Tax Reform Act
PL 94-455 (H.R.10612), enacted 10/04/1976

90 STAT. 1520 
PUBLIC LAW 94-455—OCT. 4, 1976 
Public Law 94-455 
94th Congress 
An Act 
Act of 1976. 
To reform the tax laws of the United States. 
Oct. 4, 1976 
[H.R. 10612] 
Be it enacted hy the Senate and House of Representatives of the 
Tax Reform 
United States of America in Congress assembled, 
SECTION 1. TABLE OF CONTENTS 
Sec. 
1. Table of contents. 
r 
TITLE I—SHORT TITLE AND AMENDMENT OF 1954 CODE 
Sec. 101. Short title. 
Sec. 102. Amendment of 1954 Code. 
TITLE II—AMENDMENTS RELATED TO TAX SHELTERS 
Sec. 201. Capitalization and amortization of real property construction period 
interest and taxes. 
Sec. 202. Recapture of depreciation on real property. 
Sec. 203. Amendment of section 167 (k). 
Sec. 204. Limitations on deductions for expenses. 
Sec. 205. Gain from disposition of interest in oil and gas property. 
Sec. 206. Amendments to farm loss recapture rules. 
Sec. 207. Limitations on deductions in case of farming syndicates; capitalization 
of certain orchard and vineyard expenses and method of accounting 
for corporations engaged in farming. 
Sec. 208. Treatment of prepared interest. 
Sec. 209. Limitation on interest deduction. 
Sec. 210. Amortization of production cost of motion pictures, books, records, 
and other similar property. 
Sec. 211. Clarification of definition of produced film rents. 
Sec. 212. Basis limitation for and recapture of depreciation on player contracts. 
Sec. 213. Certain partnership provisions. 
Sec. 214. Scope of waiver of statute of limitations in case of activities not en-
gaged in for profit. 
TITLE III—MINIMUM TAX AND MAXIMUM TAX 
Sec. 301. Minimum tax. 
Sec. 302. Maximum tax. 
TITLE IV—EXTENSIONS OF INDIVIDUAL INCOME TAX REDUCTIONS 
Sec. 401. Extensions of individual income tax reductions. 
Sec. 402. Refunds of earned income credit disregarded in the administration of 
Federal programs and federally assisted programs. 
TITLE V—TAX SIMPLIFICATION IN THE INDIVIDUAL INCOME TAX 
Sec. 501. Revision of tax tables for individuals. 
Sec. 502. Deduction for alimony allowed in determining adjusted gross income. 
Sec. 503. Revision of retirement income credit. 
Sec. 504. Credit for child care expenses. _ 
Sec. 505. Changes in exclusions for sick pay and certain military, etc., dis-
ability pensions ; certain disability income. 
Sec. 506. Moving expenses. 
Sec. 507. Tax revision study. 
, 
Sec. 508. Effective date. 
TITLE VI—BUSINESS RELATED INDIVIDUAL INCOME TAX 
PROVISIONS 
Sec. 601. Deductions for expenses attributable to business use of homes, rental of 
vacation homes, etc. 
Sec. 602. Deductions for attending foreign conventions. 
Sec. 603. Change in tax treatment of qualified stock options. 
Sec. 604. State legislators' travel expenses away from home. 
Sec. 605. Deduction for guarantees of business bad debts to guarantors not 
involved in business. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1521 
TABLE OF CONTENTS—Continued 
TITLE VII—ACCUMULATION TRUSTS 
Sec. 701. Accumulation trusts. 
TITLE VIII—CAPITAL FORMATION 
Sec. 801. Extension of $100,000 limitation on used property for 4 years. 
Sec. 802. Extension of 10 percent credit for 4' years and first-in-flrst-out treat-
ment of investment credit amounts. 
Sec. 803. Employee stock ownership plans; study of expanded stock ownership. 
Sec. 804. Investment credit in the case of movie and television films. 
Sec. 805. Investment credit in the case of certain ships. 
Sec. 806. Additional net operating loss carryover years; limitations on net 
operating loss carryovers. 
Sec. 807. Small fishing vessel construction reserves. 
TITLE IX—SMALL BUSINESS PROVISIONS 
Sec. 901. Extension of certain corporate income tax reductions. 
Sec. 902. Changes in subchapter S rules. 
TITLE X—CHANGES IN THE TREATMENT OF FOREIGN INCOME 
PART I—FOREIGN TAX PROVISIONS AFFECTING INDIVIDUALS ABROAD 
Sec. 1011. Income earned abroad by United States citizens living or residing 
abroad. 
Sec. 1012. Income tax treatment of nonresident alien individuals who are 
married to citizens or residents of the United States. 
Sec. 1013. Foreign trusts having one or more United States beneficiaries to be 
taxed currently to grantor. 
Sec. 1014. Interest charge on accumulation distributions from foreign trusts. 
Sec. 1015. Excise tax on transfers of property to foreign persons to avoid Fed-
eral income tax. 
PART II—AMENDMENTS AFFECTING TAX TREATMENT OF CONTROLLED FOREIGN 
CORPORATIONS AND THEIR SHAREHOLDERS 
Sec. 1021. Amendment of provision relating to investment in United States 
property by controlled foreign corporations. 
Sec. 1022. Repeal of exclusion for earnings of less developed country corpora-
tions for purposes of section 1248. 
Sec. 1023. Exclusion from subpart F of certain earnings of insurance companies. 
Sec. 1024. Shipping profits of foreign corporations. 
PART III—AMENDMENTS AFFECTING TREATMENT OF FOREIGN TAXES 
Sec. 1031. Requirement that foreign tax credit be determined on overall basis. 
Sec. 1032. Recapture of foreign losses. 
Sec. 1033. Dividends from less developed country corporations to be grossed up 
for purposes of determining United States income and foreign tax 
credit against that income. 
Sec. 1034. Treatment of capital gains for purposes of foreign tax credit. 
Sec. 1035. Foreign oil and gas extraction income. 
Sec. 1036. Underwriting income. 
Sec. 1037. Third tier foreign tax credit when section 951 applies. 
PART IV—MONEY OR OTHER PROPERTY MOVING OUT OF OR INTO THE UNITED STATES 
Sec. 1041. Portfolio debt investments in United States of nonresident aliens and 
foreign corporations. 
Sec. 1042. Changes in ruling requirements under section 367; certain changes 
in section 1248. 
Sec. 1043. Contiguous country branches of domestic life insurance companies. 
Sec. 1044. Transitional rule for bond, etc., losses of foreign banks. 
PART V—SPECIAL CATEGORIES OF FOREIGN TAX TREATMENT 
Sec. 1051. Tax treatment of corporations conducting trade or business in Puerto 
Rico and possessions of the United States. 
Sec. 1052. Western Hemisphere trade corporations. 
Sec. 1053. Repeal of provisions relating to China Trade Act corporations. 
\ 
90 STAT. 1522 
PUBLIC LAW 94-455—OCT. 4, 1976 
TABLE OF CONTENTS—Continued 
TITLE X—CHANGES IN THE TREATMENT OF FOREIGN INCOME— 
Continued 
PART VI—DENIAL OF CERTAIN TAX BENEFITS FOR COOPERATION W I T H OR PARTICI-
PATION IN INTERNATIONAL BOYCOTTS AND IN CONNECTION W I T H THE 
PAYMENT OF CERTAIN BRIBES 
Sec. 1061. Denial of foreign tax credit. 
Sec. 1062. Denial of deferral of international boycott amounts. 
Sec. 1063. Denial of DISC benefits. 
Sec. 1064. Determinations as to participation in or cooperation with an inter-
national boycott. 
Sec. 1065. Foreign bribes. 
Sec. 1066. Effective dates. 
Sec. 1067. Reports by Secretary. 
TITLE XI—AMENDMENTS AFFECTING DISC 
Sec. 1101. Amendments affecting DISC. 
TITLE XII—ADMINISTRATIVE PROVISIONS 
Sec. 1201. Public inspection of written determinations by Internal Revenue 
Service. 
Sec. 1202. Confidentiality and disclosure of returns and return information. 
Sec. 1203. Income tax return preparers. 
Sec. 1204. Jeopardy and termination assessments. 
Sec. 1205. Administrative summons. 
Sec. 1206. Assessments in case of mathematical or clerical errors. 
Sec. 1207. Withholding. 
Sec. 1208. State-conducted lotteries. 
Sec. 1209. Minimum exemption from levy for wages, salary, and other income. 
Sec. 1210. Joint committee refund cases. 
Sec. 1211. Social security account numbers. 
Sec. 1212. Abatement of interest on errors when return is prepared for taxpayer 
by the Internal Revenue Service. 
TITLE XIII—TAX EXEMPT ORGANIZATIONS 
Sec. 1301. Disposition of private foundation property under transition rules of 
Tax Reform Act of 1969. 
Sec. 1302. New private foundation set-asides. 
Sec. 1303. Minimum distribution amount for private foundations. 
Sec. 1304. Extension of time to amend charitable remainder trust governing 
instrument. 
Sec. 1305. Unrelated trade or business income of trade shows. State fairs, etc. 
Sec. 1306. Declaratory judgments with respect to section 501(c)(3) status and 
classification. 
Sec. 1307. Lobbying by public charities. 
Sec. 1308. Tax liens, etc., not to constitute acquisition indebtedness. 
Sec. 1309. Extension of self-dealing transition rules for private foundations. 
Sec. 1310. Imputed interest. 
Sec. 1311. Certain hospital services. 
Sec. 1312. Clinical services of cooperative hospitals. 
Sec. 1313. Exemption of certain amateur athletic organizations from tax. 
TITLE XIV—CAPITAL GAINS 
Sec. 1401. Increase in amount of ordinary income against which capital loss may 
be offset. 
Sec. 1402. Increase in holding period required for capital gain or loss to be long 
term. 
Sec. 1403. Allowance of 8-year capital loss carryover in case of regulated invest-
ment companies. 
Sec. 1404. Sale of residence by elderly. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1523 
TABLE OF CONTENTS—Continued 
TITLE XV—PENSION AND INSURANCE TAXATION 
Sec. 1501. Retirement savings for certain married individuals. 
Sec. 1502. Limitation on contributions to certain pension, etc., plans. 
Sec. 1503. Participation by members of reserves or National Guard in individual 
retirement accounts; participation by volunteer 
firefighters 
in 
individual retirement accounts, etc. 
See. 1504. Certain investments by annuity plans. 
Sec. 1505. Segregated asset accounts. 
Sec. 1506. Study of salary reduction pension plans. 
Sec. 1507. Consolidated returns for life and other insurance companies. 
Sec. 1508. Treatment of certain life insurance contracts guaranteed renevpable. 
Sec. 1509. Study of expanded participation in individual retirement accounts. 
Sec. 1510. Taxable status of pension benefits guaranty corporation. 
Sec. 1511. Level premium plans covering owner-employees. 
Sec. 1512. Lump-sum distributions from qualified pension, etc., plans. 
TITLE XVI—REAL ESTATE INVESTMENT TRUSTS 
Sec. 1601. Deficiency dividend procedure. 
Sec. 1602. Trust not disqualified in certain cases where income tests were not 
met. 
Sec. 1603. Treatment of property held for sale to customers. 
Sec. 1604. Other changes in limitations and requirements. 
Sec. 1605. Excise tax. 
Sec. 1606. Allowance of net operating loss carryover. 
Sec. 1607. Alternative tax in case of capital gains. 
Sec. 1608. Effective date for title. 
TITLE XVII—RAILROAD AND AIRLINE PROVISIONS 
Sec. 1701. Certain provisions relating to railroads. 
Sec. 1702. Amortization over 50-year period of railroad grading and tunnel bores 
placed in service before 1969. 
See. 1703. Certain provisions relating to airlines. 
TITLE XVIII—INTERNATIONAL TRADE AMENDMENTS 
Sec. 1801. United States International Trade Commission. 
Sec. 1802. Trade Act of 1974 amendments. 
TITLE XIX—REPEAL AND REVISION OF OBSOLETE, RARELY USED, 
ETC., PROVISIONS OF INTERNAL REVENUE CODE OF 1954 
SUBTITLE A—^AMENDMENTS OF INTERNAL REVENUE CODE GENEBALLT 
See. 1901. Amendments of subtitle A; income taxes. 
Sec. 1902. Amendments of subtitle B ; estate and gift taxes. 
Sec. 1903. Amendments of subtitle C ; employment taxes. 
Sec. 1904. Amendments of subtitle D; miscellaneous excise taxes. 
Sec. 1905. Amendments of subtitle E ; alcohol, tobacco, and certain other excise 
taxes. 
Sec. 1906. Amendments of subtitle F ; procedure and administration. 
Sec. 1907. Amendments of subtitle G; the Joint Committee on Internal Revenue 
Taxation. 
Sec. 1908. Effective date of certain definitions and designations. 
SUBTITLE B—AMENDMENTS OF CODE PEOVISIONS W I T H LIMITED OUEBENT 
APPLICATION: REPEALS AND SAVINGS PEOVISIONS 
Sec. 1951. Provisions of subtitle A; income taxes. 
See. 1952. Provisions of subchapter D of chapter 39; cotton futures. 
90 STAT. 1524 
PUBLIC LAW 94-455—OCT. 4, 1976 
TABLE OF CONTENTS—Continued 
TITLE XX—ESTATE AND GIFT TAXES 
Sec. 2001. Unified rate schedule for estate and gift taxes; unified credit in lieu 
of specific exemptions. 
Sec. 2002. Increase in limitations on marital deductions; fractional interests of 
spouse. 
Sec. 2003. Valuation for purposes of the Federal estate tax of certain real 
property devoted to farming or closely held businesses. 
Sec. 2004. Extension of time for payment of estate tax. 
Sec. 2005. Carryover basis. 
Sec. 2006. Certain generation-skipping transfers. 
Sec. 2007. Orphans' exclusion. 
Sec. 2008. Administrative changes. 
Sec. 2009. Miscellaneous provisions. 
Sec. 2010. Credit against certain estate taxes. 
TITLE XXI—MISCELLANEOUS PROVISIONS 
Sec. 2101. Tax treatment of certain housing associations. 
Sec. 2102. Treatment of certain disaster payments. 
Sec. 2103. Tax treatment of certain 1972 disaster losses. 
Sec. 2104. Tax treatment of certain debts ovped by political parties, etc., to 
accrual basis taxpayers. 
Sec. 2105. Tax-exempt bonds for student loans. 
Sec. 2106. Personal holding company income amendments. 
See. 2107. Work incentive program expenses. 
Sec. 2108. Repeal of excise tax on light-duty truck parts. 
Sec. 2109. Exclusion from excise tax on certain articles resold after modification. 
Sec. 2110. Franchise transfers. 
See. 2111. Employer's duties in connection vpith the recording and reporting of 
tips. 
Sec. 2112. Treatment of certain pollution control facilities. 
Sec. 2113. Clarification of status of certain fishermen's organizations. 
Sec. 2114. Application of section 6013(e) of the Internal Revenue Code of 1954. 
See. 2115. Amendments to rules relating to limitation on precentage depletion 
in case of oil and gas wells; transfers of oil and gas property 
within the same controlled group or family. 
Sec. 2116. Implementation of Federal-State Tax Collection Act of 1972. 
Sec. 2117. Cancellation of certain student loans. 
See. 2118. Treatment of gain or loss on sales or exchanges in connection with 
simultaneous liquidation of a parent and subsidiary corporation. 
Sec. 2119. Regulations relating to tax treatment of certain prepublication 
expenditures of publishers. 
Sec. 2120. Contributions in aid of construction for certain utilities. 
Sec. 2121. Prohibition of discriminatory State taxes on production and con-
sumption of electricity. 
Sec. 2122. Allowance of deduction for eliminating architectural and transporta-
tion barriers for the handicapped. 
Sec. 2123. High income taxpayer reports. 
Sec. 2124. Tax incentives to encourage the preservation of historic structures. 
Sec. 2125. Amendment to Supplemental Security Income program. 
Sec. 2126. Extension of carry-over period for Cuban expropriation losses. 
Sec. 2127. Outdoor advertising displays. 
Sec. 2128. Tax treatment of large cigars. 
See. 2129. Treatment of gain from sales or exchanges between related parties. 
See. 2130. Application of section 117 to certain education programs for members 
of the uniformed services. 
See. 2131. Exchange funds. 
Sec. 2132. Contributions of certain Government publications. 
See. 2133. Tax incentives study. 
Sec. 2184. Prepaid legal expenses. 
Sec. 2135. Special rule for certain charitable contributions of inventory and 
other property. 
Sec. 2136. Tax treatment of the grantor of options of stock, securities, and 
commodities. 
Sec. 2137. Exempt-interest dividends of regulated investment companies. 
See. 2138. Common trust fund treatment of certain custodial accounts. 
See. 2139. Support test for dependent children of divorced, etc., parents. 
See. 2140. Involuntary conversions of real property. 
Sec. 2141. Livestock sold on account of drought. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1525 
TITLE I—SHORT TITLE AND AMENDMENT 
OF 1954 CODE 
SEC. 101. SHORT TITLE. 
26 USC 1 note. 
This Act may be cited as the "Tax Reform Act of 1976". 
SEC. 102. 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 considered 
to be made to a section or other provision of the Internal Revenue 
Code of 1954. 
26 USC 1. 
TITLE II—AMENDMENTS RELATED TO 
TAX SHELTERS 
SEC. 201. CAPITALIZATION AND AMORTIZATION OF REAL PROPERTY 
CONSTRUCTION PERIOD INTEREST AND TAXES. 
(a) I N GENERAL.—Part V I of subchapter B of chapter 1 (relating 
to itemized deductions for individuals and corporations) is amended 
by adding at the end thereof the following new section: 
"SEC. 
189. AMORTIZATION 
OF REAL PROPERTY CONSTRUCTION 
26 USC 189. 
PERIOD INTEREST AND TAXES. 
"(a) 
CAPITALIZATION 
OF CONSTRUCTION 
PERIOD 
INTEREST AND 
TAXES.—Except as otherwise provided in this section or in section 
266 (relating to carrying charges), in the case of an individual, an 
electin<^ sipall business corporation (within the meaning of section 
1371 ( b ) ) , or a personal holding company (within the meaning of sec-
tion 542), no deduction shall be allowed for real property construction 
period interest and taxes. 
"(b) 
AMORTIZATION or AIVIOUNTS CHARGED TO CAPITAL ACCOUNT.— 
Any amount paid or accrued which would (but for subsection (a)) be 
allowable as a deduction for the taxable year shall be allowable for such 
taxable year and each subsequent amortization year in accordance 
with the following table: 
If the amount Is paid or accrued In a taxable year beginning in— 
The 
percentage 
of 
such 
amount allowable for each 
1977 
1S78 
1979 
1980 
1981 
after 1981 
1978 
1979 
1980 
1981 
1982 
1983 
after 1983 
1982 
1983 
1984 
1985 
1986 
1987 
after 1987 
Nonresidential real 
Residential real property 
amortization year shall be 
property 
(other than low-Income 
Low-income housing 
the 
following 
percentage 
housing) 
of such amount 
1976 
see subsection (f) 
25 
20 
14Jf 
U^ 
UH 
10 
"(c) AMORTIZATION YEAR.— 
" (1) I N GENERAL.—For purposes of this section, the term 'amor-
tization year' means the taxable year in which the amount is paid 
or accrued, and each taxable year thereafter (beginning with the 
taxable year after the taxable year in which paid or accrued or, 
if later, the taxable year in which the real property is ready to be 
placed in service or is ready to be held for sale) until the full 
amount has been allowable as a deduction (or until the property is 
sold or exchanged). 
90 STAT. 1526 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(2) RULES FOR SALES AND EXCHAKGES.—For purposes of para-
graph 
(l)— 
(A) PROPORTION OF PERCENTAGE ALLOWED.—For the amor-
tization year in which the property is sold or exchanged, a 
proportionate part of the percentage allowable for such year 
(determined without regard to the sale or exchange) shall be 
allowable. If the real property is subject to an allowance for 
depreciation, the proportion shall be determined in accord-
ance with the convention used for depreciation purposes with 
respect to such property. In the case of all other real property, 
under regulations prescribed by the Secretary, the proportion 
shall be based on that proportion of the amortization year 
which elapsed before the sale or exchange. 
" ( B ) UNAMORTIZED BALANCE.—In the case of a sale or ex-
change of the property, the portion of the amount not allow-
able shall be treated as an adjustment to basis under section 
26 use 1016. 
1016 for purposes of determining gain or loss. 
" ( C ) CERTAIN EXCHANGES.—An exchange or transfer after 
which the property received has a basis determined in whole 
or in part by reference to the basis of the property to which 
the amortizable construction period interest and taxes relate, 
shall not be treated as an exchange. 
" ( d ) CERTAIN RESIDENTIAL PROPERTY EXCLUDED.—This section shall 
not apply to any real property acquired, constructed, or carried if such 
property is not, and cannot reasonably be expected to be, held in a trade 
or Dusiness or in an activity conducted for profit. 
"(e) DEFINITIONS.—For purposes of this section— 
" (1) CONSTRUCTION PERIOD INTEREST AND TAXES.—The term 'con-
struction period interest and taxes' means all.— 
"(A) interest paid or accrued on indebtedness incurred or 
continued to acquire, construct, or carry real property, and 
" ( B ) real property taxes, 
to the extent such interest and taxes are attributable to the con-
struction period for such property and would be allowable as a 
deduction under this chapter for the taxable year in which paid 
or accrued (determined without regard to this section). 
"(2) 
CONSTRUCTION PERIOD.—The term 'construction period', 
when used with respect to any real property, means the period— 
" ( A ) beginning on the date on which construction of the 
building or other improvement begins, and 
"(B) ending on the date on which the item of property is 
ready to be placed in service or is ready to be held for sale. 
"(3) NONRESIDENTIAL REAL 
PROPERTY.—The term 
'nonresi-
dential real property' means real property which is neither resi-
dential real property nor low-income housing. 
"(4) RESIDENTIAL REAL PROPERTY.—The term 'residential real 
property' means property which is or can reasonably be expected 
to be— 
"(A) residential rental property as defined in section 167 
( j ) ( 2 ) ( B ) , o r 
" ( B ) real property described in section 1221(1) held for 
sale as dwelling units (within the meaning of section 167(k) 
( 3 ) ( C ) ) . 
"(5) 
LOW-INCOME HOUSING.—The term 'low-income housing' 
means property described in clause (i), (ii), (iii), or (iv) of 
Post, p. 1527. 
section 1250(a) (1) (B). 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1527 
"(f) TRANSITIONAL RULE FOR 1976.—In the case of amounts paid or 
accrued by the taxpayer in a taxable year beginning in 1976, the per-
centage of such amount allowable under this section for— 
"(1) the taxable year beginning in 1976 shall be 50 percent, and 
"(2) each amortization year thereafter shall be 16% percent." 
(b) CLERICAL AMENDMENT.—The table of sections for such part VI 
is amended by adding at the end thereof the following new item: 
"Sec. 189. Amortization of real property construction period interest and 
taxes." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply— 
(1) in the case of nonresidential real property, if the construc-
tion period begins after December 31,1975, 
(2) in the case of residential real property (other than low-
income housing), to taxable years beginning after December 31, 
1977, and 
(3) in the case of low-income housing, to taxable years begin-
ning after December 31,1981. 
For purposes of this subsection, the terms "nonresidential real prop-
erty", "residential real property (other than low-income housing)", 
"low-income housing", and "construction period" have the same mean-
ing as when used in section 189 of the Internal Revenue Code of 1954 
(as added by subsection (a) of this section). 
SEC. 202. RECAPTURE OF DEPRECIATION ON REAL PROPERTY. 
(a) I N GENERAL.—Subsection (a) of section 1250 (relating to gain 
from dispositions of certain depreciable realty) is amended to read 
as follows: 
"(a) GENERAL RULE.—Except as otherwise provided in this 
section— 
"(1) ADDITIONAL DEPRECIATION AFTER DECEMBER 3 1 , 1975.— 
"(A) I N GENERAL.—If section 1250 property is disposed 
of after December 31,1975, then the applicable percentage of 
the lower of— 
"(i) that portion of the additional depreciation (as 
defined in subsection (b) (1) or (4)) attributable to 
periods after December 31, 1975, in respect of the prop-
erty, or 
"(ii) the excess of the amount realized (in the case of 
a sale, exchange, or involuntary conversion), or the fair 
market value of such property (in the case of any other 
disposition), over the adjusted basis of such property, 
shall be treated as gain which is ordinary income. Such gain 
shall be recognized notwithstanding any other provision of 
this subtitle. 
"(B) APPLICABLE PERCENTAGE.—For purposes of subpara-
graph (A), the term 'applicable percentage' means— 
"(i) in the case of section 1250 property with respect 
to which a mortgage is insured under section 221(d) (3) 
or 236 of the National Housing Act, or housing financed 
or assisted by direct loan or tax abatement under similar 
provisions of State or local laws and with respect to 
which the owner is subject to the restrictions described 
in section 1039(b) (1) (B), 100 percent minus 1 percent-
age point for each full month the property was held after 
the date the property was held 100 full months'; 
26 use 189 
note. 
Definitions. 
26 use 1250. 
"Applicable 
percentage." 
26 use 1715/, 
1715Z-1. 
90 STAT. 1528 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(ii) in the case of dwelling units which, on the aver-
age, were held for occupancy by families or individuals 
eligible to receive subsidies under section 8 of the United 
42 use 1408. 
States Housing Act of 1937, as amended, or under the 
provisions of State or local law authorizing similar levels 
of subsidy for lower-income families, 100 percent minus 
1 percentage point for each full month the property was 
held after the date the property was held 100 full months; 
26 use 1250. 
" (iii) in the case of section 1250 property with respect 
to which a depreciation deduction for rehabilitation 
expenditures was allowed under section 167(k), 100 
percent minus 1 percentage point for each full month in 
excess of 100 full months after the date on which such 
property was placed in service; 
" (iv) in the case of section 1250 property with respect 
to which a loan is made or insured under title V of the 
Housing Act of 1949, 100 percent minus 1 percentage 
point for each full month the property was held after 
the date the property was held 100 full months; and 
" (v) in the case of all other section 1250 property, 100 
percent. 
In the case of a building (or a portion of a building devoted 
to dwelling units), if, on the average, 85 percent or more of 
the dwelling.units contained in such building (or portion 
thereof) are units described in clause (ii), such building (or 
portion thereof) shall be treated as property described in 
clause (ii). Clauses (i), (ii), and (iv) shall not apply with 
respect to the additional depreciation described in subsection 
(b)(4). 
" ( 2 ) 
A D D I T I O N A L DEPRECIATION AFTER DECEMBER 3 1 , 1 9 6 9 , A N D 
BEFORE J A N U A R Y 1, 1 9 7 6. 
"(A) I N GENERAL.—If section 1250 property is disposed 
of after December 31,1969, and the amount determined under 
paragraph (1) (A) (ii) exceeds the amount determined under 
paragraph (1) (A) (i), then the applicable percentage of the 
lower of— 
"(i) that portion of the additional depreciation attrib-
utable to periods after December 31, 1969, and before 
January 1,1976, in respect of the property, or 
"(ii) the excess of the amount determined under para-
graph (1) (A) (ii) over the amount determined under 
paragraph (1) (A) (i), 
shall also be treated as gain which is ordinary income. Such 
gain shall be recognized notwithstanding any other provision 
of this subtitle. 
"(B) APPLICABLE PERCENTAGE.—For purposes of subpara-
graph (A), the term 'applicable percentage' means— 
"(i) in the case of section 1250 property disposed of 
pursuant to a written contract which was, on July 24, 
•
* 
1969, and at all times thereafter, binding on the owner 
of the property, 100 percent minus 1 percentage point for 
each full month the property was held after the date the 
property was held 20 full months; 
"(ii) in the case of section 1250 property with respect 
to which a mortgage is insured under section 221(d) (3) 
12 use 1715Z, 
or 236 of the National Housing Act, or housing financed 
1715Z-1. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1529 
or assisted by direct loan or tax abatement under similar 
provisions of State or local laws, and with respect to 
which the owner is subject to the restrictions described 
in section 1039(b) (1) ( B ) , 100 percent minus 1 percent-
age point for each full month the property was held after 
the date the property was held 20 full months; 
"(iii) in the case of residential rental property (as 
defined in section 167(j) (2) (B)) other than that covered 
by clauses (i) and (ii), 100 percent minus 1 percentage 
point for each full month the property was held after 
the date the property was held 100 full months; 
"(iv) in the case of section 1250 property with respect 
to which a depreciation deduction for rehabilitation 
expenditures was allowed under section 167(k), 100 per-
cent minus 1 percentage point for each full month in 
excess of 100 full months after the date on which such 
property was placed in service; and 
"(v) in the case of all other section 1250 property, 100 
percent. 
Clauses (i), (ii), and (iii) shall not apply with respect to 
the additional depreciation described in subsection (b)(4). 
"(3) ADDITIONAL DEPRECIATION BEFORE JANUARY i, i070.— 
" ( A ) I N GENERAL.—If scction 1250 property is disposcd of 
after December 31, 1963, and the amount determined under 
paragraph (1) (A) (ii) exceeds the sum of the amounts deter-
mined under paragraphs ( l ) ( A ) ( i ) and ( 2 ) ( A ) ( i ) , then 
the applicable percentage of the lower of— 
"(i) that portion of the additional depreciation attrib-
utable to periods before January 1, 1970, in respect of 
the property, or 
"(ii) the excess of the amount determined under para-
graph ( l ) ( A ) ( i i ) over the sum of the amounts deter-
mined under paragraphs ( l ) ( A ) ( i ) and ( 2 ) ( A ) ( i ) , 
shall also be treated as gain which is ordinary income. Such 
gain shall be recognized notwithstanding any other provision 
of this subtitle. 
" ( B ) APPLICABLE PERCENTAGE.—For purposes of subpara- 
"Applicable 
graph (A), the term 'applicable percentage' means 100 per- percentage." 
cent minus 1 percentage point for each full month the 
property was held after the date on which the property was 
held for 20 full months.'* 
(b) 
PROPERTY DISPOSED OF PURSUANT TO FORECI-OSURE PROCEED-
INGS.—Subsection (d) of section 1250 (relating to exceptions and 26 USC 1250. 
limitations) is amended by adding at the end thereof the following 
new paragraph: 
"(10) FORECLOSURE DISPOSITIONS.—If any section 1250 property 
is disposed of by the taxpayer pursuant to a bid for such prop-
erty at foreclosure or by operation of an agreement or of process 
of law after there was a default on indebtedness which such prop-
erty secured, the applicable percentage referred to in paragraph 
( 1 ) ( B ) , ( 2 ) ( B ) , or (3)(B) of subsection (a), as the case may 
be, shall be determined as if the taxpayer ceased to hold such 
property on the date of the beginning of the proceedings pur-
suant to which the disposition occurred, or, in the event there 
are no proceedings, such percentage shall be determined as if 
the taxpayer ceased to hold such property on the date, deter-
mined under regulations prescribed by the Secretary, on which 
90 STAT. 1530 
PUBLIC LAW 94-455—OCT. 4, 1976 
such operation of an agreement or process of law, pursuant to 
which the disposition occurred, began." 
(c) CONFORMING AMENDMENTS.— 
(1) AMENDMENT OF SECTION 1250(f)(2).—Paragraph (2) of sec-
26 use 1250. 
tion 1250(f) (relating to special rule for property which is sub-
stantially improved) is amended to read as follows: 
"(2) ORDINARY INCOME ATTRIBUTABLE TO AN ELEMENT.—For 
purposes of paragraph (1), the amount taken into account for 
any element shall be the sum of a series of amounts determined 
for the periods set forth in subsection (a), with the amount for 
any such period being determined by multiplying— 
" ( A ) the amount which bears the same ratio to the lower 
of the amounts specified in clause (i) or (ii) of subsection 
(a) (1) (A), in clause (i) or (ii) of subsection (a) (2) (A), or 
in clause (i) or (ii) of subsection ( a ) ( 3 ) ( A ) , as the case 
may be, for the section 1250 property as the additional 
depreciation for such element attributable to such period 
uears to the sum of the additional depreciation for all ele-
ments attributable to such period, by 
" ( B ) the applicable percentage for such element for such 
period. 
For purposes of this paragraph, determinations with respect to 
any element shall be made as if it were a separate property." 
(2) AMENDMENT OF SECTION 1250(g)(2).—Paragraph (2) of 
section 1250(g) (relating to special rules for qualified low-income 
housing) is amended to read as follows: 
"(2) 
ORDINARY INCOME ATTRIBUTABLE TO AN ELEMENT.—For 
purposes of paragraph (1), the amount taken into account for 
any element shall be determined in a manner similar to that pro-
vided by subsection (f) (2)." 
(3) 
AMENDMENT OF SECTION 167(e)(3). — Paragraph (3) of 
26 use 167. 
section 167(e) (relating to change in depreciation methoci with 
respect to section 1250 property) is amended by striking out 
"beginning after July 24, 1969," and inserting in lieu thereof 
"beginning after December 31,1975,". 
26 use 1250 
(d) EFFECTIVE DATE.—The amendments made by this section (other 
"o*®- 
than subsection (b)) shall apply for taxable years ending after 
December 31, 1975. The amendment made by subsection (b) shall 
apply with respect to proceedings (and to operations of law) referred 
to m section 1250(d) (10) of the Internal Revenue Code of 1954 which 
begin after December 31,1975. 
SEC. 203. AMENDMENT OF SECTION 167(k). 
26 use 167. 
(a) GENERAL RULE.—Section 167(k) (relating to depreciation of 
expenditures to rehabilitate low-income rental housing) is amended— 
(1) by striking out "January 1, 1976," in paragraph (1) and 
inserting in lieu thereof "January 1,1978"; 
(2) by striking out "$15,000" in paragraph (2) (A) and insert-
ing in lieu thereof "$20,000"; 
(3) by striking out "the policies of the Housing and Urban 
Development Act of 1968" in paragraph (3) (B) and inserting 
in lieu thereof "the Leased Housing Program under section 8 of 
the United States Housing Act of 1937"; and 
(4) by adding the following new subparagraph at the end of 
paragraph (3) : 
" ( D ) REHABILITATION EXPENDITURES INCURRED.—Rehabili-
tation expenditures incurred pursuant to a binding con-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1531 
tract entered into before January 1, 1978, and rehabilitation 
expenditures incurred with respect to low-income rental hous-
ing the rehabilitation of which has begun before January 1, 
1978, shall be deemed incurred before January 1,1978." 
(b) EFFECTIVE DATE.—The amendments made by paragraphs (1), 
26 USC 167 
(3), and (4) of subsection (a) shall apply to expenditures paid or 
note, 
incurred after December 31, 1975, and before January 1, 1978, and 
expenditures made pursuant to a binding contract entered into before 
January 1,1978. The amendment made by paragraph (2) of subsection 
(a) shall apply to expenditures incurred after December 31, 1975. 
SEC. 204. LIMITATIONS ON DEDUCTIONS FOR EXPENSES. 
(a) I N GENERAL.—Subpart C of part II of subchapter E of chapter 
1 (relating to taxable year for which deduction is taken) is amended 
by adding at the end thereof the following new section: 
"SEC. 465. DEDUCTIONS LIMITED TO AMOUNT AT RISK IN CASE OF 
26 USC 465. 
CERTAIN ACTIVITIES. 
"(a) GENERAL RULE.—In the case of a taxpayer (other than a cor- 
L 
poration which is neither an electing small business corporation (as 
defined in section 1371(b)) nor a personal holding company (as 
defined in section 542)) 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 (b)) 
for such activity at the close of the taxable year. Any loss from such 
activity 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. 
"(b) AMOUNTS CONSIDERED AT RISK.— 
" (1) I N GENERAL.—For purposes of this section, a taxpayer shall 
be considered at risk for an activity with respect to amounts 
including— 
"(A) the amount of money and the adjusted basis of other 
property contributed by the taxpayer to the activity, and 
"(B) amounts borrowed with respect to such activity (as 
determined under paragraph (2)). 
"(2) BORROWED AMOUNTS.—For purposes of this section, a tax-
payer shall be considered at risk with respect to amounts bor-
rowed for use in an activity to the extent that he— 
"(A) is personally liable for the repayment of such 
amounts, or 
"(B) has pledged property, other than property used in 
such activity, as security for such borrowed amount (to the 
extent of the net fair market value of the taxpayer's interest 
in such property). 
No property shall be taken into account as security if such prop-
erty is directly or indirectly financed by indebtedness which is 
secured by property described in paragraph (1). 
"(3) CERTAIN BORROWED AMOUNTS EXCLUDED.—For purposes of 
paragraph (1)(B), amounts borrowed shall not be considered 
to be at risk with respect to an activity if such amounts are bor-
rowed from any person who— 
"(A) has an interest (other than an interest as a creditor) 
in such activity, or 
"(B) has a relationship to the taxpayer specified within 
any one of the paragraphs of section 267(b). 
90 STAT. 1532 
PUBLIC LAW 94-455—OCT. 4, 1976 
" (4) EXCEPTION.—Notwithstanding any other provision of this 
section, a taxpayer shall not be considered, at risk with respect to 
amounts protected against loss through nonrecourse 
financing, 
guarantees, stop loss agreements, or other similar arrangements. 
" (5) AMOUNTS AT RISK IN SUBSEQUENT YEARS.—If in any taxable 
year the taxpayer has a loss from an activity to which this sec-
tion applies, the amount with respect to which a taxpayer is con-
sidered to be at risk (within the meaning of subsection (b)) in 
subsequent taxable years with respect to that activity shall be 
reduced by that portion of the loss which (after the application 
of subsection (a)) is allowable as a deduction. 
"(c) ACTIVITIES TO W H I C H SECTION APPLIES.— 
"(1) TYPES or ACTIVITIES.—This section applies to any taxpayer 
engaged in the activity of— 
" ( A ) holding, producing, or distributing motion picture 
films or video tapes. 
Post, p. 1536. 
" ( B ) farming (as defined in section 464(e)), 
26 use 1245 
"(C) leasing any section 1245 property (as defined in sec-
tion 1245 (a) (3)), or 
" ( D ) exploring for, or exploiting, oil and gas resources 
as a trade or business or for the production of income. 
"(2) SEPARATE ACTIVITIES.—For purposes of this section, a tax-
payer's activity with respect to each— 
" ( A ) film or video tape, 
" ( B ) section 1245 property which is leased or held for 
leasing, 
"(C) farm, or 
" ( D ) oil and gas property (as defined under section 614), 
shall be treated as a separate activity. A partner's interest in a 
partnership or a shareholder's interest in an electing small busi-
ness corporation shall be treated as a single activity to the extent 
that the partnership or an electing small business corporation is 
engaged in activities described in any subparagraph of this 
paragraph. 
"(d) DEFINITION OF I.K)SS.—For purposes of this section, the term 
'loss' means the excess of the deductions allowable under this chapter 
for the taxable year (determined without regard to this section) and 
allocable to an activity to which this section applies over the income 
received or accrued by the taxpayer during the taxable year from such 
activity." 
(b) CLERICAL AMENDMENT.—The table of sections for subpart C of 
part I I of subchapter E of chapter 1 is amended by adding at the end 
thereof the following new item: 
"Sec. 465. Deductions limited to amount at risk in case of certain 
activities." 
26 use 465 
(c) EFFECTIVE DATES.— 
note. 
(1) I N GENERAL.—Except as provided in paragraphs (2) and 
(3), the amendments made by this section shall apply to losses 
attributable to amounts paid or incurred in taxable years begin-
ning after December 31,1975. For purposes of this subsection, any 
amount allowed or allowable for depreciation or amortization for 
any period shall be treated as an amount paid or incurred in such 
period. 
(2) SPECIAL TRANSITIONAL RULES FOR MOVIES AND VIDEO TAPES.— 
(A) I N GENERAL.—In the case of any activity described 
in section 465(c)(1)(A) of the Internal Revenue Code of 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1533 
1954, the amendments made by this section shall not apply ^nte, p. 1531. 
to— 
(i) deductions for depreciation or amortization with 
respect to property the principal production of which 
began before September 11, 1975, and for the purchase 
of which there was on September 11, 1975, and at all 
times thereafter a binding contract, and 
(ii) deductions attributable to producing or distribut-
ing property the principal production of which began 
before September 11, 1975. 
