An Act to amend the Internal Revenue Code of 1954 with respect to the treatment of mutual or cooperative telephone company income from nonmember telephone companies, and for other purposes.
PL 95-345 (H.R.7581), enacted 08/15/1978

PUBLIC LAW 95-345—AUG. 15, 1978 
92 STAT. 481 
Public Law 95-345 
95th Congress 
An Act 
To amend the Internal Revenue Code of 1954 with respect to the treatment of 
mutual or cooperative telephone company income from nonmember telephone 
companies, and for other purposes. 
Be it enacted hy the Senate 
and House of Representatwes 
of the 
United States 
of America 
in Congress 
assembled, 
SECTION 1. TREATMENT OF MUTUAL OR COOPERATIVE TELEPHONE 
COMPANY INCOME FROM NONMEMBER TELEPHONE 
COMPANY. 
(a) I N GENERAL.—Paragraph (12) of section 501(c) of the Inter-
nal Revenue Code of 1954 (relating to certain organizations exempt 
from income tax) is amended by adding at the end thereof the follow-
ing new sentence: "In the case of any mutual or cooperative telephone 
company, the preceding sentence shall be applied without taking into 
account any income received or accrued from a nonmember telephone 
company for the performance of communication services which involve 
members of such mutual or cooperative telephone company.". 
(b) EFFECTIVE DATE.—The amendment made by subsection 
(a) 
shall apply to taxable years beginning after December 31, 1974. 
SEC. 2. LENDING OF SECURITIES BY EXEMPT ORGANIZATIONS. 
(a) 
TREATMENT OF INCOME FROM PAYMENTS W I T H 
RESPECT TO 
SECURITIES LOANS.— 
(1) 
INCLUSION I N GROSS INVESTMENT INCOME FOR PURPOSES OF 
DEFINING PRIVATE FOUNDATION.—Section 509(e) of the Internal 
Revenue Code of 1954 (relating to definition of gross investment 
income) is amended by inserting "payments with respect to secu-
rities loans (as defined in section 512(a) (5))," after "dividends,". 
(2) 
EXCLUSION FROM UNRELATED BUSINESS TAXABLE INCOME.— 
Section 512(b)(1) of such Code (relating to modifications of 
unrelated business taxable income) is amended by inserting "pay-
ments with respect to securities loans (as defined in section 512 
(a) (5)), after "interest,". 
(3) 
REGULATED INVESTMENT COMPANY INCOME.—Section 
851 
(b) (2) of such Code (relating to limitations on regulated invest-
ment company income) is amended by inserting "payments with 
respect to securities loans (as defined in section 512(a)(5))," 
after "interest,". 
(4) INCLUSION IN NET INVESTMENT INCOME or PRIVATE FOUNDA-
TIONS.—Section 4940(c)(2) 
of such Code (relating to gross 
investment income) is amended by inserting "payments with 
respect to securities loans (as defined in section 512(a) (5))," after 
"rents,". 
(b) 
DEFINITION 
OF PAYSIENTS 
W I T H 
RESPECT 
TO 
SECURITIES 
LOANS.—Section 512(a) of such Code (relating to definition of 
unrelated business taxable income) is amended by adding at the end 
thereof the following new paragraph: 
"(5) 
DEFINITION OF PAYMENTS WITH RESPECT TO SECURITIES 
LOANS.— 
"(A) The term 'payments with respect to securities loans' 
includes all amounts received in respect of a security (as 
Aug. 15. 1978 
[H.R. 7581] 
Internal Revenue 
Code of 1954, 
amendments. 
26 use 501. 
26 use 501 note. 
26 use 509. 
Infra. 
26 use 512. 
26 use 851. 
26 use 4940. 
26 use 512. 
92 STAT. 482 
PUBLIC LAW 95-345—AUG. 15, 1978 
26 use 1236. 
defined in section 1236(c)) transferred by the owner to 
26 use 1058. 
another person in a transaction to which section 1058 applies 
(whether or not title to the security remains in the name of 
the lender) including— 
"(i) amounts in respect of dividends, interest, or other 
distributions, 
"(ii) fees computed by reference to the period begin-
ning with the transfer of securities by the owner and 
ending with the transfer of identical securities back to the 
transferor by the transferee and the fair market value 
of the security during such period, 
"(iii) income from collateral security for such loan, 
and 
" (iv) income from the investment of collateral security. 
"(B) Subparagraph (A) shall apply only with respect to 
securities transferred pursuant to an agreement between the 
transferor and the transferee which provides for— 
"(i) reasonable procedures to implement the obliga-
tion of the transferee to furnish to the transferor, for 
each business day during such period, collateral with a 
fair market value not less than the fair market value of 
the security at the close of business on the preceding 
business day, 
"(ii) termination of the loan by the transferor upon 
notice of not more than 5 business days, and 
"(iii) return to the transferor of securities identical 
to the transferred securities upon termination of the 
loan.". 
(c) TREATMENT FOR PURPOSES OF SECTION 514.—Subsection (c) of 
26 use 514. 
section 514 of such Code (relating to unrelated debt-financed income) 
is amended by adding at the end thereof the following new paragraph: 
"(8) 
SECURITIES SUBJECT TO LOANS.—For purposes of 
this 
section— 
" ( A ) payments with respect to securities loans (as defined 
Ante, V. 481. 
in section 512(a)(5)) shall be deemed to be derived ir^m 
the securities loaned and not from collateral security or the 
investment of collateral security from such loans, 
"(B) any deductions which are directly connected with 
collateral security for such loan, or with the investment of 
collateral security, shall be deemed to be deductions which 
are directly connected with the securities loaned, and 
"(C) an obligation to return collateral security shall not 
be treated as acquisition indebtedness (as defined in para-
graph (1)).". 
