such beneficiary) exceeds $40,000,000. 
j ; 
"(B) OUTSTANDING TAX-EXEMPT IDB'S OF ANY PERSON.—For 
purposes of applying subparagraph (A) with respect to any 
•;. 
issue, the outstanding tax-exempt IDB's of any person who 
is a test-period beneficiary with respect to such issue is the 
aggregate face amount of all industrial development bonds 
the interest on which is exempt from tax under subsection 
( a ) -
"(i) which are allocated to such beneficiary, and 
"(ii) which are outstanding at the time of such later 
issue (not including as outstanding any obligation 
which is to be redeemed from the proceeds of the later 
issue). 
"(C) ALLOCATION OF FACE AMOUNT OF AN ISSUE.— 
"(i) IN GENERAL.—Except as otherwise provided in 
regulations, the portion of the face amount of an issue 
allocated to any test-period beneficiary of a facility 
financed by the proceeds of such issue (other than an 
owner of such facility) is an amount which bears the 
same relationship to the entire face amount of such 
issue as the portion of such facility used by such benefi-
ciary bears to the entire facility. 
"(ii) OWNERS.—Except as otherwise provided in regu-
lations, the portion of the face amount of an issue 
allocated to any test-period beneficiary who is an owner 
of a facility financed by the proceeds of such issue is an 
amount which bears the same relationship to the entire 
face amount of such issue as the portion of such facility 
owned by such beneficiary bears to the entire facility. 
"(D) TEST-PERIOD BENEFICIARY.—For purposes of this para-
graph, except as provided in regulations, the term 'test-
period beneficiary' means any person who was an owner or 
a principal user of facilities being financed by the issue at 
any time during the 3-year period beginning on the later 
of— 
"(i) the date such facilities were placed in service, or 
"(ii) the date of the issue. 
"(E) TREATMENT OF RELATED PERSONS.—For purposes of 
this paragraph, all persons who are related (within the 
meaning of paragraph (6)(C)) to each other shall be treated 
£is one person." 
98 STAT. 922 
PUBLIC LAW 98-369—JULY 18, 1984 
PART II—ARBITRAGE LIMITATIONS 
SEC. 624. ARBITRAGE ON NONPURPOSE OBLIGATIONS. 
26 use 103. 
(a) IN GENERAL.—Subsection (c) of section 103 (relating to arbi-
trage bonds) is amended by redesignating paragraph (6) as para-
graph (7) and inserting after paragraph (5) the following new 
paragraph: 
"(6) INVESTMENTS IN NONPURPOSE OBUGATIONS.— 
"(A) IN GENERAL.—For purposes of this title, any obliga-
tion which is part of an issue of industrial development 
bonds which does not meet the requirements of subpara-
graphs (C) and (D) shall be treated as an obligation which is 
not described in subsection (a). 
"(B) EXCEPTIONS.—Subparagraph (A) shall not apply to 
any obligation described in subsection (b)(4)(A) or to any 
housing program obligation under section 11(b) of the Hous-
42 use 14371. 
ing Act of 1937. 
"(C) 
LIMITATION ON INVESTMENT IN NONPURPOSE OBU-
GATIONS.— 
"(i) IN GENERAL.—An issue meets the requirements of 
this subparagraph only if— 
"(I) at no time during any bond year, the amount 
invested in nonpurpose obligations with a yield 
higher than the yield on the issue exceeds 150 
percent of the debt service on the issue for the 
bond year, and 
"(II) the aggregate amount invested as provided 
in subclause (I) is promptly and appropriately re-
duced as the amount of outstanding obligations of 
the issue is reduced. 
"(ii) EXCEPTION FOR TEMPORARY PERIODS.—Clause (i) 
shall not apply to— 
"(I) proceeds of the issue invested for an initial 
temporary period until such proceeds are needed 
for the governmental purpose of the issue, and 
"(II) temporary investment periods related to 
debt service, 
"(iii) DEBT SERVICE DEFINED.—For purposes of this 
subparagraph, the debt service on the issue for any 
bond year is the scheduled amount of interest and 
amortization of principal payable for such year with 
respect to such issue. For purposes of the preceding 
sentence, there shall not be taken into account 
amounts scheduled with respect to any bond which has 
been retired before the beginning of the bond year, 
"(iv) NO DISPOSITION IN CASE OF LOSS.—This subpara-
graph shall not require the sale or disposition of any 
investment if such sale or disposition would result in a 
loss which exceeds the amount which would be paid to 
the United States (but for such sale or disposition) at 
the time of such sale or disposition. 
"(D) REBATE TO UNITED STATES.—An issue shall be treated 
as meeting the requirements of this subparagraph only if 
an amount equal to the sum of— 
"(i) the excess of— 
It 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 923 
"(I) the aggregate amount earned on all nonpur-
pose obligations (other than investments attributa-
ble to an excess described in this clause), over 
"(II) the amount which would have been earned 
if all nonpurpose obligations were invested at a 
rate equal to the yield on the issue, plus 
"(ii) any income attributable to the excess described 
in clause (i), 
is paid to the United States by the issuer in accordance with 
the requirements of subparagraph (E). 
"(E) DUE DATE OF PAYMENTS UNDER SUBPARAGRAPH (D) .— 
The amount which is required to be paid to the United 
States by the issuer shall be paid in installments which are 
made at least once every 5 years. Each installment shall be 
in an amount which insures that 90 percent of the amount 
described in subparagraph (D) with respect to the issue at 
the time payment of such installment is required will have 
been paid to the United States. The last installment shall 
be made no later than 30 days after the day on which the 
last obligation of the issue is redeemed and shall be in an 
amount sufficient to pay the remaining balance of the 
amount described in subparagraph (D) with respect to such 
issue. 
"(F) SPECIAL RULES FOR APPLYING SUBPARAGRAPH (D).— 
"(i) IN GENERAL.—In determining the aggregate 
amount earned on nonpurpose obligations for purposes 
of subparagraph (D)— 
"(I) any gain or loss on the disposition of a 
nonpurpose obligation shall be taken into account, 
and 
"(II) unless the issuer otherwise elects, any 
amount earned on a bona fide debt service fund 
shall not be taken into account if the gross earn- 
j; 
j^j; ,^^ 
ings on such fund for the bond year is less than 
$100,000. 
"(ii) TEMPORARY INVESTMENTS.—Under regulations 
prescribed by the Secretary, an issue shall, for purposes 
of this paragraph, be treated as meeting the require-
ments of subparagraph (D) if the gross proceeds of such 
issue are expended for the governmental purpose for 
which the bond was issued by no later than the day 
which is 6 months after the date of issuance of such 
issue. Gross proceeds which are held in a bona fide debt 
i 'AnK 
service fund shall not be considered gross proceeds for 
purposes of this clause only. 
"(G) EXEMPTION FROM GROSS INCOME OF SUM REBATED.— 
Gross income does not include the sum described in sub-
paragraph (D). Notwithstanding any other provision of this 
L : 
title, no deduction shall be allowed for any amount paid to 
the United States under subparagraph (D). 
"(H) DEFINITIONS.—For purposes of this paragraph— 
"(i) NONPURPOSE OBLIGATIONS.—The term 'nonpur-
pose obligation' means any security (within the mean-
ing of subparagraph (A) or (B) of section 165(g)(2)) or 
any obligation not described in subsection (a) which— 
"(I) is acquired with the gross proceeds of an 
issue, and 
98 STAT. 924 
PUBLIC LAW 98-369—JULY 18, 1984 
"(11) is not acquired in order to carry out the 
governmental purpose of the issue, 
"(ii) GROSS PROCEEDS.—The gross proceeds of an issue 
include— 
"(I) amounts received (including repayments of 
principal) as a result of investing the original pro-
ceeds of the issue, and 
"(II) amounts used to pay debt service on the 
issue, 
"(iii) YIELD.—The yield on the issue shall be deter-
mined on the basis of the issue price (within the mean-
Ante, pp. 536, 
ing of section 1273 or 1274)." 
538. 
(b) CONFORMING AMENDMENTS.— 
26 use 103A. 
(1) Paragraph (1) of section 103A(i) (relating to arbitrage) is 
amended by striking out "section 103(c)" and inserting in lieu 
thereof "section 103(c) (other than section 103(c)(6))". 
26 use 103. 
(2) Subsection (c) of section 103 is amended by striking out 
"Bonds" in the heading. 
(3) Paragraph (1) of section 103(c) is amended by inserting "to 
arbitrage bonds" in the heading. 
26 u s e 103 note. 
(c) EFFECTIVE D A T E . — 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply with 
respect to bonds issued after December 31,1984. 
(2) EXCEPTION.—The amendments made by this section shall 
not apply to obligations issued by the Essex County Port Au-
thority of New York and New Jersey as part of an issue 
approved by Essex County, New Jersey, on July 7, 1981, and 
approved by the State of New Jersey on December 31,1981. The 
aggregate face amount of bonds to which this paragraph applies 
shall not exceed $350,000,000. 
26 u s e 103 note. 
SEC. 625. STUDENT LOAN BONDS. 
(a) ARBITRAGE REGULATIONS.— 
(1) IN GENERAL.—The Secretary shall prescribe regulations 
which specify the circumstances under which a qualified stu-
dent loan bond shall be treated as an arbitrage bond for pur-
poses of section 103 of the Internal Revenue Code of 1954. Such 
regulations may provide that— 
(A) paragraphs (4) and (5) of section 103(c) of such Code 
shall not apply, and 
Ante, p. 922. 
(B) rules similar to section 103(c)(6) shall apply, 
to qualified student loan bonds. 
(2) DEFINITIONS.—For purposes of this subsection— 
(A) QUALIFIED STUDENT LOAN BOND.—The term 'qualified 
student loan bond' has the meaning given to such term by 
Post, p. 926. 
section 103(o)(3) of the Internal Revenue Code of 1954 (as 
amended by this Act). 
(B) ARBITRAGE BOND.—The term "arbitrage bond" has the 
meaning given to such term by section 103(c)(2). 
(3) EFFECTIVE DATE.— 
(A) IN GENERAL.—Except as otherwise provided in this 
paragraph, any regulations prescribed by the Secretary 
under paragraph (1) shall apply to obligations issued after 
the qualified date. 
(B) QUALIFIED DATE.— 
— 
' — -
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 925 
20 use 1001 
note. 
Federal 
Register, 
publication. 
(i) IN GENERAL.—For purposes of this paragraph, the 
term "qualified date" means the earlier of— 
(I) the date on which the Higher Education Act 
of 1965 expires, or 
(II) the date, after the date of enactment of this 
Act, on which the Higher Education Act of 1965 is 
reauthorized. 
(ii) PuBUCATiON OF REGULATIONS.—Notwithstanding 
clause (i), the qualified date shall not be a date which is 
prior to the date that is 6 months after the date on 
which the regulations prescribed under paragraph (1) 
are published in the Federal Register. 
(C) REFUNDING OBUGATIONS.—Regulations prescribed by 
the Secretary under paragraph (1) shall not apply to any 
obligation issued exclusively to refund any qualified stu-
dent loan bond which was issued before the qualified date, 
except that the requirements of subparagraphs (A) and (B) 
of section 626(b)(4) of this Act must be met with respect to Post, p. 926. 
such refunding. 
(D) FULFILLMENT OF COMMITMENTS.—Regulations pre-
scribed by the Secretary under paragraph (1) shall not 
apply to any obligations which are needed to fulfill written 
commitments to acquire or finance student loans which are 
originated after June 30, 1984, and before the qualified 
date, but only if— 
(i) such commitments are binding on the qualified 
date, and 
(ii) the amount of such commitments is consistent 
with practices of the issuer which were in effect on 
March 15, 1984, with respect to establishing secondary 
markets for student loans. 
(b) ARBITRAGE LIMITATION ON STUDENT LOAN BONDS WHICH ARE 
NOT 
QUAUFIED STUDENT LOAN BONDS.—Under regulations pre-
scribed by the Secretary of the Treasury or his delegate, any student 
loan bond (other than a qualified student loan bond) issued after 
December 31,1985, shall be treated as an obligation not described in 
subsection (a) (1) or (2) of section 103 of the Internal Revenue Code 
of 1954 unless the issue of which such obligation is a part meets 
requirements similar to those of sections 103(c)(6) and 103A(i) of such 
Code. 
(c) ISSUANCE OF STUDENT LOAN BONDS WHICH ARE NOT TAX-
EXEMPT.—Any issuer who may issue obligations described in section 
103(a) of the Internal Revenue Code of 1954 may elect to issue 
student loan bonds which are not described in such section 103(a) of 
such Code without prejudice to— 
(1) the status of any other obligations issued, or to be issued, 
by such issuer as obligations described in section 103(a) of such 
Code, or 
(2) the status of the issuer £is an organization exempt from 
taxation under such Code. 
(d) FEDERAL EXECUTIVE BRANCH JURISDICTION OVER TAX-EXEMPT 
STATUS.—For purposes of Federal law, any determination by the 
executive branch of the Federal Government of whether interest on 
any obligation is exempt from taxation under the Internal Revenue 
Code of 1954 shall be exclusively within the jurisdiction of the 
Department of the Treasury. 
(e) STUDY ON TAX-EXEMPT STUDENT LOAN BONDS.— 
Ante, p. 922. 
26 use 1 et seq. 
98 STAT. 926 
PUBLIC LAW 98-369—JULY 18, 1984 
(1) IN GENERAL.—The Comptroller General of the United 
States and the Director of the Congressional Budget Office, 
shall conduct studies of^ 
(A) the appropriate role of tax-exempt bonds which are 
issued in connection with the guaranteed student loan 
program and the PLUS program established under the 
20 use 1001 
Higher Education Act of 1965, and 
note. 
(B) the appropriate arbitrage rules for such bonds. 
(2) REPORT.—The Comptroller General of the United States 
and the Director of the Congressional Budget Office, shall 
submit to the Committee on Finance and the Committee on 
Labor and Human Resources of the Senate and the Committee 
on Ways and Means and the Committee on Education and 
Labor of the House of Representatives reports on the studies 
conducted under paragraph (1) by no later than 9 months after 
the date of enactment of this Act. 
PART III—OTHER RESTRICTIONS 
SEC. 626. DENIAL OF TAX EXEMPTION TO CONSUMER LOAN BONDS. 
Ante, p. 926. 
(a) IN GENERAL.—Section 103 (relating to interest on certain 
governmental obligations) is amended by adding at the end thereof 
the following new subsection: 
"(o) CONSUMER LOAN BONDS.— 
"(1) DENIAL OF TAX EXEMPTION.—For purposes of this title, 
any consumer loan bond shall be treated as an obligation which 
is not described in subsection (a). 
"(2) CONSUMER LOAN BONDS.—For purposes of this sub-
section— 
"(A) IN GENERAL.—The term 'consumer loan bond' means 
any obligation which is issued as part of an issue all or a 
significant portion of the proceeds of which are reasonably 
expected to be used directly or indirectly to make or finance 
loans (other than loans described in subparagraph (C)) to 
persons who are not exempt persons (within the meaning of 
subsection (b)(3)). 
"(B) EXCLUDED OBUGATIONS.—The term 'consumer loan 
bond' shall not include any— 
"(i) qualified student loan bond, 
"(ii) industrial development bond, or 
"(iii) qualified mortgage bond or qualified veterans' 
mortgage bond. 
"(C) EXCLUDED LOANS.—A loan is described in this sub-
paragraph if the loan— 
"(i) enables the borrower to finance any governmen-
tal tax or assessment of general application for an 
essential governmental function, or 
"(ii) is used to acquire or carry nonpurpose obliga-
tions (within the meaning of subsection (c)(6)(G)(i)). 
"(3) QUAUFIED STUDENT LOAN BONDS.—For purposes of this 
subsection, the term 'qualified student loan bond' means any 
obligation which is issued as part of an issue all or a major 
portion of the proceeds of which are reasonably expected to be 
used directly or indirectly to make or finance student loans 
under a program of general application to which the Higher 
20 use 1001 
Education Act of 1965 applies if— 
note. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 927 
"(A) limitations are imposed under the program on— 
"(i) the maximum amount of loans outstanding to 
any student, and 
"(ii) the maximum rate of interest payable on any 
loan, 
"(B) the loans are directly or indirectly guaranteed by the 
Federal Government, 
. 
F 
"(C) the financing of loans under the program is not 
limited by Federal law to the proceeds of obligations the 
interest on which is exempt from taxation under this title, 
and 
"(D) special allowance payments under section 438 of the 
Higher Education Act of 1965— 
20 use 1087-1. 
"(i) are authorized to be paid with respect to loans 
made under the program, or 
"(ii) would be authorized to be made with respect to 
loans under the program if such loans were not fi-
nanced with the proceeds of obligations the interest on 
which is exempt from taxation under this title. 
Such term shall not include any obligation issued under a State 
program which discriminates on the basis of the location (in the 
United States) at which the educational institution is located." 
(b) EFFECTIVE DATES.— 
26 usc 103 note. 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion the amendment made by subsection (a) shall apply to 
obligations issued after the date of enactment of this Act. 
(2) EXCEPTIONS FOR CERTAIN STUDENT LOAN PROGRAMS.— 
(A) IN GENERAL.—The amendments made by this section 
shall not apply to obligations issued by a program described 
in the following table to the extent the aggregate face 
amount of such obligations does not exceed the amount of 
allowable obligations specified in the following table with 
respect to such program: 
Amount of 
Allowable 
Program 
Obligations 
Colorado Student Obligation Bond Authority 
$60 million 
Connecticut Higher Education Supplementary Loan Au- $15.5 million 
thority. 
District of Columbia 
,. 
$50 million 
Illinois Higher Education Authority 
$11 million 
State of Iowa 
$16 million 
Louisiana Public Facilities Authority 
$75 million 
Maine Health and Higher Education Facilities Authority... $5 million 
Maryland Higher Education Supplemental Loan Program.. $24 million 
Massachusetts College Student Loan Authority 
$90 million 
Minnesota Higher Education Coordinating Board 
$60 million 
New Hampshire Higher Education and Health Facilities $39 million 
Authority. 
New York Dormitory Authority 
$120 million 
Pennsylvania Higher Education Assistance Agency 
$300 million 
Georgia Private Colleges and University Authority 
$31 million 
Wisconsin State Building Commission 
$60 million 
South Dakota Health and Educational Facilities Author- $6 million 
ity. 
(B) 
PENNSYLVANIA 
HIGHER 
EDUCATION 
ASSISTANCE 
AGENCY.—Subparagraph (A) shall apply to obligations 
98 STAT. 928 
PUBLIC LAW 98-369—JULY 18, 1984 
issued by the Pennsylvania Higher Education Assistance 
Agency only if such obligations are issued solely for the 
purpose of refunding student loan bonds outstanding on 
March 15,1984. 
(3) CERTAIN TAX-EXEMPT MORTGAGE SUBSIDY BONDS.—For pur-
poses of applying section 103(o) of the Internal Revenue Code of 
Ante, p. 915. 
1954, the term "consumer loan bond" shall not include any 
mortgage subsidy bond (within the meaning of section 103A(b) 
of such Code) to which the amendments made by section 1102 of 
26USC103A, 
the Mortgage Subsidy Bond Tax Act of 1980 do not apply. 
P'*ec. 101. 
(4) REFUNDING EXCEPTION.—The amendments made by this 
section shall not apply to any obligation or series of obligations 
the proceeds of which are used exclusively to refund obligations 
issued before March 15,1984, except that— 
(A) the amount of the refunding obligations may not 
exceed 101 percent of the aggregate face amount of the 
refunded obligations, and 
(B) the maturity date of any refunding obligation may not 
be later than the date which is 17 years after the date on 
which the refunded obligation was issued (or, in the case of 
a series of refundings, the date on which the original 
obligation was issued). 
(5) 
EXCEPTION FOR CERTAIN ESTABLISHED PROGRAMS.—The 
amendments made by this section shall not apply to any obliga-
tion substantially all of the proceeds of which are used to carry 
out a program established under State law which has been in 
effect in substantially the same form during the 30-year period 
ending on the date of enactment of this Act, but only if such 
proceeds are used to make loans or to fund similar obligations— 
(A) in the same manner in which, 
(B) in the same (or lesser) amount per participant, and 
(C) for the same purposes for which, 
such program was operated on March 15, 1984. This subpara-
graph shall not apply to obligations issued on or after March 15, 
1987. 
(6) CERTAIN BONDS FOR RENEWABLE ENERGY PROPERTY.—The 
amendments made by this section shall not apply to any obliga-
tions described in section 243 of the Crude Oil Windfall Profit 
26 use 103 note. 
Tax Act of 1980. 
SEC. 627. LIMITATIONS ON ACQUISITIONS OF LAND, EXISTING FACILI-
TIES, ETC. 
(a) LIMITATION ON USE FOR LAND ACQUISITION.—Subsection (b) of 
Ante, p. 921. 
section 103 is amended by adding at the end thereof the following 
new paragraph: 
"(16) LIMITATION ON USE FOR LAND ACQUISITION.— 
"(A) IN GENERAL.—Paragraphs (4), (5), and (6) shall not 
apply with respect to any obligation issued as part of an 
issue if^ 
"(i) any portion of the proceeds of such issue are to be 
used (directly or indirectly) for the acquisition of land 
(or an interest therein) to be used for farming purposes, 
or 
"(ii) 25 percent or more of the proceeds of such issue 
are to be used (directly or indirectly) for the acquisition 
of land not described in clause (i) (or an interest there-
in). 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 929 
In the case of an obligation described in paragraph (5) 
(relating to industrial parks), clause (i) shall be applied by 
substituting '50 percent' for '25 percent'. 
"(B) EXCEPTION FOR FIRST-TIME FARMERS.— 
"(i) IN GENERAL.—If the requirements of clause (ii) 
are met with respect to any land, subparagraph (A) 
shall not apply to such land, and paragraph (17) shall 
not apply to property located thereon or to property to 
be acquired within 1 year to be used in farming, but 
only to the extent of expenditures (financed with the 
proceeds of the issue) not in excess of $250,000. 
"(ii) 
ACQUISITION BY FIRST-TIME FARMERS.—The re-
quirements of this clause are met with respect to any 
land if^ 
"(I) such land is to be used for farming purposes, 
and 
"(II) such land is to be acquired by an individual 
who is a first-time farmer, who will be the princi-
pal user of such land, and who will materially and 
substantially participate on the farm of which such 
land is a part in the operation of such farm. 
"(iii) 
FIRST-TIME FARMER.—For purposes of this 
subparagraph, the term 'first-time farmer' means any 
individual if such individual has not at any time had 
any direct or indirect ownership interest in substantial 
farmland in the operation of which such individual 
materially participated. For purposes of this subpara-
graph, any ownership or material participation by an 
individual's spouse or minor child shall be treated as 
ownership 
and 
material 
participation 
by 
the 
individual. 
"(iv) FARM.—For purposes of this subparagraph, the 
term 'farm' has the meaning given such term by sec-
tion 6420(c)(2). 
"(v) SUBSTANTIAL FARMLAND.—The term 'substantial 
farmland' means any parcel of land unless— 
"(I) such parcel is smaller than 15 percent of the 
median size of a farm in the county in which such 
parcel is located, and 
(II) the fair market value of the land does not at 
any time while held by the individual exceed 
$125,000. 
"(C) EXCEPTION FOR CERTAIN LAND ACQUIRED FOR ENVIRON-
MENTAL PURPOSES.—Any land acquired by a public agency 
in connection with an airport, mass transit, or port develop-
ment project which consists of facilities described in para-
graph (4)(D) shall not be taken into account under subpara-
graph (A) if— 
"(i) such land is acquired for a noise abatement, 
wetland preservation, future use, or other public pur-
pose, and 
"(ii) there is not other significant use of such land." 
(b) ACQUISITION OF EXISTING PROPERTY NOT PERMITTED.—Subsec-
tion (b) of section 103 (relating to industrial development bonds) is Ante, p. 928. 
amended by adding at the end thereof the following new paragraph: 
"(17) 
ACQUISITION OF EXISTING PROPERTY NOT PERMITTED.— 
98 STAT. 930 
PUBLIC LAW 98-369—JULY 18, 1984 
( 
"(A) IN GENERAL.—Paragraphs (4), (5), (6), and (7) shall 
V 
not apply to any obligation issued as part of an issue if any 
portion of the proceeds of such issue is to be used for the 
acquisition of any property (or an interest therein) unless 
the first use of such property is pursuant to such acquisi-
tion. 
"(B) EXCEPTION FOR CERTAIN REHABILITATIONS.—Subpara-
graph (A) shall not apply with respect to any building (and 
the equipment therefor) if^ 
"(i) the rehabilitation expenditures with respect to 
such building equals or exceeds 
"(ii) 15 percent of the portion of the cost of acquiring 
such building (and equipment) financed with the pro-
ceeds of the issue. 
A rule similar to the rule of the preceding sentence shall 
apply in the case of facilities other than a building except 
that clause (ii) shall be applied by substituting '100 percent' 
for '15 percent'. 
"(C) REHABIUTATION EXPENDITURES.—For purposes of this 
paragraph— 
"(i) IN GENERAL.—Except as provided in this subpara-
graph, the term 'rehabilitation expenditures' means 
any amount properly chargeable to capital account 
which is incurred by the person acquiring the building 
for property (or additions or improvements to property) 
in connection with the rehabilitation of a building. In 
the case of an integrated operation contained in a 
building before its acquisition, such term includes reha-
bilitating existing equipment in such building or re-
placing it with equipment having substantially the 
'-^^ 
same function. For purposes of this clause, any amount 
incurred by a successor to the person acquiring the 
building or by the seller under a sales contract with 
such person shall be treated as incurred by such 
person. 
"(ii) 
CERTAIN 
EXPENDITURES 
NOT INCLUDED.—The 
term 'rehabilitation expenditures' does not include any 
expenditure described in section 48(g)(2)(B) (other than 
clause (i) thereof). 
"(iii) PERIOD DURING WHICH EXPENDITURES MUST BE 
INCURRED.—The term 
'rehabilitation 
expenditures' 
shall not include any amount which is incurred after 
the date 2 years after the later of^ 
"(I) the date on which the building was acquired, 
or 
"(II) the date on which the obligation was issued. 
"(D) SPECIAL RULE FOR CERTAIN PROJECTS.—In the case of 
a project involving 2 or more buildings, this paragraph 
shall be applied on a project basis." 
(c) USE OF TAX-EXEMPT BONDS PROHIBITED FOR SKYBOXES, AIR-
PLANES, GAMBLING ESTABLISHMENTS, ETC.—Subsection (b) of section 
Ante, p. 929. 
103 (relating to industrial development bonds) is amended by adding 
at the end thereof the following new paragraph: 
"(18) No PORTION OF BONDS MAY BE ISSUED FOR SKYBOXES, 
, J 
AIRPLANES, GAMBLING ESTABLISHMENTS, ETC.—Paragraphs (4), (5), 
and (6) shall not apply to any obligation issued as part of an 
issue if any portion of the proceeds of such issue is to be used to 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 931 
provide any airplane, skybox, or other private luxury box, any 
health club facility, any facility primarily used for gambling, or 
any store the principal business of which is the sale of alcoholic 
beverages for consumption off premises." 
SEC. 628. MISCELLANEOUS INDUSTRIAL DEVELOPMENT BOND PROVI-
SIONS. 
(a) CERTAIN RESTRICTIONS APPLY TO EXEMPTIONS NOT CONTAINED 
IN INTERNAL REVENUE CODE OF 1954.— 
(1) Paragraph (1) of section 103(m) (relating to obligations 
26 USC 103. 
exempt other than under this title) is amended by adding at the 
end thereof the following new sentence: *Tn the case of an 
obligation issued after December 31,1983, such obligation shall 
not be treated as described in this paragraph unless the appro-
priate requirements of subsections (b), (c), (h), (k), (1), and (n) of 
this section and section 103A are met with respect to such 
obligation. For purposes of applying such requirements, a pos-
session of the United States shall be treated as a State; except 
that clause (ii) of subsection (n)(4)(A) shall not apply." 
(2) Subparagraph (B) of section 103(m)(2) is amended to read 
as follows: 
,, 
, r, ,;,, ,, 
"(B) is exempt from tax under this title without regard to 
any provision of law which is not contained in this title and 
which is not contained in a revenue Act." 
(3) Subsection (m) of section 103 is amended by adding at the 
end thereof the following new paragraph: 
"(3) EXCEPTIONS.—The following obligations shall be treated 
as obligations described in paragraph (1) (without regard to the 
second sentence thereof): 
"(A) Any obligation issued pursuant to the Northwest 
Power Act (16 U.S.C. 839d) as in effect on the date of the 
enactment of the Tax Reform Act of 1984. 
Ante, p. 494. 
"(B) Any obligation issued pursuant to section 608(6)(A) of 
Public Law 97-468. 
45 use 1207. 
"(C) Any obligation issued before June 19, 1984, under 
section 11(b) of the United States Housing Act of 1937." 
42 use I437i. 
(b) EXPANSION OF TAX-EXEMPT BOND FINANCED PROPERTY RE-
QUIRED To BE DEPRECIATED ON STRAIGHT-LINE BASIS.— 
(1) IN GENERAL.—Subpar^raph (C) of section 168(fK12) (relat- 
26 use 168. 
ing to limitations on property financed with tax-exempt bonds) 
is amended to read as follows: 
"(C) EXCEPTION FOR PROJECTS FOR RESIDENTIAL RENTAL 
PROPERTY.—Subparagraph (A) shall not apply to any recov- 
- j j . lik 
ery property which is placed in service in connection with 
projects for residentisd rental property financed by the 
proceeds of obligations described in section 103(b)(4)(A)." 
(2) CONFORMING AMENDMENT.—Paragraph (12) of section 
168(f) is amended by striking out subparagraph (D) and by 
redesignating subparagraph (E) as subparagraph (D). 
(c) AGGREGATION OF ISSUES FOR SINGLE PROJECT.—Paragraph (6) of 
section 103(b) (relating to exemption for small issues) is amended by 
26 use los. 
adding at the end thereof the following new subparagraph: 
"(P) AGGREGATION OF ISSUES WITH RESPECT TO SINGLE 
PROJECT.—For purposes of this paragraph, 2 or more issues 
part or all of which are to be used with respect to a single 
building, an enclosed shopping mall, or a strip of offices, 
stores, or warehouses using substantial common facilities 
98 STAT. 932 
PUBLIC LAW 98-369—JULY 18, 1984 
shall be treated as 1 issue (and any person who is a princi-
pal user with respect to any of such issues shall be treated 
as a principal user with respect to the aggregated issue)." 
(d) DEFINITION OF RELATED PERSONS IN THE CASE OF PARTNER-
26 use 103. 
SHIPS.—Paragraph (13) of section 103(b) (relating to exception where 
bond held by substantial user) is amended by adding at the end 
thereof the following new sentence: "For purposes of this 
paragraph— 
"(A) a partnership and each of its partners (and their spouses 
and minor children) shall be treated as related persons, and 
"(B) an S corporation and each of its shareholders (and their 
spouses and minor children) shall be treated as related 
persons.". 
(e) RESIDENTIAL RENTAL PROPERTY MAY BE IN MIXED USE STRUC-
TURE.—Paragraph (4) of section 103(b) (relating to certain exempt 
activities) is amended by adding at the end thereof the following 
new sentence: "For purposes of subparagraph (A), any property 
shall not be treated as failing to be residential rental property 
merely because part of the building in which such property is 
located is used for purposes other than residential rental purposes." 
26 use 103 note. 
(f) PUBUC APPROVAL REQUIREMENT IN THE CASE OF PUBLIC AlR-
PORT.—If— 
(1) the proceeds of any issue are to be used to finance a facility 
or facilities located on a public airport, and 
(2) the governmental unit issuing such obligations is the 
owner or operator of such airport, 
such governmental unit shall be deemed to be the only governmen-
tal unit having jurisdiction over such airport for purposes of subsec-
tion (k) of section 103 of the Internal Revenue Code of 1954 (relating 
to public approval for industrial development bonds). 
^) REPEAL OF ADVANCE REFUNDING OF QUAUFIED PUBUC FACILI-
TIES.—Paragraph (7) of section 103(b) (relating to advance refunding 
of qualified public facilities) is hereby repealed. 
26 use 103 note. 
(h) SMALL ISSUE LIMIT IN CASE OF CERTAIN URBAN DEVELOPMENT 
ACTION GRANTS.—In the case of any obligation issued on December 
11, 1981, section 103(b)(6)(I) of the Internal Revenue Code of 1954 
shall be applied by substituting "$15,000,000" for "$10,000,000" i
f
— 
(1) such obligation is part of an issue, 
(2) substantially all of the proceeds of such issue are used to 
provide facilities with respect to which an urban development 
action grant under section 119 of the Housing and Community 
42 use 5318. 
Development Act of 1974 was preliminarily approved by the 
Secretary of Housing and Urban Development on January 10, 
1980, and 
(3) the Secretary of Housing and Urban Development deter-
mines, at the time such grant is approved, that the amount of 
such grant will equal or exceed 5 percent of the total capital 
expenditures incurred with respect to such facilities. 
^r 
SEC. 629. CERTAIN PUBLIC UTILITIES TREATED AS EXEMPTED PERSONS 
UNDER SECTION 103(b); SPECIAL RULES FOR CERTAIN RAIL-
ROADS. 
(a) CERTAIN PUBLIC UTILITIES.—For purposes of applying section 
103(bX3) of the Internal Revenue Code with respect to— 
(1) any obligations issued after the date of enactment of this 
Act, and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 933 
(2) any obligations issued after December 31, 1969, which were 
treated as obligations described in section 103(a) of such Code on 
the day on which such obligations were issued, 
the term "exempt person" shall include a regulated public utility 
having any customer service area within a State served by a public 
power authority which was required as a condition of a Federal 
Power Commission license specified by an Act of Congress enacted 
prior to the enactment of section 107 of the Revenue and Expendi-
ture Control Act of 1968 (Public Law 90-364) to contract to sell 26USC103and 
power to one such utility and which is authorized by State law to notes. 
sell power to other such utilities, but only with respect to the 
purchase by any such utility and resale to its customers of any 
output of any electrical generation facility or any portion thereof or 
i 
, > • 
any use of any electrical transmission facility or any portion thereof 
financed by such power authority and owned by it or by such State, 
and provided that by agreement between such power authority and 
any such utility there shall be no markup in the resale price 
charged by such utility of that component of the resale price which 
represents the price paid by such utility for such output or use. 
(b) CERTAIN RAILROADS.—Section 103(b)(1) of the Internal Revenue 
Code of 1954 shall not apply to any obligation which is described in 
section 103(b)(6)(A) of such Code if— 
(1) substantially all of the proceeds of such obligation are used 
to acquire railroad track and right-of-way from a railroad in-
volved in a title 11 or similar proceeding (within the meaning of 
section 368(a)(3)(A) of such Code), and 
(2) the Federal Railroad Administration provides joint financ-
ing for such acquisitions. 
(c) SPECIAL RULES FOR SUBSECTION (a).— 
Q) OBLIGATIONS SUBJECT TO CAP.—Any obligation described in 
subsection (a) shall be treated as a private activity bond for 
purposes of section 103(n) of the Internal Revenue Code of 1954. Ante, p. 915. 
(2) LIMITATION ON AMOUNT OF OBLIGATIONS TO WHICH SUBSEC-
TION (a) (1) APPLIES—The aggregate amount of obligations to 
which subsection (a)(1) applies shall not exceed $625,000,000 
(3) LIMITATION ON PURPOSES.—Subsection (a)(1) shall only 
, 
apply to obligations issued as part of an issue substantially all 
the proceeds of which are used to provide 1 or more of the 
following: 
(A) Cable facilities. 
(B) Small hydroelectric facilities. 
(C) The acquisition of an interest in an electrical generat-
ing facility. 
SEC. 630. EXTENSION OF SMALL ISSUE INDUSTRIAL DEVELOPMENT 
BOND EXCEPTION. 
Subparagraph (N) of section 103(b)(6) (relating to termination 
26 USC 103. 
date) is amended to read as follows: 
"(N) TERMINATION DATES.— 
"(i) IN GENERAL.—This paragraph shall not apply to 
any obligation issued after December 31, 1986 (includ-
ing any obligations issued to refund an obligation 
issued on or before such date). 
"(ii) OBLIGATIONS USED TO FINANCE MANUFACTURING 
FACILITIES.—In the case of any obligation which is part 
of an issue substantially all of the proceeds of which 
are to be used to provide a manufacturing facility 
98 STAT. 934 
PUBLIC LAW 98-369—JULY 18, 1984 
^y ^ ' 
clause (i) shall be applied by substituting '1988' for 
'1986'. 
"(iii) MANUFACTURING FACILITY.—For purposes of 
this subparagraph, the term 'manufacturing facility' 
means any facility which is used in the manufacturing 
or production of tangible personal property (including 
the processing resulting in a change in the condition of 
such property). 
26 use 103 note. SEC. 631. EFFECTIVE DATES. 
(a) PRIVATE ACTIVITY BOND CAP.— 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
Ante, p. 915. 
tion, the amendment made by section 621 shall apply to obliga-
tions issued after December 31,1983. 
(2) 
INDUCEMENT RESOLUTION BEFORE JUNE 19, 1984.—The 
amendment made by section 621 shall not apply to any issue of 
obligations if— 
(A) there was an inducement resolution (or other compa^ 
rable preliminary approval) for the issue before June 19, 
1984, and 
(B) the issue is issued before January 1,1985. 
(3) CERTAIN PROJECTS PREUMINARILY APPROVED BEFORE OCTO-
BER 19, 1983, GIVEN APPROVAL.—If— 
(A) there was an inducement resolution (or other compa-
rable preliminary approval) for a project before October 19, 
1983, by any issuing authority, 
(B) a substantial user of such project notifies the issuing 
authority within 30 days after the date of the enactment of 
this Act that it intends to claim its rights under this 
paragraph, and 
(C) construction of such project began before October 19, 
1983, or the substantial user was under a binding contract 
on such date to incur significant expenditures with respect 
to such project, 
such issuing authority shall allocate its share of the limitation 
Ante, p. 915. 
Under section 103(n) of such Code for the calendar year during 
which the obligations were to be issued pursuant to such resolu-
tion (or other approval) first to such project. If the amount of 
obligations required by all projects which meet the require-
ments of the preceding sentence exceeds the issuing authority's 
share of the limitation under section 103(n) of such Code, 
priority under the preceding sentence shall be provided first to 
those projects for which substantial expenditures were incurred 
before October 19, 1983. If any issuing authority fails to meet 
the requirements of this paragraph, the limitation under sec-
tion 103(n) of such Code for the issuing authority for the calen-
dar year following such failure shall be reduced by the amount 
of obligations with respect to which such failure occurred. 
(3) EXCEPTION FOR CERTAIN BONDS FOR A CONVENTION CENTER 
AND RESOURCE RECOVERY PROJECT.—In the case of any city, if— 
(A) the city council of such city authorized a feasibility 
study for a convention center on June 10,1982, and 
(B) on November 4,1983, a municipal authority acting for 
such city accepted a proposal for the construction of a 
facility that is capable of generating steam and electricity 
through the combustion of municipal waste. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 935 
the amendment made by section 621 shall not apply to any 
Ante, p. 915. 
issue, issued during 1984, 1985, 1986, or 1987 and substantially 
all of the proceeds of which are to be used to finance the 
convention center (or access ramps and parking facilities there-
for) described in subparagraph (A) or the facility described in 
r y
^
i 
subparagraph (B). 
(b) PROPERTY FINANCED WITH TAX-EXEMPT BONDS REQUIRED TO BE 
DEPRECIATED ON STRAIGHT-LINE BASIS.— 
(1) IN GENERAL.—Except as otherwise provided in this section, 
the amendments made by section 628(b) shall apply to property 
Ante, p. 931. 
placed in service after December 31, 1983, to the extent such 
property is financed by the proceeds of an obligation (including 
a refunding obligation) issued after October 18,1983. 
(2) EXCEPTIONS.— 
(A) CONSTRUCTION OR BINDING AGREEMENT.—The amend-
ments made by section 628(b) shall not apply with respect to 
facilities— 
^fit c . ii^ii 
(i) the original use of which commences with the 
taxpayer and the construction, reconstruction, or reha-
bilitation of which began before October 19, 1983, or 
(ii) with respect to which a binding contract to incur 
significant expenditures was entered into before Octo-
ber 19,1983. 
(B) REFUNDING.— 
(i) IN GENERAL.—Except as provided in clause (ii), in 
the case of property placed in service after December 
31, 1983, which is financed by the proceeds of an obliga-
tion which is issued solely to refund another obligation 
which was issued before October 19, 1983, the amend-
ments made by section 628(b) shall apply only with 
respect to an amount equal to the basis in such prop-
Is 
erty which has not been recovered before the date such 
refunded obligation is issued. 
- ft 
(ii) SIGNIFICANT EXPENDITURES.—In the case of facili-
ties the original use of which commences with the 
taxpayer and with respect to which significant expendi-
tures are made before January 1, 1984, the amend-
ments made by section 628(b) shall not apply with 
i ?' 
respect to such facilities to the extent such facilities are 
If 
financed by the proceeds of an obligation issued solely 
to refund another obligation which was issued before 
: '
*
^ 
October 19,1983. 
(C) FACILITIES.—In the case of an inducement resolution 
or other comparable preliminary approval adopted by an 
issuing authority before October 19, 1983, for purposes of 
applying subparagraphs (A)(i) and (B)(ii) with respect to 
obligations described in such resolution, the term "facili-
ties" means the facilities described in such resolution. 
(c) OTHER PROVISIONS RELATING TO TAX-EXEMPT BONDS.— 
(1) IN GENERAL.—Except as otherwise provided in this sub-
title, the amendments made by this subtitle shall apply to 
obligations issued after December 31, 1983. 
(2) OBLIGATIONS INVESTED IN FEDERALLY INSURED DEPOSITS.— 
Notwithstanding any other provision of this section, clause (ii) 
of section 103(h)(2)(B) of the Internal Revenue Code of 1954 (as Ante, p. 918. 
amended by this subtitle) shall apply to obligations issued after 
April 14, 1983; except that such clause shall not apply to any 
98 STAT. 936 
PUBLIC LAW 98-369—JULY 18, 1984 
obligation issued pursuant to a binding contract in effect on 
March 4,1983. 
(3) EXCEPTIONS.— 
(A) CONSTRUCTION OR BINDING AGREEMENT.—The amend-
Ante, p. 915. 
ments made by this subtitle (other than section 621) shall 
not apply to obligations with respect to facilities— 
(i) the original use of which commences with the 
taxpayer and the construction, reconstruction, or reha-
bilitation of which began before October 19, 1983, or 
(ii) with respect to which a binding contract to incur 
significant expenditures was entered into before Octo-
ber 19,1983. 
(B) FACIUTIES.—Subparagraph (C) of subsection (b)(2)(A) 
shall apply for purposes of subparagraph (A) of this 
paragraph. 
(4) REPEAL OF ADVANCE REFUNDING OF QUALIFIED PUBLIC FA-
Ante, p. 931. 
ciLiTiES.—The amendment made by section 628(g) shall apply to 
refunding obligations issued after the date of the enactment of 
this Act; except that if substantially all the proceeds of the 
refunded issue were used to provide airports or docks, such 
amendment shall only apply to refunding obligations issued 
after December 31, 1984. In the case of any refunding obligation 
with respect to the Alabama State Docks Department or the 
Dade County Florida Airport, the preceding sentence shall be 
applied by substituting "December 31, 1985" for "December 31, 
1984". 
(d) PROVISIONS OF THIS SUBTITLE NOT TO APPLY TO CERTAIN PROP-
ERTY.—The amendments made by this subtitle shall not apply to any 
property (and shall not apply to obligations issued to finance such 
property) if such property is described in any of the following 
paragraphs: 
(1) Any property described in paragraph (5), (6), or (7) of 
Ante, p. 509. 
section 31(g) of this Act. 
(2) Any property described in paragraph (4), (8), or (17) of 
section 31(g) of this Act but only if the obligation is issued before 
January 1,1985, and only if before June 19, 1984, the issuer had 
evidenced an intent to issue obligations exempt from taxation 
26 use 1 et seq. 
Under the Internal Revenue Code of 1954 in connection with 
such property. 
(3) Any property described in paragraph (3) of section 216(b) of 
96 Stat. 470. 
the Tax Equity and Fiscal Responsibility Act of 1982. 
(4) Any solid waste disposal facility described in section 
103(b)(4XE) of the Internal Revenue Code of 1954 if— 
(A) a State public authority created pursuant to State 
legislation which took effect on June 18, 1973, took formal 
action before October 19, 1983, to commit development 
funds for such facility. 
(B) such authority issues obligations for any such facility 
before January 1,1987, and 
(C) expenditures have been made for the development of 
any such facility before October 19,1983. 
(e) DETERMINATION OF SIGNIFICANT EXPENDITURE.— 
(1) IN GENERAL.—For purposes of this section, the term "sig-
nificant expenditures" means expenditures which equal or 
. 
exceed the lesser o
f
— 
(A) $15,000,000, or 
_ 
(B) 20 percent of the estimated cost of the facilities. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 937 
(2) CERTAIN GRANTS TREATED AS EXPENDITURES.—For purposes 
of paragraph (1), the amount of any UDAG grant preUminarily 
approved on May 5, 1981, or April 4, 1983, shall be treated as an 
expenditure with respect to the facility for which such grant 
was so approved. 
if) EXCEPTIONS FOR CERTAIN OTHER AMENDMENTS.—If— 
(1) there was an inducement resolution (or other comparable 
preliminary approval) for an issue before June 19, 1984, by any 
issuing authority, and 
(2) such issue is issued before January 1, 1985, the following 
amendments shall not apply: 
(A) the amendments made by section 623, 
Ante, p. 921. 
(B) the amendments made by subsections (a) and (b) of 
section 627 (except to the extent such amendments relate to Ante, p. 928. 
farm land), 
(C) in the case of a race track, the amendment made by 
section 627(c), and 
(D) the amendments made by section 628(c). 
Ante, p. 931. 
SEC. 632. MISCELLANEOUS EXCEPTIONS AND SPECIAL RULES. 
(a) EXCEPTION FROM PROVISIONS OTHER THAN ARBITRAGE AND 
FEDERAL GUARANTEES.—Notwithstanding any other provision of this 
subtitle, the amendments made by this subtitle (other than by 
section 622 (relating to Federal guarantees) and section 623 (relating 
Ante, p. 918. 
to arbitrage)) shall not apply to the following obligations: 
(1) Obligations issued with respect to any waste-to-energy 
facility authorized by official action on April 10, 1980 and with 
respect to which a subsequent agreement was signed between a 
-^^i q s^r fc 
city government and the Department of the Army on December 
27, 1982, to jointly pursue construction and operation of such 
facility. 
(2) Obligations issued to finance a redevelopment program on 
9 city blocks adjacent to a transit station but only if such 
program was approved on October 25,1983. 
(3) Obligations issued pursuant to an inducement resolution 
adopted on August 8,1978, for a redevelopment plan for which a 
redevelopment trust fund was established on September 7, 1977. 
(4) Obligations issued to finance a UDAG project which was 
preliminarily approved on December 29, 1982, and which 
received final approval on May 3,1984. 
(5) Obligations issued to finance a parking garage pursuant to 
an inducement resolution adopted on March 9, 1984, in connec-
tion with a project for which a UDAG grant application was 
made on January 31, 1984. 
(6) Obligations which— 
(A) are issued to finance a downtown development project 
with respect to which an urban development action grant is 
made but only if such grant— 
(i) was preliminarily approved on November 3, 1983, 
and 
(ii) received final approval before June 1, 1984, and 
(B) are issued in connection with inducement resolutions 
that were adopted on December 21, 1982, July 5, 1983, and 
March 1,1983, 
but only to the extent the aggregate face amount of such 
obligations does not exceed $34,000,000. 
98 STAT. 938 
PUBLIC LAW 98-369—JULY 18, 1984 
(7) Obligations with respect to which an inducement resolu-
tion was adopted on March 5, 1984, for the purpose of acquiring 
existing airport facilities at more than 12 locations in 1 State 
but— 
(A) only if the Civil Aeronautics Board certifies that such 
transaction would reduce the amount of Federal subsidies 
provided under section 419 of the Airline Deregulation Act 
49 use app. 
of 1978, and 
1389. 
(B) only to the extent the aggregate face amount of such 
obligations does not exceed $25,000,000. 
(8) Obligations described in subsection O
t
>
)
. 
(b) CERTAIN PARKING FACILITY BONDS.—For purposes of the Inter-
26 use 1 et seq. nal Revenue Code of 1954, any obligation issued with respect to a 
parking facility approved by an agency of a county government on 
December 1, 1982, as part of an urban revitalization plan shall be 
treated as an obligation described in section 103(b)(4)(D) of such 
Code. 
(c) EXCEPTION TO CERTAIN BOND LIMITATIONS.—The amendments 
Ante, p. 915. 
made by section 621 (relating to the limitations on amount of private 
Ante, p. 926. 
activity bonds) and section 626(a) (relating to the prohibition on 
acquiring existing facilities) shall not apply to obligations issued 
before January 1, 1987, in connection with the Claymont, Delaware, 
regeneration plant of the Delaware Economic Development Author-
ity, but only to the extent the aggregate face amount of such 
obligation does not exceed $30,000,000. 
(d) CERTAIN OBLIGATIONS TREATED AS NOT FEDERALLY GUARAN-
TEED.—For purposes of section 103(h) of the Internal Revenue Code 
Ante, p. 918. 
of 1954, obligations (including refunding obligations) shall not be 
treated as federally guaranteed if— 
(A) such obligations are issued with respect to any facility, 
and 
(B) any obligation was issued on June 3, 1982 in the principal 
amount of $11,312,125 for the purpose of financing the develop-
ment, study, or related costs incurred with respect to such 
facility. 
(e) CERTAIN EXPENDITURES TREATED AS SIGNIFICANT EXPENDI-
TURES.—For purposes of this title, expenditures of $850,000 incurred 
with respect to any project involving $15,000,000 shall be treated as 
significant expenditures if such expenditures were incurred pursu-
ant to an agreement entered into on July 13, 1982, relating to the 
discharge of industrial waste after January 1,1986. 
(f) CERTAIN ORDINANCES TREATED AS INDUCEMENT RESOLUTIONS.— 
For purposes of this title, any ordinance passed on May 3, 1982, with 
respect to a planned development district shall be treated as an 
inducement resolution with respect to obligations issued in 1984 in 
connection with a mall project for such district. 
(g) DELAYED EFFECTIVE DATE WITH RESPECT TO CERTAIN IDBS.— 
(1) F E R C PROJECTS.—Notwithstanding any other provision of 
this title, any amendments made by this title (other than the 
amendments to section 103(c) of the Internal Revenue Code of 
1954) which, but for this paragraph, would apply to industrial 
development bonds issued after December 31, 1984, shall not 
apply to any of the following obligations issued before January 
1,1986: 
(A) obligations issued with respect to Federal Energy 
Regulatory Commission project 4657, but only to the extent 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 939 
the aggregate face amount of such obligations does not 
exceed $12,900,000; 
(B) obligations issued with respect to Federal Energy 
Regulatory Commission project 2853, but only to the extent 
the aggregate face amount of such obligations does not 
exceed $28,600,000; or 
(C) obligations issued with respect to Federal Energy 
./ 
Regulatory Commission project 4700, but only to the extent 
the aggregate face amount of such obligations does not 
exceed $3,850,000. 
(2) PARK CENTRAL NEW TOWN IN TOWN PROJECT.—Notwith-
standing any other provision of this title, any amendments 
made by this title (other than the amendments to section 103(c) 
of the Internal Revenue Code of 1954) which, but for this 
paragraph, would apply to industrial development bonds issued 
after December 31,1984, shall not apply to any obligation issued 
before January 1, 1988, with respect to Park Central New Town 
In Town Project located in Port Arthur, Texas, but only to the 
extent the aggregate face amount of such obligations does not 
exceed $80,000,000. 
Subtitle C—Miscellaneous Provisions 
SEC. 641. CLARIFICATION OF TREATMENT OF CERTAIN EXEMPTIONS FOR 
26 USC 2001 
PURPOSES OF THE FEDERAL ESTATE AND GIFT TAXES. 
note. 
(a) GENERAL RULE.—Nothing in any provision of law exempting 
any property (or interest therein) from taxation shall exempt the 
transfer of such property (or interest therein) from Federal estate, 
gift, and generation-skipping transfer taxes. In the case of any 
provision of law enacted after the date of the enactment of this Act, 
such provision shall not be treated as exempting the transfer of 
property from Federal estate, gift, and generation-skipping transfer 
taxes unless it refers to the appropriate provisions of the Internal 
Revenue Code of 1954. 
26 USC l et seq. 
(b) EFFECTIVE DATE.— 
"(1) IN GENERAL.—The provisions of subsection (a) shall apply 
to the estates of decedents dying, gifts made, and transfers made 
on or after June 19,1984. 
"(2) TREATMENT OF CERTAIN TRANSFERS TREATED AS TAXABLE.— 
The provisions of subsection (a) shall also apply in the case of 
any transfer of property (or interest therein) if at any time 
there was filed an estate or gift tax return showing such 
transfer as subject to Federal estate or gift tax. 
"(3) No INFERENCE.—No inference shall arise from para-
graphs (1) and (2) that any transfer of property (or interest 
therein) before June 19,1984, is exempt from Federal estate and 
gift t£ixes. 
SEC. 642. REPORTS WITH TRANSFERS OF PUBLIC HOUSING BONDS. 
26 USC 2001 
(a) GENERAL RULE.—With respect to transfers of public housing 
bonds occurring after December 31, 1983, and before June 19, 1984, 
the taxpayer shall report the date and amount of such transfer and 
such other information as the Secretary of the Treasury or his 
delegate shall prescribe by regulations to allow the determination of 
the tax and interest due if it is ultimately determined that such 
transfers are subject to estate, gift, or generation-skipping tax. 
98 STAT. 940 
PUBLIC LAW 98-369—JULY 18, 1984 
O
t
>
) PENALTY FOR FAILURE TO REPORT.—Any taxpayer failing to 
provide the information required by subsection (a) shall be liable for 
a penalty equal to 25 percent of the excess of (1) the estate, gift, or 
generation-skipping tax that is payable assuming that such trans-
fers are subject to tax, over (2) the tax payable assuming such 
transfers are not so subject. 
SEC. 643. TAX-EXEMPT STATUS OF OBLIGATIONS OF CERTAIN EDUCA-
TIONAL ORGANIZATIONS. 
(a) IN GENERAL.—For purposes of section 103 of the Internal 
Revenue Code of 1954, a qualified educational organization shall be 
treated as a State governmental unit, but only with respect to a 
trade or business carried on by such organization which is not an 
unrelated trade or business (determined by applying section 513(a) 
of such Code to such organization). 
(b) QUALIFIED EDUCATIONAL ORGANIZATION.—For purposes of sub-
section (a), the term "qualified educational organization" means a 
college or university created on February 22, 1855, by specific act of 
the legislature of the State within which such college or university 
is located. 
(c) EFFECTIVE DATE.—This section shall apply to obligations issued 
after December 31,1953. 
SEC. 644. LOCAL FURNISHING OF ELECTRICITY OR GAS. 
(a) GENERAL RULE.—For the purposes of section 1030t>)(4)(E), facili-
ties for the local furnishing of electric energy also shall include a 
facility that is part of a system providing service to the general 
populace (i) if at least 97 percent (measured both by total number of 
metered customers and by their annual consumption on a kilowatt 
hour basis) of the retail customers of such system are located in two 
contiguous counties, and (ii) if the remainder of such customers are 
located in a portion of a third contiguous county which portion is 
located on a peninsula not directly connected by land to the rest of 
the county of which it is a part. 
O
t
)
) ELECTION TO ALLOCATE TO 1984 ONE-HALF OF STATE LIMIT FOR 
1985, 1986, AND 1987.—Solely for purposes of issuing obligations 
described in subsection (a), the issuing authorities of a State may 
elect (at such time and in such manner as the Secretary of the 
Treasury shall by regulations prescribe) to use in 1984 one-half of 
the amount which would have been the State limit for the calendar 
years 1985,1986, and 1987. 
SEC. 645. LOCAL FURNISHING WHERE FACILITY INITIALLY AUTHORIZED 
BY FEDERAL GOVERNMENT. 
For the purpose of section 1030t))(4)(E), facilities for the local 
furnishing of electric energy also shall include a facility that is part 
of a system providing service to the general populace— 
(i) if the facility was initially authorized by the Federal 
Government in 1962; 
(ii) if the facility receives financing of at least 25 percent by 
an exempt person; 
(iii) if the electric energy generated by the facility is pur-
chased by an electric cooperative qualified as a rural electric 
borrower under 7 U.S.C. section 901 et seq. and if; 
(iv) the facility is located in a noncontiguous State. 
1087-la. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 941 
SEC. 646. TREASURY DEPARTMENT DECISIONS AFFECTING TAX-EXEMPT 
20 USC 1087-1 
BONDS. 
^°^-
(a) The Secretary of Education and the Secretary of the Treasury 
shall within 90 days of the date of enactment of this provision, 
establish procedures under which issuers affected by any decision of 
the Secretary of Education or his delegate under section 7 of the 
Student Loan Consolidation and Technical Amendments Act of 1983 20 use 1087-1 
may request and obtain a review of such decision by the Secretary of ^^ir,^°]f' 
the Treasury or his delegate followed by a written report to the 
Secretary of Education and to such person with respect to such 
review to be filed no later than 60 days of the request for review 
(unless the person requesting such review consents to an extension 
of time). 
(b) Nothing in this section shall affect the exemption from income 
taxation of interest on any student loan bond or any issuer of such 
bonds. 
SEC. 647. SPECIAL RULE FOR POSSESSIONS AND DISTRICT OF COLUMBIA. 
Notwithstanding any other provision of law, in the case of obliga-
tions issued before July 1,1987— 
(1) the Virgin Islands and American Samoa shall have author-
ity to issue industrial development bonds (within the meaning 
of section 103(b)(2) of the Internal Revenue Code of 1954), and 
(2) the District of Columbia Housing Finance Agency shall 
have the authority to issue obligations described in section 
103(b)(4)(A) of such Code and to issue mortgage subsidy bonds (as 
defined in section 103A of such Code). 
SEC. 
648. 
SPECIAL 
ARBITRAGE 
RULE. 
Securities or obligations are not described in section 103(c)(2) (A) 
or (B) of the Internal Revenue Code of 1954 and are not subject to 
yield restrictions to the extent that on the date of issue of a bond 
issue which is payable from the investment earnings on such securi-
ties or obligations— 
(1) such securities or obligations are held in a fund which, 
except to the extent of the investment earnings on such securi-
ties or obligations, cannot be used, under State constitutional or 
statutory restrictions continuously in effect since October 9, 
1969, to pay debt service on the bond issue or to finance the 
facilities that are to be financed with the proceeds of the bonds, 
(2) the fund has received no substantial discretionary contri-
butions after October 9,1969, 
(3) the issuer (A) had a practice of issuing bonds secured by 
the investment earnings of the fund during the period com-
mencing January 1,1960, and ending on October 9,1969, and (B) 
has had a continuous practice of issuing bonds secured by the 
investment earnings of the fund at least once during each 5-
year period beginning on October 9,1969, and 
(4) the amount of securities or obligations benefitting from 
this rule cannot exceed the principal amount of bonds (to which 
such securities or other obligations would, but for this rule, be 
allocated) which could be issued under applicable laws restrict-
ing the amount of bonds that can be issued (but not restrictions 
on the purposes for which bonds can be issued) in effect on 
October 9, 1969, as applied to the facts on the day of issue. 
98 STAT. 942 
PUBLIC LAW 98-369—JULY 18, 1984 
TITLE VII—TECHNICAL CORRECTIONS 
26 use 31 note. 
SEC. 701. COORDINATION WITH OTHER TITLES. 
For purposes of applying the amendments made by any title of 
this Act other than this title, the provisions of this title shall be 
treated as having been enacted immediately before the provisions of 
such other titles. 
Subtitle A—Amendments Related to the Tax 
Equity and Fiscal Responsibility Act of 1982 
SEC. 711. TECHNICAL CORRECTIONS OF PROVISIONS RELATING TO 
INDIVIDUALS. 
(a) AMENDMENTS RELATED TO SECTION 201.— 
26 use 55. 
(1) DEFINITION OF REGULAR TAX.—Paragraph (2) of section 55(f) 
(defining regular tax) is amended by striking out "sections 
72(mX5)(B)" and inserting in lieu thereof "sections 47(a), 
72(m)(5)(B)". 
(2) SPECIAL ELECTION FOR INTANGIBLE DRILLING AND DEVELOP-
MENT COSTS UMITED TO WELLS LOCATED IN THE UNITED STATES.— 
26 use 58. 
Subparagraph (A) of section 58(i)(4) (relating to special election 
for intangible drilling and development cost not allocable to 
interest as limited partner) is amended by inserting "(with 
respect to wells located in the United States)" after "intangible 
drilling costs". 
(3) 3-YEAR AMORTIZATION FOR CIRCULATION EXPENSES.— 
26 use 57. 
(A) Subparagraph (B) of section 57(aX6) (relating to circu-
lation and research and experimental expenditures) is 
amended to read as follows: 
"(B) the amount which would have been allowable for the 
taxable year with respect to expenditures paid or incurred 
during such taxable year if— 
"(i) the circulation expenditures described in section 
173 had been capitalized and amortized ratably over 
the 3-year period beginning with the taxable year in 
which such expenditures were made, or 
"(ii) the research and experimental expenditures de-
scribed in section 174 had been capitalized and amor-
tized ratably over the 10-year period beginning with 
the taxable year in which such expenditures were 
made." 
26 use 58. 
(B) Paragraph (1) of section 58(i) (relating to optional 10-
year writeoff of certain tax preferences) is amended by 
striking out "10-year period" and inserting in lieu thereof 
"10-year period (3-year period in the case of circulation 
expenditures described in section 173)". 
26 use 173. 
(C) Subsection (b) of section 173 is amended by striking 
out "10-year" and inserting in lieu thereof "3-year". 
(4) LOSSES TREATED AS INVESTMENT LOSSES.—Subparagraph (B) 
26 use 55. 
of section 55(e)(8) is amended to read as follows: 
"(B) INCOME AND LOSSES TAKEN INTO ACCOUNT IN COMPUT-
ING QUALIFIED NET INVESTMENT INCOME.—Any income or 
loss derived from a limited business interest shall be taken 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 943 
into account in computing qualified net investment 
income." 
(5) TREATMENT OF ALCOHOL FUELS CREDIT.—Subparagraph (c) 
of section 55(bXl) (defining alternative minimum taxable 
26 use 55. 
income) is amended by striking out "section 667" and inserting 
in lieu thereof "section 87 or 667". 
(b) AMENDMENT RELATED TO SECTION 202.—Paragraph (5) of sec-
tion 213(d) (relating to definitions) is amended by striking out Ante, p. 847. 
"paragraph (2)" and inserting in lieu thereof "paragraph (4)". 
(c) AMENDMENTS RELATED TO SECTION 203.— 
(1) CLARIFICATION OF ADJUSTED GROSS INCOME IN THE CASE OF 
ESTATES AND TRUSTS.—Paragraph (2) of section 165(h) (relating to 
26 use 165. 
casualty and theft losses) is amended by redesignating subpara-
graph (B) as subparagraph (C) and by inserting after subpara-
graph (A) the following new subparagraph: 
"(B) DETERMINATION OF ADJUSTED GROSS INCOME IN CASE 
OF ESTATES AND TRUSTS.—For purposes of paragraph (1), the 
.adjusted gross income of an estate or trust shall be com-
puted in the same manner as in the case of an individual, 
except that the deductions for costs paid or incurred in 
connection with the administration of the estate or trust 
shall be treated as allowable in arriving at adjusted gross 
income." 
(2) COORDINATION OF SECTION 165(h) WITH SECTION 1231.— 
(A) COORDINATION FOR 1984 AND SUBSEQUENT YEARS.— 
(i) 
CLARIFICATION 
OF LOSSES TO WHICH 
SECTION 
165(c) (3) APPUES.—Paragraph (3) of section 165(c) (re-
lating to limitation on loss of individuals) is amended 
by striking out "trade or business" and inserting in lieu 
thereof "trade or business or a transaction entered into 
for profit". 
(ii) AMENDMENT OF SECTION 165(h).—Subsection (h) 
of section 165 (relating to casualty and theft losses) is 
amended to read as follows: 
"(h) TREATMENT OF CASUALTY GAINS AND LOSSES.— 
"(1) $100 UMiTATiON PER CASUALTY.—Any loss of an individual 
described in subsection (c)(3) shall be allowed only to the extent 
that the amount of the loss to such individual arising from each 
casualty, or from each theft, exceeds $100. 
' * 
"(2) NET CASUALTY LOSS ALLOWED ONLY TO THE EXTENT IT 
EXCEEDS 10 PERCENT OF ADJUSTED GROSS INCOME.— 
"(A) IN GENERAL.—If the personal casualty losses for any 
taxable year exceed the personal casualty gains for such 
taxable year, such losses shall be allowed for the taxable 
year only to the extent of the sum of— 
"(i) the amount of the personal casualty gains for the 
taxable year, plus 
"(ii) so much of such excess as exceeds 10 percent of 
"' 
the adjusted gross income of the individual. 
"(B) SPECIAL RULE WHERE PERSONAL CASUALTY GAINS 
EXCEED PERSONAL CASUALTY LOSSES.—If the personal cas-
ualty gains for any taxable year exceed the personal cas-
ualty losses for such taxable year— 
"(i) all such gains shall be treated as gains from sales 
or exchanges of capital assets, and 
"(ii) all such losses shall be treated as losses from 
sales or exchanges of capital assets. 
98 STAT. 944 
PUBLIC LAW 98-369—JULY 18, 1984 
"(3) DEFINITIONS OF PERSONAL CASUALTY GAIN AND PERSONAL 
CASUALTY LOSS.—For purposes of this subsection— 
"(A) PERSONAL CASUALTY GAIN.—The term 'personal casu-
alty gain' means the recognized gain from any involuntary 
conversion of property which is described in subsection 
(c)(3) arising from fire, storm, shipwreck, or other casualty, 
or from theft. 
"(B) PERSONAL CASUALTY LOSS.—The term 'personal casu-
alty loss' means any loss described in subsection (c)(3). For 
purposes of paragraph (2), the amount of any personal 
casualty loss shall be determined after the application of 
paragraph (1). 
"(4) SPECIAL RULES.— 
"(A) PERSONAL CASUALTY LOSSES ALLOWABLE I N COMPUT-
ING ADJUSTED GROSS INCOME TO THE EXTENT OF PERSONAL 
CASUALTY GAINS.—In any case to which paragraph (2)(A) 
applies, the deduction for personal casualty losses for any 
^ 
taxable year shall be treated as a deduction allowable in 
computing adjusted gross income to the extent such losses 
do not exceed the personal casualty gains for the taxable 
year. 
"(B) JOINT RETURNS.—For purposes of this subsection, a 
husband and wife making a joint return for the taxable 
year shall be treated as 1 individual. 
"(C) DETERMINATION OF ADJUSTED GROSS INCOME IN CASE 
OF ESTATES AND TRUSTS.—For purposes of paragraph (2), the 
adjusted gross income of an estate or trust shall be com-
puted in the same manner as in the case of an individual, 
except that the deductions for costs paid or incurred in 
connection with the administration of the estate or trust 
shall be treated as allowable in arriving at adjusted gross 
income. 
"(D) COORDINATION WITH ESTATE TAX.—No loss described 
in subsection (c)(3) shall be allowed if, at the time of filing 
the return, such loss has been claimed for estate tax pur-
poses in the estate tax return." 
(iii) SECTION 1231 NOT TO APPLY TO PERSONAL CASU-
26 use 1231. 
A
L
T
Y GAINS O
R LOSSES.—Subsection (a) of section 1231 
(relating to property used in the trade or business and 
involuntary conversions) is amended to read as follows: 
"(a) GENERAL RULE.— 
"(1) GAINS EXCEED LOSSES.—If— 
"(A) the section 1231 gains for any taxable year, exceed 
"(B) the section 1231 losses for such taxable year, 
such gains and losses shall be treated as long-term capital gains 
or long-term capital losses, as the case may be. 
"(2) GAINS DO NOT EXCEED LOSSES.—If— 
"(A) the section 1231 gains for any taxable year, do not 
exceed 
"(B) the section 1231 losses for such taxable year, 
such gains and losses shall not be treated as gains and losses 
from sales or exchanges of capital assets. 
"(3) SECTION 1231 GAINS AND LOSSES.—For purposes of this 
subsection— 
"(A) SECTION 1231 GAIN.—The term 'section 1231 gain' 
means— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 945 
"(i) any recognized gain on the sale or exchange of 
property used in the trade or business, and 
"(ii) any recognized gain from the compulsory or 
involuntary conversion (as a result of destruction in 
* 
whole or in part, theft or seizure, or an exercise of the 
power of requisition or condemnation or the threat or 
}• 
imminence thereof) into other property or money of— 
'- 
"(I) property used in the trade or business, or 
"(II) any capital asset which is held for more 
than 1 year and is held in connection with a trade 
- - ^
^ 
: 
or business or a transaction entered into for profit. 
H 
"(B) SECTION 1231 LOSS.—The term 'section 1231 loss' 
means any recognized loss from a sale or exchange or 
- 
conversion described in subparagraph (A). 
"(4) SPECIAL RULES.—For purposes of this subsection— 
"(A) In determining under this subsection whether gains 
exceed losses— 
^^" 
"(i) the section 1231 gains shall be included only if 
and to the extent taken into account in computing 
^>j « 
ri;: 
gross income, and 
"(ii) the section 1231 losses shall be included only if 
and to the extent taken into account in computing 
taxable income, except that section 1211 shall not 
apply. 
"(B) Losses (including losses not compensated for by 
' 
insurance or otherwise) on the destruction, in whole or in 
part, theft or seizure, or requisition or condemnation of— 
"(i) property used in the trade or business, or 
^ , ^^p,. . 
js c*a- 
'<(jj) capital assets which are held for more than 1 
' 
' ' 
year and are held in connection with a trade or busi-
ness or a transaction entered into for profit, 
• 
shall be treated as losses from a compulsory or involuntary 
conversion. 
- 
"(C) In the case of any involuntary conversion (subject to 
the provisions of this subsection but for this sentence) 
, ^^ . 
arising from fire, storm, shipwreck, or other casualty, or 
^*' 
"
^ '" 
from theft, of any— 
"(i) property used in the trade or business, or 
"(ii) any capital asset which is held for more than 1 
' 
year and is held in connection with a trade or business 
or a transaction entered into for profit, 
this subsection shall not apply to such conversion (whether 
resulting in gain or loss) if during the taxable year the 
recognized losses from such conversions exceed the recog-
nized gains from such conversions." 
(iv) Sections 873(bXl) and 931(d)(2)(B) are each 26 use 873,931. 
amended by striking out ", for losses of property not 
connected with the trade or business if arising from 
certain casualties or theft," and inserting in lieu 
thereof "for losses". 
(v) EFFECTIVE DATE.—The amendments made by this 26 use 165 note. 
subparagraph shall apply to taxable years beginning 
after December 31,1983. 
(B) TRANSITIONAL RULE.—In the case of taxable years 26 use 165 note. 
beginning before January 1,1984— 
(i) For purposes of paragraph dXB) of section 165(h) 
of the Internal Revenue Code of 1954, adjusted gross Ante, p. 943. 
31-194 0 - 86 - 32 : QL. 3 Part 1 
98 STAT. 946 
PUBLIC LAW 98-369—JULY 18, 1984 
1o sgiife 
income shall be determined without regard to the 
application of section 1231 of such Code to any gain or 
loss from an involuntary conversion of property de-
scribed in subsection (c)(3) of section 165 of such Code 
arising from fire, storm, shipwreck, or other casualty or 
from theft. 
(ii) Section 1231 of such Code shall be applied after 
the application of paragraph (1) of section 165(h) of 
Ante, p. 943. 
such Code. 
26 use 6405. 
(3) CLERICAL AMENDMENT.—Subsection (d) of section 6405 
(relating to refunds attributable to certain disaster losses) is 
amended by striking out "section 165(h)" and inserting in lieu 
thereof "section 165(i)". 
SEC. 712. TECHNICAL CORRECTIONS OF PROVISIONS PRIMARILY RELAT-
ING TO BUSINESSES. 
(a) AMENDMENTS RELATED TO SECTION 204.— 
(1) CLARIFICATION OF ADDITIONAL AMOUNT TREATED AS ORDI-
NARY INCOME UNDER SECTION 1250.— 
26 use 291. 
(A) Paragraph (1) of section 291(a) (relating to section 
1250 capital gain treatment) is amended— 
(i) by striking out "under section 1250" in subpara-
graph (B) and inserting in lieu thereof "under section 
1250 (determined without regard to this paragraph)", 
and 
(ii) by striking out "which is ordinary income" and 
inserting in lieu thereof "which is ordinary income 
under section 1250". 
26 use 1250. 
(B) Subsection (a) of section 1250 is amended by adding at 
the end thereof the following new paragraph: 
"(4) CROSS REFERENCE.— 
"For reduction in the case of corporations on capital gain treatment 
under this section, see section 291(a)(1)." 
(2) INVESTMENT TAX CREDIT ALLOWED ONLY FOR MINERAL EXPLO-
RATION AND DEVELOPMENT COSTS FOR DEPOSITS LOCATED IN THE 
26 use 291. 
UNITED STATES.—Clause (ii) of section 291(b)(2)(B) is amended bv 
inserting "in the case of a deposit located in the United States,' 
after "(ii)". 
(3) CLARIFICATION OF COORDINATION WITH COST DEPLETION.— 
Paragraph (6) of section 291(b) (relating to coordination with 
cost depletion) is amended to read as follows: 
"(6) COORDINATION WITH COST DEPLETION.—The portion of the 
adjusted basis of any property which is attributable to amounts 
to which paragraph (1) applied shall not be taken into account 
for purposes of determining depletion under section 611." 
(4) CLARIFICATION OF DEFINITION OF INTEREST.—Subparagraph 
(B) of section 291(e)(1) (relating to interest on debt to carry tax-
exempt obligations acquired after December 31, 1982) is 
amended by adding at the end thereof the following new clause: 
(iii) INTEREST.—For purposes of this subparagraph, 
the term 'interest' includes amounts (whether or not 
designated as interest) paid in respect of deposits, in-
vestment certificates, or withdrawable or repurchas-
able shares." 
26 use 48. 
(b) AMENDMENT RELATED TO SECTION 205.—Subsection (q) of sec-
tion 48 (relating to basis adjustment to section 38 property) is 
,, 
amended by adding at the end thereof the following new paragraph: 
.sJon.'tii '::a'5 B', 
^8 .- 0 f.Qx-l£: 
:i^l 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 947 
"(6) ADJUSTMENT IN BASIS OF INTEREST IN PARTNERSHIP OR S 
CORPORATION.—The adjusted basis of— 
"(A) a partner's interest in a partnership, and 
"(B) stock in an S corporation, 
shall be appropriately adjusted to take into account adjustments 
made under this subsection in the basis of property held by the 
'-; 
partnership or S corporation (as the case may be)." 
(c) AMENDMENT RELATED TO SECTION 207.—Paragraph (4) of sec-
tion 189(e) (defining residential real property) is amended by strik- 
26 USC 189. 
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 new subpara-
graph: 
"(C) real property held by a cooperative housing corpora-
tion (as defined in section 216(b)) and used for dwelling 
purposes." 
(d) AMENDMENTS RELATED TO SECTION 210.— 
(1) SPECIAL RULE WHERE DEALER-LESSEE REQUIRED TO PURCHASE 
• ' >
^
'
-
* ?
'
~ 
VEHICLE.—Paragraph (2) of section 210(b) of the Tax Equity and 
Fiscal Responsibility Act of 1982 (defining terminal rental ad- 
26 USC 168 note. 
justment clause) is amended by adding at the end thereof the 
following new sentence: "Such term also includes a provision of 
an agreement which requires a lessee who is a dealer in motor 
vehicles to purchase the motor vehicle for a predetermined 
price and then resell such vehicle where such provision achieves 
substantially the same results as a provision described in the 
preceding sentence." 
(2) EXCEPTION WHERE LESSEE TOOK POSITION ON RETURN THAT 
HE WAS OWNER.—Section 210 of the Tax Equity and Fiscal 
Responsibility Act of 1982 is amended by adding at the end 
;;: 0 : % 
thereof the following new subsection: 
"(c) EXCEPTION WHERE LESSEE TOOK POSITION ON RETURN.—Sub-
section (a) shall not apply to deny a deduction for interest paid or 
accrued claimed by a lessee with respect to a qualified motor vehicle 
agreement on a return of tax imposed by chapter 1 of the Internal 
Revenue Code of 1954 which was filed before the date of the enact- 
26 use i et seq. 
ment of this Act or to deny a credit for investment in depreciable 
property claimed by the lessee on such a return pursuant to an 
agreement with the lessor that the lessor would not claim the 
credit." 
(e) AMENDMENT RELATED TO SECTION 211.—Subparagraph (A) of 
section 211(e)(2) of the Tax Equity and Fiscal Responsibility Act of 
1982 (relating to retention of old sections 907(b) and 904(f)(4) where 
26 USC 907 note. 
taxpayer had separate basket foreign loss) is amended by striking 
out "the 8-year period" and inserting in lieu thereof "the 8-year 
period (or such shorter period as the taxpayer may select)". 
(f) AMENDMENT RELATED TO SECTION 212.—Paragraph (1) of section 
954(h) (defining foreign base company oil-related income) is 
26 USC 954. 
amended by striking out "section 907(c)(2)" and inserting in lieu 
thereof "paragraphs (2) and (3) of section 907(c)". 
(g) AMENDMENT RELATED TO SECTION 213.—The table contained in 
subparagraph (C) of section 936(a)(2) is amended by striking out 
26 USC 936. 
"The percentage tax is:" and inserting in lieu thereof "The percent-
age is:". 
(h) AMENDMENT RELATED TO SECTION 217.—Subsection (e) of sec-
tion 217 of the Tax Equity and Fiscal Responsibility Act of 1982 
(relating to effective date) is amended by adding at the end thereof 
26 USC 103 note. 
98 STAT. 948 
PUBLIC LAW 98-369—JULY 18, 1984 
the following new sentence: "For purposes of applying section 
168(f)(8)(D)(v) of the Internal Revenue Code of 1954, the amendments 
made by subsection (c) shall apply to agreements entered into after 
the date of the enactment of this Act." 
(i) AMENDMENTS RELATED TO SECTION 222.— 
Ante, p. 569. 
(1) Sections 301(e)(2) and 302(f)(3) are each amended by strik-
26 use 302. 
ing out "partial or complete liquidation" and inserting in lieu 
thereof "complete liquidation". 
26 use 306. 
(2) The paragraph heading of paragraph (1) of section 306(b) 
(relating to exceptions) is amended by striking out "INTEREST." 
and inserting in lieu thereof "INTEREST, ETC.". 
26 use 543. 
(3) Paragraph (1) of section 543(a) (defining personal holding 
company income) is amended by striking out subparagraph (C), 
by adding "and" at the end of subparagraph (A), and by striking 
out ", and" at the end of subparagraph (B) and inserting in lieu 
thereof a period. 
0
*
) AMENDMENT RELATED TO SECTION 223.—Paragraph (1) of section 
26 use 311. 
311(e) (defining qualified stock) is amended by adding at the end 
thereof the following new subparagraph: 
. 
"(C) RULES FOR PASSTHRU ENTITIES.—In the case of an S 
corporation, partnership, trust, or estate— 
"(i) the determination of whether subparagraph (A) is 
satisfied shall be made at the shareholder, partner, or 
beneficiary level (rather than at the entity level), and 
"(ii) the distribution shall be treated as made directly 
to the shareholders, partners, or beneficiaries in pro-
portion to their respective interests in the entity." 
(k) AMENDMENTS RELATED TO SECTION 224.— 
(1) ASSETS TREATED AS SOLD AT FAIR MARKET VALUE.— 
26 use 338. 
(A) IN GENERAL.—Paragraph (1) of section 338(a) (relating 
to general rule) is amended by inserting "at fair market 
value" after "acquisition date". 
(B) BASIS OF ASSETS AFTER DEEMED PURCHASE.—Subsection 
(b) of section 338 (relating to price at which deemed sale 
made) is amended to read as follows: 
,
> 
, i 
"(b) BASIS OF ASSETS AFTER DEEMED PURCHASE.— 
"(1) IN GENERAL.—For purposes of subsection (a), the assets of 
the target corporation shall be treated as purchased for an 
amount equal to the sum of— 
"(A) the grossed-up basis of the purchasing corporation's 
recently purchased stock, and 
"(B) the basis of the purchasing corporation's nonrecently 
^ 
purchased stock. 
"(2) 
ADJUSTMENT FOR UABILITIES AND OTHER RELEVANT 
ITEMS.—The amount described in paragraph (1) shall be ad-
justed under regulations prescribed by the Secretary for liabil-
ities of the target corporation and other relevant items. 
; rti; c J i 
"(3) 
ELECTION TO STEP-UP THE BASIS OF CERTAIN TARGET 
STOCK.— 
"(A) IN GENERAL.—Under regulations prescribed by the 
Secretary, the basis of the purchasing corporation's nonre-
; . : v j , 
cently purchased stock shall be the basis amount deter-
mined under subparagraph (B) of this paragraph if the 
purchasing corporation makes an election to recognize gain 
as if such stock were sold on the acquisition date for an 
amount equal to the basis amount determined under sub-
}'va p 
k, ,!s 
paragraph (B). 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 949 
"(B) DETERMINATION OF BASIS AMOUNT.—For purposes of 
subparagraph (A), the basis amount determined under this 
subparagraph shall be an amount equal to the grossed-up 
basis determined under subparagraph (A) of paragraph (1) 
multiplied by a fraction— 
•ifiM 
"(i) the numerator of which is the percentage of stock 
' ' i *-
(by value) in the target corporation attributable to the 
purchasing corporation's nonrecently purchased stock, 
and 
"(ii) the denominator of which is 100 percent minus 
the percentage referred to in clause (i). 
"(4) GROSSED-UP BASIS.—For purposes of paragraph (1), the 
grossed-up basis shall be an amount equal to the basis of the 
corporation's recently purchased stock, multiplied by a frac-
tion— 
"(A) the numerator of which is 100 percent, minus the 
percentage of stock (by value) in the target corporation 
attributable to the purchasing corporation's nonrecently 
purchased stock, and 
"(B) the denominator of which is the percentage of stock 
(by value) in the target corporation attributable to the 
purchasing corporation's recently purchased stock. 
"(5) ALLOCATION AMONG ASSETS.—The amount determined 
under paragraphs (1) and (2) shall be allocated among the assets 
of the target corporation under regulations prescribed by the 
Secretary. 
"(6) DEFINITIONS OF RECENTLY PURCHASED STOCK AND NONRE-
CENTLY PURCHASED STOCK.—For purposes of this subsection— 
"(A) RECENTLY PURCHASED STOCK.—The term 'recently 
purchased stock' means any stock in the target corporation 
which is held by the purchasing corporation on the acquisi-
tion date and which was purchased by such corporation 
during the 12-month acquisition period. 
"(B) NONRECENTLY PURCHASED STOCK.—The term 'nonre-
cently purchased stock' means any stock in the target 
corporation which is held by the purchasing corporation on 
the acquisition date and which is not recently purchased 
stock." 
(2) COORDINATION WITH SECTION 333.—The last sentence of 
paragraph (1) of section 338(c) (relating to coordination with 
26 USC 338. 
section 337 where purchasing corporation holds less than 100 
percent of stock) is amended by striking out "such 1-year 
period" and inserting in lieu thereof "such 1-year period and 
section 333 does not apply to such liquidation". 
(3) EXCEPTIONS TO DEEMED ELECTION RULE.—Paragraph (2) of 
section 338(e) (relating to exceptions) is amended— 
(A) by striking out "(in whole or in part)" in subpara-
graph (B) and inserting in lieu thereof "wholly", 
(B) by inserting "or at the end of subparagraph (C), and 
(C) by striking out subparagraphs (D) and (E) and insert-
ing in lieu thereof the following: 
"(D) such acquisition is described in regulations pre-
scribed by the Secretary and meets such conditions as such 
•' 
regulations may provide." 
(4) TIME FOR MAKING ELECTION.—Paragraph (1) of section 
338(g) (relating to election) is amended to read as follows: 
98 STAT. 950 
PUBLIC LAW 98-369—JULY 18, 1984 
"(1) WHEN MADE.—Except as otherwise provided in regula-
tions, an election under this section shall be made not later 
than the 15th day of the 9th month beginning after the month 
in which the acquisition date occurs." 
(5) DEFINITION OF PURCHASE.— 
26 use 338. 
(A) Subparagraph (B) of section 338(h)(3) (defining pur-
chase) is amended to read as follows: 
"(B) DEEMED PURCHASE UNDER SUBSECTION (a).—The term 
'purchase' includes any deemed purchase under subsection 
(a)(2). The acquisition date for a corporation which is 
deemed purchased under subsection (a)(2) shall be deter-
mined under regulations prescribed by the Secretary." 
(B) Paragraph (3) of section 338(h) is amended by adding 
at the end thereof the following new subparagraph: 
"(C) CERTAIN STOCK ACQUISITIONS FROM RELATED CORPORA-
TIONS.— 
"(i) IN GENERAL.—Clause (iii) of subparagraph (A) 
shall not apply to an acquisition of stock from a related 
corporation if at least 50 percent in value of the stock 
of such related corporation was acquired by purchase 
(within the meaning of subparagraph (A) and (B)). 
"(ii) CERTAIN DISTRIBUTIONS.—Clause (i) of subpara-
graph (A) shall not apply to an acquisition of stock 
described in clause (i) of this subparagraph if the corpo-
ration acquiring such stock— 
"(I) made a qualified stock purchase of stock of 
the related corporation, and 
"(II) made an election under this section (or is 
treated under subsection (e) as having made such 
an election) with respect to such qualified stock 
purchase, 
"(iii) RELATED CORPORATION DEFINED.—For purposes 
of this subparagraph, a corporation is a related corpo-
ration if stock owned by such corporation is treated 
(under section 318(a) other than paragraph (4) thereof) 
as owned by the corporation acquiring the stock." 
(C) Paragraph (1) of section 338(h) (defining 12-month 
acquisition period) is amended by inserting before the 
period at the end thereof the following: "(or, if any of such 
stock was acquired in an acquisition which is a purchase by 
reason of subparagraph (C) of paragraph (3), the date on 
which the acquiring corporation is first considered under 
section 318(a) (other than paragraph (4) thereof) as owning 
stock owned by the corporation from which such acquisition 
was made)." 
(D) Clause (ii) of section 338(h)(3)(A) (defining purchase) is 
amended to read as follows: 
"(ii) the stock is not acquired in an exchange to 
which section 351, 354, 355, or 356 applies and is not 
acquired in any other transaction described in regula-
tions in which the transferor does not recognize the 
entire amount of the gain or loss realized on the trans-
; 
action, and". 
26 use 318. 
(E) Paragraph (4) of section 3180t)) (relating to cross refer-
ences) is amended to read as follows: "(4) section 338(h)(3) 
(defining purchase);". 
(6) SPECIAL RULES FOR APPLYING SECTION 338.— 
.IHU bli 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 951 
(A) Subsection (h) of section 338 (relating to definitions 
26 USC 338. 
and special rules) is amended by striking out paragraph (7), 
by redesignating paragraphs (8) and (9) as paragraphs (9) 
and (10), respectively, and by inserting after paragraph (6) 
the following new paragraphs: 
"(7) ADDITIONAL PERCENTAGE MUST BE ATTRIBUTABLE TO PUR-
CHASE, ETC.—For purposes of subsection (c)(1), any increase in 
; j& j oS 
the maximum percentage of stock taken into account over the 
percentage of stock (by value) of the target corporation held by 
the purchasing corporation on the acquisition date shall be 
taken into account only to the extent such increase is attribut-
able to— 
"(A) purchase, or 
"(B) a redemption of stock of the target corporation— 
"(i) to which section 302(a) applies, or 
"(ii) in the case of a shareholder who is not a corpora-
tion, to which section 301 applies. 
"(8) ACQUISITIONS BY AFFILIATED GROUP TREATED AS MADE BY i 
CORPORATION.—Except as provided in regulations prescribed by 
the Secretary, stock and asset acquisitions made by members of 
the same affiliated group shall be treated as made by 1 
corporation." 
(B) Paragraph (9) of section 338(h), as redesignated by 
subparagraph (A), is amended by striking out "paragraph 
(9)" and inserting in lieu thereof 'paragraph (10)". 
(C) Subsection (h) of section 338 is amended by adding at 
the end thereof the following new paragraphs: 
"(11) 
ELECTIVE FORMULA FOR DETERMINING FAIR MARKET 
VALUE.—For purposes of subsection (a)(1), fair market value 
may be determined on the basis of a formula provided in 
regulations prescribed by the Secretary which takes into ac-
count liabilities and other relevant items. 
"(12) SECTION 337 TO APPLY WHERE TARGET HAD ADOPTED PLAN 
FOR COMPLETE LIQUIDATION.—If— 
"(A) during the 12-month period ending on the acquisi-
tion date the target corporation adopted a plan of complete 
liquidation, 
"(B) such plan was not rescinded before the close of the 
acquisition date, and 
"(C) the purchasing corporation makes an election under 
this section (or is treated under subsection (e) as having 
made such an election) with respect to the 
target 
corporation, 
then, subject to rules similar to the rules of subsection (c)(1), for 
purposes of section 337 (and other provisions which relate to 
section 337), the target corporation shall be treated as having 
distributed all of its assets as of the close of the acquisition date. 
"(13) 
TAX ON DEEMED SALE NOT TAKEN INTO ACCOUNT FOR 
ESTIMATED TAX PURPOSES.—For purposes of section 6655, tax 
attributable to the sale described in subsection (a)(1) shall not be 
taken into account. 
"(14) COORDINATION WITH SECTION 341.—For purposes of deter-
mining whether section 341 applies to a disposition within 1 
year after the acquisition date of stock by a shareholder (other 
than the acquiring corporation) who held stock in the target 
corporation on the acquisition date, section 341 shall be applied 
without regard to this section. 
98 STAT. 952 
PUBLIC LAW 98-369—JULY 18, 1984 
"(15) COMBINED DEEMED SALE RETURN.—Under regulations 
prescribed by the Secretary, a combined deemed sale return 
may be filed by all target corporations acquired by a purchasing 
corporation on the same acquisition date if such target corpora-
tions were members of the same selling consolidated group (as 
defined in subparagraph (B) of paragraph (10))." 
26 use 338. 
(7) Subsection (i) of section 338 (relating to regulations) is 
amended to read as follows: 
"(i) REGULATIONS.—The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section, including— 
"(1) regulations to ensure that the purpose of this section to 
require consistency of treatment of stock and asset sales and 
purchases may not be circumvented through the use of any 
provision of law or regulations (including the consolidated 
return regulations) and 
"(2) regulations providing for the coordination of the provi-
sions of this section with the provision of this title relating to 
foreign corporations and their shareholders." 
(8) TREATMENT OF CERTAIN LIQUIDATIONS.— 
26 use 269. 
(A) IN GENERAL.—Section 269 (relating to acquisitions 
made to evade or avoid income tax) is amended by redesig-
nating subsection (b) as subsection (c) and by inserting after 
subsection (a) the following new subsection: 
"(b) CERTAIN LIQUIDATIONS AFTER QUALIFIED STOCK PURCHASES.— 
"(1) IN GENERAL.—If— 
"(A) there is a qualified stock purchase by a corporation 
of another corporation, 
"(B) an election is not made under section 338 with 
respect to such purchase, 
"(C) the acquired corporation is liquidated pursuant to a 
plan of liquidation adopted not more than 2 years after the 
acquisition date, and 
"(D) the principal purpose for such liquidation is the 
evasion or avoidance of Federal income tax by securing the 
benefit of a deduction, credit, or other allowance which the 
acquiring corporation would not otherwise enjoy, 
then the Secretary may disallow such deduction, credit, or other 
allowance. 
"(2) MEANING OF TERMS.—For purposes of paragraph (1), the 
terms 'qualified stock purchase' and 'acquisition date' have the 
same respective meanings as when used in section 338." 
(B) CONFORMING AMENDMENT.—Subsection (c) of section 
269 (as redesignated by subparagraph (A)) is amended by 
striking out "subsection (a)" and inserting in lieu thereof 
"subsection (a) or (b)". 
26 use 269 
(C) EFFECTIVE DATE.—The amendments made by this 
note. 
paragraph shall apply to liquidations after October 20, 
1983, in taxable years ending after such date. 
(9) AMENDMENTS NOT TO APPLY TO ACQUISITIONS BEFORE SEP-
TEMBER 1, 1982.— 
26 use 338 note. 
(A) IN GENERAL.—The amendments made by this subsec-
tion shall not apply to any qualified stock purchase (as 
defined in section 338(d)(3) of the Internal Revenue Code of 
1954) where the acquisition date (as defined in section 
338(hX2) of such Code) is before September 1,1982. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 953 
(B) EXTENSION OF TIME FOR MAKING ELECTION.—In 
the 
case of any qualified stock purchase described in subpara-
graph (A), the time for making an election under section 
338 of such Code shall not expire before the close of the 60th 
day after the date of the enactment of this Act. 
(10) SPECIAL RULES FOR DEEMED PURCHASES UNDER PRIOR 
26 use 338 note. 
LAW.—If, before October 20, 1983, a corporation was treated as 
making a qualified stock purchase (as defined in section 
338(d)(3) of the Internal Revenue Code of 1954), but would not be 
so treated under the amendments made by paragraphs (5) and 
(6) of this subsection, the amendments made by such paragraphs 
shall not apply to such purchase unless such corporation elects 
(at such time and in such manner as the Secretary of the 
-• , > . . . 
Treasury or his delegate may by regulations prescribe) to have 
the amendments made by such paragraphs apply. 
(1) AMENDMENTS RELATED TO SECTION 226.— 
(1) AMOUNT CONSTITUTING DIVIDEND.—Paragraph (2) of section 
304(b) (relating to amount constituting dividend) is amended to 
26 USC 304. 
read as follows: 
"(2) AMOUNT CONSTITUTING DIVIDEND.—In the case of any 
acquisition of stock to which subsection (a) applies, the determi-
nation of the amount which is a dividend (and the source 
thereoD shall be made as if the property were distributed— 
"(A) by the acquiring corporation to the extent of its 
earnings and profits, and 
"(B) then by the issuing corporation to the extent of its 
earnings and profits." 
o^': • ; '<•'-. 
(2) COORDINATION WITH SECTION 351.—Subparagraph (A) of 
section 304(b)(3) (relating to coordination with section 351) is 
amended by striking out "(and not part III)" and inserting in 
. v
i
& 
lieu thereof "(and not section 351 and not so much of sections 
357 and 358 as relates to section 351)". 
(3) CERTAIN ASSUMPTIONS OF LIABILITY.— 
(A) The first sentence of clause (i) of section 304(b)(3)(B) 
' " 
(relating to certain assumptions of liability, etc.) is amended 
by striking out "Subsection (a)" and inserting in lieu 
c
* -H > • 
thereof "In the case of an acquisition described in section 
^ 
351, subsection (a)". 
(B) Subparagraph (B) of section 304(b)(3) (relating to 
coordination with section 351) is amended by adding at the 
end thereof the following new clause: 
'"^"^ 
"(iii) CLAUSE (i) DOES NOT APPLY TO STOCK ACQUIRED 
- < >
f
^ JBJ fi 
j^ 
FROM RELATED PERSON EXCEPT WHERE COMPLETE TERMI-
NATION.—Clause (i) shall apply only to stock acquired 
by the transferor from a person— 
"(I) none of whose stock is attributable to the 
transferor under section 318(a) (other than para-
'' [ 
' 
graph (4) thereof), or 
"(II) who satisfies rules similar to the rules of 
section 302(cX2) with respect to both the acquiring 
and the issuing corporations (determined as if such 
person 
were 
a 
distributee 
of 
each 
such 
corporation)." 
"^ fiii^ ^'' 
(4) DISTRIBUTIONS INCIDENT TO FORMATION OF BANK HOLDING 
COMPANIES.—Subparagraph (C) of section 304(bX3) (relating to 
distributions incident to formation of bank holding companies) 
is amended by adding at the end thereof the following new 
98 STAT. 954 
PUBLIC LAW 98-369—JULY 18, 1984 
sentence: "For purposes of this subparagraph, any assumption 
of (or acquisition of stock subject to) a hability under subpara-
graph (B) shall not be treated as a distribution of property." 
(5) CONSTRUCTIVE OWNERSHIP.— 
26 use 304. 
(A) Paragraph (3) of section 804(c) (relating to construc-
tive ownership) is amended to read as follows: 
"(3) CONSTRUCTIVE OWNERSHIP.— 
"(A) IN GENERAL.—Section 318(a) (relating to constructive 
ownership of stock) shall apply for purposes of determining 
control under this section. 
"(B) MODIFICATION OF 50-PERCENT LIMITATIONS IN SECTION 
318.—For purposes of subparagraph (A)— 
26 use 318. 
"(i) paragraph (2)(C) of section 318(a) shall be applied 
by substituting *5 percent' for '50 percent', and 
"(ii) paragraph (3)(C) of section 318(a) shall be 
applied— 
"(I) by substituting '5 percent' for '50 percent', 
.:'-«DEl'«': 
and 
"(II) in any case where such paragraph would 
not apply but for subclause (I), by considering a 
corporation as owning the stock (other than stock 
in such corporation) owned by or for any share-
holder of such corporation in that proportion 
which the value of the stock which such sharehold-
er owned in such corporation bears to the value of 
all stock in such corporation." 
26 use 306. 
(B) Paragraph (4) of section 306(c) is amended by striking 
out the last sentence and inserting in lieu thereof the 
following: "For purposes of applying the preceding sentence 
Supra. 
to paragraph (3), the rules of section 304(c)(3)(B) shall 
apply." 
(6) CERTAIN STOCK ACQUIRED IN SECTION 351 EXCHANGE.—Para-
graph (3) of section 306(c) (relating to certain stock acquired in 
section 351 exchange) is amended by striking out the last sen-
tence and inserting in lieu thereof the following: "Rules similar 
Ante, p. 953. 
to the rules of section 304(b)(2) shall apply— 
"(A) for purposes of the preceding sentence, and 
"(B) for purposes of determining the application of this 
section to any subsequent disposition of stock which is 
section 306 stock by reason of an exchange described in the 
preceding sentence," 
26 u s e 304 note. 
(7) EFFECTIVE DATES FOR AMENDMENTS MADE BY PARAGRAPHS 
(1) AND (3).— 
(A) IN GENERAL.—Except as otherwise provided in this 
paragraph, the amendments made by paragraphs (1) and (3) 
shall apply to stock acquiied after June 18, 1984, in taxable 
years ending after such date. 
(B) ELECTION BY TAXPAYER TO HAVE AMENDMENTS APPLY 
EARLIER.—Any taxpayer may elect, at such time and in 
such manner as the Secretary of the Treasury or his dele-
gate may pjescribe, to have the amendments made by 
paragraphs (1) and (3) apply as if included in section 226 of 
96 Stat. 490. 
the Tax Equity and Fiscal Responsibility Act of 1982. 
(C) SPECTAI, RULE F
O
R CERTAIN TRANSFERS T
O F
O
R
M BANK 
HOLDING COMPANY.—Except as provided in subparagraph 
'D), the amendments made by paragraphs (1) and (3) shall 
not apply to transf'ei's pursuant to an application to form a 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 955 
g^. . 
BHC (as defined in section 304(b)(3)(D)(ii) of the Internal 
i" J 
Revenue Code of 1954) filed with the Federal Reserve Board 
before June 18,1984, if— 
(i) such BHC was formed not later than the 9()th day 
after the date of the last required approval of any 
regulatory authority to form such BHC, and 
n 
(ii) such BHC did not elect (at such time and in such 
p 
manner as the Secretary of the Treasury or his dele-
(.^ 
gate shall prescribe) not to have the provisions of this 
subparagraph apply. 
H,- 
(D) 
AMENDMENTS TO APPLY TO CERTAIN LIABILITIES IN- 
,r ;.. ij ,-. 
2; 
CURRED BEFORE O
C
T
O
B
E
R 20, 1983.—The amendment made 
by paragraph (3)(A) shall apply to the acquisition of any 
,.j^ •. 
stock to the extent the liability assumed, or to which such 
X 
stock is subject, was incurred by the transferor after Octo-
' 
her 20,1983. 
(m) AMENDMENT RELATED TO SECTION 229.—Subsection (c) of sec-
tion 229 of the Tax Equity and Fiscal Responsibility Act of 1982 26 USC 451 note, 
(relating to modification of regulations on the completed contract 
method of accounting) is amended by adding at the end thereof the 
-,, j ^ t^f^a H > 
following new paragraph: 
"(4) UNDERPAYMENTS 
OF ESTIMATED TAX FOR 1982.—To the 
extent provided in regulations, no addition to tax shall be made 
under section 6654 or 6655 of the Internal Revenue Code of 1954 Ante, p. 788. 
for the taxpayer's first taxable year ending after December 31, 
1982, by reason of a long-term contract, but only with respect to 
.i i '^,. 
installments required to be paid before April 13,1983." 
(n) AMENDMENT RELATED TO SECTION 233.—Paragraph (11) of sec-
tion 51(d) (defining members of economically disadvantaged fami- 26 USC 51. 
lies) is amended by adding at the end thereof the following new 
sentence: "Any such determination with respect to an individual 
who is a qualified summer youth employee or youth participating in 
a qualified cooperative education program with respect to any em-
ployer shall also apply for purposes of determining whether such 
individual is a member of another targeted group with respect to 
such employer." 
,. 
i .y; j:-,-. 
SEC. 713. TECHNICAL CORRECTIONS OF PENSION PROVISIONS. 
(a) AMENDMENTS RELATED TO SECTION 235.— 
; 
(1) ACTUARIAL ADJUSTMENTS MADE TO BENEFIT UMIT RATHER 
' 
THAN TO BENEFIT.— 
(A) Subparagraph (C) of section 415(b)(2) (relating to ad- 26 USC 415. 
„, 
justment to $90,000 limit where benefit begins before age 
62) is amended by striking out the first sentence and insert-
ing in lieu thereof the following: "If the retirement income 
^
C 
benefit under the plan begins before age 62, the determina-
5 
tion as to whether the $90,000 limitation set forth in para-
^- 
graph (1)(A) has been satisfied shall be made, in accordance 
with regulations prescribed by the Secretary, by reducing 
,r,o 
the limitation of paragraph (1)( 
A) so that such limitation as 
<
* 
so reduced) equals an annual benefit (beginning when such 
retirement income benefit begins) which is equivalent to a 
$90,000 annual benefit beginning at age 62." 
I 
(B) Subparagraph (D) of section 415(b)(2) (relating to ad-
justment to $90,000 limitation where benefit begins after 
age 65) is amended to read as follows: 
)8': 
98 STAT. 956 
PUBLIC LAW 98-369—JULY 18, 1984 
"(D) ADJUSTMENT TO $90,000 LIMIT WHERE BENEFIT BEGINS 
AFTER AGE 65.—If the retirement income benefit under the 
plan begins after age 65, the determination as to whether 
the $90,000 Umitation set forth in paragraph (1)(A) has been 
satisfied shall be made, in accordance with regulations 
prescribed by the Secretary, by increasing the limitation of 
paragraph (1)(A) so that such limitation (as so increased) 
equals an annual benefit (beginning when such retirement 
income benefit begins) which is equivalent to a $90,000 
annual benefit beginning at age 65." 
26 use 415. 
(C)(i) Clauses (i) and (iii) of section 415(b)(2)(E) are each 
amended by striking out "any benefit" and inserting in lieu 
thereof "any benefit or limitation". 
(ii) Clause (ii) of section 415(b)(2)(E) is amended by strik-
ing out "any benefit" and inserting in lieu thereof "any 
limitation". 
(2) DEFINITION OF CURRENT ACCRUED BENEFIT IN THE CASE OF 
• 
COLLECTIVELY 
BARGAINED 
PLANS.—Clause 
(i) 
of 
section 
235(g)(4)(B) of the Tax Equity and Fiscal Responsibility Act of 
26 use 415 note. 
1982 (defining current accrued benefit) is amended by adding at 
the end thereof the following new sentence: "In the case of any 
plan described in the first sentence of paragraph (5), the preced-
ing sentence shall be applied by substituting for 'January 1, 
1983' the applicable date determined under paragraph (5)." 
(3) TRANSITION FRACTION ONLY APPLIES TO PLANS IN EXISTENCE 
26 use 415. 
BEFORE JULY 1, 1982.—Paragraph (6) of section 415(e) (relating to 
special transition rule for defined contribution fraction for 
years ending after December 31, 1982) is amended by adding at 
the end thereof the following new subparagraph: 
"(C) PLAN MUST HAVE BEEN IN EXISTENCE ON OR BEFORE 
JULY 1, 1982.—This paragraph shall apply only to plans 
which were in existence on or before July 1,1982." 
(4) TREATMENT OF CERTAIN COLLECTIVE BARGAINING AGREE-
MENTS ENTERED INTO BEFORE JULY 1, 1982.—Clausc (ii) of section 
235(g)(4)(B) of the Tax Equity and Fiscal Responsibility Act of 
26 use 415 note. 
1982 (defining current accrued benefit) is amended by adding at 
the end thereof the following new sentence: "For purposes of 
subclause (I), any change in the terms and conditions of the plan 
pursuant to a collective bargaining agreement entered into 
before July 1, 1982, and ratified before September 3, 1982, shall 
be treated as a change made before July 1,1982." 
0)) AMENDMENTS RELATED TO SECTION 236.— 
(1) EXCEPTION FOR CERTAIN LOANS NOT TO APPLY TO LOANS 
FROM DEDUCTIBLE EMPLOYEE CONTRIBUTIONS.— 
26 use 72. 
(A) Subparagraph (A) of section 72(o)(3) (relating to 
amounts constructively received) is amended by striking 
out "subsection (p)" and inserting in lieu thereof "subsec-
tion (p) (other than the exception contained in paragraph (2) 
thereof)". 
(B) Subparagraph (A) of section 72(p)(2) (relating to excep-
tion for certain loans) is amended by adding at the end 
thereof the following new sentence: 
"For purposes of clause (ii), the present value of the nonfor-
feitable accrued benefit shall be determined without regard 
to any accumulated deductible employee contributions (as 
defined in subsection (o)(5)(B))." 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 957 
(2) DEFINITION OF REQUIRED PRINCIPAL PAYMENT.—Subpara-
graph (C) of section 236(c)(2) of the Tax Equity and Fiscal 
Responsibility Act of 1982 is amended by inserting before the 
26 USC 72 note. 
period at the end thereof the following: "or if such loan was 
payable on demand". 
