Revenue Act
PL 95-600 (H.R.13511), enacted 11/06/1978

PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2763 
Public Law 95-600 
95th Congress 
An Act 
To amend the Internal Revenue Code of 1954 to reduce income taxes, and 
Nov. 6, 1978 
for other purposes. 
[H.R. 13511] 
Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, 
Revenue Act of 
1Q78 
SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the "Revenue Act of 26 use i note. 
1978". 
(b) TABLE OF CONTENTS.— 
Sec. 1. Short title; table of contents. 
Sec. 2. Amendment of 1954 Code. 
Sec. 3. Policy with respect to additional tax reductions. 
TITLE I-PROVISIONS PRIMARILY AFFECTING INDIVIDUAL INCOME TAX 
Subtitle A—Tax Reductions and Extensions 
Sec. 101. Widening of brackets; rate cuts in certain brackets; increase In zero 
bracket amounts. 
Sec. 102. Personal exemptions increased to $1,000. 
Sec. 103. Earned income credit made permanent. 
Sec. 104. Increase in and simplification of the earned income tax credit. 
Sec. 105. Advance payment of earned income credit. 
Sec. 106. Application of certain changes in the case of fiscal year taxpayers. 
Subtitle B—Itemized Deductions 
Sec. 111. Repeal of nonbusiness deduction for State and local taxes on gasoline and 
other motor fuels. 
Sec. 112. Unemployment compensation. 
Subtitle C—Credits 
Sec. 121. Payments to related individuals under child care credit. 
Subtitle D—Deferred Compensation 
PART I—DEFERRED COMPENSATION PROVISIONS 
Sec. 131. Deferred compensation plans with respect to service for State and local 
governments. 
Sec. 132. Certain private deferred compensation plans. 
Sec. 133. Clarification of deductibility of payments of deferred compensation, etc., to 
independent contractors. 
Sec. 134. Tax treatment of cafeteria plans. 
Sec. 135. Certain cash or deferred arrangements. 
PART II—EMPLOYEE STOCK OWNERSHIP PLANS 
Sec. 141. ESOPS. 
Sec. 142. Certain lump sum distributions excluded from gross estate where recipi-
ent elects not to apply 10-year averaging. 
Sec. 143. Qualified plans required to pass through voting rights on employer 
securities. 
92 STAT. 2764 
PUBLIC LAW 95-600—NOV. 6, 1978 
Subtitle E—Retirement Plans 
Sec. 152. Simplified employee pensions. 
Sec. 153. Defined benefit plan limits. 
Sec. 154. Custodial accounts for regulated investment company stock. 
Sec. 155. Pension plan reserves. 
Sec. 156. Rollover of section 403(b) annuities permitted. 
Sec. 157 Individual retirement account technical changes. 
, 
Subtitle F—Other Individual Items 
Sec. 161. Certain Government scholarship and award programs. 
Sec. 162. Cancellation of student loans. 
Sec. 163. Tax counseling for the elderly. 
Sec. 164. Exclusion of value of certain educational assistance programs. 
TITLE II-TAX SHELTER PROVISIONS 
Subtitle A—Provisions Related to At Risk Rules 
Sec. 201. Extension of section 465 at risk rules to all activities other than real 
estate. 
Sec. 202. Extension of at risk provisions to closely held corporations. 
^ 
Sec. 203. Recapture of losses where amount at risk is less than zero. 
Sec. 204. Effective dates. 
Subtitle B—Partnership Provisions 
Sec. 211. Penalty for failure to file partnership return. 
Sec. 212. Extension of statute of limitations in the case of partnership items. 
TITLE III—PROVISIONS PRIMARILY AFFECTING BUSINESS INCOME TAX 
Subtitle A—Corporate Rate Reductions 
Sec. 301. Corporate rate reductions. 
Subtitle B—Credits 
Sec. 311. 10-percent investment tax credit and $100,000 limitation on used property 
made permanent. 
Sec. 312. Increase in limitation on investment credit to 90 percent of tax liability. 
Sec. 313. Investment credit for pollution control facilities. 
Sec. 314. Investment credit for certain single purpose agricultural or horticultural 
structures. 
Sec. 315. Investment credit allowed for certain rehabilitated buildings. 
Sec. 316. Tax treatment of the investment credit in the case of cooperative organi-
zations. 
Sec. 317. Transfers to ConRail not treated as dispositions for purposes of the invest-
ment credit. 
Subtitle C—Targeted Jobs Credit; WIN Credit 
Sec. 321. Targeted jobs credit. 
Sec. 322. Work incentive program credit changes. 
. ' 
Subtitle D—Tax Exempt Bonds 
PART I—INDUSTRIAL DEVELOPMENT BONDS 
Sec. 331. Increase in limit on small issues of industrial development bonds. 
Sec. 332. Local furnishing of electric energy. 
* 
Sec. 333. Industrial development bonds for water facilities. 
Sec. 334. Advance refunding of industrial development bonds for qualified public 
facilities. 
PART II—OTHER TAX-EXEMPT BOND PROVISIONS 
Sec. 336. Declaratory judgment procedure for judicial review of determinations re-
lating to governmental obligations. 
Sec. 337. Disposition of amounts generated by advance refunding of certain govern-
mental obligations. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2765 
Subtitle E—Small Business Provisions 
PART I—PROVISIONS REIATING TO SUBCHAPTER S 
Sec. 341. Subchapter S corporations allowed 15 shareholders. 
Sec. 342. Permitted shareholders of subchapter S corporations. 
Sec. 343. Extension of period for making subchapter S elections. 
Sec. 344. Effective date. 
PART II—OTHER PROVISIONS 
J 
Sec. 345. Small business corporation stock. 
Subtitle F—Accounting Provisions 
Sec. 351. Treatment of certain closely held farm corporations for purposes of rule 
requiring accrual accounting. 
Sec. 352. Accounting for growing crops. 
Sec. 353. Treatment of certain farms for purposes of rule requiring accrual 
accounting. 
Subtitle G—Other Business Provisions 
Sec. 361. Disallowance of certain deductions for yachts, hunting lodges, etc. 
Sec. 362. Deficiency dividend procedure for regulated investment companies. 
Sec. 363. Real estate investment trust provisions. 
Sec. 364. Contributions in aid of construction. 
Sec. 365. Liabilities of controlled corporations. 
Sec. 366. Medical expense reimbursement plans. 
Sec. 367. Three-year extension of provision for 60-month depreciation of expendi-
tures to rehabilitate low-income rental housing. 
Sec. 368. Delay in application of new net operating loss rules. 
Sec. 369. Use of certain expired net operating loss carryovers. 
Sec. 370. Income from certain railroad rolling stock treated as income from sources 
within the United States. 
Sec. 371. Net operating losses attributable to product liability losses. 
Sec. 372. Exclusion from gross income with respect to magazines, paperbacks, and 
records returned after the close of the taxable year. 
Sec. 373. Qualified discount coupons redeemed after close of taxable year. 
TITLE IV—CAPITAL GAINS; MINIMUM TAX; MAXIMUM TAX 
Subtitle A—Capital Gains 
Sec. 401. Repeal of alternative tax on capital gains of individuals. 
Sec. 402. Increased capital gains deductions for individuals. 
Sec. 403. Reduction of alternative capital gains tax for corporations. 
Sec. 404. One-time exclusion of gain from sale of principal residence by individual 
who has attained age 55. 
Sec. 405. Waiver of certain 18-month rules of section 1034 when sale of residence is 
connected with commencing work at new place. 
Subtitle B—Minimum Tax Provisions 
Sec. 421. Alternative minimum tax for taxpayers other than corporations. 
Sec. 422. Treatment of intangible drilling cost for purposes of the minimum tax. 
Subtitle C—Maximum Tax Provisions 
Sec. 441. Treatment of capital gains for purposes of the maximum tax. 
Sec. 442. Determination of personal service income from nonsalaried trade or busi-
ness activities. 
92 STAT. 2766 
PUBLIC LAW 95-600—NOV. 6, 1978 
TITLE V—OTHER TAX PROVISIONS 
Subtitle A—Administrative Provisions 
Sec. 501. Reporting requirements with respect to charged tips. 
Sec. 502. Extension of optional small tax case procedures and expansion of 
authority of commissioners of Tax Court. 
Sec. 503. Disclosure of return information to certain Federal officers and employees 
for purposes of tax administration, etc. 
Sec. 504. Refund adjustments for amounts held under claim of right. 
Subtitle B—Estate and Gift Tax Provisions 
Sec. 511. Reduction of value taken into account for estate tax purposes where 
spouse of decedent materially participated in farm or other business. 
Sec. 512. Treatment of certain interests held by decedent's family for purposes of 
the extension of time for payment of estate tax provided by section 6166. 
Sec. 513. Subordination of special liens for additional estate tax attributable to 
farm, etc., valuation. 
Sec. 514. Amendment of governing instruments to meet requirements for gifts of 
split interest to charity. 
Sec. 515. Deferral of carryover basis rules. 
Subtitle C—Other Excise Tax Provisions 
Sec. 520. Reduction of administration tax on private foundations. 
Sec. 521. Excise tax on certain gaming devices. 
Sec. 522. Treatment of certain private foundations for purposes of section 4942. 
Subtitle D—Income Tax Provisions 
Sec. 530. Controversies involving whether individuals are employees for purposes of 
the employment taxes. 
Sec. 531. Certain original stockholders of cooperative housing corporations. 
Subtitle E—Other Income Tax Provisions 
Sec. 540. Deposits in certain branches of Puerto Rican savings and loan associa-
tions. 
Sec. 541. Taxation of Alaska Native Claims Settlement Act corporations. 
Sec. 542. Replacement of livestock with other farm property where there has been 
environmental contamination. 
Sec. 543. Certain payments not included in gross income. 
Subtitle F—Studies 
Sec. 551. Study of simplification of tax returns. 
Sec. 552. Study of tax incentives for expenditures required by Occupational Safety 
and Health Administration and Mining Health and Safety Adminis-
tration. 
Sec. 553. Study of taxation of nonresident alien real estate transactions in the 
United States. 
Sec. 554. Report on effectiveness of jobs credit. 
Sec. 555. Study of effects of changes in the tax treatment of capital gains on stimu-
lating investment and economic growth. 
TITLE VI—GENERAL STOCK OWNERSHIP CORPORATIONS 
Sec. 601. Establishment and taxation of general stock ownership corporations and 
their shareholders. 
TITLE VII—TECHNICAL CORRECTIONS OF THE TAX REFORM ACT OF 1976 
Sec. 701. Technical amendments to income tax provisions and administrative 
provisions. 
Sec. 702. Technical, clerical, and conforming amendment to estate and gift tax 
provisions. 
Sec. 703. Corrections of punctuation, spelling, incorrect cross references, etc. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2767 
TITLE VIII—AMENDMENTS RELATING TO SOCIAL SECURITY ACT 
Sec. 801. Grants to States for social services. 
Sec. 802. Change in public assistance matching formula, and increase in amount of 
public assistance dollar limitations, for Puerto Rico, the Virgin Islands, 
and Guam in fiscal year 1979. 
SEC. 2. AMENDMENT OF 1954 CODE. 
Except as otherwise expressly provided, whenever in this Act an 
amendment or repeal is expressed in terms of an amendment to, or 
repeal of, a section or other provision, the reference shall be consid-
ered to be made to a section or other provision of the Internal 
Revenue Code of 1954. 
26 use l et seq. 
SEC. 3. POLICY WITH RESPECT TO ADDITIONAL TAX REDUCTIONS. 
As a matter of national policy the rate of growth in Federal outlays, 26 USC l note. 
adjusted for inflation, should not exceed 1 percent per year between 
fiscal year 1979 and fiscal year 1983; Federal outlays as a percentage 
of gross national product should decline to below 21 percent in fiscal 
year 1980, 20.5 percent in fiscal year 1981, 20 percent in fiscal year 
1982 and 19.5 percent in fiscal year 1983; and the Federal budget 
should be balanced in fiscal years 1982 and 1983. If these conditions 
are met, it is the intention that the tax-writing committees of 
Congress will report legislation providing significant tax reductions 
for individuals to the extent that these tax reductions are justified in 
the light of prevailing and expected economic conditions. 
TITLE I—PROVISIONS PRIMARILY 
AFFECTING INDIVIDUAL INCOME TAX 
Subtitle A—Tax Reductions and Extensions 
SEC. 101. WIDENING OF BRACKETS; RATE CUTS IN CERTAIN BRACKETS; 
INCREASE IN ZERO BRACKET AMOUNTS. 
(a) RATE REDUCTION.—Section 1 (relating to tax imposed) is 26 USC l. 
amended to read as follows: 
"SECTION 1. TAX IMPOSED. 
"(a) MARRIED INDIVIDUALS FILING JOINT RETURNS AND SURVIVING 
SPOUSES.—There is hereby imposed on the taxable income o
f
— 
"(1) every married individual (as defined in section 143) who 
makes a single return jointly with his spouse under section 6013, 
and 
"(2) every surviving spouse (as defined in section 2(a)), 
a tax determined in accordance with the following table: 
"If taxable income is: 
The tax is: 
Not over $3,400 
No Tax. 
Over $3,400 but not over $5,500 
14% of excess over $3,400. 
Over $5,500 but not over $7,600 
$294, plus 16% of excess over $5,500. 
Over $7,600 but not over $11,900 
$630, plus 18% of excess over $7,600. 
Over $11,900 but not over $16,000 
$1,404, plus 21% of excess over $11,900. 
Over $16,000 but not over $20,200 
$2,265, plus 24% of excess over $16,000. 
Over $20,200 but not over $24,600 
$3,273, plus 28% of excess over $20,200. 
Over $24,600 but not over $29,900 
$4,505, plus 32% of excess over $24,600. 
Over $29,900 but not over $35,200 
$6,201, plus 37% of excess over $29,900. 
Over $35,200 but not over $45,800 
$8,162, plus 43% of excess over $35,200. 
Over $45,800 but not over $60,000 
$12,720, plus 
49% of excess 
over 
$45,800. 
92 STAT. 2768 
PUBLIC LAW 95-600—NOV. 6, 1978 
"If taxable income is: 
The tax is: 
Over $60,000 but not over $85,600 
$19,678, plus 54% of excess 
over 
$60,000. 
Over $85,600 but not over $109,400 
$33,502, plus 59% of excess 
over 
$85,600. 
Over $109,400 but not over $162,400. 
$47,544, plus 64% of excess 
over 
$109,400. 
Over $162,400 but not over $215,400. 
$81,464, plus 68% of excess 
over 
$162,400. 
Over $215,400 
$117,504, plus 70% of excess over 
$215,400. 
"(b) HEADS OF HOUSEHOLDS.—There is hereby imposed on the 
taxable income of every individual who is the head of a household (as 
defined in section 2(b)) a tax determined in accordance with the 
following table: 
"If taxable income is: 
The tax is: 
Not over $2,300 
No tax. 
Over $2,300 but not over $4,400 
14% of excess over $2,300. 
Over $4,400 but not over $6,500 
$294, plus 16% of excess over $4,400. 
Over $6,500 but not over $8,700 
$630, plus 18% of excess over $6,500. 
Over $8,700 but not over $11,800 
$1,026, plus 22% of excess over $8,700 
Over $11,800 but not over $15,000 
$1,708, plus 24% of excess over $11,800 
Over $15,000 but not over $18,200 
$2,476, plus 26% of excess over $15,000 
Over $18,200 but not over $23,500 
$3,308, plus 31% of excess over $18,200, 
Over $23,500 but not over $28,800 
$4,951, plus 36% of excess over $23,500, 
Over $28,800 but not over $34,100 
$6,859, plus 42% of excess over $28,800 
Over $34,100 but not over $44,700 
$9,085, plus 46% of excess over $34,100, 
Over $44,700 but not over $60,600 
$13,961, 
plus 54% of excess 
over 
$44,700. 
Over $60,600 but not over $81,800 
$22,547, plus 59% of excess 
over 
$60,600. 
Over $81,800 but not over $108,300 
$35,055, plus 63% of excess 
over 
$81,800. 
Over $108,300 but not over $161,300. 
$51,750, plus 68% of excess 
over 
$108,300. 
Over $161,300 
$87,790, plus 70% of excess 
over 
$161,300. 
"(c) UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES 
AND HEADS OF HOUSEHOLDS).—There is hereby imposed on the tax-
able income of every individual (other than a surviving spouse as 
defined in section 2(a) or the head of a household as defined in section 
2(b)) who is not a married individual (as defined in section 143) a tax 
determined in accordance with the following table: 
"If taxable income is: 
The tax is: 
Not over $2,300 
No tax. 
Over $2,300 but not over $3,400 
14% of excess over $2,300. 
Over $3,400 but not over $4,400 
$154, plus 16% of excess over $3,400. 
Over $4,400 but not over $6,500 
$314, plus 18% of excess over $4,400. 
Over $6,500 but not over $8,500 
$692, plus 19% of excess over $6,500. 
Over $8,500 but not over $10,800 
$1,072, plus 21% of excess over $8,500 
Over $10,800 but not over $12,900 
$1,555, plus 24% of excess over $10,800 
Over $12,900 but not over $15,000 
$2,059, plus 26% of excess over $12,900 
Over $15,000 but not over $18,200 
$2,605, plus 30% of excess over $15,000 
Over $18,200 but not over $23,500 
$3,565, plus 34% of excess over $18,200 
Over $23,500 but not over $28,800 
$5,367, plus 39% of excess over $23,500 
Over $28,800 but not over $34,100 
$7,434, plus 44% of excess over $28,800 
Over $34,100 but not over $41,500 
$9,766, plus 49% of excess over $34,100 
Over $41,500 but not over $55,300 
$13,392, plus 55% of excess 
over 
$41,500. 
Over $55,300 but not over $81,800 
$20,982, plus 63% of excess 
over 
$55,300. 
Over $81,800 but not over $108,300 
$37,677, plus 68% of excess 
over 
$81,800. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2769 
"If taxable income is: 
The tax is: 
Over $108,300 
$55,697, plus 
70% of excess 
over 
$108,300. 
"(d) MARRIED INDIVIDUALS FILING SEPARATE RETURNS.—There is 
hereby imposed on the taxable income of every married individual (as 
defined in section 143) who does not make a single return jointly with 
his spouse under section 6013 a tax determined in accordance with 
the following table: 
"If taxable income is: 
The tax is: 
Not over $1,700 
No tax. 
Over $1,700 but not over $2,750 
14% of excess over $1,700. 
Over $2,750 but not over $3,800 
$147, plus 16% of excess over $2,750. 
Over $3,800 but not over $5,950 
$315, plus 18% of excess over $3,800. 
Over $5,950 but not over $8,000 
$702, plus 21% of excess over $5,950. 
Over $8,000 but not over $10,100 
$1,132.50, plus 24% of excess over 
$8,000. 
Over $10,100 but not over $12,300 
$1,636.50, plus 28% of excess over 
$10,100. 
Over $12,300 but not over $14,950 
$2,252.50, plus 32% of excess over 
$12,300. 
Over $14,950 but not over $17,600 
$3,100.50, plus 37% of excess over 
$14,950. 
Over $17,600 but not over $22,900 
$4,081, plus 43% of excess over $17,600. 
Over $22,900 but not over $30,000 
$6,360, plus 49% of excess over $22,900. 
Over $30,000 but not over $42,800 
$9,839, plus 54% of excess over $30,000. 
Over $42,800 but not over $54,700 
$16,751, 
plus 
59% of excess 
over 
$42,800. 
Over $54,700 but not over $81,200 
$23,772, plus 
64% of excess 
over 
$54,700. 
Over $81,200 but not over $107,700 
$40,732, plus 
68% of excess 
over 
$81,200. 
Over $107,700 
$58,752, plus 
70% of excess 
over 
$107,700. 
"(e) ESTATES AND TRUSTS.—There is hereby imposed on the taxable 
income of every estate and trust taxable under this subsection a tax 
determined in accordance with the following table: 
"If taxable income is: 
The tax is: 
Not over $1,050 
14% of taxable income. 
Over $1,050 but not over $2,100 
$147, plus 16% of excess over $1,050. 
Over $2,100 but not over $4,250 
$315, plus 18% of excess over $2,100. 
Over $4,250 but not over $6,300 
$702, plus 21% of excess over $4,250. 
Over $6,300 but not over $8,400 
$1,132.50 plus 24% of excess over 
$6,300. 
Over $8,400 but not over $10,600 
$1,636.50, plus 28% of excess over 
$8,400. 
Over $10,600 but not over $13,250 
$2,252.50, plus 32% of excess over 
$10,600. 
Over $13,250 but not over $15,900 
$3,100.50, plus 37% of excess over 
$13,250. 
Over $15,900 but not over $21,200 
$4,081, plus 43% of excess over $15,900. 
Over $21,200 but not over $28,300 
$6,360, plus 49% of excess over $21,200. 
Over $28,300 but not over $41,100 
$9,839, plus 54% of excess over $28,300. 
Over $41,100 but not over $53,000 
$16,751, 
plus 
59% of excess 
over 
$41,100. 
Over $53,000 but not over $79,500 
$23,772, plus 
64% of excess 
over 
$53,000. 
Over $79,500 but not over $106,000 
$40,732, plus 
68% of excess 
over 
$79,500. 
Over $106,000 
$58,752, plus 
70% of excess 
over 
$106,000.". 
(b) INCREASE IN ZERO BRACKET AMOUNT.—Subsection (d) of section 
63 (defining zero bracket amount) is amended— 
(1) by striking out "$3,200" and inserting in lieu thereof 
"$3,400", 
26 use 63. 
\ 
92 STAT. 2770 
PUBLIC LAW 95-600—NOV. 6, 1978 
(2) by striking out "$2,200" and inserting in lieu thereof 
"$2,300", and 
(3) by striking out "$1,600" and inserting in lieu thereof 
"$1,700". 
26 use 6012. 
(c) FILING REQUIREMENTS.—Paragraph (1) of section 6012(a) (relat-
ing to persons required to make returns of income) is amended— 
(1) by striking out "$2,950" and inserting in lieu thereof 
"$3,050", 
(2) by striking out "$3,950" and inserting in lieu thereof 
"$4,150", and 
(3) by striking out "$4,700" and inserting in lieu thereof 
"$4,900". 
(d) TECHNICAL AMENDMENTS.— 
26 use 402. 
(1) Subparagraph (C) of section 402(e)(1) (relating to tax on 
lump sum distributions) is amended by striking out "$2,200" and 
inserting in lieu thereof "$2,300". 
26 use 1302. 
(2) Paragraph (3) of section 1302(b) (relating to transitional rule 
for determining base period income) is amended to read as 
follows: 
"(3) 
TRANSITIONAL 
RULE 
FOR DETERMINING 
BASE 
PERIOD 
INCOME.—The base period income (determined under paragraph 
(2)) for any taxable year beginning before January 1, 1977, shall 
be increased by— 
"(A) $3,200 in the case of a joint return or a surviving 
26 use 2. 
spouse (as defined in section 2(a)), 
"(B) $2,200 in the case of an individual who is not married 
(within the meaning of section 143) and is not a surviving 
spouse (as so defined), or 
"(C) $1,600 in the case of a married individual (within the 
26 use 143. 
meaning of section 143) filing a separate return. 
For purposes of this paragraph, filing status shall be determined 
as of the computation year." 
(e) WITHHOLDING AMENDMENTS.— 
26 use 3402. 
(1) WITHHOLDING TABLES.—Subsection (a) of section 3402 (relat-
ing to requirement of withholding) is amended by striking out 
the second and third sentences and inserting in lieu thereof the 
following new sentence: "With respect to wages paid after 
December 31,1978, the tables so prescribed shall be the same as 
the tables prescribed under this subsection which were in effect 
on January 1, 1975, except that such tables shall be modified to 
the extent necessary to reflect the amendments made by sections 
91 Stat. 127, 
101 and 102 of the Tax Reduction and Simplification Act of 1977 
^^^- 
and the amendments made by section 101 of the Revenue Act of 
Ante, p. 2767. 
1978.". 
(2) WITHHOLDING ALLOWANCES BASED ON ITEMIZED DEDUC-
TIONS.—Subparagraph (B) of section 3402(m)(l) (relating to with-
holding allowances based on itemized deductions) is amended— 
(A) by striking out "$3,200" and inserting in lieu thereof 
"$3,400", and 
(B) by striking out "$2,200" and inserting in lieu thereof 
"$2,300". 
(£) EFFECTIVE DATES.— 
26 use 1 note. 
(1) IN GENERAL.—The amendments made by subsections (a), (b), 
(c), and (d) shall apply to taxable years beginning after Decem-
ber 31,1978. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2771 
(2) WITHHOLDING AMENDMENTS.—The amendments made by 26 USC 3402 
subsection (e) shall apply to remuneration paid after Decem- "o*^-
ber 31,1978. 
SEC. 102. PERSONAL EXEMPTIONS INCREASED TO $1,000. 
(a) GENERAL RULE.—Section 151 (relating to allowance of deduc- 26 USC 151. 
tions for personal exemptions) is amended by striking out "$750" 
each place it appears and inserting in lieu thereof "$1,000". 
(b) FILING REQUIREMENTS.— 
(1) Paragraph (1) of section 6012(a) (relating to persons 26 USC 6012. 
required to make returns of income) as amended by section 101(c) 
of this Act, is amended by striking out "$750", "$3,050", "$4,150", 
and "$4,900" each place they appear and inserting in lieu thereof 
"$1,000", "$3,300", "$4,400", and "$5,400", respectively. 
(2) Subparagraph (A) of section 6013(b)(3) (relating to assess- 26 USC 6013. 
ment and collection in the case of certain returns of husband and 
wife) is amended by striking out "$750" and "$1,500" each place 
they appear and inserting in lieu thereof "$1,000" and "$2,000", 
respectively. 
(c) WITHHOLDING REQUIREMENTS.— 
(1) Paragraph (1) of section 3402(b) (relating to percentage 26 USC 3402. 
method of withholding income tax at source) is amended by 
striking out the table and inserting in lieu thereof the following: 
"Percentage Method Withholding Table 
"Payroll period 
Weekly 
Biweekly 
Semimonthly 
Monthly 
Quarterly 
Semiannual 
Annual 
Daily or miscellaneous (per day of such period) 
Amount of one 
withholding 
exemption 
$19.23 
38.46 
41.66 
83.33 
250.00 
500.00 
1,000.00 
2.74" 
(2) Paragraph (1) of section 3402(m) (relating to withholding 
allowances based on itemized deductions) is amended by striking 
out "$750" and inserting in lieu thereof "$1,000". 
(d) EFFECTIVE DATES.— 
(1) IN GENERAL.—The amendments made by subsections (a) and 26 U
S
C 151 
(b) shall apply to taxable years beginning after December 31, "ote. 
1978. 
(2) WITHHOLDING AMENDMENTS.—The amendments made by 26 USC 3402 
subsection (c) shall apply with respect to remuneration paid after °°t®-
December 31,1978. 
SEC. 103. EARNED INCOME CREDIT MADE PERMANENT. 
(a) GENERAL RULE.—Subsection (b) of section 209 of the 
Tax 
Reduction Act of 1975 is amended by striking out ", and before 26 USC 43 noti; 
January 1,1979". 
(b) TECHNICAL AMENDMENT.—The second sentence of section 401(e) 
of the Tax Reform Act of 1976 (as added by section 103 of the Tax 26 USC 42 note 
Reduction and Simplification Act of 1977) is amended by striking out 
*
*
, and shall cease to apply to taxable years beginning after Decem-
ber 31,1978". 
92 STAT. 2772 
PUBLIC LAW 95-600—NOV. 6, 1978 
SEC. 104. INCREASE IN AND SIMPLIFICATION OF THE EARNED INCOME 
TAX CREDIT. 
26 use 43. 
(a) INCREASE IN CREDIT.—Subsection (a) of section 43 (relating to 
earned income credit) is amended— 
(1) by striking out "chapter" and inserting in lieu thereof 
"subtitle", and 
(2) by striking out "$4,000" and inserting in lieu thereof 
"$5,000". 
(b) REVISION OF THE LIMITATION.—Subsection O
b
) of section 43 is 
amended to read as follows: 
"(b) LIMITATION.—The amount of the credit allowable to a taxpayer 
under subsection (a) for any taxable year shall not exceed the excess 
(if any) of— 
"(1) $500, over 
"(2) 12.5 percent of so much of the adjusted gross income (or, if 
greater, the earned income) of the taxpayer for the taxable year 
as exceeds $6,000.". 
(c) AMOUNT OF CREDIT TO BE DETERMINED UNDER TABLES.-=-Section 
43 is amended by adding at the end thereof the following new 
subsection: 
"(f) AMOUNT OF CREDIT TO BE DETERMINED UNDER TABLES,— 
"(1) IN GENERAL.—The amount of the credit allowed by this 
section shall be determined under tables prescribed by the 
Secretary. 
"(2) REQUIREMENTS FOR TABLES.—The tables prescribed under 
paragraph (1) shall reflect the provisions of subsections (a) and (b) 
and shall have income brackets of not greater than $50 each— 
"(A) for earned income between $0 and $10,000, and 
"(B) for adjusted gross income between $6,000 and 
$10,000.". 
(d) EXCLUDABLE EARNED INCOME TAKEN INTO ACCOUNT.—Subpara-
graph (B) of section 43(c)(2) (defining earned income) is amended by 
striking out clause (i) and by redesignating clauses (ii), (iii), and (iv) as 
clauses (i), (ii), and (iii), respectively. 
(e) DEFINITION OF ELIGIBLE INDIVIDUAL.—Paragraph (1) of section 
43(c) (defining eligible individual) is amended to read as follows: 
"(1) ELIGIBLE INDIVIDUAL.— 
"(A) IN GENERAL.—The term 'eligible individual' means an 
individual who, for the taxable year— 
26 use 143. 
"(i) is married (within the meaning of section 143) and 
26 use 151. 
is entitled to a deduction under section 151 for a child 
(within the meaning of section 151(e)(3)), 
"(ii) is a surviving spouse (as determined under section 
26 use 2. 
2(a)), or 
"(iii) is a head of a household (as determined under 
subsection (b) of section 2 without regard to subpara-
graphs (A)(ii) and (B) of paragraph (1) of such subsec-
tion). 
"(B) CHILD MUST RESIDE WITH TAXPAYER IN THE UNITED 
. 
., 
STATES.—An individual shall be treated as satisfying clause 
(i) of subparagraph (A) only if the child has the same 
principal place of abode as the individual and such abode is 
. 
^ 
in the United States. An individual shall be treated as 
satisfying clause (ii) or (iii) of subparagraph (A) only if the 
household in question is in the United States. 
"(C) INDIVIDUAL ENTITLED TO EXCLUDE INCOME UNDER SEC-
26 use 911. 
TION 911 NOT ELIGIBLE INDIVIDUAL.—The term 'eligible indi-
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2773 
vidual' does not include an individual who, for the taxable 
year, is entitled to exclude any amount from gross income 
under section 911 (relating to earned income from sources 26 U
S
C 911. 
without the United States) or section 931 (relating to income 26 USC 931. 
from sources within the possessions of the United States).", 
(f) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 43 notei. 
apply to taxable years beginning after December 31,1978. 
SEC. 105. ADVANCE PAYMENT OF EARNED INCOME CREDIT. 
(a) COORDINATION OF CREDIT WITH ADVANCE PAYMENTS.—Section 
43 (relating to earned income credit) is amended by adding at the end 26 U
S
C 43. 
thereof the following new subsection: 
"(h) COORDINATION WITH ADVANCE PAYMENTS OF EARNED INCOME 
CREDIT.— 
"(1) RECAPTURE OF EXCESS ADVANCE PAYMENTS.—If any pay-
ment is made to the individual by an employer under section 
3507 during any calendar year, then the tax imposed by this ^"/ra-
chapter for the individual's last taxable year beginning in such 
calendar year shall be increased by the aggregate amount of such 
payments. 
"(2) 
RECONCIUATION OF PAYMENTS ADVANCED AND CREDIT 
ALLOWED.—Any increase in tax under paragraph (1) shall not be 
treated as tax imposed by this chapter for purposes of determin-
ing the amount of any credit (other than the credit allowed by 
subsection (a)) allowable under this subpart.''. 
(b) ADVANCE PAYMENT OF EARNED INCOME CREDIT.— 
(1) IN GENERAL.—Chapter 25 (general provisions relating to 
employment taxes) is amended by adding at the end thereof the 
following new section: 
"SEC. 3507. ADVANCE PAYMENT OF EARNED INCOME CREDIT. 
26 USC 3507. 
"(a) GENERAL RULE.—Except as otherwise provided in this section, 
every employer making payment of wages to an employee with 
respect to whom an earned income eligibility certificate is in effect 
shall, at the time of paying such wages, make an additional payment 
to such employee equal to such employee's earned income advance 
amount. 
"(b) EARNED INCOME ELIGIBILITY CERTIFICATE.—For purposes of this 
title, an earned income eligibility certificate is a statement furnished 
by an employee to the employer which— 
"(1) certifies that the employee will be eligible to receive the 
credit provided by section 43 for the taxable year, 
"(2) certifies that the employee does not have an earned income 
eligibility certificate in effect for the calendar year with respect 
to the payment of wages by another employer, and 
"(3) states whether or not the employee's spouse has an earned 
income eligibility certificate in effect. 
For purposes of this section, a certificate shall be treated as being in 
effect with respect to a spouse if such a certificate will be in effect on 
the first status determination date following the date on which the 
employee furnishes the statement in question. 
' '(c) EARNED INCOME ADVANCE AMOUNT.— 
"(1) IN GENERAL.—For purposes of this title, the term 'earned 
income advance amount means, with respect to any payroll 
period, the amount determined— 
"(A) on the basis of the employee's wages from the 
employer for such period, and 
"(B) in accordance with tables prescribed by the Secretary. 
92 STAT. 2774 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(2) ADVANCE AMOUNT TABLES.—The tables referred to in 
paragraph (1)(B)— 
"(A) shall be similar in form to the tables prescribed under 
26 use 3402. 
section 3402 and, to the maximum extent feasible, shall be 
coordinated with such tables, and 
"(B) if the employee is not married, or if no earned income 
eligibility certificate is in effect with respect to the spouse of 
Ante, pp. 2772, 
the employee, shall treat the credit provided by section 43 as 
2773. 
if it were a credit— 
"(i) of not more than 10 percent of the first $5,000 of 
earned income, which 
"(ii) phases out between $6,000 and $10,000 of earned 
income, or 
"(C) if an earned income eligibility certificate is in effect 
with respect to the spouse of the employee, shall treat the 
credit provided by section 43 as if it were a credit— 
"(i) of not more than 10 percent of the first $2,500 of 
earned income, which 
"(ii) phases out between $3,000 and $5,000 of earned 
income. 
"(d) PAYMENTS TO BE TREATED AS PAYMENTS OF WITHHOLDING AND 
FICA TAXES.— 
"(1) IN GENERAL.—For purposes of this title, payments made by 
an employer under subsection (a) to his employees for any payroll 
period— 
"(A) shall not be treated as the payment of compensation, 
and 
"(B) shall be treated as made out of— 
"(i) amounts required to be deducted and withheld for 
26 use 3401. 
the payroll period under section 3401 (relating to wage 
withholding), and 
"(ii) amounts required to be deducted for the payroll 
26 use 3102. 
period under section 3102 (relating to FICA employee 
taxes), and 
"(iii) amounts of the taxes imposed for the payroll 
26 use 3111. 
period under section 3111 (relating to FICA employer 
taxes), 
as if the employer had paid to the Secretary, on the day on 
which the wages are paid to the employees, an amount equal 
to such payments. 
"(2) ADVANCE PAYMENTS EXCEED TAXES DUE.—In the case of any 
employer, if for any payroll period the aggregate amount of 
earned income advance payments exceeds the sum of the 
amounts referred to in paragraph (1)(B), each such advance 
payment shall be reduced by an amount which bears the same 
ratio to such excess as such advance payment bears to the 
aggregate amount of all such advance payments. 
"(3) EMPLOYER MAY MAKE FULL ADVANCE PAYMENTS.—The Sec-
retary shall prescribe regulations under which an employer may 
elect (in lieu of any application of paragraph (2))— 
"(A) to pay in full all earned income advance amounts, and 
"(B) to have additional amounts paid by reason of this 
paragraph treated as the advance payment of taxes imposed 
by this title. 
"(4) FAILURE TO MAKE ADVANCE PAYMENTS.—For purposes of 
this title (including penalties), failure to make any advance 
payment under this section at the time provided therefor shall be 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2775 
treated as the failure at such time to deduct and withhold under 
chapter 24 an amount equal to the amount of such advance 26 use 3401 et 
pa5nnent. 
^
^
9 
"(e) FURNISHING AND TAKING EFFECT OF CERTIFICATES.—For pur-
poses of this section— 
"(1) WHEN CERTIFICATE TAKES EFFECT.— 
"(A) FIRST CERTIFICATE FURNISHED.—An earned income 
eligibility certificate furnished the employer in cases in 
which no previous such certificate had been in effect for the 
calendar year shall take effect as of the beginning of the first 
payroll period ending, or the first payment of wages made 
without regard to a payroll period, on or after the date on 
which such certificate is so furnished (or if later, the first day 
of the calendar year for which furnished). 
"(B) LATER CERTIFICATE.—An earned income eligibility 
certificate furnished the employer in cases in which a 
previous such certificate had been in effect for the calendar 
year shall take effect with respect to the first pa5nnent of 
wages made on or after the first status determination date 
which occurs at least 30 days after the date on which such 
certificate is so furnished, except that at the election of the 
employer such certificate may be made effective with respect . 
to any payment of wages made on or after the date on which 
such certificate is so furnished. For purposes of this section, 
the term 'status determination date' means January 1, 
May 1, July 1, and October 1 of each year. 
"(2) PERIOD DURING WHICH CERTIFICATE REMAINS IN EFFECT.— 
An earned income eligibility certificate which takes effect under 
this section for any calendar year shall continue in effect with 
respect to the employee during such calendar year until revoked 
by the employee or until another such certificate takes effect 
under this section. 
"(3) CHANGE OF STATUS.— 
"(A) REQUIREMENT TO REVOKE OR FURNISH NEW CERTIFI-
CATE.—If, after an employee has furnished an earned income 
eligibility certificate under this section, there has been a 
change of circumstances which has the effect of— 
"(i) making the employee ineligible for the credit 
provided by section 43 for the taxable year, or 
^me, pp. 2772, 
"(ii) causing an earned income eligibility certificate to '^'^'^^• 
be in effect with respect to the spouse of the employee, 
the employee shall, within 10 days after such change in 
circumstances, furnish the employer with a revocation of 
such certificate or with a new certificate (as the case may be). 
Such a revocation (or such a new certificate) shall take effect 
under the rules provided by paragraph (1)(B) for a later 
certificate and shall be made in such form as the Secretary 
shall by regulations prescribe. 
"(B) CERTIFICATE NO LONGER IN EFFECT.—If, after an 
employee has furnished an earned income eligibility certifi-
cate under this section which certifies that such a certificate 
is in effect with respect to the spouse of the employee, such a 
certificate is no longer in effect with respect to such spouse, 
then the employee may furnish the employer with a new 
earned income eligibility certificate. 
92 STAT. 2776 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(4) FORM AND CONTENTS OF CERTIFICATE.—Earned income 
eligibility certificates shall be in such form and contain such 
other information as the Secretary may by regulations prescribe. 
"(5) TAXABLE YEAR DEFINED.—The term 'taxable year' means 
the last taxable year of the employee under subtitle A beginning 
in the calendar year in which the wages are paid.". 
(2) CLERICAL AMENDMENT.—The table of sections for chapter 25 
is amended by adding at the end thereof the following new item: 
"Sec. 3507. Advance payment of earned income credit.". 
(c) INFORMATION SHOWN ON W-2.—The first sentence of section 
26 use 6051. 
6051 (a) (relating to receipts for employees) is amended— 
(1) by striking out "and" 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 adding at the end thereof the following new paragraph: 
"(7) the total amount paid to the employee under section 3507 
(relating to advance payment of earned income credit).". 
26 use 6012. 
(d) REQUIREMENT OF RETURN.—Subsection (a) of section 6012 (relat-
ing to persons required to make returns of income) is amended by 
adding at the end thereof the following new paragraph: 
"(8) Every individual who receives payments during the calen-
Ante, p. 2773. 
dar year in which the taxable year begins under section 3507 
(relating to advance payment of earned income credit).". 
26 use 6302. 
(e) CROSS REFERENCE.—Section 6302 (relating to mode or time of 
collection) is amended by adding at the end thereof the following new 
subsection: 
"(d) CROSS REFERENCE.— 
"For treatment of payment of earned income advance amounts as pay-
ment of withholding and FICA taxes, see section 3507(d).". 
(f) DISREGARD TO TERMINATE IN 1980.—Section 2(d) of the Revenue 
26 use 43 note. Adjustment Act of 1975 (relating to disregard of refund) is amended— 
(1) by inserting before "shall not be taken into account" the 
following: ", and any payment made by an employer under 
26 use 3507. 
section 3507 of such Code (relating to advance payment of earned 
income credit)", and 
(2) by inserting after "shall not be taken into account" the 
following: "in any year ending before 1980". 
(g) EFFECTIVE DATE.— 
26 use 43 note. 
(1) The amendments made by subsections (a) and (d) shall apply 
to taxable years beginning after December 31,1978. 
26 use 3507 
(2) The amendments made by subsections (b), (c), and (e) shall 
"o*^- 
apply to remuneration paid after June 30,1978. 
26 use 43 note. 
(3) Subsection (f) shall take effect on the date of the enactment 
of this Act. 
SEC. 106. APPLICATION OF CERTAIN CHANGES IN THE CASE OF FISCAL 
YEAR TAXPAYERS. 
26 use 21. 
Section 21 (relating to effects of changes in rate of tax) is amended 
by adding at the end thereof the following new subsection: 
"(D CHANGES MADE BY REVENUE ACT OF 1978.—In applying subsec-
tion (a) to a taxable year which is not a calendar year— 
Ante, pp. 2767, 
"(1) the amendments made by sections 101,102, and 301 of the 
2771; Post, p. 
Revenue Act of 1978 (and no other amendments made by such 
2820. 
Act), and 
26 use 42. 
"(2) the expiration of section 42 (relating to general tax credit), 
shall be treated as a change in a rate of tax.". 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2777 
Subtitle B—Itemized Deductions; Etc. 
26 use 164. 
26 use 105. 
SEC. 111. REPEAL OF DEDUCTION FOR STATE AND LOCAL TAXES ON 
GASOLINE AND OTHER MOTOR FUELS. 
(a) REPEAL.—Paragraph (5) of section 164(a) (relating to deduction 
for taxes) is hereby repealed. 
(b) CONFORMING AMENDMENTS.— 
(1) The heading of paragraph (5) of section 164(b) is amended by 
striking out "AND GASOLINE TAXES". 
(2) The text of such paragraph (5) is amended by striking out 
"or of any tax on the sale of gasoline, diesel fuel, or other motor 
fuel". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 use 164 
apply to taxable years beginning after December 31,1978. 
"o*^-
SEC. 112. TAXATION OF UNEMPLOYMENT COMPENSATION BENEFITS AT 
CERTAIN INCOME LEVELS. 
(a) INCLUSION IN GROSS INCOME.—Part II of subchapter B of chapter 
1 (relating to amounts specifically included in gross income) is 26 use 71. 
amended by adding at the end thereof the following new section: 
"SEC. 85. UNEMPLOYMENT COMPENSATION. 
26 USe 85. 
"(a) IN GENERAL.—If the sum for the taxable year of the adjusted 
gross income of the taxpayer (determined without regard to this 
section and without regard to section 105(d)) and the unemployment 
compensation exceeds the base amount, gross income for the taxable 
year includes unemployment compensation in an amount equal to 
the lesser of— 
"(1) one-half of the amount of the excess of such sum over the 
base amount, or 
"(2) the amount of the unemployment compensation. 
"(b) BASE AMOUNT DEFINED,—For purposes of this section, the term 
'base amount'means— 
"(1) except as provided in paragraphs (2) and (3), $20,000, 
"(2) $25,000, in the case of a joint return under section 6013, or 26 use 6013. 
"(3) zero, in the case of a taxpayer who— 
"(A) is married at the close of the taxable year (within the 
meaning of section 143) but does not file a joint return for 26 USe 143. 
such year, and 
"(B) does not live apart from his spouse at all times during 
the taxable year. 
"(c) UNEMPLOYMENT COMPENSATION DEFINED.—For purposes of this 
section, the term 'unemployment compensation' means any amount 
received under a law of the United States or of a State which is in the 
nature of unemployment compensation.". 
(b) REPORTING OF UNEMPLOYMENT COMPENSATION PAYMENTS.— 
Subpart B of part III of subchapter A of chapter 61 (relating to 
information concerning transactions with other persons) is amended 
by adding at the end thereof the following new section: 
"SEC. 6050B. RETURNS RELATING TO UNEMPLOYMENT COMPENSATION. 
26 U
S
C 6050B. 
"(a) REQUIREMENT OF REPORTING.—Every person who makes pay-
ments of unemployment compensation aggregating $10 or more to 
any individual during any calendar year shall make a return accord-
ing to the forms or regulations prescribed by the Secretary, setting 
forth the aggregate amounts of such payments and the name and 
address of the individual to whom paid. 
39-194 O—80—pt. 3 
10 : QL3 
92 STAT. 2778 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(b) STATEMENTS TO BE FURNISHED TO INDIVIDUALS WITH RESPECT 
T
O WHOM INFORMATION IS FURNISHED.—Every person making a 
return under subsection (a) shall furnish to each individual whose 
name is set forth in such return a written statement showing— 
"(1) the name and address of the person making such return, 
and 
"(2) the aggregate amount of payments to the individual as 
shown on such return. 
The written statement required under the preceding sentence shall 
be furnished to the individual on or before January 31 of the year 
following the calendar year for which the return under subsection (a) 
was made. No statement shall be required to be furnished to any 
individual under this subsection if the aggregate amount of payments 
to such individual shown on the return made under subsection (a) is 
less than $10. 
"(c) DEFINITIONS.—For purposes of this section— 
"(1) UNEMPLOYMENT COMPENSATION.—The term 'unemploy-
ment compensation' has the meaning given to such term by 
26 use 85. 
section 85(c). 
"(2) PERSON.—The term 'person' means the officer or employee 
having control of the payment of the unemployment compensa-
tion, or the person appropriately designated for purposes of this 
section." 
(c) CLERICAL AMENDMENTS.— 
(1) The table of sections for part II of subchapter B of chapter 1 
is amended by adding at the end thereof the following new item: 
"Sec. 85. Unemployment compensation." 
(2) 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. 6050B. Returns relating to unemployment compensation.". 
26 use 85 note. 
(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. 
SEC. 113. REPEAL OF DEDUCTION FOR POLITICAL CONTRIBUTIONS; 
INCREASE IN CREDIT. 
(a) REPEAL OF DEDUCTION.— 
26 use 218. 
(1) REPEAL.—Section 218 (relating to deduction for contribu-
tions to candidates for public office and newsletter funds) is 
hereby repealed. 
(2) CONFORMING AMENDMENTS.— 
(A) The table of sections for part VII of subchapter B of 
chapter 1 (relating to additional itemized deductions for 
individuals) is amended by striking out the item relating to 
section 218. 
26 use 642. 
(B) Section 642 (relating to special rules for credits and 
deductions of estates and trusts) is amended by striking out 
subsection (i) and by redesignating subsections (j) and (k) as 
subsections (i) and (j), respectively. 
26 use 41. 
(c) INCREASE IN AMOUNT OF CREDIT.—Paragraph (1) of section 41(b) 
(relating to maximum credit) is amended by striking out "$25" and 
"$50" and inserting in lieu thereof "$50" and "$100", respectively. 
26 use 41 note. 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to contributions the payment of which is made 
after December 31,1978, in taxable years beginning after such date. 
PUBLIC LAW 95-600—NOV. 6, 1978 
Subtitle C—Credits 
92 STAT. 2779 
SEC. 121. PAYMENTS TO RELATED INDIVIDUALS UNDER CHILD CARE 
CREDIT. 
(a) IN GENERAL.—Paragraph (6) of section 44A(f) (relating to pay- 26 use 44A. 
ments to related individuals) is amended to read as follows: 
"(6) PAYMENTS TO RELATED INDIVIDUALS.—No credit shall be 
allowed under subsection (a) for any amount paid by the tax-
payer to an individual— 
"(A) with respect to whom, for the taxable year, a deduc-
tion under section 151(e) (relating to deduction for personal 26 use 151. 
exemptions for dependents) is allowable either to the tax-
payer or his spouse, or 
"(B) who is a child of the taxpayer (within the meaning of 
section 151(e)(3)) who has not attained the age of 19 at the 
close of the taxable year. 
For purposes of this paragraph, the term 'taxable year' means "Taxable year. 
the taxable year of the taxpayer in which the service is 
performed." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31,1978. 
Subtitle D—Deferred Compensation 
PART I—DEFERRED COMPENSATION PROVISIONS 
26 use 44A 
note. 
SEC. 131. DEFERRED COMPENSATION PLANS WITH RESPECT TO SERVICE 
FOR STATE AND LOCAL GOVERNMENTS. 
(a) IN GENERAL.—Subpart B of part II of subchapter E of chapter 1 
(relating to taxable years for which gross income included) is 
amended by adding at the end thereof the following new section: 
"SEC. 457. DEFERRED COMPENSATION PLANS WITH RESPECT TO SERV-
ICE FOR STATE AND LOCAL GOVERNMENTS. 
"(a) YEAR OF INCLUSION IN GROSS INCOME.—In the case of a 
participant in an eligible State deferred compensation plan, any 
amount of compensation deferred under the plan, and any income 
attributable to the amounts so deferred, shall be includible in gross 
income only for the taxable year in which such compensation or other 
income is paid or otherwise made available to the participant or other 
beneficiary. 
"(b) ELIGIBLE STATE DEFERRED COMPENSATION PLAN DEFINED.—For 
purposes of this section, the term 'eligible State deferred compensa-
tion plan' means a plan established and maintained by a State— 
"(1) in which only individuals who perform service for the 
State may be participants, 
"(2) which provides that (except as provided in paragraph (3)) 
the maximum that may be deferred under the plan for the 
taxable year shall not exceed the lesser of— 
"(A) $7,500, or 
"(B) 33 V
a percent 
of the 
participant's 
includible 
compensation, 
"(3) which may provide that, for 1 or more of the participant's 
last 3 taxable years ending before he attains normal retirement 
age under the plan, the ceiling set forth in paragraph (2) shall be 
the lesser of— 
26 use 457. 
92 STAT. 2780 
PUBLIC LAW 95-600—NOV. 6, 1978 
i, 
"(A) $15,000, or 
"(B) the sum of— 
"(i) the plan ceiHng estabHshed for purposes of para-
graph (2) for the taxable year (determined without 
regard to this paragraph), plus 
"(ii) so much of the plan ceiling established for pur-
poses of paragraph (2) for taxable years before the 
taxable year as has not theretofore been used under 
paragraph (2) or this paragraph, 
"(4) which provides that compensation will be deferred for any 
calendar month only if an agreement providing for such deferral 
has been entered into before the beginning of such month, 
"(5) which does not provide that amounts payable under the 
plan will be made available to participants or other beneficiaries 
earlier than when the participant is separated from service with 
the State or is faced with an unforeseeable emergency (deter-
mined in the manner prescribed by the Secretary by regulation), 
and 
"(6) which provides that— 
"(A) all amounts of compensation deferred under the plan, 
"(B) all property and rights purchased with such amounts, 
and 
"(C) all income attributable to such amounts, property, or 
rights, 
shall remain (until made available to the participant or other 
beneficiary) solely the property and rights of the State (without 
being restricted to the provision of benefits under the plan) 
subject only to the claims of the State's general creditors. 
A plan which is administered in a manner which is inconsistent with 
the requirements of any of the preceding paragraphs shall be treated 
as not meeting the requirements of such paragraph as of the first 
plan year beginning more than 180 days after the date of notification 
by the Secretary of the inconsistency unless the State corrects the 
inconsistency before the first day of such plan year. 
"(c) INDIVIDUALS WHO ARE PARTICIPANTS IN MORE THAN ONE 
PLAN.— 
"(1) IN GENERAL.—The maximum amount of the compensation 
of any one individual which may be deferred under subsection (a) 
during any taxable year shall not exceed $7,500 (as modified by 
any adjustment provided under subsection (b)(3)). 
26 use 403. 
"(2) COORDINATION WITH SECTION 403(b).—In applying para-
graph (1) of this subsection and paragraphs (2) and (3) of subsec-
tion (b), an amount excluded during a taxable year under section 
403(b) shall be treated as an amount deferred under subsection 
(a). In applying clause (ii) of section 403(b)(2)(A), an amount 
deferred under subsection (a) for any year of service shall be 
taken into account as if described in such clause. 
"(d) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
"(1) STATE.—The term 'State' means a State, a political subdi-
vision of a State, and an agency or instrumentality of a State or 
political subdivision of a State. 
"(2) PERFORMANCE OF SERVICE.—The performance of service 
includes performance of service as an independent contractor. 
"(3) PARTICIPANT.—The term 'participant' means an individual 
who is eligible to defer compensation under the plan. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2781 
"(4) BENEFICIARY.—The term 'beneficiary' means a beneficiary 
of the participant, his estate, or any other person whose interest 
in the plan is derived from the participant. 
"(5) INCLUDIBLE COMPENSATION.—The term 'includible compen-
sation' means compensation for service performed for the State 
which (taking into account the provisions of this section and 
section 4O30b)) is currently includible in gross income, 
"(6) COMPENSATION TAKEN INTO ACCOUNT AT PRESENT VALUE.— 
Compensation shall be taken into account at its present value. 
"(7) COMMUNITY PROPERTY LAWS.—The amount of includible 
-
compensation shall be determined without regard to any commu-
nity property laws. 
"(8) INCOME ATTRIBUTABLE.—Gains from the disposition of 
property shall be treated as income attributable to such 
property. 
"(9) SECTION TO APPLY TO RURAL ELECTRIC COOPERATIVES.— 
"(A) IN GENERAL.—This section shall apply with respect to 
any participant in a plan of a rural electric cooperative in 
the same manner and to the same extent as if such plan were 
a plan of a State. 
"(B) RURAL ELECTRIC COOPERATIVE DEFINED.—For purposes 
of subparagraph (A), the term 'rural electric cooperative' 
means— 
"(i) any organization described in section 501(c)(12) 26 USC 501. 
which is exempt from tax under section 501(a) and 
which is engaged primarily in providing electric service, 
and 
"(ii) any organization described in section 501(c)(6) 
which is exempt from tax under section 501(a) and all 
the members of which are organizations described in 
clause (i). 
"(e) TAX TREATMENT OF PARTICIPANTS WHERE PLAN OR ARRANGE-
MENT OF STATE IS NOT EUGIBLE.— 
"(1) IN GENERAL.—In the case of a plan of a State providing for 
a deferral of compensation, if such plan is not an eligible State 
deferred compensation plan, then— 
"(A) the compensation shall be included in the gross 
income of the participant or beneficiary for the first taxable 
year in which there is no substantial risk of forfeiture of the 
rights to such compensation, and 
"(B) the tax treatment of any amount made available 
under the plan to a participant or beneficiary shall be 
determined under section 72 (relating to annuities, etc.). 
26 USC 72. 
"(2) EXCEPTIONS.—Paragraph (1) shall not apply to— 
"(A) a plan described in section 401(a) which includes a 26 USC 40i. 
trust exempt from tax under section 501(a), 
26 USC 501. 
"(B) an annuity plan or contract described in section 403, 
26 USC 403. 
"(C) a qualified bond purchase plan described in section 
405(a), 
26 USC 405. 
"(D) that portion of any plan which consists of a transfer of 
property described in section 83, and 
26 USC 83. 
"(E) that portion of any plan which consists of a trust to 
which section 402(b) applies. 
26 USC 402. 
"(3) DEFINITIONS.—For purposes of this subsection— 
"(A) PLAN INCLUDES ARRANGEMENTS, ETC.—The term 
'plan' includes any agreement or arrangement. 
92 STAT. 2782 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(B) SUBSTANTIAL RISK OF FORFEITURE.—The rights of a 
person to compensation are subject to a substantial risk of 
forfeiture if such person's rights to such compensation are 
conditioned upon the future performance of substantial 
services by any individual." 
(b) CLERICAL AMENDMENT.—The table of sections for such subpart B 
is amended by adding at the end thereof the following: 
"Sec. 457. Deferred compensation plans with respect to service for State 
and local governments.". 
26 use 457 
(c) EFFECTIVE DATE.— 
"°*^- 
(1) IN GENERAL.—The amendments made by this section shall 
apply to taxable years beginning after December 31, 1978. 
(2) TRANSITIONAL RULES.— 
(A) IN GENERAL.—In the case of any taxable year begin-
ning after December 31, 1978, and before January 1, 1982— 
(i) any amount of compensation deferred under a plan 
of a State providing for a deferral of compensation 
(other than a plan described in section 457(e)(2) of the 
Ante, p. 2779. 
Internal Revenue Code of 1954), and any income attrib-
utable to the amounts so deferred, shall be includible in 
gross income only for the taxable year in which such 
compensation or other income is paid or otherwise made 
available to the participant or other beneficiary, but 
(ii) the maximum amount of the compensation of any 
one individual which may be excluded from gross 
income by reason of clause (i) and by reason of section 
457(a) of such Code during any such taxable year shall 
not exceed the lesser of— 
(I) $7,500, or 
(II) 33 V
s percent of the participant's includible 
compensation. 
(B) APPLICATION OF CATCH-UP PROVISIONS IN CERTAIN 
CASES.—If, in the case of any participant for any taxable 
year, all of the plans are eligible State deferred compensa-
tion plans, then clause (ii) of subparagraph (A) of this 
paragraph shall be applied with the modification provided 
by paragraph (3) of section 457(b) of such Code. 
(C) APPLICATIONS OF CERTAIN COORDINATION PROVISIONS.— 
In applying clause (ii) of subparagraph (A) of this paragraph 
26 use 403. 
and section 403(b)(2)(A)(ii) of such Code, rules similar to the 
Ante, p. 2779. 
rules of section 457(c)(2) of such Code shall apply. 
(D) MEANING OF TERMS.—Except as otherwise provided in 
this paragraph, terms used in this paragraph shall have the 
same meaning as when used in section 457 of such Code. 
SEC. 132. CERTAIN PRIVATE DEFERRED COMPENSATION PLANS. 
26 use 451 
(a) GENERAL RULE.—The taxable year of inclusion in gross income 
^^^^- 
of any amount covered by a private deferred compensation plan shall 
be determined in accordance with the principles set forth in regula-
tions, rulings, and judicial decisions relating to deferred compensa-
tion which were in effect on February 1,1978. 
(b) PRIVATE DEFERRED COMPENSATION PLAN DEFINED.— 
(1) IN GENERAL.—For purposes of this section, the term "pri-
vate deferred compensation plan" means a plan, agreement, or 
arrangement— 
, 
(A) where the person for whom the service is performed is 
not a State (within the meaning of paragraph (1) of section 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2783 
457(d) of the Internal Revenue Code of 1954) and not an ^^te, p. 2779. 
organization which is exempt from tax under section 501 of ^6 U
S
C 501. 
such Code, and 
(B) under which the payment or otherwise making availa-
ble of compensation is deferred. 
(2) CERTAIN PLANS EXCLUDED.—Paragraph (1) shall not apply 
to— 
(A) a plan described in section 401(a) of the Internal 
Revenue Code of 1954 which includes a trust exempt from 
26 USC 401. 
tax under section 501(a) of such Code, 
26 USC 501. 
(B) an annuity plan or contract described in section 403 of 26 USC 403. 
such Code, 
(C) a qualified bond purchase plan described in section 
405(a) of such Code, 
26 USC 405. 
(D) that portion of any plan which consists of a transfer of 
property described in section 83 (determined without regard 26 USC 83. 
to subsection (e) thereof) of such Code, and 
26 USC 402. 
(E) that portion of any plan which consists of a trust to 
which section 4O20b) of such Code applies. 
(c) EFFECTIVE DATE.—This section shall apply to taxable years 
ending on or after February 1,1978. 
SEC. 133. CLARIFICATION OF DEDUCTIBILITY 
OF PAYMENTS OF 
DEFERRED 
COMPENSATION, 
ETC., 
TO 
INDEPENDENT 
CONTRACTORS. 
(a) IN GENERAL.—Section 404 (relating to deduction for contribu- 26 USC 404. 
tions of an employer to an employees' trust or annuity plan and 
compensation under a deferred-payment plan) is amended by insert-
ing after subsection (c) the following new subsection: 
"(d) DEDUCTIBILITY OF PAYMENTS OF DEFERRED COMPENSATION, ETC., 
T
O INDEPENDENT CONTRACTORS.—If a plan would be described in so 
much of subsection (a) as precedes paragraph (1) thereof (as modified 
by subsection (b)) but for the fact that there is no employer-employee 
relationship, the contributions or compensation— 
"(1) shall not be deductible by the payor thereof under section 
162 or 212, but 
26 USC 162, 
"(2) shall (if they would be deductible under section 162 or 212 212. 
but for paragraph (1)) be deductible under this subsection for the 
taxable year in which an amount attributable to the contribution 
or compensation is includible in the gross income of the persons 
participating in the plan." 
(b) CLARIFICATION OF SECTION 404(b).—-Subsection Ot)) of section 404 
26 USC 404. 
(relating to method of contributions, etc., having the effect of a plan) 
is amended by striking out "similar plan" and inserting in lieu 
thereof "other plan". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 404 
apply to deductions for taxable years beginning after December 31, "ote. 
1978. 
SEC. 
1
3
4
. 
TAX 
TREATMENT 
OF 
CAFETERIA 
PLANS. 
(a) IN GENERAL.—Part III of subchapter B of chapter 1 (relating to 
items specifically excluded from gross income) is amended by redesig-
nating section 125 as section 126 and by inserting after section 124 the 
26 USC 126. 
following new section: 
"SEC. 125. CAFETERIA PLANS. 
26 USC 125. 
"(a) IN GENERAL.—Except as provided in subsection Ot)), no amount 
shall be included in the gross income of a participant in a cafeteria 
92 STAT. 2784 
PUBLIC LAW 95-600—NOV. 6, 1978 
plan solely because, under the plan, the participant may choose 
among the benefits of the plan. 
"(b) EXCEPTION FOR HIGHLY COMPENSATED PARTICIPANTS WHERE 
PLAN IS DISCRIMINATORY.— 
"(1) IN GENERAL.—In the case of a highly compensated partici-
pant, subsection (a) shall not apply to any benefit attributable to 
a plan year for which the plan discriminates in favor o
f
— 
"(A) highly compensated individuals as to eligibility to 
participate, or 
: 
"(B) highly compensated participants as to contributions 
*
i • 
and benefits. 
"(2) YEAR OF INCLUSION.—For purposes of determining the 
taxable year of inclusion, any benefit described in paragraph (1) 
shall be treated as received or accrued in the participant's 
taxable year in which the plan year ends. 
"(c) DISCRIMINATION AS TO BENEFITS OR CONTRIBUTIONS.—For pur-
poses of subparagraph (B) of subsection (b)(1), a cafeteria plan does 
not discriminate where nontaxable benefits and total benefits (or 
employer contributions allocable to nontaxable benefits and 
employer contributions for total benefits) do not discriminate in favor 
of highly compensated participants. 
"(d) CAFETERIA PLAN DEFINED.—For purposes of this section— 
"(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 two or more 
benefits. 
The benefits which may be chosen may be nontaxable benefits, or 
cash, property, or other taxable benefits. 
"(2) DEFERRED COMPENSATION PLANS EXCLUDED.—The term 
'cafeteria plan' does not include any plan which provides for 
deferred compensation. 
"(e) 
HIGHLY 
COMPENSATED 
PARTICIPANT 
AND INDIVIDUAL 
DEFINED.—For purposes of this section— 
"(1) HIGHLY COMPENSATED PARTICIPANT.—The term 'highly 
compensated participant' means a participant who is— 
"(A) an officer, 
"(B) a shareholder owning more than 5 percent of the 
voting power or value of all classes of stock of the employer, 
"(C) highly compensated, or 
"(D) a spouse or dependent (within the meaning of section 
26 use 152. 
152) of an individual described in subparagraph (A), (B), or 
(C). 
"(2) HIGHLY COMPENSATED INDIVIDUAL.—The term 'highly 
compensated individual' means an individual who is described in 
subparagraphs (A), (B), (C), or (D) of paragraph (1). 
"(f) NONTAXABLE BENEFIT DEFINED.—For purposes of this section, 
the term 'nontaxable benefit' means any benefit which, with the 
application of subsection (a), is not includible in the gross income of 
the employee. 
"(g) SPECIAL RULES.— 
ii 
"(1) 
COLLECTIVELY 
BARGAINED 
PLAN 
NOT CONSIDERED 
DISCRIMINATORY.—For purposes of this section, a plan shall not 
be treated as discriminatory if the plan is maintained under an 
agreement which the Secretary finds to be a collective bargain-
ing agreement between employee representatives and one or 
more employers. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2785 
*'(2) HEALTH BENEFITS.—For purposes of subparagraph (B) of 
subsection (b)(1), a cafeteria plan which provides health benefits 
shall not be treated as discriminatory if— 
"(A) contributions under the plan on behalf of each partici-
pant include an amount which— 
"(i) equals 100 percent of the cost of the health benefit 
coverage under the plan of the majority of the highly 
compensated participants similarly situated, or 
"(ii) equals or exceeds 75 percent of the cost of the 
health benefit coverage of the participant (similarly 
situated) having the highest cost health benefit coverage 
under the plan, and 
"(B) contributions or benefits under the plan in excess of 
those described in subparagraph (A) bear a uniform relation-
ship to compensation. 
"(3) CERTAIN PARTICIPATION EUGIBILITY RULES NOT TREATED AS 
DISCRIMINATORY.—For purposes of subparagraph (A) of subsec-
tion (b)(1), a classification shall not be treated as discriminatory if 
the plan— 
"(A) benefits a group of employees described in subpara-
graph (B) of section 410(b)(1), and 
26 USC 410. 
"(B) meets the requirements of clauses (i) and (ii): 
"(i) No employee is required to complete more than 3 
years of employment with the employer or employers 
maintaining the plan as a condition of participation in 
the plan, and the service requirement for each employee 
is the same. 
"(ii) Any employee who has satisfied the employment 
requirement of clause (i) and who is otherwise entitled 
to participate in the plan commences participation no 
later than the first day of the first plan year beginning 
after the date the service requirement was satisfied 
unless the employee was separated from service before 
the first day of that plan year. 
"(4) CERTAIN CONTROLLED GROUPS.—All employees who 
are 
treated as employed by a single employer under subsection (b) or 
(c) of section 414 shall be treated as employed by a single 26 USC 414. 
employer for purposes of this section. 
"(h) REGULATIONS.—The Secretary shall prescribe such regulations 
as may be necessary to carry out the provisions of this section." 
(b) CLERICAL AMENDMENT.—The table of sections for part III of 
subchapter B of chapter 1 is amended by striking out the item 
relating to section 124 and inserting in lieu thereof the following: 
"Sec. 125. Cafeteria plans. 
"Sec. 126. Cross references to other Acts." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 125 
apply to taxable years beginning after December 31,1978, 
"^te. 
SEC. 135. CERTAIN CASH OR DEFERRED ARRANGEMENTS. 
(a) IN GENERAL.—Section 401 (relating to qualified pension, profit- 26 USC 401. 
sharing, and stock bonus plans) is amended by redesignating subsec-
tion (k) as (1) and by inserting after subsection (j) the following new 
subsection: 
"(k) CASH OR DEFERRED ARRANGEMENTS,— 
"(1) GENERAL RULE.—A profit-sharing or stock bonus plan shall 
not be considered as not satisfying the requirements of subsec-
92 STAT. 2786 
PUBLIC LAW 95-600—NOV. 6, 1978 
tion (a) merely because the plan includes a qualified cash or 
deferred arrangement. 
"(2) QUALIFIED CASH OR DEFERRED ARRANGEMENT.—A qualified 
cash or deferred arrangement is any arrangement which is part 
of a profit-sharing or stock bonus plan which meets the require-
ments of subsection (a)— 
"(A) under which a covered employee may elect to have 
the employer make payments as contributions to a trust 
under the plan on behalf of the employee, or to the employee 
directly in cash; 
"(B) under which amounts held by the trust which are 
attributable to employer contributions made pursuant to the 
employee's election may not be distributable to participants 
or other beneficiaries earlier than upon retirement, death, 
disability, or separation from service, hardship or the attain-
ment of age 59 ¥2, and will not be distributable merely by 
reason of the completion of a stated period of participation or 
the lapse of a fixed number of years; and 
"(C) which provides that an employee's right to his 
accrued benefit derived from employer contributions made 
to the trust pursuant to his election are nonforfeitable. 
"(3) 
APPLICATION 
OF 
PARTICIPATION 
AND DISCRIMINATION 
STANDARDS.— 
"(A) A qualified cash or deferred arrangement shall be 
considered to satisfy the requirements of subsection (a)(4), 
with respect to the amount of contributions, and of subpara-
26 use 410. 
graph (B) of section 410(b)(1) for a plan year if those employ-
ees eligible to benefit under the plan satisfy the provisions of 
subparagraph (A) or (B) of section 410(b)(1) and if the actual 
deferral percentage for highly compensated employees (as 
defined in paragraph (4)) for such plan year bears a relation-
ship 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 employ-
ees 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 percent-
age 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 multiplied by 2.5. 