(B) EXCEPTION FOR CERTAIN AGREEMEXTS W^HERE PRINCIPAL 
PHOTOGRAPHY BEGIN BEFORE 1976.—In the case of any activity 
described in section 465(c)(1)(A) of the Internal Keve-
nue Code of 1954, the amendments made by this section shall 
not apply to deductions attributable to the producing of a 
film the principal photography of which began on or before 
December 31, 1975, if— 
(i) on September 10, 1975, there was an agreement 
with the director or a principal motion picture star, or on 
or before September 10, 1975, there had been expended 
(or committed to the production) an amount not less 
than the lower of $100,000 or 10 percent of the estimated 
costs of producing the film, and 
(ii) the production takes place in the United States. 
Subparagraph (A) shall apply only to taxpayers who held their 
interests on September 10, 1975. Subparagraph (B) shall apply 
only to taxpayers who held their interests on December 31, 1975. 
(3) 
SPECIAL TRANSITIONAL RULES FOR LEASING ACTIVITIES.— 
( A ) 
EULE FOR LEASES OTHER THAN OPERATING LEASES. 
I N 
the case of any activity described in section 465(c) (1) (B) of 
the Internal Revenue Code of 1954, the amendments made by 
this section shall not apply w^ith respect to— 
(i) leases entered into before January 1, 1976, and 
(ii) leases where the property was ordered by the lessor 
or lessee before January 1,1976. 
(B) 
HOLDING OF INTERESTS FOR PURPOSES OF SUBPARAGRAPH 
(A).—Subparagraph (A) shall apply only to taxpayers who 
held their interests in the property on December 31, 1975. 
(C) 
SPECIAL RULE FOR OPERATING LEASES.—In the case of a 
lease described in section 46(e) (3) (B) of the Internal Rev-
enue Code of 1954— 
(i) subparagraph (A) shall be applied by substituting 
"May 1,1976" for "January 1,1976" each place it appears 
therein, and 
' 
(ii) subparagraph (B) shall be applied by substituting 
"April 30,1976" for "December 31,1975". 
SEC. 205. GAIN FROM DISPOSITION OF INTEREST IN OIL OR GAS 
PROPERTY. 
(a) RECAPTURE RULES.—Part I V 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 new section: 
"SEC. 1254. GAIN FROM DISPOSITION OF INTEREST IN OIL OR GAS 26 USC 1254. 
PROPERTY. 
"(a) 
GENERAL R U L E . — 
"(1) 
ORDINARY INCOME.—If oil or gas property is disposed 
of after December 31,1975, the lower of— 
89-194 O—78—pt. 2 
5 
90 STAT. 1534 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 263. 
"Oil or gas 
property." 
"(A) the aggregate amount of expenditures after Decem-
ber 31, 1975, which are allocable to such property and which 
have been deducted as intangible drilling and development 
costs under section 263(c) by the taxpayer or any other per-
son and which (but for being so deducted) would be reflected 
in the adjusted basis of such property, adjusted as provided 
in paragraph (4), or 
"(B) the excess of— 
"(i) the amount realized (in the case of a sale, 
exchange, or involuntary conversion), or the fair market 
val«e of the interest (in the case of any other disposi-
tion), over 
"(ii) the adjusted basis of such interest, 
shall be treated as gain which is ordinary income. Such gain shall 
be recognized notwithstanding any other provision of this 
subtitle. 
"(2) 
DISPOSITION OF PORTION OF PROPERTY.—For purposes of 
paragraph (1) — 
"(A) In the case of the disposition of a portion of an oil 
or gas property (other than an undivided interest), the entire 
amount of the aggregate expenditures described in paragraph 
(1) (A) with respect to such property shall be treated as 
allocable to such portion to the extent of the amount of the 
gain to which paragraph (1) applies. 
" (B) In the case of the disposition of an undivided interest 
in an oil or gas property (or a portion thereof), a propor-
tionate part of the expenditures described in paragraph 
(1) (A) with respect to such property shall be treated as 
allocable to such undivided interest to the extent of the 
amount of the gain to which paragraph (1) applies. 
This paragraph shall not apply to any expenditures to the extent 
the taxpayer establishes to the satisfaction of the Secretary that 
such expenditures do not relate to the portion (or interest therein) 
disposed of. 
"(3) O I L OR GAS PROPERTY.—The term 'oil or gas property' 
means any property (within the meaning of section 614) with 
respect to which any expenditures described in paragraph (1) (A) 
are properly chargeable. 
"(4) SPECIAL RULE FOR PARAGRAPH (i) (A).—In applying para-
graph (1) (A), the amount deducted for intangible drilling and 
development costs and allocable to the interest disposed of shall 
be reduced by the amount (if any) by which the deduction for 
depletion under section 611 with respect to such interest would 
have been increased if such costs incurred (after December 31, 
1975) had been charged to capital account rather than, deducted. 
"(b) SPECIAL KULES UNDER EEGULATIONS.—Under regulations pre-
scribed by the Secretary— 
"(1) rules similar to the rules of subsection (g) of section 617 
and to the rules of subsections (b) and (c) of section 1245 shall 
be applied for purposes of this section; and 
"(2) in the case of the sale or exchange of stock in an electing 
small business corporation (as defined in section 1371 (b)), rules 
similar to the rules of section 751 shall be applied to that portion 
of the excess of the amount realized over the adjusted basis of 
the stock which is attributable to expenditures referred to in sub-
section ( a ) ( 1 ) ( A ) of this section." 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1535 
(b) PARTNERSHIPS.—Section 751(c) 
(relating to definition of 26 USC 751. 
unrealized receivables) is amended by striking out "and farm land (as 
defined in section 1252(a))" and inserting in lieu thereof "farm land 
(as defined in section 1252(a)), and an oil or gas propertj^ (described 
in section 1254)", and by striking out "or 1252(a)" and inserting in 
lieu thereof "1252(a), or 1254 (a)". 
(c) TECHNICAL AMENDMENTS.— 
(1) The following provisions are each amended by striking 
out "or 1252(a)" and inserting in lieu thereof "1252(a), or 1254 
(A) the second sentence of section 170(e) ( 1 ) ; 
26 USC 170. 
(B) section 301(b) ( l ) ( B ) ( i i ) ; 
26 USC 301. 
(C) section 3 0 1 ( d ) ( 2 ) ( B ) ; 
(D) section 312(c) (3); and 
26 USC 312. 
(E) section 453(d)(4)(B). 
26 USC 453. 
(2) Section 341(e) (12) is amended by striking out "and 1252 26 USC 341. 
(a)" and inserting in lieu thereof "1252(a), and 1254(a)". 
(3) Section 163(d) (3) (A) (iii) is amended by striking out 26 USC 163. 
"and 1250" and inserting in lieu thereof "1250, and 1254". 
(d) CLERICAL AMENDMENT.—The table of sections for part I V of 
subchapter P of chapter 1 is amended by adding at the end thereof the 
following new item: 
"Sec. 1254. Gain from disposition of interest in oil or gas property." 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 1254 
apply with respect to taxable years ending after December 31, 1975. °°*^-
SEC. 206. AMENDMENTS TO FARM LOSS RECAPTURE RULES. 
(a) TERMINATION OF ADDITIONS TO EXCESS DEDUCTIONS ACCOUNT.— 
Paragraph (2) of section 1251(b) (relating to additions to excess 
26 USC 1251. 
deductions account) is amended by adding at the end thereof the fol-
lowing new subparagraph: 
" ( E ) 
TERMINATION OF ADDITIONS. — No amount shall be 
added to the excess deductions account for any taxable year 
beginning after December 31,1975." 
(b) CERTAIN REORGANIZATIONS.— 
(1) Subparagraph (A) of section 1251(b)(5) is amended to 
; 
read as follows: 
" ( A ) C E R T A I N CORPORATE TRANSACTIONS.— 
"(i) In the case of a transfer described in subsection 
(d) (3) to which section 371(a), 374(a), or 381 applies, 
the acquiring corporation shall succeed to and take into 
account as of the close of the day of distribution or 
transfer, the excess deductions account of the transferor. 
" (ii) In the case of a transfer which is described in sub-
section (d) (3), which is in connection with a reorgani-
zation described in section 368(a) (1) (D), and which is 
not described in clause (i), the transferee corporati(Hi 
shall be deemed to have an excess deductions account in 
an amount equal to the amount in the excess deductions 
account of the transferor. The transferor's excess deduc-
tions account shall not be reduced by reason of the pre-
ceding sentence." 
(2) Paragraph (3) of section 1251 (b) is amended by adding at 
the end thereof the following: 
"In the case of a corporation which has made or received a trans-
fer described in clause (ii) of paragraph (5) (A), subtractions 
from the excess deductions account shall be determined, in such 
90 STAT. 1536 
PUBLIC LAW 94-455—OCT. 4, 1976 
manner as the Secretary shall prescribe, applying this paragraph 
to the farm net income, and the amounts described in subpara-
graph ( B ) , of the transferor corporation and the transferee cor-
poration on an aggregate basis.". 
26 use 1251 
(3) The amendments made by this subsection shall apply to 
note. 
transfers occurring after December 31, 1975. 
SEC. 207. LIMITATIONS ON DEDUCTIONS IN CASE OF FARMING SYNDI-
CATES; CAPITALIZATION OF CERTAIN ORCHARD AND VINE-
YARD EXPENSES; AND METHOD OF ACCOUNTING FOR COR-
PORATIONS ENGAGED IN FARMING. 
(a) PfiEPAro EXPENSES.— 
(1) I N GENERAL.—Subpart C of part I I of subchapter E of 
chapter 1 (relating to taxable year for which deduction taken) is 
amended by inserting after section 463 the following new section : 
26 use 464. 
"SEC. 464. LIMITATIONS ON DEDUCTIONS IN CASE OF FARMING 
SYNDICATES. 
"(a) GENERAL R U L E . — I n the case of any farming syndicate (as 
defined in subsection (c)), a deduction (otherwise allowable under this 
chapter) for amounts paid for feed, seed, fertilizer, or other similar 
farm supplies shall only be allowed for the taxable year in which such 
feed, seed, fertilizer, or other supplies are actually used or consumed, 
or, if later, for the taxable year for which allowable as a deduction 
(determined without regard to this section). 
"(b) 
CERTAIN POULTRY EXPENSES.—In the case of any farming 
syndicate (as defined in subsection (c))— 
"(1) the cost of poultry (including egg-laying hens and baby 
chicks) purchased for use in a trade or business (or both for use 
in a trade or business and for sale) shall be capitalized and 
deducted ratably over the lesser of 12 months or their useful life 
in the trade or business, and 
"(2) the cost of poultry purchased for sale shall be deducted 
for the taxable year in which the poultry is sold or otherwise dis-
posed of. 
"(c) FARMING SYNDICATE DEFINED.— 
"(1) I N GENERAL.—For purposes of this section, the term 
'farming syndicate' means— 
" (A) a partnership or any other enterprise other than a cor-
poration which is not an electing small business corporation 
(as defined in section 1371(b)) engaged in the trade or busi-
ness of farming, if at any time interests in such partnership 
or enterprise have been offered for sale in any offering 
required to be registered with any Federal or State agency 
having authority to regulate the offering of securities for 
sale, or 
" ( B ) a partnership or any other enterprise other than a 
corporation which is not an electing small business corpora-
tion (as defined in section 1371(b)) engaged in the trade or 
business of farming, if more than 35 percent of the losses dur-
ing any period are allocable to limited partners or limited 
entrepreneurs. 
"(2) 
HOLDINGS ATTRIBUIABLE TO ACTIVE MANAGEMENT.—For 
purposes of paragraph (1) (B), the following shall be treated as 
an interest which is not held by a limited partner or a limited 
entrepreneur : 
" ( A ) in the case of any individual who has actively par-
ticipated (for a period of not less than 5 years) in the man-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1537 
agement of any trade or business of farming, any interest in 
a partnership or other enterprise which is attributable to 
such active participation, 
"(B) in the case of any individual whose principal resi-
dence is on a farm, any partnership or other enterprise 
engaged in the trade or business of farming such farm, 
"(C) in the case of any individual who is actively partici-
pating in the management of any trade or business of farm-
ing or who is an individual who is described in subparagraph 
(A) or ( B ) , any participation in the further processing of 
> 
livestock which was raised in such trade or business (or in 
the trade or business referred to in subparagraph (A) or 
( B ) ) , 
" (D) in the case of an individual whose principal business 
activity involves active participation in the management of a 
trade or business of farming, any interest in any other trade 
or business of farming, and", 
" ( E ) any interest held by a member of the family (within 
the meaning of section 267(c)(4)) of a grandparent of an 26 USC 267. 
individual described in subparagraph ( A ) , ( B ) , (C), or (D) 
if the interest in the partnership or the enterprise is attribut-
able to the active participation of the individual described in 
subparagraph (A), (B), (C),or ( D ) . 
For purposes of subparagraph (A), where one farm is substituted 
for or added to another farm, both farms shall be treated as one 
farm. 
"(d) EXCEPTIONS.—Subsection (a) shall not apply to— 
"(1) any amount paid for supplies which are on hand at the 
close of the taxable year on account of fire, storm, flood, or other 
casualty or on account of disease or drought, or 
"(2) any amount required to be charged to capital account 
under section 278. 
"(e) DEFINITIONS.—For purposes of this section— 
"(1) FARMING.—The term 'farming' means the cultivation of 
land or the raising or harvesting of any agricultural or horti-
cultural commodity including the raising, shearing, feeding, car-
ing for, training, and management of animals. For purposes of 
the preceding sentence, trees (other than trees bearing fruit or 
nuts) shall not be treated as an agricultural or horticultural 
commodity. 
"(2) LIMITED ENTREPRENEUR.—The term'limited entrepreneur' 
means a person who— 
"(A) has an interest in an enterprise other than as a lim-
ited partner, and 
" ( B ) does not actively participate in the management of 
such enterprise." 
(2) CLERICAL AMENDMENT.—The table of sections for such sub-
part C is amended by inserting after the item relating to section 
463 the following new item : 
"Sec. 464. Limitations on deductions in case of farming syndicates." 
(3) EFFECTIVE DATES.— 
26 USC 464 
(A) I N GENERAL.—Except as provided in subparagraph 
"°*^" 
(B), the amendments made by this subsection shall apply 
to taxable years beginning after December 31, 1975. 
(B) TRANSITIONAL RULE.—In the case of a farming syndi-
cate in existence on December 31, 1975, and for which there 
90 STAT. 1538 
PUBLIC LAW 94-455—OCT. 4, 1976 
was no change of membership throughout its taxable year 
beginning in 1976, the amendments made by this subsection 
shall apply to taxable years beginning after December 31, 
1976. 
(b) ORCHARD AND VINEYARD EXPENSES.— 
26 use 278. 
(1) I N GENERAL.—Section 278 (relating to capital expenditures 
incurred in planting and developing citrus and almond groves) 
is amended by striking out subsection (b) and by inserting in lieu 
thereof the following: 
"(b) FARMING SYNDICATES.—Except as provided in subsection (c), 
in the case of any farming syndicate (as defined in section 464(c)) 
engaged in planting, cultivating, maintaining, or developing a grove, 
orchard, or vineyard in which fruit or nuts are grown, any amount— 
"(1) which would be allowable as a deduction but for the 
provisions of this subsection, 
"(2) which is attributable to the planting, cultivation, main-
tenance, or development of such grove, orchard, or vineyard, and 
"(3) which is incurred in a taxable year before the first tax-
able year in which such grove, orchard, or vineyard bears a crop 
or yield in commercial quantities, 
shall be charged to capital account. 
"(c) EXCEPTIONS,—Subsections (a) and (b) shall not apply to 
amounts allowable as deductions (without regard to this section) 
attributable to a grove, orchard, or vineyard which was replanted after 
having been lost or damaged (while in the hands of the taxpayer) by 
reason of freezing temperatures, disease, drought, pests, or casualty." 
(2) CONFORMING AMENDMENTS.— 
(A) The heading of section 278 is amended to read as 
follows: 
"SEC. 
2
7
8
. 
CAPITAL EXPENDITURES INCURRED IN 
PLANTING 
AND 
DEVELOPING CITRUS 
AND ALMOND GROVES; 
CERTAIN 
CAPITAL 
EXPENDITURES 
OF 
FARMING 
SYNDICATES.". 
(B) Subsection (a) of section 278 (relating to general 
rule) is amended by striking out "subsection ( b ) " and insert-
ing in lieu thereof "subsection (c)". 
26 use 278 
(3) EFFECTIVE DATE.—The amendments made by this subsec-
note. 
tion shall apply to taxable years beginning after December 31, 
1975. The amendments made by this subsection shall not apply in 
the case of a grove, orchard, or vineyard referred to in the 
amendment made by subsection (b) (1) which was planted or 
replanted on or before December 31, 1975. For purposes of the 
preceding sentence, a tree or vine which, on or before Decem-
ber 31,1975, was planted at a place other than the grove, orchard, 
or vineyard of the taxpayer but which, on such date, was owned 
by the taxpayer (or with respect to which the taxpayer had a bind-
ing contract to purchase) shall be treated as planted on Decem-
ber 31, 1975, in the grove, orchard, or vineyard of the taxpayer. 
(c) 
METHOD 
OF ACCOUNTING 
FOR CORPORATIONS 
ENGAGED I N 
FARMING.— 
(1) GENERAL RULE.— 
(A) Subpart A of part I I of subchapter E of chapter 1 
(relating to methods of accounting) is amended by adding at 
the end thereof the following new section: 
26 use 447. 
"SEC. 447. METHOD OF ACCOUNTING FOR CORPORATIONS ENGAGED 
IN FARMING. 
"(a) 
GENERAL RULE.—Except as otherwise provided by law, the 
taxable income from farming pf— 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1539 
"(1) a corporation engaged in the trade or business of farm-
ing, or 
" (2) a partnership engaged in the trade or business of farming, 
if a corporation is a partner in such partnership, 
shall be computed on an accrual method of accounting and with the 
capitalization of preproductive expenses described in subsection (b). 
This section shall not apply to the trade or business of operating a 
nursery or to the raising or harvesting of trees (other than fruit and 
nut trees). 
"(b) PREPRODUCTIVE PERIOD EXPENSES.— 
"(1) I N GENERAL.—For purposes of this section, the term 'pre-
productive period expenses' means any amount which is attribut-
able to crops, animals, or any other property having a crop or 
yield during the preproductive period of such property. 
"(2) ExcEPiTONS.—Paragraph (1) shall not apply— 
" (A) to taxes and interest, and 
"(B) to any amount incurred on account of fire, storm, 
flood, or other casualty or on account of disease or drought. 
" (3) PREPRODUCTIVE PERIOD DEFINED.—For purposes of this sub-
section, the term 'preproductive period' means— 
"(A) in the case of property having a useful life of more 
than 1 year which will have more than 1 crop or yield, the 
period before the disposition of the first such marketable crop 
or yield, or 
"(B) in the case of any other property, the period before 
such property is disposed of. 
For purposes of this section, the use by the taxpayer in the trade 
or business of farming of any supply produced in such trade or 
business shall be treated as a disposition. 
"(c) 
EXCEPTION FOR SMALL BUSINESS AND FAMILY CORPORATIONS.— 
For purposes of subsection (a), a corporation shall be treated as not 
being a corporation if it is— 
"(1) an electing small business corporation (within the mean-
ing of section 1371(b)), 
" (2) a corporation of which at least 50 percent of the total com-
bined voting power of all classes of stock entitled to vote, and at 
least 50 percent of the total number of shares of all other classes of 
stock of the corporation, are owned by members of the same 
family, or 
" (3) a corporation the gross receipts of which meet the require-
ments of subsection (e). 
"(d) 
MEMBERS OF THE SAME FAMILY.—For purposes of subsection 
( c ) ( 2 ) -
"(1) the members of the same family are an individual, such 
individual's brothers and sisters, the brothers and sisters of such 
individual's parents and grandparents, the ancestors and lineal 
descendants or any of the foregoing, a spouse of any of the fore-
going, and the estate of any of the foregoing, 
"(2) stock owned, directly or indirectly, by or for a partner-
ship or trust shall be treated as owned proportionately by its 
partners or beneficiaries, and 
" (3) if 50 percent or more in value of the stock in a corporation 
(hereinafter in this paragraph referred to as 'first corporation') 
is owned, directly or through paragraph (2), by or for members 
of the same family, such members shall be considered as owning 
each class of stock in a second corporation (or a wholly owned 
"Preproductive 
period 
expenses." 
26 use 1371. 
90 STAT. 1540 
PUBLIC LAW 94-455—OCT. 4, 1976 
subsidiary of such second corporation) 
owned, directly or 
indirectly, by or for the first corporation, in that proportion which 
the value of the stock in the first corporation which such members 
so own bears to the value of all the stock in the first corporation. 
For purposes of paragraph (1), individuals related by the half blood 
or by legal adoption shall be treated as if they were related by the 
whole blood. 
" (e) CORPORATIONS HAVING GROSS KECEIPTS OF $1,000,000 OR LESS.— 
A corporation meets the requirements of this subsection if, for each 
prior taxable year beginning after December 31,1975, such corporation 
(and any predecessor corporation) did not have gross receipts exceed-
ing $1,000,000. For purposes of the preceding sentence, all corporations 
which are members of a controlled group of corporations (within the 
26 use 1563. 
meaning of section 1563(a)) shall be treated as one corporation. 
"(f) 
COORDINATION W I T H SECTION 481.—In the case of any taxpayer 
required by this section to change its method of accounting for any 
taxable year— 
" (1) such change shall be treated as having been made with the 
consent of the Secretary, 
"(2) for purposes of section 481(a) (2), such change shall be 
treated as a change not initiated by the taxpayer, and 
"(3) under regulations prescribed by the Secretary, the net 
amount of adjustments required by section 481(a) to be taken 
into account by the taxpayer in computing taxable income shall 
(except as otherwise provided in such regulations) be taken into 
account in each of the 10 taxable years beginning with the year 
of change. 
"(g) CERTAIN ANNUAL ACCRUAL ACCOUNTING METHODS.— 
" (1) I N GENEIiAL.—If— 
" ( A ) for its 10 taxable years ending with its first taxable 
year beginning after December 31, 1975, a corporation used 
an annual accrual method of accounting with respect to its 
trade or business of farming, 
"(B) such corporation raises crops which are harvested 
not less than 12 months after planting, and 
"(C) such corporation has used such method of accounting 
for all taxable years intervening between its first taxable year 
beginning after December 31, 1975, and the taxable year, 
such corporation may continue to employ such method of 
accounting for the taxable year with respect to its trade or 
business of farming. 
"(2) ANNUAL ACCRUAL METHOD OF ACCOUNTING DEFINED.—For 
purposes of paragraph (1), the term 'annual accrual method 
of accounting' means a method under which revenues, costs, and 
expenses are computed on an accrual method of accounting and 
the preproductive expenses incurred during the taxable year are 
charged to harvested crops or deducted in determining the taxable 
income for such years. 
"(3) CERTAIN REORGANIZATIONS.—For purposes of this subsec-
tion, if a corporation acquired substantially all the assets of a 
farming trade or business from another corporation in a trans-
action in which no gain or loss was recognized to the transferor 
or transferee corporation, the transferee corporation shall be 
deemed to have computed its taxable income on an annual accrual 
method of accounting during the period for which the transferor 
corporation computed its taxable income from such trade or 
business on an annual accrual method." 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1541 
(B) The table of sections for such subpart A is amended 
by adding at the end thereof the following: 
"Sec. 447. Method of accounting for corporations engaged in farming." 
(2) EFFECTIVE DATE.—The amendments made by paragraph (1) 
26 USC 447 
shall apply to taxable years beginning after December 31, 1976. "o*^-
(3) ELECTIOX TO CHANGE FROM STATIC VALUE METHOD TO ACCRUAL 
26 USC 447 
METHOD OF A C C O U X T I X G . — 
note. 
(A) I x GEXERAL. If— 
(i) a corporation has computed its taxable income on 
an annual accrual method of accounting together with a 
static value method of accounting for deferred costs of 
growing crops for the 10 taxable years ending with its 
first taxable year beginning after December 31,1975, 
(ii) such corporation raises crops which are harvested 
not less than 12 months after planting, and 
(iii) such corporation elects, within one year after 
the date of the enactment of this Act and in such man-
ner as the Secretary of the Treasury or his delegate pre-
scribes, to change to the annual accrual method of 
accounting (within the meaning of section 447(g)(2) 
of the Internal Revenue Code of 1954) for taxable years 
Ante, p. 1538. 
beginning after December 31,1976, 
such change shall be treated as having been made with the 
consent of the Secretary of the Treasury, and, under regula-
tions prescribed by the Secretary of the Treasury or his 
delegate, the net amount of the adjustments required by sec-
tion 481 (a) of the Internal Revenue Code of 1954 to be taken 
into account by the taxpayer in computing taxable income 
shall (except as otherwise provided in such regulations) be 
taken into account in each of the 10 taxable years beginning 
with the year of change. 
(B) CooRDiXATiox WITH SECTiox' 44 7 OF THE CODE.—A Cor-
poration which elects under subparagraph (A) to change to 
the annual accrual method of accounting shall, for purposes 
of section 447(g) of the Internal Revenue Code of 1954, be 
deemed to be a corporation which has computed its taxable 
income on an annual accrual method of accounting for its 
10 taxable years ending with its first taxable year beginning 
after December 31,1975. 
(C) CERTAIX CORPORATE REORGANIZATIONS.—For purposes 
of this paragraph, if a corj^oration acquired substantially all 
the assets of a farming trade or business from another corpo-
ration in a transaction in which no gain or loss was recog-
nized to the transferor 
or transferee 
corporation, the 
transferee corporation shall be deemed to have computed its 
taxable income on an annual accrual method of accounting 
together with a static value method of accounting for 
deferred costs of growing crops during the period for which 
the transferor corporation computed its taxable income from 
such trade or business on such accrual and static value 
method. 
SEC. 208. TREATMENT OF PREPAID INTEREST. 
(a) GENERAL RULE.—Section 461 (relating to general rule for tax- 26 USC 461. 
able year of deduction) is amended by adding at the end thereof the 
f ollowinc: new subsection r 
90 STAT. 1542 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(g) PREPAID INTEREST.— 
" 
' ' 
' * 
"(1) I N GENERAL.—If the taxable income of the taxpayer is 
computed under the cash receipts and disbursements method of 
,. 
accounting, interest paid by the taxpayer which, under regula-
tions prescribed by the Secretary, is properly allocable to any 
period—• 
*" 
' 
" (A) with respect to which the interest represents a charge 
for the use or forbearance of money, and 
" ( B ) which is after the close of the taxable year in which 
paid, 
shall be charged to capital account and shall be treated as paid in 
the period to which so allocable. 
"(2) EXCEPTION.—This subsection shall not apply to points 
paid in respect of any indebtedness incurred in connection with 
the purchase or improvement of, and secured by, the principal 
residence of the taxpayer to the extent that, under regulations 
prescribed by the Secretary, such payment of points is an estab-
lished business practice in the area in which such indebtedness is 
incurred, and the amount of such payment does not exceed the 
amount generally charged in such area." 
26 use 461 
(b) EFEECTIVE DATE.— 
note. 
(1) jj^ GENERAL.—Except as provided in paragraph (2), the 
amendment made by subsection (a) shall apply to amounts paid 
after December 31, 1975, in taxable years ending after such date. 
(2) CERTAIN 
AMOUNTS PAID BEFORE 1977.—The 
amendment 
made by subsection (a) shall not apply to amounts paid before 
January 1, 1977, pursuant to a binding contract or written loan 
commitment which existed on September 16,1975 (and at all times 
thereafter), and which required prepayment of such amounts by 
the taxpayer. 
SEC. 209. LIMITATION ON INTEREST DEDUCTION. 
26 use 163. 
(a) I N GENERAL.—Subsection (d) of section 163 (relating to limita-
tion on interest on investment indebtedness) is amended— 
(1) by striking out paragraphs (1) and (2) and inserting in 
lieu thereof the following: 
"(1) I N GENERAL.—In the case of a taxpayer othcr than a Cor-
poration, the amount of investment interest (as defined in par-
agraph ( 3 ) ( D ) ) otherwise allowable as a deduction under this 
chapter shall be limited, in the following order, to— 
"(A) $10,000 ($5,000, in the case of a separate return by a 
married individual), plus 
" ( B ) the amount of the net investment income (as defined 
in paragraph (3) ( A ) ) , plus the amount (if any) by which 
the deductions allowable under this section (determined with-
out regard to this subsection) and sections 162,164(a) (1) or 
(2), or 212 attributable to property of the taxpayer subject 
to a net lease exceeds the rental income produced by such 
property for the taxable year. 
In the case of a trust, the $10,000 amount specified in subpara-
graph (A) shall be zero. 
"(2) 
CARRYOVER or DISALLOWED INVESTMENT INTEREST.—The 
amount of disallowed investment interest for any taxable year 
, .- -, . 
shall be treated as investment interest paid or accrued in the 
succeeding taxable year."; 
(2) by adding at the end of paragraph (3) (A) the following 
new sentence: "If the taxpayer has investment interest for the 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1543 
taxable year to which this subsection (as in effect before the Tax 
Reform "Act of 1976) applies, the amount of the net investment Ante, p. 1520. 
income taken into account under this subsection shall be the 
amount of such income (determined without regard to this sen-
tence) multiplied by a fraction the numerator of which is the 
excess of the investment interest for the taxable year over the 
investment interest to which such prior provision applies, and 
the denominator of which is the investment interest for the tax-
able year."; 
(3") by striking out "limitations in paragraphs (1) and (2) 
(A)'' in paragraph (3) (E) and inserting in lieu thereof "limita-
tion in paragraph (1)"; 
(4) by striking out paragraph (5) and redesignating para-
graphs (6) and (7) as paragraphs (5) and (6), respectively; 
(5) by adding at the end of paragraph (5) (as so redesignated) 
the following: 
"For taxable years beginning after December 31, 1975, this para-
graph shall be applied on an allocation basis rather than a specific 
item basis."; and 
(6) by adding at the end thereof the following new paragraph: 
"(7) SPECIAL RULE WHERE TAXPAYER OWNS SO PERCENT OR MORE 
OF ENTERPRISE. 
" (A) GENERAL RULE.—In the case of any 50 percent owned 
corporation or partnership, the $10,000 figure specified in 
paragraph (1) shall be increased by the lesser of— 
"(i) $15,000, or 
"(ii) the interest paid or accrued during the taxable 
year on investment indebtedness incurred or continued 
in connection with the acquisition of the interest in such 
corporation or partnership. 
In the case of a separate return by a married individual, 
$7,500 shall be substituted for the $15,000 figure in clause (1). 
" ( B ) 
OWNERSHIP REQUIREMENTS.—This paragraph shall 
apply with respect to indebtedness only if the taxpayer, his 
spouse, and his children own 50 percent or more of the total 
value of all classes of stock of the corporation or 50 percent 
or more of all capital interests in the partnership, as the case 
may be." 
(b) EFEECTIVE DATE.— 
26 USC 163 
(1) I N GENERAL.—Except as provided in paragraph (2), the °°*®-
amendments made by subsection (a) shall apply to taxable years 
beginning after December 31,1975. 
(2) INDEBTEDNESS INCURRED BEFORE SEPTEMBER 11,19 7 5.—In the 
case of indebtedness attributable to a specific item of property 
which— 
(A) is for a specified term, and 
(B) was incurred before September 11,1975, or is incurred 
after September 10, 1975, pursuant to a written contract or 
commitment which on September 11, 1975, and at all times 
thereafter before the incurring of such indebtedness, is bind-
ing on the taxpayer, 
the amendments made by this section shall not apply, but section 
163(d) of the Internal Revenue Code of 1954 (as in effect before 
the enactment of this Act) shall apply. For purposes of the pre-
ceding sentence, so much of the net investment income (as defined 
in section 163(d) (3) (A) of such Code) for any taxable year as 
90 STAT. 1544 
PUBLIC LAW 94-455—OCT. 4, 1976 
is not taken into account under section 163(d) of such Code, as 
Ante, p. 1542. 
amended by this Act, by reason of the last sentence of section 
163(d)(3)(A) of such Code, shall be taken into account for 
purposes of applying such section as in effect before the date of 
enactment of this Act with respect to interest on indebtedness 
referred to in the precedino; sentence. 
SEC. 210. AMORTIZATION OF PRODUCTION COST OF MOTION PICTURES, 
BOOKS, RECORDS, AND OTHER SIMILAR PROPERTY. 
(a) I N GENERAL.—Part I X of subchapter B of chapter 1 (relating 
to items not deductible) is amended by adding at the end thereof the 
following new section: 
26 use 280. 
"SEC. 280. CERTAIN EXPENDITURES INCURRED IN PRODUCTION OF 
FILMS, BOOKS, RECORDS, OR SIMILAR PROPERTY. 
"(a) GENERAL RULE.—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 in the case of production costs which are charged to capital 
account, amounts attributable to the production of a film, sound 
recording, book, or similar property which are otherwise deductible 
under this chapter shall be allowed as deductions only in accordance 
with the provisions of subsection (b). 
"(b) 
PRORATION OF PRODUCTION 
COST 
OVER 
INCOME 
PERIOD.— 
Amounts referred to in subsection (a) are deductible only for those 
taxable years ending during the period during which the taxpayer 
reasonably may be expected to receive substantially all of the income 
he will receive from any such film, sound recording, book, or similar 
property. The amount deductible for any such taxable year is an 
amount which bears the same ratio to the sum of all such amounts 
(attributable to such film, sound recording, book, or similar property) 
as the income received from the property for that taxable year bears 
to the sum of the income the taxpayer may reasonably be expected to 
receive during such period. 
"(c) DEFINITIONS.—For purposes of this section— 
"(1) FILM.—The term 'film' means any motion picture film or 
video tape. 
"(2) 
SOUND RECORDING.—The term 'sound recording' means 
works that result from the fixation of a series of musical, spoken, 
p :
^ 
' 
or other sounds, regardless of the nature of the material objects, 
such as discs, tapes, or other phonorecordings, in which such 
sounds are embodied." 
(b) CLERICAL AMENDMENT.—The table of sections for such part is 
amended by adding at the end thereof the following new item: 
"Sec. 280. Certain expenditures incurred in production of films, books, 
records, or similar property." 
26 use 280 
(c) EFFECTIVE DATE.—The amendment made by this section applies 
note. 
to amounts paid or incurred after December 31, 1975, with respect to 
property the principal production of which begins after December 31, 
1975. 
SEC. 211. CLARIFICATION OF DEFINITION OF PRODUCED FILM RENTS. 
(a) I N GENERAL.—Subparagraph (B) of paragraph (5) of section 
26 use 543. 
543(a) (defining produced film rents for purposes of personal holding 
company income) is amended by adding at the end thereof the follow-
ing new sentence: "In the case of a producer who actively participates 
in the production of the film, such term includes an interest in the 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1545 
proceeds or profits from the film, but only to the extent such interest 
is attributable to such active participation." 
(b) ErrECTivE DATE.—The amendment made by subsection (a) shall 
26 USC 543 
apply to taxable years ending on or after December 31, 1975. 
°ot«-
SEC. 212. BASIS LIMITATION FOR AND RECAPTURE OF DEPRECIATION 
ON PLAYER CONTRACTS. 
(a) 
BASIS LIMITATIONS.— 
(1) I N GENERAL.—Part I V of subchapter O of chapter 1 (relat- 26 USC 1051. 
ing to special rules applicable to gain or loss on disposition of 
property) is amended by redesignating section 1056 as section 
1057, and by inserting after section 1055 the following new 
section: 
"SEC. 1056. BASIS LIMITATION FOR PLAYER CONTRACTS TRANSFERRED 26 USC 1056. 
IN CONNECTION WITH THE SALE OF A FRANCHISE. 
"(a) GENERAL RULE.—If a franchise to conduct any sports enter-
prise is sold or exchanged, and if, in connection with such sale or 
exchange, there is a transfer of a contract for the services of an athlete, 
the basis of such contract in the hands of the transferee shall not exceed 
the sum of— 
"(1) the adjusted basis of such contract in the hands of the 
transferor immediately before the transfer, plus 
"(2) the gain (if any) recognized by the transferor on the 
transfer of such contract. 
For purposes of this section, gain realized by the transferor on the 
transfer of such contract, but not recognized by reason of section 
337(a), shall be treated as recognized to the extent recognized by the 
Post, p. 1772. 
transferor's shareholders. 
"(b) EXCEPTIONS.—Subsection (a) shall not apply— 
"(1) to an exchange described in section 1031 (relating to 
exchange of property held for productive use or investment), and 
" (2) to property in the hands of a person acquiring the property 
from a decedent or to whom the property passed from a decedent 
(within the meaning of section 1014(a)). 
" 
"(c) 
TRANSFEROR REQUIRED To FURNISH CERTAIN INFORMATION.— 
Under regulations prescribed by the Secretary, the transfer shall, at 
the times and in the manner provided in such regulations, furnish to 
the Secretary and to the transferee the following information: 
" (1) the amount which the transferor believes to be the adjusted 
basis referred to in paragraph (1) of subsection (a), 
"(2) the amount which the transferor believes to be the gain 
referred to in paragraph (2) of subsection (a), and 
" (3) any subsequent modification of either such amount. 
To the extent provided in such regulations, the amounts furnished 
pursuant to the preceding sentence shall be binding on the transferor 
and on the transferee. 
"(d) 
PRESUMPTION AS TO AMOUNT ALLOCABLE TO PLAYER CON-
TRACTS.—In the case of any sale or exchange described in subsection 
(a), it shall be presumed that not more than 50 percent of the con-
sideration is allocable to contracts for the services of athletes unless 
it is established to the satisfaction of the Secretary that a specified 
amount in excess of 50 percent is properly allocable to such contracts. 
Nothing in the preceding sentence shall give rise to a presumption that 
an allocation of less than 50 percent of the consideration to contracts 
for the services of athletes is a proper allocation." 
90 STAT. 1546 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 1056 
note. 
26 use 1245. 
"Previously 
unrecaptured 
depreciation." 
"Previously 
unrecaptured 
depreciation." 
"Player 
contract." 
(2) CLERICAL AMENDMENT.—The tables of sections for such part 
V I is amended by striking out the last item and inserting in lieu 
thereof the following: 
"Sec. 1056. Basis limitation for player contracts transferred in con-
nection with the sale of a franchise. 
"Sec. 1057. Cross references." 
(3) EFFECTIVE DATE.—The amendments made by this subsec-
tion apply to sales or exchanges of franchises after December 31, 
1975, in taxable years ending after such date. 
(b) RECAPTURE.— 
(1) I N GENERAL.—Section 1245(a) (relating to gain from dis-
position of certain depreciable property) is amended by adding 
at the end thereof the following new paragraph: 
" (4) SPECIAL RULE FOR PLAYER CONTRACTS,— 
"(A) I N GENERAL.—For purposes of this section, if a fran-
chise to conduct any sports enterprise is sold or exchanged, 
and if, in connection with such sale or exchange, there is a 
transfer of any player contracts, the recomputed basis of 
such player contracts in the hands of the transferor shall be 
the adjusted basis of such contracts increased by the greater 
of— 
r 
"(i) the previously unrecaptured depreciation with 
respect to player contracts acquired hj the transferor 
at the time of acquisition of such franchise, or 
"(ii) the previously unrecaptured depreciation with 
respect to the player contracts involved in such transfer. 
" ( B ) 
PREVIOUSLY 
UNRECAPTURED 
DEPRECIATION 
WITH 
RESPECT TO INITIAL CONTRACTS.—For purposes of subpara-
graph ( A ) ( i ) , the term 'previously unrecaptured deprecia-
tion' means the excess (if any) of— 
"(i) the sum of the deduction allowed or allowable 
to the taxpayer transferor for the depreciation of any 
player contracts acquired by him at the time of acquisi-
tion of such franchise, plus the deduction allowed or 
allowable for losses with respect to such player contracts 
acquired at the time of such acquisition, over 
" (ii) the aggregate of the amounts treated as ordinary 
income by reason of this section with respect to prior 
dispositions of such player contracts acquired upon 
acquisition of the franchise. 