(3) REPEAL OF PROVISION TREATING CERTAIN LOAN REPAYMENTS 
AS CONTRIBUTIONS.—Subsection (f) of section 404 (relating to 
26 USC 404. 
certain loan repayments considered as contributions) is hereby 
repealed. 
(4) CLARIFICATION OF EXCEPTION FOR SMALL LOANS.—Clause (ii) 
of section 72(p)(2)(A) (relating to exception for certain loans) is 
26 USC 72. 
amended to read as follows: 
"(ii) the greater of (I) one-half of the present value of 
the nonforfeitable accrued benefit of the employee 
under the plan, or (II) $10,000." 
(c) AMENDMENTS RELATED TO SECTION 237.— 
(1) AMENDMENTS CONFORMING TO UMITING TO KEY EMPLOYEES 
THE PENALTY FOR PREMATURE DISTRIBUTIONS.— 
(A) Clause (i) of section 72(m)(5)(A) is amended by striking 
-.% .nj 
out "as an owner-employee" and inserting in lieu thereof 
jj 
"as a key employee". 
(B) The paragraph heading of section 72(m)(5) is amended 
. 
by striking out "OWNER-EMPLOYEES" and inserting in lieu 
I 
thereof "KEY EMPLOYEES". 
g - . 
(C) Sections 46(a)(4), 53(a), and 901(a) are each amended Ante, p. 834, 838. 
by striking out "tax on premature distributions to owner- 
26 USC 901. 
employees" and inserting in lieu thereof "tax on premature 
1
^
1 ' 
distributions to key employees". 
^ 
(2) CORRECTION OF CROSS REFERENCE TO DEFINITION OF BANK.— 
(A) Subsection (f) of section 401 is amended by striking 
26 use 401. 
./ 
out "(as defined in subsection (dXD)" and inserting in lieu 
^.^ 
thereof "(as defined in section 408(n))". 
(B) Subsection (h) of section 408 is amended by striking 
26 USC 408. 
out "(as defined in section 401(d)(1))" and inserting in lieu 
thereof "(as defined in subsection (n))". 
(3) LIMITATION ON ROLLOVERS TO APPLY ONLY TO KEY EMPLOY-
EES.—Clause (ii) of section 402(a)(5)(E) (relating to self-employed 
Ante, p. 869. 
i 
individuals and owner-employees) is amended to read as follows: 
"(ii) KEY EMPLOYEES.—An eligible retirement plan 
described in subclause (IV) or (V) of subparagraph 
(D)(iv) shall not be treated as an eligible retirement 
^
O
i > (/. i 
,*t 
plan for the transfer of a distribution if any part of the 
distribution is attributable to contributions made on 
behalf of the employee while he was a key employee in 
a top-heavy plan. For purposes of the preceding sen- 
t
* • )8'i; i 
y., 
tence, the terms 'key employee' and 'top-heavy plan' 
have the same respective meanings as when used in 
section 416." 
(d) AMENDMENTS RELATED TO SECTION 238.— 
(1) REPEAL OF SECTION 72 (m) (9).—Paragraph (9) of section 
72(m) (relating to return of excess contributions before due date 
26 USC 72. 
of return) is hereby repealed. 
< 
(2) INCREASE IN AMOUNT OF DEDUCTION FOR SIMPLIFIED EM-
PLOYEE PENSIONS.—Clause (ii) of section 219(b)(2XA) (relating to 26 USC 219. 
special rules for employer contributions under simplified em-
ployee pensions) is amended by striking out "but not in excess of 
' 
98 STAT. 958 
PUBLIC LAW 98-369—JULY 18, 1984 
$15,000" and inserting in lieu thereof "but not in excess of the 
limitation in effect under section 415(c)(1)(A)". 
26 use 401. 
(3) REPEAL OF SECTION 401 (e) .—Subsection (e) of section 401 
(relating to contributions for premiums on annuity, etc., con-
tracts) is hereby repealed. 
(4) REPEAL OF SECTION 404 (a) (9).— 
26 use 404. 
(A) Subsection (a) of section 404 is amended by striking 
out paragraph (9) and by redesignating paragraph (10) as 
paragraph (9). 
26 use 415. 
(B) Subparagraph (C) of section 415(c)(6) is amended— 
(i) by striking out "paragraph (10) of section 404(a)" 
and inserting in lieu thereof "paragraph (9) of section 
404(a)", 
(ii) by striking out "section 404(a)(10)(A)" and insert-
ing in lieu thereof "section 404(a)(9)(A)", and 
(iii) by striking out "section 404(a)(10)(B)" and insert-
ing in lieu thereof "section 404(a)(9)(B)". 
(5) REPEAL OF SECTION 404 (h) (4).—Paragraph (4) of section 
26 use 404. 
404(h) (relating to effect on self-employed individuals or share-
holder employees) is hereby repealed. 
(6) DETERMINATION OF EARNED INCOME OF SELF-EMPLOYED FOR 
PURPOSES OP SECTION 404(a) (8) (D).—Subparagraph (D) of sec-
tion 404(aX8) is amended by striking out "the earned income of 
such individual" and inserting in lieu thereof "the earned 
income of such individual (determined without regard to the 
Ante, p. 848. 
deductions allowed by this section and section 405(c))". 
(7) REPEAL OF SECTION 415 (C) (7).— 
26 use 415. 
(A) Subsection (c) of section 415 is amended by striking 
out paragraph (7) and by redesignating paragraph (8) as 
paragraph (7). 
(B) Subclause (II) of section 415(e)(3)(B)(ii) is amended by 
striking out "subsection (c) (7) or (8)" and inserting in lieu 
thereof "subsection (cX7)". 
26 u s e 404 note. 
(8) COORDINATION OF REPEALS OF CERTAIN SECTIONS.—Sections 
404(e) and 1379(b) of the Internal Revenue Code of 1954 (as in 
effect on the day before the date of the enactment of the Tax 
26 use 1 note. 
Equity and Fiscal Responsibility Act of 1982) shall not apply to 
any plan to which section 401(j) of such Code applies (or would 
apply but for its repeal). 
(9) AMENDMENT OF SECTION 404 (e).—Subsection (e) of section 
26 use 404. 
404 is amended by striking out "under this section" and insert-
ing in lieu thereof "under paragraph (1), (2), or (3) of subsection 
(a)". 
(e) AMENDMENT RELATED TO SECTION 239.—Subparagraph (B) of 
26 use 101. 
section 101(b)(3) (relating to treatment of self-employed individuals 
for exclusion of employees' death benefits) is amended to read as 
follows: 
"(B) SPECIAL RULE FOR CERTAIN DISTRIBUTIONS.—In the 
case of any amount paid or distributed— 
"(i) by a trust described in section 401(a) which is 
T ' 
exempt from tax under section 501(a), or 
"(ii) under a plan described in section 403(a), 
the term 'employee' includes a self-employed individual 
described in section 401(c)(1)." 
(f) AMENDMENTS RELATED TO SECTION 240.— 
(1) DEFINITION OF KEY EMPLOYEE.— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 959 
: 
(A) Subparagraph (A) of section 416(i)(l) (defining key 26 use 416. 
employee) is amended by striking out "any participant in 
an employer plan" and inserting in lieu thereof "an 
employee". 
"fj. :)3y.>g 
(B) Clause (ii) of section 416(i)(l)(A) is amended to read as 
follows: 
"(ii) 1 of the 10 employees having annual compensa-
tion from the employer of more than the limitation in 
effect under section 415(c)(1)(A) and owning (or consid-
ered as owning within the meaning of section 318) the 
largest interests in the employer,". 
(C) Subparagraph (A) of section 416(i)(l) (defining key 
.K^'r^U -
£ 
employee) is amended by adding at the end thereof the 
following new sentence: "For purposes of clause (ii), if 2 
employees have the same interest in the employer, the 
employee having greater annual compensation from the 
employer shall be treated as having a larger interest." 
(D) Subparagraph (C) of section 416(i)(l) is amended by 
B0| C
K
S
U :S 
striking 
out 
"DETERMINING 
5-PERCENT 
OR 
I-PERCENT 
OWNERS" in the subparagraph heading and inserting in lieu 
thereof "DETERMINING OWNERSHIP IN THE EMPLOYER". 
* P I ^ '*' '^^"-^ "^ 
(2) TREATMENT OF SIMPLIFIED EMPLOYEE PENSIONS.—Paragraph 
(1) of section 408(k) (defining simplified employee pension) is 
26 USC 408. 
amended to read as follows: 
"(1) IN GENERAL.—For purposes of this title, the term 'simpli-
fied employee pension' means an individual retirement account 
or individual retirement annuity— 
"(A) with respect to which the requirements of para-
graphs (2), (3), (4), and (5) of this subsection are met, and 
"(B) if such account or annuity is part of a top-heavy plan 
(as defined in section 416), with respect to which the 
requirements of section 416(cX2) are met." 
(3) CLARIFICATION OF TRANSITIONAL RULE.—Paragraph (3) of 
section 235(g) of the Tax Equity and Fiscal Responsibility Act of 
1982 is amended by adding at the end thereof the following new 26 USC 415 note. 
sentence: "A similar rule shall apply with respect to the last 
plan year beginning before January 1, 1984, for purposes of 
applying section 416(h) of the Internal Revenue Code of 1954." 
(4) TREATMENT OF DISTRIBUTIONS FROM TERMINATED PLANS.— 
Paragraph (3) of section 416(g) (relating to distributions during 
26 USC 416. 
last 5 years taken into account) is amended by adding at the end 
thereof the following new sentence: "The preceding sentence 
shall also apply to distributions under a terminated plan which 
if it had not been terminated would have been required to be 
included in an aggregation group." 
(5) CLARIFICATION OF COST-OF-LIVING ADJUSTMENTS.— 
(A) IN GENERAL.—Paragraph (2) of section 416(d) (relating 
to cost-of-living adjustments) is amended by striking out "in 
the same manner" and inserting in lieu thereof "at the 
same time and in the same manner". 
(B) SIMPLIFIED EMPLOYEE PENSIONS.—Subparagraph (C) of 
section 408(k)(3) (relating to contributions must bear uni- 26 USC 408. 
form relationship to total compensation) is amended by 
adding at the end thereof the following new sentence: "The 
Secretary shall annually adjust the $200,000 amount con-
tained in the preceding sentence at the same time and in 
jj; ., .,, 
;^;j 
;iO{ OBU 
')& 
98 STAT. 960 
PUBLIC LAW 98-369—JULY 18, 1984 
the same manner as he adjusts the dollar amount contained 
in section 415(c)(1)(A)." 
(6) CLERICAL AMENDMENTS.— 
26 use 416. 
(A) Subsection (0 of section 416 is amended by striking 
out "require" and inserting in lieu thereof "required". 
(B) Clause (iii) of section 416(iXl)(B) is amended by strik-
ing out "subparagraph (A)(ii)(II)" and inserting in lieu 
thereof "subparagraph (A)(ii)". 
(g) AMENDMENTS RELATED TO SECTION 243.— 
(1) EFFECTIVE DATE FOR PROVISIONS RELATED TO INHERITED 
INDIVIDUAL RETIREMENT PLANS.—Subsection (c) of section 243 of 
26 use 408 note. 
the Tax Equity and Fiscal Responsibility Act of 1982 is amended 
to read as follows: 
"(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to individuals dying after December 31, 1983." 
(2) CLERICAL AMENDMENT.—The subparagraph (C) of section 
408(d)(3) which was added by section 335(a)(1) of the Tax Equity 
26 use 408. 
and Fiscal Responsibility Act of 1982 is redesignated as subpara-
graph (D). 
(h) AMENDMENT RELATED TO SECTION 247.—Subsection (a) of sec-
26 use 333 note, tion 247 of the Tax Equity and Fiscal Responsibility Act of 1982 
(relating to existing personal service corporations may liquidate 
under section 333 during 1983 and 1984) is amended by inserting 
"which is in existence on September 3, 1982," after "section 
535(cX2XB) of the Internal Revenue Code of 1954)". 
(i) AMENDMENT RELATED TO SECTION 248.—Paragraph (2) of section 
26 use 414. 
414(n) (defining leased employee) is amended by striking out "any 
person" in the material preceding subparagraph (A) and inserting in 
lieu thereof "any person who is not an employee of the recipient 
and", 
(j) AMENDMENT RELATED TO SECTION 249.—Subparagraph (D) of 
26 use 408. 
section 408(kX3) (relating to treatment of certain contributions and 
taxes) is amended by striking out the second and third sentences 
and inserting in lieu thereof the following: "If the employer does not 
maintain an integrated plan at any time during the taxable year, 
OASDI contributions (as defined in section 401(1X2)) may, for pur-
poses of this paragraph, be taken into account as contributions by 
the employer to the employee's simplified employee pension, but 
only if such contributions are so taken into account with respect to 
each employee maintaining a simplified employee pension." 
(k) AMENDMENTS RELATED TO SECTION 253.— 
(1) LIMITATION OF PROFIT-SHARING AND STOCK BONUS PLANS.— 
26 use 415. 
Subparagraph (C) of section 415(c)(3) is amended by striking out 
"In the case of a participant" and inserting in lieu thereof "In 
the case of a participant in a profit-sharing or stock bonus 
plan". 
(2) 
CLARIFICATION 
OF 
RULE 
THAT 
CONTRIBUTIONS 
BE 
NONFORFEITABLE.—Subparagraph (C) of section 415(cX3) (relat-
ing to special rules for permanent and total disability) is amend-
ed by striking out the last sentence and inserting in lieu thereof 
the following: "This subparagraph shall apply only if contribu-
tions made with respect to amounts treated as compensation 
under this subparagraph are nonforfeitable when made." 
SEC. 714. MISCELLANEOUS PROVISIONS. 
(a) AMENDMENT RELATED TO SECTION 255.—Subsection (c) of sec-
Ante, p. 740. 
tion 811 (relating to special rule for dividends to policyholders under 
( Hi 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 961 
reinsurance contracts) is amended by striking out "conventional 
coinsurance contract" and inserting in lieu thereof "reinsurance 
contract". 
(h) AMENDMENT RELATED TO SECTION 281A.—Paragraph (2) of 
A, 
section 281AG3) of the Tax Equity and Fiscal Responsibility Act of 
1982 is amended by striking out "subsection (a)" and inserting in 
26 USC 7275 
lieu thereof "paragraph (1)". 
"ote. 
(c) AMENDMENT RELATED TO SECTION 292.—Paragraph (2) of sec-
tion 7430(a) (relating to awarding of court costs and certain fees) is 
26 USC 7430. 
amended by striking out "including the Tax Court" and inserting in 
lieu thereof "including the Tax Court and the United States Claims 
Court". 
(d) AMENDMENT RELATED TO SECTION 309.—Paragraph (2) of sec-
tion 6042(b) (relating to exceptions from dividend reporting require- 
26 USC 6042. 
ments) is amended to read as follows: 
"(2) EXCEPTIONS.—For purposes of this section, the term 'divi- -
-
dend' does not include any distribution or payment— 
"(A) to the extent provided in regulations prescribed by 
''*~ 
the Secretary— 
"(i) by a foreign corporation, or 
"(ii) to a foreign corporation, a nonresident alien, or a 
^ . .^, , 
, 
partnership not engaged in a trade or business in the 
'"""' ^ ^' 
bii£ ^u 
United States and composed in whole or in part of 
, ^^ , 
nonresident aliens, or 
Diifc 
u^g^ except to the extent otherwise provided in regula-
tions prescribed by the Secretary, to any person described 
., 
in section 6049(b)(4)." 
97 Stat. 370. 
(e) AMENDMENTS RELATED TO SECTION 311.— 
26 use 6049. 
(1) IN GENERAL.—Section 6045(c) (relating to returns of bro- 
26 use 6045. 
kers) is amended by adding at the end thereof the following new 
paragraph: 
K 
-, a 
"(4) PERSON.—The term 'person' includes any governmental 
unit and any agency or instrumentality thereof." 
(2) No PENALTY FOR PAYMENTS BEFORE JANUARY 1, 1985.—No 
26 USC 6045 
penalty shall be imposed under the Internal Revenue Code of "°*® 
1954 with respect to any peison required (by reason of the 26 use l et seq. 
amendment made by paragraph (1)) to file a return under 
section 6045 of such Code with respect to any payment before 
January 1,1985, 
(f) AMENDMENT RELATED TO SECTION 314.—Subparagraph (E) of 
section 6678(a)(3) is amended by striking out "section 6053(c)" and 
97 Stat. 381. 
inserting in lieu thereof "section 6053". 
26 use 6678. 
(g) AMENDMENTS RELATED TO SECTION 320.— 
(1) PERMITTING THE JOINDER OF REFUND AND INJUNCTIVE AC-
TIONS WITH RESPECT TO CERTAIN PENALTIES.—Section 7422 (relat- 
26 use 7422. 
ing to civil actions for refund) is amended by redesignating 
subsection (i) as subsection (j) and by inserting after subsection 
(h) the following new subsection: 
"(i) SPECIAL RULE FOR ACTIONS WITH RESPECT TO TAX SHELTER 
PROMOTER AND UNDERSTATEMENT PENALTIES.—No action or proceed-
ing may be brought in the United States Claims Court for any 
refund or credit of a penalty imposed by section 6700 (relating to 
penalty for promoting abusive tax shelters, etc.) or section 6701 
(relating to penalties for aiding and abetting understatement of tax 
liability)." 
,, 
;f 
.OPiTCBv 
98 STAT. 962 
PUBLIC LAW 98-369—JULY 18, 1984 
f
, 
(2) AMENDMENT TO TITLE 28.—Chapter 91 of title 28, United 
I 
States Code, is amended by adding at the end thereof the 
following new section: 
28 use 1509. 
"§ 1509. No jurisdiction in cases involving refunds of tax shelter 
promoter and understatement penalties 
"The United States Claims Court shall not have jurisdiction to 
hear any action or proceeding for any refund or credit of any 
penalty imposed under section 6700 of the Internal Revenue Code of 
1954 (relating to penalty for promoting abusive tax shelters, etc.) or 
section 6701 of such Code (relating to penalties for aiding and 
abetting understatement of tax liability)." 
(3) CONFORMING AMENDMENT.—The table of sections for chap-
^ 
ter 91 of title 28, United States Code, is amended by adding at 
the end thereof the following new item: 
"1509. No jurisdiction in cases involving refunds of tax shelter promoter 
and understatement penalties." 
28 use 1509 
(4) EFFECTIVE DATE.—The amendments made by this subsec-
note. 
tion shall apply to any claim for refund or credit filed after the 
date of the enactment of this Act. 
(h) AMENDMENTS RELATED TO SECTION 323.— 
26 use 5684. 
(1) Subsection (b) of section 5684 is amended— 
(A) by striking out "SECTION 6660" in the heading and 
inserting in lieu thereof "SECTION 6662", and 
(B) by striking out "section 6660(a)" in the text and 
inserting in lieu thereof "section 6662(a)". 
26 use 5761. 
(2) Subsection (c) of section 5761 is amended— 
(A) by striking out "SECTION 6660" in the heading and 
inserting in lieu thereof "SECTION 6662", and 
' 
(B) by striking out "section 6660(a)" in the text and 
"
* 
inserting in lieu thereof "section 6662(a)". 
26 use 6661. 
(3) Clause (ii) of section 6661(bX2XA) (defining understate-
ment) is amended by inserting ", reduced by any rebate (within 
the meaning of section 6211(bX2))" after "return^'. 
26 use 7609. 
(i) AMENDMENT RELATED TO SECTION 333.—Section 7609(cXl) (relat-
ing to summons to which section applies) is amended by striking out 
"section 7602" and inserting in lieu thereof "section 7602(a)". 
(j) AMENDMENTS RELATED TO SECTION 334.— 
(1) CLARIFICATION THAT DEATH BENEFIT EXCLUSION APPLIES TO 
DISTRIBUTIONS UNDER SECTION 403 (b).—Subparagraph (C) of sec-
26 use 3405. 
tion 3405(bX2) (relating to special rule for distributions by 
reason of death) is amended to read as follows: 
_ , , 
,j„ _ 
"(C) 
SPECIAL RULE FOR DISTRIBUTIONS BY REASON OF 
DEATH.—In the case of any nonperiodic distribution from or 
under any plan or contract described in section 401(a), 
403(a), or 403(b)— 
"(i) which is made by reason of a participant's death, 
and 
"(ii) with respect to which the requirements of 
jj.-r 
clauses (ii) and (iv) of subsection (dX4XA) are met, 
subparagraph (A) or (B) (as the case may be) shall be 
applied by taking into account the exclusion from gross 
income provided by section 101(b) (whether or not allow-
able)." 
(2) CLARIFICATION OF CREDIT FOR WITHHELD AMOUNTS.—Para-
Ante, p. 826. 
graph (1) of section 31(a) is amended by striking out "under 
26 use 31. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 963 
section 3402 as tax on the wages of any individual" and insert- 
' ' ' -
ing in lieu thereof "as tax under chapter 24". 
(3) PENALTY FOR FAILURE TO GIVE NOTICE.—Section 6652 (relat- 
26 USC 6652. 
ing to penalty for failure to file certain information returns, 
registration statements, etc.) is amended by redesignating sub-
section (i) as subsection (j) and by inserting after subsection (h) 
the following new subsection: 
"(i) FAILURE TO GIVE NOTICE TO RECIPIENTS OF CERTAIN PENSION, 
ETC., DISTRIBUTIONS.—In the case of each failure to provide notice as 
required by section 3405(d)(10)(B), at the time prescribed therefor, 
unless it is shown that such failure is due to reasonable cause and 
not to willful neglect, there shall be paid, on notice and demand of 
the Secretary and in the same manner as tax, by the person failing 
to provide such notice, an amount equal to $10 for each such failure, 
but the total amount imposed on such person for all such failures 
during any calendar year shall not exceed $5,000." 
-i ^ =
»
*
«
K 
(4) EXCEPTION FOR AMOUNTS PAID TO NONRESIDENT ALIENS.— 
Subparagraph (B) of section 3405(d)(1) (relating to exceptions) is 
26 USC 3405. 
amended by striking out "and" at the end of clause (i), by 
^"^^' P- ^^l-
striking out the period at the end of clause (ii) and inserting in 
K 
lieu thereof ", and", and by adding at the end thereof the 
following new clause: 
"(iii) any amount which is subject to withholding 
under subchapter A of chapter 3 (relating to withhold- 
26 USC 1441. 
ing of tax on nonresident aliens and foreign corpora-
tions) by the person paying such amount or which 
„ , 
would be so subject but for a tax treaty." 
^ 
,^,^. 
(5) CLARIFICATION OF AMOUNT WITHHELD WHERE EMPLOYER 
' i ' .JC.M -
SECURITY DISTRIBUTED.—Paragraph (8) of section 3405(d) (relat-
ing to maximum amount withheld) is amended by adding at the 
end thereof the following new sentence: "No amount shall be 
required to be withheld under this section in the case of any 
designated distribution which consists only of employer securi-
ties of the employer corporation (within the meaning of section 
402(a)(3)) and cash (not in excess of $200) in lieu of fractional 
shares." 
(k) AMENDMENT RELATED TO SECTION 337.—Subsection (d) of sec-
tion 982 (relating to admissibility of documentation maintained in 
26 USC 982. 
foreign countries) is amended by striking out paragraph (3) and by 
redesignating paragraph (4) as paragraph (3). 
(1) AMENDMENT RELATED TO SECTION 339.—Paragraph (1) of section 
6038A(c) (defining control) is amended by striking out "section 
26 USC 6038A. 
6038(d)(1)" and inserting in lieu thereof "section 6038(e)(1)". 
(m) AMENDMENT RELATED TO SECTION 345.—Subsection (b) of sec- 
; 
tion 345 of the Tax Equity and Fiscal Responsibility Act of 1982 
26 USC 6621 
(relating to effective date) is amended by striking out "taking effect 
note. 
on" and inserting in lieu thereof "taking effect on or after". 
: as 
(n) AMENDMENTS RELATED TO SECTION 346.— 
(1) CLERICAL AMENDMENT.—Subparagraph (B) of section 
346(c)(2) of the Tax Equity and Fiscal Responsibility Act of 1982 
26 USC 6601. 
is amended to read as follows: 
"(B) Subparagraph (A) of section 6601(d)(2) is amended by 
striking out 'the last day of each place it appears and 
., 
inserting in lieu thereof 'the filing date for'." 
(2) INTEREST ON REFUNDS CAUSED BY CARRYBACKS.— 
98 STAT. 964 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 6611. 
(A) Paragraph (3) of section 6611(f) (relating to refund of 
tax caused by carryback, etc.) is amended by adding at the 
end thereof the following new subparagraph: 
"(C) APPLICATION OF SUBPARAGRAPH (B) WHERE SECTION 
6411 (a) 
CLAIM PILED.—For purposes of 
subparagraph 
V 
(B)(i)(II), if a taxpayer— 
"(i) files a claim for refund of any overpayment 
described in paragraph (1) or (2) with respect to the 
taxable year to which a loss or credit is carried back, 
and 
"(ii) subsequently files an application under section 
6411(a) with respect to such overpayment, 
then the claim for overpayment shall be treated as having 
been filed on the date the application under section 6411(a) 
was filed." 
Ante, p. 846. 
(B) The last sentence of section 6411(a) is amended by 
striking out "An" and inserting in lieu thereof "Except for 
purposes of applying section 6611(f)(3)(B), an", 
(o) AMENDMENT RELATED TO SECTION 349.—Subsection (b) of sec-
26 use 6331. 
tion 6331 is amended by striking out "subsection (d)(3)" and insert-
ing in lieu thereof "subsection (e)". 
(p) AMENDMENTS RELATED TO TITLE IV.— 
(1) EXTENSION OF PARTNERSHIP AUDIT PROVISIONS TO ENTITIES 
ij ^ u^; 
FILING PARTNERSHIP RETURNS, ETC.—Subchapter C of chapter 63 
(relating to tax treatment of partnership items) is amended by 
adding at the end thereof the following new section: 
26 use 6233. 
"SEC. 6233. EXTENSION TO ENTITIES FILING PARTNERSHIP RETURNS, ETC. 
"(a) GENERAL RULE.—If a partnership return is filed by an entity 
for a taxable year but it is determined that the entity is not a 
partnership for such year, then, to the extent provided in regula-
tions, the provisions of this subchapter are hereby extended in 
respect of such year to such entity and its items and to persons 
holding an interest in such entity. 
"(b) SIMILAR RULES IN CERTAIN CASES.—If for any taxable year— 
"(1) an entity files a return as an S corporation but it is 
determined that the entity was not an S corporation for such 
year, or 
"(2) a partnership return or S corporation return is filed but it 
is determined that there is no entity for such taxable year, 
then, to the extent provided in regulations, rules similar to the rules 
of subsection (a) shall apply." 
(2) TECHNICAL AND CLERICAL AMENDMENTS.— 
26 use 6230. 
(A) Subparagraph (B) of section 6230(c)(1) is amended by 
striking out "(or erroneously computed the amount of any 
such credit or refund)". 
26 use 6231. 
(B) Paragraph (9) of section 6231(a) is amended by strik-
ing out "electing small business corporation" and inserting 
in lieu thereof "S corporation". 
inc v'T,', 
r^- 
(C) Subparagraph (A) of section 6231(d)(1) is amended to 
read as follows: 
"(A) in the case of a partner whose entire interest in the 
partnership is disposed of during such partnership taxable 
year, as of the moment immediately before such disposition, 
or". 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 965 
(D) Subsection (f) of section 6231 is amended by striking 
26 use 6231. 
out "such deduction or credit" and inserting in lieu thereof 
^ 
"such loss or credit". 
(E) The table of sections for subpart C of chapter 63 is 
amended by adding at the end thereof the following new 
^'•'^'^ 
item: 
>• 
J '^i^^ 
"Sec. 6233. Extension to entities filing partnership returns, etc." 
(F) Paragraph (3) of section 6501(q) is amended to read as 
26 USC 6501. 
follows: 
"(3) CROSS REFERENCE.— 
"For extension of period for windfall profit tax items of partnerships, 
, , .,. 
,, 
see section 6229 as made applicable by section 6232." 
(G) Paragraph (3) of section 6511(h) is amended to read as 
26 USC 6511. 
follows: 
"(3) CROSS REFERENCE.— 
< ^ ^ >
"
=
^ ^ ^^ 
"For period of limitation for windfall proflt tax items of partnerships, 
see section 6227(a) and subsections (c) and (d) of section 6230 as made 
applicable by section 6232." 
.
^ 
(H) Subsection (h) of section 7422 is amended by striking 
26 USC 7422. 
out "section 6131(a)(3)" and inserting in lieu thereof "sec-
tion 6231(a)(3)". 
(I) Subparagraph (B) of section 6231(b)(2) (relating to 26 USC 6231. 
items cease to be partnership items in certain cases) is 
amended by striking out "section 6227(b)" and inserting in 
- lieu thereof "section 6227(c)". 
(q) ESTATES AND TRUSTS AND S CORPORATIONS REQUIRED TO PRO-
VIDE INFORMATION TO CERTAIN BENEFICIARIES AND SHAREHOLDERS.— 
(1) ESTATES AND TRUSTS.—Subpart A of part III of subchapter 
A of chapter 61 (relating to information concerning persons 
' 
Mioi 
subject to special provisions) is amended by adding after section 
6034 the following new section: 
"SEC. 6034A. INFORMATION TO BENEFICIARIES OF ESTATES AND TRUSTS. 
26 USC 6034A. 
"The fiduciary of any estate or trust making the return required 
to be filed under section 6012(a) for any taxable year shall, on or 
before the date on which such return was filed, furnish to each 
beneficiary— 
"(1) who receives a distribution from such estate or trust with 
respect to such taxable year, or 
"(2) to whom any item with respect to such taxable year is 
allocated, 
a statement containing such information shown on such return as 
the Secretary may prescribe." 
(2) S CORPORATIONS.—Section 6037 (relating to return of S 
26 use 6037. 
corporation) is amended— 
(A) by striking out "Every" and inserting in lieu thereof 
"(a) In General.—Every", and 
*
' ^' ''-
(B) by adding at the end thereof the following new 
subsection: 
"(b) COPIES TO SHAREHOLDERS.—Each S corporation required to file 
a return under subsection (a) for any taxable year shall (on or before 
the day on which the return for such taxable year was filed) furnish 
to each person who is a shareholder at any time during such taxable 
year a copy of such information shown on such return as may be 
required by regulations." 
98 STAT. 966 
PUBLIC LAW 98-369—JULY 18, 1984 
(3) PENALTY FOR FAILURE TO PROVIDE INFORMATION.—Section 
97 Stat. 381. 
6678(a)(3) (relating to failure to furnish certain statements) is 
26 use 6678. 
amended by striking out "or" at the end of subparagraph (D), by 
inserting ' or" at the end of subparagraph (E), and by adding 
after subparagraph (E) the following new subparagraph: 
Ante, p. 965. 
"(F) section 6031(b), 6034A, or 6037(b) (relating to state-
ments furnished by certain pass-thru entities),". 
(4) CONFORMING AMENDMENT.—The table of sections for sub-
part A of III of subchapter A of chapter 61 is amended by adding 
after the item relating to section 6034 the following new item: 
"Sec. 6034A. Information to beneficiaries of estates and trusts." 
26 use 6034A 
(5) EFFECTIVE DATE.—The amendments made by this subsec-
note. 
tion shall apply to taxable years beginning after December 31, 
1984. 
26 use 31 note. 
SEC. 715. EFFECTIVE DATE. 
- - v 
, ,.i,^,. 
Any amendment made by this subtitle shall take effect as if 
included in the provision of the Tax Equity and Fiscal Responsibility 
26 use 1 note. 
Act of 1982 to which such amendment relates. 
Subtitle B—Amendments Related to 
Subchapter S Revision Act of 1982; Etc. 
SEC. 721. TECHNICAL CORRECTIONS OF SUBCHAPTER S REVISION ACT OF 
1982. 
(a) LIMITATION ON RECOGNITION OF GAIN IN THE CASE OF CERTAIN 
DISTRIBUTIONS.— 
26 use 1363. 
(1) Section 1363 (relating to effect of election on corporation) is 
amended by adding at the end thereof the following new subsec-
tion: 
"(e) SUBSECTION (d) NOT TO APPLY TO COMPLETE LIQUIDATIONS AND 
Ah):< - 
REORGANIZATIONS.—Subsection 
(d) 
shall 
not 
apply 
to 
any 
distribution— 
"(1) of property in complete liquidation of the corporation, or 
"(2) to the extent it consists of property permitted by section 
354, 355, or 356 to be received without the recognition of gain." 
(2) Subsection (d) of section 1363 is amended by striking out 
"If" and inserting in lieu thereof "Except as provided in subsec-
tion (e), if. 
(b) COORDINATION WITH RULES RELATING TO INCOME FROM DIS-
CHARGE OF INDEBTEDNESS.— 
(1) Paragraph (2) of section 1363(c) (relating to elections of the 
; 
S corporation) is amended by striking out subparagraph (A) and 
by redesignating subparagraphs (B), (C), and (D) as subpara-
graphs (A), (B), and (C), respectively. 
26 use 108. 
(2) Subsection (d) of section 108 (relating to income from 
discharge of indebtedness) is amended by redesignating para-
graphs (7), (8), and (9) as paragraphs (8), (9), and (10), respec-
tively, by striking out paragraph (6), and by inserting after 
paragraph (5) the following new paragraphs: 
"(6) SUBSECTIONS (a), (b), AND (O TO BE APPLIED AT PARTNER 
LEVEL.—In the case of a partnership, subsections (a), (b), and (c) 
shall be applied at the partner level. 
"(7) SPECIAL RULES FOR S CORPORATION.— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 967 
"(A) SUBSECTIONS (a), (b), AND (O TO BE APPLIED AT 
CORPORATE LEVEL.—In the case of an S corporation, subsec-
tions (a), (b), and (c) shall be applied at the corporate level. 
"(B) REDUCTION IN CARRYOVER OF DISALLOWED LOSSES AND 
DEDUCTIONS.—In the case of an S corporation, for purposes 
of subparagraph (A) of subsection (b)(2), any loss or deduc-
tion which is disallowed for the taxable year of the dis-
charge under section 1366(d)(1) shall be treated as a net 
operating loss for such taxable year. The preceding sen-
tence shall not apply to any discharge to the extent that 
subsection (a)(1)(C) applies to such discharge. 
" ' 
"(C) COORDINATION WITH BASIS ADJUSTMENTS UNDER SEC-
TION 1367 (b) (2).—For purposes of subsection (e)(6), a share-
holder's adjusted basis in indebtedness of an S corporation 
shall be determined without regard to any adjustments 
made under section 1367(b)(2)." 
(c) TREATMENT OF INACTIVE SUBSIDIARIES.—Paragraph (6) of sec-
tion 1361(c) (relating to ownership of stock in certain inactive corpo- 
26 USC 1361. 
rations) is amended to read as follows: 
"(6) OWNERSHIP OF STOCK IN CERTAIN INACTIVE CORPORA-
TIONS.—For purposes of subsection (b)(2XA), a corporation shall 
not be treated as a member of an affiliated group during any 
period within a taxable year by reason of the ownership of stock 
in another corporation if such other corporation— 
"(A) has not begun business at any time on or before the 
close of such period, and 
"(B) does not have gross income for such period." 
(d) TREATMENT OF WORTHLESS DEBT.—Paragraph (3) of section 
1367(b) (relating to coordination with section 165(g)) is amended to 
26 USC 1367. 
read as follows: 
"(3) COORDINATION WITH SECTIONS 165(g) AND 166(d).—This 
section and section 1366 shall be applied before the application 
of sections 165(g) and 166(d) to any taxable year of the share-
holder or the corporation in which the security or debt becomes 
*
^ 
-
worthless." 
(e) ADJUSTMENT TO EARNINGS AND PROFITS FOR RECAPTURE UNDER 
SECTION 47.— 
(1) Subsection (d) of section 1371 (relating to coordination with 
26 USC 1371, 
investment credit recapture) is amended by adding at the end 
thereof the following new paragraph: 
"(3) ADJUSTMENT TO EARNINGS AND PROFITS FOR AMOUNT OF 
RECAPTURE.—Paragraph (1) of subsection (c) shall not apply to 
any increase in tax under section 47 for which the S corporation 
is liable." 
(2) Paragraph (1) of section 1371(c) is amended by striking out 
"paragraphs (2) and (3)" and inserting in lieu thereof "para-
graphs (2) and (3) and subsection (d)(3)". 
(f) QUALIFIED SUBCHAPTER S TRUSTS.— 
(1) GRACE PERIOD.—Subparagraph (D) ef section 1361(d)(2) (re- 
26 use 1361. 
lating to grade period) is amended by striking out "60 days" and 
inserting in lieu thereof "15 days and 2 months". 
(2) DEFINITION OF QUALIFIED SUBCHAPTER S TRUST.—Subsection 
(d) of section 1361 (relating to special rule for qualified subchap-
ter S trust) is amended by striking out paragraphs (3) and (4) 
and inserting in lieu thereof the following: 
98 STAT. 968 
PUBLIC LAW 98-369—JULY 18, 1984 
: 
"(3) QUALIFIED SUBCHAPTER S TRUST.—For purposes of this 
subsection, the term 'qualified subchapter S trust' means a 
trust— 
"(A) the terms of which require that— 
is 
"(i) during the life of the current income beneficiary, 
there shall be only 1 income beneficiary of the trust, 
"(ii) any corpus distributed during the life of the 
current income beneficiary may be distributed only to 
such beneficiary, 
"(iii) the income interest of the current income bene-
ficiary in the trust shall terminate on the earlier of 
such beneficiary's death or the termination of the trust, 
and 
"(iv) upon the termination of the trust during the life 
^^ 
of the current income beneficiary, the trust shall dis-
tribute all of its assets to such beneficiary, and 
"(B) all of the income (within the meaning of section 
.^ ^ , 
643(b)) of which is distributed (or required to be distributed) 
currently to 1 individual who is a citizen or resident of the 
United States. 
"(4) TRUST CEASING TO BE QUALIFIED.— 
"(A) 
FAILURE TO MEET REQUIREMENTS OF PARAGRAPH 
(3) (A).—If a qualified subchapter S trust ceases to meet 
any requirement of paragraph (3XA), the provisions of this 
subsection shall not apply to such trust as of the date it 
ceases to meet such requirement. 
"(B) FAILURE TO MEET REQUIREMENTS OF PARAGRAPH 
(3) (B).—If any qualified subchapter S trust ceases to meet 
any requirement of paragraph (3)(B) but continues to meet 
the requirements of paragraph (3)(A), the provisions of this 
subsection shall not apply to such trust as of the first day of 
the first taxable year beginning after the first taxable year 
for which it failed to meet the requirements of paragraph 
(3)(B)." 
26 use 1361. 
(3) TECHNICAL AMENDMENT.—Clause (i) of section 1361(d)(2)(B) 
(relating to separate election with respect to each S corporation) 
is amended by striking out "S corporation" each place it 
appears and inserting in lieu thereof "corporation", 
(g) COORDINATION WITH SECTION 338.— 
26 use 1362. 
(1) Paragraph (6) of section 1362(e) (relating to treatment of S 
termination year) is amended by adding at the end thereof the 
following new subparagraph: 
"(C) PARAGRAPH (2) NOT TO APPLY TO ITEMS RESULTING 
FROM SECTION 338.—Paragraph (2) shall not apply with 
respect to any item resulting from the application of section 
338." 
(2) Paragraph (2) of section 1362(e) is amended by striking out 
"as provided in paragraph (3)" and inserting in lieu thereof "as 
provided in paragraph (3) and subparagraphs (C) and (D) of 
paragraph (6)." 
' 
(h) ELECTION TO HAVE ITEMS ASSIGNED TO SHORT TAXABLE YEAR 
UNDER NORMAL ACCOUNTING RULES.—Subparagraph (B) of section 
1362(e)(3) (relating to election to have items assigned to each short 
taxable year under normal accounting rules) is amended to read as 
follows: 
"(B) SHAREHOLDERS MUST CONSENT TO ELECTION.—An elec-
tion under this subsection shall be valid only if all persons 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 969 
, , 
who are shareholders in the corporation at any time during 
the S short year and all persons who are shareholders in 
. - ; '•,-•: 
the corporation on the first day of the C short year consent 
to such election." 
(i) ELECTION TO HAVE NEW PASSIVE INCOME RULES NOT APPLY 
DURING 1982.—Paragraph (3) of section 6(b) of the Subchapter S 
Revision Act of 1982 (relating to new passive income rules apply to 
26 use 1361 
taxable years beginning during 1982) is amended by adding at the note. 
end thereof the following new sentences: "The preceding sentence 
shall not apply in the case of any corporation which elects (at such 
time and in such manner as the Secretary of the Treasury or his 
delegate shall prescribe) to have such sentence not apply. Subsection 
(e) shall not apply to any termination resulting from an election 
under the preceding sentence." 
0) S CORPORATION TREATED AS PARTNERSHIP FOR PURPOSES OF 
SECTION 318.—Paragraph (5) of section 318(a) (relating to construe- 
26 use 318. 
tive ownership of stock) is amended by adding at the end thereof the 
following new subparagraphs: 
"(E) S CORPORATION TREATED AS PARTNERSHIP.—For pur-
poses of this subsection— 
fc 
"(i) an S corporation shall be treated as a partner-
J 
ship, and 
(ii) any shareholder of the S corporation shall be 
..i*rt -.^ .; 
treated as a partner of such partnership. 
The preceding sentence shall not apply for purposes of 
i 
determining whether stock in the S corporation is construc-
tively owned by any person." 
(k) CLARIFICATION OF TREATMENT OF CERTAIN ELECTIONS UNDER 
PRIOR LAW.—Subsection (e) of section 6 of the Subchapter S Revision 
Act of 1982 (relating to treatment of certain elections under prior 
26 use 1361 
law) is amended by striking out "any termination" and inserting in note. 
lieu thereof "any termination or revocation". 
(1) ELECTION FOR CERTAIN SHORT TAXABLE YEARS.— 
(1) Subsection (b) of section 1362 (relating to when subchapter 
26 use 1362. 
S election made) is amended by adding at the end thereof the 
following new paragraph: 
"(4) TAXABLE YEARS OF 2V2 MONTHS OR LESS.—For purposes of 
this subsection, an election for a taxable year made not later 
^ 
Bu <
>
: 
than 2 months and 15 days after the first day of the taxable 
year shall be treated as timely made during such year." 
(2) Paragraph (3) of section 1362(b) is amended by striking out 
"on or before the last day of such taxable year" and inserting in 
lieu thereof "on or before the 15th day of the 3rd month of the 
following taxable year". 
(m) TAXABLE YEAR OF EXISTING S CORPORATIONS.—Paragraph (1) 
of section 1378(c) (relating to existing S corporations required to use 26 use 1378. 
permitted year after 50-percent shift in ownership) is amended by 
striking out "which includes December 31, 1982" and inserting in 
lieu thereof "which includes December 31, 1982 (or which is an S 
corporation for a taxable year beginning during 1983 by reason of an 
election made on or before October 19,1982)". 
(n) REFERENCES TO PRIOR LAW.—Subsection (b) of section 1379 
26 use 1379. 
(relating to references to prior law included) is amended to read as 
follows: 
"(b) REFERENCES TO PRIOR LAW INCLUDED.—Any references in this 
title to a provision of this subchapter shall, to the extent not 
inconsistent with the purposes of this subchapter, include a refer-
98 STAT. 970 
PUBLIC LAW 98-369—JULY 18, 1984 
ence to the corresponding provision as in effect before the enact-
26 use 1 note. 
ment of the Subchapter S Revision Act of 1982." 
(o) ELECTION TO TREAT DISTRIBUTIONS AS DIVIDENDS DURING CER-
TAIN POST-TERMINATION TRANSITION PERIODS.—Subsection (e) of sec-
26 use 1371. 
tion 1371 (relating to coordination with subchapter C) is amended to 
read as follows: 
"(e) CASH DISTRIBUTIONS DURING POST-TERMINATION TRANSITION 
PERIOD.— 
"(1) IN GENERAL.—Any distribution of money by a corporation 
with respect to its stock during a post-termination transition 
period shall be applied against and reduce the adjusted basis of 
the stock, to the extent that the amount of the distribution does 
not exceed the accumulated adjustments account. 
"(2) ELECTION TO DISTRIBUTE EARNINGS FIRST.—An S corpora-
tion may elect to have paragraph (1) not apply to all distribu-
' 
: j ; 
tions made 
during a post-termination 
transition 
period 
described in section 1377(b)(1)(A). Such election shall not be 
effective unless all shareholders of the S corporation to whom 
distributions are made by the S corporation during such post-
termination transition period consent to such election." 
(p) CORPORATE PREFERENCE RULES APPLIED TO S CORPORATIONS 
WHICH WERE RECENT C CORPORATIONS.—Subsection (b) of section 
26 use 1363. 
1363 (relating to computation of corporation's taxable income) is 
amended by striking out "and" at the end of paragraph (2), by 
striking out the period at the end of paragraph (3) and inserting in 
lieu thereof ", and", and by adding at the end thereof the following 
new paragraph: 
"(4) section 291 shall apply if the S corporation (or any 
predecessor) was a C corporation for any of the 3 immediately 
preceding taxable years." 
26 use 1378. 
(q) TREATMENT OF STOCK HELD BY ESTATE OF QUALIFIED TRANS-
FEROR.—Clause (i) of section 1378(c)(3)(B) (relating to existing S 
corporations required to use permitted year after 50-percent shift in 
ownership) is amended by striking out "who held" and inserting in 
lieu thereof "who (or whose estate) held". 
(r) 
AMENDMENTS 
RELATED 
TO ACCUMULATED 
ADJUSTMENTS 
ACCOUNT.— 
26 use 1368. 
(1) Subparagraph (A) of section 1368(e)(1) (defining accumulat-
ed adjustments account) is amended by striking out "(except 
that" and all that follows through the end thereof and inserting 
in lieu thereof the following: "(except that no adjustment shall 
be made for income (and related expenses) which is exempt 
from tax under this title and the phrase '(but not below zero)' 
shall be disregarded in section 1367(b)(2)(A))". 
(2) Subsection (c) of section 1368 (relating to S corporation 
.i^Ti^i '^h r 
having earnings and profits) is amended by adding at the end 
thereof the following new sentence: "Except to the extent pro-
vided in regulations, if the distributions during the taxable year 
exceed the amount in the accumulated adjustments account at 
the close of the taxable year, for purposes of this subsection, the 
balance of such account shall be allocated among such distribu-
tions in proportion to their respective sizes." 
(s) SPECIAL RULES FOR CERTAIN EXPENSES OF S CORPORATIONS.— 
26 use 267. 
Paragraph (1) of section 267(f) (as in effect on the day before the date 
of the enactment of this Act) is amended by striking out all that 
follows subparagraph (B) and inserting in lieu thereof the following: 
"then any deduction allowable under such sections in respect of 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 971 
such amount shall be allowable as of the day as of which such 
^
L
* 
amount is includible in the gross income of the person to whom the 
payment is made (or, if later, as of the day on which it would be so 
allowable but for this paragraph)." 
(t) PRO RATA ALLOCATION FOR S TERMINATION YEAR NOT To APPLY 
* 
s 
IF 50-PERCENT CHANGE IN OWNERSHIP.—Paragraph (6) of section 
1362(e) (relating to special rules) is amended by adding at the end Ante, p. 968. 
thereof the following new subparagraph: 
.:.. J .. 
;. 
"(D) PRO RATA ALLOCATION FOR S TERMINATION YEAR NOT 
TO APPLY IF 50-PERCENT CHANGE IN OWNERSHIP.—Paragraph 
>., q . .jj i-
t 
(2) shall not apply to an S termination year if there is a sale 
or exchange of 50 percent or more of the stock in such 
corporation during such year." 
(u) TREATMENT OF PREDECESSOR CORPORATION UNDER SECTION 
1374.—Paragraph (2) of section 1374(c) (relating to exception for new 26 USC. 1374. 
corporations) is amended— 
(1) by striking out "(and any predecessor corporation)" in 
; 
subparagraph (A), and 
(2) by adding at the end thereof the following new sentence: 
"To the extent provided in regulations, an S corporation and any 
predecessor corporation shall be treated as 1 corporation for pur-
poses of this paragraph and paragraph (1)." 
(v) AUTHORITY TO WAIVE TAX ON PASSIVE INVESTMENT INCOME.— 
Section 1375 (relating to tax imposed when passive investment 
26 USC 1375. 
income of corporation having subchapter C earnings and profits 
exceeds 25 percent of gross receipts) is amended by adding at the end 
thereof the following new subsection: 
"(d) WAIVER OF TAX IN CERTAIN CASES.—If the S corporation 
establishes to the satisfaction of the Secretary that— 
"(1) it determined in good faith that it had no subchapter C 
earnings and profits at the close of a taxable year, and 
"(2) during a reasonable period of time after it was deter-
mined that it did have subchapter C earnings and profits at the 
close of such taxable year such earnings and profits were dis-
tributed, 
the Secretary may waive the tax imposed by subsection (a) for such 
taxable year." 
(w) APPLICATION OF DEBT RESTORATION RULES.—Subparagraph (B) 
of section 1367(b)(2) (relating to adjustments in basis of indebtedness) 
26 USC 1367. 
is amended by striking out "for any taxable year there is" and 
inserting in lieu thereof "for any taxable year beginning after 
December 31, 1982, there is", 
(x) CLERICAL AMENDMENTS.— 
(1) Clause (i) of section 48(k)(5)(D) is amended by striking out 
26 USC 48. 
t 
"electing small business corporation" and inserting in lieu 
, ^ 
thereof "S corporation". 
' 
(2) Subparagraph (B) of section 465(a)(1) (relating to limitation 
26 USC 465. 
to amount at risk) is amended by striking out "a corporation" 
and inserting in lieu thereof "a C corporation". 
(3) Subsection (e) of section 1371 (relating to cash distributions 
Ante, p. 970. 
- 
during post-termination transition period) is amended by insert-
ing before the period at the end thereof the following: "(within 
the meaning of section 1368(e))". 
(4) Paragraph (2) of section 6659(f) is amended by striking out Ante, p. 694. 
^. 
"section 465(a)(1)(C)" and inserting in lieu thereof "section 
465(a)(1)(B)". 
98 STAT. 972 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 6362. 
(5) Subparagraph (C) of section 6362(d)(2) is amended by strik-
ing out "electing small business corporation (within the mean-
ing of section 1371(a))" and inserting in lieu thereof "an S 
corporation". 
26 u s e 1361 
(y) EFFECTIVE DATES.— 
"0^- 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, any amendment made by this section shall take effect as if 
26 use 1 note. 
included in the Subchapter S Revision Act of 1982. 
(2) AMENDMENT MADE BY SUBSECTION (b) (2).—Subparagraph 
Ante, p. 966. 
(C) of section 108(d)(7) of the Internal Revenue Code of 1954 (as 
amended by subsection (b)(2)) shall apply to contributions to 
capital after December 31, 1980, in taxable years ending after 
such date. 
(3) AMENDMENT MADE BY SUBSECTION (g)(1).—If— 
'^'•-•> 
''.-. j ,. 
(A) any portion of a qualified stock purchase is pursuant 
to a binding contract entered into on or after October 19, 
^'- 
1982, and before the date of the enactment of this Act, and 
(B) the purchasing corporation establishes by clear and 
convincing evidence that such contract was negotiated on 
the contemplation that, with respect to the deemed sale 
under section 338 of the Internal Revenue Code of 1954, 
paragraph (2) of section 1362(e) of such Code would apply, 
then the amendment made by paragraph (1) of subsection (g) 
shall not apply to such qualified stock purchase. 
(4) AMENDMENTS MADE BY SUBSECTION (1).—The amendments 
made by subsection (1) shall apply to any election under section 
1362 of the Internal Revenue Code of 1954 (or any corresponding 
provision of prior law) made after October 19,1982. 
(5) AMENDMENT MADE BY SUBSECTION (t).—If— 
(A) on or before the date of the enactment of this Act 50 
percent or more of the stock of an S corporation has been 
sold or exchanged in 1 or more transactions, and 
(B) the person (or persons) acquiring such stock establish 
by clear and convincing evidence that such acquisitions 
were negotiated on the contemplation that paragraph (2) of 
section 1362(e) of the Internal Revenue Code of 1954 would 
apply to the S termination year in which such sales or 
exchanges occur, 
.Tf;5,i 'j8y r
= 
then the amendment made by subsection (t) shall not apply to 
such S termination year. 
SEC. 722. MISCELLANEOUS PROVISIONS. 
(a) AMENDMENTS RELATED TO TECHNICAL CORRECTIONS ACT OF 
1982.— 
26 use 57. 
(1) Paragraph (12) of section 57(a) (relating to accelerated cost 
recovery deduction) is amended— 
(A) by striking out "(or, in the case of property described 
in section 167(k), under section 167)" in subparagraph (A), 
and 
f
- *
; « * ' 
(B) by inserting "(or, in the case of property described in 
section 167(k), under section 167)" after "section 168(a)" in 
subparagraph (B). 
Ante, p. 620. 
(2) Subparagraph (A) of section 1256(gXl) (defining foreign 
currency contract) is amended by inserting after "delivery o f 
the following: ", or the settlement of which depends on the 
value of,". 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 973 
(3) Subclause (I) of section 306(a)(8)(A)(ii) of the Technical 
Corrections Act of 1982 is amended by striking out "the date of 26 use 338 note, 
the enactment of the Tax Equity and Fiscal Responsibility Act 
of 1982" and inserting in lieu thereof "September 1, 1982". 
(4)(A) Subparagraph (A) of section 172(b)(2) (relating to 
26 use 172. 
amount of carrybacks and carryovers) is amended by striking 
out "and (6)" and inserting in lieu thereof "and (5)". 
(B) Subsection (d) of section 172 (relating to modifications) is 
amended by redesignating paragraphs (7) and (8) as paragraphs 
(6) and (7), respectively. 
(5) Subsection (b) of section 5684 is amended by striking out 
26 use 5684. 
"subsections (a) and (b)" and inserting in lieu thereof "subsec-
tion (a)". 
(6) Any amendment made by this subsection shall take effect 
26 use 57 note, 
as if included in the provisions of the Technical Corrections Act 
of 1982 to which such amendment relates. 
26 use i note. 
(7)(A) If-
(i) there is an overpayment of tax imposed by section 4986 
of the Internal Revenue Code of 1954 for any period before 
January 1, 1983, by reason of section 201(h)(1)(E) of the 
Technical Corrections Act of 1982, 
26 use 4996 
(ii) refund of such overpayment is payable to the partners 
"o*^ 
of a partnership, and 
^ 
(iii) such partners are obligated to pay over any such 
j?-
refund to 1 or more organizations referred to in such sec- 
'^''''* 
tion 201(h)(1)(E), 
such partnership shall be treated as authorized to act for each 
person who was a partner at any time in such partnership in 
-^ 
claiming and paying over such refund. 
(B) Notwithstanding section 6511 of the Internal Revenue 
Code of 1954, the time for filing a claim for credit or refund of 
'^^^ <s 
the overpayment referred to in subparagraph (A)(i) shall not 
expire before the date 1 year after the date of the enactment of 
* ^ -^'i- G 
this Act. 
(b) COORDINATION OF CERTAIN AMENDMENTS MADE BY HIGHWAY 
26 use IO3 note. 
REVENUE ACT OF 1982 AND PUBUC LAW 97-473.—For purposes of 
applying the amendments made by section 547 of the Highway 
Revenue Act of 1982 and the amendment made by section 202(b)(2) 96 Stat. 2199. 
of Public Law 97-473, Public Law 97-473 shall be deemed to have 
96 Stat. 2608. 
been enacted immediately before the Highway Revenue Act of 1982. 26 use i note. 
(c) No DESIGNATION OF PRINCIPAL CAMPAIGN COMMITTEE REQUIRED 
WHERE ONLY ONE POUTICAL COMMITTEE.—Effective for taxable 
years beginning after December 31, 1981, subparagraph (B) of sec-
tion 527(h)(2) (relating to special rule for principal campaign com- 26 use 527. 
mittees) is amended by adding at the end thereof the following new 
sentence: "Nothing in this subsection shall be construed to require 
any designation where there is only one political committee with 
respect to a candidate." 
(d) AMOUNT OF CREDIT FOR PRODUCING FUEL FROM A NONCONVEN-
TIONAL SOURCE IN CASE OF FISCAL YEAR TAXPAYER.— 
(1) Subparagraph (A) of section 44D(b)(l) (relating to credit for 
Ante, p. 826. 
producing fuel from a nonconventional source) is amended by 
26 use 44D. 
striking out "in which the taxable year begins" and inserting in 
lieu thereof "in which the sale occurs". 
(2) Paragraph (2) of section 44D(b) is amended by striking out 
^ 
"in which a taxable year begins" and inserting in lieu thereof 
"in which the sale occurs". 
98 STAT. 974 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 440 note. 
(3) The amendments made by this subsection shall apply to 
taxable years ending after December 31, 1979. 
(e) BASIS ADJUSTMENTS IN PARTNERSHIP INTERESTS AND SUBCHAP-
TER S STOCK FOR PERCENTAGE DEPLETION.— 
26 use 705. 
(1) PARTNERSHIP INTERESTS.—Paragraph (3) of section 705(a) 
(relating to determination of basis of partner's interest) is 
amended to read as follows: 
"(3) decreased (but not below zero) by the amount of the 
partner's deduction for depletion for any partnership oil and gas 
property to the extent such deduction does not exceed the 
proportionate share of the adjusted basis of such property allo-
cated to such partner under section 613A(c)(7)(D)." 
(2) SUBCHAPTER 
S STOCK.—Subparagraph (E) of 
section 
26 use 1367. 
1367(a)(2) (relating to adjustments to basis of stock of sharehold-
ers, etc.) is amended to read as follows: 
"(E) the amount of the shareholder's deduction for deple-
tion for any oil and gas property held by the S corporation 
to the extent such deduction does not exceed the proportion-
ate share of the adjusted basis of such property allocated to 
such shareholder under section 613A(c)(13)(B).' 
(3) EFFECTIVE DATE.— 
26 use 705 note. 
(A) The amendment made by paragraph (1) shall take 
effect on January 1, 1975. 
26 use 1367 
(B) The amendment made by paragraph (2) shall apply to 
note. 
taxable years beginning after December 31,1982. 
(f) CLARIFICATION OF INCREASE IN BASIS FOR GAIN RECOGNIZED ON 
TRANSFER TO PARTNERSHIP.— 
26 use 722, 723. 
(1) IN GENERAL.—Sections 722 and 723 are each amended by 
striking out "gain recognized" and inserting in lieu thereof 
"gain recognized under section 721(b)". 
26 use 722 note. 
(2) EFFECTIVE DATE.—The amendments made by paragraph (1) 
shall take effect as if included in the amendments made by 
90 Stat. 1922. 
section 2131 of the Tax Reform Act of 1976. 
(g) AMENDMENTS RELATED TO INCOME TAXES OF CERTAIN MILITARY 
^>, 
AND CIVILIAN EMPLOYEES OF THE UNITED STATES DYING AS A RESULT 
OF INJURIES SUSTAINED OVERSEAS.— 
26 use 692 note. 
(1) EFFECTIVE DATE.—Paragraph (1) of section 1(b) of Public 
Law 98-259 is amended by striking out "December 31, 1979" 
and inserting in lieu thereof "November 17,1978". 
(2) REQUIREMENT THAT EMPLOYMENT RELATIONSHIP EXIST AT 
26 use 692. 
TIME OF INJURY.—Paragraph (1) of section 692 (relating to cer-
Ante, p. 142. 
tain military and civilian employees of the United States dying 
as a result of injuries sustained overseas) is amended by striking 
, ^3_. ,:. 
«3ut "as a result of wounds or injury incurred" and inserting in 
lieu thereof "as a result of wounds or injury which was incurred 
while the individual was a military or civilian employee of the 
United States and which was incurred". 
(3) CLARIFICATION OF DEFINITION OF TERRORISTIC ACTIVITY 
AGAINST THE UNITED STATES.—Subparagraph (A) of section 
692(c)(2) (defining terroristic or military action) is amended to 
r,v.^ .
^ , . 
read as follows: 
iiU- VT; ,^ 
"(A) any terroristic activity which a preponderance of the 
evidence indicates was directed against the United States 
or any of its allies, and". 
26 u s e 692 note. 
(4) TREATMENT OF DIRECTOR GENERAL OF MULTINATIONAL FORCE 
IN SINAI.—For purposes of section 692(c) of the Internal Revenue 
Code of 1954, the Director General of the Multinational Force 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 975 
and Observers in the Sinai who died on February 15, 1984, shall 
be treated as if he were a civilian employee of the United States 
while he served as such Director General. 
(5) EFFECTIVE DATE.— 
26 use 692 note. 
(A) IN GENERAL.—The amendments made by this subsec-
tj 
tion shall take effect as if they were included in the amend-
ments made by section 1 of Public Law 98-259. 
Ante, p. 142. 
-J, 
(B) STATUTE OF LIMITATIONS WAIVED.—Notwithstanding 
section 6511 of the Internal Revenue Code of 1954, the time 
for filing a claim for credit or refund of any overpayment of 
tax resulting from the amendments made by this subsection 
if; MI) m 
shall not expire before the date 1 year after the date of the 
enactment of this Act. 
(h) AMENDMENTS TO THE INTEREST AND DIVIDEND TAX COMPLIANCE 
ACT OF 1983.— 
(1) BROKER NOTIFICATION OF PAYOR.— 
(A) Subparagraph (A) of section 3406(d)(2) (relating to 97 Stat. 371. 
special rules for readily tradable instruments) is amended— 26 USC 3406. 
(i) by inserting "the payor was notified by a broker 
I, ,., 
under subparagraph (B) or" after "if (and only if)", and 
(ii) by striking out clause (i) and redesignating 
clauses (ii) and (iii) as clauses (i) and (ii). 
i ^0o Ofrj m 
(B) Subparagraph (B) of section 3406(d)(2) is amended to 
read as follows: 
,J^M. t<; j^aiJ i. 
j^ 
"(B) BROKER NOTIFIES PAYOR.—If— 
r, 
"(i) a payee acquires any readily tradable instrument 
I 
through a broker, and 
"(ii) with respect to such acquisition— 
..;ois ; ;8U :£ 
"(I) the payee fails to furnish his TIN to the 
broker in the manner required under subsection 
(a)(1)(A), 
"(II) the Secretary notifies such broker before 
such acquisition that the TIN furnished by the 
payee is incorrect, 
i ^ 
"(III) the Secretary notifies such broker before 
such acquisition that such payee is subject to with-
holding under subsection (a)(1)(C), or 
"(IV) the payee does not provide a certification to 
'
^
^
*
*
^ 
such broker under subparagraph (C), 
such broker shall, within such period as the Secretary 
itc\-*:,i.' - 
may prescribe by regulations (but not later than 15 
.?iC' >'-•] :fc 
<i.i 
days after such acquisition), notify the payor that such 
payee is subject to withholding under subparagraph 
(A), (B), (C), or (D) of subsection (a)(1), respectively." 
n 
(2) NOTIFIED PAYEE UNDERREPORTING.—Paragraph (1) of sec-
tion 3406(c) (relating to notified payee underreporting) is 
, 
amended by striking out "(but not the reasons therefor)" and 
inserting in lieu thereof "(but not the reasons for the withhold-
ing under subsection (a)(1)(C))". 
^ 
(3) APPLICATION WITH TRUSTS.—Section 643 (relating to defini- Ante, p. 597. 
tions applicable to trusts) is amended by adding at the end 
thereof the following new subsection: 
"(d) COORDINATION WITH BACK-UP WITHHOLDING.—Except to the 
extent otherwise provided in regulations, this subchapter shall be 
applied with respect to payments subject to withholding under 
section 3406— 
Supra. 
98 STAT. 976 
PUBLIC LAW 98-369—JULY 18, 1984 
Ante, p. 826. 
97 Stat. 379. 
26 u s e 3405. 
26 use 6041. 
26 use 643 note. 
26 use 1 note. 
"(1) by allocating between the estate or trust and its benefici-
aries any credit allowable under section 31(c) (on the basis of 
their respective shares of any such payment taken into account 
under this subchapter), 
"(2) by treating each beneficiary to whom such credit is 
allocated as if an amount equal to such credit has been paid to 
him by the estate or trust, and 
"(3) by allowing the estate or trust a deduction in an amount 
equal to the credit so allocated to beneficiaries." 
(4) COORDINATION OF PENSION AND BACK-UP WITHHOLDING.— 
(A) Section 3405(d) (relating to definitions and special 
rules) is amended by adding at the end thereof the following 
new paragraph: 
"(12) FAILURE TO PROVIDE CORRECT TIN.—If— 
"(A) a payee fails to furnish his TIN to the payor in the 
manner required by the Secretary, or 
"(B) the Secretary notifies the payor before any payment 
or distribution that the TIN furnished by the payee is 
incorrect, 
no election under subsection (a)(2) or (b)(3) shall be treated as in 
effect and subsection (a)(4) shall not apply to such payee." 
(B) Section 6041(a) (relating to information at source) is 
amended by inserting "6047(e)," after "6044(aXl),". 
(5) EFFECTIVE DATES.— 
(A) Except as provided in this paragraph, the amend-
ments made by this subsection shall apply as if included in 
the amendments made by the Interest and Dividend TEIX 
Compliance Act of 1983. 
(B) The amendments made by paragraph (4) shall apply 
to payments or distributions after December 31, 1984, 
unless the payor elects to have such amendments apply to 
payments or distributions before January 1,1985. 
Subtitle C—Amendments Relating to Highway 
Revenue Act of 1982 
SEC. 731. VALUE OF USED COMPONENTS FURNISHED BY FIRST USER NOT 
TAKEN INTO ACCOUNT IN DETERMINING PRICE. 
26 use 4052. 
Subparagraph (B) of section 4052(b)(1) (relating to determination 
of price) is amended by striking out "and" at the end of clause (ii) 
and by inserting after clause (iii) the following new clause: 
"(iv) the value of any component of such article i
f
— 
"(I) such component is furnished by the first user 
of such article, and 
"(II) such component has been used before such 
furnishing, and". 
-f. 
SEC. 732. CLARIFICATION OF APPLICATION OF GASOLINE EXCISE TAX TO 
GASOHOL.ETC. 
(a) GASOUNE EXCISE TAX TO APPLY TO GALLON OF GASOHOL.— 
26 use 4081. 
(1) IN GENERAL.—Paragraph (1) of section 4081(c) (relating to 
gasoline mixed with alcohol) is amended to read as follows: 
"(1) IN GENERAL.—Under regulations prescribed by the Secre-
» 
tary, subsection (a) shall be applied— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 977 
"(A) by substituting '4 cents' for '9 cents' in the case of 
the sale of any gasohol (the gasoline in which was not taxed 
under subparagraph (B)), and 
"(B) by substituting '4% cents' for '9 cents' in the case of 
the sale of any gasoline for use in producing gasohol. 
For purposes of this paragraph, the term 'gasohol' means any 
f
^ 
mixture of gasoline if at least 10 percent of such mixture is 
alcohol." 
(2) LATER SEPARATION OF GASOUNE.—Paragraph (2) of section 
4081(c) is amended— 
26 USC 4081. 
(A) by striking out "at the rate of 4 cents a gallon" and 
inserting in lieu thereof "at a rate equivalent to 4 cents a 
gallon", and 
(B) by striking out "5 cents a gallon" and inserting in lieu 
thereof "4% cents a gallon". 
(3) CREDIT OR REFUND.—Paragraph (1) of section 6427(f) (relat- 
26 use 6427. 
ing to gasoline used to produce certain alcohol fuels) is amended 
by striking out "5 cents" and inserting in lieu thereof "4% 
cents", 
(b) LOWER FLOOR STOCKS TAX ON GASOHOL.—Subsection (a) of 
section 521 of the Highway Revenue Act of 1982 is amended by 26 use 4061 
" 
inserting "(4 cents a gallon in the case of a gallon of gasohol, as "o^. 
defined in section 4081(c))" after "5 cents a gallon". 
SEC. 733. CERTAIN CHAIN OPERATORS OF RETAIL GASOLINE STATIONS 
3 
TREATED AS PRODUCERS. 
(a) IN GENERAL.—Subsection (d) of section 4082 (defining whole- 
26 use 4082. 
sale distributor) is amended to read as follows: 
"(d) WHOLESALE DISTRIBUTOR.—As used in subsection (a), the term 
'wholesale distributor' includes— 
"(1) any person who— 
"(A) sells gasoline to producers, retailers, or to users who 
purchase in bulk quantities and deliver into bulk storage 
tanks, or 
"(B) purchases gasoline from a producer and distributes 
such gasoline to 10 or more retail gasoline stations under 
common management with such person, 
"(2) but only if such person elects to register with respect to 
the tax imposed by section 4081. 
Such term does not include any person who (excluding the term 
'wholesale distributor' from subsection (a)) is a producer or 
importer." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 4082 
shall take effect on the first day of the first calendar quarter 
note. 
beginning after the date of the enactment of this Act. 
SEC. 734. OTHER TECHNICAL AMENDMENTS. 
(a) FLOOR STOCKS REFUNDS FOR TIRES TAXED AT LOWER RATE 
AFTER JANUARY 1,1984.— 
(1) IN GENERAL.—Paragraph (1) of section 523(b) of the High-
way Revenue Act of 1982 (relating to floor stocks refunds for 26 USe 4061 
tires) is amended by inserting "(or will be subject to a lower rate note. 
of tax under such section)" after "and which will not be subject 
to tax under such section". 
(2) AMOUNT OF REFUND UMITED TO REDUCTION IN TAX, ETC.— 
(A) IN GENERAL.—Subsection (b) of section 523 of the 
Highway Revenue Act of 1982 (relating to floor stocks 
31-194 0 - 86 - 33 : QL. 3 Part 1 
98 STAT. 978 
PUBLIC LAW 98-369—JULY 18, 1984 
refunds for tires) is amended by adding at the end thereof 
the following new paragraph: 
"(3) SPECIAL RULES FOR TIRES TAXED AT LOWER RATE AFTER 
JANUARY 1, 1984.—In the case of any tire which is a tax-repealed 
article solely by reason of the amendment made by subsection 
Ante, p. 977. 
(a)(1) or (d) of section 734 of the Tax Reform Act of 1984— 
"(A) the amount of the credit or refund under subsection 
(a) shall not exceed the excess o
f
— 
"(i) the tax imposed with respect to such tire by 
section 4071(a) as in effect on December 31, 1983, over 
"(ii) the tax which would have been imposed with 
respect to such tire by section 4071(a) on January 1, 
1984, and 
26 use 4061 
"(B) paragraph (1) of section 522(a) shall be applied-
note, 
"(i) by substituting 'January 1, 1985' for 'July 1, 
1983', and 
"(ii) by substituting 'April 1, 1985' for 'October 1, 
1983' each place it appears." 
(B) CONFORMING AMENDMENT.—Paragraph (2) of section 
26 use 4061 
523(b) of such Act is amended by striking out "In the case 
note. 
o f and inserting in lieu thereof "Except as provided in 
paragraph (3), in the case of. 
(b) OVERPAYMENTS OF TAX ON TRUCKS, ETC., AND TIRES.— 
(1) TRUCKS, ETC.— 
26 use 6416. 
(A) IN GENERAL.—Subsection (b) of section 6416 (relating 
to special cases in which tax payments considered overpay-
ments) is amended by inserting after paragraph (5) the 
following new paragraph: 
"(6) TRUCK CHASSIS, BODIES, AND SEMITRAILERS USED FOR FUR-
THER MANUFACTURE.—If^ 
"(A) the tax imposed by section 4051 has been paid with 
respect to the sale of any article, and 
"(B) before any other use, such article is by any person 
used as a component part of another article taxable under 
section 4051 manufactured or produced by him, 
such tax shall be deemed to be an overpayment by such person. 
For purposes of the preceding sentence, an article shall be 
treated as having been used as a component part of another 
article if, had it not been broken or rendered useless in the 
manufacture or production of such other article, it would have 
been so used." 
(B) TECHNICAL AMENDMENT.—Subparagraph (B) of section 
6416(a)(2) is amended by striking out "or (5)" and inserting 
in lieu thereof "(5), or (6)". 
(2) TIRES.— 
(A) IN GENERAL.—Paragraph (4) of section 6416(b) (relat-
ing to tires) is amended to read as follows: 
"(4) TIRES.—If— 
"(A) the tax imposed by section 4071 has been paid with 
respect to the sale of any tire by the manufacturer, pro-
ducer, or importer thereof, and 
"(B) such tire is sold by any person on or in connection 
v/ith, or with the sale of, any other article, such tax shall be 
deemed to be an overpayment by such person if such other 
article is— 
"(i) an automobile bus chassis or an automobile bus 
body, or 
I itsiH I .A\i : It 
S8 -.. 0 A^l'-lt 
^ni M-
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 979 
'^ 
"(ii) by such person exported, sold to a State or local 
government for the exclusive use of a State or local 
government, sold to a nonprofit educational organiza-
tion for its exclusive use, or used or sold for use as 
supplies for vessels or aircraft." 
(B) TECHNICAL AMENDMENTS.— 
(i) Paragraph (2) of section 6416(b) is amended by 
26 USC 6416. 
striking out subparagraph (E). 
^o*^' P- ^^'^• 
(ii) Paragraph (3) of section 6416(b) (relating to tax-
f 
paid articles used for further manufacture, etc.) is 
amended by striking out subparagraph (C). 
•
• 
(iii) Subparagraph (C) of section 6416(a)(1) is amended 
by striking out ", (b)(3) (C) or (D), or (b)(4)". 
(iv) Subparagraph 
(B) of section 6416(a)(2), as 
Ante, p. 978. 
amended by paragraph (1)(B), is amended by inserting 
"(4)," before "(5)". 
i 
.:': S 
(v) Paragraph (3) of section 6416(a) is amended to 
read as follows: 
'- 
' 
"(3) SPECIAL RULE.—For purposes of this subsection, in any 
case in which the Secretary determines that an article is not 
taxable, the term 'ultimate purchaser' (when used in paragraph 
(1)(B) of this subsection) includes a wholesaler, jobber, distribu-
tor, or retailer who, on the 15th day after the date of such 
determination, holds such article for sale; but only if claim for 
credit or refund by reason of this paragraph is filed on or before 
the date for filing the return with respect to the taxes imposed 
under chapter 32 for the first period which begins more than 60 Post, p. 980. 
days after the date on such determination." 
(c) ALLOWANCE OF TAX-FREE SALES OF GASOLINE FOR USE IN NON- 
. 
,. 
COMMERCIAL AviATION.— 
(1) IN GENERAL.—Section 4082 (relating to definitions with 
26 USC 4082. 
respect to the tax on gasoline) is amended by adding at the end 
thereof the following new subsection: 
"(e) CERTAIN SELLERS OF GASOLINE FOR USE IN NONCOMMERCIAL 
AVIATION TREATED AS PRODUCERS.—For purposes of this subpart, the 
term 'producer' includes any person who regularly sells gasoline to 
owners, lessees, or operators of aircraft for use as fuel in such 
aircraft in noncommercial aviation (as defined in section 4041(c)(4))." 
(2) REFUNDS.—Section 6427 (relating to fuels not used for 
26 USC 6427. 
taxable purposes) is amended by redesignating subsections (j), Post, p. 1005. 
(k), and (1) as subsections (k), (1), and (m), respectively, and by 
inserting after subsection (i) the following new subsection: 
"(j) SPECIAL RULES WITH RESPECT TO NONCOMMERCIAL AVIATION.— 
For purposes of subsection (a), in the case of gasoline— 
"(1) on which tax was imposed under section 4041(c)(2), 
; 
"(2) on which tax was not imposed under section 4081, and 
"(3) which was not used as an off-highway business use 
(within the meaning of section 6421(d)(2)), 
the amount of the payment under subsection (a) shall be an amount 
equal to the amount of gasoline used as described in subsection (a) or 
resold multiplied by the rate equal to the excess of the rate of tax 
imposed by section 4041(c)(2) over the rate of tax imposed by section 
4081." 
(3) EFFECTIVE DATE.—The amendments made by this subsec- 
26 USC 4082 
tion shall take effect on the first day of the first calendar 
"ote. 
quarter beginning after the date of the enactment of this Act. 
98 STAT. 980 
PUBLIC LAW 98-369—JULY 18, 1984 
(d) FLOOR STOCKS REFUNDS FOR TREAD RUBBER.—Paragraph (1) of 
26 use 4061 
section 523(b) of the Highway Revenue Act of 1982 (relating to floor 
note. 
stocks refunds for tires) is amended by adding at the end thereof the 
following new sentence: "Any tread rubber which was subject to tax 
under section 4071(a)(4) as in effect on December 31, 1983, and which 
on January 1, 1984, is part of a retread tire which is held by a dealer 
and has not been used and is intended for sale shall be treated as a 
26 use 4061 
tax-repealed article for purposes of subsection (a) of section 522." 
"°t^ 
(e) PENALTIES, ETC., TO APPLY TO FLOOR STOCKS TAXES.—Subsec-
26 use 4061 
tion (c) of section 521 of the Highway Revenue Act of 1982 is 
note. 
amended by adding at the end thereof the following: "All other 
provisions of law, including penalties, applicable with respect to the 
taxes imposed by section 4081 or 4071(a) (whichever is appropriate) 
shall apply to the floor stocks taxes imposed by this section." 
(f) No 
1984 
SHORT TAXABLE PERIOD FOR OWNER-OPERATORS.— 
26 use 4481. 
Subsection (a) of section 4481 (relating to tax on use of certain 
vehicles), as in effect before the amendments made by the Highway 
26 use 1 note. 
Revenue Act of 1982, is amended by striking out the last sentence. 
(g) CLARIFICATION OF SECONDARY LIABILITY OF INSTALLERS OF PARTS 
AND ACCESSORIES PURCHASED SEPARATELY.—The text of section 
26 use 4051. 
4051(b)(3) is amended to read as follows: "The owners of the trade or 
business installing the parts or accessories shall be secondarily 
liable for the tax imposed by paragraph (1)." 
(h) No INFERENCE FOR PAST PERIODS TO BE DRAWN FROM AMEND-
MENT RELATING TO CUSTOMARY USE OF TRAILERS.—The subsection 
heading of subsection (c) of section 513 of the Highway Revenue Act 
96 Stat. 2177. 
of 1982 is amended by striking out "Clarification of. 
(i) WIRE TRANSFER TO FEDERAL RESERVE BANK REQUIRED WHERE 
EXTENSION OF PAYMENT DUE DATE FOR CERTAIN FUEL TAXES.— 
26 use 4081 
Subsection (a) of section 518 of the Highway Revenue Act of 1982 
note. 
(relating to extension of payment due date for certain fuel taxes) is 
amended by striking out "any government depository authorized 
under section 6302 of such Code" and inserting in lieu thereof 
", except as provided in regulations prescribed by the Secretary 
of the Treasury or his delegate, any Federal Reserve Bank". 
(j) CREDIT OR REFUND OF RETAIL TAX ON TRUCKS AND TRAILERS 
WHERE 
PRICE 
READJUSTMENTS.—Subparagraph 
(A) 
of 
section 
26 use 6416. 
6416(b)(1) (relating to price readjustments) is amended by inserting 
"or by section 4051" after "by chapter 32". 
SEC. 735. REPEAL OF CERTAIN PROVISIONS MADE OBSOLETE BY HIGH-
WAY REVENUE ACT OF 1982. 
(a) DELETION OF TERMINATED MANUFACTURERS EXCISE TAX ON 
MOTOR VEHICLES.— 
(1) Part I of subchapter A of chapter 32 is amended by striking 
26 use 
out sections 4061, 4062, and 4063. 
4061-4063. 
(2) The part heading and the table of sections for such part I 
^LV^^ ^^^^' 
are amended to read as follows: 
4064. 
"PART I—GAS GUZZLERS 
"Sec. 4064. Gas guzzlers tax." 
(3) The table of parts for subchapter A of chapter 32 is 
amended by striking out the item relating to part I and insert-
ing in lieu thereof the following: 
"Part I. Gas guzzlers." 
. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 981 
(b) CROSS-REFERENCES TO TERMINATED MANUFACTURERS EXCISE 
TAX ON MOTOR VEHICLES STATED AS PART OF RETAIL TAX.— 
(1) EXEMPTIONS.—Section 4053 (relating to exemptions from 
retail tax on heavy trucks, etc.) is amended to read as follows: 
"SEC. 4053. EXEMPTIONS. 
26 USC 4053. 
"No tax shall be imposed by section 4051 on any of the following 
articles: 
"(1) CAMPER COACHES BODIES FOR SELF-PROPELLED MOBILE 
HOMES.—Any article designed— 
"(A) to be mounted or placed on automobile trucks, auto-
! 
mobile truck chassis, or automobile chassis, and 
"(B) to be used primarily as living quarters or camping 
' 
accommodations. 
"(2) FEED, SEED, AND FERTILIZER EQUIPMENT.—Any body pri-
marily designed— 
"(A) to process or prepare seed, feed, or fertilizer for use 
on farms, 
"(B) to haul feed, seed, or fertilizer to and on farms, 
"(C) to spread feed, seed, or fertilizer on farms, 
"(D) to load or unload feed, seed, or fertilizer on farms, or 
"(E) for any combination of the foregoing. 
' ? 
"(3) HOUSE TRAILERS.—Any house trailer. 
"(4) AMBULANCES, HEARSES, ETC.—Any ambulance, hearse, or 
combination ambulance-hearse. 
• - ' 
*
' 
"(5) CONCRETE MIXERS.—Any article designed— 
"(A) to be placed or mounted on an automobile truck 
chassis or truck trailer or semitrailer chassis, and 
"(B) to be used to process or prepare concrete. 
"(6) TRASH CONTAINERS, ETC.—Any box, container, receptacle, 
bin or other similar article— 
'' 
"(A) which is designed to be used as a trash container and 
' 
is not designed for the transportation of freight other than 
trash, and 
"(B) which is not designed to be permanently mounted on 
or permanently affixed to an automobile truck chassis or 
body. 
"(7) RAIL TRAILERS AND RAIL VANS.—Any chassis or body of a 
trailer or semitrailer which is designed for use both as a high-
way vehicle and a railroad car. For purposes of the preceding 
sentence, piggy-back trailer or semitrailer shall not be treated 
as designed for use as a railroad car." 
(2) CERTAIN COMBINATIONS NOT TREATED AS MANUFACTURE.— 
Subsection (c) of section 4052 (relating to definitions and special 
26 use 4052. 
rules) is amended to read as follows: 
"(c) CERTAIN COMBINATIONS NOT TREATED AS MANUFACTURE.— 
"(1) IN GENERAL,—For purposes of this subchapter (other than 
subsection (a)(3)(B)), a person shall not be treated as engaged in 
the manufacture of any article by reason of merely combining 
such article with any item listed in paragraph (2). 
"(2) ITEMS.—The items listed in this paragraph are any cou-
pling device (including any fifth wheel), wrecker crane, loading 
and unloading equipment (including any crane, hoist, winch, or 
power liftgate), aerial ladder or tower, snow and ice control 
equipment, earthmoving, excavation and construction equip-
ment, spreader, sleeper cab, cab shield, or wood or metal floor." 
(c) OTHER TECHNICAL AND CONFORMING AMENDMENTS.— 
98 STAT. 982 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 48. 
(1) Clause (i) of section 48(1)(16)(B) (defining qualified intercity 
bus) is amended to read as follows: 
"(i) the chassis of which is an automobile bus chassis 
and the body of which is an automobile bus body,". 
26 use 4071. 
(2)(A) The first sentence of section 4071(b) is amended by 
striking out "or inner tube" and by striking out "or tube" each 
place it appears. 
(B) The first sentence of section 4071(c) is amended by striking 
out "on total weight," and all that follows and inserting in lieu 
thereof "on total weight exclusive of metal rims or rim bases." 
(C) Subsection (e) of section 4071 is amended— 
(i) by striking out "or inner tubes (other than bicycle tires 
and inner tubes)", 
(ii) by striking out "and inner tubes" in paragraphs (1) 
and (2), and 
(iii) by striking out the last sentence and inserting in lieu 
thereof the following: "This subsection shall not apply with 
respect to the sale of an automobile bus chassis or an 
automobile bus body." 
(D) Subsection (f) of section 4071 (relating to imported re-
capped or retreaded United States tires) is hereby repealed. 
26 use 4072. 
(3) Section 4072 (relating to definitions) is amended by strik-
ing out subsection (b) and by redesignating subsection (c) as 
subsection (b). 
26 use 4073. 
(4) Section 4073 (relating to exemptions) is amended to read as 
follows: 
"SEC. 4073. EXEMPTION FOR TIRES WITH INTERNAL WIRE FASTENING. 
"The tax imposed by section 4071 shall not apply to tires of 
extruded tiring with an internal wire fastening agent." 
26 use prec. 
(5)(A) The heading for part II of subchapter A of chapter 32 is 
4071. 
amended by striking out ^'AND TUBES". 
(B) The table of parts for subchapter A of chapter 32 is 
amended by striking out "and tubes' in the item relating to 
part II. 
(C) The item relating to section 4073 in the table of sections 
for part II of subchapter A of chapter 32 is amended to read as 
follows: 
"Sec. 4073. Exemption for tires with internal wire fastening." 
26 use 4216. 
(6)(A) Paragraph (1) of section 4216(b) (defining constructive 
sale price) is amended— 
(i) by striking out "(other than an article the sale of 
which is taxable under section 4061(a))" in the second sen-
tence, and 
(ii) by striking out the third sentence. 
(B) Paragraph (2) of section 4216(b) is amended by striking out 
subparagraph (C), by adding "and" at the end of subparagraph 
(B), and by redesignating subparagraph (D) as subparagraph (C). 
(C) Subsection (h) of section 4216 is amended by striking out 
paragraph (5). 
(D) Paragraph (3) of section 4216(b) is amended by striking out 
"paragraphs (4) and (5)" and inserting in lieu thereof "para-
graph (4)*^. 
(E) Paragraph (6) of section 4216(b) is redesignated as para-
graph (5) and is amended by striking out "(1), (3), and (5)' and 
inserting in lieu thereof "(1) and (3)". 
•_>e' 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 983 
(F) Subsection (f) of section 4216 (relating to certain trucks 
26 USC 4216. 
incorporating used components) is hereby repealed. 
(7)(A) Subsection (b) of section 4218 (relating to use by manu- 
26 USC 4218. 
facturer or importer considered as sale) is amended— 
(i) by striking out "or inner tube", and 
(ii) by striking out "Except as provided in subsection (d), 
, ,• ,,,r, j,;* 
i f and inserting in lieu thereof "If. 
. 
(B) The heading for subsection (b) of section 4218 is amended 
^ 
by striking out "and Tubes". 
(C) Section 4218 is amended by striking out subsections (c) and 
'*' 
(d) and by redesignating subsection (e) as subsection (c). 
(D) Subsection (a) of section 4218 is amended by striking out 
'• 
"(other than an article specified in subsection (b), (c), or (d))" 
and inserting in lieu thereof "(other than a tire taxable under 
section 4071)". 
-^r'-'-ll^S 
(8)(A) Subsection (a) of section 4221 (relating to tax-free sales) 26 USC 4221. 
is amended by inserting "(or under section 4051 on the first 
retail sale)" after "manufacturer". 
(B) Subsection (c) of section 4221 is amended by striking out 
e
?
*
> ,q ,j*«k 
"section 4063(a) (6) or (7), 4063(b), 4063(e)," and inserting in lieu 
thereof' 'section 4053(a)(6)''. 
(C) Paragraph (1) of section 4221(d) (defining manufacturer) is 
amended by inserting before the period ", and, in the case of the 
if ^ ,, 
.^ 
tax imposed by section 4051, includes the retailer with respect 
,„ 
to the first retail sale". 
(D) Paragraph (6) of section 4221(d) (relating to use in further 
manufacture) is amended— 
(i) by striking out subparagraph (B) and the last sentence, 
ui) by striking out "(other than an article referred to in 
^, 
subparagraph (B))" in subparagraph (A), 
^' 
(iii) by redesignating subparagraph (C) as subparagraph 
(B), and 
(iv) by adding "or" at the end of subparagraph (A). 
(E) Paragraph (2) of section 4221(e) is amended— 
(i) by striking out "or inner tube" each place it appears; 
and 
(ii) by striking out "or tube" each place it appears. 
2
^
1
, 
(F) The heading for paragraph (2) of section 4221(e) is 
, v. 
amended by striking out "AND TUBES". 
-r ' '. 
.: 
(G) Subsection (e) of section 4221 is amended by striking out 
? 
paragraphs (4), (5), and (6) and inserting in lieu thereof the 
following: 
"(3) TIRES USED ON INTERCITY, LOCAL, AND SCHOOL BUSES.— 
Under regulations prescribed by the Secretary, the tax imposed 
by section 4071 shall not apply in the case of tires sold for use by 
the purchaser on or in connection with a qualified bus." 
(9) Subsection (d) of section 4222 is amended by striking out 
26 USC 4222. 
"4063(a)(7), 4063(b), 4063(e)," and inserting in lieu thereof 
"4053(a)(6),". 
(10) Paragraph (1) of section 4223(b) is amended by striking 26 USC 4223. 
out "section 4218(e)" and inserting in lieu thereof "4218(c)". 
(11) Paragraph (2) of section '4227 is amended by striking out 26 USC 4227. 
"and tubes". 
(12)(A) So much of paragraph (1) of section 6412(a) (relating to 26 use 6412. 
floor stock refunds) as precedes "there shall be credited or 
SS 
refunded" is amended to read as follows: 
98 STAT. 984 
PUBLIC LAW 98-369—JULY 18, 1984 
"(1) TIRES AND GASOUNE.—Where before October 1, 1988, any 
article subject to the tax imposed by section 4071 or 4081 has 
been sold by the manufacturer, producer, or importer and on 
such date is held by a dealer and has not been used and is 
intended for sale,". 
26 use 6412. 
(B) Paragraph (1) of section 6412(a) is amended by striking out 
the last sentence. 
(C) Subparagraph (A) of section 6412(a)(2) is amended to read 
as follows: 
"(A) The term 'dealer' includes a wholesaler, jobber, dis-
tributor, or retailer." 
(D) Subsection (c) of section 6412 is amended by striking out 
, "4061, 4071," and inserting in lieu thereof "4071". 
26 use 6416. 
(13)(A) Subparagraph (C) of section 6416(b)(1) (relating to ad-
justment of tire price) is amended by striking out "section 
4071(a) (1) or (2) or section 4071(b)" and inserting in lieu thereof 
"subsection (a) or (b) of section 4071". 
Ante, p. 979. 
(B) Paragraph (2) of section 6416(b) is amended by striking out 
subparagraph (F) and all that follows to the end thereof and 
inserting in lieu thereof the following: 
"(E) in the case of any tire taxable under section 4071(a), 
Ante, p. 983. 
sold to any person for use as described in section 4221(eX3); 
or 
"(F) in the case of gasoline, used or sold for use in the 
production of special fuels referred to in section 4041. 
Subparagraphs (C) and (D) shall not apply in the case of any tax 
paid under section 4064." 
(C) Paragraph (3) of section 6416(b) is amended by striking out 
all subparagraphs and the last sentence thereof and inserting in 
lieu thereof the following: 
"(A) in the case of any article other than gasoline taxable 
under section 4081, such article is used by the subsequent 
manufacturer or producer as material in the manufacture 
or production of, or as a component part o
f
— 
26 use 4061 et 
"(i) another article taxable under chapter 32, or 
seq. 
"(ii) an automobile bus chassis or an automobile bus 
Ante, p. 980. ' 
body, 
manufactured or produced by him; or 
"(B) in the case of gasoline taxable under section 4081, 
such gasoline is used by the subsequent manufacturer or 
producer, for nonfuel purposes, as a material in the manu-
facture or production of any other article manufactured or 
produced by him." 
(D) Subparagraph (B) of section 6416(a)(2) is amended by 
striking out "or (B)". 
(E) Section 6416 is amended by striking out subsections (c) and 
(g) and by redesignating subsections (e), (f), (h), and (i) as subsec-
tions (c), (d), (e), and (f), respectively. 
(F) Subparagraph (A) of section 6416(b)(2) is amended by 
striking out "(except in any case to which subsection (g) ap-
plies)". 
26 use 6511. 
(14) Section 6511 is amended by striking out subsection (i) and 
by redesignating subsection (j) as subsection (i). 
26 use 9502. 
(15) Paragraph (3) of section 9502(b) is amended by striking 
out "under paragraphs (2) and (3) of section 4071(a), with respect 
to tires and tubes of types used on aircraft" and inserting in lieu 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 985 
thereof "under section 4071 with respect to tires of the types 
used on aircraft". 
(16) Sections 1366(f)(1) and 6401(b) are each amended by strik- 
26 use 1366. 
ing out ", special fuels, and lubricating oil" and inserting in lieu 
^"^«. P- 846. 
thereof "and special fuels". 
SEC. 736. EFFECTIVE DATE. 
26 USC 4051 
Except as otherwise provided in this subtitle, any amendment 
made by this subtitle shall take effect as if included in the provisions 
of the Highway Revenue Act of 1982 to which such amendment 
26 use i note, 
relates. 
TITLE VIII—FOREIGN SALES 
CORPORATIONS 
SEC. 801. FOREIGN SALES CORPORATIONS. 
(a) IN GENERAL.—Part III of subchapter N of chapter 1 (relating to 
income from sources outside the United States) is amended by 
inserting after subpart B the following new subpart: 
"Subpart C—Taxation of Foreign Sales Corporations 
' 
"Sec. 921. Exempt foreign trade income excluded from gross income. 
"Sec. 922. FSe defined. 
"Sec. 923. Exempt foreign trade income. 
"Sec. 924. Foreign trading gross receipts. 
"Sec. 925. Transfer pricing rules. 
"Sec. 926. Distributions to shareholders. 
"Sec. 927. Other definitions and special rules. 
"SEC. 921. EXEMPT FOREIGN TRADE INCOME EXCLUDED FROM GROSS 
26 USC 921. 
INCOME. 
"(a) EXCLUSION.—Exempt foreign trade income of a FSC shall be 
treated as foreign source income which is not effectively connected 
with the conduct of a trade or business within the United States. 
"(b) PROPORTIONATE ALLOCATION OF DEDUCTIONS TO EXEMPT FOR-
EIGN TRADE INCOME.—Any deductions of the FSC properly appor-
tioned and allocated to the foreign trade income derived by a FSC 
from any transaction shall be allocated between— 
"(1) the exempt foreign trade income derived from such trans-
action, and 
"(2) the foreign trade income (other than exempt foreign trade 
income) derived from such transaction, on a proportionate basis. 
"(c) DENIAL OF CREDITS.—Notwithstanding any other provision of 
this chapter, no credit (other than a credit allowable under section 
27(a), 33, or 34) shall be allowed under this chapter to any FSC. Ante, pp. 826, 
"(d) FOREIGN TRADE INCOME, INVESTMENT INCOME, AND CARRYING 
^^^ 
CHARGES TREATED AS EFFECTIVELY CONNECTED WITH UNITED STATES 
BUSINESS.—For purposes of this chapter— 
"(1) all foreign trade income of a FSC other than— 
"(A) exempt foreign trade income, and 
"(B) section 923(a)(2) non-exempt income, 
Post, p. 986. 
"(2) all interest, dividends, royalties, and other investment 
income received or accrued by a FSC, and 
"(3) all carrying charges received or accrued by a FSC, 
shall be treated as income effectively connected with a trade or 
business conducted through a permanent establishment of such 
98 STAT. 986 
PUBLIC LAW 98-369—JULY 18, 1984 
corporation within the United States. Income described in para-
graph (1) shall be treated as derived from sources within the United 
States. 
26 use 922. 
"SEC. 922. FSC DEFINED. 
"(a) FSC DEFINED.—For purposes of this title, the term 'FSC 
means any corporation— 
"(1) which— 
"(A) was created or organized— 
"(i) under the laws of any foreign country which 
Post, p. 991. 
meets the requirements of section 927(e)(3), or 
"(ii) under the laws applicable to any possession of 
the United States, 
"(B) has no more than 25 shareholders at any time during 
the taxable year, 
"(C) does not have any preferred stock outstanding at any 
time during the taxable year, 
"(D) during the taxable year— 
"(i) maintains an office located outside the United 
' 
States in a foreign country which meets the require-
ments of section 927(e)(3) or in any possession of the 
United States, 
"(ii) maintains a set of the permanent books of ac-
count (including invoices) of such corporation at such 
office, and 
"(iii) maintains at a location within the United States 
the records which such corporation is required to keep 
under section 6001, 
"(E) at all times during the taxable year, has a board of 
directors which includes at least one individual who is not a 
resident of the United States, and 
"(F) is not a member, at any time during the taxable 
year, of any controlled group of corporations of which a 
DISC is a member, and 
"(2) which has made an election (at the time and in the 
manner provided in section 927(f)(1)) which is in effect for the 
taxable year to be treated as a FSC. 
"(b) SMALL FSC DEFINED.—For purposes of this title, a FSC is a 
small FSC with respect to any taxable year if^ 
"(1) such corporation has made an election (at the time and in 
the manner provided in section 927(f)(1)) which is in effect for 
the taxable year to be treated as a small FSC, and 
"(2) such corporation is not a member, at any time during the 
taxable year, of a controlled group of corporations which in-
cludes a FSC unless such other FSC has also made an election 
under paragraph (1) which is in effect for such year. 
26 use 923. 
"SEC. 923. EXEMPT FOREIGN TRADE INCOME. 
"(a) EXEMPT FOREIGN TRADE INCOME.—For purposes of this 
subpart— 
"(1) IN GENERAL.—The term 'exempt foreign trade income' 
means the aggregate amount of all foreign trade income of a 
FSC for the taxable year which is described in paragraph (2) or 
(3). 
"(2) INCOME DETERMINED WITHOUT REGARD TO ADMINISTRATIVE 
PRICING RULES.—In the case of any transaction to which para-
graph (3) does not apply, 32 percent of the foreign trade income 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 987 
derived from such transaction shall be treated as described in 
this paragraph. For purposes of the preceding sentence, foreign 
trade income shall not include any income properly allocable to 
excluded property described in subparagraph (B) of section 
927(a)(2) (relating to intangibles). 
Post, p. 991. 
"(3) 
INCOME DETERMINED WITH REGARD TO ADMINISTRATIVE 
PRICING RULES.—In the case of any transaction with respect to 
which paragraph (1) or (2) of section 925(a) (or the corresponding Post, p. 990. 
provisions of the regulations prescribed under section 925(b)) 
applies, 16/23 of the foreign trade income derived from such 
transaction shall be treated as described in this paragraph. 
"(4) SPECIAL RULE FOR FOREIGN TRADE INCOME ALLOCABLE TO A 
; 
COOPERATIVE.— 
"(A) IN GENERAL.—In any case in which a qualified coop-
erative is a shareholder of a FSC, paragraph (3) shall be 
applied with respect to that portion of the foreign trade 
income of such FSC for any taxable year which is properly 
allocable to the marketing of agricultural or horticultural 
b 
products (or the providing of related services) by such coop-
erative by substituting *100 percent' for '16/23'. 
"(B) PARAGRAPH ONLY TO APPLY TO AMOUNTS FSC DISTRIB-
! 
UTES.—Subparagraph (A) shall not apply for any taxable 
year unless the FSC distributes to the qualified cooperative 
the amount which (but for such subparagraph) would not be 
treated as exempt foreign trade income. Any distribution 
: 
under this subparagraph for any taxable year— 
"(i) shall be made before the due date for filing the 
return of tax for such taxable year, but 
"(ii) shall be treated as made on the last day of such 
taxable year. 
"(5) SPECIAL RULE FOR MILITARY PROPERTY.—Under regulations 
prescribed by the Secretary, that portion of the foreign trading 
gross receipts of the FSC for the taxable year attributable to the 
disposition of, or services relating to, military property (within 
the meaning of section 995(b)(3)(B)) which may be treated as 
exempt foreign trade income shall equal 50 percent of the 
amount which (but for this paragraph) would be treated as 
exempt foreign trade income. 
"(b) FOREIGN TRADE INCOME DEFINED.—For purposes of this sub-
part, the term 'foreign trade income' means the gross income of a 
FSC attributable to foreign trading gross receipts. 
"SEC. 924. FOREIGN TRADING GROSS RECEIPTS. 
26 USC 924. 
"(a) IN GENERAL.—Except as otherwise provided in this section, 
for purposes of this subpart, the term 'foreign trading gross receipts' 
means the gross receipts of any FSC which are— 
"(1) from the sale, exchange, or other disposition of export 
property, 
"(2) from the lease or rental of export property for use by the 
lessee outside the United States, 
^
, 
"(3) for services which are related and subsidiary to— 
"(A) any sale, exchange, or other disposition of export 
property by such corporation, or 
.-' 
"(B) any lease or rental of export property described in 
paragraph (2) by such corporation, 
98 STAT. 988 
PUBLIC LAW 98-369—JULY 18, 1984 
"(4) for engineering or architectural services for construction 
projects located (or proposed for location) outside the United 
States, or 
"(5) for the performance of managerial services for an unre-
lated FSC or DISC in furtherance of the production of foreign 
trading gross receipts described in paragraph (1), (2), or (3). 
Paragraph (5) shall not apply to a FSC for any taxable year unless at 
least 50 percent of its gross receipts for such taxable year is derived 
from activities described in paragraph (1), (2), or (3). 
"(b) 
FOREIGN MANAGEMENT AND FOREIGN ECONOMIC PROCESS 
REQUIREMENTS.— 
"(1) IN GENERAL.—Except as provided in paragraph (2)— 
"(A) a FSC shall be treated as having foreign trading 
gross receipts for the taxable year only if the management 
of such corporation during such taxable year takes place 
outside the United States as required by subsection (c), and 
"(B) a FSC has foreign trading gross receipts from any 
transaction only if economic processes with respect to such 
transaction take place outside the United States as required 
by subsection (d). 
"(2) EXCEPTION FOR SMALL FSC.— 
"(A) IN GENERAL.—Paragraph (1) shall not apply with 
respect to any small FSC. 
"(B) LIMITATION ON AMOUNT OF FOREIGN TRADING GROSS 
RECEIPTS OF SMALL FSC TAKEN INTO ACCOUNT.— 
"(i) IN GENERAL.—Any foreign trading gross receipts 
of a small FSC for the taxable year which exceed 
$5,000,000 shall not be taken into account in determin-
ing the exempt foreign trade income of such corpora-
tion and shall not be taken into account under any 
other provision of this subpart. 
"(ii) ALLOCATION OF LIMITATION.—If the foreign trad-
ing gross receipts of a small FSC exceed the limitation 
of clause (i), the corporation may allocate such limita-
tion among such gross receipts in such manner as it 
may select (at such time and in such manner as may be 
prescribed in regulations). 
"(iii) RECEIPTS OF CONTROLLED GROUP AGGREGATED.— 
For purposes of applying clauses (i) and (ii), all small 
FSC's which are members of the same controlled group 
of corporations shall be treated as a single corporation. 
"(iv) ALLOCATION OF UMITATION AMONG MEMBERS OF 
CONTROLLED GROUP.—The limitation under clause (i) 
shall be allocated among the foreign trading gross 
receipts of small FSC's which are members of the same 
controlled group of corporations in a manner provided 
in regulations prescribed by the Secretary. 
"(c) REQUIREMENT THAT FSC BE MANAGED OUTSIDE THE UNITED 
STATES.—The management of a FSC meets the requirements of this 
subsection for the taxable year if— 
"(1) all meetings of the board of directors of the corporation, 
and all meetings of the shareholders of the corporation, are 
outside the United States, 
"(2) the principal bank account of the corporation is main-
tained outside the United States at all times during the taxable 
year, and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 989 
"(3) all dividends, legal and accounting fees, and salaries of 
officers and members of the board of directors of the corporation 
disbursed during the taxable year are disbursed out of bank 
accounts of the corporation maintained outside the United 
States. 
"(d) REQUIREMENT THAT ECONOMIC PROCESSES TAKE PLACE OUT-
SIDE THE UNITED STATES.— 
"(1) IN GENERAL.—The requirements of this subsection are 
met with respect to the gross receipts of a FSC derived from any 
transaction if— 
"(A) such corporation (or any person acting under a 
contract with such corporation) has participated outside the 
United States in the solicitation (other than advertising), 
the negotiation, or the making of the contract relating to 
such transaction, and 
"(B) the foreign direct costs incurred by the FSC attribut-
able to the transaction equal or exceed 50 percent of the 
total direct costs attributable to the transaction. 
"(2) ALTERNATIVE 85-PERCENT TEST.—A corporation shall be 
treated as satisfying the requirements of paragraph (1)(B) with 
respect to any transaction if, with respect to each of at least 2 
paragraphs of subsection (e), the foreign direct costs incurred by 
such corporation attributable to activities described in such 
paragraph equal or exceed 85 percent of the total direct costs 
attributable to activities described in such paragraph. 
"(3) DEFINITIONS.—For purposes of this subsection— 
"(A) TOTAL DIRECT COSTS.—The term 'total direct costs' 
means, with respect to any transaction, the total direct 
costs incurred by the FSC attributable to activities de-
scribed in subsection (e) performed at any location by the 
FSC or any person acting under a contract with such FSC. 
"(B) FOREIGN DIRECT COSTS.—The term 'foreign direct 
costs' means, with respect to any transaction, the portion of 
the total direct costs which are attributable to activities 
performed outside the United States. 
"(4) RULES FOR COMMISSIONS, ETC.—The Secretary shall pre-
scribe such regulations as may be necessary to carry out the 
purposes of this subsection and subsection (e) in the case of 
commissions, rentals, and furnishing of services. 
"(e) ACTIVITIES RELATING TO DISPOSITION OF EXPORT PROPERTY.— 
The activities referred to in subsection (d) are— 
"(1) advertising and sales promotion, 
"(2) the processing of customer orders and the arranging for 
delivery of the export property, 
"(3) transportation from the time of acquisition by the FSC 
-
(or, in the case of a commission relationship, from the beginning 
of such relationship for such transaction) to the delivery to the 
customer, 
"(4) the determination and transmittal of a final invoice or 
statement of account and the receipt of payment, and 
"(5) the assumption of credit risk. 
"(f) CERTAIN RECEIPTS NOT INCLUDED IN FOREIGN TRADING GROSS 
RECEIPTS.— 
"(1) CERTAIN RECEIPTS EXCLUDED ON BASIS OF USE; SUBSIDIZED 
RECEIPTS AND RECEIPTS FROM RELATED PARTIES EXCLUDED.—The 
term 'foreign trading gross receipts' shall not include receipts of 
a FSC from a transaction i
f
— 
98 STAT. 990 
PUBLIC LAW 98-369—JULY 18, 1984 
"(A) the export property or services— 
"(i) are for ultimate use in the United States, or 
"(ii) are for use by the United States or any instru-
mentality thereof and such use of export property or 
services is required by law or regulation, 
"(B) such transaction is accomplished by a subsidy 
granted by the United States or any instrumentality 
thereof, or 
"(C) such receipts are from another FSC which is a 
member of the same controlled group of corporations of 
which such corporation is a member. 