(d) TREATMENT 
OF GAIN 
OR LOSS 
ON CERTAIN 
LOANS OF 
SECURITIES.— 
(1) NoNRECOGNiTioN OF GAIN O
R LOSS.—Part I V of Subchapter 
26 use 1051 et 
Q of chapter 1 of such Code (relating to special rules) is amended 
**?• 
by redesignating section 1058 as 1059 and by inserting after sec-
26 use 1059. 
tion 1057 the following new section: 
26 use 1058. 
«SEC. 1058. TRANSFERS OP SECURITIES UNDER CERTAIN AGREEMENTS. 
"(a) GENERAL RULE.—In the case of a taxpayer who transfers 
26 use 1236. 
securities (as defined in section 1236(c)) pursuant to an agreement 
which meets the requirements of subsection (b), no gain or loss shall 
be recognized on the exchange of such securities by the taxpayer for 
an obligation under such agreement, or on the exchange of rights 
PUBLIC LAW 95-345—AUG. 15, 1978 
92 STAT. 483 
under such agreement by that taxpayer for securities identical to the 
securities transferred by that taxpayer. 
"(b) 
AGKEEMENT EKQUIREMENTS.—In order to meet the require-
ments of this subsection, an agreement shall— 
" (1) provide for the return to the transferor of securities iden-
tical to the securities transferred ; 
"(2) require that payments shall be made to the transferor of 
amounts equivalent to all interest, dividends, and other distribu-
tions which the owner of the securities is entitled to receive during 
the period beginning with the transfer of the securities by the 
transferor and ending with the transfer of identical securities back 
to the transferor; 
"(3) not reduce the risk of loss or opportunity for gain of the 
transferor of the securities in the securities transferred; and 
"(4) meet such other requirements as the Secretary may by 
regulation prescribe. 
"(c) BASIS.—Property acquired by a taxpayer described in subsec-
tion (a), in a transaction described in that subsection, shall have the 
same basis as the property transferred by that taxpayer.". 
(2) CLERICAL AMENDMENT.—The table of sections for part I V 
of subchapter O of chapter 1 of such Code is amended by striking 
26 USC1051 et 
out the last item and inserting in lieu thereof the following: 
**?• 
"Sec. 1058. Transfers of securities under certain agreements. 
"Sec. 1059. Cross references.". 
(e) EFFECTIVE DATE.—The amendments made by this section apply 
26 USC 509 note, 
with respect to— 
(1) amounts received after December 31, 1976, as payments 
with respect to securities loans (as defined in section 512(a) (5) 
of the Internal Revenue Code of 1954), and 
^'««' P- ' ^ 1 -
(2) transfers of securities, under agreements described in sec-
tion 1058 of such Code, occurring after such date. 
^'»^. P- 482. 
SEC. 
3
. 
USE 
OF 
COMPLETED 
CROP 
POOL 
METHOD 
OF 
ACCOUNTING. 
Section 1382 of the Internal Revenue Code of 1954 (relating to tax- 
26 USC 1382. 
able income of cooperatives) is amended by adding at the end thereof 
the following new subsection: 
" (g) U S E or COMPLETED CROP POOL METHOD or ACCOUNTING.— 
"(1) 
I N GENERAL.—^An organization 
described in section 
1381(a) which is engaged in pooling arrangements for the mar- 
26 USC 1381. 
keting of products may compute its taxable income with respect to 
any pool opened prior to March 1,1978, under the completed crop 
pool method of accounting if— 
"(A) the organization has computed its taxable income 
under such method for the 10 taxable years ending with its 
first taxable year beginning after December 31,1976, and 
" ( B ) with respect to the pool, the organization has entered 
into an agreement with the United States or any of its agen-
cies which includes provisions to the effect that— 
"(i) the United States or such agency shall provide a 
loan to the organization with the products comprising 
the pool serving as collateral for such loan, 
"(ii) the organization shall use an amount equal to 
the proceeds of such loan to make price support advances 
to eligible producers (as determined by the United States 
or such agency), to defray costs of handling, processing, 
and storing such products, or to pay all or part of any 
administrative costs associated with the price support 
program, 
92 STAT. 484 
PUBLIC LAW 95-345—AUG. 15, 1978 
"(iii) an amount equal to the net proceeds (as deter-
mined under such agreement) from the sale or exchange 
of the products in the pool shall be used to repay such 
loan imtil such loan is repaid in full (or all the products 
in the pool are disposed of), and 
"(iv) the net gains (as determined under such agree-
ment) from the sale or exchange of such products shall 
be distributed to eligible producers, except to the extent 
that the United States or such agency permits otherwise. 
"(2) 
COMPLETED CROP POOL METHOD OF ACCOUNTING DEFINED.— 
For purposes of this subsection, the term 'completed crop pool 
method of accoimting' means a method of accounting under which 
gain or loss is computed separately for each crop year pool in the 
year in which the last of the products in the pool are disposed of.". 
Approved August 15, 1978. 
LEGISLATIVE HISTORY; 
HOUSE REPORT No. 95-742 (Cbmm. on Ways and Means). 
SENATE REPORT No. 95-762 (Coram, on Finance). 
CONGRESSIONAL RECORD, VoL 124 (1978): 
Jan. 24, considered and passed House. 
Apr. 27, considered and passed Senate, amended. 
June 14, House concurred in Senate amendments with amendments. 
Aug. 2, Senate concurred in House amendments.