" ( C ) 
PREVIOUSLY 
UNRECAPTURED 
DEPRECIATION 
WITH 
RESPECT TO CONTRACTS TRANSFERRED.—For purposcs of Sub-
paragraph (A) (ii), the term 'previously unrecaptured depre-
ciation' means— 
" (i) the amount of any deduction allowed or allowable 
to the taxpayer transferor for the depreciation of any 
contracts involved in such transfer, over 
" (ii) the aggregate of the amounts treated as ordinary 
income by reason of this section with respect to prior 
dispositions of such player contracts acquired upon 
acquisition of the franchise. 
" ( D ) 
PLAYER CONTRACT.—For purposes of this paragraph, 
the term 'player contract' means any contract for the services 
of an athlete which, in the hands of the taxpayer, is of a 
character subject to the allowance for depreciation provided 
in section 167." 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1547 
(2) EFFECTIVE DATE.—The amendment made by this subsection 
26 USC 1245 
applies to transfers of player contracts in connection with any note, 
sale or exchange of a franchise after December 31, 1975. 
SEC. 213. CERTAIN PARTNERSHIP PROVISIONS. 
(a) DOLLAR LIMITATION W I T H EESPECT TO ADDITIONAL FIRST-YEAR 
DEPRECIATION ALLOWANCE.—Subsection (d) of section 179 (relating to 26 USC 179. 
additional 
first-year 
depreciation allowance for small business) is 
amended by redesignating paragraph (8) as paragraph (9) and by 
inserting after paragraph (7) the following new paragraph: 
" (8) DOLLAR LIMITATION I N CASE OF PARTNERSHIPS.—In the case 
of a partnership, the dollar limitation contained in the first sen-
tence of subsection (b) shall apply with respect to the partnership 
and with respect to each partner." 
(b) CLARIFICATION OF TREATMENT OF PARTNERSHIP SYNDICATION 
FEES, E T C . — 
(1) I N GENERAL.—Part I of subchapter K of chapter 1 (relating 
to determination of tax liability) is amended by adding at the end 
thereof the following new section: 
"SEC. 709. TREATMENT OF ORGANIZATION AND SYNDICATION FEES. 26 USC 709. 
"(a) GENERAL RULE.—Except as provided in subsection (b), no 
deduction shall be allowed under this chapter to the partnership or to 
any partner for any amounts paid or incurred to organize a part-
nership or to promote the sale of (or to sell) an interest in such 
partnership. 
"(b) AMORTIZATION OF ORGANIZATION FEES.— 
"(1) DEDUCTION.—Amounts paid or incurred to organize a 
partnership may, at the election of the partnership (made in 
accordance with regulations prescribed by the Secretary), be 
treated as deferred expenses. Such deferred expenses shall be 
allowed as a deduction ratably over such period of not less than 60 
months as may be selected by the partnership (beginning with the 
month in which the partnership begins business), or if the partner-
ship is liquidated before the end of such 60-month period, such 
deferred expenses (to the extent not deducted under this section) 
may be deducted to the extent provided in section 165. 
"(2) ORGANIZATIONAL EXPENSES DEFINED.—The organizational 
expenses to which paragraph 
(1) applies, are expenditures 
which— 
" (A) are incident to the creation of the partnership; 
" ( B ) are chargeable to capital account; and 
"(C) are of a character which, if expended incident to the 
creation of a partnership having an ascertainable life, would 
be amortized over such life." 
(2) CLERICAL AMENDMENT.—The table of sections for such part 
is amended by adding at the end thereof the following: 
"Sec. 709. Treatment of organization and syndication fees." 
(3) DETERMINATION 
OF AMOUNTS 
CHARGEABLE 
TO CAPITAL 
ACCOUNT.—Section 707(c) (relating to guaranteed payments) is 26 USC 707. 
amended by striking out "and section 162(a)" and inserting in 
lieu thereof "and, subject to section 263, for purposes of section 
162(a)". 
(c) ITEMS M U S T B E ALLOCATED TO PORTION OF YEAR PARTNER HELD 
INTEREST.— 
(1) I N GENERAL.—Subparagraph (B) of section 706(c)(2) 
26 USC 706. 
(relating to disposition of less than entire interest) is amended 
90 STAT. 1548 
PUBLIC LAW 94^55—OCT. 4, 1976 
by striking out "or with respect to a partner whose interest is 
reduced" and inserting in lieu thereof "or with respect to a 
partner whose interest is reduced (whether by entry of a new 
partner, partial liquidation of a partner's interest, gift, or 
otherwise)". 
(2) 
C E R T A I N PROVISIONS OF SUBCHAPTER K M A Y N O T BE OVER-
RIDDEN BY PARTNERSHIP AGREEMENT.—Subsectiou ( a ) of SectioU 
26 use 704. 
704 (relating to effect of partnership agreement) is amended by 
striking out "except as otherwise provided in this section" and 
inserting in lieu thereof "except as otherwise provided in this 
chapter". 
(3) CROSS REFERENCES.— 
(A) Section 704 is amended by adding at the end thereof 
the following: 
"(f) 
CROSS REFERENCE.— 
"For rules in the case of the sale, exchange, liquidation, or reduction 
of a partner's interest, see section 706(c) (2)." 
26 use 761. 
(B) Section 761 (relating to terms defined) is amended by 
adding at the end thereof the following: 
"(e) 
CROSS REFERENCE.— 
"For rules in the case of the sale, exchange, liquidation, or reduction 
of a partner's interest, see sections 704(b) and 706(c)(2)." 
(d) DETERMINATION OF PARTNER'S DISTRIBUTIVE SHARE.—Subsec-
26 use 704. 
tion (b) of section 704 (relating to distributive share determined by 
income or loss ratio) is amended to read as follows: 
"(b) 
DETERMINATION 
OF DISTRIBUTIVE 
SHARE.—A partner's dis-
tributive share of income, gain, loss, deduction, or credit (or item 
thereof) shall be determined in accordance with the partner's interest 
in the partnership (determined by taking into account all facts and 
circumstances), if—• 
" (1) the partnership agreement does not provide as to the part-
' 
ner's distributive share of income, gain, loss, deduction, or credit 
(or item thereof), or 
" (2) the allocation to a partner under the agreement of income, 
gain, loss, deduction, or credit (or item thereof) does not have 
substantial economic effect." 
(e) TREATMENT OF PARTNERSHIP LIABILITIES W I T H 
RESPECT TO 
W H I C H THE PARTNER I S NOT PERSONALLY LIABLE.—Section 704(d) 
(relating to limitation on allowance of losses) is amended by adding 
at the end thereof the following new sentences: 
"For purposes of this subsection, the adjusted basis of any partner's 
interest in the partnership shall not include any portion of any part-
nership liability with respect to which the partner has no personal 
liability. The preceding sentence shall not apply with respect to any 
Ante, p. 1531. 
activity to the extent that section 465 (relating to limiting deductions 
to amounts at risk in case of certain activities) applies, nor shall it 
apply to any partnership the principal activity of which is investing 
in real property (other than mineral property)." 
26 use 709 
(f) EFFECTIVE DATES.— 
note. 
(1) ii^ GENERAL.—Exccpt as Otherwise provided in this sub-
section, the amendments made by this section shall apply in the 
case of partnership taxable years beginning after December 31, 
1975. 
(2) SUBSECTION (e).—The amendment made by subsection (e) 
shall apply to liabilities incurred after December 31, 1976. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1549 
(3) SEC5TI0N 709(b) 
OF THE CODE.—Section 709(b) of the 
Internal Revenue Code of 1954 (as added by the amendment 
made by subsection (b) (1) of this section) shall apply in the 
case of amounts paid or incurred in taxable years beginnmg after 
December 31, 1976. 
SEC. 214. SCOPE OF WAIVER OF STATUTE OF LIMITATIONS IN CASE OF 
ACTIVITIES NOT ENGAGED IN FOR PROFIT. 
(a) I N GENERAL.—Subsection (e) of section 183 (relating to spe- 26 USC 183. 
cial rule for activities not engaged in for profit) is amended by add-
ing at the end thereof the following new paragraph: 
"(4) 
T I M E FOR ASSESSING DEFICIENCY ATTRIBUTABLE TO ACTIV-
ITY.—If a taxpayer makes an election under paragraph (1) with 
respect to an activity, the statutory period for the assessment of 
any deficiency attributable to such activity shall not expire before 
the expiration of 2 years after the date prescribed by law (deter- 
* 
mined without extensions) for filing the return of tax under 
chapter 1 for the last taxable year in the period of 5 taxable 
years (or 7 taxable years) to which the election relates. Such 
deficiency may be assessed notwithstanding the provisions of any 
law or rule of law which would otherwise prevent such an 
assessment.", 
(b) CROSS REFERENCE.—Paragraph (2) of section 6212(c) (relat- Post, p. 1803. 
ing to restriction of further deficiency letters) is amended by adding 26 USC 6212. 
at the end thereof the following new subparagraph: 
"(E) Deficiency attributable to activities not engaged in for profit, 
see section 183(e)(4).". 
Supra. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 183 
apply with respect to taxable years beginning after December 31, note. 
1969; except that such amendments shall not apply to any taxable 
year ending before the date of the enactment of this Act with respect 
to which the period for assessing a deficiency has expired before such 
date of enactment. 
TITLE III—MINIMUM TAX AND MAXIMUM 
TAX 
SEC. 301. MINIMUM TAX. 
(a) I N GENERAL.—Subsection (a) of section 56 (relating to mini- 26 USC 56. 
mum tax for tax preferences) is amended to read as follows: 
"(a) GENERAL RULE.—In addition to the other taxes imposed by 
this chapter, there is hereby imposed for each taxable year, with 
respect to the income of every person, a tax equal to 15 percent of the 
amount by which the sum of the items of tax preference exceeds the 
greater of— 
"(1) $10,000, or 
"(2) the regular tax deduction for the taxable year (as deter-
mined under subsection (c))." 
Poif, p. 1550. 
(b) 
CONFORMING CHANGES.— 
(1) Section 56(b) (relating to deferral of tax liability in case 
of certain net operating losses) is amended— 
(A) by striking out "$30,000" in paragraph (1)(B) and 
inserting in lieu thereof "$10,000", and 
(B) by striking out "10 percent" in paragraphs (1) and 
(2) and inserting in lieu thereof "15 percent". 
89-194 0—78—pt. 2 
6 
90 STAT. 1550 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 56. 
(2) Section 56(c) (relating to tax carryovers) is amended to 
read as follows: 
"(c) REGULAR TAX DEDUCTION DEFINED.—For purposes of this sec-
tion, the term 'regular tax deduction' means an amount equal to one-
half of (or in the case of a corporation, an amount equal to) the taxes 
imposed by this chapter for the taxable year (computed without regard 
to this part and without regard to the taxes imposed by sections 
72(m) (5) (B), 402(e), 408(f), 531, and 541), reduced by the sum of 
the credits allowable under— 
Post, p. 1643. 
"(1) section 33 (relating to foreign tax credit), 
Post, p. 1559. 
" (9S section 37 (relating to credit for the elderly), 
" (3) section 38 (relating to investment credit), 
"(4) section 40 (relating to expenses of work 
incentive 
program), 
"(5) section 41 (relating to contributions to candidates for 
public office), 
"^6) section 42 (relating to general tax credit), 
"(7) section 44 (relating to purchase of new principal resi-
dence) , and 
Post, p. 1563. 
"(8) section 44A (relating to expenses for household and 
dependent care services necessary for gainful employment)." 
(c) ADDITIONAL TAX PREFERENCE ITEMS.— 
(1) ADDITIONAL PREFERENCE ITEMS.— 
26 use 57. 
(A) Section 57(a) (relating to items of tax preference) 
is amended by striking out paragraph (1) and inserting in 
lieu thereof the following: 
"(1) 
EXCESS ITEMIZED DEDUCTIONS.—An amount equal to the 
excess itemized deductions for the taxable year (as determined 
under subsection (b))." 
(B) Section 57(a) (relating to items of tax preference) 
is amended by striking out the matter following paragraph 
(10) and inserting in lieu thereof the following: 
"(11) INTANGIBLE DRILLING COSTS.—The excess of the intangible 
drilling and development costs described in section 263(c) paid or 
incurred in connection with oil and gas wells (other than costs 
incurred in drilling a nonproductive well) allowable under this 
chapter for the taxable year over the amount which would have 
been allowable for the taxable year if such costs had been cap-
italized and straight line recovery of intangibles (as defined in 
subsection (d)) had been used with respect to such costs. 
Paragraphs (1), (3), and (11) shall not apply to a corporation." 
(C) Section 57(a)(3) (relating to accelerated deprecia-
tion on personal property subject to a net lease) is amended 
to read as follows: 
"(3) 
ACCELERATED DEPRECIATION ON LEASED PERSONAL PROP-
ERTY.—With respect to each item of section 1245 property (as 
defined in section 1245(a)(3)) which is subject to a lease, the 
amount by which— 
• ' • ' ' ' 
"(-^) the deduction allowable for the taxable year for 
depreciation or amortization, exceeds 
" ( B ) the deduction which would have been allowable for 
the taxable year had the taxpayer depreciated the property 
under the straight-line method for each taxable year of its 
useful life for which the taxpayer has held the property. 
For purposes of subparagraph (B), useful life shall be determined 
as if section 167(m)(l) (relating to asset depreciation range) 
did not include the last sentence thereof." 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1551 
(2) EXCESS ITEMIZED DEDUCTIONS DEFINED.—^Section 67(b) is 
26 USC 57. 
amended to read as follows: 
"(b) EXCESS ITEMIZED DEDUCTIONS.— 
"(1) I N GENERAL.—For purposes of paragraph (1) of subsection 
(a), the amount of the excess itemized deductions for any taxable 
year is the amount by which the sum of the deductions for the 
taxable year other than— 
" ( A ) deductions allowable in arriving at adjusted gross 
income, 
"(B) the standard deduction provided by section 141, 
"(C) the deduction for personal exemptions provided by 
section 151, 
" ( D ) the deduction for medical, dental, etc., expenses pro-
vided by section 213, and 
" ( E ) the deduction for casualty losses described in section 
165(c)(3), 
exceeds 60 percent (but does not exceed 100 percent) of the tax-
payer's adjusted gross income for the taxable year. 
"(2) SPECIAL RULE FOR TRUSTS AND ESTATES.—In the case of a 
trust or estate, any deduction allowed or allowable for the taxable 
year— 
"(A) under section 642(c) (but only to the extent that the 
amount of the deduction allowable under such section is in-
cluded in the income of the beneficiary under section 662(a) 
(1) for the taxable year of the beneficiary with which or 
within which the taxable year of the trust ends); 
" ( B ) under section 642'(d), 642(e), 642(f), 651 (a), 661 (a), 
or 691; or 
"(C) for costs paid or incurred in connection with the 
administration of the trust or estate; 
shall, for purposes of paragraph (1), be treated as a deduction 
allowable in arriving at an adjusted gross income." 
(3) STRAIGHT LINE RECOVERY OF INTANGIBLES DEFINED.—Section 
, 
57 is amended by adding at the end thereof the following new 
subsection: 
" ( d ) STRAIGHT L I N E RECOVERY OF INTANGIBLES DEFINED.—For pur-
poses of paragraph (11) of subsection (a)— 
^"^C' P- 1550. 
" (1) I N GENERAL.—The term 'straight line recovery of intangi-
bles', when used with respect to intangible drilling and develop-
ment costs for any well, means (except in the case of an election 
under paragraph (2)) ratable amortization of such costs over 
the 120-month period beginning with the month in which pro-
duction from such well begins. 
"(2) ELECTION.—If the taxpayer elects, at such time and in 
such manner as the Secretary may by regulations prescribe, with 
respect to the intangible drilling and development costs for any 
well, the term 'straight line recovery of intangibles' means any 
method which would be permitted for purposes of determining 
cost depletion with respect to such well and which is selected by 
the taxpayer for purposes of subsection (a) (11)." 
(4) S P E C I A L RULES FOR TIMBER.— 
(A) 
PREFERENCE REDUCTION FOR TIMBER.—Section 57(a) 
(9) is amended by adding at the end thereof the following 
new subparagraph: 
" ( C ) PREFERENCE REDUCTION FOR TIMBER.—In the case of a 
corporation, the amount of the tax preference under sub-
90 STAT. 1552 
PUBLIC LAW 94-455—OCT. 4, 1976 
paragraph (B) shall be reduced (but not below zero) by the 
sum of— 
"(i) one-third of the corporation's timber preference 
income (as defined in subsection (e)), plus 
"(ii) $20,000, 
but in no event shall this reduction exceed the amount of 
timber preference income." 
(B) REGULAR TAX DEDUCTION ADJUSTMENTS FOR TIMBER.— 
26 use 56. 
Section 56 is amended by adding at the end thereof the fol-
lowing new subsections: 
"(d) 
REGULAR TAX DEDUCTION ADJUSTMENT FOR TIMBER.—In the 
case of a corporation, the regular tax deduction (as determined under 
Ante, p. 1550. 
subsection (c)) shall be reduced by an amount equal to the lesser of— 
"(1) one-third of the amount determined under subsection (c) 
without regard to this subsection, or 
"(2) the preference reduction for timber determined under 
Ante, p. 1551. 
section 57(a) (9) (C). 
"(e) TAX CARRYOVER FOR TIMBER.— 
"(1) I N GENERAL.—In the case of a corporation, if for any tax-
able year, including a taxable year beginning before January 1, 
1976— 
"(A) the taxes imposed by this chapter (computed with-
out regard to this part and without regard to the tax imposed 
by section 531) which, under regulations prescribed by the 
Secretary, are attributable to income from timber, reduced 
by the sum of the credits allowable under— 
Post, p. 1643. 
" (i) section 33 (relating to foreign tax credit), 
"(ii) section 38 (relating to investment credit), and 
"(iii) section 40 (relating to expenses of work incen-
tive programs), exceed 
"(B) the items of tax preference (as determined under 
section 57), 
then the excess of the taxes described in subparagraph (A) over 
the items of tax preference shall be a tax carryover to each of the 
7 taxable years following such year. The entire amount of the 
excess shall be carried to the first of such 7 taxable years, and then 
• 
to each of the other such taxable years to the extent that such 
excess is not used to reduce the amount subject to tax under sub-
section (a) for a prior taxable year to which such excess may be 
carried. 
"(2) LIMITATION.—The amount of any carryover under para-
graph (1) which may be deducted in a taxable year shall be 
limited to— 
" (A) the excess of— 
"(i) the amount of timber preference income for the 
taxable year (as defined in section 57(e)), over 
"(ii) 
the amount determined 
under section 57 
(a) (9) (C) for the taxable year, 
"(B) reduced by the excess of— 
"(i) the regular tax deduction for the taxable year 
(as determined under subsection (c) without regard to 
' 
this subsection), over 
"(ii) the amount determined under subsection (d) for 
the taxable year." 
26 use 57. 
(C) TIMBER PREFERENCE INCOME DEFINED.—Section 57 is 
amended by adding at the end thereof the following new 
subsection: 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1553 
"(e) TIMBER PREFERENCE INCOME DEnNED,—For purposes of this 
part, the term 'timber preference income' means the sum of— 
" (1) the gains referred to in section 631 (a) and section 631 (b), 
26 USC 631. 
" (2) long-term capital gains on timber, and 
"(3) gains on the sale of timber included in paragraph 1231 
(b)(1), 
multiplied by the fraction determined in paragraph 5 7 ( a ) ( 9 ) ( B ) . " 
(d) AMENDMENTS OF SECTION 58.—Section 58 (relating to rules for 26 USC 58. 
application of part) is amended— 
(1) by striking out subsection (a) and inserting in lieu thereof 
the following: 
" ( a ) MARRIED INDIVIDUALS FILJNG SEPARATE EETTJRNS.—In the case 
of a married individual who files a separate return for the taxable 
year, section 56 shall be applied by substituting $5,000 for $10,000 each 
place it appears.", 
(2) by striking out "$30,000" each place it appears in subsections 
(b) and (c)(2) and inserting in lieu thereof "$10,000", and 
(3) by adding at the end thereof the following new subsections: 
" (h) REGULATIONS To INCLUDE TAX BENEFIT RULE.—The Secretary 
shall prescribe regulations under which items of tax preference shall 
be properly adjusted where the tax treatment giving rise to such items 
will not result in the reduction of the taxpayer's tax under this subtitle 
for any taxable years. 
"(i) 
CORPORATION DEFINED.—Except as provided in subsection 
( d ) ( 2 ) , for purposes of this part, the term 'corporation' does not 
include an electing small business corporation (as defined in section 
1371(b)) or a personal holding company (as defined in section 542)." 
(e) CONFORMING AMENDMENT.—Subsection (d) of section 443 (re- 
26 USC 443. 
lating to adjustment in exclusion for computing minimum tax for tax 
preferences) is amended by striking out "$30,000" and inserting in 
lieu thereof "$10,00O". 
(f) SECTION 21 NOT To APPLY.—For purposes of section 21 of the 26 USC 56 note. 
Internal Revenue Code of 1954, the amendments made by this section 
shall not be treated as a change in a rate of tax. 
(g) EFFEGTRTS DATE.— 
26 USC 56 note. 
(1) I N GENERAL.—Except as provided by paragraph (4), the 
amendments made by this section shall apply to items of tax pref-
erence for taxable years beginning after December 31,1975. 
(2) TAX CARRYOVER.—Except as provided in paragraph (4) 
and in section 56(e) of the Internal Revenue Code of 1954, ^»'e, p. 1552. 
the amount of any tax carryover under section 56 (c) of such Code 
^"^e, p. 1550. 
from a taxable year beginning before January 1, 1976, shall not 
be allowed as a tax carryover for any taxable year beginning after 
December 31,1975. 
(3) SPECIAL RULE FOR TAXABLE YEAR I 9 76 I N THE CASE OF A COR-
PORATION.—Notwithstanding any provision of the Internal Reve-
nue Code of 1954 to the contrary, in the case of a corporation 
26 USC 1 et seq. 
which is not an electing small business corporation or a personal 
holding company the tax imposed by section 56 of such Code for 
taxable years beginning in 1976, is an amount equal to the sum 
of— 
(A) the amount of the tax which would have been imposed 
for such taxable year under such section as such section was 
in effect on the day before the date of the enactment of the Ante p 1520 
Tax Reform Act of 1976, and 
(B) one-half of the amount by which the amount of the 
tax which would be imposed for such taxable year under such 
90 STAT. 1554 
PUBLIC LAW 94-455—OCT. 4, 1976 
Ante, p. 1520. 
section as amended by the Tax Reform Act of 1976 (but for 
this paragraph) exceeds the amount determined under sub-
paragraph ( A ) . 
(4) CERTAIN FINANCIAL INSTITUTIONS.—In the case of a taxpayer 
which is a financial institution to which section 585 or 593 of the 
Internal Revenue Code of 1954 applies, the amendments made by 
this section shall apply only to taxable years beginning after 
.'" 
' 
December 31, 1977, and paragraph (2) shall be applied by sub-
stituting "January 1, 1978" for "January 1, 1976" and by sub-
stituting "December 31,1977" for "December 31,1975". 
SEC. 302. MAXIMUM TAX. 
(a) I N GENERAL.—Section 1348 (relating to 50-percent maximum 
rate on earned income) is amended to read as follows: 
26 use 1348. 
"SEC. 1348. 50-PERCENT MAXIMUM RATE ON PERSONAL SERVICE IN-
COME. 
"(a) 
GENERAL RULE.—If for any taxable year an individual has 
personal service taxable income which exceeds the amount of taxable 
income specified in paragraph (1), the tax imposed by section 1 for 
26 use 1301. 
such year shall, unless the taxpayer chooses the benefits of part I 
(relating to income averaging), be the sum of— 
"(1) the tax imposed by section 1 on the highest amount of tax-
able income on which the rate of tax does not exceed 50 percent, 
" (2) 50 percent of the amount by which his personal service tax-
able income exceeds the amount of taxable income specified in 
paragraph (1) of this subsection, and 
"(3) the excess of the tax computed under section 1 without 
regard to this section over the tax so computed with refei-ence 
solely to his personal service taxable income. 
"(b) DEFINITIONS.—For purposes of this section— 
"(1) PERSONAL SERVICE INCOME.— 
.t. 
" ( A ) I N GENERAL.—The term 'personal service income' 
means any income which is earned income within the mean-
ing of section 401(c)(2)(C) or section 911(b) or which is 
M < • •. . 
; 
an amount received as a pension or annuity. 
"(B) EXCEPTIONS.—The term 'personal service income* does 
not include any amount— 
"(i) to which section 72(m)(5), 402(a)(2), 402(e), 
403(a)(2), 408(e)(2), 408(e)(3), 408(e)(4), 408(e) 
,, 
. 
(5),408(f),or 409(c) applies; or 
pj; 
"(ii) which is includible in gross income under section 
409(b) because of the redemption of a bond which was 
not tendered before the close of the taxable year in which 
the registered owner attained age 70^4. 
"(2) PERSONAL SERVICE TAXABLE INCOME.—The personal service 
taxable income of an individual is the excess of— 
. ,
,
^ 
"(A) the amount which bears the same ratio (but not in 
* 
excess of 100 percent) to his taxable income as his personal 
service net income bears to his adjusted gross income, over 
"(B) the sum of the items of tax preference (as defined in 
section 57) for the taxable year. 
For purposes of subparagraph (A), the term 'personal service net 
income' means personal service income reduced by any deductions 
allowable under section 62 which are properly allocable to or 
'^ ' 
chargeable against such earned income. 
"(c) MARRIED INDIVIDUALS.—This section shall apply to a married 
individual only if such individual and his spouse make a single return 
jointly for the taxable year." 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1555 
(b) CLERICAL AMENDMENT.—The table of sections for part V I of 
subchapter Q of chapter 1 is amended by striking out the item relating 
to section 1348 and inserting in lieu thereof the following: 
"Sec. 1348. 50-percent maximum rate on personal service income." 
(c) CONFORMING AMENDMENTS.—Section 1304(b) (5) is amended by 
26 USC 1304. 
striking out "earned" and inserting in lieu thereof "personal service". 
(d) EFFECTIVE DATE.—The amendments made by this section apply 
26 USC 1348 
to taxable years beginning after December 31,1976. 
note. 
TITLE IV—EXTENSIONS OF INDIVIDUAL 
INCOME TAX REDUCTIONS 
SEC. 401. EXTENSIONS OF INDIVIDUAL INCOME TAX REDUCTIONS. 
(a) GENERAL TAX CREDIT.— 
(1) 1-YEAR EXTENSION OF CREDIT.—Sectiou 3(b) of the Revenue 
Adjustment Act of 1975 is amended by striking out "December 31, 
26 USC 42 note. 
1976" and inserting in lieu thereof "December 31,1977". 
(2) TECHNICAL AMENDMENTS.— 
(A) The heading and subsection (a) of section 42 (relat-
ing to allowance of taxable income credit) are amended to 
read as follows: 
"SEC. 42. GENERAL TAX CREDIT. 
26 USC 42. 
"(a) ALLOWANCE OF CREDIT.—In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this chapter for 
the taxable year an amount equal to the greater of— 
"(1) 2 percent of so much of the taxpayer's taxable income for 
the taxable year as does not exceed $9,000; or 
"(2) $35 multiplied by each exemption for which the taxpayer 
is entitled to a deduction for the taxable year under subsection 
(b) or (e) of section 151." 
(B) Paragraph (1) of section 42(c) (relating to special 
rule for married individuals filing separate returns) is 
amended to read as follows: 
"(1) I N GENERAL.—Notwithstanding subscctiou (a), in the case 
of a married individual who files a separate return for the tax-
able year, the amount of the credit allowable under subsection (a) 
for the taxable year shall be equal to either— 
"(A) the amount determined under paragraph (1) of sub-
section (a) ; or 
" ( B ) if this subparagraph applies to the individual for the 
taxable year, the amount determined under paragraph (2) 
of subsection (a). 
For purposes of the preceding sentence, paragraph (1) of sub-
section (a) shall be applied by substituting '$4,500' for '$9,000'." 
(C) Section 6096(b) (relating to designation of income 
26 USC 6096. 
tax payments to Presidential Election Campaign Fund), as 
in effect on the day before the date of the enactment of the Tax 
Keduction Act of 1975, is amended by striking out "and 41" ^«'e, p. 1520. 
and inserting in lieu thereof "41, and 42". 
(D) The table of sections for subpart A of part I V of 
subchapter A of chapter 1 is amended by striking out the 
item relating to section 42 and inserting in lieu thereof the 
following: 
"Sec. 42. General tax credit." 
90 STAT. 1556 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 141. 
(b) STANDARD DEDUCTION.— 
(1) Low INCOME ALLOWANCE.—Subsection (c) of section 141 
(relating to low income allowance) is amended to read as follows: 
"(c) Low INCOME ALLOWANCE.—The low income allowance is— 
"(1) $2,100 in the case of— 
" ( A ) a joint return under section 6013, or 
"(B) a surviving spouse (as defined in section 2 ( a ) ) , 
" (2) $1,700 in the case of an individual who is not married and 
who is not a surviving spouse (as so defined), or 
" (3) $1,050 in the case of a married individual filing a separate 
return.". 
(2) PERCENTAGE STANDARD DEDUCTION.—Subsection (b) of sec-
tion 141 (relating to percentage standard deduction) is amended 
to read as follows: 
"(b) PERCENTAGE STANDARD DEDUCTION.—The percentage standard 
deduction is an amount equal to 16 percent of adjusted gross income, 
but not more than— 
"(1) $2,800 in the case of— 
" (A) a joint return under section 6013, or 
" ( B ) a surviving spouse (as defined in section 2 ( a ) ) , 
"(2) $2,400 in the case of an individual who is not married 
and who is not a surviving spouse (as so defined), or 
"(3) $1,400 in the case of a married individual filing a separate 
return." 
26 use 6012. 
(3) FILING REQUIREMENTS.—So much of paragraph (1) of sec-
tion 6012(a) (relating to persons required to make returns of 
income) as precedes subparagraph (C) thereof is amended to read 
as follows: 
"(1) (A) Every individual having for the taxable year a gross 
income of $750 or more, except that a return shall not be i-equired 
of an individual (other than an individual referred to in section 
. r 
142(b)) — 
"(i) who is not married (determined by applying section 
143), is not a surviving spouse (as defined in section 2 ( a ) ) , 
and for the taxable vear has a gross income of less than 
$2,450, 
" (ii) who is a surviving spouse (as so Refined) and for the 
taxable year has a gross income of less than $2,850, or 
"(iii) who is entitled to make a joint return under section 
6013 and whose gross income, when combined with the gross 
income of his spouse, is, for the taxable year, less than $3,600 
but only if such individual and his spouse, at the close of the 
taxable year, had the same household as their home. 
Clause (iii) shall not apply if for the taxable year such spouse 
makes a separate return or any other taxpayer is entitled to an 
exemption for such spouse under section 151 (e). 
" ( B ) The amount specified in clause (i) or (ii) of subpara-
graph (A) shall be increased by $750 in the case of an individual 
i 
entitled to an additional personal exemption under section 151 
(c) (1), and the amount specified in clause (iii) of subparagraph 
(A) shall be increased bv $750 for each additional personal 
exemption to which the individual or his spouse is entitled under 
section 151(c);". 
(c) EARNED INCOME CREDIT.— 
(1) EXTENSION OF CREDIT.— 
? » * ; • = ; 
/ 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1557 
(A) Section 209(b) of the Tax Reduction Act of 1975 is 26USC43note. 
amended by striking out "January 1, 1977" and inserting in 
lieu thereof "January 1, 1978". 
(B) Subsections (a) and (b) of section 43 (relating to 
26 USC 43. 
earned income credit,) are amended to read as follows: 
" ( a ) ALLOWANCE or CREDIT.—In the case of an eligible individual, 
there is allowed as a credit against the tax imposed by this chapter 
for the taxable year an amount equal to 10 percent of so much of the 
earned income for the taxable year as does not exceed $4,000. 
"(b) LIMITATION.—The amount of the credit allowable to a tax-
payer under subsection (a) for any taxable year shall be reduced (but 
not below zero) by an amount equal to 10 percent of so much of the 
adjusted gross income (or, if greater, the earned income) of the 
taxpayer for the taxable year as exceeds $4,000." 
(2) DEFINITION OF ELIGIBLE INDIVIDUAL.—Subparagraph (A^ 
of section 43(c) (1) (relating to definition of eligible individual) 
is amended to read as follows: 
" ( A ) maintains a household (within the meaning of sec-
tion 44A(f) (1)) in the United States which is the principal 
Post, p. 1563. 
place of abode of that individual and— 
"(i) a child of that individual if such child meets the 
requirements of section 151(e) (1) (B) (relating to addi-
tional exemptions for dependents), or 
"(ii) a child of that individual who is disabled 
(within the meaning of section 72(m) (7)) and with 
respect to whom that individual is entitled to claim a 
deduction under section 151; and", 
(d) WITHHOLDING AMENDMENTS.— 
(1) Subsection (a) of section 3402 (relating to income tax 26 USC 3402. 
collected at source) is amended to read as follows: 
" ( a ) 
REQUIREMENT or WITHHOLDING.—Except as otherwise pro-
vided in this section, every employer making payment of wages 
shall deduct and witlihold upon such wages a tax determined in 
accordance with tables prescribed by the Secretary. With respect to 
wages paid prior to January 1, 1978, the tables so prescribed shall 
be the same as the tables prescribed under this section which were in 
eifect on January 1, 1976. With respect to wages paid after Decem-
ber 31,1977, the Secretary shall prescribe new tables which 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 to subsections 
(b) and (c) of section 141 by the Tax Reform Act of 1976. For Ante, p. 1556. 
purposes of applying such taliles, the term 'the amount of wages' 
"The amount of 
means the amount by which the wages exceed the number of with- 
wages." 
holding exemptions claimed, multiplied by the amount of one such 
exemption as shown in the table in subsection (b) (1)." 
(2) Paragraph 
(6) of section 3402(c) 
(relating to wage 
bracket withholding), as such paragraph was in effect on the 
day before the date of the enactment of the Tax Reduction Act 
of 1975, is amended by striking out "table 7 contained in sub- 26 USC 1 note, 
section ( a ) " and inserting in lieu thereof "the table for an 
annual payroll period prescribed pursuant to subsection (a)". 
(3) Subparagraph (B) of section 3402(m) (1) (relating to 
withholding allowance based on itemized deductions) is amended 
to read as follows: 
" ( B ) an amount equal to the lesser of (i) 16 percent of his 
estimated wages, or (ii) $2,800 ($2,400 in the case of an individual 
90 STAT. 1558 
PUBLIC LAW 94-455—OCT. 4, 1976 
who is not married (within the meaning of section 143) and who 
is not a surviving spouse (as defined in section 2 ( a ) ) ) . " 
26 use 42 note. 
(e) EFFECTIVE DATES.—The amendments made by subsections (a) 
and (c) shall apply to taxable years ending after December 31, 1975, 
and shall cease to apply to taxable years ending after December 31, 
1977. The amendments made by subsection (b) shall apply to taxable 
years ending after December 31, 1975. The amendments made by 
subsection (d) shall apply to wages paid after September 14, 1976. 
SEC. 402. REFUNDS OF EARNED INCOME CREDIT DISREGARDED IN 
THE ADMINISTRATION OF FEDERAL PROGRAMS AND FED-
ERALLY ASSISTED PROGRAMS. 
(a) Subsection (d) of section 2 of the Revenue Adjustment Act of 
26 use 43 note. 
1975 jg amended by striking out "which begins prior to July 1,1976,". 
26 use 43 note. 
(b) Subsection (g) of section 2 of such Act is amended to read as 
follows: 
"(g) EFFECTIVE DATES.—The amendments made by this section 
(other than by subsection ( d ) ) apply to taxable years ending after 
1
^ „ 
December 31,1975, and before January 1,1978. Subsection (d) applies 
to taxable years ending after December 31,1975." 
TITLE V—TAX SIMPLIFICATION IN THE 
INDIVIDUAL INCOME TAX 
SEC. 501. REVISION OF TAX TABLES FOR INDIVIDUALS. 
26 use 3. 
(a) I N GENERAL.—Section 3 (relating to optional tax tables for 
individuals) is amended to read as follows: 
"SEC. 3. TAX TABLES FOR INDIVIDUALS HAVING TAXABLE INCOME 
OF LESS THAN $20,000. 
"(a) 
GENERAL RULE.—In lieu of the tax imposed by section 1, 
there is hereby imposed for each taxable year on the taxable income 
of every individual whose taxable income for such year does not 
exceed $20,000, a tax determined under tables, applicable to such 
taxable year, which shall be prescribed by the Secretary. In the 
tables so prescribed, the amounts of tax shall be computed on the 
basis of the rates prescribed by section 1. 
"(b) T A X TREATED AS IMPOSED BY SECTION 1.—For purposes of 
this title, the tax imposed by this section shall be treated as tax 
imposed by section 1." 
(b) CONFORMING AMENDMENTS.— 
26 use 4. 
(1) Section 4 (relating to rules for optional tax) is hereby 
repealed. 
26 use 36. 
(2) Section 36 (relating to credits not allowed to individuals 
paying optional tax or taking standard deduction) is amended— 
(A) by striking out "PAYING OPTIONAL TAX OR" in the 
heading; and 
(B) by striking out "elects to pay the optional tax imposed 
by section 3, or if he'* in such section. 
26 use 144. 
(3) Subsection (a) of section 144 (relating to election of stand-
ard deduction) is amended to read as follows: 
"(a) METHOD OF ELECTION.—The standard 
deduction shall be 
allowed if the taxpayer so elects in his return, and the Secretary shall 
prescribe the manner of signifying such election in the return. . 
(4) Subsection (c) of section 144 is amended— 
(A) by striking out paragraph ( 2 ) ; 
(B) by inserting "or" at the end of paragraph (1) ; and 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1559 
(C) by redesignating paragraph (3) as paragraph (2). 
(5) Subsection (d) of section 144 is hereby repealed. 
26 USC 144. 
(6) Section 1211(b)(3) (relating to computation of taxable 26 USC 1211. 
income for purposes of limitation on capital losses) is amended by 
striking out the last sentence thereof. 
(7) Section 1304(b) (relating to certain provisions inapplicable 26 USC 1304. 
for income averaging) is amended by striking out paragraph (1) 
and by redesignating paragraphs (2), (3), (4), and (5) as para-
graphs (1), (2), (3), and (4), respectively. 
(8) Section 6014(a) (relating to tax not computed by taxpayer) 
26 USC 6014. 
is amended— 
(A) by striking out in the first sentence "entitled to elect 
to pay the tax imposed by section 3" and inserting in lieu ^'»'«' P- 1558. 
thereof "entitled to take the standard deduction provided by 
section 141 (other than an individual described in section 
141(e))"; and 
(B) by striking out in the second sentence "pay the tax 
imposed by section 3"' and inserting in lieu thereof "take the 
standard deduction*'. 
(9) Paragraph (5) of section 6014(b) is amended to read as 
follows: 
"(5) to cases where the taxpayer does not elect the standard 
deduction or where the taxpayer elects the standard deduction 
but is subject to the provisions of section 141(e) (relating to 
limitations in case of certain dependent taxpayers)." 
(c) CLERICAL AMENDMENTS.— 
(1) The table of sections for part I of subchapter A of chap-
ter 1 is amended by striking out the items relating to sections 3 
and 4 and inserting in lieu thereof: 
"Sec. 3. Tax tables for individuals having taxable income of less than 
$20,000." 
(2) The table of sections for part I V of subchapter A of 
chapter 1 is amended by striking out "paying optional tax or" in 
the item relating to section 36. 
SEC. 502. DEDUCTION FOR ALIMONY ALLOWED IN DETERMINING 
ADJUSTED GROSS INCOME. 
(a) I N GENERAL.—Section 62 (defining adjusted gross income) is 26 USC 62. 
amended by inserting after paragraph (12) the following new 
paragraph: 
"(13) ALI3IONY.—The deduction allowed by section 215." 