"(2) INVESTMENT INCOME; CARRYING CHARGES.—The term 'for-
eign trading gross receipts' shall not include any investment 
income or carrying charges. 
26 u s e 925. 
"SEC. 925. TRANSFER PRICING RULES. 
"(a) IN GENERAL.—In the case of a sale of export property to a FSC 
by a person described in section 482, the taxable income of such FSC 
and such person shall be based upon a transfer price which would 
allow such FSC to derive taxable income attributable to such sale 
(regardless of the sales price actually charged) in an amount which 
does not exceed the greatest of— 
"(1) 1.83 percent of the foreign trading gross receipts derived 
from the sale of such property by such FSC, 
"(2) 23 percent of the combined taxable income of such FSC 
and such person which is attributable to the foreign trading 
gross receipts derived from the sale of such property by such 
FSC, or 
"(3) taxable income based upon the sale price actually 
charged (but subject to the rules provided in section 482). 
Paragraphs (1) and (2) shall apply only if the FSC meets the require-
ments of subsection (c) with respect to the sale. 
"(b) RULES FOR COMMISSIONS, RENTALS, AND MARGINAL COSTING.— 
The Secretary shall prescribe regulations setting forth— 
"(1) rules which are consistent with the rules set forth in 
subsection (a) for the application of this section in the case of 
commissions, rentals, and other income, and 
"(2) rules for the allocation of expenditures in computing 
combined taxable income under subsection (a)(2) in those cases 
where a FSC is seeking to establish or maintain a market for 
export property. 
"(c) REQUIREMENTS FOR USE OF ADMINISTRATIVE PRICING RULES.— 
A sale by a FSC meets the requirements of this subsection i
f
— 
Ante, p. 987. 
"(D all of the activities described in section 924(e) attributable 
to such sale, and 
"(2) all of the activities relating to the solicitation (other than 
advertising), negotiation, and making of the contract for such 
sale, 
have been performed by such FSC (or by another person acting 
under a contract with such FSC). 
"(d) LIMITATION ON GROSS RECEIPTS PRICING RULE.—The amount 
determined under subsection (a)(1) with respect to any transaction 
shall not exceed 2 times the amount which would be determined 
under subsection (aX2) with respect to such transaction. 
"(e) TAXABLE INCOME.—For purposes of this section, the taxable 
Ante, p. 985. 
income of a FSC shall be determined without regard to section 921. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 991 
"(f) SPECIAL RULE FOR COOPERATIVES.—In any case in which a 
qualified cooperative sells export property to a FSC, in computing 
the combined taxable income of such FSC and such organization for 
purposes of subsection (a)(2), there shall not be taken into account 
any deduction allowable under subsection (b) or (c) of section 1382 
(relating to patronage dividends, per-unit retain allocations, and 
. . 
nonpatronage distributions). 
'-
"SEC. 926. DISTRIBUTIONS TO SHAREHOLDERS. 
26 USC 926. 
"(a) DISTRIBUTIONS MADE FIRST OUT OF FOREIGN TRADE INCOME.— 
For purposes of this title, any distribution to a shareholder of a FSC 
by such FSC which is made out of earnings and profits shall be 
treated as made— 
"(1) first, out of earnings and profits attributable to foreign 
trade income, to the extent thereof, and 
"(2) then, out of any other earnings and profits. 
"(b) DISTRIBUTIONS BY FSC TO NONRESIDENT ALIENS AND FOREIGN 
CORPORATIONS TREATED AS UNITED STATES CONNECTED.—For pur-
poses of this title, any distribution by a FSC which is made out of 
earnings and profits attributable to foreign trade income to any 
shareholder of such corporation which is a foreign corporation or a 
nonresident alien individual shall be treated as a distribution— 
"(1) which is effectively connected with the conduct of a trade 
1 
or business conducted through a permanent establishment of 
such shareholder within the United States, and 
"(2) of income which is derived from sources within the 
United States. 
"(c) FSC INCLUDES FORMER FSC.—For purposes of this section, the 
term 'FSC includes a former FSC. 
"SEC. 927. OTHER DEFINITIONS AND SPECIAL RULES. 
26 USC 927. 
"(a) EXPORT PROPERTY.—For purposes of this subpart— 
"(1) IN GENERAL.—The term 'export property' means prop-
erty— 
"(A) manufactured, produced, grown, or extracted in the 
United States by a person other than a FSC, 
"(B) held primarily for sale, lease, or rental, in the ordi-
nary course of trade or business, by, or to, a FSC, for direct 
use, consumption, or disposition outside the United States, 
and 
"(C) not more than 50 percent of the fair market value of 
which is attributable to articles imported into the United 
States. 
For purposes of subparagraph (C), the fair market value of any 
article imported into the United States shall be its appraised 
value, as determined by the Secretary under section 402 of the 
Tariff Act of 1930 (19 U.S.C. 1401a) in connection with its 
importation. 
t 
"(2) EXCLUDED PROPERTY.—The term 'export property' shall 
not include— 
- 
"(A) property leased or rented by a FSC for use by any 
member of a controlled group of corporations of which such 
FSC is a member, 
;: 
"(B) patents, inventions, models, designs, formulas, or 
processes whether or not patented, copyrights (other than 
films, tapes, records, or similar reproductions, for commer-
98 STAT. 992 
PUBLIC LAW 98-369—JULY 18, 1984 
cial or home use), good will, trademarks, trade brands, 
franchises, or other like property, 
"(C) oil or gas (or any primary product thereof), or 
"(D) products the export of which is prohibited or cur-
tailed to effectuate the policy set forth in paragraph (2)(C) of 
50 use app. 
section 3 of the Export Administration Act of 1979 (relating 
2402. 
to the protection of the domestic economy). 
"(3) PROPERTY IN SHORT SUPPLY.—If the President determines 
that the supply of any property described in paragraph (1) is 
insufficient to meet the requirements of the domestic economy, 
he may by Executive order designate the property as in short 
supply. Any property so designated shall not be treated as 
export property during the period beginning with the date 
specified in the Executive order and ending with the date 
specified in an Executive order setting forth the President's 
determination that the property is no longer in short supply. 
"(4) QuAUFiED COOPERATIVE.—The term 'qualified coopera-
tive' means any organization to which part I of subchapter T 
applies which is engaged in the marketing of agricultural or 
horticultural products. 
"(b) GROSS RECEIPTS.— 
"(1) IN GENERAL.—For purposes of this subpart, the term 
'gross receipts' means— 
"(A) the total receipts from the sale, lease, or rental of 
property held primarily for sale, lease, or rental in the 
ordinary course of trade or business, and 
"(B) gross income from all other sources. 
"(2) GROSS RECEIPTS TAKEN INTO ACCOUNT IN CASE OF COMMIS-
SIONS.—In the case of commissions on the sale, lease, or rental 
of property, the amount taken into account for purposes of this 
subpart as gross receipts shall be the gross receipts on the sale, 
lease, or rental of the property on which such commissions 
arose. 
"(c) INVESTMENT INCOME.—For purposes of this subpart, the term 
'investment income' means— 
"(1) dividends, 
"(2) interest, 
"(3) royalties, 
"(4) annuities, 
"(5) rents (other than rents from the lease or rental of export 
property for use by the lessee outside of the United States), 
"(6) gains from the sale or exchange of stock or securities, 
"(7) gains from futures transactions in any commodity on, or 
subject to the rules of, a board of trade or commodity exchange 
(other than gains which arise out of a bona fide hedging transac-
tion reasonably necessary to conduct the business of the FSC in 
the manner in which such business is customarily conducted by 
others), 
"(8) amounts includible in computing the taxable income of 
the corporation under part I of subchapter J, and 
"(9) gains from the sale or other disposition of any interest in 
an estate or trust. 
"(d) OTHER DEFINITIONS.—For purposes of this subpart— 
"(1) 
CARRYING 
CHARGES.—The term 
'carrying 
charges' 
means— 
"(A) carrying charges, and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 993 
"(B) under regulations prescribed by the Secretary, any 
amount in excess of the price for an immediate cash sale 
and any other unstated interest. 
"(2) TRANSACTION.— 
"(A) IN GENERAL.—The term 'transaction' means— 
"(i) any sale, exchange, or other disposition, 
"(ii) any lease or rental, and 
"(iii) any furnishing of services. 
"(B) GROUPING OF TRANSACTIONS.—To the extent provided 
in regulations, any provision of this subpart which, but for 
this subparagraph, would be applied on a transaction-by-
transaction basis may be applied by the taxpayer on the 
,;_, . 
basis of groups of transactions based on product lines or 
" 
^ 
-
recognized industry or trade usage. Such regulations may 
permit different groupings for different purposes. 
"(3) UNITED STATES DEFINED.—The term 'United States' 
includes the Commonwealth of Puerto Rico. 
"(4) CONTROLLED GROUP OF CORPORATIONS.—The term 'con-
trolled group of corporations' has the meaning given to such 
term by section 1563(a), except that— 
"(A) 'more than 50 percent' shall be substituted for 'at 
least 80 percent' each place it appears therein, and 
"(B) section 1563(b) shall not apply. 
"(5) POSSESSIONS.—The term 'possession of the United States' 
means Guam, American Samoa, the Commonwealth of the 
Northern Mariana Islands, and the Virgin Islands of the United 
States. 
"(6) SECTION 923(A) (2) NON-EXEMPT INCOME.—The term 'sec-
tion 923(a)(2) non-exempt income' means any foreign trade Ante, p. 986. 
income from a transaction with respect to which paragraph (1) 
or (2) of section 925(a) does not apply and which is not exempt Ante, p. 990. 
foreign trade income. 
"(e) SPECIAL RULES,— 
"(1) SOURCE RULES FOR RELATED PERSONS.—Under regulations, 
the income of a person described in section 482 from a transac-
tion giving rise to foreign trading gross receipts of a FSC which 
is treated as from sources outside the United States shall not 
exceed the amount which would be treated as foreign source 
income earned by such person if the pricing rule under section 
994 which corresponds to the rule used under section 925 with 
respect to such transaction applied to such transaction. 
"(2) PARTICIPATION IN INTERNATIONAL BOYCOTTS, ETC.—Under 
regulations prescribed by the Secretary, the exempt foreign 
trade income of a FSC for any taxable year shall be limited 
under rules similar to the rules of clauses (i) and (ii) of section 
995(b)(1)(F). 
"(3) EXCHANGE OF INFORMATION REQUIREMENTS.—For pur-
poses of this title, the term 'FSC shall not include any corpora-
tion which was created or organized under the laws of any 
foreign country unless, at the time such corporation was created 
or organized, there was in effect between such country and the 
United States— 
"(A) a bilateral or multilateral agreement described in 
section 274(h)(6)(C), or 
97 Stat. 395. 
"(B) an income tax treaty with respect to which the 26 USC 274. 
Secretary certifies that the exchange of information pro« 
98 STAT. 994 
PUBLIC LAW 98-369—JULY 18, 1984 
Y^^^ 
gram with such country under such treaty carries out the 
J 
purposes of this paragraph. 
"(4) DISALLOWANCE OF TREATY BENEFITS.—Any corporation 
electing to be treated as a FSC under subsection (f)(1) may not 
claim any benefits under any income tax treaty between the 
United States and any foreign country. 
"(5) EXEMPTION FROM CERTAIN OTHER TAXES.—No tax shall be 
imposed by any jurisdiction described in subsection (dX5) on any 
foreign trade income derived before January 1,1987. 
"(0 ELECTION OF STATUS AS FSC (AND AS SMALL FSC).— 
"(1) ELECTION.— 
"(A) TIME FOR MAKING.—An election by a corporation 
Ante, p. 986. 
under section 922(a)(2) to be treated as a FSC, and an 
election under section 922(b)(1) to be a small FSC, shall be 
made by such corporation for a taxable year at any time 
during the 90-day period immediately preceding the begin-
ning of the taxable year, except that the Secretary may give 
his consent to the making of an election at such other times 
£is he may designate. 
"(B) MANNER OF ELECTION.—An election under subpara-
graph (A) shall be made in such manner as the Secretary 
shall prescribe and shall be valid only if all persons who are 
shareholders in such corporation on the first day of the first 
taxable year for which such election is effective consent to 
such election. 
"(2) EFFECT OF ELECTION.—If a corporation makes an election 
under paragraph (1), then the provisions of this subpart shall 
apply to such corporation for the taxable year of the corporation 
for which made and for all succeeding taxable years. 
"(3) TERMINATION OF ELECTION.— 
"(A) REVOCATION.—An election under this subsection 
- 
made by any corporation may be terminated by revocation 
of such election for any t£ixable year of the corporation 
after the first taxable year of the corporation for which the 
election is effective. A termination under this paragraph 
shall be effective with respect to such election— 
"(i) for the taxable year in which made, if made at 
any time during the first 90 days of such taxable year, 
or 
"(ii) for the taxable year following the taxable year in 
which made, if made after the close of such 90 days, 
and 
for all succeeding taxable years of the corporation. Such 
termination shall be made in such manner as the Secretary 
, 
shall prescribe by regulations. 
"(B) CONTINUED FAILURE TO BE A FSC.—If a corporation is 
not a FSC for each of any 5 consecutive taxable years of the 
corporation for which an election under this subsection is 
effective, the election to be a FSC shall be terminated and 
not be in effect for any taxable year of the corporation after 
such 5th year.". 
(b) DIVIDEND RECEIVED DEDUCTION FOR DOMESTIC CORPORATIONS.— 
26 use 245. 
(1) IN GENERAL.—Section 245 (relating to dividends received 
from certain foreign corporations) is amended by redesignating 
subsection (c) as subsection (d) and by inserting after subsection 
j_ 
(b) the following new subsection: 
"(c) CERTAIN DIVIDENDS RECEIVED FROM FSC.— 
PUBLIC LAW 98-369—JULY 18, 1984 
STAT. 995 
"(1) IN GENERAL.—In the case of a domestic corporation, there 
shall be allowed as a deduction an amount equal to 100 percent 
of any dividend received by such corporation from another 
corporation which is distributed out of earnings and profits 
attributable to foreign trade income for a period during which 
such other corporation was a FSC. The deduction allowable 
under the preceding sentence with respect to any dividend shall 
be in lieu of any deduction allowable under subsection (a) or (b) 
with respect to such dividend. 
"(2) EXCEPTION FOR CERTAIN DIVIDENDS.—Paragraph (1) shall 
^ 
not apply to any dividend which is distributed out of earnings 
and profits attributable to foreign trade income which— 
"(A) is section 923(a)(2) non-exempt income (within the 
''' ''^ 
meaning of section 927(d)(6)), or 
"(B) would not, but for section 923(a)(4), be treated as 
exempt foreign trade income. 
"(3) DEFINITIONS.—For purposes of this subsection, the terms 
;' 
'foreign trade income' and 'exempt foreign trade income' have 
the meaning given such terms by section 923.". 
(2) CONFORMING AMENDMENTS.— 
(A) Paragraph (1) of section 246(b) (relating to limitation 
on aggregate amount of deduction) is amended by striking 
out "245" each place it appears and inserting in lieu thereof 
"subsection (a) or (b) of section 245". 
(B) Subsection (d) of section 245 (relating to property 
distributions), as redesignated by paragraph (1), is amended 
by striking out "subsections (a) and (b)" and inserting in 
lieu thereof "this section". 
(c) CLARIFICATION OF INFORMATION EXCHANGE AGREEMENTS.—Sub-
paragraph (D) of section 274(h)(6) (relating to coordination with 
section 6103) is amended— 
(1) by adding at the end thereof the following new sentence: 
"The Secretary may exercise his authority under subchapter A 
of chapter 78 to carry out any obligation of the United States 
under an agreement referred to in subparagraph (C).", and 
(2) by striking out the heading thereof and inserting in lieu 
thereof "COORDINATION WITH OTHER PROVISIONS.—". 
(d) CONFORMING AMENDMENTS.— 
(1) Section 901 (relating to foreign tax credit) is amended by 
redesignating subsection (h) as subsection (i) and inserting after 
subsection (g) the following new subsection: 
"(h) TAXES PAID WITH RESPECT TO FOREIGN TRADE INCOME.—No 
credit shall be allowed under this section for any income, war 
profits, and excess profits taxes paid or accrued with respect to the 
foreign trade income (within the meaning of section 923(b)) of a FSC, 
other than section 923(a)(2) non-exempt income (within the meaning 
of section 927(d)(6).". 
(2) Paragraph (1) of section 904(d) (relating to application of 
section in case of certain interest income and dividends from a 
DISC) as amended— 
(A) by striking out "and" at the end of subparagraph (B), 
(B) by striking out subparagraph (C) and inserting in lieu 
thereof the following: 
"(C) taxable income attributable to foreign trade income 
(within the meaning of section 923(b)), 
.siMiS. 
•Mk r»ai r m 
Ante, p. 986. 
Ante, p. 991. 
,ia«: ••>fc0 m 
26 use 246. 
Ante, p. 994. 
97 Stat. 395. 
26 use 274. 
26 u s e 7601 et 
seq. 
26 u s e 901. 
Ante, p. 986. 
Ante, p. 991. 
26 u s e 904. 
•J9K 
98 STAT. 996 
PUBLIC LAW 98-369—JULY 18, 1984 
"(D) distributions from a FSC (or former FSC) out of 
earnings and profits attributable to foreign trade income 
Ante, p. 986. 
(within the meaning of section 923(b)), and 
"(E) income other than income described in subparagraph 
(A),(B),(C),or(D).",and 
(C) by striking out the heading and inserting in lieu 
thereof: 
"(d) SEPARATE APPUCATION OF SECTION WITH RESPECT TO CERTAIN 
INTEREST INCOME AND INCOME FROM DISC, FORMER DISC, FSC, OR 
FORMER FSC.—". 
26 use 906. 
(3) Subsection (b) of section 906 (relating to special rules) is 
amended by adding at the end thereof the following new 
paragraph: 
"(5) No credit shall be allowed under this section for any 
income, war profits, and excess profits taxes paid or accrued 
with respect to the foreign trade income (within the meaning of 
section 923(b)) of a FSC". 
26 use 951. 
(4) Section 951 (relating to amounts included in gross income 
of shareholders) is amended by adding at the end thereof the 
following new subsection: 
"(e) FOREIGN TRADE INCOME NOT TAKEN INTO ACCOUNT.— 
"(1) IN GENERAL.—The foreign trade income of a FSC and any 
deductions which are apportioned or allocated to such income 
shall not be taken into account under this subpart. For purposes 
of the preceding sentence, income described in paragraph (2) or 
Ante, p. 985. 
(3) of section 921(d) shall be treated as derived from sources 
within the United States. 
"(2) FOREIGN TRADE INCOME.—For purposes of this subsection, 
the term 'foreign trade income' has the meaning given such 
Ante, p. 986. 
term by section 923(b), but does not include section 923(a)(2) non-
Ante, p. 991. 
exempt income (within the meaning of section 927(dX6)).". 
26 use 275. 
(5) Paragraph (4) of section 275(a) (relating to disallowance of 
deduction for certain taxes) is amended to read as follows: 
"(4) Income, war profits, and excess profits taxes imposed by 
the authority of any foreign country or possession of the United 
States if— 
"(A) the taxpayer chooses to take to any extent the 
benefits of section 901, or 
"(B) such taxes are paid or accrued with respect to foreign 
trade income (within the meaning of section 923(b)) of a 
FSC". 
26 use 1248. 
(6) Subsection (d) of section 1248 (relating to exclusions from 
earnings and profits) is amended by adding at the end thereof 
the following new paragraph: 
"(6) FOREIGN TRADE INCOME.—Earnings and profits of 
the 
foreign corporation attributable to foreign trade income (within 
Ante, p. 986. 
the meaning of section 923(b)) of a FSC". 
26 use 934. 
(7) Section 934 (relating to limitation on reduction in income 
tax liability incurred to the Virgin Islands) is amended by 
adding at the end thereof the following new subsection: 
"(f) FSC—Subsection (a) shall not apply in the case of a Virgin 
Islands corporation which is a FSC". 
26 use 956. 
(8) Paragraph (2) of section 956(b) (defining United States 
property) is amended by striking out "and" at the end of 
subparagraph (G), by striking out the period at the end of 
subparagraph (H) and inserting in lieu thereof a semicolon and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 997 
"and", and by adding at the end thereof the following new 
subparagraph: 
"(I) to the extent provided in regulations prescribed by 
the Secretary, property which is otherwise United States 
property which is held by a FSC and which is related to the 
export activities of such FSC". 
(9) Subparagraph (B) of section 7651(5), as amended by this 26 use 7651. 
Act, is amended by inserting "or subpart C of part III of 
subchapter N of chapter 1" after "SSKbXD". 
(10) Section 996(g) (relating to effectively connected income) is 26 use 996. 
amended by inserting "and which are derived from sources 
within the United States" after "United States". 
(11) Section 936(f) (relating to DISC or former DISC ineligible 26 U
S
C 936. 
for credit) is amended to read as follows: 
"(f) LIMITATION ON CREDIT FOR DISC'S AND FSC'S.—NO credit shall 
be allowed under this section to a corporation for any taxable year— 
, 
"(1) for which it is a DISC or former DISC, or 
"(2) in which it owns at any time stock in a— 
"(A) DISC or former DISC, or 
"(B) FSC or former FSC." 
(12) Section 6011(c) (relating to returns of DISC'S and 26USC6011. 
former DISC's) is amended— 
(A) by inserting "or a FSC or former FSC" after "former 
DISC" in paragraph (1), and 
(B) by inserting "and FSC's and Former FSC's" after 
"Former DISC's" in the heading thereof. 
(13) Section 6072(c) (relating to returns by nonresident alien 26 use 6072. 
individuals and foreign corporations) is amended by inserting 
"or a FSC or former FSC" after "United States". 
(14) Section 6501(gX3) (relating to income tax returns of 26 use 6501. 
Disc's) is amended by striking out "section 6011(eX2)" and 
inserting in lieu thereof "section 6011(cX2)". 
(15)(A) Section 6686 (relating to failure of DISC to file returns) 26 use 6686. 
is amended— 
(i) by striking out "section 6011(e)" and inserting in lieu 
thereof "section 6011(c)", and 
(ii) by striking out the heading thereof and inserting in 
lieu thereof the following: 
"SEC. 6686. FAILURE TO FILE RETURNS OR SUPPLY INFORMATION BY 
DISC OR FSC." 
(B) The table of sections for subchapter B of chapter 68 is 
amended by striking out the item relating to section 6686 and 
inserting in lieu thereof the following new item: 
"Sec. 6686. Failure to file returns or supply information by DISC or FSC." 
SEC. 802. INTEREST CHARGE DISC. 
(a) INTEREST CHARGE ON DEFERRED TAX.—Section 995 (relating to 26 use 995. 
taxation of DISC income to shareholders) is amended— 
(1) by striking out subsections (e) and (f), 
(2) by redesignating subsection (g) as subsection (e), and 
(3) by adding at the end thereof the following new subsection: 
"(f) INTEREST ON DISC-RELATED DEFERRED TAX LIABIUTY.— 
"(1) IN GENERAL.—A shareholder of a DISC shall pay for each 
taxable year interest in an amount equal to the product o
f
— 
98 STAT. 998 
PUBLIC LAW 98-369—JULY 18, 1984 
"(A) the shareholder's DISC-related deferred tax liability 
for such year, and 
"(B) the base period T-bill rate. 
"(2) SHAREHOLDER'S DISC-RELATED DEFERRED TAX LIABILITY,— 
For purposes of this subsection— 
"(A) IN GENERAL.—The term 'shareholder's DISC-related 
deferred tax liability' means, with respect to any taxable 
year of a shareholder of a DISC, the excess of— 
"(i) the amount which would be the tax liability of 
the shareholder for the taxable year if the deferred 
DISC income of such shareholder for such taxable year 
were included in gross income as ordinary income, over 
"(ii) the actual amount of the tax liability of such 
shareholder for such teixable year. 
Determinations under the preceding sentence shall be 
made without regard to carrybacks to such taxable year. 
"(B) 
ADJUSTMENTS FOR LOSSES, 
CREDITS, 
AND OTHER 
ITEMS.—The Secretary shall prescribe regulations which 
provide such adjustments— 
"(i) to the accounts of the DISC, and 
"(ii) to the amount of any carryover or carryback of 
the shareholder, 
£is may be necessary or appropriate in the case of net 
operating losses, credits, and carryovers, and carrybacks of 
losses and credits. 
"(C) TAX UABIUTY.—The term 'tax liability' means the 
amount of the tax imposed by this chapter for the taxable 
year reduced by credits allowable against such tax (other 
Ante, p. 826. 
than Credits allowable under sections 31, 32, and 34). 
"(3) 
DEFERRED 
DISC 
INCOME.—For 
purposes 
of 
this 
subsection— 
"(A) IN GENERAL.—The term 'deferred DISC income' 
means, with respect to any taxable year of a shareholder, 
the excess of^ 
"(i) the shareholder's pro rata share of accumulated 
DISC income (for periods after 1984) of the DISC as of 
the close of the computation year, over 
"(ii) the amount of the distributions-in-excess-of-
income for the taxable year of the DISC following the 
computation year. 
"(B) COMPUTATION YEAR.—For purposes of applying sub-
paragraph (A) with respect to any taxable year of a share-
holder, the computation year is the taxable year of the 
DISC which ends with (or within) the taxable year of the 
shareholder which precedes the taxable year of the share-
holder for which the amount of deferred DISC income is 
i 
being determined. 
"(C) D:STRIBUTIONS-IN-EXCESS-OF-INCOME.—For purposes of 
subparagraph 
(A), the term 
'distributions-in-excess-of-
income' means, with respect to any taxable year of a DISC, 
the excess (if any) of— 
"(i) the amount of actual distributions to the share-
holder out of accumulated DISC income, over 
;rT5_ 
"(ii) the shareholder's pro rata share of the DISC 
income for such taxable year. 
il;, 
"(3) BASE PERIOD T-BILL RATE.—For purposes of this subsection, 
.„: 
the term 'base period T-bill rate' means the annual rate of 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 999 
interest determined by the Secretary to be equivalent to the 
average investment yield of United States Treasury bills with 
maturities of 52 weeks which were auctioned during the 1-year 
period ending on September 30 of the calendar year ending with 
(or of the most recent calendar year ending before) the close of 
the taxable year of the shareholder. 
"(4) SHORT YEARS.—The Secretary shall prescribe such regula-
tions as may be necessary for the application of this subsection 
to short years of the DISC, the shareholder, or both. 
"(5) PAYMENT AND ASSESSMENT AND COLLECTION OF INTEREST.— 
The interest accrued during any taxable year which a share-
holder is required to pay under paragraph (1) shall be treated, 
for purposes of this title, as interest payable under section 6601 
and shall be paid by the shareholder at the time the tax 
imposed by this chapter for such taxable year is required to be 
paid.". 
(b) 
TAXABLE 
INCOME 
IN 
EXCESS 
OF $10,000,000 
DEEMED 
DISTRIBUTED.— 
(1) IN GENERAL.—Subparagraph (E) of section 995(b)(1) (relat- 26 USC 995. 
ing to based period export gross receipts) is amended to read as 
follows: 
"(E) the taxable income of the DISC attributable to quali-
r 
fled export receipts of the DISC for the taxable year which 
exceed $10,000,000,". 
r 
(2) AGGREGATION OF RECEIPTS.—Subsection (b) of section 995 
(relating to deemed distributions) is amended by adding at the 
end thereof the following new paragraph: 
"(4) AGGREGATION OF QUAUFIED EXPORT RECEIPTS.— 
ij^i** 
"(A) IN GENERAL.—For purposes of applying paragraph 
(1)(E), all DISC'S which are members of the same controlled 
group shall be treated as a single corporation. 
"(B) ALLOCATION.—The dollar amount under paragraph 
(IXE) shall be allocated among the DISC's which are mem-
bers of the same controlled group in a manner provided in 
regulations prescribed by the Secretary.". 
(c) CONFORMING AMENDMENTS.— 
(1) Subsection (aXD of section 992 (relating to definition of 26 USC 992. 
; 
DISC) is amended— 
I 
(A) by striking out "and" at the end of subparagraph (C), 
^'" 
(B) by striking out the period at the end of subparagraph 
(D) and inserting in lieu thereof ", and", and 
(C) by adding at the end thereof the following new sub-
paragraph: 
"(E) such corporation is not a member of any controlled 
group of which a FSC is a member.". 
(2) Paragraph (3) of section 993(a) (relating to controlled 26 use 993. 
groups) is amended by striking out "such term by" and insert-
ing in lieu thereof "the term 'controlled group of corporations' 
by". 
(3) Subsection (c) of section 999 (relating to international 26 USC 999. 
boycott factor) is amended by striking out "995(bXl)(F)(ii)" each 
place it appears and inserting in lieu thereof "995(b)(lXFXi)". 
(4) The table of subparts of part III of subchapter N of chapter 
1 is amended by inserting after the item relating to subpart B 
the following new item: 
^
^
^ , 
"Subpart C. Taxation of foreign sales corporations." 
J HK 
ma tseaauos 
:As\i'. 
98 STAT. 1000 
PUBLIC LAW 98-369—JULY 18, 1984 
SEC. 803. TAXABLE YEAR OF DISC AND FSC REQUIRED TO CONFORM TO 
TAXABLE YEAR OF MAJORITY SHAREHOLDER. 
26 use 441. 
(a) IN GENERAL.—Subsection (b) of section 441 (relating to period 
for computation of taxable income) is amended— 
(1) by striking out "or" at the end of paragraph (2), 
(2) by striking out the period at the end of paragraph (3) and 
inserting in lieu thereof "; or", and 
(3) by adding at the end thereof the following new paragraph: 
"(4) in the case of a FSC or DISC filing a return for a period of 
at least 12 months, the period determined under subsection 
(h).". 
(b) DETERMINATION OF TAXABLE YEAR.—Section 441 is amended by 
adding at the end thereof the following new subsection: 
"(h) TAXABLE YEAR OF FSC'S AND DISC'S.— 
"(1) IN GENERAL.—For purposes of this subtitle, the taxable 
year of any FSC or DISC shall be the taxable year of that 
shareholder (or group of shareholders with the same 12-month 
taxable year) who has the highest percentage of voting power. 
"(2) SPECIAL RULE WHERE MORE THAN ONE SHAREHOLDER (OR 
GROUP) HAS HIGHEST PERCENTAGE.—If 2 or more shareholders (or 
groups) have the highest percentage of voting power under 
paragraph (1), the taxable year of the FSC or DISC shall be the 
same 12-month period as that of any such shareholder (or 
group). 
"(3) SUBSEQUENT CHANGES OF OWNERSHIP.—The Secretary 
shall prescribe regulations under which paragraphs (1) and (2) 
shall apply to a change of ownership of a corporation after the 
; ; . 
taxable year of the corporation has been determined under 
' 
paragraph (1) or (2) only if such change is a substantial change 
of ownership. 
"(4) VOTING POWER DETERMINED.—For purposes of this subsec-
tion, voting power shall be determined on the basis of total 
combined voting power of all classes of stock of the corporation 
entitled to vote. . 
SEC. 804. REPORTING REQUIREMENTS. 
26 use 921 note. 
(a) IN GENERAL.—The Secretary of the Treasury shall, for calen-
dar year 1985 and each second calendar year thereafter, submit a 
report to the Congress within 27 ¥2 months following the close of 
such calendar yea> setting forth an analysis of the operation and 
effect of the provisions of this title, 
(b) REPEAL OF DISC REPORTING REQUIREMENTS.— 
26 use 991 note. 
(1) IN GENERAL.—Section 806 of the Revenue Act of 1971 
(relating to submission of annual reports to Congress) is hereby 
repealed. 
26 use 991 note. 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply to reports for calendar years after 1984. 
SEC. 805. EFFECTIVE DATE; TRANSITION RULES. 
26 u s e 921 note. 
(a) EFFECTIVE D A T E S . — 
. 
(1) IN GENERAL.—Except as provided in this subsection, the 
amendments made by this title shall apply to transactions after 
December 31, 1984, in taxable years ending after such date. 
(2) SPECIAL RULE FOR CERTAIN CONTRACTS.—To the extent 
provided in regulations prescribed by the Secretary, subsections 
Ante, p. 987. 
(c) and (d) of section 924 of the Internal Revenue Code of 1954 
(as added by this title) shall not apply to— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1001 
* 
(A) any contract with respect to which the taxpayer uses 
the completed contract method of accounting and which— 
' 
(i) was entered into before March 16, 1984, or 
(ii) was entered into after March 15, 1984, and before 
January 1, 1985, pursuant to a written plan to enter 
into such contract which was in effect on March 15, 
1984, 
(B) any contract which was entered into before March 16, 
1984, except that this subparagraph shall only apply to the 
first 2 taxable years of the FSC ending after January 1, 
1985, or such later taxable years as the Secretary of the 
Treasury may designate, or 
(C) any contract which was entered into after March 15, 
1984, and before January 1, 1985, except that this subpara-
graph shall only apply to the first taxable year of the FSC 
ending after January 1, 1985, or such later taxable years as 
the Secretary of the Treasury may designate. 
(3) SECTION 801(d)(10).—The amendment made by section 
801(d)(10) shall apply to distributions on or after June 22, 1984. Ante, p. 985. 
(4) SECTION 803.—The amendments made by section 803 shall Ante, p. looo. 
apply to any DISC established after March 21,1984. 
(b) TRANSITION RULES FOR DISC'S.— 
26 use 99i note. 
(1) CLOSE OF I984 TAXABLE YEARS OF DISC'S.— 
(A) IN GENERAL.—For purposes of applying the Internal 
Revenue Code of 1954, the taxable year of each DISC which 26 USC i et seq. 
begins before January 1, 1985, and which (but for this 
paragraph) would include January 1, 1985, shall close on 
December 31, 1984. For purposes of such Code, the require-
ments of section 992(aXlXB) of such Code (relating to per-
centage of qualified export assets on last day of the taxable 
year) shall not apply to any taxable year ending on Decem-
ber 31,1984. 
(B) UNDERPAYMENTS OF ESTIMATED TAX.—To the extent 
provided in regulations prescribed by the Secretary of the 
Treasury or his delegate, no addition to tax shall be made 
under section 6654 or 6655 of such Code with respect to any Ante, p. 788. 
underpayment of any installment required to be paid before 
April 13, 1985, to the extent the underpayment was created 
or increased by reason of subparagraph (A). 
(2) EXEMPTION OF ACCUMULATED DISC INCOME FROM TAX.— 
(A) IN GENERAL.—For purposes of applying the Internal 
Revenue Code of 1954 with respect to actual distributions 
made after December 31, 1984, by a DISC or former DISC 
which was a DISC on December 31, 1984, any accumulated 
• • . .- ' »„ 
efe: 
DISC income of a DISC or former DISC (within the meaning 
of section 996(f)(1) of such Code) which is derived before 
January 1, 1985, shall be treated as previously taxed 
income (within the meaning of section 996(f)(2) of such 
.;, . . 
Code) with respect to which there had previously been a 
deemed distribution to which section 996(e)(1) of such Code 
applied. 
(B) EXCEPTION FOR DISTRIBUTION OF AMOUNTS PREVIOUSLY 
DISQUALIFIED.—Subparagraph (A) shall not apply to the 
J , 
distribution of any accumulated DISC income of a DISC or 
former DISC to which section 995(b)(2) of such Code applied 
e . 
by reason of any revocation or disqualification (other than a 
98 STAT. 1002 
PUBLIC LAW 98-369—JULY 18, 1984 
revocation which under regulations prescribed by the Secre-
tary results solely from the provisions of this title. 
(3) INSTALLMENT TREATMENT OF CERTAIN DEEMED DISTRIBU-
TIONS OF SHAREHOLDERS.— 
(A) IN GENERAL.—Notwithstanding section 995(b) of such 
Code, if a shareholder of a DISC elects the application of 
this paragraph, any qualified distribution shall be treated, 
for purposes of such Code, as received by such shareholder 
in 10 equal installments on the last day of each of the 10 
taxable years of such shareholder which begins after the 
first taxable year of such shareholder beginning in 1984. 
The preceding sentence shall apply without regard to 
whether the DISC exists after December 31,1984. 
(B) QUAUFIED DISTRIBUTION.—The term 'qualified distri-
bution' means any distribution which a shareholder is 
deemed to have received by reason of section 99503) of such 
Code with respect to income derived by the DISC in the first 
taxable year of the DISC beginning— 
(i) in 1984, and 
(ii) after the date in 1984 on which the taxable year of 
such shareholder begins. 
(C) SHORTER PERIOD FOR INSTALLMENTS.—The Secretary of 
-'• 
the Treasury or his delegate may by regulations provide for 
the election by any shareholder to be treated as receiving a 
qualified distribution over such shorter period as the tax-
payer may elect. 
(D) ELECTIONS.—Any election under this paragraph shall 
be made at such time and in such manner as the Secretary 
of the Treasury or his delegate may prescribe. 
(4) TREATMENT OP TRANSFERS FROM DISC TO FSC—Except to the 
extent provided in regulations, section 367 of such Code shall 
not apply to transfers made before January 1, 1986 (or, if later, 
the date 1 year after the date on which the corporation ceases to 
be a DISC), to a FSC of qualified export assets (as defined in 
section 9930)) of such Code) held on August 4,1983, by a DISC in 
a transaction described in section 351 or 368(a)(1) of such Code. 
(5) DEEMED TERMINATION OF A DISC—Under regulations pre-
scribed by the Secretary, if any controlled group of corporations 
of which a DISC is a member establishes a FSC, then any DISC 
which is a member of such group shall be treated as having 
terminated its DISC status. 
(6) DEFINITIONS.—For purposes of this subsection, the terms 
"DISC" and "former DISC" have the respective meanings given 
to such terms by section 992 of such Code. 
26 u s e 991 note. 
(c) SPECIAL RULE FOR ExPORT T R A D E CORPORATIONS.— 
(1) IN GENERAL.—If, before January 1, 1985, any export trade 
corporation— 
(A) makes an election under section 927(f)(1) of the Inter-
Ante, p. 991. 
nal Revenue Code of 1954 to be treated as a FSC, or 
(B) elects not to be treated as an export trade corporation 
with respect to taxable years beginning after December 31, 
1984, 
rules similar to the rules of paragraphs (2) and (4) of subsection 
(b) shall apply to such export trade corporation. 
(2) TREATMENT OF TRANSFERS TO FSC.—In the case of any 
export trade corporation which— 
(A) makes an election described in paragraph (1), and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1003 
(B) transfers before January 1, 1986, any portion of its 
property to a FSC in a transaction described in section 351 
or 368(aXl), 
then, subject to such rules as the Secretary of the Treasury or 
his delegate may prescribe based on principles similar to the 
principles of section 505 (a) and (h) of the Revenue Act of 1971, 26 use 970 note. 
no income, gain, or loss shall be recognized on such transfer or 
on the distribution of any stock of the FSC received (or treated 
|g|,| «
£
> •, ^ 
as received) in connection with such transfer. 
>: •.: 
(3) EXPORT TRADE CORPORATION.—For purposes of this subsec-
tion, the term "export trade corporation" has the meaning 
given such term by section 971 of the Internal Revenue Code of 
: 
a.? --PU ,;£ 
1954. 
W^'^ 
TITLE IX—HIGHWAY REVENUE 
^ 
S;::,:,,,^. ..,,^^ 
PROVISIONS 
Subtitle A—Provisions Relating to Heavy 
Vehicle Use Tax 
•
! 
SEC. 901. REDUCTION OF HEAVY VEHICLE USE TAX. 
(a) GENERAL RULE.—Subsection (a) of section 4481 (as amended by 26 use 4481. 
section 513(a) of the Highway Revenue Act of 1982) is amended to 
. ,,_ j 
read as follows: 
"(a) IMPOSITION OF TAX.—A tax is hereby imposed on the use of 
any highway motor vehicle which (together with the semitrailers 
and trailers customarily used in connection with highway motor 
vehicles of the same type as such highway motor vehicle) has a 
taxable gross weight of at least 55,000 pounds at the rate specified in 
the following table: 
"Taxable gross weight: 
Rate of tax: 
"At least 55,000 pounds, but not 
$100 per year plus $22 for each 1,000 
over 75,000 pounds. 
pounds (or fraction thereof) in excess 
of 55,000 pounds. 
Over 75,000 pounds 
$550." 
(b) SPECIAL RULES IN THE CASE OF CERTAIN OWNER-OPERATORS.— 26 use 4481 
(1) SPECIAL RULE FOR TAXABLE PERIOD BEGINNING ON JULY i, note. 
1984.—In the case of a small owner-operator, the amount of the 
tax imposed by section 4481 of the Internal Revenue Code of 
1954 on the use of any highway motor vehicle subject to tax 
under section 4481(a) of such Code (as amended by subsection 
(a)) for the taxable period which begins on July 1, 1984, shall be 
the lesser of— 
(A) $3 for each 1,000 pounds of taxable gross weight (or 
fraction thereof), or 
(B) the amount of the tax which would be imposed under 
such section 4481(a) without regard to this paragraph. 
(2) EXEMPTION FOR VEHICLES USED FOR LESS THAN 5,OOO MILES 
(AND CERTAIN OTHER AMENDMENTS) TO TAKE EFFECT ON JULY 1, 
1984.—In the case of a small owner-operator, notwithstanding 
subsection (f)(2) of section 513 of the Highway Revenue Act of 
1982, the amendments made by subsections (b), (c), and (d) of 26 USC 4481 
such section shall take effect on July 1, 1984. 
note. 
t 
98 STAT. 1004 
PUBLIC LAW 98-369—JULY 18, 1984 
(3) SMALL OWNER-OPERATOR DEFINED.—For purposes of this 
subsection, the term "small owner-operator" has the meaning 
given such term by section 513(f)(2) of the Highway Revenue Act 
26 u s e 4481 
of 1982. 
note. 
(4) TAXABLE GROSS WEIGHT.—For purposes of this subsection, 
the term 'taxable gross weight' has the same meaning as when 
used in section 4481 of the Internal Revenue Code of 1954. 
26 use 4481 
(c) EFFECTIVE DATE.—The amendment made by subsection (a) (and 
iiote. 
the provisions of subsection (b)) shall take effect on July 1, 1984. 
SEC. 902. SPECIAL RULE FOR TRUCKS USED IN LOGGING. 
26 use 4483. 
(a) IN GENERAL.—Section 4483 (relating to exemptions from high-
way use tax) is amended by redesignating subsection (e) as subsec-
tion (f) and inserting after subsection (d) the following new 
subsection: 
"(e) REDUCTION IN TAX FOR TRUCKS USED IN LOGGING.—The tax 
imposed by section 4481 shall be reduced by 25 percent with respect 
to any highway motor vehicle if— 
"(1) the exclusive use of such vehicle during any taxable 
period is the transportation, to and from a point located on a 
forested site, of products harvested from such forested site, and 
"(2) such vehicle is registered (under the laws of the State in 
which such vehicle is required to be registered) as a highway 
motor vehicle used in the transportation of harvested forest 
products.". 
26 use 4483 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
note. 
take effect on July 1,1984. 
SEC. 903. SPECIAL RULE FOR CERTAIN AGRICULTURAL VEHICLES. 
(a) IN GENERAL.—Subsection (d) of section 4483 (relating to exemp-
tions from highway use tax) is gmiended by redesignating paragraph 
(5) as paragraph (6) and by inserting sifter paragraph (4) the follow-
ing new paragraph: 
"(5) 7,500-MILES EXEMPTION FOR AGRICULTURAL VEHICLES.— 
"(A) IN GENERAL.—In the C£ise of an agricultural vehicle, 
paragraphs (1) and (2) shall be applied by substituting 
7,500' for '5,000' each place it appears. 
"(B) DEFINITIONS.—For purposes of this paragraph— 
"(i) AGRICULTURAL VEHICLE.—The term 'agricultural 
vehicle' means any highway motor vehicle— 
"(I) used primarily for farming purposes, and 
"(II) registered (under the laws of the State in 
which such vehicle is required to be registered) as a 
highway motor vehicle used for farn^ing purposes. 
"(ii) FARMING PURPOSES.—The term 'farming pur-
poses' means the transporting of any farm commodity 
to or from a farm or the use directly in agricultural 
production. 
"(iii) FARM COMMODITY.—The term 'farm commodity' 
means any agricultural or horticultural commodity, 
feed, seed, fertilizer, livestock, bees, poultry, fur-bear-
ing animals, or wildlife.". 
26 use 4483 
Qj) EFFECTIVE DATE.—The amendments made by subsection (a) 
note. 
shall take effect as if included in the amendments made by section 
96 Stat. 2177. 
513 of the Highway Revenue Act of 1982. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1005 
Subtitle B—Provisions Relating to Fuel Taxes 
SEC. 911. INCREASE IN DIESEL FUEL TAX. 
(a) GENERAL RULE.—Paragraph (1) of section 4041(a) (relating to 26 USC 4041. 
diesel fuel) is amended by striking out "9 cents" and inserting in 
lieu thereof "15 cents". 
(b) INCOME TAX CREDIT FOR PURCHASE OF DIESEL-POWERED AUTO-
MOBILE OR LIGHT TRUCK.—Section 6427 (relating to fuels not used for Ante, p. 979. 
taxable purposes), as amended by this Act, is amended by redesig-
nating subsections (g), (h), (i), (j), (k), (D. and (m) as subsections (h), (i), 
0"), (k), (1), (m), and (n), respectively, and by inserting after subsection 
(f) the following new subsection: 
"(g) ADVANCE REPAYMENT OF INCREASED DIESEL FUEL TAX TO 
ORIGINAL PURCHASERS OF DIESEL-POWERED AUTOMOBILES AND LIGHT 
TRUCKS.— 
"(1) IN GENERAL.—Except as provided in subsection (j), the 
Secretary shall pay (without interest) to the original purchaser 
of any qualified diesel-powered highway vehicle an anount 
equal to the diesel fuel differential amount. 
"(2) QUAUFIED DIESEL-POWERED HIGHWAY VEHICLE.—For pur-
poses of this subsection, the term 'qualified diesel-powered high-
way vehicle' means any diesel-powered highway vehicle 
which— 
"(A) has at least 4 wheels, 
"(B) has a gross vehicle weight rating of 10,000 pounds or 
less, and 
"(C) is registered for highway use in the United States 
under the laws of any State. 
"(3) DIESEL FUEL DIFFERENTIAL AMOUNT.—For purposes of this 
subsection, the term 'diesel fuel differential amount' means— 
"(A) except as provided in subparagraph (B), $102, or 
"(B) in the case of a truck or van, $198. 
"(4) ORIGINAL PURCHASER.—For purposes of this subsection— 
(A) IN GENERAL.—Except as provided in subparagraph (B), 
the term 'original purchaser means the first person to 
purchase the qualified diesel-powered vehicle for use other 
than resale. 
"(B) 
EXCEPTION FOR CERTAIN PERSONS NOT SUBJECT TO 
FUELS TAX.—The term 'original purchaser' shall not include 
any State or local government (as defined in section 
4221(dX4)) or any nonprofit educational organization (as 
* 
> 
defined in section 4221(dX5)). 
"(C) TREATMENT OF DEMONSTRATION USE BY DEALER.—For 
purposes of subparagraph (A), use as a demonstrator by a 
dealer shall not be taken into account. 
"(5) VEHICLES TO WHICH SUBSECTION APPLIES.—Except as pro- 
o IK ;
>
v 
vided in paragraph (6), this subsection shall only apply to 
qualified diesel-powered highway vehicles originally purchased 
after January 1,1985, and before January 1,1988. 
"(6) SPECIAL RULE FOR CERTAIN VEHICLES HELD ON JANUARY i, 
1985.— 
"(A) IN GENERAL.—In the case of any person holding a 
qualified diesel-powered highway vehicle on January 1, 
1985— 
"(i) such person shall be treated as if he originally 
purchased such vehicle on December 31,1984, but 
98 STAT. 1006 
PUBLIC LAW 98-369—JULY 18, 1984 
"(ii) the amount payable under paragraph (1) to such 
person for such vehicle shall be the applicable fraction 
of the diesel fuel differential amount. 
"(B) APPLICABLE FRACTION.—For purposes of subpara-
graph (A), the applicable fraction is the fraction determined 
in accordance with the following table: 
The applicable 
"If the model year of the vehicle is: 
fraction is: 
1984 or 1985 
1 
1983 
% 
1982 
Y
e 
1981 
% 
1980 
% 
1979 
V
f
e 
In the case of a 1978 or earlier model year vehicle, the 
applicable fraction shall be zero. 
"(7) BASIS REDUCTION.—For the purposes of subtitle A, the 
basis of any qualified diesel-powered highway vehicle shall be 
reduced by the amount payable under this subsection with 
respect to such vehicle." 
(d) TECHNICAL AND CONFORMING ADMENDMENTS.— 
(1) AMENDMENTS TO HIGHWAY TRUST FUND.— 
(A) TRANSFERS TO MASS TRANSIT ACCOUNT.—Paragraph (2) 
26 use 9503. 
of Section 9503(e) (relating to transfers to Mass Transit 
Account) is amended to read as follows: 
"(2) TRANSFERS TO MASS TRANSIT ACCOUNT.—The Secretary of 
the Treasury shall transfer to the Mass Transit Account the 
mass transit portion of the amounts appropriated to the High-
way Trust Fund under subsection Ot)) which are attributable to 
taxes under sections 4041 and 4081 imposed after March 31, 
1983. For purposes of the preceding sentence, the term 'mass 
transit portion' means an amount determined at the rate of 1 
cent for each gallon with respect to which tax was imposed 
under section 4041 or 4081." 
(B) INCOME TAX CREDITS PAYABLE OUT OF HIGHWAY TRUST 
FUND.—Clause (ii) of section 9503(c)(2)(A) is amended by 
striking out "used before October 1, 1988" and inserting in 
lieu thereof "used before October 1,1988 (or with respect to 
qualified diesel-powered highway vehicles purchased before 
January 1,1988)". 
(2) CONFORMING AMENDMENTS TO INCOME TAX CREDIT — 
26 use 39. 
(A) Subsections (a)(4) and (b) of section 39 (as in effect 
before the enactment made by title IV of this Act) are each 
amended by striking out "6427(i)" and inserting in lieu 
thereof "6427(j)". 
(B) Subsections (a), 0)X1), (c), (d), (eXD, and (f)(1) of section 
26 use 6427. 
6427 are each amended by striking out "(i)" and inserting in 
lieu thereof "(j)". 
(C) Subsection (h)(1) of section 6427 (as redesignated by 
Ante, p. 1005. 
subsection (c)) is amended— 
(i) by striking out "or (f)" and inserting in lieu 
thereof "(f), or (g)", and 
(ii) by striking out "fuel used" each place it appears 
and inserting in lieu thereof "fuel used (or a qualified 
diesel powered highway vehicle purchased)". 
(D) Subsection (h)(2)(A) of section 6427 (as so redesignated) 
is amended— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1007 
feoo *
!
£ 
(i) by striking out "and (e)" in clause (i) and inserting 
in lieu thereof "(e), and (g)", and 
(ii) by striking out "fuel used" each place it appears 
and inserting in lieu thereof "fuel used (or a qualified 
diesel powered highway vehicle purchased)". 
(E) Subsection (k)(2) of section 6427 (as so redesignated) is Ante, p. 1005. 
a- 
amended by striking out "(g)(2)" and inserting in lieu 
gn... 
thereof "(hX2)". 
(F) Subsection (m) of section 6427 (as so redesignated) is 
amended by striking out "and (d)" each place it appears and 
fim ' 
inserting in lieu thereof "(d), and (g)". 
(G) Sections 7210, 7603, 76G4(b), 7604(c)(2), 7605(a), 26USC7210, 
s
V 'g. 
7609(c)(1), and 7610(c) are each amended by striking out 7603-7605,7609, 
"6427(h)(2)" each place it appears and inserting in lieu 
thereof "6427(iX2)". 
(e) EFFECTIVE DATE.—The amendments made by this section shall 26 use 6427 
take effect on August 1,1984. 
note. 
SEC. 
9
1
2
. 
DECREASE 
IN 
TAX 
IMPOSED 
ON 
GASOHOL. 
(a) AMENDMENT OF SECTION 4041.—Paragraph (1) of section 4041(k) 26 use 4041, j^^ ? 
(relating to fuels containing alcohol) is amended to read as follows: 
"(1) IN GENERAL.—Under regulations prescribed by the Secre-
tary, in the case of the sale or use of any liquid at least 10 
percent of which consists of alcohol (as defined in section 
u. 4081(c)(3))— 
•••' -' -
^
^ 
"(A) subsection (a)(1) shall be applied by substituting '9 
^ " 
J,, 
1,, cents' for '15 cents', and 
"(B) subsection (aX2) shall be applied by substituting '3 
cents' for '9 cents', and 
T' <
^ •' 
«^Q ^^ ^^^ shall be imposed by subsection (c).". 
Ob) AMENDMENTS OF SECTION 4081.—Subsection (c) of section 4081 26 use 4081. 
(relating to imposition of tax on petroleum products), as amended by 
title VII of this Act, is amended— 
(A) by striking out "4 cents" each place it appears and 
inserting in lieu thereof "3 cents", 
(B) by striking out "4% cents" and inserting in lieu thereof 
" 3 % cents", and 
(C) by striking out "4% cents" and inserting in lieu thereof 
"5% cents". 
(c) CREDIT FOR ALCOHOL USED AS A FUEL.—Section 40 (relating to 
Ante, p. 826. 
alcohol used as a fuel) (as amended by title IV of this Act) is 
amended— 
(1) by striking out "50 cents" each place it appears and 
inserting in lieu thereof "60 cents", and 
(2) by striking out "37.5 cents" each place it appears and 
inserting in lieu thereof "45 cents". 
(d) AMENDMENT OF SECTION 6427.—Paragraph (1) of section 6427(f) 26 use 6427. 
(relating to gasoline used to produce certain alcohol fuels) is 
amended bv striking out "4% cents" and inserting in lieu thereof 
"5% cents"'. 
(e) TARIFF IMPORTED FOR USE AS A FUEL.—Item 901.50 of the Tariff 
Schedules of the United States (19 U.S.C. 1202) is amended by 
striking out "50 cents per gal." each place it appears and inserting 
in lieu thereof "60 cents per gal.". 
if) DEFINITION OF ALCOHOL.—Sections 40(dXlXA)(i) (as amended by Ante, p. 826. 
title IV of this Act) and 4081(cX3) (defining alcohol) are each 26 use 4081. 
98 STAT. 1008 
PUBLIC LAW 98-369—JULY 18, 1984 
amended by striking out "coal" and inserting in lieu thereof "coal 
(including peat)". 
26 use 40 note. 
(g) EFFECTIVE DATE.—The amendments made by this section shall 
take effect on January 1,1985. 
SEC. 913. MODIFICATION OF TAX IMPOSED ON METHANOL AND ETHANOL. 
26 use 4041. 
(a) IN GENERAL.—Section 4041 (relating to imposition of tax on 
special fuels) is amended by adding at the end thereof the following 
new subsection, 
"(m) CERTAIN ALCOHOL FUELS.— 
"(1) IN GENERAL.—In the case of the sale or use of any 
partially exempt methanol or ethanol fuel— 
"(A) subsection (a)(2) shall be applied by substituting 'AV2 
cents' for '9 cents', and 
"(B) no tax shall be imposed by subsection (c). 
"(2) PARTIALLY EXEMPT METHANOL OR ETHANOL FUEL.—The 
term 'partially exempt methanol or ethanol fuel' means any 
liquid at least 85 percent of which consists of methanol, ethanol, 
or other alcohol produced from natural gas.". 
Ante, p. 826. 
O
o
) CONFORMING AMENDMENT.—Subsection (c) of section 40 (relat-
ing to coordination of credit for alcohol used as a fuel with exemp-
tion from excise tax) (as redesignated by title IV of this Act) is 
amended by striking out "Ot)X2) or (k)" and inserting in lieu thereof 
"(bX2),(k),or(m)". 
26 use 4041 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
take effect on August 1,1984. 
SEC. 914. EXTENSION OF REDUCTION IN TAX FOR FUEL USED BY 
TAXICABS. 
26 use 6427. 
Paragraph (3) of section 6427(e) (relating to termination of use in 
certain teixicabs) is amended by striking out "September 30, 1984" 
and inserting in lieu thereof "September 30,1985". 
SEC. 915. 3 CENT TAX ON DIESEL FUEL, ETC., USED IN CERTAIN BUSES. 
(a) IN GENERAL.—Subsection (b) of section 6427 (relating to fuels 
not used for taxable purposes) is amended by redesignating para-
graph (2) as paragraph (3) and inserting after paragraph (1) the 
following new paragraph: 
"(2) 3-CENT REDUCTION IN REFUND IN CERTAIN CASES.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the rate of tax taken into account under paragraph (1) 
shall not exceed 12 cents. 
"(B) EXCEPTION.—Subparagraph (A) shall not apply to 
fuel used in any automobile bus while engaged in 
furnishing (for compensation) intracity passenger land 
transportation— 
"(i) which is available to the general public, and 
"(ii) which is scheduled and along regular routes, 
but only if such bus is a qualified local bus. 
"(C) QUALIFIED LOCAL BUS.—For purposes of this para-
graph, the term 'qualified local bus' means any local bus— 
"(i) which has a seating capacity of at least 20 adults 
(not including the driver), and 
"(ii) which is under contract (or is receiving more 
than a nominal subsidy) from any State or local govern-
ment (as defined in section 4221(d)) to furnish such 
transportation." 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1009 
(b) EFFECTIVE DATE.—The amendments made by this section shall 26 use 6427 
take effect on August 1,1984. 
note-
Subtitle C—Temporary Reduction in Retail 
Tax on Certain Piggyback Trailers 
'; ' 
SEC. 921. TEMPORARY REDUCTION IN TAX. 
Section 4051 (relating to retail tax on heavy trucks and trailers) is 26 USC 4051. 
amended by redesignating subsection (d) as subsection (e) and insert- 
,3 
ing after subsection (c) the following new subsection: 
. ^.r 
"(d) TEMPORARY REDUCTION IN TAX ON CERTAIN PIGGYBACK 
TRAILERS.— 
"(1) IN GENERAL.—In the case of piggyback trailers or semi-
trailers sold within the 1-year period beginning on the date of 
the enactment of the Tax Reform Act of 1984, subsection (a) Ante, p. 494. 
shall be applied by substituting *6 percent' for '12 percent'. 
"(2) PIGGYBACK TRAILERS OR SEMITRAILERS.—For purposes of 
this subsection, the term 'piggyback trailers or semitrailers' 
means any trailer or semitrailer— 
"(A) which is designed for use principally in connection 
with trailer-on-flatcar service by rail, and 
"(B)(i) both the seller and the purchaser of which are 
registered in a manner similar to registration under section 
4222, and 
"(ii) with respect to which the purchaser certifies (at such 
. ». . 
time and in such form and manner as the Secretary pre- 
> 
scribes by regulations) to the seller that such trailer or 
semitrailer— 
"(I) will be used, or resold for use, principally in 
connection with such service, or 
"(II) will be incorporated into an article which will be 
so used or resold. 
"(3) ADDITIONAL TAX WHERE NONQUALIFIED USE.—If any piggy-
back trailer or semitrailer was subject to tax under subsection 
(a) at the 6 percent rate and such trailer or semitrailer is used 
or resold for use other than for a use described in paragraph 
(2)-
"(A) such use or resale shall be treated as a sale to which 
subsection (a) applies, 
f 
"(B) the amount of the tax imposed under subsection (a) 
on such sale shall be equal to the amount of the tax which 
was imposed on the first retail sale, and 
"(C) the person so using or reselling such trailer or 
semitrailer shall be liable for the tax imposed by subsection 
(a)." 
31-194 0 - 86 - 34 : QL. 3 Part 1 
98 STAT. 1010 
PUBLIC LAW 98-369—JULY 18, 1984 
Subtitle D—Studies 
26 use 4481 
note. 
26 use 4481 
note. 
26 use 4481 
note. 
26 use 4481 
note. 
PART I—STUDIES RELATING TO HEAVY VEHICLE USE TAX 
SEC. 931. WHETHER HEAVY VEHICLES BEAR FAIR SHARE OF HIGHWAY 
COSTS. 
The Secretary of Transportation shall conduct a study of whether 
highway motor vehicles with taxable gross weights of 80,000 pounds 
or more bear their fair share of the costs of the highway system. 
SEC. 932. TRANS-BORDER TRUCKING. 
The Secretary of Transportation shall conduct a study to deter-
mine the significance of the tax imposed by section 4481 of the 
Internal Revenue Code of 1954 (relating to tax on use of certain 
vehicles) on trans-border trucking operations. 
SEC. 933. WEIGHT-DISTANCE TAXES. 
The Secretary of Transportation shall conduct a study to evaluate 
the feasibility and ability of weight-distance truck taxes to provide 
the greatest degree of equity among highway users, to ease the costs 
of compliance of such taxes, and to improve the efficiency by which 
such taxes might be administered. Such study shall also include an 
evaluation of the evasion potential for weight-distance taxes and an 
assessment of the benefits to interstate commerce of replacing all 
Federal truck taxes (other than fuel taxes) with a weight-distance 
tax. 
SEC. 934. REPORTS, ETC. 
(a) CONSULTATION WITH TREASURY.—Studies conducted under this 
part shall be conducted in consultation with the Secretary of the 
Treasury. 
(b) REPORT.—Not later than October 1, 1987, the Secretary of 
Transportation shall submit to the Committee on Ways and Means 
of the House of Representatives and the Committee on Finance of 
the Senate a report on each study conducted under this part to-
gether with such recommendations as the Secretary may deem 
advisable. 
PART II—OTHER STUDIES 
SEC. 
9
3
5
. 
STUDY 
OF 
REDUCED 
FUEL 
TAXES 
FOR 
TAXICABS. 
The Secretary of the Treasury or his delegate shall conduct a 
study of the reduced rate of fuel taxes provided by section 6427(e) of 
the Internal Revenue Code of 1954. Not later than January 1, 1985, 
such Secretary shall submit a report on such study to the Congress, 
together with such recommendations as the Secretary may deem 
advisable. 
SEC. 936. STUDY OF PIGGYBACK TRAILERS. 
(a) IN GENERAL.—The Secretary of Transportation (in consultation 
with the Secretary of the Treasury) shall conduct a study of the 
appropriate application and level of the tax imposed by section 4051 
of the Internal Revenue Code of 1954 (relating to tax on trucks and 
trailers sold at retail) on piggyback trailers and semi-trailers. 
(b) REPORT.—Not later than May 1, 1985, the Secretary of Trans-
portation shall submit to the Committee on Ways and Means of the 
f j-TsT 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1011 
House of Representatives and the Committee on Finance of the 
Senate a report on the study conducted under subsection (a) together 
with such recommendations as the Secretary may deem advisable. 
^ 
-
TITLE X—MISCELLANEOUS REVENUE 
PROVISIONS 
a 0
^ 
u^ e Subtitle A—Capital Gains and Losses 
SEC. 1001. DECREASE IN HOLDING PERIOD REQUIRED FOR LONG-TERM 
CAPITAL GAIN TREATMENT. 
. 
P 
(a) IN GENERAL.— 
(1) CAPITAL GAINS.—Paragraphs (1) and (3) of section 1222 26 use 1222. 
(relating to other terms relating to capital gains and losses) are 
each amended by striking out "1 year" and inserting in lieu 
< 
thereof "6 months". 
-^"^^i-^i'-: 
(2) CAPITAL LOSSES.—Paragraphs (2) and (4) of section 1222 are 
each amended by striking out "1 year" and inserting in lieu 
thereof "6 months". 
C^H .q ^iJ 
(b) CONFORMING AMENDMENTS.—The following provisions are each 
amended by striking out "1 year" each place it appears and insert-
ing in lieu thereof "6 months : 
(1) Paragraph (1)(B) of section 166(d) (relating to nonbusiness 26 use 166. 
debts). 
(2) Subsection (a) of section 341 (relating to treatment of gain 26 use 341. 
I- 
to shareholders in the case of collapsible corporations). 
(3) Paragraph (2) of subsection (a) and subparagraph (L) of 
I 
subsection (e)(4) of section 402 (relating to capital gains treat- 26 use 402. 
ment for certain distributions in the case of a beneficiary of an 
exempt employees' trust). 
(4) Subparagraph (A) of section 403(a)(2) (relating to capital 26 use 403. 
i 
gains treatment for certain distributions in the case of a benefi-
ciary under a qualified annuity plan). 
(5) Paragraph (1) of section 423(a) (relating to employee stock 26 use 423. 
;, 
purchase plans). 
(6) Paragraph (2) of section 582(c) (relating to capital gains of 26 use 582. 
banks). 
(7) Subparagraphs (A) and (B) of section 584(c)(1) (relating to 26 use 584. 
inclusions in taxable income of participants in common trust 
funds). 
(8) Paragraphs (3) and (4) of section 642(c) (relating to charita- 26 use 642. 
ble deductions for certain trusts). 
(9) Paragraphs (1) and (2) of section 702(a) (relating to income 26 use 702. 
and credits of partner). 
(10) Subparagraph (A) of section 818(b)(1) (relating to certain Ante, p. 752. 
» 
gains and losses in the case of life insurance companies). 
''^ 
(11) Subparagraph (B) of section 852(bX3) (relating to taxation 26 use 852. 
of shareholders of regulated investment companies). 
(12) Subparagraph (A) of section 856(c)(4) (relating to defini- 26 use 856. 
tion of real estate investment trust). 
(13) Paragraphs (3)(B) and (7) of section 857(b) (relating to Ante, p. 572. 
taxation of shareholders of real estate investment trust). 
(14) Paragraphs (11) and (12) of section 1223 (relating to 26 u s e 1223. 
holding period of property). 
'8U i»2 
98 STAT. 1012 
PUBLIC LAW 98-369—JULY 18, 1984 
26 u s e 1231. 
26 use 1232. 
26 use 1233. 
26 use 1234. 
26 u s e 1235. 
26 u s e 1246. 
26 u s e 1247. 
26 use 1248. 
Ante, p. 853. 
26 u s e 631. 
26 use 1232. 
26 use 166 note. 
26 use 1212. 
26 use 1212 
note. 
(15) Section 1231 (relating to property used in the trade or 
business and involuntary conversions). 
(16) Paragraph (2) of section 1232(a) (relating to sale or ex-
change in the case of bonds and other evidences of indebted-
ness). 
(17) Subsections (b), (d), and subparagraph (A) of subsection 
(e)(4) of section 1233 (relating to gains and losses from short 
sales). 
(18) Paragraph (1) of section 1234(b) (relating to treatment of 
the grantor of an option in the case of stock, securities, or 
commodities). 
(19) Subsection (a) of section 1235 (relating to sale or exchange 
of patents). 
(20) Paragraph (4) of section 1246(a) (relating to holding period 
in the case of gain on foreign investment company stock). 
(21) Subsection (i) of section 1247 (relating to loss on sale or 
exchange of certain stock in the case of foreign investment 
companies electing to distribute income currently). 
(22) Subsections (b) and (g)(3)(C) of section 1248 (relating to 
gain from certain sales or exchanges of stock in certain foreign 
corporations). 
(23) Subparagraph (A) of section 1251(eXl) (defining farm 
recapture property). 
(c) TECHNICAL AMENDMENT RELATING TO TIMBER, COAL, AND DO-
MESTIC IRON ORE.—Section 631 (relating to gain or loss in the case of 
timber, coal, or domestic iron ore) is amended— 
(1) by striking out "for a period of more than 1 year" in the 
first sentence of subsection (a) and inserting in lieu thereof "on 
the first day of such year and for a period of more than 6 
months before such cutting", and 
(2) by striking out "1 year" in subsections Oa) and (c) and 
inserting in lieu thereof "6 months". 
(d) TECHNICAL AMENDMENT RELATING TO CERTAIN SHORT-TERM 
GOVERNMENT OBUGATIONS.—Section 1232(aX3XA) (relating to cer-
tain short-term government obligations) is amended by striking out 
"held less than 1 year". 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
apply to property acquired after June 22, 1984, and before January 
1,1988. 
SEC. 1002. REPEAL OF SPECIAL RULE FOR PRE-1970 LOSSES. 
(a) IN GENERAL.—Paragraph (3) of section 12120)) (relating to 
transitional rule for taxpayers other than corporations) is repealed. 
(b) EFFECTIVE DATE.—The repeal made by subsection (a) shall 
apply to taxable years beginning after December 31,1986. 
46 use 13101 
note. 
Subtitle B—Excise Tax Provisions 
PART I—BOATING SAFETY AND SPORT FISH RESTORATION 
Subpart A—Boating Safety Amendments 
SEC. 1010. POLICY. 
It is declared to be the policy of Congress and the purpose of this 
part to improve recreational boating safety and to foster greater 
development, use, and enjoyment of all waters of the United States 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1013 
by encouraging and assisting participation by the States, the boating 
industry, and the boating public in activities related to increasing 
boating safety; by authorizing the establishment of national con-
struction and performance standards for boats and associated equip-
ment; by creating more flexible authority governing the use of boats 
and equipment; and by facilitating the provision of services by the 
:'' 
United States Coast Guard on behalf of boating safety. It is further 
declared to be the policy of Congress to encourage greater and 
continuing uniformity of boating laws and regulations among the 
States and the Federal Government, to encourage and assist the 
States in exercising their authorities in boating safety, to foster 
greater cooperation and assistance between the Federal Govern-
ment and the States in administering and enforcing Federal and 
State laws and regulations pertaining to boating safety, and to 
equitably utilize taxes paid on fuel use in motor boats in a manner 
which enhances boating safety. 
SEC. 1011. GENERAL AMENDMENTS TO TITLE 46. 
(a) Section 2102 of title 46, United States Code, is amended— 97 Stat. 505. 
(1) by striking out "and facilities improvement" in paragraph 
(1); 
(2) by striking out paragraphs (3) and (4); and 
(3) by redesignating paragraph (5) as paragraph (3). 
O^XD Section 13101 of such title is amended— 
97 Stat. 592. 
(A) by striking out "and facility improvement" in subsection 
(a); and 
(B) by striking out "and facilities improvement" each place it 
appears. 
(2) Subsection (a) of section 13101 of such title is amended by 
striking out "may" in the second sentence and inserting in lieu 
thereof "shall". 
(c)(1) Section 13102 of such title is amended by striking out "and 97 Stat. 593. 
facilities improvement" each place it appears. 
(2) Subsection (a) of section 13102 of such title is amended by 
striking out "may" and inserting in lieu thereof "shall". 
(3) Paragraph (2) of section 13102(a) of such title is amended by 
striking out ", (d), or (f)". 
(4) Subsections (d) and (f) of section 13102 of such title are re-
pealed, and subsection (e) of such section (and any reference thereto) 
is redesignated as subsection (d). 
(d)(1) Subsections (b), (d), and (f) of section 13103 of such title are 97 Stat. 594. 
repealed, and subsections (c) and (e) of such section (and all 
references thereto) are redesignated as subsections (b) and (c), 
respectively. 
(2) Subsections (b) and (c) of section 13103 of such title (as redesig-
nated by paragraph (1) of this subsection) are amended by striking 
out "and facilities improvement" each place it appears. 
(e) Section 13105 of such title is amended by striking out "and 97 Stat. 596. 
facilities improvement". 
(f) Subsection (c) of section 13108 of such title is amended by 97 Stat. 596. 
striking out "and facilities improvement" each place it appears. 
(g) Section 13109 of such title is amended by striking out "and 97 Stat. 597. 
facilities improvement" each place it appears. 
SEC. 1012. AUTHORIZATION OF FUNDS FOR BOATING SAFETY. 
Section 13106 of title 46, United States Code, is amended to read 97 Stat. 596. 
as follows: 
98 STAT. 1014 
PUBLIC LAW 98-369—JULY 18, 1984 
"(a) The Secretary may expend in each of the fiscal years 1985, 
1986, 1987, and 1988, subject to amounts as are provided in appro-
priations laws for liquidation of contract authority, an amount equal 
to two-thirds of the amount transferred for such fiscal year to the 
Boat Safety Account under section 9503(c)(4) of the Internal Reve-
Post, p. 1020. 
nue Code of 1954 (26 U.S.C. 9503(cX4)). The amount shall be allocated 
97 Stat. 594. 
as provided under section 13103 of this title and shall be available 
for State recreational boating safety programs as provided under the 
guidelines established under subsection (b) of this section. Amounts 
authorized to be expended for State recreational boating safety 
programs shall remain available until expended and are deemed to 
have been expended only if an amount equal to the total amounts 
authorized to be expended under this section for the fiscal year in 
question and all prior fiscal years have been obligated. Amounts 
previously obligated but released by payment of a final voucher or 
modification of a program acceptance shall be credited to the bal-
ance of vinobligated amounts and are immediately available for 
expenditure. 
"(b) The Secretary shall establish guidelines prescribing the pur-
poses for which amounts available under this chapter for State 
recreational boating safety programs may be used. Those purposes 
may include— 
r; 
"(1) providing facilities, equipment, and supplies for boating 
safety education and law enforcement, including purchase, op-
eration, maintenance, and repair; 
"(2) training personnel in skills related to boating safety and 
to the enforcement of boating safety laws and regulations; 
"(3) providing public boating safety education, including edu-
cational programs and lectures, to the boating community and 
the public school system; 
.%' m
v
> • 
"(4) acquiring, constructing, or repairing public access sites 
used primarily by recreational boaters; 
"(5) conducting boating safety inspections and 
marine 
casualty investigations; 
"(6) establishing and maintaining emergency or search and 
rescue facilities, and providing emergency or search and rescue 
assistance; 
"(7) establishing and maintaining waterway markers and 
other appropriate aids to navigation; and 
* 
"(8) providing State recreational vessel numbering or titling 
programs. 
"(c) An amount equal to one-third of the amount transferred for 
each fiscal year to the Boat Safety Account under section 9503(cX4) 
of the Internal Revenue Code of 1954 (26 U.S.C. 9503(cX4)) is avail-
able to the Secretary for expenditures out of the operating expenses 
, 
account of the Coast Guard for services provided by the Coast Guard 
for recreational boating safety, including services provided by the 
Coast Guard Auxiliary. Amounts made available by this subsection 
shall remain available until expended." 
46 use 13101 
SEC. 1013. EFFECTIVE DATE. 
The amendments made by this subpart shall take effect on Octo-
ber 1, 1984, and shall apply with respect to fiscal years beginning 
•XV. 
- r 
after September 30, 1984. . 
,^. _ , 
u.^ 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1015 
Subpart B—Sport Fish Restoration Program 
"KIT oi 
SEC. 1014. AMENDMENTS TO THE SPORT FISH RESTORATION PROGRAM. 
(a) The Act entitled "An Act to provide that the United States 
shall aid the States in fish restoration and management projects, 
and for other purposes", approved August 9, 1950 (16 U.S.C. 777 et 
seq.), is amended as follows: 
(1) The first section is amended— 
16 USC 777. 
(A) by inserting "(a)" after "That"; and 
•' 
(B) by adding at the end thereof the following new subsec-
tion: 
"(b) Each coastal State, to the extent practicable, shall equitably 
allocate the following sums between marine fish projects and fresh-
water fish projects in the same proportion as the estimated number 
of resident marine anglers and the estimated number of resident 
freshwater anglers, respectively, bear to the estimated number of all 
'' 
resident anglers in that State: 
"(1) The additional sums apportioned to such State under this 
Act as a result of the taxes imposed by the amendments made 
by section 1015 of the Tax Reform Act of 1984 on items not 
taxed under section 4161(a) of the Internal Revenue Code of Post, p. 1017. 
1954 before October 1,1984. 
"(2) The sums apportioned to such State under this Act that 
are not attributable to any tax imposed by such section 4161(a). 
As used in this subsection, the term 'coastal State' means any one of 
the States of Alabama, Alaska, California, Connecticut, Delaware, 
Florida, Georgia, Hawaii, Louisiana, Maine, Maryland, Massachu-
setts, Mississippi, New Hampshire, New Jersey, New York, North 
Carolina, Oregon, Rhode Island, South Carolina, Texas, Virginia, 
and Washington. The term also includes the Commonwealth of 
Puerto Rico, the United States Virgin Islands, Guam, American 
Samoa, and the Commonwealth of the Northern Marianas." 
(2) The first sentence of section 3 is amended to read as 
follows: "To carry out the provisions of this Act for fiscal years 
after September 30, 1984, there are authorized to be appropri-
ated from the Sport Fish Restoration Account established by 
section 9504(a) of the Internal Revenue Code of 1954 the 
amounts paid, transferred, or otherwise credited to that Ac-
count. For purposes of the provision of the Act of August 31, 
1951, which refers to this section, such amounts shall be treated 
as the amounts that are equal to the revenues described in this 
section." 
(3) The first sentence of section 4 is amended to read as 
follows: "So much, not to exceed 6 per centum, of each annual 
appropriation made in accordance with the provisions of section 
i. 
3 of this Act as the Secretary of the Interior may estimate to be 
necessary for his expenses in the conduct of necessary investiga-
tions, administration, and the execution of this Act and for 
aiding in the formulation, adoption, or administration of any 
compact between two or more States for the conservation and 
management of migratory fishes in marine or freshwaters shall 
be deducted for that purpose, and such sum is authorized to be 
made available therefor until the expiration of the next sue- 
" '' 
ceeding fiscal year." 
(4) Section 5 is amended by striking all after the first sen- 16 USC 777d. 
tence. 
Appropriation 
authorization. 
16 USC 777b. 
Post, p. 1019. 
65 Stat. 262. 
16 USC 777c. 
Conservation. 
98 STAT. 1016 
PUBLIC LAW 98-369—JULY 18, 1984 
16 u s e 777g. 
16 u s e 777c. 
16 use 777e. 
(5) Section 6 is amended by adding at the end thereof the 
following new subsection: 
"(d) The Secretary of the Interior may enter into agreements to 
finance up to 75 per centum of the initial costs of the acquisition of 
lands or interests therein and the construction of structures or 
facilities for appropriations currently available for the purposes of 
this Act; and to agree to finance up to 75 per centum of the 
remaining costs over such a period of time as the Secretary may 
consider necessary. The liability of the United States in any such 
agreement is contingent upon the continued availability of funds for 
the purposes of this Act." 
(6) Section 8 is amended by inserting "(a)" before the first 
sentence, and by adding at the end thereof the following new 
subsections: 
"(b)(1) Each State shall allocate 10 per centum of the funds 
apportioned to it for each fiscal year under section 4 of this Act for 
the payment of up to 75 per centum of the costs of the acquisition, 
development, renovation, or improvement of facilities (and auxiliary 
facilities necessary to insure the safe use of such facilities) that 
create, or add to, public access to the waters of the United States to 
improve the suitability of such waters for recreational boating 
purposes. 
"(2) So much of the funds that are allocated by a State under 
paragraph (1) in any fiscal year that remained unexpended or 
unobligated at the close of such year are authorized to be made 
available for the purposes described in paragraph (1) during the 
succeeding fiscal year, but any portion of such funds that remain 
unexpended or unobligated at the close of such succeeding fiscal 
year are authorized to be made available for expenditure by the 
Secretary of the Interior in carrying out the research program of the 
Fish and Wildlife Service in respect to fish of material value for 
sport or recreation. 
"(c) Each State may use not to exceed 10 per centum of the funds 
apportioned to it under section 4 of this Act to pay up to 75 per 
centum of the costs of an aquatic resource education program for the 
purpose of increasing public understanding of the Nation's water 
resources and associated aquatic life forms. The non-Federal share 
of such costs may not be derived from other Federal grant programs. 
The Secretary shall issue not later than the one hundred and 
twentieth day after the effective date of this subsection such regula-
tions as he deems advisable regarding the criteria for such pro-
grams." 
16 use 777k. 
(7) Section 12 is amended— 
(A) inserting "the Mayor of the District of Columbia," 
immediately after "the Secretary of Agriculture of Puerto 
Rico,"; 
(B) by inserting "for the District of Columbia one-third of 
1 per centum," immediately after "for Puerto Rico 1 per 
centum,"; and 
(C) by inserting "the District of Columbia," after "Puerto 
Rico," each place it appears therein. 
16 use 777 note. 
(b) The amendments made by subsection (a) shall take effect on 
October 1, 1984, and shall apply with respect to fiscal years begin-
'••:'•' 
ning after September 30, 1984. 
• - -
Public 
information. 
Grants. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1017 
Subpart C—Taxes on Sales of Sport Fishing Equipment, Etc. 
SEC. 1015. TAX ON SALE OF SPORT FISHING EQUIPMENT. 
(a) GENERAL RULE.—Subsection (a) of section 4161 (relating to 26 USC 4161. 
imposition of tax on the sale of rods, reels, etc.) is amended to read 
as follows: 
"(a) SPORT FISHING EQUIPMENT.— 
"(1) IMPOSITION OF TAX.—There is hereby imposed on the sale 
of any article of sport fishing equipment by the manufacturer, 
producer, or importer a tax equal to 10 percent of the price for 
which so sold. 
"(2) 3 PERCENT RATE OF TAX FOR ELECTRIC O
U
T
B
O
A
R
D M
O
T
O
R
S 
AND SONAR DEVICES SUITABLE FOR FINDING FISH.— 
t 
"(A) IN GENERAL.—In the case of an electric outboard 
i 
motor or a sonar device suitable for finding fish, paragraph 
(1) shall be applied by substituting '3 percent' for '10 per-
cent'. 
"(B) $30 LIMITATION ON T
A
X IMPOSED ON SONAR DEVICES 
SUITABLE FOR FINDING FISH.—The tax imposcd by paragraph 
-
i
>
« < 
(1) on any sonar device suitable for finding fish shall not 
exceed $30. 
"(3) PARTS OR ACCESSORIES SOLD IN CONNECTION WITH TAXABLE 
SALE.—In the case of any sale by the manufacturer, producer, or 
V 
importer of any article of sport fishing equipment, such article 
shall be treated as including any parts or accessories of such 
7HU „ ., =
, 
article sold on or in connection therewith or with the sale 
thereof." 
(b) DEFINITION OF SPORT FISHING EQUIPMENT, ETC.—Part I of 
subchapter D of chapter 32 is amended by adding at the end thereof 
the following new section: 
"SEC. 4162. DEFINITIONS; TREATMENT OF CERTAIN RESALES. 
26 USC 4162. 
"(a) SPORT FISHING EQUIPMENT DEFINED.—For purposes of this 
part, the term 'sport fishing equipment' means— 
"(1) fishing rods and poles (and component parts therefor), 
"(2) fishing reels, 
"(3) fly fishing lines, and other fishing lines not over 130 
pounds test, 
"(4) fishing spears, spear guns, and spear tips, 
"(5) items of terminal tackle, including— 
"(A) leaders, 
"(B) artificial lures, 
"(C) artificial baits, 
"(D) artificial flies, 
"(E) fishing hooks, 
"(F) bobbers, 
"(G) sinkers, 
"(H) snaps, 
"(I) drayles, and 
"(J) swivels, 
' ' •' 
but not including natural bait or any item of terminal tackle 
designed for use and ordinarily used on fishing lines not 
described in paragraph (3), and 
"(6) the following items of fishing supplies and accessories— 
"(A) fish stringers, 
^ 
"(B) creels, 
"(C) tackle boxes, 
98 STAT. 1018 
PUBLIC LAW 98-369—JULY 18, 1984 
.•>j:'i 
"(D) bags, baskets, and other containers designed to hold 
fish, 
"(E) portable bait containers, 
r
:
^ :>;i; :
i
<
; 
"(F) fishing vests, 
. ; 
"(G) landing nets, 
• -.;, 
, ^H; .|, 
, 
"(H) gaff hooks, 
"(I) fishing hood disgorgers, and 
"(J) dressing for fishing lines and artificial flies, 
"(7) fishing tip-ups and tilts, 
"(8) fishing rod belts, fishing rodholders, fishing harnesses, 
fish fighting chairs, fishing outriggers, and fishing downriggers, 
"(9) electric outboard boat motors, and 
"(10) sonar devices suitable for finding fish. 
"(b) SONAR DEVICE SUITABLE FOR FINDING FISH.—For purposes of 
this part, the term 'sonar device suitable for finding fish' shall not 
include any sonar device which is— 
,...., 
"(1) a graph recorder, 
; > 
"(2) a digital type, 
"(3) a meter readout, or 
"(4) a combination graph recorder or combination meter read-
out. 
"(c) TREATMENT OF CERTAIN RESALES.— 
"(1) IN GENERAL.—If— 
"(A) the manufacturer, producer, or importer sells any 
Ante, p. 1017. 
article taxable under section 4161(a) to any person, 
"(B) the constructive sale price rules of section 4216(b) do 
not apply to such sale, and 
'i 
"(C) such person (or any other person) sells such article to 
' 
' 
a related person with respect to the manufacturer, pro-
ducer, or importer, 
then such related person shall be liable for tax under section 
4161 in the same manner as if such related person were the 
manufacturer of the article. 
"(2) CREDIT FOR TAX PREVIOUSLY PAID.—If— 
"(A) tax is imposed on the sale of any article by reason of 
paragraph (1), and 
"(B) the related person establishes the amount of the tax 
which was paid on the' sale described in paragraph (1)(A), 
the amount of the tax so paid shall be allowed as a credit 
against the tax imposed by reason of paragraph (1). 
"(3) RELATED PERSON.—For purposes of this subsection, the 
term 'related person' has the meaning given such term by 
section 168(e)(4)(D). 
"(4) REGULATIONS.—Except to the extent provided in regula-
tions, rules similar to the rules of this subsection shall also 
apply in cases (not described in paragraph (1)) in which interme-
diaries or other devices are used for purposes of reducing the 
amount of the tax imposed by section 4161(a)." 
26 use 6302. 
(c) TiME F
O
R PAYMENT OF TAX.—Section 6302 (relating to mode or 
time of collecting tax) is amended by redesignating subsection (d) as 
subsection (e) and by inserting after subsection (c) the following new 
subsection: 
"(d) TIME FOR PAYMENT OF MANUFACTURERS EXCISE TAX ON SPORT 
Ante, p. 1017. 
FiSHiNG EQUIPMENT.—The tax imposed by section 4161(a) (relating 
to manufacturers excise tax on sport fishing equipment) shall be due 
and payable on the date for filing the return for such tax." 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1019 
(d) CLERICAL AMENDMENT.—The table of sections for part I of 
subchapter D of chapter 32 is amended by adding at the end thereof 
the following new item: 
"Sec. 4162. Definitions; treatment of certain resales." 
(e) EFFECTIVE DATE.— 
26 use 4162 
(1) IN GENERAL.—Except as provided in paragraph (2), the note. 
amendments made by this section shall apply with respect to 
articles sold by the manufacturer, producer, or importer after 
September 30, 1984. 
(2) TREATMENT OF CERTAIN RESALES.—Subsection (c) of section 
4162 of the Internal Revenue Code of 1954 (relating to treat- Ante, p. 1017. 
ment of certain resales), as added by this section, shall apply to 
sales by related persons (as defined in such subsection) after the 
date of the enactment of this Act. 
SEC. 1016. ESTABLISHMENT OF AQUATIC RESOURCES TRUST FUND. 
(a) GENERAL RULE.—Subchapter A of chapter 98 (relating to Trust 
Fund Code) is amended by adding at the end thereof the following 
new section: 
"SEC. 9504. AQUATIC RESOURCES TRUST FUND. 
26 USC 9504. 
"(a) CREATION OF TRUST FUND.— 
"(1) IN GENERAL.—There is hereby established in the Treasury 
of the United States a trust fund to be known as the Aquatic 
Resources Trust Fund'. 
"(2) ACCOUNTS IN TRUST FUND.—The Aquatic Resources Trust 
Fund shall consist of— 
"(A) a Sport Fish Restoration Account, and 
"(B) a Boat Safety Account. 
Each such Account shall consist of such amounts as may be 
'- 
appropriated, credited, or paid to it as provided in this section, 
section 9503(c)(4), or section 9602(b). 
' "(b) SPORT FISH RESTORATION ACCOUNT.— 
"(1) TRANSFER OF CERTAIN TAXES TO ACCOUNT.—There is 
•
) 
;'''"• 
hereby appropriated to the Sport Fish Restoration Account 
* '' 
amounts equivalent to the following amounts received in the 
Treasury on or after October 1, 1984— 
"(A) the taxes imposed by section 4161(a) (relating to Ante, p. 1017. 
sport fishing equipment), and 
"(B) the import duties imposed on fishing tackle under 
subpart B of part 5 of schedule 7 of the Tariff Schedules of 
• Jj' I 
the United States (19 U.S.C. 1202) and on yachts and pleas-
ure craft under subpart D of part 6 of schedule 6 of such 
Schedules. 
"(2) EXPENDITURES FROM ACCOUNT.—Amounts in the Sport 
Fish Restoration Account shall be available, as provided by 
appropriation Acts, to carry out the purposes of the Act entitled 
An Act to provide that the United States shall aid the States in 
;;=' = 
fish restoration and management projects, and for other pur- 
"'• 
' • 
poses', approved August 9, 1950 (as in effect on June 1, 1984). 
"(c) EXPENDITURES FROM BOAT SAFETY ACCOUNT.—Amounts in the 
Boat Safety Account shall be available, as provided by appropriation 
Acts, for making expenditures before April 1, 1989, to carry out the 
purposes of section 18106 of title 46, United States Code (as in effect 
97 Stat. 596. 
on June 1, 1984). 
"(d) CROSS REFERENCE.— 
98 STAT. 1020 
PUBLIC LAW 98-369—JULY 18, 1984 
"For provision transferring motorboat fuels taxes to Boat Safety Ac-
count and Sport Fish Restoration Account, see section 9503(c)(4)." 
(b) TRANSFERS FROM HIGHWAY TRUST FUND.— 
26 use 9503. 
(1) Subparagraph (A) of section 9503(c)(4) of such Code is 
amended— 
(A) by striking out "the National Recreational Boating 
Safety and Facilities Improvement Fund established by 
section 202 of the Recreational Boating Fund Act" in clause 
(i) and inserting in lieu thereof "the Boat Safety Account in 
the Aquatic Resources Trust Fund", 
(B) by striking out "the amount in the National Recre-
ational Boating Safety and Facilities Improvement Fund" 
in clause (ii) and inserting in lieu thereof "the amount in 
the Boat Safety Account", and 
(C) by striking out "NATIONAL RECREATIONAL BOATING 
SAFETY AND FACILITIES IMPROVEMENT FUND" in the Subpara-
graph heading and inserting in lieu thereof "BOAT SAFETY 
ACCOUNT". 
(2) Paragraph (4) of section 9503(c) is amended by redesignat-
ing subparagraph (C) as subparagraph (D) and by striking out 
subparagraph (B) and inserting in lieu thereof the following 
new subparagraphs: 
"(B) $1,000,000 PER YEAR OF EXCESS TRANSFERRED TO LAND 
AND WATER CONSERVATION FUND.— 
"(i) IN GENERAL.—Any amount received in the High-
way Trust Fund— 
J3i. i 
"(I) which is attributable to motorboat fuel taxes, 
and 
"(II) which is not transferred from the Highway 
Trust Fund under subparagraph (A), 
shall be transferred (subject to the limitation of clause 
(ii)) by the Secretary from the Highway Trust Fund 
into the land and water conservation fund provided for 
in title I of the Land and Water Conservation Fund Act 
16 use 460Z-4- 
of 1965. 
^60^-11- 
"(ii) LIMITATION.—The aggregate amount transferred 
: 
under this subparagraph during any fiscal year shall 
not exceed $1,000,000. 
"(C) EXCESS FUNDS TRANSFERRED TO SPORT FISH RESTORA-
TION ACCOUNT.—Any amount received in the Highway 
Trust Fund— 
"(i) which is attributable to motorboat fuel taxes, and 
"(ii) which is not transferred from the Highway Trust 
Fund under subparagraph (A) or (B), 
shall be transferred by the Secretary from the Highway 
Trust Fund into the Sport Fish Restoration Account in the 
Aquatic Resources Trust Fund." 
(c) CONFORMING AMENDMENTS.— 
Repeal. 
(1) Section 13107 of title 46, United States Code, is hereby 
97 Stat. 596. 
repealed. 
(2) The table of sections for chapter 181 of title 46, United 
States Code, is amended by striking out the item relating to 
section 13107. 
(d) CLERICAL AMENDMENT.—The table of sections for subchapter A 
: 
of chapter 98 is amended by adding at the end thereof the following 
new item: 
"Sec. 9504. Aquatic Resources Trust Fund." 3 71, •(}»,'?- '?! 
:. .' 
j ' 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1021 
(e) EFFECTIVE DATE.— 
26 usc 9504 
(1) IN GENERAL.—The amendments made by this section shall 'lote. 
take effect on October 1, 1984. 
(2) BOAT SAFETY ACCOUNT TREATED AS CONTINUATION OF NA-
TIONAL RECREATIONAL BOATING SAFETY AND FACILITIES IMPROVE-
MENT FUND.—The Boat Safety Account in the Aquatic Re-
sources Trust Fund established by the amendments made by 
this section shall be treated for all purposes of law as the 
continuation of the National Recreational Boating Safety and 
Facilities Improvement Fund established by section 13107 of 
title 46, United States Code. Any reference in any law to the Ante, p. 1020. 
National Recreational Boating Safety and Facilities Improve-
ment Fund established by such section shall be deemed to 
include (wherever appropriate) a reference to such Boat Safety 
,< 
Account. 
SEC. 1017. TAX ON CERTAIN ARROWS. 
(a) GENERAL RULE.—Paragraph (1) of section 4161(b) (relating to 26 USC 4161. 
bows and arrows) is amended to read as follows: 
"(1) Bows AND ARROWS.—There is hereby imposed on the sale 
by the manufacturer, producer, or importer— 
"(A) of any bow which has a draw weight of 10 pounds or 
more, and 
"(B) of any arrow which— 
"(i) measures 18 inches overall or more in length, or 
w
. 
"(ii) measures less than 18 inches overall in length 
but is suitable for use with a bow described in subpara-
i' 
graph (A). 
a tax equal to 11 percent of the price for which so sold." 
(b) COORDINATION WITH TAX ON SPORT FISHING EQUIPMENT.— 
(1) Subsection (b) of section 4161 is amended by adding at the 
end thereof the following new paragraph: 
"(3) COORDINATION WITH SUBSECTION (a).—No tax shall be 
imposed under this subsection with respect to any article tax-
able under subsection (a)." 
(2) Paragraph (2) of section 4161(b) is amended by striking out 
"(other than a fishing reel)". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 4161 
apply with respect to articles sold by the manufacturer, producer, or note, 
importer after September 30,1984. • 
PART 
II—OTHER 
EXCISE 
TAXES 
SEC. 1018. EXEMPTION FROM AVIATION EXCISE TAX FOR CERTAIN HELI-
COPTER OPERATIONS. 
(a) EXEMPTION FROM FUEL TAX.—Paragraph (1) of section 4041(1) 26 USC 4041. 
(relating to exemption for certain helicopter uses) is amended to 
read as follows: 
"(1) transporting individuals, equipment, or supplies in— 
"(A) the exploration for, or the development or removal 
of, hard minerals, or 
"(B) the exploration for oil or gas, or". 
(b) EXEMPTION FROM TAX ON TRANSPORTATION BY AIR.—Para-
graph (1) of section 4261(e) (relating to exemption for certain helicop-
ter uses) is amended to read as follows: 
"(1) transporting individuals, equipment, or supplies in— 
98 STAT. 1022 
PUBLIC LAW 98-369—JULY 18, 1984 
' 
"(A) the exploration for, or the development or removal 
' 
•- 
of, hard minerals, or 
"(B) the exploration for oil or gas, or", 
(c) EFFECTIVE DATE.— 
26 use 4041 
(1) SUBSECTION (a).—The amendment made by subsection (a) 
note. 
shall take effect on April 1, 1984. 
26 use 4261 
(2) SUBSECTION (b).—The amendment made by subsection (b) 
note. 
shall apply to transportation beginning after March 31, 1984, 
but shall not apply to any amount paid on or before such date. 
SEC. 1019. TECHNICAL AMENDMENTS TO THE HAZARDOUS S13BSTANCE 
RESPONSE REVENUE ACT OF 1980. 
(a) CLARIFICATION OF EXCEPTED SUBSTANCES.— 
26 use 4662. 
(1) IN GENERAL.—Subsection (b) of section 4662 (relating to 
definitions and special rules with respect to tax on certain 
chemicals) is amended by adding at the end thereof the follow-
ing new paragraphs: 
"(5) SUBSTANCES USED IN THE PRODUCTION OF MOTOR FUEL, 
ETC.— 
"(A) IN GENERAL.—In the case of any chemical described 
in subparagraph (D) which is a qualified fuel substance, no 
tax shall be imposed under section 4661(a). 
"(B) QUALIFIED FUEL SUBSTANCE.—For purposes of this 
section, the term 'qualified fuel substance' means any sub-
stance— 
"(i) used in a qualified fuel use by the manufacturer, 
producer, or importer, 
"(ii) sold for use by any purchaser in a qualified fuel 
use, or 
"(iii) sold for resale by any purchaser for use, or 
resale for ultimate use, in a qualified fuel use. 
"(C) QUALIFIED FUEL USE.—For purposes of this subsec-
tion, the term 'qualified fuel use' means— 
^, 
"(i) any use in the manufacture or production of any 
motor fuel, diesel fuel, aviation fuel, or jet fuel, or 
"(ii) any use as such a fuel. 
"(D) CHEMICALS TO WHICH PARAGRAPH APPLIES.—For pur-
poses of this subsection, the chemicals described in this 
subparagraph are acetylene, benzene, butylene, butadiene, 
ethylene, naphthalene, propylene, toluene, and xylene. 
"(E) TAXATION OF NONQUALIFIED SALE OR USE.—For pur-
poses of section 4661(a), if no tax was imposed by such 
section on the sale or use of any chemical by reason of 
subparagraph (A), the first person who sells or uses such 
chemical other than in a sale or use described in subpara-
graph (A) shall be treated as the manufacturer of such 
f
*
' - 
chemical. 
"(6) SUBSTANCE HAVING TRANSITORY PRESENCE DURING REFIN-
ING PROCESS, ETC.— 
"(A) IN GENERAL.—No tax shall be imposed under section 
4661(a) on any taxable chemical described in subparagraph 
(B) by reason of the transitory presence of such chemical 
during any process of smelting, refining, or otherwise ex-
tracting any substance not subject to tax under section 
4661(a). 
"(B) CHEMICALS TO WHICH SUBPARAGRAPH (A) APPLIES.— 
The chemicals described in this subparagraph are— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1023 
; - ' . 
"(i) barium sulfide, cupric sulfate, cupric oxide, cu- 
- ,;.,;£: 
prous oxide, lead oxide, zinc chloride, and zinc sulfate, 
and 
"(ii) any solution or mixture containing any chemical 
described in clause (i). 
"(C) REMOVAL TREATED AS USE.—Nothing in subparagraph 
(A) shall be construed to apply to any chemical which is 
removed from or ceases to be part of any smelting, refining, 
or other extraction process." 
. . . - , - 
.. 
(2) CREDIT OR REFUND FOR USE AS QUALIFIED FUEL, ETC.— 
Subsection (d) of section 4662 (relating to refund or credit for 26 USC 4662. 
certain uses) is amended by adding at the end thereof the 
following new paragraph: 
. 
sj? 
"(3) USE AS QUALIFIED FUEL.—Under regulations prescribed by 
the Secretary, if— 
"(A) a tax under section 4661 was paid with respect to 
any chemical described in subparagraph (D) of subsection 
(b)(5) without regard to subsection (b)(5), and 
"(B) any person uses such chemical as a qualified fuel 
substance, 
then an amount equal to the excess of the tax so paid over the 
tax determined with regard to subsection (b)(5) shall be allowed 
as a credit or refund (without interest) to such person in the 
same manner as if it were an overpayment of tax imposed by 
this section." 
(3) METHANE AND BUTANE USED IN PRODUCTION OF MOTOR FUEL, 
ETC.—Paragraph (1) of section 4662(b) is amended by inserting 
"or in the manufacture or production of any motor fuel, diesel 
fuel, aviation fuel, or jet fuel" after "than as a fuel". 
(b) CLARIFICATION OF USE AS FERTILIZER.— 
"* ' 
' ' -
(1) IN GENERAL.—Paragraph (2) of section 4662(b) is amended 
by striking out subparagraphs (B) and (C) and inserting in lieu 
thereof the following: 
"(B) QUAUFIED FERTILIZER SUBSTANCE.—For purposes of 
this section, the term 'qualified fertilizer substance' means 
any substance— 
"(i) used in a qualified fertilizer use by the manufac-
turer, producer, or importer, 
"(ii) sold for use by any purchaser in a qualified 
fertilizer use, or 
"(iii) sold for resale by any purchaser for use, or 
resale for ultimate use, in a qualified fertilizer use. 
"(C) QUALIFIED FERTILIZER USE.—The term 'qualified fer-
tilizer use' means any use in the manufacture or production 
of fertilizer or for direct application as a fertilizer. 
"(D) TAXATION OF NONQUALIFIED SALE OR USE.—For pur-
poses of section 4661(a), if no tax was imposed by such 
section on the sale or use of any chemical by reason of 
subparagraph. (A), the first person who sells or uses such 
,i 
chemical other than in a sale or use described in subpara-
graph (A) shall be treated as the manufacturer of such 
chemical." 
(2) TECHNICAL AMENDMENTS.— 
(A) Subparagraph (A) of section 4662(b)(2) is amended by 
striking out "qualified substance" and inserting in lieu 
thereof "qualified fertilizer substance". 
98 STAT. 1024 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 4662. 
(B) Subparagraph (B) of section 4662(d)(2) is amended to 
read as follows: 
"(B) any person uses such substance as a qualified 
fertilizer substance,". 
(c) CONFORMING AMENDMENT.—Subsection (c) of section 4662 
(relating to use by manufacturer, etc., considered sale) is amended 
by striking out "If' and inserting in lieu thereof "Except as provided 
in subsection (b), if. 
26 use 4662 
(d) EFFECTIVE DATE.— 
note. 
(1) IN GENERAL.—The amendments made by this section shall 
take effect as if included in the amendments made by section 
211(a) of the Hazardous Substance Response Revenue Act of 
94 Stat. 2797. 
1980. 
(2) WAIVER OF LIMITATION.—If refund or credit of any overpay-
ment of tax resulting from the application of the amendments 
made by this section is prevented at any time before the date 
which for one year after the date of the enactment of this Act by 
the operation of any law or rule of law (including res judicata), 
refund or credit of such overpayment (to the extent attributable 
to the application of such amendments) may, nevertheless, be 
made or allowed if claim therefor is filed on or before the date 
which for one year after the date of the enactment of this Act. 
Subtitle C—Estate and Gift Tax Provisions 
SEC. 1021. DEFERRAL OF ESTATE TAXES FOR INTEREST IN HOLDING 
COMPANY WHICH OWNS STOCK IN CLOSELY HELD OPERAT-
ING COMPANY. 
26 use 6166. 
(a) GENERAL RULE.—Subsection (b) of section 6166 (relating to 
extension of time for payment of estate tax where estate consists 
largely of interests in closely held business) is amended by adding at 
the end thereof the following new paragraph: 
"(8) 
STOCK 
IN 
HOLDING 
COMPANY 
TREATED AS BUSINESS 
COMPANY STOCK IN CERTAIN CASES.— 
"(A) IN GENERAL.—If the executor elects the benefits of 
this paragraph, then— 
"(i) HOLDING COMPANY STOCK TREATED AS BUSINESS 
COMPANY STOCK.—For purposes of this section, the por-
tion of the stock of any holding company which repre-
sents direct ownership (or indirect ownership through 1 
or more other holding companies) by such company in a 
business company shall be deemed to be stock in such 
business company. 
"(ii) 5-YEAR DEFERRAL FOR PRINCIPAL NOT TO APPLY.— 
The executor shall be treated as having selected under 
subsection (aX3) the date prescribed by section 6151(a). 
"(iii) 4-PERCENT INTEREST RATE NOT TO APPLY.—Sec-
tion 6601(j) (relating to 4-percent rate of interest) shall 
not apply. 
"(B) ALL STOCK MUST BE NON-READILY-TRADABLE STOCK.— 
No stock shall be taken into account for purposes of apply-
ing this paragraph unless it is non-readily-tradable stock 
(within the meaning of paragraph (7XB)). 
"(C) APPLICATION OF VOTING STOCK REQUIREMENT OF PARA-
GRAPH (1) (c) (i).—For purposes of clause (i) of paragraph 
(1)(C), the deemed stock resulting from the application of 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1025 
^' • 
subparagraph (A) shall be treated as voting stock to the 
extent that voting stock in the holding company owns 
directly (or through the voting stock of 1 or more other 
holding companies) voting stock in the business company. 
"(D) DEFINITIONS.—For purposes of this paragraph— 
"(i) HOLDING COMPANY.—The term 'holding company' 
^' • 
means any corporation holding stock in another 
corporation. 
"(ii) BUSINESS COMPANY.—The term 'business com-
pany' means any corporation carrying on a trade or 
business." 
(b) DEFERRAL OF ESTATE TAXES NOT AVAILABLE FOR PASSIVE 
ASSETS.—Subsection (b) of section 6166 is amended by adding at the 26 use 6166. 
end thereof the following new paragraph: 
"(9) DEFERRAL NOT AVAILABLE FOR PASSIVE ASSETS.— 
"(A) IN GENERAL.—For purposes of subsection (a)(1) and 
determining the closely held business amount (but not for 
purposes of subsection (g)), the value of any interest in a 
• 
closely held business shall not include the value of that 
portion of such interest which is attributable to passive 
assets held by the business. 
"(B) 
PASSIVE 
ASSET DEFINED.—For purposes of this 
paragraph— 
"(i) IN GENERAL.—The term 'passive asset' means any 
asset other than an asset used in carrying on a trade or 
business. 
* 
•'• 
"(ii) STOCK TREATED AS PASSIVE ASSET.—The term 'pas-
sive asset' includes any stock in another corporation 
unless— 
"(I) such stock is treated as held by the decedent 
by reason of an election under paragraph (8), and 
"(II) such stock qualified under subsection (a)(1). 