"(B) For purposes of subparagraph (A), the actual deferral 
percentage for a specified group of employees for a plan year 
shall be the average of the ratios (calculated separately for 
each employee in such group) of— 
"(i) the amount of employer contributions actually 
paid over to the trust on behalf of each such employee 
for such plan year, to 
"(ii) the employee's compensation for such plan year. 
For purposes of the preceding sentence, the compensation of any 
employee for a plan year shall be the amount of his compensation 
which is taken into account under the plan in calculating the 
contribution which may be made on his behalf for such plan year. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2787 
26 use 401. 
"(4) HIGHLY COMPENSATED EMPLOYEE.—For purposes of this 
subsection, the term 'highly compensated employee' means any 
employee who is more highly compensated than two-thirds of all 
eligible employees, taking into account only compensation which 
is considered in applying paragraph (3)." 
(b) TAXABILITY OF BENEFICIARIES.—Subsection (a) of section 402 is 26 use 402 
amended by adding at the end thereof the following new paragraph: 
"(8) CASH OR DEFERRED ARRANGEMENTS.—For purposes of this 
title, contributions made by an employer on behalf of an 
employee to a trust which is a part of a qualified cash or deferred 
arrangement (as defined in section 401(k)(2)) shall not be treated 
as distributed or made available to the employee nor as contribu-
tions made to the trust by the employee merely because the 
arrangement includes provisions under which the employee has 
an election whether the contribution will be made to the trust or 
received by the employee in cash." 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by this section shall 
apply to plan years beginning after December 31,1979. 
(2) TRANSITIONAL RULE.—In the case of cash or deferred 
arrangements in existence on June 27,1974— 
(A) the qualification of the plan and the trust under 
section 401 of the Internal Revenue Code of 1954; 
(B) the exemption of the trust under section 501(a) of such 
Code; 
(C) the taxable year of inclusion in gross income of the 
employee of any amount so contributed by the employer to 
the trust; and 
(D) the excludability of the interest of the employee in the 
trust under sections 2039 and 2517 of such Code, 
shall be determined for plan years beginning before January 1, 
1980 in a manner consistent with Revenue Ruling 56-497 (1956-2 
C.B. 284), Revenue Ruling 63-180 (1963-2 C.B, 189), and Revenue 
Ruling 68-89 (1968-1 C.B. 402). 
26 
use 
401 
note. 
26 
use 
401. 
26 
use 
501. 
26 
use 
2039, 
2517. 
PART II—EMPLOYEE STOCK OWNERSHIP PLANS 
SEC. 141. ESOPS. 
(a) IN GENERAL.—Subpart A of part I of subchapter D of chapter 1 
(relating to general rule for pension, profit-sharing, stock bonus 
plans, etc.) is amended by adding at the end thereof the following new 
section: 
"SEC. 409A. QUALIFICATIONS FOR ESOPS. 
"(a) ESQ? DEFINED.—Except as otherwise provided in this title, for 
purposes of this title, the term 'ESOP' means a defined contribution 
plan which— 
"(1) meets the requirements of section 401(a), 
"(2) is designed to invest primarily in employer securities, and 
"(3) meets the requirements of subsections (b), (c), (d), (e), (f), (g), 
and (h) of this section. 
"Ot)) REQUIRED ALLOCATION OF EMPLOYER SECURITIES.— 
"(1) IN GENERAL.—A plan meets the requirements of this 
subsection if— 
"(A) the plan provides for the allocation for the plan year 
of all employer securities transferred to it or purchased by it 
(because of the requirements of section 48(n)(l)(A)) to the 
26 use 409A. 
26 use 401. 
92 STAT. 2788 
PUBLIC LAW 95-600—NOV. 6, 1978 
accounts of all participants who are entitled to share in such 
allocation, and 
"(B) for the plan year the allocation to each participant so 
entitled is an amount which bears substantially the same 
proportion to the amount of all such securities allocated to 
all such participants in the plan for that year as the amount 
of compensation paid to such participant during that year 
bears to the compensation paid to all such participants 
during that year. 
"(2) COMPENSATION IN EXCESS OF $100,000 DISREGARDED.—For 
purposes of paragraph (1), compensation of any participant in 
excess of the first $100,000 per year shall be disregarded. 
"(3) DETERMINATION OF COMPENSATION.—For purposes of this 
subsection, the amount of compensation paid to a participant for 
any period is the amount of such participant's compensation 
26 use 415. 
(within the meaning of section 415(c)(3)) for such period. 
"(4) SUSPENSION OF ALLOCATION IN CERTAIN CASES.—Notwith-
standing paragraph (1), the allocation to the account of any 
participant which is attributable to the basic ESOP credit may be 
extended over whatever period may be necessary to comply with 
the requirements of section 415. 
"(c) PARTICIPANTS MUST HAVE NONFORFEITABLE RIGHTS.—A plan 
meets the requirements of this subsection only if it provides that each 
participant has a nonforfeitable right to any employer security 
allocated to his account. 
"(d) EMPLOYER SECURITIES MUST STAY IN THE PLAN.—A plan meets 
the requirements of this subsection only if it provides that no 
employer security allocated to a participants's account under subsec-
tion (b) may be distributed from that account before the end of the 
84th month beginning after the month in which the security is 
allocated to the account. To the extent provided in the plan, the 
preceding sentence shall not apply in the case of separation from 
service, death, or disability. 
"(e) VOTING RIGHTS.— 
"(1) IN GENERAL.—A plan meets the requirements of this 
subsection if it meets the requirements of paragraph (2) or (3), 
whichever is applicable. 
"(2) REQUIREMENTS WHERE EMPLOYER HAS A REGISTRATION-TYPE 
CLASS OF SECURITIES.—If the employer has a registration-type 
class of securities, the plan meets the requirements of this 
paragraph only if each participant in the plan is entitled to direct 
the plan as to the manner in which employer securities which 
are entitled to vote and are allocated to the account of such 
participant are to be voted. 
"(3) REQUIREMENT FOR OTHER EMPLOYERS.—If the employer 
does not have a registration-type class of securities, the plan 
meets the requirements of this paragraph only if each partici-
pant in the plan is entitled to direct the plan as to the manner in 
which voting rights under employer securities which are allo-
cated to the account of such participant are to be exercised with 
respect to a corporate matter which (by law or charter) must be 
decided by more than a majority vote of outstanding common 
shares voted. 
"(4) REGISTRATION-TYPE CLASS OF SECURITIES DEFINED.—For pur-
poses of this subsection, the term, 'registration-type class of 
securities' means— 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2789 
"(A) a class of securities required to be registered under 
section 12 of the Securities Exchange Act of 1934, and 15 U
S
C 78/. 
"(B) a class of securities which would be required to be so 
registered except for the exemption from registration pro-
vided in subsection (g)(2)(H) of such section 12. 
"(f) PLAN MUST BE ESTABLISHED BEFORE EMPLOYER'S DUE DATE.— 
"(1) IN GENERAL.—A plan meets the requirements of this 
subsection for a plan year only if it is established on or before the 
due date for the filing of the employer's tax return for the taxable 
year (including any extensions of such date) in which or with 
which the plan year ends. 
"(2) SPECIAL RULE FOR FIRST YEAR.—A plan which otherwise 
meets the requirements of this section shall not be considered to 
have failed to meet the requirements of section 401(a) merely 26 USC 401. 
because it was not established by the close of the first taxable 
year of the employer for which an ESOP credit is claimed by the 
employer. 
"(g) TRANSFERRED AMOUNTS MUST STAY IN PLAN EVEN THOUGH 
INVESTMENT CREDIT IS REDETERMINED OR RECAPTURED.—A plan meets 
the requirement of this subsection only if it provides that amounts 
which are transferred to the plan (because of the requirements of 
section 48(n)(l)) shall remain in the plan (and, if allocated under the 26 USC 48. 
plan, shall remain so allocated) even though part or all of the ESOP 
credit is recaptured or redetermined. 
"(h) RIGHT TO DEMAND EMPLOYER SECURITIES; PUT OPTION.— 
"(1) IN GENERAL.—A plan meets the requirements of this 
subsection if a participant who is entitled to a distribution from 
the plan— 
"(A) has a right to demand that his benefits be distributed 
in the form of employer securities, and 
"(B) if the employer securities are not readily tradable on 
an established market, has a right to require that the 
employer repurchase employer securities under a fair valua-
tion formula. 
"(2) PLAN MAY DISTRIBUTE CASH IN CERTAIN CASES.—A plan 
which otherwise meets the requirements of this section shall not 
be considered to have failed to meet the requirements of section 
401(a) merely because under the plan the benefits may be 
distributed in cash or in the form of employer securities, 
"(i) REIMBURSEMENT FOR EXPENSES OF ESTABLISHING AND ADMINIS-
TERING PLAN.—A plan which otherwise meets the requirements of 
this section shall not be treated as failing to meet such requirements 
merely because it provides that— 
"(1) EXPENSES OF ESTABLISHING PLAN.—As reimbursement for 
the expenses of establishing the plan, the employer may with-
hold from amounts due the plan for the taxable year for which 
the plan is established (or the plan may pay) so much of the 
amounts paid or incurred in connection with the establishment 
of the plan as does not exceed the sum o
f
— 
"(A) 10 percent of the first $100,000 which the employer is 
required to transfer to the plan for that taxable year under 
section 48(n)(l), and 
"(B) 5 percent of any amount so required to be transferred 
in excess of the first $100,000; and 
"(2) ADMINISTRATIVE EXPENSES.—As reimbursement for the 
expenses of administering the plan, the employer may withhold 
from amounts due the plan (or the plan may pay) so much of the 
92 STAT. 2790 
PUBLIC LAW 95-600—NOV. 6, 1978 
amounts paid or incurred during the taxable year as expenses of 
administering the plan as does not exceed the lesser of— 
"(A) the sum of— 
"(i) 10 percent of the first $100,000 of the dividends 
paid to the plan with respect to stock of the employer 
during the plan year ending with or within the employ-
er's taxable year, and 
"(ii) 5 percent of the amount of such dividends in 
excess of $100,000 or 
"(B) $100,000. 
"(j) CONDITIONAL CONTRIBUTIONS TO THE PLAN.—A plan which 
otherwise meets the requirements of this section shall not be treated 
as failing to satisfy such requirements (or as failing to satisfy the 
26 use 401. 
requirements of section 401(a) of this title or of section 403(c)(1) of the 
29 use 1103. 
Employee Retirement Income Security Act of 1974) merely because of 
the return of a contribution (or a provision permitting such a return) 
if— 
"(1) the contribution to the plan is conditioned on a determina-
tion by the Secretary that such plan meets the requirements of 
this section, 
"(2) the application for a determination described in paragraph 
(1) is filed with the Secretary not later than 90 days after the date 
on which an ESOP credit is claimed, and 
"(3) the contribution is returned within 1 year after the date on 
which the Secretary issues notice to the employer that such plan 
does not satisfy the requirements of this section, 
"(k) REQUIREMENTS RELATING TO CERTAIN WITHDRAWALS.—Not-
withstanding any other law or rule of law— 
"(1) the withdrawal from a plan which otherwise meets the 
requirements of this section by the employer of an amount 
contributed for purposes of the matching ESOP credit shall not 
be considered to make the benefits forfeitable, and 
"(2) the plan shall not, by reason of such withdrawal, fail to be 
for the exclusive benefit of participants or their beneficiaries, 
if the withdrawn amounts were not matched by employee contribu-
26 use 415. 
tions or were in excess of the limitations of section 415. Any 
withdrawal described in the preceding sentence shall not be consid-
ered to violate the provisions of section 403(c)(1) of the Employee 
Retirement Income Security Act of 1974. 
"(1) EMPLOYER SECURITIES DEFINED.—For purposes of this section— 
"(1) IN GENERAL.—The term 'employer securities' means 
common stock issued by the employer (or by a corporation which 
is a member of the same controlled group) which is readily 
tradable on an established securities market. 
"(2) 
SPECIAL RULE WHERE THERE IS NO READILY TRADABLE 
COMMON STOCK.—If there is no common stock which meets the 
requirements of paragraph (1), the term 'employer securities* 
means common stock issued by the employer (or by a corporation 
which is a member of the same controlled group) having a 
combination of voting power and dividend rights equal to or in 
excess o
f
— 
"(A) that class of common stock of the employer (or of any 
other such corporation) having the greatest voting power, 
and 
"(B) that class of stock of the employer (or of any other 
such corporation) having the greatest dividend rights. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2791 
"(3) PREFERRED STOCK MAY BE ISSUED IN CERTAIN CASES.— 
Noncallable preferred stock shall be treated as meeting the 
requirements of paragraph (1) if such stock is convertible at any 
time into stock which meets the requirements of paragraph (1) 
and if such conversion is at a conversion price which (as of the 
date of the acquisition by the ESOP) is reasonable. 
"(4) CONTROLLED GROUP OF CORPORATIONS DEFINED.— 
"(A) IN GENERAL.—For purposes of this subsection, the 
term 'controlled group of corporations' has the meaning 
given to such term by section 1563(a) (determined without 26 USC 1563. 
regard to subsections (a)(4) and (e)(3)(C) of section 1563). 
"(B) COMMON PARENT MAY OWN ONLY 50 PERCENT OF FIRST 
TIER SUBSIDIARY.—For purposes of subparagraph (A), if the 
common parent owns directly stock possessing at least 50 
percent of the voting power of all classes of stock and at least 
50 percent of each class of nonvoting stock in a first tier 
subsidiary, such subsidiary (and all other corporations below 
it in the chain which would meet the 80 percent test of 
section 1563(a) if the first tier subsidiary were the common 
parent) shall be treated as includible corporations, 
"(m) CONTRIBUTIONS OF STOCK OF CONTROLLING CORPORATION.—If 
the stock of a corporation which controls another corporation or 
which controls a corporation controlled by such other corporation is 
contributed to an ESOP of the controlled corporation, then no gain or 
loss shall be recognized, because of that contribution, to the con-
trolled corporation. For purposes of this subsection, the term 'control' 
has the same meaning as that term has in section 368(c). 
26 use 368. 
"(n) CROSS REFERENCES.— 
"(1) For requirements for allowance of ESOP credit, see section 48(n). 
"(2) For assessable penalties for failure to meet requirements of this 
section, or for failure to make contributions required with respect to the 
allowance of an ESOP credit, see section 6699." 
(b) AMENDMENT OF INVESTMENT CREDIT RULES.—Section 48 (relat- 26 use 48. 
ing to definitions and special rules) is amended by redesignating 
subsection (n) as subsection (p) and by inserting after subsection (m) 
the following new subsections: 
"(n) REQUIREMENTS FOR ALLOWANCE OF ESOP PERCENTAGE.— 
"(1) IN GENERAL.— 
"(A) BASIC ESOP PERCENTAGE.—The basic ESOP percentage 
shall not apply to any taxpayer for any taxable year unless 
the taxpayer on his return for such taxable year agrees, as a 
condition for the allowance of such percentage— 
"(i) to make transfers of employer securities to an 
ESOP maintained by the taxpayer having an aggregate 
value equal to 1 percent of the amount of the qualified 
investment (as determined under subsections (c) and (d) 
of section 46) for the taxable year, and 
26 USC 46. 
"(ii) to make such transfers at the times prescribed in 
subparagraph (C). 
"(B) MATCHING ESOP PERCENTAGE.—The matching ESOP 
percentage shall not apply to any taxpayer for any taxable 
year unless the basic ESOP percentage applies to such 
taxpayer for such taxable year, and the taxpayer on his 
return for such taxable year agrees, as a condition for the 
allowance of the matching ESOP percentage— 
"(i) to make transfers of employer securities to an 
ESOP maintained by the taxpayer having an aggregate 
value equal to the sum of the qualified matching 
92 STAT. 2792 
PUBLIC LAW 95-600—NOV. 6, 1978 
employee contributions made to such ESOP for the 
taxable year, and 
"(ii) to make such transfers at the times prescribed in 
subparagraph (C). 
"(C) TIMES FOR MAKING TRANSFERS.—The aggregate of the 
transfers required under subparagraphs (A) and (B) shall be 
made— 
"(i) to the extent allocable to that portion of the ESOP 
credit allowed for the taxable year or allowed as a 
carryback to a preceding taxable year, not later than 30 
days after the due date (including extensions) for filing 
the return for the taxable year, or 
"(ii) to the extent allocable to that portion of the ESOP 
credit which is allowed as a carryover in a succeeding 
taxable year, not later than 30 days after the due date 
(including extensions) for filing the return for such 
succeeding taxable year. 
The Secretary may by regulations provide that transfers 
may be made later than the times prescribed in the preced-
ing sentence where the amount of any credit or carryover or 
carryback for any taxable year exceeds the amount shown 
on the return for the taxable year. 
"(D) ORDERING RULES.—For purposes of subparagraph (C), 
the portion of the ESOP credit allowed for the current year 
or as a carryover or carryback shall be determined— 
"(i) first by treating the credit or carryover or carry-
back as attributable to the regular percentage, 
"(ii) second by treating the portion (not allocated 
under clause (i)) of such credit or carryover or carryback 
as attributable to the basic ESOP percentage, and 
"(iii) finally by treating the portion (not allocated 
under clause (i) or (ii) as attributable to the matching 
ESOP percentage. 
"(2) QUALIFIED MATCHING EMPLOYEE CONTRIBUTION DEFINED.— 
"(A) IN GENERAL.—For purposes of this subsection, the 
term 'qualified matching employee contribution' means, 
with respect to any taxable year, any contribution made by 
an employee to an ESOP maintained by the taxpayer if— 
"(i) each employee who is entitled to an allocation of 
employer securities transferred to the ESOP under 
paragraph (1)(A) is entitled to make such a contribution, 
"(ii) the contribution is designated by the employee as 
a contribution intended to be taken into account under 
this subparagraph for the taxable year, 
"(iii) the contribution is paid in cash to the employer 
or plan administrator not later than 24 months after the 
close of the taxable year, and is invested forthwith in 
employer securities, and 
"(iv) the ESOP meets the requirements of subpara-
graph (B). 
"(B) PLAN REQUIREMENTS.—For purposes of subparagraph 
(A), an ESOP meets the requirements of this subparagraph 
if— 
"(i) participation in the ESOP Is not required as a 
condition of employment and the ESOP does not require 
matching employee contributions as a condition of par-
ticipation in the ESOP, 
PUBLIC LAW 95-600--NOV. 6, 1978 
92 STAT. 2793 
"(ii) employee contributions under the ESOP meet the 
requirements of section 401(aK4), and 
26 USC 401. 
"(iii) the ESOP provides for allocation of all employer 
securities transferred to it or purchased by it (because of 
the requirements of paragraph (1)(B)) to the account of 
each participant in an amount equal to such partici-
pant's matching employee contributions for the year. 
"(3) CERTAIN CONTRIBUTIONS OF CASH TREATED AS CONTRIBU-
TIONS OF EMPLOYER SECURITIES.—For purposes of this subsection, 
a transfer of cash shall be treated as a transfer of employer 
securities if the cash is, under the ESOP, used within 30 days to 
purchase employer securities. 
"(4) ADJUSTMENTS IF ESOP CREDIT RECAPTURED.—If any portion 
of the ESOP credit is recaptured under section 47 or the ESOP 26 USC 47. 
credit is reduced by a final determination— 
"(A) the employer may reduce the amount required to be 
transferred to the ESOP under paragraph (1) for the current 
taxable year or any succeeding taxable year by an amount 
equal to such portion (or reduction), or 
"(B) notwithstanding the provisions of paragraph (5) and 
to the extent not taken into account under subparagraph (A), 
the employer may deduct an amount equal to such portion 
(or reduction), subject to the limitations of section 404. 26 USC 404. 
"(5) DISALLOWANCE OF DEDUCTION.—No deduction shall be 
allowed under section 162, 212, or 404 for amounts required to be 26 USC 162, 
transferred to an ESOP under this subsection. 
212, 404. 
"(6) DEFINITIONS.—For purposes of this subsection— 
"(A) EMPLOYER SECURITIES.—The term 'employer securi-
ties' has the meaning given to such term by section 409A(l). 
'XB) VALUE.—The term 'value' means— 
"(i) in the case of securities listed on a national 
exchange, the average of closing prices of such securities 
for the 20 consecutive trading days immediately preced-
ing the due date for filing the return for the taxable year 
(determined with regard to extensions), or 
"(ii) in the case of securities not listed on a national 
exchange, the fair market value as determined in good 
faith and in accordance with regulations prescribed by 
the Secretary, 
'(o) CERTAIN CREDITS DEFINED.—For purposes of this title— 
"(1) REGULAR INVESTMENT CREDIT.—The term 'regular invest-
ment credit' means that portion of the credit allowable by section 
38 which is attributable to the regular percentage. 
26 USC 38. 
"(2) ENERGY INVESTMENT CREDIT.—The term 'energy invest-
ment credit' means that portion of the credit allowable by section 
38 which is attributable to the energy percentage. 
"(3) ESOP CREDIT.—The term 'ESOP credit' means the sum 
of-
' '(A) the basic ESOP credit, and 
"(B) the matching ESOP credit. 
"(4) BASIC ESOP CREDIT.—The term 'basic ESOP credit' means 
that portion of the credit allowable by section 38 which is 
attributable to the basic ESOP percentage. 
"(5) MATCHING ESOP CREDIT.—The term 'matching ESOP credit' 
means that portion of the credit allowable by section 38 which is 
attributable to the matching ESOP. 
39-194 O—80—pt. 3 
11 : QL3 
92 STAT. 2794 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(6) BASIC ESOP PERCENTAGE.—The term 'basic ESOP percent-
age' means the 1-percent ESOP percentage set forth in section 
26 use 46. 
46(a)(2)(E)(i). 
"(7) MATCHING ESOP PERCENTAGE.—The term 'matching ESOP 
percentage' means the additional ESOP percentage (not to 
exceed ¥2 of 1 percent) set forth in section 46(a)(2XEXii)." 
(c) ASSESSABLE PENALTIES.— 
(1) IN GENERAL.—Subchapter B of chapter 68 (relating to 
assessable penalties) is amended by adding at the end thereof the 
following new section: 
26 use 6699. 
"SEC. 6699. ASSESSABLE PENALTIES RELATING TO ESOP. 
"(a) IN GENERAL.—If a taxpayer who has claimed an ESOP credit 
for any taxable year— 
26 use 409. 
"(1) fails to satisfy any requirement provided by section 409A, 
or 
"(2) fails to make any contribution which is required under 
26 use 48. 
section 48(n) within the period required for making such 
contribution, 
the taxpayer shall pay a penalty in an amount equal to the amount 
involved in such failure. 
"(b) No PENALTY WHERE THERE Is TIMELY CORRECTION OF FAIL-
URE.—Subsection (a) shall not apply with respect to any failure if the 
employer corrects such failure (as determined by the Secretary) 
within 90 days after the Secretary notifies him of such failure. 
"(c) AMOUNT INVOLVED DEFINED.— 
"(1) IN GENERAL.—For purposes of this section, the term 
'amount involved' means an amount determined by the 
Secretary. 
"(2) MAXIMUM AND MINIMUM AMOUNT.—The amount deter-
mined under paragraph (1)— 
"(A) shall not exceed the amount determined by multiply-
ing the qualified investment of the employer for the taxable 
year to which the failure relates by the ESOP percentage 
claimed by the employer for such year, and 
"(B) shall not be less than the product of one-half of 1 
percent of the amount referred to in subparagraph (A), 
multiplied by the number of months (or parts thereof) during 
which such failure continues." 
(2) CLERICAL AMENDMENT.—The table of sections for such 
subchapter B is amended by adding at the end thereof the 
following new item: 
"Sec. 6699. Assessable penalties relating to ESOP." 
26 use 56. 
(d) REGULAR TAX DEDUCTION FOR PURPOSES OF THE MINIMUM TAX 
DETERMINED WITHOUT REGARD TO ESOP PERCENTAGE.—Subsection 
(c) of section 56 (defining regular tax deduction) is amended by adding 
at the end thereof the following new sentence: "For purposes of the 
preceding sentence, the amount of the credit allowable under section 
38 shall be determined without regard to the ESOP percentage set 
forth in section 46(a)(2)(E)." 
26 use 46. 
(e) ESOP CREDIT EXTENDED FOR 3 YEARS.—Subparagraph (E) of 
section 46(a)(2) (relating to amount of business investment credit for 
current taxable year) is amended by striking out "and ending on 
December 31, 1980," each place it appears and inserting in lieu 
thereof "December 31,1983". 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2795 
(f) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) Subsections (d), (e), and (f) of section 301 of the Tax Repeal. 
Reduction Act of 1975 are hereby repealed. 
26 use 46 note. 
(2) Subparagraph (E) of section 46(aX2) is amended— 
26 use 46. 
(A) by striking out "section 301(e) of the Tax Reduction Act 
of 1975" and inserting in Heu thereof "section 48(n)(l)(B)", 26 USe 48. 
and 
(B) by striking out "section 301(d) of the Tax Reduction Act 
of 1975" and inserting in Heu thereof "section 409A". 
(3) Paragraph (21) of section 401(a) is amended to read as 26 use 401. 
follows: 
"(21) A trust forming part of an ESOP shall not fail to be 
considered a permanent program merely because employer con-
tributions under the plan are determined solely by reference to 
the amount of credit which would be allowable under section 
46(a) if the employer made the transfer described in section 26 use 26. 
48(n)(l)." 
26 use 48. 
(4) The last sentence of section 1504(a) (defining affiliated 26 USe 1504. 
group) is amended to read as follows: 
"As used in this subsection, the term 'stock' does not include 
nonvoting stock which is limited and preferred as to dividends, 
employer securities (within the meaning for section 409A(1)) while Ante, p. 2787. 
such securities are held under an ESOP, or qualifying employer 
securities (within the meaning of section 4975(e)(8)) while such 26 USC 4975. 
securities are held under a leveraged employee stock ownership plan 
which meets the requirements of section 4975(e)(7)." 
(5) Paragraph (7) of section 4975(e) (defining employee stock 26 use 4975. 
ownership plan) is amended— 
(A) by striking out "EMPLOYEE" in the paragraph heading 
and inserting in lieu thereof "LEVERAGED EMPLOYEE", and 
(B) by striking out "employee" in the text and inserting in 
lieu thereof "leveraged employee", and 
(C) by adding at the end thereof the following new 
sentence: 
"A plan shall not be treated as as leveraged employee stock 
ownership plan unless it meets the requirements of subsections 
(e) and (h) of section 409A." 
Ante, p. 2787. 
(6) Paragraph (3) of section 4975(d) is amended by striking out 26 USe 4975. 
"employee" and inserting in lieu thereof "leveraged employee". 
(7) Subparagraph (B) of section 415(c)(6) is amended by striking 26 use 415. 
out clauses (i) and (ii) and inserting in lieu thereof the following: 
"(i) the term 'employee stock ownership plan' means a 
leveraged employee stock ownership plan (within the 
meaning of section 4975(e)(7)) or an ESOP, 
26 USC 4975. 
"(ii) the term 'employer securities' has the meaning 
given to such term by section 409A,". 
Ante, p. 2787. 
(8) The table of sections for part I of subchapter D of chapter 1 
is amended by inserting after the item relating to section 409 the 
following new item: 
"Sec. 409A. Qualification for ESOPs." 
(9) Section 404(a)(2) and section 805(d) are each amended by 26 use 404, 
striking out "and (20)" and inserting in lieu thereof "(20), and 
^o^-
(22)". 
(g) EFFECTIVE DATES.— 
26 use 409A 
(1) IN GENERAL.—The amendments made by this section (other note. 
than by subsection (f)(3)) shall apply with respect to qualified 
investment for taxable years beginning after December 31,1978. 
92 STAT. 2796 
PUBLIC LAW 95-600—NOV. 6, 1978 
The amendment made by subsection (f)(7) shall apply to years 
beginning after December 31,1978. 
26 use 56 note. 
(2) RETROACTIVE APPLICATION OF AMENDMENT M
A
D
E B
Y SUBSEC-
TION (d).—In determining the regular tax deduction under sec-
26 use 6. 
tion 6 of the Internal Revenue Code of 1954 for any taxable year 
beginning before January 1, 1979, the amount of the credit 
26 use 38. 
allowable under section 38 shall be determined without regard to 
26 use 46. 
section 46(a)(2)(B) of such Code (as in effect before the enactment 
92 Stat. 3174. 
of the Energy Tax Act of 1978). 
26 u s e 1 note. 
SEC. 142. CERTAIN LUMP SUM DISTRIBUTIONS EXCLUDED FROM GROSS 
ESTATE WHERE RECIPIENT ELECTS NOT TO APPLY 10-YEAR 
AVERAGING. 
26 use 2039. 
(a) IN GENERAL.—Subsection (c) of section 2039 (relating to exemp-
tion of annuities under certain trusts and plans) is amended by 
striking out "(other than a lump sum distribution described in section 
26 use 402. 
402(e)(4), determined without regard to the next to the last sentence 
of section 402(e)(4)(A))" and inserting in lieu thereof "(other than an 
amount described in subsection (f))" 
26 use 2039. 
Qy^ DEFINITIONS.—Section 2039 is amended by adding at the end 
thereof the following new subsection: 
"(f) LUMP SUM DISTRIBUTIONS.— 
"(1) IN GENERAL.—An amount is described in this subsection if 
26 use 402. 
it is a lump sum distribution described in section 402(eX4) 
(determined without regard to the next to the last sentence of 
section 402(e)(4)(A)). 
"(2) EXCEPTION WHERE RECIPIENT ELECTS NOT TO TAKE IO-YEAR 
AVERAGING.—A lump sum distribution described in paragraph 
(1) shall be treated as not described in this subsection if the 
recipient elects irrevocably (at such time and in such manner as 
the Secretary may by regulations prescribe) to treat the distribu-
tion as taxable under section 402(a) without the application of 
paragraph (2) thereof." 
26 use 2039 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to the estates of decedents dying after Decem-
ber 31, 1978. 
note. 
SEC. 143. QUALIFIED PLANS REQUIRED TO PASS THROUGH VOTING 
RIGHTS ON EMPLOYER SECURITIES. 
26 use 401. 
(a) IN GENERAL.—Subsection (a) of section 401 (relating to qualified 
pension, profit-sharing, and stock bonus plans) is amended by insert-
ing after paragraph (21) the following new paragraph: 
"(22) Ifa defined contributions plan— 
"(A) is established by an employer whose stock is not 
publicly traded, and 
"(B) after acquiring securities of the employer, more than 
10 percent of the total assets of the plan as securities of the 
employer, 
any trust forming part of said plan shall not constitute a 
qualified trust under this section unless the plan meets the 
Ante, p. 2787. 
requirements of subsection (e) of section 409A." 
26 use 401 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
note. 
apply to acquisitions of securities after December 31,1979. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2797 
Subtitle E—Retirement Plans 
SEC. 152. SIMPLIFIED EMPLOYEE PENSIONS. 
(a) INCREASE IN MAXIMUM LIMITATION UNDER SECTION 408 TO 26 use 408. 
$7,500.—Section 408 (relating to individual retirement account) is 
amended by redesignating subsection (j) as subsection (m) and by 
inserting after subsection (i) the following new subsection: 
"(j) INCREASE IN MAXIMUM LIMITATIONS FOR SIMPLIFIED EMPLOYEE 
PENSIONS.—In the case of a simplified employee pension, this section 
shall be applied by substituting '$7,500' for '$1,500' in the following 
provisions: 
"(1) paragraph (1) of subsection (a), 
"(2) paragraph (2) of subsection (b), and 
"(3) paragraph (5) of subsection Ot>)." 
(b) 
SIMPLIFIED EMPLOYEE PENSION DEFINED.—Section 408 
is 
amended by inserting after subsection (j) the following new 
subsection: 
"(k) SiMPUFiED EMPLOYEE PENSION DEFINED.— 
"(1) IN GENERAL.—For purposes of this title, the term 'simpli-
fied employee pension' means an individual retirement account 
or individual retirement annuity with respect to which the 
requirements of paragraphs (2), (3), (4), and (5) of this subsection 
are met. 
"(2) PARTICIPATION REQUIREMENTS.—This paragraph is satis-
fied with respect to a simplified employee pension for a calendar 
\ 
year only if for such year the employer contributes to the 
1 simplified employee pension of each employee who— 
\ 
"(A) has attained age 25, and 
\ 
"(B) has performed service for the employer during at 
least 3 of the immediately preceding 5 calendar years. 
\ 
"(3) CONTRIBUTIONS MAY NOT DISCRIMINATE IN FAVOR OF THE 
\ HIGHLY COMPENSATED, ETC.— 
"(A) IN GENERAL.—The requirements of this paragraph 
are met with respect to a simplified employee pension for a 
\ 
calendar year if for such year the contributions made by the 
I 
employer to simplified employee pensions for his employees 
do not discriminate in favor of any employee who is— 
"(i) an officer, 
"(ii) a shareholder, 
"(iii) a self-employed individual, or 
"(iv) highly compensated. 
"(B) SPECIAL RULES.—For purposes of subparagraph (A)— 
"(i) there shall be excluded from 
consideration 
employees described in subparagraph (A) or (C) of sec-
tion 410(b)(2), and 
26 USC 410. 
"(ii) an individual shall be considered a shareholder if 
he owns (with the application of section 318) more than 26 use 318. 
10 percent of the value of the stock of the employer. 
"(C) CONTRIBUTIONS MUST BEAR A UNIFORM RELATIONSHIP 
TO TOTAL COMPENSATION.—For purposes of Subparagraph (A), 
employer contributions to simplified employee pensions 
shall be considered discriminatory unless contributions 
thereto bear a uniform relationship to the total compensa-
tion (not in excess of the first $100,000) of each employee 
maintaining a simplified employee pension. 
92 STAT. 2798 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(D) TREATMENT OF CERTAIN CONTRIBUTIONS AND TAXES.— 
Except as provided in this subparagraph, employer contribu-
tions do not meet the requirements of this paragraph unless 
such contributions meet the requirements of this paragraph 
without taking into account contributions or benefits under 
26 use 1401. 
chapter 2 (relating to tax on self-employment income), chap-
26 use 3101. 
ter 21 (relating to Federal Insurance Contribution Act), title 
42 use 401. 
II of the Social Security Act, or any other Federal or State 
26 use 3111. 
law. Taxes paid under section 3111 (relating to tax on 
employers) with respect to an employee may, for purposes of 
this paragraph, be taken into account as a contribution by 
the employer to an employee's simplified employee pension. 
If contributions are made to the simplified employee pension 
of an owner-employee, the preceding sentence shall not 
apply unless taxes paid by all such owner-employees under 
chapter 2, and the taxes which would be payable under 
chapter 2 by such owner-employees but for paragraphs (4) 
26 use 1402. 
and (5) of section 1402(c), are taken into account as contribu-
tions by the employer on behalf of such owner-employees. 
"(4) 
WITHDRAWALS 
MUST 
BE 
PERMITTED.—A 
simplified 
employee pension meets the requirements of this paragraph only 
if— 
"(A) employer contributions thereto are not conditioned 
on the retention in such pension of any portion of the 
amount contributed, and 
"(B) there is no prohibition imposed by the employer on 
withdrawals from the simplified employee pension. 
"(5) CONTRIBUTIONS MUST BE MADE UNDER WRITTEN ALLOCATION 
FORMULA.—The requirements of this paragraph are met with 
respect to a simplified employee pension only if employer contri-
butions to such pension are determined under a definite written 
allocation formula which specifies— 
"(A) the requirements which an employee must satisfy to 
share in an allocation, and 
"(B) the manner in which the amount allocated is 
computed. 
"(6) DEFINITIONS.—For purposes of this subsection and subsec-
tion (D— 
"(A) 
EMPLOYEE, EMPLOYER, OR OWNER-EMPLOYEE.—The 
terms 'employee', 'employer', and 'owner-employee' shall 
have the respective meanings given such terms by section 
401(c). 
"(B) COMPENSATION.—The term'compensation'means, in 
the case of an employee within the meaning of section 
401(c)(1), earned income within the meaning of section 
" 
401(c)(2). 
"(1) SiMPUFiED EMPLOYER REPORTS.—An employer who makes a 
contribution on behalf of an employee to a simplified employee 
pension shall provide such simplified reports with respect to such 
contributions as the Secretary may require by regulations. The 
reports required by this subsection shall be filed at such time and in 
such manner, and information with respect to such contributions 
shall be furnished to the employee at such time and in such manner, 
as may be required by regulations." 
26 use 219. 
(c) MAXIMUM DEDUCTION UNDER SECTION 219.—Subsection (b) of 
section 219 (relating to maximum deduction in the case of retirement 
26 use 401. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2799 
savings) is amended by adding at the end thereof the following new 
paragraph: 
*'(7) SiMPUFiED EMPLOYEE PENSIONS.—In the case of an 
employer contribution on behalf of the employee to a simplified 
employee pension, paragraph (2) shall not apply with respect to 
the employer contribution and the limitation under paragraph 
(1) shall be the lesser of— 
"(A) 15 percent of compensation includible in the employ-
ee's gross income for the taxable year (determined without 
regard to the employer contribution to the simplified 
employee pension), or 
"(B) the sum of— 
"(i) the amount contributed by the employer to the 
simplified employee pension and included in gross 
income (but not in excess of $7,500), and 
"(ii) $1,500, reduced (but not below zero) by the 
amount described in clause (i). 
In the case of an employee who is an officer, shareholder, or 
owner-employee described in section 408(k)(3), the amount 26 USC 408. 
referred to in subparagraph (B) shall be reduced by the amount of 
tax taken into account with respect to such individual under 
subparagraph (D) of section 408(k)(3)." 
(d) EMPLOYEES OF ENTERPRISES UNDER COMMON CONTROL.—Subsec-
tions (b) and (c) of section 414 are each amended by inserting "408(k)," 26 use 414. 
after "401,". 
(e) SIMPLIFIED EMPLOYEE PENSION MAY BE TAKEN INTO ACCOUNT IN 
DETERMINING WHETHER EMPLOYER MEETS CERTAIN OTHER NONDIS-
CRIMINATION PROVISIONS.—Paragraph (5) of section 401(a) is amended 26 use 401. 
by adding at the end thereof the following new sentence: "For 
purposes of determining whether one or more plans of an employer 
satisfy the requirements of paragraph (4) and of section 410(b), an 26 use 410. 
employer may take into account all simplified employee pensions to 
which only the employer contributes." 
(f) EMPLOYER DEDUCTIONS.—Section 404 (relating to deduction for 
26 use 404. 
contributions of an employer) is amended by adding the following 
new subsection at the end thereof: 
"(h) SPECIAL RULES FOR SIMPUFIED EMPLOYEE PENSIONS.— 
"(1) IN GENERAL,—Employer contributions to a simplified 
employee pension shall be treated as if they are made to a plein 
subject to the requirements of this section. Employer contribu-
tions to a simplified employee pension are subject to the follow-
ing limitations: 
"(A) Contributions made for a calendar year are deduct-
ible for the taxable year with which or within which the 
calendar year ends. 
"(B) Contributions made within dVz months after the close 
of a calendar year are treated as if they were made on the 
last day of such calendar year if they are made on account of 
such calendar year. 
"(C) The amount deductible in a taxable year for a simpli-
fied employee pension shall not exceed 15 percent of the 
compensation paid to the employees during the calendar 
year ending with or within the taxable year. The excess of 
the amount contributed over the amount deductible for a 
taxable year shall be deductible in the succeeding taxable 
years in order of time, subject to the 15 percent limit of the 
preceding sentence. 
92 STAT. 2800 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(2) EFFECT ON STOCK BONUS AND PROFIT-SHARING TRUST.—For 
any taxable year for which the employer has a deduction under 
spbparagraph (1), the otherwise applicable limitations in subsec-
tion (a)(3)(A) shall be reduced by the amount of the allowable 
deductions under subparagraph (1) with respect to participants 
in the stock bonus or profit-sharing trust. 
"(3) EFFECT ON LIMIT ON DEDUCTIONS.—For any taxable year for 
which the employer has a deduction under subparagraph (1), the 
otherwise applicable 25 percent limitations in subsection (a)(7) 
shall be reduced by the amount of the allowable deductions 
under subparagraph (1) with respect to participants in the stock 
bonus or profit-sharing trust. 
"(4) EFFECT ON SELF-EMPLOYED INDIVIDUALS.—The limitations 
described in paragraphs (1), (2)(A), and (4) of subsection (e) for any 
taxable year shall be reduced by the amount of the allowable 
deductions under subparagraph (1) with respect to an employee 
26 use 401. 
within the meaning of section 401(c)(1)." 
26 use 415. 
(g) AMENDMENTS TO SECTION 415.—Section 415 (relating to limita-
tions on benefits and contributions under certain plans) is amended— 
(1) by redesignating subparagraphs (E) and (F) of subsection 
(a)(2) as subparagraphs (F) and (G) and by inserting after subpar-
agraph (D) the following new subparagraph: 
"(E) a simplified employee pension,"; 
(2) by inserting "408(k)," after "408(b)," in the material imme-
diately following subparagraph (G) of section 415(b)(2); 
(3) by inserting "any simplified employee pension," after 
"section 408(b)," in section 415(e)(5); and 
(4) by striking out "or" in section 415(k)(l)(F), by redesignating 
subparagraph (G) of section 415(k)(l) as subparagraph (H), and by 
inserting 
after 
section 
415(k)(l)(F) 
the 
following 
new 
subparagraph: 
"(G) a simplified employee pension, or". 
26 use 408 
(h) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply to taxable years beginning after December 31,1978. 
SEC. 153. DEFINED BENEFIT PLAN LIMITS. 
26 use 415. 
(a) IN GENERAL.—Subsection (b) of section 415 (relating to limita-
tion for defined benefit plans) is amended by adding at the end 
thereof the following new paragraph: 
"(7) 
BENEFITS 
UNDER 
CERTAIN 
COLLECTIVELY 
BARGAINED 
PLANS.—For a year, the limitation referred to in paragraph (1)(B) 
shall not apply to benefits with respect to a participant under a 
defined benefit plan— 
"(A) which is maintained for such year pursuant to a 
collective bargaining agreement between employee repre-
sentatives and one or more employers, 
"(B) which, at all times during such year, has at least 100 
participants, 
"(C) benefits under which are determined by multiplying a 
specified amount (which is the same amount for each partici-
pant) by the number of the participant's years of service, 
"(D) which provides that an employee who has at least 4 
years of service has a nonforfeitable right to 100 percent of 
his accrued benefit derived from employer contributions, 
and 
"(E) which requires, as a condition of participation in the 
plan, that an employee complete a period of not more than 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2801 
60 consecutive days of service with the employer or employ-
ers maintaining the plan. 
This paragraph shall not apply to a participant whose compensa-
tion for any 3 years during the 10-year period immediately 
preceding the year in which he separates from service exceeded 
the average compensation for such 3 years of all participants in 
such plan. For any year for which the paragraph applies to 
benefits with respect to a participant, paragraph (1)(A) and 
subsection (d)(1)(A) shall be applied with respect to such partici-
pant by substituting '37,500' for '75,000'." 
(b) EFFECTIVE DATE.—The amendment made by this section shall 26 use 415 
apply to years beginning after December 31,1978. 
"ote. 
SEC. 154. CUSTODIAL ACCOUNTS FOR REGULATED INVESTMENT COM-
PANY STOCK. 
(a) AMENDMENT OF SECTION 403.—Subparagraph (A) of section 
403(b)(7) (relating to custodial accounts for regulated investment 26 USC 403. 
company stock) is amended to read as follows: 
"(A) AMOUNTS PAID TREATED AS CONTRIBUTIONS.—For pur-
poses of this title, amounts paid by an employer described in 
paragraph (1)(A) to a custodial account which satisfied the 
requirements of section 401(f)(2) shall be treated as amounts 26 USC 401. 
contributed by him for an annuity contract for his employee 
if— 
"(i) the amounts are to be invested in regulated 
investment company stock to be held in that custodial 
account, and 
"(ii) under the custodial account no such amounts may 
be paid or made available to any distributee before the 
employee dies, attains age 59 y2, separates from service, 
becomes disabled (within the meaning of section 
72(m)(7)), or encounters financial hardship." 
26 USC 72. 
(b) EFFECTIVE DATE.—The amendment made by this section shall 26 USC 403 
apply to taxable years beginning after December 31,1978. 
"o^e. 
SEC. 155. PENSION PLAN RESERVES. 
(a) IN GENERAL.—Subsection (d) of section 805 (relating to pension 26 USC 805. 
plan reserves) is amended— 
(1) by striking out "or" at the end of paragraph (4); 
(2) by striking out the period at the end of paragraph (5) and 
inserting in lieu thereof "; or"; and 
(3) by adding at the end thereof the following new paragraph: 
"(6) purchased by— 
"(A) a governmental plan (within the meaning of section 
414(d)), or 
26 USC 414. 
"(B) the Government of the United States, the government 
of any State or political subdivision thereof, or by any agency 
or instrumentality of the foregoing, for use in satisfying an 
obligation of such government, political subdivision, or 
agency or instrumentality to provide a benefit under a plan 
described in subparagraph (A)." 
Ob) EFFECTIVE DATE.—The amendments made by this section apply 26 USC 805 
to taxable years beginning after December 31,1978. 
"ot^-
SEC. 156. ROLLOVER OF SECTION 403(b) ANNUITIES PERMITTED. 
(a) GENERAL RULE.—Subsection (b) of section 403 (relating to 26 U
S
C 403. 
taxability of beneficiary under annuity purchased by section 501(c)(3) 26 USC 501. 
organization or public school) is amended by adding at the end 
thereof the following new paragraph: 
92 STAT. 2802 
PUBLIC LAW 95-600—NOV. 6, 1978 
) 
"(8) ROLLOVER AMOUNTS.— 
^ 
"(A) GENERAL RULE.—If— 
"(i) the balance to the credit of an employee is paid to 
him in a qualifying distribution, 
"(ii) the employee transfers any portion of the prop-
erty he receives in such distribution to an individual 
retirement plan or to an annuity contract described in 
paragraph (1), and 
"(iii) in the case of a distribution of property other 
than money, the property so transferred consists of the 
property distributed, 
then such distribution (to the extent so transferred) shall not 
be includible in gross income for the taxable year in which 
paid. 
"(B) QUALIFYING DISTRIBUTION DEFINED.— 
"(i) IN GENERAL.—For purposes of subparagraph (A), 
the term 'qualifying distribution' means 1 or more 
distributions from an annuity contract described in 
paragraph (1) which would constitute a lump sum distri-
26 use 402. 
bution within the meaning of section 402(e)(4)(A) (deter-
mined without regard to subparagraphs (B) and (H) of 
section 402(e)(4)) if such annuity contract were described 
in subsection (a). 
"(ii) AGGREGATION OF ANNUITY CONTRACTS.—For pur-
poses of this paragraph, all annuity contracts described 
in paragraph (1) purchased by an employer shall be 
treated as a single contract, and section 402(e)(4)(C) shall 
not apply. 
"(C) CERTAIN RULES MADE APPUCABLE.—Rules similar to 
the rules of subparagraphs (B), (C), and (E)(i) of section 
402(a)(5) and of paragraphs (6) and (7) of section 402(a) shall 
apply for purposes of subparagraph (A)." 
26 use 403. 
(b) TREATMENT OF ROLLOVER CONTRIBUTIONS.—Section 403(b)(1) 
(relating to annuities purchased by certain exempt organizations and 
public schools) is amended by adding at the end thereof the following 
new sentence: "For purposes of applying the rules of this subsection 
to amounts contributed by an employer for a taxable year, amounts 
transferred to a contract described in this paragraph by reason of a 
rollover contribution described in paragraph (8) of this subsection or 
26 use 408, 
section 408(d)(3)(A)(iii) or 409(d)(3)(C) shall not be considered contrib-
^^^- 
uted by such employer." 
(c) TECHNICAL AND CONFORMING AMENDMENTS.— 
26 use 408. 
(1) Subparagraph (A) of section 408(d)(3) is amended by striking 
out "or" at the end of clause (i), by striking out the period at the 
end of clause (ii) and inserting in lieu thereof "; or", and by 
adding at the end thereof the following new clause: 
"(iii)(l) the entire amount received (including money 
and other property) represents the entire interest in the 
account or the entire value of the annuity, 
"(II) no amount in the account and no part of the 
value of the annuity is attributable to any source other 
than a rollover contribution from an annuity contract 
26 use 403. 
described in section 403(b) and any earnings on such 
rollover, and 
"(III) the entire amount thereof is paid into another 
annuity contract described in section 4030t)) (for the 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2803 
26 use 409. 
26 use 403. 
26 use 219, 
220, 408, 409, 
4973. 
26 use 2039. 
26 use 4973. 
26 use 403 
note. 
benefit of such individual) not later than the 60th day 
after he receives the payment or distribution." 
(2) Subparagraph (C) of section 409(b)(3) is amended— 
(A) by striking out "or an annuity plan described in section 
403(a)" in the first sentence and inserting in lieu thereof "an 
annuity plan described in section 403(a), or an annuity 
contract described in section 403(b)", and 
(B) by adding at the end thereof the following new sen-
tence: This subparagraph does not apply in the case of a 
transfer to an annuity contract described in section 403(b) 
unless no part of the value of such proceeds is attributable to 
any source other than a rollover contribution from such an 
annuity contract." 
(3) Sections 219(b)(4), 220(b)(5), 408(a)(1), 409(a)(4), and 
4973(b)(1)(A) are each amended by inserting "403(b)(8)," after 
"403(a)(4)," each place it appears. 
(4) Section 2039(e) is amended by inserting after "403(a)(4)," the 
following: "section 403(b)(8) (but only to the extent such contribu-
tion is attributable to a distribution from a contract described in 
subsection (c)(3)),". 
(5) Section 4973(c)(1) is amended by inserting after "account" 
the following: "(other than a rollover contribution described in 
section 403(b)(8), 408(d)(3)(A)(iii), or 409(d)(3)(C))". 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply to distributions or transfers made after December 31,1978, in 
taxable years beginning after such date. 
SEC. 157. INDIVIDUAL RETIREMENT ACCOUNT TECHNICAL CHANGES. 
(a) EXTENSION OF PERIOD FOR MAKING INDIVIDUAL RETIREMENT 
PLAN CONTRIBUTIONS.— 
(1) AMENDMENT OF SECTION 219(C)(3).—Paragraph (3) of section 
219(c) (relating to time when contributions deemed made in the 
case of retirement savings) is amended by striking out "not later 
than 45 days after the end of such taxable year" and inserting in 
lieu thereof "not later than the time prescribed by law for filing 
the return for such taxable year (including extensions thereof)'. 
(2) AMENDMENT OF SECTION 220(c)(4).—Paragraph (4) of section 26 use 220. 
220(c) (relating to time when contributions deemed made in the 
case of retirement savings for certain married individuals) is 
amended by striking out "not later than 45 days after the end of 
such taxable year" and inserting in lieu thereof "not later than 
the time prescribed by law for filing the return for such taxable 
year (including extensions thereof)". 
(3) EFFECTIVE DATE.—The amendments made by this subsection 
shall apply to taxable years beginning after December 31, 1977. 
(b) EXCESS CONTRIBUTIONS MAY BE DEDUCTED IN SUBSEQUENT YEAR 
FOR WHICH THERE IS AN UNUSED LIMITATION.— 
(1) AMENDMENT OF SECTION 219.—Subsection (c) of section 219 26 use 219 
(relating to definitions and special rules for retirement savings) 
is amended by adding at the end thereof the following new 
paragraph: 
"(5) EXCESS CONTRIBUTIONS TREATED AS CONTRIBUTION MADE 
DURING SUBSEQUENT YEAR FOR WHICH THERE IS AN UNUSED 
LIMITATION.— 
"(A) IN GENERAL.—If for the taxable year the maximum 
amount allowable as a deduction under this section exceeds 
the amount contributed, then the taxpayer shall be treated 
26 use 219. 
26 use 219 
note. 
92 STAT. 2804 
PUBLIC LAW 95-600—NOV. 6, 1978 
as having made an additional contribution for the taxable 
year in an amount equal to the lesser of— 
"(i) the amount of such excess, or 
"(ii) the amount of the excess contributions for such 
26 use 4973. 
taxable year (determined under section 4973(b)(2) with-
out regard to subparagraph (C) thereof). 
"(B) AMOUNT CONTRIBUTED.—For purposes of this para-
graph, the amount contributed— 
"(i) shall be determined without regard to this para-
graph, and 
"(ii) shall not include any rollover contribution. 
"(C) SPECIAL RULE WHERE EXCESS DEDUCTION WAS ALLOWED 
FOR CLOSED YEAR.—Proper reduction shall be made in the 
amount allowable as a deduction by reason of this paragraph 
for any amount allowed as a deduction under this section or 
Infra. 
section 220 for a prior taxable year for which the period for 
assessing deficiency has expired if the amount so allowed 
exceeds the amount which should have been allowed for such 
prior taxable year." 
26 use 220. 
(2) AMENDMENT OF SECTION 220.—Subsection (c) of section 220 
(relating to definitions and special rules for retirement savings 
for certain married individuals) is amended by adding at the end 
thereof the following new paragraph: 
"(6) EXCESS CONTRIBUTIONS TREATED AS CONTRIBUTION MADE 
DURING SUBSEQUENT YEAR FOR WHICH THERE IS AN UNUSED LIMITA-
TION.— 
"(A) IN GENERAL.—If for the taxable year the maximum 
amount allowable as a deduction under this section exceeds 
the amount contributed, then the taxpayer shall be treated 
as having made an additional contribution for the taxable 
year in an amount equal to the lesser of— 
"(i) the amount of such excess, or 
"(ii) the amount of the excess contributions for such 
taxable year (determined under section 4973(b)(2) with-
out regard to subparagraph (C) thereof). 
,i 
"(B) AMOUNT CONTRIBUTED.—For purposes of this para-
graph, the amount contributed— 
"(i) shall be determined without regard to this para-
graph, and 
"(ii) shall not include any rollover contribution. 
"(C) SPECIAL RULE WHERE EXCESS DEDUCTION WAS ALLOWED 
FOR C
L
O
S
E
D YEAR.—Proper reduction shall be made in the 
amount allowable as a deduction by reason of this paragraph 
for any amount allowed as a deduction under this section or 
Ante, p. 2803. 
section 219 for a prior taxable year for which the period for 
assessing a deficiency has expired if the amount so allowed 
exceeds the amount which should have been allowed for such 
prior taxable year." 
26 use 4973. 
(3) AMENDMENT OF SECTION 4973.—Paragraph (2) of section 
4973(b) (defining excess contributions) is amended to read as 
follows: 
"(2) the amount determined under this subsection for the 
preceding taxable year reduced by the sum of— 
"(A) the distributions out of the account for the taxable 
year which were included in the gross income of the payee 
26 use 408. 
under section 408(d)(1), 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2805 
"(B) the distributions out of the account for the taxable 
year to which section 408(d)(5) applies, and 
26 use 408. 
"(C) the excess (if any) of the maximum amount allowable 
as a deduction under section 219 or 220 for the taxable year ^^^e, pp. 2803, 
over the amount contributed (determined without regard to ^^^'*-
sections 219(cX5) and 220(c)(6)) to the accounts or for the 
annuities or bonds for the taxable year." 
(4) EFFECTIVE DATE.— 
26 use 219 
(A) IN GENERAL.—The amendments made by this subsec- "°*^-
tion shall apply to the determination of deductions for 
taxable years beginning after December 31,1975. 
(B) TRANSITIONAL RULE.—If, but for this subparagraph, an 
amount would be allowable as a deduction by reason of 
section 219(cX5) or 220(c)(6) of the Internal Revenue Code of 
1954 for a taxable year beginning before January 1, 1978, 
such amount shall be allowable only for the taxpayer's first 
taxable year beginning in 1978. 
(c) ADDITIONAL PERIOD TO RECTIFY CERTAIN EXCESS CONTRIBU-
TIONS.— 
(1) GENERAL RULE.—Subsection (d) of section 408 (relating to 26 use 408. 
tax treatment of distributions) is amended by redesignating 
paragraph (5) as paragraph (6) and by inserting after paragraph 
(4) the following new paragraph: 
"(5) CERTAIN DISTRIBUTIONS OF EXCESS CONTRIBUTIONS AFTER 
DUE DATE FOR TAXABLE YEAR.— 
"(A) IN GENERAL.—In the case of any individual, if the 
aggregate contributions (other than rollover contributions) 
paid for any taxable year to an individual retirement 
account or for an individual retirement annuity do not 
exceed $1,750, paragraph (1) shall not apply to the distribu-
tion of any such contribution to the extent that such contri-
bution exceeds the amount allowable as a deduction under 
section 219 or 220 for the taxable year for which the 
contribution was paid— 
"(i) if such distribution is received after the date 
described in paragraph (4), 
"(ii) but only to the extent that no deduction has been 
allowed under section 219 or 220 with respect to such 
excess contribution. 
"(B) EXCESS ROLLOVER CONTRIBUTIONS ATTRIBUTABLE TO ERRO-
NEOUS INFORMATION.—If— 
"(i) the taxpayer reasonably relies on information 
supplied pursuant to subtitle F for determining the 
amount of a rollover contribution, but 
"(ii) such information was erroneous, subparagraph 
(A) shall be applied by increasing the dollar limit set 
forth therein by that portion of the excess contribution 
which was attributable to such information." 
(2) EFFECTIVE DATE.— 
26 use 408 
(A) IN GENERAL.—The amendments made by paragraph (1) "ote. 
shall apply to distributions in taxable years beginning after 
December 31,1975. 
(B) TRANSITIONAL RULE.—In the case of contributions for 
taxable years beginning before January 1, 1978, paragraph 
(5) of section 408(d) of the Internal Revenue Code of 1954 Supra. 
shall be applied as if such paragraph did not contain any 
dollar limitation. 
92 STAT. 2806 
PUBLIC LAW 95-600—NOV. 6, 1978 
(d) REQUIREMENT THAT ANNUITY CONTRACTS WILL QUALIFY AS 
INDIVIDUAL RETIREMENT ANNUITY ONLY IF THE PREMIUMS ARE 
FLEXIBLE.— 
26 use 408. 
(1) IN GENERAL.—Paragraph (2) of section 408(b) (defining 
individual retirement annuity) is amended to read as follows: 
"(2) Under the contract— 
"(A) the premiums are not fixed, 
"(B) the annual premium will not exceed $1,500, and 
"(C) any refund of premiums will be applied before the 
close of the calendar year following the year of the refund 
toward the payment of future premiums or the purchase of 
additional benefits." 
26 use 408 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
"ot^- 
shall apply to contracts issued after the date of the enactment of 
this Act. 
26 use 408 
(3) TAX REUEF FOR FIXED PREMIUM CONTRACTS HERETOFORE 
not^- 
ISSUED.—In the case of any annuity or endowment contract 
issued on or before the date of the enactment of this Act which 
would be an individual retirement annuity within the meaning 
of section 408(b) of the Internal Revenue Code of 1954 (as 
amended by paragraph (1)) but for the fact that the premiums 
c 
under the contract are fixed, at the election of the taxpayer an 
exchange before January 1,1981, of that contract for an individual 
retirement annuity within the meaning of such section 408(b) 
(as amended by paragraph (1)) shall be treated as a nontaxable 
exchange which does not constitute a distribution. 
(e) CLARIFICATION OF DOLLAR LIMIT IN THE CASE OF INDIVIDUAL 
RETIREMENT ANNUITIES AND RETIREMENT BONDS.— 
(1) IN GENERAL.— 
(A) AMENDMENT OF SECTION 408(b)(2).—Subparagraph (B) 
of section 408(b)(2) (as amended by paragraph (1) of subsec-
tion (d)) is amended by inserting "on behalf of any 
individual" after "annual premium". 
26 use 409. 
(B) AMENDMENT OF SECTION 409(a)(4).—Paragraph (4) of 
section 409(a) (relating to retirement bonds) is amended by 
inserting "on behalf of any individual" after "May not 
contribute". 
26 use 408 
(2) EFFECTIVE DATE.—The amendments made by paragraph (1) 
"ote. 
shall apply to taxable years beginning after December 31, 1976. 
26 use 402. 
(f) ROLLOVER OF PROCEEDS FROM SALE OF PROPERTY PERMITTED,— 
(1) ROLLOVERS FROM QUAUFIED EMPLOYEES' TRUSTS AND ANNU-
ITIES.—Paragraph (6) of section 402(a) (relating to special rollover 
rules) is amended by adding at the end thereof the following new 
subparagraph: 
"(D) SALES OF DISTRIBUTED PROPERTY.—For purposes of 
subparagraphs (5) and (7)— 
"(i) TRANSFER OF PROCEEDS FROM SALE OF DISTRIBUTED 
PROPERTY TREATED AS TRANSFER OF DISTRIBUTED PROP-
ERTY,—The transfer of an amount equal to any portion 
of the proceeds from the sale of property received in the 
distribution shall be treated as the transfer of property 
s ; 
received in the distribution. 
"(ii) PROCEEDS ATTRIBUTABLE TO INCREASE IN VALUE.— 
The excess of fair market value of property on sale over 
its fair market value on distribution shall be treated as 
property received in the distribution. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2807 
"(iii) DESIGNATION WHERE AMOUNT OF DISTRIBUTION 
EXCEEDS R
O
L
L
O
V
E
R CONTRIBUTION.—In any C
E
S
G whcre 
part or all of the distribution consists of property other 
than money, the taxpayer many designate— 
"(I) the portion of the money or other property 
which is to be treated as attributable to employee 
contributions, and 
"(11) the portion of the money or other property 
which is to be treated as included in the rollover 
contribution. 
Any designation under this clause for a taxable year 
shall be made not later than the time prescribed by law 
for filing the return for such taxable year (including 
extensions thereof). Any such designation, once made, 
shall be irrevocable. 
"(iv) TREATMENT WHERE NO DESIGNATION.—In any 
case where part or all of the distribution consists of 
property other than money and the taxpayer fails to 
make a designation under clause (iii) within the time 
provided therein, then— 
"(I) the portion of the money or other property 
which is to be treated as attributable to employee 
contributions, and 
"(II) the portion of the money or other property 
which is to be treated as included in the rollover 
contribution 
shall be determined on a ratable basis. 
"(v) NONRECOGNITION OF GAIN OR LOSS.—In the case of 
any sale described in clause (i), to the extent that an 
amount equal to the proceeds is transferred pursuant to 
paragraph (5)(B) or (7XB) (as the case by be), neither gain 
nor loss on such sale shall be recognized." 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 use 402 
shall apply to qualifying rollover distributions (as defined in "o*^-
section 402(a)(5)(D)(i) of the Internal Revenue Code of 1954) Ante, p. 2806. 
completed after December 31,1978, in taxable years ending after 
such date, 
(g) DISTRIBUTION FROM EMPLOYEES' QUALIFIED PLAN OR ANNUITY TO 
SPOUSE MAY BE ROLLOVER CONTRIBUTION TO AN INDIVIDUAL RETIRE-
MENT PLAN.— 
(1) ROLLOVERS FROM QUALIFIED EMPLOYEES' TRUST.—Subsection 26 use 402. 
(a) of section 402 (relating to taxability of beneficiary of exempt 
trust) is amended by adding at the end thereof the following new 
paragraph: 
"(7) ROLLOVER WHERE SPOUSE RECEIVES LUMP-SUM DISTRIBUTION 
AT DEATH OF EMPLOYEE.— 
"(A) GENERAL RULE.—If— 
"(i) any portion of a lump-sum distribution from a 
qualified trust is paid to the spouse of the employee on 
account of the employee's death, 
"(ii) the spouse transfers any portion of the property 
which the spouse receives in such distribution to an 
individual retirement plan, and 
"(iii) in the case of a distribution of property other 
than money, the amount so transferred consists of the 
property distributed, 
92 STAT. 2808 
PUBLIC LAW 95-600—NOV. 6, 1978 
then such distribution (to the extent so transferred) shall not 
be includible in gross income for the taxable year in which 
paid. 
"(B) CERTAIN RULES MADE APPLICABLE.—Rules similar to 
the rules of subparagraphs (B) through (E) of paragraph (5) 
and of paragraph (6) shall apply for purposes of this 
paragraph." 
26 use 403. 
(2) ROLLOVER FROM QUALIFIED ANNUITY PLANS.—Subparagraph 
(B) of section 403(a)(4), as amended by section 21(b), is amended 
by striking out "paragraph (6)" and inserting lieu thereof "para-
graphs (6) and (7)". 
26 u s e 408. 
(3) N o ROLLOVER TO QUALIFIED PLAN OR ANNUITY FROM IRA TO 
WHICH SPOUSE M
A
D
E R
O
L
L
O
V
E
R CONTRIBUTION.—Subparagraph (B) 
of section 408(d)(3) is amended by adding at the end thereof the 
following: "Clause (ii) of subparagraph (A) shall not apply to any 
amount paid or distributed out of an individual retirement 
account or an individual retirement annuity to which an amount 
was contributed which was treated as a rollover contribution by 
Ante, p. 2807. 
section 402(a)(7) (or in the case of an individual retirement 
26 use 403. 
annuity, such section as made applicable by section 403(a)(4)(B))." 
26 use 402 
(4) EFFECTIVE DATE.—The amendments made by this subsection 
"°^^- 
shall apply to lump-sum distributions completed after Decem-
ber 31,1978, in taxable years ending after such date. 
Ante, p. 2806. 
(h) REMOVAL OF CERTAIN REQUIREMENTS.— 
(1) DISREGARD OF 5-YEAR MINIMUM PARTICIPATION RULE FOR 
PURPOSES OF ROLLOVERS.—Subclause (II) of section 402(a)(5)(D)(i) 
is amended by striking out "subsection (e)(4)(B)" and inserting in 
lieu thereof "subparagraphs (B) and (H) of subsection (e)(4)". 
26 use 408. 
(2) REDUCTION OF REQUIRED PERIOD BETWEEN ROLLOVER CONTRI-
BUTIONS FROM 3 YEARS TO 1 YEAR.—The first Sentence of subpara-
graph (B) of section 408(d)(3) is amended by striking out "3-year 
period" and inserting in lieu thereof "1-year period". 
26 use 402 
(3) EFFECTIVE DATE.— 
^^^^- 
(A) IN GENERAL.—The amendments made by this section 
shall apply to payments made in taxable years beginning 
after December 31,1977. 
(B) TRANSITIONAL RULE.—In the case of any payment 
which is described in section 402(a)(5)(A) or 403(a)(4)(A) of the 
26 use 402, 
Internal Revenue Code of 1954 by reason of the amendments 
made by this section, the applicable period specified in 
section 402(a)(5)(C) of such Code (or in the case of an 
individual retirement annuity, such section as made applica-
ble by section 403(a)(4)(B) of such Code) shall not expire 
before the close of December 31,1978. 
(i) WAIVER OF EXCISE TAX ON CERTAIN ACCUMULATIONS IN INDIVID-
UAL RETIREMENT ACCOUNTS OR ANNUITIES.— 
26 use 4974. 
(1) GENERAL RULE.—Section 4974 (relating to excise tax on 
certain accumulations in individual retirement accounts or 
annuities) is amended by adding at the end thereof the following 
new subsection: 
"(c) WAIVER OF TAX IN CERTAIN CASES.—If the taxpayer establishes 
to the satisfaction of the Secretary that— 
"(1) the shortfall described in subsection (a) in the amount 
distributed during any taxable year was due to reasonable error, 
and 
"(2) reasonable steps are being taken to remedy the shortfall, 
403 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2809 
the Secretary may waive the tax imposed by subsection (a) for the 
taxable year." 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply to taxable years beginning after December 31, 1975. 
(j) REMOVAL OF CERTAIN LIMITATIONS ON PROVISION ALLOWING 
CORRECTION OF EXCESS CONTRIBUTIONS.— 
(1) GENERAL RULE.—The last sentence of section 4973(b) (defin-
ing excess contributions) is amended to read as follows: "For 
purposes of this subsection, any contribution which is distributed 
from the individual retirement account, individual retirement 
annuity, or bond in a distribution to which section 408(d)(4) 
applies shall be treated as an amount not contributed." 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply to contributions made for taxable years beginning 
after December 31,1977. 
(k) SIMPLIFICATION OF RETURN REQUIREMENTS WITH RESPECT TO 
INDIVIDUAL RETIREMENT PLANS.— 
(1) IN GENERAL.—Section 6058 (relating to 
information 
required in connection with certain plans of deferred compensa-
tion) is amended by redesignating subsection (d) as subsection (f) 
and by striking out subsection (c) and inserting in lieu thereof the 
following new subsections. 
"(c) EMPLOYER.—For purposes of this section, the term 'employer* 
includes a person described in section 401(c)(4) and an individual who 
establishes an individual retirement plan. 
"(d) COORDINATION WITH INCOME TAX RETURNS, ETC.—An individ-
ual who establishes an individual retirement plan shall not be 
required to file a return under this section with respect to such plan 
for any taxable year for which there is— 
"(1) no special IRP tax, and 
"(2) no plan activity other than— 
"(A) the making of contributions (other than rollover 
contributions), and 
"(B) the making of distributions. 
"(e) SPECIAL IRP TAX DEFINED.—For purposes of this section, the 
term 'special IRP tax' means a tax imposed by— 
"(1) section 408(f), 
"(2) section 409(c), 
"(3) section 4973, or 
"(4) section 4974.". 
(2) INDIVIDUAL RETIREMENT PLAN DEFINED.—Subsection (a) of 
section 7701 (relating to definitions of general application 
throughout the Code) is amended by adding at the end thereof 
the following new paragraph: 
"(37) INDIVIDUAL RETIREMENT PLAN.—The term 'individual 
retirement plan' means— 
"(A) an individual retirement account described in section 
408(a), 
"(B) an individual retirement annuity described in section 
408(b), and 
"(C) a retirement bond described in section 409." 
(3) EFFECTIVE DATE.—The amendments made by paragraph (1) 
shall apply to returns for taxable years beginning after Decem-
ber 31,1977. The amendment made by paragraph (2) shall apply 
to taxable years beginning after December 31,1974. 