(b) CONFORMING AMENDMENT.—The first sentence of subparagraph 
(A) of section 3402(m) (2) (relating to withholding allowances based 
26 USC 3402. 
on itemized deductions) is amended by striking out "under section 62" 
and inserting in lieu thereof "under section 62 (other than paragraph 
(13) thereof)". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 62 note, 
apply to taxable years beginning after December 31,1976. 
SEC. 503. REVISION OF RETIREMENT INCOME CREDIT. 
(a) I N GENERAL.—Section 37 (relating to retirement income) is 26 USC 37, 
amended to read as follows: 
"SEC. 37. CREDIT FOR THE ELDERLY. 
"(a) GENERAL RULE.—In the case of an individual who has attained 
age €5 before the close of the taxable year, there shall be allowed as 
a credit against the tax imposed by this chapter for the taxable year 
an amount equal to 15 percent of such individual's section 37 amount 
for such taxable year. 
90 STAT. 1560 
PUBLIC LAW 94-455—OCT. 4, 1976 
42 use 401. 
45 use 215— 
228 notes, 228a. 
26 use 72. 
Post, p. 1926. 
26 use 1. 
"Joint return. 
"(b) SECTION 37 AMOUNT.—For purposes of subsection (a) — 
"(1) I N GENERAL.—An individual's section 37 amount for the 
taxable year is the applicable initial amount determined under 
paragraph (2), reduced as provided in paragraph (3) and in 
subsection (c). 
"(2) INITIAL AMOUNT.—The initial amount is— 
"^A) $2,500 in the case of a single individual, 
" ( B ) $2,500 in the case of a joint return where only one 
spouse is eligible for the credit under subsection ( a ) , 
"(C) $3,750 in the case of a joint return where both spouses 
are eligible for the credit under subsection (a), or 
" ( D ) $1,875 in the case of a married individual filing a 
separate return. 
"(3) REDUCTION.—The reduction under this paragraph is an 
amount equal to the sum of the amounts received by the indi-
vidual (or, in the case of a joint return, by either spouse) as a 
pension or annuity— 
"(A) under title I I of the Social Security Act, 
" ( B ) under the Railroad Retirement Act of 1935 or 1937, 
or 
"(C) otherwise excluded from gross income. 
No reduction shall be made under this paragraph for any amount 
excluded from gross income under section 72 (relating to annui-
ties), 101 (relating to life insurance proceeds), 104 (relating to 
compensation for injuries or sickness), 105 (relating to amounts 
received under accident and health plans), 120 (relating to 
amounts received under qualified group legal services plans), 402 
(relating to taxability of beneficiary of employees' trust), 403 
(relating to taxation of employee annuities), or 405 (relating to 
qualified bond purchase plans). 
"(c) 
LIMITATIONS.— 
"(1) 
ADJUSTED GROSS INCOME LIMITATION.—If the 
adjusted 
gross income of the taxpayer exceeds— 
"(A) $7,500 in the case of a single individual, 
" ( B ) $10,000 in the case of a joint return, or 
"(C) $5,000 in the case of a married individual filing a 
separate return, 
the section 37 amount shall be reduced by one-half of the excess 
of the adjusted gross income over $7,500, $10,000, or $5,000, as 
the case may be. 
"(2) LIMITATION BASED ON AMOUNT or TAX.—The amount of 
the credit allowed by this section for the taxable year shall not 
exceed the amount of the tax imposed by this chapter for such 
taxable year. 
" ( d ) 
DEFINITIONS AND SPECIAL 
RULES.—For purposes of 
this 
section— 
"(1) 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 tax-
able year, the credit provided by this section shall be allowed only 
if the taxpayer and his spouse file a joint return for the taxable 
year. 
" (2) MARITAL STATUS.—Marital status shall be determined under 
section 143. 
"(3) JOINT RETURN.—The term 'joint return' means the joint 
return of a husband and wife made under section 6013. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1561 
" (e) ELECTION OF PRIOR LAW W I T H RESPECT TO PUBLIC RETIREMENT 
SYSTEM INCOME.— 
"(1) I N GENERAL.—In the case of a taxpayer who has not 
' 
attained age 65 before the close of the taxable year (other than a 
married individual whose spouse has attained age 65 before the 
close of the taxable year), his credit (if any) under this section 
shall be determined under this subsection. 
"(2) O N E SPOUSE AGE 65 OR OVER.—In the case of a married 
individual who has not attained age 65 before the close of the tax-
able year but whose spouse has attained such age, this paragraph 
shall apply for the taxable year only if both spouses elect, at such 
time and in such manner as the Secretary shall by regulations pre-
scribe, to have this paragraph apply. If this paragraph applies 
for the taxable year, the credit (if any) of each spouse under this 
section shall be determined under this subsection. 
"(3) 
COMPUTATION OF CREDIT.—In the case of an individual 
whose credit under this section for the taxable year is determined 
v 
under this subsection, there shall be allowed as a credit against 
the tax imposed by this chapter for the taxable year an amount 
equal to 15 percent of the amount received by such individual as 
retirement income (as defined in paragraph (4) and as limited 
by paragraph (5)). 
" (4) RETIREMENT INCOME.—For purposes of this subsection, the "Retirement 
term 'retirement income' means— 
income. 
"(A) in the case of an individual who has attained age 65 
before the close of the taxable year, income from— 
"(i) pensions and annuities (including, in the case of 
an individual who is, or has been, an employee within 
the meaning of section 401 (c) (1), distributions by a trust 
26 USC 401. 
described in section 401(a) which is exempt from tax 
under section 501 ( a ) ) , 
"(ii) interest, 
"(iii) rents, 
. 
•: 
• • 
"(iv) dividends, 
"(v) bonds described in section 405(b) (1) which are 
received under a qualified bond purchase plan described 
in section 405(a) or in a distribution from a trust 
described in section 401(a) which is exempt from tax 
under section 501(a), or retirement bonds described in 
section 409, and 
"(vi) an individual retirement account described in 
section 408(a) or an individual retirement annuity 
described in section 408 (b), or 
" ( B ) in the case of an individual who has not attained age 
65 before the close of the taxable year, income from pensions 
and annuities under a public retirement system (as defined 
in paragraph (8) ( A ) ) , 
to the extent included in gross income without reference to this 
subsection, but only to the extent such income does not represent 
compensation for personal services rendered during the taxable 
year. 
" (5) LIMITATION ON RETIREMENT INCOME.—For purposes of this 
subsection, the amount of retirement income shall not exceed 
$2,500 less— 
" ( A ) the reduction provided by subsection (b)(3), and 
" ( B ) in the case of any individual who has not attained 
age 72 before the close of the taxable year— 
90 STAT. 1562 
PUBLIC LAW 94-455—OCT. 4, 1976 
';i:; 
"(i) if such individual has not attained age 62 before 
the close of the taxable year, any amount of earned 
income (as defined in paragraph ( 8 ) ( B ) ) in excess of 
$900 received by such individual in the taxable year, or 
"(ii) if such individual has attained age 62 before the 
close of the taxable year, the sum of one-half the amount 
of earned income received by such individual in the tax-
able year in excess of $1,200 but not in excess of $1,700, 
and the amount of earned income so received in excess 
of $1,700. 
"(6) LiMiTATLOx IX CASE OF MAKiuED INDIVIDUALS.—In the case 
of a joint return, paragraph (5) shall be applied by substituting 
'$3,750' for '$2,500'. The $3,750 provided by the preceding sentence 
shall be divided between the spouses in such amounts as may be 
agreed on by them, except that not more than $2,500 may be 
assigned to either spouse. 
" (7) LIMITATION IX THE CASE OF SEPARATE RETURNS.—In the case 
of a married individual filing a separate return, paragraph (5) 
shall be applied by substituting '$1,875' for '$2,500'. 
"(8) DEFINITIONS.—For purposes of this subsection— 
" (A) PUBLIC RETIREMENT SYSTJ^I DEFINED.—The term 'pub-
lic retirement system' means a pension, annuity, retirement, 
' 
or similar fund or system established by the United States, 
a State, a possession of the United States, any political sub-
division of any of the foregoing, or the District of Columbia. 
"(B) EARNED INCOME.—The term 'earned income' has the 
meaning assigned to such term by section 911(b), except 
that such term does not include any amount received as a 
pension or annuity. 
"(f) 
NONRESIDENT ALIEN INELIGIBLE FOR CREDIT.—No credit shall 
be allowed under this section to any nonresident alien." 
(b) TECHNICAL AMENDMENTS.— 
26 use 904. 
(1) Section 904 (relating to limitation on foreign tax credit), 
as amended by this Act, is amended by redesignating subsection 
(g) as subsection (h), and by inserting after subsection (f) the 
following new subsection: 
"(g) COORDINATION "WITH CREDIT FOR THE ELDERLY.—In the case of 
an individual, for purposes of subsection (a) the tax against which the 
credit is taken is such tax reduced by the amount of the credit (if any) 
Ante, p. 1559. 
for the taxable year allowable under section 37 (relating to credit for 
the elderly)." 
26 use 6014. 
(2) Section 6014(a) (relating to tax not computed by tax-
payer) is amended by striking out the last sentence thereof. 
(3) Section 6014(b) is amended— 
(xV) by striking out paragraph (4), 
(B) by redesignating paragraph (5) (as amended by sec-
' 
tion 501(b) (9)) as paragraph (4), and 
(C) by inserting "or" at the end of paragraph (3). 
26 use 41, 42, 
(4) Sections 41(b) (2), 42(b) (2), 46(a) (3) (C), and 50A(a) 
'*^' ^0^- 
(3) (C) are each amended by striking out "retirement income" 
and inserting in lieu thereof "credit for the elderly". 
(5) The table of sections for subpart A of part IV of subchapter 
A of chapter 1 is amended by striking out the item relating to 
section 37 and inserting in lieu thereof the following: 
"Sec. 37. Credit for the elderly." 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1563 
SEC. 504. CREDIT FOR CHILD CARE EXPENSES. 
(a) ALLOWANCES OF CREDIT FOR CHILD CARE EXPENSES.— 
(1) I N GENERAL.—Subpart A of part I V of subchapter A of 
chapter 1 (relating to credits allowable) is amended by inserting 
before section 45 the following new section: 
"SEC. 44A. EXPENSES FOR HOUSEHOLD AND DEPENDENT CARE SERV- 26 USC 44A. 
ICES NECESSARY FOR GAINFUL EMPLOYMENT. 
"(a) 
ALLOWANCE OF CREDIT.—In the case of an individual who 
maintains a household which includes as a member one or more quali-
fying individuals (as defined in subsection ( c ) ( 1 ) ) , there shall be 
allowed as a credit against the tax imposed by this chapter for the 
taxable year an amount equal to 20 percent of the employment-related 
expenses (as defined in subsection (c)(2)) paid by such individual 
during the taxable year. 
"(b) APPLICATION W I T H OTHER CREDITS.—The credit allowed by 
subsection (a) shall not exceed the amount of the tax imposed by this 
chapter for the taxable year reduced by the sum of the credits allow-
able under— 
" (1) section 33 (relating to foreign tax credit), 
Post, P- 1643. 
" (2) section 37 (relating to credit for the elderly), 
^"^^' P- l^^^-
"(3) section 38 (relating to investment in certain depreciable 
property), 
"(4) 
section 40 (relating to expenses of work 
incentive 
programs), 
"(5) section 41 (relating to contributions to candidates for 
public office), 
"(6) section 42 (relating to general tax credit), and 
"(7) 
section 44 (relating to purchase of new principal 
residence). 
"(c) 
DEFINITIONS OF QUALIFYING INDIVIDUAL AND EMPLOYMENT-
EELATED EXPENSES.—For purposes of this section— 
"(1) 
QUALIFYING INDIVIDUAL.—The term 'qualifying individ-
ual' means— 
" ( A ) a dependent of the taxpayer who is under the age 
of 15 and with respect to whom the taxpayer is entitled to a 
deduction under section 151 (e), 
" ( B ) a dependent of the taxpayer who is physically or 
mentally incapable of caring for himself, or 
"(C) the spouse of tlie taxpayer, if he is physically or 
mentally incapable of caring for himself. 
"(2) EMPLOYMENT-RELATED EXPENSES.— 
" ( A ) I N GENERAL.—The term 'employment-related ex-
penses' means amounts paid for the following expenses, but 
only if such expenses are incurred to enable the taxpayer to 
be gainfully employed for any period for which there are 1 or 
more qualifying individuals with respect to the taxpayer: 
" (i) expenses for household services, and 
"(ii) expenses for the care of a qualifying individual. 
" ( B ) EXCEPTION.—Employment-related expenses described 
in subparagraph (A) which are incurred for services outside 
the taxpayer's household shall be taken into account only if 
incurred for the care of a qualifying individual described in 
paragraph (1) (A). 
" ( d ) DOLLAR L I M I T ON AMOUNT CREDITABLE.—The amount of the 
employment-related expenses incurred during any taxable year which 
^ 
may be taken into account under subsection (a) shall not exceed— 
90 STAT. 1564 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(1) $2,000 if there is 1 qualifying individual with respect to 
the taxpayer for such taxable year, or 
"(2) $4,000 if there are 2 or more qualifying individuals with 
respect to the taxpayer for such taxable year. 
"(e) 
EARNED INCOME LIMITATION.— 
"(1) I N GENERAL.—Except as otherwise provided in this sub-
section, the amount of the employment-related expenses incurred 
during any taxable year which may be taken into account under 
subsection (a) shall not exceed— 
" (A) in the case of an individual who is not married at the 
close of such year, such individual's earned income for such 
year, or 
" ( B ) in the case of an individual who is married at the 
close of such year, the lesser of such individual's earned 
income or the earned income of his spouse for such year. 
"(2) 
SPECIAL RULE FOR SPOUSE WHO IS A STUDENT OR INCAPABLE 
OF CARING FOR HIMSELF.—In the case of a spouse who is a student 
or a qualifying individual described in subsection ( c ) ( 1 ) ( C ) , for 
purposes of paragraph (1), such spouse shall be deemed for each 
month during which such spouse is a full-time student at an ed-
ucational institution, or is such a qualifying individual, to be 
gainfully employed and to have earned income of not less than— 
" ( A ) $166 if subsection (d)(1) applies for the taxable 
year, or 
"(B) $333 if subsection (d)(2) applies for the taxable 
year. 
In the case of any husband and wife, this paragraph shall apply 
with respect to only one spouse for any one month. 
"(f) 
SPECIAL RULES.—For purposes of this section— 
" (1) MAINTAINING HOUSEHOLD.—An individual shall be treated 
as maintaining a household for any period only if over half the 
cost of maintaining the household for such period is furnished 
by such individual (or, if such individual is married during such 
period, is furnished by such individual and his spouse). 
"(2) 
MARRIED COUPLES MUST FILE JOINT RETURN.—If the tax-
payer is married at the close of the taxable year, the credit shall 
be allowed under subsection (a) only if the taxpayer and his 
spouse file a joint return for the taxable year. 
"(3) MARITAL STATUS.—An individual legally separated from 
his spouse under a decree of divorce or of separate maintenance 
shall not be considered as married. 
"(4) 
CERTAIN MARRIED INDIVIDUALS LIVING APART.—If— 
" ( A ) an individual who is married and who files a sep-
arate return— 
"(i) maintains as his home a household which con-
stitutes for more than one-half of the taxable year the 
principal place of abode of a qualifying individual, and 
"(ii) furnishes over half of the cost of maintaining 
such household during the taxable year, and 
" ( B ) during the last 6 months of such taxable year such 
individual's spouse is not a member of such household, 
such individual shall not be considered as married. 
"(5) 
SPECIAL DEPENDENCY TEST I N CASE OF DIVORCED PARENTS, 
ETC. 
If 
26 use 151. 
" ( A ) a child (as defined in section 151(e)(3)) who is 
under the age of 15 or who is physically or mentally incapable 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1565 
of caring for himself receives over half of his support during 
the calendar year from his parents who are divorced or 
legally separated under a decree of divorce or separate main-
tenance or who are separated under a written separation 
agreement, and 
" ( B ) such child is in the custody of one or both of his 
parents for more than one-half of the calendar year, 
in the case of any taxable year beginning in such calendar year 
such child shall be treated as being a qualifying 
individual 
described in subparagraph (A) or (B) of subsection (c) (1), as 
the case may be, with respect to that parent who has custody for a 
longer period during such calendar year than the other parent, 
and shall not be treated as being a qualifying individual with 
respect to such other parent. 
"(6) 
PAYMEXTS TO RELATED INDIVIDUALS.— 
" ( A ) I N GENERAL.—Except as provided in subparagraph 
(B), no credit shall be allowed under subsection (a) for any 
amount paid by the taxpayer to an individual bearing a rela-
tionship to the taxpayer described in paragraphs (1) through 
(8) of section 152(a) (relating to definition of dependent) 
or to a dependent described in paragraph (9) of such section. 
" ( B ) EXCEPTION.—Subparagraph (A) shall not apply to 
any amount paid by the taxpayer to an individual with 
respect to whom, for the taxable year of the taxpayer in which 
the service is performed, neither the taxpayer nor his spouse 
is entitled to a deduction under section 151(e) (relating to 
deduction for personal exemptions for dependents), but only 
if the service with respect to which such amount is paid con-
stitutes employment within the meaning of section 3121(b). 
"(7) STUDENT.—The term 'student' means an individual who 
during each of 5 calendar months during the taxable year is 
a full-time student at an educational organization. 
"(8) EDUCATIONAL ORGANIZATION.—The term 'educational orga-
nization' means an educational organization described in section 
170(b)(1) (A) (ii). 
' (g) EEGULATIONS.—The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section." 
(2) CLERICAL AMENDMENT.—The table of sections for subpart 
A of part I V of subchapter A of chapter 1 is amended by insert-
ing before the item relating to section 45 the following new item: 
"Sec. 44A. Expenses for household and dependent care services neces-
sary for gainful emploj'ment." 
(b) EEPEAL OF DEDUCTION FOR CHILD CARE EXPENSES.— 
(1) I N GENERAL.—Section 214 (relating to expenses for house-
hold and dependent care services necessary for gainful employ-
ment) is hereby repealed. 
(2) CLERICAL AMENDMENT.—The table of sections for part V I I 
of subchapter B of chapter 1 is amended by striking out the item 
relating to section 214. 
(c) TECHNICAL AMENDMENTS.— 
(1) Section 213(f) (relating to exclusion of amounts allowed 
for care of certain dependents) is amended by striking out "a 
deduction under section 214" and inserting in lieu thereof "a 
credit under section 44A". 
(2) Section 6096(b) (defining income tax liability) is amended 
by striking out "and 44" and inserting in lieu thereof ", 44, and 
44A". 
' 
' 
'Student." 
"Educational 
organization." 
26 use 214. 
26 use 213. 
Ante, p. 1563. 
26 use 6096. 
89-194 O—78—pt. 2 
jT 
90 STAT. 1566 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 3402. 
(3) Paragraph (4) of section 3402(m) (relating to withholding 
allowances based on itemized deductions) is amended by striking 
out "and" at the end of subparagraph (A), by striking out the 
period at the end of subparagraph (B) and inserting in lieu 
thereof ", and", and by adding at the end thereof the following 
new subparagraph: 
"(C) may take into account tax credits to which employees 
are entitled." 
SEC. 505. CHANGES IN EXCLUSIONS FOR SICK PAY AND CERTAIN 
MILITARY, ETC, DISABILITY PENSIONS; CERTAIN DIS-
ABILITY INCOME. 
26 use 105. 
(a) SICK PAY.—Subsection (d) of section 105 (relating to amounts 
excluded from gross income under wage continuation plans) 
is 
amended to read as follows: 
"(d) 
CERTAIN DISABILITY PAYMENTS.— 
" (1) I N GENEKAL.—In the case of a taxpayer who— 
" ( A ) has not attained age 65 before the close of the tax-
able year, and 
"(13) retired on disability and, when he retired, was per-
manently and totally disabled, 
gross income does not include amounts referred to in subsection 
(a) if such amounts constitute wages or payuients in lieu of 
wages for a period during which the employee is absent from 
work on account of permanent and total disability. 
"(2) LIMITATION.—This subsection shall not apply to the 
extent that the amounts referred to in paragraph (1) exceed a 
weekly rate of $100. 
"(3) PHASEOUT OVER $I5,000.—If the adjusted gross income of 
the taxpayer for the taxable year (determined without regard to 
this subsection) exceeds $15,000, the amount which but for this 
paragraph would be excluded under this subsection for the tax-
able year shall be reduced by an amount equal to the excess of 
the adjusted gross income (as so determined) over $15,000. 
" (4) 
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. For purposes of this subsection, marital status shall 
be determined under section 143. 
"(5) 
PERMANENT AND TOTAL DISAIULTTY DEFINED.—For pur-
poses of this subsection, an individual is permanently and totally 
disabled if he is unable to engage in any substantial gainful 
' 
activity by reason of any medically determinable physical or 
mental impairment which can be expected to result in death or 
which has lasted or can be expected to last for a continuous period 
of not less than 12 months. An individual shall not be considered 
to be permanently and totally disabled unless he fui'nishos proof 
of the existence thereof in such form and manner, and at such 
times, as the Secretary may require. 
" (6) JOINT RETURN.—For purposes of this subsection, the term 
'joint retuiTi' means the joint return of a husband and wife made 
under section 6013. 
" (7) COORDINATION W^ITII SECTION 72.—In the case of an individ-
ual described in subparagraphs (A) and (B) of paragraph 
(1), for purposes of section 72 the annuity starting date shall not 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1567 
be deemed to occur before the beginning of the taxable year in 
which the taxpayer attains age 65, or before the beginning of an 
earlier taxable year for which the taxpayer makes an irrevocable 
election not to seek the benefits of this' subsection for such year 
and all subsequent years." 
(b) CERTAIN MILITART, ETC., DISABILITY PENSIONS.—Section 104 26 USC 104. 
(relating to compensation for injuries or sickness) is amended by 
redesignating subsection (b) as subsection (c) and by inserting after 
subsection (a) the following new subsection: 
"(b) TERMINATION or APPLICATION OF SUBSECTION (a)(4) I N CER-
TAIN CASES.— 
"(1) I N GENERAL.—Subsection (a)(4) shall not apply in the 
case of any individual who is not described in paragraph (2). 
"(2) INDIVIDUALS TO WHOM SUBSECTION (a)(4) CONTINUES TO 
APPLY,—An individual is described in this paragraph if— 
• . < . 
"(A) on or before September 24, 1975, he was entitled to 
" ' 
receive any amount described in subsection ( a ) ( 4 ) , 
" ( B ) on September 24, 1975, he was a member of any 
organization (or reserve component thereof) referred to in 
subsection (a) (4) or under a binding written commitment 
to become such a member, 
"(C) he receives an amount described in subsection (a) 
(4) by reason of a combat-related injury, or 
"(I)) on application therefor, he would be entitled to 
receive disability compensation from the Veterans' Adminis-
tration. 
"(3) SPECIAL RULES FOR COMBAT-RELATED INJURIES.—For pur- 
"Combat-related 
poses of this subsection, the term 'combat-related injury' means '^^J^T-
personal injury or sickness— 
"(A) which is incurred— 
" (^i) as a direct result of armed conflict, 
"(ii) while engaged in extrahazardous service, or 
" (iii) under conditions sinnilating war; or 
" ( B ) which is caused by an instrumentality of war. 
In the case of an individual who is not described in subparagraph 
(A) or (B) of paragraph (2), except as provided in paragraph 
(4), the only amounts taken into account under subsection (a) (4) 
shall be the amounts which he receives by reason of a combat-
related injury. 
"(4) AMOUNT EXCLUDED TO BE NOT LESS THAN VETERANS' DIS-
ABILITY COMPENSATION.—In the case of any individual described 
in paragraph (2), the amounts excludable under subsection (a) 
(4) for any period with respect to any individual shall not be less 
than the maximum amount which such individual, on application 
therefor, would be entitled to receive as disability compensation 
from the Veterans' Administration." 
(c) SPECIAL E U L E FOR EXISTING PERMANENT AND TOTAL DISABILITY 
^^ ^ ^ ^ ^^^ 
CASES.—In the case of any individual who— 
°°*®" 
(1) retired before January 1, 1976, 
(2) either retired on disability or was entitled to retire on dis-
ability, and 
(3) on January 1, 1976, was permanently and totally disabled 
(within the meaning of section 105(d) (5) of the Internal Reve-
nue Code of 1954), 
^'»^«' P- l^^^-
90 STAT. 1568 
PUBLIC LAW 94-455—OCT. 4, 1976 
such, individual shall be deemed to have met the requirements of sec-
Ante, p. 1566. 
tion 105(d) (1) (B) of such Code (as amended by subsection (a) of 
this section). 
26 use 105 
(d) 
SPECIAL RULE FOR COORDINATION W I T H SECTION 72.—In 
the 
note. 
case of an individual who— 
(1) retired on disability before January 1,1976, and 
(2) on December 31, 1975, was entitled to exclude any amount 
with respect to such retirement disability from gross income under 
section 105(d) of the Internal Revenue Code of 1954, 
for purposes of section 72 the annuity starting date shall not be deemed 
to occur before the beginning of the taxable year in which the taxpayer 
attains age 65, or before the beginning of an earlier taxable year for 
which the taxpayer makes an irrevocable election not to seek the bene-
fits of this subsection for such year and all subsequent years, 
(e) 
CERTAIN DISABILITY 
INCOME.— 
26 use 104 
(1) I K GENERAL.—Section 104(a) 
(relating to compensation 
for injuries or sickness) is amended— 
(A) by striking out "and" at the end of paragraph (3); 
(B) by striking out the period at the end of paragraph (4) 
and inserting in lieu thereof a semicolon and the word "and"; 
and 
(C) by adding at the end thereof the following new 
paragraph: 
"(5) amounts received by an individual as disability income 
attributable to injuries incurred as a direct result of a violent 
attack which the Secretary of State determines to be a terrorist 
attack and which occurred while such individual was an employee 
of the United States engaged in the performance of his official 
duties outside the United States." 
26 use 104 
(2) EFFECTIVE DATE.—The amendments made by this subsection 
note. 
shall apply to taxable years beginning after December 31,1976. 
SEC. 506. MOVING EXPENSES. 
(a) 
DECREASE IN MILEAGE TEST FROM 50 MILES TO 35 MILES.—Para-
26 use 217. 
graph (1) of section 217(c) (relating to conditions for allowance of 
deduction for moving expenses) is amended by striking out "50 miles'* 
each place it appears and inserting in lieu thereof "35 miles". 
(b) INCREASE IN DOLLAR AMOUNTS.— 
(1) CERTAIN EXPENSES OF TRAVELING, MEALS, AND LODGING AFTER 
OBTAINING EMPLOYMENT.—The first senteucc of subparagraph (A) 
of section 217(b)(3) (relating to dollar limits) is amended by 
striking out "$1,000" and inserting in lieu thereof "$1,500". 
(2) AGGREGATE DOLLAR LIMIT.—The second sentence of subpara-
graph (A) of section 217(b) (3) is amended by striking out 
"$2,500" and inserting in lieu thereof "$3,000". 
(3) SEPARATE RETURNS.—The second sentence of subparagraph 
(B) of section 217(b) (3) (relating to dollar limits in the case of 
husband and wife) is amended to read as follows: "In the case of 
a husband and wife filing separate returns, subparagraph (A) 
shall be applied by substituting '$750' for '$1,500', and by sub-
stituting '$1,500' for '$3,000'." 
(c) 
RULES FOR MEMBERS OF THE ARMED FORCES OF THE UNITED 
STATES.—Section 217 is amended by redesignating subsection (g) as 
subsection (h) and by inserting after subsection (f) the following 
new subsection: 
"(g) 
RULES FOR MEMBERS OF THE ARMED FORCES OF THE UNITED 
STATES.—In the case of a member of the Armed Forces of the United 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1569 
States on active duty who moves pursuant to a military order and 
incident to a permanent change of station— 
"(1) the limitations under subsection (c) shall not apply; 
"(2) any moving and storage expenses which are furnished in 
kind (or for which reimbursement or an allowance is provided, 
but only to the extent of the expenses paid or incurred) to such 
member, his spouse, or his dependents, shall not be includible in 
gross income, and no reporting with respect to such expenses shall 
be required by the Secretary of Defense or the Secretary of Trans-
portation, as the case may be; and 
"(3) if moving and storage expenses are furnished in kind (or 
if reimbursement or an allowance for such expenses is provided) 
to such member's spouse and his dependents with regard to moving 
to a location other than the one to which such member moves (or 
from a location other than the one from which such member 
moves), this section shall apply with respect to the moving 
expenses of his spouse and dependents— 
"(A) as if his spouse commenced work as an employee at 
a new principal place of work at such location; 
" ( B ) for purposes of subsection (b) (3), as if such place 
of work was within the same general location as the member's 
new principal place of work, and 
"(C) without regard to the limitations under subsection 
(c)." 
(d) EFFECTIVE DATE.—The amendments made by subsections (a) 
and (b) shall apply to taxable years beginning after December 31, 
1976. 
SEC. 507. TAX REVISION STUDY. 
(a) STUDY.—The Joint Committee on Taxation shall make a full 
and complete study and investigation with respect to simplifying and 
indexing the tax laws of the United States. Such study and investiga-
tion shall include a consideration of whether the rates of tax can be 
reduced by repealing any or all tax deductions, exemptions, or credits. 
(b) REPORT.—Before July 1, 1977, the Joint Committee on Taxa-
tion shall submit to the Committee on Finance of the Senate and to 
the Committee on Ways and Means of the House of Representatives 
a report of its study and investigation together with its recommenda-
tions, including recommendations for legislation. 
SEC. 508. EFFECTIVE DATE. 
Except as other-wise provided, the amendments made by this title 
shall apply to taxable years beginning after December 31,1975. 
^ 
TITLE VI—BUSINESS RELATED 
INDIVIDUAL INCOME TAX PROVISIONS 
SEC. 601. DEDUCTIONS FOR EXPENSES ATTRIBUTABLE TO BUSINESS 
USE OF HOMES, RENTAL OF VACATION HOMES, ETC. 
(a) NoNDEDucABILITY OF CERTAIN EXPENSES.—Part I X of subchap-
ter B of chapter 1 (relating to items not deductible) is amended by 
adding at the end thereof the following new section: 
"SEC. 280A. DISALLOWANCE OF CERTAIN EXPENSES IN CONNECTION 26 USC 280A. 
WITH BUSINESS USE OF HOME, RENTAL OF VACATION 
HOMES, ETC. 
" (a) GENERAL RULE.—Except as otherwise provided in this section, 
in the case of a taxpayer who is an individual or an electing small 
26 USC 217 
note. 
26 USC 8022 
note. 
Report to 
congressional 
committees. 
26 USC 3 note. 
90 STAT. 1570 
PUBLIC LAW 94-455—OCT. 4, 1976 
business corporation, no deduction otherwise allowable under this 
chapter shall be allowed with respect to the use of a dwelling unit 
which is used by the taxpayer during the taxable year as a residence. 
"(b) 
EXCEPTION FOR INTEREST, TAXES, CASUALTY LOSSES, ETC.—Sub-
section (a) shall not apply to any deduction allowable to the tax-
payer without regard to its connection with his trade or business (or 
with his income-producing activity). 
"(c) 
EXCEPTIONS FOR CERTAIN BUSINESS OR RENTAL U S E ; LIMITA-
TION ON DEDUCTIONS FOR SUCH U S E . — 
"(1) CERTAIN BUSINESS USE.—Subsection (a) shall not apply to 
any item to the extent such item is allocable to a portion of the 
dwelling unit which is exclusively used on a regular basis— 
"(A) as the taxpayer's principal place of business, 
" ( B ) as a place of business which is used by patients, 
clients, or customers in meeting or dealing with the taxpayer 
in the normal course of his trade or business, or 
"(C) in the case of a separate structure which is not 
attached to the dwelling unit, in connection with the tax-
payer's trade or business. 
In the case of an employee, the preceding sentence shall apply 
only if the exclusive use referred to in the preceding sentence is 
for the convenience of his employer. 
"(2) CERTAIN STORAGE USE.—Subsection (a) shall not apply to 
any item to the extent such item is allocable to space within the 
dwelling unit which is used on a regular basis as a storage unit 
for the inventory of the taxpayer held for use in the taxpayer's 
trade or business of selling products at retail or wholesale, but 
only if the dwelling unit is the sole fixed location of such trade 
or business. 
"(3) RENTAL USE.—Subsection (a) shall not apply to any item 
which is attributable to the rental of the dwelling unit or portion 
thereof (determined after the application of subsection (e)). 
" (4) LIMITATION ON DEDUCTIONS.—In the case of a use described 
in paragraph (1) or (2), and in the case of a use described in 
paragraph (3) where the dwelling unit is used by the taxpayer 
during the taxable year as a residence, the deductions allowed 
under this chapter for the taxable year by reason of being attrib-
uted to such use shall not exceed the excess of— 
" ( A ) the gross income derived from such use for the tax-
able year, over 
" ( B ) the deductions allocable to such use which are allow-
able under this chapter for the taxable year whether or not 
such unit (or portion thereof) was so used. 
"(d) 
U S E AS RESIDENCE.— 
"(1) I N GENERAL.—For purposes of this section, a taxpayer 
uses a dwelling imit during the taxable year as a residence if he 
uses such unit (or portion thereof) for personal purposes for a 
number of days which exceeds the greater of— 
" ( A ) 14 days, or 
" ( B ) 10 percent of the number of days during such year 
for which such Tinit is rented at a fair rental. 
For purposes of subparagraph (B), a unit shall not be treated 
as rented at a fair rental for any day for which it is used for per-
sonal purposes. 
"(2) PERSONAL USE OF UNIT.—For purposes of this section, the 
taxpayer shall be deemed to have used a dwelling unit for per-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1571 
sonal purposes for a day if, for any part of such day, the unit 
is used— 
" (A) for personal purposes by the taxpayer or any other 
person who has an interest in such unit, or by any member 
of the family (as defined in section 267(c) (4)) of the tax- 26 USC 267. 
payer or such other person; 
" ( B ) by any individual who uses the unit under 
an 
arrangement which enables the taxpayer to use some other 
dwelling unit (whether or not a rental is charged for the use 
of such other unit); or 
"(C) by any individual (other than an employee with 
respect to whose use section 119 applies), unless for such day 
the dwelling unit is rented for a rental which, under the facts 
and circumstances, is fair rental. 
The Secretary shall prescribe regulations with respect to the cir- 
Regulations, 
cumstances under which use of the unit for repairs and annual 
maintenance will not constitute personal use under this paragraph. 
"(e) 
EXPENSES ATTRIBUTABLE TO RENTAL.— 
"(1) I N GENERAL.—In any case where a taxpayer who is an 
: ,is 
individual or an electing small business corporation uses a dw^ell-
ing unit for personal purposes on any day during the taxable year 
(whether or not he is treated under this section as using such unit 
as a residence), the amount deductible under this chapter with 
respect to expenses attributable to the rental of the unit (or portion 
thereof) for the taxable year shall not exceed an amount which 
bears the same relationship to such expenses as the number of days 
during each year that the unit (or portion thereof) is rented at a 
fair rental bears to the total number of days during such year 
that the unit (or portion thereof) is used. 
"(2) 
EXCEPTION FOR DEDUCTIONS OTHERWISE ALLOWABLE.—This 
subsection shall not apply with respect to deductions which would 
be allowable under this chapter for the taxable year whether or 
not such unit (or portion thereof) was rented. 
"(f) 
DEFINITIONS AND SPECIAL RULES.— 
"(1) DWELLING UNIT DEFINED.—For purposes of this section— 
" ( A ) I N GENERAL.—The term 'dwelling unit' includes a 
house, apartment, condominium, mobile home, boat, or simi-
lar property, and all structures or other property appur-
tenant to such dwelling unit. 
"(B) 
EXCEPTION.—The term 
'dwelling unit' does not 
include that portion of a unit which is used exclusively as a 
hotel, motel, inn, or similar establishment. 
" (2) 
PERSONAL USE BY ELECTING SMALL BUSINESS CORPORATION.— 
In the case of an electing small business corporation, subpara-
graphs (A) and (B) of subsection (d) (2) shall be applied by 
substituting 'any shareholder of the electing small business corpo-
ration' for 'the taxpayer' each place it appears. 
"(3) 
COORDINATION 
WITH 
SECTION 
IS3.—If 
subsection 
(a) 
applies with respect to any dwelling unit (or portion thereof) 
for the taxable year— 
" ( A ) section 183 (relating to activities not engaged in for 
profit) shall not apply to such unit (or portion thereof) for 
such year, but 
" ( B ) such year shall be taken into account as a taxable 
year for purposes of applying subsection (d) of section 183 
(relating to 5-year presumption). 
90 STAT. 1572 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(g) 
SPECIAL RULE FOR CERTAIN RENTAL USE.—Notwithstanding 
any other provision of this section or section 183, if a dwelling unit is 
used during the taxable year by the taxpayer as a residence and such 
dwelling unit is actually rented for less than 15 days during the tax-
able year, then— 
"(1) no deduction otherwise allowable under this chapter 
because of the rental use of such dwelling unit shall be allowed, 
and 
"(2) the income derived from such use for the taxable year 
shall not be included in the gross income of such taxpayer under 
section 61." 
(b) CLERICAL AMENDMENT.—The table of sections for such part I X 
is amended by adding at the end thereof the following new item: 
"SEC. 2S0A. Disallowance of certain expenses in connection with 
business use of home, rental of vacation homes, etc." 
26 use 280A 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply to taxable years beginning after December 31, 1975. 
SEC. 602. DEDUCTIONS FOR ATTENDING FOREIGN CONVENTIONS. 
26 use 274. 
(a) NONDEDUCTIBILITY OF CERTAIN EXPENSES.—Section 274 (relat-
ing to disallowance of certain entertainment, etc., expenses) is 
amended by redesignating subsection (h) as subsection (i) and by 
inserting after subsection (g) the following new subsection: 
" ( h ) 
FOREIGN CONVENTIONS.— 
"(1) 
DEDUCTIONS WITH RESPECT TO NOT MORE THAN 2 FOREIGN 
CONVENTIONS PER YEAR ALLOWED.—If any individual attends more 
than 2 foreign conventions during his taxable year— 
"(A) he shall select not more than 2 of such conventions 
to be taken into account for purposes of this subsection, and 
" ( B ) no deduction allocable to his attendance at any for-
eign convention during such taxable year (other than a 
foreign convention selected under subparagraph ( A ) ) shall 
be allowed under section 162 or 212. 
"(2) DEDUCTIBLE TRANSPORTATION COST CANNOT EXCEED COST OF 
COACH O
R ECONOMY AIR FARE.—In the case of any foreign conven-
tion, no deduction for the expenses of transportation outside the 
United States to and from the site of such convention shall be 
allowed under section 162 or 212 in an amount which exceeds the 
lowest coach or economy rate at the time of travel charged by a 
commercial airline for transportation to and from such site during 
the calendar month in which such convention begins. If there is 
no such coach or economy rate, the preceding sentence shall be 
applied by substituting 'first class' for 'coach or economy'. 
"(3) 
TRANSPORTATION COSTS DEDUCTIBLE IN FULL ONLY IF AT 
LEAST ONE-HALF OF THE DAYS ARE DEVOTED TO BUSINESS RELATED 
ACTIVITIES.—In the case of any foreign convention, a deduction for 
the full expenses of transportation (determined after the applica-
tion of paragraph (2)) to and from the site of such convention 
shall be allow^ed only if more than one-half of the total days of the 
trip, excluding the days of transportation to and from the site of 
such convention, are devoted to business related activities. If less 
than one-half of the total days of the trip, excluding the days of 
transportation to and from the site of the convention, are devoted 
to business related activities, no deduction for the expenses of 
transportation shall be allowed which exceeds the percentage of 
the days of the trip devoted to business related activities. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1573 
"(4) 
DEDUCTIONS FOR SUBSISTENCE EXPENSES NOT ALLOWED 
UNLESS THE INDIVIDUAL ATTENDS TWO-THIRDS OF BUSINESS ACTIVI-
TIES.—In the case of any foreign convention, no deduction for 
subsistence expenses shall be allowed except as follows: 
" ( A ) a deduction for a full day of subsistence expenses 
while at the convention shall be allowed if there are at least 
6 hours of scheduled business activities during such day and 
the individual attending the convention has attended at least 
two-thirds of these activities, and 
"(B) a deduction for one-half day of subsistence expenses 
^ 
while at the convention shall be allowed if there are at least 
3 hours of scheduled business activities during such day and 
the individual attending the convention has attended at least 
two-thirds of these activities. 