"(iii) EXCEPTION FOR ACTIVE CORPORATIONS.—If— 
"(I) a corporation owns 20 percent or more in 
•f-^i/c- 
' . ) : - , 
value of the voting stock of another corporation, or 
such other corporation has 15 or fewer sharehold-
ers, and 
"(II) 80 percent or more of the value of the assets 
of each such corporation is attributable to assets 
used in carrying on a trade or business, 
then such corporations shall be treated as 1 corporation 
for purposes of clause (ii). For purposes of applying 
subclause (II) to the corporation holding the stock of 
the other corporation, such stock shall not be taken 
into account." 
t ' 
. iv 
(c) ACCELERATION OF PAYMENT.—Paragraph (1) of section 6166(g) 
(relating to disposition of interest; withdrawal of funds from busi-
ness) is amended by adding at the end thereof the following new 
subparagraphs: 
"(E) CHANGES IN INTEREST IN HOLDING COMPANY.—If any 
stock in a holding company is treated as stock in a business 
company by reason of subsection (b)(8)(A)— 
"(i) any disposition of any interest in such stock in 
'' 
such holding company which was included in determin-
ing the gross estate of the decedent, or 
"(ii) any withdrawal of any money or other property 
from such holding company attributable to any interest 
98 STAT. 1026 
PUBLIC LAW 98-369—JULY 18, 1984 
included in determining the gross estate of the 
decedent, 
shall be treated for purposes of subparagraph (A) as a 
disposition of (or a withdrawal with respect to) the stock 
qualifying under subsection (a)(1). 
"(F) CHANGES IN INTEREST IN BUSINESS COMPANY.—If any 
stock in a holding company is treated as stock in a business 
company by reason of subsection (b)(8)(A)— 
"(i) any disposition of any interest in such stock in 
the business company by such holding company, or 
"(ii) any withdrawal of any money or other property 
from such business company attributable to such stock 
, 
by such holding company owning such stock, 
shall be treated for purposes of subparagraph (A) as a 
disposition of (or a withdrawal with respect to) the stock 
qualifying under subsection (a)(1)." 
(d) UNDISTRIBUTED INCOME OF ESTATE.—Paragraph (2) of section 
26 use 6166. 
6166(g) (relating to undistributed income of estate) is amended by 
adding at the end thereof the following new subparagraph: 
"(C) For purposes of this paragraph, if any stock in a 
corporation is treated as stock in another corporation by 
reason of subsection (b)(8)(A), any dividends paid by such 
other corporation to the corporation shall be treated as paid 
to the estate of the decedent to the extent attributable to 
the stock qualifying under subsection (a)(1)." 
26 use 6166 
(e) EFFECTIVE DATE.— 
note. 
(1) I^f GENERAL.—The amendments made by this section shall 
apply with respect to estates of decedents dying after the date of 
the enactment of this Act. 
(2) SPECIAL RULE.— 
(A) IN GENERAL.—At the election of the executor, if— 
(i) a corporation has 15 or fewer shareholders on 
June 22, 1984, and at all times thereafter before the 
date of the decedent's death, and 
(ii) stock of such corporation is included in the gross 
estate of the decedent, 
then all other corporations all of the stock of which is 
owned directly or indirectly by the corporation described in 
clauses (i) and (ii) shall be treated as one corporation for 
purposes of section 6166 of the Internal Revenue Code of 
1954. 
(B) EFFECT OF ELECTION.—Any executor who elects the 
application of this paragraph shall be treated as having 
made the election under paragraph (8) of section 6166(b) of 
Ante, p. 1024. 
such Code. 
SEC. 1022. PERMANENT RULES FOR REFORMING GOVERNING INSTRU-
MENTS CREATING CHARITABLE REMAINDER TRUSTS AND 
OTHER CHARITABLE INTERESTS. 
26 use 2055. 
(a) GENERAL RuLE.—Paragraph (3) of section 2055(e) (relating to 
disallowance of deductions in certain cases) is amended to read as 
follows: 
"(3) REFORMATIONS TO COMPLY WITH PARAGRAPH (2).— 
"(A) IN GENERAL.—A deduction shall be allowed under 
subsection (a) in respect of any qualified reformation. 
"(B) QUALIFIED REFORMATION.—For purposes of this para-
graph, the term 'qualified reformation' means a change of a 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1027 
ic 
; 
governing instrument by reformation, amendment, con-
struction, or otherwise which changes a reformable interest 
into a qualified interest but only i
f
— 
- 
"(i) any difference between— 
"(I) the actuarial value (determined as of the 
*
*
> 
date of the decedent's death) of the qualified inter-
' 
est, and 
' ' 
"(II) the actuarial value (as so determined) of the 
reformable interest, 
does not exceed 5 percent of the actuarial value (as so 
determined) of the reformable interest, 
"(ii) in the case of— 
"(I) a charitable remainder interest, the nonre-
mainder interest (before and after the qualified 
reformation) terminated at the same time, or 
"(II) any other interest, the reformable interest 
and the qualified interest are for the same period, 
and 
"(iii) such change is effective as of the date of the 
decedent's death. 
" 
A nonremainder interest (before reformation) for a term of 
years in excess of 20 years shall be treated as satisfying 
subclause (I) of clause (ii) if such interest (after reformation) 
is for a term of 20 years. 
"(C) 
REFORMABLE 
INTEREST.—For 
purposes 
of 
this 
paragraph— 
,,,,., 
"(i) IN GENERAL.—The term 'reformable interest' 
means any interest for which a deduction would be 
allowable under subsection (a) at the time of the dece-
dent's death but for paragraph (2). 
"(ii) 
BENEFICIARY'S INTEREST MUST BE FIXED.—The 
term 'reformable interest' does not include any interest 
. 
unless, before the remainder vests in possession, all 
, ,»,, 
payments to persons other than an organization de-
scribed in subsection (a) are expressed either in speci-
fied dollar amounts or a fixed percentage of the fair 
market value of the property. For purposes of deter-
mining whether all such payments are expressed as a 
fixed percentage of the fair market value of the prop-
erty, section 664(d)(3) shall be taken into account. 
i ; 
"(iii) SPECIAL RULE WHERE TIMELY COMMENCEMENT OF 
REFORMATION.—Clause (ii) shall not apply to any inter-
est if a judicial proceeding is commenced to change 
such interest into a qualified interest not later than the 
90th day after— 
"(I) if an estate tax return is required to be filed, 
the last date (including extensions) for filing such 
return, or 
"(II) if no estate tax return is required to be filed, 
the last date (including extensions) for filing the 
income tax return for the 1st taxable year for 
.»fo 
which such a return is required to be filed by the 
. , 
trust. 
"(iv) SPECIAL RULE FOR WILL EXECUTED BEFORE JANU-
ARY 1, 1979, ETC.—In the case of any interest passing 
under a will executed before January 1, 1979, or under 
'3tet 
LJ (•'^ 
98 STAT. 1028 
PUBLIC LAW 98-369—JULY 18, 1984 
a trust created before such date, clause (ii) shall not 
apply. 
"(D) QUALIFIED INTEREST.—For purposes of this para-
graph, the term 'qualified interest' means an interest for 
which a deduction is allowable under subsection (a). 
"(E) LIMITATION.—The deduction referred to in subpara-
graph (A) shall not exceed the amount of the deduction 
which would have been allowable for the reformable inter-
est but for paragraph (2). 
"(F) SPECIAL RULE WHERE INCOME BENEFICIARY DIES.—If 
(by reason of the death of any individual, or by termination 
or distribution of a trust in accordance with the terms of 
the trust instrument) by the due date for filing the estate 
tax return (including any extension thereof) a reformable 
interest is in a wholly charitable trust or passes directly to 
a person or for a use described in subsection (a), a deduction 
shall be allowed for such reformable interest as if it had 
met the requirements of paragraph (2) on the date of the 
decedent's death. For purposes of the preceding sentence, 
c 
the term 'wholly charitable trust' means a charitable trust 
which, upon the allowance of a deduction, would be de-
scribed in section 4947(a)(1). 
"(G) STATUTE OF LIMITATIONS.—The period for assessing 
any deficiency of any tax attributable to the application of 
this paragraph shall not expire before the date 1 year after 
the date on which the Secretary is notified that such refor-
mation has occurred. 
"(H) REGULATIONS.—The Secretary shall prescribe such 
regulations as may be necessary to carry out the purposes 
of this paragraph, including regulations providing such 
adjustments in the application of the provisions of section 
508 (relating to special rules relating to section 501(c)(3) 
organizations), subchapter J (relating to estates, trusts, 
26 use 4940 et 
beneficiaries, and decedents), and chapter 42 (relating to 
seq. 
private foundations) as may be necessary by reason of the 
qualified reformation. 
"(I) REFORMATIONS PERMITTED IN CASE OF REMAINDER IN-
TERESTS IN RESIDENCE OR FARM, POOLED INCOME FUNDS, 
ETC.—The Secretary shall prescribe regulations (consistent 
with the provisions of this paragraph) permitting reforma-
tions in the case of any failure— 
"(i) to meet the requirements of section 170(f)(3)(B) 
(relating to remainder interests in personal residence 
or farm, etc.), or 
"(ii) to meet the requirements of section 642(c)(5)." 
26 use 170. 
OJ) INCOME TAX DEDUCTION.—Subsection (f) of section 170 (relating 
to disallowance of deduction in certain cases and special rules) is 
amended by adding at the end thereof the following new paragraph: 
"(7) REFORMATIONS TO COMPLY WITH PARAGRAPH (2).— 
"(A) IN GENERAL.—A deduction shall be allowed under 
subsection (a) in respect of any qualified 
reformation 
Ante, p. 1026. 
(within the meaning of section 2055(e)(3)(B)). 
"(B) RULES SIMILAR TO SECTION 2055(e) (3) TO APPLY.—For 
purposes of this paragraph, rules similar to the rules of 
section 2055(e)(3) shall apply." 
26 use 2522. 
(c) GiFT TAX DEDUCTION.—Subsection (c) of section 2522 is 
amended by adding at the end thereof the following new paragraph: 
PUBLIC LAW 98-369—JULY 18, 1984 
STAT. 1029 
inc 
Ante, p. 1026. 
26 u s e 2055 
note. 
"(4) REFORMATIONS TO COMPLY WITH PARAGRAPH (2).— 
"(A) IN GENERAL.—A deduction shall be allowed under 
subsection (a) in respect of any qualified 
reformation 
(within the meaning of section 2055(e)(3)(B)). 
"(B) RULES SIMILAR TO SECTION 2055(e) (3) TO APPLY.—For 
purposes of this paragraph, rules similar to the rules of 
section 2055(e)(3) shall apply." 
(d) TREATMENT OF CERTAIN CONTINGENCIES UNDER SECTION 664.— 
Section 664 (relating to charitable remainder trusts) is amended by 26 USC 664. 
adding at the end thereof the following subsection: 
"(f) CERTAIN CONTINGENCIES PERMITTED.— 
"(1) GENERAL RULE.—If a trust would, but for a qualified 
contingency, meet the requirements of paragraph (1)(A) or (2)(A) 
of subsection (d), such trust shall be treated as meeting such 
requirements. 
? 
"(2) VALUE DETERMINED WITHOUT REGARD TO QUALIFIED CON-
TINGENCY.—For purposes of determining the amount of any 
charitable contribution (or the actuarial value of any interest), a 
qualified contingency shall not be taken into account. 
"(3) QuAUFiED CONTINGENCY.—For purposes of this subsec-
tion, the term 'qualified contingency' means any provision of a 
trust which provides that, upon the happening of a contingency, 
the payments described in paragraph (1)(A) or (2)(A) of subsec-
tion (d) (as the case may be) will terminate not later than such 
payments would otherwise terminate under the trust." 
(e) EFFECTIVE DATE.— 
(1) SUBSECTIONS (a), (b), AND (C).—The amendments made by 
subsections (a), (b), and (c) shall apply to reformations after 
December 31, 1978; except that such amendments shall not 
apply to any reformation to which section 2055(e)(3) of the 
Internal Revenue Code of 1954 (as in effect on the day before the 
date of the enactment of this Act) applies. For purposes of 
applying clause (iii) of section 2055(e)(3)(C) of such Code (as 
amended by this section), the 90th day described in such clause 
shall be treated as not occurring before the 90th day after the 
date of the enactment of this Act. 
(2) SUBSECTION (d).—The amendment made by subsection (d) 
shall apply to transfers after December 31,1978. 
(3) STATUTE OF LIMITATIONS.— 
(A) IN GENERAL.—If on the date of the enactment of this 
Act (or at any time before the date 1 year after such date of 
enactment), credit or refund of any overpayment of tax 
attributable to the amendments made by this section is 
barred by any law or rule of law, such credit or refund of 
such overpayment may nevertheless be made if claim there-
for is filed before the date 1 year after the date of the 
enactment of this Act. 
(B) No INTEREST WHERE STATUTE CLOSED ON DATE OF EN-
ACTMENT.—In any case where the making of the credit or 
refund of the overpayment described in subparagraph (A) is 
barred on the date of the enactment of this Act, no interest 
shall be allowed with respect to such overpayment (or any 
related adjustment) for the period before the date 180 days 
after the date on which the Secretary of the Treasury (or 
his delegate) is notified that the reformation has occurred. 
98 STAT. 1030 
PUBLIC LAW 98-369—JULY 18, 1984 
SEC. 1023. ALTERNATE VALUATION ELECTION AVAILABLE ONLY WHERE 
IT RESULTS IN REDUCTION OF GROSS ESTATE AND ESTATE 
TAX. 
26 use 2032. 
(a) GENERAL RuLE.—Section 2032 (relating to alternate valuation) 
is amended by redesignating subsection (c) as subsection (d) and by 
inserting after subsection (b) the following new subsection: 
"(c) ELECTION MUST DECREASE GROSS ESTATE AND ESTATE TAX.— 
No election may be made under this section with respect to an 
estate unless such election will decrease— 
"(1) the value of the gross estate, and 
"(2) the amount of the tax imposed by this chapter (reduced 
by credits allowable against such tax)." 
26 use 2032 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
note. 
shall apply with respect to estates of decedents dying after the date 
of the enactment of this Act. 
SEC. 1024. ALTERNATE VALUATION ELECTION AVAILABLE ON CERTAIN 
LATE RETURNS. 
(a) GENERAL RULE.—Subsection (d) of section 2032 (relating to time 
of election), as amended by section 1023, is amended to read as 
follows: 
"(d) ELECTION.— 
"(1) IN GENERAL.—The election provided for in this section 
shall be made by the executor on the return of the tax imposed 
by this chapter. Such election, once made, shall be irrevocable. 
"(2) EXCEPTION.—No election may be made under this section 
if such return is filed more than 1 year after the time prescribed 
by law (including extensions) for filing such return." 
(b) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendment made by subsection (a) 
shall apply to estates of decedents dying after the date of the 
enactment of this Act. 
(2) TRANSITIONAL RULE.—In the case of an estate of a decedent 
dying before the date of the enactment of this Act i
f
— 
(A) a credit or refund of the tax imposed by chapter 11 of 
26 use 2001 et 
the Internal Revenue Code of 1954 is not prevented on the 
seq. 
date of the enactment of this Act by the operation of any 
law or rule of law, 
(B) the election under section 2032 of the Internal Reve-
nue Code of 1954 would have met the requirements of such 
Supra. 
section (as amended by this section and section 1023) had 
the decedent died after the date of enactment of this Act, 
and 
(C) a claim for credit or refund of such tax with respect to 
such estate is filed not later than the 90th day after the 
date of the enactment of this Act, 
then such election shall be treated as a valid election under 
such section 2032. The statutory period for the assessment of 
any deficiency which is attributable to an election under this 
paragraph shall not expire before the close of the 2-year period 
beginning on the date of the enactment of this Act. 
SEC. 102.5. MODIFICATION OF ELECTION OR AGREEMENT UNDER SECTION 
2032A. 
26 use 2032A. 
(a) IN GENERAL.—Section 2032A(d) (relating to election and agree-
ment) is amended by adding at the end thereof the following new 
paragraph: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1031 
"(3) MODIFICATION OF ELECTION AND AGREEMENT TO BE PERMIT-
TED.—The Secretary shall prescribe procedures which provide that 
in any case in which— 
"(A) the executor makes an election under paragraph (1) 
within the time prescribed for filing such election, and 
"(B) substantially complies with the regulations prescribed by 
the Secretary with respect to such election, but— 
' ' 
; 
"(i) the notice of election, as filed, does not contain all 
required information, or 
^'* '- -
, J, 
"(ii) signatures of 1 or more persons required to enter into 
the agreement described in paragraph (2) are not included 
on the agreement as filed, or the agreement does not con-
tain all required information, 
the executor will have a reasonable period of time (not exceed-
• 
ing 90 days) after notification of such failures to provide such 
^ 
information or agreements." 
(b) EFFECTIVE DATE.— 
26 use 2032A 
(1) IN GENERAL.—The amendment made by this section shall note. 
apply to estates of decedents dying after December 31, 1976. 
(2) REFUND OR CREDIT OF OVERPAYMENT BARRED BY STATUTE OF 
LIMITATIONS.—Notwithstanding section 6511(a) of the Internal 
Revenue Code of 1954 or any other period of limitation or lapse 
» 
of time, a claim for credit or refund of overpayment of the tax 
imposed by such Code which arises by reason of this section may 
be filed by any person at any time within the 1-year period 
beginning on the date of the enactment of this Act. Sections 
f 
6511(b) and 6514 of such Code shall not apply to any claim for 
' 
credit or refund filed under this subsection within such 1-year 
period. 
SEC. 1026. NO GAIN RECOGNIZED FROM NET GIFTS MADE BEFORE M
A
R
C
H 26 USC 61 note. 
4, 1981. 
(a) IN GENERAL.—In the case of any transfer of property subject to 
gift tax made before March 4, 1981, for purposes of subtitle A of the 
Internal Revenue Code of 1954, gross income of the donor shall not 26 USC l. 
include any amount attributable to the donee's payment of (or 
agreement to pay) any gift tax imposed with respect to such gift. 
(b) GIFT TAX DEFINED.—For purposes of subsection (a), the term 
"gift tax" means— 
(1) the tax imposed by chapter 12 of such Code, and 
26 USC 2501 et 
(2) any tax imposed by a State (or the District of Columbia) on ^eo-. 
transfers by gifts. 
(c) STATUTE OF LIMITATIONS.—If refund or credit of any overpay-
ment of tax resulting from subsection (a) is prevented on the date of 
the enactment of this Act (or at any time within 1 year after such 
date) by the operation of any law or rule of law (including res 
judicata), refund or credit of such overpayment (to the extent attrib-
utable to subsection (a)) may nevertheless be made or allowed if 
claim therefor is filed within 1 year after the date of the enactment 
of this Act. 
SEC. 1027. MARITAL DEDUCTION FOR A USUFRUCT. 
(a) IN GENERAL.—Subclause (1) of section 2056(b)(7)(B)(ii) (relating 26 USC 2056. 
to qualifying income interest for life) is amended by inserting ", or 
has a usufruct interest for life in the property" after "intervals". 
(b) LIMITATION ON DEDUCTIONS FROM GROSS ESTATE.—Paragraph 
(1) of section 2053(c) (relating to limitations on deductions for ex- 26 USC 2053. 
98 STAT. 1032 
PUBLIC LAW 98-369—JULY 18, 1984 
penses, indebtedness, and taxes) is amended by adding at the end 
thereof the following new subparagraph: 
"(C) CERTAIN CLAIMS BY REMAINDERMEN.—No deduction 
shall be allowed under this section for a claim against the 
estate by a remainderman relating to any property de-
scribed in section 2044." 
26 use 2053 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
take effect as if included in the amendment made by section 403 of 
95 Stat. 301. 
the Economic Recovery Tax Act of 1981. 
SEC. 1028. CREDIT AGAINST ESTATE TAX FOR TRANSFERS TO TOIYABE 
NATIONAL FOREST. 
(a) CREDIT ALLOWED.—Subject to the provisions of this section, and 
notwithstanding any period of limitation or lapse of time, the 
Secretary of the Treasury or his delegate shall allow credit against 
26 use 2001 et 
the tax imposed by chapter 11 of the Internal Revenue Code of 1954 
««9- 
(relating to the imposition of estate tax)— 
(1) upon the estate of Nell J. Redfield for the conveyance by 
the estate of the United States of real property included in the 
gross estate and located within and adjacent to the boundaries 
of the Toiyabe National Forest; and 
(2) upon the estate of Elizabeth Schultz Rabe for the convey-
ance by the estate to the United States of real property included 
in the gross estate and known as Parcel No. 4 containing 97.60 
acres, more or less, located in the County of Douglas, State of 
Nevada, and described as follows: 
The NEy4 of the SWy4, the NWy4 of the SEy4, and a 
portion of the SEy4 of the NWy4 of Section 23, Township 13 
North, Range 18 East, M.D.B.&M., more particularly de-
scribed as follows: 
All that portion of the SEy4 of the NWy4 excepting there-
from the following: 
Beginning at a United States Forest Service Brass Cap, 
being the C-N yie corner of Section 23; thence South 
0°45'24" West 500.00 feet to an iron pipe; thence South 
44°50'02" West 945.42 feet to an iron pipe; thence North 
89°46'12" West 301.78 feet to a point; thence tangent North 
20°28'20" East on the arc of a circular curve to the left with 
a radius of 800 feet through a central angle of 40°44'50" an 
arc distance of 568.94 feet to a point; thence North 20°02'42" 
West 683.17 feet to a point; thence South 88°35'38" East 
1206.29 feet to the Point of Beginning, containing 22.40 
acres, more or less. 
(b) AMOUNT OF CREDIT.—The amount allowed as a credit under 
subsection (a) shall be equal to the lesser of— 
(1) the fair market value of the real property transferred by 
each estate as of the valuation date used for purposes of the tax 
imposed by chapter 11 of such Code, or 
(2) the Federal estate tax liability (and interest thereon) of 
each estate. 
(c) LIMITATIONS.— 
(1) The provisions of this section shall apply only if the 
executor of each estate executes a deed (in accordance with the 
laws of the State in which such real property is situated) 
transferring title to the United States before the date which is 
90 days after the date of the enactment of this Act, but only if 
such title is satisfactory to the Attorney General or his delegate. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1033 
(2) The provisions of this section shall apply only if the real 
property transferred is accepted by the Secretary of Agriculture 
and added to the Toiyabe National Forest. The lands shall be 
transferred to the Secretary of Agriculture without reimburse-
ment or payment from the Department of Agriculture. 
(3) Unless the Secretary of Agriculture determines and certi-
^, fies to the Secretary of the Treasury that there has been an 
expeditious transfer of the real property under this section, no 
interest payable with respect to the tax imposed by chapter 11 
of the Internal Revenue Code of 1954 shall be deemed to be 26 use 2001 et 
waived by reasons of the "provisions of this section. 
^^Q-
Subtitle D—Charitable Contributions and 
Exempt Organizations 
SEC. 1031. INCREASE IN CHARITABLE VOLUNTEER MILEAGE. 
(a) IN GENERAL.—Section 170 (relating to charitable, etc., contribu- 26 use 170. 
tions and gifts) is amended by redesignating subsections 0) and (k) as 
subsections (k) and (1), respectively, and by inserting after subsection 
(i) the following new subsection: 
"(j) STANDARD MILEAGE RATE FOR USE OF PASSENGER AUTOMO-
BILE.—For purposes of computing the deduction under this section 
for use of a passenger automobile the standard mileage rate shall be 
12 cents per mile." 
Qo) EFFECTIVE DATE.—The amendments made by subsection (a) 26 use 170 note. 
shall apply to taxable years beginning after December 31, 1984. 
SEC. 1032. CERTAIN ORGANIZATIONS PROVIDING CHILD CARE INCLUDED 
WITHIN THE DEFINITION OF TAX-EXEMPT ORGANIZATIONS. 
(a) IN GENERAL.—Section 501 (relating to exemption from tax on 26 use 50i. 
corporations, certain trusts, etc.) is amended by redesignating sub- Post, p. 1206. 
section (k) as subsection (1) and inserting after subsection (j) the 
following new subsection: 
"(k) TREATMENT OF CERTAIN ORGANIZATIONS PROVIDING CHILD 
CARE.—For purposes of subsection (cX3) of this section and sections 
170(c)(2), 2055(a)(2), and 2522(a)(2), the term 'educational purposes' 
includes the providing of care of children away from their homes 
if— 
"(1) substantially all of the care provided by the organi-
zation is for purposes of enabling individuals to be gainfully 
employed, and 
"(2) the services provided by the organization are avail-
able to the general public." 
(b) CROSS REFERENCES.— 
"(1) Subsection (k) of section 170, as redesignated by 26 USC 170. 
section 1031 of this Act, is amended by redesignating para- Post, p. 1206. 
graphs (1) through (8) as paragraphs (2) through (9), respec-
tively, and by inserting before paragraph (2) (as so redesig-
• 
nated) the following new paragraph: 
"(1) For treatment of certain organizations providing child care, see 
section 501 (k)." 
Supra. 
(2) Subsection (f) of section 2055 is amended by redesignating 26 USC 2055. 
paragraphs (2) through (11) as paragraphs (3) through (12), 
respectively, and by inserting after paragraph (1) the following 
new paragraph: 
98 STAT. 1034 
PUBLIC LAW 98-369—JULY 18, 1984 
Ante, p. 1033. 
26 use 2522. 
26 u s e 170 note. 
26 u s e 7612. 
26 u s e 7611. 
.r, 
•UIV 
"(2) For treatment of certain organizations providing child care, see 
section 501(k)." 
(3) Subsection (d) of section 2522 is amended by redesignating 
paragraphs (1) and (2) as paragraphs (2) and (3), respectively, 
and by inserting before paragraph (2) (as so redesignated) the 
following new paragraph: 
"(1) For treatment of certain organizations providing child care, see 
section 501(k)." 
(c) EFFECTIVE DATES.—The amendments made by subsections 
(a) and (b) shall apply to taxable years beginning after the date 
of the enactment of this Act. 
SEC. 1033. RESTRICTIONS ON CHURCH TAX INQUIRIES AND EXAMINA-
TIONS. 
(a) IN GENERAL.—Subchapter A of chapter 78 (relating to discov-
ery of liability and enforcement of title) is amended by redesignating 
section 7611 as section 7612 and inserting after section 7610 the 
following new section: 
"SEC, 7611. RESTRICTIONS ON CHURCH TAX INQUIRIES AND EXAMINA-
TIONS. 
"(a) RESTRICTIONS ON INQUIRIES.— 
"(1) IN GENERAL.—The Secretary may begin a church tax 
inquiry only i
f
— 
"(A) the reasonable belief requirements of paragraph (2), 
and 
"(B) the notice requirements of paragraph (3), have been 
met. 
"(2) REASONABLE BELIEF REQUIREMENTS.—The requirements of 
this paragraph are met with respect to any church tax inquiry if 
an appropriate high-level Treasury official reasonably believes 
(on the basis of facts and circumstances recorded in writing) 
that the church— 
"(A) may not be exempt, by reason of its status as a 
church, from tax under section 501(a), or 
"(B) may be carrying on an unrelated trade or business 
(within the meaning of section 513) or otherwise engaged in 
activities subject to taxation under this title. 
"(3) INQUIRY NOTICE REQUIREMENTS.— 
"(A) IN GENERAL.—The requirements of this paragraph 
are met with respect to any church tax inquiry if, before 
„, 
beginning such inquiry, the Secretary provides written 
notice to the church of the beginning of such inquiry. 
"(B) CONTENTS OF INQUIRY NOTICE.—The notice required 
by this paragraph shall include— 
"(i) an explanation o
f
— 
"(I) the concerns which gave rise to such inquiry, 
-^i«->L 
and 
"(II) the general subject matter of such inquiry, 
"(ii) a general explanation of the applicable— 
"(I) administrative and constitutional provisions 
with respect to such inquiry (including the right to 
a conference with the Secretary before any exami-
nation of church records), and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1035 
•i?? ' 
"(II) provisions of this title which authorize such 
inquiry or which may be otherwise involved in 
such inquiry. 
"(b) RESTRICTIONS ON EXAMINATIONS.— 
"(1) IN GENERAL.—The Secretary may begin a church tax 
examination only if the requirements of paragraph (2) have 
been met and such examination may be made only— 
I 
"(A) in the case of church records, to the extent necessary 
to determine the liability for, and the amount of, any tax 
n 
imposed by this title, and 
"(B) in the case of religious activities, to the extent 
necessary to determine whether an organization claiming 
to be a church is a church for any period. 
^ 
"(2) NOTICE OF EXAMINATION; OPPORTUNITY FOR CONFERENCE.— 
The requirements of this paragraph are met with respect to any 
church tax examination if— 
"(A) at least 15 days before the beginning of such exami-
nation, the Secretary provides the notice described in para-
graph (3) to both the church and the appropriate regional 
counsel of the Internal Revenue Service, and 
"(B) the church has a reasonable time to participate in a 
conference described in paragraph (3)(A)(iii), but only if the 
church requests such a conference before the beginning of 
the examination. 
"(3) CONTENTS OF EXAMINATION NOTICE, ET CETERA.— 
"(A) IN GENERAL.—The notice described in this paragraph 
tc 
V is a written notice which includes— 
"(i) a copy of the church tax inquiry notice provided 
to the church under subsection (a), 
"(ii) a description of the church records and activities 
which the Secretary seeks to examine, 
"(iii) an offer to have a conference between the 
church and the Secretary in order to discuss, and at-
tempt to resolve, concerns relating to such examina-
:.;;..w 
u; 
tion, and 
"(iv) a copy of all documents which were collected or 
: 
• 
prepared by the Internal Revenue Service for use in 
such examination and the disclosure of which is re-
.ryrS 
quired by the Freedom of Information Act (5 U.S.C. 
552). 
r ijr- 
"(B) EARUEST DAY EXAMINATION NOTICE MAY BE PROVID-
ED.—The examination notice described in subparagraph (A) 
.i if.« 
shall not be provided to the church before the 15th day 
after the date on which the church tax inquiry notice was 
provided to the church under subsection (a). 
V m bs 
"(C) OPINION OF REGIONAL COUNSEL WITH RESPECT TO EX-
AMINATION.—Any regional counsel of the Internal Revenue 
Service who receives an examination notice under para-
graph (1) may, within 15 days after such notice is provided, 
• ' /rl- :K 
submit to the regional commissioner for the region an 
advisory objection to the examination. 
"(4) EXAMINATION OF RECORDS AND ACTIVITIES NOT SPECIFIED IN 
NOTICE.—Within the course of a church tax examination which 
(at the time the examination begins) meets the requirements of 
paragraphs (1) and (2), the Secretary may examine any church 
records or religious activities which were not specified in the 
examination notice to the extent such examination meets the 
98 STAT. 1036 
PUBLIC LAW 98-369—JULY 18, 1984 
requirement of subparagraph (A) or (B) of paragraph (1) (which-
ever appUes). 
"(c) LIMITATION ON PERIOD OF INQUIRIES AND EXAMINATIONS.— 
"(1) INQUIRIES AND EXAMINATIONS MUST BE COMPLETED WITHIN 
2 YEARS.— 
"(A) IN GENERAL.—The Secretary shall complete any 
church tax status inquiry or examination (and make a final 
determination with respect thereto) not later than the date 
which is 2 years after the examination notice date. 
"(B) INQUIRIES NOT FOLLOWED BY EXAMINATIONS.—In the 
case of a church tax inquiry with respect to which there is 
no examination notice under subsection (b), the Secretary 
shall complete such inquiry (and make a final determina-
tion with respect thereto) not later than the date which is 
90 days after the inquiry notice date. 
"(2) SUSPENSION OF 2-YEAR PERIOD.—The running of the 2-year 
period described in paragraph (1)(A) and the 90-day period in 
paragraph (1)(B) shall be suspended— 
"(A) for any period during which— 
"(i) a judicial proceeding brought by the church 
against the Secretary with respect to the church tax 
inquiry or examination is pending or being appealed, 
"(ii) a judicial proceeding brought by the Secretary 
against the church (or any official thereof) to compel 
compliance with any reasonable request of the Secre-
tary in a church tax examination for examination of 
church records or religious activities is pending or 
being appealed, or 
"(iii) the Secretary is unable to take actions with 
respect to the church tax inquiry or examination by 
reason of an order issued in any judicial proceeding 
brought under section 7609, 
"(B) for any period in excess of 20 days (but not in excess 
of 6 months) in which the church or its agents fail to comply 
with any reasonable request of the Secretary for church 
records or other information, or 
"(C) for any period mutually agreed upon by the Secre-
tary and the church. 
"(d) LIMITATIONS ON REVOCATION OF TAX-EXEMPT STATUS, ETC.— 
"(1) IN GENERAL.—The Secretary may— 
"(A) determine that an orgsmization is not a church 
which— 
"(i) is exempt from taxation by reason of section 
501(a), or 
"(ii) is described in section 170(c), or 
"(BXi) send a notice of deficiency of any tax involved in a 
church tax examination, or 
"(ii) in the case of any tax with respect to which subchap-
26 use 6311. 
ter B of chapter 63 (relating to deficiency procedures) does 
not apply, assess any underpayment of such tax involved in 
a church tax examination, 
only if the appropriate regional counsel of the Internal Revenue 
Service determines in writing that there has been substantial 
compliance with the requirements of this section and approves 
in writing of such revocation, notice of deficiency, or assess-
ment. 
"(2) LIMITATIONS ON PERIOD OF ASSESSMENT.— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1037 
"(A) REVOCATION OF TAX-EXEMPT STATUS.— 
"(i) 3-YEAR STATUTE OF LIMITATIONS GENERALLY.—In 
the case of any church tax examination with respect to 
the revocation of tax-exempt status under section 
501(a), any tax imposed by chapter 1 (other than section 
511) may be assessed, or a proceeding in court for 
collection of such tax may be begun without assess-
ment, only for the 3 most recent taxable years ending 
before the examination notice date. 
"(ii) 6-YEAR STATUTE OF LIMITATIONS WHERE TAX-
EXEMPT STATUS REVOKED.—If an Organization is not a 
church exempt from tax under section 501(a) for any of 
the 3 taxable years described in clause (i), clause (i) 
shall be applied by substituting '6 most recent taxable 
i 
years' for '3 most recent taxable years'. 
"(B) UNRELATED BUSINESS TAX.—In the case of any church 
J 
tax examination with respect to the tax imposed by section 
511 (relating to unrelated business income), such tax may 
be assessed, or a proceeding in court for the collection of 
such tax may be begun without assessment, only with 
respect to the 6 most recent taxable years ending before the 
examination notice date. 
"(C) EXCEPTION WHERE SHORTER STATUTE OF LIMITATIONS 
OTHERWISE APPLICABLE.—Subparagraphs (A) and (B) shall 
not be construed to increase the period otherwise applicable 
under subchapter A of chapter 66 (relating to limitations on 26 USC 6501. 
assessment and collection). 
"(e) INFORMATION NOT COLLECTED IN SUBSTANTIAL COMPLIANCE 
WITH PROCEDURES TO STAY SUMMONS PROCEEDING.— 
"(1) IN GENERAL.—If there has not been substantial compli-
ance with— 
"(A) the notice requirements of subsection (a) or (b), 
"(B) the conference requirement described in subsection 
(b)(3)(A)(iii), or 
"(C) the approval requirement of subsection (d)(1) (if ap-
^ 
plicable), 
with respect to any church tax inquiry or examination, any 
proceeding to compel compliance with any summons with re-
spect to such inquiry or examination shall be stayed until the 
court finds that all practicable steps to correct the noncompli-
ance have been taken. The period applicable under paragraph 
(1) or subsection (c) shall not be suspended during the period of 
any stay under the preceding sentence. 
"(2) REMEDY TO BE EXCLUSIVE.—No suit may be maintained, 
and no defense may be raised in any proceeding (other than as 
provided in paragraph (1)), by reason of any noncompliance by 
the Secretary with the requirements of this section. 
'(f) LIMITATIONS ON ADDITIONAL INQUIRIES AND EXAMINATIONS.— 
"(1) IN GENERAL.—If any church tax inquiry or examination 
with respect to any church is completed and does not result in— 
"(A) a revocation, notice of deficiency, or assessment 
described in subsection (d)(1), or 
"(B) a request by the Secretary for any significant change 
in the operational practices of the church (including the 
adequacy of accounting practices), 
no other church tax inquiry or examination may begin with 
respect to such church during the applicable 5-year period 
98 STAT. 1038 
PUBLIC LAW 98-369—JULY 18, 1984 
unless such inquiry or examination is approved in writing by 
the Assistant Commissioner for Employee Plans and Exempt 
Organizations of the Internal Revenue Service or does not 
involve the same or similar issues involved in the preceding 
inquiry or examination. For purposes of the preceding sentence, 
an inquiry or examination shall be treated as completed not 
later than the expiration of the applicable period under para-
graph (1) of subsection (c). 
"(2) APPUCABLE 5-YEAR PERIOD.—For purposes of paragraph 
(1), the term 'applicable 5-year period' means the 5-year period 
beginning on the date the notice taken into account for purposes 
of subsection (c)(1) was provided. For purposes of the preceding 
sentence, the rules of subsection (c)(2) shall apply. 
"(g) TREATMENT OF FINAL REPORT OF REVENUE AGENT.—Any final 
report of an agent of the Internal Revenue Service shall be treated 
as a determination of the Secretary under paragraph (1) of section 
7428(a), and any church receiving such a report shall be treated for 
purposes of sections 7428 and 7430 as having exhausted the adminis-
trative remedies available to it. 
"(h) DEFINITIONS.—For purposes of this section— 
"(1) CHURCH.—The term 'church' includes— 
"(A) any organization claiming to be a church, and 
"(B) any convention or association of churches. 
"(2) CHURCH TAX INQUIRY.—The term 'church tax inquiry' 
, 
^ 
means any inquiry to a church (other than an examination) to 
serve as a basis for determining whether a church— 
"(A) is exempt from tax under section 501(a) by reason of 
its status as a church, or 
"(B) is carrying on an unrelated trade or business (within 
the meaning of section 513) or otherwise engaged in activi-
ties which may be subject to taxation under this title. 
"(3) CHURCH TAX EXAMINATION.—The term 'church tax exami-
nation' means any examination for purposes of making a deter-
mination described in paragraph (2) of— 
"(A) church records at the request of the Internal Reve-
^ , 
nue Service, or 
"(B) the religious activities of any church. 
"(4) CHURCH RECORDS.— 
"(A) IN GENERAL.—The term 'church records' means all 
corporate and financial records regularly kept by a church, 
including corporate minute books and lists of members and 
contributors. 
"(B) EXCEPTION.—Such term shall not include records 
acquired— 
"(i) pursuant to a summons to which section 7609 
applies, or 
"(ii) from any governmental agency. 
"(5) INQUIRY NOTICE DATE.—The term 'inquiry notice date' 
means the date the notice with respect to a church tax inquiry 
is provided under subsection (a). 
"(6) EXAMINATION NOTICE DATE.—The term 'examination 
notice date' means the date the notice with respect to a church 
tax examination is provided under subsection (b) to the church. 
"(7) APPROPRIATE HIGH-LEVEL TREASURY OFFICIAL.—The term 
'approporiate high-level Treasury official' means the Secretary 
of the Treasury or any delegate of the Secretary whose rank is 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1039 
no lower than that of a principal Internal Revenue officer for an 
internal revenue region, 
"(i) SECTION NOT TO APPLY TO CRIMINAL INVESTIGATIONS, ETC.— 
This section shall not apply to— 
"(A) any criminal investigation, 
"(B) any inquiry or examination relating to the tax liability of 
any person other than a church, 
"(C) any assessment under section 6851 (relating to termina-
tion assessments of income tax) or section 6861 (relating to 
jeopardy assessments of income taxes, etc), 
(D) any willful attempt to defeat or evade any tax imposed 
by this title, or 
"(E) any knowing failure to file a return of tax imposed by the 
title." 
(b) TECHNICAL AMENDMENT RELATING TO SUBPOENA POWER OF THE 
DISTRICT COURT FOR THE DISTRICT OF COLUMBIA.—Section 7428 (relat- 26 use 7428. 
ing to declaratory judgments relating to status and classification of 
organizations under section 501(c)(3), etc.) is amended by adding at 
the end thereof the following new subsection: 
"(d) SUBPOENA POWER FOR DISTRICT COURT FOR DISTRICT OF COLUM-
BIA.—In any action brought under this section in the district court 
of the United States for the District of Columbia, a subpoena 
requiring the attendance of a witness at a trial or hearing may be 
served at any place in the United States." 
(c) CONFORMING AMENDMENTS.— 
(1) Subsection (c) of section 7605 (relating to time and place of 26 use 7605. 
examination) is amended to read as follows: 
"(C) CROSS REFERENCE.— 
"For provisions restricting church tax inquiries and examinations, see 
section 7611." 
Ante, p. 1034. 
(2) The table of sections for subchapter A of chapter 78 is 
amended by striking out the item relating to section 7611 and 
inserting in lieu thereof the following: 
"Sec. 7611. Restrictions on church tax inquiries and examinations. 
"Sec. 7612. Cross references." 
(d) EFFECTIVE DATE.—The amendments made by this section shall 26 use 76ii 
apply with respect to inquiries and examinations beginning after note. 
December 31,1984. 
SEC. 1034. ACQUISITION INDEBTEDNESS OF CERTAIN EDUCATIONAL IN-
STITUTIONS. 
(a) GENERAL RULE.—Paragraph (9) of section 514(c) (relating to 26 use 514. 
unrelated debt-financed income) is amended to read as follows: 
"(9) REAL PROPERTY ACQUIRED BY A QUAUFIED ORGANIZATION.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the term 'acquisition indebtedness' does not, for pur-
poses of this section, include indebtedness incurred by a 
qualified organization in acquiring or improving any real 
property. 
"(B) EXCEPTIONS.—The provisions of subparagraph (A) 
shall not apply in any case in which— 
"(i) the price for the acquisition or improvement is 
not a fixed amount determined as of the date of the 
* ' ' 
acquisition or the completion of the improvement; 
' (ii) the amount of any indebtedness or any other 
amount payable with respect to such indebtedness, or 
98 STAT. 1040 
PUBLIC LAW 98-369—JULY 18, 1984 
I,; 
the time for making any payment of any such amount, 
is dependent, in whole or in part, upon any revenue, 
income, or profits derived from such real property; 
"(iii) the real property is at any time after the acqui-
sition leased by the qualified organization to the person 
selling such property to such organization or to any 
person who bears a relationship described in section 
267(b) or 101(h) to such person; 
"(iv) the real property is acquired by a qualified trust 
from, or is at any time after the acquisition leased by 
such trust to, any person who— 
"(I) bears a relationship which is described in 
subparagraph (C), (E), or (G) of section 4975(e)(2) to 
any plan with respect to which such trust was 
formed, or 
"(11) bears a relationship which is described in 
subparagraph (F) or (H) of section 4975(e)(2) to any 
person described in subclause (I); 
"(v) any person described in clause (iii) or (iv) pro-
vides the qualified organization with financing in con-
nection with the acquisition or improvement; or 
"(vi) the real property is held by a partnership unless 
the partnership meets the requirements of clauses (i) 
through (v) and unless— 
"(I) all of the partners of the partnership are 
a
o
H . hu 
u ' •' 
qualified organizations, or 
"(II) each allocation to a partner of the partner-
ship which is a qualified organization is a qualified 
Ante, p. 509. 
allocation (within the meaning of section 168(j)(9)). 
For purposes of clause (vi)(I), an organization shall not be 
treated as a qualified organization if any income of such 
organization would be unrelated business taxable income 
(determined without regard to this paragraph). 
"(C) QUALIFIED ORGANIZATION.—For purposes of this para-
graph, the term 'qualified organization' means— 
"(i) an organization described in section 170(b)(1)(A) 
! 
(ii) and its affiliated support organizations described in 
section 509(a); or 
"(ii) any trust which constitutes a qualified trust 
under section 401. 
"(D) OTHER PASS-THRU ENTITIES; TIERED ENTITIES.—Rules 
similar to the rules of subparagraph (B)(vi) shall also apply 
in the case of any pass-thru entity other than a partnership 
and in the case of tiered partnerships and other entities." 
26 use 514. 
O
t
)
) TREATMENT OF SEGREGATED ASSET ACCOUNTS.—Section 514 
(relating to unrelated debt-financed income) is amended by adding 
at the end thereof the following new subsection: 
"(g) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposes 
of this section, including regulations to prevent the circumvention of 
any provision of this section through the use of segregated asset 
accounts. 
26 u s e 514 note. 
(c) EFFECTIVE D A T E S . — 
(1) IN GENERAL.—The amendments made by this section shall 
apply to indebtedness incurred after the date of the enactment 
of this Act. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1041 
(2) EXCEPTION FOR INDEBTEDNESS ON CERTAIN PROPERTY AC-
QUIRED BEFORE JANUARY 1, 1985.— 
(A) The amendment made by subsection (a) shall not 
apply to any indebtedness incurred before January 1, 1985, 
by a partnership described in subparagraph (B) if such 
indebtedness is incurred with respect to property acquired 
(directly or indirectly) by such partnership before such date. 
(B) A partnership is described in this subparagraph if— 
(i) before October 21, 1983, the partnership was orga-
nized, a request for exemption with respect to such 
partnership was filed with the Department of Labor, 
and a private placement memorandum stating the 
maximum number of units in the partnership that 
would be offered had been circulated, 
(ii) the interest in the property to be acquired, direct-
ly or indirectly (including through acquiring an inter-
est in another partnership) by such partnership was 
described in such private placement memorandum, and 
i 30 j ^
>
i 
(iii) the marketing of partnership interests in such 
partnership is completed not later than 2 years after 
the later of the date of enactment of this Act or the 
date of publication in the Federal Register of such 
exemption by the Department of Labor and the aggre-
gate number of units in such partnership sold does not 
exceed the amount described in clause (i). 
(3) EXCEPTION FOR INDEBTEDNESS ON CERTAIN PROPERTY AC- 
^ 
QUIRED BEFORE JANUARY 1, 1986.— 
(A) The amendment made by subsection (a) shall not 
apply to any indebtedness incurred before January 1, 1986, 
by a partnership described in subparagraph (B) if such 
indebtedness is incurred with respect to property acquired 
' r r^u ?
<
: 
(directly or indirectly) by such partnership before such date. 
(B) A partnership is described in this paragraph if— 
(i) before March 6, 1984, the partnership was orga-
nized and publicly announced, the maximum amount 
of interests which would be sold in such partnership, 
and 
-
(ii) the marketing of partnership interests in such 
partnership is completed not later than the 90th day 
after the date of the enactment of this Act and the 
aggregate amount of interests in such partnership sold 
does not exceed the maximum amount described in 
clause (i). 
For purposes of clause (i), the maximum amount taken into 
account shall be the greatest of the amounts shown in the 
registration statement, prospectus, or partnership agree-
ment. 
(C) BINDING CONTRACTS.—For purposes of this paragraph, 
property shall be deemed to have been acquired before 
January 1, 1986, if such property is acquired pursuant to a 
written contract which, on January 1, 1986, and at all times 
thereafter, required the acquisition of such property and 
such property is placed in service not later than 6 months 
after the date such contract was entered into. 
31-194 0 - 86 - 35 : QL. 3 Part 1 
98 STAT. 1042 
PUBLIC LAW 98-369—JULY 18, 1984 
SEC. 1035. TRANSITIONAL RULE RELATING TO THE DEFINITION OF QUALI-
FIED CONSERVATION CONTRIBUTIONS. 
26 use 170. 
(a) IN GENERAL.—Subparagraph (B) of section 170(h)(5) (defining 
exclusively for conservation purposes) is amended to read as follows: 
"(B) No SURFACE MINING PERMITTED.— 
"(i) IN GENERAL.—Except as provided in clause (ii), in 
the case of a contribution of any interest where there is 
a retention of a qualified mineral interest, subpara-
graph (A) shall not be treated as met if at any time 
there may be extraction or removal of minerals by any 
surface mining method. 
"(ii) SPECIAL RULE.—With respect to any contribution 
of property in which the ownership of the surface 
estate and mineral interests were separated before 
June 13, 1976, and remain so separated, subparagraph 
(A) shall be treated as met if the probability of surface 
mining occurring on such property is so remote as to be 
negligible." 
26 use 170 note. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to contributions made after the date of the enactment of 
this Act. 
Subtitle E—Income Tax Credits 
SEC. 1041. 1-YEAR EXTENSION OF TARGETED JOBS CREDIT. 
26 use 51. 
(a) IN GENERAL.—Paragraph (3) of section 51(c) (defining wages 
qualifying for targeted jobs credit) is amended by striking out 
"December 31, 1984" and inserting in lieu thereof "December 31, 
1985". 
(b) ADDITIONAL AUTHORIZATION OF APPROPRIATIONS.—Paragraph 
26 use 51 note. 
(2) of section 261(f) of the Economic Recovery Tax Act of 1981 is 
amended by striking out "fiscal years 1983 and 1984" and inserting 
in lieu thereof "fiscal years 1983,1984, and 1985". 
(c) TARGETED JOBS CREDIT TECHNICAL AMENDMENTS.— 
(1) 
TREATMENT OF SUCCESSOR EMPLOYERS; TREATMENT OF 
^: 
EMPLOYEES PERFORMING SERVICES FOR OTHER PERSONS.—Section 
26 use 51. 
51 (relating to amount of targeted jobs credit) is amended by 
adding at the end thereof the following new subsection: 
"(j) TREATMENT OF SUCCESSOR EMPLOYERS; TREATMENT OF EMPLOY-
EES PERFORMING SERVICES FOR OTHER PERSONS.— 
"(1) TREATMENT OF SUCCESSOR EMPLOYERS.—Under regulations 
prescribed by the Secretary, in the case of a successor employer 
referred to in section 3306(b)(1), the determination of the 
amount of the credit under this section with respect to wages 
paid by such successor employer shall be made in the same 
manner as if such wages were paid by the predecessor employer 
referred to in such section. 
"(2) 
TREATMENT OF EMPLOYEES PERFORMING SERVICES FOR 
OTHER PERSONS.—No credit shall be determined under this sec-
tion with respect to remuneration paid by an employer to an 
employee for services performed by such employee for another 
person unless the amount reasonably expected to be received by 
the employer for such services from such other person exceeds 
the remuneration paid by the employer to such employee for 
such services." 
I 3"tfi*i £ .Jp : i€ - dS - 0 Al'i-I£ 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1043 
(2) SPECIAL RULE FOR CERTIFICATION.—Subparagraph (A) of 
section 51(d)(16) (relating to special rules for certifications) is 26 USC 51. 
amended by adding at the end thereof the following new sen-
tence: 
"For purposes of the preceding sentence, if on or before the 
day on which such individual begins work for the employer, 
such individual has received from a designated local agency 
* • 
(or other agency or organization designated pursuant to a 
written agreement with such designated local agency) a 
written preliminary determination that such individual is a 
member of a targeted group, then 'the fifth day' shall be 
substituted for 'the day' in such sentence." 
(3) 
AGE 
REQUIREMENT 
FOR 
QUALIFIED 
SUMMER 
YOUTH 
EMPLOYEE.—Clause (ii) of section 51(d)(12)(A) (defining qualified 
summer youth employee) is amended by striking out "(as de-
fined in paragraph (14))" and inserting in lieu thereof "(or if 
-
later, on May 1 of the calendar year involved)". 
(4) TECHNICAL AMENDMENT.—Paragraph (2) of section 51(b) is 
amended by striking out "(or, in the case of a vocational reha-
bilitation referral, the day the individual begins work for the 
employer on or after the beginning of such individual's rehabili- 
' ^^^' *
^ 
tation plan)". 
(5) EFFECTIVE DATES.— 
26 use 51 note. 
(A) IN GENERAL.—Except as provided in subparagraph (B), 
- 
the amendments made by this section shall apply to individ-
uals who begin work for the employer after the date of the 
enactment of this Act. 
(B) SPECIAL RULE FOR EMPLOYEES PERFORMING SERVICES 
F
O
R OTHER PERSONS.—Paragraph (2) of section 51(j) of the 
Internal Revenue Code of 1954 (as added by this subsection) Ante, p. 837. 
and the amendment made by paragraph (3) of this subsec-
tion shall apply to individuals who begin work for the 
employer after December 31, 1984. 
SEC. 1042. INCREASE IN EARNED INCOME CREDIT. 
(a) INCREASE IN RATE OF CREDIT.—Subsection (a) of section 32 26 use 32. 
(relating to earned income credit), as redesignated by title IV of this ^"-te, p. 826. 
Act, is amended by striking out "10 percent" and inserting in lieu 
thereof "11 percent". 
(b) ADJUSTMENT OF CREDIT PHASE-OUT.—Paragraph (2) of section 
32(b) (as so redesignated) is amended to read as follows: 
"(2) 12% percent of so much of the adjusted gross income (or, 
if greater, the earned income) of the taxpayer for the taxable 
year as exceeds $6,500." 
(c) CREDIT NOT ALLOWABLE TO TAXPAYERS SUBJECT TO ALTERNA- 
M >8 
b.i. 
TivE MINIMUM TAX.—Section 32 (as so redesignated) is amended by 
adding at the end thereof the following new subsection: 
"(h) REDUCTION OF CREDIT TO TAXPAYERS SUBJECT TO ALTERNATIVE 
MINIMUM TAX.—The credit allowed under this section for the tax-
able year shall be reduced by the amount of tax imposed by section 
55 (relating to alternative minimum tax for taxpayers other than 
corporations) with respect to such taxpayer for such taxable year." 
(d) TECHNICAL AMENDMENTS.— 
i •;-
(1) Paragraph (1) of section 32(b) (as so redesignated) is amend- 
'«^'' 
ed by striking out "$500" and inserting in lieu thereof "$550". 
(2) Subparagraphs (A) and (B) of section 32(f)(2» (as so redesig-
nated) are amended to read as follows: 
98 STAT. 1044 
PUBLIC LAW 98-369—JULY 18, 1984 
"(A) for earned income between $0 and $11,000, and 
"(B) for adjusted gross income between $6,500 and 
$11,000." 
26 use 3507. 
(3) Clauses (i) and (ii) of section 3507(c)(2)(B) are amended to 
read as follows: 
"(i) of not more than 11 percent of the first $5,000 of 
earned income, which 
"(ii) phases out between $6i^00 and $11,000 of earned 
income, or". 
(4) Clauses (i) and (ii) of section 3507(c)(2)(C) are amended to 
read as follows: 
"(i) of not more than 11 percent of the first $2,500 of 
earned income, which 
"(ii) phases out between $3,250 and $5,500 of earned 
income." 
26 use 32 note. 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31,1984. 
SEC. 1043. ALTERNATIVE TEST FOR DEFINITION OF QUALIFIED REHA-
BILITATED BUILDING. 
26 use 48. 
(a) IN GENERAL.—Paragraph (1) of section 48(g) (relating to quali-
fied rehabilitated buildings) is amended by adding at the end thereof 
the following new subparagraph: 
"(E) ALTERNATIVE TEST FOR DEFINITION OF QUALIFIED REHABILI-
TATED BUILDING.—The requirement in clause (iii) of subpara-
graph (A) shall be deemed to be satisfied if in the rehabilitation 
process— 
"(i) 50 percent or more of the existing external walls of 
the building are retained in place as external walls, 
"(ii) 75 percent or more of the existing external walls of 
such building are retained in place as internal or external 
walls, and 
"(iii) 75 percent or more of the existing internal struc-
tural framework of such building is retained in place." 
26 use 48 note. 
0^) EFFECTIVE DATE.—The amendments made by this section shall 
apply to expenditures incurred after December 31, 1983, in taxable 
years ending after such date. 
Subtitle F—Miscellaneous Housing Provisions 
SEC. 1051. DISASTER LOSS DEDUCTION WHERE TAXPAYER ORDERED TO 
DEMOLISH OR RELOCATE RESIDENCE IN DISASTER AREA 
BECAUSE OF DISASTER. 
26 use 165. 
(a) GENERAL RULE.—Section 165 (relating to losses) is amended by 
redesignating subsection (k) as subsection (1) and by inserting after 
subsection (j) the following new subsection: 
"(k) TREATMENT AS DISASTER Loss WHERE TAXPAYER ORDERED TO 
DEMOLISH OR RELOCATE RESIDENCE IN DISASTER AREA BECAUSE OF 
DISASTER.—In the case of a taxpayer whose residence is located in an 
area which has been determined by the President of the United 
States to warrant assistance by the Federal Government under the 
42 use 5121 
Disaster Relief Act of 1974, if— 
note. 
"(1) not later than the 120th day after the date of such 
determination, the taxpayer is ordered, by the government of 
the State or any political subdivision thereof in which such 
residence is located, to demolish or relocate such residence, and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1045 
"(2) the residence has been rendered unsafe for use as a 
residence by reason of the disaster, 
any loss attributable to such disaster shall be treated as a loss which 
arises from a casualty and which is described in subsection (i)." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 165 note. 
shall apply to taxable years ending after December 31, 1981, with 
respect to residences in areas determined by the President of the 
United States, after such date, to warrant assistance by the Federal 
Government under the Disaster Relief Act of 1974. 
42 USC 5121 
note. 
SEC. 1052. ALLOCATION OF EXPENSES TO PARSONAGE ALLOWANCES. 
With respect to any mortgage interest or real property tax costs 
paid or incurred before January 1, 1986, by any minister of the 
gospel who owned and occupied a home before January 3, 1983 (or 
had a contract to purchase a home before such date and subse-
quently owned and occupied such home), the application of section 
265(1) of the Internal Revenue Code of 1954 to such costs shall be 
determined without regard to Revenue Ruling 83-3 (and without 
regard to any other regulation, ruling, or decision reaching the same 
result, or a result similar to the result, set forth in such Revenue 
Ruling). 
SEC. 1053. ARMED FORCES OVERSEAS QUARTERS. 
(a) IN GENERAL.—Subsection (h) of section 1034 (relating to roll- 26 USC 1034. 
over of gain on sale of principal residence) is amended to read as 
follows: 
"(h) MEMBERS OF ARMED FORCES.— 
"(1) IN GENERAL.—The running of any period of time specified 
in subsection (a) or (c) (other than the 2 years referred to in 
subsection (c)(4)) shall be suspended during any time that the 
taxpayer (or his spouse if the old residence and the new resi-
dence are each used by the taxpayer and his spouse as their 
principal residence) serves on extended active duty with the 
Armed Forces of the United States after the date of the sale of 
the old residence, except that any such period of time as so 
suspended shall not extend beyond the date 4 years after the 
date of the sale of the old residence. 
"(2) MEMBERS STATIONED OUTSIDE THE UNITED STATES OR RE-
QUIRED T
O RESIDE IN GOVERNMENT QUARTERS.—In the case of any 
taxpayer who, during any period of time the running of which is 
suspended by paragraph (1)— 
^ >
; , .ig 
"(A) is stationed outside of the United States, or 
"(B) after returning from a tour of duty outside of the 
United States and pursuant to a determination by the 
Secretary of Defense that adequate off-base housing is not 
available at a remote base site, is required to reside in on-
base Government quarters, 
any such period of time as so suspended shall not expire before 
the last day described in subparagraph (A) or (B), as the case 
may be, except that any such period of time as so suspended 
shall not extend beyond the date which is 8 years after the date 
of the sale of the old residence. 
"(3) EXTENDED ACTIVE DUTY DEFINED.—For purposes of this 
subsection, the term 'extended active duty' means any period of 
active duty pursuant to a call or order to such duty for a period 
in excess of 90 days or for an indefinite period." 
98 STAT. 1046 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 1034 
(b) EFFECTIVE DATE.—The amendments made by this section 
•^ot®- 
shall apply to sales of old residences (within the meaning of section 
1034 of the Internal Revenue Code of 1954) after the date of the 
enactment of this Act. 
SEC. 1054. TREATMENT OF HOME WON IN LOCAL RADIO CONTEST AND 
SPECIALLY DESIGNED FOR HANDICAPPED FOSTER CHILD. 
(a) IN GENERAL.—If the Federal income tax attributable to the 
receipt of the prize described in subsection (b) is paid not later than 
one year after the date of the enactment of this Act, such payment 
26 use 1 et seq. 
shall be treated for purposes of the Internal Revenue Code of 1954 as 
being in full satisfaction of such tax and all interest, additions to the 
tax, additional amounts, and penalties in respect of liability for such 
Federal income tax, 
0?) DESCRIPTION OF PRIZE.—For purposes of subsection (a), the 
prize described in this subsection is a residence which— 
(1) was won by the taxpayer in a local radio contest, 
(2) was specially designed to meet the needs of a handicapped 
foster child of the taxpayer, 
(3) is the principal residence (within the meaning of section 
1034 of such Code) of the taxpayer, and 
(4) had a lien placed on it by the Internal Revenue Service on 
May 24, 1983, after an Internal Revenue Service supervisor had 
overruled two payment schedules negotiated with the taxpayer 
for the payment of taxes, interest, and penalties on income 
attributable to such residence for the taxpayer's 1980 taxable 
year. 
(c) TAX DETERMINED WITHOUT REGARD TO INTEREST, ETC.—For 
purposes of subsection (a), the Federal income tax attributable to the 
prize described in subsection O
o
) shall be determined without regard 
to interest, additions to the tax, additional amounts, and penalties. 
Subtitle G—Extension of Existing Provisions 
and Transition Rules 
SEC. 1061. EXTENSION OF PAYMENT-IN-KIND TAX TREATMENT ACT OF 
1983 TO WHEAT FOR 1984 CROP YEAR. 
(a) EXTENSION.— 
(1) IN GENERAL.—Section 5 of the Payment-in-Kind Tax Treat-
26 use 61 note. 
ment Act of 1983 (relating to definitions and special rules) is 
amended by redesignating subsection O
t
>
) as subsection (c) and by 
inserting after subsection (a) the following new subsection: 
"(b) EXTENSION TO WHEAT PLANTED AND HARVESTED IN 1984.—In 
the case of wheat— 
"(1) any reference in this Act to the 1983 crop year shall 
include a reference to the 1984 crop year, and 
"(2) any reference to the 1983 payment-in-kind program shall 
include a reference to any program for the 1984 year for wheat 
which meets the requirements of subparagraphs (A) and (B) of 
subsection (a)(1)." 
(2) DEFINITION OF CROP YEAR.—Paragraph (2) of section 5(a) of 
such Act is amended to read as follows: 
"(2) CROP YEAR.—The term '1983 crop year' means the crop 
year for any crop the planting or harvesting period for which 
occurs during 1983. The term '1984 crop year' means the crop 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1047 
^' 
year for wheat the planting and harvesting period for which 
occurs during 1984." 
(b) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 61 note. 
apply with respect to commodities received for the 1984 crop year (as 
defined in section 5(a)(2) of the Payment-in-Kind Tax Treatment Act 
of 1983 as amended by subsection (a)). 
Ante, p. 1046. 
SEC. 1062. EXTENSION OF INCREASED DEDUCTION FOR ELIMINATING 
ARCHITECTURAL AND TRANSPORTATION BARRIERS TO THE 
HANDICAPPED. 
(a) EXTENSION.— 
(1) IN GENERAL.—Subsection (d) of section 190 (relating to 26 USC 190. 
expenditures to remove architectural and transportation bar-
riers to the handicapped and elderly) is amended to read as 
follows: 
"(d) APPUCATION OF SECTION.—This section shall apply to— 
"(1) taxable years beginning after December 31, 1976, and 
before January 1,1983, and 
"(2) taxable years beginning after December 31, 1983, and 
before January 1,1986." 
(2) CONFORMING AMENDMENT.—Subsection (c) of section 2122 
of the Tax Reform Act of 1976 (26 U.S.C. 190 note) (relating to 
effective date for allowance of deduction for eliminating archi- 
i 
' ,-
tectural and transportation barriers for the handicapped) is 
-•-'••^ 
amended by striking out "and before January 1,1983". 
(b) INCREASE IN DEDUCTION.—Subsection (c) of section 190 (relating 
to limitation of deduction) is amended by striking out "$25,000" and 
inserting in lieu thereof "$35,000". 
(c) EFFECTIVE DATE.—The amendment made by subsection (b) shall 26 USC 190 note. 
apply to taxable years beginning after December 31, 1983. 
SEC. 1063. PERMANENT DISALLOWANCE OF DEDUCTION FOR EXPENSES 
OF DEMOLITION OF CERTAIN STRUCTURES. 
(a) EXTENSION TO ALL STRUCTURES; DISALLOWANCE MADE PERMA-
NENT.—Section 280B (relating to demolition of certain historic struc- 26 USC 280B. 
tures) is amended— 
(1) by striking out all of subsection (a) which precedes para-
graph (1) thereof and inserting in lieu thereof the following: "In 
the case of the demolition of any structure—"; and 
.^ij > 
(2) by striking out subsections (b) and (c). 
(b) CONFORMING AMENDMENTS.— 
(1) The heading for section 280B is amended by striking out 
"CERTAIN HISTORIC". 
(2) The item relating to section 280B in the table of sections 
for part IX of subchapter B of chapter 1 is amended by striking 
out "certain historic". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 280B 
apply to taxable years beginning after December 31, 1983. 
note. 
SEC. 1064. AMORTIZATION OF EXPENDITURES TO REHABILITATE LOW-
INCOME RENTAL HOUSING. 
, ^ 
Subsection (k) of section 167 (relating to depreciation of expendi- 26 USC 167. 
tures to rehabilitate low-income rental housing) is amended by 
striking out "January 1, 1984" each place it appears and inserting in 
lieu thereof "January 1, 1987". 
98 STAT. 1048 
PUBLIC LAW 98-369—JULY 18, 1984 
SEC. 1065. RULES TREATING INDIAN TRIBAL GOVERNMENTS AS STATES 
MADE PERMANENT. 
26 use 7871 
(a) IN GENERAL.—Section 204 of the Indian Tribal Governmental 
note. 
Tax Status Act of 1982 is amended— 
(1) by striking out "and before January 1, 1985," each place it 
appears, and 
(2) by striking out ", and shall cease to apply at the close of 
December 31,1984" in paragraph (5) thereof. 
0?) TREATMENT AS STATE EXPANDED FOR CERTAIN PURPOSES.— 
97 Stat. 87 
Paragraph (6) of section 7871 (relating to Indian tribal governments 
26 use 7871. 
treated as States for certain purposes) is amended by striking out 
subparagraphs (B) and (C) and inserting in lieu thereof the follow-
ing: 
"(B) section 105(e) (relating to accident and health plans), 
"(C) section 117(b)(2)(A) (relating to scholarships and fel-
lowship grants), 
"(D) section 162(e) (relating to appearances, etc., with 
respect to legislation) 
"(E) section 403(b)(l)(A)(ii) (relating to the taxation of 
contributions of certain employers for employee annuities), 
and 
"(F) section 454(b)(2) (relating to discount obligations). 
26 use 7871 
(c) EFFECTIVE DATE.—The amendment made by subsection Oa) shall 
"ote. 
apply to taxable years beginning after December 31, 1984. 
SEC. 1066. TRANSITIONAL RULE FOR TREATMENT OF CERTAIN INCOME 
FROM S CORPORATIONS. 
26 u s e 163 note. 
(a) I N GENERAL.—If— 
(1) a corporation had an election in effect under subchapter S 
of the Internal Revenue Code of 1954 for the taxable years of 
such corporation beginning in 1982,1983, and 1984, and 
(2) a shareholder of such corporation makes an election to 
have this section apply, 
then any qualified income which such shareholder takes into 
account by reason of holding stock in such corporation for any 
taxable year of such corporation beginning in 1983 or 1984 shall be 
treated for purposes of section 163(d) of the Internal Revenue Code 
of 1954 as such income would have been treated but for the enact-
26 use 1 note. 
ment of the Subchapter S Revision Act of 1982. 
(b) QUALIFIED INCOME.—For purposes of subsection (a), the term 
"qualified income" means any income other than income which is 
attributable to personal services performed by the shareholder for 
the corporation. 
(c) ELECTION.—The election under subsection (a)(2) shall be made 
at such time and in such manner as the Secretary of the Treasury or 
his delegate may by regulations prescribe. 
SEC. 1067. SPECIAL LEASING RULES FOR CERTAIN COAL GASIFICATION 
FACILITIES. 
(a) IN GENERAL.—Paragraph (3) of section 208(d) of the Tax Equity 
26 use 168 note, and Fiscal Responsibility Act of 1982 is amended by adding at the 
end thereof the following new subparagraph: 
"(G) COAL GASIFICATION FACILITIES.— 
"(i) IN GENERAL.—Property is described in this sub-
paragraph if such property— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1049 
"(I) is used directly in connection with the manu-
facture or production of low sulfur gaseous fuel 
from coal, and 
"(II) would be described in subparagraph (A) if 
'July 1, 1984' were substituted for 'January 1, 
1983'. 
, 
"(ii) SPECIAL RULE.—For purposes of determining 
whether property described in this subparagraph is 
described in subparagraph (A), such property shall be 
treated as having been acquired during the period 
referred to in subparagraph (A)(ii) if at least 20 percent 
of the cost of such property is paid during such period, 
"(iii) LIMITATION ON AMOUNT.—Clause (i) shall only 
apply to the lease of an undivided interest in the 
property in an amount which does not exceed the lesser 
of— 
. ^
^ ^ 
"(I) 50 percent of the cost basis of such property, 
or 
"(II) $67,500,000. 
"(iv) PLACED IN SERVICE.—In the case of property to 
which this subparagraph applies— 
"(I) such property shall be treated as placed in 
service when the taxpayer receives an operating 
permit with respect to such property from a State 
environmental protection agency, and 
"(II) the term of the lease with respect to such 
property shall be treated as being 5 years." 
(b) SPECIAL RULE FOR SUBSECTION (a).—The amount of any recap- 26 use 168 note. 
ture under section 47 of the Internal Revenue Code of 1954 with 
respect to the credit allowed under section 38 of such Code with Ante, p. 827. 
respect to progress expenditures (within the meaning of section 46(d) 
of such Code) shall apply only to the percentage of the cost basis of 
the coal gasification facility to which the amendment made by 
subsection (a) applies. 
(c) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
26 use 168 note. 
take effect as if included in the provision of section 208(d)(3) of the 
Tax Equity and Fiscal Responsibility Act of 1982. 
Subtitle H—Additional Provisions 
SEC. 1071. TAX TREATMENT OF REGULATED INVESTMENT COMPANIES. 
(a) PERSONAL HOLDING COMPANIES PERMITTED TO BE REGULATED 
INVESTMENT COMPANIES.— 
(1) IN GENERAL.—Subsection (a) of section 851 (defining regu- 26 use 851. 
lated investment company) is amended by striking out "(other 
than a personal holding company as defined in section 542)". 
(2) SPECIAL RULE FOR RATE OF TAX.—Paragraph (1) of section 
852(b) (relating to imposition of tax on regulated investment 
26 use 852. 
companies) is amended by adding at the end thereof the follow-
ing new sentence: "In the case of a regulated investment com-
pany which is a personal holding company (as defined in section 
542), that tax shall be computed at the highest rate of tax 
specified in section 11(b)." 
(3) REQUIREMENT THAT INVESTMENT COMPANY HAVE NO EARN-
INGS AND PROFITS ACCUMULATED IN Y
E
A
R FOR WHICH IT WAS NOT 
A REGULATED INVESTMENT COMPANY.—Subsection (a) of section 
98 STAT. 1050 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 852. 
852 (relating to requirements applicable to regulated invest-
ment companies) is amended by striking out "and" at the end of 
paragraph (1), by striking out the period at the end of paragraph 
(2) and inserting in lieu thereof ", and", and by adding at the 
end thereof the following new paragraph: 
"(3) either— 
"(A) the provisions of this part applied to the investment 
company for all taxable years ending on or after November 
8,1983, or 
"(B) as of the close of the taxable year, the investment 
company has no earnings and profits accumulated in any 
taxable year to which the provisions of this part (or the 
corresponding provisions of prior law) did not apply to it." 
(4) PROCEDURES SIMILAR TO DEFICIENCY DIVIDEND PROCEDURES 
M
A
D
E APPLICABLE.—Section 852 is amended by adding at the end 
thereof the following new subsection: 
"(e) PROCEDURES SIMILAR TO DEFICIENCY DIVIDEND PROCEDURES 
MADE APPLICABLE.— 
"(1) IN GENERAL.—If— 
"(A) there is a determination that the provisions of this 
part do not apply to an investment company for any taxable 
year (hereinafter in this subsection referred to as the 'non-
RIC year'), and 
"(B) such investment company meets the distribution 
requirements of paragraph (2) with respect to the non-RIC 
year, 
for purposes of applying subsection (a)(3) to subsequent taxable 
years, the provisions of this part shall be treated as applying to 
such investment company for the non-RIC year. 
"(2) DISTRIBUTION REQUIREMENTS.— 
"(A) IN GENERAL.—The distribution requirements of this 
paragraph are met with respect to any non-RIC year if, 
within the 90-day period beginning on the date of the 
determination (or within such longer period as the Secre-
tary may permit), the investment company makes 1 or 
more qualified designated distributions and the amount of 
such distributions is not less than the excess of— 
"(i) the portion of the accumulated earnings and 
profits of the investment company (as of the date of the 
determination) which are attributable to the non-RIC 
year, over 
"(ii) any interest payable under paragraph (3). 
"(B) QUALIFIED DESIGNATED DISTRIBUTION.—For purposes 
of this paragraph, the term 'qualified designated distribu-
tion' means any distribution made by the investment com-
pany i
f
— 
"(i) section 301 applies to such distribution, and 
"(ii) such distribution is designated (at such time and 
in such manner as the Secretary shall by regulations 
prescribe) as being taken into account under this para-
graph with respect to the non-RIC year. 
"(C) EFFECT ON DIVIDENDS PAID DEDUCTION.—Any quali-
fied designated distribution shall not be included in the 
amount of dividends paid for purposes of computing the 
dividends paid deduction for any taxable year. 
"(3) INTEREST CHARGE.— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1051 
"(A) IN GENERAL.—If paragraph (1) applies to any non-
RIC year of an investment company, such investment com-
pany shall pay interest at the annual rate established 
under section 6621— 
"(i) on an amount equal to 50 percent of the amount 
referred to in paragraph (2)(A)(i), 
"(ii) for the period— 
.
^ , 
, ^ ,^ 
"(I) which begins on the last day prescribed for 
' 
'^ *'"" 
payment of the tax imposed for the non-RIC year 
(determined without regard to extensions), and 
"(II) which ends on the date the determination is 
made. 
"(B) COORDINATION WITH SUBTITLE F.—Any interest pay- 
,.,,|, 
able under subparagraph (A) may be assessed and collected 
at any time during the period during which any tax 
imposed for the taxable year in which the determination is 
. -j^i,,; 
made may be assessed and collected. 
"(4) PROVISION NOT TO APPLY IN THE CASE OF FRAUD.—The 
provisions of this subsection shall not apply if the determination 
contains a finding that the failure to meet any requirement of 
this part was due to fraud with intent to evade tax. 
"(5) DETERMINATION.—For purposes of this subsection, the 
term 'determination' has the meaning given to such term by 
section 860(e). Such term also includes a determination by the 
investment company filed with the Secretary that the provi-
sions of this part do not apply to the investment company for a 
taxable year." 
(5) EFFECTIVE DATES.— 
26 use 852 note. 
(A) IN GENERAL.—Except as otherwise provided in this 
paragraph, the amendments made by this subsection shall 
apply to taxable years beginning after December 31, 1982. 
(B) 
INVESTMENT COMPANIES WHICH WERE REGULATED 
INVESTMENT COMPANIES FOR YEARS ENDING BEFORE NOVEM-
BER 8, 1983.—In the case of any investment company to 
which the provisions of part I of subchapter M of chapter 1 
of the Internal Revenue Code of 1954 applied for any tax- 26 use 851. 
able year ending before November 8, 1983, for purposes of 
section 852(a)(3)(B) of the Internal Revenue Code of 1954 (as Ante, p. 1050. 
amended by this subsection), no earnings and profits accu-
mulated in any taxable year ending before January 1,1984, 
shall be taken into account. 
i 
(C) 
INVESTMENT 
COMPANIES 
BEGINNING 
BUSINESS 
IN 
1983.—In the case of an investment company which began 
business in 1983 (and was not a successor corporation), 
earnings and profits accumulated during its first taxable 
year shall not be taken into account for purposes of section 
852(a)(3)(B) of such Code (as so amended). 
(D) INVESTMENT COMPANIES REGISTERING BEFORE NOVEM-
BER 8, 1983.—In the case of any investment company— 
(i) which, during the period after December 31, 1981, 
and before November 8,1983— 
(I) was engaged in the active conduct of a trade 
or business, 
(II) sold substantially all of its operating assets, 
and 
98 STAT. 1052 
PUBLIC LAW 98-369—JULY 18, 1984 
15 use 80b-20. 
26 use 851. 
Ante, p. 1050. 
Ante, p. 577. 
26 u s e 852. 
26 use 852 note. 
26 u s e 6053. 
Regulations. 
26 use 6053 
note. 
26 use 6053. 
26 u s e 6053 
note. 
97 Stat 123. 
26 use 3306. 
(Ill) registered under the Investment Company 
Act of 1940 as either a management company or a 
unit investment trust, and 
(ii) to which the provisions of part I of subchapter M 
of chapter 1 of the Internal Revenue Code of 1954 
applied for its first taxable year beginning after 
November 8,1983, 
for purposes of section 852(a)(3)(A) of such Code (as amended 
by paragraph (3)), the provisions of part I of subchapter M 
of chapter 1 of such Code shall be treated as applying to 
such investment company for its first taxable year ending 
after November 8, 1983. For purposes of the preceding 
sentence, all members of an affiliated group (as defined in 
section 1504(a) of such Code) filing a consolidated return 
shall be treated as 1 taxpayer. 
(b) SHORT-TERM OBLIGATIONS ISSUED ON A DISCOUNT BASIS.— 
(1) IN GENERAL.—Paragraph (2) of section 852(b) (defining 
investment company taxable income) is amended by adding at 
the end thereof the following new subparagraph— 
"(F) The taxable income shall be computed without 
regard to section 454(b) (relating to short-term obligations 
issued on a discount basis) if the company so elects in a 
manner prescribed by the Secretary." 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply to taxable years beginning after December 31, 1978. 
SEC. 1072. TECHNICAL MODIFICATIONS TO TIP REPORTING REQUIRE-
MENTS. 
(a) LOWER ALLOCATION OF GROSS RECEIPTS.—Subparagraph (C) of 
section 6053(c)(3) (relating to employee allocation of 8 percent of 
gross receipts) is amended— 
(1) by striking out "The Secretary" and inserting in lieu 
thereof "Upon the petition of the employer or the majority of 
employees of such employer, the Secretary", and 
(2) by striking out "5 percent" and inserting in lieu thereof "2 
percent". 
Qa) RECORDKEEPING BY TIPPED EMPLOYEES.—The Secretary of the 
Treasury shall prescribe by regulations within 1 year after the date 
of the enactment of this Act the applicable recordkeeping require-
ments for tipped employees. 
(c) 50 PERCENT OWNERS NOT TREATED AS EMPLOYEES FOR CERTAIN 
PURPOSES.— 
(1) IN GENERAL.—Paragraph (4) of section 6053(c) (defining 
large food or beverage establishment) is amended by inserting 
before the period at the end of the last sentence the following: ", 
and an individual who owns 50 percent or more in value of the 
stock of the corporation operating the establishment shall not 
be treated as an employee'. 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply to calendar years beginning after December 31, 
1982. 
SEC. 1073. TIPS TREATED AS WAGES FOR PURPOSES OF FEDERAL UNEM-
PLOYMENT TAX. 
(a) GENERAL RULE.—Section 3306 (relating to definitions for pur-
poses of Federal unemployment tax) is amended by adding at the 
end thereof the following new subsection: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1053 
"(s) TIPS TREATED AS WAGES.—For purposes of this chapter, the 
term 'wages' includes tips which are— 
"(1) received while performing services which constitute 
employment, and 
"(2) included in a written statement furnished to the 
employer pursuant to section 6053(a)." 
(b) EFFECTIVE DATE.— 
26 use 3306 
(1) IN GENERAL.—Except as provided in paragraph (2), the note. 
amendment made by subsection (a) shall take effect on January 
1,1986. 
(2) EXCEPTION FOR CERTAIN STATES.—In the case of any State 
the legislature of which— 
(A) did not meet in a regular session which begins during 
1984 and after the date of the enactment of this Act, and 
(B) did not meet in a session which began before the date 
of the enactment of this Act and remained in session for at 
least 25 calendar days after such date of enactment, 
the amendment made by subsection (a) shall take effect on 
January 1,1987. 
SEC. 1074. EXCLUSION OF CERTAIN SERVICES FROM THE FEDERAL UNEM-
PLOYMENT TAX ACT. 
Subsection (b) of section 822 of the Economic Recovery Tax Act of 
1981 (26 U.S.C. 3306 note) is amended by striking out "and before 
January 1, 1983" and inserting in lieu thereof "and before January 
1,1985". 
iH^rsv 
SEC. 1075. TAXATION OF UNEMPLOYMENT COMPENSATION NOT TO APPLY 
TO COMPENSATION PAID FOR WEEKS OF UNEMPLOYMENT 
ENDING BEFORE DECEMBER 1,1978. 
(a) GENERAL RULE.—Subsection (d) of section 112 of the Revenue 
Act of 1978 (relating to taxation of unemployment compensation 26 use 85 note 
benefits at certain income levels) is amended to read as follows: 
"(d) EFFECTIVE DATE.—The amendments made by this section 
shall apply to payments of unemployment compensation made after 
December 31, 1978, in taxable years ending after such date; except 
that such amendments shall not apply to payments made for weeks 
of unemployment ending before December 1,1978." 
(b) WAIVER OF STATUTE OF LIMITATIONS.—If credit or refund of any 26 use 85 note, 
overpayment of tax resulting from the amendment made by subsec-
tion (a) is barred on the date of the enactment of this Act or at any 
time during the 1-year period beginning on the date of the enact-
ment of this Act by the operation of any law or rule of law 
(including res judicata), refund or credit of such overpayment (to the 
extent attributable to the amendment made by subsection (a)) may, 
nevertheless, be made or allowed if claim therefor is filed before the 
close of such 1-year period. 
SEC. 1076. EXCLUSION FROM GROSS INCOME OF CANCELLATIONS OF CER-
TAIN STUDENT LOANS. 
(a) IN GENERAL.—Section 108 (relating to income from discharge 26 use 108. 
of indebtedness) is amended by adding at the end thereof the 
following new subsection: 
"(f) STUDENT LOANS.— 
"(1) IN GENERAL.—In the case of an individual, gross income 
does not include any amount which (but for this subsection) 
would be includible in gross income by reason of the discharge 
98 STAT. 1054 
PUBLIC LAW 98-369—JULY 18, 1984 
(in whole or in part) of any student loan if such discharge was 
pursuant to a provision of such loan under which all or part of 
the indebtedness of the individual would be discharged if the 
individual worked for a certain period of time in certain profes-
sions for any of a broad class of employers. 
"(2) STUDENT LOAN.—For purposes of this subsection, the term 
'student loan' means any loan to an individual to assist the 
individual in attending an educational organization described in 
section 170(b)(l)(A)(ii) made by— 
"(A) the United States, or an instrumentality or agency 
thereof, 
"(B) a State, territory, or possession of the United States, 
or the District of Columbia, or any political subdivision 
thereof, or 
"(C) a public benefit corporation— 
"(i) which is exempt from taxation under section 
501(c)(3), 
"(ii) which has assumed control over a State, county, 
or municipal hospital, and 
"(iii) whose employees have been deemed to be public 
employees under State law, or 
"(D) any educational organization so described pursuant 
to an agreement with any entity described in subparagraph 
(A), (B), or (C) under which the funds from which the loan 
was made were provided to such educational organization." 
26 use 108 note. 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
apply to discharges of indebtedness made on or after January 1, 
1983. 
SEC. 1077. MIGRATORY BIRD HUNTING STAMPS. 
(a) IN GENERAL.—Section 5 of the Act of March 16, 1934 (48 Stat. 
451, Chapter 71; 16 U.S.C. 718e) is amended by adding at the end 
thereof the following new subsection: 
"(c) Notwithstanding the provisions of subsection Ob), or the prohi-
bition in section 474 of title 18, United States Code, or other 
provisions of law, the Secretary of the Interior may authorize, with 
the concurrence of the Secretary of the Treasury, 
"(1) the color reproduction, or 
"(2) the black and white reproduction, 
16 use 
of migratory bird hunting stamps authorized by sections 1 through 4 
7i8a-7i8d. 
and 6 through 9 of this Act, which otherwise satisfies the require-
l^^^^Qu -
7
1
0 
ments of clauses (ii) and (iii) of section 504(1) of title 18, United 
States Code. Any such reproduction shall be subject to those terms 
and conditions deemed necessary by the Secretary of the Interior by 
regulation or otherwise and any proceeds received by the Federal 
Government as a result of such reproduction shall be paid into the 
migratory bird conservation fund established under section 4 of this 
Act." 
(b) TECHNICAL AMENDMENTS.— 
(1) Clause (i) of section 504(1)(D) of title 18, United States 
Code, is amended by inserting "and stamps issued under the 
Migratory Bird Hunting Stamp Act of 1934" after "foreign 
government". 
(2) Clause (ii) of such section is amended by inserting "and 
illustrations of stamps issued under the Migratory Bird Hunt-
ing Stamp Act of 1934 in color" after "postage stamps in color". 
718f-718h, 718. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1055 
(3) Subsection (b) of section 5 of the Act referred to in subsec- 16 USC 7l8e. 
tion (a) is amended by striking out "No person" and inserting in 
lieu thereof "Except as provided in clauses (i) and (ii) of section 
504(1)(D) of title 18, United States Code, no person", 
(c) EFFECTIVE DATE.—The amendments made by this section shall 16 USC 7l8e 
take effect on the date of the enactment of this Act. 
note. 
SEC. 1078. EXCLUSION FROM GROSS INCOME OF PAYMENTS FROM THE 
UNITED STATES FOREST SERVICE AS 
A RESULT OF 
RESTRICTING MOTORIZED TRAFFIC IN THE BOUNDARY 
WATERS CANOE AREA. 
(a) GENERAL RULE.—At the election of the taxpayer, for purposes 
of the Internal Revenue Code of 1954, gross income does not include 26 USC l et seq. 
the excludable portion of payments received from the United States 
Forest Service as a result of restricting motorized traffic in the 
q ,; .«i 
Boundary Waters Canoe Area, pursuant to section 19(a) of "An Act 
to designate the Boundary Waters Canoe Area Wilderness, to estab-
lish the Boundary Waters Canoe Area Mining Protection Area, and 
for other purposes", approved October 21, 1978 (Public Law 95-495; 
92 Stat. 1649). 
92 Stat. 1659. 
(b) EXCLUDABLE PORTION.—For purposes of this section, the term 
"excludable portion" means that portion (or all) of a payment made 
, svii\ 
to any taxpayer during the period after December 31, 1979, and 
before the later of the date which is 2 years after— 
(1) the date of the enactment of this Act, or 
(2) the date of such payment, 
which payment is reinvested within such period in depreciable 
property used in a trade or business of such taxpayer as authorized 
by the Act referred to in subsection (a). In determining whether 
reinvestment has occurred, no direct tracing is required. 
(c) ELECTION.—An election under subsection (a) shall identify such 
property for which such payment has been allocated. An election 
may be made at any time before the expiration of the period for 
making a claim for credit or refund of the tax imposed by chapter 1 26 USC i et seq. 
of such Code for the taxable year in which the reinvestment 
occurred, and shall be made in such manner as the Secretary of the 
Treasury or his delegate shall by regulations prescribe. 
(d) BASIS OF PROPERTY.— 
(1) IN GENERAL.—The basis of any property, with respect to 
which an allocation of any payment has been elected, shall be 
reduced by the amount of such payment. 
(2) INCREASE DUE TO REPAYMENT.—The basis of any property 
t 
described in paragraph (1) shall be increased by the amount of 
any repayments made to the United States Forest Service upon 
' 
the sale of such property. 
(e) DENIAL OF DOUBLE BENEFIT.—No deduction or credit shall be 
allowed under such Code with respect to any expenditure which is 
properly associated with any amount excluded from gross income 
under subsection (a). 
(f) EFFECTIVE DATE; SPECIAL RULE.— 
(1) EFFECTIVE DATE.—The amendments made by this section 
shall apply to payments made in taxable years beginning after 
'-^- December 31, 1979. 
(2) ELECTIONS FOR PRIOR YEARS.—In the case of any taxable 
year ending before the date of the enactment of this Act— 
98 STAT. 1056 
PUBLIC LAW 98-369—JULY 18, 1984 
(A) the period for making the election under subsection 
(c) shall not expire before the date which is 1 year after the 
date of the enactment of this Act, and 
(B) if, after the application of subparagraph (A), refund or 
credit of any overpayment of tax resulting from the applica-
tion of this section is prevented at any time before the close 
of such 1-year period by the operation of any law or rule of 
law (including res judicata), refund or credit of such over-
payment (to the extent attributable the application of this 
section) may, nevertheless, be made or allowed if claim 
therefore is filed before the close of such 1-year period. 
SEC. 1079. TAX EXEMPTION OF CORPORATIONS ORGANIZED UNDER ACTS 
OF CONGRESS. 
Post, p. 1207. 
Paragraph (1) of section 501(c) (relating to list of exempt organiza-
tions), as amended by section 2813 of the bill, is amended by striking 
out subparagraph (A) thereof and inserting in lieu thereof the 
following: 
"(A) is exempt from Federal income taxes— 
"(i) under such Act as amended and supplemented 
before the date of the enactment of the Tax Reform Act 
Ante, p. 494. 
of 1984, or 
"(ii) under this title without regard to any provision 
of law which is not contained in this title and which is 
not contained in a revenue Act, or". 
Subtitle I—Studies 
SEC. 1081. STUDY OF ALTERNATIVE INCOME TAX SYSTEMS. 
(a) IN GENERAL.—The Secretary of the Treasury or his delegate 
shall conduct a study covering the advisability o
f
— 
(1) replacing only the Federal individual income tax, or 
(2) replacing both the Federal individual income tax and the 
Federal corporate income t£ix, 
with an alternative tax system. 
(b) CONTENTS OF STUDY.—Such study shall take into account the 
administrative complexity of the existing Federal income tax system 
and address the ramifications of replacing that system with an 
alternative tax system. Such study shall focus on (but not be limited 
to) the following factors: 
(1) protecting the economically disadvantaged, 
(2) increasing economic efficiency in both the private and 
public sectors of the economy, 
(3) reducing paperwork and auditing requirements, reducing 
taxpayer fraud and evasion, and expediting resolution of tax 
disputes between taxpayers and the Federal Government, 
(4) increasing economic incentives for capital formation and 
productivity, 
(5) removing economic disincentives to employment, 
(6) excluding certain items, such as social security benefits, 
from gross income, 
(7) equalizing the tax burden on taxpayers with equal ability 
to pay taxes, and 
(8) achieving the appropriate burden of taxes for each income 
class of taxpayers. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1057 
Such study shall also identify the strengths and potential weak-
nesses of an alternative tax system and propose possible solutions 
for any such potential weakness. 
(c) ALTERNATIVE TAX SYSTEM.—For purposes of this section, the 
term "alternative tax system" means a system based on— 
(1) a simplified income tax based on gross income; 
(2) a consumption tax; 
(3) a consumption-based tax; or 
(4) the broadening of the base and lowering of the rates of the 
current income tax. 
(d) STUDY OF TAX SHELTERS TO BE INCLUDED.—The study conduct-
ed under subsection (a) shall include a study of the entire area of tax 
'^ 
shelters and how they impact on the equity of the tax system. 
(e) REPORTING DATE.—The report of the study required by subsec-
tion (a) shall be submitted to the Committee on Ways and Means of 
the House of Representatives and the Committee on Finance of the 
Senate not later than December 31,1984. 
SEC. 1082. STUDY OF TAXATION BY FOREIGN COUNTRIES ON SERVICES 
PERFORMED IN THE UNITED STATES. 
(a) STUDY.—The Secretary of the Treasury or his delegate shall 
conduct a study of the practices of foreign countries of taxing 
income on services performed within the United States, including, 
but not limited to— 
(1) the status of treaty negotiations with such foreign coun-
tries with respect to such practices, and 
(2) any options to alleviate the taxation of such income by 
more than 1 country without appropriate credit for taxes paid. 
(b) REPORT.—The Secretary of the Treasury or his delegate shall 
r 
report to the Committee on Finance of the Senate and the Commit-
tee on Ways and Means of the House of Representatives the results 
of the study conducted under subsection (a) no later than December 
31, 1984. 
DIVISION B—SPENDING REDUCTION ACT OF 1984 
SEC. 2001. This division may be cited as the "Spending Reduction 
Act of 1984". 
TABLE OF CONTENTS 
Title I. General provisions. 
Title II. Civil Service and military retirement programs. 
Title III. Medicare, medicaid, and maternal and child health amendments. 
Title IV. Small business programs. 
Title V. Veterans' programs. 
Title VI. OASDI, SSI, AFDC, and other programs. 
Title VII. Competition in contracting. 
Title VIII. Federal Credit Union Act Amendments. 
Title IX. Miscellaneous provisions. 
TITLE I—GENERAL PROVISIONS 
SENSE OF S E N A T E STATEMENT 
SEC. 2101. It is the sense of the Senate that ceilings on fiscal year 
1985 appropriation bills shall not exceed, in the aggregate, $139.8 
billion for non-defense, discretionary accounts, and shall not exceed 
$299 billion for defense accounts. Further, it is the sense of the 
Senate that the allocations of these sums, normally done through 
98 STAT. 1058 
PUBLIC LAW 98-369—JULY 18, 1984 
the section 302(b) process under the Congressional Budget and 
2 use 633. 
Impoundment Control Act of 1974, in the absence of a first concur-
rent budget resolution for fiscal year 1985 will be done by the Senate 
Appropriations Committee to guide its subcommittees in their sepa-
rate deliberations on individual appropriation bills for fiscal year 
1985. 
SENSE OF HOUSE STATEMENT 
SEC. 2102. (a) It is the sense of the House that in fiscal years 1985, 
1986, and 1987, Federal deficits be reduced by $182 billion as a result 
of the first concurrent resolution on the budget for fiscal year 1985 
Ante, p. 494. 
and the Deficit Reduction Act of 1984. Further, it is the sense of the 
House that these deficit reductions shall be divided among revenue 
increases, domestic spending reductions, and limits on the growth in 
military spending. 
(b) It is the sense of the House that in the absence of agreement on 
a first concurrent resolution on the budget for fiscal year 1985 that 
the House will continue to abide by House Concurrent Resolution 
280, as passed the House. 
(c) It is the sense of the House that the Congress shall immedi-
ately adopt a conference report on the first concurrent resolution on 
the budget for fiscal year 1985 and that the Congress shall enforce 
the aggregate levels of revenue and spending provided in such 
resolution. 
RESCISSION 
42 use 5915 
SEC. 2103. Of the amounts provided in Public Law 96-126, the 
note. 
Department of the Interior and Related Agencies Appropriation 
93 Stat. 954. 
Act, 1980, for the "Energy Security Reserve", $2,000,000,000 are 
rescinded, of which $1,154,950,000 is to be derived from the unused 
portion of the commitment of financial assistance previously 
awarded to The Oil Shale Company (Colony Shale Oil Project). 
TITLE II—CIVIL SERVICE AND MILITARY 
RETIREMENT PROGRAMS 
COST-OF-LIVING ADJUSTMENTS UNDER GOVERNMENT RETIREMENT 
SYSTEMS 
5 use 8340 note. 
SEC. 2201. (a) Notwithstanding any other provision of law, begin-
ning with the monthly rate payable for December 1984, any annuity 
or retired or retirement pay payable under any retirement system 
for Government officers or employees which the President adjusts 
pursuant to section 8340(b) of title 5, United States Code, shall be 
paid no earlier than the first business day of the succeeding month, 
(b) Section 8340(c)(1) of title 5, United States Code, is amended— 
(1) in subparagraph (A), by striking out "computer" and 
inserting in lieu thereof "computed"; and 
(2) in subparagraph (B), by striking out "counting" and insert-
ing in lieu thereof "not to exceed 12 months, counting". 
TECHNICAL AMENDMENT RELATING TO PREVAILING RATE EMPLOYEES 
5 use 5343 note. 
SEC. 2202. (a) Notwithstanding any other provision of law, effec-
tive as of October 1, 1983, any adjustment in a wage schedule or 
rate— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1059 
1 
(1) that applies— 
(A) to a prevailing rate employee described in section 
: 
5342(a)(2) of title 5, United States Code; 
(B) to an employee covered by section 5348 of such title; 5 USC 5348. 
* 
or 
(C) to any other employee subject to section 202(b)(1) of 
the Omnibus Budget Reconciliation Act of 1983 (Public Law 5 USC 5343 note. 
98-270; 98 Stat. 158); 
(2) that results from a wage survey; and 
(3) that first becomes effective during the fiscal year ending 
September 30, 1984; 
shall not take effect until the first day of the first applicable pay 
period beginning after the expiration of the 90-day period beginning 
on the date on which such adjustment would otherwise have taken 
effect. 
(b) The Office of Personnel Management shall take such actions as 
may be necessary to carry out the provisions of this section. 
DEDUCTION FROM CIVILIAN PAY FOR COST-OF-LIVING ADJUSTMENT OF 
RETIRED OR RETAINER PAY 
SEC 2203. Subsection (d) of section 301 of the Omnibus Budget 
Reconciliation Act of 1982 (96 Stat. 791; 5 U.S.C. 5532 note) is 
repealed, effective with respect to pay periods beginning after the 
date of enactment of this Act. 
LEAVE FOR C E R T A I N OVERSEAS EMPLOYEES 
SEC. 2204. Subsection (a) of section 6 of the Defense Department 
Overseas Teachers Pay and Personnel Practices Act (73 Stat. 214; 20 
U.S.C. 904(a)) is amended by striking out "except that—" and all 
that follows through the end of such subsection and inserting in lieu 
thereof "except that if the school year includes more than eight 
,.,v^ <
; 
months, any such teacher who shall have served for the entire 
i!. 
school year shall be entitled to ten days of cumulative leave with 
pay.". 
CIVIL SERVICE RETIREMENT DEPOSITS COVERING MILITARY SERVICE 
-SEC. 2205. The first sentence of section 306(g) of the Omnibus 
Budget Reconciliation Act of 1982 (5 U.S.C. 8331 note) is amended by 
, ^
^
^ 
striking out "October 1, 1983" and inserting in lieu thereof 
"October 1, 1985". 
ELECTION OF RETIREMENT PLAN 
SEC. 2206. (a) For the purposes of this section, the term "covered 
retirement system" shall have the same meaning as provided in 
section 203(a)(2) of the Federal Employees' Retirement Contribution 
Temporary Adjustment Act of 1983 (Public Law 98-168; 97 Stat. 5 USC 8331 note. 
1107). 
(b)(1) Any individual who was entitled to make an election under 
section 208(a) of the Federal Employees' Retirement Contribution 
Temporary Adjustment Act of 1983 (97 Stat. 1111), but who did not 5 USC 8331 note. 
make such an election, may make an election under such section not 
later than September 15, 1984. 
(2)(A) Not later than September 15, 1984, any such individual who 
made an election under paragraph (1) of section 208(a) of the Federal 
98 STAT. 1060 
PUBLIC LAW 98-369—JULY 18, 1984 
Employees' Retirement Contribution Temporary Adjustment Act of 
1983 may— 
(i) make any other election which such individual was entitled 
to make under such section before January 1,1984; or 
(ii) elect to become a participant in a covered retirement 
system (if such individual is otherwise eligible to participate in 
97 Stat. 1106 
such System), subject to sections 201 through 207 of such Act. 
5 use 8331 note. 
(B) Not later than September 15, 1984, any such individual who 
made an election under paragraph (2) of section 208(a) of the Federal 
Employees' Retirement Contribution Temporary Adjustment Act of 
97 Stat. nil. 
1983 may— 
5 use 8331 note. 
([) make any other election which such individual was entitled 
to make under such section before January 1,1984; or 
(ii) elect to terminate participation in the covered retirement 
system with respect to which such individual made the election 
under such paragraph (2). 
(3) An election under this subsection shall be made by a written 
application submitted to the official by whom the electing individual 
is paid. 
(4) An election made as provided in this subsection shall take 
effect with respect to service performed on or after the first day of 
the first applicable pay period commencing after September 15, 
1984. 
(c)(1) Section 8342(a)(4) of title 5, United States Code, does not 
apply for the purpose of determining an entitlement to a refund 
under section 208(c) of the Federal Employees' Retirement Contribu-
tion Temporary Adjustment Act of 1983 (97 Stat. HID. 
(2) Paragraph (1) shall take effect with respect to any election 
made under section 208(a) of such Act or this Act before, on, or after 
January 1, 1984. 
(d) Nothing in this section or the Federal Employees' Retirement 
97 Stat. 1106. 
Contribution Temporary Adjustment Act of 1983 affects any entitle-
5 use 8331 note, ment to benefits accrued under a covered retirement system before 
January 1, 1984, except to the extent that any amount refunded 
under section 208(c) of such Act is not redeposited in the applicable 
retirement fund. 
SALARY ADJUSTMENTS FOR JUDGES 
28 use 461 note. 
SEC. 2207. Effective on the first day of the first applicable pay 
period commencing on or after January 1, 1984, each rate of pay 
subject to adjustment by section 461 of title 28, United States Code, 
shall be increased by an amount, rounded to the nearest multiple of 
$100 (or if midway between multiples of $100, to the next higher 
multiple of $100), equal to the overall percentage of the adjustment 
taking effect under section 5305 of title 5, United States Code, in the 
rates of pay under the General Schedule during fiscal year 1984. 
RETIREMENT BENEFITS FOR NATIVES OF THE PRIBILOF ISLANDS 
97 Stat. 843. 
SEC. 2208. (a) Section 8332(b) of title 5, United States Code, is 
amended by striking out the period at the end of the second 
paragraph (13) and inserting in lieu thereof the following: '*, and 
regardless of whether the Native who performs the service retires 
before, on, or after the effective date of this paragraph.". 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1061 
(b) Title II of Public Law 89-702, as amended by section 2 of Public 
Law 98-129, is amended by adding at the end thereof the following 16 USC 1161. 
new section: 
"SEC. 212. (a)(1) An annuity or survivor annuity based on the 16 USC ii69a. 
service of an employee or Member who performed service described 
in the second paragraph (13) of subsection (b) or subsection (1)(1)(C) of 
section 8332 of title 5, United States Code, as added by subsections 
(b) and (e), respectively, of section 209 of this Act, shall, upon 97 Stat. 843. 
application to the Office of Personnel Management, be recomputed 
in accordance with the second paragraph (13) of subsection (b) and 
subsection (1), respectively, of such section 8332, regardless of 
whether the employee or Member retires before, on, or after the 
effective date of this paragraph. 
"(2) Any recomputation of annuity under paragraph (1) of this 
subsection shall apply with respect to months beginning more than 
30 days after the date on which application for such recomputation 
is received by the Office.". 
(c) The amendments made by this section shall take effect as of 
October 14,1983. 
Effective date. 
16 USC 1169a 
note. 
AMENDMENT TO OMNIBUS BUDGET RECONCILIATION ACT OF 1981 
SEC. 2209. Section 1722 of the Omnibus Budget Reconciliation Act 
of 1981 (Public Law 97-35; 95 Stat. 759) is amended by striking out 
"1984" and inserting in lieu thereof "1987". 
TITLE III—MEDICARE, MEDICAID, AND 
MATERNAL 
AND 
CHILD 
HEALTH 
AMENDMENTS 
39 USC 403 note. 
Medicare and 
Medicaid Budget 
Reconciliation 
Amendments of 
1984. 
SHORT TITLE OF TITLE 
SEC. 2300. This title may be cited as the "Medicare and Medicaid 
Budget Reconciliation Amendments of 1984". 
TABLE OF CONTENTS OF TITLE 
Subtitle A—Medicare Amendments 
PART I—REIMBURSEMENT AND BENEFIT CHANGES 
Sec. 2301. Modification of working aged provision. 
Sec. 2302. Part B premium. 
Sec. 2303. Payment for clinical diagnostic laboratory tests. 
Sec. 2304. Pacemaker reimbursement review and reform. 
Sec. 2305. Elimination of special payment provisions for preadmission diagnostic 
testing. 
Sec. 2306. Limitation on physician fee prevailing and customary charge levels; par-
ticipating physician incentives. 
Sec. 2307. Payment for services of teaching physicians. 
Sec. 2308. Lesser of cost or charges. 
Sec. 2309. Study of medicare part B payments. 
Sec. 2310. Limitation on increase in hospital costs per case. 
3? 
Sec. 2311. Classification of certain rural hospitals. 
Sec. 2312. Payment for services of a nurse anesthetist. 
Sec. 2313. Prospective payment assessment commission. 
Sec. 2314. Revaluation of assets. 
Sec. 2315. Technical amendments relating to the DRG payment system. 
Sec. 2316. Prospective payment wage index. 
Sec. 2317. Deadline for report on including payment for physicians' services to hos-
pital inpatients in DRG payment amounts. 
Sec. 2318. Emergency room services. 
42 USC 1305 
note. 
98 STAT. 1062 
PUBLIC LAW 98-369—JULY 18, 1984 
Sec. 2319. Skilled nursing facility reimbursement. 
I" 
Sec. 2320. Payment for costs of hospital-based mobile intensive care units. 
Sec. 2321. Cost sharing for durable medical equipment furnished as a home health 
benefit. 
Sec. 2322. Services of a clinical psychologist provided to members of an HMO. 
Sec. 2323. Coverage of administration of hepatitis B vaccine. 
Sec. 2324. Coverage of hemophilia clotting factor. 
Sec. 2325. Payment for debridement of mycotic toenails. 
Sec. 2326. Contracts for medicare claims processing. 
PART II—ADMINISTRATIVE AND MISCELLANEOUS CHANGES 
Sec. 2331. Repeal of exclusion of for-profit organizations from research and demon-
stration grants. 
Sec. 2332. Presidential appointment of and pay level for the administrator of the 
health care financing administration. 
Sec. 2333. Exclusion of certain entities owned or controlled by individuals convicted 
of medicare- or medicaid-related crimes. 
Sec. 2334. Provider representation in peer review organizations. 
Sec. 2335. Repeal of special tuberculosis treatment requirements under medicare 
and medicaid. 
Sec. 2336. Access to home health services. 
Sec. 2337. Normalization of trust fund transfers. 
Sec. 2338. Enrollment and premium penalty with respect to working aged provi-
sion. 
Sec. 2339. Indirect payment of supplementary medical insurance benefits. 
Sec. 2340. Certification of psychiatric hospitals. 
Sec. 2341. Included podiatrists in definition of "physician" for outpatient physical 
ji 
therapy services and including podiatrists and dentists in definition of 
"physician" for outpatient ambulatory surgery. 
Sec. 2342. Establishment by physical therapists of plans for physical therapy. 
Sec. 2343. Hospice contracting for core services. 
Sec. 2344. Medicare recovery against certain third parties. 
Sec. 2345. Confidentiality of accreditation surveys. 
Sec. 2346. Use of additional accrediting organizations under medicare. 
Sec. 2347. Funding for PSRO review. 
Sec. 2348. Payment for services following termination of participation agreements 
with home health agencies or hospice programs. 