26 use 4974 
note. 
26 use 4973. 
26 use 408. 
26 use 4973 
note. 
26 use 6058. 
26 use 401. 
26 use 408. 
26 use 4090. 
26 use 4973. 
26 use 4974. 
26 use 7701. 
26 use 408. 
26 use 409. 
26 use 6058 
note. 
39-194 O-
-pt. 3 
12 : QL3 
26 use 117 
note. 
26 use 117 
Bote. 
42 use 289/-
26 use 117. 
-1 
92 STAT. 2810 
PUBLIC LAW 95-600—NOV. 6, 1978 
Subtitle F—Other Individual Items 
SEC. 161. CERTAIN GOVERNMENT 
SCHOLARSHIP AND AWARD PRO-
GRAMS, 
(a) GOVERNMENT HEALTH PROFESSION SCHOLARSHIP PROGRAMS.— 
Subsection (c) of section 4 of the Act entitled "An Act to suspend until 
the close of June 30, 1975, the dutv on certain carboxymethyl 
cellulose salts, and for other purposes (Public Law 93-483; 88 Stat. 
1457) approved October 26,1974, is amended— 
(1) by striking out "1979" and inserting in lieu thereof "1980", 
and 
(2) by striking out "1983" and inserting in lieu thereof "1984". 
(b) NATIONAL RESEARCH SERVICE AWARDS.— 
(1) GENERAL RULE.—Any amount paid to, or on behalf of, an 
individual from appropriated funds as a national research serv-
ice award under section 472 of the Public Health Service Act 
shall be treated as a scholarship or fellowship grant under 
section 117 of the Internal Revenue Code of 1954. 
(2) EFFECTIVE DATE.—The provisions of subsection (b) shall 
apply to awards made during calendar years 1974 through 1979. 
SEC. 162. CANCELLATION OF STUDENT LOANS. 
26 use 61 note. 
Subsection (c) of section 2117 of the Tax Reform Act of 1976 
(relating to cancellation of certain student loans) is amended by 
striking out "Janu- ary 1,1979" and inserting in lieu thereof "Janu-
ary 1,1983". 
SEC. 163. TAX COUNSELING FOR THE ELDERLY. 
26 use 7803 
(a) TRAINING AND TECHNICAL ASSISTANCE.— 
"o*^- 
(1) AGREEMENTS.—The Secretary, through the Internal Reve-
nue Service, is authorized to enter into agreements with private 
or public nonprofit agencies or organizations for the purpose of 
providing training and technical assistance to prepare volun-
teers to provide tax counseling assistance for elderly individuals 
in the preparation of their Federal income tax returns. 
(2) OTHER ASSISTANCE.—In addition to any other forms of 
technical assistance provided under this section, the Secretary 
may provide— 
(A) preferential access to Internal Revenue Service tax-
payer service representatives for the purpose of making 
available technical information needed during the course of 
the volunteers'work; 
(B) material to be used in making elderly persons aware of 
the availability of assistance under volunteer taxpayer 
assistance programs under this section; and 
(C) technical materials and publications to be used by such 
volunteers. 
(b) POWERS OF THE SECRETARY.—In carrying out his responsibilities 
'' 
under this section, the Secretary is authorized— 
(1) to provide assistance to organizations which demonstrate, 
to the satisfaction of the Secretary, that their volunteers are 
adequately trained and competent to render effective tax coun-
seling to the elderly; 
(2) to provide for the training of such volunteers, and to assist 
in such training, to insure that such volunteers are qualified to 
provide tax counseling assistance to elderly individuals; 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2811 
(3) to provide reimbursement to volunteers through such 
organizations for transportation, meals, and other expenses 
incurred by them in training or providing tax counseling assist-
ance under this section, and such other support and assistance as 
he determines to be appropriate in carrying out the provisions of 
this section; 
(4) to provide for the use of services, personnel, and facilities of 
Federal executive agencies and of State and local public agencies 
with their consent, with or without reimbursement therefor; and 
(5) to prescribe such rules and regulations as he deems neces- Rules and 
sary to carry out the provisions of this section. 
regulations. 
(c) EMPLOYMENT OF VOLUNTEERS.— 
(1) IN GENERAL.—Service as a volunteer in any program carried 
out under this section shall not be considered service as an 
employee of the United States. Volunteers under such a program 
shall not be considered Federal employees and shall not be 
subject to the provisions of law relating to Federal employment, 
except that the provisions of section 1905 of title 18, United 
States Code, shall apply to volunteers as if they were employees 
of the United States. 
(2) EXPENSES.—Amounts received by volunteers serving in any 
program carried out under this section as reimbursement for 
expenses are exempt from taxation under chapters 1 and 21 of 
the Internal Revenue Code of 1954. 
26 USC 1 et seq., 
(d) PUBLICITY RELATING TO INCOME TAX PROVISIONS PARTICULARLY 3101 e
< seq. 
IMPORTANT TO THE ELDERLY.—The Secretary shall, from time to time, 
undertake to direct the attention of elderly individuals to those 
provisions of the Internal Revenue Code of 1954 which are particu-
larly important to taxpayers who are elderly individuals, such as the 
provisions of section 37 (relating to credit for the elderly) and section 
121 (relating to one-time exclusion of gain from sale of principal 
residence) of the Internal Revenue Code of 1954, 
26 USC 37,121. 
(e) DEFINITIONS.—For purposes of this section— 
(1) The term "Secretary" means the Secretary of the Treasury 
or his delegate. 
(2) The term "elderly individual" means an individual who has 
attained the age of 60 years as of the close of his taxable year. 
(3) The term "Federal income tax return" means any return 
required under chapter 61 of the Internal Revenue Code of 1954 26 USC 6001 et 
with respect to the tax imposed on an individual under chapter 1 ^^q-
of such Code. 
26 USC l et seq. 
(f) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to be 
appropriated for the purpose of carrying out the provisions of this 
section $2,500,000 for the fiscal year ending September 30, 1979, and 
$3,500,000 for the fiscal year ending September 30,1980. 
SEC. 164. EXCLUSION OF VALUE OF CERTAIN EDUCATIONAL ASSISTANCE 
PROGRAMS. 
(a) IN GENERAL.—Part III of subchapter B of chapter 1 (relating to 
items specifically excluded from gross income) is amended by redesig-
nating section 127 as 128 and by inserting after section 126 the 26 USC 128. 
following new section: 
"SEC. 127. EDUCATIONAL ASSISTANCE PROGRAMS. 
26 USC 127. 
"(a) GENERAL RULE,—Gross income of an employee does not include 
amounts paid or expenses incurred by the employer for educational 
assistance to the employee if the assistance is furnished pursuant to a 
program which is described in subsection (b). 
92 STAT. 2812 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(b) EDUCATIONAL ASSISTANCE PROGRAM.— 
"(1) IN GENERAL.—For purposes of this section an educational 
assistance program is a separate written plan of an employer for 
the exclusive benefit of his employees to provide such employees 
with educational assistance. The program must meet the require-
ments of paragraphs (2) through (6) of this subsection. 
"(2) ELIGIBILITY.—The program shall benefit employees who 
qualify under a classification set up by the employer and found 
by the Secretary not to be discriminatory in favor of employees 
who are officers, owners, or highly compensated, or their depend-
ents. For purposes of this paragraph, there shall be excluded 
from consideration employees not included in the program who 
are included in a unit of employees covered by an agreement 
which the Secretary of Labor finds to be a collective bargaining 
agreement between employee representatives and one or more 
employers, if there is evidence that educational assistance bene-
fits were the subject of good faith bargaining between such 
employee representatives and such employer or employers. 
"(3) PRINCIPAL SHAREHOLDERS OR OWNERS.—Not more than 5 
percent of the amounts paid or incurred by the employer for 
educational assistance during the year may be provided for the 
class of individuals who are shareholders or owners (or their 
spouses or dependents), each of whom (on any day of the year) 
owns more than 5 percent of the stock or of the capital or profits 
interest in the employer. 
"(4) OTHER BENEFITS AS AN ALTERNATIVE.—A program must not 
provide eligible employees with a choice between educational 
assistance and other remuneration includible in gross income. 
For purposes of this section, the business practices of the 
employer (as well as the written program) will be taken into 
account. 
"(5) No FUNDING REQUIRED.—A program referred to in para-
graph (1) is not required to be funded. 
"(6) NOTIFICATION OF EMPLOYEES.—Reasonable notification of 
the availability and terms of the program must be provided to 
eligible employees. 
"(c) DEFINITIONS; SPECIAL RULES.—For purposes of this section— 
"(1) EDUCATIONAL ASSISTANCE.—The term 'educational assist-
ance' means— 
. 
"(A) the payment, by an employer, of expenses incurred by 
or on behalf of an employee for education of the employee 
(including, but not limited to, tuition, fees, and similar 
payments, books, supplies, and equipment), and 
"(B) the provision, by an employer, of courses of instruc-
tion for such employee (including books, supplies, and equip-
ment), 
but does not include payment for, or the provision of, tools or 
supplies which may be retained by the employee after comple-
tion of a course of instruction, or meals, lodging, or transporta-
tion. The term 'educational assistance' also does not include any 
payment for, or the provision of any benefits with respect to, any 
course or other education involving sports, games, or hobbies. 
"(2) EMPLOYEE.—The term 'employee' includes, for any year, 
an individual who is an employee within the meaning of section 
401(c)(l)(relating to self-employed individuals). 
"(3) EMPLOYER.—An individual who owns the entire interest in 
an unincorporated trade or business shall be treated as his own 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2813 
employer. A partnership shall be treated as the employer of each 
partner who is an employee within the meaning of paragraph (2). 
"(4) ATTRIBUTION RULES.— 
"(A) OWNERSHIP OF STOCK.—Ownership of stock in a corpo-
ration shall be determined in accordance with the rules 
provided under subsections (d) and (e) of section 1563 (with- 26 USC 1.563. 
out regard to section 1563(e)(3)(C)). 
"(B) INTEREST IN UNINCORPORATED TRADE OR BUSINESS.— 
The interest of an employee in a trade or business which is 
not incorporated shall be determined in accordance with 
regulations prescribed by the Secretary, which shall be 
based on principles similar to the principles which apply in 
the case of subparagraph (A). 
"(5) CERTAIN TESTS NOT APPLICABLE.—An educational assist-
ance program shall not be held or considered to fail to meet any 
requirements of subsection (b) merely because— 
"(A) of utilization rates for the different types of educa-
tional assistance made available under the program; or 
"(B) successful completion, or attaining a particular 
course grade, is required for or considered in determining 
reimbursement under the program. 
"(6) RELATIONSHIP TO CURRENT LAW.—This section shall not be 
construed to affect the deduction or inclusion in income of 
' 
amounts (not within the exclusion under this section) which are 
paid or incurred, or received as reimbursement, for educational 
expenses under section 117,162 or 212. 
26 USC 117, 
"(7) DISALLOWANCE OF EXCLUDED AMOUNTS AS CREDIT OR DEDUC- 162, 212. 
TION.—No deduction or credit shall be allowed under any other 
section of this chapter for any amount excluded from income by 
reason of this section. 
"(d) TERMINATION.—This section shall not apply to taxable years 
beginning after December 31,1983." 
(b) TREATMENT OF EMPLOYER EDUCATIONAL ASSISTANCE BENEFITS 
FOR PURPOSES OF WITHHOLDING, UNEMPLOYMENT TAXES, AND SOCIAL 
SKCTTRITY TAXFS 
(1) Section 3401(a) (relating to the definition of wages for 26 USC 3401. 
purposes of collection of income tax at the source) is amended— 
(A) by striking out "or" at the end of paragraph (16); 
(B) by striking out the period at the end of paragraph (17); 
and 
(C) by adding at the end thereof the following new para-
graph: 
"(18) for any payment made, or benefit furnished, to or for the 
benefit of an employee if at the time of such payment or such 
furnishing it is reasonable to believe that the employee will be 
able to exclude such payment or benefit from income under 
section 124.". 
26 U
S
C 124. 
(2) Section 3306(b) (relating to the definition of wages for 26 USC 3306. 
purposes of the Federal Unemployment Tax Act) is amended— 
(A) by striking out "or" at the end of paragraph (11); 
(B) by striking out the period at the end of paragraph (12) 
and inserting in lieu thereof "; or"; and 
(C) by adding at the end thereof the following new para-
graph: 
"(13) any payment made, or benefit furnished, to or for the 
benefit of an employee if at the time of such payment or such 
furnishing it is reasonable to believe that the employee will be 
92 STAT. 2814 
PUBLIC LAW 95-600—NOV. 6, 1978 
able to exclude such payment or benefit from income under 
Ante, p. 2811. 
section 127.". 
26 use 3121. 
(3) Section 3121(a) (relating to the definition of wages for 
purposes of the Federal Insurance Contributions Act) is 
amended— 
(A) by striking out "or" at the end of paragraph (16); 
(B) by striking out the period at the end of subparagraph 
(17) and inserting in lieu thereof "; or"; and 
(C) by adding at the end thereof the following new para-
graph: 
"(18) any payment made, or benefit furnished, to or for the 
benefit of an employee if at the time of such payment or such 
furnishing it is reasonable to believe that the employee will be 
able to exclude such payment or benefit from income under 
section 127.". 
42 use 409. 
(4) Section 209 of the Social Security Act is amended— 
(A) by striking out "or" at the end of subsection (o); 
(B) by striking out the period at the end of subsection (p) 
and inserting in lieu thereof "; or"; and 
(C) by inserting after subsection (p) and before the sen-
tence beginning with "For purposes of this title, in the case 
of domestic service" the following new subsection: 
"(q) Any payment made, or benefit furnished, to or for the benefit 
of an employee if at the time of such payment or such furnishing it is 
reasonable to believe that the employee will be able to exclude such 
payment or benefit from income under section 127 of the Internal 
Revenue Code of 1954." 
(c) CLERICAL AMENDMENT.—The table of sections for such part is 
amended by striking out the item relating to section 124 and 
inserting in lieu thereof the following: 
"Sec. 124. Educational assistance programs. 
"Sec. 125. Cross references to other Acts.". 
26 use 127 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply with respect to taxable years beginning after December 31, 
1978. 
TITLE II—TAX SHELTER PROVISIONS 
Subtitle A—Provisions Related To At Risk 
Rules 
SEC. 201. EXTENSION OF SECTION 465 AT RISK RULES TO ALL ACTIVI-
TIES OTHER THAN REAL ESTATE. 
26 use 465. 
(a) EXTENSION.—Subsection (c) of section 465 (relating to activities 
to which section applies) is amended by adding at the end thereof the 
following new paragraph: 
"(3) EXTENSION TO OTHER ACTIVITIES.— 
"(A) IN GENERAL.—In the case of taxable years beginning 
after December 31, 1978, this section also applies to each 
activity— 
"(i) engaged in by the taxpayer in carrying on a trade 
or business or for the production of income, and 
"(ii) which is not described in paragraph (1). 
"(B) 
AGGREGATION 
OF 
ACTIVITIES 
WHERE 
TAXPAYER 
ACTIVELY PARTICIPATES IN MANAGEMENT OF TRADE OR BUSI-
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2815 
NESS.—Except as provided in subparagraph (C), for purposes 
of this section, activities described in subparagraph (A) 
which constitute a trade or business shall be treated as one 
activity if— 
"(i) the taxpayer actively participates in the manage-
ment of such trade or business, or 
"(ii) such trade or business is carried on by a partner-
ship or electing small business corporation (as defined in 
section 1371(b)) and 65 percent or more of the losses for 26 U
S
C 1371. 
the taxable year is allocable to persons who actively 
participate in the management of the trade or business. 
"(C) AGGREGATION OR SEPARATION OF ACTIVITIES UNDER-
REGULATiONS.—The Secretary shall prescribe regulations Regulations, 
under which activities described in subparagraph (A) shall 
be aggregated or treated as separate activities. 
"(D) EXCLUSIONS.— 
"(i) 
REAL 
PROPERTY.—In the case of activities 
described in subparagraph (A), the holding of real prop-
erty (other than mineral property) shall be treated as a 
separate activity, and subsection (a) shall not apply to 
losses from such activity. For purposes of the preceding 
sentence, personal property and services which are 
incidental to making real property available as living 
accommodations shall be treated as part of the activity 
of holding such real property. 
"(ii) EQUIPMENT LEASING BY CLOSELY-HELD CORPORA-
TIONS.— 
"(I) In the case of a corporation described in 
subsection (a)(1)(C) actively engaged in leasing 
equipment which is section 1245 property, the activ- 26 U
S
C 1245. 
ity of leasing such equipment shall be treated, for 
purposes of subsection (a), as a separate activity and 
subsection (a) shall not apply to losses from such 
activity. 
"(II) A corporation described in subsection (a)(1) 
(C) shall not be considered to be actively engaged in 
leasing such equipment unless 50 percent or more of 
the gross receipts of the corporation for the taxable 
year are attributable, under regulations prescribed 
by the Secretary, to leasing and selling such equip-
ment. 
"(Ill) For purposes of this paragraph, the leasing 
of master sound recordings, and other similar con-
tractual arrangements with respect to tangible or 
intangible assets associated with literary, artistic, 
or musical properties shall not be treated as leasing 
equipment which is section 1245 property. 
"(IV) In the case of a controlled group of corpora-
tions (within the meaning of section 1563(a)), this 26 U
S
C 1563. 
paragraph shall be applied by treating the con-
trolled group as a single corporation. 
"(E) APPLICATION OF SUBSECTION 0D)(3).—In the case of an 
activity described in subparagraph (A), subsection (b)(3) shall 
apply only to the extent provided in regulations prescribed 
by the Secretary." 
(b) REPEAL OF SECTION 704(d) AT RISK RULES.— 
92 STAT. 2816 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 use 704. 
(1) IN GENERAL.—Subsection (d) of section 704 is amended by 
striking out the last 2 sentences. 
26 use 704 
(2) TRANSITIONAL RULE.—In the case of a loss which was not 
""^^- 
allowed for any taxable year by reason of the last 2 sentences of 
section 704(d) of the Internal Revenue Code of 1954 (as in effect 
before the date of the enactment of this Act), such loss shall be 
Infra. 
treated as a deduction (subject to section 465(a) of such Code) for 
the first taxable year beginning after December 31,1978. Section 
465(a) of such Code (as amended by this section) shall not apply 
with respect to partnership liabilities to which the last 2 sen-
tences of section 704(d) of such Code (as in effect on the day before 
the date of enactment of this Act) did not apply because of the 
26 use 709 
provisions of section 213(f)(2) of the Tax Reform Act of 1976. 
"<'*^- 
(c) CLERICAL AMENDMENTS.— 
(1) The heading of section 465 is amended to read as follows: 
26 use 465. 
"SEC. 465. DEDUCTIONS LIMITED TO AMOUNT AT RISK." 
(2) The table of sections for subpart C of part II of subchapter E 
26 use 461 et 
of chapter 1 is amended by striking out "in case of certain 
seq- 
activities" in the item relating to section 465. 
SEC. 202. EXTENSION OF AT RISK PROVISIONS TO CLOSELY HELD COR-
PORATIONS. 
26 use 465. 
Subsection (a) of section 465 (relating to deductions limited to 
amount at risk) is amended to read as follows: 
"(a) LIMITATION TO AMOUNT AT RISK.— 
"(1) IN GENERAL.—In the case of— 
"(A) an individual, 
"(B) an electing small business corporation (as defined in 
26 use 1371. 
section 1371(b)), and 
"(C) a corporation with respect to which the stock owner-
26 use 542. 
ship requirement of paragraph (2) of section 542(a) (deter-
mined by reference to the rules contained in section 318 
26 use 544. 
rather than under section 544) is met, 
engaged in an activity to which this section applies, any loss from 
such activity for the taxable year shall be allowed only to the 
extent of the aggregate amount with respect to which the 
taxpayer is at risk (within the meaning of subsection Qa)) for such 
activity at the close of the taxable year. 
"(2) DEDUCTION IN SUCCEEDING YEAR.—Any loss from an activ-
ity to which this section applies not allowed under this section for 
the taxable year shall be treated as a deduction allocable to such 
activity in the first succeeding taxable year." 
SEC. 203. RECAPTURE OF LOSSES WHERE AMOUNT AT RISK IS LESS 
THAN ZERO. 
26 use 465. 
Section 465 (relating to deductions limited to amount at risk) is 
amended by adding at the end thereof the following new subsection: 
"(e) RECAPTURE OF LOSSES WHERE AMOUNT AT RISK Is LESS THAN 
ZERO.— 
"(1) IN GENERAL.— If zero exceeds the amount for which the 
taxpayer is at risk in any activity at the close of any taxable 
year— 
"(A) the taxpayer shall include in his gross income for 
such taxable year (as income from such activity) an amount 
equal to such excess, and 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2817 
"(B) an amount equal to the amount so included in gross 
income shall be treated as a deduction allocable to such 
activity for the first succeeding taxable year. 
"(2) LIMITATION.—The excess referred to in paragraph (1) shall 
not exceed— 
"(A) the aggregate amount of the reductions required by 
subsection (b)(5) with respect to the activity for all prior 
taxable years beginning after December 31,1978, reduced by 
"(B) the amounts previously included in gross income with 
respect to such activity under this subsection." 
SEC. 204. EFFECTIVE DATES. 
26 USC 465 
(a) IN GENERAL.—The amendments made by this subtitle shall 
apply to taxable years beginning after December 31,1978. 
(b) TRANSITIONAL RULES.— 
(1) RECAPTURE PROVISIONS.—If the amount for which the tax-
payer is at risk in any activity as of the close of the taxpayer's 
last taxable year beginning before January 1, 1979, is less than 
zero, section 465(e)(1) of the Internal Revenue Code of 1954 (as ^"-te, p- 2816. 
added by section 203 of this Act) shall be applied with respect to 
such activity of the taxpayer by substituting such negative 
amount for zero. 
(2) SPECIAL TRANSITIONAL RULES FOR LEASING ACTIVITIES.— 
(A) RULE FOR LEASES.—In the case of any activity described 
in section 465(c)(1)(C) of such Code in which a corporation 
described in section 465(aXl)(C) of such Code is engaged, the 
amendments made by this section shall not apply with 
respect to— 
(i) leases entered into before November 1, 1978, and 
(ii) leases where the property was ordered by the 
lessor or lessee before November 1,1978. 
(B) HOLDING OF INTERESTS FOR PURPOSES OF SUBPARAGRAPH 
(A).—Subparagraph (A) shall apply only to taxpayers who 
held their interests in the property on October 31, 1978. 
Subtitle B—Partnership Provisions 
SEC. 211. PENALTY FOR FAILURE TO FILE PARTNERSHIP RETURN. 
(a) GENERAL RULE.—Subchapter B of chapter 68 (relating to assess-
able penalties) is amended by adding at the end thereof the following 
new section: 
"SEC. 6698. FAILURE TO FILE PARTNERSHIP RETURN. 
26 U
S
C 6698. 
"(a) GENERAL RULE.—In addition to the penalty imposed by section 
7203 (relating to willful failure to file return, supply information, or 
26 U
S
C 7203. 
pay tax), if any partnership required to file a return under section 
6031 for any taxable year— 
26 U
S
C 6031. 
"(1) fails to file such return at the time prescribed therefor 
(determined with regard to any extension of time for filing), or 
"(2) files a return which fails to show the information required 
under section 6031, 
such partnership shall be liable for a penalty determined under 
subsection (b) for each month (or fraction thereof) during which such 
failure continues (but not to exceed 5 months), unless it is shown that 
such failure is due to reasonable cause. 
92 STAT. 2818 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(b) AMOUNT PER MONTH.—For purposes of subsection (a), the 
amount determined under this subsection for any month is the 
product of— 
"(1) $50, multiplied by 
"(2) the number of persons who were partners in the partner-
ship during any part of the taxable year 
"(c) ASSESSMENT OF PENALTY.—The penalty imposed by subsection 
(a) shall be assessed against the partnership. 
"(d) DEFICIENCY PROCEDURES NOT TO APPLY.—Subchapter B of 
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 subsection (a)." 
(b) CLERICAL AMENDMENT.—The table of sections for subchapter B 
of chapter 68 is amended by adding at the end thereof the following 
new item: 
"Sec. 6698. Failure to file partnership return." 
26 use 6698 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
"ote. 
apply with respect to returns for taxable years beginning after 
December 31,1978. 
SEC. 212. EXTENSION OF STATUTE OF LIMITATIONS IN THE CASE OF 
PARTNERSHIP ITEMS. 
26 use 6501. 
(a) ASSESSMENT OF DEFICIENCIES.—Section 6501 (relating to limita-
tions on assessment and collection) is amended by adding at the end 
thereof the following new subsection: 
"(q) SPECIAL RULES FOR PARTNERSHIP ITEMS OF FEDERALLY REGIS-
TERED PARTNERSHIPS.— 
"(1) IN GENERAL.—In the case of any tax imposed by subtitle A 
with respect to any person, the period for assessing a deficiency 
attributable to any partnership item of a federally registered 
partnership shall not expire before the later of— 
"(A) the date which is 4 years after the date on which the 
partnership return of the federally registered partnership 
for the partnership taxable year in which the item arose was 
filed (or, later, if the date prescribed for filing the return), or 
"(B) if the name or address of such person does not appear 
on the partnership return, the date which is 1 year after the 
date on which such information is furnished to the Secretary 
in such manner and at such place as he may prescribe by 
regulations. 
"(2) PARTNERSHIP ITEM DEFINED.—For purposes of this subsec-
tion, the term 'partnership item' means— 
"(A) any item required to be taken into account for the 
partnership taxable year under any provision of subchapter 
K of chapter 1 to the extent that regulations prescribed by 
the Secretary provide that for purposes of this subtitle such 
item is more appropriately determined at the partnership 
level than at the partner level, and 
"(B) any other item to the extent affected by an item 
described in subparagraph (A). 
"(3) EXTENSION BY AGREEMENT.—The extensions referred to in 
subsection (c)(4), insofar as they relate to partnership items, may, 
with respect to any person, be consented to— 
"(A) except to the extent the Secretary is otherwise noti-
fied by the partnership, by a general partner of the partner-
ship, or 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2819 
"(B) by any person authorized to do so by the partnership 
in writing. 
"(4) FEDERALLY REGISTERED PARTNERSHIP.—For purposes of this 
subsection, the term 'federally registered partnership' means, 
with respect to any partnership taxable year, any partnership— 
"(A) interests in which have been offered for sale at any 
time during such taxable year or a prior taxable year in any 
offering required to be registered with the Securities and 
Exchange Commission, or 
"(B) which, at any time during such taxable year or a prior 
taxable year, was subject to the annual reporting require-
ments of the Securities and Exchange Commission which 
relate to the protection of investors in the partnership." 
(b) CREDITS AND REFUNDS.— 
(1) IN GENERAL.—Section 6511 (relating to limitations on credit 26 USC 6511. 
or refund) is amended by redesignating subsection (g) as subsec-
tion (h) and by inserting after subsection (f) the following new 
subsection: 
"(g) SPECIAL RULE FOR PARTNERSHIP ITEMS OF FEDERALLY REGIS-
TERED PARTNERSHIPS.— 
"(1) IN GENERAL.—In the case of any tax imposed by subtitle A 
with respect to any person, the period for filing a claim for credit 
or refund of any overpayment attributable to any partnership 
item of a federally registered partnership shall not expire before 
the later o
f
— 
"(A) the date which is 4 years after the date prescribed by 
law (including extensions thereof) for filing the partnership 
return for the partnership taxable year in which the item 
arose, or 
"(B) if an agreement under the provisions of section 
6501(c)(4) extending the period for the assessment of any 
deficiency attributable to such partnership item is made 
before the date specified in subparagraph (A), the date 6 
months after the expiration of such extension. 
In any case to which the preceding sentence applies, the amount 
of the credit or refund may exceed the portion of the tax paid 
within the period provided in subsection (b)(2) or (c), whichever is 
applicable. 
"(2) DEFINITIONS.—For purposes of this subsection, the terms 
'partnership item' and 'federally registered partnership' have 
the same meanings as such terms have when used in section 
6501(q)." 
(2) TECHNICAL AMENDMENT.—Paragraph (2) of section 6512(b) 
26 USC 6512. 
(relating to overpayment determined by Tax Court) is amended 
by striking out "(c), or (d)" each place it appears and inserting in 
lieu thereof "(c), (d), or (g)". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 6501 
apply to partnership items arising in partnership taxable years 
"o*^-
beginning after December 31,1978. 
92 STAT. 2820 
PUBLIC LAW 95-600—NOV. 6, 1978 
TITLE III—PROVISIONS PRIMARILY 
AFFECTING BUSINESS INCOME TAX 
Subtitle A—Corporate Rate Reductions 
SEC. 301. CORPORATE RATE REDUCTIONS. 
26 use 11. 
(a) IN GENERAL.—Section 11 (relating to the tax imposed on 
corporations) is amended to read as follows: 
"SEC. 11. TAX IMPOSED. 
"(a) CORPORATIONS IN GENERAL.—A tax is hereby imposed for each 
taxable year on the taxable income of every corporation. 
"(b) AMOUNT OF TAX.—The amount of the tax imposed by subsec-
tion (a) shall be the sum o
f
— 
"(1) 17 percent of so much of the taxable income as does not 
exceed $25,000; 
"(2) 20 percent of so much of the taxable income as exceeds 
$25,000 but does not exceed $50,000; 
"(3) 30 percent of so much of the taxable income as exceeds 
$50,000 but does not exceed $75,000; 
"(4) 40 percent of so much of the taxable income as exceeds 
$75,000 but does not exceed $100,000; plus 
"(5) 46 percent of so much of the taxable income as exceeds 
$100,000. 
"(c) EXCEPTIONS.—Subsection (a) shall not apply to a corporation 
subject to a tax imposed by— 
26 use 594. 
"(1) section 594 (relating to mutual savings banks conducting 
life insurance business), 
26 use 801. 
"(2) subchapter L (sec. 801 and following, relating to insurance 
companies), or 
26 use 851. 
"(3) subchapter M (sec. 851 and following, relating to regulated 
investment companies and real estate investment trusts), 
"(d) FOREIGN CORPORATIONS.—In the case of a foreign corporation, 
the tax imposed by subsection (a) shall apply only as provided by 
26 use 882. 
section 882." 
(b) CONFORMING AMENDMENTS.— 
(1) CROSS REFERENCES RELATING TO CORPORATIONS.—Paragraph 
26 use 12. 
(7) of section 12 (relating to cross references relating to tax on 
corporations) is amended to read as follows: 
"(7) For limitation on benefits of graduated rate schedule provided in 
section 11(b), see section 1551." 
26 use 57. 
(2) MINIMUM TAX.—Subparagraph (B) of section 57(a)(9) (relat-
ing to capital gains preference for corporations) is amended by 
striking out "the sum of the normal tax rate and the surtax rate 
under section 11" each place it appears and inserting in lieu 
thereof "the highest rate of tax specified in section 11(b)". 
(3) DIVIDENDS RECEIVED ON CERTAIN PREFERRED STOCK.—Sub-
26 use 244. 
paragraph (B) of section 244(a)(2) (relating to dividends received 
on certain preferred stock) is amended by striking out "the sum 
of the normal tax rate and the surtax rate for the taxable year 
prescribed by section 11" and inserting in lieu thereof "the 
highest rate of tax specified in section 11(b)". 
(4) DIVIDENDS PAID ON CERTAIN PREFERRED STOCK OF PUBLIC 
26 use 247. 
UTILITIES.—Subparagraph (B) of section 247(a)(2) (relating to 
dividends paid on certain preferred stock of public utilities) is 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2821 
amended by striking out "the sum of the normal tax rate and the 
surtax rate for the taxable year specified in section 11" and 
inserting in lieu thereof "the highest rate of tax specified in 
section 11(b)". 
(5) TAX ON UNRELATED BUSINESS INCOME OF CHARITABLE, ETC., 
ORGANIZATIONS.— 
(A) IMPOSITION OF TAX.—Paragraph (1) of section 511(a) 26 U
S
C 511. 
(relating to charitable, etc., organizations taxable at corpora-
tion rates) is amended by striking out "a normal tax and a 
surtax" and inserting in lieu thereof "a tax". 
(B) ORGANIZATIONS SUBJECT TO TAX.—Paragraph (2) of 
section 511(a) is amended by striking out "taxes" each place 
it appears and inserting in lieu thereof "tax". 
(6) POLITICAL ORGANIZATIONS.—Paragraph (1) of section 527(b) 26 USC 527. 
(relating to tax imposed) is amended to read as follows: 
"(1) IN GENERAL.—A tax is hereby imposed for each taxable 
year on the political organization taxable income of every politi-
cal organization. Such tax shall be computed by multiplying the 
political organization taxable income by the highest rate of tax 
specified in section 11(b)." 
^^te, p. 2820. 
(7) HOMEOWNERS 
ASSOCIATIONS.—Paragraph (1) of section 
528(b) (relating to tax imposed) is amended to read as follows: 26 U
S
C 528. 
"(1) IN GENERAL.—A tax is hereby imposed for each taxable 
year on the homeowners association taxable income of every 
homeowners association. Such tax shall be computed by multi-
plying the homeowners association taxable income by the high-
est rate of tax specified in section 11(b)." 
(8) LIFE INSURANCE COMPANIES.—Paragraph (1) of section 802(a) 26 USC 802. 
(relating to tax imposed) is amended by striking out "a normal 
tax and surtax" and inserting in lieu thereof "a tax". 
(9) MUTUAL INSURANCE COMPANIES.— 
(A) IN GENERAL.—Subsection (a) of section 821 (relating to 26 USC 821. 
tax on mutual insurance companies to which part II applies) 
is amended to read as follows: 
"(a) IMPOSITION OF TAX.— 
"(1) IN GENERAL.—A tax is hereby imposed for each taxable 
year on the mutual insurance company taxable income of every 
mutual insurance company (other than a life insurance company 
and other than a fire, flood, or marine insurance company 
subject to the tax imposed by section 831). Such tax shall be 26 USC 831. 
computed by multiplying the mutual insurance company taxable 
income by the rates provided in section 11(b). 
"(2) CAP ON TAX WHERE INCOME IS LESS THAN $12,000.—The tax 
imposed by paragraph (1) shall not exceed 34 percent of the 
amount by which the mutual insurance company taxable income 
exceeds $6,000." 
(B) SMALL COMPANIES.—Paragraph (1) of section 821(c) 26 U
S
C 821. 
(relating to alternative tax for certain small companies) is 
amended to read as follows: 
"(1) IMPOSITION OF TAX.— 
"(A) IN GENERAL.—There is hereby imposed for each 
taxable year on the income of every mutual insurance 
company to which this subsection applies a tax (which shall 
be in lieu of the tax imposed by subsection (a)). Such tax shall 
be computed by multiplying the taxable investment income 
by the rates provided in section 11(b). 
92 STAT. 2822 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(B) CAP WHERE INCOME IS LESS THAN $6,000.—The tax 
imposed by subparagraph (A) shall not exceed 34 percent of 
the amount by which the taxable investment income exceeds 
$3,000." 
26 use 826. 
(10) ELECTION BY MUTUAL INSURANCE COMPANY WHICH IS A 
RECIPROCAL.—Paragraph (1) of section 826(c) (relating to excep-
tion) is amended to read as follows: 
Ante, p. 2820. 
"(1) is subject to the tax imposed by section 11;". 
(11) REGULATED INVESTMENT COMPANIES.—Paragraph (1) of 
26 use 852. 
section 852(b) (relating to method of taxation of companies and 
shareholders) is amended to read as follows: 
"(1) IMPOSITION OF TAX ON REGULATED INVESTMENT COMPA-
NIES.—There is hereby imposed for each taxable year upon the 
investment company taxable income of every regulated invest-
ment company a tax computed as provided in section 11, as 
though the investment company taxable income were the tax-
able income referred to in section 11." 
(12) REAL ESTATE INVESTMENT TRUSTS.—Paragraph (1) of section 
26 use 857. 
857(b) (relating to imposition of normal tax and surtax on real 
estate investment trusts) is amended to read as follows: 
"(1) IMPOSITION OF TAX ON REAL ESTATE INVESTMENT TRUSTS.— 
There is hereby imposed for each taxable year on the real estate 
investment trust taxable income of every real estate investment 
trust a tax computed as provided in section 11, as though the real 
estate investment trust taxable income were the taxable income 
referred to in section 11." 
(13) TAX ON INCOME OF FOREIGN CORPORATIONS CONNECTED WITH 
UNITED STATES BUSINESS.—The heading of subsection (a) of section 
26 use 882. 
882 (relating to tax on income of foreign corporations connected 
with United States business) and the heading of paragraph (1) of 
such subsection are amended to read as follows: 
"(a) IMPOSITION OF TAX.— 
"(1) IN GENERAL.—". 
26 use 907. 
(14) FOREIGN TAX CREDIT.—Paragraph (2) of section 907(a) 
(relating to reduction in amount allowed as foreign tax under 
26 use 901. 
section 901) is amended to read as follows: 
"(2) the percentage which is equal to the highest rate of tax 
specified in section 11(b)." 
(15) SPECIAL DEDUCTION FOR WESTERN HEMISPHERE TRADE CORPO-
26 use 922. 
RATION.—Subparagraph (B) of section 922(a)(2) (relating to gen-
eral rule) is amended by striking out "the sum of the normal tax 
rate and the surtax rate for the taxable year prescribed by 
section 11" and inserting in lieu thereof "the highest rate of tax 
specified in section 11(b)." 
(16) ELECTION BY INDIVIDUALS TO BE SUBJECT TO TAX AT CORPO-
26 use 962. 
RATE RATES.—Subsection (c) of section 962 (relating to surtax 
exemption with respect to individuals subject to tax at corporate 
rates) is amended to read as follows: 
"(c) PRO RATION OF EACH SECTION 11 BRACKET AMOUNT.—For 
purposes of applying subsection (a)(1), the amount in each taxable 
income bracket in the tax table in section 11(b) shall not exceed an 
amount which bears the same ratio to such bracket amount as the 
amount included in the gross income of the United States share-
26 use 951. 
holder under section 951(a) for the taxable year bears to such 
shareholder's pro rata share of the earnings and profits for the 
taxable year of all controlled foreign corporations with respect to 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2823 
which such shareholder includes any amount in gross income under 
section 951(a)." 
26 use 951. 
(17) TREATMENT OF RECOVERIES OF FOREIGN EXPROPRIATION 
LOSSES.—Paragraph (4) of section 1351(d) (relating to adjustment 26 U
S
C 1351. 
for prior tax benefits) is amended to read as follows: 
"(4) SUBSTITUTION OF CURRENT TAX RATE.—For purposes of this 
subsection, the rates of tax specified in section 11(b) for the ^nte, p. 2820. 
taxable year of the recovery shall be treated as having been in 
effect for all prior taxable years." 
(18) AMENDMENTS OF SECTION 1551.— 
26 use 1551. 
(A) Subsection (a) of section 1551 (relating to disallowance 
of surtax exemption and accumulated earnings credit) is 
amended— 
(i) by striking out "disallow the surtax exemption (as 
defined in section 11(d))" and inserting in lieu thereof 
"disallow the benefits of the rates contained in section 
11(b) which are lower than the highest rate specified in 
such section", and 
(ii) by striking out "such exemption or" and inserting 
in lieu thereof' 'such benefits or". 
(B) The section heading of section 1551 is amended to read 
as follows: 
"SEC. 1551. DISALLOWANCE OF THE BENEFITS OF THE GRADUATED COR- 26 USC 1551. 
PORATE RATES AND ACCUMULATED EARNINGS CREDIT." 
(C) The table of sections for part I of subchapter B of 
chapter 6 is amended by striking out the item relating to 
section 1551 and inserting in lieu thereof the following new 
item: 
"Sec. 1551. Disallowance of the benefits of the graduated corporate rates 
and accumulated earnings credit." 
(19) LIMITATIONS ON CERTAIN MULTIPLE TAX BENEFITS IN THE 
CASE OF C E R T A I N CONTROLLED CORPORATIONS.— 
(A) IN GENERAL.—Subsection (a) of section 1561 (relating to 26 use 1561. 
limitations on certain multiple tax benefits in the case of 
certain controlled corporations) is amended— 
(i) by striking out paragraph (1) and inserting in lieu 
thereof the following: 
"(1) amounts in each taxable income bracket in the tax table in 
section 11(b) which do not aggregate more than the maximum 
amount in such bracket to which a corporation which is not a 
component member of a controlled group is entitled,", 
(ii) by striking out "amount" each place it appears in 
the second sentence and inserting in lieu thereof 
"amounts", and 
(iii) by striking out the last sentence. 
(B) CERTAIN SHORT TAXABLE YEARS.—Paragraph (1) of sec-
tion 1561(b) (relating to certain short taxable years) is 
amended to read as follows: 
"(1) the amount in each taxable income bracket in the tax table 
in section 11(b),". 
(20) REPEAL OF CERTAIN OBSOLETE PROVISIONS.— 
(A) Subsection (c) of section 6154 (defining estimated tax) is 26 use 6154. 
amended to read as follows: 
"(c) ESTIMATED TAX DEFINED.—For purposes of this title, in the case 
of a corporation the term 'estimated tax' means the excess of— 
92 STAT. 2824 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(1) the amount which the corporation estimates as the 
amount of the income tax imposed by section 11 or 1201(a), or 
26 use 11, 
subchapter L of chapter 1, whichever is applicable, over 
9^^n<;r 
"^^^ ^^® amount which the corporation estimates as the sum of 
26 use 801. 
^j^g credits against tax provided by part IV of subchapter A of 
26 use 31. 
chapter 1." 
26 use 6655. 
(B) Subsection (e) of section 6655 (defining tax) is amended 
to read as follows: 
"(e) DEFINITION OF TAX.—For purposes of subsections (b) and (d), 
the term 'tax' means the excess of— 
"(1) the tax imposed by section 11 or 1201(a), or subchapter L of 
26 use 11, 
chapter 1, whichever is applicable, over 
}3^}-^ ^^, 
"(2) the credits against tax provided by part IV of subchapter A 
|6USe80le^ 
of chapter 1." 
26 use 31 et seq. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 11 note, apply to taxable years beginning after December 31,1978. 
Subtitle B—Credits 
SEC. 311. 10-PERCENT INVESTMENT TAX CREDIT AND $100,000 LIMITA-
TION ON USED PROPERTY MADE PERMANENT. 
(a) 10-PERCENT INVESTMENT CREDIT.—Subparagraph (B) of section 
26 use 46. 
46(a)(2) (defining regular percentage) is amended to read as follows: 
"(B) REGULAR PERCENTAGE.—For purposes of this para-
graph, the regular percentage is 10 percent." 
(b) $100,000 LIMITATION ON USED PROPERTY.—Paragraph (2) of 
26 use 48 note, section 301(c) of the Tax Reduction Act of 1975 (relating to effective 
date for increase of dollar limitation on used property) is amended by 
striking out", and before January 1,1981". 
(c) TECHNICAL AMENDMENTS.— 
26 use 46. 
(1) Subparagraph (A) of section 46(c)(3) (relating to public 
utility property) is amended by striking out "For the period 
beginning on January 1,1981" and inserting in lieu thereof "To 
the extent that the credit allowed by section 38 with respect to 
any public utility property is determined at the rate of 7 
percent". 
26 use 46. 
(2) The first sentence of section 46(f)(8) (relating to prohibition 
of immediate flow through) is amended by striking out "and the 
92 Stat. 3174. 
Energy Tax Act of 1978" and inserting in lieu thereof "the 
26 use 1 note. 
Energy Tax Act of 1978, and the Revenue Act of 1978". 
Ante, p. 2763. 
^ 
SEC. 312. INCREASE IN LIMITATION ON INVESTMENT CREDIT TO 90 PER-
CENT OF TAX LIABILITY 
(a) INCREASE IN GENERAL LIMITATION.—Paragraph (3) of section 
26 use 46. 
46(a) (relating to amount of credit) is amended to read as follows: 
"(3) LIMITATION BASED ON AMOUNT OF TAX.—Notwithstanding 
paragraph (1), the credit allowed by section 38 for the taxable 
year shall not exceed— 
"(A) so much of the liability for tax for the taxable year as 
does not exceed $25,000, plus 
"(B) the following percentage of so much of the liability for 
tax for the taxable year as exceeds $25,000: 
"If the taxable year ends in: 
The percentage is: 
• 
1979 
60 
1980 
70 
1981 
80 
1982 or thereafter 
90." 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2825 
(b) SPECIAL RULES FOR CERTAIN UTIUTIES, RAILROADS, AND AIR-
UNES.— 
(1) UTILITIES.—Paragraph (7) of section 46(a) (relating to alter- 26 use 46. 
native limitation in the case of certain utilities) is amended to 
read as follows: 
"(7) ALTERNATIVE LIMITATION IN THE CASE OF CERTAIN UTILI-
TIES.— 
"(A) IN GENERAL.—If, for the taxable year ending in 1979— 
"(i) the amount of the qualified investment of the 
taxpayer which is attributable to public utility property 
is 25 percent or more of his aggregate qualified invest-
ment, and 
"(ii) the application of this paragraph results in a 
percentage higher than 60 percent, 
then subparagraph (B) of paragraph (3) of this subsection 
shall be applied by substituting for '60 percent' the taxpay-
er's applicable percentage for such year. 
"(B) APPLICABLE PERCENTAGE.—The applicable percentage 
for any taxpayer for any taxable year ending in 1979 is— 
"(i) 50 percent, plus 
"(ii) that portion of 20 percent which the taxpayer's 
amount of qualified investment which is public utility 
property bears to his aggregate qualified investment. 
If the proportion referred to in clause (ii) is 75 percent or 
more, the applicable percentage of the taxpayer for the year 
shall be 70 percent. 
"(C) PUBLIC UTILITY PROPERTY DEFINED.—For purposes of 
this paragraph, the term 'public utility property' has the 
meaning given to such term by the first sentence of subsec-
tion (c)(3)(B)." 
(2) ALTERNATIVE LIMITATION IN THE CASE OF CERTAIN RAILROADS 
AND AIRLINES.—Subsection (a) of section 46 is amended by strik-
ing out paragraphs (8) and (9) and by inserting in lieu thereof the 
following new paragraph: 
"(8) ALTERNATIVE LIMITATION IN THE CASE OF CERTAIN RAIL-
ROADS AND AIRLINES.— 
"(A) IN GENERAL.—If^ for a taxable year ending in 1979 or 
1980— 
"(i) the amount of the qualified investment of the 
taxpayer which is attributable to railroad property or to 
airline property, as the case may be, is 25 percent or 
more of his aggregate qualified investment, and 
"(ii) the application of this paragraph results in a 
percentage higher than 60 percent (70 percent in the 
case of a taxable year ending in 1980), 
then subparagraph (B) of paragraph (3) of this subsection 
shall be applied by substituting for'60 percent'('70 percent' 
in the case of a taxable year ending in 1980) the taxpayer's 
applicable percentage for such year. 
"(B) APPLICABLE PERCENTAGE.—The applicable percentage 
of any taxpayer for any taxable year under this paragraph 
is— 
"(i) 50 percent, plus 
"(ii) that portion of the tentative percentage for the 
taxable year which the taxpayer's amount of qualified 
investment which is railroad property or airline prop-
39-194 O—80—pt. 3 
13 : QL3 
92 STAT. 2826 
. 
PUBLIC LAW 95-600—NOV. 6, 1978 
^* 
erty (as the case may be) bears to his aggregate qualified 
investment. 
If the proportion referred to in clause (ii) is 75 percent or 
more, the applicable percentage of the taxpayer for the 
taxable year shall be 90 percent (80 percent in the case of a 
taxable year ending in 1980). 
"(C) TENTATIVE PERCENTAGE.—For purposes of subpara-
graph (B), the tentative percentage shall be determined 
under the following table: 
"If the taxable year 
ends in: 
The 
tentative 
percentage 
is: 
1979 
40 
1980 
30 
"(D) RAILROAD PROPERTY DEFINED.—For purposes of this 
paragraph, the term 'railroad property' means section 38 
property used by the taxpayer directly in connection with 
the trade or business carried on by the taxpayer of operating 
a railroad (including a railroad switching or terminal 
company). 
"(E) AIRLINE PROPERTY DEFINED.—For purposes of this 
paragraph, the term 'airline property' means section 38 
property used by the taxpayer directly in connection with 
the trade or business carried on by the taxpayer of the 
furnishing or sale of transportation as a common carrier by 
air subject to the jurisdiction of the Civil Aeronautics Board 
or the Federal Aviation Administration." 
(c) REPEAL OF CERTAIN OBSOLETE PROVISIONS.— 
(1) Subsections (h), (i), and (j) of section 48 and sections 49 and 
50 are hereby repealed. 
(2) Paragraphs (1) and (2) of section 46(f) and subparagraph (B) 
of section 48(a)(7) are each amended by striking out "described in 
section 50". 
(3) Subparagraph (A) of section 48(a)(7) is amended by striking 
out "(other than pre-termination property)". 
(4) Subsection (i) of section 167 is hereby repealed. 
(5) The table of sections for subpart B of part IV of subchapter 
A of chapter 1 is amended by striking out the items relating to 
sections 49 and 50. 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years ending after December 31,1978. 
SEC. 313. INVESTMENT CREDIT FOR POLLUTION CONTROL FACILITIES. 
(a) IN GENERAL.—Paragraph (5) of section 46(c) (relating to applica-
ble percentage in the case of certain pollution control facilities) is 
amended to read as follows: 
"(5) APPLICABLE PERCENTAGE IN THE CASE OF CERTAIN POLLU-
TION CONTROL FACILITIES.— 
(A) IN GENERAL.—Notwithstanding paragraph (2), in the 
case of property— 
"(i) with respect to which an election under section 
26 use 169. 
169 applies, and 
"(ii) the useful life of which (determined without 
regard to section 169) is not less than 5 years. 
100 percent shall be the applicable percentage for purposes 
of applying paragraph (1) with respect to so much of the 
adjusted basis of the property as (after the application of 
section 169(f)) constitutes the amortizable basis for purposes 
of section 169. 
26 use 48, 
50. 
26 use 46. 
26 use 48. 
26 use 50. 
26 use 48. 
26 use 167 
26 use 46. 
26 use 49, 
26 use 46 
26 use 46. 
49, 
50. 
note 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2827 
' 
"(B) SPECIAL RULE WHERE PROPERTY IS FINANCED BY INDUS-
TRIAL DEVELOPMENT BONDS.—To the extent that any property 
is financed by the proceeds of an industrial development 
bond (within the meaning of section 103(b)(2)) the interest on 26 use 103. 
which is exempt from tax under section 103, subparagraph 
(A) shall be applied by substituting '50 percent' for '100 
percent'." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 46 note. 
apply to— 
(1) property acquired by the taxpayer after December 31,1978, 
and 
(2) property the construction, reconstruction, or erection of 
which was completed by the taxpayer after December 31, 1978 
(but only to the extent of the basis thereof attributable to 
construction, reconstruction, or erection after such date). 
SEC. 314. INVESTMENT CREDIT FOR CERTAIN SINGLE PURPOSE AGRI-
CULTURAL OR HORTICULTURAL STRUCTURES. 
(a) GENERAL RULE.—Paragraph (1) of section 48(a) (defining section 26 USC 48. 
38 property) is amended by striking out the period at the end of 26 USC 38. 
subparagraph (C) and inserting in lieu thereof ", or" and by inserting 
after subparagraph (C) the following new subparagraph: 
"(D) single purpose agricultural or horticultural struc-
tures." 
(b) DEFINITION OF SINGLE PURPOSE AGRICULTURAL OR HORTICUL-
TURAL STRUCTURES.—Section 48 is amended by redesignating subsec- 26 USC 48. 
tion (p) as subsection (q) and by inserting after subsection (o) the 
following new subsection: 
"(p) SINGLE PURPOSE AGRICULTURAL OR HORTICULTURAL STRUCTURE 
DEFINED.—For purposes of this section— 
"(1) IN GENERAL.—The term 'single purpose agricultural or 
horticultural structure' means— 
"(A) a single purpose livestock structure, and 
"(B) a single purpose horticultural structure. 
"(2) SINGLE PURPOSE LIVESTOCK STRUCTURE.—The term 'single 
purpose livestock structure' means any enclosure or structure 
specifically designed, constructed, and used— 
"(A) for housing, raising, and feeding a particular type of 
livestock and their produce, and 
"(B) for housing the equipment (including any replace-
ments) necessary for the housing, raising, and feeding re-
ferred to in subparagraph (A). 
"(3) SINGLE PURPOSE HORTICULTURAL STRUCTURE.—The term 
'single purpose horticultural structure' means— 
"(A) a greenhouse specifically designed, constructed, and 
used for the commerical production of plants, and 
"(B) a structure specifically designed, constructed and 
used for the commercial production of mushrooms. 
"(4) STRUCTURES WHICH INCLUDE WORK SPACE.—An enclosure 
or structure which provides work space shall be treated as a 
single purpose agricultural or horticultural structure only if 
such work space is solely for— 
"(A) the stocking, caring for, or collecting of livestock or 
plants (as the case may be) or their produce, 
"(B) the maintenance of the enclosure or structure, and 
"(C) the maintenance or replacement of the equipment or 
stock enclosed or housed therein. 
92 STAT. 2828 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 use 47. 
"(5) SPECIAL RULE FOR APPLYING SECTION 47.—For purposes of 
section 47, any single purpose agricultural or horticultural 
structure shall be treated as meeting the requirements of this 
subsection for any period during which such structure is held for 
the use under which it qualified under this subsection. 
"(6) LIVESTOCK.—The term 'livestock' includes poultry." 
26 use 48 note. 
(c) EFFECTIVE DATE.—The amendments made by subsections (a) and 
db) shEill apply to taxable years ending after August 15,1971. 
SEC. 315. INVESTMENT CREDIT ALLOWED FOR CERTAIN REHABILITATED 
BUILDINGS. 
26 use 48. 
(a) IN GENERAL.—Paragraph (1) of section 48(a) (defining section 38 
26 use 38. 
property) is amended by striking out the period at the end of 
subparagraph (D) and by inserting in lieu thereof "; or" and the 
following new subparagraph: 
"(E) in the case of a qualified rehabilitated building, that 
portion of the basis which is attributable to qualified reha-
bilitation expenditures (within the meaning of subsection 
(g))." 
(b) QUAUFIED REHABILITATED BUILDINGS DEFINED.—Section 48 is 
amended by inserting after subsection (f) the following new subsec-
tion: 
"(g) SPECIAL RULES FOR QUALIFIED REHABILITATED BUILDINGS.—For 
purposes of this subpart— 
"(1) QUALIFIED REHABILITATED BUILDING DEFINED.— 
"(A) IN GENERAL.—The term 'qualified rehabilitated build-
ing' means any building (and its structural components)— 
"(i) which has been rehabilitated, 
"(ii) which was placed in service before the beginning 
of the rehabilitation, and 
"(iii) 75 percent or more of the existing external walls 
of which are retained in place as external walls in the 
rehabilitation process. 
"(B) 20 YEARS MUST HAVE ELAPSED SINCE CONSTRUCTION OR 
PRIOR REHABILITATION.—A building shall not be a qualified 
rehabilitated building unless there is a period of at least 20 
years between— 
"(i) the date the physical work on this rehabilitation of 
the building began, and 
"(ii) the later of— 
"(I) the date such building was first placed in 
service, or 
.,,,,i 
"(II) the date such building was placed in service 
in connection with a prior rehabilitation with re-
spect to which a credit was allowed by reason of 
subsection (a)(1)(E). 
"(C) MAJOR PORTION TREATED AS SEPARATE BUILDING IN 
CERTAIN CASES.—Where there is a separate rehabilitation of 
a major portion of a building, such major portion shall be 
treated as a separate building. 
"(D) REHABILITATION INCLUDES RECONSTRUCTION.—Reha-
bilitation includes reconstruction. 
QUALIFIED REHABILITATION EXPENDITURE DEFINED.— 
(A) IN GENERAL.—The term 'qualified rehabilitation ex-
penditure' means any amount properly chargeable to capital 
account which is incurred after October 31,1978— 
"(i) for property (or additions or improvements to 
property) with a useful life of 5 years or more, and 
"(2)(^i 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2829 
"(ii) in connection with the rehabilitation of a quali-
fied rehabilitated building. 
"(B) CERTAIN EXPENDITURES NOT INCLUDED.—The term 
* 
'qualified rehabilitation expenditure' does not include— 
"(i) PROPERTY OTHERWISE SECTION 38 PROPERTY.—Any 26 use 38. 
expenditure for property which constitutes section 38 
property (determined without regard to subsection 
(a)(1)(E). 
"(ii) COST OF ACQUISITION.—The cost of acquiring any 
building or any interest therein. 
"(iii) ENLARGEMENTS.—Any expenditure attributable 
to the enlargement of the existing building. 
"(iv) CERTIFIED HISTORIC STRUCTURES.—Any expendi-
ture attributable to the rehabilitation of a certified 
historic structure (within the meaning of section 
191(d)(1)), unless the rehabilitation is a certified reha- 26 USC 191. 
bilitation (within the meaning of section 191(dX4)). 
"(3) PROPERTY TREATED AS NEW SECTION 38 PROPERTY.—Prop-
erty which is treated as section 38 property by reason of subsec-
tion (a)(1)(E) shall be treated as new section 38 property." 
(c) TECHNICAL AMENDMENT.—Paragraph (8) of section 48(a) (relat- 26 use 48. 
ing to amortized property) is amended by striking out "or 188" and 
inserting in lieu thereof "188, or 191". 
(d) EFFECTIVE DATE.—The amendments made by this section shall 26 use 48 note. 
apply to taxable years ending after October 31,1978; except that the 
amendment made by subsection (c) shall only apply with respect to 
property placed in service after such date. 
SEC. 316. TAX TREATMENT OF THE INVESTMENT CREDIT IN THE CASE OF 
COOPERATIVE ORGANIZATIONS. 
(a) IN GENERAL.—Section 46 (relating to amount of credit) is 26 use 46. 
amended by adding at the end thereof the following new subsection: 
"(h) SPECIAL RULES FOR COOPERATIVES.—In the case of a cooperative 
organization described in section 1381(a)— 
26 use 1381. 
"(1) that portion of the credit allowable to the organization 
under section 38 which the organization cannot use for the 
taxable year to which the qualified investment is attributable 
because of the limitation contained in subsection (a)(3) shall be 
allocated to the patrons of the organization, 
"(2) section 47 (relating to certain dispositions, etc., of section 26 use 47. 
38 property) shall be applied as if any allocated portion of the 
credit had been retained by the organization, and 
"(3) the idles necessary to carry out the purposes of this 
subsection shall be determined under regulations prescribed by 
the Secretary." 
(b) CONFORMING AMENDMENTS.— 
(1) Paragraph (1) of section 46(e) (relating to limitations in case 26 use 46. 
ofcertain persons) is amended— 
(A) by adding "and" at the end of subparagraph (A), 
(B) by striking out "and" at the end of subparagraph (B), 
and 
(C) by striking out subparagraph (C). 
(2) Paragraph (2) of section 46(e) is amended— 
(A) by adding "and" at the end of subparagraph (A), 
(B) by striking out, ", and" at the end of subparagraph (B) 
and inserting in lieu thereof a period, and 
(C) by striking out subparagraph (C). 
92 STAT. 2830 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 use 1388. 
(3) Section 1388 (relating to definitions and special rules for 
cooperative organizations) is amended by adding at the end 
thereof the following new subsection, 
"(j) CROSS REFERENCE.— 
* 
"For provisions relating to the apportionment of the investment credit 
between cooperative organizations and their patrons, see section 46(h)." 
26 use 46 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years ending after October 31,1978. 
SEC. 317. TRANSFERS TO CONRAIL NOT TREATED AS DISPOSITIONS FOR 
PURPOSES OF THE INVESTMENT CREDIT. 
26 use 47. 
(a) IN GENERAL.—Subsection (b) of section 47 (relating to certain 
26 use 38. 
disposition, etc., of section 38 property) is amended by striking out 
"or" at the end of paragraph (1), by striking out the period at the end 
of paragraph (2) and inserting in lieu thereof *
*
, or", and by inserting 
after paragraph (2) the following new paragraph: 
26 use 374. 
"(3) a transfer to which subsection (c) of section 374 (relating to 
exchanges under the final system plan for Ck>nR£dl) applies." 
26 use 47 note. 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply to taxable years ending after March 31,1976. 
Subtitle C—Targeted Jobs Credit; WIN Credit 
SEC. 321. TARGETED JOBS CREDIT. 
(a) IN GENERAL.—Section 51 (relating to amount of credit) is 
amended to read as follows: 
26 use 51. 
"SEC. 5L AMOUNT OF CREDIT. 
"(a) DETERMINATION OF AMOUNT.—The amount of the credit al-
Post, p. 2834. 
lowable by section 44B 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. 
"(b) QUALIFIED WAGES DEFINED.—For purposes of this subpart— 
"(1) IN GENERAL.—The term 'qualified wages' means the wages 
paid or incurred by the employer during the taxable year to 
individuals who are members of a targeted group. 
"(2) QuAUFiED FIRST-YEAR WAGES.—The term 'qualified first-
T :;-^ 
year wages' means, with respect to any individual, qualified 
wages attributable to service rendered during the 1-year period 
beginning with the day the individual begins work for the 
employer (or, in the case of a vocational rehabilitation referral, 
the day the individual begins work for the employer on or after 
the beginning of such individual's rehabilitation plan). 
"(3) QuAUFiED SECOND-YEAR WAGES.—The term 'qualified 
.<. 
second-year wages' means, with respect to any individual, the 
qualified wages attributable to service rendered during the 1-
year period beginning on the day after the last day of the 1-year 
period with respect to such individual determined under para-
graph (2). 
"(4) ONLY FIRST $6,000 OF WAGES PER YEAR TAKEN INTO AC-
COUNT.—The amount of the qualified first-year wages, and the 
amount of the qualified second-year wages, which may be taken 
into account with respect to any individual shall not exceed 
$6,000 per year. 
"(c) WAGES DEFINED.—For purposes of this subpart— 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2831 
"(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion and subsection (h)(2), the term 'wages' has the meaning 
given to such term by subsection (b) of section 3306 (determined 26 use 3306. 
without regard to any dollar limitation contained in such sec-
tion). 
"(2) EXCLUSION FOR EMPLOYERS RECEIVING ON-THE-JOB TRAINING 
PAYMENTS.—The term 'wages' shall not include any amounts 
paid 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. 
"(3) INDIVIDUALS FOR WHOM WIN CREDIT CLAIMED.—The term 
'wages' does not include any amount paid or incurred by the 
employer to an individual with respect to whom the employer 
claims credit under section 40. 
26 USC 40. 
"(4) TERMINATION.—The term 'wages' shall not include any 
amount paid or incurred after December 31,1980. 
"(d) MEMBERS OF TARGETED GROUPS.—For purposes of this sub-
part— 
"(1) IN GENERAL.—An individual is a member of a targeted 
group if such individual is— 
"(A) a vocational rehabilitation referral, 
"(B) an economically disadvantaged youth, 
"(C) an economically disadvantaged Vietnam-era veteran, 
"(D) an SSI recipient, 
"(E) a general assistance recipient, or 
"(F) a youth participating in a cooperative education 
program, or 
"(G) an economically disadvantaged ex-convict. 
"(2) VOCATIONAL REHABILITATION REFERRAL.—The term 'voca-
tional rehabilitation referral' means any individual who is certi-
fied by the designated local agency as— 
"(A) having a physical or mental disability which, for such 
individual, constitutes or results in a substantial handicap to 
employment, and 
i 
"(B) having been referred to the employer upon comple-
tion of (or while receiving) rehabilitative services pursuant 
to— 
"(i) an individualized written rehabilitation plan 
under a State plan for vocational rehabilitation services 
approved under the Rehabilitation Act of 1973, or 
29 USC 701 
"(ii) a program of vocational rehabilitation carried out 
under chapter 31 of title 38, United States Code. 
"(3) ECONOMICALLY DISADVANTAGED YOUTH.— 
"(A) IN GENERAL.—The term 'economically disadvantaged 
youth' means any individual who is certified by the designat-
ed local agency as— 
"(i) meeting the age requirements of subparagraph 
(B), and 
"(ii) being a member of an economically disadvan-
taged family (as determined under paragraph (9)). 
"(B) AGE REQUIREMENTS.—An individual meets the age 
requirements of this subparagraph if such individual has 
attained age 18 but not age 25 on the hiring date. 
"(4) VIETNAM VETERAN WHO IS A MEMBER OF AN ECONOMICALLY 
DISADVANTAGED FAMILY.—The term 'Vietnam veteran who is a 
member of an economically disadvantaged family' means any 
individual who is certified by the designated local agency as— 
note. 
92 STAT. 2832 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(A)(i) having served on active day (other than active duty 
for training) in the Armed Forces of the United States for a 
period of more than 180 days, any part of which occurred 
after August 4,1964, and before May 8,1975, or 
"(ii) having been discharged or released from active duty 
in the Armed Forces of the United States for a service-
connected disability if any part of such active duty was 
performed after August 4, 1964, and before May 8, 1975, 
"(B) not having any day during the premployment period 
which was a day of extended active duty in the Armed Forces 
of the United States, 
"(C) being a member of an economically disadvantaged 
family (determined under paragraph (9)), and 
"(D) not having attained the age of 35 on the hiring date. 
For purposes of subparagraph (B), the term 'extended active 
duty means a period of more than 90 days during which the 
individual was on active duty (other than active duty for train-
ing). 
"(5) SSI RECIPIENTS.—The term 'SSI recipient' means any 
individual who is certified by the designated local agency as 
receiving supplemental security income benefits under title XVI 
42 use 1381. 
of the Social Security Act (including supplemental security 
42 use I382e. 
income benefits of the type described in section 1616 of such Act 
87 Stat. 155. 
or Section 212 of Public Law 93-66) for any month ending in the 
pre-employment period. 
"(6) GENERAL ASSISTANCE RECIPIENTS.— 
"(A) IN GENERAL.—The term 'general assistance recipient' 
means any individual who is certified by the designated local 
agency as receiving assistance under a qualified general 
assistance program for any period of not less than 30 days 
ending within the preemployment period. 
"(B) QUALIFIED GENERAL ASSISTANCE PROGRAM.—The term 
'qualified general assistance program' means any program 
of a State or a political subdivision of a State— 
"(i) which provides general assistance or similar as-
sistance which— 
"(I) is based on need, and 
"(II) consists of money payments, and 
"(ii) which is designated by the Secretary (after con-
sultation with the Secretary of Health, Education, and 
Welfare) as meeting the requirements of clause (i). 
"(7) ECONOMICALLY DISADVANTAGED EX-CONVICT.—The term 
'economically disadvantaged ex-convict' means any individual 
who is certified by the designated local agency— 
"(A) as having been convicted of a felony under any statute 
of the United States or any State, 
"(B) as being a member of an economically disadvantaged 
family (as determined under paragraph (9)), and 
"(C) as having a hiring date which is not more than 5 years 
after the last date on which such individual was so convicted 
or was released from prison. 
"(8) YOUTH PARTICIPATING IN A QUAUFIED COOPERATIVE EDUCA-
TION PROGRAM.— 
"(A) IN GENERAL.—The term 'youth participating in a 
qualified cooperative education program' means any individ-
ual who is certified by the school participating in the 
program as— 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2833 
"(i) having attained age 16 and not having attained 
age 19, 
"(ii) not having graduated from a high school or 
vocational school, and 
"(iii) being enrolled in and actively pursuing a quali-
fied cooperative education program. 
"(B) 
QUALIFIED COOPERATIVE EDUCATION PROGRAM DE-
FINED.—The term 'qualified cooperative education program' 
means a program of vocational education for individuals 
who (through written cooperative arrangements between a 
qualified school and 1 or more employers) receive instruction 
(including required academic instruction) by alternation of 
study and school with a job in any occupational field (but 
only if these 2 experiences are planned by the school and 
employer so that each contributes to the student's education 
and employability). 
"(C) QUALIFIED SCHOOL DEFINED.—The term 'qualified 
school' means— 
"(i) a specialized high school used exclusively or prin-
cipally for the provision of vocational education to 
individuals who are available for study in preparation 
for entering the labor market, 
"(ii) the department of a high school exclusively or 
principally used for providing vocational education to 
persons who are available for study in preparation for 
entering the labor market, or 
"(iii) a technical or vocational school used exclusively 
or principally for the provision of vocational education 
to persons who have completed or left high school and 
who are available for study in preparation for entering 
the labor market. 
A school which is not a public school shall be treated as a 
qualified school only if it is exempt from tax under section 
501(a). 
26 use 501. 
"(D) 
INDIVIDUAL MUST BE CURRENTLY PURSUING PRO-
GRAM.—Wages shall be taken into account with respect to a 
qualified cooperative education program only if the wages 
are attributable to services performed while the individual 
^
^ 
meets the requirements of subparagraph (A). 
"(9) MEMBERS OF ECONOMICALLY DISADVANTAGED FAMILIES.—An 
individual is a member of an economically disadvantaged family 
if the designated local agency determines that such individual 
was a member of a family which had an income during the 6 
months immediately preceding the month in which the hiring 
date occurs, which, on an annual basis would be less than 70 
percent of the Bureau of Labor Statistics lower living standard. 
"(10) PREEMPLOYMENT PERIOD.—The term 'preemployment 
period' means the 60-day period ending on the hiring date. 
"(11) HIRING DATE.—The term 'hiring date' means the day the 
individual is hired by the employer. 
"(12) DESIGNATED LOCAL AGENCY.—The term 'designated local 
agency' means the agency for any locality designated jointly by 
^ 
the Secretary and the Secretary of Labor to perform certification 
of employees for employer in that locality. 