Notwithstanding subparagraphs (A) and (B), a deduction for 
subsistence expenses for all of the days or half days, as the case 
may be, of the convention shall be allowed if the individual 
attending the convention has attended at least two-thirds of the 
scheduled business activities, and each such full day consists of at 
least 6 hours of scheduled business activities and each such half 
day consists of at least 3 hours of scheduled business activities. 
"(5) DEDUCTIBLE SUBSISTENCE COSTS CANNOT EXCEED PER DIEM 
RATE FOR UNITED STATES CIVIL SERVANTS.—In the casc of any for-
eign convention, no deduction for subsistence expenses while at 
the convention or traveling to or fI'om such convention shall be 
allowed at a rate in excess of the dollar per diem rate for the site of 
the convention which has been established under section 5702(a) 
of title 5 of the United States Code and which is in effect for the 
calendar month in which the convention begins. 
"(6) 
DEFINITIONS AND SPECIAL RULES.—For purposes of this 
subsection— 
" ( A ) 
FOREIGN CONVENTION DEFINED.—The term 
'foreign 
convention' means any convention, seminar, or similar meet-
ing held outside the United States, its possessions, and the 
Trust Territory of the Pacific. 
" ( B ) 
SUBSISTENCE EXPENSES DEFINED.—The term 'subsist-
ence expenses' means lodging, meals, and other necessary 
expenses for the personal sustenance and comfort of the 
traveler. Such term includes tips and taxi and other local 
transportation expenses. 
" ( C ) ALLOCATION OF EXPENSES I N CERTAIN CASES.—In any 
case where the transportation expenses or the subsistence 
expenses are not separately stated, or where there is reason to 
believe that the stated charge for transportation expenses or 
subsistence expenses or both does not properly reflect the 
amounts properly allocable to such purposes, all amounts 
paid for transportation expenses and subsistence expenses 
shall be treated as having been paid solely for subsistence 
expenses. 
" ( D ) 
SUBSECTION TO APPLY TO EMPLOYER AS WELL AS TO 
TRAVELER.—This subscctiou shall apply to deductions other- 
26 USC 162, 
wise allowable under section 162 or 212 to any person, whether 212. 
or not such person is the individual attending the foreign con-
vention. For 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. 
90 STAT. 1574 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(7) REPORTING REQUIREMENTS.—No deduction shall be allowed 
under section 162 or 212 for transportation or subsistence expenses 
allocable to attendance at a foreign convention unless the tax-
payer claiming the deduction attaches to the return of tax on 
which the deduction is claimed— 
"(A) a written statement signed by the individual attend-
ing the convention w^hich includes— 
"(i) information with respect to the total days of the 
trip, excluding the days of transportation to and from 
the site of such convention, and the number of hours of 
each day of the trip which such individual devoted to 
scheduled business activities, 
"(ii) a program of the scheduled business activities of 
the convention, and 
"(iii) such other information as may be required in 
regulations prescribed by the Secretary; and 
" (B) a written statement signed by an officer of the organi-
zation or group sponsoring the convention which includes— 
" (i) a schedule of the business activities of each day of 
the convention, 
"(ii) the number of hours which the individual attend-
ing the convention attended such scheduled business 
activities, and 
"(iii) such other information as may be required in 
regulations prescribed by the Secretary. 
26 use 274 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply to conventions begining after December 31,1976. 
SEC. 603. CHANGE IN TAX TREATMENT OF QUALIFIED STOCK OPTIONS. 
26 use 422. 
(a) I N GENERAL.—Section 422(b) (defining qualified stock option) 
is amended by inserting "and before May 21, 1976 (or, if it meets the 
requirements of subsection (c)(7), granted to an individual after 
May 20,1976)," after "section 424(c) (3) (A)),". 
(b) CERTAIN OPTIONS GRANTED AFTER MAY 20,1976.—Section 422 (c) 
(relating to special rules) is amended by adding at the end thereof 
the following new paragraph: 
"(7) CERTAIN OPTIONS GRANTED AFTER MAY 20, 197c.—For pur-
poses of subsection (b), an option granted after May 20, 1976, 
meets the requirements of this paragraph— 
"(A) if such option is granted to an individual pursuant 
to a written plan adopted before May 21,1976, or 
" (B) if such option is a new option substituted, in a transac-
tion to which section 425(a) applies, for an old option which 
was granted before May 21, 1976, or which met the require-
ments of subparagraph ( A ) . 
An option described in the preceding sentence shall be treated as 
ceasing to meet the requirements of this paragraph if it is not 
exercised before May 21,1981." 
(c) BESTRICTED STOCK OPTIONS M U S T B E EXERCISED BEFORE M A Y 21, 
26 use 424. 
1981.—Section 424(c) (3) (relating to special rules for restricted stock 
options) is amended by adding at the end thereof the following new 
sentence: "An option described in the preceding sentence shall be 
treated as ceasing to meet the requirements of this paragraph if it is 
not exercised before May 21,1981." 
26 use 422 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply to taxable years ending after December 31,1975. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1575 
SEC. 604. STATE LEGISLATORS' TRAVEL EXPENSES AWAY FROM HOME. 
(a) I N GENERAL.—For purposes of section 162(a) of the Internal 
26 USC 162 
Revenue Code of 1954, in the case of any individual who was a State 
"o**'-
legislator at any time during any taxable year beginning before Janu-
ary 1, 1976, and who elects the application of this section, for any 
period during such a taxable year in which he was a State legislator— 
(1) the place of residence of such individual within the legis-
lative district which he represented shall be considered his home, 
and 
(2) he shall be deemed to have expended for living expenses 
(in connection with his trade or business as a legislator) an amount 
equal to the sum of the amounts determined by multiplying each 
legislative day of such individual during the taxable year by the 
amount generally allowable with respect to such day to employees 
of the executive branch of the Federal Government for per diem 
while away from home but serving in the United States. 
(b) LEGISLATIVE DAYS.—For purposes of subsection (a), a legisla-
tive day during any taxable year for any individual shall be any 
day during such year on which (1) the legislature was in session 
(including any day in which the legislature was not in session for a 
period of 4 consecutive days or less), or (2) the legislature was not in 
session but the physical presence of the individual was formally 
recorded at a meeting of a committee of such legislature. 
(c) LIMITATION.—The amount taken into account as living expenses 
attributable to a trade or business as a State legislator for any tax-
able year under an election made under this section shall not exceed 
the amount claimed for such purpose under a return (or amended 
return) filed before May 21,1976. 
(d) 
MAKING AND EFFECT OF ELECTION.—An election under this Regulations, 
section shall be made at such time and in such manner as the Secretary 
of the Treasury or his delegate shall by regulations prescribe. Any 
such election shall apply to all taxable years beginning before Janu-
ary 1,1976, for which the period for assessing or collecting a deficiency 
has not expired before the date of the enactment of this Act. 
SEC. 605. DEDUCTION FOR GUARANTEES OF BUSINESS BAD DEBTS TO 
GUARANTORS NOT INVOLVED IN BUSINESS. 
(a) REPEAL OF SECTION 166(f) .—Section 166 (relating to bad debts) 
26 USC 166. 
is amended by striking out subsection (f) and by redesignating sub-
sections (g) and (h) as subsections (f) and (g), respectively. 
(b) CONFORMING AMENDMENT.—Paragraph (1) of section 81 (relat- 
26 USC 81. 
ing to certain increases in suspense accounts) is amended by strik-
ing out "section 166(g)" in the text and inserting in lieu thereof 
"section 166(f)". 
(c) EFFECTIVE DATE..—The amendments made by this section shall 26 USC 166 
apply to guarantees made after December 31, 1975, in taxable years °o*^-
beginning after such date, 
/ 
TITLE VII—ACCUMULATION TRUSTS 
SEC. 701. ACCUMULATION TRUSTS. 
(a) REVISION or METHOD or TAXING ACCUMULATION DISTRIBUTION 
FROM TRUSTS.— 
(1) Section 667 (relating to denial of refund to trusts; author- 
26 USC 667. 
ization of credit to beneficiaries) is amended to read as follows: 
90 STAT. 1576 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 667. 
"SEC. 667. TREATMENT OF AMOUNTS DEEMED DISTRIBUTED BY 
TRUST IN PRECEDING YEARS. 
"(a) GENERAL, RULE.—The total of the amounts which are treated 
under section 666 as havinjr been distributed by a trust in a preceding 
taxable year shall be included in the income of a beneficiary of the 
trust when paid, credited, or required to be distributed to the extent 
that such total would have been included in the income of such bene-
ficiary under section 662(a) (2) (and, with respect to any tax-exempt 
interest to which section 103 applies, under section 662(b)) if such 
total had been paid to such beneficiary on the last day of such preced-
ing taxable year. The tax imposed by this subtitle on a beneficiary 
for a taxable year in which any such amount is included in his income 
shall be determined only as provided in this section and shall consist 
of the sum of— 
"(1) a partial tax computed on the taxable income reduced by 
an amount equal to the total of such amounts, at the rate and in 
the manner as if this section had not been enacted, and 
"(2) a partial tax determined as provided in subsection (b) 
of this section. 
" ( b ) 
T A X ON DiSTKiBUTiON.— 
"(1) I N GENERAL.—The partial tax imposed by subsection (a) 
(2) shall be determined— 
"(A) by determining the number of preceding taxable 
years of the trust on the last day of which an amount is 
deemed under section 666(a) to have been distributed, 
"(B) by taking from the 5 taxable years immediately pre-
ceding the year of the accumulation distribution the 1 taxable 
year for which the beneficiary's taxable income was the highest 
and the 1 taxable year for which his taxable income was the 
lowest, 
"(C) by adding to the beneficiary's taxable income for each 
of the 3 taxable years remaining after the application of sub-
paragraph (B) an amount determined by dividing the 
amount deemed distributed under section 666 and required 
to be included in income under subsection (a) by the number 
of preceding taxable years determined under subparagraph 
(A), and 
" ( D ) by determining the average increase in tax for the 
3 taxable years referred to in subparagraph (C) resulting 
from the application of such subparagraph. 
The partial tax imposed by subsection (a) (2) shall be the excess 
(if any) of the average increase in tax determined under subpar-
agraph (D), multiplied by the number of preceding taxable years 
determined 
under 
subparagraph 
( A ) , over the amount of 
taxes deemed distributed to the beneficiary under sections 666(b) 
and (c). 
"(2) TREATMENT or LOSS YEARS.—For purposes of paragraph 
(1), the taxable income of the beneficiary for any taxable year 
shall be deemed not to be less than zero. 
"(3) 
CERTAIN PRECEDING TAXABLE YEARS NOT TAKEN 
INTO 
ACCOUNT.—For purposes of paragraph (1), if the amount of the 
undistributed net income deemed distributed in any preceding tax-
able year of the trust is less than 25 percent of the amount of the 
accumulation distribution divided by the number of preceding 
taxable years to which the accumulation distribution is allocated 
under section 666(a), the number of preceding taxable years of 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1577 
the trust with respect to which an amount is deonied distributed 
to a beneficiary under section 666(a) shall be determined without 
regard to such year. 
"(4) EFFECT OF OTHER ACCUMULATION DISTRIBUTIONS.—In com-
puting the partial tax under paragraph (1) for any beneficiary, 
the income of such beneficiary for each of his prior taxable years 
shall include amounts previously deemed distributed to such 
beneficiary in such year under section 666 as a result of prior accu-
mulation distributions (whether from the same or another trust). 
"(5) 
MULTIPLE DISTRIBUTIONS IN THE SAME TAXABLE YEAR.— 
In the case of accumulation distributions made from more than 
one trust which are includible in the income of a beneficiary in 
the same taxable year, the distributions shall be deemed to have 
been made consecutively in whichever order the beneficiary shall 
determine. 
"(c) 
SPECIAL RULE FOR MULTIPLE TRUSTS.— 
"(1) I N GENERAL.—If, in the same prior taxable year of the 
beneficiary in which any part of the accumulation distribution 
from a trust (hereinafter in this paragraph referred to as 'third 
trust') is deemed under section 666(a) to have been distributed to 
such beneficiary, some part of prior distributions by each of 2 or 
more other trusts is deemed under section 666(a) to have been 
distributed to such beneficiary, then subsections (b) and (c) of 
section 666 shall not apply with respect to such part of the accu-
mulation distribution from such third trust. 
"(2) ACCUMULATION DISTRIBUTIONS FRoar TRUST NOT TAKEN INTO 
ACCOUNT UNLESS THEY EQUAL OR EXCEED $1,000.—For purposes of 
paragraph (1), an accumulation distribution from a trust to 
a beneficiary shall be taken into account only if such distribution, 
when added to any prior accumulation distributions from such 
trust which are deemed under section 666(a) to have been dis-
tributed to such beneficiary for the same prior taxable year of 
the beneficiary, equals or exceeds $1,000." 
(2) Section 666 (relating to accumulation distribution alio- 26 USC 666. 
cated to preceding years) is amended by adding at the end thereof 
the following new subsection: 
"(e) DENIAL or REFUND TO TRUSTS AND BENEFICIARIES.—No refund 
or credit shall be allowed to a trust or a beneficiary of such trust for 
any preceding taxable year by reason of a distribution deemed to have 
been made by such trust in such year under this section." 
(3) Section 668 (relating to treatment of amounts deemed 
26 USC 668. 
distributed in preceding years) is hereby repealed. 
(b) INCOME ACCUMUI-4TED BEFORE CHILD AT'TAINS AGE OF 21 YEARS 
NOT T O B E SUBJECT TO THE THROWBACK RULE.—Subsection (b) of 
section 665 (defining accumulation distribution) is amended by adding 
26 USC 665. 
at the end thereof the following new sentence: "For purposes of sec-
tion 667 (other than subsection (c) thereof, relating to multiple 
^nte, p. 1575. 
trusts), the amounts specified in paragraph (2) of section 661(a) 
shall not include amounts properly paid, credited, or required to be 
distributed to a beneficiary from a trust (other than a foreign trust) 
as income accumulated before the birth of such beneficiary or before 
such beneficiary attains the age of 21." 
(c) No ACCUMULATION DISTRIBUTION W H E R E DISTRIBUTIONS Do NOT 
EXCEED ACCOUNTING INCOME.—Section 665 (b) (defining accumulation 
distribution), as amended by subsection (b), is amended by adding at 
the end thereof the following new sentence: "If the amounts properly 
paid, credited, or required to be distributed by the trust for the taxable 
90 STAT. 1578 
PUBLIC LAW 94-455—OCT. 4, 1976 
year do not exceed the income of the trust for such year, there shall be 
no accumulation distribution for such year." 
(d) 
REPEAL OF SPECIAL CAPITAL GAIN THROWBACK.— 
26 use 669. 
(1) Section 669 (relating to treatment of capital gain deemed 
distributed in preceding years) is hereby repealed. 
26 use 665. 
(2) Paragraph (1) of section 665(e) (defining preceding tax-
able year) is amended— 
(A) by striking out subparagraph (C), 
(B) by inserting "or" at the end of subparagraph (A), 
and 
(C) by striking out", or" at the end of subparagraph (B) 
and inserting in lieu thereof "; and". 
(3) 
Section 665 (definitions applicable to subpart D) 
is 
amended by striking out subsections (f) and (g). 
(e) 
SPECIAL R U L E FOR G A I N ON PROPERTY TRANSFERRED TO TRUST 
AT LESS T H A N FAIR MARKET VALUE.— 
(1) In GENERAL.—Subpart A of part I of subchapter J of 
chapter 1 (relating to general rules for taxation of estates and 
trusts) is amended by adding at the end thereof the following 
new section: 
26 use 644. 
"SEC. 644. SPECIAL RULE FOR GAIN ON PROPERTY TRANSFERRED TO 
TRUST AT LESS THAN FAIR MARKET VALUE. 
"(a) 
IMPOSITION OF T A X . — 
"(1) 
I N GENERAL.—If— 
" ( A ) a trust (or another trust to which the property is 
distributed) sells or exchanges property at a gain not more 
than 2 years after the date of the initial transfer of the prop-
erty in trust by the transferor, and 
"(B) the fair market value of such property at the time 
of the initial transfer in trust by the transferor exceeds the 
adjusted basis of such property immediately after such 
transfer, 
there is hereby imposed a tax determined in accordance with para-
graph (2) on the includible gain realized 021 such sale or exchange. 
" (2) AMOUNT OF TAX.—The amount of the tax imposed by para-
graph (1) on any includible gain realized on the sale or exchange 
of any property shall be equal to the sum of— 
"(A) the excess of— 
"(i) the tax which would have been imposed under 
this chapter for the taxable year of the transferor in 
which the sale or exchange of such property occurs had 
the amount of the includible gain realized on such sale or 
exchange, reduced by any deductions properly allocable 
to such gain, been included in the gross income of the 
transferor for such taxable year, over 
"(ii) the tax actually imposed under this chapter for 
such taxable year on the transferor, plus 
" ( B ) if such sale or exchange occurs in a taxable year 
of the transferor which begins after the beginning of the 
taxable year of the trust in which such sale or exchange 
occurs, an amount equal to the amount determined under sub-
paragraph (A) multiplied by the annual rate established 
under section 6621. 
"(3) 
TAXABLE YEAR FOR WHICH TAX IMPOSED.—The tax imposed 
by paragraph (1) shall be imposed for the taxable year of the 
trust which begins with or within the taxable year of the trans-
feror in which the sale or exchange occurs. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1579 
" (4) TAX TO BE IN ADDITION TO OTHER TAXES.—The tax imposed 
by this subsection for any taxable year of the trust shall be in 
addition to any other tax imposed by this chapter for such taxable 
year. 
"(b) DEFINITION OF INCLUDIBLE GAIN.—For purposes of this section, 
the term 'includible gain' means the lesser of— 
"(1) the gain realized by the trust on the sale or exchange of 
any property, or 
" (2) the excess of the fair market value of such property at the 
time of the initial transfer in trust by the transferor over the 
adjusted basis of such property immediately after such transfer. 
"(c) CHARACTER OF INCLUDIBLE GAIN.—For purposes of subsection 
( a ) - 
. 
. 
. 
"(1) the character of the includible gam shall be determined 
as if the property had actually been sold or exchanged by the 
transferor, and any activities of the trust with respect to the sale 
or exchange of the property shall be deemed to be activities of the 
transferor, and 
" (2) the portion of the includible gain subject to the provisions 
of section 1245 and section 1250 shall be determined in accordance 
with regulations prescribed by the Secretary. 
" ( d ) SPECIAL RULE FOR SHORT SALES.—If the trust sells the prop-
erty 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. 
"(e) EXCEPTIONS.—Subsection (a) shall not apply to property— 
"(1) acquired by the trust from a decedent or which passed 
, 
to a trust from a decedent (within the meaning of section 
1014), or 
"(2) acquired by a pooled income fund (as defined in section 
642(c)(5)), or 
"(3) acquired by a charitable remainder annuity trust (as 
defined in section 664(d) (1)) or a charitable remainder unitrust 
(as defined in sections 664(d) (2) and (3)), or 
"(4) if the sale or exchange of the property occurred after the 
death of the transferor. 
"(f) SPECIAL RULE FOR INSTALLMENT SALES.^—If the trust elects to 
report income under section 453 on any sale or exchange to which sub-
section (a) applies, under regulations prescribed by the Secretary— 
"(1) subsection (a) shall be applied as if each installment were 
a separate sale or exchange of proj^erty to which such subsection 
applies, and 
"(2) the term 'includible gain' shall not include any portion of "Includible 
an installment received by the trust after the death of the gain." 
transferor." 
(2) EXCLUSION OF INCLUDIBLE GAIN FROM TAXABLE INCOME.—Sec-
tion 641 (relating to imposition of tax) is amended by inserting 
26 USC 641. 
after subsection (b) the following new subsection: 
"(c) EXCLUSION OF INCLUDIBLE GAIN FROM TAXABLE INCOME.— 
"(1) GENERAL RULE.—For purposes of this part, the taxable 
income of a trust does not include the amount of any includible 
gain as defined in section 644(b) reduced by any deductions 
properly allocable thereto. 
"(2) CROSS REFERENCE.—• 
"For the taxation of any includible gain, see section 644.", 
90 STAT. 1580 
PUBLIC LAW 94-455—OCT. 4, 1976 
(f) CONFORMING AMENDMENTS.— 
(1) Subparagraph (B) of subsection ( a ) ( 2 ) , and subpara-
26 use 1302. 
graph (B) of subsection (b)(2), of section 1302 (definition of 
averageable income; related definitions) are each amended by 
striking out "668(a)" and inserting in lieu thereof "667(a)". 
26 use 6401. 
(2) Section 6401(b) (relating to excessive credits), as in effect 
on the day before the date of the enactment of the Tax Reduction 
26 use 1 note. 
Act of 1975, is amended by striking out "wages)," and inserting 
in lieu thereof "wages) and", and by striking out "and 667(b) 
(relatiiig to taxes paid by certain trusts)". 
(3) Section 6401 (b) (relating to excessive credits), as amended 
by the Tax Reduction Act of 1975, is amended by striking out 
"lubricating oil)," and inserting in lieu thereof "lubricating oil), 
and", and by striking out "and section 667(b) (relating to taxes 
paid by certain trusts)". 
(g) CLERICAL AMENDMENTS.— 
(1) The table of sections for subpart D of part I of subchapter 
J of chapter 1 is amended by striking out the items relating to sec-
tions 667, 668, and 669 and inserting in lieu thereof the following: 
"Sec. 667. Treatment of amounts deemed distributed by trust in pre-
ceding years." 
(2) The table of sections for subpart A of part I of subchapter 
J of chapter 1 is amended by adding at the end thereof the 
following new item: 
"Sec. 644. Special rule for gain on property transferred to trust at less 
tlian fair market value.". 
26 use 667 
(h) EFFECTIVE DATES.—The amendments made by subsections (a), 
^°^^- 
(b), (c), (d), and (f) of this section shall apply to distributions made 
in taxable years beginning after December 31, 1975. The amendments 
made by subsection (e) of this section shall apply to transfers in trust 
made after May 21,1976. 
TITLE VIII—CAPITAL FORMATION 
SEC. 801. EXTENSION OF $100,000 LIMITATION ON USED PROPERTY FOR 
4 YEARS. 
26 use 48 note. 
Paragraph (2) of section 301 (c) of the Tax Reduction Act of 1975 
is amended by striking out "January 1, 1977" and inserting in lieu 
thereof "January 1, 1981". 
SEC. 802. EXTENSION OF 10 PERCENT CREDIT FOR 4 YEARS AND FIRST-
IN-FIRST-OUT TREATMENT OF INVESTMENT TAX CREDIT. 
26 use 46. 
(a) I N GENERAL.—Subsection (a) of section 46 (relating to deter-
mination of amount of investment credit) is amended— 
(1) by redesignating paragraphs (2) through (6) as (3) 
through (7), respectively, and 
(2) by striking out so much of such subsection as precedes para-
graph (3) (as redesignated by paragraph (1) of this subsection) 
and inserting in lieu thereof the following: 
" ( a ) GENERiVL R U L E . — 
"(1) 
FIRST-IN-FIRST-OUT RULE.—The amount of the 
credit 
allowed by section 38 for the taxable year shall be an amount 
equal to the sum of— 
" ( A ) the investment credit carryovers carried to such tax-
able year, 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1581 
" ( B ) the amount of the credit determined under paragraph 
(2) for such taxable year, plus 
"(C) the investment credit carrybacks carried to such tax-
able year. 
"(2) AMOUNT or CREDIT FOR CURRENT TAXABLE YEAR.— 
" ( A ) 10 PERCENT CREDIT.—Exccpt as otherwise provided 
in subparagraph ( B ) , in the case of a property described in 
subparagraph ( D ) , the amount of the credit determined 
under this paragraph for the taxable year shall be an amount 
equal to 10 percent of the qualified investment (as determined 
under subsections (c) and ( d ) ) . 
" ( B ) 
ADDITIONAL CREDIT.—In the case of a corporation 
which elects (at such time, in such form, and in such manner 
as the Secretary prescribes) to have the provisions of this 
subparagraph apply, the amount of the credit determined 
under this paragraph shall be an amount equal to— 
"(i) 11 percent of the qualified investment (as deter-
mined under subsections (c) and ( d ) ) , plus 
"(ii) an additional percent (not in excess of one-half 
percent) of the qualified investment (as determined 
under such subsections) equal in amount to the amount 
determined under section 301(e) of the Tax Reduction 
Act of 1975. 
Post, p. 1587. 
An election may not be made to have the provisions of this 
subparagraph apply unless the corporation meets the require-
ments of section 301(d) of the Tax lleduction Act of 1975. 26USC46note. 
" ( C ) 
7 PERCENT CREDIT.—In the case of property not 
described in subparagraph (D), the amount of credit deter-
mined under this paragraph for the taxable year shall be an 
amount equal to 7 percent of the qualified investment (as 
determined under subsections (c) and (d)). 
" ( D ) 
TRANSITIONAL RULES.—The provisions of subpara-
graphs (A) and (B) shall apply only to— 
"(i) property to which subsection (d) does not apply, 
the construction, reconstruction, or erection of which is 
completed by the taxpayer after January 21, 1975, but 
only to the extent of the basis thereof attributable to the 
construction, reconstruction, or erection after 
Janu-
ary 21, 1975, and before January 1, 1981, 
"(ii) property to which subsection (d) does not apply, 
ticquired by the taxpayer after January 21, 1975, and 
before January 1, 1981, and placed in service by the 
taxpayer before January 1, 1981, and 
"(iii) property to which subsection (d) applies, but 
only to the extent of the qualified investment (as deter-
mined under subsections (c) and (d)) with respect to 
qualified progress expenditures made after January 21, 
1975, and before January 1, 1981. 
For purposes of applying clause (ii) of subparagraph ( B ) , 
the date 'December 31, 1976,' shall be substituted for the 
date 'January 21, 1975,' each place it appears in this 
subparagraph." 
(b) CONFORMING AMENDMENTS.— 
(1) Paragraphs (4), (5), (6), and (7) of section 46(a) (as 26 USC 46. 
redesignated by subsection (a)) are each amended by striking out 
"paragraph (2)" and inserting in lieu thereof "paragraph (3)". 
89-19^ n—7fl-
90 STAT. 1582 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 46. 
(2) Subsection (b) of section 46 (relating to carryback and 
carryover of unused credits) is amended to read as follows: 
"(b) 
CARRYBACK AND CARRYOVER OF UNUSED CREDITS.— 
" (1) I N GENERAL.—If the sum of the amount of the investment 
credit carryovers to the taxable year under subsection (a) (1) 
(A) plus the amount determined under subsection ( a ) ( 1 ) ( B ) for 
the taxable year exceeds the amount of the limitation imposed by 
subsection (a) (3) for such taxable year (hereinafter in this 
subsection referred to as the 'unused credit year'), such excess 
attributable to the amount determined under subsection (a) (1) 
(B) shall be— 
" (A) an investment credit carryback to each of the 3 tax-
able years preceding the unused credit year, and 
" ( B ) an investment credit carryover to each of the 7 tax-
able years following the unused credit year, 
and, subject to the limitations imposed by paragraphs (2) and 
(3), shall be taken into account under the provisions of subsec-
tion (a) (1) in the manner provided in such subsection. The 
entire amount of the unused credit for an unused credit year shall 
be carried to the earliest of the 10 taxable years to which (by 
reason of subparagraphs (A) and ( B ) ) such credit may be 
carried and then to each of the other 9 taxable years to the extent, 
because of the limitations imposed by paragraphs (2) and (3), 
such unused credit may not be taken into account under subsec-
tion (a) (1) for a prior taxable year to which such unused credit 
may be carried. In the case of an unused credit for an unused 
credit year ending before January 1,1971, which is an investment 
credit carryover to a taxable year beginning after December 31, 
1970 (determined without regard to this sentence), this para-
graph shall be applied— 
"(C) by substituting '10 taxable years' for '7 taxable years' 
in subparagraph (B), and by substituting '13 taxable years' 
for '10 taxable years', and '12 taxable years' for '9 taxable 
years' in the preceding sentence, and 
" ( D ) by carrying such an investment credit carryover to a 
later taxable year (than the taxable year to which it would, 
but for this subparagraph, be carried) to which it may be 
carried if, because of the amendments made by section 802 
(b) (2) of the Tax Reform Act of 1976, carrying such carry-
over to the taxable year to which it would, but for this 
subparagraph, be carried would cause a portion of an unused 
credit from an unused credit year ending after December 31, 
1970 to expire. 
"(2) LIMITATION ON CARRYBACKS.—The amount of the unused 
credit which may be taken into account under subsection (a) (1) 
for any preceding taxable year shall not exceed the amount by 
which the limitation imposed by subsection (a) (3) for such tax-
able year exceeds the sum of— 
" ( A ) the amounts determined under subparagraphs (A) 
and (B) of subsection (a) (1) for such taxable year, plus 
"(B) the amounts which (by reason of this subsection) are 
carried back to such taxable year and are attributable to tax-
able years preceding the unused credit year. 
"(3) LIMITATION ON CARRYOVERS.—The amount of tlie unused 
credit which may be taken into account under 
subsection 
( a ) ( 1 ) ( A ) for any succeeding taxable year shall not exceed the 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1583 
amount by which the limitation imposed by subsection (a)(3) for 
such taxable year exceeds the sum of the amounts which, by reason 
of this subsection, are carried to such taxable year and are attribut-
able to taxable years preceding the unused credit year." 
(3) Subparagraph (A) of section 46(c) (3) (relating to public 
26 USC 46. 
utility property) is amended by striking out "subsection (a) (1) 
( C ) " and inserting in lieu thereof "subsection (a) (2) (C)". 
(4) Paragraph (1) of section 46(e) (relating to limitations 
with respect to certain persons) is amended by striking out "sub-
section (a) ( 2 ) " and inserting in lieu thereof "subsection (a) (3)". 
(5) The first sentence of section 46 (f) (8) (relating to prohibi-
tion of immediate flowthrough of investment credit) is amended 
by inserting after "the Tax Reduction Act of 1975" the following: 
"and the Tax Reform Act of 1976". 
(6) Subsection (f) of section 48 (relating to estates and trusts) 
26 USC 48. 
is amended by striking out "section 46(a) (2)" and inserting in 
lieu thereof "section 46(a) (3)". 
(7) Section 301(d) of the Tax Reduction Act of 1975 is 26 USC 46 note, 
amended by striking out "section 4 6 ( a ) ( 1 ) ( B ) " each place it 
appears and inserting in lieu thereof "section 46(a) (2) (B)". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 46 note, 
apply to taxable years beginning after December 31, 1975. 
SEC. 803. EMPLOYEE STOCK OWNERSHIP PLANS; STUDY OF EXPANDED 
STOCK OWNERSHIP. 
(a) AMENDMENT OF THE INTERNAL REVENUE CODE or 1954.—Sec-
tion 46(f) (relating to limitation in case of certain regulated com- 
26 USC 46. 
panies) is amended by adding at the end thereof the following new 
paragraph: 
"(9) 
SPECIAL RULE FOR ADDITIONAL CREDIT.—If the taxpayer 
makes an election under subparagraph (B) of subsection (a) (2), 
for a taxable year beginning after December 31, 1975, then, not-
withstanding the prior 
paragraphs of this subsection, no 
credit shall be allowed by section 38 in excess of the amount which 
would be allowed without regard to the provisions of subpara-
graph (B) of subsection (a) (2) if— 
"(A) the taxpayer's cost of service for ratemaking pur-
poses or in its regulated books of account is reduced by rea-
son of any portion of such credit which results from the 
transfer of employer securities or cash to an employee stock 
ownership plan which meets the requirements of section 
301(d) of the Tax Reduction Act of 1976; 
"(B) the base to which the taxpayer's rate of return for 
ratemaking purposes is applied is reduced by reason of any 
portion of such credit which results from a transfer described 
in subparagraph (A) to such employee stock ownership plan; 
or 
"(C) any portion of the amount of such credit which 
results from a transfer described in subparagraph (A) to 
such employee stock ownership plan is treated for ratemaking 
purposes in any way other than as though it had been con-
tributed by the taxpayer's common shareholders." 
(b) SPECIAL RULES.— 
(1) Paragraph (4) of section 46(f) is amended— 
(A) by striking out "paragraphs (1) and ( 2 ) " in sub-
paragraph (A) and inserting in lieu thereof "paragraphs 
(1),(2),and (9)"; 
90 STAT. 1584 
PUBLIC LAW 94-455—OCT. 4, 1976 
(B) by striking out "paragraph (1) or (2)" each place 
it appears in subparagraph (A) and inserting in lieu thereof 
"paragraph (1), (2),or (9)"; and 
(C) by striking out "paragraph (2)," in subparagraph 
(B) (ii) and inserting in lieu thereof "paragraph (2) or the 
election described in paragraph (9),". 
26 use 401. 
(2) Section 401(a) (relating to qualified pension, etc., plans) 
is amended by adding after paragraph (20) the following new 
paragraph: 
"(21) A trust forming part of an employee stock ownership 
plan which satisfies the requirements of section 301 (d) of the Tax 
Reduction Act of 1975 shall not fail to be considered a permanent 
program merely because employer contributions 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 
^ra. 
transfer described in subsection (d) (6) or (e) (3) of section 301 
Post, p. 1587 
of the Tax Reduction Act of 1975." 
26 use 1504. 
(3) Section 1504(a) is amended by striking out "dividends." 
at the end thereof and inserting in lieu thereof "dividends, 
employer securities wdthin the meaning of section 301(d) (9) (A) 
of the Tax Reduction Act of 1975, or qualifying employer securi-
ties within the meaning of section 4975(e) (8) while such securi-' 
ties are held under an employee stock ownership plan which meets 
the requirements of section 301(d) of such Act or section 4975 
(e) (7), respectively." 
26 use 415. 
(4) Section 415(e) (5) is amended by striking out "For pur-
poses of this subsection," and inserting in lieu thereof "For pur-
poses of this section,", 
(c) 
PLAN REQUIREMENTS FOR TAXPAYERS ELECTING ADDITIONAL 
26 use 46 note. 
CREDIT.—Section 301(d) of the Tax Reduction Act of 1975 is 
amended— 
(1) by adding at the end of paragraph (3) the following 
sentence: "For purposes of this paragraph, the amount of com-
pensation paid to a participant for a year is the amount of such 
participant's compensation within the meaning of section 415 
(c) (3) of such Code for such year.", 
(2) by striking out paragraph (6) and inserting in lieu thereof 
the following: 
"(6) On making a claim for credit, adjustment, or refund 
under section 38 of the Internal Revenue Code of 1954, the 
employer states in such claim that it agrees, as a condition of 
receiving any such credit, adjustment, or refund— 
" (A) in the case of a taxable year beginning before Janu-
ary 1, 1977, to transfer employer securities forthwith to the 
plan having an aggregate value at the time of the claim of 
1 percent of the amount of the qualified investment (as deter-
mined under section 46 (c) and (d) of such Code) of the 
taxpayer for the taxable year, and 
"(B) in the case of a taxable year beginning after 
December 31,1976— 
" (i) to transfer employer securities to the plan having 
an aggregate value at the time of the claim of 1 percent 
of the amount of the qualified investment (as determined 
under section 46 (c) and (d) of such Code) of the 
employer for the taxable year, 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1585 
"(ii) except as provided in clause (iii), to effect the 
transfer not later than 30 days after the time (including 
extensions) for filing its income tax return for a taxable 
year, and 
"(iii) in the case of an employer whose credit (as 
determined under section 46(a)(2)(B) of such Code) 
Ante, p. 1580. 
for a taxable year beginning after December 31, 1976, 
exceeds the limitations of paragraph (3) of section 46(a) 
of such Code— 
"(I) to effect that portion of the transfer allo-
cable to investment credit carrybacks of such excess 
credit at the time required under clause (ii) for the 
unused credit year (within the meaning of section 
46(b) of such Code), and 
"(II) 
to effect that portion of the transfer 
allocable to investment credit carryovers of such 
excess credit at the time required under clause (ii) 
for the taxable year to which such portion is carried 
over. 
For purposes of meeting the requirements of this paragraph, 
a transfer of cash shall be treated as a transfer of employer 
securities if the cash is, under the plan, used to purchase 
employer securities.", 
(3) by deleting paragraph (8) and inserting in lieu thereof the 
following: 
"(8) (A) Except as provided in subparagraph (B) (iii), if the 
amount of the credit determined under section 46(a)(2)(B) of 
the Internal Revenue Code of 1954 is recaptured or redetermined 
in accordance with the provisions of such Code, the amounts trans-
ferred to the plan under this subsection and subsection (e) and 
allocated under the plan s'hall remain in the plan or in participant 
accounts, as the case may be, and continue to be allocated in 
accordance with the plan. 
"(B) If the amount of the credit determined under section 
46(a) (2) (B) of the Internal Revenue Code of 1954 is recaptured 
in accordance with the provisions of such Code— 
"(i) the employer may reduce the amount required to be 
transferred to the plan under paragraph (6) of this subsec-
tion, or under paragraph (3) of subsection (e), for the cur-
rent taxable year or any succeeding taxable years by the 
portion of the amount so recaptured which is attributable to 
the contribution to such plan, 
"(ii) notwithstanding the provisions of paragraph (12), 
the employer may deduct such portion, subject to the limita-
tions of section 404 of such Code (relating to deductions for 26 U
S
C 404. 
contributions to an employees' trust or plan), or 
" (iii) if the requirements of subsection (f) (1) are met, the 
employer may withdraw from the plan an amount not in 
excess of such portion. 
"(C) If the amount of the credit claimed by an employer for a 
prior taxable year under section 38 of the Internal Revenue Code 
of 1954 is reduced because of a redetermination which becomes 
final during the taxable year, and the employer transferred 
arnounts to a plan which were taken into account for purposes of 
this subsection for that prior taxable year, then— 
90 STAT. 1586 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(i) the employer may reduce the amount it is required to 
transfer to the plan under paragraph (6) of this subsection, 
or under paragraph (3) of subsection (e), for the taxable 
year or any succeeding taxable year by the portion of the 
amount of such reduction in the credit or increase in tax 
which is attributable to the contribution to such plan, or 
"(ii) notwithstanding the provisions of paragraph (12), 
the employer may deduct such portion subject to the 
limitations of section 404 of such Code.", 
(4) by striking out "in control of the employer (within the 
meaning of section 368 (c) of the Internal Revenue Code of 1954)" 
in paragraph (9) (A) and inserting in lieu thereof "a member of 
a controlled group of corporations which includes the employer 
(within the meaning of section 1563(a) of the Internal Revenue 
Code of 1954, determined without regard to section 1563(a) (4) 
and (e) (3) (C) of such Code)", and 
(5) by adding at the end thereof the following new paragraphs: 
" (13) (A) As reimbursement for the expense of establishing the 
plan, the employer may withhold 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 
of 10 percent of the first $100,000 that the employer is required 
to transfer to the plan for that taxable year under paragraph 
^6) (including any amounts transferred under subsection (e) 
(3)) and 5 percent of any amount in excess of the first $100,000 
of such amount. 
"(B) As reimbursement for the expense of administering the 
plan, the employer may withhold from amounts due the plan, or 
the plan may pay, so much of the amounts paid or incurred during 
the taxable year as expenses of administering the plan as does not 
/ 
, 
exceed the smaller of— 
"(i) the sum of 10 percent of the first $100,000 and 5 per-
cent of any amount in excess of $100,000 of the income from 
dividends paid to the plan with respect to stock of the 
employer during the plan year ending with or within the 
employer's taxable year, or 
"(ii) $100,000. 
"(14) The return of a contribution made by an employer to an 
employee stock ownership plan designed to satisfy the require-
ments of this subsection or subsection (e) (or a provision for 
such a return) does not fail to satisfy the requirements of this 
subsection, subsection (e), section 401(a) of the Internal Revenue 
Code of 1954, or section 403(c) (1) of the Employee Retirement 
29 use 1103. 