Sec. 2349. Elimination of health insurance benefits advisory council. 
Sec. 2350. Health maintenance organizations and competitive medical plans. 
Sec. 2351. Judicial review of provider reimbursement review board decisions. 
Sec. 2352. Flexible sanctions for noncompliance with requirements for end stage 
renal disease facilities. 
Sec. 2353. Payments to promote closure and conversion of underutilized hospital 
facilities. 
Sec. 2354. Miscellaneous technical corrections relating to medicare. 
Sec. 2355. Waivers for social health maintenance organizations. 
Subtitle B—Medicaid and Maternal and Child Health Amendments 
Sec. 2361. Medicaid coverage for pregnant women and children. 
Sec. 2362. Clarification of medicaid entitlements for certain newborns. 
Sec. 2363. Recertification of SNF and ICF patients. 
Sec. 2364. Waiver of certain membership requirements for certain health mainte-
nance organizations. 
Sec. 2365. Incresise in medicaid ceiling amount for Puerto Rico, the Virgin Islands, 
Guam, the Northern Mariana Islands, and American Samoa. 
Sec. 2366. Payment for psychiatric hospital services. 
Sec. 2367. Mandatory assignment of rights of payment by medicaid recipients. 
Sec. 2368. Requirements for medical review and independent professional review 
under medicaid. 
Sec. 2369. Flexibility in setting payment rates for hospitals furnishing long-term 
care services under medicaid. 
Sec. 2370. Authority of the Secretary to issue and enforce subpoenas under 
medicaid. 
Sec. 2371. Medicaid clinic administration. 
Sec. 2372. Increase in authorization for maternal and child health block grant. 
Sec. 2373. Miscellaneous and technical amendments. 
Subtitle C—Recovery of Hill-Burton Funds 
Sec. 2381. Recovery of Hill-Burton funds. 
' 
_;•''• 
-<: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1063 
Subtitle D—Uncompensated Services Provided by Skilled Nursing Facilities and 
Intermediate Care Facilities 
Sec. 2391. Study. 
Subtitle A—Medicare Amendments 
PART I—REIMBURSEMENT AND BENEFIT 
CHANGES 
MODIFICATION OF WORKING AGED PROVISION 
-.•cil' 
SEC. 2301. (a) Section 18620b)(3)(A)(i) of the Social Security Act is 42 use I395y. 
amended by striking out "over 64 but" each place it appears. 
(b) Section 4(g)(1) of the Age Discrimination in Employment Act of 
1967 is amended— 
29 use 623. 
(1) by inserting ", and any employee's spouse aged 65 through 
69," after "aged 65 through 69"; and 
(2) by inserting ", and the spouse of such employee," after 
"same conditions as any employee". 
(c)(1) The amendment made by subsection (a) shall be effective Effective date, 
with respect to items and services furnished on or after January 1, 42 use I395y 
1985. 
"°^^-
(2) The amendment made by subsection (b) shall become effective Effective date. 
on January 1,1985. 
29 use 623 note. 
PART B PREMIUM 
97 Stat. 170. 
42 use 1395r. 
SEC. 2302. (a) Section 1839(e) of the Social Security Act is amended 
by striking out "1986" each place it appears and inserting in lieu 
thereof in each instance "1988". 
(h) Section 1839 of such Act is amended by adding at the end 
thereof the following new subsection: 
"(fKl) If no cost-of-living increase becomes effective under section 
215(i) in December of 1985 or 1986, the monthly premium of each 42 use 415. 
individual enrolled under this part for each month in the succeeding 
^ -
year shall (except as otherwise provided in subsection (b)) be the 
same as the monthly premium (disregarding subsection 0))) of the 
individual for such December. 
"(2) If paragraph (1) does not apply to the monthly premiums for 
1986 or 1987, if an individual is entitled to monthly benefits under 
section 202 or 223 for November and for December in the preceding 42 use 402,423. 
year, and if the monthly premium for that December and for the 
following January is deducted from those benefits under section 
1840(aXl), the monthly premium for that individual for that Janu-
ary and for each of the succeeding 11 months for which he is entitled 
to benefits under section 202 or 223 shall (except as otherwise 
provided in subsection (b)) be the greater o
f
— 
"(A) the monthly premium amount determined under subsec-
tion (a)(2) for that January reduced by the amount (if any) 
necessary to make the monthly benefits under section 202 or 
223 for that January after the deduction of the monthly pre-
mium (disregarding subsection Ot))) for that January at least 
equal to the monthly benefits under section 202 or 223 for the 
preceding November after the deduction of the premium (disre-
garding subsection (b)) for that individual for that November, or 
"(B) the monthly premium (disregarding subsection (b)) for 
that individual for that December. 
42 u s e 1395s. 
42 use 402, 423. 
98 STAT. 1064 
PUBLIC LAW 98-369—JULY 18, 1984 
42 u s e 402, 423. 
Effective date. 
42 u s e 1395r 
note. 
42 u s e 1395Z. 
42 u s e 1395u. 
42 u s e 1395gg. 
42 u s e 1395CC. 
For purposes of this subsection, retroactive adjustments or pay-
ments and deductions on account of work shall not be taken into 
account in determining the monthly benefits to which an individual 
is entitled under section 202 or 223.". 
(c) The amendments made by this section shall apply to premiums 
for months beginning with January 1986. 
PAYMENT FOR CLINICAL DIAGNOSTIC LABORATORY TESTS 
SEC. 2303. (a) Section 1833(a)(1)(D) of the Social Security Act is 
amended to read as follows: "(D) with respect to clinical diagnostic 
laboratory tests for which payment is made under this part (i) on the 
basis of a fee schedule under subsection (h)(1), the amount paid shall 
be equal to 80 percent (or 100 percent, in the case of such tests for 
which payment is made on the basis of an assignment described in 
section 1842(b)(3)(B)(ii) or under the procedure described in section 
1870(f)(1)) of the lesser of the amount determined under such fee 
schedule or the amount of the charges billed for the tests, or (ii) on 
the basis of a negotiated rate established under subsection (h)(6), the 
amount paid shall be equal to 100 percent of such negotiated rate,". 
(b) Section 1833(a)(2) of such Act is amended— 
(1) in subparagraph (B), by inserting "or (D)" after "subpara-
graph (C)"; 
(2) by striking out "and" at the end of subparagraph (B); 
(3) by adding "and" at the end of subparagraph {C); and 
(4) by adding at the end thereof the following 
new 
subparagraph: 
"(D) with respect to clinical diagnostic laboratory tests for 
which payment is made under this part (i) on the basis of a 
fee schedule determined under subsection (h)(1), the 
amount paid shall be equal to 80 percent (or 100 percent, in 
the case of such tests for which payment is made on the 
basis of an assignment described in section 1842(b)(3)(B)(ii), 
under the procedure described in section 1870(f)(1), or to a 
provider having an agreement under section 1866) of the 
lesser of the amount determined under such fee schedule or 
the amount of the charges billed for the tests, or (ii) on the 
basis of a negotiated rate established under subsection 
(h)(6), the amount paid shall be equal to 100 percent of such 
negotiated rate for such tests;". 
(c) Section 1833(b) of the Social Security Act is amended by 
striking out "and" at the end of clause (2) and by inserting before 
the period at the end of clause (3) the following: ", and (4) such 
deductible shall not apply with respect to clinical diagnostic labora-
tory tests for which payment is made under this part (A) under 
subsection (a)(l)(D)(i) or (a)(2)(D)(i) on the basis of an assignment 
described in section 1842(b)(3)(B)(ii), under the procedure described 
in section 1870(f)(1), or to a provider having an agreement under 
section 1866, or (B) on the basis of a negotiated rate determined 
under subsection (h)(6)". 
(d) Section 1833(h) of such Act is amended to read as follows: 
"(h)(1)(A) The Secretary shall establish fee schedules for clinical 
diagnostic laboratory tests for which payment is made under this 
part, other than such tests performed by a provider of services for 
an inpatient of such provider. 
"(B) In the case of clinical diagnostic laboratory tests performed 
by a physician or by a laboratory (other than tests performed by a 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1065 
hospital laboratory for outpatients of such hospital), the fee sched-
ules established under subparagraph (A) shall be established on a 
regional, statewide, or carrier service area basis (as the Secretary 
may determine to be appropriate) for tests furnished during the 
period beginning on July 1, 1984, and ending on June 30, 1987. For 
such tests furnished on or after July 1, 1987, the fee schedule shall 
be established on a nationwide basis. 
"(C) In the case of clinical diagnostic laboratory tests performed 
by a hospital laboratory for outpatients of such hospital, the fee 
schedules established under subparagraph (A) shall be established 
on a regional, statewide, or carrier service area basis (as the Secre-
tary may determine to be appropriate) for tests furnished during the 
period beginning on July 1, 1984, and ending on June 30, 1987. For 
such tests furnished on or after July 1, 1987, the fee schedule under 
subparagraph (A) shall not apply with respect to clinical diagnostic 
laboratory tests performed by a hospital laboratory for outpatients 
of such hospital. 
"(2) Except as provided in paragraph (4), the Secretary shall set 
the fee schedules at 60 percent (or, in the case of a test performed by 
a hospital laboratory for outpatients of such hospital, 62 percent) of 
the prevailing charge level determined pursuant to the third and 
fourth sentences of section 1842(b)(3) for similar clinical diagnostic 42 USC I395u 
laboratory tests for the applicable region. State, or area (or, effective 
July 1, 1987, for the United States) for the 12-month period begin-
ning July 1, 1984, adjusted annually by a percentage increase or 
decrease equal to the percentage increase or decrease in the Con-
sumer Price Index for All Urban Consumers (United States city 
average), and subject to such other adjustments as the Secretary 
determines are justified by technological changes. The Secretary 
may make further adjustments or exceptions to the fee schedules to 
assure adequate reimbursement of (A) emergency laboratory tests 
needed for the provision of bona fide emergency services, and (B) 
certain low volume high-cost tests where highly sophisticated equip-
ment or extremely skilled personnel are necessary to assure quality. 
"(3) In addition to the amounts provided under the fee schedules, 
the Secretary shall provide for and establish a nominal fee to cover 
the appropriate costs in collecting the sample on which a clinical 
diagnostic laboratory test was performed and for which payment is 
made under this part, except that not more than one such fee may 
be provided under this paragraph with respect to samples collected 
in the same encounter. 
"(4) In establishing any fee schedule under this subsection, the 
Secretary may provide for an adjustment to take into account, with 
respect to the portion of the expenses of clinical diagnostic labora-
tory tests attributable to wages, the relative difference between a 
region's or local area's wage rates and the wage rate presumed in 
the data on which the schedule is based. 
"(5)(A) In the case of a bill or request for payment for a clinical 
diagnostic laboratory test for which payment may otherwise be 
made under this part on the basis of an assignment described in 
section 1842(b)(3)(B)(ii), under the procedure described in section 
1870(0(1), or under a provider agreement under section 1866, pay-
ment may be made only to the person or entity which performed or 
supervised the performance of such test; except that— 
"(i) if a physician performed or supervised the performance of 
such test, payment may be made to another physician with 
whom he shares his practice, and 
42 USC 1395u. 
42 USC 1395gg, 
1395CC. 
98 STAT. 1066 
PUBLIC LAW 98-369—JULY 18, 1984 
42 u s e 1395u. 
Post, p. 1070. 
42 u s e 1395gg. 
42 u s e 1395CC. 
42 u s e 1395u. 
42 u s e 1395CC. 
42 u s e 1896a. 
42 u s e 1396b. 
Ante, p. 1064. 
42 u s e 1395J. 
42 u s e 1395u 
note. 
Report. 
42 u s e 1395/f 
note. 
"(ii) in the case of a test performed at the request of a 
laboratory by another laboratory, payment may be made to the 
referring laboratory. 
"(B) In the case of such a bill or request for payment for a clinical 
diagnostic laboratory test for which payment may otherwise be 
made under this part, and which is not described in subparagraph 
(A), payment may be made to the beneficiary only on the basis of the 
itemized bill of the person or entity which performed or supervised 
the performance of the test. 
"(C) Payment for a clinical diagnostic laboratory test performed 
by a laboratory which is independent of a physician's office or a 
rural health clinic may only be made on the basis of an assignment 
described in section 1842(b)(3)(B)(ii), in accordance with section 
1842(b)(6)(B) under the procedure described in section 1870(f)(1), or to 
a provider of services with an agreement in effect under section 
1866. 
"(6) In the case of any diagnostic laboratory test payment for 
which is not made on the basis of a fee schedule under paragraph (1), 
the Secretary may establish a payment rate which is acceptable to 
the person or entity performing the test and which would be consid-
ered the full charge for such tests. Such negotiated rate shall be 
limited to an amount not in excess of the total payment that would 
have been made for the services in the absence of such rate.". 
(e) Section 1842 of such Act is amended by striking out subsection 
(h) thereof. 
(f) The last sentence of section 1866(a)(2)(A) of such Act is amended 
by inserting "and with respect to clinical diagnostic laboratory 
tests" after "section 1861(s)(10)". 
(g)(1) Section 1902(a) of such Act is amended— 
(A) by inserting "and" at the end of paragraph (42); 
(B) by striking out paragraph (43); and 
(C) by redesignating paragraph (44) as paragraph (43). 
(2) Section 1903(i) of such Act is amended— 
(A) by striking out the period at the end of paragraph (6) and 
inserting in lieu thereof "; or ", and 
(B) by adding after 
paragraph (6) the following new 
paragraph: 
"(7) with respect to any amount expended for clinical diagnos-
tic laboratory tests performed by a physician, independent labo-
ratory, or hospital, to the extent such amount exceeds the 
amount that would be recognized under section 1833(h) for such 
tests performed for an individual enrolled under part B of title 
XVIIL". 
(h) The Secretary of Health and Human Services shall simplify 
the procedures under section 1842 of the Social Security Act with 
respect to claims and payments for clinical diagnostic laboratory 
tests so as to reduce unnecessary paperwork while assuring that 
sufficient information is supplied to identify instances of fraud and 
abuse. 
(i)(l) The Comptroller General shall report to the Congress on— 
(A) the appropriateness of the fee schedules under section 
1833(h) of the Social Security Act and their impact on the 
volume and quality of clinical diagnostic laboratory tests; 
(B) the potential impact of the adoption of a national fee 
schedule; and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1067 
(C) the potential impact of applying a national fee schedule to 
clinical diagnostic laboratory tests provided by hospitals to their 
outpatients. 
(2) The Secretary of Health and Human Services shall report to 
the Congress with respect to the advisability and feasibility of a 
system of direct payment to any physician for all clinical diagnostic 
laboratory tests ordered by such physician. 
(3) The reports required by paragraphs (1) and (2) shall be submit-
ted not later than January 1,1987. 
(j)(l) Except as provided in paragraphs (2) and (3), the amendments 
made by this section shall apply to clinical diagnostic laboratory 
tests furnished on or after July 1,1984. 
(2) The amendments made by subsection (g)(2) shall apply to 
payments for calendar quarters beginning on or after October 1, 
1984. 
(3) The amendments made by this section shall not apply to 
clinical diagnostic laboratory tests furnished to inpatients of a 
provider operating under a waiver granted pursuant to section 
602(k) of the Social Security Amendments of 1983. Payment for such 
services shall be made under part B of title XVIII of the Social 
Security Act at 80 percent (or 100 percent in the case of such tests 
for which payment is made on the basis of an assignment described 
in section 1842(b)(3)(B)(ii) of the Social Security Act or under the 
procedure described in section 1870(f)(1) of such Act) of the reasona-
ble charge for such service. The deductible under section 1833(b) of 
such Act shall not apply to such tests if payment is made on the 
basis of such an assignment or procedure. 
Report. 
Effective dates. 
42 u s e 1395/ 
note. 
97 Stat. 163. 
42 u s e 1395y 
note. 
42 u s e 1395J. 
42 u s e 1395u. 
42 u s e 1395gg. 
42 u s e 1395/. 
PACEMAKER REIMBURSEMENT REVIEW AND REFORM 
42 u s e 1395/ 
note. 
SEC. 2304. (a)(1) The Secretary of Health and Human Services 
shall issue revisions to the current guidelines for the payment under 
part B of title XVIII of the Social Security Act for the transtele-
phonic monitoring of cardiac pacemakers. Such revised guidelines 
shall include provisions regarding the specifications for and fre-
quency of transtelephonic monitoring procedures which will be 
found to be reasonable and necessary. 
(2)(A) Except as provided in subparagraph (B), if the guidelines 
required by paragraph (1) have not been issued and put into effect 
by October 1, 1984, and until such guidelines have been issued and 
put into effect, payment may not be made under part B of title 
XVIII of the Social Security Act for transtelephonic monitoring 
procedures, with respect to a single-chamber cardiac pacemaker 
powered by lithium batteries, conducted more frequently than— 
(i) weekly during the first month after implantation, 
(ii) once every two months during the period representing 80 
percent of the estimated life of the implanted device, and 
(iii) monthly thereafter. 
(B) Subparagraph (A) shall not apply in cases where the Secretary 
determines that special medical factors (including possible evidence 
of pacemaker or lead malfunction) justify more frequent transtele-
phonic monitoring procedures. 
(b)(1) The Secretary shall review, and report to the Committees on Report. 
Energy and Commerce and Ways and Means of the House of Repre-
sentatives and the Committee on Finance of the Senate, regarding 
the appropriateness of the amounts recognized as reasonable unaer 
part B of title XVIII of the Social Security Act for physicians 
98 STAT. 1068 
PUBLIC LAW 98-369—JULY 18, 1984 
Report. 
97 Stat. 152. 
42 use 1395WW. 
42 use 1395c. 
42 u s e 1395y. 
services associated with implantation or replacement of pacemaker 
devices and pacemaker leads. Such review shall take into account 
the amounts recognized as reasonable with respect to such proce-
dures and the time and difficulty of such procedures at the current 
time in comparison with such amounts and the time and difficulty 
of such procedures at the time the amounts for such procedures 
were first established under such part. 
(2) The Prospective Payment Assessment Commission, established 
under section 1886(e) of the Social Security Act, shall review and 
report to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate 
regarding the appropriateness of the payment amounts provided 
under section 1886(d) of such Act for inpatient hospital services 
associated with implantation or replacement of pacemaker devices 
and pacemaker leads. Such review shall take into account the time, 
difficulty, and costs associated with such procedures at the current 
time in comparison with the time, difficulty, and costs associated 
with such procedures upon which the payment rates for such proce-
dures under part A of title XVIII of such Act are based. 
(3) The Secretary and the Commission shall each complete the 
review described in paragraph (1) or (2), respectively, of this subsec-
tion and report on such review not later than March 1, 1985. 
(c) Section 1862 of the Social Security Act is amended by adding at 
the end the following new subsection: 
"(h)(1)(A) The Secretary shall, through the Commissioner of the 
Food and Drug Administration, provide for a registry of all cardiac 
pacemaker devices and pacemaker leads for which payment was 
made under this title. 
"(B) Such registry shall include the manufacturer, model, and 
serial number of each such device or lead, the name of the recipient 
of such device or lead, the date and location of the implantation or 
removal of the device or lead, the name of the physician implanting 
or removing such device or lead, the name of the hospital or other 
provider billing for such procedure, any express or implied warran-
ties associated with such device or lead under contract or State 
law, and such other information as the Secretary deems to be 
appropriate. 
"(C) Each physician and provider of services performing the 
implantation or replacement of pacemaker devices and leads for 
which payment is made or requested to be made under this title 
shall, in accordance with regulations of the Secretary, submit infor-
mation respecting such implantation or replacement for the 
registry. 
"(D) Such registry shall be for the purposes of assisting the 
Secretary in determining when payments may properly be made 
under this title, in tracing the performance of cardiac pacemaker 
devices and leads, in determining when inspection by the manufac-
turer of such a device or lead may be necessary under paragraph (3), 
and in carrying out studies with respect to the use of such devices 
and leads. In carrying out any such study, the Secretary may not 
reveal any specific information which identifies any pacemaker 
device or lead recipient by name (or which would otherwise identify 
a specific recipient). 
"(E) Any person or organization may provide information to the 
registry with respect to cardiac pacemaker devices and leads other 
than those for which payment is made under this title. 
,, - -
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1069 
"(2) The Secretary may, by regulation, require each provider of 
services— 
"(A) to return, to the manufacturer of the device or lead for 
testing under paragraph (3), any cardiac pacemaker device or 
lead which is removed from a patient and payment for the 
implantation or replacement of which was made or requested by 
such provider under this title, and 
"(B) not to charge any beneficiary for replacement of such a 
device or lead if the device or lead has not been returned in 
accordance with subparagraph (A). 
"(3) The Secretary may, by regulation, require the manufacturer 
of a cardiac pacemaker device or lead (A) to test or analyze each 
pacemaker device or lead for which payment is made or requested 
under this title and which is returned to the manufacturer by a 
provider of services under paragraph (2), and (B) to provide the 
results of such test or analysis to that provider, together with 
information and documentation with respect to any warranties 
covering such device or lead. In any case where the Secretary has 
reason to believe, based upon information in the pacemaker registry 
or otherwise available to him, that replacement of a cardiac pace-
maker device or lead for which payment is or may be requested 
under this title is related to the malfunction of a device or lead, the 
Secretary may require that personnel of the Food and Drug Admin-
istration be present at the testing of such device by the manu-
facturer, to determine whether such device was 
functioning 
properly. 
"(4) The Secretary may deny payment under this title, in whole or 
in part and for such period of time as the Secretary determines to be 
appropriate, with respect to the implantation or replacement of a 
pacemaker device or lead of a manufacturer performed by a physi-
cian and provider of services after the Secretary determines (in 
accordance with the procedures established under paragraphs (2) 
and (3) of subsection (d)) that— 
"(A) the physician or provider of services has failed to submit 
information to the registry as required under paragraph (1)(C), 
"(B) the provider of services has failed to return devices and 
leads as required under paragraph (2)(A) or has improperly 
charged beneficiaries as prohibited under paragraph (2)(B), or 
"(C) the manufacturer of the device or lead has failed to 
perform and to report on the testing of devices and leads 
returned to it as required under paragraph (3).". 
(d) The Secretary of Health and Human Services shall promulgate Regulations. 
final regulations to carry out this section and the amendment made 42 USC 1395y 
by this section prior to January 1, 1985, and the amendment made ^°^^-
by subsection (c) shall apply to pacemaker devices and leads im-
planted or removed on or after the effective date of such regulations. 
ELIMINATION OF SPECIAL PAYMENT PROVISIONS FOR PREADMISSION 
DIAGNOSTIC TESTING 
SEC. 2305. (a) Section 1833(a)(1) of the Social Security Act is 42 use 1395Z. 
amended by striking out "(F) with respect to" and all that follows 
through "(G)" and inserting in lieu thereof "and (F)". 
(b) Section 1833(a) of such Act is amended— 
(1) by adding "and" at the end of paragraph (3); 
(2) by striking out "; and" at the end of paragraph (4) and 
inserting in lieu thereof a period; and 
98 STAT. 1070 
PUBLIC LAW 98-369—JULY 18, 1984 
42 use 1395Z. 
42 use 1395/ 
note. 
42 use 1395/ 
note. 
42 use 1395J. 
(3) by striking out paragraph (5). 
(c) Section 1833(a)(2) of such Act is amended by striking out "and 
in paragraph (5) of this subsection". 
(d) Section 1833(b) and section 1833(i)(3) of such Act are each 
amended by striking out "subsection (a)(1)(G)" and inserting in Ueu 
thereof "subsection (a)(1)(F)". 
(e) The amendments made by this section shall apply to services 
performed after the date of the enactment of this Act. 
(f) The amendments made by this section shall not be construed as 
prohibiting payment, subject to the applicable copayments, under 
part B of title XVIII of the Social Security Act for preadmission 
diagnostic testing performed in a physician's office to the extent 
such testing is otherwise reimbursable under regulations of the 
Secretary. 
LIMITATION ON PHYSICIAN FEE PREVAILING AND CUSTOMARY CHARGE 
LEVELS; PARTICIPATING PHYSICIAN INCENTIVES 
42 use 1395U. 
SEC. 2306. (a) Section 1842(b) of the Social Security Act is amended 
by redesignating paragraphs (4) through (6) as paragraphs (5) 
through (7), respectively, and by inserting after paragraph (3) the 
following new paragraph: 
"(4)(A) In determining the prevailing charge levels under the 
third and fourth sentences of paragraph (3) for physicians' services 
furnished during the 15-month period beginning July 1, 1984, the 
Secretary shall not set any level higher than the same level as was 
set for the 12-month period beginning July 1, 1983. 
"(B) In determining the reasonable charge under paragraph (3) for 
physicians' services furnished during the 15-month period beginning 
July 1, 1984, the customary charges shall be the same customary 
charges as were recognized under this section for the 12-month 
period beginning July 1, 1983. 
"(C) In determining the prevailing charge levels under the third 
and fourth sentences of paragraph (3) for physicians' services fur-
nished during periods beginning after September 30, 1985, the Secre-
tary shall treat the level as set under subparagraph (A) as having 
fully provided for the economic changes which would have been 
taken into account but for the limitations contained in subpara-
graph (A). 
"(D) In determining the customary charges for physicians' serv-
ices furnished during the 12-month period beginning October 1, 
1985, or October 1, 1986, by a physician who at no time for any 
services furnished during the 12-month period beginning October 1, 
1984, was a participating physician (as defined in subsection (h)(1)), 
the Secretary shall not recognize increases in actual charges for 
services furnished during the 15-month period beginning on July 1, 
1984, above the level of the physician's actual charges billed in the 3-
month period ending on June 30, 1984.". 
(b)(1) Section 1842(b)(3) of such Act is amended— 
(A) in subparagraph (F), by striking out "June 30" and insert-
ing in lieu thereof "September 30"; 
(B) by striking out "July 1" each place it appears in the third 
and eighth sentences and inserting in lieu thereof in each 
instance "October 1"; and 
(C) in the third sentence thereof, by striking out "during the 
last preceding calendar year elapsing prior to" and inserting in 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1071 
lieu thereof "during the 12-month period ending on the March Effective date. 
31 last preceding". 
42 USC I395u 
(2) The amendments made by paragraph (1) shall apply to items "°*^ 
and services furnished on or after October 1, 1985. 
(c) Section 1842 of such Act, as amended by section 2303(e) of this Ante, p. 1066. 
title, is amended by adding at the end thereof the following new 
subsections: 
"(h)(1) Any physician or supplier may voluntarily enter into an 
agreement with the Secretary to become a participating physician 
or supplier. For purposes of this section, the term 'participating 
physician or supplier' means a physician or supplier (excluding any 
provider of services) who, before October 1 of any year beginning 
with 1984, enters into an agreement with the Secretary which 
provides that such physician or supplier will accept payment under 
this part on the basis of an assignment described in subsection 
(b)(3)(B)(ii), in accordance with subsection (b)(6)(B), or under the 
procedure described in section 1870(0(1) for all items and services 42 USC I395gg. 
furnished to individuals enrolled under this part during the 12-
month period beginning on October 1 of such year. In the case of a 
newly licensed physician or a physician who begins a practice in a 
new area, or in the case of a new supplier who begins a new 
business, or in such similar cases as the Secretary may specify, such 
physician or supplier may enter into such an agreement after 
October 1 of a year, for items and services furnished during the 
remainder of the 12-month period beginning on such October 1. 
"(2) Each carrier having an agreement with the Secretary under 
subsection (a) shall maintain a toll-free telephone number or num-
bers at which individuals enrolled under this part may obtain the 
names, addresses, specialty, and telephone numbers of participating 
physicians and suppliers. 
"(3) In any case in which a carrier having an agreement with the 
Secretary under subsection (a) is able to develop a system for the 
electronic transmission to such carrier of bills for services, such 
carrier shall establish direct lines for the electronic receipt of claims 
from participating physicians and suppliers. 
"(i)(l) Each year the Secretary shall publish a list containing the 
name, address, specialty, and percent of claims submitted with 
respect to each physician and supplier during the preceding year 
that were paid on the basis of an assignment described in subsection 
(b)(3)(B)(ii), in accordance with subsection (b)(6)(B), or under the 
procedure described in section 1870(f)(1). The Secretary may limit 
such list to those physicians and suppliers who accepted such an 
assignment in a certain percentage of such physician's or supplier's 
billings or who provide at least a certain volume of services, as the 
Secretary may determine to be appropriate. Such list shall be 
organized by such geographical area as the Secretary determines, 
after consultation with carriers, would facilitate the use of such list 
by individuals enrolled under this part. 
"(2) At the beginning of each fiscal year the Secretary shall 
publish a directory containing the name, address, and specialty of 
all participating physicians and suppliers (as defined in subsection 
(h)(1)) for that fiscal year. The directory shall be organized to make 
the most useful presentation of the information (as determined by 
the Secretary) for individuals enrolled under this part. 
"(3) The Secretary shall promptly notify individuals enrolled 
under this part of the publication of such list and directory and shall 
make such list and directory available in each district and branch 
98 STAT. 1072 
PUBLIC LAW 98-369—JULY 18, 1984 
42 use 1395y. 
42 use 
1320a-7a. 
42 u s e 1395J. 
Report. 
office of the Social Security Administration, in the offices of carri-
ers, and to senior citizen organizations. 
"(4) The Secretary shall provide that the list and directory shall 
be available for purchase by the public. 
"(jXl) In the case of a physician who is not a participating 
physician, the Secretary shall monitor each such physician's actual 
charges to individuals enrolled under this part for physicians' serv-
ices furnished during the 15-month period beginning July 1, 1984. If 
such physician knowingly and willfully bills individuals enrolled 
under this part for actual charges in excess of such physician's 
actual charges for the calendar quarter beginning on April 1, 1984, 
the Secretary may apply sanctions against such physician in accord-
ance with paragraph (2). 
"(2) Subject to paragraph (3), the sanctions which the Secretary 
may apply under paragraph (1) are— 
"(A) barring a physician from participation under the pro-
gram under this title for a period not to exceed 5 years, in 
accordance with the procedures of paragraphs (2) and (3) of 
section 1862(d), or 
"(B) the imposition of civil monetary penalties and assess-
ments, in the same manner as such penalties are authorized 
under section 1128A(a), 
or both. No payment may be made under this title with respect to 
any item or service furnished by a physician during the period when 
he is barred from participation in the program under this title 
pursuant to this subsection. 
"(3XA) The Secretary may not bar a physician pursuant to para-
graph (2)(A) if such physician is a sole community physician or sole 
source of essential specialized services in a community. 
"(B) The Secretary shall take into account access of beneficiaries 
to physicians' services for which payment may be made under this 
part in determining whether to bar a physician from participation 
under paragraph (2XA). 
"(4) The Secretary may, out of any civil monetary penalty or 
assessment collected from a physician pursuant to this subsection, 
make a payment to a beneficiary enrolled under this part in the 
nature of restitution for amounts paid by such beneficiary to such 
physician which was determined to be an excess charge under 
paragraph (1).". 
(dXD During the 15-month period beginning July 1, 1984, the 
Secretary of Health and Human Services shall monitor physicians' 
services in order to determine any changes in the per capita volume 
and mix of physicians' services provided to beneficiaries under part 
B of title XVIII of the Social Security Act, classified by participating 
and nonparticipating physicians, by assigned and nonassigned 
claims, by specialty, and by geographic area. 
(2) A report on changes monitored pursuant to paragraph (1) shall 
be provided to Congress prior to July 1,1985. 
(3) Such report shall include recommendations in sufficient detail 
to serve as the basis for legislative action which Congress can take 
to assure that any burden of effectively constraining the growth of 
costs in the medicare part B program, which Congress intends to be 
borne by providers and physicians, is not transferred (in whole or in 
part) so as to become an additional burden on part B beneficiaries in 
the form of increased out-of-pocket costs, reduced services, or re-
duced access to needed physician care. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1073 
(e) In addition to any funds otherwise provided for fiscal years 
1984 and 1985 for payment to carriers under contracts entered into 
under section 1842 of the Social Security Act, there are transferred 
42 USC I395u. 
from the Federal Supplementary Medical Insurance Trust Fund, for 
payments to such carriers under such contracts to implement the 
amendments made by this section, not less than $8,000,000 for fiscal 
year 1984, and not less than $15,000,000 for fiscal year 1985. 
(f)(1) Section 1128A(a)(2) of the Social Security Act is amended by 
inserting before the comma at the end thereof the following: ", or (C) 
an agreement to be a participating physician or supplier under 
section 1842(h)(1)". 
(2) Section 1877(d) of such Act is amended— 
(A) by inserting "or agrees to be a participating physician or 
supplier under section 1842(h)(1)" after "1842(b)(3)(B)(ii)", and 
(B) by striking out "specified in subclause (I) of such section" 
and inserting in lieu thereof "or agreement". 
42 USC 
1320a-7a. 
42 USC 1395nn. 
42 USC 1395gg. 
PAYMENT FOR SERVICES OF TEACHING PHYSICIANS 
SEC. 2307. (a)(1) Subparagraph (A) of section 1842(b)(7)(A) of the 
Social Security Act (as redesignated by section 2306 of this title) is Ante, p. 1070 
amended by adding at the end the following sentence: "If all the 
teaching physicians in a hospital agree to have payment made for 
all of their physicians' services under this part furnished patients in 
the hospital on the basis of an assignment described in paragraph 
(3)(B)(ii) or under the procedure described in section 1870(f)(1), not-
withstanding clause (ii) of this subparagraph, the carrier shall 
provide for payment in an amount equal to 90 percent of the 
prevailing charges paid for similar services in the same locality.". 
(2) Section 1842(b)(7)(B) of such Act is amended— 
(A) by striking out "physician who has a substantial practice 
outside the teaching setting" in clause (i) and inserting in lieu 
thereof "physician who is not a teaching physician (as defined 
by the Secretary)"; 
(B) by striking out "outside practice" in clause (i) and insert-
ing in lieu thereof "practice outside the teaching setting"; 
(C) by striking out "In the case of a physician who does not 
have a practice described in clause (i)" in clause (ii) and insert-
ing in lieu thereof "In the case of a teaching physician"; 
(D) by striking out "greater" in clause (ii) and inserting in lieu 
thereof "greatest"; 
(E) by striking out "or" at the end of subclause (I) of clause 
(ii); 
(F) by striking out the period at the end of subclause (II) of 
clause (ii) and inserting in lieu thereof ", or"; and 
(G) by adding at the end of clause (ii) the following new 
subclause: 
"(III) 85 percent of the prevailing charges paid for similar 
services in the same locality.". 
(3) The amendments made by this subsection shall apply to serv-
ices furnished on or after July 1,1984. 
(b)(1) Section 1886(d)(5)(B) of the Social Security Act is amended by 
adding at the end thereof the following new sentence: "In determin-
ing such adjustment the Secretary shall not distinguish between 
those interns and residents who are employees of a hospital and 
those interns and residents who furnish services to a hospital but 
are not employees of such hospital.". 
Effective date. 
42 USC 1395u 
note. 
97 Stat. 152. 
42 USC 1395WW. 
31-194 0 - 86 - 36 : 
OL. 3 Part 1 
98 STAT. 1074 
PUBLIC LAW 98-369—JULY 18, 1984 
Effective date. 
42 u s e 1395WW 
note. 
Study. 
42 u s e 1395u 
note. 
Ante, p. 1070. 
Report. 
Regulations. 
42 u s e 1395f 
note. 
42 u s e 1395. 
42 u s e 1395c, 
1395J. 
Ante, p. 1064. 
42 u s e 1395f 
note. 
42 u s e 1395f, 
1395Z. 
42 u s e 1395f. 
42 u s e 1395/. 
(2) The amendment made by paragraph (1) shall apply to cost 
reporting periods beginning on or after October 1,1984. 
(c) The Comptroller General shall conduct a study of the amounts 
billed for physiciem services and paid by carriers under section 
1842G)X7) of the Social Security Act to determine whether such 
payments have been made only where the physician satisfies the 
requirements of section 1842(bX7XAXi) of such Act. The Comptroller 
General shall submit to the Committees on Ways and Means and on 
Energy and Commerce of the House of Representatives and to the 
Committee on Finance of the Senate a report on the results of such 
study not later than 18 months after the date of the enactment of 
this Act. 
LESSER OF COST OR CHARGES 
SEC. 2308. (a) The Secretary of Health and Human Services shall 
issue regulations which require, for purposes of title XVIII of the 
Social Security Act, that providers of services calculate and report 
the lesser-of-cost-or-charges determinations separately with respect 
to payments for services under part A and services under part B of 
such title (other than clinical diagnostic laboratory tests paid under 
section 1833(h)), and that payment under such title be based upon 
such separate determinations. Such regulations shall apply to cost 
reporting periods beginning on or after October 1,1984. 
Ot)Xl) For purposes of applying the nominality test under sections 
181403X2) and 1833(aX2XBXii) of the Social Security Act, the Secre-
tary shall, in addition to those rules for establishing nominality 
which the Secretary determines to be appropriate, provide that 
charges representing 60 percent or less of costs shall be considered 
nominal. The charges used in making such determinations shall be 
the charges actusdly billed to charge-paying patients who are not 
entitled to benefits under either part of such title. Such determina-
tion shall be made separately with respect to payments for services 
under part A and services under part B of such title (other than 
clinical diagnostic laboratory tests paid under section 1833(h)), or on 
the basis of inpatient and outpatient services, except that the deter-
mination need not be made separately for home health services if 
the Secretary finds that such separation is not appropriate. 
(2XA) Section 18140)X2) of such Act is amended by inserting after 
"public provider of services" the following: ", or by another provider 
which demonstrates to the satisfaction of the Secretary that a 
significant portion of its patients are low-income (and requests that 
payment be made under this paragraph),". 
(B) Section 1833(aX2XBXii) of such Act is amended by inserting 
after "public provider of services" the following: ", or by another 
provider which demonstrates to the satisfaction of the Secretary 
that a significant portion of its patients are low-income (and re-
quests that payment be made under this clause),". 
Report. 
42 u s e 1395Z 
note. 
42 u s e 1395J. 
STUDY OF MEDICARE PART B PAYMENTS 
SEC. 2309. (aXD The Director of the Office of Technology Assess-
ment shall conduct a study of physician reimbursement under the 
medicare program and report to Congress on such study not later 
than December 31, 1985. The report shall include specific findings 
and recommendations on methods by which payment amounts and 
other program policies under part B of title XVIII of the Social 
Security Act may be modified— 
. 
I 
iisl 
i g i - i e 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1075 
(A) to eliminate inequities in the relative amounts paid to 
physicians by type of service, locality, and specialty, with par-
ticular attention to any inequities between cognitive services 
and medical procedures; and 
(B) to increase incentives for physicians and other suppliers 
under such part to accept assignment for services covered under 
title XVIII of the Social Security Act. 
42 use 1395. 
The study shall also examine the influence of payment methodology 
and payment levels on the utilization of services. 
(2) In carrying out the study under paragraph (1)(A), the Director 
shall take into account the relative time, complexity, investment in 
professional training, and overhead expenses necessary to the provi-
sion of various medical services and procedures, as well as the 
influence of the changes in technology. 
(3) The report under paragraph (1)(A) shall include information on 
methodologies which could be applied in the development of fee 
schedules on a national or regional basis for payments under part B 
of title XVIII of the Social Security Act in a manner consistent with 42 USC 1395j. 
the findings of the study under this subsection. 
(4) In preparing the report and recommendations, the Director 
shall consult with the Secretary of Health and Human Services and, 
as appropriate, with national organizations of physicians and other 
interested associations and individuals. 
Ot)) In order to assist the Director in completing the study and to 
facilitate Congressional review, the Secretary of Health and Human 
Services shall compile a centralized medicare part B charge data 
base, utilizing information gathered by the medicare carriers for 
charges in 1983. Such data shall include information, by procedure, 
on— 
(1) utilization, 
(2) assignment rates of physicians and suppliers, 
(3) actual, customary, and prevailing charges, and 
(4) the differences in charges by physician specialty and 
locality. 
Such information shall be provided to the Director of the Office of 
Technolo^ Assessment. 
(c) The Secretary shall review the report submitted under subsec-
tion (a)(1) and shall report to the Congress his comments on the 
report and recommendations for legislative amendments. 
LIMITATION ON INCREASE IN HOSPITAL COSTS PER CASE 
SEC. 2310. (a) Section 1886a))(3XB) of the Social Security Act is 
amended— 
(1) by striking out "1 percentage point", and by inserting in 
lieu thereof "one-quarter of 1 percentage point", and 
(2) by adding at the end thereof the following: "In determin-
ing a percentage change under subsection (e)(4) with respect to 
discharges occurring in any cost reporting period or fiscal year 
beginning on or after October 1, 1985, and before October 1, 
1986, the Secretary may not establish a percentage increase 
which exceeds the applicable percentage increase otherwise 
determined for that period or fiscal year under the preceding 
sentence.". 
(b) The amendments made by this section shall apply to cost 
reporting periods beginning in, and discharges occurring in, fiscal 
year 1985 and thereafter. 
42 USC 1395WW. 
Effective date. 
42 USC 1395w^ 
note. 
98 STAT. 1076 
PUBLIC LAW 98-369—JULY 18, 1984 
CLASSIFICATION OF CERTAIN RURAL HOSPITALS 
97 Stat. 152. 
SEC. 2311. (a) Section 1886(dX5XCXi) of the Social Security Act is 
42 use 1
3
9
5
W
W
. amended by adding at the end thereof the following: "A hospital 
which is classified as a rural hospital may appeal to the Secretary to 
be classified as a rural referral center under this clause on the basis 
of criteria (established by the Secretary) which shall allow the 
hospital to demonstrate that it should be so reclassified by reason of 
certain of its operating characteristics being similar to those of a 
tjrpical urban hospital located in the same census region. Such 
characteristics may include wages, scope of services, service area, 
and the mix of medical specialties. The Secretary shall publish the 
criteria not later than 30 days after the date of the enactment of this 
Act, for implementation by October 1, 1984. An appeal allowed 
under this clause must be submitted to the Secretary (in such form 
and manner as the Secretary may prescribe) during the quarter 
before the first quarter of the hospital's cost reporting period (or, in 
the case of a cost reporting period beginning during October 1984, 
during the first quarter of that period), and the Secretary must 
make a final determination with respect to such appeal within 60 
days after the date the appeal was submitted. Any payment adjust-
ments necessitated by a reclassification based upon the appeal shall 
be effective at the beginning of such cost reporting period.". 
Ot)) Section 1886(dX2XD) of such Act is amended by adding at the 
end thereof the following: "A hospital located in a Metropolitan 
Statistical Area shall be deemed to be located in the region in which 
the largest number of the hospitals in the same Metropolitan Statis-
tical Area are located, or, at the option of the Secretary, the region 
in which the majority of the inpatient discharges (with respect to 
which payments are made under this title) from hospitals in the 
same Metropolitan Statistical Area are made.". 
(c) Section 1886(d) of such Act is amended by adding at the end 
thereof the following new paragraph: 
"(8) In the case of any hospital which is located in an area which 
is, at any time after April 20, 1983, reclassified from an urban to a 
rural area, pajmients to such hospital for the first two cost reporting 
periods for which such reclassification is effective shall be made as 
follows: 
"(A) For the first such cost reporting period, pajrment shall be 
equal to the amount payable to such hospital for such reporting 
period on the basis of the rural classification, plus an amount 
^,;,, 
^ ,, 
equal to two-thirds of the amount (if any) by which— 
"(i) the amount which would have been payable to such 
hospital for such reporting period on the basis of an urban 
classification, exceeds 
"(ii) the amount payable to such hospital for such report-
ing period on the basis of the rural classification. 
"(B) For the second such cost reporting period, pa3mient shall 
be equal to the amount payable to such hospital for such 
reporting period on the basis of the rural classification, plus an 
amount equal to one-third of the amount (if any) by which— 
"(i) the amount which would have been payable to such 
hospital for such reporting period on the basis of an urban 
classification, exceeds 
"(ii) the amount payable to such hospital for such report-
ing period on the basis of the rural classification.". 
i«^.. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1077 
(d)(1) Except as provided in paragraph (2), the amendments made 
by subsections (b) and (c) shall be effective with respect to cost 
reporting periods beginning on or after October 1, 1983, and the 
amendment made by subsection (a) shall be effective with respect to 
cost reporting periods beginning on or after October 1,1984. 
(2) The amendment made by subsection (b) shall not apply so as to 
reduce any payment under section 1886(d) of the Social Security Act 
to a hospital the region of which is deemed to be changed pursuant 
to such amendment for discharges occurring in any cost reporting 
period beginning before October 1,1984. 
(e) The Secretary of Health and Human Services shall conduct a 
study of the distinction between urban and rural hospitals for 
purposes of the DRG payment provisions under section 1886(d) of 
the Social Security Act, and the effect which such distinction may 
have on rural hospitals in the case of those DRG's which have high 
fixed nonlabor components which do not vary significantly between 
urban and rural areas (such as those DRG's which involve expensive 
medical devices). The Secretary also shall conduct a study of the 
advisability and feasibility of varying by DRG the proportions of the 
labor and nonlabor components of the Federal payment amount 
instead of applying the average proportion of those components to 
all DRG's. The Secretary shall report the results of such studies to Report 
the Committee on Finance of the Senate and the Committee on 
Ways and Means of the House of Representatives within six months 
after the date of the enactment of this Act. 
(f) The Secretary of Health and Human Services shall conduct a 
study of further refinements which may be appropriate in the 
inpatient hospital prospective payment provisions of title XVIII of 
the Social Security Act, in order to address the problems of differ-
ences in payment amounts to specific hospitals. The study shall 
include (but shall not be limited to) the degree of variation in 
inpatient hospital costs per discharge within each diagnosis-related 
group. The Secretary shall also present alternative methods of 
computing the amount of such payments. The study shall include a 
discussion of the relative merits of a method of payment under 
which a percentage of the payment amount (for discharges classified 
within a diagnosis-related group) could be determined on a regional 
basis. The Secretary shall report the result of the study, and any Report, 
recommended changes in the prospective payment system, to the 
Congress prior to September 1,1984. 
Effective date. 
42 u s e 1395WW 
note. 
97 Stat. 152. 
42 u s e 1395WW. 
Study. 
Study. 
42 u s e 1395. 
PAYMENT FOR SERVICES OF A NURSE ANESTHETIST 
SEC. 2312. (a) Section 1886(d)(5) of the Social Security Act is 97 Stat. 152. 
amended by adding at the end thereof the following new subpara- 42 USe I395ww. 
graph: 
"(E) The Secretary shall provide for an additional payment 
amount for any subsection (d) hospital equal to the reasonable costs 
incurred by such hospital for anesthesia services provided by a 
certified registered nurse anesthetist. Payment under this subpara-
graph shall be the only payment made to such hospital with respect 
to such services.". 
(b) The second sentence of section 1886(a)(4) of such Act is 97 Stat. 149. 
amended by inserting ", costs of anesthesia services provided by a 42 USC I395ww. 
certified registered nurse anesthetist" after "approved educational 
activities". 
98 STAT. 1078 
PUBLIC LAW 98-369—JULY 18, 1984 
Effective date. 
42 u s e 1395WW 
note. 
Study. 
42 u s e 1395. 
Report. 
(c) The amendments made by subsections (a) and (b) shall apply to 
cost reporting periods beginning on or after October 1, 1984, and 
before October 1,1987. 
(d) The Secretary of Health and Human Services shall conduct a 
study of possible methods of reimbursement under title XVIII of the 
Social Security Act which would not discourage the use of certified 
registered nurse anesthetists by hospitals. The Secretary shall 
report the results of such study to the Congress as soon as is 
practicable. 
PROSPECTIVE PAYMENT ASSESSMENT COMMISSION 
97 Stat. 152. 
SEC. 2313. (a) Section 1886(e)(2) of the Social Security Act is 
amended by inserting "(without regard to the provisions of title 5, 
42 use I395ww. United States Code, governing appointments in the competitive 
service)" after "appointed by the Director". 
(b)(1) Section 1886(e)(6)(C)(i) of such Act is amended to read as 
follows: 
"(i) employ and fix the compensation of an Executive Director 
(subject to the approval of the Director of the Office) and such 
other personnel (not to exceed 25) as may be necessary to carry 
out its duties (without regard to the provisions of title 5, United 
States Code, governing appointments in the competitive 
service);". 
(2) Section 1886(eX6)(C)(iii) of such Act is amended by inserting 
"(without regard to section 3709 of the Revised Statutes (41 U.S.C. 
5))" after "Commission". 
(3) Section 1886(e)(6)(C) of such Act is amended by adding at the 
end the following: "Section 10(a)(1) of the Federal Advisory Commit-
5 use app. 
tee Act shall not apply to any portion of a Commission meeting if 
the Commission, by majority vote, determines that such portion of 
such meeting should be closed.". 
(4) Section 1886(e)(6)(D) of such Act is amended by adding at the 
end thereof the following sentence: "Physicians serving as personnel 
of the Commission may be provided a physician comparability alloMv 
ance by the Commission in the same manner as Government physi 
cians may be provided such an allowance by an agency under 
section 5948 of title 5, United States Code, and for such purpose 
subsection (i) of such section shall apply to the Commission in the 
same manner as it applies to the Tennessee Valley Authority.". 
Ante, p. 1068. 
(c) Section 1862 of such Act, as amended by section 2304(c) of this 
title, is amended by adding at the end the following new subsection, 
"(i) In order to supplement the activities of the Prospective Pay-
Supra, 
ment Assessment Commission under section 1886(e) in assessing the 
safety, efficacy, and cost-effectiveness of new and existing medical 
procedures, the Secretary may carry out, or award grants or con-
tracts for, original research and experimentation of the type 
described in clause (ii) of section 1886(e)(6)(E) with respect to such a 
procedure if the Secretary finds that— 
"(1) such procedure is not of sufficient commercial value to 
justify research and experimentation by a commercial organiza-
tion; 
"(2) research and experimentation with respect to such proce-
dure is not of a type that may appropriately be carried out by 
an institute, division, or bureau of the National Institutes of 
Health; and 
-
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1079 
"(3) such procedure has the potential to be more cost-effective 
in the treatment of a condition than procedures currently in 
use with respect to such condition.". 
(d) Section 1886(eX6) of such Act is amended by adding at the end 
the following new subparagraph: 
"(J) The Commission shall submit requests for appropriations in 
the same manner as the Office submits requests for appropriations, 
but amounts appropriated for the Commission shall be separate 
from amounts appropriated for the Office.". 
(e) The amendments made by this section shall become effective 
on the date of the enactment of this Act. 
REVALUATION OF ASSETS 
97 Stat. 152. 
42 u s e 1395WW. 
Effective date. 
42 u s e 1395y 
note. 
SEC. 2314. (a) Section 1861(vXl) of the Social Security Act is 42 use I395x. 
amended by adding at the end thereof the following new subpara-
graph: 
"(OXi) In establishing an appropriate allowance for depreciation 
and for interest on capital indebtedness and (if applicable) a return 
on equity capital with respect to an asset of a hospital or skilled 
nursing facility which has undergone a change of ownership, such 
regulations shall provide that the valuation of the asset after such 
change of ownership shall be the lesser of the allowable acquisition 
cost of such asset to the owner of record as of the date of the 
enactment of this subparagraph (or, in the case of an asset not in 
existence as of such date, the first owner of record of the asset after 
such date), or the acquisition cost of such asset to the new owner. 
"(ii) Such regulations shall provide for recapture of depreciation 
in the same manner £is provided under the regulations in effect on 
June 1,1984. 
"(iii) Such regulations shall not recognize, as reasonable in the 
provision of health care services, costs (including legal fees, account-
ing and administrative costs, travel costs, and the costs of feasibility 
studies) attributable to the negotiation or settlement of the sale or 
purchase of any capital asset (by acquisition or merger) for which 
any payment has previously been made under this title.". 
(b) Section 1902(aX13) of such Act is amended— 
42 use I396a. 
(1) by striking out "and" at the end of subparagraph (A), 
(2) by redesignating subparagraph (B) as subparagraph (C), 
and 
(3) by inserting after subparagraph (A) the following new 
subparagraph: 
"(B) that the State shall provide assurances satisfactory 
to the Secretary that the payment methodology utilized by 
the State for payments to hospitals, skilled nursing facili-
ties, and intermediate care facilities can reasonably be 
expected not to increase such payments, solely £is a result of 
a change of ownership, in excess of the increase which 
would result from the application of section 1861(vXlXO); Supra. 
and". 
IcXD Clause (i) of section 1861(vXlXO) of the Social Security Act 42 use I395x 
shall not apply to changes of ownership of gissets pursuant to an note. 
enforceable agreement entered into before the date of the enactment 
of this Act. 
(2) Clause (iii) of section 1861(vXlXO) of such Act shall apply to 
costs incurred on or after the date of the enactment of this Act. 
98 STAT. 1080 
PUBLIC LAW 98-369—JULY 18, 1984 
Effective date. 
42 u s e 1396a 
note. 
42 u s e 1396. 
(3)(A) Except as provided in subparagraph (B), the amendments 
made by subsection (b) shall apply to medical assistance furnished 
on or after October 1,1984. 
(B) In the case of a State plan for medical assistance under title 
XIX of the Social Security Act which the Secretary of Health and 
Human Services determines requires State legislation in order for 
the plan to meet the additional requirement imposed by the amend-
ments made by this section, the State plan shall not be regarded as 
failing to comply with the requirements of such title solely on the 
basis of its failure to meet this additional requirement before the 
first day of the first calendar quarter beginning after the close of the 
first regular session of the State legislature that begins after 
the date of the enactment of this Act. 
97 Stat. 149. 
42 u s e 1395WW. 
97 Stat. 152. 
42 u s e 1395WW. 
97 Stat. 168. 
42 u s e 1395CC. 
97 Stat. 170. 
42 u s e 1395i-2. 
97 Stat. 168. 
42 u s e 1395WW 
note. 
Federal 
Register, 
publication. 
42 u s e 1395WW 
note. 
42 u s e 1395WW. 
Effective date. 
42 u s e 1395WW 
note. 
97 Stat. 65. 
42 u s e 1395WW 
note. 
42 u s e 1395c. 
Ante, p. 1076. 
TECHNICAL AMENDMENTS RELATING TO THE DRG PAYMENT SYSTEM 
SEC. 2315. (a) Section 1886(c)(4)(A) of the Social Security Act is 
amended by striking out "and (D)" and inserting in lieu thereof "(D), 
and (E)". 
(b) Section 1886(d)(2)(D) of such Act is amended by striking out 
"Standard". 
(c) Section 1886(e)(5) of such Act is amended— 
(1) by striking out "for public comment" in the matter before 
subparagraph (A), and 
(2) by inserting "for public comment" in subparagraph (A) 
after "that fiscal year". 
(d) Section 1866(a)(1)(F) of such Act (as added by section 602(f)(1)(C) 
of the Social Security Amendments of 1983) is amended by striking 
out "(c) or (d)" and inserting in lieu thereof "(b), (c), or (d)". 
(e) Section 1818(c) of such Act is amended by striking out "subsec-
tion (a) of section 1839" and inserting in lieu thereof "subsection (b) 
of section 1839". 
(f)(1) Section 604(c)(3) of the Social Security Amendments of 1983 
(Public Law 98-21) is amended by striking out "to implement subsec-
tion (d) of section 1886 of the Social Security Act (as so amended)" 
and inserting in lieu thereof "to implement the amendments made 
by this title". 
(2) Notwithstanding section 604(c) of the Social Security Amend-
ments of 1983, the Secretary of Health and Human Services shall 
cause to be published in the Federal Register proposed regulations 
to carry out subsection (c) of section 1886 of the Social Security Act 
not later than July 1, 1984, and allow for a period of 45 days for 
public comment thereon. After consideration of the comments re-
ceived, the Secretary shall cause to be published in the Federal 
Register final regulations to carry out such subsection not later than 
October 1,1984. 
(g) The amendments made by this section shall be effective as 
though they had been included in the enactment of the Social 
Security Amendments of 1983 (Public Law 98-21). 
(h) The Secretary of Health and Human Services shall, prior to 
December 31,1984— 
(1) develop and publish a definition of "hospitals that serve a 
significantly disproportionate number of patients who have low 
income or are entitled to benefits under part A" of title XVIII of 
the Social Security Act for purposes of section 1886(d)(5)(C)(i) of 
that Act, and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1081 
(2) identify those hospitals which meet such definition, and 
make such identity available to the Committee on Ways and 
Means of the House of Representatives and the Committee on 
Finance of the Senate. 
PROSPECTIVE PAYMENT WAGE INDEX 
SEC. 2316. (a) The Secretary of Health and Human Services, in 
consultation with the Secretary of Labor, shall conduct a study to 
develop an appropriate index for purposes of adjusting payment 
amounts under section 1886(d) of the Social Security Act to reflect 
area differences in average hospital wage levels, as required under 
paragraphs (2XH) and (3XE) of such section, taking into account 
wage differences of full time and part time workers. The Secretary 
of Health and Human Services shall report the results of such study 
to the Congress not later than 30 days after the date of the enact-
ment of this Act, including any changes which the Secretary deter-
mines to be necessary to provide for an appropriate index. 
Qy) The Secretary shall adjust the payment amounts for hospitals 
for cost reporting periods beginning on or after October 1, 1983, to 
reflect any changes made in the wage index pursuant to subsection 
(a). Any adjustment in such payments to take account of overpay-
ments or underpayments for the first cost reporting period of a 
hospital to which section 1886(d) of the Social Security Act applies, 
shall be made by decreasing or increasing payments in the succeed-
ing cost reporting period. 
(c) The Secretary shall conduct a study and report to the Congress 
on proposed criteria under which, in the case of a hospital that 
demonstrates to the Secretary in a current fiscal year that the 
adjustment being made under paragraph (2)(H) or (3XE) of section 
1886(d) of the Social Security Act for that hospital's discharges in 
that fiscal year does not accurately reflect the wage levels in the 
labor market serving the hospital, the Secretary, to the extent he 
deems appropriate, would modify such adjustment for that hospital 
for discharges in the subsequent fiscal year to take into account a 
difference in payment amounts in that current fiscal year to the 
hospital that resulted from such inaccuracy. 
DEADUNE FOR REPORT ON INCLUDING PAYMENT FOR PHYSICIANS' 
SERVICES TO HOSPITAL INPATIENTS IN DRG PAYMENT AMOUNTS 
SEC. 2317. The second sentence of section 603(aX2XB) of the Social 
Security Amendments of 1983 (Public Law 98-21) is amended by 
striking out "include, in a report to Congress in 1985," and inserting 
in lieu thereof "submit to Congress, not later than July 1, 1985, a 
report to Congress which includes". 
EMERGENCY ROOM SERVICES 
SEC. 2318. (a) Section 1861(vXlXK) of the Social Security Act is 
amended by inserting "(i)" after "(K)" and by adding at the end 
thereof the following new clause: 
"(ii) For purposes of clause (i), the term 'bona fide emergency 
services' means services provided in a hospital emergency room 
after the sudden onset of a medical condition manifesting itself by 
acute symptoms of sufficient severity (including severe pain) such 
that the absence of immediate medical attention could reasonably 
be expected to result in— 
Study. 
42 u s e 1395WW 
note. 
97 Stat. 152. 
42 u s e 1395WW. 
Report. 
y»\n\. 
Study. 
Report. 
42 u s e 1395WW 
note. 
97 Stat. 166. 
42 u s e 1395x. 
98 STAT. 1082 
PUBLIC LAW 98-369—JULY 18, 1984 
Ante, p. 1081. 
Effective date. 
42 u s e 1395x 
note. 
42 u s e 1395x. 
Infra. 
"(I) placing the patient's health in serious jeopardy; 
"(11) serious impairment to bodily functions; or 
"(III) serious dysfunction of any bodily organ or part.". 
(b) Section 1861(v)(l)(K)(i) of such Act as so designated is amended 
by striking out "provided in an emergency room" and inserting in 
lieu thereof "as defined in clause (ii)". 
(c) The amendments made by this section shall apply to services 
furnished on or after the date of the enactment of this Act. 
SKILLED NURSING FACILITY REIMBURSEMENT 
SEC. 2319. (a)(1) Section 1861(v)(l)(E) of the Social Security Act is 
amended by striking out clause (i) thereof, and by striking out "(ii)", 
(2) Section 1861(vX7) of such Act is amended by adding at the end 
thereof the following new subparagraph: 
"(D) For further limitations on reasonable cost and determination 
of payment amounts for routine service costs of skilled nursing 
facilities, see section 1888.". 
(b) Title XVIII of the Social Security Act is amended by adding at 
the end thereof the following new section: 
PAYMENT TO SKILLED NURSING FACIUTIES FOR ROUTINE SERVICE 
COSTS 
42 use I395yy. 
"SEC. 1888. (a) The Secretary, in determining the amount of the 
payments which may be made under this title with respect to 
routine service costs of extended care services shall not recognize as 
reasonable (in the efficient delivery of health services) per diem 
costs of such services to the extent that such per diem costs exceed 
the following per diem limits, except as otherwise provided in this 
section: 
"(1) With respect to freestanding skilled nursing facilities 
located in urban areas, the limit shall be equal to 112 percent of 
the mean per diem routine service costs for freestanding skilled 
nursing facilities located in urban areas. 
"(2) With respect to freestanding skilled nursing facilities 
located in rural areas, the limit shall be equal to 112 percent of 
the mean per diem routine service costs for freestanding skilled 
nursing facilities located in rural areas. 
"(3) With respect to hospital-based skilled nursing facilities 
located in urban areas, the limit shall be equal to the sum of the 
limit for freestanding skilled nursing facilities located in urban 
areas, plus 50 percent of the amount by which 112 percent of the 
mean per diem routine service costs for hospital-based skilled 
nursing facilities located in urban areas exceeds the limit for 
freestanding skilled nursing facilities located in urban areas. 
"(4) With respect to hospital-based skilled nursing facilities 
located in rural areas, the limit shall be equal to the sum of the 
limit for freestanding skilled nursing facilities located in rural 
areas, plus 50 percent of the amount by which 112 percent of the 
mean per diem routine service costs for hospital-based skilled 
nursing facilities located in rural areas exceeds the limit for 
freestanding skilled nursing facilities located in rural areas. 
In applying this subsection the Secretary shall make appropriate 
adjustments to the labor related portion of the costs based upon an 
appropriate wage index. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1083 
"(b) With respect to a hospital-based skilled nursing facility, the 
Secretary shall recognize as reasonable the portion of the cost 
differences between hospital-based and freestanding skilled nursing 
facilities attributable to excess overhead allocations (as determined 
by the Secretary) resulting from the reimbursement principles 
under this title, nothwithstanding the limits set forth in paragraph 
(3) or (4) of subsection (a). 
"(c) The Secretary may make adjustments in the limits set forth 
in subsection (a) with respect to any skilled nursing facility to the 
extent the Secretary deems appropriate, based upon case mix or 
circumstances beyond the control of the facility.". 
(c) The amendments made by subsections (a) and (b) shall apply to 
cost reporting periods beginning on or after July 1,1984. 
(d) Notwithstanding limits on the cost of skilled nursing facilities 
which may have been issued under section 1861(v) of the Social 
Security Act prior to the date of the enactment of this Act, in the 
case of cost reporting periods beginning on or after October 1, 1982, 
and prior to July 1, 1984, the cost limits for routine services for 
urban and rural hospital-based skilled nursing facilities shall be 112 
percent of the mean of the respective routine costs for urban and 
rural hospital-based skilled nursing facilities. 
(e) The Secretary of Health and Human Services shall submit to 
the Congress, prior to December 1, 1984, the report required under 
section 605(b) of the Social Security Amendments of 1983. 
(fKl) The Secretary of Health £ind Human Services shall report to 
the Committee on Finance of the Senate and the Committee on 
Ways and Means of the House of Representatives, prior to August 1, 
1984, the proposals developed, as required under section 1135(c) of 
the Social Security Act, for prospective reimbursement of skilled 
nursing facilities. 
(2) The Secretary of Health and Human Services shall submit to 
the Congress, prior to December 1, 1984, a report on the range of 
options for prospective pa5mient of skilled nursing facilities under 
title XVIII of the Social Security Act. The report shall take into 
account case mix differences among skilled nursing facilities. The 
report shall analyze the feasibility of permitting inclusion of pay-
ments to hospital-beised facilities within the DRG payment system 
under section 1886(d) of such Act. 
PAYMENT FOR COSTS OF HOSPITAL-BASED MOBILE INTENSIVE CARE 
UNITS 
SEC. 2320. (aXD In the case of a project described in subsection (b), 
the Secretary of Health and Human Services shall provide, except 
as provided in paragraph (2), that the amount of payments to 
hospitals covered under the project during the period described in 
paragraph (3) shall include payments for their operation of hospital-
based mobile intensive care units (as defined by State statute) if the 
State provides satisfactory assurances that the total amount of 
pajrments to such hospitals under titles XVIII and XIX of the Social 
Security Act under the demonstration project (including any such 
additional amount of payment) would not exceed the total amount of 
pajnments which would have been paid under such titles if the 
demonstration project were not in effect. 
(2) Paragraph (1) shall not apply if the State in which the project 
is located notifies the Secretary, within 30 days after the date of the 
Effective date. 
42 u s e 1395yy 
note. 
42 u s e 1395x 
note. 
42 u s e 1395x. 
Report. 
42 u s e 1395x 
note. 
97 Stat. 169. 
Report. 
42 u s e 1320b-5. 
Report. 
42 u s e 1395. 
97 Stat. 152. 
42 u s e 1395WW. 
42 u s e 1395b-l 
note. 
42 u s e 1395, 
1396. 
98 STAT. 1084 
PUBLIC LAW 98-369—JULY 18, 1984 
42 u s e 1395WW. 
42 u s e 1395b-l. 
42 u s e 1395c. 
enactment of this section, that the State does not want paragraph (1) 
to apply to that project. 
(3) The period referred to in paragraph (1) begins on the date of 
the enactment of this section and continues so long as the Secretary 
continues the Statewide waiver referred to in subsection (b), but in 
no case ends earlier than 90 days after the date final regulations to 
implement section 1886(c) of the Social Security Act are published, 
(b) The project referred to in subsection (a) is the statewide 
demonstration project established in the State of New Jersey under 
section 402 of the Social Security Amendments of 1967, as amended 
by section 2220t)) of the Social Security Amendments of 1972 (Public 
Law 92-603), which project provides for payments to hospitals in the 
State on a prospective basis and related to a clsissification of patients 
by diagnosis-related groups. 
(c) Payment for services described in this section shall be consid-
ered to be payments for services under part A of title XVIII of the 
Social Security Act. 
COST SHARING FOR DURABLE MEDICAL EQUIPMENT FURNISHED AS A 
HOME HEALTH BENEFIT 
SEC. 2321. (aXD The matter in section 1814(b) of the Social Securi-
42 use 1395f. 
ty Act preceding paragraph (1) is amended by inserting "and other 
97 Stat. 152. 
than a home health agency with respect to durable medical equip-
ment" after "hospice care". 
(2) Section 1814 of such Act is amended by adding at the end 
thereof the following new subsection: 
"Payments to Home Health Agencies for Durable Medical 
Equipment 
"(k) The amount paid to any home health agency with respect to 
durable medical equipment for which payment may be made under 
this part shall be— 
"(1) the lesser of— 
"(A) the reasonable cost of such equipment, as deter-
42 use I395x. 
mined under section 1861(v), or 
"(B) the customary charges with respect to such equip-
ment, 
less the amount the home health agency may charge as 
42 use 1
3
9
5
C
C
. 
described in section 1866(aX2XAXii), but in no case may the 
payment for such equipment exceed 80 percent of such reasona-
ble cost, or 
"(2) if such equipment is furnished by a public home health 
agency free of charge or at nominal charge to the public, the 
amount which the Secretary finds will provide fair compensa-
tion to the home health agency.". 
42 use 1395Z. 
(bXD The matter in section 1833(aX2XA) of such Act preceding 
clause (i) is amended by inserting "(other than durable medical 
equipment)" after "home health services". 
(2) The matter in section 1833(aX2XB) of such Act preceding clause 
(i) is amended by inserting "items and" after "other'. 
42 use 1
3
9
5
C
C
. 
(c) Section 1866(aX2XAXii) of such Act is amended by inserting "or 
which are durable medical equipment furnished as home health 
services" after "part B". 
Post, p. 1085. 
(dXD The first sentence of section 1833(f)(1) of such Act is amended 
by striking out "as described in section 1861(s)(6)". 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1085 
(2) Section 1833(f)(2) of such Act is amended— 
42 use 1395/. 
(A) by striking out "the 20 percent" and inserting in lieu ^"/>"a-
thereof "any", and 
(B) by striking out "under subsection (a)". 
(3) Section 1833(f)(3) of such Act is amended by striking out 
"paragraph (1)" and inserting in Ueu thereof "subsection (a)". 
(4)(A) Subsection (f) of section 1833 of such Act is redesignated as 42 USC I395zz. 
section 1889, is assigned the heading "PURCHASE OF DURABLE MEDI-
CAL EQUIPMENT", and is moved to and inserted at the end of part C 
after the section added by section 2319 of this title. 
(B) Paragraphs (1) through (4) of such section 1889 are redesignat-
ed as subsections (a) through (d), respectively. 
(e)(1) Section 1861(m)(5) of such Act is amended by striking 42 USC I395x. 
out ", and the use of medical applicances" and inserting in lieu 
thereof "and durable medical equipment". 
(2) Section 1861(s)(6) of such Act is amended by striking out 
everything after "durable medical equipment" up to the semicolon. 
(3) Section 1861 of such Act is amended by inserting after subsec-
tion (m) the following: 
i^;:; 
s
y ; i 
'n^u<^ 
"Durable Medical Equipment 
"(n) The term 'durable medical equipment' includes iron lungs, 
oxygen tents, hospital beds, and wheelchairs (which may include a 
power-operated vehicle that may be appropriately used as a wheel-
chair, but only where the use of such a vehicle is determined to be 
necessary on the basis of the individual's medical and physical 
condition and the vehicle meets such safety requirements as the 
Secretary may prescribe) used in the patient's home (including an 
institution used at his home other than an institution that meets 
the requirements of subsection (e)(1) or (j)(l) of this section), whether 
furnished on a rental basis or purchased.". 
(4) Section 1861(cc)(l)(G) of such Act is amended by striking out ", 
appliances, and equipment, including the purchase or rental of 
equipment" and inserting in lieu thereof "and durable medical 
equipment". 
(f) Section 1814(j)(2) of such Act is amended— 
(1) by redesignating subparagraphs (B) and (C) as subpara-
graphs (C) and (D), respectively, and 
(2) by inserting the following after subparagraph (A): 
"(B) Subsection (k)(l)(B).". 
(g) The amendments made by this section shall apply to items and 
services furnished on or after the date of the enactment of this Act. 
SERVICES OF A CUNICAL PSYCHOLOGIST PROVIDED TO MEMBERS OF AN 
HMO 
SEC. 2322. (a) Section 1861(s)(2)(H) of the Social Security Act is 42 USC I395x. 
amended by inserting "(i)" after "(H)", by adding "and" at the end 
of clause (i) as so designated, and by adding at the end thereof the 
following new clause: 
"(ii) services furnished pursuant to a risk-sharing contract 
under section 1876(g) to a member of an eligible organization by 42 USC 1395mm. 
a clinical psychologist (as defined by the Secretary), and such 
services and supplies furnished as an incident to his services to 
such a member as would otherwise be covered under this part if 
97 Stat. 152. 
42 USC 1395f. 
Effective date. 
42 USC 1395f 
note. 
98 STAT. 1086 
PUBLIC LAW 98-369—JULY ife, 1984 
Effective date. 
42 u s e 1395x 
note. 
furnished by a physician or as an incident to a physician's 
service; and", 
(b) The amendments made by subsection (a) shall be effective with 
respect to services furnished on or after the date of the enactment of 
this Act. 
42 u s e 1395x. 
42 u s e 1395/. 
42 u s e 1395CC. 
42 u s e 1395Z. 
Supra. 
42 u s e 1395rr. 
Effective date. 
42 u s e 1395/ 
note. 
42 u s e 1395/ 
note. 
42 u s e 1395J. 
COVERAGE OF ADMINISTRATION OF HEPATITIS B VACCINE 
SEC. 2323. (a) Section 1861(sX10) of the Social Security Act is 
(1) by inserting "(A)" after "(10)"; 
(2) by striking out the period at the end thereof and inserting 
in lieu thereof "; and"; and 
(3) by adding at the end thereof the following new subpara-
graph: 
"(B) hepatitis B vaccine and its administration, furnished to 
an individual who is at high or intermediate risk of contracting 
hepatitis B (as determined by the Secretary under regula-
tions).". 
(bXD Paragraphs (1)(B), (2XA), and (3) of section 1833(a) of such Act 
are each amended by striking out "1861(s)(10)" and inserting in lieu 
thereof "1861(sX10XA)". 
(2) Section 1833(bXl) of such Act is amended by striking out 
"ISGKsXlO)" and inserting in lieu thereof "1861(sX10)(A)". 
(3) The last sentence of section 1866(a)(2XA) of such Act is amend-
ed by striking out "1861(sX10)" and inserting in lieu thereof 
"1861(sX10XA)'' 
(4) Section 1833 of such Act is amended by adding at the end 
thereof the following new subsection: 
"(k) With respect to services described in section 1861(sX10XB), the 
Secretary may provide, instead of the amount of payment otherwise 
provided under this part, for payment of such an amount or 
amounts as reasonably reflects the general cost of efficiently provid-
ing such services.". 
(c) Section 1881(b) of such Act is amended by adding at the end 
thereof the following new paragraph: 
"(11) Hepatitis B vaccine and its administration, when pro-
vided to a patient determined to have end stage renal disease, 
shall not be included as dialysis services for purposes of pay-
ment under any prospective payment amount or comprehensive 
fee established under this section. Payment for such vaccine 
and its administration shall be made separately in accordance 
with section 1833.". 
(d) The amendments made by this section apply to services fur-
nished on or after September 1,1984. 
(e) The Secretary shall monitor the provision of hepatitis B vac-
cine under part B of title XVIII of the Social Security Act, and shall 
review any changes in medical technology which may have an effect 
on the amounts which should be paid for such service. 
COVERAGE OF H E M O P H I U A CLOTTING FACTOR 
42 use I395x. 
SEC. 2324. (a) Section 1861(sX2) of the Social Security Act is 
j^, 
amended by striking out "and" at the end of subparagraph (G) and 
by adding at the end thereof the following new subparagraph: 
"(I) blood clotting factors, for hemophilia patients competent 
to use such factors to control bleeding without medical or other 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1087 
supervision, and items related to the administration of such 
factors, subject to utilization controls deemed necessary by the 
Secretary for the efficient use of such factors;". 
(b) The amendments made by subsection (a) shall be effective with 
respect to items and services purchased on or after the date of the 
enactment of this Act. 
Effective date. 
42 u s e 1395x 
note. 
PAYMENT FOR DEBRIDEMENT OF MYCOTIC TOENAILS 
SEC. 2325. The Secretary shall provide, pursuant to section 1862(a) 
of the Social Security Act, that payment will not be made under part 
B of title XVIII of such Act for a physician's debridement of mycotic 
toenails to the extent such debridement is performed for a patient 
more frequently than once every 60 days, unless the medical necessi-
ty for more frequent treatment is documented by the billing 
physician. 
42 u s e 1395y 
note. 
42 u s e 1395y. 
42 u s e 1395J. 
CONTRACTS FOR MEDICARE CLAIMS PROCESSING 
SEC. 2326. (a) During each of the fiscal years 1985 and 1986, the 
Secretary of Health and Human Services may enter into not more 
than two agreements under section 1816 of the Social Security Act, 
and not more than two contracts under section 1842 of such Act, on 
the basis of competitive bidding, without regard to the nominating 
process under section 1816(a) of such Act during the term of the 
agreement. Such procedure may be used only for the purpose of 
replacing an agency or organization or carrier which over a period 
of time has been in the lowest 20th percentile of agencies and 
organizations or carriers having agreements or contracts under the 
respective section, as measured by the Secretary's cost and perform-
ance criteria. Any agency or organization or carrier selected on the 
basis of competitive bidding must perform all of the duties listed in 
section 1816(aXl) of such Act, or the duties listed in paragraphs (1) 
through (4) of section 1842(a) of such Act, as the case may be, and 
must be a health insuring organization (as determined by the 
Secretary). 
Ot)) Section 1816(eX4) of the Social Security Act is amended by 
adding at the end thereof the following new sentence: "By not later 
than July 1, 1987, the Secretary shall limit the number of such 
regional agencies or organizations to not more than ten.". 
(cXD Section 1816(f) of such Act is amended by striking out ", by 
regulation," in clause (2), and by adding at the end thereof the 
following: "Such standards and criteria shall be published in the 
Federal Register, and opportunity shall be provided for public com-
ment prior to implementation.". 
(2) Section 1842(bX2) of such Act is amended by adding at the end 
thereof the following new sentence: "The Secretary shall publish in 
the Federal Register standards and criteria for the efficient and 
effective performance of contract obligations under this section, and 
opportunity shall be provided for public comment prior to 
implementation.". 
(dXD Section 1816(c) of such Act is amended by adding at the end 
the following new sentence: "The Secretary shall provide that in 
determining the necessary and proper cost of administration, the 
Secretary shall, with respect to each agreement, take into account 
the amount that is reasonable and adequate to meet the costs which 
42 u s e 1395h 
note. 
42 u s e 1395h,. 
42 u s e 1395u, 
42 u s e 1395h. 
Federal 
Register, 
publication. 
42 u s e 1395u. 
Federal 
Register, 
publication. 
42 u s e 1395h. 
98 STAT. 1088 
PUBLIC LAW 98-369—JULY 18, 1984 
42 u s e 1395u. 
Effective date. 
42 u s e 1395h 
note. 
Study. 
42 u s e 1395h, 
1395U. 
Report. 
must be incurred by an efficiently and economically operated 
agency or organization in carrying out the terms of its agreement.". 
(2) Section 1842(c) of such Act is amended by adding at the end the 
following new sentence: "The Secretary shall provide that in deter-
mining a carrier's necessary and proper cost of administration, the 
Secretary shall, with respect to each contract, take into account the 
amount that is reasonable and adequate to meet the costs which 
must be incurred by an efficiently and economically operated car-
rier in carrying out the terms of its contract.". 
(3) The amendments made by this subsection shall apply to agree-
ments and contracts entered into or renewed after September 30, 
1984. 
(e)(1) The Comptroller General shall conduct a study on— 
(A) the ability of the Administrator of the Health Care Fi-
nancing Administration to manage competitive bidding for 
agreements and contracts under sections 1816 and 1842 of the 
Social Security Act, and on the relative costs and efficiency of 
such competitive agreements and contracts as compared to 
current cost reimbursement for such agreements and contracts; 
(B) the need (if any) for eliminating the provider nomination 
procedure under section 1816(a) of such Act; 
(C) the disparities (if any) in costs and quality of claims 
processing among the various entities performing claims proc-
essing pursuant to sections 1816 and 1842 of such Act; 
(D) whether the standards of the Secretary of Health and 
Human Services for evaluating costs and performance of inter-
mediaries and carriers are adequate and properly applied; and 
(E) whether the Secretary's statutory authority is sufficient to 
deal with inefficient intermediaries and carriers either through 
the contract negotiation and budget review process or through 
the process for termination or nonrenewal of contracts. 
(2) The Comptroller General shall submit a report on the results 
of such study to the Congress not later than 12 months after the 
date of the enactment of this Act. 
42 u s e 1310. 
42 u s e 1395b-l. 
Effective date. 
42 u s e 1310 
note. 
PART II—ADMINISTRATIVE AND MISCELLANEOUS 
CHANGES 
REPEAL OF EXCLUSION OF FOR-PROFIT ORGANIZATIONS FROM RESEARCH 
AND DEMONSTRATION GRANTS 
SEC. 2331. (a) Section 1110(a)(1) of the Social Security Act is 
amended by striking out "nonprofit". 
(b) The first sentence of section 402(a)(1) of the Social Security 
Amendments of 1967 (Public Law 90-248) is amended by striking out 
"nonprofit". 
(c) The amendments made by this section shall become effective 
on the date of the enactment of this Act. 
PRESIDENTIAL APPOINTMENT OF AND PAY LEVEL FOR THE 
ADMINISTRATOR OF THE HEALTH CARE FINANCING ADMINISTRATION 
SEC. 2332. (a) Title XI of the Social Security Act is amended by 
inserting after section 1116 the following new section: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1089 
APPOINTMENT OF THE ADMINISTRATOR OF THE HEALTH CARE 
FINANCING ADMINISTRATION 
"SEC. 1117. The Administrator of the Health Care Financing 42 USC 1317 
Administration shall be appointed by the President by and with the 
advice and consent of the Senate.". 
(b) Section 5315 of title 5, United States Code, is amended by 
adding at the end thereof the following: 
"Administrator of the Health Care Financing Administration.". 
(c) The amendments made by this section shall apply to appoint-
ments made after the date of the enactment of this Act. 
Effective date. 
42 USC 1317 
note. 
42 USC 1396. 
EXCLUSION OF CERTAIN ENTITIES OWNED OR CONTROLLED BY 
INDIVIDUALS CONVICTED OF MEDICARE- OR MEDICAID-RELATED CRIMES 
SEC. 2333. (a) Section 1128 of the Social Security Act is amended— 42 USC i320a-7. 
(1) by redesignating subsections (b), (c), and (d) as subsections 
(c), (d), and (e), respectively, and 
(2) by inserting after subsection (a) the following new subsec-
tion: 
"(b) Whenever the Secretary determines, with respect to an 
entity, that a person who has a direct or indirect ownership or 
control interest of 5 percent or more in the entity, or who is an 
officer, director, agent, or managing employee (as defined in section 
1126(b)) of such entity, is a person described in section 1126(a), the 42 USC i320a-5. 
Secretary— 
"(1) may bar from participation in the program under title 
XVIII, for such period as he may deem appropriate, each such 42 USC 1395. 
entity otherwise eligible to participate in such program; 
"(2) shall promptly notify each appropriate State agency ad-
ministering or supervising the administration of a State plan 
approved under title XIX of the fact and circumstances of the 
determination, and may require each such agency to bar the 
entity from participation under the State plan for such period 
as he specifies, which may not exceed the period established 
pursuant to paragraph (1); and 
"(3) shall promptly notify the appropriate State or local 
agency or authority having responsibility for the licensing or 
certification of such entity of the fact and circumstances of such 
determination, request that appropriate investigations be made 
and sanctions invoked in accordance with applicable State law 
and policy, and request that such State or local agency or 
authority keep the Secretary and the Inspector General of the 
Department of Health and Human Services fully and currently 
informed with respect to any actions taken in response to such 
request.". 
(b) Section 1128(e) of such Act (as redesignated by subsection (aXD) 
is amended— 
(1) by inserting "or entity" after "Any person", and 
(2) by striking out "(a) or (b)" and inserting in lieu thereof 
"(a), (b), or (c)". 
(c) The amendments made by this section become effective on the 
date of the enactment of this Act and shall apply to convictions of 
persons occurring after such date. 
Effective date. 
42 USC 1320a-7 
note. 
98 STAT. 1090 
PUBLIC LAW 98-369—JULY 18, 1984 
PROVIDER REPRESENTATION IN PEER REVIEW ORGANIZATIONS 
42 use 1320C-2. 
SEC. 2334. (a) Section 1153(b)(3) of the Social Security Act is 
amended by inserting "(A)" after "(3)" and by adding at the end 
thereof the following new subparagraph: 
"(B) For purposes of subparagraph (A), an entity shall not be 
considered to be affiliated with a health care facility or association 
of facilities by reason of management, ownership, or common con-
trol if the management, ownership, or common control consists only 
of not more than 20 percent of the members of the governing board 
of the entity being affiliated (through management, ownership, or 
common control) with one or more of such facilities or associations.". 
(b) Section 1153(b)(2)(A) of such Act is amended— 
(1) by striking out "an entity which directly" and inserting in 
lieu thereof "an entity (other than a self-insured employer) 
which directly"; and 
(2) by adding at the end thereof the following new sentence: 
"For purposes of this paragraph, an entity shall not be consid-
ered to be affiliated with another entity which makes payments 
(directly or indirectly) to any practitioner or provider, by reason 
of management, ownership, or common control, if the manage-
ment, ownership, or common control consists only of one indi-
vidual member of the governing board being affiliated (through 
management, ownership, or common control) with a health 
maintenance organization or competitive medical plan which is 
an 'eligible organization' as defined in section 1876(b).". 
(c) The amendments made by this section shall become effective 
on the date of the enactment of this Act. 
REPEAL OF SPECIAL TUBERCULOSIS TREATMENT REQUIREMENTS UNDER 
MEDICARE AND MEDICAID 
SEC. 2335. (a) Section 1814(a) of the Social Security Act is 
amended— 
(1) in paragraph (2), by striking out subparagraph (B) and 
redesignating subparagraphs (C), (D), and (E) as subparagraphs 
(B), (C), and (D), respectively; 
(2) in paragraph (3), by striking out "and inpatient tuberculo-
sis hospital services"; 
(3) by striking out paragraph (5) and redesignating para-
graphs (6), (7), and (8) as paragraphs (5), (6), and (7), respectively; 
and 
(4) in the matter following paragraph (7) (as so redesignated), 
by striking out "(D), or (E)" and inserting in lieu thereof "or 
(D)". 
42 use I395x. 
Ot)Xl) Subsections (d) and (g) of section 1861 of such Act are 
repealed. 
(2) The fifth sentence of section 1861(e) of such Act is amended by 
striking out "or tuberculosis unless it is a tuberculosis hospital (as 
defined in subsection (g)) or". 
(3) Section 1861(j) of such Act is amended in the matter following 
paragraph (15) by striking out "or tuberculosis". 
42 use I395z.. 
(c) Section 1863 of such Act is amended by striking out "(g)(4),". 
42 use 1
3
9
5
C
C
. 
(d) Section 1866 of such Act is amended— 
(1) in subsection (b)(3), by striking out "tuberculosis hospital 
services and"; and 
42 u s e 1395mm. 
Effective date. 
42 u s e 1320C-2 
note. 
42 u s e 1395f 
PUBLIC LAW 98-369—JULY 18, 1984 
STAT. 1091 
(2) in subsection (d), by striking out "inpatient tuberculosis 
hospital services and". 
(e) Section 1902(a)(28) of such Act is amended by striking out "and 
tuberculosis". 
(f) Section 1905(a) of such Act is amended by striking out "tubercu-
losis or" each place it appears in paragraphs (1), (4)(A), (14), and (15) 
and in the subdivision (B) after paragraph (18). 
(g) The amendments made by this section shall become effective 
on the date of the enactment of this Act. 
ACCESS TO HOME HEALTH SERVICES 
SEC. 2336. (a) Sections 1814(a) and 1835(a) of the Social Security 
Act are each amended by adding at the end the following new 
sentence: "For purposes of the preceding sentence, service by a 
physician as an uncompensated officer or director of a home health 
agency shall not constitute having a significant ownership interest 
in, or a significant financial or contractual relationship with, such 
agency.". 
(b) The third sentence of section 1814(a) of the Social Security Act 
and the fourth sentence of section 1835(a) of such Act are each 
amended by inserting before the period at the end the following: ", 
except that such prohibition shall not apply with respect to a home 
health agency which is a sole community home health agency (as 
determined by the Secretary)". 
(cXD The amendments made by subsection (a) shall apply to 
certifications and plans of care made or established on or after the 
date of the enactment of this Act. 
(2) The Secretary shall provide, not later than 90 days after the 
date of the enactment of this Act, for such revision of regulations as 
may be required to reflect the amendments made by subsection Ot)). 
NORMALIZATION OF TRUST FUND TRANSFERS 
SEC. 2337. (a) Section 1817(a) of the Social Security Act is 
amended— 
(1) by striking out "monthly on the first day of each calendar 
month ' in the next to last sentence and inserting in lieu thereof 
"from time to time", 
(2) by striking out "to be paid to or deposited into the Treas-
ury during such month" in such sentence and inserting in lieu 
thereof "paid to or deposited into the Treasury", and 
(3) by striking out the last sentence. 
(b) The amendments made by subsection (a) shall become effective 
on the first day of the month following the month in which this Act 
is enacted. 
42 u s e 1396a. 
42 u s e 1396d. 
Effective date. 
42 u s e 1395f 
note. 
42 u s e 1395f, 
1395n. 
Effective date. 
42 u s e 1395f 
note. 
Effective date. 
42 u s e 1395f 
note. 
97 Stat. 98. 
42 u s e 1395i. 
Effective date. 
42 u s e 1395i 
note. 
ENROLLMENT AND PREMIUM PENALTY WITH RESPECT TO WORKING 
AGED PROVISION 
SEC. 2338. (a) The second sentence of section 1839(b) of the Social 
Security Act is amended by adding before the period at the end the 
following: ", but there shall not be taken into account months in 
which the individual has met the conditions specified in clauses (i) 
and (iii) of section 1862(b)(3)(A) and can demonstrate that the indi-
vidual was enrolled in a group health plan described in clause (iv) of 
such section by reason of the individual's (or the individual's 
spouse's) current employment". 
97 Stat. 170. 
42 u s e 1395r. 
42 u s e 1395y. 
98 STAT. 1092 
PUBLIC LAW 98-369—JULY 18, 1984 
42 use I395p. 
(b) Section 1837 of such Act is amended by adding at the end the 
following new subsection: 
"(iXl) In the case of an individual who— 
"(A) meets the conditions described in clauses (i) and (iii) of 
42 use I395y. 
section 1862(bX3XA), 
42 use 13950. 
"(B) at the time the individual first satisfies paragraph (1) or 
(2) of section 1836, is enrolled in a group health plan described 
in section 1862(bX3XAXiv) by reason of the individual's (or the 
individual's spouse's) current employment, and 
"(C) has elected not to enroll (or to be deemed enrolled) under 
this section during the individual's initial enrollment period, 
there shall be a special enrollment period described in paragraph 
(3). 
"(2) In the case of an individual who— 
"(A) meets the conditions described in clauses (i) and (iii) of 
section 1862(bX3XA), 
"(B) has enrolled (or has been deemed to have enrolled) in the 
medical insurance program established under this part during 
the individual's initial enrollment period and any subsequent 
special enrollment period under this subsection during which 
the individual was not enrolled in a group health plan described 
in section 1862(bX3XAXiv) by reason of the individual's (or indi-
vidual's spouse's) current employment, and 
"(C) has not terminated enrollment under this section at any 
time at which the individual is not enrolled in such a group 
health plan by reason of the individual's (or individual's 
spouse's) current employment, 
there shall be a special enrollment period described in paragraph 
(3). 
"(3) The special enrollment period referred to in paragraphs (1) 
and (2) is the period— 
"(A) beginning with the first day of the third month before 
the month in which the individual attains the age of 70 and 
ending seven months later, or 
"(B) beginning with the first day of the first month in which 
the individual is no longer enrolled in a group health plan 
described in section 186203X3XAXiv) by reason of current em-
ployment and ending seven months later, 
whichever period results in earlier coverage.". 
42 use I395q. 
(c) Section 1838 of such Act is amended by adding at the end the 
following new subsection: 
"(e) Notwithstanding subsection (a), in the case of an individual 
who enrolls during a special enrollment period pursuant to— 
Supra. 
"(1) subparagraph (A) of section 1837(iX3)— 
"(A) before the month in which he attains the age of 70, 
the coverage period shall begin on the first day of the 
month in which he has attained the age of 70, or 
"(B) in or after the month in which he attains the age of 
70, the coverage period shall begin on the first day of the 
month following the month in which he so enrolls; or 
"(2) subparagraph (B) of section 1837(iX3)— 
"(A) in the first month of the special enrollment period, 
the coverage period shall begin on the first day of such 
month, or 
"(B) in a month after the first month of the special 
enrollment period, the coverage period shall begin on the 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1093 
first day of the month following the month in which he so 
enrolls.". 
(d)(1) The amendment made by subsection (a) shall apply to 
months beginning with January 1983 for premiums for months 
beginning with the first month which begins more than 30 days 
after the date of the enactment of this Act. 
(2)(A) The amendments made by subsections (b) and (c) shall apply 
to enrollments in months beginning with the first effective month, 
except that in the case of any individual who would have had a 
special enrollment period under section 1837(i) of the Social Security 
Act that would have begun before such first effective month, such Ante, p. 1092 
period shall be deemed to begin with the first day of such first 
effective month. 
(B) For purposes of subparagraph (A), the term "first effective 
month" means the first month which begins more than 90 days after 
the date of the enactment of this Act. 
Effective date. 
42 use 1395r 
note. 
Effective date. 
42 use 1395p 
note. 
INDIRECT PAYMENT OF SUPPLEMENTARY MEDICAL INSURANCE BENEFITS 
SEC. 2339. (a) The first sentence of section 1842a))(6) of the Social 
Security Act, as redesignated by section 2306 of this title, is Ante, p. 1070. 
amended— 
(1) by inserting "(i)" after "(A)", 
(2) by striking out "(B)" and inserting in lieu thereof "(ii)", 
and 
(3) by inserting before the period the following: ", or (B) to an 
entity (i) which provides coverage of the services under a health 
, :; 
benefits plan, but only to the extent that payment is not made 
under this part, (ii) which has paid the person who provided the 
service an amount (including the amount payable under this 
part) which that person has accepted as payment in full for the 
service, and (iii) to which the individual has agreed in writing 
that payment may be made under this part'. 
O
t
>
) The second sentence of such section is amended by striking out 
"or (B)". 
CERTIFICATION OF PSYCHIATRIC HOSPITALS 
SEC. 2340. (a) Section 1861(f) of the Social Security Act is 42USei395x. 
amended— 
(1) by adding "and" at the end of paragraph (3); 
(2) by striking out "; and" at the end of paragraph (4) and 
inserting in lieu thereof a period; 
(3) by striking out paragraph (5); and 
(4) in the second sentence, by striking out "if the institution is 
accredited" and all that follows through "Secretary". 
(b) Section 1905(h)(1)(A) of such Act is amended to read as follows: 42 use I396d. 
"(A) inpatient services which are provided in an institution 
(or distinct part thereof) which is a psychiatric hospital as 
defined in section 1861(f);". 
(c) The amendments made by this section shall become effective Effective date. 
on the date of the enactment of this Act. 
42 use 1395x 
note. 
i:t-
98 STAT. 1094 
PUBLIC LAW 98-369—JULY 18, 1984 
42 u s e 1395x. 
42 u s e 1395k. 
42 u s e 1395x. 
Effective date. 
42 u s e 1395k 
note. 
42 u s e 1395x. 
42 u s e 1395n. 
Effective date. 
42 u s e 1395n 
note. 
42 u s e 1395x. 
INCLUDING PODIATRISTS IN DEFINITION OF 
PHYSICIAN 
FOR OUTPA-
TIENT PHYSICAL THERAPY SERVICES AND INCLUDING PODIATRISTS 
AND DENTISTS IN DEFINITION OF "PHYSICIAN" FOR OUTPATIENT 
AMBULATORY SURGERY 
SEC. 2341. (a) Section 1861(pXl) of the Social Security Act is 
amended by striking out "section 1861(rXl)" and inserting in lieu 
thereof "paragraph (1) or (3) of section 1861(r)". 
(b) Section 1832(a)(2XFXii) of such Act is amended by striking out 
"section 1861(rXl)" and inserting in lieu thereof "paragraph (1), (2), 
or (3) of section 1861(r)". 
(c) Section 1861(rX3) of such Act is amended— 
(1) by striking out "and (m)" the first place it appears and 
inserting in lieu thereof ", (m), and (pXD", and 
(2) by inserting ", 1832(aX2XFXii)," after "1814(a)" the first 
place it appears. 
(d) The amendments made by this section apply to services fur-
nished on or after the date of the enactment of this Act. 
E S T A B U S H M E N T BY PHYSICAL THERAPISTS OF PLANS FOR PHYSICAL 
THERAPY 
SEC. 2342. (a) Section 1861(pX2) of the Social Security Act is 
amended by striking out ", and is periodically reviewed, by a 
physician (as so defined)" and inserting in lieu thereof "by a physi-
cian (as so defined) or by a qualified physical therapist and is 
periodically reviewed by a physician (as so defined)". 
(b) Section 1835(aX2XCXii) of such Act is amended by striking out 
", and is periodically reviewed, by a physician" and inserting in lieu 
thereof "by a physician or by the qualified physical therapist provid-
ing such services and is periodically reviewed by a physician". 
(c) The amendments made by this section apply to plans of care 
established on or after the date of the enactment of this Act. 
HOSPICE CONTRACTING FOR CORE SERVICES 
SEC. 2343. (a) Section 1861(ddX2XAXiiXI) of the Social Security Act 
is amended by inserting "except as otherwise provided in paragraph 
(5)," before "and" at the end thereof. 
(b) Section 1861(dd) of such Act is amended by adding at the end 
thereof the following new paragraph: 
"(5XA) The Secretary may waive the requirements of paragraph 
(2XA)(ii)(I) for an agency or organization with respect to all or part of 
the nursing care described in paragraph (IXA) if such agency or 
organization— 
"(i) is located in an area which is not an urbanized area (as 
defined by the Bureau of the C!ensus); 
"(ii) was in operation on or before January 1, 1983; and 
"(iii) has demonstrated a good faith effort (as determined by 
the Secretary) to hire a sufficient number of nurses to provide 
such nursing care directly. 
"(B) Any waiver, which is in such form and containing such 
information as the Secretary may require and which is requested by 
an agency or organization under subparagraph (A), shall be deemed 
to be granted unless such request is denied by the Secretary within 
60 days after the date such request is received by the Secretary. The 
granting of a waiver under subparagraph (A) shall not preclude the 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1095 
granting of any subsequent waiver request should such a waiver 
again become necessary.". 
(c) The amendments made by subsections (a) and (b) shall become 
effective on the date of the enactment of this Act. 
(d) The Secretary of Health and Human Services shall conduct a 
study of the necessity and appropriateness of the requirements that 
certain "core" services be furnished directly by a hospice, as 
required under section 1861(ddX2)(A)(iiXI) of the Social Security Act. 
The Secretary shall report the results of such study to the Congress 
with the report required under section 122(i)(l) of the Tax Equity 
and Fiscal Responsibility Act of 1982. 
MEDICARE RECOVERY AGAINST CERTAIN THIRD PARTIES 
Effective date. 
42 u s e 1395x 
note. 
42 u s e 1395x 
note. 
42 u s e 1395x. 
Report. 
42 u s e 1395f 
note. 
SEC 2344. (a) Section 1862(b)(1) of the Social Security Act is 42 use I395y. 
amended— 
(1) in the first sentence, by inserting "promptly" after "to be 
made"; 
(2) in the second sentence, by inserting "or could be" after 
"has been"; and 
(3) by inserting after the second sentence the following new 
sentences: "In order to recover payment made under this title 
for an item or service, the United States may bring an action 
against any entity which would be responsible for payment with 
respect to such item or service (or any portion thereof) under 
such a law, policy, plan, or insurance, or against any entity 
(including any physician or provider) which has been paid with 
respect to such item or service under such law, policy, plan, or 
insurance, and may join or intervene in any action related to 
the events that gave rise to the need for such item or service. 
The United States shall be subrogated (to the extent of payment 
made under this title for an item or service) to any right of an 
individual or any other entity to payment with respect to such 
item or service under such a law, policy, plan, or insurance.". 
(b) Section 1862(b)(2)(B) of such Act is amended— 
(1) in the first sentence, by inserting "or could be" after "has 
been"; and 
(2) by inserting after the first sentence the following new 
sentences: "In order to recover payment made under this title 
for an item or service, the United States may bring an action 
against any entity which would be responsible for payment with 
respect to such item or service (or any portion thereof) under 
such a plan, or against any entity (including any physician or 
provider) which has been paid with respect to such item or 
service under such plan, and may join or intervene in any 
action related to the events that gave rise to the need for such 
item or service. The United States shall be subrogated (to the 
extent of payment made under this title for an item or service) 
to any right of an individual or any other entity to payment 
with respect to such item or service under such a plan.". 
(c) Section 1862(b)(3)(A)(ii) of such Act is amended— 
(1) in the first sentence, by inserting "or could be" after "has 
been"; and 
(2) by inserting after the first sentence the following new 
sentences: "In order to recover payment made under this title 
for an item or service, the United States may bring an action 
against any entity which would be responsible for payment with 
98 STAT. 1096 
PUBLIC LAW 98-369—JULY 18, 1984 
Effective date. 
42 u s e 1395y 
note. 
42 u s e 1395bb. 
Effective date. 
42 u s e 1395bb 
note. 
respect to such item or service (or any portion thereof) under 
such a plan, or against any entity (including any physician or 
provider) which has been paid with respect to such item or 
service under such plan, and may join or intervene in any 
action related to the events that gave rise to the need for such 
item or service. The United States shall be subrogated (to the 
extent of payment made under this title for an item or service) 
to any right of an individual or any other entity to payment 
with respect to such item or service under such a plan.", 
(d) The amendments made by this section shall apply to items and 
services furnished on or after the date of the enactment of this Act. 
CONFIDENTIAUTY OF ACCREDITATION SURVEYS 
SEC. 2345. (a) Section 1865(a) of the Social Security Act is 
amended— 
(1) in paragraph (2), by striking out "(on a confidential basis)"; 
and 
•' 
(2) by adding at the end thereof the following new sentence: 
"The Secretary may not disclose any accreditation survey made 
and released to him by the Joint Commission on Accreditation 
of Hospitals, the American Osteopathic Association, or any 
other national accreditation body, of an entity accredited by 
such body.", 
(b) The amendments made by this section shall become effective 
on the date of the enactment of this Act, and shall apply with 
respect to surveys released to the Secretary on, before, or after such 
date. 
Effective date. 
42 u s e 1395bb. 
note. 
97 Stat. 163. 
42 u s e 1395cc. 
42 u s e 1320c. 
97 Stat.163. 
42 u s e 1395cc 
and note. 
42 u s e 1395cc 
note. 
USE OF ADDITIONAL ACCREDITING ORGANIZATIONS UNDER MEDICARE 
SEC. 2346. (a) The third sentence of section 1865(a) of the Social 
Security Act is amended— 
(1) by striking out "section 1861(e), (j), (o), or (dd)" and insert-
ing in lieu thereof "section 1832(aX2XFXi), 1861(e), 1861(f), 
1861(j), 1861(o), 1861(pX4XA) or (B), paragraphs (11) and (12) of 
'- section 1861(s), section 1861(aaX2), 1861(ccX2), or 1861(ddX2)"; 
and 
(2) by striking out "institution or agency" each place it ap-
pears and inserting in lieu thereof in each instance "entity'. 
(b) The amendments made by this section shall become effective 
on the date of the enactment of this Act. 
FUNDING FOR PSRO REVIEW 
SEC. 2347. (aXD Section 1866(aXlXF) of the Social Security Act is 
amended by striking out "maintain an agreement" and all that 
follows through "under which the organization", and inserting in 
lieu thereof "maintain an agreement with a professional standards 
review organization (if there is such an organization in existence in 
the area in which the hospital is located) or with a utilization and 
quality control peer review organization which has a contract with 
the Secretary under part B of title XI for the area in which the 
hospital is located, under which the organization". 
(2) Section 602(1X1) of the Social Security Amendments of 1983 is 
repealed. 
(b) Notwithstanding section 604(aX2) of the Social Security 
Amendments of 1983, the requirement that a hospital maintain an 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1097 
agreement with a utilization and quality control peer review organi-
zation, as contained in section 1866(aXlXF) of the Social Security 
Act, shall become effective on November 15,1984. 
97 Stat. 163. 
(cXD Section 1153(bX2XA) of the Social Security Act is amended by 
42 USC i320c-2. 
striking out "During the first twelve months in which the Secretary 
is entering into contracts under this section" and inserting in lieu 
thereof "Prior to November 15,1984". 
(2) Section 1153(bX2XB) of such Act is amended by striking out 
"after the expiration of the twelve-month period referred to in 
subparagraph (A)" and inserting in lieu thereof "after November 14, 
1984". 
(3) Section 1153(bX2) of such Act is amended by striking out 97 Stat. 163. 
suljparagraph (C). 
(d) The provisions of, and amendments made by, this section shall 
become effective on the date of the enactment of this Act. 
Effective date. 
42 USC 1320C-2 
note. 
PAYMENT FOR SERVICES FOLLOWING TERMINATION OF PARTICIPATION 
AGREEMENTS WITH HOME HEALTH AGENCIES OR HOSPICE PROGRAMS 
SEC. 2348. (a) Section 1866(bX4XB) of the Social Security Act is 42 use I395cc. 
amended by striking out "after the calendar year in which such 
termination is effective" and inserting in lieu thereof "more than 30 
days after such effective date". 
(b) The amendment made by this section shall apply to termina 
tions issued on or after the date of the enactment of this Act 
Effective date. 
42 USC 1395CC 
note. 
E U M I N A T I O N O F HEALTH I N S U R A N C E BENEFITS ADVISORY COUNCIL 
SEC. 2349. (a) Section 1867 of the Social Security Act is repealed. 
Ot)Xl) The first sentence of section 1863 of such Act is amended by 
striking out "the Health Insurance Benefits Advisory Council estab-
lished by section 1867, appropriate State agencies," and inserting in 
lieu thereof "appropriate State agencies". 
(2) The first sentence of section 7(dX4) of the Railroad Retirement 
Act of 1974 is amended by striking out "1867,". 
(3) Section 361 of the Social Security Amendments of 1977 (Public 
Law 95-216) is amended by striking out subsection (i). 
(c) The amendments made by this section shall become effective 
on the date of the enactment of this Act. 
HEALTH M A I N T E N A N C E ORGANIZATIONS AND COMPETITIVE MEDICAL 
PLANS 
42 USC 1395dd. 
42 USC 1395z. 
45 USC 23 If 
42 USC 907a. 
Effective date. 
42 USC 907a 
note. 
SEC. 2350. (aXD Section 1876(cX3XA) of the Social Security Act is 42 use I395mm. 
amended— 
(A) by inserting "(i)" after "(3XA)", 
(B) by inserting "and including the 30-day period specified 
under clause (ii)" after "30 days duration every year", and 
(C) by adding at the end thereof the following new clause: 
"(ii) For each area served by more than one eligible organization 
under this section, the Secretary (after consultation with such orga-
nizations) shall establish a single 30-day period each year during 
which all eligible organizations serving the area must provide for 
-
open enrollment under this section. The Secretary shall determine 
annual per capita rates under subsection (aXlXA) in a manner that 
assures that individuals enrolling during such a 30-day period will 
not have premium charges increased or any additional benefits 
decreased for 12 months beginning on the date the individual's 
98 STAT. 1098 
PUBLIC LAW 98-369—JULY 18, 1984 
42 u s e 1395mm 
note. 
42 u s e 1395mm. 
Effective date. 
42 u s e 1395mm 
note. 
Report. 
42 u s e 1395mm. 
Effective date. 