"(e) QUALIFIED FIRST-YEAR WAGES CANNOT EXCEED 30 PERCENT OF 
FUTA WAGES FOR ALL EMPLOYEES.—The amount of the qualified 
first-year wages which may be taken into account under subsection 
92 STAT. 2834 
PUBLIC LAW 95-600—NOV. 6, 1978 
(a)(1) for any taxable year shall not exceed 30 percent of the aggregate 
unemployment insurance wages paid by the employer during the 
calendar year ending in such taxable year. For purposes of the 
preceding sentence, the term 'unemployment insurance wages' has 
26 use 3306. 
the meaning given to the term 'wages by section 3306(b). 
"(f) REMUNERATION MUST BE FOR TRADE OR BUSINESS EMPLOY-
MENT.— 
"(1) IN GENERAL.—For purposes of this subpart, remuneration 
paid by an employer to an employee during any year shall be 
taken into account only if more than one-half of the remunera-
tion so paid is for services performed in a trade or business of the 
employer. 
"(2) SPECIAL RULE FOR CERTAIN DETERMINATION.—Any determi-
nation as to whether paragraph (1), or subparagraph (A) or (B) of 
subsection (h)(1), applies with respect to any employee for any 
year shall be made without regard to subsections (a) and (b) of 
26 use 52. 
section 52. 
"(3) YEAR DEFINED.—For purposes of this subsection and sub-
section (h), the term 'year' means the taxable year; except that, 
for purposes of applying so much of such subsections as relates to 
subsection (e), such term means the calendar year. 
"(g) SECRETARY OF LABOR TO NOTIFY EMPLOYERS OF AVAILABILITY OF 
CREDIT.—The Secretary of Labor, in consultation with the Internal 
Revenue Service, shall take such steps as may be necessary or 
appropriate to keep employers apprised of the availability of the 
Infra. 
Credit provided by section 44B. 
"(h) SPECIAL RULES FOR AGRICULTURAL LABOR AND RAILWAY 
LABOR.—For purposes of this subpart— 
"(1) UNEMPLOYMENT INSURANCE WAGES.— 
"(A) AGRICULTURAL LABOR.—If the services performed by 
any employee for an employer during more than one-half of 
any pay period (within the meaning of section 3306(d)) taken 
into account with respect to any year constitute agricultural 
labor (within the meaning of section 3306(k)), the term 
'unemployment insurance wages' means, with respect to the 
remuneration paid by the employer to such employee for 
such year, an amount equal to so much of such remuneration 
26 use 3121. 
as constitutes 'wages' within the meaning of section 3121(a), 
except that the contribution and benefit base for each 
calendar year shall be deemed to be $6,000. 
"(B) RAILWAY LABOR.—If more than one-half of remunera-
tion paid by an employer to an employee during any year is 
remuneration for service described in section 3306(c)(9), the 
term 'unemployment insurance wages' means, with respect 
to such employee for such year, an amount equal to so much 
of the remuneration paid to such employee during such year 
which would be subject to contributions under section 8(a) of 
the Railroad Unemployment Insurance Act (45 U.S.C. 358(a)) 
if the maximum amount subject to such contributions were 
$500 per month. 
"(2) WAGES.—In any case to which subparagraph (A) or (B) of 
paragraph (1) applies, the term 'wages' means unemployment 
insurance wages (determined without regard to any dollar limi-
tation)." 
O
t
)
) JOBS CREDIT MADE ELECTIVE.— 
26 use 44B. 
(1) Section 44B (relating to credit for employment of certain 
new employees) is amended— 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2835 
(A) by striking out "There shall be allowed" in subsection 
(a) and inserting in lieu thereof "At the election at the 
taxpayer, there shall be allowed", and 
(6) by adding at the end thereof the following new subsec-
tion: 
"(c) ELECTION.— 
"(1) TIME FOR MAKING ELECTION.—An election under subsection 
(a) 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). 
"(2) MANNER OP MAKING ELECTION.—Any election under sub-
section (a) (or revocation thereof) shall be made in such manner 
as the Secretary may be regulations prescribe." 
(2) Section 6501 (relating to limitations on assessment and 26 use 6501. 
collection) is amended by adding at the end thereof the following 
new subsection: 
"(q) DEFICIENCY ATTRIBUTABLE TO ELECTION UNDER SECTION 44B.— 26 use 44B. 
The period for assessing a deficiency attributable to any election 
under section 44B (or any revocation thereof) shall not expire before 
the date 1 year after the date on which the Secretary is notified of 
such election (or revocation)." 
(c) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) AMENDMENTS OF SECTION 52.— 
26 use 52. 
(A) Section 52 (relating to special rules for computing 
credit for employment of certain new employees) is 
amended— 
(i) by striking out subsections (c), (e), (i), and (j), and 
(ii) by redesignating subsections (d), (f), (g), and (h) as 
subsections (c), (d), (e), and (f), respectively. 
(B) Subsections (a) and (b) of section 52 are each amended 
by striking out "proportionate contribution to the increase 
in unemployment insurance wages" and inserting in lieu 
thereof "proportionate share of the wages". 
(C) Subsection (e) of section 52 (as redesignated by subpara-
graph (A)) is amended— 
(i) by adding "and" at the end of paragraph (1); 
(ii) by striking out ", and" at the end of paragraph (2) 
and inserting a period; and 
(iii) by striking out paragraph (3). 
(2) AMENDMENTS OF SECTION 53.— 
26 use 53. 
(A) Subsection (a) of section 53 is amended by striking out 
"the amount of the tax imposed by this chapter for the 
taxable year, reduced by" and inserting in lieu thereof "90 
percent of the excess of the tax imposed by this chapter for 
the taxable year over the sum of'. 
(B) Section 53 (relating to limitation based on amount of 
tax is amended by striking out subsection (b) and by redesig-
nating subsection (c) as subsection (b), 
(d) EFFECTIVE DATE.— 
26 use 5i note. 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply to 
amounts paid or incurred after December 31, 1978, in taxable 
years ending after such date. 
(2) SPECIAL RULES FOR NEWLY TARGETED GROUPS.— 
I
f 
(A) INDIVIDUAL MUST BE HIRED AFTER SEPTEMBER 26,1978.— 
In the case of a member of a newly targeted groups 
92 STAT. 2836 
PUBLIC LAW 95-600—NOV. 6, 1978 
(i) such individual shall be taken into account for 
purposes of the credit allowable by section 44B of the 
Ante, p. 2834. 
Internal Revenue Code of 1954 only if such individual is 
first hired by the employer after September 26,1978, and 
(ii) such individual shall be treated for purposes of 
such credit as having first begun work for the employer 
not earlier than January 1,1979. 
(B) MEMBER OF NEWLY TARGETED GROUP DEFINED.—^For 
purposes of subparagraph (A), an individual is a member of a 
newly targeted group i
f
— 
(i) such individual meets the requirements of subpara-
graph (A), (C), (D), (E), (F), or (G) of section 51(d)(1) of 
Ante, p. 2830. 
such Codo, and 
(ii) in the case of an individual meeting the require-
ments of subparagraph (A) of such section 51(d)(1), a 
credit was not claimed for such individual by the tax-
payer for a taxable year beginning before January 1, 
1979. 
(3) TRANSITIONAL RULE.—In the case of a taxable year which 
begins in 1978 and ends after December 81,1978, the amount of 
the credit allowable by section 44B of the Internal Revenue Ckxle 
26 use 53. 
of 1954 (determined without regard to section 53 of such Code) 
shall be the sum o
f
— 
(A) the amount of the credit which would be so allowable 
without regard to the amendments made by this section, 
plus 
(B) the amount which would be so allowable by reason of 
the amendments made by this section. 
26 use 53 note. 
(4) S
U
B
S
E
C
T
I
O
N (c)(2).—The amendments made by subsection 
(u)(2) shall apply to taxable years beginning after December 31, 
1978. 
SEC. 322. WORK INCENTIVE PROGRAM CREDIT CHANGES. 
26 use 50A. 
(a) CHANGES IN AMOUNT OF CREDIT.—Section 50A(a) (relating to 
amount of credit) is amended by striking out paragraphs (1) and (2) 
and inserting in lieu thereof the following: 
"(1) GENERAL RULE.—The amount of the credit allowed by 
26 use 40. 
section 40 for the taxable year shall be equal to the sum o
f
— 
"(A) 50 percent of the first-year work incentive program 
expenses, and 
(B) 25 percent of the second-year work incentive program 
expenses. 
"(2) LIMITATION BASED ON AMOUNT OF TAX.—Notwithstanding 
paragraph (1), the amount of the credit allowed by section 40 for 
the taxable year shall not exceed the liability for tax for the 
taxable year.". 
26 use 50A. 
(b) CHANGES IN LIMITATIONS.—Subsection (a) of section 50A is 
amended by striking out paragraphs (4), (5), and (6) and by inserting 
immediately after paragraph (3) the following new paragraph: 
"(4) LIMITATION WITH RESPECT TO NONBUSINESS ELIGIBLE 
EMPLOYEES.— 
"(A) IN GENERAL.—In the case of any work incentive 
program expenses paid or incurred by the taxpayer during 
the taxable year to eligible employees whose services are not 
performed in connection with a trade or business of the 
taxpayer— 
"(i) paragraph (1)(A) shall be applied by substituting 
*35 percent for '50 percent', 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2837 
' 
"(ii) subparagraph (B)ofparagraph(l) shall not apply, 
and 
"(iii) the aggregate amount of such work incentive 
program expenses which may be taken into account 
under paragraph (1) for such taxable year may not 
exceed $12,000. 
"(B) DEPENDENT CARE CREDIT MAY NOT BE CLAIMED.—No 
credit shall be allowed under section 44A with respect to any ^nte, p. 2834. 
amounts paid or incurred by the taxpayer with respect to 
which the taxpayer is allowed a credit under section 40. 26 USC 40. 
"(C) MARRIED INDIVIDUALS.—In the case of a husband or 
wife who files a separate return, subparagraph (A) shall be 
applied by substituting '$6,000' and '$12,000'. The preceding 
sentence shall not apply if the spouse of the taxpayer has no 
work incentive program expenses described in such subpara-
graph for the taxable year.". 
(c) REPEAL OF PROVISIONS PERMITTING RECOVERY OF CREDIT.— 
Section 50A is amended by striking out subsections (c) and (d). 26 USC 50A. 
(d) CHANGES IN DEFINITIONS AND SPECIAL RULES.— 
(1) Subsection (a) of section 50B (relating to work incentive 26 U
S
C 50B. 
program expenses) is amended to read as follows: 
"(a) WORK INCENTIVE PROGRAM EXPENSES.—For purposes of this 
subpart— 
"(1) IN GENERAL.—The term 'work incentive program ex-
penses' means the amount of wages paid or incurred by the 
taxpayer for services rendered by eligible employees. 
"(2) 
FIRST-YEAR WORK INCENTIVE PROGRAM EXPENSES.—The 
term 'first-year work incentive program expenses' means, with 
respect to any eligible employee, work incentive program ex-
penses attributable to service rendered during the one-year 
period which begins on the day the eligible employee begins work 
for the taxpayer. 
"(3) SECOND-YEAR WORK INCENTIVE PROGRAM EXPENSES.—The 
term 'second-year work incentive program expenses' means, 
with respect to any eligible employee, work incentive program 
expenses attributable to service rendered during the one-year 
period which begins on the day after the last day of the one-year 
period described in paragraph (2). 
"(4) LIMITATION ON AMOUNT OF WORK INCENTIVE PROGRAM 
EXPENSES.—Theamountof the work incentive program expenses 
taken into account with respect to any eligible employee for any 
one-year period described in paragraph (2) or (3) (as the case may 
be) shall not exceed $6,000." 
(2) Subsection (c) of section 50B is amended by striking out 
paragraphs (1) and (4) and by redesignating paragraphs (2), (3), 
and (5) as paragraphs (1), (2), and (3), respectively. 
(3) Subsection (e) of section 50B (relating to estates and trusts) 
is amended— 
(A) by inserting "and" at the end of paragraph (1), 
(B) by striking out ", and" at the end of paragraph (2) and 
inserting in lieu thereof a period, and 
(C) by striking out paragraph (3). 
(4) Section SOB is amended by redesignating subsections (g) and 
(h) as subsections (h) and (i), respectively, and by inserting after 
subsection (f) the following new subsection: 
"(g) SPECIAL RULES FOR CONTROLLED GROUPS.— 
92 STAT. 2838 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(1) CONTROLLED GROUP OF CORPORATIONS.—For purposes of 
this subpart, all employees of all corporations which are mem-
bers of the same controlled group of corporations shall be treated 
as employed by a single employer. In any such case, the credit (if 
26 use 40. 
any) allowable by section 40 to each such member shall be its 
proportionate share of the work incentive program expenses 
giving rise to such credit. For purposes of this subsection, the 
term 'controlled group of corporations' has the meaning given to 
26 use 1563. 
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(aXl), 
and 
"(B) the determination shall be made without regard to 
subsections (a)(4) and (e)(3)(C) of section 1563. 
"(2) EMPLOYEES OF PARTNERSHIPS, PROPRIETORSHIPS, ETC., WHICH 
ARE UNDER C
O
M
M
O
N CONTROL.—For purposes of this subpart, 
under regulations prescribed by the Secretary— 
"(A) all employees of trades or business (whether or not 
incorporated) which are under common control shall be 
treated as employed by a single employer, and 
26 use 40. 
"(B) the credit (if any) allowable by section 40 with respect 
to each trade or business shall be its proportionate share of 
the work incentive program expenses giving to such credit. 
The regulations prescribed under this paragraph shall be based 
on principles similar to the principles which apply in the case of 
paragraph (1)." 
(5) Paragraph (1) of subsection (h) (as redesignated by para-
26 use SOB. 
graph (4)) of section 50B (relating to eligible employee) is 
amended to read as follows: 
"(1) EuGiBLE EMPLOYEE.—For purposes of this subpart the 
term 'eligible employee' means an individual— 
"(A) who has been certified by the Secretary of Labor or by 
the appropriate agency of State or local government as— 
"(i) being eligible for financial assistance under part A 
42 use 601. 
of title IV of the Social Security Act and as having 
continually received such financial assistance during 
the 9-day period which immediately precedes the date 
on which such individual is hired by the employer, or 
"(ii) having been placed in employment under a work 
incentive program established under section 432(bXl) of 
42 use 632. 
the Social Security Act, 
"(B) who has been employed by the taxpayer for a period in 
excess of 30 consecutive days on a substantially full-time 
basis, 
"(C) who has not displaced any other individual from 
emplojnnent by the taxpayer, and 
"(D) who is not a migrant worker. 
The term 'eligible employee' includes an employee of the tax-
payer whose services are not performed in connection with a 
trade or business of the taxpayer.", 
(d) DEDUCTION FOR WAGES REDUCED BY AMOUNT OF CREDIT.— 
26 use 28oe. 
(1) Section 280C (relating to portion of wages for which credit is 
Ante, p. 2834. 
claimed under section 44B) is amended— 
(A) by striking our "SECTION 44B" in the caption and 
inserting in lieu thereof "SECTION 40 OR 44B", 
(B) by inserting "
O
t
>
) RULE FOR SECTION 44B CREDIT.—" 
immediately before "No deduction", 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2839 
(C) by striking out "this section shall be applied" and 
inserting in lieu thereof "this subsection shall be applied" in 
the second sentence, and 
(D) by inserting immediately after the caption of such 
-
section the following new subsection: 
"(a) RULE FOR SECTION 40 CREDIT.—No deduction shall be allowed 
26 USC 40. 
for that portion of the work incentive program expenses paid or 
incurred for the taxable year which is equal to the amount of the 
credit allowable for the taxable year under section 40 (relating to 
credit for expenses of work incentive programs) determined without 
regard to the provisions of section 50A(a)(2) (relating to limitation 
Ante, p. 2836. 
based on amount of tax). In the case of a corporation which is a 
member of a controlled group of corporations (within the meaning of 
section 50B(g)(l)) or a trade or business which is treated as being Ante, p. 2837. 
under common control with other trades or businesses (within the 
meaning of section 50B(g)(2), this subsection shall be applied under 
rules prescribed by the Secretary similar to the rules applicable 
under paragraphs (1) and (2) of section 50B(g).". 
(e) EFFECTIVE DATE.— 
26 USC 50A 
(1) IN GENERAL.—Except as otherwise provided in this subsec- "ot^. 
tion, the amendments made by this section shall apply to work 
incentive program expenses paid or incurred after December 31, 
1978, in taxable years ending after such date; except that so 
much of the amendment made by subsection (a) as affects section 
50A(a)(2) of the Internal Revenue Code of 1954 shall apply to 
taxable years beginning after December 31,1978. 
(2) SPECIAL RULES FOR CERTAIN ELIGIBLE EMPLOYEES.— 
(A) 
ELIGIBLE 
EMPLOYEES HIRED BEFORE SEPTEMBER 
27, 
1978.—In the case of any eligible employee (as defined in 
section 50B(h)) hired before September 27, 1978, no credit 
Ante, p. 2837. 
shall be allowed under section 40 with respect to second-year 
work incentive program expenses (as defined in section 
50B(a)) attributable to service performed by such employee. Ante, p. 2837. 
(B) ELIGIBLE EMPLOYEES HIRED AFTER SEPTEMBER 26,1978.— 
In the case of any eligible employee (as defined in section 
50B(h)) hired after September 27,1978, such individual shall 
be treated for purposes of the credit allowed by section 40 as 
26 USC 40. 
having first begun work for the taxpayer not earlier than 
January 1,1979. 
Subtitle D—Tax-Exempt Bonds 
PART I—INDUSTRIAL DEVELOPMENT BONDS 
SEC. 331. INCREASE IN LIMIT ON SMALL ISSUES OF INDUSTRIAL DEVEL-
OPMENT BONDS. 
(a) GENERAL RULE.—Subparagraph (D) of section 103(b)(6) (relating 
26 USC 103. 
to $5,000,000 limit in certain cases) is amended by striking out 
"$5,000,000" in the heading and in the text and inserting in lieu 
thereof "$10,000,000". 
(b) 
TREATMENT 
OF 
CERTAIN 
URBAN 
DEVELOPMENT 
ACTION 
GRANTS.—Paragraph (6) of section 103(b) (relating to exemption for 
certain small issues) is amended by adding at the end thereof the 
following new subparagraph: 
"(I) AGGREGATE AMOUNT OF CAPITAL EXPENDITURES WHERE 
THERE IS URBAN DEVELOPMENT ACTION GRANT.—In the case of 
any issue substantially all of the proceeds of which are to be 
92 STAT. 2840 
PUBLIC LAW 95-600—NOV. 6, 1978 
used to provide facilities with respect to which an urban 
development action grant has been made under section 119 
42 use 5301 
of the Housing and Community Development Act of 1974, 
note. 
capital expenditures of not to exceed $10,000,000 shall not be 
taken into account for purposes of applying subparagraph 
(D)(ii)." 
26 use 103 
(c) EFFECTIVE DATES.— 
"°*^- 
(1) The amendments made by subsection (a) shall apply to— 
(A) obligations issued after December 31, 1978, in taxable 
years ending after such date, and 
(B) capital expenditures made after December 31, 1978, 
with respect to obligations issued before January 1, 1979. 
(2) The amendment made by subsection 0^) shall apply to— 
(A) obligations issued after September 30,1979, in taxable 
years ending after such date, and 
(B) capital expenditures made after September 30, 1979, 
with respect to obligations issued after such date. 
SEC. 332. LOCAL FURNISHING OF ELECTRIC ENERGY. 
26 use 103. 
(a) IN GENERAL.—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 (E), the local furnishing of 
electric energy from a facility shall include furnishing solely 
within the area consisting of a city and 1 contiguous county." 
26 use 103 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
note- 
apply to taxable years ending after April 30, 1968, but only with 
respect to obligations issued after such date. 
SEC. 333. INDUSTRIAL DEVELOPMENT BONDS FOR WATER FACILITIES. 
26 use 103. 
(a) IN GENERAL.—Subparagraph (G) of section 103(b)(4) (relating to 
industrial development bonds) is amended to read as follows: 
"(G) facilities for the furnishing of water for any purpose 
if— 
"(i) the water is or will be made available to members 
of the general public (including electric utility, indus-
trial, agricultural, or commercial users), and 
"(ii) either the facilities are operated by a governmen-
tal unit or the rates for the furnishing or sale of the 
water have been established or approved by a State or 
political subdivision thereof, by an agency or instrumen-
tality of the United States, or by a public service or 
public utility commission or other similar body of any 
State or political subdivision thereof." 
26 use 103 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
note. 
apply to obligations issued after the date of the enactment of this Act 
in taxable years ending after such date. 
SEC. 334. ADVANCE REFUNDING OF INDUSTRIAL DEVELOPMENT 
BONDS FOR CERTAIN PUBLIC WORKS. 
26 use 103. 
(a) IN GENERAL.—Subsection Oa) of section 103 (relating to indus-
trial development bonds) is amended by redesignating paragraph (7) 
as paragraph (8) and by inserting after paragraph (6) the following 
new paragraph: 
"(7) ADVANCE REFUNDING OF QUALIFIED PUBLIC FACILITIES.— 
"(A) IN GENERAL.—Paragraph (1) shall not apply to a 
refunding issue if substantially all the proceeds of the 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2^541 
refunded issue were used to provide a qualified public 
facility. 
"(B) QUALIFIED PUBUC FACIUTY DEFINED.—For purposes of 
subparagraph (A), the term 'qualified public facility' means 
facilities described in subparagraph (C) or (D) of paragraph 
(4) which are generally available to the general public." 
(b) OBUGATION MAY NOT BE HELD BY SUBSTANTIAL USER.—Para- 26 use 103. 
graph (8) of section 103(b) (as redesignated by subsection (a)) is 
amended by striking out "and (6)" and inserting in lieu thereof "(6), 
and (7)". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 103 
apply to obligations issued after the date of the enactment of this "ot^. 
Act. 
PART II—OTHER TAX-EXEMPT BOND PROVISIONS 
SEC. 336. DECLARATORY JUDGMENT PROCEDURE FOR JUDICIAL REVIEW 
OF DETERMINATIONS RELATING TO GOVERNMENTAL OBLI-
GATIONS. 
(a) IN GENERAL.—Part IV of subchapter C of chapter 76 (relating to 
declaratory judgments) is amended by adding at the end thereof the 
following new section: 
"SEC. 7478. DECLARATORY JUDGMENTS RELATING TO STATUS OF CER. 26 USC 7478. 
TAIN GOVERNMENTAL OBLIGATIONS. 
"(a) CREATION OF REMEDY.—In a case of actual controversy 
involving— 
"(1) a determination by the Secretary whether prospective 
obligations are described in section 103(a), or 
26 USC 103. 
"(2) a failure by the Secretary to make a determination with 
respect to any matter referred to in paragraph (1), 
upon the filing of an appropriate pleading, the Tax Court may make a 
declaration whether such prospective obligations are described in 
section 103(a). Any such declaration shall have the force and effect of 
a decision of the Tax Court and shall be reviewable as such. 
"(b) LIMITATIONS.— 
"(1) PETITIONER.—A pleading may be filed under this section 
only by the prospective issuer. 
"(2) EXHAUSTION OF ADMINISTRATIVE REMEDIES.—The court 
shall not issue a declaratory judgment or decree under this 
section in any proceeding unless it determines that the petitioner 
has exhausted all available administrative remedies within the 
Internal Revenue Service. A petitioner shall be deemed to have 
exhausted its administrative remedies with respect to a failure of 
the Secretary to make a determination with respect to an issue of 
obligations at the expiration of 180 days after the date on which 
the request for such determination was made if the petitioner 
has taken, in a timely manner, all reasonable steps to secure 
such determination. 
"(3) TIME FOR BRINGING ACTION.—If the Secretary sends by 
certified or registered mail notice of his determination as de-
scribed in subsection (a)(1) to the petitioner, no proceeding may 
be initiated under this section unless the pleading is filed before 
the 91st day after the date of such mailing. 
(b) AUTHORITY OF TAX COURT To ASSIGN PROCEEDINGS TO COMMIS-
SIONERS.— 
(1) IN GENERAL.—Subsection (c) of section 7456 (relating to 
26 USC 7456. 
commissioners of the Tax Court) is amended by adding at the end 
thereof the following new sentence: "The chief judge may assign 
39-194 O—80—pt. 3 
14 : QL3 
92 STAT. 2842 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 use 7428, 
proceedings under sections 7428,7476,7477, and 7478 to be heard 
7476, 7477, 
{,y I\IQ commissioners of the court, and the court may authorize a 
^'^^^- 
commissioner to make the decision of the court with respect to 
such proceedings, subject to such conditions and review as the 
court may by rule provide." 
(2) TECHNICAL AMENDMENTS.— 
26 use 7476. 
(A) Section 7476 is amended by striking out subsection (c) 
and by redesignating subsections (d) and (e) and subsections 
(c) and (d), respectively. 
26 use 7477. 
(B) Section 7477 is amended by striking out subsection (c). 
(c) TECHNICAL AND CONFORMING AMENDMENTS.— 
26 use 7482. 
(1) Paragraph (1) of section 74820)) (relating to venue for appeal 
of decision of Tax Court) is amended— 
(A) by striking out "provided in paragraph (2)" in para-
graph (1) and inserting in lieu thereof "provided in para-
graphs (2) and (3)", and 
(B) by adding at the end thereof the following new 
paragraph: 
"(3) DECLARATORY JUDGMENT ACTIONS RELATING TO STATUS OF 
CERTAIN GOVERNMENTAL OBLIGATIONS.—In the case of any deci-
26 use 7478. 
gion of the Tax Court in a proceeding under section 7478, such 
decision may only be reviewed by the Court of Appeals for the 
- 
District of Columbia." 
(2) The table of sections for part IV of subchapter C of chapter 
26 use 7476. 
76 is amended by adding at the end thereof the following new 
item: 
"Sec. 7478. Declaratory judgments relating to status of certain governmental 
obligations." 
26 use 7478 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
note- 
apply to requests for determinations made after December 81,1978. 
SEC. 337. DISPOSITION OF AMOUNTS GENERATED BY ADVANCE REFUND-
ING OF CERTAIN GOVERNMENTAL OBLIGATIONS. 
26 use 103 
(a) GENERAL RULE.—The payment to a charitable organization or a 
"
<
*
*
*
• 
refund profit held in a trust fund or escrow arrangement, or held by 
an underwriter or other person under a qualified agreement in 
accordance with that agreement— 
(1) shall not cause the refunding obligations out of which the 
refund profit arose to be treated as arbitrage bonds (within the 
26 use 103. 
meaning of section 103(c) of the Internal Revenue Code of 1954) 
and 
(2) may be paid without penalty imposed on the issuer of such 
obligations. 
(b) RULE FOR GOVERNMENTS WHICH HAVE ALREADY PAID ARBITRAGE 
PROFITS TO THE UNITED STATES.—In the case of a State or local 
government which, before January 1,1977— 
(1) requested in writing a rule by the Internal Revenue Service 
with respect to the tax consequences of paying refund profit to 
charitable organizations, 
(2) failed to rieceive a favorable ruling and did not pay the 
refund profit to a charitable organization, and 
which accounted to the United States for refund profit by direct 
payment to the United States, or by the purchase of low-interest 
United States obligations, the Secretary of the Treasury shall pay, 
out of any amounts in the Treasury not otherwise appropriated, an 
^^, 
amount equal to the refund profit for which the State or local 
§overnment has accounted to the United States. Amounts paid to a 
tate or local government under this subsection shall be distributed 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2843 
to such charitable organizations within 90 days after the date on 
which the payment is received by the State or local government in 
the same manner as if the refund profit had not been paid to the 
United States and met the requirements of subsection (a), 
(c) DEFINITIONS.—For purposes of this section— 
(1) REFUND PROFIT.—The term "refund profit" means interest, 
profit, or other amounts generated by, or arising out of, the 
advance refunding, before September 24,1976, of an obligation of 
a State or local government described in section 103 of such Code. 26 U
S
C 103. 
(2) CHARITABLE ORGANIZATION.—The term "charitable organi-
zation" means an organization described in section 501(c)(3) of 26 USC 501. 
such Code and exempt from taxation under section 501(a) of such 
Code other than an organization described in section 509(a) of 26 USC 509. 
such Code. 
(3) QUALIFIED AGREEMENT.—The term "qualified agreement" 
means an agreement (whether or not enforceable) which pro-
vides for, or contemplates, the payment of refund profit to one or 
more charitable organizations. 
(4) LOW-INTEREST UNITED STATES OBLIGATIONS.—The term "low-
interest United States obligations" means United States obliga-
; 
tions which bear an interest rate lower than the highest rate of 
interest borne by public debt securities generally available for 
purchase at the time such obligations were purchased. 
Subtitle E—Small Business Provisions 
PART I—PROVISIONS RELATING TO SUBCHAPTER S 
SEC. 341. SUBCHAPTER S CORPORATIONS ALLOWED 15 SHAREHOLDERS. 
(a) GENERAL RULE.—Paragraph (1) of section 1371(a) (defining small 26 USC 1371. 
business corporation) is amended to read as follows: 
"(1) have more than 15 shareholders;". 
(b) TECHNICAL AMENDMENTS.— 
(1) Section 1371 is amended by striking out subsection (e) and 
by redesignating subsection (f) as subsection (e). 
(2) Paragraph (2) of section 1371(a) is amended by striking out 
"subsection (f)" and inserting in lieu thereof "subsection (e)". 
SEC. 342. PERMITTED SHAREHOLDERS OF SUBCHAPTER S CORPORA-
TIONS. 
(a) HUSBAND AND WIFE TREATED AS ONR INDIVIDUAL.—Subsection 
(c) of section 1371 (relating to stock owned by husband and wife) is 
amended to read as follows: 
"(c) STOCK OWNED BY HUSBAND AND WIFE.—For purposes of subsec-
tion (a)(1), a husband and wife (and their estates) shall be treated as 
one shareholder." 
(b) GRANTOR OF GRANTOR TRUST TREATED AS THE SHAREHOLDER.— 
Subsection (e) of section 1371 (as redesignated by section 331(b)(1) of 
this Act) is amended by inserting after the first sentence the follow-
ing new sentence: "In the case of a trust described in paragraph (1), 
the grantor shall be treated as the shareholder." 
SEC. 343. EXTENSION OF PERIOD FOR MAKING SUBCHAPTER S ELEC-
TIONS. 
(a) GENERAL RULE.—Subsection (c) of section 1372 (relating to when 
26 USC 1372. 
and how subchapter S election may be made) is amended to read as 
follows: 
"(c) WHEN AND HOW MADE.— 
"(1) IN GENERAL.—An election under subsection (a) may be 
92 STAT. 2844 
PUBLIC LAW 95-600—NOV. 6, 1978 
^ ^ 
made by a small business corporation for any taxable year— 
"(A) at any time during the preceding taxable year, or 
"(B) at any time during the first 75 days of the t£ixable 
year. 
"(2) TREATMENT OF CERTAIN LATE ELECTIONS.—If— 
"(A) a small business corporation makes an election under 
subsection (a) for any taxable year, and 
"(B) such election is made after the first 75 days of the 
taxable year and on or before the last day of such taxable 
year, 
then such election shall be treated as made for the following 
taxable year. 
"(3) MANNER OF MAKING ELECTION.—An election under subsec-
tion (a) shall be made in such manner as the Secretary shall 
prescribe by regulations." 
(b) TECHNICAL AMENDMENTS.— 
26 use 1372. 
(1) The second sentence of section 1372(a) is amended to read as 
follows: "Such election shall be valid only if all persons who are 
shareholders in such corporation on the day on which such 
election is made consent to such election." 
(2) Subparagraph (A) of section 1372(e)(1) is amended to read as 
follows: 
"(A) An election under subsection (a) made by a small 
business corporation shall terminate if any person who was 
not a shareholder in such corporation on the day on which 
the election is made becomes a shareholder in such corpora-
tion and affirmatively refuses (in such manner as the Secre-
tary may by regulations prescribe) to consent to such elec-
tion on or before the 60th day after the day on which he 
acquires the stock." 
(3) Subparagraph (C) of section 1372(e)(1) is amended by insert-
ing "(or, if later, the first taxable year for which such election 
would otherwise have been effective)" after "in the corporation". 
SEC. 344. EFFECTIVE DATE. 
26 use 1371 
The amendments made by this part shall apply to taxable years 
note. 
beginning after December 31,1978. 
PART II—OTHER PROVISIONS 
SEC. 345. SMALL BUSINESS CORPORATION STOCK. 
(a) INCREASE TO $1,000,000 AMOUNT OF STOCK POTENTIALLY SUBJECT 
T
O ORDINARY LOSS TREATMENT; REMOVAL OF EQUITY CAPITAL TEST.— 
26 use 1244. 
Subsection (c) of section 1244 (relating to losses on small business 
stock) is amended by striking out paragraph (2) and inserting in lieu 
thereof the following: 
"(3) SMALL BUSINESS CORPORATION DEFINED.— 
"(A) IN GENERAL.—For purposes of this section, a corpora-
tion shall be treated as a small business corporation if the 
aggregate amount of money and other property received by 
the corporation for stock, as a contribution to capital, and as 
paid-in surplus, does not exceed $1,000,000. The determina-
tion under the preceding sentence shall be made as of the 
time of the issuance of the stock in question but shall include 
amounts received for such stock and for all stock theretofore 
V 
issued. 
"(B) AMOUNT TAKEN INTO ACCOUNT WITH RESPECT TO PROP-
ERTY.—For purposes of subparagraph (A), the amount taken 
into account with respect to any property other than money 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2845 
shall be the amount equal to the adjusted basis to the 
corporation of such property for determining gain, reduced 
by any liability to which the property was subject or which 
was assumed by the corporation. The determination under 
the preceding sentence shall be made as of the time the 
property was received by the corporation." 
(b) INCREASE IN MAXIMUM AMOUNT TREATED AS ORDINARY Loss FOR 
ANY TAXABLE YEAR.—Subsection (b) of section 1244 is amended— 26 use 1244.. 
(1) by striking out "$25,000" in paragraph (1) and inserting in 
lieu thereof "$50,000", and 
(2) by striking out "$50,000" in paragraph (2) and inserting in 
lieu thereof "$100,000". 
(c) REMOVAL OP REQUIREMENT THAT STOCK ISSUANCE BE PURSUANT 
T
O PLAN.—Subsection (c) of section 1244 (defining section 1244 stock) 
is amended by striking out paragraph (1) and inserting in lieu thereof 
the following new paragraphs: 
"(1) IN GENERAL.—For purposes of this section, the term 
'section 1244 stock' means common stock in a domestic corpora-
tion i
f
— 
"(A) at the time such stock is issued, such corporation was 
a small business corporation, 
"(B) such stock was issued by such corporation for money 
or other property (other than stock and securities), and 
"(C) such corporation, during the period of its 5 most 
recent taxable years ending before the date the loss on such 
stock was sustained, derived more than 50 percent of its 
aggregate gross receipts from sources other than royalties, 
rents, dividends, interests, annuities, and sales or exchanges 
of 
stocks or securities. 
"(2) R U L E S FOR APPUCATION OF PARAGRAPH (i)(c).— 
"(A) PERIOD TAKEN INTO ACCOUNT WITH RESPECT TO NEW 
CORPORATIONS.—For purposes of paragraph (1)(C), if the 
corporation has not been in existence for 5 taxable years 
ending before the date the loss on the stock was sustained, 
there shall be substituted for such 5-year period— 
"(i) the period of the corporation's taxable years 
ending before such date, or 
"(ii) if the corporation has not been in existence for 1 
taxable year ending before such date, the period such 
corporation has been in existence before such date. 
"(B) GROSS RECEIPTS FROM SALES OF SECURITIES.—For pur-
poses of paragraph (1)(C), gross receipts from the sales or 
exchanges of stock or securities shall be taken into account 
only to the extent of 
gains therefrom. 
"(C) NONAPPUCATION WHERE DEDUCTIONS EXCEED GROSS 
INCOME.—Paragraph (1)(C) shall not apply with respect to 
any corporation if, for the period taken into account for 
purposes of paragraph (1)(C), the amount of the deductions 
allowed by this chapter (other than by sections 172,243,244, 
and 245) exceeds the amount of 
gross income." 
26 use 172, 
(d) TECHNICAL AMENDMENTS.—Paragraph (2) of section 1244(d) 55^/,!^'o^"*^' 
(relating to special rules) is amended— 
2" ^^^ ^•^^• 
(1) by striking out "subparagraph (E)" and inserting in lieu 
thereof "subparagraph (C)', and 
(2) by striking out "paragraphs (1)(E) and (2)(A)" and inserting 
in lieu thereof "paragraphs (1)(C) and (3XA)". 
(e) EFFECTIVE DATE.—The amendments made by this section shall 26 use 1244 
apply to stock issued after the date of the enactment of this Act. "ote. 
92 STAT. 2846 
PUBLIC LAW 95-600—NOV. 6, 1978 
Subtitle F—Accounting Provisions 
SEC. 
3
5
1
, 
TREATMENT OF CERTAIN CLOSELY HELD FARM CORPORA-
TIONS FOR PURPOSES OF RULE REQUIRING ACCRUAL 
ACCOUNTING. 
26 use 447. 
(a) GENERAL RULE.—Section 447 (relating to method of accounting 
for corporations engaged in farming) is amended by adding at the end 
thereof the following new subsection: 
"(h) EXCEPTION FOR CERTAIN CLOSELY HELD CORPORATIONS.— 
"(1) IN GENERAL.—This section shall not apply to any corpora-
tion if, on October 4,1976, and at all times thereafter— 
"(A) members of 2 families (within the meaning of subsec-
tion (d)(1)) have owned (directly or through the application of 
subsection (d)) at least 65 percent of the total combined 
voting power of all classes of stock of such corporation 
?? 
entitled to vote, and at least 65 percent of the total number of 
1 
shares of all other classes of stock of such corporation; or 
"(B)(i) members of 3 families (within the meaning of 
;. 
subsection (d)(1)) have owned (directly or through the appli-
cation of subsection (d)) at least 50 percent of the total 
combined voting power of all classes of stock of such corpora-
tion entitled to vote, and at least 50 percent of the total 
number of shares of all other classes of stock of such 
corporation; and 
"(ii) substantially all of the stock of such corporation 
which is not so owned (directly or through the application of 
subsection (d)) by members of such 3 families is owned 
directly— 
"(I) by employees of the corporation or members of 
26 use 267. 
their families (within the meaning of section 267(cX4)), 
or 
"(II) by a trust for the benefit of the employees of such 
26 use 401. 
corporation which is described in section 401(a) and 
26 use 501. 
which is exempt from taxation under section 501(a). 
"(2) STOCK HELD BY EMPLOYEES, ETC.—For purposes of this 
subsection, stock which— 
"(A) is owned directly by employes of the corporation or 
members of their families (within the meaning of section 
26 use 267. 
267(c)(4)) or by a trust described in paragraph (l)(B)(ii)(II), 
and 
"(B) was acquired on or after October 4, 1976, from the 
corporation or from a member of a family which, on October 
4, 1976, was described in subparagraph (A) or (B)(i) of 
paragraph (1), 
shall be treated as owned by a member of a family which, on 
October 4, 1976, was described in subparagraph (A) or (B)(i) of 
paragraph (1). 
"(3) CORPORATION MUST BE ENGAGED IN FARMING.—This subsec-
tion shall apply only in the case of a corporation which was, on 
October 4,1976, and at all times thereafter, engaged in the trade 
or business of farming." 
26 use 447 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
note. 
apply to taxable years beginning after December 31,1977. 
SEC. 
3
5
2
. 
ACCOUNTING 
FOR 
GROWING 
CROPS. 
26 use 447 
(a) APPLICATION OF SECTION.—This section shall apply to a taxpayer 
note. 
VvllO— 
(1) is a farmer, nurseryman, or florist, 
^
i : 
VJ 
(2) is on an accrual method of accounting, and 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2847 
(3) is not required by section 447 of the Internal Revenue Code 
of 1954 to capitalize preproductive period expenses. 
26 USC 447. 
(b) TAXPAYER MAY NOT BE REQUIRED TO INVENTORY GROWING 
CROPS.—A taxpayer to whom this section applies may not be required 
to inventory growing crops for any taxable year beginning after 
December 31,1977. 
(c) TAXPAYER MAY ELECT TO CHANGE TO CASH METHOD.—A tax-
payer to whom this section applies may, for any taxable year 
beginning after December 31, 1977 and before January 1, 1981, 
change to the cash receipts and disbursements method of accounting 
with respect to any trade or business in which the principal activity is 
growing crops. 
(d) SECTION 481 OF CODE TO APPLY.—Any change in the way in 26 USC 481. 
which a taxpayer accounts for the costs of growing crops resulting 
from the application of subsection (b) or (c)— 
(1) shall not require the consent of the Secretary of the 
Treasury or his delegate, and 
(2) shall be treated, for purposes of section 481 of the Internal 
"^ 
': 
Revenue Code of 1954, as a change in the method of accounting 
initiated by the taxpayer. 
(e) GROWING CROPS.—For purposes of this section, the term "grow-
ing crops" does not include trees grown for lumber, pulp, or other 
nonlife purposes. 
SEC. 353. TREATMENT OF CERTAIN FARMS FOR PURPOSES OF RULE RE-
QUIRING ACCRUAL ACCOUNTING. 
(a) GENERAL RULE.—Section 447 (relating to method of accounting 26 USC 447. 
for corporations engaged in farming) is amended by striking out 
"nursery" in subsection (a) thereof and adding in lieu thereof 
"nursery or sod farm". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 447 
apply to taxable years beginning after December 31,1976. 
"
f
*
*
^
-
Subtitle G—Other Business Provisions 
SEC 361. DISALLOWANCE OF CERTAIN DEDUCTIONS FOR YACHTS, HUNT-
ING LODGES, ETC. 
(a) EXTENSION OF RULE DISALLOWING DEDUCTIONS FOR FACILITIES.— 
So much of paragraph (1) of section 274(a) (relating to disallowance of 26 USC 274. 
certain entertainment, etc., expenses) as follows subparagraph (A) is 
amended to read as follows: 
"(B) FACILITY.—With respect to a facility used in connec-
tion with an activity referred to in subparagraph (A). 
In the case of an item described in subparagraph (A), the 
deduction shall in no event exceed the portion of such item which 
meets the requirements of subparagraph (A).". 
(b) COUNTRY CLUBS.—Paragraph (2) of section 274(2) (relating to 
special rules) is amended by adding at the end thereof the following 
new subparagraph: 
"(C) In the case of a country club, paragraph (1)(B) shall 
apply unless the taxpayer establishes that the facility was 
used primarily for the furtherance of the taxpayer's trade or 
business and that the item was directly related to the active 
conduct of such trade or business." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 274 
apply to items paid or incurred after December 31, 1978, in taxable 
"o^^-
years ending after such date. 
92 STAT. 2848 
PUBLIC LAW 95-600—NOV. 6, 1978 
SEC. 362. DEFICIENCY DIVIDEND PROCEDURE FOR REGULATED INVEST-
MENT COMPANIES. 
(a) GENERAL RULE.—Subchapter M of chapter 1 (relating to regu-
lated investment companies and real estate investment trusts) is 
amended by adding at the end thereof the following new part: 
"PART 
III-PROVISIONS 
WHICH 
APPLY 
TO 
BOTH 
REGULATED INVESTMENT 
COMPANIES AND 
REAL 
ESTATE INVESTMENT TRUSTS 
"Sec. 860. Deduction for deficiency dividends. 
26 use 860. 
"SEC. 860. DEDUCTION FOR DEFICIENCY DIVIDENDS. 
"(a) GENERAL RULE.—If a determination with respect to any quali-
fied investment entity results in any adjustment for any taxable year, 
a deduction shall be allowed to such entity for the amount of 
deficiency dividends for purposes of determining the deduction for 
26 use 852, 
dividends paid (for purposes of section 852 or 857, whichever applies) 
857. 
for such year. 
"(b) QUALIFIED INVESTMENT ENTITY DEFINED.—For purposes of this 
section, the term 'qualified investment entity' means— 
"(1) a regulated investment company, and 
"(2) a real estate investment trust. 
"(c) RULES FOR APPLICATION OF SECTION.— 
"(1) INTEREST AND ADDITIONS TO TAX DETERMINED WITH RESPECT 
TO THE AMOUNT OF DEFICIENCY DIVIDEND DEDUCTION ALLOWED.— 
For purposes of determining interest, additions to tax, and 
additional amounts— 
"(A) the tax imposed by this chapter (after taking into 
account the deduction allowed by subsection (a)) on the 
qualified investment entity for the taxable year with respect 
to which the determination is made shall be deemed to be 
increased by an amount equal to the deduction allowed by 
subsection (a) with respect to such taxable year, 
"(B) the last date prescribed for payment of such increase 
in tax shall be deemed to have been the last date prescribed 
for the payment of tax (determined in the manner provided 
26 use 6601. 
by section 6601(b)) for the taxable year with respect to which 
the determination is made, and 
"(C) such increase in tax shall be deemed to be paid as of 
the date the claim for the deficiency dividend deduction is 
filed. 
"(2) CREDIT OR REFUND,—If the allowance of a deficiency 
dividend deduction results in an overpayment of tax for any 
taxable year, credit or refund with respect to such overpayment 
shall be made as if on the date of the determination 2 years 
remained before the expiration of the period of limitations on the 
filing of claim for refund for the taxable year to which the 
overpayment relates. 
"(d) ADJUSTMENT.—For purposes of this section— 
"(1) ADJUSTMENT IN THE CASE OF REGULATED INVESTMENT COM-
PANY.—In the case of any regulated investment company, the 
term 'adjustment' means— 
"(A) any increase in the investment company taxable 
income of the regulated investment company (determined 
without regard to the deduction for dividends paid (as 
26 use 561. 
defined in section 561)), 
"(B) any increase in the amount of the excess described in 
26 use 852. 
section 852(b)(3XA) (relating to the excess of the net capital 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2849 
gain over the deduction for capital gain dividends paid), and 
"(C) any decrease in the deduction for dividends paid (as 
defined in section 561) determined without regard to capital 26 USC 561. . 
gains dividends. 
"(2) ADJUSTMENT IN THE CASE OF REAL ESTATE INVESTMENT 
TRUST.—In the case of any real estate investment trust, the term 
'adjustment' means— 
"(A) any increase in the sum of— 
"(i) the real estate investment trust taxable income of 
the real estate investment trust (determined without 
regard to the deduction for dividends paid (as defined in 
section 561) and by excluding any net capital gain), and 
"(ii) the excess of the net income from foreclosure 
property (as defined in section 857(b)(4)(B)) over the tax 26 USC 857. 
on such income imposed by section 857(b)(4)(A), 
"(B) any increase in the amount of the excess described in 
section 857(b)(3)(A)(ii) (relating to the excess of the net 
capital gain over the deduction for capital gains dividends 
paid), and 
"(C) any decrease in the deduction for dividends paid (as 
defined in section 561) determined without regard to capital 26 USC 561. 
gains dividends. 
"(e) DETERMINATION.—For purposes of this section, the term 'deter-
mination'means— 
"(1) a decision by the Tax Court, or a judgment, decree, or other 
order by any court of competent jurisdiction, which has become 
final; 
"(2) a closing agreement made under section 7121; or 
26 USC 7121. 
"(3) under regulations prescribed by the Secretary, an agree-
ment signed by the Secretary and by, or on behalf of, the 
qualified investment entity relating to the liability of such entity 
for tax. 
"(f) EFFICIENCY DIVIDENDS.— 
"(1) DEFINITION.—For purposes of this section, the term 'defi-
ciency dividends' means a distribution of property made by the 
qualified investment entity on or after the date of the determina-
tion and before filing claim under subsection (g), which would 
have been includible in the computation of the deduction for 
dividends paid under section 561 for the taxable year with 
respect to which the liability for tax resulting from the determi-
nation exists if distributed during such taxable year. No distribu-
tion of property shall be considered as deficiency dividends for 
purposes of subsection (a) unless distributed within 90 days after 
the determination, and unless a claim for a deficiency dividend 
deduction with respect to such distribution is filed pursuant to 
subsection (g). 
"(2) LIMITATIONS.— 
"(A) ORDINARY DIVIDENDS.—The amount of deficiency divi-
dends (other than deficiency dividends qualifying as capital 
gain dividends) paid by a qualified investment entity for the 
taxable year with respect to which the liability for tax 
resulting from the determination exists shall not exceed the 
sum of— 
"(i) the excess of the amount of increase referred to in 
subparagraph (A) of paragraph (1) or (2) of subsection (d) 
(whichever applies) over the amount of any increase in 
the deduction for dividends paid computed without 
regard to capital gain dividends) for such taxable year 
which results from such determination, and 
92 STAT. 2850 
PUBLIC LAW 95-600—NOV. 6, 1978 
• ( 
"(ii) the amount of decreased referred to in subpara-
graph (C) of paragraph (1) or (2) of subsection (d) (which-
< 
ever applies). 
"(B) CAPITAL GAIN DIVIDENDS.—The amount of deficiency 
dividends qualifying as capital gain dividends paid by a 
qualified investment entity for the taxable year with respect 
to which the liability for tax resulting from the determina-
tion exists shall not exceed the amount by which (i) the 
increase referred to in subparagraph (B) of paragraph (1) or 
(2) of subsection (d) (whichever applies), exceeds (ii) the 
amount of any dividends paid during such taxable year 
which are designated as capital gain dividends after such 
determination. 
"(3) EFFECT ON DIVIDENDS PAID DEDUCTION.— 
"(A) FOR TAXABLE YEAR IN WHICH PAID.—Deficiency divi-
dends paid in any taxable year shall not be included in the 
amount of dividends paid for such year for purposes of 
computing the dividends paid deduction for such year. 
"(B) FOR PRIOR TAXABLE YEAR.—Deficiency dividends paid 
in anj^ taxable year shall not be allowed for purposes of 
26 use 855, 
section 855(a) or 858(a) in the computation of the dividends 
858. 
paid deduction for the taxable year preceding the taxable 
year in which paid. 
"(g) CLAIM REQUIRED.—No deficiency dividend deduction shall be 
allowed under subsection (a) unless (under regulations prescribed by 
the Secretary) claim therefore is filed within 120 days after the date 
of the determination. 
"(h) SUSPENSION OF STATUTE OF LIMITATIONS AND STAY OF COLLEC-
TION.— 
"(1) SUSPENSION OF RUNNING OF STATUTE.—If the qualified 
investment entity files a claim as provided in subsection (g), the 
26 use 6501. 
running of the statute of limitations provided in section 6501 on 
the making of assessments, and the bringing of distraint or a 
proceeding in court for collection, in respect of the deficiency 
established by a determination under this section, and all inter-
est, additions to tax, additional amounts, or assessable penalties 
in respect thereof, shall be suspended for a period of 2 years after 
the date of the determination. 
"(2) STAY OF COLLECTION.—In the case of any deficiency estab-
lished by a determination under this section— 
"(A) the collection of the deficiency, and all interest, 
additions to tax, additional amounts, and assessable penal-
ties in respect thereof, shall, except in cases of jeopardy, be 
stayed until the expiration of 120 days after the date of the 
determination, and 
"(B) if claim for a deficiency dividend deduction is filed 
under subsection (g), the collection of such part of the 
deficiency as is not reduced by the deduction for deficiency 
dividends provided in subsection (a) shall be stayed until the 
date the claim is disallowed (in whole or in part), and if 
disallowed in part collection shall be made only with respect 
to the part disallowed. 
No distraint or proceeding in court shall be begun for the 
collection of an amount the collection of which is stayed under 
subparagraph (A) or (B) during the period for which the collec-
tion of such amount is stayed. 
"(i) DEDUCTION DENIED IN CASE OF FRAUD.—No deficiency dividend 
deduction shall be allowed under subsection (a) if the determination 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2851 
contains a finding that any part of any deficiency attributable to an 
adjustment with respect to the taxable year is due to fraud with 
intent to evade tax or to willfuU failure to file an income tax return 
within the time prescribed by law or prescribed by the Secretary in 
pursuance of law. 
"(j) PENALTY.— 
"For assessable penalty with respect to liability for tax of a qualified 
investment entity whicii is allowed a deduction under subsection (a), see 
section 6697." 
(b) ASSESSABLE PENALITIES.—Section 6697 (relating to assessable 
. _, . ^
^ 
penalties with respect to liability for tax of real estate investment 
!, " 
trusts) is amended to read as follows: 
"SEC. 6697. ASSESSABLE PENALTIES WITH RESPECT TO LIABILITY FOR 26 USC 6697. 
TAX OF QUALIFIED INVESTMENT ENTITIES. 
"(a) CIVIL PENALTY.—In addition to any other penalty provided by 
law, any qualified investment entity (as defined in section 860(b)) 
whose tax liability for any taxable year is deemed to be increased 
pursuant to section 860(c)(1)(A) (relating to interest and additions to 26 U
S
C 860. 
tax determined with respect to the amount of the deduction for 
deficiency dividends allowed) shall pay a penalty in an amount equal 
to the amount of interest (for which such entity is liable) which is 
attributable solely to such increase. 
"(b) 50-PERCENT LIMITATION.—The penalty payable under this 
section with respect to any determination shall not exceed one-half of 
the amount of the deduction allowed by section 860(a) for such 
taxable year. 
"(c) DEFICIENCY PROCEDURES NOT TO APPLY.—Subchapter B of 
chapter 63 (relating to deficiency procedure for income, estate, gift, 
26 USC 6211. 
and certain excise taxes) shall not apply in respect of the assessment 
or collection of any penalty imposed by subsection (a)." 
(c) LATE DESIGNATION AND PAYMENT OF CAPITAL GAIN DIVIDEND.— 
26 use 852. 
The first sentence of subparagraph (C) of section 852(b)(3) (defining 
•
-
capital gain dividend) is amended by inserting before the period at 
the end thereof the following: "; except that, if there is an increase in 
the excess described in subparagraph (A) of this paragraph for such 
year which results from a determination (as defined in section 860(e)), 26 USC 860. 
such designation may be made with respect to such increase at any 
time before the expiration of 120 days after the date of such 
determination ". 
(d) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) Paragraph (3) of section 316(b) (relating to deficiency 
26 U
S
C 316. 
dividend distributions by a real estate investment trust) is 
amended— 
(A) by striking out "section 859(d)" and inserting in lieu 
thereof "section 860(0", and 
Ei 
(B) by striking out "REAL ESTATE INVESTMENT TRUST" in the 
:- 
-.: 
paragraph heading and inserting in lieu thereof "REGULATED 
INVESTMENT COMPANY OR REAL ESTATE INVESTMENT TRUST". 
(2) Paragraph (25) of section 381(c) is amended— 
26 U
S
C 381. 
(A) by striking out "section 859(d)" and inserting in lieu 
thereof "section 860(f)", 
(B) by striking out "section 859" and inserting in lieu 
thereof "section 860", and 
(C) by striking out "REAL ESTATE INVESTMENT TRUST" in the 
paragraph heading and inserting in lieu thereof "REGULATED 
INVESTMENT COMPANY OR REAL ESTATE INVESTMENT TRUST". 
(3) Subparagraph (C) of section 85705)(3) is amended by striking 
26 USC 857. 
out "section 859(c)" and inserting in lieu thereof "section 860(e) . 
92 STAT. 2852 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 use 6422, 
(4) Sections 6422(14) and 6515(5) are each amended— 
6515. 
(A) by inserting "regulated investment company or" 
before "re£Q estate investment trust", and 
(B) by striking out "859" and inserting in lieu thereof 
"860", 
26 use 6503. 
(5) Paragraph (5) of section 6503(i) is amended to read as 
follows: 
"(5) Deficiency dividends in the case of a reg^ulated investment company 
or a real estate investment trust, see section 860(h)." 
(6) Part II of subchapter M of chapter 1 is amended by striking out 
26 use 859, 
section 859 and redesignating section 860 as section 859. 
^^- 
(7) The table of sections for part II of subchapter M of chapter 1 is 
simended by striking out the items relating to sections 859 and 860 
and inserting in lieu thereof the following: 
"Sec. 859. Adoption of annual accounting period." 
(8) The table of parts for subchapter M of chapter 1 is amended 
by adding at the end thereof the following new item: 
"Part III. Provisions which apply to both regulated investment companies 
and real estate investment trusts." 
(9) The table of sections for subchapter B of chapter 68 is 
26 use 6697. 
amended by striking out the item relating to section 6697 and 
inserting in lieu thereof the following: 
"Sec. 6697. Assessable penalties with respect to liability for tax of qualified 
investment entities." 
26 use 860 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
"o*^- 
apply with respect to determinations (as defined in section 860(d) of 
26 use 860. 
tne Interneil Revenue Code of 1954) after the date of the enactment of 
this Act. 
SEC. 363. REAL ESTATE INVESTMENT TRUST PROVISIONS. 
(a) LIMITATIONS.— 
26 use 856. 
(1) Section 856(cX2) (relating to limitations) is amended by 
striking out the word "and" at the end of subparagraph (F), by 
inserting the word "and" at the end of subparagraph (G), and by 
adding the following new subparagraph at the end thereof: 
"(H) gain from the sale or other disposition of a real estate 
8isset which is not a prohibited transaction solely by reason 
26 use 857. 
of 
section 857(b)(6);". 
26 use 856. 
(2) Section 856(cX3) (relating to limitations) is amended by 
striking out the word "and" at the end of subparagraph (F), by 
inserting the word "and" at the end of subparagraph (G), and by 
adding the following new subparagraph at the end thereof: 
"(H) gain from the sale or other disposition of a real estate 
asset which is not a prohibited transaction solely by reason 
of section 857(b)(6);". 
26 use 856. 
(3) Subparagraph (B) of section 856(c)(4) (relating to limita-
tions) is amended to read as follows: 
"(B) property in a transaction which is a prohibited trans-
action; and". 
26 use 857. 
Qo,) PROHIBITED TRANSACTIONS.—Paragraph (6) of section 857(b) 
(relating to income from prohibited transactions) is amended by 
adding the following subparagraphs at the end thereof: 
"(C) CERTAIN SALES NOT TO CONSTITUTE PROHIBITED TRANS-
ACTIONS.—For purposes of this part, the term 'prohibited 
transaction' does not include a sale of property which is a 
real estate asset as defined in section 856(c)(6XB) i
f
— 
"(i) the trust has held the property for not less than 4 
years; 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2853 
"(ii) aggregate expenditures made by the trust, or any 
partner of the trust, during the 4-year period preceding 
the date of sale which are includible in the basis of the 
property do not exceed 20 percent of the net selling price 
of the property; 
"(iii) during the taxable year the trust does not make 
more than 5 sales of property (other than foreclosure 
property); and 
"(iv) in the case of property, which consists of land or 
improvements, not acquired through foreclosure (or 
deed in lieu of foreclosure), or lease termination, the 
trust has held the property for not less than 4 years for 
production of rental income. 
"(D) SPECIAL RULES.—In applying subparagraph (C) the 
following special rules apply: 
"(i) The holding period of property acquired through 
foreclosure (or deed in lieu of foreclosure), or termina-
tion of the lease, includes the period for which the trust 
held the loan which such property secured, or the lease 
of such property, 
"(ii) In the case of a property acquired through foreclo-
sure (or deed in lieu of foreclosure), or termination of a 
lease, expenditures made by, or for the account of, the 
mortgagor or lessee after default became imminent will 
be regarded as made by the trust. 
"(iii) Expenditures (including expenditures regarded 
as made directly by the trust, or indirectly by any 
partner of the trust, under clause (ii)) will not be taken 
into account if they relate to foreclosure property and 
did not cause the property to lose its status as foreclo-
sure property. 
"(iv) Expenditures will not be taken into account if 
they are made solely to comply with standards or 
requirements of any government or governmental au-
thority having relevant jurisdiction, or if they are made 
to restore the property as a result of losses arising from 
fire, storm or other casualty. 
"(v) The term 'expenditures' does not include ad-
vances on a loan made by the trust. 
"(vi) The sale of more than one property to one buyer 
as part of one transaction constitutes one sale. 
"(vii) The term 'sale' does not include any transaction 
in which the net selling price is less than $10,000. 
"(E) SALES NOT MEETING REQUIREMENTS.—In determining 
whether or not any sale constitutes a 'prohibited transac-
tion'for purposes of subparagraph (A), the fact that such sale 
does not meet the requirements of subparagraph (C) of this 
paragraph shall not be taken into account; and such determi-
nation, in the case of a sale not meeting such requirements, 
shall be made as if subparagraphs (C) and (D) had not been 
enacted." 
(c) EXTENSIONS.—Paragraph (3) of section 856(e) (relating to exten- 
26 USC 856. 
sions) is amended to read as follows: 
"(3) EXTENSIONS.—If the real estate investment trust estab-
lishes to the satisfaction of the Secretary that an extension of the 
grace period is necessary for the orderly liquidation of the trust's 
interests in such property, the Secretary may grant one or more 
extensions of the grace period for such property. Any such 
92 STAT. 2854 
PUBLIC LAW 95-600—NOV. 6, 1978 
extension shall not extend the grace period beyond the date 
which is 6 years after the date such trust acquired such 
property." 
26 use 856 
(d) EFFECTIVE DATE.—The amendments made by subsections (a) and 
note. 
(b) shall apply to taxable years ending after the date of the enactment 
of this Act. The amendment made by subsection (c) shall apply to 
extensions granted after the date of the enactment of this Act with 
respect to periods beginning after December 31,1977. 
SEC. 364. CONTRIBUTIONS IN AID OF CONSTRUCTION. 
26 use 118. 
(a) IN GENERAL.—Section 118(b) (relating to contributions in aid of 
construction) is amended— 
(1) by striking out "water" in the portion of paragraph (1) 
preceding subparagraph (A) thereof and inserting in lieu thereof 
"electric energy, gas (through a local distribution system or 
transportation by pipeline), water,"; 
(2) by striking out "water" in paragraph (1)(B) and inserting in 
lieu thereof "electric energy, gas, steam, water,"; 
(3) by striking out "water" in paragraph (2)(A)(ii) and by 
inserting in lieu thereof "electric energy, gas, steam, water,'; 
(4) by striking out "property" in paragraph (3)(A) and Jt)y 
inserting in lieu thereof "line" and by striking out "a main water 
or sewer line" in paragraph (3)(A) and by inserting in lieu thereof 
"an electric line, a gas main, a steam line, or a main water or 
sewer line"; and 
(5) by amending paragraph (3)(C) to read as follows: 
"(C) REGULATED PUBLIC UTILITY.—The term 'regulated 
public utility' has the meaning given such term by section 
26 use 7701. 
7701(a)(33); except that such term shall not include any such 
utility which is not required to provide electric energy, gas, 
water, or sewerage disposal services to members of the 
general public (including in the case of a gas transmission 
utility, the provision of gas services by sale for resale to the 
general public) in its service area." 
26 use 118 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
note- 
apply to contributions made after January 31,1976. 
SEC. 365. LIABILITIES OF CONTROLLED CORPORATIONS. 
26 use 357. 
(a) IN GENERAL.—Subsection (c) of section 357 (relating to assump-
tion of liability) is amended by adding at the end thereof the following 
new paragraph: 
"(3) CERTAIN LiABiuTiES EXCLUDED.— 
"(A) IN GENERAL.—If— 
"(i) the taxpayer's taxable income is computed under 
the cash receipts and disbursements method of account-
ing, and 
"(ii) such taxpayer transfers, in an exchange to which 
26 use 351. 
section 351 applies, a liability which is either— 
"(I) an account payable payment of which would 
give rise to a deduction, or 
"(II) an amount payable which is described in 
26 use 736. 
section 736(a), 
then, for purposes of paragraph (1), the amount of such 
liability shall be excluded in determining the amount of 
liabilities assumed or to which the property transferred is 
subject. 
"(B) EXCEPTION.—Subparagraph (A) shall not apply to any 
liability to the extent that the incurrence of the liability 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2855 
n 
resulted in the creation of, or an increase in, the basis of any 
property." 
(b) BASIS OF DISTRIBUTEES.—Subsection (d) of section 358 (relating to 26 U
S
C 358. 
basis to distributees) is amended to read as follows: 
"(d) ASSUMPTION OF LIABILITY.— 
"(1) IN GENERAL.—Where, as part of the consideration to the 
taxpayer, another party to the exchange assumed a liability of 
the taxpayer or acquired from the taxpayer property subject to a 
liability, such assumption or acquisition (in the amount of the 
liability) shall, for purposes of this section, be treated as money 
received by the taxpayer on the exchange. 
-
"(2) EXCEPTION.—Paragraph (1) shall not apply to the amount 
' of any liability excluded under section 357(c)(3)." 
26 U
S
C 357. 
(c) EFFECTIVE DATE.—The amendments made by subsections (a) and 26 USC 357 
(b) shall apply to transfers occurring on or after the date of the ^°^^-
enactment of this Act. 
SEC. 366. MEDICAL EXPENSE REIMBURSEMENT PLANS. 
(a) GENERAL RULE.—Section 105 (relating to accident and health 26 USC 105. 
plans) is amended by adding at the end thereof the following: 
"(h) AMOUNT PAID TO HIGHLY COMPENSATED INDIVIDUALS UNDER A 
DISCRIMINATORY SELF-INSURED MEDICAL EXPENSE REIMBURSEMENT 
PLAN.— 
"(1) IN GENERAL.—In the case of amounts paid to a highly 
compensated individual under a self-insured medical reimburse-
ment plan which does not satisfy the requirements of paragraph 
(2) for a plan year, subsection (b) shall not apply to such amounts 
to the extent they constitute an excess reimbursement of such 
highly compensated individual. 
"(2) PROHIBITION OF DISCRIMINATION.—A self-insured medical 
reimbursement plan satisfies the requirements of this paragraph 
only if— 
"(A) the plan does not discriminate in favor of highly 
compensated individuals as to eligibility to participate; and 
"(B) the benefits provided under the plan do not discrimi-
nate in favor of participants who are highly compensated 
individuals. 
"(3) NONDISCRIMINATORY ELIGIBILITY CLASSIFICATIONS.— 
"(A) IN GENERAL.—A self-insured medical reimbursement 
plan does not satisfy the requirements of subparagraph (A) 
of paragraph (2) unless such plan benefits— 
"(i) 70 percent or more of all employees, or 80 percent 
or more of all the employees who are eligible to benefit 
under the plan if 70 percent or more of all employees are 
eligible to benefit under the plan; or 
"(ii) such employees as qualify under a classification 
set up by the employer and found by the Secretary not to 
be discriminatory in favor of highly compensated 
participants. 
"(B) EXCLUSION OF CERTAIN EMPLOYEES.—For purposes of 
subparagraph (A), there may be excluded from considera-
tion— 
"(i) employees who have not completed 3 years of 
service; 
"(ii) employees who have not attained age 25; 
"(iii) part-time or seasonal employees; 
"(iv) employees not included in the plan who are 
included in a unit of employees covered by an agreement 
92 STAT. 2856 
PUBLIC LAW 95-600—NOV. 6, 1978 
between employee representatives and one or more 
employers which the Secretary finds to be a collective 
bargaining agreement, if accident and health benefits 
were the subject of good faith bargaining between such 
employee representatives and such employer or employ-
ers; and 
"(v) employees who are nonresident aliens and who 
receive no earned income (within the meaning of section 
26 use 911. 
911(b)) from the employer which constitutes income 
from sources within the United States (within the mean-
26 use 861. 
ing of section 861(a)(3)). 
"(4) NONDISCRIMINATORY BENEFITS.—A self-insured medical 
reimbursement plan does not meet the requirements of subpara-
graph (B) of paragraph (2) unless all benefits provided for 
participants who are highly compensated individuals are pro-
vided for all other participants. 
"(5) HIGHLY COMPENSATED INDIVIDUAL DEFINED.—For purposes 
of this subsection, the term 'highly compensated individual' 
means an individual who is— 
"(A) one of the 5 highest paid officers, 
"(B) a shareholder who owns (with the application of 
26 use 318. 
section 318) more than 10 percent in value of the stock of the 
employer, or 
"(C) among the highest paid 25 percent of all employees 
(other than employees described in paragraph (3)(B) who are 
not participants). 
"(6) SELF-INSURED MEDICAL REIMBURSEMENT PLAN.—The term 
'self-insured medical reimbursement plan' means a plan of an 
employer to reimburse employees for expenses referred to in 
subsection (b) for which reimbursement is not provided under a 
policy of accident and health insurance. 
"(7) EXCESS REIMBURSEMENT OF HIGHLY COMPENSATED INDIVID-
UAL.—For purposes of this section, the excess reimbursement of a 
highly compensated individual which is attributable to a self-
insured medical reimbursement plan is— 
"(A) in the case of a benefit available to a highly compen-
sated individual but not to a broad cross-section of em-
ployees, the amount reimbursed under the plan to the 
employee with respect to such benefit, and 
"(B) in the case of benefits (other than benefits described 
in subparagraph (A) paid to a highly compensated individual 
by a plan which fails to satisfy the requirements of para-
graph (2), the total amount reimbursed to the highly com-
pensated individual for the plan year multiplied by a 
fraction— 
"(i) the numerator of which is the total amount 
reimbursed to all participants who are highly compen-
sated individuals under the plan for the plan year, and 
"(ii) the denominator of which is the total amount 
reimbursed to all employees under the plan for such 
plan year. 
In determining the fraction under subparagraph (B), there shall 
not be taken into account any reimbursement which is attributa-
ble to a benefit described in subparagraph (A). 
"(8) CERTAIN CONTROLLED GROUPS.—All employees who are 
treated as employed by a single employer under subsection (b) or 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2857 
(c) of section 414 shall be treated as employed by a single 26 USC 414. 
employer for purposes of this section. 
"(9) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary to carry out the provisions of this 
section. 