Income Security Act of 1974 if— 
"(A) the contribution is conditioned under the plan upon 
determination by the Secretary of the Treasury that such 
plan meets the applicable requirements of this subsection, 
subsection (e), or section 401(a) of such Code, 
"(B) the application for such a determination is filed with 
the Secretary not later than 90 days after the date on which 
the credit under section 38 is allowed, and 
"(C) the contribution is returned within one year after 
the date on which the Secretary issues notice to the employer 
that such plan does not satisfy the requirements of this sub-
section, subsection (e), or section 401(a) of such Code." 
/ 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1587 
(d) P L A N 
EEQUIREMENTS FOR TAXPAYERS ELECTING 
ADDITIONAL 
O N E - H A L F PERCENT CREDIT.—Section 301 of the Tax Reduction Act of 
1975 (relating to increase in investment credit) is amended by adding 
26 USC 46 note, 
at the end thereof the following new subsections: 
"(e) 
P L A N REQUIREMENTS FOR TAXPAYERS ELECTING 
ADDITIONAL 
O N E - H A L F PERCENT CREDIT.— 
"(1) GENERAL RULE.—For purposes of clause (ii) of section 46 
( a ) ( 2 ) ( B ) of the Internal Revenue Code of 1954, the amount 
determined under this subsection for a taxable year is an amount 
equal to the sum of the matching employee contributions for the 
taxable year which meet the requirements of this subsection. 
"(2) ELECTION; BASIC PLAN REQUIREMENTS.—No amount shall 
be determined under this subsection for the taxable year unless the 
corporation elects to have this subsection apply for that year. 
A corporation may not elect to have the provisions of this sub-
section apply for a taxable year unless the corporation meets the 
requirements of subsection (d) and the requirements of this 
subsection. 
"(3) EMPLOYER CONTRIBUTION.—On making a claim for credit, 
adjustment, or refund under section 38 of the Internal Revenue 
Code of 1954, the employer shall state in such claim that the 
employer agrees, as a condition of receiving any such credit, 
adjustment, or refund attributable to the provisions of section 46 
(a) (2) (B) (ii) of such Code, to transfer at the time described in 
subsection ( d ) ( 6 ) ( B ) employer securities (as defined in subsec-
tion ( d ) ( 9 ) ( A ) ) to the plan having an aggregate value at the 
time of the transfer of not more than one-half of one percent of 
the amount of the qualified investment (as determined under sub-
sections (c) and (d) of section 46 of such Code) of the taxpayer 
for the taxable year. For purposes of meeting the requirements 
of this paragraph, a transfer of cash shall be treated as a transfer 
of employer securities if the cash is, under the plan, used to pur-
chase employer securities. 
"(4) REQUIREMENTS RELATING TO MATCHING EMPLOYEE CONTRI-
BUTIONS.— 
"(A) An amount contributed by an employee under a plan 
described in subsection (d) for the taxable year may not be 
treated as a matching employee contribution for that taxable 
year under this subsection unless— 
"(i) 
each employee who participates in the plan 
described in subsection (d) is entitled to make such a 
contribution, 
" (ii) the contribution is designated by the employee as 
a contribution intended to be used for matching employer 
amounts transferred under paragraph (3) to a plan 
which meets the requirements of this subsection, and 
"(iii) the contribution is in the form of an amount 
paid in cash to the employer or plan administrator not 
later than 24 months after the close of the taxable year 
in which the portion of the credit allowed by section 38 
of such Code (and determined under clause (ii) of sec-
tion 46(a) (2) (B) of such Code which the contribution 
is to match) is allowed, and is invested forthwith in 
employer securities (as defined in subsection (d) (9) 
( A ) ) . 
" ( B ) The sum of the amounts of matching employee con-
tributions taken into account for purposes of this subsection 
90 STAT. 1588 
PUBLIC LAW 94-455—OCT. 4, 1976 
for any taxable year may not exceed the value (at the time 
of transfer) of the employer securities transferred to the plan 
in accordance with the requirements of paragraph (3) for 
the year for which the employee contributions are designated 
as matching contributions. 
"(C) The emploj-er may not make participation in the 
plan a condition of employment and the plan may not require 
matching employee contributions as a condition of participa-
tion in the plan. 
" ( D ) Employee contributions under the plan must meet 
the requirements of section 401(a) (4) of such Code (relating 
to contributions). 
" (5) A plan must provide for allocation of all employer securi-
ties transferred to it or purchased by it under this subsection to 
the account of each participant (who was a participant at any 
time during the plan year, whether or not he is a participant at 
the close of the plan year) as of the close of the plan year in an 
amount equal to his matching employee contributions for the year. 
Matching employee contributions and amounts so allocated shall 
be deemed to be allocated under subsection (d) (3). 
"(f) 
RECAPTURE.— 
" (1) GENERAL RULE.—Amounts transferred to a plan under sub-
Ante, pp. 1584, 
section (d) (6) or (e) (3) may be withdrawn from the plan by 
1^^'^- 
the employer if the plan provides that while subject to recapture— 
" (A) amounts so transferred with respect to a taxable year 
are segregated from other plan assets, and 
" ( B ) separate accounts are maintained for participants on 
whose behalf amounts so transferred have been allocated for 
a taxable year. 
"(2) 
COORDINATION WITH OTHER LAW.—NotAvithstanding any 
other law or rule of law, an amount withdrawn by the employer 
will neither fail to be considered to be nonforfeitable nor fail to be 
for the exclusive benefit of participants or their beneficiaries 
merely because of the withdrawal from the plan of— 
"(A) amounts described in paragraph (1), or 
" ( B ) employer amounts transferred under*subsection (e) 
(3) to the plan which are not matched by matching employee 
contributions or which are in excess of the limitations of 
section 415 of such Code, 
nor will the withdrawal of any such amount be considered to 
violate the provisions of section 403(c)(1) of the Employee 
29 use 1103. 
Eetirement Income Security Act of 1974." 
(e) 
CLERICAL AMENDMENT.— 
(1) The heading of section 301 (d) of the Tax Reduction Act of 
26 use 46 note. 
1975 is amended by striking out "11-PERCENT" and inserting in 
lieu thereof "ADDITIONAL". 
(2) Section 301(d) of the Tax Reduction Act of 1975 is 
amended by— 
(A) striking out "A corporation" in paragraph (1) and 
inserting in lieu thereof "Except as expressly provided in 
subsections (e) and (f), a corporation", 
(B) inserting "or subsection (e) (3)" in paragraph (7) (A) 
immediately after "(6)", 
(C) striking out "this subsection" in paragraph (10) and 
substituting in lieu thereof "this subsection and subsections 
(e) and (f)", and 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1589 
(D) striking out "this subsection" each time it appears in 
paragraph (11) and substituting in lieu thereof "this sub-
section or subsection (e) or (f)". 
(f) LIMITATIONS ON CONTRIBUTIONS.— 
(1) 
SPECIAL 
LIMITATION 
FOR EMPLOYEE 
STOCK 
OWNERSHIP 
PLANS.—Section 415(c) (relating to limitation for defined con- 26 USC 4l5. 
tribution plans) is amended by adding at the end thereof the fol-
lowing new paragraph: 
"(6) 
SPECIAL 
LIMITATION 
FOR EMPLOYEE 
STOCK 
OWNERSHIP 
PLAN.— 
" ( A ) I n the case of an employee stock ownership plan (as 
defined in subparagraph ( B ) ) , under which no more than 
one-third of the employer contributions for a year ai'e allo-
cated to the group of employees consisting of officers, share-
holders owning more than 10 percent of the employer's stock 
(determined under subparagraph ( B ) ( i v ) ) , or employees 
described in subparagraph (B) (iii), the amount described in 
paragraph (c) (1) (A) (as adjusted for such year pursuant to 
subsection ( d ) ( 1 ) ) for a year with respect to any partici-
pant shall be equal to the sum of (i) the amount described 
in paragraph (c) (1) (A) (as so adjusted) determined without 
regard to this paragraph and (ii) the lesser of the amount 
determined under clause (i) or the amount of employer secu-
rvities contributed to the employee stock ownership plan. 
"(B) For purposes of this paragraph— 
Definitions, 
"(i) the term 'employee stock ownership plan' means 
a plan which meets the requirements of section 4975(6) 
(7) or section 301 (d) of the Tax Reduction Act of 1975, 26 USC 46 note. 
"(ii) the term 'employer securities' means, in the case 
of an employee stock ownership plan within the meaning 
of section 4975(e)(7), qualifying employer securities 
within the meaning of section 4975(e)(8), but only if 
they are described in section 301(d) (9) (A) of the Tax 
Reduction Act of 1975, or, in the case of an employee 
stock ownership plan described in section 301(d)(2) 
of the Tax Reduction Act of 1975, employer securities 
within the meaning of section 301 (d) (9) (A) of such Act, 
"(iii) an employee described in this clause is any par-
ticipant whose compensation for a year exceeds an amount 
equal to twice the amount described in paragraph (1) (A) 
for such year (as adjusted for such year pursuant to sub-
section (d) ( 1 ) ) , determined without regard to subpara-
graph (A) of this paragraph, and 
"(iv) an individual shall be considered to own more 
than 10 percent of the employer's stock if, without 
regard to stock held under the employee stock ownership 
plan, he owns (after application of section 1563(e)) 
more than 10 percent of the total combined voting power 
of all classes of stock entitled to vote or more than 10 
percent of the total value of shares of all classes of 
stock.". 
(2) CONFORMING AMENDMENT.—Paragraph (3) (B) of section 
415 (e) (relating to defined contribution plan fraction) is amended 
by inserting "determined without regard to paragraph (6) of 
such subsection)" after "employer". 
(g) WAIVER or PENALTY FOR UNDERPAYMENT OF ESTIMATED TAX.— 
26 USC 6655 
[f— 
note. 
90 STAT. 1590 
PUBLIC LAW 94-455—OCT. 4, 1976 
(1) a corporation made underpayments of estimated tax for 
a taxable year of the corporation which includes August 1, 1975, 
because the corporation intended to elect to have the provisions 
of subparagraph (B) of section 46(a) (1) of the Internal Revenue 
Code of 1954 (as it existed before the date of enactment of this 
Act) apply for such taxable year, and 
(2) the corporation does not elect to have the provisions of such 
subparagraph apply for such taxable year because this Act does 
not contain the amendments made by section 804(a) (2) (relating 
to flowthrough of investment credit), or the provisions of sub-
section (f) of such section (relating to grace period for certain 
Ante, p. 1520. 
plan transfers), of the bill H.E. 10612 (94th Congress, 2d Ses-
sion), as amended by the Senate, 
then the provisions of section 6655 of such Code (relating to failure 
by corporation to pay estimated income tax) shall not apply to so 
much of any such underpayment as the corporation can establish, 
to the satisfaction of the Secretary of the Treasury, is properly attrib-
utable to the inapplicability of such subparagraph (B) for such 
taxable year. 
26 use 4975 
(h) 
INTENT OF CONGRESS CONCERNING EMPLOYEE STOCK OWNERSHIP 
note. 
PLANS.—The Congress, in a series of laws (the Regional Rail Reorga-
45 
use 
701 
nization Act of 1973, the Employee Retirement Income Security Act of 
note. 
1974, the Trade Act of 1974, and the Tax Reduction Act of 1975) and 
29 use 1001 
this Act has made clear its interest in encouraging employee stock own-
note, 
ership plans as a bold and innovative method of strengthening the free 
19 use 2101. 
private enterprise system which will solve the dual problems of secur-
26 use 1 note. 
jj^^ capital funds for necessary capital growth and of bringing about 
stock ownership by all corporate employees. The Congress is deeply 
concerned that the objectives sought by this series of laws will be made 
unattainable by regulations and rulings which treat employee stock 
ownership plans as conventional retirement plans, which reduce the 
freedom of the employee trusts and employers to take the necessary 
steps to implement the plans, and which otherwise block the establish-
ment and success of these plans. Because of the special purposes for 
which employee stock ownership plans are established, it is consistent 
with the intent of Congress to permit these plans (whether structured 
as pension, stock bonus, or profit-sharing plans) to distribute income 
on employer securities currently. 
(i) 
STUDY OF EXPANDED STOCK OWNERSHIP.— 
(1) I N GENERAL.—Section 3022 (a) of the Employee Retirement 
29 use 1222. 
Income Security Act of 1974 (relating to duties of Joint Pension 
Task Force) is amended— 
(A) by redesignating paragraphs (4) and (5) as (5) and 
(6), and 
(B) by inserting after paragraph (3) the following new 
paragraph: 
"(4) the broadening of stock ownership, particularly with 
regard to employee stock ownership plans (as defined in sec-
26 use 4975. 
tion 4975(e) (7) of the Internal Revenue Code of 1954 and 
29 use 1107. 
section 407(d) (6) of this Act) and all other alternative meth-
ods for broadening stock ownership to the American labor 
force and others;". 
(2) 
CHANGE or TITLE.— 
(A) Subtitle B of title I I I of such Act is amended— 
(i) by striking out "Pension" in the caption of such 
subtitle and inserting in lieu thereof "Pension, Profit-
sharing, and Employee Stock Ownership Plan", 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1591 
(ii) by striking out " P E N S I O N " in the caption of 
part 1 of such subtitle and inserting in lieu thereof the 
following: " P E N S I O N , P R O F I T - S H A R I N G , 
A N D 
E M P L O Y E E STOCK O W N E R S H I P PLAN", and 
(iii) by striking out "Joint Pension" each place it 
appears in sections 3021 and 3022 and inserting in lieu 
29 USC 1221, 
thereof the following: "Joint Pension, Profit-sharing, 
1222. 
and Employee Stock Ownership Plan". 
(B) The table of contents of such Act is amended— 
(i) by striking out "PENSION" in the item relating to 
title I I I and inserting in lieu thereof the following: 
"PENSION, PROFIT-SHARING, AND EMPLOYEE STOCK 
OWNERSHIP PLAN", 
(ii) by striking out "PENSION" in the item relating to 
subtitle B of title I I I and inserting in lieu thereof the 
following: "PENSION, PROFIT-SHARING, AND EMPLOYEE 
STOCK OWNERSHIP PLAN", and 
(iii) by striking out "PENSION" in the item relating to 
part 1 of subtitle B of title I I I and inserting in lieu 
thereof "PENSION, PROFIT-SHARING, AND EMPLOYEE 
STOCK OWNERSHIP PLAN". 
(j) EFFECTIATE DATES.— 
26 USC 46 note. 
(1) GENERAL RULE.—Except as provided in paragraph (2), 
the amendments made by this section shall apply for taxable years 
beginning after December 31,1974. 
(2) 
EXCEPTIONS.— 
(A) Section 301(e) of the Tax Reduction Act of 1975, as Ante, p. 1587. 
added by subsection 
(d), shall apply for taxable years 
beginning after December 31,1976. 
(B) The amendments made by subsections (a) and (b) (1) 
shall apply for taxable years beginning after December 31, 
1975. 
(C) The amendments made by subsections (b) (4) and 
(f) shall apply for years beginning after December 31, 1975. 
SEC. 804. INVESTMENT CREDIT IN THE CASE OF MOVIE AND TELEVI-
SION FILMS. 
(a) 
SPECIAL RULES FOR MOVIE AND TELEVISION FILMS.—Section 48 
26 USC 48. 
(relating to definitions and special rules for purposes of the invest-
ment credit) is amended by redesignating subsection (k) as subsection 
(1) and by inserting after subsection (j) the following new subsection: 
"(k) 
MOVIE AND TELEVISION F I L M S . — 
"(1) 
ENTITLEMENT TO CREDIT.— 
_ " ( A ) I N GENERAL.—A credit shall be allowable under sec-
tion 38 to a taxpayer with respect to any motion picture film 
or video tape— 
" (i) only if such film or tape is new section 38 property 
(determined without regard to useful life) which is a 
qualified film, and 
" (ii) only to the extent that the taxpayer has an owner-
ship interest in such film or tape. 
" ( B ) QUALIFIED FILM DEFINED.—For purposes of this sub-
section, the term 'qualified film' means any motion picture film 
or video tape created primarily for use as public entertain-
ment or for educational purposes. Such term does not include 
any film or tape the market for which is primarily topical or 
is otherwise essentially transitory in nature. 
90 STAT. 1592 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(C) OWNERSHIP IXTEREST.—For purposes of this subsec-
tion, a person's 'ownership interest' in a qualified film shall 
be determined on the basis of his proportionate share of any 
loss which may be incurred with respect to the production 
costs of such film. 
"(2) APPLICABLE PERCENTAGE TO BE 66%.—Except as provided 
in paragraph (3), the applicable percentage under section 46(c) 
(2) for any qualified film shall be 66% percent. 
"(3) ELECTION OF 9O-PERCENT RULE.— 
" (A) I N GENERAL.—If the taxpayer makes an election under 
this paragraph, the applicable percentage under section 46 
(c) (2) shall be determined as if the useful life of the film 
would have expired at the close of the first taxable year by the 
close of which the aggregate amount allowable as a deduction 
under section 167 would equal or exceed 90 percent of the basis 
of the film. 
" ( B ) MAKING or ELECTION.—An election under this para-
graph shall be made at such time and in such manner as the 
Secretary may by regulations prescribe. Such an election shall 
apply for the taxable year for which it is made and for all sub-
sequent taxable years and may be revoked only with the con-
sent of the Secretary. 
"(C) W H O MAY ELECT.—If for any prior taxable year para-
graph (2) of this subsection applied to the taxpayer or any 
related business entity, or if for the taxable year paragraph 
(2) applies to any related business entity, an election under 
this paragraph may be made by the taxpayer only with the 
consent of the Secretary. 
" ( D ) 
RELATED BUSINESS ENTITY.—Two or more corpora-
tions, partnerships, trusts, estates, proprietorships, or other 
entities shall be treated as related business entities if 50 per-
cent or more of the beneficial interest in each of such entities 
is owned by the same or related persons (taking into account 
only persons who own at least 10 percent of such beneficial 
interest). For purposes of this subparagraph, a person is a 
related person to another person if— 
"(i) such persons are component members of a con-
trolled group of corporations (within the meaning of 
section 1563(a), except that section 1563(b)(2) shall 
not apply and except that 'more than 50 percent' shall 
be substituted for 'at least 80 percent' each place it 
appears in section 1563 ( a ) ) , or 
"(ii) the relationship between such persons would 
result in a disallowance of losses under section 267 or 707 
(b), except that for these purposes a family of an indi-
vidual includes only his spouse and minor children. 
"Beneficial 
For purposes of this subparagraph, the term 
'beneficial 
interest." 
interest' means voting stock in the case of a corporation, 
profits interest or capital interest in the case of a partnership, 
or beneficial interest in the case of a trust or estate. 
"(4) 
PREDOMINANT USE TEST; QUALIFIED INVESTMENT.—In the 
case of any qualified film— 
"(A) section 48(a) (2) shall not apply, and 
"(B) in determining qualified investment under section 
46(c)(1), there shall be issued (in lieu of the basis of the 
property) an amount equal to the qualified United States 
production costs (as defined in paragraph (5)). 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1593 
"(5) QUALIFIED UNITED STATES PRODUCTION COSTS.— 
" ( A ) I N GENERAL.—For purposes of this subsection, the 
term 'qualified United States production costs' means with 
respect to any film— 
"(i) direct production costs allocable to the United 
States, plus 
"(ii) if 80 percent or more of the direct production 
costs are allocable to the United States, all other pro-
duction costs other than direct production costs allocable 
outside the United States. 
; , 
" ( B ) PRODUCTION COSTS.—For purposes of this subsection, 
the term 'production costs' includes— 
"(i) a reasonable allocation of general overhead costs, 
"(ii) 
compensation 
(other 
than 
participations 
described in clause (vi)) for services performed by 
actors, production personnel, directors, and producers, 
;| 
"(iii) costs of 'first' distribution of prints, 
"(iv) the cost of the screen rights and other material 
being filmed, 
"(v) 'residuals' payable under contracts with labor 
organizations, and 
" (vi) participations payable as compensation to actors, 
production personnel, directors, and producers. 
Participations in all qualified films placed in service by a tax-
payer during a taxable year shall be taken into account under 
clause (vi) only to the extent of the lesser of 25 percent of 
each such participation or 121/^ percent of the aggregate quali-
fied 
United 
States production 
costs 
(other than 
costs 
described in clauses (v) and (vi) of this subparagraph) for 
such films, but taking into account for both the 25 percent 
limit and 121/^ percent limit no more than $1,000,000 in par-
ticipations for any one individual with respect to any one 
film. For purposes of this subparagraph (other than clauses 
(v) and (vi) and the preceding sentence), costs shall be 
taken into account only if they are capitalized. 
" ( C ) 
DIRECT PRODUCTION COSTS.—For purposes of this 
paragraph, the term 'direct production costs' does not include 
items referred to in clause (i), (iv), (v), or (vi) of subpara-
graph (B). The term also does not include advertising and 
promotional costs and such other costs as may be provided 
m regulations prescribed by the Secretary. 
" ( D ) ALLOCATION OF DIRECT PRODUCTION COSTS.—For pur-
poses of this paragraph— 
"(i) Compensation for services performed shall be 
allocated to the country in which the services are per-
formed, except that payments to United States persons 
for services performed outside the United States shall be 
allocated to the United States. For purposes of the pre-
ceding sentence, payments to an electing small business 
corporation (within the meaning of section 1371) or a 
partnership shall be considered payments to a United 
States person only to the extent that such payments are 
included in the gross income of a United States per-
son other than an electing small business corporation or 
partnership. 
90 STAT. 1594 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(ii) Amounts for equipment and supplies shall be 
allocated to the country in which, with respect to the pro-
duction of the film, the predominant use occurs. 
"(iii) All other items shall be allocated under regula-
tions prescribed by the Secretary which are consistent 
with the allocation principle set forth in clause (ii). 
"(6) UNITED STATES.—For purposes of this subsection, the term 
'United States' includes the possessions of the United States." 
(b) OVERESTIMATION OF USEFUL LiFE AND DISPOSITIONS W H E R E 90 
26 use 47. 
PERCENT R U L E APPLIES.—Section 47(a) (relating to certain disposi-
tions, etc., of section 38 property) is amended by adding after para-
graph (6) the following new paragraph: 
"(7) MOTION PICTURE FILMS AND VIDEO TAPES.— 
" ( A ) 
DISPOSITION WHERE DEPRECIATION EXCEEDS 90 PER-
CENT OF BASIS OR COST.—A qualified film (within the meaning 
Ante, p. 1591. 
of section 48 (k) (1) (B)) which has an applicable percentage 
determined under section 48(k) (3) shall cease to be section 
38 property with respect to the taxpayer at the close of the 
first day on which the aggregate amount allowable as a deduc-
tion under section 167 equals or exceeds 90 percent of the 
basis or cost of such 
film 
(adjusted for any partial 
dispositions). 
" ( B ) 
OTHER DISPOSITIONS.—In the case of a disposition of 
the exclusive right to display a qualified film which has an 
applicable percentage determined under section 48 (k) (3) in 
one or more mediums of publication or exhibition in one 
or more specifically defined geographical areas over the 
remaining initial period of commercial exploitation of the 
film or tape in such geographical areas, the taxpayer shall be 
considered to have disposed of all or part of such film or 
tape and shall recompute the credit earned on all of his 
basis or cost or on that part of the basis or cost properly 
allocable to that part of the film or tape disposed of. In the 
case of an affiliated group of corporations, a transfer within 
the affiliated group shall not be treated as a disposition until 
"Affiliated 
there is a transfer outside the group. For purposes of the 
group." 
preceding sentence, the term 'affiliated group' has the mean-
ing given to such term by section 1504 (determined as if sec-
tion 1504(b) did not include paragraph (3) thereof). For 
purposes of this paragraph, section 1504(a) shall be applied 
by substituting '50 percent' for '80 percent' each place it 
appears.". 
26 use 48 note. 
(c) 
ALTORNATI\'E 
METHODS OF COMPUTING 
CREDIT FOR PAST 
PERIODS.— 
(1) GENERAL RULE FOR DETERMINING USEFUL LIFE, PREDOMI-
NANT FOREIGN USE, ETC.—In the case of a qualified film (within 
the meaning of section 4 8 ( k ) ( l ) ( B ) of the Internal Revenue 
Ante, p. 1591. 
Code of 1954) placed in service in a taxable year beginning before 
January 1, 1975, with respect to which neither an election 
under paragraph (2) of this subsection nor an election under 
subsection (e)(2) applies— 
(A) the applicable percentage under section 46(c)(2) of 
such Code shall be determined as if the useful life of the film 
would have expired at the close of the first taxable year by 
the close of which the aggregate amount allowable as a 
I PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1595 
deduction under section 167 of such Code would equal or 
exceed 90 percent of the basis of such property (adjusted for 
any partial dispositions), 
(B) for purposes of section 46(c)(1) of such Code, the 26 USC 46. 
basis of the property shall be determined by taking into 
account the total production costs (within the meaning of 
section 48(k) (5) (B) of such Code), 
(C) for purposes of section 48(a) (2) of such Code, such 
film shall be considered to be used predominantly outside the 
United States in the first taxable year for which 50 percent 
or more of the gross revenues received or accrued during the 
taxable year from showing the film were received or accrued 
from showing the film outside the United States, and 
(D) Section 47(a) (7) of such Code shall apply. 
(2) ELECTION OF 4O-PERCENT METHOD.— 
(A) I N GENERAL.—A taxpayer may elect to have this para-
graph apply to all (jualified films placed in service during 
taxable years beginning before January 1, 1975 (other than 
films to which an election under subsection (e) (2) of this 
section applies). 
(B) EFFECT OF ELECTION.—If the taxpayer makes an elec-
tion under this paragraph, then section 48(k) of tlie Internal 
Revenue Code of 1954 shall apply to all qualified 
films 
described in subparagraph (A) with the following modifica-
tions : 
(i) subparagraph (B) of paragraph (4) shall not 
apply, but in determining qualified investment under sec-
tion 46(c) (1) of such Code, there shall be used (in lieu 
of the basis of such property) an amount equal to 40 
percent of the aggregate production costs (witliin the 
meaning of paragraph (5)(B) of such section 48(k)), 
, , 
(ii) paragraph (2) shall be applied by substituting 
: -
"100 percent"' for "662/3 percent", and 
(iii) paragraph (3) and paragraph (5) (other than 
subparagraph (B)) shall not apply. 
, ^„., 
(C) 
RULES RELATING TO ELECTIONS.—An election under 
Regulations, 
this paragraph shall be made not later than the day which 
is 6 months after the date of the enactment of this Act and 
shall be made in such manner as the Secretary of the Treas-
ury or his delegate shall by regulations prescribe. Such an 
election may be revoked only with the consent of the Secre-
tary of the Treasury or his delegate, 
(D) T H E TAXPAYER MUST CONSENT TO JOIN I N CERTAIN 
PROCEEDINGS.—No election may be made under this paragraph 
or subsection (e)(2) by any taxpayer unless he consents, 
under regulations prescribed by the Secretary of the Treas-
ury or his delegate, to treat the determination of the invest-
ment credit allowable on each film subject to an election as a 
separate cause of action, and to join in any judicial proceeding 
,• 
for determining the person entitled to, and the amount of, the 
credit allowable under section 38 of the Internal Revenue 
Code of 1954 with respect to any film covered by such election. 
(3) ELECTION TO HAVE CREDIT DETERMINED I N ACCORDANCE WITH 
PREVIOUS LITIGATION.— 
(A) I N GENERAL.—A taxpayer described in subparagraph 
(B) may elect to have this paragraph apply to all films 
(whether or not qualified) placed in service in taxable years 
90 STAT. 1596 
PUBLIC LAW 94-455—OCT. 4, 1976 
beginning before January 1, 1975, and with respect to which 
an election under subsection (e) (2) is not made. 
(B) W H O MAY ELECT.—A taxpayer may make an election 
under this paragraph if he has filed an action in any court 
of competent jurisdiction, before January 1, 1976, for a 
determination of such taxpayer's rights to the allowance of 
a credit against tax under section 38 of the Internal Revenue 
Code of 1954 for any taxable year beginning before Janu-
ary 1,1975, with respect to any film. 
(C) EFFECT OF ELECTION.—If the taxpayer makes an elec-
tion under this paragraph— 
(i) paragraphs (1) and (2) of this subsection, and 
subsection (d) shall not apply to any film placed in 
service by the taxpayer, and 
(ii) subsection 48(k) of the Internal Revenue Code 
Ante, p. 1591. 
of 1954 shall not apply to any film placed in service by 
the taxpayer in any taxable year beginning before Jan-
uary 1,1975, and with respect to which an election under 
subsection (e) (2) is not made, 
and the right of the taxpayer to the allowance of a credit 
against tax under section 38 of such Code with respect to 
any film placed in service in any taxable year beginning before 
January 1,1975, and as to which an election under subsection 
(e) (2) is not made, shall be determined as though this section 
(other than this paragraph) has not been enacted. 
(D) RULES RELATING TO ELECTIONS.—An election under 
this paragraph shall be made not later than the day which 
is 90 days after the date of the enactment of this Act, by fil-
ing a notification of such election with the national office of 
the Internal Revenue Service. Such an election, once made, 
shall be irrevocable. 
26 use 48 note. 
(d) ENTITLEMENT TO CREDIT.—Paragraph (1) of section 48 (k) 
of the Internal Revenue Code of 1954 (relating to entitlement to 
credit) shall apply to any motion picture film or video tape placed in 
service in any taxable year beginning before January 1, 1975. 
26 use 48 note. 
(e) EFFECTIVE DATES.— 
(1) I N GENERAL.—The amendments made by subsections (a) 
and (b) shall apply to taxable years beginning after Decem-
ber 31, 1974. 
(2) ELECTION MAY ALSO APPLY TO PROPERTY DESCRIBED I N SEC-
TION 50(a).—At the election of the taxpayer, made within 1 year 
after the date of the enactment of this Act in such manner as the 
Secretary of the Treasury or his delegate may by regulations pre-
scribe, the amendments made by subsections (a) and (b) shall 
also apply to property which is property described in section 
50(a) of the Internal Revenue Code of 1954 and which is placed 
in service in taxable years beginning before January 1, 1975. 
SEC. 805. INVESTMENT CREDIT IN THE CASE OF CERTAIN SHIPS. 
26 use 46. 
(a) I N GENERAL.—Section 46 (relating to amount of credit) is 
amended by adding at the end thereof the following new subsection: 
"(g) 50 PERCENT CREDIT I N THE CASE or CERTAIN VESSELS.— 
"(1) I N GENERAL.—In the case of a qualified withdrawal out of 
the untaxed portion of a capital gain account or out of an 
ordinary income account in a capital construction fund estab-
lished under section 607 of the Merchant Marine Act, 1936 
(46U.S.C.ll77),for— 
» 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 15^7 
" ( A ) the acquisition, construction, or reconstruction of a 
qualified vessel, or 
; *
' 
"(B) the acquisition, construction, or reconstruction of 
barges or containers which are part of the complement of a 
qualified vessel and to which subsection ( f ) ( 1 ) ( B ) of such 
section 607 applies, 
46 USC 1177. 
for purposes of section 38 there shall be deemed to have been made 
(at the time of such withdrawal) a qualified investment (within 
the meaning of subsection (c)) or qualified progress expenditures 
(within the meaning of subsection ( d ) ) , whichever is appropri-
ate, with respect to property which is section 38 property. 
"(2) AMOUNT or CREDIT.—For purposes of paragraph (1), the 
amount of the qualified investment shall be 50 percent of the 
applicable percentage of the qualified withdrawal referred to in 
'*' 5 \ 
paragraph (1), or the amount of the qualified progress expendi-
tures shall be 50 percent of such withdrawal, as the case may be. 
For purposes of determining the amount of the credit allowable 
by reason of this subsection for any taxable year, the limitation 
or subsection (a) (3) shall be determined without regard to sub-
section (d) (1) (A) of such section 607. 
"'' 
' ' ' 
" (3) COORDINATION WITH SECTION 38.—The amount of the credit 
allowable by reason of this STibsection with respect to any prop-
erty shall be the minimum amount allowable under section 38 
with respect to such property. If, without regard to this subsec-
tion, a greater amount is allowable under section 38 with respect 
to such property, then such greater amount shall apply and this 
subsection shall not apply. 
"(4) 
COORDINATION WITH SECTION 47.—Section 47 shall be 
applied— 
" ( A ) to any property to which this subsection applies, 
and 
" ( B ) to the payment (out of the untaxed portion of a 
' .; .*,\ 
capital gain account or out of the ordinary income account 
of a capital construction fund established under section 607 
of the Merchant Marine Act, 1936) of the principal of any 
indebtedness incurred in connection with property 
with 
respect to which a credit was allowed under section 38. 
For purposes of section 47, any payment described in subpara-
graph (B) of the preceding sentence shall be treated as a dis-
position occurring less than 3 years after the property was placed 
in service; but, in the case of a credit allowable without regard 
to this subsection, the aggregate amount which may be recaptured 
by reason of this sentence shall not exceed 50 percent of such 
credit. 
"(5) DEEINITIONS.—Any term used in section 607 of the Mer-
chant Marine Act, 1970, shall have the same meaning when used 
46 USC 1177. 
in this subsection. 
"(6) No INFERENCE.—Nothing in this subsection shall be con-
strued to infer that any property described in this subsection is or 
is not section 38 property, and any determination of such issue 
shall be made as if this subsection had not been enacted." 
(b) EFFECTIVE DATES.— 
26 USC 46 note. 
(1) I N GENERAL.—Except as provided in subparagraph (B), the 
amendment made by subsection (a) shall apply to taxable years 
beginning after December 31, 1975, in the case of property placed 
in service after such date. 
-194 O—78—pt. 2 
9 
90 STAT. 1598 
-
^ 
PUBLIC LAW 94-455—OCT. 4, 1976 
(2) SECTION 46(g)(4).—Section 46(g)(4) 
of the 
Internal 
Ante, p. 1596. 
Revenue Code of 1954 (as added by subsection (a)) shall apply 
to taxable years beginning after December 31,1975. 
SEC. 806. ADDITIONAL NET OPERATING LOSS CARRYOVER YEARS; 
LIMITATIONS ON NET OPERATING LOSS CARRYOVERS. 
26USC172. 
(a) I N GENERAL.—Section 172(b)(1)(B), as amended by section 
^05^ p. 1755. 
1606(b) of this Act, is amended by adding at the end thereof the fol-
lowing new sentence: "Except as provided in subparagraphs (C), ( D ) , 
( E ) , and ( F ) , a net operating loss for any taxable year ending after 
December 31, 1975, shall be a net operating loss carryover to each of 
the 7 taxable years following the taxable year of such loss." 
(b) 
REGULATED TRANSPORTATION CORPORATIONS.— 
Post, p. 1769. 
(1) I N GENERAL.—Section 172(b)(1)(C) is amended by add-
ing at the end thereof the following new sentence: "For any 
taxable year ending after December 31, 1975, the preceding sen-
tence shall be applied by substituting '9 taxable years' for '7 taxa-
ble years'." 
(2) CONFORMING AMENDMENT.—Paragraph (3) of section 172 
Post, p. 1769. 
(g), as amended by section 1901 (a) (29) of this Act, is amended— 
(A) by striking "and" at the end of subparagraph ( A ) ; 
(B) by striking the period at the end of subparagraph (B) 
and inserting in lieu thereof "; and" ; and 
(C) by adding at the end thereof the following new 
subparagraph: 
" (C) in the case of a net operating loss carryover from a loss 
year ending after December 31, 1'975, subparagraphs 
(A) 
and (B) shall be applied by substituting '8th taxable year' 
for the'6th taxable year'and'9th taxable year'for'7th taxable 
year.'" 
(c) 
ELECTION TO FOREGO CARRYBACK PERIOD.—Section 172 (b) 
(3), 
Post, p. 1769. 
^s amended by section 1901 (a) (29) of this Act, is amended by adding 
at the end thereof the following new subparagraph: 
" ( E ) Any taxpayer entitled to a carryback period under 
paragraph (1) may elect to relinquish the entire carryback 
period with respect to a net operating loss for any taxable 
year ending after December 31, 1975. 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 for which the election is to be in effect. 
Such election, once made for any taxable year, shall be 
irrevocable for that taxable year." 
(d) 
INSURANCE COMPANIES.— 
(1) L I F E INSURANCE COMPANIES.— 
26 use 812. 
(A) I N GENERAL.—Paragraph (1) of section 812(b) is 
amended by adding at the end thereof the following new 
sentence: 
"In the case of an operations loss for any taxable year ending after 
December 31,1975, this paragraph shall be applied by substituting 
'7 taxable years' for '5 taxable years'." 
., 
^ 
(B) 
ELECTION 
TO FOREGO 
CARRYBACK 
PERIODS.—Section 
- 
812(b) is amended by adding at the end thereof the following 
new paragraph: 
(3) 
ELECTION FOR OPERATIONS LOSS CARRYBACKS.—In the case of 
a loss from operations for any taxable year ending after Decem-
ber 31,1975, the taxpayer may elect to relinquish the entire carry-
K^t-m 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1599 
back period for such loss. Such election shall be made by the due 
date (including extensions of time) for filnig the return for the 
taxable year of the loss from operations for which the election 
is to be in effect, and once made for any taxable year, such elec-
tion shall be irrevocable for that taxable year." 
(2) MUTUAL iNsuRAisrcE COMPANIES.— 
(A) I N GENERAL.—Section 825(d) is amended to read as 26 USC 825. 
follows: 
"(d) YEARS TO W H I C H CARRIED.— 
"(1) I N GENERAL.—The unused loss for any taxable year 
shall be— 
" ( A ) an unused loss carryback to each of the 3 taxable 
years preceding the loss year, and 
"(B) an unused loss carryover to each of the 5 taxable 
years following the loss year. 
In the case of an unused loss for a taxable year ending after 
December 31,1975, such unused loss shall be an unused loss carry-
over to each of the 7 taxable years following the loss year. 
"(2) ELECTION FOR UNUSED LOSS CARRYBACKS.—In the case of an 
unused loss for any taxable year ending after December 31, 1975, 
the taxpayer may elect to relinquish the entire carryback period 
for such loss. Such election shall be made by the due date (includ-
ing extensions of time) for filing the return for-the taxable year 
of the unused loss for which the election is to be in effect, and once 
made for any taxable year, such election shall be irrevocable for 
that taxable year." 
(e) AMENDMENT or SECTION 382.—Section 382 (relating to special 
26 USC 382. 
limitations on net operating loss carryovers) is hereby amended to read 
as follows: 
"SEC. 382. SPECIAL LIMITATIONS ON NET OPERATING LOSS CARRY-
OVER. 
"(a) CERTAIN ACQUISITIONS or STOCK or A CORPORATION.— 
"(1) I N GENERAL.—If— 
"(A) on the last day of a taxable year of a corporation, 
"(B) any one or more of the persons described in para-
graph (4) (B) own, directly or indirectly, a percentage of 
the total fair market value of the participating stock or of 
all the stock of the corporation which exceeds by more than 
60 percentage points the percentage of such stock owned by 
such person or persons at— 
"(i) the beginning of such taxable year, or 
"(ii) the beginning of the first or second preceding 
taxable year, and 
"(C) such increase in percentage points is attributable to— 
" (i) a purchase by such person or persons of such stock, 
or of the stock of another corporation owning stock in 
such corporation, or of an interest in a partnership or 
trust owning stock in such corporation, 
"(ii) an acquisition (by contribution, merger, or con-
solidation) of an interest in a partnership owning stock 
in such corporation, or an acquisition (by contribution, 
merger, or consolidation) by a partnership of such 
stock, 
"(iii) an exchange to which section 351 (relating to 
transfer to corporation controlled by transferor) applies, 
or an acquisition by a corporation of such stock in an 
exchange in which section 351 applies to the transferor, 
90 STAT. 1600 
, 
PUBLIC LAW 94-455—OCT. 4, 1976 
;
5 :' 
i "(iv) a contribution to the capital of such corporation, 
"(v) a decrease in the amount of such stock outstand-
ing or in the amount of stock outstanding of another cor-
poration owning stock in such corporation (except a 
decrease resulting from a redemption to pay death taxes 
26 use 303. 
to which section 303 applies), 
"(vi) a liquidation of the interest of a partner in a 
partnership owning stock in such corporation, or 
"(vii) any combination of the transactions described 
in clauses (i) through (vi), 
then the net operating loss carryover, if any, from such taxable 
year and the net operating loss carryovers, if any, fi-om prior 
taxable years to such taxable year and subsequent taxable years 
of such corporation shall be reduced by the percentage determined 
under paragraph (2), 
"(2) 
REDUCTION OF NET OPERATING LOSS CARRYOVER.—The reduc-
tion applicable under paragraph (1) shall be the sum of the per-
centages determined by multiplying— 
"(A) by three and one-half the increase in percentage 
points (including fractions thereof) in excess of 60 and up 
to and including 80, and 
"(B) by one and one-half the increase in percentage points 
(including fractions thereof) in excess of 80. 