42 u s e 1395mm 
note. 
enrollment becomes effective. An eligible organization may provide 
for such other open enrollment period or periods as it deems appro-
priate consistent with this section.". 
(2) The Secretary of Health and Human Services may phase in, 
over a period of not longer than three years, the application of the 
amendments made by paragraph (1) to all applicable areas in the 
United States if the Secretary determines that it is not administra-
tively feasible to establish a single 30-day open enrollment period for 
all such applicable areas before the end of the period. 
(b)(1) The first sentence of section 1876(g)(2) of such Act is amend-
ed by inserting before the period at the end thereof the following: 
"and except that an organization (with the approval of the Secre-
tary) may provide that a part of the value of such additional benefits 
be withheld and reserved by the Secretary as provided in paragraph 
(5)". 
(2) Section 1876(g) of such Act is amended by adding at the end 
thereof the following new paragraph: 
"(5) An organization having a risk-sharing contract under this 
section may (with the approval of the Secretary and during a period 
of not longer than four years) provide that a part of the value of 
additional benefits otherwise required to be provided by reason of 
paragraph (2) be withheld and reserved in the Federal Hospital 
Insurance Trust Fund and in the Federal Supplementary Medical 
Insurance Trust Fund (in such proportions as the Secretary deter-
mines to be appropriate) by the Secretary for subsequent annual 
contract periods, to the extent required to stabilize and prevent 
undue fluctuations in the additional benefits offered in those subse-
quent periods by the organization in accordance with paragraph (3). 
Any of such value of additional benefits which is not provided to 
members of the organization in accordance with paragraph (3) prior 
to the end of such period, shall revert for the use of such trust 
funds.". 
(3) The Secretary of Health and Human Services may not approve 
the establishment of a stabilization fund by an eligible organization 
under section 1876(g)(5) of the Social Security Act for any contract 
period beginning later than four years after the date of the enact-
ment of this Act. 
(4) The Secretary of Health and Human Services shall report to 
the Congress with respect to the use of stabilization funds by eligible 
organizations under section 1876(g)(5) of the Social Security Act, and 
shall assess the need for such funds. The report shall be submitted 
not later than 54 months after the month in which this Act is 
enacted. 
(c) Section 1876(g)(4)(A) of such Act is amended— 
(1) by inserting "and skilled nursing facilities" 
after 
"hospitals"; 
(2) by inserting "or other appropriate basis for payment estab-
lished under this title" after "section 1861(v))"; and 
(3) by striking out "hospital". 
(d) The amendments made by this section shall become effective 
on the date of the enactment of this Act. 
JUDICIAL REVIEW OF PROVIDER REIMBURSEMENT REVIEW BOARD 
DECISIONS 
42 u s e 139500. 
SEC. 2351. (a)(1) The third sentence of section 1878(f)(1) of the 
Social Security Act is amended by striking out "such determination 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1099 
is rendered" and inserting in lieu thereof "notification of such 
determination is received". 
(2) The amendment made by paragraph (1) shall be effective with 
respect to any civil action commenced on or after the date of the 
enactment of this Act. 
(bXD The last sentence of section 1878(fKl) of such Act is amended 
by inserting "or which have obtained a hearing under subsection 
(b)" after "common ownership or control". 
(2) The amendment made by paragraph (1) shall be effective with 
respect to any appeal or action brought on or after the date of the 
enactment of this Act. 
(c) Notwithstanding section 604 of the Social Security Amend-
ments of 1983 (Public Law 98-21)— 
(1) the amendments made by section 602(hX2)(A) of that Act 
shall be effective with respect to any appeal or action brought 
on or after April 20,1983; and 
(2) the amendments made by section 602(hX2XB) of that Act 
shall be effective with respect to any appeal or action brought 
on or after the date of the enactment of this Act. 
Effective date. 
42 u s e 139500 
note. 
42 u s e 139500. 
Effective date. 
42 u s e 139500 
note. 
Effective date. 
42 u s e 139500 
note. 
97 Stat. 168. 
97 Stat. 163. 
FLEXIBLE SANCTIONS FOR NONCOMPUANCE WITH REQUIREMENTS FOR 
END STAGE RENAL DISEASE FACIUTIES 
SEC. 2352. (a) Section 1881(cX3) of the Social Security Act is 42 use I395rr 
amended by adding at the end thereof the following new sentence: 
"If the Secretary determines that the facility's or provider's failure 
to cooperate with network plans and goals does not jeopardize 
patient health or safety or justify termination of certification, he 
may instead, after reasonable notice to the provider or facility and 
to the public, impose such other sanctions as he determines to be 
appropriate, which sanctions may include denial of reimbursement 
with respect to some or all patients admitted to the facility after the 
date of notice to the facility or provider, and graduated reduction in 
reimbursement for all patients.". 
(b) The amendment made by this section shall apply to determina-
tions made by the Secretary on or after the date of the enactment of 
this Act. 
Effective date. 
42 u s e 1395rr 
note. 
PAYMENTS TO PROMOTE CLOSURE AND CONVERSION OF UNDERUTILIZED 
HOSPITAL FACILITIES 
SEC. 2353. (a) The Secretary of Health and Human Services shall 
carry out a study and report to the Congress on the modifications 
required in section 1884 of the Social Security Act in order to 
conform the closure and conversion program authorized in that 
section to the prospective payment system under section 1886(d) of 
such Act, so as to provide assistance to hospitals which may have 
particular problems in converting facilities (or parts thereof) from 
acute care to less intensive care or in closing facilities (or parts 
thereof). The report shall include recommendations as to how, and 
whether, implementation of section 1884 as modified may result in 
reductions in total hospital inpatient costs and total expenditures 
under title XVIII of the Social Security Act. The Secretary shall 
submit the report prior to March 31, 1985. 
(b) During the period prior to March 31, 1985, and notwithstand-
ing section 2101(c) of the Omnibus Budget Reconciliation Act of 1981 
study and 
report. 
42 u s e 1395UU 
note. 
42 u s e 1395UU. 
97 Stat. 152. 
42 u s e 1395WW. 
42 u s e 1395. 
42 u s e 1395UU 
note. 
98 STAT. 1100 
PUBLIC LAW 98-369—JULY 18, 1984 
42 u s e 1395UU. 
42 u s e 1320a-l. 
42 use 
1320a-7a. 
42 u s e 1320a-
42 u s e 1301. 
42 u s e 1395f, 
1395n. 
42 u s e 1395i, 
1395t. 
42 u s e 1395i-2. 
42 u s e 1395/. 
42 u s e 1395k. 
42 u s e 1395/. 
42 u s e 1395n. 
(Public Law 97-35), the Secretary shall not implement section 1884 
of the Social Security Act. 
MISCELLANEOUS TECHNICAL CORRECTIONS RELATING TO MEDICARE 
SEC. 2354. (a)(1) Section 1122(b) of the Social Security Act is 
amended— 
(A) by striking out the period at the end of paragraph (1) and 
inserting in lieu thereof a comma, and 
(B) by striking out "(or the Mental Retardation Facilities and 
Community Mental Health Centers Construction Act of 1963)". 
(2) Section 1122(i)(3) of such Act is amended by striking out 
"5703(b)" and inserting in lieu thereof "5703". 
(3) Section 1128A(g) of such Act is amended by striking out 
"Professional Standards Review Organization" and inserting in lieu 
thereof "utilization and quality control peer review organization". 
(4) Section 1129(a) of such Act is amended by striking out "Sate" 
and inserting in lieu thereof "State". 
(5) The heading of title XI of such Act is amended by striking out 
"PROFESSIONAL STANDARDS REVIEW" and inserting in lieu 
thereof "PEER REVIEW". 
(b)(1) The last sentence of sections 1814(a) of such Act and the last 
sentence of section 1835(a) of such Act are each amended by striking 
out "contractural" and inserting in lieu thereof "contractual". 
(2) Sections 1817(c) and 1841(c) of such Act are each amended by 
striking out "under the Second Liberty Bond Act, as amended" and 
inserting in lieu thereof "under chapter 31 of title 31, United States 
Code". 
(3) Section 1818(c)(1) of such Act is amended by striking out "Act" 
and inserting in lieu thereof "section". 
(4) Section 1818(d)(2) of such Act is amended by striking out "if 
midway between multiples of $1" and inserting in lieu thereof ", if a 
multiple of 50 cents but not a multiple of $1,". 
(5) Section 1833(a)(2) of such Act is amended by indenting subpara-
graphs (A) and (B) two additional ems so as to align their left 
margins with the left margin of subparagraph (C) and by appropri-
ately further indenting the clauses and subclauses of such subpara-
graphs. 
(6) Section 1832(a)(2)(F)(ii)(II) of such Act is amended by striking 
out "Organization" and inserting in lieu thereof "organization". 
(7) Section 1833(a)(1) of such Act is amended by striking out "and" 
at the end thereof. 
(8) Section 1835(a)(2) of such Act is amended— 
(A) by striking out "and" at the end of subparagraphs (B) and 
(C), and 
(B) by indenting subparagraph (D) two additional ems so as to 
align its left margin with the left margin of subparagraph (C). 
(9) Section 1835(e) of such Act is amended— 
(A) by inserting "(i)" in paragraph (2) after "written assur-
ances that", 
(B) by striking out "(B)" in paragraph (2) and inserting in lieu 
r 
thereof "(ii)", 
(C) by striking out "return for" in paragraph (2) and inserting 
in lieu thereof "return of, and 
(D) by striking out "(1) such hospital" and "(2) the Secretary" 
and inserting in lieu thereof "(A) such hospital" and "(B) the 
Secretary", respectively. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1101 
(10) Section 1837(gXl) of such Act is amended by striking out 42 USC I395p. 
"section 226(a)(2XBr and "section 1839(e)" and inserting in lieu 
thereof "section 226(b)" and "section 1839(d)", respectively. 
(11) Sections 1840(dXl), 1840(dX2), and 1841(h) of such Act are each 42 USC 1395s, 
amended by striking out "Civil Service Commission" and inserting l^^St. 
in lieu thereof "Director of the Office of Personnel Management' 
each place it appears. 
(12) Section 1841(h) of such Act is amended by striking out "it" 
and inserting in lieu thereof "the Director". 
(13) Section 184203X3XBXiiXII) of such Act is amended by striking 42 USC I395u. 
out the period following "title". 
(14) The seventh sentence of section 1842(bX3) of such Act is 
amended by striking out "(i)" and "(ii)" and inserting in lieu thereof 
* 
"(I)" and "(II)", respectively. 
(15) Section 1843(dX3XB) of such Act is amended by striking out 42 use I395v. 
"1937" and inserting in lieu thereof "1974". 
(16) Section 1844(aXl)(BXii) of such Act is amended by striking out 42 use I395w. 
the period and inserting in lieu thereof "; plus". 
(17) Sections 1864(c) and 18750)) of such Act are each amended by 42 USC I395aa, 
striking out "the" after "Joint Commission on". 
1395/Z. 
(18) Section 1861(jX2) of such Act is amended by striking out 42 USC I395x. 
"provision of* and inserting in lieu thereof "provision for". 
(19) Section 1861(jX13) of such Act is amended by striking out "a 
nursing home" and inserting in lieu thereof "an institution". 
(20) Section 1861(u) of such Act is amended by striking out "or" 
before "home health agency". 
(21) Section 1861(vXl) of such Act is amended— 
(A) by redesignating the clause (B) in subparagraph (A) as 
-^ 
subparagraph (B) and by indenting the first line of such sub-
paragraph 2 spaces; 
(B) by aligning subparagraphs (C) and (D) flush with the left 
margin Ot)ut with appropriate indentation in the case of the 
clauses and subclauses of subparagraph (C)); and 
(C) by inserting a comma after "section 1832(aX2XBXi)" in 
-' 
subparagraph (D). 
(22) Section 1861(vXlXCXi) of such Act is amended by inserting a 
dash after "but only if", 
(23) Section 1861(vXlXEXii) of such Act is amended by striking out 
"uses" and inserting in lieu thereof "use". 
(24) Section 1861(vXlXI) of such Act is amended by striking out "to 
the Secretary, or upon request to the Comptroller General" in 
clauses (i) and (ii) and inserting in lieu thereof "by the Secretary, or 
upon request by the (]!omptroller General". 
(25) Section 1861(v)(3) of such Act is amended by striking out 
"semiprivate" and inserting in lieu thereof "semi-private". 
(26) Section 1861(zX2) of such Act is amended by striking out 
"subparagraph (1)" and inserting in lieu thereof "paragraph (1)". 
(27) Section 1861(aaX2XI) of such Act is amended bv striking out 
"utilization" and inserting in lieu thereof "utilization . 
(28) Section 1861(ccXlXF) of such Act is amended by striking out 
"self administered" and inserting in lieu thereof "self-adminis-
tered". 
(29) Section 1861(ccX2)(F) of such Act is amended by striking out 
"standard establishment" and inserting in lieu thereof "standards 
established". 
(30) Section 1862(aX12) of such Act is amended by striking out the 42 usc 1395y. 
second comma after "dental procedure". 
98 STAT. 1102 
PUBLIC LAW 98-369—JULY 18, 1984 
42 u s e 1395y. 
42 u s e 1395z. 
42 u s e 1395CC. 
42 u s e 1395ff. 
42 u s e 1395ii. 
42 u s e 1395mm. 
42 u s e 139500. 
42 u s e 1395rr. 
42 u s e 1395WW. 
42 u s e 1395f. 
42 u s e 1395x 
note. 
42 u s e 1316. 
42 u s e 1395mm 
note. 
42 u s e 1395mm 
note. 
42 u s e 1320c 
note. 
26 u s e 162. 
42 u s e 1320a-l 
note. 
• i< 
(31) Section 1862(b)(3)(A)(iii) of such Act is amended by inserting 
"before the month" after "ending with the month". 
(32) Section 1863 of such Act is amended by striking out "(j)(ll)" 
and inserting in Ueu thereof "(j)(15)". 
(33) Section 1866(a)(1)(E) of such Act is amended by adding at the 
end a comma. 
(34) Section 1866(b) of such Act is amended by moving the aUgn-
ment of paragraph (3) two ems to the left so as to aUgn its left 
margin with the left margin of paragraph (4). 
(35) Section 1869(b)(1)(B) of such Act is amended by striking out ", 
or section 1818, or section 1819" and inserting in lieu thereof "or 
section 1818". 
(36) Section 1872 of such Act is amended— 
(A) by striking out the comma after "206", and 
(B) by striking out "(f),". 
(37) Section 1876(b)(2)(D) of such Act is amended by striking out 
"paragraph (1)" and inserting in lieu thereof "subparagraph (A)". 
(38) Section 1876(c)(4)(A)(i) of such Act is amended by striking out 
"promptly as appropriate" and inserting in lieu thereof "with rea-
sonable promptness". 
(39) Section 1878(c) of such Act is amended by striking out "inad-
missable" and inserting in lieu thereof "inadmissible". 
(40) Section 1878(e) of such Act is amended by striking out ", (e), 
and (f)" and inserting in lieu thereof "and (e)". 
(41) Section 1881 of such Act is amended by striking out "end-
stage" and inserting in lieu thereof "end stage" each place it 
appears. 
(42) Section 1886(a)(2)(B) of such Act is amended by striking out 
"disportionate" and inserting in lieu thereof "disproportionate". 
(43) Section 1886(b)(3)(A)(ii) of such Act is amended by inserting 
"of after "in the case". 
(44) Section 1886(d)(3)(D)(i)(I) of such Act is amended by striking 
out "(C)," and inserting in lieu thereof "(C))". 
(c)(1)(A) Section 903(a)(4) of Public Law 96-499 is amended by 
striking out "new paragraph". 
(B) Section 937(c) of Public Law 96-499 is amended by striking out 
"on on" and inserting in lieu thereof "on or". 
(2) Section 2353(h)(1) of Public Law 97-35 is amended by striking 
out the comma after "XIX". 
(3)(A) Section 114(c)(2)(C)(ii) of Public Law 97-248 is amended by 
inserting "and enrolled under part B" after "part A". 
(B) Section 114(c)(3)(E) of Public Law 97-248 is amended— 
(i) by striking out "section 1833(a)(1) of the Social Security Act 
or", and 
(ii) by adding before the period at the end the following: ", or 
reimbursement on a reasonable cost basis under section 
1833(a)(1)(A) of such Act". 
(C) Section 149 of Public Law 97-248 is amended by striking out 
"part" and inserting in lieu thereof "subtitle". 
(d) Section 162(i)(2) of the Internal Revenue Code of 1954 is 
amended by striking out "213(e)" and inserting in lieu thereof 
"213(d)". 
(e)(1) Except as provided in paragraph (2), the amendments made 
by this section shall be effective on the date of the enactment of this 
Act; but none of such amendments shall be construed as changing or 
affecting any right, liability, status, or interpretation which existed 
(under the provisions of law involved) before that date. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1108 
(2) The amendments made by paragraphs (1), (2), and (3) of subsec-
tion (c) shall be effective as if they had been originally included in 
Public Laws 96-499, 97-35, and 97-248, respectively. 
WAIVERS FOR SOCIAL HEALTH MAINTENANCE ORGANIZATIONS 
94 Stat. 2599; 
95 Stat. 357. 
26 u s e 1 note. 
SEC. 2355. (a) In the case of a project described in subsection (b), 
the Secretary of Health and Human Services shall approve, with 
appropriate terms and conditions as defined by the Secretary, appli-
cations or protocols submitted for waivers described in subsection 
(c), and the evaluation of such protocols, in order to carry out such 
project. Such approval shsill be effected not later than 30 days after 
the date on which the application or protocol for a waiver is 
submitted or not later than 30 days after the date of the enactment 
of this Act in the case of an application or protocol submitted before 
the date of the enactment of this Act. 
Qa) A project referred to in subsection (a) is a project— 
(1) to demonstrate the concept of a social health maintenance 
organization with the organizations as described in Project No. 
18-P-9 7604/1—04 of the University Health Policy Consortium 
of Brandeis University; 
(2) which provides for the integration of health and social 
services under the direct financial management of a provider of 
services; 
(3) under which all medicare services will be provided by or 
under arrangements made by the organization at a fixed annual 
• 
prepaid capitation rate for medicare of 100 percent of the 
adjusted average per capita cost; 
(4) under which medicaid services will be provided at a rate 
approved by the Secretary; 
(5) under which all payors will share risk for no more than 
two years, with the organization being at full risk in the third 
year; 
(6) which is being provided funds under a grant provided by 
the Secretary of Health and Human Services; and 
(7) with respect to which substantial private funds are being 
provided other than under the grant referred to in paragraph 
(5). 
(c) The waivers referred to in subsection (a) are appropriate 
waivers of— 
(1) certain requirements of title XVIII of the Social Security 
Act, pursuant to section 402(a) of the Social Security Amend- 42 USC 1395. 
ments of 1967 (£is amended by section 222 of the Social Security 
Amendments of 1972); and 
(2) certain requirements of title XIX of the Social Security 
Act, pursuant to section 1115 of such Act. 
(dXD The Secretary of Health and Human Services shall submit a 
preliminary report to the Congress on the status of the projects and 
waivers referred to in subsection (a) 45 days after the date of the 
enactment of this Act. 
(2) The Secretary shall submit a final report to the Congress on Report 
the projects referred to in subsection (a) not later than 42 months 
after the date of the enactment of this Act. 
42 USC 1395b-l. 
42 USC 1396, 
1315. 
Report. 
98 STAT. 1104 
PUBLIC LAW 98-369—JULY 18, 1984 
Subtitle B—Medicaid and Maternal and Child 
Health Amendments 
42 u s e 1396a. 
42 u s e 301, 
1201, 1351, 1881, 
601, 670. 
Post, p. 1134. 
42 u s e 614. 
42 u s e 1396d. 
42 u s e 601. 
42 u s e 607. 
42 u s e 606. 
Effective date. 
42 u s e 1396a 
note. 
42 u s e 1396. 
MEDICAID COVERAGE FOR PREGNANT WOMEN AND CHILDREN 
SEC. 2361. (a) Clause (i) of section 1902(a)(10)(A) of the Social 
Security Act is amended to read as follows: 
"(i) all individuals— 
"(I) who are receiving aid or assistance under 
any plan of the State approved under title I, X, 
XIV, or XVI, or part A or part E of title IV 
(including individuals eligible under this title by 
reason of section 402(a)(37), or considered by the 
State to be receiving such aid as authorized under 
section 414(g)), 
"(II) with respect to whom supplemental security 
income benefits are being paid under title XVI, or 
"(III) who are qualified pregnant women or chil-
dren as defined in section 1905(n);". 
(b) Section 1905 of such Act is amended by adding at the end 
thereof the following new subsection: 
"(n) The term 'qualified pregnant woman or child' means— 
"(1) a pregnant woman who— 
"(A) would be eligible for aid to families with dependent 
children under part A of title IV (or would be eligible for 
such aid if coverage under the State plan under part A of 
title IV included aid to families with dependent children of 
unemployed parents pursuant to section 407) if her child 
had been born and was living with her in the month such 
aid would be paid, and such pregnancy has been medically 
verified; or 
"(B) is a member of a family which would be eligible for 
aid under the State plan under part A of title IV pursuant 
to section 407 if the plan required the payment of aid 
pursuant to such section; and 
"(2) a child who is under 5 years of age, who was born after 
September 30, 1983, and who meets the income and resources 
requirements of the State plan under part A of title IV.". 
(c) Section 406(g) of such Act is amended by striking out "(1)" after 
"(g)", by striking out paragraph (2), and by redesignating subpara-
graphs (A) and (B) as paragraphs (1) and (2). 
(d)(1) Except as provided in paragraph (2), the amendments made 
by this section shall apply to calendar quarters beginning on or after 
October 1, 1984, without regard to whether or not final regulations 
to carry out such amendments have been promulgated by such date. 
(2) In the case of a State plan for medical assistance under title 
XIX of the Social Security Act which the Secretary of Health and 
Human Services determines requires State legislation in order for 
the plan to meet the additional requirements imposed by the amend-
ments made by this section, the State plan shall not be regarded as 
failing to comply with the requirements of such title solely on the 
basis of its failure to meet these additional requirements before the 
first day of the first calendar quarter beginning after the close of the 
first regular session of the State legislature that begins after the 
date of the enactment of this Act. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1105 
CLARIFICATION OF MEDICAID ENTITLEMENT FOR CERTAIN NEWBORNS 
SEC. 2362. (a) Section 1902(e) of the Social Security Act is amended 42 use I396a. 
by adding at the end the following new paragraph: 
"(4) A child born to a woman eligible for and receiving medical 
assistance under a State plan on the date of the child's birth shall be 
deemed to have applied for medical assistance and to have been 
found eligible for such assistance under such plan on the date of 
such birth and to remain eligible for such assistance for a period of 
one year so long as the child is a member of the woman's household 
and the woman remains eligible for such gissistance.". 
(b) The amendment made by subsection (a) shall apply to children 
born on or after October 1,1984. 
42 u s e 1396a 
note. 
RECERTIFICATION OF SNF AND ICF PATIENTS 
SEC. 2363. (aXD Section 1902(a) of the Social Security Act, as 
amended by section 2303(g) of this title, is amended— 
(A) in paragraph (30)— 
(i) by inserting "(A)" after "(30)", and 
(ii) by adding at the end the following new subparagraph: 
"(B) provide, under the program described in subparagraph 
(A), that— 
"(i) each admission to a hospital, skilled nursing facility, 
intermediate care facility, or hospital for mental diseases is 
reviewed or screened in accordance with criteria estab-
lished by medical and other professional personnel who are 
not themselves directly responsible for the care of the 
patient involved, and who do not have a significant finan-
cial interest in any such institution and are not, except in 
the case of a hospital, employed by the institution providing 
the care involved, and 
"(ii) the information developed from such review or 
screening, along with the data obtained from prior reviews 
of the necessity for admission and continued stay of pa-
tients by such professional personnel, shall be used as the 
basis for establishing the size and composition of the sample 
of admissions to be subject to review and evaluation by such 
personnel, and any such sample may be of any size up to 
100 percent of all admissions and must be of sufficient size 
to serve the purpose of (I) identifying the patterns of care 
being provided and the changes occurring over time in such 
patterns so that the need for modification may be ascer-
tained, and (II) subjecting admissions to early or more 
extensive review where information indicates that such 
consideration is warranted to a hospital, skilled nursing 
facility, intermediate care facility, or hospital for mental 
diseases;"; and 
(B) by striking out "and" at the end of paragraph (42), by 
striking out the period at the end of paragraph (43) and insert-
ing in lieu thereof "; and", and by inserting after paragraph (43) 
the following new paragraph: 
"(44) in each case for which payment for inpatient hospital 
services, skilled nursing facility services, intermediate care fa 
cility services, or inpatient mental hospital services is made 
under the State plan— 
42 u s e 1396a. 
Ante, p. 1064. 
31-194 0 - 86 - 37 : QL. 3 Part 1 
98 STAT. 1106 
PUBLIC LAW 98-369—JULY 18, 1984 
42 use 1396b. 
42 use 1396b. 
Post, p. 1109. 
Ante, pp. 1066, 
1105. 
' 
"(A) a physician certifies at the time of admission, or, if 
later, the time the individual applies for medical assistance 
under the State plan (and the physician, or a physician 
assistant or nurse practitioner under the supervision of a 
physician, recertifies, where such services are furnished 
over a period of time, in such cases, at least as often as 
required under section 1903(g)(6) (or, in the case of services 
that are intermediate care facility services provided in an 
institution for the mentally retarded, every year), and ac-
companied by such supporting material, appropriate to the 
case involved, as may be provided in regulations of the 
Secretary), that such services are or were required to be 
given on an inpatient basis because the individual needs or 
needed such services, and 
"(B) such services were furnished under a plan estab-
lished and periodically reviewed and evaluated by a 
physician.". 
(2) Section 1903(g)(1) of such Act is amended— 
(A) in the matter preceding subparagraph (A), by striking out 
"care as an inpatient" and all that follows through "hospital for 
mental diseases on" and inserting in lieu thereof "inpatient 
hospital services or intermediate care facility services for 60 
days, skilled nursing facility services for 30 days, or inpatient 
mental hospital services for", 
(B) in the matter before subparagraph (A), by striking out 
"which for purposes of this section means the four calendar 
quarters ending with June 30," and by striking out "in the same 
fiscal year", and 
(C) by striking out "(including tuberculosis hospitals)" and all 
that follows through the end of subparagraph (D) and inserting 
in lieu thereof ", skilled nursing facility services, or intermedi-
ate care facility services furnished beyond 60 days (or inpatient 
mental hospital services furnished beyond 90 days), such State 
has an effective program of medical review of the care of 
patients in mental hospitals, skilled nursing facilities, and inter-
mediate care facilities pursuant to paragraphs (26) and (31) of 
section 1902(a) whereby the professional management of each 
case is reviewed and evaluated at least annually by independent 
professional review teams.". 
(4) Section 1903(g) of such Act is further amended by striking out 
paragraph (6) and inserting in lieu thereof the following: 
"(6)(A) Recertifications required under section 1902(a)(44) shall be 
conducted at least every 60 days in the case of inpatient hospital 
services. 
"(B) Such recertifications in the case of skilled nursing facility 
services shall be conducted at least— 
"(i) 30 days after the date of the initial certification, 
"(ii) 60 days after the date of the initial certification, 
"(iii) 90 days after the date of the initial certification, and 
"(iv) every 60 days thereafter. 
"(C) Such recertifications in the case of intermediate care facility 
services shall be conducted at least— 
"(i) 60 days after the date of the initial certification, 
"(ii) 180 days after the date of the initial certification, 
"(iii) 12 months after the date of the initial certification, 
"(iv) 18 months after the date of the initial certification, 
"(v) 24 months after the date of the initial certification, and 
^efxie 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1107 
"(vi) every 12 months thereafter. 
"(D) For purposes of determining compliance with the schedule 
established by this paragraph, a recertification shall be considered 
to have been done on a timely basis if it was performed not later 
than 10 days after the date the recertification was otherwise re-
quired and the State establishes good cause why the physician or 
other person making such recertification did not meet such 
schedule.". 
Ot)) Section 1903 of such Act is further amended by adding at the 42 USC 1396b. 
end the following new paragraph: 
"(7) It is the duty and responsibility of the Secretary to assure that 
standards which govern the provision of care in skilled nursing 
facilities and intermediate care facilities under plans approved 
under this title, and the enforcement of such standards, are ade-
quate to protect the health and safety of residents and to promote 
the effective and efficient use of public moneys.". 
(c) The amendments made by subsection (a) apply to calendar 
quarters beginning on or after the date of the enactment of this Act, 
except that, in the case of individuals admitted to skilled nursing 
facilities before such date, the amendments made by such subsection 
shall not require recertifications sooner or more frequently than 
were required under the law in effect before such date. 
Effective date. 
42 USC 1396b 
note. 
WAIVER OF CERTAIN MEMBERSHIP REQUIREMENTS FOR CERTAIN 
HEALTH MAINTENANCE ORGANIZATIONS 
SEC. 2364. Section 1903(m)(2) of the Social Security Act is 42 USC 1396b. 
amended— 
(1) by inserting "except as provided under subparagraph (F)," 
in subparagraph (A)(vi) after "(I)", and 
(2) by adding at the end the following new subparagraphs: 
"(E) In the case of a health maintenance organization that— 
"(i) is a nonprofit organization with at least 25,000 members, 
"(ii) is and has been a qualified health maintenance organiza-
tion (as defined in section 1310(d) of the Public Health Service 
Act) for a period of at least four years, 
42 use 300e-9. 
"(iii) provides basic health services through members of the 
staff of the organization, 
"(iv) is located in an area designated as medically under-
served under section 1302(7) of the Public Health Service Act, 42 use 300e-l. 
and 
"(v) previously received a waiver of the requirement described 
in subparagraph (A)(ii) under section 1115, 
42 USC 1315. 
the Secretary may modify or waive the requirement described in 
subparagraph (A)(ii) but only if the Secretary determines that spe-
cial circumstances warrant such modification or waiver and that the 
organization has taken and is taking reasonable efforts to enroll 
individuals who are not entitled to benefits under the State plan 
approved under this title or under title XVIII. 
42 USC 1395. 
"(F)(i) In the case of a contract with a health maintenance organi-
zation described in clause (ii), a State plan may restrict the period in 
which requests for termination of enrollment without cause under 
subparagraph (A)(vi)(I) are permitted to the first month of each 
period of enrollment, each such period of enrollment not to exceed 
six months in duration, but only if the State provides notification, at 
least twice per year, to individuals enrolled with such organization 
of the right to terminate such enrollment and the restriction on the 
98 STAT. 1108 
PUBLIC LAW 98-369—JULY 18, 1984 
42 u s e 300e-9. 
42 u s e 254b, 
254c. 
40 u s e app. 1. 
exercise of this right. Such restriction shall not apply to requests for 
termination of enrollment for cause. 
"(ii) A health maintenance organization referred to in clause (i) is 
an organization which— 
"(I) is a qualified health maintenance organization (as defined 
in section 1310(d) of the Public Health Service Act) or a health 
maintenance organization which is receiving (and has received 
during the previous two years) a grant of at least $100,000 under 
section 329(d)(1)(A) or 330(d)(1) of the Public Health Service Act 
or is receiving (and has received during the previous two years) 
at least $100,000 (by grant, subgrant, or subcontract) under the 
Appalachian Regional Development Act of 1965, and 
"(II) meets the requirement of subparagraph (A)(ii).". 
INCREASE IN MEDICAID CEILING AMOUNT FOR PUERTO RICO, THE 
VIRGIN ISLANDS, GUAM, THE NORTHERN MARIANA ISLANDS, AND 
AMERICAN SAMOA 
42 use 1308. 
SEC. 2365. (a) Section 1108(c) of the Social Security Act is amended 
to read as follows: 
42 use 1396. 
"(c) The total amount certified by the Secretary under title XIX 
with respect to a fiscal year for payment to— 
"(1) Puerto Rico shall not exceed $63,400,000; 
"(2) the Virgin Islands shall not exceed $2,100,000; 
"(3) Guam shall not exceed $2,000,000; 
"(4) the Northern Mariana Islands shall not exceed $550,000; 
and 
"(5) American Samoa shall not exceed $1,150,000.". 
42 use 1308 
(b) The amendment made by subsection (a) shall be effective for 
note. 
fiscal 
years beginning on or after October 1,1983. 
42 u s e 1396a 
note. 
PAYMENT FOR PSYCHIATRIC HOSPITAL SERVICES 
SEC. 2366. The provisions of section 1902(a)(13) of the Social 
Security Act, in so far as they require a reduction of the amount of 
payment otherwise to be made to a public psychiatric hospital due to 
the level of care received in such hospital, shall not apply to 
payments to hospitals before July 1, 1985, and such a reduction 
made for payments during the 12-month period ending June 30, 
1986, and during the 12-month period ending June 30, 1987, shall be 
one-third and two-thirds, respectively, of the amount of the reduc-
tion which would have been made without regard to this section. 
42 u s e 1396a. 
Ante, pp. 1066, 
1105. 
42 u s e 1396k. 
MANDATORY ASSIGNMENT OF RIGHTS OF PAYMENT BY MEDICAID 
RECIPIENTS 
SEC. 2367. (a) Section 1902(a) of the Social Security Act (as 
amended by sections 2303 and 2363 of this title) is amended— 
(1) by striking out "and" at the end of paragraph (43); 
(2) by striking out the period at the end of paragraph (44) and 
inserting in lieu thereof "; and"; and 
(3) by inserting after paragraph (44) the following new 
paragraph: 
"(45) provide for mandatory assignment of rights of payment 
for medical support and other medical care owed to recipients, 
in accordance with section 1912.". 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1109 
Effective date. 
42 u s e 1396a 
note. 
(b) Section 1912(a) of such Act is amended by striking out "State 42 USC 1396k 
plan for medical assistance may" and inserting in lieu thereof 
"State plan for medical assistance shall". 
(c)(1) Excei)t as provided in paragraph (2), the amendments made 
by this section shall become effective on October 1,1984. 
(2) In the case of a State plan for medical assistance under title 
XIX of the Social Security Act which the Secretary of Health and 42 USC 1396 
Human Services determines requires State legislation in order for 
the plan to meet the additional requirement imposed by the amend-
ments made by this section, the State plan shall not be regarded as 
failing to comply with the requirements of such title solely on the 
basis of its failure to meet this additional requirement before the 
first day of the first calendar quarter beginning after the close of the 
first regular session of the State legislature that begins after the 
date of the enactment of this Act. 
REQUIREMENTS FOR MEDICAL REVIEW AND INDEPENDENT 
PROFESSIONAL REVIEW UNDER MEDICAID 
SEC. 2368. (a) Section 1902(a)(31) of the Social Security Act is 42 use I396a. 
amended to read as follows: 
"(31) with respect to skilled nursing facility services (and with 
respect to intermediate care facility services, where the State 
plan includes medical assistance for such services) provide— 
"(A) with respect to each patient receiving such services, 
for a written plan of care, prior to admission to or authori-
zation of benefits in such facility, in accordance with regu-
lations of the Secretary, and for a regular program of 
independent professional review (including medical evalua-
tion) which shall periodically review his need for such 
services; 
"(B) with respect to each skilled nursing or intermediate 
care facility within the State, for periodic onsite inspections 
of the care being provided to each person receiving medical 
assistance, by one or more independent professional review 
teams (composed of a physician or registered nurse and 
other appropriate health and social service personnel), 
including with respect to each such person (i) the adequacy 
of the services available to meet his current health needs 
and promote his maximum physical well-being, (ii) the 
necessity and desirability of his continued placement in the 
facility, and (iii) the feasibility of meeting his health care 
needs through alternative institutional or noninstitutional 
services; and 
pj J- 
"(C) for full reports to the State agency by each independ-
ent professional review team of the findings of each inspec-
tion under subparagraph (B), together with any recommen-
dations;". 
(b) Section 1902(a)(26) of such Act is amended to read as follows: 
"(26) if the State plan includes medical assistance for inpa-
tient mental hospital services, provide— 
"(A) with respect to each patient receiving such services, 
for a regular program of medical review (including medical 
evaluation) of his need for such services, and for a written 
plan of care; 
"(Bj for periodic inspections to be made in all mental 
institutions within the State by one or more medical review 
98 STAT. 1110 
PUBLIC LAW 98-369—JULY 18, 1984 
Effective date. 
42 u s e 1396a 
note. 
42 u s e 1396/. 
42 u s e 1396a. 
Effective date. 
42 u s e 1396/ 
note. 
42 u s e 1396q. 
42 u s e 405. 
Effective date. 
42 u s e 1396q 
note. 
42 u s e 1396d. 
Effective date. 
42 u s e 1396d 
note. 
42 u s e 701. 
teams (composed of physicians and other appropriate 
health and social service personnel) of the care being pro-
vided to each person receiving medical assistance, including 
(i) the adequacy of the services available to meet his current 
health needs and promote his maximum physical well-
being, (ii) the necessity and desirability of his continued 
placement in the institution, and (iii) the feasibility of 
meeting his health care needs through alternative institu-
tional or noninstitutional services; and 
"(C) for full reports to the State agency by each medical 
review team of the findings of each inspection under subpara-
graph (B), together with any recommendations;", 
(c) The amendments made by this section shall become effective 
on the date of the enactment of this Act. 
FLEXIBILITY IN SETTING PAYMENT RATES FOR HOSPITALS FURNISHING 
LONG-TERM CARE SERVICES UNDER MEDICAID 
SEC. 2369. (aXD Section 1913(bXl) of the Social Security Act is 
amended by striking out "Payment" and inserting in lieu thereof 
"Except as provided in paragraph (3), payment". 
(2) Section 1913(b) of such Act is amended by adding at the end 
thereof the following new paragraph: 
"(3) Pajnment to all such hospitals, for any skilled nursing or 
intermediate care facility services furnished pursuant to subsection 
(a), may be made at a pa)mient rate established by the State in 
accordance with the requirements of section 1902(a)(13)(A).". 
(b) The amendments made by this section shall apply to payments 
for services furnished after the date of the enactment of this Act. 
AUTHORITY OF THE SECRETARY TO ISSUE AND ENFORCE SUBPOENAS 
UNDER MEDICAID 
SEC. 2370. (a) Title XIX of the Social Security Act is amended by 
adding at the end thereof the following new section: 
" A P P U C A T I O N OF PROVISIONS OF TITLE II RELATING TO SUBPOENAS 
"SEC. 1918. The provisions of subsections (d) and (e) of section 205 
of this Act shall apply with respect to this title to the same extent as 
they are applicable with respect to title II.". 
(b) The amendment made by this section shall become effective on 
the date of the enactment of this Act. 
MEDICAID C U N I C ADMINISTRATION 
SEC. 2371. (a) Section 1905(a)(9) of the Social Security Act is 
amended to read as follows: 
"(9) clinic services furnished by or under the direction of a 
physician, without regard to whether the clinic itself is adminis-
tered by a physician;'. 
(b) The amendment made by subsection (a) shall apply to services 
furnished on or after the date of the enactment of this Act. 
INCREASE IN AUTHORIZATION FOR MATERNAL AND CHILD HEALTH 
BLOCK GRANT 
SEC. 2372. (a) Section 501(a) of the Social Security Act is amended 
by striking out "$373,000,000 for fiscal year 1982 and for each fiscal 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1111 
year thereafter" and inserting in lieu thereof "$478,000,000 for fiscal 
year 1984 and each fiscal year thereafter". 
(b) The amendment made by subsection (a) shall be effective for Effective date, 
fiscal years beginning on or after October 1,1983. 
"
^
^ USC 701 note. 
MISCELLANEOUS TECHNICAL AMENDMENTS 
SEC. 2373. (a)(1) Section 503(a) of the Social Security Act is 42 use 703. 
amended by striking out "section 203 of the Intergovernmental 
Cooperation Act of 1968 (42 U.S.C. 4213)" and inserting in lieu 
thereof "section 6503(a) of title 31, United States Code". 
(2) Section 506(d)(3) of such Act is amended by striking out "sec- 42 use 706. 
tion 202 of the Intergovernmental Cooperation Act of 1968 (42 U.S.C. 
4212)" and inserting in lieu thereof "section 6503(b) of title 31, 
United States Code". 
(b)(1) Section 1902(a)(9) of such Act is amended by indenting 42 use 1396a. 
subparagraph (C) two additional ems so as to align its left margin 
with the left margin of subparagraph (B). 
(2) Section 1902(a)(10) of such Act is amended by indenting sub-
paragraph (A) (and each of its clauses and subclauses) two additional 
ems so as to align its left margin (before clause (i)) with the left 
margin of subparagraph (B). 
(3) Section 1902(a)(13)(A) of such Act is amended by striking out 
, ,, 
, _ 
"(A)" and all that follows through "hospital" the first place it 
" 
appears and inserting in lieu thereof "(A) for payment (except where 
the State agency is subject to an order under section 1914) of the 
hospital". 
(4) Section 1902(a)(20)(B) of such Act is amended by striking out 
"periodical" and inserting in lieu thereof "periodic". 
(5) Section 1902(a)(20)(C) of such Act is amended by striking out 
", section 603(a)(1)(A) (i) and (ii),". 
(6) Section 1902(a)(26)(B)(ii) of such Act is amended by striking out Ante, p. 1109. 
"homes" and inserting in lieu thereof "facilities". 
(7) Section 1902(a)(33)(A) of such Act is amended by striking out 
"penultimate sentence" and inserting in lieu thereof "second 
sentence". 
(8) Section 1902(a)(42)(B) of such Act is amended by striking out 
"part" and inserting in lieu thereof "title". 
(9) Section 1902(a) of such Act is amended by striking out "For 
tMKpfl 
purposes of paragraphs (9)(A)" and all that follows through "do not 
include" in the last sentence of the third to last paragraph and 
inserting in lieu thereof "The provisions of paragraphs (9)(A), (31), 
and (33) and of section 1903(i)(4) shall not apply to". 
(10) Section 1902(f) of such Act is amended by striking out "clause 
(10)(A)" and "clause (10)(C)" and inserting in lieu thereof "para-
graph (10)(A)" and "paragraph (10)(C)", respectively, each place each 
appears. 
(11) Section 1903(g)(4)(B) of such Act is amended— 
42 use I396b. 
(A) by striking out "paragraph (26)" and inserting in lieu 
thereof "paragraphs (26)", and 
(B) by striking out "deligence" and inserting in lieu thereof 
"diligence". 
(12) Section 1903(m)(2)(B)(i) of such Act is amended— 
(A) by striking out "(II)" before "for the period", 
,, 
. ^ . 
(B) by striking out "of such section" in subclause (II) and 
- ' ' '^ 
inserting in lieu thereof "of section 1905(a)", and 
98 STAT. 1112 
PUBLIC LAW 98-369—JULY 18, 1984 
(C) by striking out "peroid" and inserting in lieu thereof 
"period". 
42 use 1396b. 
(13) Section 1903(m)(2) of such Act is amended by aUgning sub-
paragraph (C) flush with the left margin. 
(14) Section 1903(s)(3)(B) of such Act is amended by striking out 
"nonfederal" and inserting in lieu thereof "non-Federal". 
42 use I396d. 
(15) Section 1905(a)(4) of such Act is amended by inserting a 
semicolon before "(B)". 
(16) Section 1905(a)(17) of such Act is amended by striking out 
"he" and inserting in lieu thereof "the nurse-midwife" each place it 
appears. 
(17) The last sentence of section 1905(a) of such Act is amended by 
striking out "clauses (vi)" and inserting in lieu thereof "clause (vi)", 
and by striking out "well being" and inserting in lieu thereof "well-
being". 
(18) The second sentence of section 1905(b) of such Act is amended 
by striking out everything that follows "the provisions o f and 
inserting in lieu thereof "section 1101(a)(8)(B).". 
(19) Section 1905(d)(1) of such Act is amended by striking out 
"which meet" and inserting in lieu thereof "the institution meets". 
(20) Section 1905(m) of such Act is amended by striking out "he" 
each place it appears and inserting in lieu thereof "the nurse". 
42 use I396n. 
(21) Section 1915(c)(1) of such Act is amended by striking out 
"under this part" and inserting in lieu thereof "under this title". 
42 use 1396a 
(c)(1) The Secretary of Health and Human Services shall not take 
^°^- 
any compliance, disallowance, penalty, or other regulatory action 
against a State during the moratorium period described in para-
graph (2) by reason of such State's plan under title XIX of the Social 
42 use 1396. 
Security Act being determined to be in violation of section 
42 use 1396a. 
1902(a)(10)(C)(i)(III) of such Act on account of such plan's having a 
standard or methodology which the Secretary interprets as being 
less restrictive than the standard or methodology required under 
such section. 
(2) The moratorium period is the period beginning on the date of 
the enactment of this Act and ending 18 months after the date on 
which the Secretary submits the report required under paragraph 
(3). 
Report. 
(3) The Secretary shall report to the Congress within 12 months 
after the date of the enactment of this Act with respect to the 
appropriateness, and impact on States and recipients of medical 
assistance, of applying standards and methodologies utilized in cash 
assistance programs to those recipients of medical assistance who do 
not receive cash assistance, and any recommendations for changes 
in such requirements. 
(4) No provision of law shall repeal or suspend the moratorium 
imposed by this subsection unless such provision specifically amends 
or repeals this subsection. 
Subtitle C—Recovery of Hill-Burton Funds 
RECOVERY OF HILL-BURTON FUNDS 
42 use 29li. 
SEC. 2381. (a) Section 609 of the Public Health Service Act is 
amended to read as follows: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1118 
"SEC. 609. (a) If any facility with respect to which funds have been 
paid under section 606 shall, at any time within 20 years after the 42 USC 29lf. 
completion of construction or modernization— 
"(1) be sold or transferred to any entity (A) which is not 
qualified to file an application under section 605, or (B) which is 42 USC 29le. 
not approved as a transferee by the State agency designated 
pursuant to section 604, or its successor, or 
42 USC 29ld. 
- 
"(2) cease to be a public health center or a public or other 
nonprofit hospital, outpatient facility, facility for long-term 
care, or rehabilitation facility, 
the United States shall be entitled to recover, whether from the 
transferor or the transferee (or, in the case of a facility which has 
ceased to be public or nonprofit, from the owners thereof) an amount 
determined under subsection (c). 
"(b) The transferor of a facility which is sold or transferred as 
described in subsection (aXD, or the owner of a facility the use of 
.,r;x jgy vi. 
which is changed as described in subsection (aX2), shall provide the 
Secretary written notice of such sale, transfer, or change not later 
than the expiration of 10 days from the date on which such sale, 
transfer, or change occurs. 
"(cXD Except as provided in paragraph (2), the amount the United 
States shall be entitled to recover under subsection (a) is an amount 
bearing the same ratio to the then value (as determined by the 
agreement of the parties or in an action brought in the district court 
of the United States for the district for which the facility involved is 
situated) of so much of the facility as constituted an approved 
project or projects as the amount of the Federal participation bore to 
the cost of the construction or modernization of such project or 
projects. 
"(2XA) After the expiration of— 
"(i) 180 days after the date of the sale, transfer, or change of 
use for which a notice is required by subsection (b), in the case 
of a facility which is sold or transferred or the use of which 
changes after the date of the enactment of this subsection, or 
"(ii) thirty days after the date of the enactment of this 
subsection or if later 180 days after the date of the sale, trans-
fer, or change of use for which a notice is required by subsection 
(b), in the case of a facility which was sold or transferred or the 
use of which changed before the date of the enactment of this 
subsection, 
the amount which the United States is entitled to recover under 
paragraph (1) with respect to a facility shall be the amount pre-
scribed by paragraph (1) plus interest, during the period described in 
subparagraph (B), at a rate (determined by the Secretary) based on 
the average of the bond equivalent of the weekly ninety-day Treas-
ury bill auction rate^ 
"(B) The period referred to in subparagraph (A) is the period 
beginning— 
"(i) in the case of a facility which w£is sold or transferred or 
the use of which changed before the date of the enactment of 
this subsection, thirty days after such date or if later 180 days 
after the date of the sale, transfer, or change of use for which a 
notice is required by subsection (b), 
98 STAT. 1114 
PUBLIC LAW 98-369—JULY 18, 1984 
"(ii) in the case of a facility with respect to which notice is 
provided in accordance with subsection (b), upon the expiration 
of 180 days after the receipt of such notice, or 
"(iii) in the case of a facility with respect to which such notice 
is not provided as prescribed by subsection (b), on the date of the 
sale, transfer, or change of use for which such notice was to be 
provided, 
and ending on the date the amount the United States is entitled to 
under paragraph (1) is collected. 
"(dXl) The Secretary may waive the recovery rights of the United 
States under subsection (aXl) with respect to a facility in any State 
if the Secretary determines, in accordance with regulations, that the 
entity to which the facility was sold or transferred— 
"(A) has established an irrevocable trust— 
"(i) in an amount equal to the greater of twice the cost of 
the remaining obligation of the facility under clause (2) of 
42 use 291c. 
section 603(e) or the amount, determined under subsection 
(c), that the United States is entitled to recover, and 
"(ii) which will only be used by the entity to provide the 
care required by clause (2) of section 603(e); and 
"(B) will meet the obligation of the facility under clause (1) of 
section 603(e). 
"(2) The Secretary may waive the recovery rights of the United 
States under subsection (aX2) with respect to a facility in any State 
if the Secretary determines, in accordance with regulations, that 
there is good cause for waiving such rights with respect to such 
facility. 
"(e) The right of recovery of the United States under subsection (a) 
shall not constitute a lien on any facility with respect to which funds 
42 use 29lf. 
have been paid under section 606.". 
42 use 300s-la. 
(b) Section 1622 of such Act is amended to read as follows: 
"RECOVERY 
"SEC. 1622. (a) If any facility with respect to which funds have 
been paid under this title shall, at any time within 20 years after the 
completion of construction or modernization— 
"(1) be sold or transferred to any entity (A) which is not 
42 use 300q-l, 
qualified to file an application under section 1621 or 1642 or (B) 
^^^^"12. 
which is not approved as a transferee by the State Agency of the 
State in which such facility is located, or its successor, or 
"(2) cease to be a public health center or a public or other 
nonprofit hospital, outpatient facility, facility for long-term 
care, or rehabilitation facility, 
the United States shall be entitled to recover, whether from the 
transferor or the transferee (or, in the case of a facility which has 
ceased to be public or nonprofit, from the owners thereof) an amount 
determined under subsection (c). 
"(b) The transferor of a facility which is sold or transferred as 
described in subsection (aXD, or the owner of a facility the use of 
which is changed as described in subsection (aX2), shall provide the 
Secretary written notice of such sale, transfer, or change not later 
than the expiration of 10 days from the date on which such sale, 
transfer, or change occurs. 
"(cXD Except as provided in paragraph (2), the amount the United 
States shall be entitled to recover under subsection (a) is an amount 
bearing the same ratio to the then value (as determined by the 
..0' 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1115 
agreement of the parties or in an action brought in the district court 
of the United States for the district for which the facility involved is 
situated) of so much of the facility as constituted an approved 
project or projects as the amount of the Federal participation bore to 
the cost of the construction or modernization of such project or 
projects. 
"(2)(A) After the expiration of— 
"(i) 180 days after the date of the sale, transfer, or change of 
use for which a notice is required by subsection (b) in the case of 
a facility which is sold or transferred or the use of which 
changes after the date of the enactment of this subsection, or 
"(ii) thirty days after the date of enactment of this subsection 
or if later 180 days after the date of the sale, transfer, or change 
of use for which a notice is required by subsection Qo), in the 
case of a facility which was sold or transferred or the use of 
which changed before the date of the enactment of this 
subsection, 
the amount which the United States is entitled to recover under 
paragraph (1) with respect to a facility shall be the amount pre-
scribed by paragraph (1) plus interest, during the period described in 
'''"' 
subparagraph (B), at a rate (determined by the Secretary) based on 
the average of the bond equivalent of the weekly 90-day Treasury 
bill auction rate. 
"(B) The period referred to in subparagraph (A) is the period 
beginning— 
''"'' 
"(i) in the case of a facility which was sold or transferred or 
the use of which changed before the date of the enactment of 
this subsection, thirty days after such date or if later 180 days 
after the date of the sale, transfer, or change of use for which a 
notice is required by subsection (b). 
"(ii) in the case of a facility with respect to which notice is 
, 
r, . 
provided in accordance with subsection (b), upon the expiration 
of 180 days after the receipt of such notice, or 
"(iii) in the case of a facility with respect to which such notice 
is not provided as prescribed by subsection (b), on the date of the 
sale, transfer, or changes of use for which such notice was to be 
provided, 
and ending on the date the amount the United States is entitled to 
under paragraph (1) is collected. 
"(d)(1) The Secretary may waive the recovery rights of the United 
States under subsection (a)(1) with respect to a facility in any State 
if the Secretary determines, in accordance with regulations, that the 
entity to which the facility was sold or transferred— 
"(A) has established an irrevocable trust— 
"(i) in an amount equal to the greater of twice the cost of 
the remaining obligation of the facility under clause (ii) of 
section 1621(b)(l)(K) or the amount, determined under sub- 42 USC 300q-l 
section (c), that the United States is entitled to recover, and 
"(ii) which will only be used by the entity to provide the 
care required by clause (ii) of section 1621(b)(l)(K); and 
"(B) will meet the obligation of the facility under clause (i) of 
^
^ section 1621(b)(l)(K). 
"(2) The Secretary may waive the recovery rights of the United 
States under subsection (a)(2) with respect to a facility in any State 
if the Secretary determines, in accordance with regulations, that 
there is good cause for waiving such rights with respect to such 
facility. 
98 STAT. 1116 
PUBLIC LAW 98-369—JULY 18, 1984 
"(e) The right of recovery of the United States under subsection (a) 
shall not constitute a lien on any facility with respect to which funds 
have been paid under this title.". 
42 use 29li 
(c) Not later than the expiration of the one-hundred-and-eighty-
note. 
day period beginning on the date of the enactment of this section, 
the Secretary shall have in effect regulations and personnel to place 
in effect the amendments made by this section. 
Subtitle D—Uncompensated Services Provided 
by Skilled Nursing Facilities and Intermedi-
ate Care Facilities 
STUDY 
SEC. 2391. (a) The Secretary of Health and Human Services shall 
conduct a study relating to compliance with sections 603(e)(2) and 
42 use 291c, 
1621(b)(l)(K)(ii) of the Public Health Service Act (as such sections 
300q-l. 
were in effect on September 30, 1979) to determine whether the 
regulations implementing such sections should distinguish between 
hospitals and long-term care facilities assisted under titles VI and 
42 use 291, 
XVI of such Act. Not later than January 1, 1985, the Secretary shall 
300o. 
transmit to the Congress a report of the results of the study. 
Report. 
(IJ) Subsection (a) shall take effect October 1,1984. 
TITLE IV—SMALL BUSINESS PROGRAMS 
SBA DISASTER LOANS 
15 use 647. 
SEC. 2401. Section 18(a) of the Small Business Act is amended by 
striking out "October 1, 1986" and by inserting in lieu thereof 
"October 1,1987". 
TITLE V—VETERANS' PROGRAMS 
PART A—COST SAVINGS UNDER THE VETERANS' 
ADMINISTRATION PENSION PROGRAM 
EFFECTIVE DATE FOR AWARD OF PENSION FOR NON-SERVICE-CONNECTED 
DISABILITY OR DEATH 
SEC. 2501. (a)(1) Subsection (b)(3) of section 3010 of title 38, United 
States Code, is amended— 
(A) by inserting "(A)" after "(3)"; 
(B) by inserting "described in subparagraph (B) of this para-
graph" after "to a veteran"; 
(C) by striking out "an application therefor is received" and 
inserting in lieu thereof "the veteran applies for a retroactive 
award"; and 
(D) by adding at the end the following new subparagraph: 
"(B) A veteran referred to in subparagraph (A) of this paragraph 
is a veteran who is permanently and totally disabled and who is 
prevented by a disability from applying for disability pension for a 
period of at least 30 days beginning on the date on which the 
veteran became permanently and totally disabled.". 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1117 
(2) Subsection (d) of such section is amended to read as follows: 
"(dXD The effective date of an award of death compensation or 
dependency and indemnity compensation for which application is 
received within one year from the date of death shall be the first day 
of the month in which the death occurred. 
"(2) The effective date of an award of death pension for which 
application is received within 45 days from the date of death shall be 
the first day of the month in which the death occurred.". 
(b) The amendments made by subsection (aXD and the provisions 38 USC 3010 
of paragraph (2) of section 3010(d) of title 38, United States Code, as note. 
added by subsection (a)(2), shall take effect with respect to applica-
tions that are first received after September 30, 1984, for benefits 
under chapter 15 of title 38, United States Code. 
38 use 50i et 
seq. 
PART B—ACTIONS TO INCREASE RECEIPTS AND REDUCE 
COSTS UNDER THE VETERANS' ADMINISTRATION HOME-
LOAN GUARANTY PROGRAM 
INCREASE IN FEE FOR HOME LOANS GUARANTEED BY THE VETERANS' 
ADMINISTRATION AND EXTENSION OF FEE TO VENDEE LOANS 
SEC. 2511. (a) Section 1829 of title 38, United States Code, is 
amended— 
(1) in subsection (a)— 
(A) by inserting "and from each person obtaining a loan 
from the Administrator to finance the purchase of real 
property from the Administrator," after "under this 
chapter,"; 
(B) by striking out "one-half of; and 
(C) by striking out "to the veteran" after "in the loan"; 
(2) by striking out subsection (c); and 
(3) by redesignating suteection (d) as subsection (c) and strik-
ing out "September 30, 1985" in such subsection and inserting 
in lieu thereof "September 30,1987". 
(b) Section 1824(c) of such title is amended by striking out "and 
(2)" and inserting in lieu thereof "(2) amounts received by the 
Administrator as fees collected under section 1829 of this title, and 
(3)". 
(cXD The amendments made by subsection (aXD shall apply with 38 use 1829 
respect to loans closed after the end of the 30-day period beginning note. 
on the date of the enactment of this Act. 
(2) The amendments made by subsections (aX2) and (b) shall apply 
with respect to loans closed on or after the date of the enactment of 
this Act. 
(3) The amendment made by subsection (aX3) shall take effect on 
the date of the enactment of this Act. 
ACTIONS TO REDUCE COSTS UNDER HOME-LOAN PROGRAM 
SEC. 2512. (a) Section 1816 of title 38, United States Code, is 
amended— 
(1) in subsection (a)— 
(A) by designating the first sentence as paragraph (1), the 
second and third sentences as paragraph (2), and the fourth 
sentence £is paragraph (3); 
(B) by striking out "Administrator who shall thereupon" 
in paragraph (1) (as so designated) and inserting in lieu 
98 STAT. 1118 
PUBLIC LAW 98-369—JULY 18, 1984 
thereof "Administrator of such default. Upon receipt of 
such notice, the Administrator may, subject to subsection 
(c) of this section,"; and 
(C) by striking out "guaranteed, and shall" in paragraph 
(1) (as so designated) and inserting in lieu thereof "guaran-
teed. If the Administrator makes such a payment, the 
Administrator shall"; and 
(2) by adding at the end the following new subsections: 
"(c)(1) For purposes of this subsection— 
"(A) The term 'defaulted loan' means a loan that is guaran-
teed under this chapter, that was made for a purpose described 
38 use 1810. 
in section 1810(a) of this title, and that is in default. 
"(B) The term 'liquidation sale' means a judicial sale or other 
disposition of real property to liquidate a defaulted loan that is 
secured by such property. 
"(C) The term 'net value', with respect to real property, 
means the amount equal to (i) the fair market value of the 
property, minus (ii) the total of the amounts which the Adminis-
trator estimates the Administrator would incur (if the Adminis-
trator were to acquire and dispose of the property) for property 
teixes, assessments, liens, property maintenance, property im-
provement, administration, resale, and other costs resulting 
from the acquisition and disposition of the property. 
"(D) The term 'total indebtedness', with respect to a defaulted 
loan, means the amount equal to the total of (i) the unpaid 
principal of the loan, (ii) the interest on the loan as of the date 
of the liquidation sale of the property securing the loan (or such 
earlier date following the expiration of a reasonable period of 
time for such sale to occur as the Administrator may specify 
pursuant to regulations prescribed by the Administrator to 
implement this subsection), and (iii) such reasonably necessary 
and proper charges (as specified in the loan instrument and 
permitted by such regulations) associated with liquidation of the 
loan, including advances for taxes, insurance, and maintenance 
or repair of the real property securing the loan. 
"(2)(A) Except as provided in subparagraph (B) of this paragraph, 
this subsection applies to any case in which the holder of a defaulted 
loan undertakes to liquidate the loan by means of a liquidation sale. 
"(B) This subsection does not apply to a case in which the Admin-
istrator proceeds under subsection (aX2) of this section. 
"(3XA) Before carrying out a liquidation sale of real property 
securing a defaulted loan, the holder of the loan shall notify the 
Administrator of the proposed sale. Such notice shall be provided in 
accordance with regulations prescribed by the Administrator to 
implement this subsection. 
"(B) After receiving a notice described in subparagraph (A) of this 
paragraph, the Administrator shall determine the net value of the 
property securing the loan and the amount of the total indebtedness 
under the loan and shall notify the holder of the loan of the 
determination of such net value. 
"(4) A case referred to in paragraphs (5), (6), and (7) of this 
subsection as being described in this paragraph is a case in which 
the net value of the property securing a defaulted loan exceeds the 
amount of the total indebtedness under the loan minus the amount 
guaranteed under this chapter. 
"(5) In a case described in paragraph (4) of this subsection, if the 
holder of the defaulted loan acquires the property securing the loan 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1119 
at a liquidation sale for an amount that does not exceed the lesser of 
the net value of the property or the total indebtedness under the 
loan— 
"(A) the holder shall have the option to convey the property 
to the United States in return for payment by the Administra-
tor of an amount equal to the lesser of such net value or total 
indebtedness; and 
"(B) the liability of the United States under the loan guaranty 
under this chapter shall be limited to the amount of such total 
indebtedness minus the net value of the property. 
"(6) In a case described in paragraph (4) of this subsection, if the 
holder of the defaulted loan either does not acquire the property 
securing the loan at the liquidation sale or acquires the property at 
such sale for an amount that exceeds the lesser of the net value of 
the property or the total indebtedness under the loan— 
"(A) the Administrator may not accept conveyance of the 
property except as provided in paragraph (7) of this subsection; 
• - i >
H
U ;;8 
and 
"(B) the liability of the United States under the loan guaranty 
under this chapter shall be limited to the amount equal to (i) 
the amount of such total indebtedness, minus (ii) the amount 
realized by the holder incident to the sale or the net value of the 
property, whichever is greater. 
"(7) In a case described in paragraph (4) of this subsection, if the 
holder of the defaulted loan acquires the property securing the loan 
at the liquidation sale for an amount that exceeds the lesser of the 
total indebtedness under the loan or the net value and that was the 
minimum amount for which, under applicable State law, the 
property was permitted to be sold at the liquidation sale— 
"(A) the Administrator may accept conveyance of the prop-
erty to the United States for a price not exceeding the lesser of 
the amount for which the holder acquired the property or the 
total indebtedness under the loan; and 
"(B) the liability of the United States under the loan guaranty 
under this chapter is as provided in paragraph (6)(B) of this 
subsection. 
"(8) If the net value of the property securing a defaulted loan is 
not greater than the amount of the total indebtedness under the 
loan minus the amount guaranteed under this chapter— 
"(A) the Administrator may not accept conveyance of the 
property from the holder of the loan; and 
"(B) the liability of the United States under the loan guaranty 
shall be limited to the amount of the total indebtedness under 
the loan minus the amount realized by the holder of the loan 
incident to the sale at a liquidation sale of the property. 
"(9) In no event may the liability of the United States under a 
guaranteed loan exceed the amount guaranteed with respect to that 
loan under section 1803(b) of this title. All determinations under this 38 USC 1803. 
subsection of net value and total indebtedness shall be made by the 
Administrator. 
"(d)(1) Of the number of purchases made during any fiscal year of 
real property acquired by the Administrator as the result of a 
default on a loan guaranteed under this chapter for a purpose 
« ^H 
described in section 1810(a) of this title, not more than 75 percent, 
nor less than 60 percent, of such purchases may be financed by a 
loan made by the Administrator. The maximum percentage stated 
in the preceding sentence may be increased to 80 percent for any 
98 STAT. 1120 
PUBLIC LAW 98-369—JULY 18, 1984 
fiscal year if the Administrator determines that such an increase is 
necessary in order to maintain the effective functioning of the loan 
guaranty program. 
"(2) In carrying out paragraph (1) of this subsection, the Adminis-
trator, to the maximum extent consistent with that paragraph and 
with maintaining the effective functioning of the loan guaranty 
program under this chapter, shall minimize the number of loans 
made by the Administrator to finance purchases of real property 
from the Administrator described in that paragraph. 
"(3) Notes securing such loans may be sold with recourse only to 
the extent that the Administrator determines that selling such 
notes with recourse is necessary in order to maintain the effective 
functioning of the loan guaranty program under this chapter.", 
(bXD Subchapter III of chapter 37 of title 38, United States Code, 
is amended by adding at the end the following new section: 
38 use 1830. 
"§1830. Use of attorneys in court 
"(a) Within 180 days after the date of the enactment of this 
section, the Administrator shall take appropriate steps to authorize 
attorneys employed by the Veterans' Administration to exercise the 
right of the United States to bring suit in court to foreclose a loan 
made or acquired by the Administrator under this chapter and to 
recover possession of any property acquired by the Administrator 
under this chapter. With the concurrence of the Attorney General of 
the United States, the Administrator may acquire the services of 
attorneys, other than those who are employees of the Veterans' 
Administration, to exercise that right. The activities of attorneys in 
bringing suit under this section shall be subject to the direction and 
supervision of the Attorney General and to such terms and condi-
tions as the Attorney General may prescribe. 
"(h) Nothing in this section derogates from the authority of the 
Attorney General under sections 516 and 519 of title 28 to direct and 
supervise all litigation to which the United States or an agency or 
officer of the United States is a party." 
(2) The table of sections at the beginning of such chapter is 
amended by inserting after the item relating to section 1829 the 
following new item: 
"1830. Use of attorneys in court.". 
38 use 1816 
(c)(1) The amendments made by subsection (a) shall take efiect on 
note. 
October 1,1984. 
38 use 1816 
(2) Subsections (c) and (d) of section 1816 of title 38, United States 
note. 
Code (as added by subsection (a) of this section), shall cease to have 
effect on October 1,1987. 
38 use 1830 
(3) The amendments made by subsection (b) shall take effect on 
note. 
the date of the enactment of this Act. 
Report. 
(d) Not later than 180 days after the date of the enactment of this 
Act, the Administrator of Veterans' Affairs and the Attorney 
General of the United States shall submit to the appropriate com-
mittees of the Congress a joint report that— 
(1) describes and explains the actions taken by the Adminis-
trator and the Attorney General to implement section 1830 of 
Supra. 
title 38, United States Code, as added by subsection (b); and 
(2) sets forth their views with respect to the advisability of 
actions, pursuant to the second sentence of subsection (a) of 
such section, to employ private attorneys to bring actions de-
scribed in that section. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1121 
(e)(1) Not later than December 1, 1986, the Administrator of Report. 
Veterans' Affairs shall submit to the Committees on Veterans' 38 use 1824 
Affairs of the Senate and House of Representatives a report on the "° ^ 
administration and functioning of the loan guaranty program con-
ducted by the Veterans' Administration under chapter 37 of title 38, 
United States Code, and the status of the Veterans' Administration 38 USC 1801 et 
Loan Guaranty Revolving Fund established under section 1824(a) of ^eq. 
such title. 
38 USC 1824. 
(2) The report shall include— 
(A) a description of the actions taken by the Administrator 
during the period beginning on June 1, 1984, and ending on 
September 30, 1986, and the actions planned as of September 30, 
1986 (together with a schedule for completing any actions 
planned), to maintain the effective functioning of that program 
and to ensure the solvency of the Fund, including actions with 
respect to the acquisition of properties following liquidation 
sales, the making of loans (known as "vendee loans") to finance 
the sale of properties so acquired, the quality of property ap-
praisals by the Veterans' Administration, and assessments of 
home-buyer credit worthiness; 
(B) the Administrator's evaluation of the effects of the amend-
ments made by subsection (a) (relating to acquisition of proper-
ties after liquidation sales and to vendee loans), including the 
Administrator's evaluation of the effects of subsection (d) of 
section 1816 of title 38, United States Code (as added by subsec- Ante, p. 1118. 
tion (a)(2)) (relating to vendee loans), on the operation and 
effective functioning of such program; and 
(C) the recommendations of the Administrator regarding any 
need for administrative or legislative action with respect to 
such program, including the Administrator's recommendations 
as to whether or not subsection (c)(2) (providing for the termina-
tion of provisions relating to the acquisition of properties and to 
vendee loans) should be amended. 
TITLE VI—OASDI, SSI, AFDC, AND OTHER 
PROGRAMS 
TABLE OF CONTENTS 
Subtitle A—Improvements in OASDI Program 
Sec. 2601. Social security coverage for Federal employees; treatment of legislative 
branch employees not covered by civil service retirement system. 
Sec. 2602. Procedures to prevent overpayments due to failure to report earnings. 
Sec. 2603. Special social security treatment for church employees. 
Subtitle B—Improvements in SSI and AFDC Programs 
PART 1—IMPROVEMENTS IN SSI PROGRAM 
Sec. 2611. Increase in dollar limitations under assets test. 
Sec. 2612. Limitation on recoupment rate in case of overpayments. 
Sec. 261.*^. Treatment of overpayments when recipient's countable assets exceed 
limits in certain cases. 
Sec. 2614. Exclusion of underpayments from resources. 
Sec. 2615. Adjustments in SSI benefits on account of retroactive benefits under title 
II, 
Sec. 2616. Exclusion from income of certain Alaska bonus payments. 
98 STAT. 1122 
PUBLIC LAW 98-369—JULY 18, 1984 
PART 2—IMPROVEMENTS IN A F D C PROGRAM 
Sec. 2621. Gross income limitation. 
Sec. 2622. Work expense deduction. 
Sec. 2623. Continuation of $30 disregard from earned income. 
Sec. 2624. Work transition in the case of certain families who lose AFDC benefits 
because of earned income. 
Sec. 2625. Clarification of earned income provision. 
Sec. 2626. Exclusion of burial plots, funeral agreements, and certain property from 
limitation on family resources. 
Sec. 2627. Federal matching for expenses incurred by States in reimbursing AFDC 
recipients for transportation and day care costs attributable to partici-
pation in CWEP. 
Sec. 2628. Monthly reporting and retrospective budgeting. 
Sec. 2629. Treatment of earned income tax credit in determining countable income. 
Sec. 2630. Federally assisted pilot projects to demonstrate one-stop service delivery 
systems. 
Sec. 2631. Exemption of certain pregnant women from registration for work or 
trsiining. 
Sec. 2632. Treatment of nonrecurring lump sum income. 
Sec. 2633. Waiver of overpayment recoupment when cost of collection would exceed 
amount due. 
Sec. 2634. Exceptions to requirements for protective payments. 
Sec. 2635. Eligibility requirements for aliens. 
Sec. 2636. Provision by State agencies of information regarding fugitive felons. 
Sec. 2637. Payment schedule for reimbursement of certain back claims due the 
States. 
Sec. 2638. Modification of requirements for work supplementation program. 
Sec. 2639. 3-year extension of provisions for disregarding in-kind assistance. 
Sec. 2640. Parents and siblings &
f dependent child included in AFDC family; child 
support payments. 
Sec. 2641. CWEP work for Federal agencies. 
Sec. 2642. Earned income of full-time students. 
Sec. 2643. General effective date. 
Subtitle C—Implementation of Grace Commission Recommendations 
Sec. 2651. Income and eligibility verification procedures. 
Sec. 2652. Collection and deposit of payments to executive agencies. 
Sec. 2653. Collection of non-tax debts owed to Federal agencies. 
Subtitle D—Technical Corrections 
Sec. 2661. Changes in OASDI provisions necessitated by the 1983 Amendments. 
Sec. 2662. Changes in text of the 1983 Amendments. 
Sec. 2663. Other technical corrections in the Social Security Act and related 
provisions. 
Sec. 2664. Effective dates. 
Subtitle E—Trade Adjustment Assistance 
Sec. 2671. Limitations on trade readjustment allowances. 
Sec. 2672. Job search emd relocation allowances. 
r ; : 
Sec. 2673. Assistance to industry. 
Subtitle F—Certain Provisions Relating to Puerto Rico and the Virgin Islands 
Sec. 2681. Clarification of definition of articles produced in Puerto Rico or the 
Virgin Islands. 
Sec. 2682. Limitations on transfers of excise tax revenues to Puerto Rico and the 
Virgin Islands. 
Subtitle A—Improvements in OASDI Program 
SOCIAL SECURITY COVERAGE FOR FEDERAL EMPLOYEES; TREATMENT OF 
LEGISLATIVE BRANCH EMPLOYEES NOT COVERED BY CIVIL SERVICE RE-
TIREMENT SYSTEM 
97 Stat. 67. 
SEC. 2601. (aXD Section 210(a)(5)(B) of the Social Security Act is 
42 use 410. 
amended to read as follows: 
"(B) is performed by an individual who— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1123 
'-jti! 
"(i) has been continuously performing service de-
scribed in subparagraph (A) since December 31, 1983, 
and for purposes of this clause— 
"(I) if an individual performing service described 
in subparagraph (A) returns to the performance of 
such service after being separated therefrom for a 
period of less than 366 consecutive days, regardless 
of whether the period began before, on, or after 
December 31, 1983, then such service shall be con-
sidered continuous, 
"(II) if an individual performing service de-
scribed in subparagraph (A) returns to the per-
formance of such service after being detailed or 
transferred to an international organization as de-
scribed under section 3343 of subchapter III of 
chapter 33 of title 5, United States Code, or under 
section 3581 of chapter 35 of such title, then the 
service performed for that organization shall be 
considered service described in subparagraph (A), 
"(III) if an individual performing service de-
scribed in subparagraph (A) is reemployed or rein-
stated after being separated from such service for 
the purpose of accepting employment with the 
American Institute of Taiwan as provided under 
section 3310 of chapter 48 of title 22, United States 
Code, then the service performed for that Institute 
shall be considered service described in subpara-
graph (A), and 
"(IV) if an individual performing service de-
scribed in subparagraph (A) returns to the per-
formance of such service after performing service 
as a member of a uniformed service (including, for 
* 
purposes of this clause, service in the National 
Guard and temporary service in the Coast Guard 
Reserve) and after exercising restoration or reem-
ployment rights as provided under chapter 43 of 
title 38, United States Code, then the service so 38USC202le< 
performed as a member of a uniformed service seg. 
-i 
shall be considered service described in subpara-
graph (A); or 
"(ii) is receiving an annuity from the Civil Service 
Retirement and Disability Fund, or benefits (for service 
as an employee) under another retirement system es-
tablished by a law of the United States for employees of 
the Federal Government (other than for members of 
the uniformed services);". 
(2) Section 210(a)(5) of such Act is further amended (in the matter 42 USC 410. 
which follows "except that this paragraph shall not apply with 
respect to—")— 
(A) by striking out "(i)", "(ii)", "(iii)", "(iv)", and "(v)" and 
inserting in lieu thereof "(C)","(D)", "(E)", "(F)", and "(G)", 
respectively; 
(B) by striking out "(I)", "(II)", and "(III)" and inserting in lieu 
thereof "(i)", "(ii)", and "(iii)", respectively; and 
(C) by striking out subparagraph (G) (as redesignated by 
subparagraph (A) of this paragraph) and inserting in lieu 
thereof the following: 
98 STAT. 1124 
PUBLIC LAW 98-369—JULY 18, 1984 
"(G) Any other service in the legislative branch of the 
Federal Government if such service— 
"(i) is performed by an individual who was not sub-
ject to subchapter III of chapter 83 of title 5, United 
5 use 8331. 
States Code, or to another retirement system estab-
lished by a law of the United States for employees of 
the Federal Government (other than for members of 
the uniformed services), on December 31,1983, or 
"(ii) is performed by an individual who has, at any 
time after December 31, 1983, received a lump-sum 
payment under section 8342(a) of title 5, United States 
Code, or under the corresponding provision of the law 
establishing the other retirement system described in 
clause (i), or 
"(iii) is performed by an individual after such individ-
ual has otherwise ceased to be subject to subchapter III 
of chapter 83 of title 5, United States Code (without 
having an application pending for coverage under such 
subchapter), while performing service in the legislative 
branch (determined without regard to the provisions of 
subparagraph (B) relating to continuity of employ-
ment), for any period of time after December 31, 1983, 
and for purposes of this subparagraph (G) an individual is 
subject to such subchapter III or to any such other retire-
ment system at any time only if (a) such individual's pay is 
subject to deductions, contributions, or similar payments 
(concurrent with the service being performed at that time) 
under section 8334(a) of such title 5 or the corresponding 
provision of the law establishing such other system, or (in a 
case to which section 8332(k)(l) of such title applies) such 
individual is making payments of amounts equivalent to 
such deductions, contributions, or similar payments while 
on leave without pay, or (b) such individual is receiving an 
annuity from the Civil Service Retirement and Disability 
Fund, or is receiving benefits (for service as an employee) 
under another retirement system established by a law of 
the United States for employees of the Federal Government 
(other than for members of the uniformed services);". 
26 use 3121. 
(b)(1) Section 3121(b)(5)(B) of the Internal Revenue Code of 1954 is 
amended to read as follows: 
"(B) is performed by an individual who— 
"(i) has been continuously performing service de-
scribed in subparagraph (A) since December 31, 1983, 
and for purposes of this clause— 
"(I) if an individual performing service described 
in subparagraph (A) returns to the performance of 
.; 
such service after being separated therefrom for a 
period of less than 366 consecutive days, regardless 
of whether the period began before, on, or after 
December 31, 1983, then such service shall be con-
sidered continuous, 
"(II) if an individual performing service de-
scribed in subparagraph (A) returns to the per-
formance of such service after being detailed or 
transferred to an international organization as de-
scribed under section 3343 of subchapter III of 
chapter 33 of title 5, United States Code, or under 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1125 
section 3581 of chapter 35 of such title, then the 
service performed for that organization shall be 
considered service described in subparagraph (A), 
"(HI) if an individual performing service de-
scribed in subparagraph (A) is reemployed or rein-
stated after being separated from such service for 
the purpose of accepting employment with the 
American Institute in Taiwan as provided under 
section 3310 of chapter 48 of title 22, United States 
Code, then the service performed for that Institute 
shall be considered service described in subpara-
graph (A), and 
"(IV) if an individual performing service de-
scribed in subparagraph (A) returns to the per-
formance of such service after performing service 
as a member of a uniformed service (including, for 
purposes of this clause, service in the National 
Guard and temporary service in the Coast Guard 
Reserve) and after exercising restoration or reem-
ployment rights as provided under chapter 43 of 
: 
title 38, United States Code, then the service so 38 use 2021 e^ 
performed as a member of a uniformed service seq. 
shall be considered service described in subpara- 
. 
graph (A); or 
"(ii) is receiving an annuity from the Civil Service 
Retirement and Disability Fund, or benefits (for service 
^ , 
as an employee) under another retirement system es-
tablished by a law of the United States for employees of 
the Federal Government (other than for members of 
the uniformed service);". 
(2) Section 3121(b)(5) of such Code is further amended (in the 26 use 3121. 
matter which follows "except that this paragraph shall not apply 
^j^jj resoect to ") 
(A) by striking out "(i)", "(ii)", "(iii)", "(iv)", and "(v)" and 
inserting in lieu thereof "(C)", "(D)", "(E)", "(F)", and "(G)", 
respectively* 
(B) by striidng out "(I)", "(II)", and "(III)" and inserting in lieu 
thereof "(i)", "(ii)", and "(iii)", respectively; and 
(C) by striking out subparagraph (G) (as redesignated by 
' 
,5s,i\ 
subparagraph (A) of this paragraph) and inserting in lieu 
thereof the following: 
"(G) any other service in the legislative branch of the 
Federal Government if such service— 
"(i) is performed by an individual who was not sub-
ject to subchapter III of chapter 83 of title 5, United 
States Code, or to another retirement system estab- 5 use 8331. 
lished by a law of the United States for employees of 
the Federal Government (other than for members of 
the uniformed services), on December 31,1983, or 
- 
"(ii) is performed by an individual who has, at any 
time after December 31, 1983, received a lump-sum 
payment under section 8342(a) of title 5, United States 
Code, or under the corresponding provision of the law 
establishing the other retirement system described in 
clause (i), or 
"(iii) is performed by an individual after such individ-
ual has otherwise ceased to be subject to subchapter III 
98 STAT. 1126 
PUBLIC LAW 98-369—JULY 18, 1984 
of chapter 83 of title 5, United States Code (without 
having an application pending for coverage under such 
subchapter), while performing service in the legislative 
branch (determined without regard to the provisions of 
subparagraph (B) relating to continuity of employ-
ment), for any period of time after December 31, 1983, 
and for purposes of this subparagraph (G) an individual is 
subject to such subchapter III or to any such other retire-
ment system at any time only if (a) such individual's pay is 
subject to deductions, contributions, or similar payments 
(concurrent with the service being performed at that time) 
under section 8334(a) of such title 5 or the corresponding 
provision of the law establishing such other system, or (in a 
case to which section 8332(kXl) of such title applies) such 
individual is making payments of amounts equivalent to 
such deductions, contributions, or similar payments while 
on leave without pay, or (b) such individual is receiving an 
annuity from the Civil Service Retirement and Disability 
Fund, or is receiving benefits (for service as an employee) 
under another retirement system established by a law of 
the United States for employees of the Federal Government 
(other than for members of the uniformed services);". 
42 use 410 note. 
(c) For purposes of section 210(a)(5)(G) of the Social Security Act 
Ante, pp. 1123, 
and section 3121(b)(5)(G) of the Internal Revenue Code of 1954, an 
1125. 
individual shall not be considered to be subject to subchapter III of 
5 use 8331. 
chapter 83 of title 5, United States Code, or to another retirement 
system established by a law of the United States for employees of 
the Federal Government (other than for members of the uniformed 
services), if he is contributing a reduced amount by reason of the 
Federal Employees' Retirement Contribution Temporary Adjust-
97 Stat. 1106. 
ment Act of 1983. 
42 use 410 note. 
(d)(1) Any individual who— 
(A) was subject to subchapter III of chapter 83 of title 5, 
United States Code, or to another retirement system established 
by a law of the United States for employees of the Federal 
Government (other than for members of the uniformed serv-
ices), on December 31, 1983 (as determined for purposes of 
Ante, p. 1123. 
section 210(a)(5)(G) of the Social Security Act), and 
(BXi) received a lump-sum payment under section 8342(a) of 
such title 5, or under the corresponding provision of the law 
establishing the other retirement system described in subpara-
graph (A), after December 31, 1983, and prior to June 15, 1984, 
or received such a payment on or after June 15, 1984, pursuant 
to an application which was filed in accordance with such 
section 8342(a) or the corresponding provision of the law estab-
lishing such other retirement system prior to that date, or 
(ii) otherwise ceased to be subject to subchapter III of chapter 
83 of title 5, United States Code, for a period after December 31, 
1983, to which section 210(a)(5)(g)(iii) of the Social Security Act 
applies, 
shall, if such individual again becomes subject to subchapter III of 
chapter 83 of title 5 (or effectively applies for coverage under such 
subchapter) after the date on which he last ceased to be subject to 
such subchapter but prior to, or within 30 days after, the date of the 
enactment of this Act, requalify for the exemption from social 
security coverage and taxes under section 210(a)(5) of the Social 
PUBLIC LAW 98-369—JULY 18, 1984 
STAT. 1127 
Security Act and section 3121(bX5) of the Internal Revenue Code of 
1954 as if the cessation of coverage under title 5 had not occurred. 
(2) An individual meeting the requirements of subparagraphs (A) 
and (B) of paragraph (1) who is not in the employ of the United 
States or an instrumentality thereof on the date of the enactment of 
this Act may requalify for such exemptions in the same manner as 
under paragraph (1) if such individual again becomes subject to 
subchapter III of chapter 83 of title 5 (or effectively applies for 
coverage under such subchapter) within 30 days after the date on 
which he first returns to service in the legislative branch after such 
date of enactment, if such date (on which he returns to service) is 
within 365 days after he was last in the employ of the United States 
or an instrumentality thereof. 
(3) If an individual meeting the requirements of subparagraphs 
(A) and (B) of paragraph (1) does not again become subject to 
subchapter III of chapter 83 of title 5 (or effectively apply for 
coverage under such subchapter) prior to the date of the enactment 
of this Act or within the relevant 30-day period as provided in 
paragraph (1) or (2), social security coverage and taxes by reason of 
section 21()(a)(5XG) of the Social Security Act and 
section 
3121(bX5XG) of the Internal Revenue Code of 1954 shall, with respect 
to such individual's service in the legislative branch of the Federal 
Government, become effective with the first month beginning after 
such 30-day period. 
(4) The provisions of paragraphs (1) and (2) shall apply only for 
purposes of reestablishing an exemption from social security cover-
age and taxes, and do not affect the amount of service to be credited 
to an individual for purposes of title 5, United States Code. 
(eXl) For purposes of section 210(aX5) of the Social Security Act (as 
in effect in January 1983 and as in effect on and after January 1, 
1984) and section 3121(bX5) of the Internal Revenue Code of 1954 (as 
so in effect), service performed in the employ of a nonprofit organi-
zation described in section 501(cX3) of the Internal Revenue Code of 
1954 by an employee who is required by law to be subject to 
subchapter III of chapter 83 of title 5, United States Code, with 
respect to such service, shall be considered to be service performed 
in the employ of an instrumentality of the United States. 
(2) For purposes of section 203 of the Federal Employees' Retire-
ment Contribution Temporary Adjustment Act of 1983, service de-
scribed in paragraph (1) which is also "employment" for purposes of 
title II of the Social Security Act, shall be considered to be "covered 
service". 
(0 Except as provided in subsection (d), the amendments made by 
subsections (a) and (b) (and the provisions of subsection (e)) shall be 
effective with respect to service performed after December 31, 1983. 
42 use 410. 
26 use 3121. 
5 use 8331. 
.iy^\. 
Ante, p. 1123. 
Ante, p. 1125. 
42 use 410 note. 
26 use 501. 
97 Stat. 1107. 
5 use 8331 note. 
42 use 401. 
Effective date. 
42 use 410 note. 
PROCEDURES TO PREVENT OVERPAYMENTS DUE TO FAILURE TO REPORT 
EARNINGS 
SEC. 2602. (a) Section 203(h) of the Social Security Act is amended 
by adding at the end thereof the following new paragraph: 
"(4) The Secretary shall develop and implement procedures in 
accordance with this subsection to avoid paying more than the 
correct amount of benefits to any individual under this title as a 
result of such individual's failure to file a correct report or estimate 
of earnings or wages. Such procedures may include identifying 
categories of individuals who are likely to be paid more than the 
42 use 403. 
98 STAT. 1128 
PUBLIC LAW 98-369—JULY 18, 1984 
correct amount of benefits and requesting that they estimate their 
earnings or wages more frequently than other persons subject to 
deductions under this section on account of earnings or wages.". 
Effective date. 
(b) The amendment made by subsection (a) shall be effective upon 
42 use 403 note, the date of the enactment of this Act. 
SPECIAL SOCIAL SECURITY TREATMENT FOR CHURCH EMPLOYEES 
42 use 410. 
SEC 2603. (aXD Section 210(a)(8) of the Social Security Act is 
amended by inserting "(A)" after "(8)", by striking out "this para-
graph" and inserting in lieu thereof "this subparagraph", and by 
adding at the end thereof the following new subparagraph: 
"(B) Service performed in the employ of a church or qualified 
church-controlled organization if such church or organization 
has in effect an election under section 3121(w) of the Internal 
Infra. 
Revenue Code of 1954, other than service in an unrelated trade 
or business (within the meaning of section 513(a) of such 
Code);". 
26 use 3121. 
(2) Section 3121(b)(8) of the Internal Revenue Code of 1954 is 
amended by inserting "(A)" after "(8)", by striking out "this para-
graph" and inserting in lieu thereof "this subparagraph", and by 
adding at the end thereof the following new subparagraph: 
"(B) service performed in the employ of a church or qualified 
church-controlled organization if such church or organization 
has in effect an election under subsection (w), other than service 
in an unrelated trade or business (within the meaning of section 
513(a));". 
(b) Section 3121 of the Internal Revenue Code of 1954 is amended 
by adding at the end thereof the following new subsection: 
"(w) 
EXEMPTION OF CHURCHES AND QUAUFIED CHURCH-CON-
TROLLED ORGANIZATIONS.— 
"(1) GENERAL RULE.—Any church or qualified church-con-
trolled organization (as defined in paragraph (3)) may make an 
election within the time period described in paragraph (2), in 
accordance with such procedures as the Secretary determines to 
be appropriate, that services performed in the employ of such 
church or organization shall be excluded from employment for 
42 use 401. 
purposes of title II of the Social Security Act and chapter 21 of 
26 use 3101 et 
this Code. An election may be made under this subsection only 
seq. 
if the church or qualified church-controlled organization states 
that such church or organization is opposed for religious reasons 
to the payment of the tax imposed under section 3111. 
"(2) TIMING AND DURATION OF ELECTION.—An election under 
this subsection must be made prior to the first date, more than 
90 days after the date of the enactment of this subsection, on 
which a quarterly employment tax return for the tax imposed 
under section 3111 is due, or would be due but for the election, 
from such church or organization. An election under this sub-
section shall apply to current and future employees, and shall 
apply to service performed after December 31, 1983. The elec-
tion may not be revoked by the church or organization, but shall 
be permanently revoked by the Secretary if such church or 
organization fails to furnish the information required under 
section 6051 to the Secretary for a period of 2 years or more 
with respect to remuneration paid for such services by such 
church or organization, and, upon request by the Secretary, fails 
to furnish all such previously unfurnished information for the 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1129 
period covered by the election. Such revocation shall apply 
retroactively to the beginning of the 2-year period for which the 
information was not furnished. 
i 
"(3) DEFINITIONS— 
"(A) For purposes of this subsection, the term 'church' 
wsa 
means a church, a convention or association of churches, or 
an elementary or secondary school which is controlled, 
operated, or principally supported by a church or by a 
convention or association of churches. 
"(B) For purposes of this subsection, the term 'qualified 
church-controlled organization' means any church-con-
trolled 
tax-exempt 
organization 
described 
in 
section 
501(c)(3), other than an organization which— 
"(i) offers goods, services, or facilities for sale, other 
than on an incidental basis, to the general public, other 
than goods, services, or facilities which are sold at a 
nominal charge which is substantially less than the 
cost of providing such goods, services, or facilities; and 
"(ii) normally receives more than 25 percent of its 
support from either (I) governmental sources, or (II) 
receipts from admissions, sales of merchandise, per-
formance of services, or furnishing of facilities, in ac-
tivities which are not unrelated trades or businesses, or 
' 
'> ^'' 
both.". 
(c)(1) Section 211(c)(2) of the Social Security Act is amended— 42 use 411. 
(A) by striking out "and" at the end of subparagraph (E); 
(B) by striking out the semicolon at the end of subparagraph 
(F) and inserting in lieu thereof ", and"; and 
(C) by adding at the end thereof the following new 
subparagraph: 
"(G) service described in section 210(a)(8)(B);". 
Ante, p. 1128. 
(2) Section 1402(c)(2) of the Internal Revenue Code of 1954 is 26 use 1402. 
amended— 
(A) by striking out "and" at the end of subparagraph (E); 
(B) by striking out the semicolon at the end of subparagraph 
(F) and inserting in lieu thereof ", and"; and 
(C) by adding at the end thereof the following new subpara-
graph: 
"(G) service described in section 3121(b)(8)(B);". 
(d)(1) Section 211(a) of the Social Security Act is amended— 
42 use 411. 
(A) by striking out "and" at the end of paragraph (11); 
(B) by striking out the period at the end of paragraph (12) and 
• -* 
inserting in lieu thereof "; and"; and 
(C) by inserting after paragraph (12) the following new 
paragraph: 
"(18) With respect to remuneration for services which are 
treated as services in a trade or business under subsection 
(c)(2)(G)-
"(A) no deduction for trade or business expenses provided 
under the Internal Revenue Code of 1954 (other than the 26 use 1 et seq. 
deduction under paragraph (11) of this subsection) shall 
apply; 
"(B) the provisions of subsection (b)(2) shall not apply; and 
"(C) if the amount of such remuneration from an em-
ployer for the taxable year is less than $100, such remu-
neration from that employer shall not be included in self-
employment income.". 
98 STAT. 1130 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 1402. 
(2) Section 1402(a) of the Internal Revenue Code of 1954 is 
amended— 
(A) by striking out "and" at the end of paragraph (12); 
(B) by striking out the period at the end of paragraph (13) and 
inserting in lieu thereof "; and "; and 
(C) by inserting after paragraph (13) the following new 
paragraph: 
"(14) with respect to remuneration for services which are 
treated as services in a trade or business under subsection 
(c)(2)(G)-
"(A) no deduction for trade or business expenses provided 
under this Code (other than the deduction under paragraph 
(12)) shall apply; 
"(B) the provisions of subsection (b)(2) shall not apply; and 
"(C) if the amount of such remuneration from an em-
ployer for the taxable year is less than $100, such remu-
neration from that employer shall not be included in self-
employment income,". 
Effective date. 
(e) The amendments made by this section shall apply to service 
42 use 410 note, performed after December 31,1983. 
2
6 use 3121 
(f) In any case where a church or qualified church-controlled 
note. 
organization makes an election under section 3121(w) of the Internal 
Ante, p. 1128. 
Revenue Code of 1954, the Secretary of the Treasury shall refund 
(without interest) to such church or organization any taxes paid 
under sections 3101 and 3111 of such Code with respect to service 
performed after December 31, 1983, which is covered under such 
election. The refund shall be conditional upon the church or organi-
zation agreeing to pay to each employee (or former employee) the 
portion of the refund attributable to the tax imposed on such 
employee (or former employee) under section 3101, and such em-
ployee (or former employee) may not receive any other refund 
pajnnent of such taxes. 
Subtitle B—Improvements in SSI and AFDC 
Programs 
PART 1—IMPROVEMENTS IN SSI PROGRAM 
INCREASE IN DOLLAR UMITATIONS UNDER ASSETS TEST 
42 use 1382. 
SEC. 2611. (a) Section 1611(a)(1)(B) of the Social Security Act is 
amended— 
(1) by striking out "$2,250" and inserting in lieu thereof "the 
applicable amount determined under paragraph (3XA)"; and 
(2) by striking out "$1,500" and inserting in lieu thereof "the 
applicable amount determined under paragraph (3XB)". 
(b) Section 1611(a)(2)(B) of such Act is amended by striking out 
"$2,250" and inserting in lieu thereof "the applicable amount deter-
mined under paragraph (3)(A)". 
(c) Section 1611(a) of such Act is further amended by adding at the 
end thereof the following new paragraph: 
"(3)(A) The dollar amount referred to in clause (i) of paragraph 
(1)(B), and in paragraph (2)(B), shall be $2,250 prior to January 1, 
1985, and shall be increased to $2,400 on January 1, 1985, to $2,550 
on January 1, 1986, to $2,700 on January 1, 1987, to $2,850 on 
January 1,1988, and to $3,000 on January 1,1989. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1131 
"(B) The dollar amount referred to in clause (ii) of paragraph 
(IXB), shall be $1,500 prior to January 1,1985, and shall be increased 
to $1,600 on January 1, 1985, to $1,700 on January 1, 1986, to $1,800 
on January 1, 1987, to $1,900 on January 1, 1988, and to $2,000 on 
January 1,1989.". 
(d) Section 16210bX2XB) of such Act is amended— 
42 use I382j. 
(1) by striking out "$1,500" and inserting in lieu thereof "the 
applicable amount determined under section 1611(aX3XB)"; and Ante, p. 1130. 
(2) by striking out "$2,250" and inserting in lieu thereof "the 
applicable amount determined under section 1611(aX3XA)". 
UMITATION OF RECOUPMENT RATE IN CASE OF OVERPAYMENTS 
SEC. 2612. (a) Section 1631(bXl) of the Social Security Act is 42 use 1383. 
amended— 
(1) by inserting "(A)" after "The Secretary" in the second 
sentence; and 
,^,, 
(2) by striking out the period at the end of the second sentence 
and inserting in lieu thereof the following: ", and (B) shall in 
any event make the adjustment or recovery (in the case of 
pa)niient of more than the correct amount of benefits), in the 
case of an individual or eligible spouse receiving benefit pay-
ments under this title (including supplementary payments of 
the type described in section 1616(a) and payments pursuant to 42 use I382e. 
an agreement entered into under section 212(a) of Public Law 
93-66), in amounts which in the aggregate do not exceed (for 87 Stat. 155. 
, 
any month) the lesser of (i) the amount of his or their benefit 
under this title for that month or (ii) an amount equal to 10 
percent of his or their income for that month (including such 
benefit but excluding any other income excluded pursuant to 
section 1612(b)), unless fraud, willful misrepresentation, or con- 42 USC 1382a. 
cealment of material information was involved on the part of 
the individual or spouse in connection with the overpayment, or 
unless the individual requests that such adjustment or recovery 
be made at a higher or lower rate and the Secretary determines 
that adjustment or recovery at such rate is justified and appro-
priate. The availability (in the case of an individual who has 
been paid more than the correct amount of benefits) of proce-
dures for adjustment or recovery at a limited rate under clause 
(B) of the preceding sentence shall not, in and of itself, prevent 
or restrict the provision (in such case) of more substantial relief 
under clause (A) of such sentence.", 
(b) If an adjustment referred to in section 1631(bXl) of the Social 42 USC 1383 
Security Act is in effect with respect to an individual or eligible "^te. 
spouse on the effective date of this subsection, and the amount of 
such adjustment for a month is greater than the amount described 
in section 1631(bXlXBXii) of such Act, as added by subsection (a), the 
Secretary shall notify the individual whose benefits are being ad- 
f 5 J :i 
justed, in writing, of his or her right to have the adjustment reduced 
to the amount described in such section 1631(bXlXBXii). 
TREATMENT OF OVERPAYMENTS WHEN RECIPIENT'S COUNTABLE ASSETS 
EXCEED LIMITS IN CERTAIN CASES 
SEC. 2613. Section 1631(b) of the Social Security Act is amended— 
(1) by redesignating paragraph (3) as paragraph (4); and 
98 STAT. 1132 
PUBLIC LAW 98-369—JULY 18, 1984 
(2) by inserting after paragraph (2) the following new 
paragraph: 
"(3) If any overpayment with respect to an individual (or an 
individual and his or her spouse) is attributable solely to the owner-
ship or possession by such individual (and spouse if any) of resources 
having a value which exceeds the applicable dollar figure specified 
42 use 1682. 
in paragraph (1)(B) or (2)(B) of section 1611(a) by $50 or less, such 
individual (and spouse if any) shall be deemed for purposes of the 
second sentence of paragraph (1) to have been without fault in 
connection with the overpayment, and no adjustment or recovery 
shall be made under the first sentence of such paragraph, unless the 
Secretary finds that the failure of such individual (and spouse if 
any) to report such value correctly and in a timely manner was 
knowing and willful.". 
EXCLUSION OF UNDERPAYMENTS FROM RESOURCES 
42 use 1682b. 
SEC. 2614. Section 1613(a) of the Social Security Act is amended— 
(1) by striking out "and" after the semicolon at the end of 
paragraph (5); 
(2) by striking out the period at the end of paragraph (6) and 
inserting in lieu thereof "; and"; and 
(3) by inserting after paragraph (6) the following new 
paragraph: 
"(7) any amount received from the United States which is 
attributable to underpayments of benefits due for one or more 
42 use 401. 
prior months, under this title or title II, to such individual (or 
spouse) or to any other person whose income is deemed to be 
included in such individual's (or spouse's) income for purposes of 
this title; but the application of this paragraph in the case of 
any such individual (and eligible spouse if any), with respect to 
any amount so received from the United States, shall be limited 
to the first 6 months following the month in which such amount 
is received, and written notice of this limitation shall be given 
to the recipient concurrently with the payment of such 
amount.". 
42 u s e 1320a-6. 
ADJUSTMENTS IN SSI BENEFITS ON ACCOUNT OF RETROACTIVE BENEFITS 
UNDER TITLE II 
SEC. 2615. (a) Section 1127 of the Social Security Act is amended to 
read as follows: 
ADJUSTMENTS IN SSI BENEFITS ON ACCOUNT OF RETROACTIVE 
BENEFITS UNDER TITLE II 
"SEC. 1127. (a) Notwithstanding any other provision of this Act, in 
any case where an individual— 
42 use 401. 
"(1) is entitled to benefits under title II that were not paid in 
the months in which they were regularly due; and 
"(2) is an individual or eligible spouse eligible for supplemen-
tal security income benefits for one or more months in which 
the benefits referred to in clause (1) were regularly due, 
then any benefits under title II that were regularly due in such 
month or months, or supplemental security income benefits for such 
month or months, which are due but have not been paid to such 
individual or eligible spouse shall be reduced by an amount equal to 
PUBLIC LAW 98-369—JULY 18, 1984 
STAT. 1133 
42 u s e 1381. 
42 u s e 1382e. 
87 Stat. 155. 
S
O much of the supplemental security income benefits, whether or 
not paid retroactively, as would not have been paid or would not be 
paid with respect to such individual or spouse if he had received 
such benefits under title II in the month or months in which they 42 USC 401 
were regularly due. 
"(b) For purposes of this section, the term 'supplemental security 
income benefits' means benefits paid or payable by the Secretary 
under title XVI, including State supplementary payments under an 
agreement pursuant to section 1616(a) or an administration agree-
ment under section 212(b) of Public Law 93-66. 
"(c) From the amount of the reduction made under subsection (a), 
the Secretary shall reimburse the State on behalf of which supple-
mentary payments were made for the amount (if any) by which such 
State's expenditures on account of such supplementary payments 
for the month or months involved exceeded the expenditures which 
the State would have made (for such month or months) if the 
individual had received the benefits under title II at the times they 
were regularly due. An amount equal to the portion of such reduc-
tion remaining after reimbursement of the State under the preced-
ing sentence shall be covered into the general fund of the 
Treasury.". 
(b) The amendment made by this section shall apply for purposes 
of reducing retroactive benefits under title II of the Social Security 
Act or retroactive supplemental security income benefits payable 
beginning with the seventh month following the month in which 
this Act is enacted; except that in the case of retroactive title II 
benefits other than those which result from a determination of 
entitlement following an application for benefits under title II or 
from a reinstatement of benefits under title II following a period of 
suspension or termination of such benefits, it shall apply when the 
Secretary of Health and Human Services determines that it is 
administratively feasible. 
Effective date. 
42 USC 1320a-6 
note. 
EXCLUSION FROM INCOME OF CERTAIN ALASKA BONUS PAYMENTS 
SEC. 2616. (a) Section 1612(b)(2)(B) of the Social Security Act is 42 use I382a. 
amended to read as follows: 
"(B) monthly (or other periodic) payments received by any 
individual, under a program established prior to July 1, 1973 (or 
any program established prior to such date but subsequently 
amended so as to conform to State or Federal constitutional 
standards), if (i) such payments are made by the State of which 
the individual receiving such payments is a resident, (ii) eligibil-
ity of any individual for such payments is not based on need and 
is based solely on attainment of age 65 or any other age set by 
the State and residency in such State by such individual, and 
(iii) on or before September 30, 1985, such individual (I) first 
becomes an eligible individual or an eligible spouse under this 
title, and (II) satisfies the twenty-five-year residency require-
ment of such program as such program was in effect prior to 
January 1, 1983.". 
(b) The amendment made by subsection (a) shall become effective Effective date. 
on the date of the enactment of this Act. 
42 USC 1382a 
note. 
98 STAT. 1134 
PUBLIC LAW 98-369—JULY 18, 1984 
PART 2—IMPROVEMENTS IN AFDC PROGRAM 
GROSS INCOME UMITATION 
42 use 602. 
SEC. 2621. Section 402(a)(18) of the Social Security Act is amended 
by striking out "150 percent of the State's standard of need" and 
inserting in lieu thereof "185 percent of the State's standard of 
need". 
WORK EXPENSE DEDUCTION 
SEC. 2622. Section 402(a)(8)(A)(ii) of the Social Security Act is 
amended by striking out all that follows "the first $75 of the total of 
such earned income for such month" and inserting in lieu thereof a 
semicolon. 
CONTINUATION OF $30 DISREGARD FROM EARNED INCOME 
SEC. 2623. (a) Section 402(a)(8)(A)(iv) of the Social Security Act is 
amended by inserting "(I)" after "equal to", and by inserting "(II)" 
after "plus". 
(b) Section 402(a)(8)(B)(ii)(I) of such Act is amended— 
(1) by striking out all that precedes "specified in subpara-
graph (A)(ii)" and inserting in lieu thereof the following: 
"(I) shall not disregard— 
"(a) under subclause (II) of subparagraph (A)(iv), in a 
case where such subclause has already been applied to 
the income of the persons involved for four consecutive 
months while they were receiving aid under the plan, 
or 
"(b) under subclause (I) of subparagraph (A)(iv), in a 
case where such subclause has already been applied to 
the income of the persons involved for twelve consecu-
tive months while they were receiving aid under the 
plan, 
any earned income of any of the persons"; and 
(2) by striking out "and subparagraph (A)(iv) has not already 
been applied to their income for four consecutive months while 
they were receiving aid under the plan". 
(c) Section 402(a)(8)(B)(ii)(II) of such Act is amended by striking out 
"shall not apply" where it first appears and all that follows down 
through "any month thereafter" and inserting in lieu thereof the 
following: "shall not apply the provisions of subclause (II) of such 
subparagraph to any month after such month, or apply the provi-
sions of subclause (I) of such subparagraph to any month after the 
eighth month following such month, for so long as he continues to 
receive aid under the plan, and shall not apply the provisions of 
either such subclause to any month thereafter". 
WORK TRANSITION IN THE CASE OF CERTAIN FAMILIES WHO LOSE AFDC 
BENEFITS BECAUSE OF EARNED INCOME 
SEC. 2624. (a) Section 402(a) of the Social Security Act is 
amended— 
(1) by striking out "and" after the semicolon at the end of 
paragraph (35); 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1135 
Effective date. 
42 u s e 602 note. 
Supra. 
(2) by striking out the period at the end of paragraph (36) and 
inserting in Heu thereof "; and"; and 
(3) by adding after paragraph (36) the following new 
paragraph: 
"(37) provide that, in any case where a family has ceased to 
receive aid under the plan because (by reason of paragraph 
(8)(BXiiXII)) the provisions of paragraph (8)(AXiv) no longer 
apply, such family shall be considered for purposes of title XIX 42 use 1396. 
to be receiving aid to families with dependent children under 
such plan for a period of 9 months after the last month for 
which the family actually received such aid; and the State may 
at its option extend such period by an additional period of up to 
6 months in the case of a family that would be eligible during 
such additional period to receive aid under the plan (without 
regard to this paragraph) if such paragraph (8)(AXiv) applied.". 