"(10) TIME OF INCLUSION.—Any amount paid for a plan year 
that is included in income by reason of this subsection shall be 
treated as received or accrued in the taxable year of the partici-
pant in which the plan year ends." 
(b) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 105 
apply to taxable years beginning after December 31,1979. 
"°*^-
SEC. 367. THREE-YEAR EXTENSION OF PROVISION FOR 60-MONTH DE-
PRECIATION 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 1,1979" each place it appears and inserting in 
lieu thereof "January 1,1982". 
SEC. 368. DELAY IN APPLICATION OF NEW NET OPERATING LOSS RULES. 
(a) IN GENERAL.—Except as provided in subsection (b), paragraphs 
(2) and (3) of section 806(g) of the Tax Reform Act of 1976 (relating to 26 USC 382 
effective dates for the amendments to sections 382 and 383 of the "o*^-
Code) are amended by striking out "1978" each place it appears and ooo^^^ ^^^' 
inserting in lieu thereof "1980". 
'*"'^-
(b) ELECTION OF PRIOR LAW.— 
(1) A taxpayer may elect not to have the amendment made by 
subsection (a) apply with respect to any acquisition or reorganiza-
tion occurring before the end of the taxpayer's first taxable year 
beginning after June 30, 1978, where such acquisition or reorga-
nization occurs pursuant to a written binding contract or option 
to acquire stock or assets which was entered into before Septem-
ber 27,1978. 
(2) An election under this subsection shall be filed with a 
taxpayer's timely filed return for the first taxable year in which 
a reorganization or acquisition described in paragraph (1) occurs, 
or, if later, within 90 days after the date of enactment of this Act. 
Such election shall apply to all acquisitions and reorganizations 
to which, but for such election, subsection (a) would apply. 
SEC. 369. USE OF CERTAIN EXPIRED NET OPERATING LOSS CARRY-
OVERS. 
(a) IN GENERAL.—Clause (iv) of section 374(e)(1)(A) (relating to use 26 USC 374. 
of expired net operating loss carryovers to offset income arising from 
certain railroad reorganization proceedings) is amended to read as 
follows: 
"(iv) a redemption of a certificate of value of the 
United States Railway Association issued under section 
306 of such Act to such corporation (or issued to another 26 USC 306. 
member of the same affiliated group (within the mean-
ing of section 1504) as such corporation for their taxable 26 USC 1504. 
years which included March 31,1967),". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 374 
apply to taxable years ending after March 31,1976. 
note. 
39-194 O-80-pt. 3 
15 : QU 
92 STAT. 2858 
PUBLIC LAW 95-600—NOV. 6, 1978 
SEC. 370. INCOME FROM CERTAIN RAILROAD ROLLING STOCK TREATED 
AS INCOME FROM SOURCES WITHIN THE UNITED STATES. 
26 use 861. 
(a) GENERAL RULE.—Section 861 (relating to income from sources 
within the United States) is amended by adding at the end thereof the 
following new subsection: 
"(f) INCOME FROM CERTAIN RAILROAD ROLLING STOCK TREATED AS 
INCOME FROM SOURCES WITHIN THE UNITED STATES. 
"(1) GENERAL RULE.—For purposes of subsection (a) and section 
26 use 826. 
826(a), if— 
"(A) a taxpayer leases railroad rolling stock which is 
26 use 38. 
section 38 property (or would be section 38 property but for 
26 use 48. 
section 48(a)(5)) to a domestic common carrier by railroad or 
a corporation which is controlled, directly or indirectly, by 
one or more such common carriers, and 
"(B) the use under such lease is expected to be use within 
the United States, 
all amounts includible in gross income by the taxpayer with 
respect to such railroad rolling stock (including gain from sale or 
other disposition of such railroad rolling stock) shall be treated as 
income from sources within the United States. The requirements 
of subparagraph (B) of the preceding sentence shall be treated as 
satisfied if the only expected use outside the United States is use 
by a person (whether or not a United States person) in Canada or 
Mexico on a temporary basis which is not expected to exceed a 
total of 90 days in any taxable year. 
"(2) PARAGRAPH (i) NOT TO APPLY WHERE LESSOR IS A MEMBER OF 
CONTROLLED GROUP WHICH INCLUDES A RAILROAD.—Paragraph (1) 
shall not apply to a lease between two members of the same 
26 use 1563. 
controlled group of corporations (as defined in section 1563) if 
any member of such group is a domestic common carrier by 
railroad or a switching or terminal company referred to in 
26 use 184. 
subparagraph (B) of section 184(d)(1). 
"(3) DENIAL OF FOREIGN TAX CREDIT.—No credit shall be al-
26 use 901. 
lowed under section 901 for any payments to foreign countries 
with respect to any amount received by the taxpayer with respect 
to railroad rolling stock which is subject to paragraph (1).". 
26 use 861 
(b) EFFECTIVE DATES.— 
"*'*^- 
(1) IN GENERAL.—The amendment made by subsection (a) shall 
apply to all railroad rolling stock placed in service with respect to 
the taxpayer after the date of the enactment of this Act. 
Supra. 
(2) ELECTION TO EXTEND SECTION 861(f) TO RAILROAD ROLLING 
STOCK PLACED IN SERVICE BEFORE DATE OF ENACTMENT. 
(A) IN GENERAL.—At the election of the taxpayer, the 
amendment made by subsection (a) shall also apply, for 
taxable years beginning after the date of the enactment of 
this Act, to all railroad rolling stock placed in service with 
respect to the taxpayer on or before such date of enactment. 
Such an election may not be revoked except with the consent 
of the Secretary of the Treasury or his delegate. 
(B) MANNER AND TIME OF ELECTION AND REVOCATION.—An 
election under subparagraph (A), and any revocation of such 
an election, shall be made in such manner and at such time 
as the Secretary of the Treasury or his delegate may by 
regulations prescribe. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2859 
SEC. 371. NET OPERATING LOSSES ATTRIBUTABLE TO PRODUCT LIABIL-
ITY LOSSES. 
(a) 10-YEAR CARRYBACK.— 
(1) IN GENERAL.—Paragraph (1) of section 172(b) (relating to 26 USC 172. 
years to which loss may be carried) is amended by adding at the 
end thereof the following new subparagraph: 
"(H) PRODUCT LIABILITY LOSSES.—In the case of a taxpayer 
which has a product liability loss (as defined in subsection (i)) 
for a taxable year beginning after September 30, 1979 
(referred to in this subparagraph as the 'loss year'), the 
product liability loss shall be a net operating loss carryback 
to each of the 10 taxable years preceding the loss year." 
(2) CONFORMING AMENDMENT.—Clause (i) of section 172(b)(1)(A) 
is amended by striking out "and (G)" and inserting in lieu thereof 
"(G), and (H)". 
(b) RULES RELATING TO PRODUCT LIABILITY LOSSES.—Section 172 is 
amended by redesignating subsection (i) as subsection (j) and by 
inserting after subsection (h) the following new subsection: 
"(i) RULES RELATING TO PRODUCT LIABIUTY LOSSES.—For purposes 
of subsection (b)— 
"(1) PRODUCT UABIUTY LOSS.—The term 'product liability loss' 
means, for any taxable year, the lesser o
f
— 
"(A) the net operating loss for such year reduced by any 
portion thereof which is attributable to a foreign expropri-
ation loss, or 
"(B) the sum of the amounts allowable as deductions under 
sections 162 and 165 which are attributable to— 
26 USC 162, 
"(i) product liability, or 
165. 
"(ii) expenses incurred in the investigation or settle-
i' 
ment of, or opposition to, claims against the taxpayer on 
t 
account of product liability. 
"(2) PRODUCT UABILITY.—The term 'product liability' means— 
"(A) liability of the taxpayer for damages on account of 
physical injury or emotional harm to individuals, or damage 
to or loss of the use of property, on account of any defect in 
any product which is manufactured, leased, or sold by the 
taxpayer, but only if 
"(B) such injury, harm, or damage arises after the tax-
payer has completed or terminated operations with respect 
to, and has relinquished possession of, such product. 
"(3) ELECTION.—Any taxpayer entitled to a 10-year carryback 
,. 
under subsection Ot))(l)(H) from any loss year may elect to have 
the carryback period with respect to such loss year determined 
without regard to subsection (b)(1)(H). Such election shall be 
made in such manner as may be prescribed by the Secretary and 
shall be made by the due date (including extensions of time) for 
filing the taxpayer's return for the taxable year of the net 
operating loss. Such election, once made for any taxable year, 
shall be irrevocable for that taxable year." 
(c) APPLICATION OF ACCUMULATED EARNINGS TAX TO PRODUCT 
LIABILITY LOSS RESERVES.—Subsection (h) of section 537 (relating to 26 U
S
C 537. 
special rules) is amended by redesignating paragraph (4) as para-
graph (5) and by inserting after paragraph (3) the following new 
paragraph: 
"(4) PRODUCT LIABIIJTY LOSS RESERVES.—The accumulation of 
reasonable amounts for the payment of reasonably anticipated 
product liability losses (as defined in section 172(i)), as deter- Supra. 
92 STAT. 2860 
PUBLIC LAW 95-600—NOV. 6, 1978 
mined under regulations prescribed by the Secretary, shall be 
treated as accumulated for the reasonably anticipated needs of 
the business." 
26 use 172 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply with respect to taxable years beginning after September 30, 
1979. 
SEC. 3
7
2
. 
EXCLUSION 
FROM GROSS 
INCOME 
WITH 
RESPECT 
TO 
MAGA-
ZINES, 
PAPERBACKS, 
AND 
RECORDS 
RETURNED 
AFTER 
THE 
CLOSE 
OF 
THE TAXABLE 
YEAR. 
(a) IN GENERAL.—Subpart B of part II of subchapter E of chapter 1 
(relating to taxable year for which items of gross income included) is 
amended by adding at the end thereof the following new section: 
26 use 458. 
"SEC. 458. MAGAZINES, PAPERBACKS, AND RECORDS RETURNED AFTER 
THE CLOSE OF THE TAXABLE YEAR. 
"(a) EXCLUSION FROM GROSS INCOME.—A taxpayer who is on an 
accrual method of accounting may elect not to include in the gross 
income for the taxable year the income attributable to the qualified 
sale of any magazine, paperback, or record which is returned to the 
taxpayer before the close of the merchandise return period. 
"(b) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
"(1) MAGAZINE.—The term 'magazine' includes any other 
periodical. 
"(2) PAPERBACK.—The term 'paperback' means any book which 
has a flexible outer cover and the pages of which are affixed 
directly to such outer cover. Such term does not include a 
magazine. 
"(3) RECORD.—The term 'record' means a disc, tape, or similar 
object on which musical, spoken, or other sounds are recorded. 
"(4) SEPARATE APPUCATION WITH RESPECT TO MAGAZINES, PAPER-
BACKS, A
N
D RECORDS.—If a taxpayer makes qualified sales of 
more than one category of merchandise in connection with the 
same trade or business, this section shall be applied as if the 
qualified sales of each such category were made in connection 
with a separate trade or business. For purposes of the preceding 
sentence, magazines, paperbacks, and records shall each be 
treated as a separate category of merchandise. 
"(5) QuAUFiED SALE.—A Sale of a magazine, paperback, or 
record is a qualified sale if^ 
"(A) at the time of sale, the taxpayer has a legal obligation 
to adjust the sales price of such magazine, paperback, or 
record if it is not resold, and 
"(B) the sales price of such magazine, paperback, or record 
is adjusted by the taxpayer because of a failure to resell it. 
"(6) AMOUNT EXCLUDED.—The amount excluded under this 
section with respect to any qualified sale shall be the lesser o
f
— 
"(A) the amount covered by the legal obligation described 
in paragraph (5XA), or 
"(B) the amount of the adjustment agreed to by the 
taxpayer before the close of the merchandise return period. 
"(7) MERCHANDISE RETURN PERIOD.— 
"(A) Except as provided in subparagraph (B), the term 
'merchandise return period' means, with respect to any 
taxable year— 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2861 
"(i) in the case of magazines, the period of 2 months 
and 15 days first occurring after the close of taxable 
year, or 
"(ii) in the case of paperbacks and records, the period 
of 4 months and 15 days first occurring after the close of 
the taxable year. 
"(B) The taxpayer may select a shorter period than the 
applicable period set forth in subparagraph (A). 
"(C) Any change in the merchandise return period shall be 
treated as a change in the method of accounting. 
"(8) 
CERTAIN EVIDENCE MAY BE SUBSTITUTED FOR PHYSICAL 
RETURN OF MERCHANDISE.—Under regulations prescribed by the 
Secretary, the taxpayer may substitute, for the physical return of 
magazines, paperbacks, or records required by subsection (a), 
certification or other evidence that the magazine, paperback, or 
record has not been resold and will not be resold if such 
evidence— 
"(A) is in the possession of the taxpayer at the close of the 
merchandise return period, and 
"(B) is satisfactory to the Secretary. 
"(9) REPURCHASED BY THE TAXPAYER NOT TREATED AS RESALE.— 
A repurchase by the taxpayer shall be treated as an adjustment 
of the sales price rather than as a resale. 
"(c) QUALIFIED SALES TO WHICH SECTION APPLIES.— 
"(1) ELECTION OF BENEFITS.—This section shall apply to quali-
fied sales of magazines, paperbacks, or records, as the case may 
be, if and only if the taxpayer makes an election under this 
section with respect to the trade or business in connection with 
which such sales are made. An election under this section may be 
made without the consent of the Secretary. The election shall be 
made in such manner as the Secretary may by regulations 
prescribed and shall be made for any taxable year not later than 
the time prescribed by law for filing the return for such taxable 
year (including extensions thereof). 
"(2) SCOPE OP ELECTION.—An election made under this section 
shall apply to all qualified sales of magazines, paperbacks, or 
records, as the case may be, made in connection with the trade or 
business with respect to which the taxpayer has made the 
election. 
"(3) PERIOD TO WHICH ELECTION APPLIES.—An election under 
this section shall be effective for 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. 
"(4) TREATMENT AS METHOD OF ACCOUNTING.—Except to 
the 
extent inconsistent with the provisions of this section, for pur-
poses of this subtitle, the computation of taxable income under 
an election made under this section shall be treated as a method 
of accounting. 
"(d) 5-YEAR SPREAD OP TRANSITIONAL ADJUSTMENTS FOR MAGA-
ZINES.—In applying section 481(c) with respect to any election under 
26 use 481. 
this section which applies to magazines, the period for taking into 
account any decrease in taxable income resulting from the applica-
tion of section 481(a)(2) shall be the taxable year for which the 
election is made and the 4 succeeding taxable years. 
"(e) SUSPENSE ACCOUNT FOR PAPERBACKS AND RECORDS.— 
92 STAT. 2862 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(1) IN GENERAL.—In the case of any election under this section 
which applies to paperbacks or records, in lieu of applying 
26 use 481. 
section 481, the taxpayer shall establish a suspense account for 
the trade or business for the taxable year for which the election is 
made. 
"(2) INITIAL OPENING BALANCE.—The opening balance of the 
account described in paragraph (1) for the first taxable year to 
which the election applies shall be the largest dollar amount of 
returned merchandise which would have been taken into ac-
count under this section for any of the 3 immediately preceding 
taxable years if this section had applied to such preceding 3 
taxable years. This paragraph and paragraph (3) shall be applied 
by taking into account only amounts attributable to the trade or 
business for which such account is established. 
"(3) ADJUSTMENTS IN SUSPENSE ACCOUNT.—At the close of each 
taxable year the suspense account shall be— 
"(A) reduced the excess (if any) of— 
"(i) the opening balance of the suspense account for 
the taxable year, over 
"(ii) the amount excluded from gross income for the 
' 
taxable year under subsection (a), or 
"(B) increased (but not in excess of the initial opening 
balance) by the excess (if any) of— 
"(i) the amount excluded from gross income for the 
taxable year under subsection (a), over 
"(ii) the opening balance of the account for the taxable 
year. 
"(4) GROSS INCOME ADJUSTMENTS.— 
"(A) REDUCTIONS EXCLUDED FROM GROSS INCOME.—In the 
case of any reduction under paragraph (3)(A) in the account 
for the taxable year, an amount equal to such reduction shall 
.
^ 
be excluded from gross income for such taxable year. 
"(B) INCREASES ADDED TO GROSS INCOME.—In the case of 
any increase under paragraph (3)(B) in the account for the 
taxable year, an amount equal to such increase shall be 
included in gross income for such taxable year. 
If the initial opening balance exceeds the dollar amount of 
returned merchandise which would have been taken into ac-
count under subsection (a) for the taxable year preceding the first 
taxable year for which the election is effective if this section had 
applied to such preceding taxable year, then an amount equal to 
the amount of such excess shall be included in gross income for 
such first taxable year. 
"(5) SUBCHAPTER C TRANSACTIONS.—The application of this 
subsection with respect to a taxpayer which is a party to any 
transaction with respect to which there is nonrecognition of gain 
or loss to any party to the transaction by reason of subchapter C 
shall be determined under regulations prescribed by the 
Secretary." 
(b) CLERICAL AMENDMENTS.—The table of sections for such subpart 
B is amended by adding at the end thereof the following: 
"Sec. 458. Magazines, paperbacks, and records returned after the close of 
the taxable year." 
26 use 458 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
°°*®- 
apply to taxable years beginning after September 30,1979. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2863 
SEC. 373. QUALIFIED DISCOUNT COUPONS REDEEMED AFTER CLOSE OF 
TAXABLE YEAR. 
(a) GENERAL RULE.—Subpart C of part II of subchapter E of chapter 
1 of the Internal Revenue Code of 1954 (relating to taxable year for 
which deductions taken) is amended by adding at the end thereof the 
following new section: 
"SEC. 466. QUALIFIED DISCOUNT COUPONS REDEEMED AFTER CLOSE OF 26 USC 466. 
TAXABLE YEAR. 
"(a) ALLOWANCE OF DEDUCTION.—At the election of a taxpayer 
whose taxable income is computed under an accrual method of 
accounting, the deduction allowable under this chapter for the 
redemption costs of qualified discount coupons shall be an amount 
, 
equal to the sum o
f
— 
"(1) such costs incurred by the taxpayer with respect to 
coupons— 
"(A) which were outstanding at the close of the taxable 
year, and 
"(B) which were received by the taxpayer before the close 
of the redemption period for the taxable year, plus 
"(2) such costs (other than costs properly t£iken into account 
under paragraph (1) for a prior taxable year) incurred by the 
taxpayer during the taxable year. 
"(b) QUALIFIED DISCOUNT COUPONS.—For purposes of this section— 
"(1) IN GENERAL.—The term 'qualified discount coupon' means 
a discount coupon which— 
"(A) was issued by the taxpayer, 
"(B) is redeemable by the taxpayer, and 
"(C) allows a discount on the purchase price of merchan-
dise or other tangible personal property. 
"(2) METHOD OF ISSUANCE NOT TAKEN INTO ACCOUNT.—The 
determination of whether or not a discount coupon is a qualified 
discount coupon sh£dl be made without regard to whether the 
coupon was issued through a newspaper, magazine, or other 
publication, by mail, on the pack or in the pack of merchandise, 
or otherwise. 
"(3) DISCOUNT ON ITEM CANNOT EXCEED $5.—A coupon shall not 
be a qualified discount coupon i
f
— 
"(A) the face amount of such coupon is more than $5, or 
"(B) such coupon may be used with other coupons to bring 
about a price discount of more than $5 with respect to any 
item. 
"(4) THERE MUST BE REDEMPTION CHAIN.—A coupon shall not be 
a qualified discount coupon if the issuer directly redeems such 
coupon from the person using the coupon to receive a price 
discount. For purposes of the preceding sentence, corporations 
which are members of the same controlled group of corporations 
(within the meaning of section 1563(a) as the issuer shall be 26 USC 1563. 
treated as the issuer. 
"(5) REDEEMABLE BY TAXPAYER.—A coupon is redeemable by 
the taxpayer if the terms of the coupon require the taxpayer to 
redeem the coupon when presented for redemption in accordance 
with its terms. 
"(c) REDEMPTION COSTS; REDEMPTION PERIOD.—For purposes of this 
section— 
"(1) REDEMPTION COSTS.—The term 'redemption cost' means, 
with respect to any coupon— 
92 STAT. 2864 
PUBLIC LAW 95-600—NOV. 6, 1978 
» 
«(A) ^jjg lesser of— 
"(i) the amount of the discount provided by the terms 
of the coupon, or 
"(ii) the amount incurred by the taxpayer for paying 
such discount, plus 
"(B) the amount incurred by the taxpayer for a payment to 
, , 
the retailer (or other person redeeming the coupon from the 
person receiving the price discount), but only if the amount 
so payable is stated on the coupon. 
"(2) REDEMPTION PERIOD.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the redemption period for any taxable year is the 6-
month period immediately following the close of the taxable 
year. 
"(B) TAXPAYER MAY SELECT SHORTER PERIOD.—The tax-
payer may select a redemption period which is shorter than 
6 months. 
"(C) CHANGE IN REDEMPTION PERIOD.—Any change in the 
redemption period shall be treated as a change in the 
method of accounting. 
"(d) QUALIFIED DISCOUNT COUPONS TO WHICH SECTION APPLIES.— 
"(1) ELECTION OF BENEFITS.—This section shall apply to quali-
fied discount coupons if and only if the taxpayer makes an 
election under this section with respect to the trade or business 
in connection with which such coupons are issued. An election 
under this section may be made without the consent of the 
Secretary. The election shall be made in such manner as the 
Secretary may by regulations prescribe and shall be made for 
any taxable year not later than the time prescribed by law for 
filing the return for such taxable year (including extensions 
thereof). 
"(2) SCOPE OF ELECTION.—An election made under this section 
shall apply to all qualified discount coupons issued in connection 
with the trade or business with respect to which the taxpayer has 
made the election. 
"(3) PERIOD TO WHICH ELECTION APPLIES.—An election under 
this section 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. 
"(4) TREATMENT AS METHOD OF ACCOUNTING.—Except to the 
extent inconsistent with the provisions of this section, for pur-
poses of this subtitle, the computation of taxable income under 
an election made under this section shall be treated as a method 
of accounting. 
"(e) SUSPENSE ACCOUNT.— 
"(1) IN GENERAL.—In the case of any election under this section 
which (but for this subsection) would result in a net decrease in 
26 use 481. 
taxable income under section 481(a)(2), in lieu of applying section 
481, the taxpayer shall establish a suspense account for the trade 
or business for the taxable year for which the election is made. 
"(2) INITIAL OPENING BALANCE.—The initial opening balance of 
the account described in paragraph (1) for the first taxable year 
to which the election applies shall be the amount by which— 
"(A) the largest dollar amount which would have been 
taken into account under subsection (a)(1) for any of the 3 
immediately preceding taxable years if this section had 
applied to such 3 preceding taxable years, exceeds 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2865 
"(B) the sum of the increases in income (and the decreases 
in deductions) which (but for this subsection) would result 
under section 481(a)(2) for such first taxable years. 
26 use 481. 
This subsection shall be applied by taking into account only 
amounts attributal to the trade or business for which such 
account is established. 
"(3) ADJUSTMENTS IN SUSPENSE ACCOUNT.—At the close of each 
taxable year, the suspense account shedl be— 
"(A) reduced by the excess (if any) of— 
"(i) the opening balance of the suspense account for 
the taxable year, over 
"(ii) the amount deducted for the taxable year under 
subsection (a)(1), or 
"(B) increased (but not in excess of the initial opening 
bsdance) by the excess (if any) o
f
— 
"(i) the amount deducted for the taxable year under 
subsection (a)(1), over 
"(ii) the opening balance of the suspense account for 
the taxable year. 
"(4) INCOME ADJUSTMENTS.— 
"(A) REDUCTIONS ALLOWED AS DEDUCTION.—In the case of 
any reduction under paragraph (3)(A) in the account for the 
taxable year, an amount equal to such reduction shall be 
allowed as a deduction for such taxable year. 
"(B) INCREASES ADDED TO GROSS INCOME.—In the case of 
any increase under paragraph (3)(B) in the account for the 
taxable year, an amount equal to such increase shall be 
included in gross income for such taxable year. 
If the amount described in paragraph (2)(A) exceeds the dollar 
amount which would have been taken into account under subsec-
tion (a)(1) for the taxable year preceding the first taxable year for 
which the election is effective if this section had applied to such 
preceding taxable year, then an amount equal to the amount of 
such excess shall be included in gross income for such first 
taxable year. 
"(5) SUBCHAPTER C TRANSACTIONS.—The application of this 
subsection with respect to a taxpayer which is a party to any 
transaction with respect to which there is nonrecognition of gain 
or loss to any party to the transaction by reason of subchapter C 
shall be determined under regulations prescribed by the 
Secretary. 
"(f) 10-YEAR SPREAD OF ANY NET INCREASE IN TAXABLE INCOME 
UNDER SECTION 481(a)(2).—In the case of any election under this 
section which results in a net increase in taxable income under 
section 481(a)(2), under regulations prescribed by the Secretary, such 
net increase shall (except as otherwise provided in such regulations) 
be taken into account by the tsixpayer in computing taxable income 
in each of the 10 taxable years beginning with the year for which the 
election is made." 
(b) CLERICAL AMENDMENT.—The table of sections for such subpart C 
is amended by adding at the end thereof the following new item: 
"Sec. 466. Qualified discount coupons redeemed after close of taxable year." 
(C) EFFECTIVE DATE.— 
26 use 466 
(1) IN GENERAL.—The amendments made by subsections (a) and 
"ote. 
(b) shall apply to taxable years ending after December 31, 1978. 
(2) APPUCATION TO CERTAIN PRIOR TAXABLE YEARS.— 
(A) IN GENERAL.—If— 
92 STAT. 2866 
PUBLIC LAW 95-600—NOV. 6, 1978 
(i) the taxpayer makes an election under section 466 of 
Ante, p. 2863. 
the Internal Revenue Code of 1954 for his first taxable 
year ending after December 31,1978, and 
(ii) for a continuous period of 1 or more taxable years 
each of which ends on or before December 31,1978, the 
taxpayer used the method of accounting with respect to 
«'r \ 
any type of discount coupons which was reasonably 
similar to the method of accounting provided by section 
26 CFR 1.451-4. 
1.451-4 of the Income Tax Regulations, 
then the taxpayer may make an election under this para-
graph to have the method of accounting which he used for 
1 
such continuous period treated as a valid method of account-
ing with respect to each such type of discount coupons for 
such period for purposes of the Internal Revenue Code of 
26 use 1. 
1954. A taxpayer may make an election under this para-
graph with respect to only one such continuous period. 
(B) CERTAIN AMOUNTS TO WHICH METHOD OF ACCOUNTING 
APPLIES.—An accounting method which the taxpayer used 
for the period described in subparagraph (A) may include— 
(i) costs of the type permitted by section 1.451-4 of the 
Income Tax Regulations to be included in the estimated 
average cost of redeeming coupons, plus 
(ii) any amount designated or referred to on the 
coupon payable by the taxpayer to the person who 
allowed the discount on a sale by such person to the user 
of the coupon. 
(C) SUSPENSE ACCOUNT NOT REQUIRED IN CERTAIN CASES.—A 
taxpayer whose election under this paragraph applies to all 
types of discount coupons which he issued during the con-
tinuous period referred to in subparagraph (A)(ii) shall not 
be required to establish a suspense account under section 
466(e) of the Internal Revenue Code of 1954. 
(D) RULES RELATING TO ELECTION UNDER THIS SUBSECTION.— 
An election under this paragraph may be made only before 
the expiration of the period for making an election under 
section 466 of the Internal Revenue Code of 1954 for the 
taxpayer's first taxable year ending after December 31,1978. 
An election under this paragraph shall be made in such a 
manner and form as the Secretary of the Treasury or his 
delegate may by regulations prescribe. For purposes of the 
26 use 1. 
Internal Revenue Code of 1954, such an election shall be 
' 
treated as a method of accounting, except that the approval 
of the Secretary of the Treasury or his delegate to the 
making of the election may not be required. 
TITLE IV—CAPITAL GAINS; MINIMUM 
TAX; MAXIMUM TAX 
Subtitle A—Capital Gains 
SEC. 401. REPEAL OF ALTERNATIVE TAX ON CAPITAL GAINS OF INDIVID-
UALS. 
26 use 1201. 
(a) GENERAL RULE.—Section 1201 (relating to alternative tax) is 
amended— 
(1) by striking out subsections (b) and (c), ._. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2867 
(2) by redesignating subsection (d) as subsection (b), and 
(3) by amending the section heading to read as follows: 
"SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS.". 
(b) CONFORMING AMENDMENTS.— 
(1) Paragraph (1) of section 3(b) is amended by striking out 26 USC 3. 
subparagraph (B) and by redesignating subparagraphs (C) and 
(D) as subparagraphs (B) and (C), respectively. 
(2) Subsection (a) of section 5 is amended by striking out 26 U
S
C 5. 
paragraph (3) and by redesignating paragraphs (4) and (5) as 
paragraphs (3) and (4), respectively. 
(3) Paragraph (1) of section 871(b) is amended by striking out 26 USC 871. 
"section 1, 402(e)(1), or 1201(b)" and inserting in lieu thereof 
"section lor 402(e)(1)". 
(4) Paragraph (1) of section 911(d) is amended— 
26 USC 911. 
(A) by striking out "section 1 or section 1201" each place it 
appears and inserting in lieu thereof "section 1", and 
(B) by striking out "(whichever is applicable)" each place it 
appears. 
(5) Subsection (b) of section 1304 is amended— 
26 USC 1304. 
(A) by adding "and" at the end of paragraph (2), 
(B) by striking out paragraph (3), and 
(C) by redesignating paragraph (4) as paragraph (3). 
(6) The table of sections for part I of subchapter P of chapter 1 
is amended by striking out the item relating to section 1201 and 
inserting in lieu thereof the following: 
"Sec. 1201. Alternative tax for corporations." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 1201 
apply to taxable years beginning after December 31,1978. 
note. 
SEC. 402. INCREASED CAPITAL GAINS DEDUCTION FOR INDIVIDUALS. 
(a) GENERAL RULE.—Section 1202 (relating to deduction for capital 26 USC 1202. 
gains) is amended to read as follows: 
"SEC. 1202. DEDUCTION FOR CAPITAL GAINS. 
"(a) IN GENERAL.—If for any taxable year a taxpayer other than a 
corporation has a net capital gain, 60 percent of the amount of the net 
capital gain shall be a deduction from gross income. 
"(b) ESTATES AND TRUSTS.—In the case of an estate or trust, the 
deduction shall be computed by excluding the portion (if any) of the 
gains for the taxable year from sales or exchanges of capital assets 
which, under sections 652 and 662 (relating to inclusions of amounts 26 USC 652, 
in gross income of beneficiaries of trusts), is includible by the income 662. 
beneficiaries as gain derived from the sale or exchange of capital 
assets. 
"(c) TAXABLE YEARS WHICH INCLUDE NOVEMBER 1,1978.—If for any 
taxable year beginning before November 1, 1978, and ending after 
October 31, 1978, a taxpayer other than a corporation has a net 
capital gain, the deduction under subsection (a) shall be the sum of— 
"(1) 60 percent of the lesser o
f
— 
"(A) the net capital gain for the taxable year, or 
"(B) the net capital gain taking into account only sales and 
exchanges after October 31,1978, plus 
"(2) 50 percent of the excess o
f
— 
"(A) the net capital gain for the taxable year, over 
"(B) the amount of net capital gain taken into account 
under paragraph (1)." 
(b) TECHNICAL AMENDMENTS.— 
92 STAT. 2868 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 use 57. 
(1) Subparagraph (A) of section 57(a)(9) (relating to treatment 
of capital gains for purposes of the minimum tax) is amended to 
read as follows: 
"(A) INDIVIDUALS.—In the case of a taxpayer other than a 
corporation, an amount equal to the net capital gain deduc-
Ante, p. 2867. 
tion for the t£ixable year determined under section 1202." 
26 use 170. 
(2) Subparagraph (B) of section 170(e)(1) (relating to charitable 
deduction for contributions of capital gain property) is amended 
by striking out "50 percent" and inserting in lieu thereof "40 
percent", 
(c) EFPECTIVE DATES;-^ 
26 use 1202 
(1) The amendments made by subsections (a) and (b)(1) shall 
note. 
apply to taxable years ending after October 31,1978. 
26 use 170 
(2) The amendment made by subsection (b)(2) shall apply to 
note. 
contributions made after October 31,1978. 
SEC. 403. REDUCTION OF ALTERNATIVE CAPITAL GAINS TAX FOR COR-
PORATIONS. 
26 use 1201. 
(a) GENERAL RULE.—Paragraph (2) of section 1201(a) (relating to 
alternative tax for corporations) is amended bv striking out "30 
percent" and inserting in lieu thereof "28 percent'. 
(b) TRANSITIONAL RULE.—Section 1201 is amended by adding at the 
end thereof the following new subsection: 
"(c) TAXABLE YEARS WHICH INCLUDE JANUARY 1,1979.—If for any 
taxable year beginning before January 1, 1979, and ending after 
December 31, 1978, a corporation has a net capital gain, then 
subsection (a) shall be applied by substituting for the language of 
paragraph (2) the following: 
"(2)(A) a tax of 28 percent of the lesser o
f
— 
' '(i) the net capital gain for the taxable year, or 
. 
"(ii) the net capital gain taking into account only sales and 
exchanges after December 31,1978, plus 
"(B) a tax of 30 percent of the excess o
f
— 
"(i) the net capital gains for the taxable year, over 
"(ii) the amount of net capital gain taken into account 
under subparagraph (A)." 
(c) CONFORMING AMENDMENTS.— 
26 use 170. 
(1) Subparagraph (B) of section 170(e)(1) (relating to charitable 
deduction for contributions of capital gain property) is amended 
by striking out "62y2 percent" and inserting in lieu thereof 
" 2 % 6 " . 
26 use 528. 
(2) Subparagraph (B) of section 528(b)(2) (relating to tax im-
posed on certain homeowners associations) is amended to read as 
follows: 
Supra. 
"(B) an amount determined as provided in section 1201(a) 
on such gain." 
26 use 857. 
(3) Clause (ii) of section 857(b)(3)(A) (relating to tax on real 
estate investment trusts) is amended by striking out "a tax of 30 
percent of" and inserting in lieu thereof "a tax determined at the 
rate provided in section 1201(a) on". 
26 use 904. 
(4) Subsection (b) of section 904 (relating to taxable income for 
computing the limitation on foreign tax credits) is amended— 
(A) by striking out "three-eighths" wherever it appears 
and inserting in lieu thereof "the rate differential portion"; 
.>. 
and 
(B) by striking the period at the end of subparagraph (D) of 
paragraph (3), inserting in lieu thereof a comma, and insert-
26 use 11. 
Ante, p. 2868 
26 use 1201 
note. 
26 use 170 
note. 
26 use 528 
note. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 28()9 
ing immediately thereafter the following new paragraph to 
read as follows: 
"(E) RATE DIFFERENTIAL PORTION.—The 'rate differential 
portion' of foreign source net capital gain, net capital gain, 
or the excess of net capital gain from sources within the 
United States over net capital gain, as the case may be, is the 
same proportion of such amount as the excess of the highest 
rate of tax specified in section 11(b) over the alternative rate 
of tax under section 1201(a) bears to the highest rate of tax 
specified in section 11(b)." 
(d) EFFECTIVE DATES.— 
(1) The amendments made by subsections (a) and (b) shall apply 
to taxable years ending after December 31,1978. 
(2) The amendment made by paragraph (1) of subsection (c) 
shall apply to gifts made after December 31,1978. 
(3) The amendments made by paragraphs (2), (3), and (4) of 
subsection (c) shall take effect on the date of the enactment of 
this Act. 
SEC. 404. ONE-TIME EXCLUSION OF GAIN FROM SALE OF PRINCIPAL 
RESIDENCE BY INDIVIDUAL WHO HAS ATTAINED AGE 55. 
(a) GENERAL RULE.—The section heading and subsections (a) and (b) 
section 121 are amended to read as follows: 
26 USe 121. 
"SEC. 12L ONE-TIME EXCLUSION OF GAIN FROM SALE OF PRINCIPAL 
RESIDENCE BY INDIVIDUAL WHO HAS ATTAINED AGE 55. 
"(a) GENERAL RULE.—At the election of the taxpayer, gross income 
does not include gain from the sale or exchange of property if— 
"(1) the taxpayer has attained the age of 55 before the date of 
such sale or exchange, and 
"(2) during the 5-year period ending on the date of the sale or 
exchange, such property has been owned and used by the 
taxpayer as his principal residence for periods aggregating 3 
years or more. 
"(b) LIMITATIONS.— 
"(1) DOLLAR LIMITATION.—The amount of the gain excluded 
from gross income under subsection (a) shall not exceed $100,000 
($50,000 in the case of a separate return by a married individual). 
"(2) APPLICATION TO ONLY i SALE OR EXCHANGE.—Subsection (a) 
shall not apply to any sale or exchange by the taxpayer if an 
election by the taxpayer or his spouse under subsection (a) with 
respect to any other sale or exchange is in effect. 
"(3) ADDITIONAL ELECTION IF PRIOR SALE WAS MADE ON OR 
BEFORE JULY 26, 1978.—In the case of any sale or exchange after 
July 26, 1978, this section shall be applied by not taking into 
account any election made with respect to a sale or exchange on 
or before such date." 
Ot)) TACKING OF HOLDING PERIOD IN CASE OF INVOLUNTARY CONVER-
SIONS.—Subsection (d) of section 121 (relating to special rules) is 
amended by adding at the end thereof the following new paragraph: 
"(8) PROPERTY ACQUIRED AFTER INVOLUNTARY CONVERSION.—If 
the basis of the property sold or exchanged is determined (in 
whole or in part) under subsection (b) of section 1033 (relating to 26 USC 1033. 
basis of property acquired through involuntary conversion), then 
the holding and use by the taxpayer of the converted property 
shall be treated as holding and use by the taxpayer of the 
property sold or exchanged.' 
(c) TECHNICAL AND CONFORMING AMENDMENTS.— 
92 STAT. 2870 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 use 121. 
(1) Paragraph (2) of section 121(d) is amended by striking out 
"8-year period" and inserting in lieu thereof "5-year period". 
(2) Paragraph (5) of section 121(d) is amended— 
(A) by striking out "8-year period" and inserting in lieu 
thereof "5-year period", and 
(B) by striking out "5 years" and inserting in lieu thereof 
"3 years". 
(3) The table of sections for part III of subchapter B of chapter 1 
is amended by striking out the item relating to section 121 and 
inserting in lieu thereof the following: 
,,v I 
,, 
"Sec. 121. One-time exclusion of gain from sale of principal residence by in-
dividual who has attained age 55." 
26 use 1033. 
(4) Paragraph (3) of section 1033(g) (relating to cross references) 
is amended to read as follows: 
"(3) For one-time exclusion from gross income of gain from involun-
tary conversion of principal residence by individual who has attained age 
55, see section 121." 
26 use 1034. 
(5) Subsection (k) of section 1034 (relating to cross references) is 
amended to read as follows: 
"(k) CROSS REFERENCE.— 
"For one-time exclusion from gross income of gain from sale of princi-
pal residence by individual who has attained age 55, see section 121." 
26 use 1038. 
(6) Section 1038(e)(1)(A) is amended by striking out "relating to 
gain from sale or exchange of residence of an individual who has 
attained age 65" and inserting in lieu thereof "relating to one-
time exclusion of gain from sale of principal residence by 
individual who has attained age 55". 
26 use 1250. 
(7) Section 1250(d)(7)(B) is amended by striking out "relating to 
gains from sale or exchange of residence of individual who has 
attained the age of 65" and inserting in lieu thereof "relating to 
one-time exclusion of gain from sale of principal residence by 
individual who has attained age 55". 
26 use 6012. 
(8) Section 6012(c) is amended by striking out "relating to sale 
of residence by individual who has attained age 65" and inserting 
in lieu thereof "relating to one-time exclusion of gain from sale of 
principal residence by individual who has attained age 55". 
26 use 121 
(d) EFFECTIVE DATE.— 
"°*^- 
(1) IN GENERAL.—The amendments made by this section shall 
apply to sales or exchanges after July 26, 1978, in taxable years 
ending after such date. 
(2) TRANSITIONAL RULE,—In the case of a sale or exchange of a 
residence before July 26,1981, a taxpayer who has attained age 
65 on the date of such sale or exchange may elect to have section 
121 of the Internal Revenue Code of 1954 applied by substituting 
"8-year period" for "5-year period" and "5 years" for "3 years" in 
subsections (a), (d)(2), and (d)(5) of such section. 
SEC. 405. WAIVER OF CERTAIN 18-MONTH RULES OF SECTION 1034 WHEN 
SALE OF RESIDENCE IS CONNECTED WITH COMMENCING 
W
O
R
K AT N
E
W PLACE. 
26 use 1034. 
(a) IN GENERAL.—Subsection (d) of section 1034 (relating to sale or 
exchange of residence) is amended to read as follows: 
"(d) LIMITATION.— 
"(1) IN GENERAL.—Subsection (a) shall not apply with respect to 
the sale of the taxpayer's residence if within 18 months before 
the date of such sale the taxpayer sold at a gain other property 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2871 
used by him as his principal residence, and any part of such gain 
was not recognized by reason of subsection (a). 
"(2) SUBSEQUENT SALE CONNECTED WITH COMMENCING WORK AT 
NEW PLACE.—Paragraph (1) shall not apply with respect to the 
sale of the taxpayer's residence if— 
"(A) such sale was in connection with the commencement 
of work by the taxpayer as an employee or as a self-employed 
individual at a new principal place of work, and 
"(B) if the residence so sold is treated as the former 
residence for purposes of section 217 (relating to moving 26 USC 217. 
expenses), the taxpayer would satisfy the conditions of 
subsection (c) of section 217 (as modified by the other 
subsections of such section)." 
(b) RELATED TECHNICAL AMENDMENT.—Paragraph (4) of section 
1034(c) is amended by adding at the end thereof the following new 26 USC 1034. 
sentence: "If a principal residence is sold in a sale to which subsection 
(d)(2) applies within 18 months after the sale of the old residence, for 
purposes of applying the preceding sentence with respect to the old 
residence, the principal residence so sold shall be treated as the last 
residence used during such 18-month period." 
(c) CLERICAL AMENDMENTS.— 
(1) The section heading of section 1034 is amended to read as 
. | 
follows: 
"SEC. 1034. ROLLOVER OF GAIN ON SALE OF PRINCIPAL RESIDENCE." 
(2) The table of sections for part III of subchapter O of chapter 1 
is amended by striking out the item relating to section 1034 and 
inserting in lieu thereof the following new item: 
"Sec. 1034. Rollover of gain on sale of principal residence." 
(3) Subparagraph (B) of section 1083(e)(1) (relating to certain 26 USC 1083. 
acquisitions of real property) is amended by striking out "(relat-
ing to sale or exchange of residence)" and inserting in lieu 
thereof "(relating to rollover of gain on sale of principal 
residence)". 
(4) Subparagraph (A) of section 1250(d)(7) (relating to gain from 26 USC 1250. 
dispositions of certain depreciable realty) is amended by striking 
out "relating to sale or exchange of residence" and inserting in 
lieu thereof "relating to rollover of gain on sale of principal 
residence". 
(5) Subparagraph (C) of section 6212(c)(2) (relating to cross 26 USC 6212. 
references) is amended by striking out "personal residence" and 
inserting in lieu thereof "principal residence". 
(6) Paragraph (4) of section 6504 (relating to cross references) 26 USC 6504. 
is amended by striking out "residence" and inserting in lieu 
thereof "principal residence' . 
(d) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 1034 
apply to sales and exchanges of residences after July 26, 1978, in note, 
taxable years ending after such date. 
Subtitle B—Minimum Tax Provisions 
SEC. 421. ALTERNATIVE MINIMUM TAX FOR TAXPAYERS OTHER THAN 
CORPORATIONS. 
(a) IN GENERAL.—Part VI of subchapter A of chapter 1 (relating to 
minimum tax for tax preferences) is amended by inserting immedi-
ately before section 56 the following new section: 
92 STAT. 2872 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 u s e 55. 
"SEC. 55. ALTERNATIVE MINIMUM TAX FOR TAXPAYERS OTHER THAN 
CORPORATIONS. 
"(a) ALTERNATIVE MINIMUM TAX IMPOSED.—In the case of a tax-
payer other than a corporation, if— 
"(1) an amount equal to the sum o
f
— 
"(A) 10 percent of so much of the alternative minimum 
tsixable income as exceeds $20,000 but does not exceed 
$60,000 plus 
"(B) 20 percent of so much of the alternative minimum 
taxable income as exceeds $60,000 but does not exceed 
$100,000, plus 
"(C) 25 percent of so much of the alternative minimum 
taxable income as exceeds $100,000, exceeds 
"(2) the regular tax for the taxable year, then there is imposed 
(in addition to all other taxes imposed by this title) a tax equal to 
the amount of such excess. 
"(b) DEFINITIONS.—For purposes of this section— 
"(1) ALTERNATIVE MINIMUM TAXABLE INCOME.—The term 'al-
ternative minimum taxable income' means gross income— 
"(A) reduced by the sum of the deductions allowed for the 
taxable year, 
"(B) reduced by the sum of any amounts included in 
26 use 667. 
income under section 667, and 
"(C) increased by an amount equal to the sum of the tax 
preference items for— 
"(i) adjusted itemized deductions (within the meaning 
26 use 57. 
of section 57(a)(1)), and 
"(ii) capital gains (within the meaning of section 
57(a)(9)). 
"(2) REGULAR TAX,—The term 'regular tax' means the taxes 
imposed by this chapter for the taxable year (computed without 
regard to this section and without regard to the taxes imposed by 
26 use 72, 402, 
sections 72(m)(5)(B), 402(e), 408(f), and 667(b)) reduced by the sum 
408, 667. 
of the credits allowable under subpart A of part IV of this 
26 use 31. 
subchapter (other than under sections 31,39 and 43). 
26 use 31, 39, 
«(C)CREDITS.-
"(1) CREDITS OTHER THAN THE FOREIGN TAX CREDIT NOT ALLOW-
ABLE.—For purposes of determining the amount of any credit 
26 use 31. 
allowable under subpart A of part IV of this subchapter (other 
26 use 33. 
than the foreign tax credit allowed under section 33(a)), the tax 
imposed by this section shall not be treated as a tax imposed by 
this chapter. 
"(2) FOREIGN TAX CREDIT ALLOWED AGAINST ALTERNATIVE MINI-
MUM TAX.—The total amount of the foreign tax credit which can 
be taken against the tax imposed by subsection (a) shall be 
26 use 901, 
determined under section 901 and sections 903 through 908. For 
903-908. 
purposes of this determination— 
"(A) the amount of taxes paid or accrued to foreign 
countries or possessions of the United States in the taxable 
year shall be deemed to include an amount equal to the 
26 use 33. 
lesser of (i) the foreign tax credit allowed under section 33(a) 
in computing the regular tax for the taxable year, or (ii) the 
tax imposed under subsection (a); 
26 use 904. 
"(B) the limitation of section 904(a) shall be an amount 
equal to the same proportion of the sum of the tax imposed 
by this section against which such credit is taken and the 
26 use 56. 
regular tax (excluding the tax imposed by section 56) which 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2873 
the taxpayer's alternative minimun taxable income from 
sources without the United States (but not in excess of the 
taxpayer's entire alternative minimum taxable income) 
bears to his entire alternative minimum taxable income for 
the same taxable year. For purposes of the preceding sen-
tence, the entire alternative minimum taxable income shall 
be reduced by an amount equal to the zero bracket amount; 
"(C) the term 'alternative minimum taxable income from 
sources without United States' means the excess of the items 
of gross income from sources without the United States over 
that portion of the deductions taken into account in comput-
ing alternative minimum taxable income which are de-
ducted from those items of gross income in computing 
taxable income from sources without the United States; for 
purposes of this subparagraph, and except as provided in 
section 904, gross and taxable income from sources without 
the United States shall be determined under part I of 
subchapter N of chapter 1; and 
"(D) the amount of foreign taxes paid during the taxable 
year which may be deemed to be paid in a preceding or 
succeeding year under section 904(c), the limitation of sec-
tion 904(a) shall be increased by the lesser of (i) the amount 
described in subparagraph (B) or (ii) the tax imposed under 
subsection (a). 
"(3) CARRYOVER AND CARRYBACK OF CERTAIN CREDITS.—In any 
taxable year in which a tax is imposed by this section (referred to 
as the current taxable year)— 
"(A) EMPLOYMENT CREDIT.—For purposes of determining 
under section 53(c) the amount of any jobs credit carryback 
or carryover to any other taxable year, the amount of the 
limitation under section 53(a) for the current taxable year 
shall be deemed to be— 
"(i) the amount of the credit allowable under section 
44B for the current taxable year without regard to this 
subparagraph, reduced by 
"(ii) the amount equal to the lesser of (I) the amount of 
the credit allowable under section 44B for the current 
taxable year without regard to this subparagraph, or 
(II) the net tax imposed by this section for the current 
taxable year. 
"(B) WORK INCENTIVE PROGRAM CREDIT.—For purposes of 
determining under section 50A(b) the amount of any work 
incentive program credit carryback or carryover to any 
other taxable year, the amount of the limitation under 
section 50A(a)(2) for the current taxable year shall be 
deemed to be— 
"(i) the amount of the credit allowable under section 
40 for the current taxable year without regard to this 
subparagraph, reduced by 
"(ii) the amount equal to the lesser of (I) the amount of 
the credit allowable under section 40 for the current 
taxable year without regard to this subparagraph, or, 
(II) the net tax imposed by this section for the current 
taxable year reduced by the amount of reduction de-
scribed in clause (ii) of subparagraph (A). 
"(C) INVESTMENT CREDIT.—For purposes of determining 
under section 46(b) the amount of any investment credit 
"Alternative 
minimum taxable 
income from 
sources without 
United States". 
26 u s e 861. 
26 u s e 904. 
Ante, p. 2835. 
Ante, p. 2834. 
Ante, p. 2836. 
26 u s e 40. 
26 u s e 46. 
39-194 O—80—pt. 3 
16 : QL3 
92 STAT. 2874 
PUBLIC LAW 95-600—NOV. 6, 1978 
carryback or carryover to any other taxable year, the 
26 use 46. ^ 
amount of the limitation under section 46(a)(3) for the 
current taxable year shall be deemed to be 
"(i) the amount of the credit allowable under section 
26 use 38. 
38 for the current taxable year without regard to this 
subparagraph, reduced by 
"(ii) the amount equal to the lesser of (I) the amount of 
the credit allowable under section 38 for the current 
taxable year without regard to this subparagraph, or (II) 
the net tax imposed by this section for the current 
taxable year reduced by the sum of the amounts of 
reduction described in clause (ii) of subparagraphs (A) 
and(B). 
"(D) NET TAX IMPOSED BY THIS SECTION.—For purposes of 
this paragraph, the term 'net tax imposed by this section' 
means the tax imposed by this section reduced by the foreign 
26 use 33. 
tax credit allowed under section 33 (a), as modified by 
paragraph (2). 
26 use 57. 
(b) AMENDMENT OF SECTION 57.—Section 57 (relating to items of tax 
preference) is amended— 
(1) by adding the following at the end of paragraph (9) subsec-
tion (a): 
"(D) PRINCIPAL RESIDENCE.—For purposes of subparagraph 
(A), gain from the sale or exchange of a principal residence 
26 use 1034. 
(within the meaning of section 1034) shall not be taken into 
account,", 
(2) by striking out the last sentence of subsection (a) and 
inserting in lieu thereof the following: "Paragraphs (3) and (11) 
shall not apply to a corporation other than an electing small 
26 use 1371. 
business corporation (as defined in section 1371 (b)) and a 
26 use 542. 
personal holding company (as defined in section 542). For pur-
26 use 56. 
poses of section 56, in the case of a taxpayer other than a 
corporation, the adjusted itemized deductions described in para-
graph (1) and capital gains described in paragraph (9) shall not be 
treated as items of tax preference." 
(3) by striking out subsection (b)(1) and inserting the following 
in lieu thereof: 
"(1) IN GENERAL.—For purposes of paragraph (1) of subsection 
(a), the amount of the adjusted itemized deductions for any 
taxable year is the amount by which the sum of the itemized 
26 use 63. 
deductions (as defined in section 63(f)) other than— 
"(A) the deduction for State and local taxes provided by 
26 use 164. 
section 164(a), 
"(B) the deduction for medical, dental, etc., expenses 
26 use 213. 
provided by section 213, 
"(C) the deduction for casualty losses described in section 
26 use 165. 
165(c)(3), and 
26 use 691. 
"(D) the deduction allowable under section 691(c), 
exceeds 60 percent of the taxpayer's adjusted gross income 
reduced by the items in subparagraphs (A) through (D) for the 
taxable year.", and 
(4) by striking out subparagraph (A) of subsection (b)(2), as 
Post, p. 2897. 
amended by section 701 of this Act, and inserting in lieu thereof 
\ 
the following: 
"(A) IN GENERAL.—In the case of an estate or trust, for 
purposes of paragraph (1) of subsection (a), the amount of the 
adjusted itemized deductions for any taxable year is the 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2875 
amount by which the sum of the deductions for the taxable 
year other than— 
"(i) the deductions allowable in arriving at adjusted 
gross income, 
"(ii) the deduction for personal exemption provided by 
section 642(b), 
26 U
S
C 642. 
"(iii) the deduction for casualty losses described in 
section 165(c)(3), 
26 USC 165. 
"(iv) the deductions allowable under section 651(a), 
661(a), or 691(c), 
26 USC 651, 
"(v) the deduction for State and local taxes provided ^^l' ^91. 
by section 164(a), and 
"(vi) the deductions allowable to a trust under section 
642(c) to the extent that a corresponding amount is 26 U
S
C 642. 
included in the gross income of the beneficiary under 
section 662(a)(1) for the taxable year of the beneficiary 26 U
S
C 662. 
with which or within which the taxable year of the trust 
ends, 
exceeds 60 percent of the adjusted gross income reduced by 
the items in clauses (i) through (vi) for the taxable year." 
(c) AMENDMENTS OF SECTION 58.—Section 58 (relating to rules for 26 USC 58. 
application of part) is amended— 
(1) by adding at the end of subsection (a) the following new 
sentence: "In the case of a married individual who files a 
separate return for the taxable year, the amount determined 
under paragraph (1) of section 55(a) shall be an amount equal to 26 USC 55. 
one-half of the amount which would be determined under such 
paragraph if the amount of the individual's alternative mini-
mum taxable income were multiplied by 2."; 
(2) by amending subsection (c) to read as follows: 
"(c) ESTATES AND TRUSTS.—In the case of an estate or trust— 
"(1) the sum of the items of tax preference for any t£ixable year 
of the estate or trust shall be apportioned between the estate or 
trust and the beneficiaries on the basis of the income of the estate 
or trust allocable to each, 
"(2) the $10,000 amount specified in section 56 applicable to 26 U
S
C 56. 
such estate or trust shall be reduced to an amount which bears 
the same ratio to $10,000 as the portion of the sum of the items of 
tax preference allocated to the estate or trust under paragraph 
(1) bears to such sum, and 
"(3) the liability for the tax imposed by section 55 (a) shall be 
determined as in the case of a married individual filing sepa-
rately.", and 
. i 
(3) by deleting subsection (i) (relating to the definition of 
corporation). 
(d) TAXES TAKEN INTO ACCOUNT IN CASE OF ACCUMULATION DISTRI-
BUTIONS B
Y TRUSTS.—The second sentence of section 666(b) (relating 26 U
S
C 666. 
to total taxes deemed distributed) is amended by striking out "taxes" 
and inserting in lieu thereof "taxes (other than the tax imposed by 
section 55)". 
(e) TECHNICAL AMENDMENTS.— 
(1) Paragraph (4) of section (5)(a) (as redesignated by section 401 26 USC 5. 
of this Act) (relating to cross references relating to tax on 
individuals) is amended to read as follows: 
92 STAT. 2876 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(4) For minimum tax for taxpayers other than corporations, see sec-
tion 55.". 
26 use 443. 
(2) Subsection (d) of section 443 (relating to adjustment in 
computing minimum tax for short periods) is amended to read as 
follows: 
"(d) ADJUSTMENT IN COMPUTING MINIMUM TAX FOR TAX PREFER-
ENCES.—If a return is made for a short period by reason of subsection 
(a), then— 
"(1) in the case of a taxpayer other than a corporation, the 
alternative minimum taxable income for the short period shall 
be placed on an annual basis by multiplying that amount by 12 
and dividing the result by the number of months in the short 
period, and the amount computed under paragraph (1) of section 
26 use 55. 
55(a) shall be the same part of the tax computed on the annual 
basis as the number of months in the short period is of 12 months; 
and 
"(2) in the case of a corporation, the $10,000 amount specified 
26 use 56. 
in section 56 (relating to minimum tax for tax preferences), 
26 use 58. 
modified as provided by section 58, shall be reduced to the 
amount which bears the same ratio to such specified amount as 
the number of days in the short period bears to 365.". 
26 use 511. 
(3) Subsection (d) of section 511 (relating to tax preferences) is 
amended to read as follows: 
"(d) TAX PREFERENCES.— 
"(1) ORGANIZATIONS TAXABLE AT CORPORATE RATES.—If an orga-
nization is subject to tax on unrelated business taxable income 
26 use 56. 
pursuant to subsection (a), the tax imposed by section 56 shall 
apply to such organizations with respect to items of tax prefer-
ence which enter into the computation of unrelated business 
taxable income in the same manner as section 56 applies to 
corporations. 
"(2) ORGANIZATIONS TAXABLE AS TRUSTS.—If an organization is 
subject to tax on unrelated business taxable income pursuant to 
subsection (b), the taxes imposed by section 55 and section 56 (as 
the case may be) shall apply to such organization with respect to 
items of tax preference which enter into the computation of 
unrelated business taxable income." 
26 use 871. 
(4) Paragraph (1) of section 871(b) (relating to tax on nonresi-
dent alien individuals) is amended by inserting ", section 55," 
after "section 1". 
26 use 877. 
(5) Subsection (b) of section 877 (relating to expatriation to 
avoid tax) is amended by inserting ", section 55," after 
"section 1". 
26 use 904. 
(6) Section 904(h) (relating to cross references) is amended to 
read as follows: 
"(h) CROSS REFERENCES.— 
/ 
• 
"(1) For increase of limitation under subsection (a) for taxes paid with 
respect to amounts received which were included in the gross income of 
the taxpayer for a prior taxable year as a United States shareholder with 
respect to a controlled foreign corporation, see section 960(b). 
"(2) For modiflcation of limitation under subsection (a) for purposes of 
determining the amount of credit which can be taken by an individual 
against the alternative minimum tax, see section 55(c).". 
26 use 6015. 
(7) Paragraph (1) of section 6015(c) (defining estimated tax) is 
amended by striking out "section 56" and inserting in lieu 
thereof "section 55 or 56". 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2877 
(8) Subparagraph (A) of section 6362(b) (relating to qualified 26 U
S
C 6362. 
individual income taxes) is amended by striking out "section 56" 
and inserting in lieu thereof "section 55 or 56". 
(9) Paragraph (1) of section 6654(f) (relating to tax computed 26 U
S
C 6654. 
after applications of credit against tax) is amended by striking 
out "section 56" and inserting in lieu thereof "section 55 or 56". 
(f) CLERICAL AMENDMENT.—The table of sections for part VI of 
subchapter A of chapter 1 is amended by adding at the beginning 
thereof the following new item: 
"Sec. 55. Alternative Minimum Tax for Taxpayers other than Corpora-
tions.". 
(g) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 55 note. 
apply to taxable years beginning after December 31,1978, except that 
the amendment made by paragraph (1) of subsection (b) shall apply to 
sales and exchanges made after July 26,1978, in taxable years ending 
after such date. 
SEC. 422. TREATMENT OF INTANGIBLE DRILLING COSTS FOR PURPOSES 
OF THE MINIMUM TAX. 
Subsection (b) of section 308 of the Tax Reduction and Simplifica- 26 USC 57 note. 
tion Act of 1977 is amended by striking out ", and before January 1, 
1978". 
SEC. 423. AMENDMENT TO DEFINITION OF FOREIGN SOURCE CAPITAL 
GAIN T
A
X PREFERENCES. 
(a) GENERAL RULE.—Section 58(g)(2) (relating to capital gains and 26 U
S
C 58. 
stock options) is amended by striking out the period at the end of the 
last sentence thereof, and inserting the following: "; except that, for 
purposes of subparagraph (B), preferential treatment shall be deemed 
not to be accorded to capital gain recognized on the receipt of 
property (other than money) in exchange for stock of a corporation 
which is engaged in the active conduct of a trade or business within 
one or more foreign countries or possessions if (i) such exchange is 
described in section 332,351,354,355,356, or 361, (ii) such exchange is 26 USC 332, 
made in the foreign country or possession in which such corporation's 351, 354, 355,, 
business is primarily carried on, (iii) such exchange is not subject to 3^^' 3^^-
tax by such foreign country or possession because it is regarded under 
the laws of such country or possession as a transaction in which gain 
.or loss is either not realized or not recognized, and (iv) such gain, if it 
had been realized and recognized under the laws of such country or 
possession, would not have been accorded preferential treatment and 
would have been subject to tax at a rate of at least 28 percent (30 
/ 
percent if the exchange occurs before January 1,1979). For purposes 
of computing the minimum tax, if any, which may be payable on a 
subsequent transaction involving any property received upon the 
exchange of stock described in the preceding sentence, the property 
received shall be treated as having the same basis in the taxpayer's 
hands immediately after such exchange as such stock had immedi-
ately before such exchange." 
(b) EFFECTIVE DATE.—The amendment made by this section shall 26 USC 58 note. 
take effect on the date of the enactment of this Act. 
92 STAT. 2878 
PUBLIC LAW 95-600—NOV. 6, 1978 
Subtitle C—Maximum Tax Provisions 
26 use 1348. 
26 use 1348 
note. 
26 use 1348 
note. 
SEC. 441. TREATMENT OF CAPITAL GAINS FOR PURPOSES OF THE MAXI-
MUM TAX. 
(a) GENERAL RULE.—Subparagraph (b) of section 1348(b)(2) (relating 
to definition of personal service income) is amended by striking out 
"items of tax preference (as defined in section 57)" and inserting in 
lieu thereof "items of tax preference described in subsection (a) (other 
than paragraph (9)) of section 57". 
• 
^ 
(b) EFFECTIVE DATE.— 
(1) GENERAL RULE.—The amendment made by subsection (a) 
shall apply with respect to taxable years beginning after 
October 31,1978. 
(2) TRANSITIONAL RULES.—In the case of a taxable year which 
begins before November 1,1978, and ends after October 31,1978, 
the amendment made by subsection (a) shall apply with respect 
to so much of the net capital gain of the taxpayer for the taxable 
year as is attributable to sales or exchanges after October 31, 
1978. 
SEC. 442. DETERMINATION OF PERSONAL SERVICE INCOME FROM NON-
SALARIED TRADE OR BUSINESS ACTIVITIES. 
(a) IN GENERAL.—Subparagraph (A) of section 1348(b)(1) (relating to 
personal service income) is amended by adding at the end thereof the 
following: "For purposes of this subparagraph, section 911(b) shall be 
applied without regard to the phrase ', not in excess of 30 percent of 
his share of net profits of such trade or business,'.". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
apply with respect to tsixable years beginning after December 31, 
1978. 
TITLE V—OTHER TAX PROVISION 
Subtitle A—Administrative Provisions 
26 
use 
6001. 
26 
use 
6053. 
26 
use 
6041. 
26 
use 
6053. 
26 use 6001 
note. 
SEC. 501. REPORTING REQUIREMENTS WITH RESPECT TO CHARGED TIPS. 
(a) RECORDS.—Section 6001 (relating to notice or regulations requir-
ing records, statements, and special returns) is amended by adding at 
the end thereof the following: "The only records which an employer 
shall be required to keep under this section in connection with 
charged tips shall be charge receipts and copies of statements 
furnished by employees under section 6053(a)." 
(b) RETURNS.—Section 6041 (relating to information at source) is 
amended by redesignating subsection (d) as subsection (c) and by 
adding at the end thereof the following new subsection: 
"(d) SECTION DOES NOT APPLY TO CERTAIN TIPS.—This section shall 
not apply to tips with respect to which section 6053(a) (relating to 
reporting of tips) applies." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to payments made after December 31,1978. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2879 
SEC. 502. EXTENSION OF OPTIONAL SMALL TAX CASE PROCEDURES AND 
EXPANSION OF AUTHORITY OF COMMISSIONERS OF TAX 
COURT. 
(a) EXTENDING THE OPTIONAL SMALL TAX CASE PROCEDURES TO 
ADDITIONAL TAXPAYERS.— 
(1) IN GENERAL.—Subsection (a) of section 7463 (relating to 26 USC 7463. 
small tax cases) is amended by striking out paragraphs (1) and (2) 
and inserting in lieu thereof the following: 
"(1) $5,000 for any one taxable year, in the case of the taxes 
imposed by subtitle A, 
26 USC 1. 
"(2) $5,000, in the case of the tax imposed by chapter 11, or 26 USC 2001 et 
"(3) $5,000 for any one calendar year, in the case of the tax *^9-
imposed by chapter 12,". 
26 USC 2501 et 
(2) CONFORMING AMENDMENTS.— 
^^i-
(A) The heading of section 7463 is amended by striking out 
"$i,50o" and inserting in lieu thereof "$5,ooo", 
(B) the table of sections for part II of subchapter C of 
chapter 76 is amended by striking out "$i,500" in the item 
relating to section 7463 and inserting in lieu thereof "$5,000". 
O
t
>
) AUTHORITY TO ASSIGN SMALL TAX CASES TO COMMISSIONERS.— 
Section 7463 (relating to small tax cases) is amended by adding at the 
end thereof the following new subsection: 
"(g) COMMISSIONERS.—The chief judge of the Tax Court may assign 
proceedings conducted under this section to be heard by the Commis-
sioners of the court, and the court may authorize a commissioner to 
make the decision of the court with respect to any such proceeding, 
subject to such conditions and review as the court may by rule 
provide." 
(c) AUTHORITY OF TAX COURT COMMISSIONERS TO ADMINISTER 
OATHS, PROCURE TESTIMONY, ETC.—Subsection (a) of section 7456 26 use 7456. 
(relating to the administration of oaths and testimony) is amended— 
(1) by striking out "any judge of the Tax Court" each place it 
appears and inserting in lieu thereof "any judge or commissioner 
of the Tax Court"; and 
(2) by striking out "by the judge" and inserting in lieu thereof 
"by the judge or commissioner". 
(d) EFFECTIVE DATES.— 
26 USC 7463 
(1) SUBSECTION (a).—The amendments made by subsection (a) note, 
shall take effect on the first day of the first calendar month 
beginning more than 180 days after the date of the enactment of 
this Act. 
(2) SUBSECTIONS (b) AND (C).—The amendments made by subsec-
tion (b) and (c) shall take effect on the date of the enactment of 
this Act. 
SEC. 503. DISCLOSURE OF RETURN INFORMATION TO CERTAIN FEDERAL 
OFFICERS AND EMPLOYEES FOR PURPOSES OF TAX ADMIN-
ISTRATION, ETC. 
(a) IN GENERAL.—Paragraph (2) of section 6103(h) (relating to 26 USC 6103. 
Department of Justice) is amended— 
(1) by striking out "A" after the heading, and inserting in lieu 
thereof "In a matter involving tax administration, a", 
(2) by striking out "attorneys" after "open to inspection by or 
disclosure to", in paragraph (2) and inserting in lieu thereof 
"officers and employees", 
92 STAT. 2880 
PUBLIC LAW 95-600—NOV. 6, 1978 
(3) by inserting "any proceeding before a Federal grand jury 
or" before "preparation for any proceeding" in paragraph (2), 
(4) by striking out "in a matter involving tax administration" 
after "or any Federal or State court". 
(b) APPLICATION TO TAXPAYER.— 
26 use 6103. 
(1) Section 6103(h)(2) is amended by striking out subparagraph 
(A) and inserting in lieu thereof the following: 
"(A) the taxpayer is or may be a party to the proceeding, or 
the proceeding arose out of, or in connection with, determin-
ing the taxpayer's civil or criminal liability, or the collection 
of such civil liability in respect of any tax imposed under this 
•
^ •' 
title;". 
(2) Section 6103(h)(4) is amended by striking out subparagraph 
(A) and inserting in lieu thereof the following: 
"(A) the taxpayer is a party to the proceeding, or the 
proceeding arose out of, or in connection with, determining 
the taxpayer's civil or criminal liability, or the collection of 
such civil liability, in respect of any tax imposed under this 
title;". 
SEC. 504. REFUND ADJUSTMENTS FOR AMOUNTS HELD UNDER CLAIM 
OF RIGHT. 
26 use 6411. 
(a) IN GENERAL.—Section 6411 (relating to application for adjust-
ment) is amended by adding at the end thereof the following new 
subsection: 
"(d) TENTATIVE REFUND OF TAX UNDER CLAIM OF RIGHT ADJUST-
MENT.— 
"(1) APPLICATION.—A taxpayer may file an application for a 
tentative refund of any amount treated as an overpajmient of tax 
26 use 1341. 
for the taxable year under section 1341(b)(1). Such application 
shall be in such manner and form as the Secretary may prescribe 
by regulation and shall— 
"(A) be verified in the same manner as an application 
under subsection (a), 
"(B) be filed during the period beginning on the date of 
filing the return for such taxable year and ending on the 
date 12 months from the last day of such taxable year, and 
"(C) set forth in such detail and with such supporting data 
such regulations prescribe— 
"(i) the amount of the tax for such taxable year 
computed without regard to the deduction described in 
section 1341(a)(2), 
"(ii) the amount of the tax for all prior taxable years 
for which the decrease in tax provided in section 
1341(a)(5)(B) was computed, 
"(iii) 
the 
amount 
determined 
under 
section 
1341(a)(5)(B), 
"(iv) the amount of the overpayment determined 
under section 1341(b)(1); and 
"(v) such other information as the Secretary may 
>' 
require. 