The reduction under this paragraph shall be determined by ref-
erence to the increase in percentage points of the total fair market 
value of the participating stock or of all the stock, whichever 
increase is greater. 
"(3) 
M I N I M U M OWNERSHIP RULE.—Notwithstanding the 
pro-
visions of paragraph (1), a net operating loss carryover from 
a taxable year shall not be reduced under this subsection if, at all 
times during the last half of such taxable year, any of the persons 
described in paragraph (4) (B) (determined on the last day of 
the taxable year referred to in paragraph (1) (A)) owned at least 
40 percent of the total fair market value of the participating 
stock and of all the stock of the corporation. For purposes of the 
preceding sentence, persons owning stock of a corporation on the 
last day of its first taxable year shall be considered to have owned 
such stock at all times during the last half of such first taxable 
year. 
"(4) OPERATING RULES.—For purposes of this subsection— 
"(A) 
DEFINITION 
OF PURCHASE.—The term 'purchase' 
means an acquisition of stock the basis of which is determined 
. 
' 
by reference to its cost to the holder thereof. 
"(B) 
DESCRIPTION OF PERSON OR PERSONS.—The person or 
persons referred to in paragraph (1) (B) shall be the 15 per-
sons (or such lesser number as there are persons owning the 
stock on the last day of the taxable year) who own the greatest 
percentage of the total fair market value of all the stock 
on the last day of that year, except that if any other person 
I 
owns the same percentage of such stock at such time as is 
owned by one of the 15 persons, that other person shall also 
be included. If any of the persons are so related that the 
stock owned by one is attributed to the other under the rules 
specified in subparagraph (C), such persons shall be con-
sidered as only one person solely for the purpose of selecting 
the 15 persons (more or less) who own the greatest percentage 
of the total fair market value of all the stock. 
'' 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1601 
• 
" ( C ) CONSTRUCTIVE OWNERSHIP.—Section 318 (relating to 
26 USC 318. 
constructive ownership of stock) shall apply in determining 
the ownership of stock, except that section 318(a)(2)(C) 
and 318(a)(3)(C) shall be applied without regard to the 
50 percent limitation contained therein. 
" ( D ) SHORT TAXABLE TEARS.—If one of the taxable years of 
the corporation referred to in paragraph (1)(B) is a short 
taxable year, then such paragraph and paragraph (6) shall 
be applied by substituting 'first, second, or third' for 'first or 
second' each time such phrase occurs. 
"(5) EXCEPTIONS.—This subsection shall not apply to a pur-
chase or other acquisition of stock (or of an interest in a partner-
ship or trust owning stock in the corporation) — 
" ( A ) from a person whose ownership of stock would be 
attributed to the holder by application of paragraph (4) (C) 
to the extent that such stock would be so attributed; 
" ( B ) if (and to the extent) the basis thereof is determined 
under section 1014 or 1023 (relating to property acquired 
Post, p. 1872. 
from a decedent), or section 1015(a) or (b) (relating to 
property acquired by gift or transfers in trust); 
"(C) by a security holder or creditor in exchange for the 
relinquishment or extinguishment in whole or part of a claim 
against the corporation, unless the claim was acquired for 
the purpose of acquiring such stock; 
" (D) by one or more persons who were full-time employees 
of the corporation at all times during the period of 36 months 
ending on the last day of the taxable year of the corporation 
(or at all times during the period of the corporation's exist-
ence, if shorter); 
, 
" ( E ) by a trust described in section 401 (a) which is exempt 
from tax under section 501(a) and which benefits exclusively 
the employees (or their beneficiaries) of the corporation, 
including a member of a controlled group of corporations 
(within the meaning of section 1563(a) determined without 
regard to section 1563(a) (4) and (e) (3) (C)) which includes 
such corporation; 
" ( F ) by an employee stock ownership plan meeting the 
requirements of section 301(d) of the Tax Reduction Act of 
1975; or 
26 USC 46 nole. 
"(G) in a recapitalization described in section 368(a) (1) 
(E). 
"(6) 
SUCCESSIVE APPLICATIONS or SUBSECTION.—If— 
"(A) a net operating loss carryover is reduced under this 
subsection at the end of a taxable year of a corporation, and 
"(B) any person described in paragraph 
(4) (B) who 
owns stock of the corporation on the last day of such taxable 
year does not own, on the last day of the first or second suc-
ceeding taxable year of the corporation, u greater percentage 
of the total fair market value of the participating stock or of 
all the stock of the corporation than such person owned on 
the last day of such taxable year, 
then, for purposes of applying this subsection as of the end of the 
first or second succeeding taxable year (as the case may be), stock 
owned by such person at the end of such succeeding taxable year 
shall be considered owned by such person at the beginning of 
the first or second preceding taxable year. Other rules relating 
Regulations. 
90 STAT. 1602 
PUBLIC LAW 94-455—OCT. 4, 1976 
; ; 
y : 
to the manner and extent of successive applications of this section 
in the case of increases in ownership and transfers of stock by 
the persons described in paragraph (4) (B) shall be prescribed 
by regulations issued by the Secretary. 
"(b) 
REORGANIZATIONS.— 
"(1) I N GENERAL.—If one corporation acquires the stock or 
assets of another corporation in a reorganization described in sec-
26USC368. 
tion 368(a)(1) (A), (B), (C), (D) (but only if the requirements 
of section 354(b) (1) are met), or ( F ) , and if— 
" (A) the acquiring or acquired corporation has a net oper-
ating loss for the taxable year which includes the date of the 
acquisition, or a net operating loss carryover from a prior 
taxable year to such taxable year, and 
"(B) the shareholders (immediately before the reorgani-
zation) of such corporation (the 'loss corporation'), as the 
result of owning stock of the loss corporation, own (immedi-
ately after the reorganization) less than 40 percent of the 
total fair market value of the participating stock or of all the 
stock of the acquiring corporation, 
then the net operating loss carryover (if any) of the loss corpora-
tion from the taxable year which includes the date of the acquisi-
tion, and the net operating loss carryovers (if any) of the loss 
corporation from prior taxable years to such taxable year and 
subsequent taxable years, shall be reduced by the percentage 
determined under paragraph (2). 
"(2) REDUCTION OF NET OPERATING LOSS CARRYOVER.— 
" ( A ) 
OWNERSHIP OF 20 PERCENT OR MORE.—If such share-
holders own less than 40 percent, but not less than 20 percent, 
of the total fair market value of the participating stock or of 
all the stock of the acquiring corporation, the reduction 
applicable under paragraph (1) shall be the percentage equal 
to the number of percentage points (including 
fractions 
thereof) less than 40 percent, multiplied by three and one-
half. 
" ( B ) 
OWNERSHIP or 
LESS THAN 20 PERCENT.—If 
such 
shareholders own less than 20 percent of the total fair 
market value of the participating stock or of all the stock of 
the acquiring corporation, the reduction applicable under 
paragraph (1) shall be the sum of— 
;.- 
"(i) the percentage that would be determined under 
subparagraph (A) if the shareholders owned 20 percent 
of such stock, plus 
"(ii) the percentage equal to the number of percentage 
points (including fractions thereof) of such stock less 
than 20 percent, multiplied by one and one-half. 
The reduction under this paragraph shall be determined by ref-
erence to the lesser of the percentage of the total fair market value 
of the participating stock or of all the stock of the acquiring cor-
poration owned by such shareholders. 
"(3) 
LOSSES or CONTROLLED CORPORATIONS.—For purposes of 
this subsection— 
" ( A ) 
HOLDING COMPANIES.—If, immediately before the 
reorganization, the acquiring or acquired corporation controls 
a corporation which has a net operating loss for the taxable 
year which includes the date of the acquisition, or a net oper-
ating loss carryover from a prior taxable year to such taxa-
... 
ble year, the acquiring or acquired corporation, as the case 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1603 
may be, shall be treated as the loss corporation (whether or 
not such corporation is a loss corporation). The reduction, if 
any, so determined under paragraph (2) shall be applied to 
the losses of such controlled corporation. 
"(B) TRIANGULAR REORGANIZATIONS.—Except as otherwise 
provided in paragraph (5), if the shareholders of the loss 
-^ ' 7: 
corporation (immediately before the reorganization) own, as 
a result of the reorganization, stock in a corporation con-
trolling the acquiring corporation, such shareholders shall be 
treated as owning (immediately after the reorganization) a 
percentage of the total fair market value of the participating 
stock and of all the stock of the acquiring corporation owned 
by the controlling corporation equal to the percentage of the 
total fair market value of the participating stock and of all 
the stock, respectively, of the controlling corporation owned 
by such shareholders. 
"(4) SPECIAL RULES.—For purposes of applying paragraph 
( 1 ) ( B ) -
" ( A ) 
CERTAIN RELATED TRANSACTIONS.—If, immediately 
before the reorganization— 
"(i) one or more shareholders of the loss corporation 
own stock of such corporation which such shareholder 
acquired during the 36-month period ending on the date 
of the acquisition in a transaction described in paragraph 
(1) or in subsection ( a ) ( 1 ) ( C ) (unless excepted by sub-
section ( a ) ( 5 ) ) , and 
"(ii) such shareholders own more than 50 percent of 
the total fair market value of the stock of another cor-
poration a party to the reorganization, or any such share-
holder is a corporation controlled by another corporation 
a party to the reorganization, 
then such shareholders shall not be treated as shareholders 
of the loss corporation with respect to such stock. 
" ( B ) CERTAIN PRIOR OWNERSHIP or LOSS CORPORATION.—If, 
immediately before the reorganization, the acquiring or 
acquired corporation owns stock of the loss corporation, then 
paragraph (1) (B) shall be applied by treating the share-
holders of the loss corporation as owning an additional 
amount of the total fair market value of the participating 
stock and of all the stock of the acquiring corporation, as a 
^ 
result of owning stock in the loss corporation, equal to the total 
fair market value of the participating stock and of all the 
stock, respectively, of the loss corporation owned (immedi-
ately before the reorganization) by the acquiring or acquired 
corporation. This subparagraph shall not apply to stock of 
the loss corporation owned by the acquiring or acquired cor-
poration if such stock was acquired by such corporation within 
the 36-month period ending on the date of the reorganization 
in a transaction described in subsection ( a ) ( 1 ) ( C ) 
(unless 
excepted by subsection 
( a ) ( 5 ) ) ; or to a reorganization 
described in section 368(a) (1) (B) or (C) to the extent the 26 USC 368. 
acquired corporation does not distribute the stock received 
by it to its own shareholders. 
" ( C ) CERTAIN ASSET ACQUISITIONS.—If a loss corporation 
receives stock of the acquiring corporation in a reorganization 
described in section 368(a)(1)(C) and does not distribute 
such stock to its shareholders, paragraph (1)(B) shall be 
90 STAT. 1604 
e PUBLIC LAW 94-455—OCT. 4, 1976 
applied by treating the shareholders of the loss corporation 
as owning (immediately after the reorganization) such undis-
tributed stock in proportion to the fair market value of the 
stock which such shareholders own in the loss corporation. 
"(5) CERTAIN STOCK-FOR-STOCK REORGANIZATIONS.—In the case 
26 use 368. 
of a reorganization described in section 368(a) (1) (B) in which 
the acnuired corporation is a loss corporation— 
" ( A ) 
STOCK WHICH IS EXCHANGED.—Paragraphs (1) (B) 
and (2) shall be applied by reference to the ownership of 
stock of the loss corporation (rather than the acquiring cor-
poration) immediately after the reorganization. Shareholders 
of the loss corporation who exchange stock of the loss cor-
poration shall be treated as owning (immediately after the 
reorganization) a percentage of the total fair market value 
of the participating stock and of all the stock of the loss cor-
poration acquired in the exchange by the acquiring corpora-
tion which is equal to the percentage of the total fair market 
value of the participating stock and of all the stock, respec-
tively, of the acquiring corporation owned (immediately after 
the reorganization) by such shareholders. 
, 
" ( B ) STOCK WHICH IS NOT EXCHANGED.—Stock of the loss 
corporation owned by shareholders immediately before the 
reorganization which was not exchanged in the reorganiza-
tion shall be taken into account in applying paragraph (1) 
V 
(B). For purposes of the preceding sentence, the acquir-
ing corporation (or a corporation controlled by the acquiring 
corporation) shall not be treated as a shareholder of the loss 
corporation with respect to stock of the loss corporation 
acquired in a transaction described in paragraph (1), or in 
subsection (a) (1) (C) 
(unless excepted by subsection (a) 
(5)), during the 36-month period ending on the date of the 
exchange. 
" ( C ) TRIANGULAR EXCHANGES.—For purposes of applying 
the rules in this paragraph, if the shareholders of the loss cor-
poration receive stock of a corporation controlling the acquir-
ing corporation, such shareholders shall be treated as owning 
a percentage of the participating stock and of all the stock 
of the acquiring corporation owned by the controlling cor-
poration equal to the percentage of the total fair market value 
of the participating stock and of all the stock, respectively, 
which such shareholders own of the controlling corporation 
immediately after the reorganization. 
"(6) EXCEPTIONS.—The limitations in this subsection shall not 
apply— 
"(A) if the same persons own substantially all the stock 
of the acquiring corporation and of the other corporation 
in substantially the same proportions; or 
"(B) to a net operating loss carryover from a taxable year 
if the acquiring or acquired corporation owned at least 40 
percent of the total fair market value of the participating 
J. .^ . . . 
stock and of all the stock of the loss corporation at all times 
'""' 
' 
during the last half of such taxable year. 
For purposes of subparagraph ( A ) , if the acquiring or acquired 
corporation is controlled by another corporation, the share-
holders of the controlling corporation shall be considered as 
also owning the stock owned by the controlling corporation in that 
proportion which the total fair market value of the stock which 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1605 
each shareholder owns in the controlling corporation bears to the 
total fair market value of all the stock in the controlling , 
corporation. 
"(c) KuLES RELATING TO STOCK.—For purposes of this section— 
"(1) The term 'stock' means all shares of stock, except stock 
"Stock." 
which— 
" (A) is not entitled to vote, 
" ( B ) is fixed and preferred as to dividends and does not 
participate in corporate growth to any significant extent, 
"(C) has redemption and liquidation rights which do not 
exceed the paid-in capital or par value represented by such 
stock (except for a reasonable redemption premium in excess 
of such paid-in capital or par value), and 
"(D) is not convertible into another class of stock. 
"(2) The term 'participating stock' means stock (including 
"Participating 
common stock) which represents an interest in the earnings and stock." 
assets of the issuing corporation which is not limited to a stated 
amount of money or property or percentage of paid-in capital or 
par value, or by any similar formula. 
"(3) The Secretary shall prescribe regulations under which— Regulations. 
" ( A ) stock or convertible securities shall be treated as stock 
or participating stock, or 
"(B) stock (however denoted) shall not be treated as stock 
or participating stock, 
by reason of conversion and call rights, rights in earnings and 
assets, priorities and preferences as to distributions of earnings 
or assets, and similar factors."' 
(f) 
CONFORMING AMENDMENTS.— 
(1) AMENDMENT OF SECTION 368.—Section 368(c) (relating to 
26 USC 368. 
the definition of control) is amended by striking out "and this 
part," and inserting in lieu thereof "this part, and part V,'\ 
(2) AMENDMENT OF SECTION 383.—Section 383 (relating to 
26 USC 383. 
special limitations on certain carryovers) is amended to read as 
follows: 
' 
"SEC. 383. SPECIAL LIMITATIONS ON UNUSED INVESTMENT CREDITS, 
WORK INCENTIVE PROGRAM CREDITS, FOREIGN TAXES, 
AND CAPITAL LOSSES. 
"In the case of a change of ownership of a corporation in the manner 
described in section 382 (a) or (b), the limitations provided in section 
382 in such cases with respect to net operating losses shall apply in the 
same manner, as provided under regulations prescribed by the Secre-
tary, with respect to any unused investment credit of the corporation 
under section 46(b), to any unused work incentive program credit of 
the corporation under section 50A(b), to any excess foreign taxes of 
the corporation under section 904(d), and to any net capital loss of the 
corporation under section 1212." 
(g) EFFECTIVE DATE.— 
(1) The amendments made by subsections (a), (b), (c), and 
(d) shall apply to losses incurred in taxable years ending after 
December 31, 1975. 
(2) For purposes of applying sections 382(a) and 383 (as it 
relates to section 382(a)) of the Internal Eevenue Code of 1954, 
as amended by subsections (e) and (f), the amendments made by 
subsections (e) and (f) shall take effect for taxable years begin-
ning after June 30, 1978, except that the beginning of the 
taxable years specified in clause (ii) of section 382(a) (1) (B) of 
Ante, 
Ante, 
Post, 
p. 1599, 
p. 1582. 
p. 1620. 
26 USC 172 
note. 
26 USC 382 
note. 
90 STAT. 1606 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 382 
such Code, as so amended, shall be considered to be the later of: 
"°*^- 
(A) the beginning of such taxable years, or 
(B) January 1,1978. 
(3) Sections 382(b) and 383 (as it relates to section 382(b)) 
Ante, p. 1599. 
of the Internal Revenue Code of 1954, as amended by subsections 
(e) and (f), shall apply (and such sections as in effect prior to 
such amendment shall not apply) to reorganizations pursuant to 
a plan of reorganization adopted by one or more of the parties 
thereto on or after January 1,1978. For purposes of the preceding 
sentence, a corporation shall be considered to have adopted a plan 
of reorganization on the date on which a resolution of the board 
of directors is passed adopting the plan or recommending its adop-
tion to the shareholders, or on the date on which the shareholders 
approve the plan of reorganization, whichever is earlier. 
46 use 1177-1. 
SEC. 807. SMALL FISHING VESSEL CONSTRUCTION RESERVES. 
In addition to any other vessel which may be deemed an "eligible 
vessel" and a "qualified vessel" under section 607 of the Merchant 
Marine Act, 1936 (46 U.S.C. 1177), a commercial fishing vessel under 
five net tons but not under two net tons— 
(1) which is constructed in the United States and, if recon-
structed, is reconstructed in the United States; 
(2) which is owned by a citizen of the United States; 
(3) which has a home port in the United States; and 
(4) which is operated in the commercial fisheries of the United 
States, 
shall be considered to be an "eligible vessel" and a "qualified vessel" 
for the purposes of such section 607. 
TITLE IX—SMALL BUSINESS PROVISIONS 
SEC. 901. EXTENSION OF CERTAIN CORPORATE INCOME TAX REDUC-
TIONS. 
26 use 11. 
(a) I N GENERAL.—Subsections (a), (b), (c), and (d) of section 11 
(relating to tax imposed on corporations) are amended to read as 
follows: 
" (a) CORPORATIONS I N GENERAL.—A tax is hereby imposed for each 
' 
taxable year on the taxable income of every corporation. The tax 
shall consist of a normal tax computed under subsection (b) and a 
surtax computed under subsection (c). 
" (b) NORMAL TAX.—The normal tax is equal to— 
"(1) in the case of a taxable year ending after December 31, 
1977,22 percent of the taxable income, and 
"(2) in the case of a taxable year ending after December 31, 
1974, and before January 1,1978, the sum of— 
" ( A ) 20 percent of so much of the taxable income as does 
not exceed $25,000, plus 
" ( B ) 22 percent of so much of the taxable income as exceeds 
$25,000. 
"(c) SURTAX.—^The surtax is 26 percent of the amount by which the 
taxable income exceeds the surtax exemption for the taxable year. 
^ 
" ( d ) SURTAX EXEMPTION.—For purposes of this subtitle, the surtax 
exemption for any taxable year is— 
"(1) $25,000 in the case of a taxable year ending after Decem-
ber 31,1977, or 
"(2) $50,000 in the case of a taxable year ending after Decem-
ber 31,1974, and before January 1,1978, 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1607 
except that, with respect to a corporation to which section 1561 (relat-
ing to certain muhiple tax benefits in the case of certain controlled 
corporations) applies for the taxable year, the surtax exemption for 
the taxable year is the amount determined under such section." 
(b) MUTUAL INSURANCE COMPANIES.— 
. 
(1) I x GENERAL.—Sectiou 821(a) (1) (relating to mutual insur- 
26 USC 821. 
ance companies) is amended to read as follows: 
" (1) XoRMAL TAX.—A normal tax equal to— 
"(A) in the case of a taxable year ending after December 
31,1977, 22 percent of the mutual insurance company taxable 
income, or 44 percent of the amount by which such taxable 
income exceeds $6,000, whichever is lesser, or 
" ( B ) in the case of a taxable year ending after Decem-
ber 31,1974, and before January 1,1978— 
"(i) 20 percent of so much of the mutual insurance 
company taxable income as does not exceed $25,000, plus 
"(ii) 22 percent of so much of the mutual insurance 
company taxable income as exceeds $25,000, 
or 44 percent of the amount by which such taxable income 
, 
exceeds $6,000, whichever is lesser; plus". 
(2) 
SMALL COMPANIES.—Section 821(c)(1)(A) 
(relating to 
alternative tax for certain small companies) is amended to read 
as follows: 
" ( A ) NORMAL TAX.—A normal tax equal to— 
. 
. , 
"(i) in the case of a taxable year ending after Decem-
ber 31,1977, 22 percent of the taxable investment income, 
or 44 percent of the amount by which such taxable income 
-"; 
. i ,;< 
exceeds $3,000, whichever is lesser, or 
"(ii) in the case of a taxable year ending after Decem-
ber 31, 1974, and before January 1,1978, 20 percent of so 
much of the taxable investment income as does not exceed 
$25,000, plus 22 percent of so much of the taxable invest-
ment income as exceeds $25,000, or 44 percent of the 
amount by which such taxable income exceeds $3,000, 
' 
whichever is lesser; plus". 
(c) CONFORMING AMENDMENTS.— 
(1) Section 1561(a) (relating to certain multiple tax benefits 
26 USC 1561. 
in the case of certain controlled corporations) is amended by add-
ing at the end thereof the following ncAv sentence: "In applying 
section 11(b) (2), the first $25,000 of taxable income and the sec-
ond $25,000 of taxable income shall each be allocated among the 
' 
' J^^^^ 
component members of a controlled group of corporations in the 
same manner as the surtax exemption is allocated." 
(2) Subsection (f) of section 21 (relating to change in surtax 
26 USC 21. 
exemption treated as a change in a rate of tax) is amended by 
striking out "Tax Reduction Act of 1975" and all that follows and 
inserting in lieu thereof the following: "Tax Reduction Act of 
1975 in the surtax exemption and any change under section 11(d) 
26 USC 1 note, 
in the surtax exemption shall be treated as a change in a rate 
of tax." 
(3) Section 6154 (relating to installment payments of estimated 
26 USC 6154. 
income tax by corporations) is amended by striking out sub-
section (h). 
(d) EFFECTIVE DATES.—The amendment made by subsection (a) 26 USC 11 note, 
shall take effect on December 23, 1975. The amendments made by sub-
section (b) shall apply to taxable years ending after December 31, 
)t 
90 STAT. 1608 
PUBLIC LAW 94-455—OCT. 4, 1976 
1974. The amendments made by subsection (c) shall apply to taxable 
years ending after December 31,1975. 
SEC. 902. CHANGES IN SUBCHAPTER S RULES. 
(a) NUMBER OF SHAREHOLDERS.— 
26 use 1371. 
(1) I N GENERAL.—Subscction (a)(1) of section 1371 (relating 
to the definition of small business corporation) is amended to read 
as follows: 
"(1) have (except as provided in subsection (e)) more than 10 
shareholders;". 
(2) SPECIAL SHAREHOLDER RULES.—Section 1371 is amended by 
adding at the end thereof the following new subsection: 
"(e) SPECIAL SHAREHOLDER RULES.— 
"(1) A small business corporation which has been an electing 
small business corporation for a period of five consecutive taxable 
years may not have more than 15 shareholders. 
"(2) If, during the 5-year period set forth in paragraph (1), 
the number of shareholders of an electing small business corpora-
tion increases to an amount in excess of 10 (but not in excess 
of 15) solely by reason of additional shareholders who acquired 
their stock through inheritance, the corporation may have a 
number of additional shareholders equal to the number by which 
the inheriting shareholders cause the total number of shareholders 
of such corporation to exceed 10." 
26 use 1371 
(3) EFFECTIVE DATE.—The amendments made by this subsection 
"°*^- 
shall apply to taxable years beginning after December 31,1976. 
(b) DISTRIBUTIONS BY SUBCHAPTER S CORPORATIONS.— 
26 use 1377. 
(1) I N GENERAL.—Section 1377 (relating to special rules ap-
plicable to earnings and profits of electing small business corpora-
tions) is amended by adding at the end thereof the following new 
subsection: 
"(d) DISTRIBUTIONS OF UNDISTRIBUTED TAXABLE INCOME PREVIOUSLY 
TAXED TO SHAREHOLDERS.—For purposes of determining whether a 
distribution by an electing small business corporation constitutes a 
distribution of such corporation's undistributed taxable income pre-
viously taxed to shareholders (as provided for in section 1375 ( d ) ) , the 
earnings and profits of such corporation for the taxable year in which 
the distribution is made shall be computed without regard to section 
312 (m). Such computation shall be made without regard to section 
312(m) only for such purposes." 
26 use 1377 
(2) EFFECTIVE DATE.—The amendment made by this subsection 
note. 
shall apply to taxable years beginning after December 31, 1975. 
(c) ADDITIONAL CHANGES I N SUBCHAPTER S RULES.— 
(1) ESTATE OF DECEASED SPOUSE NOT TO BE TREATED AS SHARE-
26 use 1371. 
HOLDER.—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 W I F E . — F o r purposes of sub-
„, , -. 
section (a)(1) stock which— 
"(1) is community property of a husband and wife (or the 
income from which is community income) under the applicable 
, 
^ 
community property law of a State, 
"(2) is held by a husband and wife as joint tenants, tenants by 
the entirety, or tenants in common, 
.;,j, it . 
V 
"(3) was, on the date of death of a spouse, stock described in 
paragraph (1) or (2), and is, by reason of such death, held by the 
estate of the deceased spouse and the surviving spouse, or by the 
estates of both spouses (by reason of their deaths on the same 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1609 
date), in the same proportion as held by the spouses before such 
death, or 
"(4) was, on the date of the death of a surviving spouse, stock 
described in paragraph (3), and is, by reason of such death, held 
by the estates of both spouses in the same proportion as held by 
the spouses before their deaths, 
shall be treated as owned by one shareholder." 
(2) 
BROADENING 
CLASSES or 
PERMISSIBLE 
SHAREHOLDERS TO 
INCLUDE CERTAIN TRUSTS. 
(A) Section 1371 (relating to definitions for purposes of 26 USC 1371. 
subchapter S) is amended b}^ adding at the end thereof the 
following new subsection: 
"(f) CERTAIN TRLTSTS PERMITTED AS SHAREHOLDERS.—For purposes 
of subsection (a), the following trusts may be shareholders: 
"(1) A trust all of which is treated as owned by the grantor 
<: 
under subpart E of part I of subchapter J of this chapter. 
26 USC 671. 
"(2) A trust created primarily to exercise the voting power of 
stock transferred to it. 
"(3) Any trust with respect to stock transferred to it pursuant 
to the terms of a will, but only for the 60-day period beginning on 
the day on which such stock is transferred to it. 
In the case of a trust described in paragraph (2), each beneficiary of 
the trust shall, for purposes of subsection (a)(1), be treated as a 
shareholder.". 
(B) Paragraph (2) of section 1371(a) is amended by 
striking out "(other than an estate)" and inserting in lieu 
thereof "(other than an estate and other than a trust 
described in subsection (f))". 
(3) N E W SHAREHOLDERS MUST ArriRMATivELy ELECT TO TERMI-
NATE ELECTION.—Paragraph (1) of section 1372(e) (relating to 26 USC 1372. 
termination of election) is amended to read as follows: 
"(1) NEW SHAREHOLDERS.— 
"(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— 
"(i) on the first day of the first taxable year of the 
corporation for which the election is effective, if such 
election is made on or before such first day, or 
"(ii) on the day on which the election is made, if such 
election is made after such first day, 
becomes a shareholder in such corporation and affirmatively 
refuses (in such manner as the Secretary shall by regulations 
prescribe) to consent to such election on or before the 60th 
day after the day on which he acquires the stock. 
"(B) If the person acquiring the stock is the estate of a 
decedent, the period under subparagraph (A) for affirma-
tively refusing to consent to the election shall expire on the 
60th day after whichever of the following is the earlier: 
" (i) The day on which the executor or administrator of 
the estate qualifies; or 
• 
>, 
"(ii) The last day of the taxable year of the corpora-
tion in which the decedent died. 
"(C) Any termination of an election under subparagraph 
(A) by reason of the affirmative refusal of any person to con-
sent to such election shall be effective for the taxable year of 
the corporation in which such person becomes a shareholder 
90 STAT. 1610 
PUBLIC LAW 94-455—OCT. 4, 1976 
in the corporation and for all succeeding taxable years of the 
corporation.". 
26 use 1371 
(4) EFFECTIVE DATE.—The amendments made by this subsection 
note. 
shall apply to taxable years beginning after December 31,1976. 
TITLE X—CHANGES IN THE TREATMENT 
OF FOREIGN INCOME 
PART I—FOREIGN TAX PROVISIONS AFFECTING 
' 
INDIVIDUALS ABROAD 
SEC. 1011. INCOME EARNED ABROAD BY UNITED STATES CITIZENS 
LIVING OR RESIDING ABROAD. 
(a) REDucTioisr OF LIMITATIONS ON AMOUNT EXCLUDABLE.—Para-
26 use 911. 
graph (1) of section 911(c) relating to limitations on amount of 
exclusion) is amended to read as follows: 
"(1) LIMITATIONS ON AMOUNT OF EXCLUSION.— 
"(A) I N GENERAL.—Except as provided in subparagraphs 
(B) and (C), the amount excluded from the gross income 
of an individual under subsection (a) for any taxable year 
shall not exceed an amount which shall be computed on a 
daily basis at an annual rate of $15,000. 
" ( B ) 
EMPLOYEES or CHARITABLE ORGANIZATIONS.—If any 
individual performs qualified charitable services during any 
taxable year, the amount of the earned income attributable 
to such services excluded from the gross income of the indi-
vidual under subsection (a) for the taxable year shall not 
exceed an amount which shall be computed on a daily basis 
at an annual rate of $20,000. 
" ( C ) SPECIAL RULE.—If any individual performs qualified 
charitable services and other services during any taxable year, 
the amount of the earned income attributable to such other 
services excluded from the gross income of the individual 
under subsection (a) for the taxable year shall not (after the 
application of subparagraph (A) with respect to such earned 
income) exceed $15,000 reduced by the amount of the earned 
income attributable to qualified charitable services excluded 
from gross income under subsection (a) for the taxable year. 
" ( D ) 
QUALIFIED CHARITABLE SERVICES.—For purposes of 
this subsection, the term 'qualified charitable services' means 
services performed by an employee for an employer created 
or organized in the United States, or under the law of the 
United States, any State, or the District of Columbia, which 
meets the requirements of section 501 (c) (3)." 
(b) ADDITIONAL LIMITATIONS ON EXCLUSION.— 
(1) DISALLOWANCE or FOREIGN TAX CREDIT WITH RESPECT TO 
EXCLUDED AMOUNTS.—The last sentence of subsection (a) of sec-
tion 911 (relating 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, 
relating to personal exemptions), or as a credit against the tax 
imposed by this chapter any credit for the amount of taxes paid or 
accrued to a foreign country or possession of the United States, to the 
extent that such deductions or credit is properly allocable to or 
chargeable against amounts excluded from gross income under this 
subsection." 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1611 
(2) 
DISALLOWANCE OF EXCLUSION FOR INCOME RECEIVED OTHER 
THAN IN COUNTRY WHERE EARNED.—Section 911(c) (relating to 
26USC911. 
special rules for earned income from sources without the United 
States) is amended by adding at the end thereof the following 
new paragraph: 
"(8) 
REQUIREMENT AS TO PLACE 
OF RECEIPT.—N'o 
amount 
received by an individual during the taxable year which consti-
tutes earned income (entitled to the exclusion under subsection 
(a)) attributable to services performed in a foreign country or 
countries shall be excluded under subsection (a) if such amount is 
received by such individual outside of the foreign country or 
countries where such services were performed and if one of the 
purposes is the avoidance of any tax imposed by such foreign 
country or countries on such amount." 
' ' 
(3) 
INCLUSION OF EARNED INCOME IN COMPUTATION OF RATE OF 
TAX.—Section 911 (relating to earned income from sources with-
out the United States) is amended by redesignating subsection 
(d) as subsection- (f) and by inserting after subsection (c) the 
following new subsections: 
"(d) 
AMOTTNT EXCLUDED UNDER SUBSECTION 
(a) 
INCLUDED IN 
COMPUTATION OF T A X . — 
"(1) COMPUTATION OF TAX.—If for any taxable year an indi-
vidual has earned income which is excluded from gross income 
under subsection (a), the tax imposed by section 1 or section 1201 Post, p. 1786. 
shall be the excess of— 
" ( A ) the tax imposed by section 1 or section 1201 (which-
ever is applicable) on the amount of net taxable income, over 
"(B) the tax imposed by section 1 or section 1201 (which-
ever is applicable) on the amount of net excluded earned 
income. 
"(2) 
DEFINITIONS.—For purposes of this subsection— 
" ( A ) the term 'net taxable income' means an amount equal 
to the sum of the amount of taxable income for the taxable 
year plus the amount of net excluded earned income of such 
individual for such taxable year; and 
"(B) the term 'net excluded earned income' means the 
excess of the amount of earned income excluded under sub-
section (a) for the taxable year over the amount of the deduc-
tions disallowed with respect to such excluded earned income 
for such taxable year under subsection (a). 
"(e) 
SECTION NOT TO A P P L Y . — 
"(1) I N GENERAL.—An individual entitled to the benefits of 
this section for a taxable year may elect, in such manner and at 
such time as shall be prescribed by the Secretary, not to have the 
provisions of this section apply^ 
"(2) EFFECT OF ELECTION.—An election under paragraph (1) 
shall apply to the taxable year for which made and to all subse-
quent taxable years. Such election may not be revoked except with 
the consent of the Secretary." 
(c) 
ALLOWANCE OF FOREIGN TAX CREDITS TO INDIVIDUALS TAKING 
STANDARD DEDUCTION.—Section 36 (relating to credits not allowed to 
26 USC 36. 
individuals paying optional tax or taking standard deduction) is 
amended by striking out "sections 32, 33, and" and inserting in lieu 
thereof "sections 32 and". 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 911 
apply to taxable years beginning after December 31, 1975. 
note. 
90 STAT. 1612 
PUBLIC LAW 94-455—OCT. 4, 1976 
SEC. 1012. INCOME TAX TREATMENT OF NONRESIDENT ALIEN INDI-
? ;< V- 
VIDUALS WHO ARE MARRIED TO CITIZENS OR RESIDENTS 
OF THE UNITED STATES. 
(a) ELECTION TO B E TREATED AS RESIDENTS OF THE UNITED 
STATES.— 
26 use 6013. 
(1) I N GENERAL.—Section 6013 (relating to joint returns of 
income tax by husband and wife) is amended by adding at the 
end thereof the following new subsections: 
Tc 
"(g) 
ELECTION To TREAT NONRESIDENT ALIEN INDIVIDUAL AS RESI-
DENT OF THE UNITED STATES.— 
" (1) I N 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 for purposes of chap-
26 use 1. 
ter 1 for all of such taxable year. 
"(2) INDIVIDUALS WITH RESPECT TO WHOM THIS SUBSECTION IS IN 
EFFECT.—This subsection shall be in effect with respect to any 
individual who, at the time an election was made under this sub-
section, was a nonresident alien individual married to a citizen or 
resident of the United States, if both of them made such election 
to have the benefits of this subsection apply to them. 
"(3) DURATION OF ELECTION.—An election under this subsec-
tion shall apply to the taxable year for which made and to all 
subsequent taxable years until terminated under paragraph (4) 
b 
or ( 5 ) ; except that any such election shall not apply for any tax-
able year if neither spouse is a citizen or resident of the United 
States at any time during such year. 
"(4) TERMINATION or ELECTION.—An election under this sub-
section shall terminate at the earliest of the following times: 
" ( A ) 
REVOCATION BY TAXPAYERS.—If 
either 
taxpayer 
revokes the election, as of the first taxable year for which the 
last day prescribed by law for filing the return of tax under 
: 
chapter 1 has not yet occurred. 
" ( B ) DEATH.—In the case of the death of either spouse, 
as of the beginning of the first taxable year of the spouse 
who survives following the taxable year in which such death 
occurred; except that if the spouse who survives is a citizen 
or resident of the United States who is a surviving spouse 
entitled to the benefits of section 2, the time provided by this 
subparagraph shall be as of the close of the last taxable year 
for which such individual is entitled to the benefits of 
^ 
section 2. 
"(C) LEGAL SEPARATION.—In the case of the legal separa-
tion of the couple under a decree of divorce or of separate 
maintenance, as of the beginning of the taxable year in which 
such legal separation occurs. 
, 
" ( D ) 
TERMINATION BY SECRETARY.—At the time provided 
in paragraph (5). 
"(5) TERMINATION BY SECRETARY.—The Secretary may termi-
nate any election under this subsection for any taxable year if 
he determines that either spouse has failed— 
" ( A ) to keep such books and records, 
" ( B ) to grant such access to such books and records, or 
" (C) to supply such other information, 
as may be reasonably necessary to ascertain the amount of lia-
bility for taxes under chapter 1 of either spouse for such taxable 
year. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1613 
"(6) ONLY ONE ELECTION.—If any election under this subsection 
for any two individuals is terminated under paragraph (4) or 
(5) for any taxable year, such two individuals shall be ineligible 
to make an election under this subsection for any subsequent 
taxable year. 
" ( h ) 
JOINT EETURN, ETC., FOR YEAR IN W H I C H NONRESIDENT A L I E N 
BECOMES RESIDENT OF UNITED STATES.— 
"(1) I N GENERAL.—If— 
" ( A ) any individual is a nonresident alien individual at 
the beginning of any taxable year but is a resident of the 
United States at the close of such taxable year, 
" ( B ) at the close of such taxable year, such individual is 
married to a citizen or resident of the United States, and 
"(C) both individuals elect the benefits of this subsection 
at the time and in the manner prescribed by the Secretary 
by regulation, 
' *
• 
then the individual referred to in subparagraph (A) shall be 
treated as a resident of the United States for purposes of chapter 1 26 USC 1. 
for all of such taxable year. 
" (2) ONLY ONE ELECTION.—If any election under this subsection 
applies for any 2 individuals for any taxable year, such 2 individu-
als shall be ineligible to make an election under this subsection for 
any subsequent taxable year." 
(2) CLERICAL AMENDMENT.—Section 871(g) (relating to cross 
26 USC 871. 
references) is amended by adding at the end thereof the follow-
ing new paragraph: 
"(7) For election to treat married nonresident alien individual as 
resident of United States in certain cases, see subsections (g) and 
(h) of section 6013." 