(bXl) The amendments made by this section shall apply with 
respect to months beginning on or after October 1,1984. 
(2) Such amendments shall apply with respect to families 
which ceased to receive aid under the applicable State plan (for 
the reason stated in section 402(aX37) of the Social Security Act 
as added by subsection (a) of this section) before October 1,1984, 
as well as with respect to families which cease to receive aid (for 
that reason) on or after that date; but any family which ceased 
to receive such aid before that date, in order to be eligible to be 
treated as receiving aid under the plan for any period after 
ceasing to receive such aid (as provided for in such section 
402(aX37))— 
(A) must make its application for such treatment no later 
than the end of the sixth month after the month in which 
final regulations governing the application of such section 
402(aX37) are promulgated by the Secretary of Health and 
Human Services (and in the case of any such family the 
term "last month for which the family actually received 
such aid" as used in such section 402(aX37) means the 
month before the month in which the family makes such 
application); 
(B) must be a family that would have been continuously 
eligible for aid under the State plan (without regard to the 
amendments made by this section), from the time it ceased 
to receive such aid to the time of its application under 
subparagraph (A), if section 402(aX8XAXiv) of such Act ap-
plied; and 
(C) must fully disclose, in its application under subpara-
graph (A), any health insurance coverage which its mem-
bers may have in effect. 
CLARIFICATION OF EARNED INCOME PROVISION 
SEC. 2625. (a) Section 402(aX8) of the Social Security Act is 42 use 602. 
amended by striking out "and" at the end of subparagraph (A), by 
adding "and" at the end of subparagraph (B), and by adding at the 
end thereof the following new subparagraph: 
"(C) provide that in implementing this paragraph the term 
'earned income' shall mean gross earned income, prior to any 
deductions for taxes or for any other purposes;". 
(b) The amendments made by subsection (a) shall become effective Effective date. 
on the date of the enactment of this Act. 
42 USC 602 note. 
98 STAT. 1136 
PUBLIC LAW 98-369—JULY 18, 1984 
EXCLUSION OF BURIAL PLOTS, FUNERAL AGREEMENTS, AND CERTAIN 
PROPERTY FROM LIMITATION ON FAMILY RESOURCES 
42 use 602. 
SEC. 2626. Section 402(a)(7)(B) of the Social Security Act is 
amended by inserting "(i)" after "for purposes of this subpara-
graph", and by inserting before the semicolon at the end thereof the 
following: ", (ii) under regulations prescribed by the Secretary, 
burial plots (one for each such child, relative, and other individual), 
and funeral agreements or (iii) for such period or periods of time as 
the Secretary may prescribe, real property which the family is 
making a good-faith effort to dispose of, but any aid payable to the 
family for any such period shall be conditioned upon such disposal, 
and any payments of such aid for that period shall (at the time of 
the disposal) be considered overpayments to the extent that they 
would not have been made had the disposal occurred at the begin-
ning of the period for which the payments of such aid were made". 
FEDERAL MATCHING FOR EXPENSES INCURRED BY STATES IN REIMBURS-
ING AFDC RECIPIENTS FOR TRANSPORTATION AND DAY CARE COSTS AT-
TRIBUTABLE TO PARTICIPATION IN CWEP 
42 use 609. 
SEC 2627. Section 409(a)(1)(F) of the Social Security Act is 
amended— 
(1) by inserting "(i) except as provided in clause (ii)" after 
"that"; and 
(2) by inserting before the period at the end thereof the 
following: ", and (ii) to the extent that the State is unable to 
provide for the costs involved through the furnishing of services 
directly to the individuals participating in the program, partici-
pants who are recipients of aid under the State's plan approved 
42 use 602. 
under section 402 will instead be reimbursed for transportation 
costs directly related to their participation in the program (in 
amounts equal to the cost of transportation by the most appro-
priate means as determined by the State agency), and for day 
care expenses directly attributable to such participation (in 
amounts determined by the State agency to be reasonable, 
necessary, and cost-effective but not in excess of the comparable 
maximum 
day 
care 
deduction 
allowed 
under 
section 
402(a)(8)(A)(iii) for recipients of aid under the plan generally); 
and amounts paid as reimbursement to participants under 
clause (i) or (ii) shall be considered, for purposes of section 
42 use 603. 
403(a), to be expenditures made for the proper and efficient 
administration of the State's plan approved under section 402". 
MONTHLY REPORTING AND RETROSPECTIVE BUDGETING 
42 use 602. 
SEC 2628. (a) Section 402(a)(13) of the Social Security Act is 
amended— 
(1) by striking out "provide that—" and inserting in lieu 
thereof "with respect to families who are required to report 
monthly to the State agency pursuant to paragraph (14) (and at 
the option of the State with respect to other families), provide 
that—"; and 
(2) by striking out "but only where the Secretary determines 
it to be appropriate" in subparagraphs (A) and (B) and inserting 
in lieu thereof "(but only where the Secretary determines it to 
be appropriate, in the case of families who are required to 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1137 
report monthly to the State agency pursuant to paragraph 
(14))". 
(b) Section 402(aX14) of such Act is amended— 
42 USC 602. 
(1) by striking out "(A) provide that" and inserting in lieu 
thereof "with respect to families in the category of recent work 
history or earned income cases (and at the option of the State 
with respect to families in other categories), provide (A) that"; 
(2) by striking out "with the prior approval of the Secretary" 
and inserting in lieu thereof "(with the prior approval of the 
Secretary in recent work history and earned income cases)"; 
and 
(3) by striking out "upon the State's showing to the satisfac-
tion of the Secretary that" and inserting in lieu thereof "upon a 
determination that". 
(c) Section 402(a) of such Act is further amended by adding at the 
end thereof (after and below paragraph (37), as added by section 
2624(a) of this Act) the following new sentence: "The Secretary may 
waive any of the requirements imposed under or in connection with 
par£igraphs (13) and (14) of this subsection to the extent necessary to 
make such requirements compatible with the corresponding report-
ing and budgeting requirements by the Food Stamp Act of 1977.". 7 USC 2011. 
TREATMENT OF EARNED INCOME TAX CREDIT IN DETERMINING 
COUNTABLE INCOME 
SEC. 2629. Section 402(dXl) of the Social Security Act is amended 
to read as follows: 
"(1) For purposes of paragraphs (7) and (8) of subsection (a), any 
refund of Federal income taxes made by reason of section 32 of the 
Internal Revenue Code of 1954 (relating to earned income credit) Ante, p. 826. 
and any pajmient made by an employer under section 3507 of such 
Code (relating to advance pa3moient of earned income credit) shall be 
26 use 3507. 
considered earned income.". 
FEDERALLY ASSISTED PILOT PROJECTS TO DEMONSTRATE ONE-STOP 
SERVICE DELIVERY SYSTEMS 
SEC. 2630. Part A of title XI of the Social Security Act is amended 
by adding at the end thereof the following new section: 
"PILOT PROJECTS TO DEMONSTRATE THE USE OF INTEGRATED SERVICE 
D E U V E R Y SYSTEMS FOR H U M A N SERVICES PROGRAMS 
"SEC. 1136. (a) In order to develop and demonstrate ways of 42 use i320b-6. 
improving the delivery of services to individuals and families who 
need them under the various human services programs, by eliminat-
ing programmatic fragmentation and thereby assuring that an ap-
plicant for services under any one such program will be informed of 
and have access to all of the services which may be available to him 
or his family under the other human services programs being 
carried out in the community involved, any State having an ap-
proved plan under part A of title IV may, subject to the provisions of 42 USC 601. 
this section, establish and conduct one or more pilot projects to 
demonstrate the use of integrated service delivery systems for 
human services programs in that State or in one or more political 
subdivisions thereof. 
•^1
i QA n
Hf;
98 STAT. 1138 
PUBLIC LAW 98-369—JULY 18, 1984 
"(b) The integration of service delivery systems for human serv-
ices programs in any State or locality under a pilot project estab-
lished under this section shall involve or include— 
"(1) the development of a common set of terms for use in all of 
the human services programs involved; 
"(2) the development for each applicant of a single compre-
hensive family profile which is suitable for use under all of the 
human services programs involved; 
"(3) the establishment and maintenance of a single resources 
directory by which the citizens of the community involved may 
be informed of and gain access to the services which are avail-
able under all such programs; 
"(4) the development of a unified budget and budgeting proc-
ess, and a unified accounting system, with standardized audit 
procedures; 
"(5) the implementation of unified planning, needs assess-
ment, and evaluation; 
"(6) the consolidation of agency locations and related trans-
portation services; 
"(7) the standardization of procedures for purchasing services 
from nongovermental sources; 
"(8) the creation of communications linkages among agencies 
to permit the serving of individual and family needs across 
program and agency lines; 
"(9) the development, to the maximum extent possible, of 
uniform application and eligibility determination procedures; 
and 
"(10) any other methods, arrangements, and procedures which 
the Secretary determines are necessary or desirable for, and 
consistent with, the establishment and operation of an inte-
grated service delivery system. 
"(c)(1) Any State which desires to establish and conduct a pilot 
project under this section, after having published a description of 
the proposed project and invited comments thereon from interested 
persons in the community or communities which would be affected, 
shall submit an application to the Secretary (in such form and 
containing such information as the Secretary may require) within 6 
months after the date of the enactment of this section. The proposed 
project may be statewide in operation or may be limited to one or 
more political subdivisions of the State; and the application shall in 
any event include or be accompanied by satisfactory assurances that 
the project as proposed would be permitted under applicable State 
and local law. 
"(2) The Secretary shall consider all applications and accompany-
ing comments and materials which are submitted under paragraph 
(1), and, no later than 9 months after the date of the enactment of 
this section, shall approve no fewer than 3 nor more than 5 of the 
proposed projects (including one such project to be operated on a 
statewide basis). In considering and approving such applications the 
Secretary shall take into account the size and characteristics of the 
population that would be served by each proposed project, the 
desirability of wide geographic distribution among the projects, the 
number and nature of the human services programs which are in 
active operation in the various communities involved, and such 
other factors as may tend to indicate whether or not a particular 
proposed project would provide a useful and effective demonstration 
of the value of an integrated service delivery system. Each project 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1139 
approved under this paragraph shall be deemed for purposes of this 
section to begin on the first day of the month following the month in 
which the application with respect to such project is approved. 
"(3) The Secretary shall approve any application for a project 
under this section only after determining that the conduct of such 
project will not lower or restrict the levels of aid, assistance, bene-
fits, or services, or the income or resource standards, deductions, or 
exclusions, under any of the human services programs involved, and 
will not delay the provision of aid, assistance, benefits, or services 
under any of such programs. 
"(d)(1) Any State whose application is approved under subsection 
(c) may submit to the Secretary a request for the waiver of any 
requirement which would otherwise apply with respect to the pro-
posed project under any of the laws governing the human services 
programs to be included in the project; and— 
"(A) if the law involved is within the jurisdiction of the 
Secretary and authority to grant the waiver involved is other-
wise available to the Secretary under this title, title IV, or any 42 USC 601. 
other provision of law, the Secretary shall approve such request 
upon a determination that the waiver is necessary for the 
project to provide a useful and effective demonstration of the 
value of an integrated service delivery system; and 
"(B) if the law involved is within the jurisdiction of a Federal 
agency other than the Department of Health and Human Serv-
ices and authority to grant the waiver involved is available to 
the head of such other agency under that law or any other 
provision of law, the Secretary shall transmit such request (on 
behalf of the requesting State) to the head of such other agency, 
who shall approve such request upon a determination that the 
waiver is necessary for the project to provide a useful and 
effective demonstration of the value of an integrated service 
delivery system and who shall certify such approval to the 
^,. ; 
Secretary. 
"(2) If under the law governing any of the human services pro- Public 
grams included within a project there are provisions establishing information. 
safeguards which limit or restrict the use or disclosure of informa-
tion (concerning applicants for or recipients of benefits or services) 
which has been obtained or developed by the agency involved in the 
conduct of that program, and a waiver of such provisions is granted 
under paragraph (1) in order to make such information available for 
purposes of the project— 
"(A) the State shall provide each applicant for and recipient 
of aid, assistance, benefits, or services under the proposed inte-
grated service delivery system with a clear and readily compre-
hensible notice that such information may be disclosed to and 
used by project personnel, or exchanged with the other agencies 
having responsibility for human services programs included 
within the project; 
"(B) the State shall take such steps as may be necessary to 
ensure that the information disclosed will be used only for 
purposes of, and by persons directly connected with, such 
project; and 
"(C) the State's application with respect to the project under 
subsection (c) shall contain or be accompanied by satisfactory 
assurances that the preceding requirements of this paragraph 
will be fully complied with. 
98 STAT. 1140 
PUBLIC LAW 98-369—JULY 18, 1984 
42 use 601. 
42 use 1381. 
29 use 701 note. 
Reports. 
Report. 
Appropriation 
authorization. 
"(e) The Secretary shall from time to time pay to each State which 
has an approved pilot project under this section, in such manner and 
according to such schedule as may be agreed upon by the Secretary 
and such State, amounts equal in the aggregate to— 
"(1) 90 percent of the costs incurred by such State and its 
political subdivisions in carrying out such project during the 
first 18 months after the date on which the project begins, 
"(2) 80 percent of any such costs incurred during the 12-month 
period beginning with the nineteenth month after such date, 
and 
"(3) 70 percent of any such costs incurred during the 12-month 
period beginning with the thirty-first month after such date. 
"(f)(1) For purposes of this section, the term 'human services 
program' includes the program of aid to families with dependent 
children under part A of title IV, the supplemental security income 
benefits program under title XVI, the Federal food stamp program, 
and any other Federal or federally assisted program (other than a 
program under the Rehabilitation Act of 1973) which provides aid, 
assistance, or benefits based wholly or partly on need or on income-
related qualifications to specified classes or types of individuals or 
families or which is designed to help in crisis or emergency situa-
tions by meeting the basic human needs of individuals or families 
whose own resources are insufficient for that purpose. 
"(2) In carrying out this section the Secretary shall regularly 
consult with the Secretary of Labor, the Secretary of Agriculture, 
the Secretary of Housing and Urban Development, and the head of 
any other Federal agency having jurisdiction over or responsibility 
for one or more human services programs, in order to ensure that 
the administrative efforts of the various agencies involved are co-
ordinated with respect to all of the pilot projects being carried out 
under this section. 
"(g) The Secretary shall require each State which is carrying out a 
pilot project under this section to submit periodic reports on the 
progress of such project, giving particular attention to the cost-
effectiveness of the integrated service delivery system involved and 
the extent to which such system is improving the delivery of serv-
ices. No pilot project under this section shall be conducted for a 
period of longer than 42 months. The first such report shall be 
submitted no later than 3 months after the date on which the 
project begins. 
"(h) The Secretary shall from time to time submit to the Congress 
a report on the progress and current status of each of the approved 
pilot projects under this section. Each such report shall reflect the 
periodic reports theretofore submitted to the Secretary by the States 
involved under subsection (g), and shall contain such additional 
comments, findings, and recommendations with respect to the oper-
ation of the program under this section as the Secretary may 
determine to be appropriate. 
"(i) The Comptroller General shall, at such time or times as he 
determines to be appropriate, review and evaluate any or all of the 
pilot projects undertaken pursuant to this section, and shall from 
time to time report to the Congress on the results of such reviews 
and evaluations together with his findings and recommendations 
with respect thereto. 
"(j) There are authorized to be appropriated, for the four-fiscal-
year period beginning with the fiscal year 1985, such sums, not to 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1141 
exceed $8,000,000 in the aggregate, as may be necessary to carry out 
this section.". 
EXEMPTION OF CERTAIN PREGNANT WOMEN FROM REGISTRATION FOR 
WORK OR TRAINING 
SEC. 2631. Section 402(aX19XA) of the Social Security Act is 42 use 602. 
amended— 
(1) by striking out "or" at the end of clause (vii); 
(2) by adding "or" after the semicolon at the end of clause 
(viii); and 
(3) by inserting immediately after clause (viii) the following 
new clause: 
"(ix) a woman who is pregnant if it has been medically 
verified that the child is expected to be born in the month 
in which such registration would otherwise be required or 
within the 3-month period immediately following such 
month;". 
TREATMENT OF NONRECURRING LUMP SUM INCOME 
SEC. 2632. (a) Section 402(aX17) of the Social Security Act is 
amended by adding at the end thereof (after and below subpara-
graph (B)) the following: 
"except that the State may at its option recalculate the period 
of ineligibility otherwise determined under subparagraph (A) 
(but only with respect to the remaining months in such period) 
, ,„ 
in any one or more of the following cases: (i) an event occurs 
'"" ' " 
which, had the family been receiving aid under the State plan 
for the month of the occurrence, would result in a cheinge in the 
amount of aid payable for such month under the plan, or (ii) the 
income received has become unavailable to the members of the 
family for reasons that were beyond the control of such mem-
bers, or (iii) the family incurs, becomes responsible for, and pays 
medical expenses (as allowed by the State) in a month of 
ineligibility determined under subparagraph (A) (which ex-
penses may be considered as an offset against the amount of 
income received in the first month of such ineligibility);", 
(b) Section 402(aK17) of such Act is further amended— 
(1) by striking out "a person specified in paragraph (8XA) (i) or 
(ii)" in the matter preceding subparagraph (A) and inserting in 
lieu thereof "a child or relative applying for or receiving aid to 
families with dependent children, or any other person whose 
need the State considers when determining the income of a 
family,"; and 
(2) effective on the date of the enactment of this Act, by 
striking out "an amount of income" in the matter preceding 
subparagraph (A) and inserting in lieu thereof "an amount of 
earned or unearned income". 
WAIVER OF OVERPAYMENT RECOUPMENT WHEN COST OF COLLECTION 
WOULD EXCEED AMOUNT DUE 
SEC. 2633. (a) Section 402(aX22) of the Social Security Act is 
amended by adding at the end thereof (after and below subpara-
graph (O) the following: 
98 STAT. 1142 
PUBLIC LAW 98-369—JULY 18, 1984 
"except that no recovery need be attempted or carried out 
under subparagraph (B) in any case, other than a case involving 
fraud on the part of the recipient, where (as determined by the 
State agency in accordance with criteria for determining cost-
effectiveness, and with dollar limitations, which shall be pre-
scribed by the Secretary in regulations) the cost of recovery 
would equal or exceed the amount of the overpayment 
involved;". 
42 use 602. 
(b) Section 402(a)(22)(A) of such Act is amended by inserting after 
"current recipient of such aid" the following: "(including a current 
recipient whose overpayment occurred during a prior period of 
eligibility)". 
EXCEPTIONS TO REQUIREMENTS FOR PROTECTIVE PAYMENTS 
SEC. 2634. (a) Section 402(a)(19)(F)(i) of the Social Security Act is 
amended by striking out "will be made" and inserting in lieu 
thereof "will be made unless the State agency, after making reason-
able efforts, is unable to locate an appropriate individual to whom 
such payments can be made". 
(b) Section 402(a)(26)(B) of such Act is amended by inserting before 
the semicolon at the end thereof the following: "unless the State 
agency, after making reasonable efforts, is unable to locate an 
appropriate individual to whom such payments can be made". 
ELIGIBILITY REQUIREMENTS FOR ALIENS 
42 use 615. 
SEC. 2635. Section 415(c)(1) of the Social Security Act is amended 
by striking out "Any individual" and all that follows down through 
"be required to provide" where it first appears and inserting in lieu 
thereof the following: "Any individual who is an alien and whose 
sponsor was a public or private agency shall be ineligible for aid 
under a State plan approved under this part during the period of 
three years after his or her entry into the United States, unless the 
State agency administering such plan determines that such sponsor 
either no longer exists or has become unable to meet such individ-
ual's needs; and such determination shall be made by the State 
agency based upon such criteria as it may specify in the State plan, 
and upon such documentary evidence as it may therein require. Any 
such individual, and any other individual who is an alien (as a 
condition of his or her eligibility for aid under a State plan approved 
under this part during the period of three years after his or her 
entry into the United States), shall be required to provide". 
PROVISION BY STATE AGENCIES OF INFORMATION REGARDING FUGITIVE 
FELONS 
42 use 602. 
SEC. 2636. Section 402(a)(9) of the Social Security Act is amended 
by inserting before the semicolon at the end thereof the follow-
ing: "; but such safeguards shall not prevent the State agency or the 
local agency responsible for the administration of the State plan in 
the locality (whether or not the State has enacted legislation allow-
ing public access to Federal welfare records) from furnishing a State 
or local law enforcement officer, upon his request, with the current 
address of any recipient if the officer furnishes the agency with such 
recipient's name and social security account number and satisfacto-
rily demonstrates that such recipient is a fugitive felon, that the 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1143 
location or apprehension of such felon is within the officer's official 
duties, and that the request is made in the proper exercise of those 
duties". 
PAYMENT SCHEDULE FOR REIMBURSEMENT OF CERTAIN BACK CLAIMS 
DUE THE STATES 
SEC. 2637. The pajnnent schedule contemplated by section 136 of 
Public Law 97-276 for reimbursement of expenditures described in 96 Stat. 1197. 
that section is hereby established as follows: 
(1) For expenditures identified in the decree entered by the 
United States District Court for the District of Columbia on 
July 21,1983, in the case of State of Connecticut v. Heckler, No. 
81-2237, and allowed by the Secretary of Health and Human 
Services prior to the date of the enactment of this Act, payment 
shall be made, by supplemental grant award or otherwise, 
within 30 days after the date of the enactment of this Act; and 
(2) for any other expenditure described in such section 136 
which was identified in such decree or in any other decree 
entered by a Federal court in a suit (with respect to such an 
expenditure) filed prior to September 30,1982, payment shall be 
made, by supplemental grant award or otherwise, as soon as the 
expenditure or portion thereof involved is finally determined by 
the Secretary to be an allowable claim under the substantive 
' •" 
provisions of the applicable title of the Social Security Act. 42 use 1305. 
MODIFICATION OF REQUIREMENTS FOR WORK SUPPLEMENTATION 
PROGRAM 
SEC. 2638. (aXD Section 414(bX6) of the Social Security Act is 42 use 614. 
amended— 
(A) by inserting "(A)" before "may"; and 
(B) by inserting ", and (B) during one or more of the first nine 
months of an individual's employment pursuant to a program 
' DBU 2I 
under this section, may apply to the wages of the individual the 
provisions of section 402(aX8XAXiv) without regard to the provi- 42 USC 602. 
sions of (BXiiXII) of such section" before the period. 
(2) Section 414(cX3) of such Act is amended— 
(A) by inserting "or" after the semicolon in subparagraph (A); 
(B) by striking out "a public or nonprofit entity" in subpara-
graph (B) and inserting in lieu thereof "any other employer"; 
(C) by striking out "; or" in subparagraph (B) and inserting in 
lieu thereof a period; and 
(D) by striking out subparagraph (C). 
(3) Section 414(d) of such Act is amended— 
(A) by striking out "for any quarter for expenditures incurred 
in operating" and inserting in lieu thereof "for expenditures 
incurred in making payments to individuals and employers 
under"; and 
(B) by striking out all after "equal to the" and inserting in 
' ' -
lieu thereof "amount which would otherwise be payable under 
such section if the family of each individual employed in the 
program established in such State under this section had 
received the maximum amount of aid payable under the State 
plan to such a family with no income (without regard to adjust-
ments under subsection (b) of this section) for a period of 
months equal to the lesser of (1) nine months, or (2) the number 
98 STAT. 1144 
PUBLIC LAW 98-369—JULY 18, 1984 
of months in which such individual wsis employed in such 
program.". 
42 use 614. 
(4) Section 414(h) of such Act is amended by inserting "(except 
during any period in which such individual is employed under such 
work supplementation program)" before the period. 
26 use 51. 
(b) Section 51(c)(2) of the Internal Revenue Code of 1954 is 
amended to read as follows: 
"(2) ON-THE-JOB TRAINING AND WORK SUPPLEMENTATION PAY-
MENTS.— 
"(A) 
EXCLUSION FOR EMPLOYERS RECEIVING ON-THE-JOB 
TRAINING PAYMENTS.—The term 'wages' shall not include 
any amounts paid or incurred by an employer for any 
period to any individual for whom the employer receives 
federally funded payments for on-the-job training of such 
individual for such period. 
"(B) REDUCTION FOR WORK SUPPLEMENTATION PAYMENTS 
T
O EMPLOYERS.—The amount of wages which would (but for 
this subparagraph) be qualified wages under this section for 
an employer with respect to an individual for a taxable year 
shall be reduced by an amount equal to the amount of the 
payments made to such employer (however utilized by such 
employer) with respect to such individual for such taxable 
year under a program established under section 414 of the 
42 use 614. 
Social Security Act.". 
Effective date. 
(c)(1) The amendments made by subsection (a) shall become effec-
42 use 614 note, tive On the date of the enactment of this Act. 
26 use 51 note. 
(2) The amendments made by subsection (b) shall apply with 
respect to payments made on or after the date of the enactment of 
this Act. 
3-YEAR EXTENSION OF PROVISIONS FOR DISREGARDING IN-KIND 
ASSISTANCE 
42 use 602. 
SEC. 2639. (a) Section 402(a)(36) of the Social Security Act is 
amended to read as follows: 
"(36) provide, at the option of the State, that in making the 
determination for any month under paragraph (7), the State 
agency shall not include as income any support or maintenance 
assistance furnished to or on behalf of the family which (as 
determined under regulations of the Secretary by such State 
agency as the chief executive officer of the State may designate) 
is based on need for such support and maintenance, including 
assistance received to assist in meeting the costs of home energy 
(including both heating and cooling), and which is (A) assistance 
furnished in kind by a private nonprofit agency, or (B) assist-
ance furnished by a supplier of home heating oil or gas, by an 
entity whose revenues are primarily derived on a rate-of-return 
basis regulated by a State or Federal governmental entity, or by 
a municipal utility providing home energy.". 
42 use 1382a. 
(b) Section 1612(b)(13) of such Act is amended to read as follows: 
"(13) any support or maintenance assistance furnished to or 
on behalf of such individual (and spouse if any) which (as 
determined under regulations of the Secretary by such State 
agency as the chief executive officer of the State may designate) 
is based on need for such support or maintenance, including 
assistance received to assist in meeting the costs of home energy 
(including both heating and cooling), and which is (A) assistance 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1145 
furnished in kind by a private nonprofit agency, or (B) assist-
ance furnished by a supplier of home heating oil or gas, by an 
entity providing home energy whose revenues are primarily 
derived on a rate-of-return basis regulated by a State or Federal 
governmental entity, or by a municipal utility providing home 
energy.". 
(cXD Section 545 of the Surface Transportation Assistance Act of 42 USC 1382a, 
1982 is amended by striking out subsections (a), (b), and (c). 
602, 602 note. 
(2) Section 404 of the Social Security Amendments of 1983 is 42 use I382a, 
repealed. 
602, 602 note, 
(d) The amendments made by this section shall be effective with Effective date. 
respect to months which begin after September 30,1984; but sections ^2 USC 602 note. 
402(aX36) and 1612(bX13) of the Social Security Act (as amended by 
subsections (a) and (b) of this section) shall be effective only with 
respect to months which end before October 1,1987. 
PARENTS AND SIBUNGS OF DEPENDENT CHILD INCLUDED IN AFDC 
FAMILY; CHILD SUPPORT PAYMENTS 
SEC. 2640. (a) Section 402(a) of the Social Security Act (as amended 42 USC 602. 
by section 2624 of this Act) is further amended— 
(1) by striking out "and" at the end of paragraph (36); 
,
? i;j - >..j ^ > 
(2) by striking out the period at the end of paragraph (37) and 
inserting in lieu thereof "; and"; and 
(3) by inserting immediately after paragraph (37) the follow-
ing new paragraphs: 
"(38) provide that in making the determination under para-
graph (7) with respect to a dependent child and applying para-
graph (8), the State agency shall (except as otherwise provided 
in this part) include— 
"(A) any parent of such child, and 
"(B) any brother or sister of such child, if such brother or 
sister meets the conditions described in clauses (1) and (2) of 
section 406(a), if such parent, brother, or sister is living in 42 USC 606. 
the same home as the dependent child, and any income of 
or available for such parent, brother, or sister shall be 
included in making such determination and applying such 
paragraph with respect to the family (notwithstanding sec-
* 
tion 205(j), in the case of benefits provided under title II); 42 USC 405. 
and 
"(39) provide that in making the determination under para-
graph (7) with respect to a dependent child whose parent or 
legal guardian is under the age selected by the State pursuant 
. ,-^ . . 
to section 406(aX2), the State agency shall (except as otherwise 
provided in this part) include any income of such minor's own 
parents or legal guardians who are living in the same home as 
such minor and dependent child, to the same extent that income 
of a stepparent is included under paragraph (31).". 
(bXD Section 457(b) of such Act is amended by redesignating 42 usC 657. 
paragraphs (1), (2), and (3) as paragraphs (2), (3), and (4), respectively, 
and by inserting immediately before the paragraph redesignated as 
paragraph (2) the following new paragraph: 
"(1) the first $50 of such amounts as are collected periodically 
which represent monthly support payments shall be paid to the 
family without affecting its eligibility for assistance or decreas-
ing any amount otherwise payable as assistance to such family 
during such month;". 
98 STAT. 1146 
PUBLIC LAW 98-369—JULY 18, 1984 
42 use 657. 
(2) Section 4570b) of such Act, as amended by paragraph (1) of this 
subsection, is further amended— 
(A) by inserting "which are in excess of any amount paid to 
the family under paragraph (1) and" after "periodically" in 
paragraph (2); 
(B) by striking out "paragraph (1)" in paragraph (3) and 
inserting in lieu thereof "paragraph (2)"; and 
(C) by striking out "paragraphs (1) and (2)" in paragraph (4) 
and inserting in lieu thereof "paragraphs (1), (2), and (3)". 
42 use 602. 
(c) Section 402(a)(8XA) of such Act is amended by striking out 
"and" after the semicolon at the end of clause (iv), and by adding 
after clause (v) the following new clause: 
"(vi) shall disregard the first $50 of any child support 
payments received in such month with respect to the de-
pendent child or children in any family applying for or 
receiving aid to families with dependent children (including 
support payments collected and paid to the family under 
section 457(b)); and". 
CWEP WORK FOR FEDERAL AGENCIES 
42 use 609. 
SEC. 2641. (a) Section 409(a) of the Social Security Act is amended 
by adding at the end thereof the following new paragraph: 
"(4XA) Participants in community work experience programs 
under this section may, subject to subparagraph (B), perform work 
in the public interest (which otherwise meets the requirements of 
this section) for a Federal office or agency with its consent, and, 
notwithstanding section 1342 of title 31, United States Code, or any 
other provision of law, such agency may accept such services, but 
such participants shall not be considered to be Federal employees 
for any purpose. 
"(B) The State agency shall provide appropriate workers' compen-
sation and tort claims protection to each participant performing 
work for a Federal office or agency pursuant to subparagraph (A) on 
the same basis as such compensation and protection are provided to 
other participeuits in community work experience programs in the 
State.". 
Effective date. 
(b) The amendment made by subsection (a) shall become effective 
42 use 609 note, on the date of the enactment of this Act. 
EARNED INCOME OF FULL-TIME STUDENTS 
42 use 602. 
SEC 2642. (a) Section 402(aX18) of the Social Security Act is 
amended by inserting before the semicolon at the end thereof the 
following: ", except that in determining the total income of the 
family the State may exclude any earned income of a dependent 
child who is a full-time student, in such amounts and for such period 
of time (not to exceed 6 months) as the State may determine", 
(b) Section 402(aX8XA) of such Act (as amended by section 2640(c) 
of this Act) is further amended by striking out "and" after the 
semicolon at the end of clause (v), and by adding after clause (vi) the 
following new clause: 
"(vii) may disregard all or any part of the earned income 
of a dependent child who is a full-time student and who is 
applying for aid to families with dependent children, but 
only if the earned income of such child is excluded for such 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1147 
month in determining the family's total income under para-
graph (18); and". 
(c) The amendments made by this section shall become effective 
Effective date. 
June 1, 1984. 
42 USC 602 note. 
PART 3—GENERAL EFFECTIVE DATE 
GENERAL EFFECTIVE DATE 
SEC. 2646. Except as otherwise specifically provided in this sub-
title, the provisions of parts 1 and 2 and the amendments made 
thereby shall take effect on October 1, 1984. 
Subtitle C—Implementation of Grace 
Commission Recommendations 
42 USC 602 note. 
/ 'Ji 
INCOME AND ELIGIBILITY VERIFICATION PROCEDURES 
SEC. 2651. (a) Part A of title XI of the Social Security Act (a. 
amended by section 2630 of this Act) is further amended by adding 
at the end thereof the following new section: 
Bk 
I N C O M E A N D ELIGIBILITY VERIFICATION SYSTEM 
•'SEC. 1137. (a) In order to meet the requirements of this section, a 42 USC l320b-7. 
State must have in effect an income and eligibility verification 
system under which— 
"(1) the State shall require, as a condition of eligibility for 
benefits under any program listed in subsection (b), that each 
applicant for or recipient of benefits under that program fur-
nish to the State his social security account number (or num-
bers, if he has more than one such number), and the State shall 
utilize such account numbers in the administration of that 
program so as to enable the association of the records pertain-
ing to the applicant or recipient with his account number; 
"(2) wage information from agencies administering State un-
employment compensation laws available pursuant to section 
3304(a)(16) of the Internal Revenue Code of 1954, wage informa- 26 USC 3304. 
tion reported pursuant to paragraph (3) of this subsection, and 
wage, income, and other information from the Social Security 
Administration and the Internal Revenue Service available 
pursuant to section 6103(1)(7) of such Code, shall be requested Ante, p. 820. 
and utilized to the extent that such information may be useful Post, p. 1150. 
in verifying eligibility for, and the amount of, benefits available 
under any program listed in subsection (b), as determined by the 
Secretary of Health and Human Services (or, in the case of the 
unemployment compensation program, by the Secretary of 
Labor, or, in the case of the food stamp program, by the 
Secretary of Agriculture); 
"(3) employers in such State are required, effective September 
30, 1988, to make quarterly wage reports to a State agency 
(which may be the agency administering the State's unemploy-
ment compensation law) except that the Secretary of Labor (in 
consultation with the Secretary of Health and Human Services 
and the Secretary of Agriculture) may waive the provisions of 
this paragraph if he determines that the State has in effect ar 
, ; 
98 STAT. 1148 
PUBLIC LAW 98-369—JULY 18, 1984 
alternative system which is as effective and timely for purposes 
of providing employment related income and eligibility data for 
the purposes described in paragraph (2); 
"(4) the State agencies administering the programs listed in 
subsection (b) adhere to standardized formats and procedures 
established by the Secretary of Health and Human Services (in 
consultation with the Secretary of Agriculture) under which— 
"(A) the agencies will exchange with each other informa-
tion in their possession which may be of use in establishing 
or verifying eligibility or benefit amounts under any other 
such program; 
"(B) such information shall be made available to assist in 
the child support program under part D of title IV of this 
42 use 651. 
Act, and to assist the Secretary of Health and Human 
Services in establishing or verifying eligibility or benefit 
42 use 401, 
amounts under titles II and XVI of this Act, but subject to 
1381. 
the safeguards and restrictions established by the Secretary 
of the Treasury with respect to information released pursu-
26 use 6103. 
ant to section 6103(1) of the Internal Revenue Code of 1954; 
and 
"(C) the use of such information shall be targeted to those 
uses which are most likely to be productive in identifying 
and preventing ineligibility and incorrect payments; 
"(5) adequate safeguards are in effect so as to assure that— 
"(A) the information exchanged by the State agencies is 
made available only to the extent necessary to assist in the 
valid administrative needs of the program receiving such 
information, and the information released pursuant to sec-
tion 6103(1) of the Internal Revenue Code of 1954 is only 
exchanged with agencies authorized to receive such infor-
mation under such section 6103(1); and 
"(B) the information is adequately protected against un-
authorized disclosure for other purposes, as provided in 
regulations established by the Secretary of Health and 
Human Services, or, in the case of the unemployment 
compensation program, the Secretary of Labor, or, in the 
C£ise of the food stamp program, the Secretary of Agricul-
ture, or in the case of information released pursuant to 
section 6103(1) of the Internal Revenue Code of 1954, the 
Secretary of the Treasury; 
"(6) all applicants for and recipients of benefits under any 
such program shall be notified at the time of application, and 
periodically thereafter, that information available through the 
system will be requested and utilized; and 
"(7) accounting systems are utilized which assure that pro-
grams providing data receive appropriate reimbursement from 
the programs utilizing the data for the costs incurred in provid-
ing the data. 
"(b) The programs which must participate in the income verifica-
tion system are— 
"(1) the aid to families with dependent children program 
42 use 601. 
under part A of title IV of this Act; 
42 use 1396. 
"(2) the medicaid program under title XIX of this Act; 
"(3) the unemployment compensation program under section 
26 use 3304. 
3304 of the Internal Revenue Code of 1954; 
"(4) the food stamp program under the Food Stamp Act of 
7 use 2011. 
1977; and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1149 
"(5) any State program under a plan approved under title I, X, 
XIV, or XVI of this Act. 
42 USC 301, 
"(c)(1) In order to protect applicants for and recipients of benefits 
1201,1351,1381. 
under the programs identified in subsection (b), or under the supple-
mental security income program under title XVI, from the improper 
use of information obtained from the Secretary of the Treasury 
under section 6103(1)(7)(B) of the Internal Revenue Code of 1954, no Post, p. 1150. 
Federal, State, or local agency receiving such information may 
terminate, deny, suspend, or reduce any benefits of an individual 
until such agency has taken appropriate steps to independently 
verify information relating to— 
"(A) the amount of the asset or income involved, 
"(B) whether such individual actually has (or had) access to 
; >
£
. -
such asset or income for his own use, and 
» 
"(C) the period or periods when the individual actually had 
such asset or income. 
"(2) Such individual shall be informed by the agency of the 
findings made by the agency on the b£isis of such verified informa-
tion, and shall be given an opportunity to contest such findings, in 
the same manner as applies to other information and findings 
relating to eligibility factors under the program.". 
(b)(1) Section 402(a)(25) of the Social Security Act is amended to 42 use 602. 
read as follows: 
"(25) provide that information is requested and exchanged for 
purposes of income and eligibility verification in accordance 
with a State system which meets the requirements of section 
1137 of this Act;". 
Ante, p. 1147. 
(2) Section 402(a)(29) of such Act is repealed. 
42 USC 602. 
(3) Section 411 of such Act is repealed. 
42 use 6ii. 
(c) Section 1902(a) of the Social Security Act (as amended by 42 USC 1396a. 
section 2367 of this Act) is further amended— 
(1) by striking out "and" at the end of paragraph (44); 
(2) by striking out the period at the end of paragraph (45) and 
inserting in lieu thereof "; and"; and 
(3) by inserting after paragraph (45) the following new para-
graph: 
M
i • 0- 1 
"(46) provide that information is requested and exchanged for 
purposes of income and eligibility verification in accordance 
with a State system which meets the requirements of section 
1137 of this Act.". 
Ante, p. 1147. 
(d) Section 303 of the Social Security Act is amended by adding at 42 USC 503. 
the end thereof the following new subsection: 
"(f) The State agency charged with the administration of the State 
A 
law shall provide that information shall be requested and exchanged 
i i 
i 
for purposes of income and eligibility verification in accordance with 
a State system which meets the requirements of section 1137 of this 
Act.". 
(e) Section 2(a) of the Social Security Act is amended— 
42 USC 302. ; 
(1) by striking out the period at the end of paragraph (10) and 
inserting in lieu thereof "; and"; and 
(2) by adding at the end thereof the following new paragraph: 
"(11) provide that information is requested and exchanged for 
purposes of income and eligibility verification in accordance 
with a State system which meets the requirements of section 
1137 of this Act.". 
Ante, p. 1147. 
(f) Section 1002(a) of the Social Security Act is amended— 
42 usc 1202. 
(1) by striking out "and" at the end of clause (12); and 
98 STAT. 1150 
PUBLIC LAW 98-369—JULY 18, 1984 
(2) by inserting before the period at the end thereof the 
following: "; and (14) provide that information is requested and 
exchanged for purposes of income and eligibility verification in 
accordance with a State system which meets the requirements 
Ante, p. 1147. 
of section 1137 of this Act". 
42 use 1352. 
(g) Section 1402(a) of the Social Security Act is amended— 
(1) by striking out "and" at the end of clause (11); and 
(2) by inserting before the period at the end thereof the 
following: "; and (13) provide that information is requested and 
exchanged for purposes of income and eligibility verification in 
accordance with a State system which meets the requirements 
of section 1137 of this Act". 
42 use 1382 
(h) Section 1602(a) of the Social Security Act (as in effect with 
note. 
respect to Puerto Rico, Guam, and the Virgin Islands) is amended— 
(1) by striking out "and" at the end of paragraph (13); 
(2) by striking out the period at the end of paragraph (14) and 
inserting in lieu thereof "; and"; and 
(3) by inserting after paragraph (14) the following new para-
graph: 
"(15) provide that information is requested and exchanged for 
purposes of income and eligibility verification in accordance 
with a State system which meets the requirements of section 
Ante, p. 1147. 
1137 of this Act.". 
97 Stat. 1386. 
(i) Section ll(e)(19) of the Food Stamp Act of 1977 is amended to 
7 use 2020. 
read as follows: 
"(19) that information is requested and exchanged for pur-
poses of income and eligibility verification in accordance with a 
State system which meets the requirements of section 1137 of 
the Social Security Act and that any additional information 
available from agencies administering State unemployment 
compensation laws under the provisions of section 303(d) of the 
42 use 503. 
Social Security Act shall be requested and utilized by the State 
7 use 2012. 
agency (described in section 3(n)(l) of this Act) to the extent 
permitted under the provisions of section 303(d) of the Social 
Security Act;". 
42 use 1383. 
(j) Section 1631(e)(1)(B) of the Social Security Act is amended by 
adding at the end thereof the following: "For this purpose and for 
purposes of federally administered supplementary payments of the 
42 use I382e. 
type described in section 1616(a) of this Act (including payments 
pursuant to an agreement entered into under section 212(a) of 
87 Stat. 155. 
Public Law 93-66), the Secretary shall, as may be necessary, request 
and utilize information available pursuant to section 6103(1)(7) of the 
Infra. 
Internal Revenue Code of 1954, and any information which may be 
Ante, p. 1147. 
available from State systems under section 1137 of this Act, and 
shall comply with the requirements applicable to States (with re-
spect to information available pursuant to section 6103(1)(7)(B) of 
such Code) under subsections (a) (6) and (c) of such section 1137.". 
26 use 6103. 
(k)(l) Section 6103(1)(7) of the Internal Revenue Code of 1954 is 
Ante, p. 820. 
amended to read as follows: 
"(7) DISCLOSURE OF RETURN INFORMATION TO FEDERAL, STATE, 
AND LOCAL AGENCIES ADMINISTERING CERTAIN PROGRAMS UNDER 
THE SOCIAL SECURITY ACT OR THE FOOD STAMP ACT OF 1977.— 
"(A) RETURN INFORMATION FROM SOCIAL SECURITY ADMIN-
ISTRATION.—The Commissioner of Social Security shall, 
upon written request, disclose return information from re-
turns with respect to net earnings from self-employment (as 
defined in section 1402), wages (as defined in section 3121(a) 
PUBLIC LAW 98-369—JULY 18, 1984 
STAT. 1151 
or 3401(a)), and payments of retirement income, which have 
been disclosed to the Social Security Administration as 
provided by paragraph (1) or (5) of this subsection, to any 
Federal, State, or local agency administering a program 
listed in subparagraph (D). 
"(B) RETURN INFORMATION FROM INTERNAL REVENUE SERV-
ICE.—The Secretary shall, upon written request, disclose 
current return information from returns with respect to 
1 
unearned income from the Internal Revenue Service files to 
any Federal, State, or local agency administering a pro-
gram listed in subparagraph (D). 
"(C) RESTRICTION ON DISCLOSURE.—The Commissioner of 
Social Security and the Secretary shall disclose return 
information under subparagraphs (A) and (B) only for pur-
poses of, and to the extent necessary in, determining eligi-
bility for, or the correct amount of, benefits under a pro-
gram listed in subparagraph (D). 
"(D) PROGRAMS TO WHICH RULE APPLIES.—The programs to 
which this paragraph applies are: 
"(i) aid to families with dependent children provided 
under a State plan approved under part A of title IV of 
the Social Security Act; 
"(ii) medical assistance provided under a State plan 
approved under title XIX of the Social Security Act; 
"(iii) supplemental security income benefits provided 
under title XVI of the Social Security Act, and feder-
ally administered supplementary payments of the type 
described in section 1616(a) of such Act (including pay-
i 
ments pursuant to an agreement entered into under 
section 212(a) of Public Law 93-66); 
"(iv) any benefits provided under a State plan ap-
proved under title I, X, XIV, or XVI of the Social 
Security Act (as those titles apply to Puerto Rico, 
Guam, and the Virgin Islands); 
"(v) unemployment compensation provided under a 
State.law described in section 3304 of this Code; 
"(vi) assistance provided under the Food Stamp Act 
^ 
of 1977; and 
"(vii) State-administered supplementary payments of 
the type described in section 1616(a) of the Social Secu-
rity Act (including payments pursuant to an agreement 
entered into under section 212(a) of Public Law 93-
66).". 
(2) Section 6103(a)(2) of such Code is amended by striking out "or 
of any local child support enforcement agency" and inserting in lieu 
thereof ", any local child support enforcement agency, or any local 
agency administering a program listed in subsection (1)(7)(D)". 
(1)(1) The amendments made by subsections (j) and (k) shall 
become effective on the date of the enactment of this Act. 
(2) Except as otherwise specifically provided, the amendments 
made by subsections (a) through (i) shall become effective on April 1, 
1985. In the case of any State which submits a plan describing a 
good faith effort by such State to come into compliance with the 
requirements of such subsections, the Secretary of Health and 
Human Services (or, in the case of the State unemployment compen-
sation program, the Secretary of Labor, or, in the case of the food 
stamp program, the Secretary of Agriculture) may by waiver grant a 
42 use 601. 
42 use 1396. 
42 u s e 1381. 
42 use 1382e. 
87 Stat. 155. 
42 use 301, 
1201, 1351, 1381. 
7 use 2011. 
26 use 6103. 
Effective date. 
42 use 1320b-7 
note. 
98 STAT. 1152 
PUBLIC LAW 98-369—JULY 18, 1984 
delay in the effective date of such subsections, except that no such 
waiver may delay the effective date of section 1137(c) of the Social 
Ante, p. 1147. 
Security Act (as added by subsection (a) of this section), or delay the 
effective date of any other provision of or added by this section 
beyond September 3(), 1986. 
COLLECTION AND DEPOSIT OF PAYMENTS TO EXECUTIVE AGENCIES 
SEC. 2652. (a)(1) Subchapter II of chapter 37 of title 31, United 
States Code, is amended by adding at the end thereof the following 
new section: 
31 use 3720. 
"§ 3720. Collection of payments 
"(a) Each head of an executive agency (other than an agency 
subject to section 9 of the Act of May 18, 1933 (48 Stat. 63, chapter 
32; 16 U.S.C. 831h)) shall, under such regulations as the Secretary of 
the Treasury shall prescribe, provide for the timely deposit of money 
by officials and agents of such agency in accordance with section 
3302, and for the collection and timely deposit of sums owed to such 
agency by the use of such procedures as withdrawals and deposits by 
electronic transfer of funds, automatic withdrawals from accounts 
at financial institutions, and a system under which financial institu-
tions receive and deposit, on behalf of the executive agency, pay-
ments transmitted to post office lockboxes. The Secretary is author-
ized to collect from any agency not complying with the requirements 
imposed pursuant to the preceding sentence a charge in an amount 
the Secretary determines to be the cost to the general fund caused 
by such noncompliance. 
"(b) The head of an executive agency shall pay to the Secretary of 
the Treasury charges imposed pursuant to subsection (a). Payments 
shall be made out of amounts appropriated or otherwise made 
available to carry out the program to which the collections relate. 
The amounts of the charges paid under this subsection shall be 
deposited in the Cash Management Improvements Fund established 
by subsection (c). 
"(c) There is established in the Treasury of the United States a 
revolving fund to be known as the 'Cash Management Improve-
ments Fund'. Sums in the fund shall be available without fiscal year 
limitation for the payment of expenses incurred in developing the 
methods of collection and deposit described in subsection (a) of this 
section and the expenses incurred in carrying out collections and 
deposits using such methods, including the costs of personal services 
and the costs of the lease or purchase of equipment and operating 
facilities.". 
(2) The analysis of subchapter II of chapter 37 of title 31, United 
States Code, is amended by adding at the end thereof the following 
new item: 
"3720. Collection of payments.". 
Regulations. 
(3) The Secretary of the Treasury shall prescribe regulations, 
?LY^^ ^^^^ 
including regulations under section 3720 of title 31, United States 
Code, designed to achieve by October 1, 1986, full implementation of 
the purposes of this subsection. 
(b)(1) Subsection (c) of section 3302 of title 31, United States Code, 
is amended— 
(A) by inserting "(1)" after the subsection designation; 
note. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1153 
Effective date. 
31 use 3302 
note. 
31 use 3720A. 
(B) by striking out ", but not later than the 30th day after the 
custodian receives the money,"; 
(C) by inserting after the first sentence the following new 
r 
sentence: "Except as provided in paragraph (2), money required 
to be deposited pursuant to this subsection shall be deposited 
not later than the third day after the custodian receives the 
money,"; and 
(D) by adding at the end thereof the following new paragraph: 
"(2) The Secretary of the Treasury may by regulation prescribe 
that a person having custody or possession of money required by this 
subsection to be deposited shall deposit such money during a period 
of time that is greater or lesser than the period of time specified by 
the second sentence of paragraph (1).", 
(2) The amendments made by this subsection shall become effec-
tive January 1, 1985. 
COLXiECTION OF NON-TAX DEBTS OWED TO FEDERAL AGENCIES 
SEC. 2653. (a)(1) Subchapter II of chapter 37 of title 31, United 
States Code, as amended by section 2652(a)(1) of this Act, is further 
amended by adding at the end thereof the following new section: 
"§ 3720A. Reduction of tax refund by amount of debt 
"(a) Any Federal agency that is owed a past-due legally enforcea-
ble debt (other than any OASDI overpayment and past-due support) 
by a named person shall, in accordance with regulations issued 
pursuant to subsection (d), notify the Secretary of the Treasury of 
the amount of such debt. 
"(b) No Federal agency may take action pursuant to subsection (a) 
with respect to any debt until such agency— 
"(1) notifies the person incurring such debt that such agency 
proposes to take action pursuant to such paragraph with respect 
to such debt; 
"(2) gives such person at least 60 days to present evidence that 
all or part of such debt is not past-due or not legally enforceable; 
"(3) considers any evidence presented by such person and 
determines that an amount of such debt is past due and legally 
enforceable; and 
"(4) satisfies such other conditions as the Secretary may 
prescribe to ensure that the determination made under para-
graph (3) with respect to such debt is valid and that the agency 
has made reasonable efforts to obtain payment of such debt. 
"(c) Upon receiving notice from any Federal agency that a named 
person owes to such agency a past-due legally enforceable debt, the 
Secretary of the Treasury shall determine whether any amounts, as 
refunds of Federal taxes paid, are payable to such person. If the 
Secretary of the Treasury finds that any such amount is payable, he 
shall reduce such refunds by an amount equal to the amount of such 
debt, pay the amount of such reduction to such agency, and notify 
such agency of the individual's home address. 
"(d) The Secretary of the Treasury shall issue regulations pre- Regulations, 
scribing the time or times at which agencies must submit notices of 
past-due legally enforceable debts, the manner in which such notices 
must be submitted, and the necessary information that must be 
contained in or accompany the notices. The regulations shall specify 
the minimum amount of debt to which the reduction procedure 
established by subsection (c) may be applied and the fee that an 
SO#ll ')8U-'M 
98 STAT. 1154 
PUBLIC LAW 98-369—JULY 18, 1984 
agency must pay to reimburse the Secretary of the Treasury for the 
full cost of applying such procedure. Any fee paid to the Secretary 
pursuant to the preceding sentence may be used to reimburse 
appropriations which bore all or part of the cost of applying such 
procedure. 
"(e) Any Federal agency receiving notice from the Secretary of the 
Treasury that an erroneous payment has been made to such agency 
under subsection (c) shall pay promptly to the Secretary, in accord-
ance with such regulations as the Secretary may prescribe, an 
amount equal to the amount of such erroneous payment (without 
regard to whether any other amounts payable to such agency under 
such subsection have been paid to such agency). 
"(f) For purposes of this section— 
"(1) the term 'Federal agency' means a department, agency, 
or instrumentality of the United States (other than an agency 
subject to section 9 of the Act of May 18, 1933 (48 Stat. 63, 
chapter 32; 16 U.S.C. 831h)), and includes a Government corpo-
ration (as such term is defined in section 103 of title 5, United 
States Code); 
"(2) the term 'past-due support' means any delinquency sub-
42 use 664. 
ject to section 464 of the Social Security Act; and 
"(3) the term 'OASDI overpayment' means any overpayment 
of benefits made to an individual under title II of the Social 
Security Act". 
(2) The analysis of subchapter II of chapter 37 of title 31, United 
States Code, as amended by section 2652(a)(2) of this Act, is further 
amended by adding at the end thereof the following new item: 
"3720A. Reduction of tax refund by amount of debt.". 
26 use 6402. 
(b)(1) Section 6402 of the Internal Revenue Code of 1954 (relating 
to authority to make credits or refunds) is amended by adding at the 
end thereof the following new subsections: 
"(d) COLLECTION OF DEBTS OWED TO FEDERAL AGENCIES.— 
"(1) IN GENERAL.—Upon receiving notice from any Federal 
agency that a named person owes a past-due legally enforceable 
debt (other than any OASDI overpayment and past-due support 
subject to the provisions of subsection (c)) to such agency, the 
Secretary shall— 
"(A) reduce the amount of any overpayment payable to 
such person by the amount of such debt; 
"(B) pay the amount by which such overpayment is re-
duced under subparagraph (A) to such agency; and 
"(C) notify the person making such overpayment that 
; . ,./.' such overpayment has been reduced by an amount neces-
sary to satisfy such debt. 
"(2) PRIORITIES FOR OFFSET.—Any overpayment by a person 
shall be reduced pursuant to this subsection after such overpay-
ment is reduced pursuant to subsection (c) with respect to past-
due support collected pursuant to an assignment under section 
42 use 602. 
402(a)(26) of the Social Security Act and before such overpay-
ment is credited to the future liability for tax of such person 
pursuant to subsection (b). If the Secretary receives notice from 
a Federal agency or agencies of more than one debt subject to 
paragraph (1) that is owed by a person to such agency or 
agencies, any overpayment by such person shall be applied 
against such debts in the order in which such debts accrued. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1165 
"(3) DEFINITIONS.—For purposes of this subsection the term 
'OASDI overpayment' means any overpayment of benefits made 
to an individual under title II of the Social Security Act. 
42 USC 401. 
"(e) REVIEW OF REDUCTIONS.—No court of the United States shall 
.2 
have jurisdiction to hear any action, whether legal or equitable, 
brought to restrain or review a reduction authorized by subsection 
(c) or (d). No such reduction shall be subject to review by the 
Secretary in an administrative proceeding. No action brought 
against the United States to recover the amount of any such reduc-
tion shall be considered to be a suit for refund of tax. This subsection 
does not preclude any legal, equitable, or administrative action 
against the Federal agency to which the amount of such reduction 
was paid. 
"(f) FEDERAL AGENCY.—For purposes of this section, the term 
'Federal agency' means a department, agency, or instrumentality of 
the United States (other than an agency subject to section 9 of the 
Act of May 18, 1933 (48 Stat. 63, chapter 32; 16 U.S.C. 831h)), and 
includes a Government corporation (as such term is defined in 
section 103 of title 5, United States Code). 
"(g) CROSS REFERENCE.—For procedures relating to agency notifi- 
. 
cation of the Secretary, see section 3721 of title 31, United States 
Code.". 
(2) Subsection (a) of section 6402 of such Code is amended by 26 use 6402. 
striking out "subsection (c)" and inserting in lieu thereof "subsec-
tions (c) and (d)". 
(3)(A) Subsection (1) of section 6103 of such Code (relating to Ante, p. 820. 
confidentiality and disclosure of returns and information), as 
amended by section 453 of this Act, is further amended by adding at 
the end thereof the following new paragraph: 
"(10) DISCLOSURE OF CERTAIN INFORMATION TO AGENCIES RE-
QUESTING A REDUCTION UNDER SECTION 6402(c) OR 6402(d).— 
^^^^ ,,., 
"(A) RETURN INFORMATION FROM INTERNAL REVENUE SERV-
ICE.—The Secretary may, upon receiving a written request, 
disclose to officers and employees of an agency seeking a 
reduction under section 6402(c) or 6402(d)— 
Ante, p. 1154. 
"(i).the fact that a reduction has been made or has 
'•'' ' 
not been made under such subsection with respect to 
any person; 
' ' 
"(ii) the amount of such reduction; and 
"(iii) taxpayer identifying information of the person 
^' 
against whom a reduction was made or not made. 
"(B) RESTRICTION ON USE OF DISCLOSED INFORMATION.— 
Any officers and employees of an agency receiving return 
information under subparagraph (A) shall use such infor-
mation only for the purposes of, and to the extent necessary 
in, establishing appropriate agency records or in the de-
fense of any litigation or administrative procedure ensuing 
from reduction made under section 6402(c) or section 
6402(d).". 
(B)(i) Section 6103(p)(3)(A) of such Code (relating to procedure and 
recordkeeping), as so amended, is amended by striking out "or (9)" 
and inserting in lieu thereof "(9), or (10)". 
(ii) Section 6103(p)(4) of such Code, as so amended, is amended by 
striking out "(1) (1), (2), (3), or (5)" and inserting in lieu thereof "(1) 
(1), (2), (3), (5), or (10)". 
ki- "^fi. 
98 STAT. 1156 
PUBLIC LAW 98-369—JULY 18, 1984 
26 use 6103. 
(iii) Section 6103(p)(4)(F)(ii) of such Code, as so amended, is 
amended by striking out "(D (D, (2), (3), or (5)" and inserting in lieu 
thereof "(1) (1), (2), (3), (5), or (10)". 
26 use 7213. 
(4) Section 7213(a)(2) of such Code (relating to unauthorized disclo-
sure of information), as so amended, is amended by striking out "(D 
(6), (7), (8), or (9)" and inserting in lieu thereof "(D (6), (7), (8), (9), or 
(10)". 
Effective date. 
(c) The amendments made by this section shall apply with respect 
26 use 6402 
to refunds payable under section 6402 of the Internal Revenue Code 
"°^- 
of 1954 after December 31,1985, and before January 1,1988. 
Subtitle D—Technical Corrections 
CHANGES IN OASDI PROVISIONS NECESSITATED BY THE 1983 
AMENDMENTS 
97 Stat. 99. 
SEC. 2661. (a) Section 2'oi(l)(3)(B)(i) of the Social Security Act is 
42 use 401. 
amended by inserting "Insurance" after "Survivors". 
42 use 402. 
(b)(1) Section 202(c)(1) of such Act is amended (in the matter 
97 Stat. 109. 
appearing between subparagraphs (D) and (E) of such section)— 
(A) by striking out all that follows "has attained" and pre-
cedes ", the first month" in clause (i) and inserting in lieu 
thereof "retirement age (as defined in section 216(1))"; 
(B) by striking out all that follows "has not attained" and 
precedes ", or" in clause (ii)(I) and inserting in lieu thereof 
"retirement age (as defined in section 216(1))"; and 
(C) by striking out "to which" in the matter following clause 
(ii) and inserting in lieu thereof "in which". 
(2) Section 202(c)(5)(A) of such Act is amended by striking out 
"classes (i) and (ii)" and inserting in lieu thereof "clauses (i) and (ii)". 
97 Stat. 95. 
(c)(1) Section 202(e)(2)(A) of such Act is amended by striking out all 
that follows "subsection (q)," and precedes "subparagraph (D) of this 
paragraph" and inserting in lieu thereof "paragraph (7) of this 
subsection, and". 
(2) Section 202(e)(2)(C) of such Act is amended— 
(A) by striking out the period immediately after "deceased 
individual"; and 
(B) by inserting a closing parenthesis after "paragraph (3) of 
such subsection (w)". 
97 Stat. 92. 
(3) Paragraph (7) of section 202(e) of such Act is amended by 
striking out "paragraph (2)(B)," and inserting in lieu thereof "para-
graph (2)(D),". 
97 Stat. 114. 
(d)(1) Section 202(f)(l)(C)(ii) of such Act is amended by striking out 
all that follows "attained" and precedes ", and" and inserting in lieu 
thereof "retirement age (as defined in section 216(1))". 
(2) Section 202(f)(2)(A) of such Act is amended by striking out 
"paragraph (3)(B)," and inserting in lieu thereof "paragraph (3)(D),". 
97 Stat. 96. 
(3) Section 202(f)(3)(C) of such Act is amended by striking out the 
period immediately after "deceased individual". 
97 Stat. 108. 
(e) Section 202(q)(9)(B)(i) of such Act is amended by striking out 
"section 216(a)" and inserting in lieu thereof "section 216(1)". 
97 Stat. 133. 
(f) Section 202(x) of such Act is amended by adding at the begin-
ning thereof the following heading: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1157 
"Limitation on Payments to Prisoners". 
(g)(1)(A) Section 203(d) of such Act is amended— 
(i) by striking out "on seven or more different calendar days 
of which he engaged" in paragraph (1)(A) and inserting in lieu 
thereof "for more than forty-five hours of which such individual 
engaged"; and 
(ii) by striking out "on seven or more different calendar days" 
in paragraph (2) and inserting in lieu thereof "for more than 
forty-five hours". 
(B) The amendments made by subparagraph (A) shall apply only 
with respect to months beginning with the second month after the 
month in which this Act is enacted. 
(2)(A) Section 203(f) of such Act is amended by adding at the end 
thereof the following new paragraph: 
"(9) For purposes of paragraphs (3), (5)(D)(i), and (8)(D), the 
term 'retirement age (as defined in section 216(1))', with respect 
to any individual entitled to monthly insurance benefits under 
section 202, means the retirement age (as so defined) which is 
applicable in the case of old-age insurance benefits, regardless 
of whether or not the particular benefits to which the individual 
is entitled (or the only such benefits) are old-age insurance 
benefits.". 
(B) The amendment made by subparagraph (A) shall be effective 
as though it had been enacted on April 20, 1983, as a part of section 
201 of the Social Security Amendments of 1983. 
(h) Section 205(r) of such Act is amended— 
(1) by striking out "(r)(3)(A) and (r)(3)(B)" in paragraph (4) and 
inserting in lieu thereof "subparagraphs (A) and (B) of para-
graph (3)"; 
(2) by striking out "the Act" in paragraph (7) and inserting in 
lieu thereof "this Act"; and 
(3) by striking out the heading and inserting in lieu thereof 
the following: 
97 Stat. 94. 
42 u s e 403. 
Effective date. 
42 u s e 403 note. 
97 Stat. 107. 
42 u s e 416. 
42 u s e 402. 
Effective date. 
42 u s e 403 note. 
97 Stat. 107. 
97 Stat. 130. 
42 u s e 405. 
"Use of Death Certificates to Correct Program Information". 
(i)(l) Section 209(e) of such Act is amended by striking out the 97 Stat. 125. 
semicolon after "Act of 1974". 
42 use 409. 
(2) The next to last unnumbered paragraph of section 209 of such 
Act is amended by striking out "section 414(h)(2) of such Code" in 
subdivision (2) and inserting in lieu thereof "section 414(h)(2) of such 
Code where the pickup referred to in such section is pursuant to a 
salary reduction agreement (whether evidenced by a written instru-
ment or otherwise)". 
(j) Section 210(a) of such Act, in the matter preceding paragraph 
97 Stat. 120. 
(1), is amended by striking out the matter which follows "such 42 use 4io. 
affiliate" and precedes "or (C)" and the matter which follows "sec-
tion 233" and precedes "except", and by inserting in lieu thereof a 
comma and a semicolon, respectively. 
(k)(l) Section 215(a)(7)(B)(ii)(I) of such Act is amended by striking 97 Stat. 76. 
out "who initially become eligible for old-age or disability insurance 42 use 415. 
benefits" and inserting in lieu thereof "who become eligible (as 
defined in paragraph (3)(B)) for old-age insurance benefits (or 
became eligible as so defined for disability insurance benefits before 
attaining age 62)". 
98 STAT. 1158 
PUBLIC LAW 98-369—JULY 18, 1984 
42 use 415. 
(2) Section 215(a)(7)(C)(ii) of such Act is amended by striking out 
97 Stat. 76. 
"survivors" and inserting in lieu thereof "survivor's". 
97 Stat. 78. 
(3) Section 215(f)(9)(B)(i) of such Act is amended by striking out "as 
though such primary insurance amount had initially been computed 
without regard to subsection (a)(7) or (d)(5)" and inserting in lieu 
thereof "as though the recomputed primary insurance amount were 
being computed under subsection (a)(7) or (d)(5)". 
97 Stat. 74. 
(4) Section 215(i)(5)(A) of such Act is amended by adding at the end 
thereof the following new sentence: "Any amount so increased that 
is not a multiple of $0.10 shall be decreased to the next lower 
multiple of $0.10.". 
(5) Section 215(i)(5)(B) of such Act is amended— 
(A) by striking out clause (iii) and inserting in lieu thereof the 
following: 
"(iii) multiplying such quotient by 100 so as to yield such 
applicable additional percentage (which shall be rounded to the 
nearest one-tenth of 1 percent),"; 
(B) by striking out "ending with such subsequent calendar 
year" in clauses (iv) and (v) and inserting in lieu thereof "ending 
with the year before such subsequent calendar year"; and 
(C) by striking out "initially became eligible for an old-age or 
disability insurance benefit" in clause (v) and inserting in lieu 
thereof "became eligible (as defined in subsection (a)(3)(B)) for 
the old-age or disability insurance benefit that is being in-
creased under this subsection". 
42 use 416. 
(1)(1) Section 216(f) of such Act is amended by adding at the end 
thereof the following new sentence: "For purposes of subparagraph 
42 use 402. 
(C) of section 202(c)(1), a divorced husband shall be deemed not to be 
married throughout the month which he becomes divorced.". 
(2) Section 216(h)(3)(A)(i) of such Act (as in effect after the applica-
Post, p. 1159. 
tion of section 2662(c)(1) of this Act) is amended by striking out "(as 
defined in section 216(1))" and inserting in lieu thereof "(as defined 
in subsection (1))". 
(3) Section 216(i)(2) of such Act (as amended by section 2662(cXl) of 
this Act) is amended bj^ striking out "(as defined in section 216(1))" 
in subparagraphs (B) and (D) and inserting in lieu thereof "(as 
defined in subsection (1))". 
97 Stat. 129. 
(m) Subparagraph (B) of section 223(c)(1) of such Act is amended 
42 use 423. 
by moving clause (iii) two ems to the left, and by moving the 
preceding provisions of such subparagraph two ems to the right, so 
that the left margin of such subparagraph and its clauses is in-
dented four ems and is aligned with the margin of subparagraph (A) 
of such section. 
97 Stat. 104. 
(n) Section 2290t)) of such Act is amended by adding at the end 
42 use 429. 
thereof the following new sentence: "Additional adjustments may be 
made in the amounts so authorized to be appropriated to the extent 
that the amounts transferred in accordance with clauses (i) and (ii) 
97 Stat. 103. 
of section 1510)X3)(B) of the Social Security Amendments of 1983 
with respect to wages deemed to have been paid in 1983 were in 
excess of or were less than the amount which the Secretary, on the 
basis of appropriate data, determines should have been so 
transferred.'. 
(oXD Subsection (f) of section 86 of the Internal Revenue Code of 
97 Stat. 80. 
1954 is amended by redesignating paragraphs (1), (2), (3), and (4) as 
26 use 86. 
paragraphs (2), (3), (4), and (5), respectively, and by inserting before 
paragraph (2) (as so redesignated) the following new paragraph: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1159 
"(1) section 37(c)(3)(A) (relating to reduction for amounts re-
ceived as pension or annuity),". 
(2) Subsection (a) of section 134 of such Code is amended by Ante, p. 891. 
striking out paragraphs (6) and (7) and by redesignating paragraph 
(8) as paragraph (6). 
(3) Effective January 1, 1984, subparagraph (B) of section 97 Stat. 122. 
3121(v)(l) of such Code is amended to read as follows: 
26 USC 3121. 
"(B) any amount treated as an employer contribution under 
"
] 
section 414(h)(2) where the pickup referred to in such section is 
< 
pursuant to a salary reduction agreement (whether evidenced 
by a written instrument or otherwise).". 
(4) Effective January 1, 1985, subparagraph (B) of section 3306(r)(l) 97 Stat. 123. 
of such Code is amended to read as follows: 
26 USC 3306. 
"(B) any amount treated as an employer contribution under 
section 414(h)(2) where the pickup referred to in such section is 
pursuant to a salary reduction agreement (whether evidenced 
by a written instrument or otherwise).". 
(5) Section 6334(c) of such Code is amended by inserting "(includ- 26 USC 6334. 
ing section 207 of the Social Security Act)" immediately after "any 
other law of the United States". 
CHANGES IN TEXT OF THE 1983 AMENDMENTS 
SEC. 2662. (a) Section 101(d) of the Social Security Amendments of 
1983 (Public Law 98-21) is amended by striking out "remuneration 97 Stat. 67. 
paid" and inserting in lieu thereof "service performed". 
26 USC 3121 
(b) Section 112(f) of such Amendments is amended by inserting "of 
Q^^Q^^^ Y3 
such Act" after "section 201(a)". 
42 usc 415 note. 
(c) Section 201(c) of such Amendments is amended— 
97 Stat. 107. 
(1) by inserting "the" immediately before "age of 65" in 42 USC 402,403, 
,, 
paragraph (1); and 
415, 416, 423. 
*
•
' 
(2) by inserting "the" immediately before "age of sixty-five" 42 USC 423. 
in paragraph (3). 
(d) Section 301(a)(5) of such Amendments is amended by striking 97 Stat. 109. 
out "Section 202(c)" and inserting in lieu thereof "Effective with 42 USC 402 note, 
respect to monthly insurance benefits for months after December 
1984 (but only on the basis of applications filed on or after January 
1,1985), section 202(c)". 
(e) Section 305(d)(2) of such Amendments is amended by inserting 97 Stat. 113. 
"each place it appears" immediately before "in subsection (c)(4)(C)". 42 USC 428. 
(f)(1) Section 422A(c)(9) of the Internal Revenue Code of 1954 26USC422A. 
(relating to special rule when disabled) is amended by striking out 
"section 105(d)(4)" and inserting in lieu thereof "section 37(e)(3)". 
(2)(A) Section 324(d)(1) of the Social Security Amendments of 1983 97 Stat. 122. 
is amended by adding at the end thereof the following new sentence: 26 USC 3121 
"For purposes of applying such amendments to remuneration paid ^°^-
after December 31, 1983, which would have been taken into account 
before January 1, 1984, if such amendments had applied to periods 
before January 1, 1984, such remuneration shall be taken into 
account when paid (or, at the election of the payor, at the time 
which would be appropriate if such amendments had applied).". 
(B) Section 324(d)(2) of such Amendments is amended by adding at 26 USC 3121 
the end thereof the following new sentence: "For purposes of apply- note, 
ing such amendments to remuneration paid after December 31, 
1984, which would have been taken into account before January 1, 
1985, if such amendments had applied to periods before January 1, 
1985, such remuneration shall be taken into account when paid (or. 
98 STAT. 1160 
PUBLIC LAW 98-369—JULY 18, 1984 
97 Stat. 122. 
26 u s e 3121 
note. 
Effective date. 
97 Stat. 126. 
26 u s e 3121 
note. 
97 Stat. 132. 
42 u s e 902 note. 
Effective date. 
42 u s e 902 note. 
97 Stat. 133. 
42 u s e 423. 
97 Stat. 72. 
38 u s e 3023 
note. 
42 u s e 401. 
42 u s e 402. 
at the election of the payor, at the time which would be appropriate 
if such amendments had applied).". 
(C) Section 324(dX4) of such Amendments is amended by adding at 
the end thereof the following new sentence: "For purposes of this 
paragraph, any plan or agreement to make payments described in 
paragraph (2), (3), or (13XAXiii) of section 3121(a) of such Code (as in 
effect on the day before the date of the enactment of this Act) shall 
be treated as a nonqualified deferred compensation plan.". 
(g) Section 327(d) of such Amendments (relating to codification of 
Rowan decision with respect to meals and lodging) is amended to 
read as follows: 
"(dXD The amendment made by subsection (a) shall apply to 
remuneration paid after December 31,1983. 
"(2) The amendments made by subsection (b) and subsection (c)(4) 
shall apply to remuneration (other than amounts excluded under 
section 119 of the Internal Revenue Code of 1954) paid after 
March 4, 1983, and to any such remuneration paid on or before 
such date which the employer treated as wages when paid. 
"(3) The amendments made by paragraphs (1), (2), and (3) of 
subsection (c) shall apply to remuneration paid after December 31, 
1984.". 
(hXD Section 338(b) of such Amendments is amended by adding at 
the end thereof the following new paragraph: 
"(6) The provisions of section 8344 of title 5, United States Code, 
shall not apply to service by an individual as a member of the 
Panel.". 
(2) The amendment made by this subsection shall take effect on 
January 1,1984. 
(i) Section 339(b) of such Amendments is amended to read as 
follows: 
"(b) Section 223 of such Act is amended by adding at the end 
thereof the following new subsection: 
" '(h) For provisions relating to limitation on payments to prison-
ers, see section 202(x).'.". 
(j) Section 111(e) of such Amendments is amended by inserting 
"Budget" before "Reconciliation". 
OTHER TECHNICAL CORRECTIONS IN THE SOCIAL SECURITY ACT AND 
RELATED PROVISIONS 
SEC. 2663. (aXlXA) The fourth sentence of section 201(d) of the 
Social Security Act is amended— 
(i) by striking out "the Second Liberty Bond Act, as 
amended," and inserting in lieu thereof "chapter 31 of title 31, 
United States Code,"; and 
(ii) by striking out "public-debt obligation" and inserting in 
lieu thereof "public-debt obligations". 
(B) Section 201(gXlXB) of such Act is amended by striking out 
"clauses" in the first sentence and inserting in lieu thereof "clause". 
(2XAXi) Section 202(dXl) of such Act, in clause (ii) in the matter 
which follows subparagraph (C) and precedes subparagraph (D), is 
amended by striking out "paragraphs" and "paragraph" and 
inserting in lieu thereof "subparagraphs" and "subparagraph", 
respectively, 
(ii) Section 202(dXlXG) of such Act is amended— 
(I) by striking out the comma after "age of 18"; 
. 
••04-
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1161 
(II) by striking out "the age of 22," and inserting in lieu 
thereof "the age of 22—"; 
(III) by striking out ", or, subject to section 223(e), the termi-
nation month (and for purposes" and inserting in lieu thereof 
the following: 
"(i) the termination month, subject to section 223(e) (and 
for purposes"; 
(IV) by striking out "after the 15 months" and all that follows 
down through "such earlier month." and inserting in lieu 
thereof the following: 
"after the 15 months following such period of trial work in 
which he engages or is determined able to engage in sub-
" 
stantial gainful activity), 
or (if later) the earlier o
f
— 
"(ii) the first month during no part of which he is a full-
time elementary or secondary school student, or 
"(iii) the month in which he attains the age of 19, 
but only if he was not under a disability (as so defined) in such 
earlier month."; and 
(V) by indenting all of clause (i) (as designated and amended 
by the preceding provisions of this subparagraph) four ems, so 
as to align its left margin with the margins of clauses (ii) and 
(iii) (as so designated). 
(iii) The second sentence of section 202(d)(7)(A) of such Act is 42 use 402. 
amended by striking out "the date of the enactment of this para-
graph" and inserting in lieu thereof "the effective date of this 
sentence". 
(B) Section 202(e)(1) of such Act is amended— 
(i) by striking out the first comma after "age 60" in the 
matter following subparagraph (F)(ii); and 
-^ .;;, 
(ii) by striking out "he engages" in the last sentence and 
inserting in lieu thereof "she engages". 
(C) Section 202(f)(1) of such Act is amended by striking out the 
first comma after "age 60" in the matter following subparagraph 
(F)(ii). 
(D) Section 202(f)(3)(D)(i) of such Act is amended by striking out 97 Stat. 96. 
the semicolon after "applicable,". 
(E) Section 2202(a)(1)(B) of Public Law 97-35 is amended by strik- 42 use 402. 
ing out "as". 
(FXi) Section 202(q)(3XG) of the Social Security Act is amended by 
striking out "as if the period" and inserting in lieu thereof "if the 
fe/ 
period". 
(ii) Section 202(q)(7)(E) of such Act is amended by striking out "he 
attained retirement age" and inserting in lieu thereof "she or he 
attained retirement age". 
(G) Section 202(t)(4)(E) of such Act is amended— 
(i) by inserting "of 1937 or 1974" after "Railroad Retirement 
Act" where it first appears; and 
(ii) by inserting before the semicolon at the end thereof the 
following: "of 1937 or section 18(2) of the Railroad Retirement 
Act of 1974". 
(H) Section 202(uXlXB) of such Act is amended by striking out 
", 112, or 113". 
(3XA) Section 203(aX8) of such Act is amended by adding a period 42 use 403. 
at the end thereof. 
98 STAT. 1162 
PUBLIC LAW 98-369—JULY 18, 1984 
42 use 403. 
(B) Section 203(dX2) of such Act is amended by striking out "an 
individual who is entitled" and inserting in lieu thereof "an individ-
ual under the age of seventy who is entitled". 
(C) Section 203(fK5XBXii) of such Act is amended by striking out 
"702(aX9)" and inserting in lieu thereof "702(aX8)". 
(D) Section 203(f)(8) of such Act is amended by indenting subpara-
graphs (B) and (C) two additional ems (for a total indentation of four 
ems) so as to align their left margins with the margins of subpara-
graphs (A) and (D). 
42 use 405. 
(4XA) Section 205(cX5XD) of such Act is amended by inserting "of 
1937 or 1974" after "Railroad Retirement Act" each place it 
appears. 
(B) Section 205(cX5XI) of such Act is amended by inserting before 
the semicolon at the end thereof the following: "or section 7(bX7) of 
the Railroad Retirement Act of 1974". 
(C) Section 205(e) of such Act is amended by striking out "on 
order" and inserting in lieu thereof "an order". 
(D) Section 205(h) of such Act is amended by striking out "section 
24 of the Judicial Code of the United States" and inserting in lieu 
thereof "section 1331 or 1346 of title 28, United States Code,". 
(E) Section 205(i) of such Act is amended by striking out all that 
follows "through" and precedes "and prior" and inserting in lieu 
thereof "the Fiscal Service of the Department of the Treasury,". 
(F) Section 205(pXl) of such Act is amended by striking out 
"section 1420(e) of the Internal Revenue Code" and inserting in lieu 
thereof "section 3122 of the Internal Revenue Code of 1954". 
42 use 408. 
(5) Section 208 of such Act is amended by indenting paragraphs (f) 
through (h) two ems so as to align their left margins with the 
margins of paragraphs (a) through (e) (and by appropriately further 
indenting subdivisions (1), (2), and (3) of paragraph (g)). 
42 use 409. 
(6XA) Section 209 of such Act is amended— 
(i) by indenting paragraphs (5) through (9) of subsection (a) 
two ems so as to align their left margins with the margins of the 
preceding paragraphs of such subsection; 
(ii) by striking out "(p) Remuneration" and inserting in lieu 
thereof "(p)(l) Remuneration"; 
(iii) by striking out the period at the end of paragraph (p)(l) as 
redesignated by clause (ii) of this subparagraph and inserting in 
lieu thereof a semicolon; 
(iv) by striking out "(p) Any contribution" and inserting in 
lieu thereof "(2) Any contribution"; and 
97 Stat. 127. 
(v) by indenting subsections (e), (f), and (k) through (r) two ems 
so as to align their left margins with the margins of subsections 
(a) through (d) and subsections (g), (h), and (j) (appropriately 
further indenting paragraphs (1) and (2) of subsection (f) and 
paragraphs (1) and (2) of subsection (m)). 
(B) The seventh unnumbered paragraph from the end of section 
209 of such Act (relating to remuneration for service performed as a 
member of a uniformed service) is amended by striking out "section 
102(10) of the Servicemen's and Veterans' Survivor Benefits Act" 
and inserting in lieu thereof "chapter 3 and section 1009 of title 37, 
United States Code". 
42 use 410. 
(7XA) Section 210(aXl) of such Act is amended by striking out 
"(A)" and all that follows down through "or (B)". 
(B) Section 210(aX7) of such Act is amended by indenting subpara-
graph (D) two additional ems (for a total indentation of four ems) so 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1168 
as to align its left margin with the margins of subparagraphs (A) 
through (C). 
(C) Section 210(a)(9) of such Act is amended by striking out 42USC410. 
"section 1532 of the Internal Revenue Code" and inserting in lieu 
thereof "section 3231 of the Internal Revenue Code of 1954". 
(D) Section 210(a)(19) of such Act is amended by striking out the 
comma after "; or". 
(E) Section 210(1)(2) of such Act is amended— 
(i) by striking out "section 102 of the Servicemen's and Veter-
ans' Survivor Benefits Act" and inserting in lieu thereof "para-
graph (21) of section 101 of title 38, United States Code"; and 
(ii) by striking out "such section" and inserting in lieu thereof 
, ^, ,, 
"paragraph (22) of such section". 
* " ' 
(F) Section 210(1)(3) of such Act is amended by striking out "such 
section 102" and inserting in lieu thereof "paragraph (23) of such 
section 101". 
,, v , v^ 
(G) Section 210(m) of such Act is amended— 
(i) by striking out "a reserve component of a uniformed 
service as defined in section 102(3j of the Servicemen's and 
Veterans' Survivor Benefits Act" in the first sentence and 
inserting in lieu thereof "a reserve component as defined in 
section 101(27) of title 38, United States Code"; 
(ii) by inserting ", the National Oceanic and Atmospheric 
Administration Corps," after "Coast and Geodetic Survey" in 
the first sentence; 
(iii) by striking out "military or naval" each place it appears 
in paragraph (5) and inserting in lieu thereof "military, naval, 
or air"; and 
(iv) by striking out "Universal Military Training and Service 
Act" in paragraph (5)(B) and inserting in lieu thereof "Military 
Selective Service Act". 
(8)(A) Section 211(a) of such Act is amended by striking out 42 USC 4ii. 
"chapter 1 of the Internal Revenue Code", "such chapter", and 
"section 183 of such code" in the matter preceding paragraph (1) and 
inserting in lieu thereof "subtitle A of the Internal Revenue Code of 
1954", "such subtitle", and "section 702(a)(8) of such Code", respec- 
' 
tively. 
(B) Section 211(a)(3) of such Act is amended— 
. . „ 
(i) by striking out "chapter 1 of the Internal Revenue Code" 
and inserting in lieu thereof "subtitle A of the Internal Revenue 
Code of 1954"; and 
-, . 
(ii) by inserting "or" before "(C)". 
(C) Section 211(a)(4) of such Act is amended by striking out 
"section 23(s) of such code" and inserting in lieu thereof "section 172 
of the Internal Revenue Code of 1954". 
(D) Section 211(a) of such Act is further amended by striking out 97 Stat. 90. 
"702(a)(9)" in clauses (iii) and (iv) (in the matter following paragraph 
(12)) and inserting in lieu thereof in each instance "702(a)(8)". 
(E) Section 211(bXl) of such Act is amended by indenting subpara- 
r* 
graphs (D), (G), (H), and (I) an additional two ems (for a total 
indentation of four ems) so as to align their left margins with the 
margins of the other subparagraphs of such section. 
(F) Section 211(c) of such Act is amended by striking out "section 
23 of the Internal Revenue Code" and inserting in lieu thereof 
"section 162 of the Internal Revenue Code of 1954". 
£1-
98 STAT. 1164 
PUBLIC LAW 98-369—JULY 18, 1984 
42 use 411. 
(G) Section 211(c)(3) of such Act is amended by striking out 
"section 1532 of the Internal Revenue Code" and inserting in Ueu 
thereof "section 3231 of the Internal Revenue Code of 1954". 
(H) Section 211(d) of such Act is amended by striking out "supple-
ment F of chapter 1 of the Internal Revenue Code" and inserting in 
lieu thereof "subchapter K of chapter 1 of the Internal Revenue 
Code of 1954". 
(I) Section 211(e) of such Act is amended by striking out "chapter 1 
of the Internal Revenue Code", "chapter 1 of such code", and "such 
chapter 1" and inserting in lieu thereof "subtitle A of the Internal 
Revenue Code of 1954", "subtitle A of such Code", and "such subtitle 
A", respectively. 
42 use 413. 
(9)(A) Section 213(a)(1) of such Act is amended by striking out 
"means" and inserting in lieu thereof "mean". 
(B) Section 213(a)(2)(B)(ii) of such Act is amended by striking out 
"equal to $3,000" and inserting in lieu thereof "equal $3,000". 
42 use 415. 
(10)(A) Section 215(a)(1) of such Act is amended— 
(i) by striking out "of such benefits" in subparagraph (B)(i) 
and inserting in lieu thereof "for such benefits"; 
(ii) by striking out "amounts" in subparagraph (B)(iii) and 
inserting in lieu thereof "amount"; and 
(iii) by striking out "scetion 217" in subparagraph (C)(ii) and 
inserting in lieu thereof "section 217". 
(B) Section 215(a)(4) of such Act is amended by indenting subpara-
graph (B) two ems so as to align its left margin with the margin of 
subparagraph (A) (and by appropriately further indenting clauses (i) 
and (ii) of such subparagraph (B)). 
(C) Section 215(f)(2)(A) of such Act is amended by striking out 
"primary insurance account" and inserting in lieu thereof "primary 
insurance amount". 
(D) Section 215(h) of such Act is amended— 
(i) by adding at the beginning thereof the following heading: 
"Service of Certain Public Health Service Officers"; and 
(ii) by striking out "Civil Service Commission" in paragraph 
(1) and inserting in lieu thereof "Director of the Office of 
Personnel Management". 
42 use 416. 
(11)(A) Section 2203(d)(4) of Public Law 97-35 is amended by 
inserting after "at the end of paragraph (3)" the following: "(after 
and below subparagraph (C)(ii)) . 
42 use 416. 
(B) Section 216(i)(2)(F)(ii) of the Social Security Act is amended by 
striking out "enacted," in the matter immediately preceding subdi-
vision (I) and inserting in lieu thereof "enacted—". 
42 use 417. 
(12)(A) Section 217(d) of such Act is amended by indenting para-
graphs (1) and (2) two ems. 
(B) Section 217(e)(1) of such Act is amended by inserting 
", National Oceanic and Atmospheric Administration Corps," after 
"Coast and Geodetic Survey" in the last sentence. 
(C) Section 217(f)(1) of such Act is amended by striking out "Civil 
Service Commission" and inserting in lieu thereof "Director of the 
Office of Personnel Management". 
42 use 418. 
(13) Section 218(i) of such Act is amended by striking out "sub-
chapter A or E of chapter 9 of the Internal Revenue Code" and 
inserting in lieu thereof "chapter 21 and subtitle F of the Internal 
Revenue Code of 1954". 
42 use 421. 
(14) Section 221(e) of such Act is amended by striking out "Federal 
Disability Trust Fund is charged" and inserting in lieu thereof 
"Federal Disability Insurance Trust Fund is charged". 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1165 
(15)(A) Subsections (a) and (b)(1) of section 222 of such Act are 42 use 422. 
amended by striking out "the Vocational RehabiHtation Act" each 
place it appears and inserting in lieu thereof "title I of the Rehabili-
tation Act of 1973". 
(B) Section 222(b)(3) of such Act is amended by striking out 
"equal" and inserting in lieu thereof "equals". 
(C) Section 222(b)(4) of such Act is amended by striking out "full-
time student" and inserting in lieu thereof "full-time elementary or 
secondary school student". 
(16) Section 223(d)(2XA) of such Act is amended by striking out "an 42 use 423. 
individual" and inserting in lieu thereof "An individual". 
(17) Section 226(b) of such Act is amended (in the matter following 42 use 426. 
paragraph (2)(C)) by striking out "part (A)" and inserting in lieu 
thereof ^'part A". 
(18) The last sentence of section 230(c) of such Act is amended by 9
7 Stat. 425. 
striking out "(3)(f)(3)" and inserting in lieu thereof "3(f)(3)". 
42 use 430. . 
(b)(1) Section 3()2(b) of such Act is amended by striking out all that 42 use 502. 
follows "through" and precedes "and prior" and inserting in lieu 
thereof "the Fiscal Service of the Department of the Treasury". 
(2) Section 303(a)(4) of such Act is amended by striking out 42 use 503. 
"1606(b)" and inserting in lieu thereof "3305(b)". 
(3) Section 303(a)(5) of such Act (as amended by the 1983 Amend-
ments) is amended— 
(A) by striking out "1606(b)" and inserting in lieu thereof 
"3305(b)"; and 
(B) by striking out the punctuation mark immediately before 
) > j 
the last proviso and inserting in lieu thereof a colon. 
(4) Section 303(c) of such Act is amended by striking out "That" in 
paragraphs (1) and (2) and inserting in lieu thereof "that". 
(5) Section 303(e)(2XA)(i) of such Act is amended by striking out 
"child support obligatons" and inserting in lieu thereof "child sup- 
^ :
,
< 
port obligations". 
(cXl)(A) Section 402(aX9) of such Act is amended by striking out 42 use 602. 
"use of disclosure" and inserting in lieu thereof "use or disclosure". 
(B) Section 402(aX14) of such Act is amended by striking out "(A) 
provide that" and inserting in lieu thereof "provide (A) that". 
(C) Section 402(aX19)(FXi) of such Act is amended by striking out 
"or section 408" and inserting in lieu thereof "or section 472". 
(D) Section 402(aX19)(G) of such Act is amended by striking out the 
• < v;'' ^
-
i 
comma before "that" in clause (iv). 
(E) Section 402(a) of such Act is further amended— 
< :; 
(i) by striking out "must" immediately before the first of its 36 
numbered subdivisions and inserting in lieu thereof "must—"; 
-; : 
(ii) by indenting and aligning such numbered subdivisions 
(without altering any of the numbering, language, or punctua-
tion) to the extent necessary to make each of such subdivisions a 
numbered paragraph with its left margin indented two ems 
(and with any designated internal subdivisions within such 
. :. 
paragraphs (including the numbered subdivisions in subpara-
graphs (A) and (B) of paragraph (8) and in subparagraph (A) of 
paragraph (14) but not including such subparagraphs them-
selves, and not including any of the subdivisions in paragraphs 
(9), (10), (15), (19)(G), (25), (30), (31), (33), and (36)) being appropri-
ately further indented and aligned as subparagraphs or 
clauses); 
(iii) by striking out "and" after the semicolon at the end of 
paragraph (5); 
98 STAT. 1166 
PUBLIC LAW 98-369—JULY 18, 1984 
(iv) by striking out "clause" each place it appears in para-
graphs (15)(A), (15)(B), and (19)(F) and inserting in lieu thereof 
'paragraph"; and 
(v) by striking out "section 402(a)(7)" in paragraph (19)(D) and 
inserting in lieu thereof "paragraph (7)". 
42 use 602. 
(F) Section 402(c) of such Act is amended by striking out "clause" 
each place it appears and inserting in lieu thereof "paragraph". 
(G) Section 402(d)(2) of such Act is amended by striking out 
"section 43" and "section 43(g)" and inserting in lieu thereof "sec-
tion 32" and "section 32(g)", respectively. 
42 use 603. 
(2)(A) Section 403(b)(3) of such Act is amended by striking out all 
that follows "through" and precedes "and prior" and inserting in 
lieu thereof "the Fiscal Service of the Department of the Treasury". 
(B) Clause (ii) in the last sentence of section 403(j) of such Act is 
amended by striking out the comma after "excess payments". 
42 use 606. 
(3)(A) Section 406(b)(2) of such Act is amended by adding "and" 
after the semicolon at the end of clause (C), by striking out clause 
(D), and by redesignating clause (E) as clause (D). 
(B)(i) The last sentence of section 406(b) of such Act, and section 
42 use 602. 
402(a)(19)(F)(i) of such Act, are each amended by striking out 
"clauses (A) through (E)" and inserting in lieu thereof "clauses (A) 
through (D)". 
(ii) Section 402(a)(26)(B) of such Act is amended by striking out 
'subparagraphs (A) through (E)" and inserting in lieu thereof 
"clauses (A) through (D)". 
42 use 607. 
(4)(A) Section 407(b)(1)(C) of such Act is amended by striking out 
"such father", and "he" each place it appears, and by inserting in 
lieu thereof in each instance "such parent'. 
(B) Section 407(b)(2)(A) of such Act is amended by striking out 
"thirty days" and inserting in lieu thereof "30 days". 
42 use 609. 
(5) Section 409(a) of such Act is amended— 
(A) by striking out "vacanies" in paragraph (1)(B) and insert-
ing in lieu thereof "vacancies"; and 
(B) by striking out "part (C)" in paragraph (3) and inserting in 
lieu thereof "part C" 
42 use 610. 
(6) Section 410 of such Act is amended by striking out "Food 
Stamp Act of 1964" in subsections (a) and (c) and inserting in lieu 
thereof "Food Stamp Act of 1977". 
42 use 614. 
(7)(A) Section 414(b)(5) of such Act is amended by striking out 
"receipients" and inserting in lieu thereof "recipients". 
42 use 615. 
(B) Section 415(b)(l)(B)(ii) of such Act is amended by striking out 
"determinig" and inserting in lieu thereof "determining". 
42 use 620. 
(8) Section 420(b) of such Act is amended by striking out the 
comma immediately after "preceding sentence". 
42 use 641. 
(9) Section 441 of such Act is amended by striking out "(a)". 
42 use 644. 
(10) Section 444(d) of such Act is amended by striking out "rere-
ferred" and inserting in lieu thereof "referred". 
42 use 645. 
(11) Section 445(bXl)(E) of such Act is amended by striking out 
"Comprehensive Employment and Training Act of 1973" and insert-
ing in lieu thereof "Job Training Partnership Act". 
42 use 652. 
(12) The second sentence of section 452(c)(2) of such Act is 
amended by striking out "preceding section" and inserting in lieu 
thereof "preceding sentence". 
42 use 653. 
(13) Section 453(b)(2) of such Act is amended by striking out ", or 
the United States" and inserting in lieu thereof "of the United 
States". 
42 use 654. 
(14) Section 454 of such Act is amended— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1167 
(A) by striking out "of such parent" in paragraph (9)(C); 
(B) by striking out "collection and distribution," in clause 
(A)(ii) of paragraph (16) and inserting in lieu thereof "collection, 
and distribution'; and 
(C) by indenting paragraph (17) two ems so as to align its left 
margin with the margins of the preceding paragraphs, and 
amending such paragraph (as so indented)— 
(i) by striking out "to accept" and inserting in lieu thereof 
"provide that the State will accept", 
(ii) by striking out "and to impose" and inserting in lieu 
thereof "will impose", 
(iii) by striking out "to transmit" and inserting in lieu 
thereof "will transmit", and 
(iv) by striking out ", otherwise to comply" and inserting 
in lieu thereof "will otherwise comply". 
. (15) Section 456 of such Act is amended— 
42 use 656. 
(A) by inserting "(1)" after "SEC. 456. (a)"; 
(B) by striking out "(1) The amount" and inserting in lieu 
thereof "(2) The amount"; 
(C) by striking out "(2) Any" and inserting in lieu thereof "(3) 
Any"; and 
(D) by striking out "paragraphs (1) (A) and (B)" and inserting 
in lieu thereof "subparagraphs (A) and (B) of paragraph (2)". 
(16) The heading of section 458 of such Act is amended by striking 42 USC 658. 
out "STATES" and inserting in lieu thereof "STATES". 
(17) Section 462(f)(2) of such Act is amended by striking out 42 USC 662. 
"dependents" and inserting in lieu thereof "dependents' ". 
(18)(A) Section 474(b)(4)(A) of such Act is amended by striking out 42 use 674. 
"subparagraph (c)" and inserting in lieu thereof "subparagraph (C)". 
(B) Section 474(c)(2) of such Act is amended by striking out 
"relvant" and inserting in lieu thereof "relevant". 
(C) Section 474(d)(1) of such Act is amended— 
(i) by striking out "and (c)" the second place it appears and 
inserting in lieu thereof "and (C)"; and 
(ii) by striking out "secretary" and inserting in lieu thereof 
"Secretary". 
(dXD Section 901(c) of such Act is amended by aligning paragraphs 42 USe HOl. 
(1) through (4) (including the subparagraphs in paragraph (3)) flush 
with the left margin (but with appropriate indentation in the case of 
the subparagraphs and clauses in paragraph (1)). 
(2) Section 901(f) of such Act is amended by moving paragraph (3) 
two ems to the left, so that its left margin is in flush alignment with 
the margins of the other paragraphs in such section. 
(3) Section 904(b) of such Act is amended by striking out "the 42 use 1104. 
Second Liberty Bond Act, as amended," and inserting in lieu thereof 
"chapter 31 of title 31, United States Code,". 
(4) Section 908(d) of such Act is amended by striking out "5703(b)" 42 use 1108. 
and inserting in iieu thereof "5703". 
(eXl)(A) Subparagraphs (C) and (D) of section 1101(a)(8) of such Act 42 use 1301. 
are amended by indenting them 2 ems so as to align their left 
margin with the left margin of subparagraphs (A) and (B) of such 
section. 
(B) Paragraph (9) of section 1101(a) of such Act is amended by 
indenting it (including subparagraphs (A) through (D) and clauses (i) 
' 
and (ii) of subparagraph (O) 2 ems so as to align the left margin at 
the beginning of such paragraph with the left margin of paragraph 
(8)(A) of such section. 
98 STAT. 1168 
PUBLIC LAW 98-369—JULY 18, 1984 
42 u s e 1307. 
Effective date. 
42 use 1307 
note. 
42 use 1314. 
42 use 1315. 
42 use 1316. 
42 use 1320b-l. 
42 use 
1331-1336. 
(2XA) Section 1107(a) of such Act is amended by striking out 
"subchapter E of chapter 1 or subchapter A, C, or E of chapter 9 of 
the Internal Revenue Code," and inserting in lieu thereof "of chap-
ter 2, 21, or 23 of the Internal Revenue Code of 1954, or of any 
provision of subtitle F of such Code which corresponds (within the 
meaning of section 7852(b) of such Code) to a provision contained in 
subchapter E of chapter 9 of the Internal Revenue Code of 1939,". 
(B) The amendment made by subparagraph (A) shall not apply to 
returns filed or representations made on or before the date of the 
enactment of this Act. 
(3) Section 1107(b) of such Act is amended by striking out "former 
wiiPe divorced," each place it appears and inserting in lieu thereof 
"divorced wife, divorced husband, surviving divorced wife, surviving 
divorced husband, surviving divorced mother, surviving divorced 
father,". 
(4XA) Section 1114(g) of such Act is amended by striking out the 
period after "Code" and inserting in lieu thereof a comma. 
(B) Section 1114(h)(1) of such Act is amended by striking out 
"sections 281, 283, and 1914 of title 18 of the United States Code, and 
section 190 of the Revised Statutes (5 U.S.C. 99)" and insert in lieu 
thereof "sections 203, 205, and 209 of title 18, United States Code". 
(5) Section 1115(a) of such Act is amended by striking out "VI,", 
"602,", and "603,". 
(6) Section 1116 of such Act is amended— 
(A) by striking out "VI," in subsections (a)(1), (b), and (d); 
(B) by striking out "604," in subsection (aX3); and 
(C) by striking out "XVI," and all that follows through "part 
A" in subsection (d) £ind inserting in lieu thereof "XVI, or XIX, 
or part A". 
(7) Section 1131(a) of such Act is amended— 
(A) by striking out the period after "section 204(d) of this Act" 
in paragraph (2XB) and inserting in lieu thereof a comma; and 
(B) by moving the matter following paragraph (2)(B) two ems 
to the left so that it is flush with the left margin. 
(f) Title XIII of such Act is repealed. 
(gXl) Section 1611(c) of such Act is amended by adding at the 
beginning thereof the following heading: 
"Period for Determination of Benefits". 
42 use 1382. 
(2) Section 1611(g) of such Act is amended by striking out "or 
individuals" and inserting in lieu thereof "or such individual". 
42 use 1382a. 
(3) Section 1612(bX2) of such Act is amended by indenting subpara-
graph (B) two ems so £is to align its left margin with the margin of 
subparagraph (A). 
(4) Section 1612(b)(9) of such Act is amended by inserting a comma 
after "child". 
42 use 1382b. 
(5) The heading of section 1613(c) of such Act is amended to read 
as follows: 
"Disposal of Resources For Less Than Fair Market Value". 
42 use 1382c. 
(6) Section 1614(aX3) of such Act is amended by moving subpara-
graph (E) two ems to the left, so that its left margin is in flush 
alignment with the margins of the other subparagraphs in such 
section. 
..,.„ ^_ .,___ ., ... ,: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1169 
(7) Section 1614(dXl) of such Act is amended by striking out "man 
and women" and inserting in lieu thereof "man and woman". 
(8) Section 1615 of such Act is amended by striking out "the 
Vocational Rehabilitation Act" in subsections (a), (c), and (d) and 
inserting in lieu thereof "title I of the Rehabilitation Act of 1973". 
(9) Section 1618 of such Act is amended— 
(A) by moving subsection (d) two ems to the left, so that its left 
margin is in flush alignment with the margins of the other 
subsections in such section; 
(B) by striking out the comma after "levels of its" in such 
subsection (d); and 
(C) by inserting a comma after "1980", and after "1976" each 
place it appears, in such subsection. 
(10) Section 1621(e) of such Act is amended by striking out "sever-
ably" and inserting in lieu thereof "severally". 
(IIXA) Section 1631(bXl) of such Act is amended by striking out 
"equity or" and inserting in lieu thereof "equity and". 
(B) Section 1631(bX2) of such Act is amended by striking out 
"section 43" and "section 43(g)" and inserting in lieu thereof "sec-
tion 32" and "section 32(g)", respectively. 
(12) Section 1631(dXl) of such Act is amended by striking out "(e), 
and (f)" and inserting in lieu thereof "and (e)". 
(h)(1) Section 2002(b) of such Act is amended by striking out 
"section 203 of the Intergovernmental (^Cooperation Act of 1968 (42 
U.S.C. 4213)" and inserting in lieu thereof "section 6503 of title 31, 
United States Code,". 
(2) Section 2006(c) of such Act is amended by striking out "section 
202 of the Intergovernmental Cooperation Act of 1968 (42 U.S.C. 
4212)" and inserting in lieu thereof "section 6503 of title 31, United 
States Code". 
(iXl) Section 3121(bXl) of the Internal Revenue Code of 1954 is 
amended by striking out "(A)" and all that follows down through "or 
(B)". 
(2) Section 3121(iX2) of such Code is amended by striking out 
"section 102(10) of the Servicemen's and Veterans' Survivor Benefits 
Act" and inserting in lieu thereof "chapter 3 and section 1009 of 
title 37, United States Code". 
(3) Section 3121(mX2) of such Code is amended— 
(A) by striking out "section 102 of the Servicemen's and 
Veterans' Survivor Benefits Act" and inserting in lieu thereof 
"paragraph (21) of section 101 of title 38, United States Code"; 
and 
(B) by striking out "such section" and inserting in lieu thereof 
"paragraph (22) of such section". 
(4) Section 3121(m)(3) of such C!ode is amended by striking out 
"such section 102" and inserting in lieu thereof "paragraph (23) of 
such section 101". 
(5) Section 3121(n) of such Code is amended— 
(A) by striking out "a reserve component of a uniformed 
service as defined in section 102(3) of the Servicemen's and 
Veterans' Survivor Benefits Act" in the first sentence and 
inserting in lieu thereof "a reserve component as defined in 
section 101(27) of title 38, United States Code"; 
(B) by inserting ", the National Oceanic and Atmospheric 
Administration Corps," after "Coast and Geodetic Survey" in 
the first sentence; 
42 use 1382c. 
42 use 1382d. 
42 use 1382g. 
42 use 1382J. 
42 use 1383. 
42 use 1397a. 
42 use 1397e. 
26 use 3121. 
31-194 0 - 86 - 39 : 
QL. 3 Part 1 
98 STAT. 1170 
PUBLIC LAW 98-369—JULY 18, 1984 
(C) by striking out "military or naval" each place it appears 
in paragraph (5) and inserting in lieu thereof "military, naval, 
or air"; and 
(D) by striking out "Universal Military Training and Service 
Act" in paragraph (5XB) and inserting in lieu thereof "Military 
SGlftctivG SftrvicG A.ct 
42 use 1301. 
qxD Section 1101(a)(6) of the Social Security Act is amended by 
striking out "means" and all that follows and inserting in lieu 
thereof "means the Secretary of Health and Human Services.". 
(2) The following provisions of such Act are amended by striking 
out "Health, Education, and Welfare" wherever it appears and 
inserting in lieu thereof "Health and Human Services": 
(A) In title II— 
(i) subsections (a)(3), (aX4), (bXD, (bX2), (gXD, (gX2), (g)(4), 
42 use 401. 
a^d (iXD of section 201; 
42 use 418. 
(ii) subsections (q)(4XB), (qX6XB), and (rXD of section 218; 
and 
42 use 431. 
(iii) subsections (bX3) and (b)(4) of section 231; 
(B) in title IV— 
42 use 603. 
(i) subsections (bX2) and 03X3) of section 403; 
42 use 631. 
(ii) subsection (a) of section 431; 
42 use 636. 
(iii) subsection (b) of section 436; 
42 use 639. 
(iv) section 439; 
42 use 641. 
(v) section 441; 
42 use 643. 
(vi) section 443; 
42 use 644. 
(vii) subsection (a) of section 444; 
42 use 652. 
(viii) subsection (a) of section 452; 
42 use 653. 
(ix) subsection Ot)Xl) of section 453; 
42 use 654. 
(x) paragraph (8)(B) of section 454; and 
42 use 660. 
(xi) section 460; 
(C) in title VII— 
42 use 902. 
(i) section 702; and 
42 use 907. 
(ii) subsection (cXD of section 706; 
(D) in title XI— 
42 use 1302. 
(i) section 1102; 
42 use 1306. 
(ii) subsection (b) of section 1106; 
42 use 1307. 
(iii) subsection (b) of section 1107; 
42 use 1314. 
(iv) subsection (c) of section 1114; 
42 use 1320. 