"(2) ALLOWANCE OF ADJUSTMENTS.—Within a period of 90 days 
from the date on which an application is filed under paragraph 
(1), or from the last day of the month in which falls the last date 
prescribed by law (including any extension of time granted the 
taxpayer) for filing the return for taxable year in which the 
overpayment occurs, whichever is later, the Secretary shall— 
"(A) review the application. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 21381 
"(B) determine the amount of the overpayment, and 
"(C) apply, credit, or refund such overpayment in a 
manner similar to the manner provided in subsection (b). 
"(3) CONSOLIDATED RETURNS.—The provisions of subsection (c) 
shall apply to an adjustment under this subsection to the same 
extent and manner as the Secretary may by regulations 
provide.". 
(b) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1)(A) The heading for section 6411 is amended by inserting 26 USC 6411. 
"AND REFUND" after "CARRYBACK". 
(B) The table of sections for subchapter B of chapter 65 is 
amended by inserting "and refund" after "carryback" in the 
item relating to section 6411. 
(2) Paragraph (3) of section 6213(b) (relating to assessments 
26 USC 6213. 
arising out of tentative carryback adjustments) is amended— 
(A) by inserting "OR REFUND" after "CARRYBACK" in the 
heading; and 
(B) by inserting "or the amount described in section 
1341(b)(1)" after "carryback". 
(3) Subsection (m) of section 6501 (relating to tentative carry- 26 USC 6501. 
back adjustment period) is amended by inserting "and refund" 
after "carryback" the first place it appears. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 6411 
apply to tentative refund claims filed on and after the date of the "0^. 
enactment of this Act. 
Subtitle B—Estate and Gift Tax Provisions 
SEC. 511. REDUCTION OF VALUE TAKEN INTO A
C
C
O
U
N
T FOR ESTATE TAX 
PURPOSES WHERE SPOUSE OF DECEDENT MATERIALLY PAR-
TICIPATED IN FARM OF OTHER BUSINESS 
(a) IN GENERAL.—Section 2040 (relating to joint interests) is 26 USC 2040. 
amended by adding at the end thereof the following new subsection: 
"(c) VALUE WHERE SPOUSE OF DECEDENT MATERIALLY PARTICIPATED 
IN FARM OR OTHER BUSINESS.— 
"(1) IN GENERAL.—Notwithstanding subsections (a), in the case 
of an eligible joint interest in section 2040(c) property, the value 
included in the gross estate with respect to such interest by 
reason of this section shall be— 
"(A) the value of such interest, reduced by 
"(B) the sum o
f
— 
"(i) the section 2040(c) value of such interest, and 
"(ii) the adjusted consideration furnished by the dece-
dent's spouse. 
"(2) LIMITATIONS.— 
"(A) AT LEAST 50 PERCENT OF VALUE TO BE INCLUDED.— 
Paragraph (1) shall in no event result in the inclusion in the 
decedent's gross estate of less than 50 percent of the value of 
the eligible joint interest. 
"(B) AGGREGATE REDUCTION.—The aggregate decrease in 
the value of the decedent's gross estate resulting from the 
application of this subsection shall not exceed $500,000. 
"(3) ELIGIBLE JOINT INTEREST DEFINED.—For purposes of para-
graph (1) the term 'eligible joint interest' means any interest in 
property held by the decedent and the decedent's spouse as joint 
tenants or as tenants by the entirety, but only i
f
— 
92 STAT. 2882 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(A) such joint interest was created by the decedent, the 
decedent's spouse, or both, and 
"(B) in the case of a joint tenancy, only the decedent and 
the decedent's spouse are joint tenants. 
26 use 2040. 
"(4) SECTION 2040(C) PROPERTY DEFINED.—For purposes of para-
graph (1), the term 'section 2040(c) property' means any interest 
in any real or tangible personal property which is devoted to use 
as a farm or used for farming purposes (within the meaning of 
26 use 2032A. 
paragraphs (4) and (5) of section 2032A(e)) or is used in any other 
trade or business, 
"(5) SECTION 2040(c) VALUE.—For purposes of paragraph (1), the 
term 'section 2040(c) value' means— 
"(A) the excess of the value of the eligible joint interest 
• 
; ,.; 
over the adjusted consideration furnished by the decedent, 
the decedent's spouse, or both, multiplied by 
"(B) 2 percent for each taxable year in which the spouse 
materially participated in the operation of the farm or other 
trade or business but not to exceed 50 percent. 
"(6) ADJUSTED CONSIDERATION.—For the purpose of this subsec-
> 
tion, the term 'adjusted consideration' means— 
"(A) the consideration furnished by the individual con-
cerned (not taking into account any consideration in the 
form of income or gain from the business of which the 
section 2040(c) property is a part) determined under rules 
similar to the rules set forth in subsection (a), and 
"(B) an amount equal to the amount of interest which the 
consideration referred to in subparagraph (A) would have 
earned over the period in which it was invested in the farm 
or other business if it had been earning interest throughout 
such period at 6 percent simple interest. 
"(7) MATERIAL PARTICIPATION.—For purposes of paragraph (1), 
material participation shall be determined in a manner similar 
to the manner used for purposes of paragraph (1) of section 
26 use 1402. 
1402(a) (relating to net earnings from self-employment). 
"(8) VALUE.—For purposes of this subsection, except where the 
context clearly indicates otherwise, the term 'value' means value 
determined without regard to this subsection. 
(9) ELECTION T
O HAVE SUBSECTION APPLY.—This subsection shall 
apply with respect to a joint interest only if the estate of the 
decedent elects to have this subsection apply to such interest. 
Such an election shall be made not later than the time prescribed 
by section 6075(a) for filing the return of tax imposed by section 
2001 (including extensions thereof), and shall be made in such 
manner as the Secretary shall by regulations prescribe." 
(b) EFFECTIVE DATE.—The amendement made by subsection (a) 
shall apply with respect to estates of decedents dying after Decem-
ber 31,1978. 
SEC. 512. TREATMENT OF CERTAIN INTERESTS HELD BY DECEDENT'S 
FAMILY FOR PURPOSES OF THE EXTENSION OF TIME FOR 
PAYMENT OF ESTATE TAX PROVIDED BY SECTION 6166. 
(a) INTEREST HELD BY MEMBER OF DECEDENT'S FAMILY TREATED AS 
26 use 6166. 
HELD BY DECEDENT.—Paragraph (2) of section 6166(b) (relating to 
definitions and special rules) is amended by adding at the end thereof 
the following new subparagraph: 
"(D) CERTAIN INTERESTS HELD BY MEMBERS OF DECEDENT'S 
FAMILY.—All stock and all partnership interests held by the 
decedent or by any member of his family (within the mean-
26 use 6075. 
26 use 2001. 
26 use 2040 
note. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2883 
ing of section 267(c)(4)) shall be treated as owned by the 26 use 267. 
decedent," 
(b) ELECTION FOR PURPOSES OF THE 20-PERCENT REQUIREMENTS WITH 
RESPECT TO PARTNERSHIP INTERESTS AND STOCK WHICH IS NOT READ-
ILY TRADABLE.—Subsection (b) of section 6166 (relating to definitions 26 USC 6166. 
and special rules) is amended by adding at the end thereof the 
following new paragraph: 
"(7) PARTNERSHIP INTERESTS AND STOCK WHICH IS NOT READILY 
TRADABLE.— 
"(A) IN GENERAL.—If the executor elects the benefits of 
this paragraph (at such time and in such manner as the 
' 
Secretary shall by regulations prescribe), then— 
"(i) for purposes of paragraph (l)(B)(i) or (l)(C)(i) 
(whichever is appropriate) and for purposes of subsec-
tion (c), any capital interest in a partnership and any 
non-readily-tradable stock which (after the application 
of paragraph (2)) is treated as owned by the decedent 
shall be treated as included in determining the value of 
the decedent's gross estate, 
"(ii) the executor shall be treated as having selected 
under subsection (a)(3) the date prescribed by section 
6151(a), and 
26 USC 6151. 
"(iii) section 66010") (relating to 4-percent rate of 26 USC 6601. 
interest) shall not apply. 
"(B) NON-READILY-TRADABLE STOCK DEFINED.—For purposes 
of this paragraph, the term 'non-readily-tradable stock' 
means stock for which, at the time of the decedent's death, 
there was no market on a stock exchange or in an over-the-
counter market." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 6166 
apply with respect to the estates of decedents dying after the date of "ote. 
the enactment of this Act. 
SEC. 513. SUBORDINATION OF SPECIAL LIENS FOR ADDITIONAL ESTATE 
TAX ATTRIBUTABLE TO FARM, ETC., VALUATION. 
(a) GENERAL RULE.—Subsection (d) of section 6325 (relating to 26 USC 6325. 
subordination of lien) is amended by striking out "or" at the end of 
paragraph (1), by striking out the period at the end of paragraph (2) 
and inserting in lieu thereof ", or", and by adding at the end thereof 
the following new paragraph: 
"(3) in the case of any lien imposed by section 6324B, if the 26 USC 6324B. 
Secretary determines that the United States will be adequately 
secured after such subordination." 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 26 USC 6325 
shall apply with respect to the estates of decedents dying after 
"ote. 
December 31,1976. 
SEC. 514. AMENDMENT OF GOVERNING INSTRUMENTS TO MEET RE-
QUIREMENTS FOR GIFTS OF SPLIT INTEREST TO CHARITY. 
(a) CHARITABLE LEAD TRUSTS AND CHARITABLE REMAINDER TRUSTS 
IN THE CASE OF ESTATE TAX.—The first sentence of paragraph (3) of 
section 2055(e) is amended to read as follows: "In the case of a will 26 USC 2055. 
executed before December 31, 1977, or a trust created before such 
date, if a deduction is not allowable at the time of the decedent's 
death because of the failure of an interest in property which passes 
from the decedent to a person, or for a use, described in subsection (a) 
J 
to meet the requirements of subparagraph (A) or (B) of paragraph (2) 
of this subsection, and if the governing instrument is amended or 
92 STAT. 2884 
PUBLIC LAW 95-600—NOV. 6, 1978 
conformed on or before December 31, 1978, or, if later, on or before 
the 30th day after the date on which judicial proceedings begun on or 
before December 31, 1978 (which are required to amend or conform 
the governing instrument), become final, so that interest is in a trust 
which meets the requirements of such subparagraph (a) or (B) (as the 
case may be), a deduction shall nevertheless be allowed." 
26 use 2055 
(b) CHARITABLE LEAD TRUSTS A
N
D CHARITABLE REMAINDER TRUSTS 
note. 
IN THE CASE OF INCOME AND GiFT TAXES.—Under regulations pre-
scribed by the Secretary of the Treasury or his delegate, in the case of 
trusts created before December 31, 1977, provisions comparable to 
section 2055(e)(3) of the Internal Revenue Code of 1954 (as amended 
by subsection (a)) shall be deemed to be included in sections 170 and 
26 use 170, 
2522 of the Internal Revenue Code of 1954. 
2522 
SEC. 515. DEFERRAL OF CARRYOVER BASIS RULES. 
The following provisions are each amended by striking out "Decem-
ber 31, 1976" and inserting in Heu thereof '^'December 31, 1979": 
26 use 1014. 
(1) the caption and text of section 1014(d) (relating to basis of 
property acquired from the decedent); 
26 use 1016. 
(2) section 1016(a)(23) (relating to adjustments to basis); 
26 use 1023. 
(3) the heading of section 1023 (relating to carryover basis for 
certain property); 
(4) section 1023(a) (relating to general rule for carryover basis); 
(5) the item relating to section 1023 in the table of sections for 
part II of subchapter O of chapter I; and 
26 use 1023 
(6) section 2005(f)(1) of the Tax Reform Act of 1976 (relating to 
note. 
effective dates for carryover basis provisions). 
Subtitle C—Other Excise Tax Provisions 
SEC. 520. REDUCTION OP ADMINISTRATION TAX ON PRIVATE FOUNDA-
TIONS. 
26 use 4940. 
(a) IN GENERAL.—Subsection (a) of section 4940 (relating to excise 
tax based on investment income) is amended by striking out "4 
percent" and inserting in lieu thereof "2 percentf'. 
26 use 4940 
(b) EFFECTIVE DATE.—The amendment made by the first section of 
note. 
this Act shall apply to taxable years beginning after September 30, 
1977. 
SEC. 521. EXCISE TAX O
N CERTAIN GAMING DEVICES. 
(a) INCREASE IN CREDIT FOR STATE TAX.—Paragraph (2) of section 
26 use 4464. 
4464(b) (relating to limitations on the credit for State-imposed taxes) 
is amended by striking out "80 percent" in the heading and text 
thereof and inserting in lieu thereof "95 percent". 
Repeal. 
(b) REPEAL OF OCCUPATIONAL TAX.—Subchapter B of chapter 36 is 
26 use 
repealed. 
4461-4464. 
(c) CONFORMING AMENDMENTS.— 
26 use 4402. 
(1) Section 4402(2) (relating to exemptions from taxes on 
wagering) is amended to read as follows: 
"(2) CoiN-OPERATED DEVICES.—On any wager placed in a coin-
26 use 4462. 
Operated device (as defined in section 4462 as in effect for years 
beginning before July 1,1980), or on any amount paid, in lieu of 
inserting a coin, token, or similar object, to operate a device 
described in section 4462(a)(2) (as so in effect), or". 
26 use 4901. 
(2) Subsection (a) of section 4901 (relating to payment of 
occupational tax) is amended by striking out "or 4461(a)(1) (coin-
operated gaming devices)". 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2885 
(d) EFFECTIVE DATES.— 
26 use 4464 
(1) The amendment made by subsection (a) shall apply with note. 
respect to years ending June 30, 1979, and June 30, 1980. 
(2) The amendments made by subsections (b) and (c) shall apply 
with respect to years beginning after June 30,1980. 
SEC. 522. TREATMENT OF CERTAIN PRIVATE FOUNDATIONS FOR PUR-
POSES OF SECTION 4942. 
(a) GENERAL RULE.—Subsection 0
"
) of section 4942 (relating to other 26 use 4942. 
definitions) is amended by adding at the end thereof the following 
new paragraph: 
"(6) CERTAIN ELDERLY CARE FACILITIES.—For purposes of this 
section (but no other provisions of this title), the term 'operating 
foundation' includes any organization which, on May 26, 1969, 
and at all times thereafter before the close of the taxable year, 
operated and maintained as its principal functional purpose 
facilities for the long-term care, comfort, maintenance, or educa-
tion of permanently and totally disabled persons, elderly per-
sons, needy widows, or children but only if such organization 
meets the requirements of paragraph (3)(B)(ii)." 
Ot)) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 use 4942 
apply to taxable years beginning after December 31,1969. 
note. 
Subtitle D—Income Tax Provisions 
SEC. 530. CONTROVERSIES INVOLVING WHETHER INDIVIDUALS ARE EM-
PLOYEES FOR PURPOSES OF THE EMPLOYMENT TAXES. 
(a) TERMINATION OF CERTAIN EMPLOYMENT TAX LIABILITY FOR 26 use 3401 
PERIODS BEFORE 1980.— 
note. 
(1) IN GENERAL.—If— 
(A) for purposes of emplo3mient taxes, the taxpayer did not 
treat an individual as an employee for any period ending 
before January 1,1980, and 
(B) in the case of periods after December 31, 1978, all 
Federal tax returns (including information returns) required 
to be filed by the taxpayer with respect to such individual for 
such period are filed on a basis consistent with the tax-
payer's treatment of such individual as not being an 
employee, 
then, for purposes of appljdng such taxes for such period with 
respect to the taxpayer, the individual shall be deemed not to be 
an employee unless the taxpayer had no reasonable basis for not 
treating such individual as an employee. 
(2) STATUTORY STANDARDS PROVIDING ONE METHOD OF SATISFY-
ING THE REQUIREMENTS OF PARAGRAPH (i).—For purposes of 
paragraph (1), a taxpayer shall in any case be treated as having a 
reasonable basis for not treating an individual as an employee 
for a period if the taxpayer's treatment of such individual for 
such period was in reasonable reliance on any of the following: 
(A) judicial precedent, published rulings, technical advice 
with respect to the taxpayer, or a letter ruling to the 
taxpayer; 
(B) a past Internal Revenue Service audit of the taxpayer 
in which there was no assessment attributable to the treat-
ment (for employment tax purposes) of the individuals 
holding positions substantially similar to the position held 
by this individual; or 
92 STAT. 2886 
PUBLIC LAW 95-600—NOV. 6, 1978 
^ 
(C) long-standing recognized practice of a significant seg-
ment of the industry in which such individual was engaged. 
(3) CONSISTENCY REQUIRED IN THE CASE OF I979 TAX TREAT-
MENT.—Paragraph (1) shall not apply with respect to the treat-
ment of any individual for employment tax purposes for any 
period ending after December 31, 1978, and before January 1, 
1980, if the taxpayer (or a predecessor) has treated any individual 
holding a substantially similar position as an employee for 
purposes of the employment tgixes for any period beginning after 
December 31,1977. 
(4) REFUND OR CREDIT OF OVERPAYMENT.—If refund or credit of 
any overpayment of an employment tax resulting from the 
application of paragraph (1) is not barred on the date of the 
enactment of this Act by any law or rule of law, the period for 
filing a claim for refund or credit of such overpayment (to the 
extent attributable to the application of paragraph (1)) shall not 
expire before the date 1 year after the date of the enactment of 
this Act. 
(b) PROHIBITION AGAINST REGULATIONS AND RUUNGS ON EMPLOY-
MENT STATUS.—No regulation or Revenue Ruling shall be published 
on or after the date of the enactment of this Act and before January 1, 
1980 (or, if earlier, the effective date of any law hereafter enacted 
clarifying the employment status of individuals for purposes of the 
emplo5anent taxes) by the Department of the Treasury (including the 
Internal Revenue Service) with respect to the employment status of 
any individual for purposes of the employment taxes. 
(c) DEFINITIONS.—For purposes of this section— 
(1) EMPLOYMENT TAX.—The term "employment tax" means 
any tax imposed by subtitle C of the Internal Revenue Code of 
26 use 3101. 
1954. 
(2) EMPLOYMENT STATUS.—The term "emplojntnent status" 
means the status of an individual, under the usual common law 
rules applicable in determining the employer-employee relation-
ship, as an employee or as an independent contractor (or other 
individual who is not an employee). 
SEC. 531. CERTAIN ORIGINAL STOCKHOLDERS OF COOPERATIVE HOUS-
ING CORPORATIONS. 
26 use 216. 
(a) IN GENERAL.—Subsection (b) of section 216 (relating to deduc-
tion of taxes, interest, and business depreciation by cooperative 
housing corporation tenant-stockholder) is amended by adding at the 
end thereof the following new paragraph: 
"(6) STOCK OWNED BY PERSON FROM WHOM THE CORPORATION 
ACQUIRED ITS PROPERTY.— 
"(A) IN GENERAL.—If the original seller acquires any stock 
of the corporation— 
"(i) from the corporation by purchase, or 
"(ii) by foreclosure (or by instrument in lieu of fore-
closure) of any purchase-money security interest in such 
stock held by the original seller, 
the original seller shall be treated as a tenant-stockholder 
for a period not to exceed 3 years from the date of 
acquisition. 
"(B) ORIGINAL SELLER MUST HAVE RIGHT TO OCCUPY APART-
MENT O
R HOUSE.—Subparagraph (A) shall apply with respect 
to any acquisition of stock only if, together with such 
acquisition, the original seller acquires the right to occupy 
an apartment or house to which such stock is appurtenant. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2887 
For purposes of the preceding sentence, there shall not be 
taken into account the fact that, by agreement with the 
corporation, the original seller or its nominee may not 
occupy the house or apartment without the prior approval of 
the corporation. 
"(C) ORIGINAL SELLER DEFINED.—For purposes of this para-
graph, the term 'original seller' means the person from 
whom the corporation has acquired the apartments or 
houses (or leaseholds therein).'' 
(b) EFFECTIVE DATE.—The amendment made by this section shall 26 use 216 
apply to stock acquired after the date of the enactment of this Act. note. 
Subtitle E—Other Income Tax Provisions 
SEC. 540. DEPOSITS IN CERTAIN BRANCHES OF PUERTO RICAN SAVINGS 
AND LOAN ASSOCIATIONS, 
(a) IN GENERAL.—Subparagraph (F) of section 861(a)(1) (relating to 26 USC 861. 
income from sources within the United States) is amended to read as 
follows: 
"(F) interest— 
"(i) on deposits with a foreign branch of a domestic 
corporation or a domestic partnership if such branch is 
engaged in the commercial banking business, and 
"(ii) on amounts satisfying the requirements of para-
graph (2) of subsection (c) which are paid by a foreign 
branch of a domestic corporation or a domestic 
partnership,". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 26 USC 861 
apply to taxable years beginning after the date of the enactment of "ote. 
this Act. 
SEC. 541. TAXATION OF ALASKA NATIVE CLAIMS SETTLEMENT ACT 
CORPORATIONS. 
Section 21 of the Alaska Native Claims Settlement Act (43 U.S.C. 
1620) is amended by adding three new subsections at the end thereof, 
as follows: 
"(g) In the case of any Native Corporation established pursuant to 
this Act, income for purposes of any form of Federal, State, or local 
taxation shall not be deemed to include the value of— 
"(1) the receipt, acquisition, or use of any resource information 
or analysis (including the receipt of any right of access to such 
information or analysis) relating to lands or interests therein 
conveyed, selected but not conveyed, or available for selection 
pursuant to this Act; 
"(2) the promise or performance by any person or by any 
Federal, State, or local government agency of any professional or 
technical services relating to the resources of lands or interests 
therein conveyed, selected but not conveyed, or available for 
selection pursuant to this Act, including, but not limited to, 
services in connection with exploration on such lands for oil, gas, 
or other minerals; and 
"(3) the expenditure of funds, incurring of costs, or the use of 
any equipment or supplies by any person or any Federal, State, 
or local government agency, or any promise, agreement, or other 
arrangement by such person or agency to expend funds or use 
any equipment or supplies for the purpose of creating, develop-
ing, or acquiring the resource information or analysis described 
92 STAT. 2888 
PUBLIC LAW 95-600—NOV. 6, 1978 
in paragraph (1) or for the purpose of performing or otherwise 
furnishing the services described in paragraph (2): Provided, 
That this paragraph shall not apply to any funds paid to a Native 
Corporation established pursuant to this Act or to any subsidiary 
thereof. 
This subsection shall be effective as of December 18,1971, and, with 
respect to each Native Corporation, shall remain in full force and 
effect for a period of twenty years thereafter or until the Corporation 
has received conveyance of its full land entitlement, whichever first 
occurs. Except as set forth in this subsection and in subsection (d) 
hereof, all rents, royalties, profits, and other revenues or proceeds 
derived from real property interests selected and conveyed pursuant 
43 use 1611, 
to sections 12 and 14 shall be taxable to the same extent as such 
1613. 
revenues or proceeds are taxable when received by a non-Native 
individual or corporation. 
"Oi)(l) Notwithstanding any other provision of law, each Native 
Corporation established pursuant to this Act shall be deemed to have 
become engaged in carrying on a trade or business as of the date it 
was incorporated for purposes of any form of Federal, State, or local 
taxation. 
"(2) All expenses heretofore or hereafter paid or incurred by a 
Native Corporation established pursuant to this Act in connection 
with the selection or conveyance of lands pursuant to this Act, or in 
assisting another Native Corporation within or for the same region in 
the selection or conveyance of lands under this Act, shall be deemed 
to be or to have been ordinary and necessary expenses of such 
Corporation, paid or incurred in carrying on a trade or business for 
purposes of any form of Federal, State, or local taxation." 
"(i) PERSONAL HOLDING COMPANY ACT EXEMPTION.—No Corpora-
tion created pursuant to the Alaska Native Claims Settlement Act 
shall be considered to be a personal holding company within the 
26 use 542. 
meaning of section 542(a) of the Internal Revenue Code of 1954 prior 
to January 1,1992." 
SEC. 542. REPLACEMENT OF LIVESTOCK WITH OTHER FARM PROPERTY 
WHERE THERE HAS BEEN ENVIRONMENTAL CONTAMINA-
TION. 
26 use 1033. 
(a) IN GENERAL.—Section 1033 (relating to involuntary conversions) 
is amended by redesignating subsections (f) and (g) £is subsections (g) 
and (h), respectively, and by inserting after subsection (e) the follow-
ing new subsection: 
"(f) REPLACEMENT OF LIVESTOCK WITH OTHER FARM PROPERTY 
WHERE THERE HAS BEEN ENVIRONMENTAL CONTAMINATION.—For 
purposes of subsection (a), if, because of soil contamination or other 
environmental contamination, it is not feasible for the taxpayer to 
reinvest the proceeds from compulsorily or involuntarily converted 
livestock in property similar or related in use to the livestock so 
converted, other property (including real property) used for farming 
purposes shall be treated as property similar or related in service or 
use to the livestock so converted. 
26 use 1033 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
note. 
shall apply with respect to taxable years beginning 
after 
December 31,1974. 
SEC. 543. CERTAIN PAYMENTS NOT INCLUDED IN GROSS INCOME. 
(a) IN GENERAL.—Part III of subchapter B of chapter 1 (relating to 
items specifically excluded from gross income) is amended by redesig-
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2889 
nating section 126 as 127 and by inserting immediately after section 26 use 127. 
125 the following new section; 
"SEC. 126. CERTAIN COST-SHARING PAYMENTS. 
26 USC 126. 
"(a) GENERAL RULE.—Gross income does not include the excludable 
portion of payments received under— 
"(1) The rural clean water program authorized by section 208(j) 
of the Federal Water Pollution Control Act (33 U.S.C. 1288(j)). 
"(2) The rural abandoned mine program authorized by section 
406 of the Surface Mining Control and Reclamation Act of 1977 
(30 U.S.C. 1236). 
"(3) The water bank program authorized by the Water Bank 
Act (16 U.S.C. 1301 etseq.). 
"(4) The emergency conservation measures program author-
ized by title IV of the Agricultural Credit Act of 1978. 
Ante, p. 433. 
"(5) The agricultural conservation program authorized by the 
Soil Conservation and Domestic Allotment Act (16 U.S.C. 590a). 
"(6) The great plains conservation program authorized by 
section 16 of the Soil Conservation and Domestic Policy Act (16 
U.S.C. 590p(b)). 
"(7) The resource conservation and development program 
authorized by the Bankhead-Jones Farm Tenant Act and by the 
Soil Conservation and Domestic Allotment Act (7 U.S.C. 1010; 16 
U.S.C. 590a etseq.). 
"(8) The forestry incentives program authorized by section 4 of 
the Cooperative Forestry Assistance Act of 1978 (16 U.S.C. 2103). Ante, p. 367. 
"(9) Any small watershed program administered by the Secre-
tary of Agriculture which is determined by the Secretary of the 
Treasury to be substantially similar to the type of programs 
described in paragraphs (1) through (8). 
"(10) Any State program under which payments are made to 
individuals primarily for the purpose of conserving soil, protect-
ing or restoring the environment, improving forests, or providing 
a habitat for wildlife. 
"(b) EXCLUDABLE PORTION.—For purposes of this section, the term 
'excludable portion'means that portion (or all) of a payment made to 
any person under any program described in subsection (a) which— 
"(1) is determined by the Secretary of Agriculture to be made 
primarily for the purpose of conserving soil and water resources, 
protecting or restoring the environment, improving forests, or 
providing a habitat for wildlife, and 
"(2) is determined by the Secretary of the Treasury as not 
increasing substantially the annual income derived from the 
property. 
"(c) APPUCATION WITH OTHER SECTIONS.—No deduction or credit 
allowable under any other provision of this chapter shall be allowed 
with respect to any expenditure made with the use of payments 
described in subsection (a) or with respect to any property acquired 
with any payment described in subsection (a) (to the extent that the 
basis is allocable to the use of such payments). Notwithstanding any 
provision of section 1016 to the contrary, no adjustment to basis shall 26 USC 1016. 
be made with respect to property acquired through the use of such 
payments, to the extent that such adjustment would reflect the 
amount of such payment." 
i 
(b) CLERICAL AMENDMENT.—The table of sections for such part is 
amended by striking out the last item and inserting in lieu thereof 
the following: 
39-194 O—80—pt. 3 
17 : QL3 
92 STAT. 2890 
PUBLIC LAW 95-600—NOV. 6, 1978 
"Sec. 126. Certain cost-sharing payments. 
. 
"Sec. 127. Cross references to other Acts." 
(c) RECAPTURE OF GAIN FROM DISPOSITION OF PROPERTY.— 
(1) Part IV of subchapter P of chapter 1 (relating to special 
rules for determining capital gains and losses) is amended by 
adding at the end thereof the following: 
26 u s e 1255. 
"SEC. 1255. GAIN FROM DISPOSITION OF SECTION 126 PROPERTY. 
"(a) GENERAL RULE.— 
"(1) ORDINARY INCOME.—Except as otherwise provided in this 
Ante, p. 2889. 
section, if section 126 property is disposed of, the lower o
f
— 
"(A) the applicable percentage of the aggregate payinents, 
with respect to such property, excluded from gross income 
under section 126, or 
> f .
^ 
"(B) the excess o
f
— 
"(i) the amount realized (in the case of a sale, ex-
change, or involuntary conversion), or the fair market 
value of such section 126 property (in the case of any 
other disposition), over 
"(ii) the adjusted basis of such property shall be 
treated as ordinary income. 
"(2) SECTION 126 PROPERTY.—For purposes of this section, 
'section 126 property' means any property acquired, improved, or 
otherwise modified by the application of payments excluded from 
gross income under section 126. 
"(3) APPUCABLE PERCENTAGE,—For purposes of this section, if 
section 126 property is disposed of less than 10 years after the 
date of receipt of payments excluded from gross income under 
section 126, the applicable percentage is 100 percent. If section 
' 
126 property is disposed of more than 10 years after such date, 
the applicable percentage is 100 percent reduced (but not below 
zero) by 10 percent for each year or part thereof in excess of 10 
years such property was held after the date of receipt of the 
payments. 
"(b) SPECIAL RULES.—Under regulations prescribed by the 
Secretary— 
26 use 1245. 
"(1) rules similar to the rules applicable under section 1245 
shall be applied for purposes of this section, aiid 
"(2) amounts treated as ordinary income under this section 
shall be treated in the same manner as amounts treated as 
ordinary income under section 1245." 
(2) The table of sections for such part is amended by adding at 
the end thereof the following new item: 
"Sec. 1255. Gain from disposition of section 126 property." 
26 use 126 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply with respect to grants made under the programs after Septem-
ber 30,1979. 
Subtitle F—Studies 
SEC. 551. STUDY OF SIMPLIFICATION OF TAX RETURNS. 
26 use 6011 
(a) STUDY.—The Secretary of the Treasury shall conduct a full and 
note. 
complete study and investigation with respect to— 
(1) provisions of the Internal Revenue Code of 1954 which, due 
to their complexity, may hamper the ability of individuals to 
prepare accurate and complete Federal income tax returns, and 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2891 
(2) methods of simplifying Federal income tax return forms 
and instructions accompanying such forms. 
(b) TASK FORCE.— 
(1) IN GENERAL.—The Secretary of the Treasury shall establish 
a task force to assist him in the conduct of the study and 
investigation under subsection (a). 
(2) REPORTS OF TASK FORCE.—The task force shall report from 
time to time on its progress directly to the Secretary and shall 
submit a final report to the Secretary which includes its findings 
with respect to such study and investigation and any recommen-
dations with respect thereto. Such fin^ report shall be submitted 
by such time as is necessary to enable the Secretary to file the 
report called for in subsection (c) of this section. 
(3) AUTHORITY TO HIRE.—The Secretary is authorized to appoint 
such employees, not in excess of 10, as may be necessary to carry 
out the functions of the task force without regard to the provi-
sions of chapter 51 and subchapter III of chapter 53 of title 5, 5 use 5ioi, 
United States Code, except that such employees shall not be paid ^^^^ ^' ^
^
9 
at a rate in excess of the annual rate of pay under grade GS-18 of 
the General Schedule under section 5332 of such title 5. 
(c) REPORT.—The Secretary, after studying the reports and recom-
mendations of the task force under subsection (b), shall, not later 
than 2 years after the date of the enactment of this Act, submit to the 
Committee on Finance of the Senate and the Committee on Ways and 
Means of the House of Representatives a final report on the study and 
investigation conducted under this section, together with such recom-
mendations for legislation as he finds necessary. 
SEC. 552. STUDY OF TAX INCENTIVES FOR EXPENDITURES REQUIRED BY 
OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION AND 
MINING HEALTH AND SAFETY ADMINISTRATION. 
(a) STUDY.—The Secretary of the Treasury shall make a full and 26 use 7801. 
complete study and investigation with respect to the appropriateness 
of providing additional tax incentives for expenditures required by 
the Occupational Safety and Health Act (OSHA) and the Mining 29 use 651 
Safety and Health Administration (MSHA) of the Department of "o^^. 
Labor. 
0)) REPORT.—Before April 1, 1979, the Secretary of the Treasury 
shall submit to the Committee on Finance of the Senate and the 
Committee on Ways and Means of the House of Representatives a 
report of its study and investigation together with its recommenda-
tions for legislation. 
SEC. 553. STUDY OP TAXATION OF NONRESIDENT ALIEN REAL ESTATE 
TRANSACTIONS IN THE UNITED STATES. 
(a) STUDY.—The Secretary of the Treasury shall make a full and 26 use 7801 
complete study and analysis of the appropriate tax treatment to be "
o
*
^
^
-
given to income derived from, or gain realized on, the sale of interests 
in United States property held by nonresident aliens or foreign 
corporations. 
(b) REPORT.—The Secretary of the Treasury shall submit to the 
Committee on Finance of the Senate and the Committee on Ways and 
Mesuis of the House of Representatives a final report of its study, 
together with its recommendations, no later than 6 months from the 
date of enactment of this Act. 
92 STAT. 2892 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 u s e 50A 
SEC. 554. REPORT ON EFFECTIVENESS OF JOBS CREDIT. 
"°*^' 
(a) REPORT ON TARGETED JOBS CREDIT.—Not later than June 30, 
1981, the Secretary of the Treasury and the Secretary of Labor shall 
jointly 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 effectiveness of the targeted jobs credit provided by the 
amendments made by this section in improving the employment 
situation of the targeted groups, and 
(2) the types of employers claiming such credit. 
(b) GENERAL JOBS CREDIT.—The report required under paragraph 
(1) shall also include an evaluation o
f
— 
(1) the effectiveness of the general jobs credit provided by 
Ante, p. 2834. 
section 44B of the Internal Revenue Code of 1954 for 1977 and 
1978 in stimulating employment and enhancing economic 
growth, and 
(2) the types of employers claiming such credit. 
SEC. 555. STUDY OF EFFECTS OF CHANGES IN THE TAX TREATMENT OF 
CAPITAL GAINS ON STIMULATING INVESTMENT AND ECO-
NOMIC GROWTH. 
26 use 1201 
Not later than September 30, 1981, the Secretary of the Treasury 
note. 
shall submit to the Committee on Ways and Means of the House of 
Representatives and to the Committee on Finance of the Senate a 
report on the effectiveness of the changes made by this title in the tax 
treatment of capital gains of individuals and corporations in stimu-
lating investment and increasing the rate of economic growth. The 
report shall also include an analysis of the effects these changes had 
on employment growth and on income tax revenues. 
TITLE VI—GENERAL STOCK OWNERSHIP 
CORPORATIONS 
SEC. 601. ESTABLISHMENT AND TAXATION OF GENERAL STOCK OWNER-
SHIP CORPORATIONS AND THEIR SHAREHOLDERS. 
(a) IN GENERAL.—Chapter 1 (relating to normal taxes and surtaxes) 
is amended by adding at the end thereof the following new 
subchapter: 
"Subchapter U—General Stock Ownership 
Corporations 
"Sec. 1391. Definitions. 
"Sec. 1392. Election by general stock ownership corporation. 
"Sec. 1393. Corporation taxable income taxed to shareholders. 
"Sec. 1394. Rules applicable to distributions of electing genered stock owner-
ship corporations. 
"Sec. 1395. Adjustments to basis of stock of shareholders. 
"Sec. 1396. Minimum distribution. 
"Sec. 1397. Special rules applicable to earnings and profits of an electing 
general stock ownership plan. 
26 u s e 1391. 
"SEC. 1391. DEFINITIONS. 
"(a) GENERAL STOCK OWNERSHIP CORPORATION.—For purposes of 
this subchapter, the term 'general stock ownership corporation' 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2893 
(hereinafter referred to as a *GSOC') means a domestic corporation 
which— 
"(1) is not a member of an affiliated group (as defined in section 
1504), and 
26 USC 1504. 
"(2) is chartered and organized after December 31, 1978, and 
before January 1,1984; 
"(3) is chartered by an act of a State legislature or as a result of 
a State-wide referendum; 
* '(4) has a charter providing— 
"(A) for the issuance of only 1 class of stocks, 
"(B) for the issuance of shares only to eligible individuals 
(as defined in subsection (c)); 
"(C) for the issuance of at least one share to each eligible 
individual, unless such eligible individual elects within one 
year after the date of issuance not to receive such share; 
"(D) that no share of stock shall be transferable— 
"(i) by a shareholder other than by will or the laws of 
descent and distribution until after the expiration of 5 
years from the date such stock is issued by the GSOC 
except where the shareholder ceases to be a resident of 
the State; 
"(ii) to any person other than a resident individual of 
the chartering State; 
"(iii) to any individual who, after the transfer, would 
own more than 10 shares of the GSOC; 
"(E) that such corporation shall qualify as a GSOC under 
the Internal Revenue Code; 
"(5) is empowered to invest in properties (but not in properties 
acquired by it or for its benefit through the right of eminent 
domain). 
For purposes of this subsection, section 1504(a) shall be applied by 
substituting '20 percent' for '80 percent' wherever it appears. 
"(b) ELECTING GSOC.—For purposes of this subchapter, the term 
'electing GSOC means a GSOC which files an election under section 
1392 which, under section 1392, is in effect for such taxable year. 
"(c) ELIGIBLE INDIVIDUALS.—For purposes of subsection (a), the 
term 'eligible individual' means an individual who is, as of a date 
specified in the State's enabling legislation for the GSOC, a resident 
of the chartering State and who remains a resident of such State 
between that date and the date of issuance. 
"(d) TREATED AS PRIVATE CORPORATION.—For purposes of this title, 
a GSOC shall be treated as a private corporation and not as a 
governmental unit. 
"(e) STUDY OF GENERAL STOCK OWNERSHIP CORPORATIONS.—The 
staff of the Joint Committee on Taxation shall prepare a report on 
the operation and effects of this subchapter relating to GSOC's. An 
interim report shall be filed within two years after the first GSOC is 
formed and a final report shall be filed by September 30, 1983. 
"SEC. 1392. ELECTION BY GSOC. 
26 USC 1392. 
"(a) ELIGIBILITY.—Except as provided in section 1393, any GSOC 26 use 1393. 
may elect, in accordance with the provisions of this section, not to be 
subject to the taxes imposed by this chapter. 
"(b) EFFECT.—If a GSOC makes an election under subsection (a) 
then— 
"(1) with respect to the taxable years of the GSOC for which 
such election is in effect, such corporation shall not be subject to 
the taxes imposed by this chapter and, with respect to such 
92 STAT. 2894 
PUBLIC LAW 95-600—NOV. 6, 1978 
n 
oo«r 
taxable years and all succeeding taxable years, the provisions of 
Post, p. 2895. 
section 1396 shall apply to such GSOC, and 
"(2) with respect to each such taxable year, the provisions of 
Infra. 
sections 1393, 1394, and 1395 shall apply to the shareholders of 
/'o5<, p. 2895. 
such GSOC. 
"(c) WHERE AND HOW MADE.—An election under subsection (a) may 
be made by a GSOC at such time and in such manner as the Secretary 
shall prescribe by regulations. 
"(d) YEARS FOR WHICH EFFECTIVE.—An election under subsection 
(a) shall be effective for the taxable year of the GSOC for which it is 
made and for all succeeding taxable years of the GSOC, unless it is 
terminated under subsection (f). 
"(e) TAXABLE YEAR.—The taxable year of a GSOC shall end on 
October 31 unless the Secretary consents to a different taxable year.". 
"(f) TERMINATION.—The election of a GSOC under subsection (a) 
shall terminate for any taxable year during which it ceases to be a 
GSOC and for all succeeding taxable years. The election of a GSOC 
under subsection (a) may be terminated at any other time with the 
consent of the Secretary, effective for the first tgixable year with 
respect to which the Secretary consents and for all succeeding 
taxable years. 
26 use 1393. 
"SEC. 1393. GSOC TAXABLE INCOME TAXED TO SHAREHOLDERS. 
"(a) GENERAL RULE.—The taxable income of an electing GSOC for 
any tsixable year shall be included in the gross income of the 
shareholders of such GSOC in the manner and to the extent set forth 
in this subsection. 
"(1) AMOUNT INCLUDED IN GROSS INCOME.—Each shareholder of 
^ 
an electing GSOC on any day of a taxable year of such GSOC 
shall include in his gross income for the taxable year with or 
within which the taxable year of the GSOC ends the amount he 
would have received if, on each day of such taxable year, there 
had been distributed pro rata to its shareholders by such GSOC 
an amount equal to the taxable income of the GSOC for its 
taxable year divided by the number of days in the GSOC's 
taxable year. 
"(2) TAXABLE INCOME DEFINED.—For purposes of this section, 
the term 'taxable income' of a GSOC shall be determined without 
regard to the deductions allowed by part VIII of subchapter B 
26 use 248. 
(other than deductions allowed by section 248, relating to organi-
zational expenditures). 
"(b) SPECIAL RULE FOR INVESTMENT CREDIT.—The investment credit 
of an electing GSOC for any taxable year shall be allowed as a credit 
to the shareholders of such corporation in the manner and to the 
extent set forth in this subsection. 
"(1) CREDIT.—There shall be apportioned among the sharehold-
ers a credit equal to the amount each shareholder would have 
received if, on each day of such taxable year, there had been 
distributed pro rata to the shareholders the electing GSOC's net 
investment credit divided by the number of days in the GSOC's 
taxable year. 
"(2) NET INVESTMENT CREDIT.—For purposes of this paragraph 
the term 'net investment credit' means the investment credit of 
the electing GSOC for its taxable year less any tax from recom-
puting a prior year's investment credit in accordance with 
26 use 47. 
section 47. 
"(3) RECAPTURE.—There shall be apportioned among the share-
holders of a GSOC, in the manner described in paragraph (1), an 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2895 
additional tax equal to the excess of any tax resulting from 
recomputing a prior year's investment credit in accordance with 
section 47 over the investment credit of the GSOC for its taxable 26 use 47. 
year. 
"SEC. 1394. RULES APPLICABLE TO DISTRIBUTIONS OF AN ELECTING 26 USC 1394. 
GSOCs. 
"(a) SHAREHOLDER INCOME ACCOUNT.—An electing GSOC shall 
establish and maintain a shareholder income account which account 
shall be— 
"(1) increased at the close of the GSOCs taxable year by an 
amount equal to the GSOC's taxable income for such year, and 
"(2) decreased, but not below zero, on the first day of the 
GSOC's taxable year by the amount of any GSOC distribution to 
the shareholders of such GSOC made or treated as made during 
the prior taxable year. 
"Ob) TAXATION OF DISTRIBUTIONS.—Distributions by an electing 
GSOC shall be treated as— 
"(1) a distribution of previously taxed income to the extent 
such distribution does not exceed the balance of the shareholder 
income account as of the close of the taxable year of the GSOC, 
and 
"(2) a distribution to which section 301(a) applies but only to 26 USC 301. 
the extent such distribution exceeds the balance of the share-
holder income account as of the close of the taxable year of the 
GSOC. 
"(c) DISTRIBUTIONS NOT TREATED AS A DIVIDEND.—Any amounts 
includible in the gross income of any individual by reason of owner-
ship of stock in a GSOC shall not be considered as a dividend for 
purposes of section 116. 
26 USC 116. 
"(d) REGULATIONS.—The Secretary shall have authority to pre-
scribe by regulation, rules for treatment of distributions in respect of 
shares of stock of the GSOC that have been transferred during the 
taxable year.". 
"SEC. 1395. ADJUSTMENT TO BASIS OF STOCK OF SHAREHOLDERS. 
26 USC 1395. 
"The basis of a shareholder's stock in an electing GSOC shall be 
increased by the amount includible in the gross income of such 
shareholder under section 1393, but only to the extent to which such Ante, p. 2894. 
amount is actually included in the gross income of such shareholder. 
"SEC. 1396. MINIMUM DISTRIBUTIONS. 
26 USC 1396. 
"(a) GENERAL RULE.—A GSOC shall distribute at least 90 percent of 
its taxable income for any taxable year by January 31 following the 
close of such taxable year. Any distribution made on or before 
January 31 shall be treated as made as of the close of the preceding 
taxable year. 
"(b) IMPOSITION OF TAX IN CASE OF FAILURE TO MAKE MINIMUM 
DISTRIBUTIONS.—If a GSOC fails to make the minimum distribution 
requirements described in subsection (a), there is hereby imposed a 
tax equal to 20 percent of the excess of the amount required to be 
distributed over the amount actually distributed. 
"SEC. 1397. SPECIAL RULES APPLICABLE TO AN ELECTING GSOC. 
26 USC 1397. 
"(a) GENERAL RULE.—The current earnings and profits of an 
electing GSOC as of the close of its taxable year shall not include the 
amount of taxable income for such year which is required to be 
92 STAT. 2896 
PUBLIC LAW 95-600—NOV. 6, 1978 
included in the gross income of the shareholders of such GSOC under 
Ante, p. 2894. 
section 1393(a). 
"(b) SPECIAL RULE FOR AUDIT ADJUSTMENTS.— 
"(1) TAXABLE INCOME.—Taxable income of an electing GSOC 
shall, in the year of final determination, be increased or 
decreased, as the case might be, by any adjustment to taxable 
income for a prior taxable year. 
"(2) INVESTMENT CREDIT.—The net investment credit of an 
electing GSOC shall, in the year of final determination, be 
increased or decreased, as the case might be, by any adjustment 
to the net investment credit for a prior taxable year. 
"(3) METHOD OF MAKING ADJUSTMENTS.—An electing GSOC 
shall include in gross income for the year of an adjustment the 
amount described in paragraph (1) and shall take into account 
the adjustment described in paragraph (2), and shall be liable for 
payment of interest in the amount that would have been payable 
26 use 6601. 
by the GSOC under section 6601 (relating to interest on under-
payment, nonpayment or extensions of time for payment, of tax) 
26 use 6611. 
or receivable by the GSOC under section 6611 (relating to 
interest on overpayments) if such GSOC had been a corporation 
other than an electing GSOC." 
(b) TECHNICAL AMENDMENTS.— 
(1) NET OPERATING LOSS DEDUCTION.—Paragraph (1) of section 
26 use 172. 
172(b) (relating to net operating loss carrybacks and carryovers) 
is amended by adding at the end thereof the following new 
subparagraph: 
"(H) In the case of an electing GSOC which has a net 
operating loss for any taxable year such loss shall not be a 
net operating loss carryback to any taxable year preceding 
the year of such loss, but shall be a net operating loss 
carryover to each of the 10 taxable years following the year 
of such loss." 
26 use 3402. 
(2) INCOME T
A
X C
O
L
L
E
C
T
E
D A
T SOURCE.—Section 3402 (relating 
to income collected at source) is amended by adding at the end 
thereof the following new subsection: 
"(r) EXTENSION OF WITHHOLDING TO GSOC DISTRIBUTIONS.— 
"(1) GENERAL RULE.—An electing GSOC making any distribu-
tion to its shareholders shall deduct and withhold from such 
payment a tax in an amount equal to 25 percent of such payment. 
"(2) COORDINATION WITH OTHER SECTIONS.—For purposes of 
26 use 3403, 
sections 3403 and 3404 and for purposes of so much of subtitle F 
3404. 
(except section 7205) as relates to this chapter, distributions of an 
26 use 7205. 
electing GSOC to any shareholder which are subject to withhold-
ing shall be treated as if they were wages paid by an employer to 
an employee." 
26 use 1016. 
(3) ADJUSTMENTS TO BASIS.—Section 1016(a) (relating to adjust-
ments of basis) is amended by redesignating paragraph (23) as 
(22) and by inserting after paragraph (20) the following new 
paragraph: 
Ante, p. 2895. 
"(21) to the extent provided in section 1395 in the case of stock 
of shareholders of a general stock ownership corporation (as 
Ante, p. 2892. 
defined in section 1391) which makes the election provided by 
Ante, p. 2893. 
section 1392; and". 
(4) RETURN OF GENERAL STOCK OWNERSHIP CORPORATION.— 
26 use 6031. 
Subpart A of part III of subchapter A of chapter 61 (relating to 
information returns) is amended by adding at the end thereof the 
following new section: 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2897 
"SEC. 6039B. RETURN OF GENERAL STOCK OWNERSHIP CORPORATION. 
26 U
S
C 6039B. 
"Every general stock ownership corporation (as defined in section 
1391) which makes the election provided by section 1392 shall make a 26 USC 1391, 
return for each taxable year, stating specifically the items of its gross 1392. 
income and the deductions allowable by subtitle A, the amount of 
investment credit or additional tax, as the case may be, the names 
and addresses of all persons owning stock in the corporation at any 
time during the taxable year, the number of shares of stock owned by 
each shareholder at all times during the taxable year, the amount of 
money and other property distributed by the corporation during the 
taxable year to each shareholder, the date of each such distribution, 
and such other information, for the purpose of carrying out the 
provisions of subchapter U of chapter 1, as the Secretary may by 
regulation prescribe. Any return filed pursuant to this section shall, 
for purposes of chapter 66 (relating to limitations), be treated as a 26 USC 6501 et 
return filed by the corporation under section 6012. Eveiy GSOC shall 26 USC 6012. 
file an annual report with the Secretary summarizing its operations 
for such year." 
(c) CLERICAL AMENDMENTS.— 
(1) The table of subchapters for chapter 1 is amended by adding 
at the end thereof the following: 
"SUBCHAPTER U.—General stock ownership plans." 
(2) The table of sections for subpart A of part III of subchapter 
A of chapter 61 is amended by adding at the end thereof the 
following: 
"Sec. 6039B. Return of general stock ownership corporation." 
(d) EFFECTIVE DATE.—The amendments made by this section shall ^6 USC 1391 
apply with respect to corporations chartered after December 31,1978, "
*
^
^
^
-
and before January 1,1984. 
s: 
TITLE VII—TECHNICAL CORRECTIONS OF 
THE TAX REFORM ACT OF 1976 
SEC. 701. TECHNICAL AMENDMENTS TO INCOME T
A
X PROVISIONS A
N
D 
ADMINISTRATIVE PROVISIONS. 
(a) AMENDMENTS RELATING TO RETENTION OF PRIOR LAW FOR 
RETIREMENT INCOME CREDIT UNDER SECTION 37(e).— 
26 U
S
C 37. 
(1) CLARIFICATION THAT SPOUSE UNDER AGE 65 MUST HAVE 
PUBUC RETIREMENT SYSTEM INCOME.—Paragraph (2) of section 
37(e) (relating to election of prior law with respect to public 
retirement system income) is amended by striking out "who has 
not attained age 65 before the close of the taxable year" and 
inserting in lieu thereof "who has not attained age 65 before the 
close of the taxable year (and whose gross income includes 
income described in paragraph (4)(B))". 
(2) CLARIFICATION THAT QUAUFYING SERVICES MUST HAVE BEEN 
PERFORMED BY TAXPAYER OR SPOUSE.—Subparagraph (B) of sec-
tion 37(e)(4) (defining retirement income) is amended by inserting 
"and who performed the services giving rise to the pension or 
annuity (or is the spouse of the individuEil who performed the 
services)" after "before the close of the taxable year". 
(3) DISREGARD OF COMMUNITY PROPERTY LAWS.—Subsection (c) 
of section 37 (relating to election of prior law with respect to 
public retirement system income) is amended— 
92 STAT. 2898 
PUBLIC LAW 95-600—NOV. 6, 1978 
(A) by redesignating paragraph (8) as paragraph (9) and by 
inserting after paragraph (7) the following new paragraph: 
"(8) COMMUNITY PROPERTY LAWS NOT APPLICABLE.—In the case 
of a joint return, this subsection shall be applied without regard 
to community property laws.", 
(B) by striking out "paragraph (8)(A)" in paragraph (4)(B) 
and inserting in lieu thereof "paragraph (9)(A)"; and 
(C) by striking out "paragraph (8)(B)" in paragraph (5)(B) 
and inserting in lieu thereof "paragraph (9)(B>". 
26 use 37 note. 
(4) EFFECTIVE DATES.— 
(A) The amendments made by paragraphs (1) and (2) shall 
apply to taxable years beginning after December 31, 1975. 
(B) The amendments made by paragraph (3) shall apply to 
teixable years beginning after December 31,1977. 
(b) AMENDMENTS RELATING TO THE MINIMUM TAX.— 
26 use 57. 
(1) SPECIAL RULES FOR MINIMUM TAX IN THE CASE OF SUB-
CHAPTERS CORPORATIONS AND PERSONAL HOLDING COMPANIES.— 
(A) Paragraph (1) of section 57(a) (relating to adjusted 
itemized deductions) is amended by striking out "An 
amount" and inserting in lieu thereof "In the case of an 
individual, an amount". 
(B) The last sentence of section 57(a) (relating to items of 
tax preference) is amended by striking out "Paragraphs (1), 
(3), and" and inserting in lieu thereof "Paragraphs (3) and". 
26 use 58. 
(2) DIVISION OF $IO,OOO AMOUNT AMONG MEMBERS OP CON-
TROLLED GROUPS.—Subsection (b) of section 58 (relating to mem-
bers of controlled groups) is amended to read as follows: 
"(b) MEMBERS OF CONTROLLED GROUPS.—In the case of a controlled 
26 use 1563. 
group of corporations (as defined in section 1563(a)), the $10,000 
26 use 56. 
amount specified in section 56 shall be divided among the component 
members of such group in proportion to their respective regular tax 
deductions (within the meaning of section 56(c)) for the taxable year." 
(3) COMPUTATION OF ADJUSTED ITEMIZED DEDUCTIONS IN THE 
26 use 57. 
CASE OF ESTATES A
N
D TRUSTS.—Paragraph (2) of section 57(b) 
(relating to computation of adjusted itemized deductions in the 
case of estates and trusts) is amended to read as follows: 
"(2) SPECIAL RULES FOR ESTATES AND TRUSTS.— 
"(A) IN GENERAL.—In the case of an estate or trust, for 
purposes of paragraph (1) of subsection (a), the amount of the 
adjusted itemized deductions for any taxable year is the 
amount by which the sum of the deductions for the taxable 
year other than— 
"(i) the deductions allowable in arriving at adjusted 
gross income, 
"(ii) the deduction for personal exemption provided by 
26 use 642. 
section 642(b), 
"(iii) the deduction for casualty losses described in 
26 use 165. 
section 165(c)(3), 
26 use 651. 
"(iv) the deductions allowable under section 651(a), 
26 use 661, 
661(a), or 691(c), and 
691- 
"(v) the deductions allowable to a trust under section 
26 use 642. 
642(c) to the extent that a corresponding amount is 
included in the gross income of the beneficiary under 
26 use 662. 
section 662(a)(1) for the taxable year of the beneficiary 
with which or within which the tEixable year of the 
trusts ends, 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2899 
exceeds 60 percent (but does not exceed 100 percent) of the 
adjusted gross income of the estate or trust for the taxable 
year. 
"(B) DETERMINATION OF ADJUSTED GROSS INCOME,—For 
purposes of this paragraph, the adjusted gross income of an 
estate or trust shall be computed in the same manner as in 
the case of an individual, except that— 
"(i) the deductions for costs paid or incurred in connec-
tion with the administration of the estate or trust, and 
"(ii) to the extent provided in subparagraph (C), the 
deductions under section 642(c), 
26 USC 642. 
shall be treated as allowable in arriving at adjusted gross 
income. 
"(C) TREATMENT OF CERTAIN CHARITABLE CONTRIBUTIONS.— 
For purposes of this paragraph, the following deductions 
under section 642(c) (relating to deductions for amounts paid 
or permanently set aside for charitable purposes) shall be 
treated as deductions allowable in arriving at adjusted gross 
income: 
"(i) deductions allowable to an estate, 
"(ii) deductions allowable to a trust all of the unex-
pired interests in which are devoted to one or more of 
the purposes described in section 170(c)(2)(B), 
26 USC 170. 
"(iii) deductions allowable to a trust which is a pooled 
income fund within the meaning of section 642(c)(5), 
"(iv) deductions allowable to a trust which are attrib-
utable to transfers to the trust before January 1, 1977, 
and 
"(v) deductions allowable to a trust, all of the income 
interest of which is devoted solely to one or more of the 
purposes described in section 170(c)(2)(B), which are 
attributable to transfers pursuant to a will or pursuant 
to an inter vivos trust in which the grantor had the 
power to revoke at the date of his death." 
(4) SECTION 691(C) DEDUCTION NOT TAKEN INTO ACCOUNT FOR 26 U
S
C 57. 
DETERMINING ADJUSTED ITEMIZED DEDUCTIONS.—Paragraph (1) of 
section 57(b) is amended by striking out "and" at the end of 
subparagraph (C), by inserting "and" at the end of subparagraph 
(D), and by inserting after subpar£igraph (D) the following new 
subparagraph: 
"(E) the deduction allowable under section 691(c),". 
26 USC 691. 
(5) EFFECTIVE DATE.—The amendments made by this subsection 
26 USC 57 note. 
shall take effect as if included in the amendments made by 
section 301 of the Tax Reform Act of 1976. 
26 USC 301. 
(c) SICK PAY.— 
(1) IN GENERAL.—Section 105(d) is amended by striking out 26 USC 105. 
paragraphs (4) and (6), by redesignating paragraph (5) as para-
graph (4) and paragraph (7) as paragraph (6), and by inserting 
after paragraph (4) the following new paragraph: 
"(5) SPECIAL RULES FOR MARRIED COUPLES.— 
"(A) MARRIED COUPLE MUST FILE JOINT RETURN.—Except in 
the case of a husband and wife who live apart at all times 
during the taxable year, if the taxpayer is married at the 
close of the taxable year, the exclusion provided by this 
subsection shall be allowed only if the taxpayer and his 
spouse file a joint return for the taxable year. 
92 STAT. 2900 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 use 143. 
26 use 6013. 
26 use 105 
note. 
26 use 505. 
26 use 105. 
26 use 105 
note. 
26 use 105. 
26 use 105 
note. 
26 use 105. 
26 use 505. 
26 use 105 
notes. 
26 use 172. 
26 use 172 
note. 
26 use 189 
note. 
26 use 201. 
26 use 191. 
26 use 167. 
"(B) APPLICATION OF PARAGRAPHS (2) AND (3).—In the case 
of a joint return— 
"(i) paragraph (2) shall be applied separately with 
respect to each spouse, but 
"(ii) paragraph (S) shall be applied with respect to 
their combined adjusted gross income. 
"(C) DETERMINATION OF MARITAL STATUS.—For purposes of 
this subsection, marital status shall be determined under 
section 143(a). 
"(D) JOINT RETURN DEFINED.—For purposes of this subsec-
tion, the term 'joint return' means the joint return of a 
husband and wife made;under section 6013." 
(2) CONFORMING AMENDMPNTS.-^ 
(A) Subsection (c)(3) of section 505 of the Tax Reform Act of 
1976 (relating to disability retirement) is amended by strik-
ing out "section 105(d)(5)" and inserting in lieu thereof 
"section 105(d)(4)". 
(B) Subsections (c) and (e)(1) of section 301 of the Tax 
Reduction and Simplification Act of 1977 (relating to effec-
tive date of changes in the exclusion for sick pay) are each 
amended by striking out "section 105(d)(7)" and inserting in 
lieu thereof "section 105(d)(6)". 
(3) EFFECTIVE DATE.— 
(A) The amendments made by paragraphs (1) and (2)(A) 
shall take effect as if included in section 105(d) of the 
Internal Revenue Code of 1954 as such section was amended 
by section 505(a) of the Tax Reform Act of 1976. 
(B) The amendments made by paragraph (2)(B) shall take 
effect as if included in section 301 of the Tax Reduction and 
Simplification Act of 1977. 
(d) NET OPERATING LOSSES.— 
(1) AMENDMENT OF SECTION 172(b)(1)(B).—The second sentence 
of subparagraph (B) of section 1720b)(l) (relating to years to which 
net operating losses may be carried) is amended by striking out 
"and (F)" and inserting in lieu thereof "(F), and (G)'\ 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply to losses incurred in taxable years ending after 
December 31,1975. 
(e) EFFECTIVE DATE FOR FISCAL YEAR TAXPAYERS FOR CONSTRUCTION 
PERIOD INTEREST AND TAXES.—Paragraph (1) of section 201(c) of the 
Tax Reform Act of 1976 is amended to read as follows: 
"(1) in the case of nonresidential real property, if the construc-
tion period begins on or after the first day of the first taxable 
year beginning after December 31,1975,". 
(f) CLARIFICATION OF PROVISIONS PROVIDING TAX INCENTIVES TO 
ENCOURAGE THE PRESERVATION OF HISTORIC STRUCTURES.— 
(1) DEFINITION OF CERTIFIED HISTORIC STRUCTURES.—Subsection 
(d) of section 191 (relating to amortization of certain rehabilita-
tion expenditures for certified historic structures) is amended by 
redesignating paragraphs (2) and (3) as paragraphs (3) and (4), 
respectively, and by striking out paragraph (1) and inserting in 
lieu thereof the following new paragraphs: 
"(1) CERTIFIED HISTORIC STRUCTURE.—The term 'certified his-
toric structure' means a building or structure which is of a 
character subject to the allowance for depreciation provided in 
section 167 and which— 
"(A) is listed in the National Register, or 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2901 
"(B) is located in a registered historic district and is 
certified by the Secretary of the Interior to the Secretary as 
being of historic significance to the district. 
"(2) REGISTERED HISTORIC DISTRICT.—The term 'registered his-
toric district' means— 
"(A) any district listed in the National Register, and 
"(B) any district— 
"(i) which is designated under a statute of the appro-
priate State or local government, if such statute is 
certified by the Secretary of the Interior to the Secre-
tary as containing criteria which will substantially 
achieve the purpose of preserving and rehabilitating 
buildings of historic significance to the district, and 
"(ii) which is certified by the Secretary of the Interior 
to the Secretary as meeting substantially all of the 
requirements for the listing of districts in the National 
Register." 
(2) AMENDMENT OF CROSS REFERENCES.—Subsection (g) of sec-
tion 191 (relating to cross references) is amended to read as 26 USC 191. 
follows: 
"(g) CROSS REFERENCES.— 
"(1) For rules relating to the listing of buildings, structures, and his-
toric districts in the National Register, see the Act entitled 'An Act to es-
tablish a program for the preservation of additional historic properties 
throughout the Nation, and for other purposes', approved October 15, 1966 
(16 U.S.C. 470 et seq.). 
"(2) For special rules with respect to certain gain derived from the dis-
position of property the adjusted basis of which is determined with regard 
to this section, see sections 1245 and 1250." 
(3) SPECIAL RULES FOR RECAPTURE OF AMORTIZATION DEDUC-
TION.— 
(A) Paragraph (2) of section 1245(a) (relating to gain from 
26 USC 1245. 
dispositions of certain depreciable property) is amended— 
(i) by striking out "190, or 191" the first place it 
appears and inserting in lieu thereof "or 190" and 
(ii) by striking out "190, or 191" the second and third 
place it appears and inserting in lieu thereof "190, or (in 
the case of property described in paragraph (3)(C)) 191". 
(B) Subparagraph (D) of section 1245(a)(3) (relating to gain 
from dispositions of certain depreciable property) is 
amended by striking out "190, or 191" and inserting in lieu 
thereof "or 190". 
(C) Paragraph (3) of section 1250(b) (relating to depreci- 26 U
S
C 1250. 
ation adjustments) is amended by striking out "190 or 191" 
and inserting in lieu thereof "or 190". 
(D) Paragraph (2) of section 57(a) (relating to items of tax 26 USC 57. 
preference) is amended by inserting "or 191" after "167(k)". 
(E) Paragraph (4) of section 1250(b) (relating to definition 
of additional depreciation) is amended— 
(i) by inserting "or amortization" after "depreciation" 
the second and third places it appears, and 
(ii) by inserting "or 191" after "167(k)" each place it 
appears. 
(4) STRAIGHT LINE METHOD IN CERTAIN CASES.—Subsection (n) of 
section 167 is amended to read as follows: 
26 USC 167. 
"(n) STRAIGHT LINE METHOD IN CERTAIN CASES.— 
"(1) IN GENERAL.—In the case of any property in whole or in 
part constructed, reconstructed, erected, or used on a site which 
92 STAT. 2902 
PUBLIC LAW 95-600—NOV. 6, 1978 
was, on or after June 30, 1976, occupied by a certified historic 
structure (or by any structure in a registered historic district) 
which is demolished or substantially altered after such date— 
"(A) subsections (b), (j), (k), and (1) shall not apply, and 
"(B) the term 'reasonable allowance' as used in subsection 
(a) means only an allowance computed under the straight 
line method. 
The preceding sentence shall not apply if the last substantial 
alteration of the structure is a certified rehabilitation. 
"(2) EXCEPTIONS.—The limitations imposed by this subsection 
shall not apply— 
"(A) to personal property, and 
"(B) in the case of demolition or substantial alteration of a 
structure located in a registered historic district, i
f
— 
"(i) such structure was not a certified historic 
structure, 
"(ii) the Secretary of the Interior certified to the 
Secretary that such structure is not of historic signifi-
cance to the district, and 
"(iii) if the certification referred to in clause (ii) occurs 
after the beginning of the demolition or substantial 
alteration of such structure, the taxpayer certifies to the 
Secretary that, at the beginning of such demolition or 
substantial alteration, he in good faith was not aware of 
the requirements of clause (ii). 
"(3) DEFINITIONS.—For purposes of this subsection, the terms 
'certified historic structure', 'registered historic district', and 
'certified rehabilitation' have the respective meanings given 
26 use 191. 
such terms by section 191(d)." 
(5) DEMOLITION OF CERTAIN HISTORIC STRUCTURES.—Subsection 
(b) of section 280B (relating to special rule for registered historic 
districts) is amended to read as follows: 
26 u s e 280B. 
"(b) SPECIAL RULE FOR REGISTERED HISTORIC DISTRICTS.—For pur-
poses of this section, any building or other structure located in a 
26 use 191. 
registered historic district (as defined in section 191(d)(2)) shall be 
treated as a certified historic structure unless the Secretary of the 
Interior has certified that such structure is not a certified historic 
structure, and that such structure is not of historic significance to the 
district, and if such certification occurs after the beginning of the 
demolition of such structure, the taxpayer has certified to the 
Secretary that, at the time of such demolition, he in good faith was 
not aware of the certification requirement by the Secretary of the 
Interior." 
(6) SUBSTANTIALLY REHABIUTATED HISTORIC PROPERTY.— 
26 use 167. 
(A) Paragraph (1) of section 167(o) (relating to substan-
tially rehabilitated historic property) is amended by insert-
ing "(other than property with respect to which an amortiza-
tion deduction has been allowed to the taxpayer under 
26 use 191. 
section 191)" after "substantially rehabilitated historic 
property". 
26 use 167. 
(B) Paragraph (2) of section 167(o) is amended by striking 
26 use 191. 
out "section 191(d)(3)" and inserting in lieu thereof "section 
191(d)(4)". 
(7) AMORTIZATION ALLOWABLE TO PERSONS WITH CERTAIN LEASE 
26 use 191. 
INTERESTS.—Section 191(f) (relating to treatment of life tenants 
and remaindermen) is amended to read as follows: 
"(f) SPECDU. RULES F
O
R CERTAIN INTERESTS.— 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2903 
"(1) LIFE TENANT AND REMAINDERMAN.—In the case of property 
held by one person for life with remainder to another person, the 
deduction under this section shall be computed as if the life 
tenant were the absolute owner of the property and shall be 
allowable to the life tenant. 
"(2) CERTAIN LESSEES.— 
"(A) IN GENERAL.—In the case of a lessee of a certified 
historic structure who has expended amounts in connection 
with the certified rehabilitation of such structure which are 
properly chargeable to capital account, the deduction under 
this section shall be allowable to such lessee with respect to 
such amounts. 
"(B) AMORTIZABLE BASIS.—For purposes of subsection (a), 
the amortizable basis of such lessee shall not exceed the sum 
of the amounts described in subparagraph (A). 
"(C) LIMITATION.—Subparagraph (A) shall apply only if on 
the date of the certified rehabilitation is completed, the 
remaining term of the lease (determined without regard to 
any renewal periods) extends— 
"(i) beyond the last day of the useful life (determined 
without regard to this section) of the improvements for 
which the amounts described in subparagraph (A) were 
expended, and 
"(ii) for not less than 30 years.". 
(8) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 191 
shall take effect as if included in the respective provisions of the "ote. 
Internal Revenue Code of 1954 to which such amendments relate, 
as such provision were added to such Code, or amended, by 
section 2124 of the Tax Reform Act of 1976. 
26 U
S
C 191. 
(g) FOREIGN CONVENTIONS.— 
(1) DEDUCTIONS NOT DISALLOWED TO EMPLOYER WHERE EMPLOYEE 
INCLUDES AMOUNTS IN GROSS INCOME.—Subparagraph (D) of sec-
tion 274(h)(6) (relating to application of subsection to employer as 26 U
S
C 274. 
well as to traveler) is amended to read as follows: 
"(D) SUBSECTION TO APPLY TO EMPLOYER AS WELL AS TO 
TRAVELER.— 
"(i) Except as provided in clause (ii), this subsection 
shall apply to deductions otherwise allowable under 
section 162 or 212 to any person, whether or not such 26 U
S
C 162, 
person is the individual attending the foreign conven- 212. 
tion. For the purposes of the preceding sentence such 
person shall be treated, with respect to each individual, 
as having selected the same 2 foreign conventions as 
were selected by such individual. 
"(ii) This subsection shall not deny a deduction to any 
person other than the individual attending the foreign 
convention with respect to any amount paid by such 
person to or on behalf of another person if includible in 
the gross income of such other person. The preceding 
sentence shall not apply if such amount is required to be 
included in any information return filed by such person 
under part III of subchapter A of chapter 61 and is not so 26 U
S
C 6031 et 
included." 
seq. 
(2) INDIVIDUALS RESIDING IN FOREIGN COUNTRIES.—Section 
274(h)(6) is amended by adding at the end thereof the following 26 U
S
C 274. 
new subparagraph: 
92 STAT. 2904 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 use 274. 
26 use 274 
note. 
26 use 280A. 
26 use 1034. 
26 use 267. 
26 use 280A 
note. 
26 use 280A. 
26 use 601. 
26 use 337. 
"(E) INDIVIDUALS RESIDING IN FOREIGN COUNTRIES.—For 
purposes of this subsection, in the case of an individual 
citizen of the United States who establishes to the satisfac-
tion of the Secretary that he was a bona fide resident of a 
foreign country at the time that he attended a convention in 
such foreign country, such individual's attendance at such 
convention shall not be considered as attendance at a foreign 
convention.". 
(3) TECHNICAL AMENDMENT.—The first sentence of section 
274(h)(3) is amended by striking out "more than, one-half and 
inserting in lieu thereof "at least one-half. 
(4) EFFECTIVE DATE.—The amendments made by this subsection 
shall apply to conventions beginning after December 31, 1976. 
(h) RENTAL OF FORMER PRINCIPAL RESIDENCE.— 
(1) IN GENERAL.—Subsection (d) of section 280A (relating to use 
of residence for personal purposes) is amended by adding at the 
end thereof the following new paragraph: 
"(3) RENTAL OF PRINCIPAL RESIDENCE.— 
"(A) IN GENERAL.—For purposes of applying subsection 
(c)(5) to deductions allocable to a qualified rental period, a 
taxpayer shall not be considered to have used a dwelling unit 
for personal purposes for any day during the taxable year 
which occurs before or after a qualified rental period 
described in subparagraph (B)(i), or before a qualified rental 
period described in subparagraph (B)(ii), if with respect to 
such day such unit constitutes the principal residence 
(within the meaning of section 1034) of the taxpayer. 
"(B) QUALIFIED RENTAL PERIOD.—For purposes of subpara-
graph (A), the term 'qualified rental period' means a con-
secutive period o
f
— 
"(i) 12 or more months which begins or ends in such 
taxable year, or 
"(ii) less than 12 months which begins in such taxable 
year and at the end of which such dwelling unit is sold or 
exchanged, and 
for which such unit is rented to a person other than a 
member of the family (as defined in section 267(c)(4)) of the 
taxpayer, or is held for rental, at a fair rental." 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall take effect as if included in section 280A of the Internal 
Revenue Code of 1954, as such provision was added to such Code 
by section 601(a) of the Tax Reform Act of 1976. 
(i) CLARIFICATION OF LAST SENTENCE OF SECTION 337(c)(2).— 
(1) IN GENERAL.—Subsection (c) of section 337 (relating to 
limitations on application of section 337) is amended by striking 
out the last sentence of paragraph (2) and by adding at the end of 
such subsection the following new paragraph: 
"(3) SPECIAL RULE FOR AFFILIATED GROUP.— 
"(A) IN GENERAL.—Paragraph (2) shall not apply to a sale 
or exchange by a corporation (hereinafter in this paragraph 
referred to as the 'selling corporation') i
f
— 
"(i) within the 12-month period beginning on the date 
of the adoption of a plan of complete liquidation by the 
selling corporation, the selling corporation and each 
distributee corporation is completely liquidated, and 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2905 
"(ii) none of the complete liquidations referred to in 
clause (i) is a liquidation with respect to which section 
333 applies. 
26 USC 333. 
"(B) DEFINITIONS.—For purposes of subparagraph (A)— 
"(i) The term 'distributee corporation' means a corpo-
ration in the chain of includible corporations to which 
the selling corporation or a corporation above the selling 
corporation in such chain makes a distribution in com-
plete liquidation within the 12-month period referred to 
in subparagraph (A)(i). 
"(ii) The term 'chain of includible corporation' in-
cludes, in the case of any distribution, any corporation 
which (at the time of such distribution) is in a chain of 
includible corporations for purposes of section 1504(a) 26 USC 1504. 
(determined without regard to the exceptions contained 
in section 1504(b)). Such term includes, where appropri-
ate, the common parent corporation." 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 337 
shall apply to sales or exchanges made pursuant to a plan of note. 
complete liquidation adopted after December 31,1975. 
(j) CERTAIN TRANSACTIONS INVOLVING 2 OR MORE INVESTMENT 
COMPANIES.— 
(1) AMENDMENTS OF SECTION 368(a)(2)(F).— 
26 U
S
C 368. 
(A) The first sentence of clause (iii) of section 368(a)(2)(F) is 
amended— 
(i) by striking out "more than 50 percent" and insert-
ing in lieu thereof "50 percent or more"; and 
(ii) by striking out "more than 80 percent" and insert-
ing in lieu thereof "80 percent or more." 
(B) The first sentence of clause (vi) of section 368(a)(2)(F) is 
amended by striking out "is not diversified within the 
meaning" and inserting in lieu thereof "does not meet the 
requirements". 
(C) The second sentence of such clause (vi) is amended to 
read as follows: "If such investment company acquires stock 
of another corporation in a reorganization described in 
section 368(a)(1)(B), clause (i) shall be applied to the share-
holders of such investment company as though they had 
exchanged with such other corporation all of their stock in 
such company for stock having a fair market value equal to 
the fair market value of their stock of such investment 
company immediately after the exchange." 
(D) Subparagraph (F) of section 368(a)(2) is amended by 
adding at the end thereof the following new clauses: 
"(vii) For purposes of clauses (ii) and (iii), the term 
'securities' includes obligations of State and local gov-
ernments, commodity futures contracts, shares of regu-
lated investment companies and real estate investment 
trusts, and other investments constituting a security 
within the meaning of the Investment Company Act of 
1940(15U.S.C.80a-2(36)). 
"(viii) In applying paragraph (3) of section 267(b) in 26 USC 267. 
respect of any transaction to which this subparagraph 
applies, the reference to a personal holding company in 
such paragraph (3) shall be treated as including a 
reference to an investment company and the determina-
tion of whether a corporation is an investment company 
39-194 O—80—pt. 3 
18 : QL3 
92 STAT. 2906 
PUBLIC LAW 95-600—NOV. 6, 1978 
'• 
shall be made as of the time immediately before the 
transaction instead of with respect to the taxable year 
referred to in such paragraph (3)." 
26 use 368 
(2) EFFECTIVE DATES.— 
"°*^- 
(A) Except as provided in subparagraphs (B) and (C), 
the amendments made by paragraph (1) shall apply as if 
26 use 368. 
included in section 368(a)(2)(F) of the Internal Revenue Code 
of 1954 as added by section 2131(a) of the Tax Reform Act of 
1976. 
(B) Clause (viii) of section 368(a)(2)(F) of the Internal 
Revenue Code of 1954 (as added by paragraph (1)) shall apply 
only with respect to losses sustained after September 26, 
1977. 
* • 
; 
(C) Clause (vii) of section 368(a)(2)(F) of the Internal Reve-
nue Code of 1954 (as added by paragraph (1)) shall apply only 
with respect to transfers made after September 26, 1977. 
(k) AT RISK PROVISIONS.— 
26 use 465 
(1) CLERICAL AMENDMENT TO EFFECTIVE DATE.—Subparagraph 
note. 
(A) of section 204(c)(3) of the Tax Reform Act of 1976 is amended 
by striking out "section 465(c)(1)(B)" and inserting in lieu thereof 
"section 465(c)(1)(C)". 
26 use 465. 
(2) CLARIFICATION OF SECTION 465(d).—Subsection (d) of section 
V 
465 (defining loss for purposes of the at risk provisions) is 
amended by striking out ' (determined without regard to this 
section)" and inserting in lieu thereof "(determined without 
regard to the first sentence of subsection (a))". 
26 use 465 
(3) EFFECTIVE DATE.—The amendments made by this subsection 
note. 
shall take effect on October 4,1976. 
(1) AMENDMENTS RELATING TO USE OF ACCRUAL ACCOUNTING FOR 
FARMING.— 
(1) AUTOMATIC IO-YEAR ADJUSTMENT PERIOD FOR FARMING COR-
PORATIONS REQUIRED TO USE ACCRUAL ACCOUNTING.—Paragraph 
26 use 447. 
(3) of section 447(f) (relating to coordination with section 481) is 
amended— 
(A) by striking out "(except as otherwise provided in such 
regulations)", and 
(B) by inserting "(or the remaining taxable years where 
there is a stated future life of less than 10 taxable years)" 
after "10 taxable years". 
26 use 447 
(2) AUTOMATIC IO-YEAR ADJUSTMENT FOR FARMING SYNDICATES 
note. 
CHANGING TO ACCRUAL ACCOUNTING.—If— 
(A) a farming syndicate (within the meaning of section 
26 use 464. 
464(c) of the Internal Revenue Code of 1954) was in existence 
on December 31,1975, and 
(B) such syndicate elects an accrual method of account-
ing (including the capitalization of preproductive period 
26 use 447. 
expenses described in section 447(b) of such Code) for a 
taxable year beginning before January 1,1979, 
then such election shall be treated as having been made with the 
consent of the Secretary of the Treasury or his delegate and, 
under regulations prescribed by the Secretary of the Treasury or 
his delegate, the net amount of the adjustments required by 
26 use 481. 
section 481(a) of such Code to be taken into account by the 
taxpayer in computing taxable income shall be taken into 
account in each of the 10 taxable years (or the remaining taxable 
years where there is a stated future life of less than 10 taxable 
years) beginning with the year of change. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2907 
(3) EXTENDING FAMILY ATTRIBUTION TO SPOUSE IN THE FARMING 
SYNDICATE RULES.— 
(A) Subparagraph (E) of section 464(c)(2) (defining farming 26 use 464. 
syndicate) is amended by striking out "(within the meaning 
of section 267(c)(4))" and inserting in lieu thereof "(or a 26 use 267. 
spouse of any such member)". 
(B) Paragraph (2) of section 464(c) is amended by adding at 
the end thereof the following new sentence: "For purposes of 
subparagraph (E), the term 'family' has the meaning given 
to such term by section 267(c)(4)." 
(4) EFFECTIVE DATE.—The amendment made by paragraphs (1) 26 use 447 
and (3) shall take effect as if included in section 447 or 464 (as the "^*^;cr AA? 
case may be) of the Internal Revenue (Hode of 1954 at the time of i^^ 
' 
the enactment of such sections. 
(m) EXTENSION OF CERTAIN PROVISIONS TO FOREIGN PERSONAL 
HOLDING COMPANIES.— 
(1) SECTION 189.—Subsection (a) of section 189 (relating to 26 use 189. 
amortization of real property construction period interest and 
taxes) is amended— 
(A) by striking out "an electing small business corporation 
(within the meaning of section 1371(b)), or personal holding 26 use 1371. 
company (within the meaning of section 542)," ; and 
26 use 542. 
(B) by adding at the end thereof the following new sen-
tence: "For purposes of this section, an electing small busi-
ness corporation (as defined in section 1371(b)), a personal 
holding company (as defined in section 542), and a foreign 
personal holding company (as defined in section 552) shall be 26 use 552. 
treated as an individual." 
(2) SECTION 280.—Subsection (a) of section 280 (relating to 26 use 280. 
certain expenditures incurred in production of films, books, 
records, or similar property) is amended— 
(A) by striking out "Except in the case of a corporation 
(other than an electing small business corporation (as 
defined in section 1371(b)) or a personal holding company (as 
defined in section 542) and except" and inserting in lieu 
thereof "In the case of an individual, except"; and 
(B) by adding at the end thereof the following new sen-
tence: "For purposes of this section, an electing small busi-
ness corporation (as defined in section 1371(b)), a personal 
holding company (as defined in section 542), and a foreign 
personal holding company (as defined in section 552) shall be 
treated as an individual." 
(3) EFFECTIVE DATES.— 
(A) The amendments made by paragraph (1) shall take 26 use 189 
effect as if included in the amendment made by section "ote. 
201(a) of the Tax Reform Act of 1976. 
26 use 189. 
(B) The amendments made by paragraph (2) shall take 
effect as if included in the amendment made by section 
210(a) of the Tax Reform Act of 1976. 
(n) DEFINITION OF CONDOMINIUM MANAGEMENT ASSOCIATION.— 
(1) IN GENERAL.—Paragraph (2) of section 528(c) (defining 26 use 528. 
condominium management association) is amended by striking 
out "as residences" and inserting in lieu thereof "by individuals 
for residences". 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 use 528 
shall apply to taxable years beginning after December 31, 1973. 
(o) DEFINITION OF PERSONAL HOLDING COMPANY.— 
26 use 280 
note. 
note. 
92 STAT. 2908 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 use 542 
(1) IN GENERAL.—The last sentence of section 542(a)(2) of the 
note. 
Internal Revenue Code of 1954 (relating to stock ownership 
26 use 542. 
requirement) shall not apply in the case of an organization or 
trust organized or created before July 1,1950, if at all times on or 
after July 1, 1950, and before the close of the t£ixable year such 
organization or trust has owned all of the common stock and at 
least 80 percent of the total number of shares of all other classes 
of stock of the corporation. 
26 use 542 
(2) EFFECTIVE DATE.—The provisions of paragraph (1) shall 
note. 
apply with respect to taxable years beginning after December 31, 
1976. 
(p) SPECIAL RULE FOR GAIN ON PROPERTY TRANSFERRED TO TRUST AT 
LESS THAN FAIR MARKET VALUE.— 
(1) ADDITIONAL TAX TO APPLY ONLY TO RECOGNIZED GAINS.— 
(A) IN GENERAL.—Subsections (a)(1), (a)(2), and (b)(1) of 
26 use 644. 
section 644 (relating to special rule for gain on property 
transferred to trust at less than fair market value) are each 
amended by striking out "gain realized" each place it 
appears and inserting in lieu thereof "gain recognized". 
(B) SPECIAL RULE FOR SUBSTITUTED BASIS PROPERTY.—Sub-
section (d) of section 644 (relating to special rule for short 
sales) is amended to read as follows: 
"(d) SPECIAL RULES.— 
"(1) SHORT SALES.—If the trust sells the property referred to in 
subsection (a) in a short sale within the 2-year period referred to 
in such subsection, such 2-year period shall be extended to the 
date of the closing of such short sale. 
"(2) SUBSTITUTED BASIS PROPERTY.—For purposes of this section, 
in the case of any property held by the trust which has a basis 
determined in whole or in part by reference to the basis of any 
other property which was transferred to the trust— 
"(A) the initial transfer of such property in trust by the 
transferor shall be treated as having occurred on the date of 
the initial transfer in trust of such other property, 
"(B) subsections (a)(1)(B) and (b)(2) shall be applied by 
taking into account the fair market value and the adjusted 
basis of such other property, and 
"(C) the amount determined under subsection (b)(2) with 
respect to such other property shall be allocated (under 
regulations prescribed by the Secretary) among such other 
property and all properties held by the trust which have a 
basis determined in whole or in part by reference to the basis 
of such other property.'' 
(2) TREATMENT OF NET OPERATING LOSSES, CAPITAL LOSSES, ETC., 
WHICH MAY AFFECT TRANSFEROR'S TAX IN OTHER YEARS.—Section 
644(a)(2) (relating to additional tax on gain on property trans-
. 
ferred to trust at less than fair market vsilue) is amended by 
adding at the end thereof the following new sentence: "The 
determination of teix under clause (i) of subparagraph (A) shall be 
made by not taking into account any carryback, and by not 
taking into account any loss or deduction to the extent that such 
loss or deduction may be carried by the transferor to any other 
tsixable year." 
(3) TECHNICAL AMENDMENT.—Paragraph (1) of section 644(f) is 
amended by striking out "subsection (a)" and inserting in lieu 
thereof "subsection (a) (other than the 2-year requirement of 
paragraph (1)(A) thereof)". 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2909 
(4) CONFORMING AMENDMENT TO REVISION OF SECTION 644.— 26 use 644 
Section 1402(b)(1) of the Tax Reform Act of 1976 (relating to "ote. 
holding period for long-term capital gains treatment) is amended 
by striking out subparagraph (K) thereof. 
(5) EFFECTIVE DATES.— 
26 U
S
C 644 
(A) Except as provided in subparagraph (B), the amend- "o*^-
ment made by this subsection shall apply to transfers in 
trust made after May 21,1976. 
(B) The amendment made by paragraph (4) shall take 
effect on October 4,1976. 
(q) ALLOWANCE OF FOREIGN TAX CREDIT F
O
R ACCUMULATION DISTRI-
BUTIONS.— 
(1) SPECIAL RULES FOR FOREIGN TRUST.— 
(A) Subsection (d) of section 665 is amended to read as 26 USC 665. 
follows: 
"(d) TAXES IMPOSED ON THE TRUST.—For purposes of this subpart— 
"(1) IN GENERAL.—The term 'taxes imposed on the trust' means 
the amount of the taxes which are imposed for any taxable year 
^ 
of the trust under this chapter (without regard to this subpart or 
subpart A of part IV of subchapter A) and which, under regula-
tions prescribed by the Secretary, are properly allocable to the 
undistributed portions of distributable net income and gains in 
excess of losses from sales or exchanges of capital assets. The 
amount determined in the preceding sentence shall be reduced 
by any amount of such taxes deemed distributed under section 
666 (b) and (c) or 669 (d) and (e) to any beneficiary. 
26 USC 666, 
"(2) FOREIGN TRUSTS.—In the case of any foreign trust, the term 669. 
'taxes imposed on the trust' includes the amount, reduced as 
provided in the last sentence of paragraph (1), of any income, war 
profits, and excess profits taxes imposed by any foreign country 
or possession of the United States on such foreign trust which, as 
determined under paragraph (1), are so properly allocable." 
(B) Section 667 is amended by adding at the end thereof 26 USC 667. 
the following new subsection: 
"(d) SPECIAL RULES FOR FOREIGN TRUST.— 
"(1) FOREIGN TAX DEEMED PAID BY BENEFICIARY.— 
"(A) IN GENERAL.—In determining the increase in tax 
under subsection (b)(1)(D) for any computation year, the 
taxes described in section 665(d)(2) which are deemed distrib-
uted under section 666 (b) or (c) and added under subsection 
(b)(1)(C) to the taxable income of the beneficiary for any 
computation year shall, except as provided in subparagraphs 
(B) and (C), be treated as a credit against the increase in tax 
for such computation year under subsection (b)(1)(D). 
"(B) DEDUCTION IN LIEU OF CREDIT.—If the beneficiary did 
not choose the benefits of subpart A of part III of subchapter 
N with respect to the computation year, the beneficiary may 
in lieu of treating the amounts described in subparagraph 
(A) (without regard to subparagraph (O) as a credit may 
treat such amounts as a deduction in computing the benefi-
ciary's taxable income under subsection (b)(1)(C) for the 
computation year. 
"(C) LIMITATION ON CREDIT; RETENTION OF CHARACTER.— 
"(i) LIMITATION ON CREDIT.—For purposes of determin-
ing under subparagraph (A) the amount treated as a 
credit for any computation year, the limitations under 
subpart A of part III of subchapter N shall be applied 
92 STAT. 2910 
PUBLIC LAW 95-600—NOV. 6, 1978 
V'iy 
separately with respect to amounts added under subsec-
tion (bXlXC) to the tsixable income of the beneficiary for 
such computation year. For purposes of computing the 
, 
, , 
increase in tax under subsection (b)(1)(D) for any compu-
tation year for which the beneficiary did not choose the 
benefits of subpart A of part III of subchapter N, the 
beneficiary shall be treated as having chosen such 
benefits for such computation year. 
"(ii) RETENTION OF CHARACTER.—The items of income, 
deduction, and credit of the Trust shall retain their 
26 use 904. 
' * 
character (subject to the application of section 904(f)(5)) 
to the extent necessary to apply this paragraph. 
"(D) COMPUTATION YEAR.—For purposes of this paragraph, 
" 
^' >» ' 
the term 'computation year' means any of the three taxable 
years remaining after application of subsection (b)(1)(B).". 
26 use 667. 
(C) The last sentence of section 667(b)(1) is amended by 
inserting "(other than the amount of taxes described in 
Ante, p. 2909. 
section 665(d)(2))" after "taxes". 
26 use 904. 
(2) RECAPTURE OF OVERALL FOREIGN LOSS.—Section 904(f) is 
amended by adding at the end thereof the following new para-
graph: 
"(5) ACCUMULATION DISTRIBUTIONS OF FOREIGN TRUST.—For 
purposes of this chapter, in the case of amounts of income from 
sources without the United States which are treated under 
26 use 666. 
section 666 (without regard to subsections (b) and (c) thereof if the 
taxpayer chose to take a deduction with respect to the amounts 
26 use 667. 
described in such subsections under section 667(d)(1)(B)) as 
having been distributed by a foreign trust in a preceding taxable 
year, that portion of such amounts equal to the amount of any 
overall foreign loss sustained by the beneficiary in a year prior to 
the taxable year of the beneficiary in which such distribution is 
. 
received from the trust shall be treated as income from sources 
' 
within the United States (and not income from sources without 
the United States) to the extent that such loss was not used under 
this subsection in prior taxable years, or in the current taxable 
year, against other income of the beneficiary.". 
(3) EFFECTIVE DATES.— 
26 use 665 
(A) The amendments made by paragraph (1) shall apply to 
note. 
distributions made in taxable years beginning after Decem-
ber 31,1975. 
26 use 904 
(B) The amendments made by paragraph (2) shall take 
note. 
effect as if included in section 904(6 of the Internal Revenue 
26 use 904. 
Code of 1954, as such provision was added to such Code by 
26 use 904. 
section 1032(a) of the Tax Reform Act of 1976. 
(r) RETENTION OF CHARACTER OF AMOUNTS DISTRIBUTED FROM 
ACCUMULATION TRUST TO NONRESIDENT ALIENS AND FOREIGN CORPO-
RATIONS.— 
26 use 667. 
(1) IN GENERAL.—Section 667 (relating to treatment of amounts 
deemed distributed by trust in preceding years) is amended by 
adding at the end thereof the following new subsection: 
"(e) RETENTION OF CHARACTER OF AMOUNTS DISTRIBUTED FROM 
ACCUMULATION TRUST TO NONRESIDENT ALIENS AND FOREIGN CORPO-
RATIONS.—In the case of a distribution from a trust to a nonresident 
alien individual or to a foreign corporation, the first sentence of 
subsection (a) shall be applied as if the reference to the determination 
26 use 662. 
of character under section 662(b) applied to all amounts instead of 
just to tax-exempt interest." 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2911 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 667 
shall apply to distributions made in taxable years beginning 
"^te. 
after December 31,1975. 
(s) EXEMPT INTEREST DIVIDENDS OF REGULATED INVESTMENT COMPA-
NIES.— 
(1) TREATMENT OF TAX-EXEMPT INTEREST FOR PURPOSES OF THE 
90-PERCENT AND 30-PERCENT TESTS.—Subsection (b) of section 851 26 USC 851. 
(relating to limitations on the definition of regulated investment 
company) is amended by adding at the end thereof the following 
new sentence: "For purposes of paragraphs (2) and (3), amounts 
excludable from gross income under section 103(a)(1) shall be 26 USC 103. 
treated as included in gross income." 
(2) LOSSES ATTRIBUTABLE TO TAX-EXEMPT INTEREST WHERE STOCK 
IS HELD LESS THAN 31 DAYS.—Paragraph (4) of section 852(b) 26 U
S
C 852. 
(relating to loss on sale or exchange of stock held less than 31 
days) is amended to read as follows: 
"(4) Loss ON SALE OR EXCHANGE OF STOCK HELD LESS THAN 31 
DAYS.— 
"(A) Loss ATTRIBUTABLE TO CAPITAL GAIN DIVIDEND.—If— 
"(i) under subparagraph (B) or (D) of paragraph (3) a 
shareholder of a regulated investment company is 
required, with respect to any share, to treat any amount 
as a long-term capital gain, and 
"(ii) such share is held by the taxpayer for less than 
31 days, 
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. 
"(B) Loss ATTRIBUTABLE TO EXEMPT-INTEREST DIVIDEND.— 
If— 
"(i) a shareholder of a regulated investment company 
receives an exempt-interest dividend with respect to any 
share, and 
"(ii) such share is held by the taxpayer for less than 31 
days, 
then any loss on the sale or exchange of such share shall, to 
the extent of the amount of such exempt-interest dividend, 
be disallowed. 
"(C) DETERMINATION OF HOLDING PERIODS.—For purposes 
of this paragraph, the rules of section 246(c)(3) shall apply in 26 USC 246. 
determining whether any share of stock .has been held for 
less than 31 days; except that '30 days' shall be substituted 
for the number of days specified in subparagraph (B) of 
section 246(C)(3)." 
(3) EFFECTIVE DATE.—The amendments made by this section 
26 USC 851 
shall apply to taxable years beginning after December 31, 1975. note. 
(t) AMENDMENTS RELATING TO REAL ESTATE INVESTMENT TRUSTS.— 
(1) ANNUAL ACCOUNTING PERIOD.—Section 859 (relating to 
26 USC 859. 
adoption of annual accounting period), as redesignated by the 
Act, is further amended to read as follows: 
"SEC. 859. ADOPTION OF ANNUAL ACCOUNTING PERIOD. 
"For purposes of this subtitle— 
"(1) a real estate investment trust shall not change to any 
accounting period other than the calendar year, and 
92 STAT. 2912 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(2) a corporation, trust, or association may not elect to be a 
real estate investment trust for any taxable year beginning after 
October 4,1976, unless its accounting period is the calendar year. 
Paragraph (2) shall not apply to a corporation, trust, or association 
which was considered to be a real estate investment trust for any 
taxable year beginning on or before October 4,1976." 
26 use 856. 
(2) AMENDMENT OF SECTION 856(C)(3)(D).—Subparagraph (D) of 
section 856(c)(3) is amended by inserting "(other than gain from 
prohibited transactions)" after "and gain", 
(3) EXCISE TAX ON REIT UNDISTRIBUTED INCOME.— 
26 use 6501. 
(A) Paragraph (3) of section 6501(e) (relating to limitations 
on assessment and collection) is amended by striking out "or 
43" and inserting in lieu thereof "43, or 44". 
26 use 275. 
(B) Subsection (b) of section 1605 of the Tax Reform Act of 
1976 (relating to technical amendments) is amended by 
striking out paragraph (1) thereof. 
26 use 6212. 
(C) Subparagraph (D) of section 1605(b)(5) of the Tax 
Reform Act of 1976 is amended to read as follows: 
26 use 4971. 
"(D) by striking out 'of chapter 43 tax for the same taxable 
years,' in subsection (c)(1) and inserting in lieu thereof 'of 
26 use 4971, 
chapter 43 tax for the same taxable year, of chapter 44 tax 
4'981. 
for the same teixable year,'." 
(4) CORRECTION OF CROSS REFERENCE.—Subparagraph (B) of 
26 use 859. 
section 859(b)(2) is amended by striking out "section 6601(c)" and 
inserting in lieu thereof "section 6601(b)". 
26 use 859 
(5) EFFECTIVE DATE.—The amendments made by this subsection 
note. 
shall take effect on October 4,1976. 
(u) AMENDMENTS RELATING TO TREATMENT OF FOREIGN INCOME.— 
(1) FOREIGN TAX CREDITS NOT DISALLOWED ON CERTAIN DISTRIBU-
TIONS MADE BY POSSESSIONS CORPORATIONS.— 
26 use 901. 
(A) IN GENERAL.—Paragraph (1) of section 901(g) (relating 
to certain taxes paid with respect to distributions from 
possessions corporations) is amended to read as follows: 
"(1) IN GENERAL.—For purposes of this chapter, any tax of a 
foreign country or possession of the United States which is paid 
or accrued with respect to any distribution from a corporation— 
"(A) to the extent that such distribution is attributable to 
periods during which such corporation is a possessions 
corporation, and 
"(B) (i) if a dividends received deduction is allowable with 
respect to such distribution under part VIII of subchapter B, 
•:••::: 
'.jri-'- 
o r 
"(ii) to the extent that such distribution is received in 
connection with a liquidation or other transaction with 
respect to which gain or loss is not recognized, 
shall not be treated as income, war profits, or excess profits taxes 
paid or accrued to a foreign country or possession of the United 
States, and no deduction shall be allowed under this title with 
respect to any amount so paid or accrued." 
(B) DEFINITION OF POSSESSIONS CORPORATION.—Paragraph 
(2) of section 901(g) (defining possessions corporation) is 
amended— 
26 use 931. 
(i) by striking out "or during which section 931" and 
inserting in lieu thereof ", during which section 931", 
and 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2913 
26 use 901 
note. 
26 use 901. 
(ii) by inserting before the period at the end thereof 
the following: ", or during which section 957(c) applied 
to such corporation". 
(C) EFFECTIVE DATES.—The amendment made by subpara-
graph (A) shall apply as if included in section 901(g) of the 
Internal Revenue Code of 1954 as added by section 1051(d)(2) 
of the Tax Reform Act of 1976. The amendments made by 
subparagraph (B) shall apply to distributions made after the 
date of the enactment of this Act in taxable years ending 
after such date. 
(2) FOREIGN TAX CREDIT ADJUSTMENTS FOR CAPITAL GAINS.— 26 use 904 
(A) IN GENERAL.—Paragraph (2) of section 904(b) (relating 
to treatment of capital gains for purposes of the foreign tax 
credit limitation) is amended by striking out "For purposes 
of subsection (a)—" and inserting in lieu thereof "For pur-
poses of this section—". 
(B) SOURCE RULE.—Subparagraph (C) of section 904(b)(3) is 
amended by striking out "For purposes of this paragraph, 
there" and inserting in lieu thereof There". 
(C) SOURCE RULE FOR LIQUIDATIONS OF CERTAIN FOREIGN 
CORPORATIONS.—Paragraph (3) of section 904(b) (relating to 
source rules for gain from the sale of certain personal 
property) is amended by redesignating subparagraph (D) as 
subparagraph (E) and by inserting after subparagraph (C) 
the following new subparagraph: 
"(D) GAIN FROM LIQUIDATION OF CERTAIN FOREIGN CORPORA-
TIONS.—Subparagraph (C) shall not apply with respect to a 
distribution in liquidation of a foreign corporation to which 
part II of subchapter C applies if such corporation derived 
less than 50 percent of its gross income from sources within 
/ 
the United States for the 3-year period ending with the close 
of such corporation's taxable year immediately preceding 
the year during which the distribution occurred." 
(D) EFFECTIVE DATE.—The amendments made by this para-
graph shall apply to taxable years beginning after Decem-
ber 31,1975. 
(3) TREATMENT OF CERTAIN CAPITAL LOSS CARRYOVERS AND 
CARRYBACKS FOR PURPOSES OF THE LIMITATION ON CREDIT FOR 
FOREIGN TAXES.— 
(A) IN GENERAL.—Clause (iii) of section 904(b)(2)(A) (relat-
ing to treatment of capital gains of corporations for purposes 
of the foreign tax credit limitation) is amended by striking 
out "any net capital loss" and inserting in lieu thereof "for 
purposes of determining taxable income from sources with-
out the United States, any net capital loss (and any amount 
which is a short-term capital loss under section 1212(a))". 
(B) EFFECTIVE DATE.—The amendment made by subpara-
graph (A) shall apply to taxable years beginning ^ter 
December 31,1975. 
(4) TREATMENT OF CAPITAL LOSS CARRYOVERS FOR PURPOSES OF 
FOREIGN LOSS RECAPTURE.— 
(A) IN GENERAL.—Subparagraph (a) of section 904(f)(2) 
(defining overall foreign loss) is amended by striking out "or 
any capital loss carrybacks and carryovers to such year 
under section 1212". 
(B) FOREIGN OIL RELATED LOSSES.—Subparagraph (A) of 
section 904(f)(4) (relating to determination of foreign oil 
26 use 904 
note. 
26 use 904. 
26 use 1212. 
26 use 904 
note. 
26 use 904. 
26 use 1212. 
26 use 904. 
92 STAT. 2914 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 use 907. 
related loss where section 907 applies) is amended by strik-
ing out "or any capital loss carrybacks and carryovers to 
26 use 1212. 
such year under section 1212". 
26 use 904 
(C) EFFECTIVE DATE.—The amendments made by this para-
"
*
*
*
^
- 
graph shall apply— 
(i) to overall foreign losses sustained in taxable years 
beginning after December 31,1975, and 
(ii) to foreign oil related losses sustained in taxable 
years ending after December 31,1975, 
(5) EFFECTIVE DATE FOR RECAPTURE OF FOREIGN OIL RELATED 
LOSSES.— 
26 use 904 
(A) IN GENERAL.—Paragraph (1) of section 1032(c) of the 
°ote- 
Tax Reform Act of 1976 is amended to read as follows: 
"(1) IN GENERAL.—Except as provided in paragraphs (2), (3), 
and (5), the amendment made by subsection (a) shall apply to 
losses sustained in tsixable years beginning after December 31, 
1975. The amendment made by subsection (bXD shall apply to 
taxable years beginning after December 31, 1975. The amend-
ment made by subsection (b)(2) shall apply to losses sustained in 
taxable years ending after December 31,1975." 
26 use 904 
(B) FOREIGN OIL RELATED LOSSES.—Subsection (c) of section 
note. 
1032 of the Tax Reform Act of 1976 is amended by adding at 
the end thereof the following new paragraph: 
"(5) FOREIGN OIL RELATED LOSSES.—The amendment made by 
subsection (a) shall apply to foreign oil related losses sustained in 
taxable years ending after December 31,1975." 
26 use 904 
(6) TRANSITIONAL RULES FOR CERTAIN MINING OPERATIONS.—The 
note. 
second sentence of paragraph (2) of section 1031(c) of the Tax 
Reform Act of 1976 is amended to read as follows: "In the case of 
a loss sustained in a taxable year beginning before January 1, 
1979, by any corporation to which this paragraph applies, if 
26 use 904. 
section 904(a)(1) of such Code (as in effect before the enactment of 
this Act) applies with respect to such taxable year, the provisions 
of section 904(f) of such Code shall be applied with respect to such 
loss under the principles of such section 904(a)(1)." 
(7) TRANSITIONAL RULES FOR RECAPTURE OF CERTAIN FOREIGN 
LOSSES.— 
26 use 904 
(A) COMPUTATION OF DEFICIT IN EARNINGS AND PROFITS FOR 
note. 
PURPOSES OP THE RECAPTURE OF CERTAIN FOREIGN LOSSES.— 
Paragraph (4) of section 1032(c) of the Tax Reform Act of 
1976 (relating to limitation based on deficit in earnings and 
profits for purposes of the recapture of foreign losses) is 
amended by adding at the end thereof the following new 
sentence: "For purposes of the preceding sentence, there 
shall be taken into account only earnings and profits of the 
corporation which (A) were accumulated in teixable years of 
the corporation beginning after December 31, 1962, and 
during the period in which the stock of such corporation 
from which the loss arose was held by the taxpayer and (B) 
are attributable to such stock." 
(B) RECAPTURE OF POSSESSION LOSSES DURING TRANSITIONAL 
PERIOD WHERE TAXPAYER IS ON A PER-COUNTRY BASIS.— 
26 use 904 
(i) Subsection (c) of section 1032 of the Tax Reform Act 
note. 
of 1976 (relating to effective dates for recapture of 
foreign losses) is amended by adding at the end thereof 
the following new paragraph: 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2915 
"(6) RECAPTURE OF POSSESSION LOSSES DURING TRANSITIONAL 
PERIOD WHERE TAXPAYER IS ON A PER-COUNTRY BASIS.— 
"(A) APPUCATION OF PARAGRAPH.—This paragraph shall 
apply i
f
— 
"(i) the teixpayer sustained a loss in a possession of the 
United States in a taxable year beginning after Decem-
ber 31,1975, and before January 1,1979, 
« 
"(ii) such loss is attributable to a trade or business 
engaged in by the taxpayer in such possession on Janu-
ary 1,1976, and 
"(iii) the taxpayer chooses to have the benefits of 
subpart A of part III of subchapter N apply for such 
taxable year and section 904(a)(1) of the Internal Reve-
nue Code of 1954 (as in effect before the enactment of 26 USC 904. 
this Act) applies with respect to such taxable year. 
"(B) NO RECAPTURE DURING TRANSITION PERIOD.—In any 
case to which this paragraph applies, for purposes of deter-
mining the liability for tax of the taxpayer for taxable years 
beginning before January 1, 1979, section 904(f) of the 
Internal Revenue Code of 1954 shall not apply with respect 
to the loss described in subparagraph (A)(i). 
"(C) RECAPTURE OF LOSS AFTER THE TRANSITION PERIOD.—In 
any case to which this paragraph applies— 
"(i) for purposes of determining the liability for tax of 
the taxpayer for taxable years beginning after Decem-
ber 31,1978, section 904(f) of the Internal Revenue Code 
of 1954 shall be applied with respect to the loss described 
in subparagraph (A)(i) under the principles of section 
904(a)(1) of such Code (as in effect before the enactment 
ofthis Act);but 
"(ii) in the case of any taxpayer and any possession, 
the aggregate amount to which such section 904(f) 
applies by reason of clause (i) shall not exceed the sum of 
the net incomes of all affiliated corporations from such 
possession for taxable years of such affiliated corpora-
tions beginning after December 31, 1975, and before 
January 1,1979. 
"(D) TAXPAYERS NOT ENGAGED IN TRADE ON BUSINESS ON 
JANUARY 1, 1976.—In any case to which this paragraph 
applies but for the fact that the taxpayer was not engaged in 
a trade or business in such possession on January 1,1976, for 
purposes of determining the liability for tax of the taxpayer 
for taxable years beginning before January 1,1979; if section 
904(a)(1) of such Code (as in effect before the enactment of 
this Act) applies with respect to such taxable year, the 
provisions of section 904(f) of such Code shall be applied with 
respect to the loss described in subparagraph (A)(i) under the 
principles of such section 904(a)(1). 
"(E) AFFILIATED CORPORATION DEFINED.—For purposes of 
subparagraph (C)(ii), the term 'affiliated corporation' means 
a corporation which, for the taxable year for which the net 
income is being determined, was not a member of the same 
affiliated group (within the meaning of section 1504 of the 
Internal Revenue Code of 1954) as the taxpayer but would 26 USC 1504. 
have been a member of such group but for the application of 
subsection (b) of such section 1504." 
92 STAT. 2916 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 use 904 
(ii) Paragraph (3) of section 1031(c) of the Tax Reform 
note. 
Act of 1976 is amended by striking out the last sentence. 
(8) LIMITATIONS ON FOREIGN TAX CREDIT WHERE INDIVIDUAL HAS 
FOREIGN OIL AND GAS EXTRACTION INCOME.— 
(A) REDUCTION IN FOREIGN TAX CREDIT FOR CERTAIN INDI-
VIDUALS HAVING FOREIGN OIL AND GAS EXTRACTION INCOME.— 
26 use 907. 
Subsection (a) (as amended by this Act) of section 907 
(relating to special rules in case of foreign oil and gas 
income) is further amended to read as follows: 
"(a) 
REDUCTION IN AMOUNT ALLOWED AS FOREIGN TAX UNDER 
26 use 901. 
SECTION 901.—In applying section 901, the amount of any oil and gas 
extraction taxes paid or accrued (or deemed to have been paid) during 
the taxable year which would (but for this subsection) be taken into 
account for purposes of section 901 shall be reduced by the amount (if 
any) by which the amount of such taxes exceeds the product o
f
— 
"(1) the amount of the foreign oil and gas extraction income for 
the taxable year, 
"(2) multiplied by— 
"(A) in the case of a corporation, the percentage which is 
26 use 11. 
equal to the highest rate of tax specified under section 11(b), 
or 
"(B) in the case of an individual, a fraction the numerator 
of which is the tax against which the credit under section 
26 use 901. 
901(a) is taken and the denominator of which is the taxpay-
er's entire taxable income." 
26 use 904. 
(B) APPUCATION OF SECTION 904 S
E
P
A
R
A
T
E
L
Y T
O FOREIGN OIL 
R
E
L
A
T
E
D INCOME OF INDIVIDUALS.—Subsection (b) of section 
26 use 907, 
907 (relating to application of section 904 limitation) is 
904. 
amended to read as follows: 
"(b) APPUCATION OF SECTION 904 LIMITATION.—The provisions of 
section 904 shall be applied separately with respect to— 
"(1) foreign oil related income, and 
"(2) other taxable income." 
(C) TECHNICAL AMENDMENT.—Paragraph (4) of section 
26 use 904. 
904(f) (relating to recapture of overall foreign loss) is 
amended by striking out "In the case of a corporation to 
26 use 907. 
which section 907(b)(1) applies" and inserting in lieu thereof 
"In making the separate computation under this subsection 
with respect to foreign oil related income which is required 
by section 907(b)". 
26 use 907 
(D) EFFECTIVE DATES.— 
note. 
(i) The amendments made by this paragraph shall 
apply, in the case of individuals, to taxable years ending 
after December 31,1974, and, in the case of corporations, 
to taxable years ending after December 31,1976. 
(ii) In the case of any taxable year ending after 
December 31, 1975, with respect to foreign oil related 
income (within the meaning of section 907(c) of the 
26 use 907. 
Internal Revenue Code of 1954), the overall limitation 
26 use 904. 
provided by section 904(a)(2) of such Code shall apply 
and the per-country limitation provided by section 
904(a)(1) of such Code shall not apply. 
(9) EFFECTIVE DATE FOR DISALLOWANCE OF FOREIGN TAX CREDIT 
26 use 907 
FOR CERTAIN PRODUCTION-SHARING CONTRACTS.—The second sen-
note. 
tence of paragraph (3) of section 1035(c) of the Tax Reform Act of 
1976 (relating to tax credit for production-sharing contracts) is 
amended to read as follows: "A contract described in the preced-
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2917 
ing sentence shall be taken into account under paragraph (1) 
only with respect to Eimounts (A) paid or accrued to the foreign 
government before January 1, 1978, and (B) attributable to 
income earned before such date." 
(10) FOREIGN TAXES ATTRIBUTABLE TO SECTION 911 EXCLUSION.— 
(A) IN GENERAL.—The last sentence of section 911(a) (relat- 26 USC 911. 
ing to earned income from sources without the United 
States) is amended to read as follows: 
"An individual shall not be allowed as a deduction from his gross 
income any deductions (other than those allowed by section 151, 26 USC 151. 
relating to personal exemptions), to the extent that such deductions 
are properly allocable to or chargeable against amounts excluded 
from gross income under this subsection. For purposes of this title, 
the amount of the income, war profits, £ind excess profits taxes paid or 
accrued by any individual to a foreign country or possession of the 
United States for any taxable year shall be reduced by an amount 
determined by multiplying the amount of such taxes by a fraction— 
"(A) the numerator of which is the tax determined under 
subsection (d) (1) (B), and 
"(B) the denominator of which is the sum of the amount 
referred to in subparagraph (A), plus the limitation imposed for 
the taxable year by section 904(a).". 
26 USC 904. 
(B) EFFECTIVE DATE.—The amendment made by subpara- 26 USC 911 
graph (A) shall apply to taxable years beginning after note. 
December 31,1976. 
(11) SALE OF ASSETS BY A POSSESSIONS CORPORATION.— 
(A) IN GENERAL.—Subsection (a) of section 936 (relating to 26 U
S
C 936. 
Puerto Rico and possession tax credit) is amended by redesig-
nating paragraph (2) as paragraph (3) and by amending so 
much of paragraph (1) as precedes subparagraph (A) thereof 
to read as follows: 
"(1) IN GENERAL.—Except as provided in paragraph (3), if a 
domestic corporation elects the application of this section and if 
the conditions of both subparagraph (A) and subparagraph (B) of 
paragraph (2) are satisfied, there shall be allowed as a credit 
against the tax imposed by this chapter an amount equal to the 
portion of the tax which is attributable to the sum o
f
— 
"(A) the taxable income, from sources without the United 
States, from— 
"(i) the active conduct of a trade or business within a 
possession of the United States, or 
"(ii) the sale or exchange of substantially all of the 
assets used by the taxpayer in the active conduct of such 
trade or business, and 
"(B) the qualified possession source investment income. 
"(2) CONDITIONS WHICH MUST BE SATISFIED.—The conditions 
referred to in paragraph (1) are:". 
(B) INCOME FROM SALE OF CARRYOVER BASIS PROPERTY NOT 
TAKEN INTO ACCOUNT.— 
(i) Subsection (d) of section 936 (relating to definitions) 
is amended by adding at the end thereof the following 
new paragraph: 
"(3) CARRYOVER BASIS PROPERTY.— 
"(A) IN GENERAL.—Income from the sale or exchange of 
any asset the basis of which is determined in whole or in part 
by reference to its basis in the hands of another person shall 
92 STAT. 2918 
PUBLIC LAW 95-600—NOV. 6, 1978 
not be treated as income described in subparagraph (A) or (B) 
of subsection (a)(1). 
"(B) EXCEPTION FOR POSSESSIONS CORPORATIONS, ETC.—For 
purposes of subparagraph (A), the holding of any asset by 
another person shall not be taken into account if throughout 
the period for which such asset was held by such person 
26 use 931, 
section 931, this section, or section 957(c) applied to such 
957. 
person.", 
(ii) The heading of such subsection (d) is amended to 
read as follows: 
"(d) DEFINITIONS AND SPECIAL RULES.—". 
26 use 936 
(C) EFFECTIVE DATE.—The amendments made by this para-
note, 
graph shall apply as if included in section 936 of the Internal 
26 use 936. 
Revenue Code of 1954 at the time of its addition by section 
1051(b) of the Tax Reform Act of 1976. 
26 use 995 
(12) GAIN ON DISPOSITION OF STOCK IN A DISC.— 
note- 
(A) DELAY IN EFFECTIVE DATE.—Paragraph (4) of section 
1101(g) of the Tax Reform Act of 1976 (relating to effective 
date for amendment relating to gain or disposition of DISC 
stock) is amended by striking out "December 31,1975" and 
inserting in lieu thereof "December 31,1976". 
(B) TECHNICAL AMENDMENT.—Paragraph (1) of section 
26 use 995. 
995(c) (relating to gain on disposition of stock in a DISC) is 
amended by adding at the end thereof the following new 
sentence: 
"Subparagraph (C) shall not apply if the person receiving the 
stock in the disposition has a holding period for the stock which 
includes the period for which the stock was held by the share-
holder disposing of such stock." 
26 use 995 
(C) EFFECTIVE DATE.—The amendment made by subpara-
note. 
graph (B) shall apply to dispositions made after December 
31,1976, in taxable years ending after such date. 
(13) LIMITATION ON PARTNER'S TAX WHERE PARTNER RECEIVES 
26 USE 1248. 
AMOUNT TREATED AS SALE OF SECTION 1248 STOCK.— 
26 use 751. 
(A) IN GENERAL.—Section 751 (relating to unrealized 
receivables and inventory items) is amended by adding at 
the end thereof the following new subsection: 
"(e) LIMITATION ON TAX ATTRIBUTABLE TO DEEMED SALES OF SEC-
26 use 1248. 
TiON 1248 STOCK.—For purposes of applying this section and sections 
26 use 731, 
731, 736, and 741 to any amount resulting from the reference to 
736, 741. 
section 1248(a) in the second sentence of subsection (c), in the case of 
26 use 1248. 
g^ji individual, the tax attributable to such amount shall be limited in 
the manner provided by subsection (b) of section 1248 (relating to gain 
from certain sales or exchanges of stock in certain foreign corpora-
tion)." 
26 use 736. 
(B) CROSS REFERENCE.—Section 736 (relating to pajmients 
to a retiring partner or a deceased partner's successor in 
interest) is amended by adding at the end thereof the 
following new subsection: 
"(c) CROSS REFERENCE.— 
"For limitation on the tax attributable to certain gain connected with 
section 1248 stock, see section 751(e)." 
26 use 751 
(C) EFFECTIVE DATE.—The amendments made by this para-
note- 
graph shall apply to transfers beginning after October 9, 
1975, and to sales, exchanges, and distributions taking place 
after such date. 
26 u s e 3401 et 
seq. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2919 
(14) EXCISE TAX ON TRANSFERS OF PROPERTY TO FOREIGN PERSONS 
TO AVOID FEDERAL INCOME TAX.— 
(A) TRANSFERS INVOLVING ESTATES.—Section 1491 (relating 26 use I49i. 
to tax on transfers to avoid income tax) is amended by 
striking out "trust" each place it appears therein and 
inserting in lieu thereof "estate or trust". 
(B) CLARIFICATION OF PARAGRAPH (3) OF SECTION 1492.— 
Paragraph (3) of section 1492 (relating to nontaxable trans- 26 use 1492. 
fers) is amended to read as follows: 
"(3) To a transfer described in section 367; or". 
26 USe 367. 
(C) EFFECTIVE DATE.—The amendments made by this para- ^^ ^^^ ^^^^ 
graph shall apply to transfers after October 2,1975. 
^^^^' 
(15) ELECTION TO TREAT NONRESIDENT ALIEN INDIVIDUAL AS 
RESIDENT OF THE UNITED STATES.— 
(A) PROVISIONS AFFECTED BY ELECTION.—Paragraph (1) of 
section 6013(g) (relating to election to treat nonresident alien 26 use 6013. 
individual as resident of the United States) is amended to 
read as follows: 
"(1) IN GENERAL.—A nonresident alien individual with respect 
to whom this subsection is in effect for the taxable year shall be 
treated as a resident of the United States— 
"(A) for purposes of chapters 1 and 5 for all of such taxable 26 USC i et seq., 
year, and 
l^'^},fr^'^t 
"(B) for purposes of chapter 24 (relating to wage withhold-
ing) for payments of wages made during such taxable year." 
(B) CONFORMING AMENDMENT.—Paragraph (5) of section 
6013(g) (relating to termination of election by Secretary) is 26 use 6013. 
amended by striking out "chapter 1" and inserting in lieu 
thereof "chapters 1 and 5". 
(C) YEAR OF RESIDENCY.—Paragraph (1) of section 6013(h) 
(relating to return for year nonresident alien becomes resi-
dent) is amended— 
(i) by striking out "chapter 1" and inserting in lieu 
thereof "chapters 1 and 5", and 
26 use i et seq. 
(ii) by inserting before the period at the end thereof ^"^^^ ^
^ *^9-
the following: ", and for purposes of chapter 24 (relating 26 use 3401 et 
to wage withholding) for payments of wages made ^^i-
during such taxable year". 
(D) 
CERTAIN AMOUNTS WITHHELD UNDER 
CHAPTER 
3 
TREATED AS OVERPAYMENTS OF TAX.—Subsection (b) of section 
6401 (relating to excessive credits) is amended by adding at 26 use 6401. 
the end thereof the following new sentence: "For purposes of 
the preceding sentence, any credit allowed under paragraph 
(1) of section 32 (relating to withholding of tax on nonresi- 26 use 32. 
dent aliens and on foreign corporations) to a nonresident 
alien individual for a taxable year with respect to which an 
election under section 6013 (g) or (h) is in effect shall be 26 use 6013. 
treated as an amount allowable as a credit under section 31." 26 use 31. 
(E) EFFECTIVE DATES.—The amendments made by this 26 use 6013 
paragraph— 
"°*^-
(i) to the extent that they relate to chapter 1 or 5 of the 
Internal Revenue Code of 1954, shall apply to taxable 26 use i et seq. 
years ending on or after December 31,1975, and 
1491 et seq. 
(ii) to the extent that they relate to wage withholding 
under chapter 24 of such Code, shall apply to remunera- 26 use 340i et 
tion paid on or after the first day of the first month ^^? 
92 STAT. 2920 
PUBLIC LAW 95-600—NOV. 6, 1978 
which begins more than 90 days after the date of the 
enactment of this Act. 
(16) NONRESIDENT ALIEN INDIVIDUAL ALLOWED TO BE TREATED AS 
RESIDENT OF THE UNITED STATES.— 
26 use 6013. 
(A) IN GENERAL.—Paragraph (2) of section 6013(g) (relating 
to election to treat nonresident alien individual as resident 
of the United States) is amended by striking out "who, at the 
time an election was made under this subsection," and 
inserting in lieu thereof "who, at the close of the taxable 
year for which an election under this subsection was made,". 
26 use 6013 
(B) EFFECTIVE DATE.—The amendment made by subpara-
note. 
graph (A) shall apply to taxable years beginning after 
December 31,1975. 
(v) AMENDMENT OF SECTION 1239(a).— 
26 use 1239. 
(1) IN GENERAL.—Subsection (a) of section 1239 (relating to gain 
from sale of depreciable property between certain related tax-
payers) is amended by striking out "subject to the allowance for 
depreciation provided in section 167" and inserting in lieu 
thereof "of a character which is subject to the allowance for 
26 use 167. 
depreciation provided in section 167". 
26 use 1239 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
note. 
shall apply as if included in the amendment made to section 1239 
26 use 1239. 
of the Internal Revenue Code of 1954 by section 2129(a) of the Tax 
Reform Act of 1976. 
(w) RECAPTURE OF DEPRECIATION ON PLAYER CONTRACTS.— 
26 use 1245. 
(1) IN GENERAL.—Subparagraph (C) of section 1245(a)(4) 
(defining previously unrecaptured depreciation with respect to 
contracts transferred) is amended to read as follows: 
(C) 
PREVIOUSLY 
UNRECAPTURED 
DEPRECIATION 
WITH 
RESPECT T
O CONTRACTS TRANSFERRED.—For purposes of Sub-
paragraph 
(A)(ii), the term 
'previously 
unrecaptured 
depreciation' means the amount of any deduction allowed or 
allowable to the taxpayer transferor for the depreciation of 
any contracts involved in such transfer." 
(2) RECAPTURE OF DEPRECIATION WITH RESPECT TO INITIAL CON-
TRACTS.—Subparagraph (B) of section 1245(a)(4) (defining previ-
ously unrecaptured depreciation with respect to initial contracts) 
is amended— 
(A) by inserting "attributable to periods after December 
31,1975," after "depreciation" in clause (i), 
(B) by inserting "incurred after December 31, 1975," after 
"losses ' in clause (i), and 
(C) by inserting "described in clause (i)" after "amounts" 
in clause (ii). 
26 use 1245 
(3) EFFECTIVE DATE.—The amendments made by this subsection 
not^- 
shall apply to transfers of player contracts in connection with 
any sale or exchange of a franchise after December 31, 1975. 
(x) TREATMENT OF PENSIONS AND ANNUITIES FOR 50-PERCENT MAXI-
MUM RATE ON PERSONAL SERVICE INCOME.— 
26 use 1348. 
(1) IN GENERAL.—Subparagraph (A) of section 1348a))(l) (defin-
ing personal service income) is amended by striking out "pension 
or annuity" and inserting in lieu thereof "pension or annuity 
which arises from an employer-employee relationship or from 
tax-deductible contributions to a retirement plan". 
(2) TECHNICAL AMENDMENT.—The last sentence of section 
1348(b) is amended by striking out "earned income" and insert-
ing in lieu thereof "personal service income". 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2921 
(3) EFFECTIVE DATE.—The amendments made by this section 26 use 1348 
shall apply to taxable years beginning after December 31,1976. "o^^-
(y) CHANGES IN THE SUBCHAPTER S PROVISIONS.— 
(1) GRANTOR TRUST MAY BE TREATED AS PERMITTED SHAREHOLDER 
AFTER DECEDENT'S DEATH; GRANTOR OR GRANTOR TRUST MUST BE 
INDIVIDUAL.—Paragraph (1) of subsection (e) of section 1371 (as 
redesignated by this Act) is amended to read as follows: 
"(1)(A) A trust all of which is treated as owned by the grantor 26 use 1371. 
(who is an individual who is a citizen or resident of the United 
States) under subpart E of part I of subchapter J of this chapter. 
"(B) A trust which was described in subparagraph (A) immedi-
ately before the death of the grantor and which continues in 
existence after such death, but only for the 60-day period begin-
ning on the day of the grantor's death. If a trust is described in 
the preceding sentence and if the entire corpus of the trust is 
includible in the gross estate of the grantor, the preceding 
sentence shall be applied by substituting *2-year period' for '60-
day period'." 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 1371 
shall apply to taxable years beginning after December 31, 1976. note. 
(z) WITHHOLDING OF FEDERAL TAXES ON CERTAIN INDIVIDUALS EN-
GAGED IN FISHING.— 
(1) IN GENERAL.—Section 1207(f)(4) of the Tax Reform Act of 26 USC 3121 
1976 (relating to effective date of provisions relating to withhold- "ote. 
ing on certain individuals engaged in fishing) is amended by 
striking out "December 31, 1971" each place it appears and 
inserting in lieu thereof "December 31,1954". 
(2) EFFECTIVE DATE.—The amendments made by paragraph (1) 26 USC 3121 
shall take effect on October 4,1976. 
"ote. 
(aa) WITHDRAWALS FROM INDIVIDUAL RETIREMENT ACCOUNTS, 
ETC.— 
(1) IN GENERAL.—The last sentence of section 4973(b) (relating 26 USC 4973. 
to excess contributions to individual retirement accounts, etc.) is 
amended by striking out "solely because of employer contribu-
tions to a plan or contract described in section 219(b)(2)" and 26 USC 219. 
inserting in lieu thereof "solely because of ineligibility under 
section 219(b)(2) or section 220(b)(3)". 
26 USC 219, 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) ^20. 
shall apply as if included in section 1501 of the Tax Reform Act of 26 USC 4973 
1976 at the time of the enactment of such Act. 
"ote. 
(bb) AMENDMENTS RELATING TO DISCLOSURE OF TAX RETURNS.— 
(1) DISCLOSURE OF MAILING ADDRESS FOR PURPOSES OF COLLECT-
ING CERTAIN STUDENT LOANS.— 
(A) Subsection (m) of section 6103 (relating to disclosure of 26 USC 6103. 
taxpayer identity information) is amended to read as follows: 
"(m) DISCLOSURE OF TAXPAYER IDENTITY INFORMATION.— 
"(1) TAX REFUNDS.—The Secretary may disclose taxpayer iden-
tity information to the press and other media for purposes of 
notifying persons entitled to tax refunds when the Secretary, 
after reasonable effort and lapse of time, has been unable to 
locate such persons. 
"(2) FEDERAL CLAIMS.—Upon written request, the Secretary 
may disclose the mailing address of a taxpayer to officers and 
employees of an agency personally and directly engaged in, and 
solely for their use in, preparation for any administrative or 
judicial proceeding (or investigation which may result in such a 
proceeding) pertaining to the collection or compromise of a 
39-194 O—80—pt. 3 
19 ; QL3 
92 STAT. 2922 
PUBLIC LAW 95-600—NOV. 6, 1978 
Federal claim against such taxpayer in accordance with the 
provisions of section 3 of the Federal Claims Collection Act of 
31 use 952. 
1966. 
"(3) 
NATIONAL INSTITUTE FOR OCCUPATIONAL SAFETY AND 
HEALTH.—Upon written request, the Secretary may disclose the 
mailing address of taxpayers to officers and employees of the 
National Institute for Occupational Safety and Health solely for 
the purpose of locating individuals who are, or may have been, 
exposed to occupational hazards in order to determine the status 
of their health or to inform them of the possible need for medical 
care and treatment. 
"(4) INDIVIDUALS WHO HAVE DEFAULTED ON STUDENT LOANS.— 
"(A) IN GENERAL.—Upon written request by the Commis-
sioner of Education, the Secretary may disclose the mailing 
address of any taxpayer who has defaulted on a loan made 
from the student loan fund established under part E of title 
2
C use 1088 et 
IV of the Higher Education Act of 1965 for use only for 
*•«?• 
purposes of locating such taxpayer for purposes of collecting 
such loan. 
"(B) DISCLOSURE TO INSTITUTIONS.—Any mailing address 
disclosed under subparagraph (A) may be disclosed by the 
Commissioner of Education to any educational institution 
with which he has an agreement under part E of title IV of 
the Higher Education Act of 1965 only for use by officers, 
employees or agents of such institution whose duties relate 
to the collection of student loans for purposes of locating 
individuals who have defaulted on student loans made by 
such institution pursuant to such agreement for purposes of 
collecting such loans." 
26 use 6103. 
(B) Paragraph (3) of section 6103(a) is amended by insert-
ing ", subsection (m)(4)(B)," after "subsection (e)(l)(D)(iii)". 
26 use 7213. 
(C) Paragraph (2) of section 7213(a) (relating to penalties 
for unauthorized disclosure of information) is amended— 
(i) by striking out "or any local" and inserting in lieu 
thereof ", any local"; 
(ii) by inserting ", or any educational institution" 
after' 'enforcement agency''; and 
26 use 6103. 
,
* \ 
(iii) by striking out "section 6103(d) or (1)(6)" and 
inserting in lieu thereof "subsection (d), (1)(6), or 
(m)(4)(B) of section 6103". 
(2) DISCLOSURE OF TAX RETURN INFORMATION REGARDING SPE-
CIAL FUEL EXCISE TAXES.—Subsection (d) of section 6103 (relating 
to disclosure to State tax officials) is amended by inserting "31,' 
after "24,". 
(3) RETURN INFORMATION OTHER THAN TAXPAYER RETURN INFOR-
MATION.—Paragraph (2) of section 6103(i) (relating to return 
information other than taxpayer return information) is amended 
by adding at the end thereof the following new sentence: "For 
purposes of this paragraph, the name and address of the tax-
payer shall not be treated as taxpayer return information." 
(4) DISCLOSURE OF RETURN INFORMATION CONCERNING POSSIBLE 
CRIMINAL ACTIVITIES.—Paragraph (3) of section 6103(i) (relating 
to disclosure of return information concerning possible criminal 
activities) is amended by adding at the end thereof the following 
new sentence: "For purposes of the preceding sentence, the name 
and address of the taxpayer shall not be treated as taxpayer 
return information if there is return information (other than 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2923 
taxpayer return information) which may constitute evidence of a 
violation of Federal criminal laws." 
(5) DISCLOSURE UNDER TAX CONVENTIONS.—Section 6103(k)(4) 26 USC 6103. 
(relating to disclosure of return information under income t£ix 
conventions) is amended— 
(A) by striking out "income" in the caption thereof, 
(B) by inserting "or gift and estate tax" after "income tax", 
and 
(C) by inserting ",, or other convention relating to the 
exchange of tax information," after "convention" the first 
place it appears. 
(6) CRIMINAL PENALTY FOR ^UNAUTHORIZED DISCLOSURE OF INFOR-
MATION.—Section 7213(a) (relating to unauthorized disclosure of 26 USC 7213. 
information) is amended— 
(A) by striking out "to disclose" in paragraphs (1), (2), and 
(5) and inserting in lieu thereof ^'willfully to disclose", 
(B) by striking out "to thereafter print or publish" in 
paragraph (3) and inserting in lieu thereof "thereafter will-
fully to print or publish", and 
(C) by striking out "to offer" in paragraph (4) and inserting 
in lieu thereof "willfully to offer". 
(7) No CIVIL UABILITY FOR GOOD FAITH BUT ERRONEOUS INTER-
PRETATION OF DISCLOSURE REQUIREMENTS.—Section 7217 (relating 26 USC 7217. 
to civil damages for unauthorized disclosure of return and return 
information) is amended— 
(A) by redesignating subsections (b) and (c) as subsections 
' 
(c) and (d), respectively; 
(B) by inserting after subsection (a) the following new 
subsection: 
"(b) No LlABIUTY FOR GoOD FAITH BUT ERRONEOUS INTERPRETA-
TION.—No liability shall arise under this section with respect to any 
disclosure which results from a good faith, but erroneous, interpreta-
tion of section 6103."; and 
26 USC 6103. 
(C) by striking out "An action" in subsection (d) (as so 
redesignated) and inserting in lieu thereof "PERIOD FOR 
BRINGING ACTION.—An action". 
(8) EFFECTIVE DATES.— 
26 USC 6103 
(A) Except as provided in subparagraph (B), the amend- "«*«• 
ments made by this subsection shall take effect January 1, 
1977. 
(B) The amendments made by paragraph (7) shall apply 
with respect to disclosures made after the date of the 
enactment of this Act. 
(cc) AMENDMENTS RELATING TO INCOME TAX RETURN PREPARERS.— 
(1) NEGOTIATION OF CHECKS BY BANK.—Subsection (f) of section 
6695 (relating to negotiation of check) is amended by adding at 26 USC 6695. 
the end thereof the following new sentence: "The preceding 
sentence shall not apply with respect to the deposit by a bank 
(within the meaning of section 581) of the full amount of the 26 USC 581. 
check in the taxpayer's account in such bank for the benefit of 
the taxpayer." 
(2) DEFINITION.—Clause (iii) of section 7701(a)(36)(B) (relating 
26 USC 7701. 
to exceptions from the definition of income tax return preparer) 
is amended to read as follows: 
"(iii) prepares as a fiduciary a return or claim for 
refund for any person, or". 
92 STAT. 2924 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 use 6695 
(3) EFFECTIVE DATE.—The amendments made by this subsection 
note. 
shall apply to documents prepared after December 31, 1976. 
(dd) CLARIFICATION OF DECLARATORY JUDGMENT PROVISIONS WITH 
RESPECT TO REVOCATIONS OF OR OTHER CHANGES IN THE QUAUFICA-
TIONS OF CERTAIN ORGANIZATIONS.— 
26 u s e 7476. 
(1) QuAUFICATION OF CERTAIN RETIREMENT PLANS.—SubsOCtion 
(a) of section 7476 (relating to declaratory judgments relating to 
qualification of certain retirement plans) is amended by adding 
"" 
at the end thereof the following new sentence: "For purposes 
of this section, a determination with respect to a continuing 
qualification includes any revocation of or other change in a 
qualification." 
26 u s e 7428. 
(2) CLASSIFICATION OF ORGANIZATIONS UNDER SECTION 501(c)(3), 
ETC.—Subsection (a) of section 7428 (relating to declaratory 
judgments relating to status and classification of organizations 
26 use 501. 
under section 501(c)(3), etc.) is amended by adding at the end 
thereof the following new sentence: "For purposes of this section, 
a determination with respect to a continuing qualification or 
continuing classification includes any revocation of or other 
change in a qualification or classification." 
26 use 7476 
(3) EFFECTIVE DATE.—The amendments made by paragraphs (1) 
note. 
and (2) shall take effect as if included in section 7476 or 7428 of 
26 use 7476, 
the Internal Revenue Code of 1954 (as the case may be) at the 
7428. 
respective times such sections were added to such Code. 
(ee) CONTRIBUTIONS OF CERTAIN GOVERNMENT PUBUCATIONS.— 
26 use 1231. 
(1) IN GENERAL.—Paragraph (1) of section 1231(b) (relating to 
definition of property used in trade or business) is amended— 
(A) by striking out "or" at the end of subparagraph (B), 
(B) by striking out the period at the end of subparagraph 
(C) and inserting in lieu thereof a comma and "or", and 
(C) by adding at the end thereof the following new 
subparagraph: 
"(D) a publication of the United States Government (in-
cluding the Congressional Record) which is received from the 
United States Government, or any agency thereof, other 
than by purchase at the price at which it is offered for sale to 
the public, and which is held by a taxpayer described in 
26 use 1221. 
paragraph (6) of section 1221.". 
26 use 1231 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
note. 
shall apply with respect to sales, exchanges, and contributions 
made after October 4,1976. 
(ff) EXEMPTION FOR LIGHT-DUTY TRUCK PARTS.— 
26 use 4063. 
(1) IN GENERAL.—Section 4063 (relating to exemption of motor 
vehicles and parts) is amended by adding at the end thereof the 
following new subsection: 
"(e) PARTS FOR LIGHT-DUTY TRUCKS.—The tax imposed by section 
4061(b) shall not apply to the sale by the manufacturer, producer, or 
importer of any article which is to be resold by the purchaser on or in 
connection with the first retail sale of a light-duty truck, as described 
26 use 4061. 
in section 4061(a)(2), or which is to be resold by the purchaser to a 
second purchaser for resale by such second purchaser on or in 
connection with the first retail sale of a light-duty truck." 
(2) CONFORMING AMENDMENTS.— 
26 use 4221. 
(A) Section 4221(c) (relating to manufacturer relieved from 
26 use 4063. 
liability in certain cases) is amended by inserting "4063(e)," 
after "4063(b),". 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2925 
B i 
(B) Section 4222(d) (relating to registration in the case of 26 USC 4222. 
tax-free sales) is amended by inserting "4063(e)," after 
26 USC 4063. 
"4063(b),". 
(3) EFFECTIVE DATE.—The amendments made by this subsection 
26 USC 4063 
shall take effect on the first day of the first calendar month 
note. 
beginning more than 20 days after the date of the enactment of 
this Act. 