(v) section 1120; and 
42 use i320a-5. 
(vi) subsection (a) of section 1126; 
42 use 1381a. 
(E) in title XVI, section 1602; and 
(F) in title XVIII— 
42 use I395i. 
(i) subsections (a), (fKD, (g), and (h) of section 1817; 
42 use 1395s. 
(ii) subsections (a)(2) and (d)(1) of section 1840; 
42 use I395t. 
(iii) subsections (f), (g), (h), and (i) of section 1841; and 
42 use I395u. 
(iv) subsection (b)(3) of section 1842. 
(3) The following provisions of such Act are amended by striking 
out "of Health, Education, and Welfare" wherever it appears: 
(A) In title II— 
42 use 410. 
(i) subsections (aX10)(B) and (1X4XA) of section 210; 
(ii) subsections (aX2), (aX3), (bX2), (eX2), (eX3), and (fKD of 
42 use 417. 
section 217; 
(iii) subsections (aXD, (cX4), (dX3), (dX7), (hX2), (hX3), (i), Q), 
42 use 418. 
(kXD, (1), and (pX2) of section 218; 
42 use 428. 
(iv) subsection (g) of section 228; and 
42 use 433. 
(v) subsection (d) of section 233; 
(B) in title IV— 
i"^ei-i£. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1171 
(i) subsection (aX3) of section 403; and 
42 use 603. 
(ii) subsection (e) of section 407; and 
42 use 607. 
(C) in title XIX, section 1901. 
42 use 1396. 
(4) Section 205(1) of such Act is amended by striking out "employ- 42 use 405. 
ee" and all that follows down through "designated" and inserting in 
lieu thereof "employee of the Department of Health and Human 
Services designated'. 
(5) The following provisions of the Internal Revenue Code of 1954 
are amended by striking out "Health, Education, and Welfare" each 
place it appears and inserting in lieu thereof "Health and Human 
Services": 
(A) Subsection (d)(6XB)(ii) of section 51; 
26 use 51. 
(B) subsections (cXD, (cX2XE), (gXD, (gX3XA), and (gX3XB) of 
section 1402; 
26 use 1402. 
(C) subsection (bXlOXB) of section 3121; 
26 use 3121. 
(D) subsections (d) and (f) of section 6057; 
26 use 6057. 
(E) subsection (1X5) of section 6103; and 
26 use 6103. 
(F) paragraph (5) of section 6511(d). 
26 use 6511. 
(k) Sections 432(d), 432(fKl), 433^), and 434(b) of the Social Se-
curity Act are each amended by striking out "of Labor" wherever it 42 use 632, 633, 
appears. 
^34-
(1) Any reference to the Federal Security Administrator which 42 use 1301 
may remain in the provisions of title II, IV, VII, or XI of the Social "o^^ 
Security Act (other than section 1101(aX6) of such Act) is amended— 42 use 40i, 60i, 
(1) by substituting "Secretary" or "Secretary's" for the term 901.130i. 
"Administrator" or "Administrator's", where the reference is to 42 use 1301. 
that term alone; 
(2) by substituting "Secretary of Health, Education, and Wel-
fare" for the term "Federal Security Administrator", where the 
reference is to that term, if the provision containing such 
reference is amended by paragraph (2) or (3) of subsection (j) (in 
which case the amendment of such provision under this para-
graph shall be deemed to have taken effect immediately prior to 
the amendment of such provision under such paragraph (2) or 
(3)); and 
(3) by substituting "Secretary of Health and Human Services" 
for the term "Federal Security Administrator" in any other 
case where the reference is to that term; 
and any reference to the Federal Security Agency which may 
remain in such provisions is amended by substituting "Department 
of Health and Human Services" for the term "Federal Security 
Agency"; but nothing in this subsection shall affect the exercise 
under section 402(a)(5) of such Act of the functions, powers, and 42 use 602. 
duties relating to the prescription of personnel standards on a merit 
basis which were transferred from the Secretary of Health, Educa-
tion, and Welfare by section 208(aX3)(D) of Public Law 91-648. 42 use 4728. 
EFFECTIVE DATES 
SEC. 2664. (a) Except as otherwise specifically provided, the 42 use 40i note. 
amendments made by sections 2661 and 2662 shall be effective as ^/l^^' PP 11^6, 
though they had been included in the enactment of the Social 
Security Amendments of 1983 (Public Law 98-21). 
97 Stat. 65. 
(b) Except to the extent otherwise specifically provided in this 42 use 1305 
subtitle, the amendments made by section 2663 shall be effective on ^^f- ,,gQ 
the date of the enactment of this Act; but none of such amendments 
" ^' P 
shall be construed as changing or affecting any right, liability, 
98 STAT. 1172 
PUBLIC LAW 98-369—JULY 18, 1984 
status, or interpretation which existed (under the provisions of law 
involved) before that date. 
Subtitle E—Trade Adjustment Assistance 
UMITATIONS ON TRADE READJUSTMENT ALLOWANCES 
SEC. 2671. The first sentence of section 233(aX3) of the Trade Act of 
1974 (19 U.S.C. 2293(aX3)) is amended to read as follows: "Notwith-
standing parg^aph (1), in order to assist the adversely affected 
19 use 2296. 
worker to complete training approved for him under section 236, 
and in accordance with regulations prescribed by the Secretary, 
pajmtients may be made as trade readjustment allowances for up to 
26 additional weeks in the 26-week period that— 
"(A) follows the last week of entitlement to trade readjust-
ment allowances otherwise payable under this chapter; or 
"(B) begins with the first week of such training, if such 
training is approved after the last week described in subpara-
graph (A).". 
JOB SEARCH AND RELOCATION ALLOWANCES 
SEC. 2672. (a) Section 237(aXl) of the Trade Act of 1974 (19 U.S.C. 
2297(aXl)) is amended by striking out "$600" and inserting in lieu 
thereof "$800". 
(b) Section 238(dX2) of the Trade Act of 1974 (19 U.S.C. 2298(dX2)) 
is amended by striking out "$600" and inserting in lieu thereof 
"$800". 
ASSISTANCE TO INDUSTRY 
SEC. 2673. Section 265 of the Trade Act of 1974 (19 U.S.C. 2355) is 
amended— 
(1) by amending subsection (a)— 
(A) by inserting "or workers" immediately after "sub-
stantial number of firms", and 
(B) by inserting "223 or" immediately before "251"; and 
(2) by striking out "$2,000,000" in subsection (b) and inserting 
in lieu thereof "$10,000,000". 
Subtitle F—Certain Provisions Relating to 
Puerto Rico and the Virgin Islands 
SEC. 2681. CLARIFICATION OF DEFINITION OF ARTICLES PRODUCED IN 
PUERTO RICO OR THE VIRGIN ISLANDS. 
(a) IN GENERAL.—Section 7652 of the Internal Revenue Code of 
97 Stat. 395. 
1954 (relating to shipments to the United States) is amended by 
26 use 7652. 
redesignating subsection (c) as subsection (e) and by inserting after 
subsection (b) the following new subsections: 
"(c) ARTICLES CONTAINING DISTILLED SPIRITS.—For purposes of 
subsections (aX3) and (b)(3), any article containing distilled spirits 
shall in no event be treated as produced in Puerto Rico or the Virgin 
Islands unless at leeist 92 percent of the alcoholic content in such 
article is attributable to rum. 
"(d) ARTICLES OTHER THAN ARTICLES CONTAINING DISTILLED SPIR-
ITS.—For purposes of subsections (aX3) and (bX3)— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1173 
"(1) VALUE ADDED REQUIREMENT FOR PUERTO RICO.—Any arti-
cle, other than an article containing distilled spirits, shall in no 
event be treated as produced in Puerto Rico unless the sum of— 
"(A) the cost or value of the materials produced in Puerto 
Rico, plus 
"(B) the direct costs of processing operations performed in 
Puerto Rico, 
equals or exceeds 50 percent of the value of such article as of the 
time it is brought into the United States. 
"(2) PROHIBITION OF FEDERAL EXCISE TAX SUBSIDIES.— 
"(A) IN GENERAL.—No amount shall be transferred under 
subsection (aX3) or (b)(8) in respect of taxes imposed on any 
article, other than an article containing distilled spirits, if 
the Secretary determines that a Federal excise tax subsidy 
was provided by Puerto Rico or the Virgin Islands (as the 
case may be) with respect to such article. 
"(B) FEDERAL EXCISE TAX SUBSIDY.—For purposes of this 
paragraph, the term 'Federal excise tax subsidy' means any 
subsidy— 
"(i) of a kind different from, or 
"(ii) in an amount per value or volume of production 
greater than, 
the subsidy which Puerto Rico or the Virgin Islands offers 
generally to industries producing articles not subject to 
Federal excise taxes. 
"(3) DIRECT COSTS OF PROCESSING OPERATIONS.—For purposes of 
this subsection, the term 'direct cost of processing operations' 
has the same meaning as when used in section 213 of the 
Caribbean Basin Economic Recovery Act.". 
97 Stat. 384. 
(b) EFFECTIVE DATES AND SPECIAL RULES.— 
H use 2703. 
(1) IN GENERAL.—Except as provided in paragraph (2), the note 
amendments made by subsection (a) shall apply with respect to 
articles brought into the United States on or after March 1, 
1984. 
(2) EXCEPTION FOR PUERTO RICO FOR PERIODS BEFORE JANUARY 
1, 1985.— 
(A) IN GENERAL.—Subject to the limitations of subpara-
graphs (B) and (C), the amendments made by subsection (a) 
shall not apply with respect to articles containing distilled 
spirits brought into the United States from Puerto Rico 
after February 29,1984, and before January 1,1985, 
(B) $130,000,000 LIMITATION.—In the case of such articles 
brought into the United States after February 29,1984, and 
before July 1,1984, the aggregate amount payable to Puerto 
Rico by reason of subparagraph (A) shall not exceed the 
6XC6SS of*~** 
(i) $130,000,000, over 
:^^i•. 
(ii) the aggregate amount payable to Puerto Rico 
under section 7652(a) of the Internal Revenue Code of 
1954 with respect to such articles which were brought 
into the United States after June 30, 1983, and before 
March 1, 1984, and which would not meet the require-
ments of section 7652(c) of such Code. 
Ante, p. 1172. 
(C) $75,000,000 UMiTATiON.—The aggregate amount pay-
able to Puerto Rico by reason of subparagraph (A) shall not 
exceed $75,000,000 in the case of articles— 
98 STAT. 1174 
PUBLIC LAW 98-369—JULY 18, 1984 
(i) brought into the United States after June 30, 1984, 
and before January 1, 1985, 
(ii) which would not meet the requirements of section 
Ante, p. 1172. 
7652(c) of such Code, 
(iii) which have been redistilled in Puerto Rico, and 
(iv) which do not contain distilled spirits derived 
from cane. 
(3) LIMITATION ON INCENTIVE PAYMENTS TO UNITED STATES 
DISTILLERS.— 
(A) IN GENERAL.—In the case of articles to which this 
paragraph applies, the aggregate amount of incentive pay-
ments paid to any United States distiller with respect to 
such articles shall not exceed the limitation described in 
subparagraph (C). 
(B) ARTICLES TO WHICH PARAGRAPH APPLIES.—This para-
graph shall apply to any article containing distilled spirits 
described in clauses (i) through (iv) of paragraph (2)(C). 
(C) LIMITATION.— 
(i) IN GENERAL.—The limitation described in this sub-
paragraph is $1,500,000. 
(ii) SPECIAL RULE.—The limitation described in this 
subparagraph shall be zero with respect to any distiller 
who was not entitled to or receiving incentive pay-
ments as of March 1,1984. 
(D) PAYMENTS IN EXCESS OF LIMITATION.—If any United 
States distiller receives any incentive payment with respect 
to articles to which this paragraph applies in excess of the 
limitation described in subparagraph (C), such distiller 
shall pay to the United States the total amount of such 
incentive payments with respect to such articles in the 
same manner, and subject to the same penalties, as if such 
amount were tax due and payable under section 5001 of 
such Code on the date such payments were received. 
(E) INCENTIVE PAYMENTS.— 
(i) IN GENERAL.—For purposes of this paragraph, the 
term "incentive payment" means any payment made 
directly or indirectly by the commonwealth of Puerto 
Rico to any United States distiller as an incentive to 
engage in redistillation operations. 
(ii) TRANSPORTATION PAYMENTS EXCLUDED.—Such term 
shall not include any payment of a direct cost of transpor-
tation to or from Puerto Rico with respect to any article to 
which this paragraph applies. 
SEC. 2682. LIMITATIONS ON TRANSFERS OF EXCISE TAX REVENUES TO 
PUERTO RICO AND THE VIRGIN ISLANDS. 
(a) IN GENERAL.—Section 7652 of the Internal Revenue Code of 
Ante, p. 1172. 
1954 (relating to shipments to the United States) is amended by 
adding at the end thereof the following new subsection: 
"(f) LIMITATION ON COVER OVER OF TAX ON DISTILLED SPIRITS.—For 
purposes of this section, with respect to taxes imposed under section 
5001 or this section on distilled spirits, the amount covered into the 
treasuries of Puerto Rico and the Virgin Islands shall not exceed the 
lesser of the rate o
f
— 
"(1) $10.50, or 
"(2) the tax imposed under section 5001(a)(1), on each proof 
gallon.". 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1175 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
apply to articles containing distilled spirits brought into the United 
States after September 30,1985. 
TITLE VII—COMPETITION IN 
CONTRACTING 
26 u s e 7652 
note. 
Competition in 
Contracting Act 
of 1984. 
SHORT TITLE 
SEC. 2701. This title may be cited as the "Competition in Contract- 41 use 251 note. 
ing Act of 1984". 
Subtitle A—Amendments to the Federal Prop-
erty and Administrative Services Act of 1949 
PROCUREMENT PROCEDURES 
SEC. 2711. (a)(1) Section 303 of the Federal Property and Adminis-
trative Services Act of 1949 (41 U.S.C. 253) is amended to read as 
follows: 
"COMPETITION REQUIREMENTS 
"SEC. 303. (a)(1) Except as provided in subsections (b), (c), and (g) 
and except in the case of procurement procedures otherwise ex-
pressly authorized by statute, an executive agency in conducting 
a procurement for property or services— 
"(A) shall obtain full and open competition through the use of 
competitive procedures in accordance with the requirements of 
this title and the modifications to regulations promulgated 
pursuant to section 2752 of the Competition in Contracting Act 
of 1984; and 
Post, p. 1203. 
"(B) shall use the competitive procedure or combination of 
competitive procedures that is best suited under the circum-
stances of the procurement. 
"(2) In determining the competitive procedures appropriate under 
the circumstance, an executive agency— 
"(A) shall solicit sealed bids if— 
"(i) time permits the solicitation, submission, and evalua-
tion of sealed bids; 
"(ii) the award will be made on the basis of price and 
other price-related factors; 
"(iii) it is not necessary to conduct discussions with the 
responding sources about their bids; and 
"(iv) there is a reasonable expectation of receiving more 
than one sealed bid; and 
"(B) shall request competitive proposals if sealed bids are not 
appropriate under clause (A). 
"(b)(1) An executive agency may provide for the procurement of 
property or services covered by this section using competitive proce-
dures but excluding a particular source in order to establish or 
maintain any alternative source or sources of supply for that proper-
ty or service if the agency head determines that to do so— 
"(A) would increase or maintain competition and would likely 
result in reduced overall costs for such procurement, or for any 
anticipated procurement, of such property or services; 
98 STAT. 1176 
PUBLIC LAW 98-369—JULY 18, 1984 
"(B) would be in the interest of national defense in having a 
facility (or a producer, manufacturer, or other supplier) avail-
able for furnishing the property or service in case of a national 
emergency or industrial mobilization; or 
"(C) would be in the interest of national defense in establish-
ing or maintaining an essential engineering, research, or devel-
opment capability to be provided by an educational or other 
nonprofit institution or a federally funded research and devel-
opment center. 
"(2) In fulfilling the statutory requirements relating to small 
business concerns and socially and economically disadvantaged 
small business concerns, an executive agency shall use competitive 
procedures but may restrict a solicitation to allow only such busi-
ness concerns to compete. 
"(c) An executive agency may use procedures other than competi-
tive procedures only when— 
"(1) the property or services needed by the executive agency 
are available from only one responsible source and no other 
type of property or services will satisfy the needs of the execu-
tive agency; 
"(2) the executive agency's need for the property or services is 
of such an unusual and compelling urgency that the Govern-
ment would be seriously injured unless the executive agency is 
permitted to limit the number of sources from which it solicits 
bids or proposals; 
"(3) it is necessary to award the contract to a particular 
source or sources in order (A) to maintain a facility, producer, 
manufacturer, or other supplier available for furnishing prop-
erty or services in case of a national emergency or to achieve 
industrial mobilization, or (B) to establish or maintain an essen-
tial engineering, research, or development capability to be pro-
vided by an educational or other nonprofit institution or a 
federally funded research and development center; 
"(4) the terms of an international agreement or treaty be-
tween the United States Government and a foreign government 
or international organization, or the written directions of a 
foreign government reimbursing the executive agency for the 
cost of the procurement of the property or services for such 
government, have the effect of requiring the use of procedures 
other than competitive procedures; 
"(5) a statute expressly authorizes or requires that the pro-
curement be made through another executive agency or from a 
specified source, or the agency's need is for a brand-name 
commercial item for authorized resale; 
"(6) the disclosure of the executive agency's needs would 
compromise the national security unless the agency is permit-
ted to limit the number of sources from which it solicits bids or 
proposals; or 
"(7) the head of the executive agency— 
"(A) determines that it is necessary in the public interest 
to use procedures other than competitive procedures in the 
particular procurement concerned, and 
"(B) notifies the Congress in writing of such determina-
tion not less than 30 days before the award of the contract. 
"(d)(1) For the purposes of applying subsection (c)(1)— 
"(A) in the case of a contract for property or services to be 
awarded on the basis of acceptance of an unsolicited research 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1177 
proposal, the property or services shall be considered to be 
available from only one source if the source has submitted an 
unsolicited research proposal that demonstrates a unique and 
innovative concept the substance of which is not otherwise 
available to the United States and does not resemble the sub-
stance of a pending competitive procurement; and 
"(B) in the case of a follow-on contract for the continued 
development or production of a major system or highly special-
ized equipment when it is likely that award to a source other 
than the original source would result in (i) substantial duplica-
tion of cost to the Government which is not expected to be 
recovered through competition, or (ii) unacceptable delays in 
fulfilling the executive agency's needs, such property may be 
deemed to be available only from the original source and may 
be procured through procedures other than competitive proce-
dures. 
"(2) The authority of the head of an executive agency under 
subsection (cX7) may not be delegated. 
"(e) An executive agency using procedures other than competitive 
procedures to procure property or services by reason of the applica-
tion of subsection (cX2) or (c)(6) shall request offers from as many 
potential sources as is practicable under the circumstances. 
"(fXD Except as provided in paragraph (2), an executive agency 
may not award a contract using procedures other than competitive 
procedures unless— 
"(A) the contracting officer for the contract justifies the use of 
such procedures in writing and certifies the accuracy and com-
pleteness of the justification; 
"(B) the justification is approved— 
"(i) in the case of a contract for an amount exceeding 
- 
$100,000 (but equal to or less than $1,000,000), by the com-
petition advocate for the procuring activity (without further 
delegation); 
"(ii) in the case of a contract for an amount exceeding 
$1,000,000 (but equal to or less than $10,000,000), by the 
head of the procuring activity or a delegate who, if a 
" 
member of the armed forces, is a general or flag officer or, if 
a civilian; is serving in a position in grade GS-16 or above 
under the General Schedule (or in a comparable or higher 5 use 5332. 
position under another schedule); or 
"(iii) in the case of a contract for an amount exceeding 
$10,000,000, by the senior procurement executive of the 
agency designated pursuant to section 16(3) of the Office of 
Federal Procurement Policy Act (41 U.S.C. 414(3)) (without 97 Stat. 1330. 
further delegation); and 
"(C) Any required notice has been published with respect to 
such contract pursuant to section 18 of the Office of Federal 
Procurement Policy Act and all bids or proposals received in Post, p. 1196. 
response to such notice have been considered by such executive 
agency. 
"(2) In the case of a procurement permitted by subsection (cX2), 
' ^ 
the justification and approval required by paragraph (1) may be 
made after the contract is awarded. The justification and approval 
required by pareigraph (1) is not required in the case of a procure-
ment permitted by subsection (cX7) or in the case of a procurement 
conducted under the Act of June 25, 1938 (41 U.S.C. 46 et seq.), 
popularly referred to as the Wagner-O'Day Act. 
98 STAT. 1178 
PUBLIC LAW 98-369—JULY 18, 1984 
"(3) The justification required by paragraph (IXA) shall include— 
"(A) a description of the agency's needs; 
"(B) an identification of the statutory exception from the 
requirement to use competitive procedures and a demonstra-
tion, based on the proposed contractor's qualifications or the 
nature of the procurement, of the reasons for using that excep-
tion; 
"(C) a determination that the anticipated cost will be fair and 
reasonable; 
"(D) a description of the market survey conducted or a state-
ment of the reasons a market survey was not conducted; 
"(E) a listing of the sources, if any, that expressed in writing 
an interest in the procurement; and 
"(F) a statement of the actions, if any, the agency may take to 
remove or overcome a barrier to competition before a subse-
quent procurement for such needs. 
"(4) The justification required by paragraph (1)(A) and any related 
information shall be made available for inspection by the public 
consistent with the provisions of section 552 of title 5, United States 
Code. 
"(5) In no case may an executive agency— 
"(A) enter into a contract for property or services using 
procedures other than competitive procedures on the basis of 
the lack of advance planning or concerns related to the amount 
of funds available to the agency for procurement functions; or 
"(B) procure property or services from another executive 
agency unless such other executive agency complies fully with 
the requirements of this title in its procurement of such prop-
erty or services. 
The restriction set out in clause (B) is in addition to, and not in lieu 
of, any other restriction provided by law. 
"(gXD In order to promote efficiency and economy in contracting 
and to avoid unnecessary burdens for agencies and contractors, the 
regulations modified, in accordance with section 2752 of the Compe-
Post, p. 1203. 
tition in Contracting Act of 1984 shall provide for special simplified 
procedures for small purchases of property and services. 
"(2) For the purposes of this title, a small purchase is a purchase 
or contract for an amount which does not exceed $25,000. 
"(3) A proposed purchase or contract for an amount above $25,000 
may not be divided into several purchases or contracts for lesser 
amounts in order to use the small purchase procedures required by 
paragraph (1). 
"(4) In using small purchase procedures, an executive agency shall 
promote competition to the maximum extent practicable.". 
(2) Title III of such Act is further amended by inserting after 
section 303 the following new sections: 
"PLANNING AND SOLICITATION REQUIREMENTS 
41 use 253a. 
"SEC. 303A. (a)(1) In preparing for the procurement of property or 
services, an executive agency shall— 
"(A) specify its needs and solicit bids or proposals in a manner 
designed to achieve full and open competition for 
the 
procurement; 
"(B) use advance procurement planning and market research; 
and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1179 
"(C) develop specifications in such manner as is necessary to 
obtain full and open competition with due regard to the nature 
of the property or services to be acquired. 
"(2) Each solicitation under this title shall include specifications 
which— 
"(A) consistent with the provisions of this title, permit full 
and open competition; 
"(B) include restrictive provisions or conditions only to the 
extent necessary to satisfy the needs of the executive agency or 
as authorized by law. 
"(3) For the purposes of paragraphs (1) and (2), the type of 
specification included in a solicitation shall depend on the nature of 
the needs of the executive agency and the market available to 
satisfy such needs. Subject to such needs, specifications may be 
stated in terms of— 
"(A) function, so that a variety of products or services may 
qualify; 
"(B) performance, including specifications of the range of 
acceptable characteristics or of the minimum acceptable stand-
ards; or 
"(C) design requirements. 
"(b) In addition to the specifications described in subsection (a), 
each solicitation for sealed bids or competitive proposals (other than 
for small purchases) shall at a minimum include— 
"(1) a statement of— 
"(A) all significant factors (including price) which the 
executive agency reasonably expects to consider in evaluat-
ing sealed bids or competitive proposals; and 
"(B) the relative importance assigned to each of those 
factors; and 
"(2XA) in the case of sealed bids— 
"(i) a statement that sealed bids will be evaluated without 
discussions with the bidders; and 
"(ii) the time and place for the opening of the sealed bids; 
or 
"(B) in the case of competitive proposals— 
"(i) a statement that the proposals are intended to be 
evaluated with, and awards made after, discussions with 
the offerors, but might be evaluated and awarded without 
discussions with the offerors; and 
"(ii) the time and place for submission of proposals. 
"EVALUATION AND AWARD 
"SEC. 303B. (a) An executive agency shall evaluate sealed bids and 4i use 253b. 
competitive proposals based solely on the factors specified in the 
solicitation. 
"(b) All sealed bids or competitive proposals received in response 
to a solicitation may be rejected if the agency head determines that 
such action is in the public interest. 
"(c) Sealed bids shall be opened publicly at the time and place 
stated in the solicitation. The executive agency shall evaluate the 
bids without discussions with the bidders and, except as provided in 
subsection (b), shall award a contract with reasonable promptness to 
the responsible source whose bid conforms to the solicitation and is 
most advantageous to the United States, considering only price and 
the other price-related factors included in the solicitation. The 
98 STAT. 1180 
PUBLIC LAW 98-369—JULY 18, 1984 
award of a contract shall be made by transmitting written notice of 
the award to the successful bidder. 
"(d)(1) The executive agency shall evaluate competitive proposals 
and may award a contract— 
"(A) after discussions conducted with the offerors at any time 
after receipt of the proposals and before the award of the 
contract; or 
"(B) without discussions with the offerors (other than discus-
sions conducted for the purpose of minor clarification) when it 
can be clearly demonstrated from the existence of full and open 
competition or accurate prior cost experience with the product 
or service that acceptance of an initial proposal without discus-
sions would result in the lowest overall cost to the Government, 
"(2) In the case of award of a contract under paragraph (1)(A), the 
executive agency shall conduct, before such award, written or oral 
discussions with all responsible sources who submit proposals within 
the competitive range, considering only price and the other factors 
included in the solicitation. 
"(3) In the case of award of a contract under paragraph (1)(B), the 
executive agency shall award the contract based on the proposals £is 
received (and as clarified, if necessary, in discussions conducted for 
the purpose of minor clarification). 
"(4) Except as otherwise provided in subsection (b), the executive 
agency shall award a contract with reasonable promptness to the 
responsible source whose proposal is most advantageous to the 
United States, considering only price and the other factors included 
in the solicitation. The executive agency shall award the contract by 
transmitting written notice of the award to such source and shall 
promptly notify all other offerors of the rejection of their proposals. 
"(e) If the agency head considers that a bid or proposal evidences a 
violation of the antitrust laws, such agency head shall refer the bid 
or proposal to the Attorney General for appropriate action.". 
(3) Section 309 of such Act (41 U.S.C. 259) is amended by adding at 
the end thereof the following new subsections: 
"Oa) The term 'competitive procedures' means procedures under 
which an executive agency enters into a contract pursuant to full 
and open competition. Such term also includes— 
"(1) procurement of architectural or engineering services con-
ducted in accordance with title IX of this Act (40 U.S.C. 541 et 
seq.); 
"(2) the competitive selection of basic research proposals re-
sulting from a general solicitation and the peer review or 
scientific review (as appropriate) of such proposals; and 
"(3) the procedures established by the Administrator for the 
multiple awards schedule program of the General Services Ad-
ministration i
f
— 
"(A) participation in the program has been open to all 
responsible sources; and 
(B) orders and contracts under such procedures result in 
the lowest overall cost alternative to meet the needs of the 
Government. 
"(c) The terms 'full and open competition' and 'responsible source' 
have the same meanings provided such terms in section 4 of the 
Post, p. 1195. 
Office of Federal Procurement Policy Act (41 U.S.C. 403).". 
(b) The table of contents of such Act is amended by striking out 
the item relating to section 303 and inserting in lieu thereof the 
following: 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1181 
"Sec. 303. Competition requirements. 
"Sec. 303A. Planning and solicitation requirements. 
"Sec. 303B. Evaluation and award.". 
(c) The amendments made by this section do not supersede or 41USC 258 note. 
affect the provisions of section 8(a) of the Small Business Act (15 
U.S.C. 637(a)). 
COST OR PRICING DATA 
SEC. 2712. Section 304 of the Federal Property and Administrative 
Services Act of 1949 (41 U.S.C. 254) is amended by adding at the end 
thereof the following new subsection: 
"(d)(1) A prime contractor or any subcontractor shall be required 
to submit cost or pricing data under the circumstances listed below, 
and shall be required to certify that, to the best of such contractor's 
or subcontractor's knowledge and belief, the cost or pricing data 
submitted were accurate, complete, and current— 
"(A) before the award of any prime contract under this title 
using procedures other than sealed-bid procedures, if the con-
tract price is expected to exceed $100,000; 
"(B) before the pricing of any contract change or modification, 
if the price adjustment is expected to exceed $100,000, or such 
* 
lesser amount as may be prescribed by the agency head; 
"(C) before the award of a subcontract at any tier, when the 
prime contractor and each higher tier subcontractor have been 
•^'•'' • 
*
^ 
required to furnish such a certificate, if the price of such 
subcontract is expected to exceed $100,000; or 
"(D) before the pricing of any contract change or modification 
to a subcontract covered by clause (C), if the price adjustment is 
expected to exceed $100,000, or such lesser amount as may be 
prescribed by the agency head. 
"(2) Any prime contract or change or modification thereto under 
which a certificate is required under paragraph (1) shall contain a 
provision that the price to the Government, including profit or fee, 
shall be adjusted to exclude any significant sums by which it may be 
determined by the agency head that such price was increased 
because the contractor or any subcontractor required to furnish 
such a certificate, furnished cost or pricing data which, as of a date 
agreed upon between the parties (which date shall be as close to the 
date of agreement on the price as is practicable), were inaccurate, 
incomplete, or noncurrent. 
"(3) For the purpose of evaluating the accuracy, completeness, and 
currency of cost or pricing data required to be submitted by this 
subsection, any authorized representative of the agency who is an 
employee of the United States Government shall have the right, 
until the expiration of three years after final payment under the 
contract or subcontract, to examine all books, records, documents, 
and other data of the contractor or subcontractor related to the 
proposal for the contract, the discussions conducted on the proposal, 
pricing, or performance of the contract or subcontract. 
"(4) When cost or pricing data are not required to be submitted by 
this subsection, such data may nevertheless be required by the 
agency if the agency head determines that such data are necessary 
for the evaluation by the executive agency of the reasonableness of 
the price of the contract or subcontract. 
"(5) The requirements of this subsection need not be applied to 
contracts or subcontracts— 
"(A) where the price is based on— 
31-194 0 - 86 - 40 : QL. 3 Part 1 
98 STAT. 1182 
PUBLIC LAW 98-369—JULY 18, 1984 
"(i) adequate price competition, 
"(ii) established catalog or market prices of commercial 
items sold in substantial quantities to the general public, or 
"(iii) prices set by law or regulation, or 
"(B) in exceptional cases, where the agency head determines 
that the requirements of this subsection may be waived and 
states in writing the reasons for such determination.". 
AUTOMATED DATA PROCESSING DISPUTE RESOLUTION 
SEC. 2713. (a) Section 111 of the Federal Property and Administra-
tive Services Act of 1949 (40 U.S.C. 759) is amended by adding at the 
end thereof the following new subsection: 
"(h)(1) Upon request of an interested party in connection with any 
procurement conducted under the authority of this section (includ-
ing procurements conducted under delegations of procurement au-
thority), the board of contract appeals of the General Services 
Administration (hereafter in this subsection referred to as the 
'board'), shall review any decision by a contracting officer alleged to 
violate a statute or regulation. Such review shall be conducted 
under the standard applicable to review of contracting officer final 
decisions by boards of contract appeals. An interested party who has 
filed a protest under subchapter V of chapter 35 of title 31, United 
Post, p. 1199. 
States Code, with respect to a procurement or proposed procurement 
may not file a protest with respect to that procurement or proposed 
procurement under this subsection. 
"(2)(A) When a protest under this subsection is filed before the 
award of a contract in a protested procurement, the board, at the 
request of an interested party and within 10 days of the filing of the 
protest, shall hold a hearing to determine whether the board should 
suspend the procurement authority of the Administrator or the 
Administrator's delegation of procurement authority for the pro-
tested procurement on an interim basis until the board can decide 
the protest. 
"(B) The board shall suspend the procurement authority of the 
Administrator or the Administrators delegation of procurement 
authority unless the Federal agency concerned establishes that— 
"(i) absent action by the board, contract award is likely to 
occur within 30 days of the hearing; and 
"(ii) urgent and compelling circumstances which significantly 
affect interests of the United States will not permit waiting for 
the decision of the board. 
"(3)(A) If the Board receives notice of a protest under this subsec-
tion after the contract has been awarded but within 10 days after 
the contract award, the board shall, at the request of an interested 
party and within 10 days after the date of the filing of the protest, 
hold a hearing to determine whether the board should suspend the 
procurement authority of the Administrator or the Administrator's 
delegation of procurement authority for the challenged procurement 
on an interim basis until the board can decide the protest. 
"(B) The board shall suspend the procurement authority of the 
Administrator or the Administrator s delegation of procurement 
authority to acquire any goods or services under the contract which 
are not previously delivered and accepted unless the Federal agency 
concerned establishes that urgent and compelling circumstances 
which significantly affect interests of the United States will not 
permit waiting for the decision of the board. 
1 3-vje<I £ 
, J 0 
; Oii - 
-^8 - 
u i^Q < ~ 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1183 
"(4XA) The board shall conduct such proceedings and allow such 
discovery as may be required for the expeditious, fair, and reasona-
ble resolution of the protest. 
"(B) Subject to any deadlines imposed by section 9(a) of the 
Contract Disputes Act of 1978 (41 U.S.C. 608(a)), the board shall give 
priority to protests filed under this subsection. The board shall issue 
its final decision within 45 working days after the date of the filing 
of the protest, unless the board's chairman determines that the 
specific and unique circumstances of the protest require a longer 
period, in which case the board shall issue such decision within the 
longer period determined by the chairman. 
"(C) The board may dismiss a protest the board determines is 
frivolous or which, on its face, does not state a valid basis for protest. 
"(5XA) In making a decision on the merits of protests brought 
under this section, the board shall accord due weight to the policies 
of this section and the goals of economic and efficient procurement 
set forth in this section. 
"(B) If the board determines that a challenged agency action 
violates a statute or regulation or the conditions of any delegation of 
procurement authority issued pursuant to this section, the board 
may suspend, revoke, or revise the procurement authority of the 
Administrator or the Administrator s delegation of procurement 
authority applicable to the challenged procurement. 
"(C) Whenever the board makes such a determination, it may, in 
• < i « .,\j,ji 
accordance with section 1304 of title 31, United States C!ode, further 
declare an appropriate interested party to be entitled to the costs 
of— 
"(i) filing and pursuing the protest, including reasonable at-
torney's fees, and 
"(ii) bid and proposal preparation. 
"(6XA) The final decision of the board may be appealed by the 
head of the Federal agency concerned and by any interested party, 
including interested parties who intervene in any protest filed under 
this subsection, as set forth in the Contract Disputes Act of 1978 (41 
U.S.C. 601 et seq.). 
"(B) If the board revokes, suspends, or revises the procurement 
authority of the Administrator or the Administrator's delegation of 
procurement authority after the contract award, the affected con-
tract shall be presumed valid as to all goods or services delivered 
and accepted under the contract before the suspension, revocation, 
or revision of such procurement authority or delegation. 
"(C) Nothing contained in this subsection shall affect the board's 
power to order any additional relief which it is authorized to provide 
under any statute or regulation. However, the procedures set forth 
in this subsection shall only apply to procurements conducted under 
the authority contained in this section. In addition, nothing con-
tained in this subsection shall affect the right of any interested 
party to file a protest with the contracting agency or to file an 
action in a district court of the United States or the United States 
Claims Court. 
"(8) Not later than January 15, 1985, the board shall adopt and 
issue such rules and procedures as may be necessary to the 
expeditious disposition of protests filed under the authority of this 
subsection. 
"(9) For purposes of this subsection— 
"(A) the term 'protest' means a written objection by an 
interested party to a solicitation by a Federal agency for bids or 
98 STAT. 1184 
PUBLIC LAW 98-369—JULY 18, 1984 
proposals for a proposed contract for the procurement of prop-
erty or services or a written objection to a proposed award or 
the award of such a contract; and 
"(B) the term 'interested party' means, with respect to a 
contract or proposed contract described in subparagraph (A), an 
actual or prospective bidder or offeror whose direct economic 
interest would be affected by the award of the contract or by 
failure to award the contract.". 
Effective date. 
(b) The amendment made by this section shall cease to be effective 
40 use 759 note, on January 15,1988. 
CONFORMING AMENDMENTS 
SEC. 2714. (aXD Section 302 of the Federal Property and Adminis-
trative Services Act of 1949 (41 U.S.C. 252) is amended— 
(A) by striking out the second sentence in subsection (b); and 
(B) by striking out subsections (c), (d), (e), and (D and inserting 
in lieu thereof the following: 
"(c)(1) This title does not (A) authorize the erection, repair, or 
furnishing of any public building or public improvement, but such 
authorization shall be required in the same manner as heretofore, or 
(B) permit any contract for the construction or repair of buildings, 
roads, sidewalks, sewers, mains, or similar items using procedures 
Ante, p. 1175. 
Other than sealed-bid procedures under section 303(a)(2XA), if the 
conditions set forth in section 303(a)(2XA) apply or the contract is to 
be performed outside the United States. 
"(2) Section 303(aX2XA) does not require the use of sealed-bid 
procedures in cases in which section 204(e) of title 23, United States 
Code, applies.". 
(2) The heading of section 304 of such Act (41 U.S.C. 254) is 
amended to read as follows: 
"CONTRACT REQUIREMENTS". 
(3) Section 304 of such Act (41 U.S.C. 254) is amended— 
(A) by striking out "negotiated pursuant to section 302(c)" in 
the first sentence of subsection (a) and inserting in lieu thereof 
"awarded 
after 
using procedures 
other 
than 
sealed-bid 
procedures"; 
(B) by striking out "negotiated pursuant to section 302(c)" in 
the second sentence of subsection (a) and inserting in lieu 
thereof "awarded after using procedures other than sealed-bid 
procedures"; and 
(C) by striking out "negotiated without advertising pursuant 
to authority contained in this Act" in the first sentence of 
subsection (c) and inserting in lieu thereof "awarded after using 
procedures other than sealed-bid procedures". 
(4) Section 307 of such Act (41 U.S.C. 257) is amended— 
(A) by striking out the first sentence of subsection (a) and 
inserting in lieu thereof the following: "Determinations and 
decisions provided in this Act to be made by the Administrator 
or other agency head shall be final. Such determinations or 
decisions may be made with respect to individual purchases or 
contracts or, except for determinations or decisions under sec-
Ante, p. 1175. 
tions 303, 303A, and 303B, with respect to classes of purchases 
or contracts."; 
,_ 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1185 
(B) by striking out "Except as provided in subsection (b)," in 
the second sentence of subsection (a) and inserting in lieu 
thereof "Except as provided in section 303(dX2),"; 
(C) by striking out "this chapter" in such sentence and insert-
ing in lieu thereof "this Act"; 
(D) by striking out subsection (b); 
(E) by striking out "by paragraphs (11), (12), (13), or (14) of 
section 302(c)," in subsection (c); 
(F) by redesignating subsection (c) as subsection (b); and 
(G) by striking out subsection (d). 
(5) Section 308 of such Act (41 U.S.C. 258) is amended by striking 
out "entered into pursuant to section 302(c) without advertising,' 
and inserting in lieu thereof "made or awarded after using proce-
dures other than sealed-bid procedures". 
(6) Section 310 of such Act (41 U.S.C. 260) is amended by striking 
out "section 302(cX15) of this title without regard to the advertising 
requirements of sections 302(c) and 303" and inserting in lieu 
thereof "the provisions of this title relating to procedures other than 
sealed-bid procedures". 
(b) The table of contents of such Act is amended by striking out 
the item relating to section 304 and inserting in lieu thereof the 
following: 
"Sec. 304. Contract requirements.". 
Subtitle B—Amendments to Title 10, United 
States Code 
DECLARATION OF POUCY 
SEC. 2721. Section 2301 of title 10, United States Code, is amended 
to read as follows: 
"§ 2301. Congressional defense procurement policy 
"(a) The Congress finds that in order to ensure national defense 
preparedness, conserve fiscal resources, and enhance defense pro-
duction capability, it is in the interest of the United States that 
property and services be acquired for the Department of Defense in 
the most timely, economic, and efficient manner. It is therefore the 
policy of Congress that— 
"(1) full and open competitive procedures shall be used by the 
Department of Defense in accordance with the requirements of 
this chapter; 
"(2) services and property (including weapon systems and 
associated items) for the Department of Defense be acquired by 
any kind of contract, other than cost-plus-a-percentage-of-cost 
contracts, but including multiyear contracts, that will promote 
the interest of the United States; 
"(3) contracts, when appropriate, provide incentives to con-
tractors to improve productivity through investment in capital 
facilities, equipment, and advanced technology; 
"(4) contracts for advance procurement of components, parts, 
and materials necessary for manufacture or for logistics support 
> 
of a weapon system should, if feasible and practicable, be en-
tered into in a manner to achieve economic-lot purchases and 
more efficient production rates; 
/ \ 
^ 
98 STAT. 1186 
PUBLIC LAW 98-369—JULY 18, 1984 
"(5) the head of an agency use advance procurement planning 
and market research and prepare contract specifications in such 
a manner as is necessary to obtain full and open competition 
with due regard to the nature of the property or services to be 
acquired; and 
"(6) the head of an agency encourage the development and 
maintenance of a procurement career management program to 
ensure a professional procurement work force. 
"(b) Further, it is the policy of Congress that procurement policies 
and procedures for the agencies named in section 2303 of this title 
shall in accordance with the requirements of this chapter— 
"(1) promote full and open competition; 
"(2) be implemented to support the requirements of such 
agencies in time of war or national emergency as well as in 
peacetime; 
"(3) promote responsiveness of the procurement system to 
agency needs by simplifying and streamlining procurement 
processes; 
"(4) promote the attainment and maintenance of essential 
capability in the defense industrial base and the capability of 
the United States for industrial mobilization; 
"(5) provide incentives to encourage contractors to take ac-
tions and make recommendations that would reduce the costs to 
the United States relating to the purchase or use of property or 
services to be acquired under contracts; 
"(6) promote the use of commercial products whenever practi-
cable; and 
"(7) require descriptions of agency requirements, whenever 
practicable, in terms of functions to be performed or perform-
ance required. 
"(c) Further, it is the policy of Congress that a fair proportion of 
the purchases and contracts entered into under this chapter be 
placed with small business concerns.". 
CLARIFICATION OF APPUCABIUTY OF CHAPTER 137 OF TITLE 10 TO THE 
SECRETARY OF DEFENSE; DEFINITIONS 
SEC. 2722. (a) Section 2302 of title 10, United States Code, is 
amended to read as follows: 
"§ 2302. Definitions 
"In this chapter: 
"(1) 'Head of an agency' means the Secretary of Defense, the 
Secretary of the Army, the Secretary of the Navy, the Secretary 
of the Air Force, the Secretary of Transportation, and the 
Administrator of the National Aeronautics and Space Adminis-
tration. 
"(2) 'Competitive procedures' means procedures under which 
the head of an agency enters into a contract pursuant to full 
and open competition. Such term also includes— 
"(A) procurement of architectural or engineering services 
conducted in accordance with title IX of the Federal Prop-
40 use 541. 
erty and Administrative Services Act of 1949 (41 U.S.C. 541 
et seq.); 
"(B) the competitive selection for award of basic research 
proposals resulting from a general solicitation and the peer 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1187 
review or scientific review (as appropriate) of such propos-
als; and 
"(C) the procedures established by the Administrator of 
Greneral Services for the multiple award schedule program 
of the General Services Administration if— 
"(i) participation in the program has been open to all 
responsible sources; and 
"(ii) orders and contracts under such program result 
in the lowest overall cost alternative to meet the needs 
of the United States. 
"(3) The terms 'full and open competition' and 'responsible 
source' have the same meanings provided such terms in section 
4 of the Office of Federal Procurement Policy Act (41 U.S.C. 
403).". 
Post, p. 1195. 
(b) Section 2303 of such title is amended— 
lo use 2303. 
(1) in subsection (a)— 
(A) by striking out "purchase, and contract to purchase," 
and inserting in lieu thereof "procurement"; 
(B) by striking out "named in subsection (b), and all 
services," and inserting in lieu thereof "(other than land) 
and all services"; 
(C) by redesignating clauses (1) through (5) as clauses (2) 
through (6), respectively; and 
(D) by inserting before clause (2) (as so redesignated) the 
following new clause: 
"(1) The Department of Defense."; 
(2) by striking out subsection (b); and 
(3) by redesignating subsection (c) as subsection (b). 
PROCUREMENT PROCEDURES 
SEC. 2723. (aXD Section 2304 of title 10, United States Code, is 
amended— 
(A) by striking out subsections (a) through (e) and (g), (h), and 
(i); 
(B) by redesignating subsection (f) as subsection (h); and 
(C) by inserting after the section heading the following: 
"(aXl) Except as provided in subsections (b), (c), and (g) and except 
in the case of procurement procedures otherwise expressly author-
ized by statute, the head of an agency in conducting a procurement 
for property or services— 
"(A) shall obtain full and open competition through the use of 
competitive procedures in accordance with the requirements of 
this chapter and the modifications to regulations promulgated 
pursuant to section 2752 of the Competition in Contracting Act 
of 1984; and 
Post, p. 1203. 
"(B) shall use the competitive procedure or combination of 
competitive krocedures that is best suited under the circum-
stances of the procurement. 
"(2) In determining the competitive procedure appropriate under 
the circumstances, the head of an agency— 
"(A) shall solicit sealed bids if— 
"(i) time permits the solicitation, submission, and evalua-
tion of sealed bids; 
"(ii) the award will be made on the basis of price and 
other price-related factors; 
98 STAT. 1188 
PUBLIC LAW 98-369—JULY 18, 1984 
"(iii) it is not necessary to conduct discussions with the 
responding sources about their bids; and 
(iv) there is a reasonable expectation of receiving more 
than one sealed bid; and 
"(B) shall request competitive proposals if sealed bids are not 
appropriate under clause (A). 
. 
"(b)(1) The head of an agency may provide for the procurement of 
property or services covered by this chapter using competitive proce-
dures but excluding a particular source in order to establish or 
maintain an alternative source or sources of supply for that prop-
erty or service if the head of the agency determines that to do so— 
"(A) would increase or maintain competition and would likely 
result in reduced overall costs for such procurement, or for any 
anticipated procurement, of property or services; 
"(B) would be in the interest of national defense in having a 
facility (or a producer, manufacturer, or other supplier) avail-
able for furnishing the property or service in case of a national 
emergency or industrial mobilization; or 
"(C) would be in the interest of national defense in establish-
ing or maintaining an essential engineering, research, or devel-
opment capability to be provided by an educational or other 
nonprofit institution or a federally funded research and devel-
opment center. 
"(2) In fulfilling the statutory requirements relating to small 
business concerns and socially and economically disadvantaged 
small business concerns, the head of an agency shall use competitive 
procedures but may restrict a solicitation to allow only such busi-
ness concerns to compete. 
"(c) The head of an agency may use procedures other than com-
petitive procedures only when— 
"(1) the property or services needed by the agency are avail-
able from only one responsible source and no other type of 
property or services will satisfy the needs of the agency; 
"(2) the agency's need for the property or services is of such 
an unusual and compelling urgency that the United States 
would be seriously injured unless the agency is permitted to 
limit the number of sources from which it solicits bids or 
proposals; 
"(3) it is necessary to award the contract to a particular 
source or sources in order (A) to maintain a facility, producer, 
manufacturer, or other supplier available for furnishing prop-
erty or services in case of a national emergency or to achieve 
industrial mobilization, or (B) to establish or maintain an essen-
tial engineering, research, or development capability to be pro-
vided by an educational or other nonprofit institution or a 
federally funded research and development center; 
"(4) the terms of an international agreement or a treaty 
between the United States and a foreign government or interna-
tional organization, or the written directions of a foreign gov-
ernment reimbursing the agency for the cost of the procure-
ment of the property or services for such government, have the 
effect of requiring the use of procedures other than competitive 
procedures; 
"(5) a statute expressly authorizes or requires that the pro-
curement be made through another agency or from a specified 
source, or the agency's need is for a brand-name commercial 
item for authorized resale; 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1189 
"(6) the disclosure of the agency's needs would compromise 
the national security unless the agency is permitted to limit the 
number of sources from which it solicits bids or proposals; or 
"(7) the head of the agency— 
"(A) determines that it is necessary in the public interest 
to use procedures other than competitive procedures in the 
particular procurement concerned, and 
"(B) notifies the Congress in writing of such determina-
tion not less than 30 days before the award of the contract. 
"(dXD For the purposes of applying subsection (c)(1)— 
"(A) in the case of a contract for property or services to be 
awarded on the basis of acceptance of an unsolicited research 
proposal, the property or services shall be considered to be 
available from only one source if the source has submitted an 
unsolicited research proposal that demonstrates a unique and 
innovative concept the substance of which is not otherwise 
available to the United States and does not resemble the sub-
stance of a pending competitive procurement; and 
"(B) in the case of a follow-on contract for the continued 
f 
development or production of a major system or highly special-
ized equipment when it is likely that award to a source other 
than the original source would result in (i) substantial duplica-
tion of cost to the United States which is not expected to be 
recovered through competition, or (ii) unacceptable delays in 
fulfilling the agency's needs, such property may be deemed to be 
available only from the original source and may be procured 
through procedures other than competitive procedures. 
"(2) The authority of the head of an agency under subsection (c)(7) 
may not be delegated. 
"(e) The head of an agency using procedures other than competi-
tive procedures to procure property or services by reason of the 
application of subsection (c)(2) or (c)(6) shall request offers from as 
many potential sources as is practicable under the circumstances. 
"(6(1) Except as provided in paragraph (2), the head of an agency 
may not award a contract using procedures other than competitive 
procedures unless— 
"(A) the contracting officer for the contract justifies the use of 
such procedures in writing and certifies the accuracy and com-
pleteness of the justification; 
"(B) the justification is approved— 
"(i) in the case of a contract for an amount exceeding 
$100,000 (but equal to or less than $1,000,000), by the com-
petition advocate for the procuring activity (without further 
delegation); 
"(ii) in the case of a contract for an amount exceeding 
$1,000,000 (but equal to or less than $10,000,000), by the 
head of the procuring activity or a delegate who, if a 
member of the armed forces, is a general or flag officer or, if 
a civilian, is serving in a position in grade GS-16 or above 
under the General Schedule (or in a comparable or higher 
5 use 5332. 
position under another schedule); or 
"(iii) in the case of a contract for an amount exceeding 
$10,000,000, by the senior procurement executive of the 
agency designated pursuant to section 16(3) of the Office of 
Federal Procurement Policy Act (41 U.S.C. 414(3)) (without 97 Stat. 1330. 
further delegation); and 
31-194 0 - 86 - 41 : QL. 3 Part 1 
98 STAT. 1190 
PUBLIC LAW 98-369—JULY 18, 1984 
"(C) any required notice has been published with respect to 
such contract pursuant to section 18 of the Office of'Federal 
Post, p. 1196. 
Procurement Policy Act and all bids or proposals received in 
response to that notice have been considered by the head of the 
agency. 
"(2) In the case of a procurement permitted by subsection (cX2), 
the justification and approval required by paragraph (1) may be 
made after the contract is awarded. The justification and approval 
required by paragraph (1) is not required in the case of a procure-
ment permitted by subsection (cX7) or in the case of a procurement 
conducted under the Act of June 25, 1938 (41 U.S.C. 46 et seq.), 
popularly referred to as the Wagner-O'Day Act. 
"(3) The justification required by paragraph (IXA) shall include— 
"(A) a description of the agency's needs; 
"(B) an identification of the statutory exception from the 
requirement to use competitive procedures and a demonstra-
tion, based on the proposed contractor's qualifications or the 
nature of the procurement, of the reasons for using that 
exception; 
"(C) a determination that the anticipated cost will be fair and 
reasonable; 
"(D) a description of the market survey conducted or a state-
ment of the reasons.a market survey was not conducted; 
"(E) a listing of the sources, if any, that expressed in writing 
an interest in the procurement; and 
"(F) a statement of the actions, if any, the eigency may take to 
remove or overcome any barrier to competition before a subse-
quent procurement for such needs. 
"(4) The justification required by paragraph (IXA) and any related 
information shall be made available for inspection by the public 
5 use 552. 
consistent with the provisions of section 552 of title 5. 
"(5) In no case may the head of £ui agency— 
"(A) enter into a contract for property or services using 
procedures other than competitive procedures on the basis of 
the lack of advance planning or concerns related to the gunount 
of funds available to the agency for procurement functions; or 
"(B) procure property or services from another agency unless 
such other agency complies fully with the requirements of this 
chapter in its procurement of such property or services. 
The restriction contained in clause (B) is in addition to, and not in 
lieu of, any other restriction provided by law. 
"(gXD In order to promote efficiency and economy in contracting 
and to avoid unnecessary burdens for agencies and contractors, the 
regulations modified in accordance with section 2752 of the Competi-
Post, p. 1203. 
tion in Contracting Act of 1984 shall provide for special simplified 
procedures for small purchases of property and services. 
"(2) For the purposes of this chapter, a small purchase is a 
purchase or contract for an amount which does not exceed $25,000. 
"(3) A proposed purchase or contract for an amount above $25,000 
may not be divided into several purchases or contracts for lesser 
amounts in order to use the small purchase procedures required by 
paragraph (1). 
"(4) In using small purchase procedures, the head of an agency 
shall promote competition to the maximum extent practicable.". 
(2) The heading of such section is amended to read £is follows: 
i-X%^ Z . J p : li- • dn- - f: ^
^
t r—i£ 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1191 
"§ 2304. Contracts: competition requirements". 
(b) Section 2305 of such title is amended to read as follows: 
10 USC 2305. 
"§2305. Contracts: planning, solicitation, evaluation, and award 
procedures 
"(a)(1)(A) In preparing for the procurement of property or services, 
the head of an agency shall— 
"(i) specify the agency's needs and solicit bids or proposals in 
a manner designed to achieve full and open competition for the 
procurement; 
"(ii) use advance procurement planning and market research; 
and 
"(iii) develop specifications in such manner as is necessary to 
obtain full and open competition with due regard to the nature 
of the property or services to be acquired. 
"(B) Each solicitation under this chapter shall include specifica-
tions which— 
"(i) consistent with the provisions of this chapter, permit full 
and open competition; and 
"(ii) include restrictive provisions or conditions only to the 
extent necessary to satisfy the needs of the agency or as author-
ized by law. 
"(C) For the purposes of subparagraphs (A) and (B), the type of 
specification included in a solicitation shall depend on the nature of 
the needs of the agency and the market available to satisfy such 
needs. Subject to such needs, specifications may be stated in terms 
of-
"(i) function, so that a variety of products or services may 
qualify; 
"(ii) performance, including specifications of the range of 
acceptable characteristics or of the minimum acceptable stand-
ards; or 
"(iii) design requirements. 
"(2) In addition to the specifications described in paragraph (1), a 
solicitation for sealed bids or competitive proposals (other than for 
small purchases) shall at a minimum include— 
"(A) a statement of^ 
"(i) all significant factors (including price) which the head 
of the agency reasonably expects to consider in evaluating 
sealed bids or competitive proposals; and 
"(ii) the relative importance assigned to each of those 
factors; and 
"(BXi) in the case of sealed bids— 
ii >
' 
"(I) a statement that sealed bids will be evaluated with-
out discussions with the bidders; and 
"(II) the time and place for the opening of the sealed bids; 
or 
"(ii) in the case of competitive proposals— 
"(I) a statement that the proposals are intended to be 
evaluated with, and awards made after, discussions with 
the offerors, but might be evaluated and awarded without 
discussions with the offerors; and 
"(II) the time and place for submission of proposals. 
(bXD The head of an agency shall evaluate sealed bids and 
competitive proposals based solely on the factors specified in the 
solicitation. 
98 STAT. 1192 
PUBLIC LAW 98-369—JULY 18, 1984 
"(2) All sealed bids or competitive proposals received in response 
to a solicitation may be rejected if the head of the agency determines 
that such action is in the public interest. 
"(3) Sealed bids shall be opened publicly at the time and place 
stated in the solicitation. The head of the agency shall evaluate the 
bids without discussions with the bidders and, except as provided in 
paragraph (2), shall award a contract with reasonable promptness to 
the responsible bidder whose bid conforms to the solicitation and is 
most advantageous to the United States, considering only price and 
the other price-related factors included in the solicitation. The 
award of a contract shall be made by transmitting written notice of 
the award to the successful bidder. 
"(4XA) The head of an agency shall evaluate competitive proposals 
and may award a contract— 
"(i) after discussions conducted with the offerors at any time 
after receipt of the proposals and before the award of the 
contract; or 
"(ii) without discussions with the offerors (other than discus-
sions conducted for the purpose of minor clarification) when it 
can be clearly demonstrated from the existence of full and open 
competition or accurate prior cost experience with the product 
or service that acceptance of an initial proposal without discus-
sions would result in the lowest overall cost to the United 
States. 
"(B) In the case of award of a contract under subparagraph (AXi), 
the head of the agency shall conduct, before such award, written or 
oral discussions with all responsible sources who submit proposals 
within the competitive range, considering only price and the other 
factors included in the solicitation. 
"(C) In the case of award of a contract under subparagraph (AXii), 
the head of the agency shall award the contract based on the 
proposals received (and as clarified, if necessary, in discussions 
conducted for the purpose of minor clarification). 
"(D) Except as provided in paragraph (2), the head of the agency 
shall award a contract with reasonable promptness to the responsi-
ble source whose proposal is most advantageous to the United 
States, considering only price and the other factors included in the 
solicitation. The head of the agency shall award the contract by 
transmitting written notice of the award to such source and shall 
promptly notify all other offerors of the rejection of their proposals. 
"(5) If the head of an agency considers that a bid or proposal 
evidences a violation of the antitrust laws, he shall refer the bid 
or proposal to the Attorney General for appropriate action.". 
10 use 2304 
(c) The amendments made by this section do not supersede or 
note. 
affect the provisions of section 8(a) of the Small Business Act (15 
U.S.C. 637(a)). 
COST OR PRICING DATA; CONFORMING AMENDMENTS 
SEC. 2724. (a) The second sentence of subsection (a) of section 2306 
of title 10, United States Code, is amended to read as follows: 
"Subject to the limitation in the preceding sentence, the other 
provisions of this section, and other applicable provisions of law, the 
head of an agency, in awarding contracts under this chapter after 
using procedures other than sealed-bid procedures, may enter into 
any kind of contract that he considers will promote the best inter-
ests of the United States". 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1193 
(b) Subsection (b) of such section is amended by striking out 
"negotiated under section 2304" in the first sentence of subsection 
(b) and inserting in lieu thereof "awarded under this chapter after 
using procedures other than sealed-bid procedures". 
(c) Subsection (c) of such section is amended by striking out 
"section 2304 of this title," and inserting in lieu thereof "this 
chapter". 
(d) Subsection (e) of such section is amended by striking out 
"$25,000 or" in clause (2) and inserting in lieu thereof "the greater 
of (A) the small purchase amount under section 2304(g) of this title, 
or(B)". 
(e) Subsection (f) of such section is amended— 
(A) in paragraph (1)— 
(i) by striking out "his" in the matter preceding clause (A) 
and inserting in lieu thereof "such contractor's or sub-
contractor's"; 
(ii) by striking out "he" in the matter preceding clause 
(A); 
(iii) by striking out "negotiated prime contract under this 
n. 
title where" in clause (A) and inserting in lieu thereof 
"prime contract under this chapter entered into after using 
''• 
procedures other than sealed-bid procedures, if; 
(iv) by striking out "for which" in clauses (B) and (D) and 
inserting in lieu thereof "if; 
(v) by striking out "where" in clause (C) and inserting in 
lieu thereof "when"; 
(vi) by striking out "$500,000" each place it appears and 
inserting in lieu thereof "$100,000"; and 
(vii) by striking out "prior to" each place it appears and 
inserting in lieu thereof "before"; 
(B) in paragraph (2), by striking out "negotiated" both places 
'•' it appears; 
(C) by redesignating paragraph (3) as paragraph (5) and strik-
ing out "negotiation," in such paragraph and inserting in lieu 
thereof "proposal for the contract, the discussions conducted on 
the proposal,"; 
(D) by inserting a period after "noncurrent" in paragraph (2); 
(E) by striking out ": Provided, That the requirements" in 
paragraph (2) and inserting in lieu thereof the following: 
"(3) The requirements"; and 
(F) by inserting after paragraph (3) (as designated by clause 
(E)) the following new paragraph: 
"(4) When cost or pricing data is not required to be submitted by 
this subsection, such data may nevertheless be required by the head 
of the agency if the head of the agency determines that such data is 
necessary for the evaluation by the agency of the reasonableness of 
the price of the contract or subcontract.". 
(f) The heading of such section is amended to read as follows: 
"§ 2306. Kinds of contracts; cost or pricing data: truth in 
negotiation". 
Y 
DETERMINATIONS AND DECISIONS 
SEC. 2725. Section 2310 of title 10, United States Code, is 
amended— 
(1) in subsection (a)— 
98 STAT. 1194 
PUBLIC LAW 98-369—JULY 18, 1984 
(A) by inserting ", except for determinations and deci-
sions under section 2304 or 2305 of title," in the first 
sentence after "contract or"; and 
(B) by inserting ", including a determination or decision 
under section 2304 or 2305 of this title," in the second 
sentence after "decision"; and 
(2) by striking out subsection (b) and inserting in lieu thereof 
the following: 
"(b) Each determination or decision under section 2306(c), 
2306(gXl), 2307(c), or 2313(c) of this title shall be based on a written 
finding by the person making the determination or decision, which 
finding shall set out facts and circumstances that— 
"(1) clearly indicate why the type of contract selected under 
section 2306(c) of this title is likely to be less costly than any 
other type or that it is impracticable to obtain property or 
services of the kind or quality required except under such a 
contract; 
"(2) support the findings required by section 2306(gXl) of this 
title; 
"(3) clearly indicate why advance payments under section 
2307(c) of this title would be in the public interest; or 
"(4) clearly indicate why the application of section 2313(b) of 
this title to a contract or subcontract with a foreign contractor 
or foreign subcontractor would not be in the public interest. 
Such a finding is final and shall be kept available in the agency for 
at least six years after the date of the determination or decision. A 
copy of the finding shall be submitted to the General Accounting 
Office with each contract to which it applies.". 
UMITATION ON AUTHORITY TO DELEGATE CERTAIN FUNCTIONS 
SEC. 2726. Section 2311 of title 10, United States Code, is 
amended— 
(1) by striking out "The head" and inserting in lieu thereof 
"Except as provided in section 2304(dX2) of this title, the head"; 
and 
(2) by striking out "chapter" and all that follows and inserting 
in lieu thereof "chapter.". 
CONFORMING AMENDMENTS 
SEC. 2727. (a) The table of sections at the beginning of chapter 137 
of title 10, United States Code, is amended— 
(1) by striking out the item relating to section 2301 and 
inserting in lieu thereof the following: 
"2301. Congressional defense procurement policy."; and 
(2) by striking out the items relating to sections 2304, 2305, 
and 2306 and inserting in lieu thereof the following: 
"2304. Contracts: competition requirements. 
"2305. Contracts: planning, solicitation, evaluation, and award procedures. 
"2306. Kinds of contracts; cost or pricing data: truth in negotiation.". 
Ante, p. 1187. 
(b) Subsection (h) of section 2304 of such title (as redesignated by 
section 2723(aXlXB)) is amended— 
(1) by striking out "negotiated under this section" and insert-
ing in lieu thereof "awarded after using procedures other than 
sealed-bid procedures"; and 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1195 
(2) by striking out "formal advertising" and inserting in lieu 
thereof "sealed-bid procedures". 
(c) Section 2313(b) of such title is amended by striking out "negoti- 10 USC 2313. 
ated under this chapter" and inserting in lieu thereof "awarded 
after using procedures other than sealed-bid procedures". 
(d) Section 2356 of such title is amended by striking out "the 10 USC 2356. 
formal advertising prescribed by section 2305 of this title" and 
inserting in lieu thereof "a solicitation for sealed bids under chapter 
137 of this title". 
Subtitle C—Amendments to the Office of 
Federal Procurement Policy Act 
(. 
DEFINITIONS 
SEC. 2731. The section of the Office of Federal Procurement Policy 
Act relating to definitions (41 U.S.C. 403) is redesignated as section 4 97 Stat. 1326. 
and is amended— 
(1) by striking out "and" at the end of paragraph (4); 
(2) by striking out the period at the end of paragraph (5) and 
inserting in lieu thereof "; and"; and 
(3) by adding at the end thereof the following new paragraphs: 
"(6) the term 'competitive procedures' means procedures 
under which an agency enters into a contract pursuant to full 
and open competition; 
"(7) the term 'full and open competition', when used with 
respect to a procurement, means that all responsible sources are 
permitted to submit sealed bids or competitive proposals on the 
procurement; and 
"(8) the term 'responsible source' means a prospective con-
tractor who— 
"(A) has adequate financial resources to perform the 
contract or the ability to obtain such resources; 
"(B) is able to comply with the required or proposed 
delivery or performance schedule, taking into consideration 
all 
existing 
commercial 
and 
Government 
business 
commitments; 
"(C) has a satisfactory performance record; 
"(D) has a satisfactory record of integrity and business 
ethics; 
"(E) has the necessary organization, experience, account-
ing and operational controls, and technical skills, or the 
ability to obtain such organization, experience, controls, 
and skills; 
"(F) has the necessary production, construction, and tech-
nical equipment and facilities, or the ability to obtain such 
equipment and facilities; and 
"(G) is otherwise qualified and eligible to receive an 
award under applicable laws and regulations.". 
PROCUREMENT NOTICE AND RECORDS; ADVOCATES FOR COMPETITION 
SEC. 2732. (a) The Office of Federal Procurement Policy Act is 
further amended by adding at the end thereof the following new 
sections: 
98 STAT. 1196 
PUBLIC LAW 98-369—JULY 18, 1984 
Commerce 
Business Daily, 
publication. 
PROCUREMENT NOTICE 
41 use 416. 
"SEC. 18. (aXD Except as provided in subsection (c)— 
"(A) an executive agency intending to solicit bids or proposals 
for a contract for property or services for a price expected to 
exceed $10,000 shall furnish for publication by the Secretary of 
Commerce a notice described in subsection (b); and 
"(B) an executive agency awarding a contract for property or 
services for a price exceeding $25,000 shall furnish for publica-
tion by the Secretary of Commerce a notice announcing such 
award if there is likely to be any subcontract under such 
contract. 
"(2) The Secretary of Commerce shall publish promptly in the 
Commerce Business Daily each notice required by paragraph (1). 
"(3) Whenever an executive agency is required by paragraph (1)(A) 
to furnish a notice of a solicitation to the Secretary of Commerce, 
such executive agency may not— 
"(A) issue such solicitation earlier than 15 days after the date 
on which such notice is published by the Secretary of Com-
merce; or 
"(B) establish a deadline for the submission of all bids or 
proposals in response to such solicitation that is earlier than 30 
days after the date on which such solicitation is issued. 
"(b) Each notice required by subsection (aXlXA) shall include— 
"(1) an accurate description of the property or services to be 
contracted for, which description is not unnecessarily restrictive 
of competition; 
"(2) the name, business address, and telephone number of the 
officer or employee of the executive agency who may be con-
tacted for the purpose of obtaining a copy of the solicitation; 
"(3) the name, business address, and telephone number of the 
contracting officer; 
"(4) a statement that all responsible sources may submit a 
bid, proposal, or quotation which shall be considered by the 
executive agency; and 
"(5) in the case of a procurement using procedures other than 
competitive procedures, a statement of the reason justifying the 
use of such procedures and the identity of the intended source. 
"(cXD A notice is not required under subsection (aXD if— 
"(A) the notice would disclose the executive agency's needs 
and the disclosure of such needs would compromise the national 
security; 
"(B) the proposed procurement would result from acceptance 
of any unsolicited proposal that demonstrates a unique and 
innovative research concept, and the publication of any notice 
of such unsolicited research proposal would disclose the origi-
nality of thought or innovativeness of the proposal or would 
disclose proprietary information associated with the proposal; 
"(C) the procurement is made against an order placed under a 
requirements contract, or 
"(D) the procurement is made for perishable subsistence 
supplies. 
"(2) The requirements of subsection (aXlXA) do not apply to any 
procurement under conditions described in clause (2), (3), (4), (5), or 
(7) of section 303(c) of the Federal Property and Administrative 
Ante, p. 1175. 
Services Act of 1949 (41 U.S.C. 253(c)) or clause (2), (3), (4), (5), or (7) 
Ante, p. 1187. 
of section 2304(c) of title 10, United States Code. 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1197 
"(3) The requirements of subsection (a)(1)(A) shall not apply in the 
case of any procurement for which the head of the executive agency 
makes a determination in writing, with the concurrence of the 
Administrator, that it is not appropriate or reasonable to publish a 
notice before issuing a solicitation. 
"RECORD REQUIREMENTS 
"SEC. 19. (a) Each executive agency shall establish and maintain 41 use 417. 
for a period of five years a computer file, by fiscal year, containing 
unclassified records of all procurements, other than small pur-
chases, in such fiscal year. 
"(b) The record established under subsection (a) shall include— 
"(1) with respect to each procurement carried out using com-
petitive procedures— 
"(A) the date of contract award; 
"(B) information identifying the source to whom the con-
tract was awarded; 
"(C) the property or services obtained by the Government 
under the procurement; and 
"(D) the total cost of the procurement; 
"(2) with respect to each procurement carried out using proce-
dures other than competitive procedures— 
"(A) the information described in clauses (1)(A), (1)(B), 
-t- 
(1)(C), and (1)(D); 
•^•'''•^^ 
"(B) the reason under section 303(c) of the Federal Prop-
erty and Administrative Services Act of 1949 (41 U.S.C. Ante, p. 1175. 
253(c)) or section 2304(c) of title 10, United States Code, as Ante, p. 1187. 
the case may be, for the use of such procedures; and 
"(C) the identity of the organization or activity which 
conducted the procurement. 
"(c) The information that is included in such record pursuant to 
subsection (b)(1) and relates to procurements resulting in the sub-
mission of a bid or proposal by only one responsible source shall be 
separately categorized from the information relating to other pro-
curements included in such record. The record of such information 
shall be designated 'noncompetitive procurements using competitive 
procedures'. 
"(d) The information included in the record established and main-
tained under subsection (a) shall be transmitted to the General 
Services Administration and shall be entered in the Federal Pro-
curement Data System referred to in section 6(d)(4). 
"ADVOCATES FOR COMPETITION 
"SEC. 20. (a)(1) There is established in each executive agency an 41 USC 418. 
advocate for competition. 
"(2) The head of each executive agency shall— 
"(A) designate for the executive agency and for each procur-
ing activity of the executive agency one officer or employee 
serving in a position authorized for such executive agency on 
the date of enactment of the Competition in Contracting Act of 
1984 (other than the senior procurement executive designated Ante, p. 1175. 
pursuant to section 16(3)) to serve as the advocate for 
97 Stat. 1330. 
competition; 
41 USC 414. 
98 STAT. 1198 
PUBLIC LAW 98-369—JULY 18, 1984 
"(B) not assign such officers or employees any duties or 
responsibilities that are inconsistent with the duties and respon-
sibilities of the advocates for competition; and 
"(C) provide such officers or employees with such staff or 
assistance as may be necessary to carry out the duties and 
* 
responsibilities of the advocate for competition, such as persons 
who are specialists in engineering, technical operations, con-
tract administration, financial management, supply manage-
ment, and utilization of small and disadvantaged business 
concerns. 
"(b) The advocate for competition of an executive agency shall— 
"(1) be responsible for challenging barriers to and promoting 
full and open competition in the procurement of property and 
services by the executive agency; 
"(2) review the procurement activities of the executive 
agency; 
"(3) identify and report to the senior procurement executive 
97 Stat. 1330. 
of the executive agency designated pursuant to section 16(3)— 
41 use 414. 
«(^) opportunities and actions taken to achieve full and 
open competition in the procurement activities of the exec-
utive agency; and 
-^ 
' 
"(B) any condition or action which has the effect of 
unnecessarily restricting competition in the procurement 
actions of the executive agency; and 
Report. 
"(4) prepare and transmit to such senior procurement execu-
tive an annual report describing— 
^;. 
"(A) such advocate's activities under this section; 
T8 > i 
"(B) new initiatives required to increase competition; and 
"(C) barriers to full and open competition that remain; 
"(5) recommend to the senior procurement executive of the 
executive agency goals and the plans for increasing competition 
on a fiscal year basis; 
"(6) recommend to the senior procurement executive of the 
executive agency a system of personal and organizational 
accountability for competition, which may include the use of 
recognition and awards to motivate program managers, con-
tracting officers, and others in authority to promote competition 
in procurement programs; and 
"(7) describe other ways in which the executive agency has 
emphasized competition in programs for procurement training 
and research. 
"(c) The advocate for competition for each procuring activity shall 
be responsible for challenging barriers to and promoting full and 
open competition in the procuring activity, including unnecessarily 
detailed specifications and unnecessarily restrictive statements of 
,. , ,^ r 
need. 
ANNUAL REPORT ON COMPETITION 
41 use 419. 
"SEC. 21. (a) Not later than January 31 of each of 1986, 1987, 1988, 
1989, and 1990, the head of each executive agency shall transmit to 
each House of Congress a report including the information specified 
in subsection (b). 
"(b) Each report under subsection (a) shall include— 
• "
^ 
"(Da specific description of all actions that the head of the 
executive agency intends to take during the current fiscal year 
to— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1199 
"(A) increase competition for contracts with the executive 
agency on the basis of cost and other significant factors; and 
"(B) reduce the number and dollar value of noncompeti-
tive contracts entered into by the executive agency; and 
"(2) a summary of the activities and accomplishments of the 
advocate for competition of the executive agency during the 
preceding fiscal year.". 
(bXD Section 6(e) of such Act (41 U.S.C. 405(e)) is amended by 97 Stat. 1326. 
striking out "subsection (c)" and inserting in lieu thereof "subsec-
tion (d)". 
(2) Section 16(1) of such Act (41 U.S.C. 414(1)) is amended to read 97 Stat. 1330. 
as follows: 
"(1) increase the use of full and open competition in the 
procurement of property or services by the executive agency by 
establishing policies, procedures, and practices that assure that 
the executive agency receives a sufficient number of sealed bids 
or competitive proposals from responsible sources to fulfill the 
Government's requirements (including performance and deliv-
ery schedules) at the lowest reasonable cost considering the 
nature of the property or service procured;". 
Subtitle D—Procurement Protest System 
-• ^^ 
PROCUREMENT PROTEST SYSTEM 
SEC. 2741. (a) Chapter 35 of title 31, United States Code, is 
amended by adding at the end thereof the following new subchapter: 
"SUBCHAPTER 
V—PROCUREMENT 
PROTEST 
SYSTEM 
"§ 3551. Definitions 
31 use 3551. 
"In this subchapter— 
"(1) 'protest' means a written objection by an interested party 
to a solicitation by an executive agency for bids or proposals for 
a proposed contract for the procurement of property or services 
or a written objection by an interested party to a proposed 
award or the award of such a contract; 
"(2) 'interested party', with respect to a contract or proposed 
contract described in paragraph (1), means an actual or prospec-
tive bidder or offeror whose direct economic interest would be 
affected by the award of the contract or by failure to award the 
contract; and 
"(3) 'Federal agency' has the meaning given such term by 
section 3 of the Federal Property and Administrative Services 
Act of 1949 (40 U.S.C. 472). 
"§ 3552. Protests by interested parties concerning procurement 31USC 3552. 
actions 
"A protest concerning an alleged violation of a procurement 
statute or regulation shall be decided by the Comptroller General if 
filed in accordance with this subchapter. An interested party who 
has filed a protest under section 111(h) of the Federal Property and 
Administrative Services Act of 1949 (40 U.S.C. 759(h)) with respect to Ante, p. 1182. 
a procurement or proposed procurement may not file a protest with 
respect to that procurement under this subchapter. 
98 STAT. 1200 
PUBLIC LAW 98-369—JULY 18, 1984 
31 use 3553. 
"§ 3553. Review of protests; effect on contracts pending decision 
Post, p. 1202. 
"(a) Under procedures prescribed under section 3555 of this title, 
the Comptroller General shall decide a protest submitted to the 
Comptroller General by an interested party. 
"(b)(1) Within one working day of the receipt of a protest, the 
Comptroller General shall notify the Federal agency involved of the 
protest. 
Report. 
"(2) Except as provided in paragraph (3) of this subsection, a 
Federal agency receiving a notice of a protested procurement under 
paragraph (1) of this subsection shall submit to the Comptroller 
*'' 
General a complete report (including all relevant documents) on the 
protested procurement— 
"(A) within 25 working days from the date of the agency's 
receipt of that notice; 
"(B) if the Comptroller General, upon a showing by the 
Federal agency, determines (and states the reasons in writing) 
that the specific circumstances of the protest require a longer 
period, within the longer period determined by the Comptroller 
General; or 
"(C) in a case determined by the Comptroller General to be 
suitable for the express option under section 3554(a)(2) of this 
Post, p. 1201. 
title, within 10 working days from the date of the Federal 
agency's receipt of that determination. 
"(3) A Federal agency need not submit a report to the Comptroller 
General pursuant to paragraph (2) of this subsection if the agency is 
sooner notified by the Comptroller General that the protest con-
cerned has been dismissed under section 3554(a)(3) of this title. 
"(c)(1) Except as provided in paragraph (2) of this subsection, a 
contract may not be awarded in any procurement after the Federal 
agency has received notice of a protest with respect to such procure-
ment from the Comptroller General and while the protest is 
pending. 
"(2) The head of the procuring activity responsible for award of a 
contract may authorize the award of the contract (notwithstanding a 
protest of which the Federal agency has notice under this section)— 
"(A) upon a written finding that urgent and compelling cir-
cumstances which significantly affect interests of the United 
States will not permit waiting for the decision of the Comptrol-
ler General under this subchapter; and 
"(B) after the Comptroller General is advised of that finding. 
"(3) A finding may not be made under paragraph (2)(A) of this 
subsection unless the award of the contract is otherwise likely to 
occur within 30 days thereafter. 
"(d)(1) If a Federal agency receives notice of a protest under this 
section after the contract has been awarded but within 10 days of 
the date of the contract award, the Federal agency (except as 
provided under paragraph (2)) shall, upon receipt of that notice, 
immediately direct the contractor to cease performance under the 
contract and to suspend any related activities that may result in 
additional obligations being incurred by the United States under 
that contract. Performance of the contract may not be resumed 
while the protest is pending. 
"(2) The head of the procuring activity responsible for award of a 
.M.i u > 
contract may authorize the performance of the contract (notwith-
standing a protest of which the Federal agency has notice under this 
section)— 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1201 
,, 
"(A) upon a written finding— 
* 
"(i) that performance of the contract is in the best inter-
ests of the United States; or 
"(ii) that urgent and compelling circumstances that sig-
nificantly affect interests of the United States will not 
permit waiting for the decision of the Comptroller General 
concerning the protest; and 
"(B) after the Comptroller General is notified of that finding. 
"(e) The authority of the head of the procuring activity to make 
findings and to authorize the award and performance of contracts 
under subsections (c) and (d) of this section may not be delegated. 
"(f) Within such deadlines as the Comptroller General prescribes, 
upon request each Federal agency shall provide to an interested 
party any document relevant to a protested procurement action 
(including the report required by subsection (b)(2) of this section) 
that would not give that party a competitive advantage and that the 
party is otherwise authorized by law to receive. 
"§ 3554. Decisions on protests 
31 USC 3554. 
"(a)(1) To the maximum extent practicable, the Comptroller Gen-
eral shall provide for the inexpensive and expeditious resolution of 
protests under this subchapter. Except as provided under paragraph 
(2) of this subsection, the Comptroller General shall issue a final 
decision concerning a protest within 90 working days from the date 
the protest is submitted to the Comptroller General unless the 
Comptroller General determines and states in writing the reasons 
that the specific circumstances of the protest require a longer 
period. 
-
"(2) The Comptroller General shall, by regulation prescribed pur-
suant to section 3555 of this title, establish an express option for Post, p. 1202. 
deciding those protests which the Comptroller General determines 
suitable for resolution within 45 calendar days from the date the 
protest is submitted. 
' 
: 
i 
"(3) The Comptroller General may dismiss a protest that the 
Comptroller General determines is frivolous or which, on its face, 
does not state a valid basis for protest. 
"(b)(1) With respect to a solicitation for a contract, or a proposed 
award or the award of a contract, protested under this subchapter, 
the Comptroller General may determine whether the solicitation, 
joi' j ,:v i\ 
proposed award, or award complies with statute and regulation. If 
the Comptroller General determines that the solicitation, proposed 
award, or award does not comply with a statute or regulation, the 
Comptroller General shall recommend that the Federal agency— 
, f^jt ^aij r
? 
"(A) refrain from exercising any of its options under the 
? '
^ 
contract; 
"(B) recompete the contract immediately; 
' ' ' ^' 
"(C) issue a new solicitation; 
"(D) terminate the contract; 
"(E) award a contract consistent with the requirements of 
such statute and regulation; 
"(F) implement any combination of recommendations under 
clauses (A), (B), (C), (D), and (E); or 
"(G) implement such other recommendations as the Comptrol-
ler General determines to be necessary in order to promote 
compliance with procurement statutes and regulations. 
"(2) If the head of the procuring activity responsible for a contract 
makes a finding under section 3553(d)(2)(A)(i) of this title, the Comp- Ante, p. 1200. 
98 STAT. 1202 
PUBLIC LAW 98-369—JULY 18, 1984 
troller General shall make recommendations under this subsection 
without regard to any cost or disruption from terminating, recom-
peting, or reawarding the contract. 
"(c)(1) If the Comptroller General determines that a solicitation 
for a contract or a proposed award cr the award of a contract does 
not comply with a statute or regulation, the Comptroller General 
may declare an appropriate interested party to be entitled to the 
costs of— 
"(A) filing and pursuing the protest, including reasonable 
attorneys' fees; and 
"(B) bid and proposal preparation. 
"(2) Monetary awards to which a party is declared to be entitled 
under paragraph (1) of this subsection shall be paid promptly by the 
Federal agency concerned out of funds available to or for the use of 
the Federal agency for the procurement of property and services. 
"(d) Each decision of the Comptroller General under this subchap-
ter shall be signed by the Comptroller General or a designee for that 
purpose. A copy of the decision shall be made available to the 
interested parties, the head of the procuring activity responsible for 
the solicitation, proposed award, or award of the contract, and the 
senior procurement executive of the Federal agency involved. 
"(e)(1) The head of the procuring activity responsible for the 
solicitation, proposed award, or award of the contract shall report to 
the Comptroller General, if the Federal agency has not fully imple-
mented those recommendations within 60 days of receipt of the 
Comptroller General's recommendations under subsection (b) of this 
section. 
Report. 
"(2) Not later than January 31 of each year, the Comptroller 
General shall transmit to Congress a report describing each instance 
in which a Federal agency did not fully implement the Comptroller 
General's recommendations during the preceding fiscal year. 
31 use 3555. 
"§ 3555. Regulations; authority of Comptroller General to verify 
assertions 
"(a) Not later than January 15, 1985, the Comptroller General 
shall prescribe such procedures as may be necessary to the expedi-
tious decision of protests under this subchapter, including proce-
dures for accelerated resolution of protests under the express option 
Ante, p. 1201. 
authorized by section 3554(a)(2) of this title. Such procedures shall 
provide that the protest process may not be delayed by the failure of 
a party to make a filing within the time provided for the filing. 
"(b) The Comptroller General may use any authority available 
31 use 701 et 
under chapter 7 of this title and this chapter to verify assertions 
s«9 
made by parties in protests under this subchapter. 
31 use 3556. 
"§ 3556. Nonexclusivity of remedies; matters included in agency 
record 
"This subchapter does not give the Comptroller General exclusive 
jurisdiction over protests, and nothing contained in this subchapter 
shall affect the right of any interested party to file a protest with 
the contracting agency or to file an action in a district court of the 
United States or the United States Claims Court. In any such action 
based on a procurement or proposed procurement with respect to 
which a protest has been filed under this subchapter, the reports 
Ante, p. 1200. 
required by sections 3553(b)(2) and 3554(e)(1) of this title with respect 
to such procurement or proposed procurement and any decision or 
— 
= 
recommendation of the (Comptroller General under this subchapter 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1203 
with respect to such procurement or proposed procurement shall be 
considered to be part of the agency record subject to review.", 
(b) The analysis for such chapter is amended by adding at the end 
thereof the following: 
"SUBCHAPTER 
V—PROCUREMENT 
PROTEST 
SYSTEM 
"3551. Definitions. 
"3552. Protests by interested parties concerning procurement actions. 
"3553. Review of protests; effect on contracts pending decision. 
"3554. Decisions on protests. 
"3555. Regulations; authority of Comptroller General to verify assertions. 
"3556. Nonexclusivity of remedies; matters included in agency record.". 
Subtitle E—Effective Date; Regulations; Study 
EFFECTIVE DATES 
SEC. 2751. (a) Except as provided in subsection (b), the amend- 41 USC 251 note. 
ments made by this title shall apply with respect to any solicitation 
for bids or proposals issued after March 31,1985. 
(b) The amendments made by section 2713 and subtitle D shall Ante, pp. 1182, 
apply with respect to any protest filed after January 14, 1985. ^i^^. 
MODIFICATION OF FEDERAL ACQUISITION REGULATIONS 
SEC. 2752. Not later than March 31, 1985, the single Government- 41 USC 403 note. 
wide procurement regulation referred to in section 4(4)(A) of the 
Office of Federal Procurement Policy Act (41 U.S.C. 403(4)(A)) shall Ante, p. 1195. 
be modified to conform to the requirements of this title and the 
amendments made by this title. 
STUDY OF A L T E R N A T I V E S 
SEC. 2753. (a) Not later than January 31, 1985, the Administrator 41 USC 407 note. 
of the Office of Federal Procurement Policy, in consultation with the 
Secretary of Defense, the Administrator of General Services and the 
Administrator of the National Aeronautics and Space Administra-
tion, shall complete a study of alternatives and recommend to the 
Committee on Governmental Affairs of the Senate and the Commit-
tee on Government Operations of the House of Representatives a 
plan to increase the opportunities to achieve full and open competi-
tion on the basis of technical qualifications, quality, and other 
factors in the procurement of professional, technical, and manage-
rial services. 
(b) Such plan shall provide for testing the recommended alterna-
tive and be developed in accordance with section 15 of the Office of 
Federal Procurement Policy Act (41 U.S.C. 413), and be consistent 97 Stat. 1329. 
with the policies set forth in section 2 of such Act (41 U.S.C. 401). 97 Stat. 1325. 
TITLE VIII—FEDERAL CREDIT UNION ACT 
AMENDMENTS 
SEC. 2801. Section 201(b)(8) of the Federal Credit Union Act (12 
U.S.C. 1781(b)(8)) is amended to read as follows: 
"(8) to pay and maintain its deposit and to pay the premium 
charges for insurance imposed by this title; and". 
98 STAT. 1204 
PUBLIC LAW 98-369—JULY 18, 1984 
SEC. 2802. Section 202 (b) of the Federal Credit Union Act (12 
U.S.C. 1782(b)) is amended to read as follows: 
"(b)(1) For each insurance year, each insured credit union which 
became insured prior to the beginning of that year shall file with 
the Board, at such time as the Board prescribes, a certified state-
ment showing the total amount of insured shares in the credit union 
at the close of the preceding insurance year and both the amount of 
its deposit or adjustment thereof and the amount of the premium 
charge for insurance due to the fund for that year, both as computed 
under subsection (c) of this section. 
"(2) The certified statements required to be filed with the Board 
pursuant to this subsection shall be in such form and shall set forth 
such supporting information as the Board shall require. 
"(3) Each such statement shall be certified by the president of the 
credit union, or by any officer of the credit union designated by its 
board of directors, that to the best of his knowledge and belief that 
statement is true, correct, and complete and in accordance with this 
title and regulations issued thereunder.". 
SEC. 2803. Section 202(c) of the Federal Credit Union Act (12 
U.S.C. 1782(c)) is amended— 
(1) by striking out paragraph (2); 
(2) by redesignating paragraph (1) as paragraph (2); 
(3) by striking out "Except as provided in paragraph (2) of this 
subsection, each" in paragraph (2), as redesignated, and insert-
,^, 
ing in lieu thereof "Each"; 
(4) by striking out "on or before January 31 of each insurance 
year" in paragraph (2), as redesignated, and inserting in lieu 
thereof "at such time as the Board prescribes"; 
(5) by striking out "member accounts" in paragraph (2), as 
redesignated, and inserting in lieu thereof "insured shares"; 
and 
(6) by inserting before paragraph (2) the following: 
J . . 
"(l)(A)(i) Each insured credit union shall pay to and maintain with 
the National Credit Union Share Insurance Fund a deposit in an 
amount equaling 1 per centum of the credit union's insured shares. 
"(ii) The Board may, in its discretion, authorize insured credit 
unions to initially fund such deposit over a period of time in excess 
of one year if necessary to avoid adverse effects on the condition of 
insured credit unions. 
"(iii) The amount of each insured credit union's deposit shall be 
adjusted annually, in accordance with procedures determined by the 
Board, to reflect changes in the credit union's insured shares. 
"(B)(i) The deposit shall be returned to an insured credit union in 
the event that its insurance coverage is terminated, it converts to 
insurance coverage from another source, or in the event the oper-
ations of the fund are transferred from the National Credit Union 
Administration Board. 
"(ii) The deposit shall be returned in accordance with procedures 
and valuation methods determined by the Board, but in no event 
shall the deposit be returned any later than one year after the final 
date on which no shares of the credit union are insured by the 
Board. 
"(iii) The deposit shall not be returned in the event of liquidation 
on account of bankruptcy or insolvency. 
"(iv) The deposit funds may be used by the fund if necessary to 
meet its expenses, in which case the amount so used shall be 
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1205 
expensed and shall be replenished by insured credit unions in 
accordance with procedures established by the Board.". 
SEC. 2804. Section 202(cX3) of the Federal Credit Union Act (12 
U.S.C. 1782(c)(3)) is amended to read as follows: 
"(3) When, at the end of a given insurance year, any loans to the 
f 
fund from the Federal Government and the interest thereon have 
been repaid and the equity of the fund exceeds the normal operating 
level, the Board shall effect for that insurance year a pro rata 
distribution to insured credit unions of an amount sufficient to 
reduce the equity in the fund to its normal operating level.". 
SEC. 2805. Section 202(c)(4) of the Federal Credit Union Act (12 
U.S.C. 1782(c)(4)) is repealed. 
SEC. 2806. (a) Subsections (d) through (f) of section 202 of the 
Federal Credit Union Act (12 U.S.C. 1782 (d) through (f)) are 
amended— 
(1) by inserting "its deposit or" before the words "the pre-
mium charge" and "any premium charge" each time they 
appear, other than in the second sentence of subsection (e) of 
section 202; and 
(2) by striking out "member accounts" and inserting in lieu 
th^rf^oi insiir^fi srijn*(*s 
(b) Section 202 of the Federal Credit Union Act (12 U.S.C. 1782) is 
amended— 
(1) in the first sentence of subsection (e), by inserting "deposit 
, 
or" after "the amount of any unpaid"; 
• . , £ ! ' . 
(2) in the second sentence of subsection (e), by inserting 
"deposit or" before "premium charge due"; and 
(3) in the first sentence of subsection (0, by inserting "deposit 
or" after "statement or pay any such". 
SEC. 2807. Section 202(g) of the Federal Credit Union Act (12 
U.S.C. 1782(g)) is amended— 
(1) by striking out "statements, and premium charges" and 
>G ' 
inserting in lieu thereof "statements, and deposit and premium 
charges"; 
(2) by striking out "payment of any premium charge" and 
inserting in lieu thereof "payment of any deposit or adjustment 
thereof or any premium charge"; and 
(3) by striking out "any premium charge for insurance" and 
inserting in lieu thereof "any deposit or adjustment thereof or 
any premium charge for insurance". 
SEC. 2808. Section 202(h)(1) of the Federal Credit Union Act (12 
U.S.C. 1782(h)(1)) is amended by inserting before the semicolon at 
the end thereof the following: ", unless otherwise prescribed by the 
Board". 
SEC. 2809. Section 202(h)(2) of the Federal Credit Union Act (12 
U.S.C. 1782(h)(2)) is amended to read as follows: 
"(2) the term 'normal operating level', when applied to the 
fund, means an amount equal to 1.3 per centum of the aggre-
gate amount of the insured shares in all insured credit unions, 
or such lower level as the Board may determine; and". 
V
s i ini 
SEC. 2810. Section 202(h)(3) of the Federal Credit Union Act (12 
U.S.C. 1782(h)(3)) is amended to read as follows: 
"(3) the term 'insured shares' when applied to this section 
includes share, share draft, share certificate and other similar 
accounts as determined by the Board, but does not include 
amounts in excess of the insured account limit set forth in 
section 207(c)(1).". 
12 USC 1787. 
98 STAT. 1206 
PUBLIC LAW 98-369—JULY 18, 1984 
Report. 
12 use 1795b. 
SEC. 2811. Section 203(b) of the Federal Credit Union Act (12 
U.S.C. 1783(b)) is amended— 
(1) by inserting "deposits and" before "premium charges"; 
and 
(2) by adding at the end thereof the following: "The Board 
shall report annually to the Committee on Banking, Housing, 
and Urban Affairs of the Senate and the Committee on Bank-
ing, Finance and Urban Affairs of the House of Representatives 
with respect to the operating level of the fund. Such report shall 
also include the results of an independent audit of the fund.". 
SEC. 2812. Section 206(d)(1) of the Federal Credit Union Act (12 
U.S.C. 1786(d)(1)) is amended— 
(1) by inserting "(1)" after "subsection (a)"; 
(2) by inserting "maintain its deposit with and" before "pay 
premiums to the Board"; and 
(3) by adding at the end thereof the following sentence: "Not-
withstanding the above, when an insured credit union's insured 
status is terminated and the credit union subsequently obtains 
comparable insurance coverage from another source, insurance 
of its accounts by the fund may cease immediately upon the 
effective date of such comparable coverage by mutual consent of 
the credit union and the Board.". 
SEC. 2813. (a) Title III of the Federal Credit Union Act (12 U.S.C. 
1795 et seq.) is amended— 
(1) in section 303 by inserting ", an instrumentality of the 
United States," after "Central Liquidity Facility" in the second 
sentence; and 
(2) by adding at the end thereof the following: 
STATE AND LOCAL TAX EXEMPTION 
12 use 1795k. 
"SEC. 312. (a) The Central Liquidity Facility, and its franchise, 
activities, capital reserves, surplus, and income, shall be exempt 
from all State and local taxation now or hereafter imposed, other 
than taxes on real property held by the Facility (to the same extent, 
according to its value, as other similar property held by other 
persons is taxed). 
"(b)(1) Except as provided in paragraph (2), the notes, bonds, 
debentures, and other obligations issued on behalf of the Central 
Liquidity Facility and the income therefrom shall be exempt from 
all State and local taxation now or hereafter imposed. 
"(2) Any obligation described in paragraph (1) shall not be exempt 
from State or local gift, estate, inheritance, legacy, succession, or 
other wealth transfer taxes. 
"(c) For purposes of this section— 
"(1) the term 'State' includes the District of Columbia; and 
"(2) taxes imposed by counties or municipalities, or any terri-
tory, dependency, or possession of the United States shall be 
treated as local taxes.". 
Ante, p. 1033. 
(b)(1) Section 501 of the Internal Revenue Code of 1954 (relating to 
organizations exempt from tax), as amended by section 1032(a) of 
this Act, is amended by redesignating subsection (1) as subsection (m) 
and by adding after subsection (k) the following new subsection: 
"(1) 
GOVERNMENT 
CORPORATIONS 
EXEMPT 
UNDER 
SUBSECTION 
(c)(1).—The organization described in this subsection is the Central 
Liquidity Facility established under title III of the Federal Credit 
Union Act (12 U.S.C. 1795 et seq.).". 
• • . 
--i^ -
PUBLIC LAW 98-369—JULY 18, 1984 
98 STAT. 1207 
(2) Paragraph (1) of section 501(c) of such Code (listing exempt 
organizations) is amended to read as follows: 
"(1) any corporation organized under Act of Congress which is 
an instrumentality of the United States but only if such 
corporation— 
"(A) is exempt from Federal income taxes under such 
Act, as amended and supplemented, or 
"(B) is described in subsection (1).". 
(c) The amendments made by this section shall take effect on 
October 1,1979. 
ELIMINATION OF PAYROLL DEDUCTION FEES ON FINANCIAL 
ORGANIZATIONS; ADMINISTRATION OF DISBURSING FUNCTIONS 
SEC. 2814. (a) Section 33320b) of title 31, United States Code, is 
amended by inserting "without charge" after "shall be sent". 
(b) Section 3332 of title 31, United States Code, is amended by 
striking out subsection (c) and redesignating subsections (d), (e), (f), 
and (g) as subsections (c), (d), (e), and (f), respectively. 
TITLE IX—MISCELLANEOUS PROVISIONS 
26 u s e 501. 
Ante, p. 1056. 
12 u s e 1795k 
note. 
COST SAVINGS BY ADMINISTRATIVE ACTION 
SEC. 2901. (a) It is the sense of the Congress that— 
(1) departments, agencies, and instrumentalities of the execu-
tive branch of government can continue to make significant 
management improvements in— 
(A) the travel and transportation of personnel and trans-
portation of things for personnel; 
(B) the use of consultant services; 
(C) public affairs, 
public relations, and 
advertising 
activities; 
(D) publishing, printing, reproduction, and audio visual 
activities; 
(E) identification, recovery, and collection of Federal over-
payments, delinquencies, and indebtedness; and 
(F) the operation, maintenance, management, leasing, 
acquisition, and disposal of motor vehicles; and 
(2) such improvements can result in better use of funds and 
reductions in expenditures for such activities. 
(b) Within six months after the date of enactment of this Act, the Report. 
Director of the Office of Management and Budget shall prepare and 
transmit to the Committees on Appropriations and Budget of the 
Senate and House of Representatives and the Senate Governmental 
Affairs and House Government Operations Committees a report 
describing for each of the categories specified in subparagraphs (A) 
through (F) of subsection (a)(1)— 
(1) the baseline cost (or best estimate thereoD for fiscal year 
1984; 
(2) the savings (below such baseline cost or estimate) that can 
reasonably be expected to be achieved for fiscal year 1985 by 
improved management; 
(3) an explanation of how such savings will be achieved; and 
(4) if necessary, draft legislation to achieve such savings. 
(c) If the expected savings described pursuant to subsection (b)(2) 
are— 
98 STAT. 1208 
PUBLIC LAW 98-369—JULY 18, 1984 
(1) less than $750,000,000 for the category specified in sub-
paragraph (A) of subsection (a)(1), 
(2) less than $1,000,000,000 for the category specified in sub-
paragraph (B) of such subsection, 
(3) less than $100,000,000 for the category specified in sub-
paragraph (C) of such subsection, 
(4) less than $250,000,000 for the category specified in sub-
paragraph (D) of such subsection, 
(5) less than $2,100,000,000 for the category specified in sub-
paragraph (E) of such subsection, or 
(6) less than $160,000,000 for the category specified in sub-
paragraph (F) of such subsection, 
the report shall state the reasons why the amount specified in 
paragraph (1), (2), (3), (4), (5), or (6) is not achievable. 
DISPOSAL OF CERTAIN LANDS AT MONTAUK AIR FORCE BASE 
SEC. 2902. (a) The Congress finds that— 
(1) the highest and best use of the lands described in subsec-
tion (b)(1) of this section is use as a park or recreational area; 
(2) the State of New York has indicated a willingness to 
convey by donation to the United States the fee interest to the 
lands described in subsection (b)(2); 
(3) therefore the Administrator of General Services should 
assign to the Secretary of the Interior the lands described in 
subsection (b)(1) for use as a public park or recreational area; 
and 
(4) the Secretary of the Interior should, simultaneous with 
acceptance of the lands described in subsection (b)(2), convey the 
property described in subsection (b)(1) to the State of New York 
for use as a public park or recreational area through a public 
discount conveyance under section 203(k)(2) of the Federal Prop-
erty and Administrative Services Act of 1949 (40 U.S.C. 
484(k)(2)). 
(b)(1) The lands described in this subsection are those portions of 
the Montauk Air Force Station in East Hampton Township, Suffolk 
County, New York, totaling approximately 278 acres, that were 
declared surplus to the needs of the United States Government on 
December 21,1981. 
(2) The lands described in this subsection are approximately 125 
acres of real property owned by the State of New York within the 
boundaries of the Fire Island National Seashore. 
COST SAVINGS REPORT BY THE PRESIDENT 
SEC. 2903. The President shall review recent recommendations for 
management improvement and cost control opportunities including 
those made by congressional committees, executive and legislative 
branch agencies, educational and research organizations, and public 
and private boards, task forces, councils, panels, and study groups, 
which require administrative or Presidential action. A report on 
such review shall be submitted with the Budget of the United States 
Government transmitted in January 1985 under section 1105(a) of 
title 31, United States Code, and shall contain a list of the recom-
mendations the President has reviewed, the source of those recom-
mendations, the actions which the President proposes to take or has 
PUBLIC LAW 98-369-JULY 18, 1984 
98 STAT. 1209 
taken, and the amount of cost savings expected to result therefrom 
in fiscal years 1985,1986, and 1987. 
COST SAVINGS BY COMMITTEE 
SEC. 2904. Each authorizing committee of the Senate and House of 
Representatives shall review the report required under section 2903 Ante, p. 1208. 
and make recommendations from that report to the Budget Commit-
tees including any necessary changes in laws to allow for or facili-
tate the achievement of savings as identified in that report. The 
resulting recommendations shall be transmitted to the Budget Com-
mittee as part of each committee's report submitted pursuant to 
section 301(c) of Public Law 93-344, on March 15,1985. 
2 USC 632. 
ANALYSES OF BUDGET ASSUMPTIONS 
SEC. 2905. (a) The director of the Congressional Budget Office shall Study. 
conduct a study of the nature and reliability of the assumptions Report. 
upon which budget estimates are based for concurrent resolutions 
on the budget adopted by the Congress and make a report to the 
Committee on the Budget of the House of Representatives and the 
Committee on the Budget of the Senate by June 1, 1985. Such study 
shall identify— 
(1) the re£isons for the differences between actual revenues 
"^^-' •^i^ 
and outlays and the revenue and outlay estimates used for 
""' '' 
concurrent resolutions on the budget; 
(2) the extent to which any systematic biases exist in the 
assumptions or methods used for making revenue and outlay 
estimates for the concurrent resolutions on the budget; and 
(3) the extent to which the use of alternative assumptions or 
estimating methods would improve the accuracy of budget esti-
mates used by the Congress. This would include time-series 
analyses of historical budget patterns and economic trends. 
(b) On a trial basis, the Congressional Budget Office shall conduct 
in consultation with the General Accounting Office a review of the 
budget estimates prepared by the Department of Defense and one 
civilian agency to determine whether: 
(1) there is a systematic underestimation of the costs required 
to carry out the policies, programs and projects proposed; and 
(2) what effects any systematic costing errors may have upon 
the long-run costs of programs, the mix of programs imple-
mented and the effectiveness of programs in meeting agency 
missions and goals. 
The General Accounting Office component of this review shall look 
at all phases of budget preparation and program evaluation in the 
agencies selected, and shall examine historical patterns of funding 
to determine the effect of cost estimation biases. 
FORMULA APPROACH TO FEDERAL BUDGETING 
SEC. 2906. The Director of the Congressional Budget Office and the Study. 
Director of the Office of Management and Budget shall each, in 
consultation with the Chairman and ranking member of the Com-
mittee on the Budget of the House of Representatives and the 
Committee on the Budget of the Senate, conduct a study of the 
administrative feasibility and potential impact in terms of effective-
ness and equitability of applying alternative formula approaches to 
98 STAT. 1210 
PUBLIC LAW 98-369—JULY 18, 1984 
the entire Federal budget. These studies may include, but need not 
be limited to, the following formulas: 
(1) a fraction (not necessarily limited to less than 1.0) of 
historical trends in spending within functions or categories of 
the budget; 
(2) an equal percentage growth rate, or an equal percentage 
reduction in the growth rate of, each function or category of the 
budget; 
(3) a set of percentage growth rates, whereby the budget is 
divided into major categories and a different percentage growth 
rate is then applied to each category; 
(4) a fraction (not necessarily limited to less than 1.0) of the 
growth in the Gross National Product (as calculated by the 
Congressional Budget Office or the Office of Management and 
Budget) applied to each function or category of the budget. 
The Congressional Budget Office and the Office of Management and 
Budget shall each report the findings of such study to the Congress 
no later than December 31,1984. 
MINING OP NICARAGUAN PORTS 
22 use 2151 
SEC. 2907. It is the sense of the Congress that no funds heretofore 
^^^^- 
or hereafter appropriated in any Act of Congress shall be obligated 
or expended for the purpose of planning, directing, executing, or 
supporting the mining of the ports or territorial waters of 
Nicaragua. 
Approved July 18, 1984. 
LEGISLATIVE HISTORY—H.R. 4170 (H.R. 2163): 
HOUSE REPORTS: No. 98-432 and Pt. 2 (Comm. r-y Ways and Means), No. 98-133 
accompanying H.R. 2163, Pt. 1 (Comm. on Merchant Marine 
and Fisheries) and Pt. 2 (Comm. on Ways and Means), and No. 
98-861 (Comm. of Conference). 
SENATE REPORT No. 98-312 accompanying H.R. 2163 (Comm. on Finance). 
CONGRESSIONAL RECORD: 
Vol. 129 (1983): July 12, H.R. 2163 considered and passed House. 
Vol. 130 (1984): Apr. 5, 9-12, 24-26, 30, May 1-3, 8-11, 14-17, H.R. 2163 
considered in Senate. 
Apr. 11, H.R. 4170 considered and passed House. 
May 17, considered and passed Senate, amended, in lieu of 
H.R. 2163. 
May 23, House concurred in Senate amendment with an 
amendment. 
June 27, Senate and House agreed to conference report. 
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 20, No. 29 (1984): 
Julj' 18, Presidential statement.