SEC. 702. TECHNICAL, CLERICAL, AND CONFORMING AMENDMENTS TO 
ESTATE AND GIFT TAX PROVISIONS. 
(a) AMENDMENTS RELATING TO TREATMENT OF SECTION 306 STOCK.— 
(1) APPUCATION OF "FRESH START" TO SECTION 306 STOCK.— 
Subsection (a) of section 306 (relating to disposition of certain 
26 USC 306. 
stock) is amended by adding at the end thereof the following new 
paragraph: 
"(3) ORDINARY INCOME FROM SALE OR REDEMPTION OF SECTION 
306 STOCK WHICH IS CARRYOVER BASIS PROPERTY ADJUSTED FOR 1976 
VALUE.— 
"(A) I N GENERAL.—If any section 306 stock was distributed 
before January 1,1977, and if the adjusted basis of such stock 
in the hands of the person disposing of it is determined under 
section 1023 (relating to carryover basis), then the amount 
26 USC 1023. 
treated as ordinary income under paragraph (1)(A) of this 
subsection (or the amount treated as a dividend under 
section 301(c)(1)) shall not exceed the excess of the amount 
26 USC 301. 
realized over the sum of— 
"(i) the adjusted basis of such stock on December 31, 
1976, and 
"(ii) any increase in basis under section 1023(h). 
26 USC 1023. 
"(B) REDEMPTION MUST BE DESCRIBED IN SECTION 302(b).— 
Subparagraph (A) shall apply to a redemption only if such 
redemption is described in paragraph (1), (2), or (4) of section 
302(b).^' 
26 USC 302. 
(2) CLARIFICATION THAT SECTION 303 OVERRIDES SECTION 306.— 
Subsection (b) of section 306 (relating to exceptions) is amended 
by adding at the end thereof the following new paragraph: 
"(5) SECTION 303 REDEMPTIONS.—To the extent that section 303 
applies to a distribution in redemption of section 306 stock.". 
(3) EFFECTIVE DATE.—The amendments made by this subsection 
26 USC 306 
shall apply to the estates of decedents dying after December 31, 
note. 
1979. 
(b) COORDINATION OF DEDUCTION FOR ESTATE TAXES ATTRIBUTABLE 
TO INCOME IN RESPECT OF A DECEDENT WITH THE CAPITAL GAIN 
DEDUCTION, ETC.— 
(1) I N GENERAL.—Subsection (c) of section 691 (relating to 26 USC 691. 
deduction for estate taxes in the case of income in respect of 
decedents) is amended by adding at the end thereof the following 
new paragraph: 
"(4) COORDINATION WITH CAPITAL GAIN DEDUCTION, ETC.—For 
purposes of sections 1201, 1202, and 1211, and for purposes of 26 USC 1201, 
section 57(a)(9), the amount of any gain taken into account with 
1202, 1211. 
respect to any item described in subsection (a)(1) shall be reduced 
26 USC 57. 
(but not below zero) by the amount of the deduction allowable 
under paragraph (1) of this subsection with respect to such item." 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
26 USC 691 
shall apply with respect to decedents dying after the date of the 
note. 
enactment of this Act. 
(c) AMENDMENTS RELATING TO CARRYOVER BASIS.— 
92 STAT. 2926 
PUBLIC LAW 95-600—NOV. 6, 1978 
(1) AMENDMENTS RELATING TO THE POSTPONEMENT OF THE EFFEC-
TIVE DATE OF CARRYOVER BASIS PROVISIONS.— 
(A) 
FAIR 
MARKET 
VALUE 
WHERE 
FARM 
VALUATION 
26 use 1014. 
ELECTED.—Subsection (a) of section 1014 (relating to basis of 
property acquired from a decedent) is amended to read as 
follows: 
"(a) IN GENERAL.—Except as otherwise provided in this section, the 
basis of property in the hands of a person acquiring the property from 
a decedent or to whom the property passed from a decedent shall, if 
not sold, exchanged, or otherwise disposed of before the decedent's 
death by such person, be— 
"(1) the fair market value of the property at the date of the 
decedent's death, or 
"(2) in the case of an election under either section 2032 or 
26 use 5712, 
section 811(j) of the Internal Revenue Code of 1939 where the 
2032. 
decedent died after October 21, 1942, its value at the applicable 
valuation date prescribed by those sections, or 
26 use 2032. 
"(3) in the case of an election under section 2032.1, its value 
determined under such section." 
(B) GENERATION-SKIPPING TRANSFERS.—The second 
sen-
26 use 2614. 
tence of section 2614(a) (relating to basis adjustments in 
connection with generation-skipping transfers) is amended 
to read as follows: *Tf property is transferred in a generation-
„j 
skipping transfer subject to tax under this chapter which 
occurs at the same time as, or after, the death of the deemed 
transferor, the basis of such property shall be adjusted— 
"(1) in the case of such a transfer occurring after June 11,1976, 
and before January 1, 1980, in a manner similar to the manner 
26 use 1014. 
provided under section 1014(a), and 
"(2) in the case of such a transfer occurring after December 31, 
26 use 1023. 
1979, in a manner similar to the manner provided by section 1023 
without regard to subsection (d) thereof (relating to basis of 
property passing from a decedent dying after December 31, 
1979)." 
(2) 
MINIMUM 
CARRYOVER BASIS FOR TANGIBLE PERSONAL 
PROPERTY.— 
26 use 1023. 
(A) IN GENERAL.—Subsection (h) of section 1023 (relating to 
adjustment to basis for December 31, 1976, fair market 
value) is amended by adding at the end thereof the following 
new paragraph: 
"(3) MINIMUM BASIS FOR TANGIBLE PERSONAL PROPERTY.— 
"(A) IN GENERAL.—If the holding period for any carryover 
basis property which is tangible personal property includes 
5 
December 31, 1976, then, for purposes of determining gain 
and applying this section, the adjusted basis of such property 
. 
immediately before the death of the decedent shall be 
treated as being not less than the amount determined under 
subparagraph (B). 
"(B) AMOUNT.—The amount determined under this sub-
paragraph for any property is— 
"(i) the VEdue of such property (as determined with 
respect to the estate of the decedent without regard to 
26 use 2032. 
section 2032), divided by 
"(ii) 1.0066 to the nth power where n equals the 
number of full calendar months which have elapsed 
between December 31, 1976, and the date of the dece-
dent's death." 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2927 
(B) CONFORMING AMENDMENT.—Paragraph (3) of section 
1023(g) (relating to decedent's basis unknown) is amended by 26 USC 1023. 
striking out "to the person acquiring such property from the 
decedent" and inserting in lieu thereof "and cannot be 
reasonably ascertained". 
(3) TREATMENT OF INDEBTEDNESS.— 
(A) IN GENERAL.—Paragraph (1) of section 1023(g) (defining 
fair market value) is amended by inserting "(without regard 
to whether there is a mortgage on, or indebtedness in respect 
of, the property)" after "chapter 11". 
26 USC 2001 et 
(B) TECHNICAL AMENDMENT.—Subsection (g) of section •
^
e
?
-
1023 (relating to other special rules and definitions) is 
amended by striking out paragraph (4). 
(4) ONLY ONE FRESH START WITH RESPECT TO CARRYOVER BASIS 
PROPERTY HELD ON D
E
C
E
M
B
E
R 31, 1976.—Subsection (h) of section 
1023 (relating to adjustment to basis for December 31, 1976, fair 26 USC 1023. 
market value) is amended by adding at the end thereof the 
following new paragraph: 
"(4) ONLY ONE FRESH START.—There shall be no increase in 
basis under this subsection by reason of the death of any 
decedent if the adjusted basis of the property in the hands of such 
decedent reflects the adjusted beisis of property which w£is 
carryover basis property with respect to a prior decedent." 
(5) AUTOMATIC LONG-TERM STATUS FOR GAINS AND LOSSES ON 
C
A
R
R
Y
O
V
E
R BASIS PROPERTY.—Subparagraph (A) of section 
1223(11) is amended by inserting "or 1023" after "section 1014". 26 USC 1223, 
(6) CLARIFICATION THAT ADJUSTED BASIS IS INCREASED FOR STATE 1023,1014. 
ESTATE TAXES.— 
(A) Subsection (c) of section 1023 (relating to increase in 26 USC 1023. 
basis for Federal and State estate taxes attributable to 
^ 
appreciation) is amended to read as follows: 
"(c) INCREASE IN BASIS FOR FEDERAL AND STATE ESTATE TAXES 
ATTRIBUTABLE T
O APPRECIATION.— 
"(1) FEDERAL ESTATE TAXES.—The basis of appreciated carry-
over basis property (determined after any adjustment under 
subsection (h)) which is subject to the tax imposed by section 2001 26 USC 2001. 
or 2101 in the hands of the person acquiring it from the decedent 26 USC 2101. 
shall be increased by an amount which bears the same ratio to 
the Federal estate taxes as— 
"(A) the net appreciation in value of such property, bears 
to 
"(B) the fair market value of all property which is subject 
to the tax imposed by section 2001 or 2101. 
26 USC 2001, 
"(2) STATE ESTATE TAXES.—The basis of appreciated carryover 2101. 
basis property (determined after any adjustment under subsec-
tion (h)) which is subject to State estate taxes in the hands of the 
person acquiring it from the decedent shall be increased by an 
amount which bears the same ratio to the State estate taxes as— 
"(A) the net appreciation in value of such property, bears 
to 
"(B) the fair market value of all property which is subject 
to the State estate taxes." 
(B) The second sentence of paragraph (2) of section 1023(f) 26 USC 1023. 
(defining net appreciation) is amended by striking out "For 
purposes of subsection (d)," and inserting in lieu thereof "For 
purposes of paragraph (2) of subsection (c), such adjusted 
basis shall be increased by the amount of any adjustment 
92 STAT. 2928 
PUBLIC LAW 95-600—NOV. 6, 1978 
under paragraph (1) of subsection (c), for purposes of subsec-
tion (d),". 
26 use 1023. 
(C) Paragraph (3) of section 1023(f) (defining Federal and 
State estate taxes) is amended to read as follows: 
"(3) FEDERAL AND STATE ESTATE TAXES.—For purposes of subsec-
tion (c)— 
"(A) FEDERAL ESTATE TAXES.—The term 'Federal estate 
26 use 2001, 
taxes' means the tax imposed by section 2001 or 2101, 
2101- 
reduced by the credits against such tax. 
"(B) STATE ESTATE TAXES.—The term 'State estate taxes' 
means any estate, inheritance, legacy, or succession taxes, 
for which the estate is liable, actually paid by the estate to 
any State or the District of Columbia.'' 
(7) CLARIFICATION OP INCREASE IN BASIS FOR CERTAIN STATE 
26 use 1023. 
SUCCESSION TAXES.—Paragraph (2) of section 1023(e) (relating to 
further increase in basis for certain State succession tax paid by 
transferee of property) is amended by striking out "for which the 
estate is not liable". 
(8) CLARIFICATION OF APPLICATION OF FRESH START.—Para-
graphs (1) and (2)(A) of section 1023(h) (relating to adjustment to 
basis for December 31,1976, fair market value) are each amended 
by striking out "for purposes of determining gain" and inserting 
in lieu thereof "for purposes of determining gain and applying 
this section". 
(9) TECHNICAL AMENDMENT WITH RESPECT TO CERTAIN TERM 
26 use 1001. 
INTERESTS.—Paragraph (1) of section 1001(e) (relating to certain 
26 use 1014, 
term interests) is amended by striking out "section 1014 or 1015" 
1015 
and inserting in lieu thereof "section 1014, 1015, or 1023". 
1015 1023 
^^^^ EFFECTIVE DATE.—The amendments made by this subsec-
26 use 1014 
^^^^ shall take effect as if included in the amendments and 
jjQ^g 
additions made by, and the appropriate provisions of the Tax 
26 use 1 note. 
Reform Act of 1976. 
(d) AMENDMENTS RELATING TO VALUATION OF CERTAIN FARM, ETC., 
REAL PROPERTY.— 
(1) CLARIFICATION THAT SPECIAL VALUATION APPLIES ONLY TO 
INTERESTS PASSING TO QUALIFIED HEIRS.—Paragraph (1) of section 
26 use 2032A. 
2032A(b) (defining qualified real property) is amended by striking 
out "real property located in the United States" and inserting in 
lieu thereof "real property located in the United States which 
was acquired from or passed from the decedent to a qualified heir 
of the decedent and". 
(2) 
PROPERTY 
RECEIVED IN SATISFACTION OF PECUNIARY 
BEQUEST.—Subsection (e) of section 2032A (relating to definitions 
and special rules for farm valuation property) is amended by 
adding at the end thereof the following new paragraph: 
"(9) PROPERTY ACQUIRED FROM DECEDENT.—Property shall be 
considered to have been acquired from or to have passed from the 
decedent i
f
— 
26 use 1014. 
"(A) such property is so considered under section 10140t>) 
(relating to basis of property acquired from a decedent), 
"(B) such property is acquired by any person from the 
estate in satisfaction of the right of such person to a 
pecuniary bequest, or 
"(C) such property is acquired by any person from a trust 
in satisfaction of a right (which such person has by reason of 
the death of the decedent) to receive from the trust a specific 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2929 
dollar amount which is the equivalent of a pecuniary 
bequest." 
(3) USE OF FARM VALUATION PROPERTY TO SATISFY PECUNIARY 
BEQUEST.—Subsection (a) of. section 1040 (relating to use of 26 USC 1040. 
certain appreciated carryover basis property to satisfy pecuniary 
bequest) is amended by inserting ^'(determined without regard to 
section 2032A)" after "chapter 11". 
26 USC 2032A, 
(4) TREATMENT OF CERTAIN COMMUNITY PROPERTY.—Subsection ^^^^ ^^ *
^
9
-
(e) of section 2032A is amended by adding at the end thereof the 26 USC 2032A. 
following new paragraph: 
"(10) COMMUNITY PROPERTY.—If the decedent and his surviving 
spouse at any time held qualified real property as community 
property, the interest of the surviving spouse in such property 
shall be taken into account under this section to the extent 
necessary to provide a result under this section with respect to 
such property which is consistent with the result which would 
have obtained under this section if such property had not been 
community property." 
(5) SUBSTITUTION OF BOND FOR PERSONAL LIABIUTY OF QUAUFIED 
HEIR FOR THE RECAPTURE TAX WITH RESPECT TO FARM VALUATION 
PROPERTY.— 
(A) IN GENERAL.—Paragraph (6) of section 2032A(c) is 
^ 
amended to read as follows: 
"(6) LIABILITY FOR TAX; FURNISHING OF BOND.—The qualified 
heir shall be personally liable for the additional tax imposed by 
this subsection with respect to his interest unless the heir has 
furnished bond which meets the requirements of subsection 
(e)(ll)." 
(B) BOND REQUIREMENTS.—Subsection (e) of section 2032A 
is amended by adding at the end thereof the following new 
paragraph: 
"(11) BOND IN LIEU OF PERSONAL LIABIUTY.—If the qualified 
heir makes written application to the Secretary for determina-
tion of the maximum amount of the additional tax which may be 
imposed by subsection (c) with respect to the qualified heir's 
interest, the Secretary (as soon as possible, and in any event 
within 1 year after the making of such application) shall notify 
the heir of such maximum amount. The qualified heir, on 
furnishing a bond in such amount and for such period as may be 
required, shall be discharged from personal liability for any 
additional tax imposed by subsection (c) and shall be entitled to a 
receipt or writing showing such discharge." 
(6) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 2032A 
shall apply to the estates of decedents dying after December 31, note. 
1976. 
(e) AMOUNT OF SECURITY REQUIRED FOR EXTENDED PAYMENT PROVI-
SIONS F
O
R CLOSELY HELD BUSINESSES.— 
(1) IN GENERAL.— 
(A) Paragraph (2) of section 6324A(e) (defining aggregate 
interest amount) is amended to read as follows: 
"(2) REQUIRED INTEREST AMOUNT.—The term 'required interest 26 USC 6324J\^. 
amount' means the aggregate amount of interest which will be 
payable over the first 4 years of the deferral period with respect 
to the deferred amount (determined as of the date prescribed by 26 USC 6151. 
section 6151(a) for the payment of the tax imposed by chapter 26 USC 2001 et 
11)." 
seq. 
92 STAT. 2930 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 use 6324A. 
(B) Subparagraph (B) of section 6324A(b)(2) (relating to 
maximum value of required property) is amended by strik-
ing out "aggregate interest amount and inserting in lieu 
thereof "required interest amount". 
(C) Paragraph (5) of section 6324A(d) (relating to special 
rules) is amended by striking out "aggregate interest 
amount" and inserting in lieu thereof 'required interest 
amount". 
(D) Paragraph (4) of section 6324A(e) (relating to applica-
tion of definitions in case of deficiencies) is amended by 
striking out "aggregate interest amount" and inserting in 
lieu thereof "required interei^t amount". 
26 use 6324A 
(2) EFFECTIVE DATE.—The amendments made by this section 
note. 
shall apply to the estates of decedents dying after December 31, 
1976. 
if) CLARIFICATION OF THE $3,000 ANNUAL EXCLUSION FROM THE 
RULE INCLUDING IN GROSS ESTATE TRANSFERS WITHIN 3 YEARS OF 
DEATH.— 
(1) AMENDMENT OF SECTION 2035(b).—Subsection (b) of section 
26 use 2035. 
2035 (relating to adjustments for gifts made within 3 years of 
decedent's death) is amended to read as follows: 
"(b) EXCEPTIONS.—Subsection (a) shall not apply— 
"(1) to any bona fide sale for an adequate and full consideration 
in money or money's worth, and 
"(2) to any gift to a donee made during a calendar year if the 
26 use 6019. 
decedent was not required by section 6019 to file any gift tax 
return for such year with respect to gifts to such donee. 
Paragraph (2) shall not apply to any transfer with respect to a life 
insurance policy." 
26 use 2035 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
note. 
shall apply to the estates of decedents dying after December 31, 
1976, except that it shall not apply to transfers made before 
January 1,1977. 
(g) AMENDMENTS RELATING TO ESTATE TAX MARITAL DEDUCTION.— 
(1) DEDUCTION NOT REDUCED FOR GIFT TO SPOUSE WHICH IS 
INCLUDED IN DONOR'S ESTATE BY REASON OF SECTION 2035.— 
26 use 2056. 
Subparagraph (B) of section 2056(c)(1) (relating to adjustment to 
estate tax marital deduction for certain gifts to spouse) is 
amended by adding at the end thereof the following new 
sentence: 
"For purposes of this subparagraph, a gift which is includible 
26 use 2035. 
in the gross estate of the donor by reason of section 2035 shall not 
be taken into account." 
(2) REDUCTION FOR GIFT TAX MARITAL DEDUCTION IN EXCESS OF 50 
PERCENT OF THE VALUE OF GIFTS TO A SPOUSE.—ClaUSe (ii) of 
26*USe 2056. 
section 2056(c)(1)(B) (relating to adjustment to estate tax marital 
deduction for certain gifts to spouse) is amended by inserting 
"required to be included in a gift tax return" after "with respect 
to any gift". 
26 use 2056 
(3) EFFECTIVE DATE.—The amendment made by this subsection 
note. 
shall apply to the estates of decedents dying after December 31, 
1976. 
26 use 2513, 
(h) COORDINATION OF SECTIONS 2513 AND 2035.— 
2035. 
(1) IN GENERAL.—Section 2001 (relating to imposition and rate 
26 use 2001. 
Q
f estate tax) is amended by adding at the end thereof the 
following new subsection: 
> ; = 
i 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2931 
"(e) COORDINATION OF SECTIONS 2513 AND 2035.—If— 
26 U
S
C 2513, 
"(1) the decedent's spouse was the donor of any gift one-half of 2035. 
which was considered under section 2513 £is made by the dece- 26 USC 2513. 
dent, and 
"(2) the amount of such gift is includible in the gross estate of 
the decedent's spouse by reason of section 2035, 
26 USC 2035. 
such gift shall not be included in the adjusted taxable gifts of the 
decedent for purposes of subsection (b)(1)(B), and the aggregate 
amount determined under subsection (b)(2) shall be reduced by the 
amount (if any) determined under subsection (d) which was treated as 
a tax payable by the decedent's spouse with respect to such gift." 
(2) CONFORMING AMENDMENT.—Subparagraph (C) of section 
2602(a)(1) (relating to amount of tax on generation-skipping 26 USC 2602. 
transfers) is amended by striking out "section 2001(b))" and 
inserting in lieu thereof "section 2001(b), as modified by section 26 USC 2001. 
2001(e))". 
(3) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 2001 
shall apply with respect to the estates of decedents dying after note. 
December 31,1976, except that such amendments shgdl not apply 
to transfers made before January 1,1977. 
(i) INCLUSION IN GROSS ESTATE OF STOCK TRANSFERRED BY THE 
DECEDENT WHERE THE DECEDENT RETAINS OR ACQUIRES VOTING 
RIGHTS.— 
(1) IN GENERAL.—Section 2036 (relating to transfers with 26 USC 2036. 
retained life estate) is amended by redesignating subsection (b) as 
subsection (c) and by inserting after subsection (a) the following 
new subsection: 
"Ob) VOTING RIGHTS.— 
"(1) IN GENERAL.—For purposes of subsection (a)(1), the reten-
tion of the right to vote (directly or indirectly) shares of stock of a 
controlled corporation shall be considered to be a retention of the 
enjoyment of transferred property. 
' '(2) CONTROLLED CORPORATION.—For purposes of paragraph (1), 
a corporation shall be treated as a controlled corporation if, at 
any time after the transfer of the property and during the 3-year 
period ending on the date of the decedent's death, the decedent 
owned (with the application of section 318), or had the right 26 USC 318. 
(either alone or in conjunction with any person) to vote, stock 
possessing at least 20 percent of the total combined voting power 
of all classes of stock. 
"(3) COORDINATION WITH SECTION 2035.—For purposes of apply-
ing section 2035 with respect to paragraph (1), the relinquish- 26 USC 2035. 
ment or cessation of voting rights shall be treated as a transfer of 
property made by the decedent." 
(2) CONFORMING AMENDMENT.—Subsection (a) of section 2036 is 26 USC 2036. 
amended by striking out the last sentence thereof. 
(3) EFFECTIVE DATE.—The amendments made by this subsection 
26 USC 2036 
shall apply to transfers made after June 22,1976. 
note. 
(j) AMENDMENTS RELATING TO INDIVIDUAL RETIREMENT ACCOUNTS, 
ETC., F
O
R SPOUSE.— 
(1) APPLICATION OF ESTATE TAX EXCLUSION TO INDIVIDUAL 
RETIREMENT ACCOUNTS, ETC., F
O
R SPOUSE.—Subsection (e) of Sec-
tion 2039 (relating to exclusion of individual retirement ac- 26 USC 2039. 
counts, etc.) is amended by striking out "section 219" each place 26 USC 219. 
it appears and inserting in lieu thereof "section 219 or 220". 26 USC 219, 
(2) TRANSFERS TO INDIVIDUAL RETIREMENT ACCOUNTS, ETC., FOR 220. 
SPOUSE TREATED AS TRANSFERS OF PRESENT INTERESTS.—SeCtion 
92 STAT. 2932 
PUBLIC LAW 95-600—NOV. 6, 1978 
26 use 2503. 
26 use 408. 
26 use 409. 
26 use 2039 
note. 
26 use 2503 
note. 
26 use 2511 et 
seq. 
26 use 2515. 
2503 (relating to taxable gifts) is amended by adding at the end 
thereof the following new subsection: 
"(d) INDIVIDUAL RETIREMENT ACCOUNTS, ETC., FOR SPOUSE.—For 
purposes of subsection (b), any payment made by an individual for the 
benefit of his spouse— 
"(1) to an individual retirement account described in section 
408(a), 
"(2) for an individual retirement annuity described in section 
408(b), or 
"(3) for a retirement bond described in section 409, 
shall not be considered a gift of a future interest in property to the 
extent that such payment is allowable as a deduction under section 
220". 
(3) EFFECTIVE DATES.— 
(A) The amendment made by paragraph (1) shall apply to 
the estates of decedents dying after December 31, 1976. 
(B) The amendment made by paragraph (2) shall apply to 
transfers made after December 31,1976. 
(k) PROVISIONS RELATING TO TREATMENT OF JOINT INTERESTS.— 
(1) REMOVAL OF REQUIREMENT OF ACTUARIAL COMPUTATIONS FOR 
JOINT 
INTERESTS 
IN 
PERSONAL 
PROPERTY.— 
(A) IN GENERAL.—Subchapter (B) of chapter 12 (relating to 
transfers for purposes of the gift tax) is amended by inserting 
after section 2515 the following new section: 
26 use 2515A. 
"SEC. 2515A. TENANCIES BY THE ENTIRETY IN PERSONAL PROPERTY. 
"(a) CERTAIN ACTUARIAL COMPUTATIONS NOT REQUIRED.—In the 
case o
f
— 
"(1) the creation (either by one spouse alone or by both spouses) 
of a joint interest of a husband and wife in personal property 
with right of survivorship, or 
"(2) additions to the value thereof in the form of improvements, 
reductions in the indebtedness thereof, or otherwise, 
the retained interest of each spouse shall be treated as one-half of the 
value of their 
joint interest. 
"0)) EXCEPTION.—Subsection (a) shall not apply with respect to any 
joint interest in property if the fair market value of the interest or of 
the property (determined as if each spouse had a right to sever) 
cannot reasonably be ascertained except by reference to the life 
expectancy of one or both spouses." 
(B) CHANGE IN SECTION 2515 HEADING.—The heading for 
section 2515 is amended to read as follows: 
'SEC. 2515. TENANCIES BY THE ENTIRETY IN REAL PROPERTY." 
(C) CLERICAL AMENDMENTS.—The table of sections for sub-
chapter B of chapter 12 is amended by striking out the item 
relating to section 2515 and inserting in lieu thereof the 
following: 
"Sec. 2515. Teneincies by the entirety in real property. 
"Sec. 2515A. Tenancies by the entirety in personal property." 
(D) EFFECTIVE DATE.—The amendments made by this para-
graph shall apply to joint interests created after December 
31,1976. 
(2) EXTENSION OF FRACTIONAL INTEREST RULE TO CERTAIN JOINT 
INTERESTS IN REAL OR PERSONAL PROPERTY CREATED BEFORE 1977.— 
Section 2040 (relating to joint interests) as amended by this Act, 
is further amended by adding at the end thereof the following 
new subsections: 
26 
use 
2515. 
26 
use 
2511 et 
seq. 
26 
use 
2515. 
26 
use 2515A 
note. 
26 
use 
2040. 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2933 
"(d) JOINT INTERESTS OF HUSBAND AND WIFE CREATED BEFORE 
1977.—Under regulations prescribed by the Secretary— 
r 
"(1) IN GENERAL.—In the case of any joint interest created 
before January 1, 1977, which (if created after December 31, 
1976) would have constituted a qualified joint interest under 
subsection (b)(2) (determined without regard to clause (ii) of 
subsection (b)(2)(B)), the donor may make an election under 
this subsection to have paragraph (1) of subsection (b) apply with 
respect to such joint interest. 
"(2) TIME FOR MAKING ELECTION.—An election under this 
subsection with respect to any property shall be made for the 
calendar quarter in 1977,1978, or 1979 selected by the donor in a 
gift tax return filed within the time prescribed by law for filing a 
gift tax return for such quarter. Such an election may be made 
irrespective of whether or not the amount involved exceeds the 
exclusion provided by section 2503(b); but no election may be 26 USC 2503. 
made under this subsection after the death of the donor. 
"(3) TAX EFFECTS OF ELECTION.—In the case of any property 
with respect to which an election has been made under this 
-
subsection, for purposes of this title— 
"(A) the donor shall be treated as having made a gift at the 
close of the calendar quarter selected under paragraph (2), 
and 
"(B) the amount of the gift shall be determined under 
paragraph (4). 
"(4) AMOUNT OF GIFT.—For purposes of paragraph (3)(B), the 
amount of any gift is one-half of the amount— 
"(A) which bears the same ratio to the excess of (i) the 
value of the property on the date of the deemed making of 
the gift under paragraph (3)(A), over (ii) the value of such 
property on the date of the creation of the joint interest, as 
"(B) the excess of (i) the consideration furnished by the 
donor at the time of the creation of the joint interest, over (ii) 
the consideration furnished at such time by the donor's 
spouse, bears to the total consideration furnished by both 
spouses at such time. 
"(5) SPECIAL RULE FOR PARAGRAPH (4)(A).—For purposes of 
paragraph (4)(A)— 
"(A) in the case of real property, if the creation was not 
treated as a gift at the time of the creation, or 
"(B) in the case of personal property, if .the gift was 
required to be included on a gift tax return but was not so 
included, and the period of limitations on assessment under 
section 6501 has expired with respect to the tax (if any) on 26 USC 6501. 
such gift, 
then the value of the property on the date of the creation of the 
joint interest shall be treated as zero. 
"(6) SUBSTANTIAL IMPROVEMENTS.—For purposes of this subsec-
tion, a substantial improvement of any property shall be treated 
as the creation of a separate joint interest. 
"(e) TREATMENT OF CERTAIN POST-1976 TERMINATIONS.— 
"(1) IN GENERAL.—If— 
"(A) before January 1,1977, a husband and wife had a joint 
interest in property with right of survivorship, 
"(B) after December 31, 1976, such joint interest was 
terminated, and 
92 STAT. 2934 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(C) after December 31, 1976, a joint interest of such 
husband and wife in such property (or in property the basis 
of which in whole or in part reflects the basis of such 
property) was created. 
then paragraph (1) of subsection (b) shall apply to the joint 
interest described in subparagraph (C) only if an election is made 
under subsection (d). 
"(2) SPECIAL RULES.—For purposes of applying subsection (d) to 
property described in paragraph (1) of this subsection— 
"(A) if the creation described in paragraph (1)(C) occurs 
after December 31,1979, the election may be made only with 
respect to the calendar quarter in which such creation 
occurs, and 
"(B) the creation of the joint interest described in para-
graphs (4) and (5) of subsection (d) is the creation of the joint 
interest described in paragraph (1)(A) of this subsection." 
(1) AMENDMENTS RELATING TO ORPHANS' EXCLUSION.— 
(1) ORPHANS' EXCLUSION WHERE THERE IS A TRUST FOR MINOR 
26 use 2057. 
CHILDREN.—Section 2057 (relating to bequests, etc., to certain 
minor children) is amended by redesignating subsection (d) as 
subsection (e) and by inserting after subsection (c) the following 
new subsection: 
"(d) QUALIFIED MINORS' TRUST.— 
"(1) IN GENERAL.—For purposes of subsection (a), the interest of 
a minor child in a qualified minors' trust shall be treated as an 
interest in property which passes or has passed from the dece-
dent to such child. 
"(2) QUALIFIED MINORS' TRUST.—For purposes of paragraph (1), 
the term 'qualified minors' trust' means a trust— 
"(A) except as provided in subparagraph (D), all of the 
beneficiaries of which are minor children of the decedent, 
"(B) the corpus of which is property which psisses or has 
passed from the decedent to such trust, 
"(C) except £is provided in paragraph (3), all distributions 
from which to the beneficiaries of the trust before the 
termination of their interests will be pro rata, 
"(D) on the death of any beneficiary of which before the 
termination of the trust, the beneficiary's pro rata share of 
the corpus and accumulated income remains in the trust 
for the benefit of the minor children of the decedent who 
survive the beneficiary or vests in any person, and 
"(E) on the termination of which, each beneficiary will 
receive a pro rata share of the corpus and accumulated 
income. 
"(3) CERTAIN DISPROPORTIONATE DISTRIBUTIONS PERMITTED.—A 
trust shall not be treated as failing to meet the requirements of 
paragraph (2)(C) solely by reason of the fact that the governing 
instrument of the trust permits the making of disproportionate 
distributions which are limited by an ascertainable standard 
relating to the health, education, support, or maintenance of the 
beneficiaries. 
"(4) TRUSTEE MAY ACCUMULATE INCOME.—A trust which other-
wise qualifies as a qualified minors' trust shall not be disqualified 
solely by reason of the fact that the trustee has power to 
accumulate income. 
"(5) COORDINATION WITH SUBSECTION (C).—In appljdng subsec-
tion (c) to a qualified minors' trust, those provisions of section 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2935 
2056(b) which are inconsistent with paragraph (3) or (4) of this 26 USC 2056. 
subsection shall not apply. 
"(6) DEATH OF BENEFICIARY BEFORE YOUNGEST CHILD REACHES 
AGE 23.—Nothing in this subsection shall be treated as disquali-
fying an interest of a minor child in a trust solely because such 
interest will pass to another person if the child dies before the 
youngest child of the decedent attains age 23." 
(2) AGE 23 FOR TERMINABLE INTEREST RULE IN THE CASE OF 
ORPHANS' EXCLUSION.—The second sentence of subsection (c) of 
section 2057 (relating to limitation in the case of life estate or 26 USC 2057. 
other terminable interest) is amended by striking out "21" and 
inserting in lieu thereof "23". 
(3) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 2057 
shall apply to the estates of decedents dying after December 31, note. 
1976. 
(m) DISCLAIMER BY SURVIVING SPOUSE WHERE INTEREST PASSES TO 
SUCH SPOUSE.— 
(1) IN GENERAL.—Paragraph (4) of section 2518(b) (defining 26 USC 2518. 
qualified disclaimer) is amended to read as follows: 
"(4) as a result of such refusal, the interest passes without any 
direction on the part of the person making the disclaimer and 
passes either— 
"(A) to the spouse of the decedent, or 
"(B) to a person other than the person making the 
disclaimer." 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 2518 
shall apply to transfers creating an interest in the person note, 
disclaiming made after December 31,1976. 
(n) 
AMENDMENTS 
RELATING TO TAX ON 
GENERATION-SKIPPING 
TRANSFERS.— 
(1) EFFECTIVE DATE OF GENERATION-SKIPPING TRANSFER PROVI-
SIONS.—Section 2006(c) of the Tax Reform Act of 1976 (relating to 26 USC 2601 
effective date of generation-skipping transfer provisions) is note. 
^ 
amended by striking out "April 30, 1976" each place it appears 
and inserting in lieu thereof "June 11,1976". 
(2) CERTAIN POWERS OF INDEPENDENT TRUSTEES NOT TREATED AS 
POWERS.—Subsection (e) of section 2613 (relating to definitions 
26 USC 2613 
for purposes of the tax on generation-skipping transfers) is 
amended to read as follows: 
"(e) CERTAIN POWERS NOT TAKEN INTO ACCOUNT.— 
"(1) LIMITED POWER TO APPOINT AMONG LINEAL DESCENDANTS OF 
THE GRANTOR.—For purposes of this chapter, an individual shall 
be treated as not having any power in a trust if such individual 
does not have any present or future power in the trust other than 
a power to dispose of the corpus of the trust or the income 
therefrom to a beneficiary or a class of beneficiaries who are 
lineal descendants of the grantor assigned to a generation 
younger than the generation assignment of such individual. 
"(2) POWERS OF INDEPENDENT TRUSTEES.— 
"(A) I N GENERAL.—For purposes of this chapter, an indi-
vidual shall be treated as not having any power in a trust if 
such individual— 
"(i) is a trustee who has no interest in the trust, 
"(ii) is not a related or subordinate trustee, and 
"(ill) does not have any present or future power in the 
trust other than a power to dispose of the corpus of the 
92 STAT. 2936 
PUBLIC LAW 95-600—NOV. 6, 1978 
trust or the income therefrom to a beneficiary or a class 
of beneficiaries designated in the trust instrument. 
"(B) RELATED OR SUBORDINATE TRUSTEE DEFINED.—For pur-
poses of subparagraph (A), the term 'related or subordinate 
trustee' means any trustee who is assigned to a younger 
generation than the grantor's generation and who is— 
"(i) the spouse of the grantor or of any beneficiary, 
"(ii) the father, mother, lineal descendant, brother, or 
sister of the grantor or of any beneficiary, 
"(iii) an employee of a corporation in which the 
stockholdings of the grantor, the trust, and the benefi-
ciaries of the trust are significant from the viewpoint of 
voting control, 
"(iv) an employee of a corporation in which the 
grantor or any beneficiary of the trust is an executive, 
"(v) a partner of a partnership in which the interest of 
the grantor, the trust, and the beneficiaries of the trust 
are significant from the viewpoint of operating control 
or distributive share of partnership income, 
"(vi) an employee of a corporation in which the 
grantor or any beneficiary of the trust is an executive, or 
"(vii) an employee of a partnership in which the 
grantor or any beneficiary of the trust is a partner.". 
(3) CLARIFICATION OF SECTION 2613(b)(2)(B).—Subparagraph (B) 
26 use 2613. 
of section 2613(b)(2) (defining taxable termination for purposes of 
the tax on generation-skipping transfer) is amended— 
(A) by striking out "an interest and a power" and inserting 
in lieu thereof a present interest and a present power", and 
(B) by striking out "interest or power" and inserting in 
lieu thereof "present interest or present power". 
(4) ALTERNATE VALUATION IN CERTAIN CASES WHERE THERE IS 
A 
TAXABLE TERMINATION AT DEATH OF OLDER GENERATION 
BENEFICIARY 
26 use 2602. 
(A) IN GENERAL.—Subparagraph (A) of section 2602(d)(1) 
(relating to alternate valuation) is amended by inserting "(or 
at the same time as the death of a beneficiary of the trust 
assigned to a higher generation than such deemed trans-
feror)" after "such deemed transferor". 
(B) SPECIAL RULES.—Subparagraph (A) of section 2602(d)(2) 
(relating to special rules for alternate valuation) is amended 
by inserting "(or beneficiary)" after "the deemed trans-
feror". 
26 use 2613 
(5) EFFECTIVE DATE.— 
note. 
(A) Except as provided in subparagraph (B), the amend-
ments made by this subsection shall take effect as if included 
26 use 2601 et 
in chapter 13 of the Internal Revenue Code of 1954 as added 
"eq- 
by section 2006 of the Tax Reform Act of 1976. 
(B) The amendment made by paragraph (1) shall take 
effect on October 4,1976. 
(o) ADJUSTMENT IN INCOME TAX ON ACCUMULATION DISTRIBUTIONS 
FOR 
PORTION OF ESTATE AND GENERATION-SKIPPING 
TRANSFER 
TAXES.— 
26 use 667. 
(1) IN GENERAL.—Subsection (b) of section 667 (relating to tax 
on accumulation distribution) is amended by adding at the end 
thereof the following new paragraph: 
"(6) ADJUSTMENT IN PARTIAL TAX FOR ESTATE AND GENERATION-
SKIPPING TRANSFER TAXES ATTRIBUTABLE TO PARTIAL TAX.— 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2937 
"(A) IN GENERAL.—The partial tax shall be reduced by an 
amount which is equal to the pre-death portion of the partial 
tax multiplied by a fraction— 
"(i) the numerator of which is that portion of the tax 
imposed by chapter 11 or 13, as the case may be, which is 26 USC 2001 et 
attributable (on a proportionate basis) to amounts 
^^9' 2601 et seq. 
included in the acciimulation distribution, and 
"(ii) the denominator of which is the amount of the 
accumulation distribution which is subject to the tax 
imposed by chapter 11 or 13, as the case may be. 
"(B) PARTIAL TAX DETERMINED WITHOUT REGARD TO THIS 
PARAGRAPH.—For purposes of this paragraph, the term 'par-
tial tax' means the partial tax imposed by subsection (a)(2) 
determined under this subsection without regard to this 
paragraph. 
"(C) PRE-DEATH PORTION.—For purposes of this paragraph, 
the pre-death portion of the partial tax shall be an amount 
which bears the same ratio to the partial tax as the portion 
of the accumulation distribution which is attributable to the 
period before the date of the death of the decedent or the 
date of the generation-skipping transfer bears to the total 
accumulation distribution." 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply— 
(A) in the case of the tax imposed by chapter 11 of the 
Internal Revenue Code of 1954, to the estates of decedents 
dying after December 31,1979, and 
(B) in the case of the tax imposed by chapter 13, to any 
generation-skipping transfer (within the meaning of section 
2611(a) of such Code) made after June 11,1976. 
(p) RELIEF OF EXECUTOR FROM PERSONAL LIABILITY IN THE CASE OF 
RELIANCE ON GIFT TAX RETURNS.— 
(1) IN GENERAL.—Section 2204 (relating to discharge of fidu-
ciary from personal liability) is amended by adding at the end 
thereof the following new subsection: 
"(d) GOOD FAITH RELIANCE ON GIFT TAX RETURNS.—If the executor 
in good faith relies on gift tax returns furnished under section 
6103(e)(3) for determining the decedent's adjusted taxable gifts, the 26 USC 6103. 
executor shall be discharged from personal liability with respect to 
any deficiency of the tax imposed by this chapter which is attributa-
ble to adjusted taxable gifts which— 
"(1) are made more than 3 years before the date of the 
decedent's death, and 
"(2) are not shown on such returns.". 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 26 USC 2204 
shall apply with respect to the estates of decedents dying after 
"ot^. 
December 31,1976. 
(q) INDEXING OF FEDERAL TAX LIENS.— 
(1) IN GENERAL.—Paragraph (4) of section 6323(f) (relating to 26 USC 6323. 
indexing of tax liens) is amended to read as follows: 
"(4) INDEXING REQUIRED WITH 
RESPECT TO CERTAIN REAL 
PROPERTY.—In the case of real property, if— 
"(A) under the laws of the State in which the real property 
is located, a deed is not valid as against a purchaser of the 
property who (at the time of purchase) does not have actual 
notice or knowledge of the existence of such deed unless the 
fact of filing of such deed has been entered and recorded in a 
26 USC 667 
note. 
26 USC 2001 ef. 
seq. 
26 USC 2601 et 
seq. 
26 USC 2204. 
-pt. 3 
20 : QL3 
92 STAT. 2938 
PUBLIC LAW 95-600—NOV. 6, 1978 
public index at the place of filing in such a manner that a 
reasonable inspection of the index will reveal the existence 
ofthe deed, and 
"(B) there is maintained (at the applicable office under 
paragraph (1)) an adequate system for the public indexing of 
Federal tax liens, 
then the notice of lien referred to in subsection (a) shall not be 
treated as meeting the filing requirements under paragraph (1) 
unless the fact of filing is entered and recorded in the index 
referred to in subparagraph (B) in such a manner that a reason-
able inspection ofthe index will reveal the existence ofthe lien." 
26 use 6323. 
(2) REFILING OF NOTICE OF UEN.—Section 6323(gX2)(A) (relating 
to refiling of notice of lien) is amended to read as follows: 
"(A)if— 
"(i) such notice of lien is refiled in the office in which 
the prior notice Of lien was filed, and 
"(ii) in the case of real property, the fact of refiling is 
entered and recorded in an index to the extent required 
by subsection (f)(4); and", 
26 u s e 6323 
(3) EFFECTIVE DATE.— 
"ote. 
(A) The amendments made by this subsection shall apply 
with respect to liens, other security interests, and other 
interests in real property acquired after the date of the 
enactment of this Act. 
(B) If, after the date of the enactment of this Act, there is a 
change in the application (or nonapplication) of section 
26 use 6323. 
6323(f)(4) of the Internal Revenue Code of 1954 (as amended 
by paragraph (1)) with respect to any filing jurisdiction, such 
change shall apply only with respect to liens, other security 
interests, and other interests in real property acquired after 
the date of such change, 
(r) CLERICAL AMENDMENTS.— 
(1) CLERICAL AMENDMENTS WITH RESPECT TO SECTION 6694.— 
26 use 6694. 
(A) IN GENERAL.—Section 6694 (relating to failure to file 
information with respect to carryover basis property) which 
was added by section 2005(d)(2) ofthe Tax Reform Act of 1976 
26 use 6698. 
is redesignated as section 6698. 
(B) DEFICIENCY PROCEDURES NOT TO APPLY.—Section 6698 
(as redesignated by subparagraph (A)) is amended by adding 
at the end thereof the following new subsection: 
"(c) DEFICIENCY PROCEDURES NOT TO APPLY.—Subchapter B of 
26 use 6211 e
f 
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 subsection (a)." 
(C) TABLE OF SECTIONS.—The table of sections for sub-
26 use 6671 et 
chapter B of chapter 68 is amended by striking out 
*^^" 
"Sec. 6694. Failure to file information with respect to carryover basis 
property." 
and inserting in lieu thereof the following: 
"Sec. 6698. Failure to file information with respect to carryover basis 
property." 
26 use 2051. 
(2) CLERICAL AMENDMENT TO SECTION 2051.—Section 2051 (de-
fining taxable estate) is amended by striking out "exemption 
and". 
(3) CLERICAL AMENDMENT TO SECTION 1016(a).—Subsection (a) of 
26 use 1016. 
section 1016 (relating to adjustments to basis) is amended by 
redesignating paragraph (23) as paragraph (21). 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2939 
(4) CLERICAL AMENDMENT TO SECTION 6324B(b).—Subsection (b) 
26 USC 6324. 
of section 6324B (relating to period of lien for additional estate 
tax attributable to farm, etc., valuation) is amended by striking 
out "qualified farm real property" and inserting in lieu thereof 
"qualified real property". 
(5) EFFECTIVE DATE.—The amendments made by this subsection 
26 USC 6698 
shall apply to estates of decedents dying after December 31,1976. note. 
SEC. 703. CORRECTIONS OF PUNCTUATION, SPELLING, INCORRECT 
CROSS REFERENCES, ETC. 
(a) ERRONEOUS CROSS REFERENCE IN INVESTMENT CREDIT.— 
(1) AMENDMENT OF SECTION 46(f)(8).—The first sentence of 26 USC 46. 
paragraph (8) of section 46(f) is amended by striking out "subsec-
tion (a)(6)(D)" and inserting in lieu thereof "subsection (a)(7)(D)". 
(2) AMENDMENT OF SECTION 46(g)(5).—Paragraph (5) of section 
46(g) (relating to definitions) is amended by striking out "Mer- 46 USC 1245 
chant Marine Act, 1970" and inserting in lieu thereof "Merchant "ote. 
Marine Act, 1936". 
46 USC 1101 et 
(3) AMENDMENT OF SECTION 48(d)(1)(B).—Subparagraph (B) of seq. 
section 48(d)(1) is amended by striking out "section 46(a)(5)" and 
inserting in lieu thereof "section 46(a)(6)". 
(4) AMENDMENT OF SECTION 48(d)(4)(D).—Subparagraph (D) of 
26 USC 48. 
section 48(d)(4) is amended by striking out "section 57(c)(2)" and 26 USC 57. 
inserting in lieu thereof "section 57(c)(1)(B)". 
f\\) PRPPATD TJPCAT SFRVTCKS 
(1) Paragraph (2) of section 2134(e) of the Tax Reform Act of 26 USG 120 
1976 is amended by striking out "section 120(d)(6)" and inserting 
note. 
in lieu thereof "section 120(d)(7)". 
26 USC 120. 
(2) Paragraph (20) of section 501(c) is amended by striking out 26 USC 501. 
"section 
501(c)(20)" and inserting in lieu 
thereof 
"this 
paragraph". 
(c) AMENDMENTS RELATING TO SECTIONS 219 AND 220.— 
(1) AMENDMENT OF SECTION 219(C)(4).—Paragraph (4) of section 
219(c) (relating to participation in governmental plans by certain 
26 USC 219. 
individuals) is amended by striking out "subsection (b)(3)(A)(iv)" 
each place it appears and inserting in lieu thereof "subsection 
(b)(2)(A)(iv)". 
(2) AMENDMENT OF SECTION 220(b)(1)(A).—Subparagraph (A) of 
section 220(b)(1) (relating to retirement savings for certain mar- 26 USC 220. 
ried individuals) is amended by striking out "amount paid to the 
account or annuity, or for the bond" and inserting in lieu thereof 
"amount paid to the account, for the annuity, or for the bond". 
(3) AMENDMENT OF SECTION 220(b)(4).—Paragraph (4) of section 
22()(b) is amended by inserting "described in subsection (a)" after 
"any payment". 
(4) AMENDMENT OF SECTION 408(d)(4).—Subparagraph (A) of 
26 USC 408. 
section 1501(b)(5) of the Tax Reform Act of 1976 is amended to 
read as follows: 
"(A) by inserting 'or 220' after '219' each place it appears, 
and". 
(5) EFFECTIVE DATE.—The amendments made by this subsection 
26 USC 46 note. 
shall apply to taxable years beginning after December 31, 1976. 
(d) ACCRUAL ACCOUNTING FOR FARM CORPORATIONS.—Subsections 
(a) and (g)(2) of section 447 are each amended by striking out 26 USC 447. 
"preproductive expenses" and inserting in lieu thereof "preproduc-
tive period expenses". 
(e) AMENDMENT OF SECTION 911.—Subsection (c) of section 911 is 
26 USC 911. 
amended by redesignating paragraph (8) as paragraph (7). 
92 STAT. 2940 
PUBLIC LAW 95-600—NOV. 6, 1978 
(f) TRANSITION RULE FOR PRIVATE FOUNDATIONS.—Subparagraph 
26 use 4940 
(F) of section 101(1)(2) of the Tax Reform Act of 1969 (relating to 
note. 
private foundations savings provisions) is amended by striking out 
the period at the end of clause (i) and inserting in lieu thereof a 
comma. 
(g) LOBBYING BY PUBLIC CHARITIES.— 
(1) LOBBYING NONTAXABLE AMOUNT.—Paragraph (2) of section 
26 use 4911. 
4911(c) (defining lobbying nontaxable amount) is amended by 
striking out "proposed expenditures" in the heading of the table 
contained in such paragraph and inserting in lieu thereof 
' 
'exempt purpose expenditures''. 
(2) TECHNICAL AMENDMENTS RELATING TO SECTION 501.— 
26 use 501. 
(A) Section 2(a) of Public Law 94-568 is amended by 
striking out "subsection (h) as subsection (i) and by inserting 
after subsection (g)" and inserting in lieu thereof "subsection 
(i) as subsection (j) and by inserting after subsection (h)". 
26 use 501. 
(B) Subsection (g) of section 501 of the Internal Revenue 
Code of 1954 (as inserted by section 2(a) of Public Law 
94-568) is redesignated as subsection (i). 
26 use 501 
(C) The amendments made by this paragraph shall take 
note. 
effect on October 20, 1976, as if included in Public Law 
94-568. 
(h) AMENDMENTS TO FOREIGN TAX PROVISIONS.— 
26 use 907 
(1) Paragraph (2) of section 1035(c) of the Tax Reform Act of 
note. 
1976 (relating to tax credit for production-sharing contracts) is 
amended— 
26 use 907. 
(A) by inserting "(as defined in section 907(c) of such 
Code)" after "gas extraction income" in subparagraph (A), 
and 
(B) by striking out "(as defined in section 907(c)(1) of such 
Code)" in subparagraph (B) and inserting in lieu thereof "(as 
so defined)". 
26 use 999. 
(2) Paragraph (1) of section 999(c) (relating to international 
26 use 995. 
boycott factor) is amended by striking out "995(b)(3)" and insert-
ing in lieu thereof "995(b)(l)(F)(ii)". 
(3) Paragraph (2) of section 999(c) is amended by striking out 
"995(b)(l)(D)(ii)" and inserting in lieu thereof "995(b)(l)(F)(ii)". 
(i) AMENDMENTS TO DISC PROVISIONS.— 
26 use 995. 
(1) The last two sentences of section 995(b)(1) (relating to 
deemed distributions to shareholders of a DISC) are amended— 
(A) by striking out "gross income (taxable income in the 
case of subparagraph (D))" and inserting in lieu thereof 
"income"; and 
(B) by striking out "subparagraph (E)" and inserting in 
lieu thereof "subparagraph (G)". 
(2) Subparagraph (G) of section 995(b)(1) is amended by striking 
out "subsection (D)" and inserting in lieu thereof "subsection 
(d)". 
26 use 996. 
(3) Paragraph (2) of section 996(a) (relating to qualifying 
26 use 995. 
distributions) is amended by striking out "section 995(b)(1)(E)" 
26 use 995 
and inserting in lieu thereof "section 995(b)(1)(G)". 
o^*TTcr ono 
(4) Paragraph (5) of section 1101(g) of the Tax Reform Act of 
o5 T
T
c
i
^ no?' 
1976 is amended by striking out "section 993(e)(3)" and inserting 
26 use 995. 
^ jjg^ thereof "section 995(e)(3)". 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2941 
(j) AMENDMENTS RELATING TO DEADWOOD PROVISIONS.— 
(1) TAX EXEMPT GOVERNMENTAL OBUGATIONS.— 
(A) The heading of paragraph (1) of section 103(b) is 26 U
S
C 103. 
amended to read as follows: 
"(1) SUBSECTION (a) (i) OR (2) NOT TO APPLY.—". 
(B) Paragraph (1) of section 103(c) is amended by striking 
out "(a) (1) or (4)" each place it appears (including in the 
5: ^ 
paragraph heading) and inserting in lieu thereof "(a) (1) or 
(2)". 
(C) Subparagraph (A) of section 103(c)(2) is amended by 
striking out "subsection (a) (1) or (2) or (4)" and inserting in 
lieu thereof "subsection (a) (1) or (2)". 
(D) Paragraph (5) of section 103(c) is amended by striking 
out "subsection (d)(2)(A)" and inserting in lieu thereof "para-
graph (2)(A)". 
(E) Subsection (d) of section 103 is amended by striking out 
"subsection (c)(4)(G)" and inserting in lieu thereof "subsec-
tion (b)(4)(G)". 
(2) AMENDMENTS RELATING TO SECTION 311(d)(2).— 
(A) Subsection (b) of section 2 of the Bank Holding: Com- 26 U
S
C 311. 
pany Tax Act of 1976 is amended— 
(i) by striking out "subparagraph (F)" and inserting in 
lieu thereof "subparagraph (E)", and 
(ii) by striking out "subparagraph (G)" and inserting 
in lieu thereof "subparagraph (F)". 
(B) Subparagraph (H) of section 311(d)(2) is redesignated as 
subparagraph (G). 
(C) The amendments made by this paragraph shall take 
26 U
S
C 311 
effect as if included in section 206) of the Bank Holding "ote. 
Company Tax Act of 1976. 
(3) AMENDMENT TO SECTION 453(c).—Paragraph (3) of section 
453(c) is amended— 
26 USC 453. 
(A) by striking out "(or by the corresponding provisions of 
prior revenue laws)" in the first sentence, and 
(B) by striking out the last sentence. 
(4) AMENDMENT OF SECTION 801(g).—Paragraphs (l)(B)(ii) and 
(7) of section 801(g) are each amended by striking out "subpara- 26 U
S
C 801. 
graph (A), (B), (C), (D), or (E) of section 805(d)(1)" and inserting in 
26 USC 805. 
lieu thereof "any paragraph of section 805(d)". 
(5) AMENDMENT OF SECTION 1033(a)(2).—Clause (ii) of section 
103(a)(2)(A) is amended by striking out "subsection (c)" and 26 USC 1033. 
inserting in lieu thereof "subsection (b)". 
(6) AMENDMENT OF SECTION 1375(a).—Paragraph (2) of section 
1375(a) is amended by striking out "such excess" each place it 26 U
S
C 1375. 
appears and inserting in lieu thereof "such gain". 
(7) AMENDMENT OF SECTION I56l0b)(3).—Paragraph (3) of section 
15610b) is amended by striking out "804(a)(4)" and inserting in 26 USC 1561. 
lieu thereof "804(a)(3)'^. 
(8) AMENDMENTS OF SECTION 1402.— 
(A) The last paragraph of section 1402(a) of the Internal 
26 USC 1402. • 
Revenue Code of 1954 (definition of net earnings from self-
employment) is amended by striking out "subsection (i)" 
each place it appears and inserting in lieu thereof "subsec-
tion (h)". 
(B) Section 1402(c)(6) of such Code (definition of trade or 
business) is amended by striking out "subsection (h)" and 
inserting in lieu thereof "subsection (g)". 
(9) AMENDMENT TO SECTION 46(a).—Subparagraph (C) of section 
1901(b)(1) of the Tax Reform Act of 1976 is amended by striking 26 USC 46. 
92 STAT. 2942 
26 use 46. 
26 use 6504. 
26 use 37 note. 
26 use 2011 
note. 
26 use 2011 
note. 
26 use 2501 
note. 
26 use 4973 
note. 
42 use 402. 
42 use 405. 
42 use 410. 
42 use 411. 
26 use 35. 
42 use 411. 
26 use 1212. 
26 use 4041. 
26 use 6427. 
PUBLIC LAW 95-600—NOV. 6, 1978 
out "Section 46(a)(3)" and inserting in lieu thereof "Section 
46(a)(4)". 
(10) AMENDMENT RELATING TO SECTION 6504.—Subparagraph 
(D) of section 1901(b)(37) of the Tax Reform Act of 1976 is 
amended by striking out "6515" and inserting in lieu thereof 
"6504". 
(11) TERRITORIES.—Subsection (c) of section 1901 of the Tax 
Reform Act of 1976 (relating to Territories) is amended by 
striking out paragraph (1) thereof. 
(12) ESTATE AND GIFT TAXES EFFECTIVE DATE.—Subsection (c) of 
section 1902 of the Tax Reform Act of 1976 is amended to read as 
follows: 
"(c) EFFECTIVE DATES.— 
"(1) ESTATE TAX AMENDMENTS.—The amendments made by 
paragraphs (1) through (8), and paragraphs (12) (A), (B), and (C), 
of subsection (a) and by subsection (b) shall apply in the case of 
estates of decedents dying after the date of the enactment of this 
Act, and the amendment made by paragraph (9) of subsection (a) 
shall apply in the case of estates of decedents dying after 
December 31,1970. 
"(2) GIFT TAX AMENDMENTS.—The amendments made by para-
graphs (10), (11), and (12) (D) and (E) of subsection (a) shall apply 
with respect to gifts made after December 31,1976." 
(13) 
EFFECTIVE 
DATE FOR AMENDMENT 
MADE BY SECTION 
l904(a)(22)(A).—Notwithstanding section 1904(d) of the Tax 
Reform Act of 1976, the amendment 
made by section 
1904(a)(22)(A) of such Act shall take effect on the date of the 
enactment of such Act. 
(14) AMENDMENTS TO SOCIAL SECURITY ACT.— 
(A) Section 202(v) of the Social Security Act is amended by 
striking out "section 1402(h)" each place it appears and 
inserting in lieu thereof "section 1402(g)". 
(B) Section 205(p)(3) of such Act is amended by striking out 
"Secretary of the Treasury" and inserting in lieu thereof 
"Secretary of Transportation". 
(C) Section 210(a)(6)(B)(v) of such Act is amended by strik-
ing out "Secretary of the Treasury" and inserting in lieu 
thereof "Secretary of Transportation". 
(D) Section 211(a)(2) of such Act is amended by striking out 
"(other than interest described in section 35 of the Internal 
Revenue Code of 1954)". 
(E) Section 211(c)(6) of such Act is amended by striking out 
"section 1402(h)" and inserting in lieu thereof "section 
1402(g)". 
(k) CAPITAL LOSS CARRYOVERS.—Clause (ii) of section 1212(a)(1)(C) 
(relating to capital loss carryovers for foreign expropriation losses) is 
amended by striking out "exceeding the loss year" and inserting in 
lieu thereof "succeeding the loss year". 
(1) AMENDMENTS RELATING TO CERTAIN AIRCRAFT MUSEUMS.— 
(1) Paragraph (2) of section 4041(h) (defining aircraft museum) 
is amended by striking out "term 'aircraft' means" and inserting 
in lieu thereof "term 'aircraft museum' means". 
(2) Subsection (i) of section 4041 (as added by section 
1904(a)(1)(C) of the Tax Reform Act of 1976) is redesignated as 
subsection (j). 
(3) Subsection (d) of section 6427 (relating to repayment of tax 
on fuels used by certain aircraft museums) is amended by 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2943 
striking out "Secretary or his delegate" and inserting in lieu 
thereof "Secretary". 
(4) Paragraph (1) of section 7609(c) (defining summons to which 
section applies) is amended by striking out "6427(e)(2)" and 
inserting in lieu thereof "6427(f)(2)". 
(m) INSPECTION BY COMMITTEE OF CONGRESS.—Paragraph (2) of 
section 6104(a) (relating to inspection by committee of Congress) is 
amended by striking out "Section 6103(d)" and inserting in lieu 
thereof "Section 6103(f)". 
(n) AMENDMENT OF SECTION 6501.—Subsections (h), (j), and (o) of 
section 6501 are each amended by striking out "section 6213(b)(2)" 
and inserting in lieu thereof "section 6213(bX3)". 
(o) CONFORMING AMENDMENTS TO NEW DEFINITION OF TAXABLE 
INCOME.— 
(1) Subparagraph (A) of section 443(b)(2) (relating to computa-
tion based on 12-month period) is amended— 
(A) by striking out "taxable income" the second and third 
places it appears in clause (i) and inserting in lieu thereof 
"modified taxable income", and 
(B) by amending clause (ii) to read as follows: 
"(ii) the tax computed on the sum of the modified 
taxable income for the short period plus the zero bracket 
amount." 
(2) Paragraph (1) of section 443(b) is amended by striking out 
"gross income for such short period (minus the deductions 
allowed by this chapter for the short period, but only the adjusted 
amount of the deductions for personal exemptions)" and insert-
ing in lieu thereof "modified taxable income for such short 
period". 
(3) Subsection (b) of section 443 is amended by adding at the 
end thereof the following new paragraph: 
"(3) MODIFIED TAXABLE INCOME DEFINED.—For purposes of this 
subsection the term 'modified taxable income' means, with 
respect to any period, the gross income for such period minus the 
deductions allowed by this chapter for such period (but, in the 
case of a short period, only the adjusted amount of the deductions 
for personal exemptions).' 
(4) The amendments made by this subsection shall apply to 
taxable years beginning after December 31,1976. 
(p) CONFORMING AMENDMENTS TO REPEAL OF SECTION 317 OF TRADE 
EXPANSION ACT OF 1962.— 
(1) AMENDMENTS OF SECTION 172.— 
(A) Subparagraph (A) of section 172(b)(1) (relating to years 
to which loss may be carried) is amended to read as follows: 
"(A) Except as provided in subparagraphs (D), (E), (F), and 
(G), a net operating loss for any taxable year shall be a net 
operating loss carryback to each of the 3 taxable years 
preceding the taxable year of such loss." 
(B) Paragraph (3) of section 172(b) (relating to special rules) 
is amended by striking out subparagraphs (A) and (B) and by 
redesignating subparagraphs (C), (D), and (E) as subpara-
graphs (A), (B), and (C), respectively. 
(C) Subparagraph (B) of section 172(b)(3) (as redesignated 
by subparagraph (B)) is amended by striking out "subpara-
graph (C)(iii)" each place it appears and inserting in lieu 
thereof "subparagraph (A)(iii)". 
26 use 7609. 
26 use 6104. 
26 use 6103. 
26 use 6501. 
26 use 443. 
26 use 443 
note. 
26 use 172. 
26 use 172. 
92 STAT. 2944 
PUBLIC LAW 95-600—NOV. 6, 1978 
(2) AMENDMENT OF SECTION 6501(h).—Subsection (h) of section 
26 use 6501. 
6501 (relating to net operating loss or capital loss carryback) is 
amended by striking out the last sentence. 
(3) AMENDMENT OF SECTION 6511(d)(2).—The first sentence of 
26 use 6511. 
section 6511(d)(2)(A) (relating to special period of limitation for 
net operating loss or capital loss carrybacks) is amended by 
striking out "except that—" and all that follows down through 
the period at the end of such sentence and inserting in lieu 
thereof the following: "except that with respect to an overpay-
ment attributable to the creation of, or an increase in a net 
operating loss carryback as a result of the elimination of exces-
sive profits by a renegotiation (as defined in section 1481(a) 
(1)(A)), the period shall not expire before the expiration of the 
12th month following the month in which the agreement or order 
for the elimination of such excessive profits becomes final." 
(4) EFFECTIVE DATE.—The amendments made by this subsection 
shall apply with respect to losses sustained in taxable years 
ending after the date of the enactment of this Act. 
(q) CONFORMING AMENDMENT TO REPEAL OF SECTION 2 OF THE 
EMERGENCY INSURED STUDENT LOAN ACT OF 1969.— 
(1) IN GENERAL.—Paragraph (5) of section 103(d) (relating to 
arbitrage bonds) is amended by striking out "section 2 of the 
Emergency Insured Student Loan Act of 1969" and inserting in 
lieu thereof "section 438 of the Higher Education Act of 1965". 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply with respect to payments made by the Commissioner 
of Education after December 31,1976. 
(r) EFFECTIVE DATE.—Except as otherwise provided, the amend-
ments made by this section shall take effect on October 4, 1976. 
TITLE VIII—AMENDMENTS RELATING TO 
SOCIAL SECURITY ACT 
SEC. 801. GRANTS TO STATES FOR SOCIAL SERVICES. 
42 use 1397a. 
(a) AMOUNT To BE A
L
L
O
C
A
T
E
D T
O STATES.—Section 2002(a)(2)(A) of 
the Social Security Act is amended— 
(1) by striking out "$2,500,000,000" and inserting in lieu 
thereof "the amount specified in clause (ii)"; 
(2) by inserting "(i)" after "(2)(A)"; and 
(3) by adding the following clause at the end thereof: 
"(ii) The amount specified for purposes of clause (i) is $2,500,000,000 
for fiscal years prior to fiscal year 1979, $2,700,000,000 for fiscal year 
1979, and $2,500,000,000 for fiscal years after fiscal year 1979.". 
42 u s e 1397a 
(b) ADDITIONAL AMOUNT FOR CHILD D A Y C A R E SERVICES IN FiSCAL 
note. 
YEAR 1979.—Section 3 of Public Law 94-401 is amended— 
(1) in the matter preceding paragraph (1) of subsection (a)— 
(A) by striking out the word "and" which appears after 
"1977,", and 
(B) by inserting after "1978," the following: "and the fiscal 
year ending September 30,1979,", 
(2) in subsection (a)(1), by adding after and below subparagraph 
(B) the following new subparagraph: 
"(C) 107.407 per centum of the amount of the limitation so 
imposed (as determined without regard to this section) in the 
case of such fiscal year ending September 30, 1979, or", 
26 use 1481. 
26 use 172 
note. 
20 use 1001 
note. 
26 use 103. 
20 use 1001 
note. 
20 use 1087-1 
26 use 103 
note. 
26 use 46 note 
PUBLIC LAW 95-600—NOV. 6, 1978 
92 STAT. 2945 
(3) in subsection (a)(2), by striking out "or either such fiscal 
year" and inserting in lieu thereof "or any such fiscal year", 
(4) in subsection O
t
>
)
, by striking out "or either fiscal year" and 
inserting in lieu thereof "or any fiscal year", 
(5) in subsections (c)(1) and (c)(2)(A), by striking out "or either 
fiscal year" and inserting in lieu thereof "or any fiscal year 
(other than the fiscal year ending September 30,1979)", 
(6) in subsection (d)(1)— 
(A) by striking out the word "or" which appears after 
"1977,", and 
(B) by inserting after "1978" the following: ", or the fiscal 
year ending September 30,1979", and 
(7) in subsection (d)(2), by striking out "for either such fiscal 
year" and inserting in lieu thereof "for any such fiscal year". 
SEC. 802. CHANGE IN PUBLIC ASSISTANCE MATCHING FORMULA, AND 
INCREASE IN AMOUNT OF PUBLIC ASSISTANCE DOLLAR LIMI-
TATIONS, FOR PUERTO RICO, THE VIRGIN ISLANDS, AND 
GUAM IN FISCAL YEAR 1979. 
(a) PUBLIC ASSISTANCE MATCHING FORMULA.—Section 1118 of the 
42 use 1318. 
Social Security Act is amended by adding at the end thereof the 
following new sentence: "For purposes of the preceding sentence, the 
term 'Federal medical assistance percentage' shall, in the case of 
Puerto Rico, the Virgin Islands, and Guam, mean 75 per centum 
when applied to quarters in the fiscal year ending September 30, 
1979.". 
(b) DOLLAR LIMITATIONS.—Subsection (a) of section 1108 of such Act 42 U
S
C 1308. 
is amended— 
(1) in paragraph (1)— 
(A) by striking out "or" at the end of clause (D), 
(B) by striking out the semicolon at the end of clause (E) 
and inserting in lieu thereof "other than the fiscal year 1979, 
or"; and 
(C) by adding at the end thereof the following new 
subparagraph: 
"(F) $72,000,000 with respect to the fiscal year 1979;", 
(2) in paragraph (2)— 
(A) by striking out "or" at the end of clause (D), 
(B) by striking out "; and" at the end of clause (E) and 
" 
inserting in lieu thereof "other than the fiscal year 1979, or", 
and 
(C) by adding at the end thereof the following new 
subparagraph: 
92 STAT. 2946 
PUBLIC LAW 95-600—NOV. 6, 1978 
"(F) $2,400,000 with respect to the fiscal year 1979;", and 
(3) in paragraph (3)— 
(A) by striking out "or" at the end of clause (D), 
(B) by striking out the period at the end of clause (E) and 
inserting in lieu thereof "other than the fiscal year 1979, or", 
and 
(C) by adding at the end thereof the following new 
subparagraph: 
"(F) $3,300,000 with respect to the fiscal year 1979.". 
Approved November 6, 1978. 
LEGISLATIVE HISTORY: 
HOUSE REPORTS: No. 95-1445 (Comm. on Ways and Means) and 95-1800 (Coram. 
of Conference). 
SENATE REPORT No. 95-1263 (Comm. on Finance). 
CONGRESSIONAL RECORD, Vol. 124 (1978): 
Aug. 10, considered and passed House. 
Oct. 5, 6, 7, 9, 10, considered and passed Senate, amended. 
Oct. 15, Senate and House aigreed to conference report. 
o