(b) TAX TREATMENT OF CERTAIN COMMUNITY INCOME I N THE CASE 
OF A RESIDENT OR CITIZEN OF THE UNITED STATES W H O I S MARRIED TO A 
' • "- ' 
' 
NONRESIDENT ALIEN INDIVIDUAL.— 
(1) I N GENERAL.—Subpart A of part I I of subchapter N of 
chapter 1 (relating to nonresident alien individuals) is amended 
by adding at the end thereof the following new section: 
"SEC. 879. TAX TREATMENT OF CERTAIN COMMUNITY INCOME IN THE 26 USC 879. 
CASE OF A RESIDENT OR CITIZEN OF THE UNITED STATES 
WHO IS MARRIED TO A NONRESIDENT ALIEN INDIVIDUAI^ 
"(a) 
GENERAL RULE.—In the case of a citizen or resident of the 
United States who is married to a nonresident alien individual and 
who has community income for the taxable year, such community 
income shall be treated as follows: 
"(1) Earned income (within the meaning of section 911(b)), 
^ -
other than trade or business income and a partner's distributive 
share of partnership income, shall be treated as the income of the 
spouse who rendered the personal services, 
"(2) Trade or business income, and a partner's distributive 
,1 
: >;: 
share of partnership income, shall be treated as provided in sec-
tion 1402(a) (5), 
"(3) Cornmunity income not described in paragraph (1) or (2) 
which is derived from the separate property (as determined under 
the applicable community property law) of one spouse shall be 
treated as the income of such spouse, and 
"(4) All other such community income shall be treated as pro-
vided in the applicable community property law. 
89-194 O—78—pt. 2 
10 
90 STAT. 1614 
PUBLIC LAW 94-455—OCT. 4, 1976 
Ante, p. 1612. 
"(b) EXCEPTION WHERE ELECTION UNDER SECTION 6013(g) Is IN 
EFFECT.—Subsection (a) shall not apply for any taxable year for 
which an election under subsection (g) or (h) of section 6013 (relating 
to election to treat nonresident alien individual as resident of the 
United States) is in effect. 
"(c) 
DEFINITIONS 
AND SPECIAL 
RULES.—For purposes of this 
section— 
"(1) COMMUNITY 
INCOME.—The term 
'community 
income' 
means income which, under applicable community property laws, 
is treated as community income. 
" (2) COMMUNITY PROPERTY LAWS.—The term 'community prop-
erty laws' means the community property laws of a State, a for-
eign country, or a possession of the United States. 
"(3) DETERMINATION OF MARITAL STATUS.—The determination 
of marital status shall be made under section 143(a)." 
26 use 981. 
(2) REPEAL or SECTION 981.—Subpart I I of part I I I of sub-
chapter N of chapter 1 (relating to election as to treatment of 
income subject to foreign community property laws) is hereby 
repealed. 
(3) CLERICAL AMENDMENTS.— 
(A) The table of sections for subpart A of part I I of 
subchapter N of chapter 1 is amended by adding at the end 
thereof the following new item : 
"Sec. 879. Tax treatment of certain community income in the case 
of a resident or citizen of the United States who is married 
to a nonresident alien individual." 
(B) The table of subparts for part I I I of subchapter N 
of chapter 1 is amended by striking out the item relating to 
subpart G. 
(c) D U E DATE FOR FILING ESTIMATED TAX RETURNS IN THE CASE OF 
26 use 6073. 
CERTAIN NONRESIDENT ALIENS.—Subsection (a) of section 6073 (relat-
ing to time for filing declarations of estimated tax by individuals) 
is amended by adding at the end thereof the following sentence: 
"In the case of a nonresident alien described in section 6072(c), the 
requirements of section 6015 shall be deemed to be first met no earlier 
than after April 1 and before June 2 of the taxable year.". 
26 use 6013 
(d) EFFECTIVE DATES.—The amendments made by subsection (a) 
note. 
shall apply to taxable years ending on or after December 31,1975. The 
amendments made by subsections (b) and (c) shall apply to taxable 
years beginning after December 31,1976. 
"SEC. 1013. FOREIGN TRUSTS HAVING ONE OR MORE UNITED STATES 
BENEFICIARIES TO BE TAXED CURRENTLY TO GANTOR. 
(a) TAXATION or INCOME TO GRANTOR OF TRUST.—Subpart E of 
part I of subchapter J of chapter 1 (relating to grantors and others 
treated as substantial owners) is amended by adding at the end thereof 
the following new section: 
26 use 679. 
"SEC. 679. FOREIGN TRUSTS HAVING ONE OR MORE UNITED STATES 
BENEFICIARIES. 
"(a) TRANSFEROR TREATED AS OWNER.— 
"(1) I N GENERAL.—A United States person who directly or 
indirectly transfers property to a foreign trust (other than a 
trust described in section 404(a) (4)) shall be treated as the owner 
for his taxable year of the portion of such trust attributable to 
such property if for such year there is a United States beneficiary 
of any portion of such trust. 
"(2) EXCEPTIONS.—Paragraph (1) shall not apply— 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1615 
" ( A ) 
TRAXSFEKS BY REASON OF DEATH.—To any transfer 
by reason of the death of the transferor. 
" ( B ) 
TRANSFERS WHERE GAIN IS RECOGNIZED TO TRANS-
FEROR.—To anj^ sale or exchange of the property at its fair 
market value in a transaction in which all of the gain to the 
transferor is realized at the time of the transfer and is recog-
nized either at such time or is returned as provided in section 
453. 
"(b) TRUSTS ACQUIRING UNITED STATES BENEFICIARIES.—If— 
"(1) subsection (a) applies to a trust for the transferor's tax-
able year, and 
"(2) subsection (a) would have applied to the trust for his 
immediately preceding taxable year but for the fact that for such 
preceding taxable year there Avas no L^nited States beneficiar}^ for 
any portion of the trust, 
then, for purposes of this subtitle, the transferor shall be treated as 
having income for the taxable year (in addition to his other income 
: 
for such year) equal to the undistributed net income (at the close of 
such immediately preceding taxable year) attributable to the portion 
of the trust referred to in subsection (a). 
"(c) TRUSTS TREATED AS HAVING A UNITED STATES BENEFICIARY.— 
"(1) I N GENERAL.—For purposes of this section, a trust shall 
be treated as having a United States beneficiary for the taxable 
year unless— 
"(A) under the terms of the trust, no part of the income 
or corpus of the trust may be paid or accumulated during the 
taxable year to or for the benefit of a United States person, 
and 
" ( B ) if the trust were terminated at any time during the 
taxable year, no part of the income or corpus of such trust 
could be paid to or for the benefit of a United States person. 
"(2) ATTRIBUTION OF OWNERSHIP.—For purposes of paragraph 
(1), an amount shall be treated as paid or accumulated to or for 
the benefit of a United States person if such amount is paid to or 
accumulated for a foreign corporation, foreign partnership, or 
foreign trust or estate, and— 
"(A) in the case of a foreign corporation, more than 50 
percent of the total combined voting power of all classes of 
stock entitled to vote of such corporation is OAvned (within 
the meaning of section 958(a)) or is considered to be owned 
(Avithin the meaning of section 958(b)) by United States 
shareholders (as defined in section 951(b)), 
"(B) in the case of a foreign partnership, a United States 
person is a partner of such partnership, or 
"(C) in the case of a foreign trust or estate, such trust or 
estate has a United States beneficiary (within the meaning 
of paragraph (1)).". 
(b) GRANTOR To B E TREATED AS OWNER.—Subsection (b) of sec-
tion 678 (relating to persons other than grantors treated as substan- 
26 USC 678. 
tial OAvners) is amended by striking out everything after "modified," 
and inserting in lieu thereof "if the grantor of the trust or a transferor 
(to whom section 679 applies) is otherwise treated as the owner under 
the provisions of this subpart other than this section.". 
(c) TREATMENT OF CAPITAL GAINS AND LOSSES OF CERTAIN FOREIGN 
TRUSTS.— 
(1) FOREIGN TRUSTS CREATED BY UNITED STATES PERSONS TREATED 
LIKE OTHER FOREIGN TRUSTS.—Subparagraph (C) of section 643 26 USC 643. 
90 STAT. 1616 
PUBLIC LAW 94-455—OCT. 4, 1976 
(a) (6) (relating to distributable net income in case of foreign 
trusts) is amended by striking out "foreign trust created by a 
United States person" and inserting in lieu thereof 
"foreign 
trust". 
(2) TRAXSITIOXAL RULE FOR FOREIGN TRUSTS.—Section 643(a) 
26 use 643. 
(6) is amended by adding at the end thereof the following new 
subparagraph: 
" ( D ) Effective for distributions made in taxable years 
beginning after December 31, 1975, the undistributed net 
income of each foreign trust for each taxable year beginning 
on or before December 31, 1975, remaining undistributed at 
the close of the last taxable year beginning on or before 
December 31, 1975, shall be redetermined by taking into 
account the deduction allowed by section 1202." 
(d) RETURNS FOR FOREIGN TRUSTS HAVING O N E OR MORE UNITED 
STATES BENEFICIARIES.— 
26 use 6048. 
(1) Section 6048 (relating to returns as to creation of or trans-
fers to certain foreign trusts) is amended by redesignating sub-
section (c) as subsection (d) and by inserting after subsection 
(b) the following new subsection: 
"(c) ANNUAL RETURNS FOR FOREIGN TRUSTS HAVING O N E OR MORE 
UNITED STATES BENEFICIARIES.—Each taxpayer subject to tax under 
section 679 (relating to foreign trusts having one or more United 
States beneficiaries) for his taxable year with respect to any trust 
shall make a return with respect to such trust for such year at such 
time and in such manner, and setting forth such information, as the 
Secretary may by regulations prescribe.". 
26 use 6677. 
(2) Section 6677(a) 
(relating to failure to file information 
returns with respect to certain foreign trusts) is amended by strik-
ing out "to a trust" and inserting in lieu thereof "to a trust (or, 
in the case of a failure with respect to section 6048(c), equal to 
5 percent of the value of the corpus of the trust at the close of 
the taxable year)". 
(e) CONFORMING AMENDMENTS.— 
(1) The table of sections for subpart. E of part I of subchapter 
J of chapter 1 is amended by adding at the end thereof the 
following new item: 
I 
"Sec. 679. Foreign trusts having one or more United States bene-
ficiaries." 
26 use 643. 
(2) Subsection (d) of section 643 is hereby repealed. 
26 use 6048. 
(3) Subsection (d) of section 6048 (as redesignated by sub-
section (d)) is amended to read as follows: 
" ( d ) 
CROSS REFERENCE.— 
"For provisions relating to penalties for violation of this section, see 
sections 6677 and 7203." 
(4) The heading of section 6048 is amended to read as follows: 
"SEC. 6048. RETURNS AS TO CERTAIN FOREIGN TRUSTS.". 
(5) The table of sections for subpart B of part I I I of 
26 use 6041. 
subchapter A of chapter 61 is amended by striking out the 
item relating to section 6048 and inserting in lieu thereof the 
following: 
"Sec. 6048. Returns as to certain foreign trusts." 
(f) EFFECTIVE DATES.— 
26 use 679 
(1) I N GENERAL.—The amendments made by this section (other 
^°^- 
than subsection (c)) shall apply to taxable years ending after 
December 31,1975, but only in the case of— 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1617 
(A) foreign trusts created after May 21, 1974, and 
.-^eA- ; W
^
S
: 
(B) transfers of property to foreign trusts after May 21, 
1974. 
(2) CHANGES IN CAPITAL GAIN RULES FOR FOREIGN TRUSTS.—The 
26 USC 643 
amendments made by subsection (c) shall apply to taxable years 
"ot^-
beginning after December 31, 1975. 
SEC. 1014. INTEREST CHARGE ON ACCUMULATION DISTRIBUTIONS 
FROM FOREIGN TRUSTS. 
(a) TAX T O INCLUDE SPECIAL INTEREST CHARGE.—Section 667(a) 
^"•^^> P- 1575. 
(as amended by section 701 of this Act) is amended by striking out ^"fi^-
"and" at the end of paragraph (1), by striking out the period at the 
end of paragraph (2) and inserting in lieu thereof ", and '', and by 
adding at the end thereof the following new paragraph: 
,,,, ,,. 
"(3) in the case of a foreign trust, the interest charge deter-
mined as provided in section 668." 
Infra. 
(b) 
COMPUTATION OF SPECIAL INTEREST CHARGE.—Subpart D of 
part I of subchapter J of chapter 1 (relating to treatment of excess 
distributions by trusts) is amended by adding at the end thereof the 
following new section: 
"SEC. 668. INTEREST CHARGE ON ACCUMULATION DISTRIBUTIONS 
26 USC 668. 
FROM FOREIGN TRUSTS. 
"(a) 
GENERAL RULE.—For purposes of the tax determined under 
section 667(a), the interest.charge is an amount equal to 6 percent of 
; ,-;J ^ ^^„.., 
the partial tax computed under section 667(b) multiplied by a 
fraction— 
. . 
... ^ ^. 
" (1) the numerator of which is the sum of the number of tax- 
* ' ; '''^ 
able years between each taxable year to which the distribution is 
^ <
j 
allocated under section 666(a) and the taxable year of the dis-
tribution (counting in each case the taxable year to which the 
distribution is allocated but not counting the taxable year of the 
distribution), and 
"(2) the denominator of which is the number of taxable years 
to which the distribution is allocated under section 666(a). 
"(b) LIMITATION.—The total amount of the interest charge shall 
not, when added to the total partial tax computed under section 667 
(b), exceed the amount of the accumulation distribution (other than 
the amount of tax deemed distributed by section 666 (b) or (c)) in 
respect of which such partial tax was determined. 
"(c) SPECIAL RULES.— 
"(1) 
INTEREST CHARGE NOT DEDUCTIBLE,—The interest charge 
determined under this section shall not be allowed as a deduction 
for purposes of any tax imposed by this title. 
"(2) 
TRANSITIONAL 
RULE.—For 
purposes 
of 
this 
section, 
"'*'^ {^'^ 
undistributed net income existing in a trust as of January 1,1977, 
''^^*''" 
shall be treated as allocated under section 666(a) to the first tax-
able year beginning after December 31,1976." 
(c) CLERICAL AMENDMENT.—The table of sections for subpart D of 
part I of subchapter J of chapter 1 is amended by adding at the end 
thereof of the following new item: 
Sec. 668. Interest charge on accumulation distributions from foreign 
trusts." 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 668 
apply to taxable years beginning after December 31, 1976. 
°°*®-
SEC. 1015. EXCISE TAX ON TRANSFERS OF PROPERTY TO FOREIGN 
'^" 
PERSONS TO AVOID FEDERAL INCOME TAX, 
(a) AMENDMENT OF SECTION 1491.—Section 1491 (relating to im- 
26 USC 1491. 
position of tax) is amended to read as follows: 
90 STAT. 1618 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 u s e 1491. 
"SEC. 1491. IMPOSITION OF TAX. 
"There is hereby imposed on the transfer of property by a citizen or 
resident of the United States, or by a domestic corporation or partner-
ship, or by a trust which is not a foreign trust, to a foreign corpora-
tion as paid-in surplus or as a contribution to capital, or to a foreign 
trust, or to a foreign partnership, an excise tax equal to 35 percent of 
the excess of— 
"(1) the fair market value of the property so transferred, over 
"(2) the sum of— 
" ( A ) the adjusted basis (for determining gain) of such 
property in the hands of the transferor, plus 
"(B) the amount of the gain recognized to the transferor 
at the time of the transfer." 
26 use 1492. 
(b) AMENDMENTS or SECTION 1492.—Section 1492 (relating to non-
taxable transfers) is amended— 
(1) by striking out in paragraph (3) "section 367(d) applies." 
and inserting in lieu thereof "section 367 applies; or" and 
(2) by adding at the end thereof the following new paragraph: 
"(4) To a transfer for which an election has been made under 
Infra. 
section 1057." 
(c) ELECTION T O TREAT AS TAXABLE EXCHANGE.—Part I V of sub-
chapter O of chapter 1 (relating to special rules for determining gain 
or loss on disposition of property) is amended by redesignating sec-
Ante, p. 1545. 
tion 1057 as section 1058 and by inserting after section 1056 the follow-
ing new section: 
26 u s e 1057. 
"SEC. 1057. ELECTION TO TREAT TRANSFER TO FOREIGN TRUST, ETC., 
AS TAXABLE EXCHANGE. 
Supra. 
"In lieu of payment of the tax imposed by section 1491, the tax-
payer may elect (for purposes of this subtitle), at such time and in 
such manner as the Secretary may prescribe, to treat a transfer 
described in section 1491 as a sale or exchange of property for an 
amount equal in value to the fair market value of the property trans-
ferred and to recognize as gain the excess of— 
"(1) the fair market value of the property so transferred, over 
"(2) the adjusted basis (for determining gain) of such prop-
erty in the hands of the tranferor.". 
(c) CLERICAL AMENDMENT.—The table of sections for part I V of 
subchapter O of chapter 1 is amended by striking out the last item 
thereof and inserting in lieu thereof: 
"See. 1057. Election to treat transfer to foreign trust, etc., as taxable 
exchange. 
"Sec. 1058. Cross references." 
26 use 1491 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
note- 
apply to transfers of property after October 2,1975. 
PART II—AMENDMENTS AFFECTING TAX TREATMENT 
OF 
CONTROLLED 
FOREIGN 
CORPORATIONS 
AND 
THEIR 
SHAREHOLDERS 
SEC. 1021. AMENDMENT OF PROVISION RELATING TO INVESTMENT IN 
UNITED STATES PROPERTY BY CONTROLLED FOREIGN 
CORPORATIONS. 
(a) EXCEPTIONS TO DEFINITION or UNITED STATES PROPERTY.— 
26 use 956. 
Section 956(b)(2) 
(relating to exceptions to definition of United 
States property) is amended by striking out "and" at the end of sub-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1619 
paragraph ( E ) , by redesignating subparagraph ( F ) as subparagraph 
( H ) , and by inserting after subparagraph (E) the following new 
subparagraphs: 
" ( F ) the stock or obligations of a domestic corporation 
which is neither a United States shareholder (as defined in 
section 951(b)) of the controlled foreign corporation, nor a 
domestic corporation, 25 percent or more of the total com-
bined voting power of which, immediately after the acquisi-
tion of any stock in such domestic corpoi-ation by the con-
trolled foreign corporation, is owned, or is considered as being 
owned, by such United States shai-eholders in the aggregate; 
"(G) any movable property (other than a vessel or air-
craft) 
which is used for the purpose of exploring for, 
developing, removing, or transporting resources from ocean 
waters or under such waters Avhen used on the Continental 
Shelf of the United States; and". 
(b) 
CONSTRUCTIVE OWNERSHIP OF STOCK.—Section 958 (b) (relating 
26 USC 958. 
to rules for determining stock ownership) is amended— 
(1) by striking out "954(d) (3)," the first place it appears and 
inserting in lieu thereof "954(d) (3), 956(b) (2),"; 
(2) by striking out "954(d)(3)," the second place it appears 
and inserting in lieu thereof "954(d) (3), to treat the stock of a 
domestic corporation as owned by a United States shareholder of 
the conti-olled foreign corporation for purposes of section 956(b) 
(2),"; and 
(3) by adding at the end thereof the following new sentence: 
"Paragraphs (1) and (4) shall not apply for purposes of section 
956(b) (2) to treat stock of a domestic corporation as not owned by a 
United States shareholder." 
(c) EFFECTIVE DATE.—^The amendments made by this section shall 26 USC 956 
apply to taxable years of foreign corporations beginning after Decern- "^'t^-
ber 31, 1975, and to taxable years of L^nited States shareholders 
(within the meaning of section 951(b) of the Internal Revenue Code 
of 1954) within which or with which such taxable years of such foreign 
corporations end. In determining for purposes of any taxable year 
referred to in the preceding sentence the amount referred to in section 
956(a) (2) (A) of the Internal Revenue Code of 1954 for the last tax-
able year of a corporation beginning before January 1, 1976, the 
amendments made by this section shall be deemed also to apply to such 
.., ' 
last taxable year. 
SEC. 1022. REPEAL OF EXCLUSION FOR EARNINGS OF LESS DEVEL-
OPED COUNTRY CORPORATIONS FOR PURPOSES OF SEC-
TION 1248. 
(a) AMENDMENT OF SECTION 1248(d).—Paragraph (3) of section 
26 USC 1248. 
1248(d) (relathig to exclusion from earnings and profits of gain from 
certain sales or exchanges of stock in certain foreign corporations) is 
amended to read as follows: 
"(3) 
LESS 
DEVELOPED 
COUNTRY 
CORPORATIONS 
UNDER 
PRIOR 
EAw.—Earnings and profits of a foreign corporation which were 
accumulated during any taxable year beginning before January 1, 
1976, while such corporation was a less developed country cor-
poration under section 902(d) as in effect before the enactment 
^"-t^' P- 1626. 
of the Tax Reduction Act of 1975.". 
26 USC 1 note. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
26 USC 1248 
shall apply to taxable years beginning after December 31, 1975. 
note. 
90 STAT. 1620 
PUBLIC LAW 94-455—OCT. 4, 1976 
SEC. 1023. EXCLUSION FROM SUBPART F OF CERTAIN EARNINGS OF 
INSURANCE COMPANIES. 
26 use 954. 
(a) I N GENERAL.—Paragraph (3) of section 954(c) (relating to 
foreign personal holding company income) is amended by striking 
out "or" at the end of subparagraph (A), by striking out the period 
at the end of subparagraph (B) and inserting in lieu thereof ", or", 
and by adding at the end thereof the following new subparagraph: 
"(C) dividends, interest, and gains from the sale or 
exchange of stock or securities received from a person other 
than a related person (within the meaning of subsection (d) 
(3)) derived from investments made by an insurance com-
pany of an amount of its assets equal to one-third of its pre-
miums earned on insurance contracts (other than life insur-
ance and annuity contracts) during the taxable year (as 
defined in section 832(b)(4)) 
which are not directly or 
\~^,,,^, , ^, 
indirectly attributable to the insurance or reinsurance of risks 
of persons who are related persons (within the meaning of 
subsection (d)(3)).". 
26 use 954 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
°°*^- 
apply to taxable years of foreign corporations beginning after Decem-
ber 31, 1975, and to taxable years of United States shareholders 
^
^ 
(within the meaning of section 951(b) of the Internal Revenue Code 
of 1954) within which or with which such taxable years of such for-
eign corporations end. 
SEC. 1024. SHIPPING PROFITS OF FOREIGN CORPORATIONS. 
26 use 954. 
(a) 
CERTAIN SHIPPING OPERATIONS.—Subsection (b) of section 954 
(relating to foreign base company income) is amended by adding at 
the end thereof the following new paragraph: 
.,4-i 
,. 
, 
"C^) SPECIAL EXCLUSION FOR FOREIGN BASE COMPANY SHIPPING 
INCOME.—Income of a corporation which is foreign base company 
shipping income under paragraph (4) of subsection (a) (deter-
mined without regard to the exclusion under paragraph (2) of 
this subsection) shall be excluded from foreign base company 
income if derived by a controlled foreign corporation from, or in 
connection with, the use (or hiring or leasing for use) of an air-
craft or vessel in foreign commerce between two points within the 
foreign country in which such corporation is created or organized 
and such aircraft or vessel is registered." 
26 use 954 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
note. 
apply to taxable years of foreign corporations beginning after Decem-
ber 31, 1975, and to taxable years of United States shareholders 
(within the meaning of section 951(b) of the Internal Revenue Code 
of 1954) within which or with which such taxable years of such for-
'*^ ' 
• 
eign corporations end. 
PART III—AMENDMENTS AFFECTING TREATMENT OF 
FOREIGN TAXES 
SEC. 1031. REQUIREMENT THAT FOREIGN TAX CREDIT BE DETER-
MINED ON OVERALL BASIS. 
26 use 904. 
(a) 
OVERALL LIMITATION ON FOREIGN TAX CREDIT.—Section 
904 
(relating to limitation on foreign tax credit) is amended to read as 
follows: 
"SEC. 904. LIMITATION ON CREDIT. 
"(a) LIMITATION.—The total amount of the credit taken under 
section 901(a) shall not exceed the same proportion of the tax against 
-afOi; 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1621 
which such credit is taken which the taxpayer's taxable income from 
sources without the United States (but not in excess of the taxpayer's 
entire taxable income) bears to his entire taxable income for the same 
taxable year. 
"(b) TAXABLE INCOME FOR PURPOSES OF COMPUTIXG LIMITATION.—• 
For puri^oses of subsection (a), the taxable income in the case of an 
individual, estate, or trust shall be computed without any deduction 
for personal exemptions under section 151 or 642(b). 
26 USC 151, 
" ( c ) 
CARRYIiACK AND CARRYOVER OF ExCESS 
T A X 
P A I D . 
^Auy 
642. 
amount by which all taxes paid or accrued to foreign countries or 
possessions of the L^nited States for any taxable year for which the 
taxpayer chooses to have the benefits of this subpart exceed the limita-
tion under subsection (a) shall be deemed taxes paid or accrued to 
foreign countries or possessions of the United States in the second 
preceding taxable year, in the first preceding taxable year, and in the 
first, second, third, fourth, or fifth succeeding taxable years, in that 
order and to the extent not deemed taxes paid or accrued in a prior 
taxable year, in the amount by which the limitation under subsec-
tion (a) for such preceding or succeeding taxable year exceeds the sum 
of the taxes paid or accrued to foreign countries or possessions of the 
United States for such preceding or succeeding taxable year and the 
amount of the taxes for any taxable year earlier than the current tax-
able year which shall be deemed to have been paid or accrued in such 
preceding or subsequent taxable year (whether or not the taxpayer 
chooses to have the benefits of this subpart with respect to such earlier 
taxable year). Such amount deemed paid or accrued in any year may 
be availed of only as a tax credit and not as a deduction and only if 
the taxpayer for such year chooses to have the benefits of this subpart 
as to taxes paid or accrued for that year to foreign countries or posses-
sions of the United States. 
" ( d ) APPLICATION OP SECTION I N CASE 
OF CERTAIN 
INTEREST 
INCOME AND DIVIDENDS FROM A D I S C OR FORMER DISC.— 
"(1) I N GENERAL.—The provisious of subscctious (a), (b), and 
(c) shall be applied separately with respect to each of the follow-
ing items of income: 
" ( A ) the interest income described in paragraph (2), 
" ( B ) dividends from a DIvSC or former DISC (as defined 
in section 992(a)) to the extent such dividends are treated as 
income from sources without the United States, and 
"(C) income other than the interest income described in 
paragraph (2) and dividends described in subparagraph 
(B). 
"(2) INTEREST INCOME TO WHICH APPLICABLE.—For purposes of 
this subsection, the interest income described in this paragraph is 
interest other than interest— 
"(A) derived from any transaction which is directly 
related to the active conduct by the taxpayer of a trade or 
business in a foreign country or a possession of the United 
States, 
"(B) derived in the conduct by the taxpayer of a banking, 
financing, or similar business, 
iii 
" ( C ) received from a corporation in which the taxpayer 
• ,.'_ , . 
(or one or more includible corporations in an affiliated group, 
• 
as defined in section 1504, of which the taxpayer is a mem-
ber) owns, directly or indirectly, at least 10 percent of the 
voting stock, or 
90 STAT. 1622 
PUBLIC LAW 94-455—OCT. 4, 1976 
" ( D ) received on obligations acquired as a result of the 
disposition of a trade or business actively conducted by the 
: 
taxpayer in a foreign country or possession of the United 
States or as a result of the disposition of stock or obligations 
of a corporation in which the taxpayer owned at least 10 per-
cent of the voting stock. 
For purposes of subparagraph ( C ) , stock owned, directly or 
indirectly, by or for a foreign corporation, shall be considered as 
being proportionately owned by its shareholders. 
"(e) TRANSITIONAL RULES FOR CARRYBACKS AND CARRYOVERS FOR 
TAXPAYERS ON THE PER-COUNTRY LIMITATION.— 
/ 
"(1) APPLICATION or SUBSECTION.—This subsection shall apply 
only to a taxpayer who is on the per-country limitation for his 
last taxable year beginning before January 1, 1976. 
"(2) CARRYOVERS TO YEARS BEGINNING AFTER DECEMBER 
S I , 
1975.—In the case of any taxpayer to whom this subsection 
applies, any carryover from a taxable year beginning before Jan-
uary 1, 1976, may be used in taxaole years beginning after 
December 31, 1975, to the extent provided in subsection (c), 
but only to the extent such carryover could have been used 
in such succeeding taxable years if the per-country limitation 
continued to apply to all taxable years beginning after Decem-
ber 31,1975. 
"(3) CARRYBACKS TO YEARS BEGINNING BEFORE JANUARY 
i, 
19 7 6.—In the case of any taxpayer to whom this subsection 
applies, any carryback from a taxable year beginning after 
December 31, 1975, may be used in taxable years beginning 
, • 
before January 1, 1976, to the extent provided in subsection (c), 
but only to the extent such carryback could have been used in 
such preceding taxable year if the per-country limitation con-
tinued to apply to all taxable years beginning after December 
31, 1975. 
"(4) APPLICATION 
OF LIMITATIONS.—For purposes 
of 
this 
subsection— 
" (A) the overall limitation shall be applied before the per-
country limitation, and 
" ( B ) where the amount of any carryback or carryover is 
reduced by the overall limitation, the reduction shall be allo-
cated to the amoimts carried from each country or possession 
in proportion to the taxes paid or accrued to such country or 
possession in the taxable year from which such amount is 
being carried. 
" ( f ) CROSS REFERENCE.— 
"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)." 
(b) CONFORMING A M E N D M E N T S . — 
26 use 901, 
(1) Sections 901 (a), 901 (b), and 960(b) are amended by strik-
9^0- 
ing out "applicable limitation" each place it appears and inserting 
in lieu thereof "limitation". 
26 use 243. 
(2) Subparagraph (B) of section 243(b)(3) is amended to 
read as follows: 
" ( B ) the members of such affiliated group shall be treated 
as one taxpayer for purposes of making the election under 
section 901(a) (relating to allowance of foreign tax credit), 
and". 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1623 
(3) Paragraph (3) of section 1351(d) is amended to read as 26 USC 1351. 
follows: 
"(3) FOREIGN TAXES.—For purposes of this subsection, any 
choice made under subpart A of part I I I of subchapter N (relat-
ing to foreign tax credit) for any taxable year may be changed.". 
(4) Section 1503(b) (1) is amended by striking out ", and if 26 USC 1503. 
for the taxable year an election under section 904(b) (1) (relat- 
Post- p 1629. 
ing to election of overall limitation on foreign tax credit) is in 
effect". 
(5) Sections 383, 6038(b)(1)(A), and 6501 (i) are each ^nfe, p. 1605. 
amended by striking out "section 904(d)" each place it appears 
26 USC 6038, 
therein and inserting in lieu thereof "section 904(c)". 
6501. 
(6) Subsection (e) of section 907 (relating to transitional rules) 
26 USC 907. 
is amended— 
(A) by striking out "(d) and (e) of section 904" in para-
graphs (1) and (2) and inserting in lieu thereof " ( d ) and 
(e) of section 904 (as in effect on the day before the date of 
the enactment of the Tax Reform Act of 1976)"; 
Ante, p. 1520. 
(B) by striking out "section 904(a) (1)" in paragraph (2) 
and inserting in lieu thereof "section 904(a)(1) (as so in 
effect)"; and 
(C) by striking out "section 904(e) (2)" in paragraph (2) 
. . - • 
(A) and inserting in lieu thereof "section 904(e)(2) (as so 
in effect)". 
(c) EFFECTIVE DATES.— 
26 USC 904 
(1) I N GENERAL.—Except as provided in paragraphs (2) and "^^^• 
(3), the amendments made by this section shall apply to taxable 
years beginning after December 31,1975. 
(2) EXCEPTION FOR CERTAIN MINING OPERATIONS.—In the case of 
a domestic corporation or includible corporation in an affiliated 
group (as defined in section 1504 of the Internal Revenue Code 
of 1954) which has as of October 1.1975— 
(A) been engaged in the active conduct of the trade or 
business of the extraction of minerals (of a character with 
respect to which a deduction for depletion is allowable under 
section 613 of such Code) outside the United States or its 
possessions for less than 5 years preceding the date of enact-
ment of this Act, 
(B) had deductions properly apportioned or allocated to 
its gross income from such trade or business in excess of such 
gross income in at least 2 taxable years, 
(C) 80 percent of its gross receipts are from the sale of 
such minerals, and 
(D) made commitments for substantial expansion of such 
mineral extraction activities, 
the amendments made by this section shall apply to taxable years 
beginning after December 31, 1978. In the case of losses sustained 
in taxable years beginning before January 1, 1979, by any corpo-
ration to which this paragraph applies, the provisions of section 
904(f) of such Code shall be applied with respect to such losses 
under the principles of section 904(a) (1) of such Code as in effect 
before the enactment of this Act. 
(3) EXCEPTION FOR INCOME FROM POSSESSIONS.—In the case of 
gross income from sources within a possession of the United States 
(and the deductions properly apportioned or allocated thereto), 
the amendments made by this section shall apply to taxable years 
beginning after December 31,1978. In the case of losses sustained 
90 STAT. 1624 
PUBLIC LAW 94-455—OCT. 4, 1976 
in a possession of the United States in taxable years beginning 
before January 1, 1979, the provisions of section 904(f) of such 
Code shall be applied with respect to such losses under the prin-
ciples of section 904(a) (1) of such Code as in effect before the 
enactment of this Act. 
• * • 
(4) CARRYBACKS AND CARRYOVERS I N THE CASE OF MINING OPERA-
'• " 
TioNS AND INCOME FROM A POSSESSION.—In the casc of a taxpayer to 
whom paragraph (2) or (3) of this subsection applies, section 
904(e) of such Code shall apply except that "January 1, 1979" 
shall be substituted for "January 1, 1976" each place it appears 
therein. If such a taxpayer elects the overall limitation for a tax-
able year beginning before January 1, 1979, such section 904(e) 
ff*' ; 
shall be applied by substituting "the January 1, of the last year 
for which such taxpayer is on the per-country limitation" for 
"January 1, 1976" each place it appears therein. 
SEC. 1032. RECAPTURE OF FOREIGN LOSSES. 
26 use 904. 
(a) I N GENERAL.—Section 904 (as amended by section 1031 of this 
Act) is amended by redesignating subsection (f) as subsection (g) 
and by inserting after subsection (e) the following new subsection: 
"(f) RECAPTURE or OVERALL FOREIGN Loss.— 
"(1) GENERAL RULE.—For 
purposes 
of 
this 
subpart 
and 
Post, p. 1643. 
section 936, in the case of any taxpayer who sustains an overall 
foreign loss for any taxable year, that portion of the taxpayer's 
taxable income from sources without the United States for each 
*^-'' ~ 
succeeding taxable year which is equal to the lesser of— 
" (A) the amount of such loss (to the extent not used under 
this paragraph in prior taxable years), or 
"(13) 50 percent (or such larger percent as the taxpayer 
may choose) of the taxpayer's taxable income from sources 
without the United States for such succeeding taxable year, 
shall be treated as income from sources within the United States 
(and not as income from sources without the United States). 
"(2) 
OVERALL FOREIGN LOSS DEFINED.—For purposes of this 
subsection, the term 'overall foreign loss' means the amount by 
which the gross income for the taxable year from sources without 
the United States (whether or not the taxpayer chooses the bene-
fits of this subpart for such taxable year) for such year is exceeded 
by the sum of the deductions properly apportioned or allocated 
thereto, except that there shall not be taken into account— 
" ( A ) any net operating loss deduction allowable for such 
year under section 172(a) or any capital loss carrybacks and 
carryovers to such year under section 1212, and 
"(B) any— 
"(i) 
foreign expropriation loss for such year, as 
defined in section 172 (k) (1), or 
"(ii) loss for such year which arises from fire, storm, 
shipwreck, or other casualty, or from theft, 
to the extent such loss is not compensated for by insurance or 
otherwise. 
"(3) DISPOSITIONS.— 
" (A) I N GENERAL.—For purposes of this chapter, if prop-
erty which has been used predominantly without the United 
States in a trade or business is disposed of during any taxable 
'•, 
year— 
"(i) the taxpayer, notwithstanding any other provi-
sion of this chapter (other than paragraph (1)), shall be 
deemed to have received and recognized taxable income 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1625 
' 
from sources without the United States in the taxable 
year of the disposition, by reason of such disposi-
tion, in an amount equal to the lesser of the excess of the 
fair market value of such property over the taxpayer's 
adjusted basis in such property or the remaining amount 
of the overall foreign losses which were not used under 
paragraph (1) for such taxable year or any prior taxable 
year, and 
"(ii) paragraph (1) shall be applied with respect to 
such income by substituting '100 percent' for '50 percent'. 
In determining for purposes of this subparagraph whether 
the predominant use of any property has been without the 
United States, there shall be taken into account use during 
the 3-year period ending on the date of the disposition (or, 
if shorter, the period during which the property has been 
used in the trade or business). 
, 
" ( B ) 
DISPOSITION DEFINED AND SPECIAL RULES.— 
"(i) For purposes of this subsection, the term 'dispo-
sition' includes a sale, exchange, distribution, or gift of 
property w^hether or not gain or loss is recognized on the 
transfer. 
"(ii) Any taxable income recognized solely by reason 
of subparagraph (A) shall have the same characteriza-
tion it would have had if the taxpayer had sold or 
exchanged the property. 
"(iii) 
The Secretary shall prescribe such regula- Regulations, 
tions as he may deem necessary to provide for adjust-
ments to the basis of property to reflect taxable income 
recognized solely by reason of subparagraph (A). 
"(C) EXCEPTIONS.—Xotwithstanding subparagraph 
( B ) , 
the term 'disposition' does not include— 
"(i) a disposition of property which is not a material 
factor in the realization of income by the taxpayer, or 
"(ii) a disposition of property to a domestic corpo-
ration in a distribution or transfer described in section 
381(a). 
26 use 381. 
" (4) DETERMINATION OF FOREIGN OIL RELATED LOSS WHERE SECTION 
907 APPLIES.—In the case of a corporation to which section 907 
(b) (1) applies, the foreign oil related loss shall be the amount by Post, p. 1630. 
which the gross income for the taxable year from sources without 
the United States and its possessions (whether or not the taxpayer 
chooses the benefits of this subpart for such taxable year) taken 
into account in determining the foreign oil related income for 
*
^ 
such year is exceeded by the sum of the deductions properly 
apportioned or allocated thereto, except that there shall not be 
taken into account— 
" ( A ) any net operating loss deduction allowable for such 
year under section 172(a) or any capital loss carrybacks 
and carryovers to such year under section 1212, and 
" ( B ) a n y -
" (i) foreign expropriation loss for such year, as defined 
in section 172(k) (1), or 
"(ii) loss for such year which arises from fire, storm, 
shipwreck, or other casualty, or from theft, 
to the extent such loss is not compensated for by insurance or 
otherwise.". 
90 STAT. 1626 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 907. 
(b) COORDINATION W I T H SECTION 907.—Section 907 is amended— 
(1) by striking out the last sentence of subsection (b) (as 
amended by section 1035(b)), and 
(2) by striking out subsection (f), and by redesignating subsec-
tion (g) as subsection (f). 
26 use 904 
(c) EFFECTIVE DATES.— 
note. 
(1) I N 
GENERAL.—Except as provided in paragraphs (2) 
and (3), the amendments made by subsections (a) and (b)(2) 
shall apply to losses sustained in taxable years beginning after 
December 31,1975, and the amendment made by subsection (b) (1) 
shall apply to taxable years beginning after December 31, 1975. 
(2) OBLIGATIONS OF FOREIGN GOVERNMENTS.—The ameiidments 
made by subsection (a) shall not apply to losses on the sale, 
exchange, or other disposition of bonds, notes, or other evidences of 
indebtedness issued before May 14, 1976, by a foreign govern-
ment or instrumentality thereof for the acquisition of property 
located in that country or stock of a corporation (created or 
organized in or under the laws of that foreign country) or 
indebtedness of such corporation. 
(3) SUBSTANTIAL WORTHLESSNESS 
BEFORE 
ENACTMENT.—The 
amendments made by subsection (a) shall not apply to losses in-
curred on the loss from stock or indebtedness of a corporation in 
which the taxpayer owned at least 10 percent of the voting stock 
and which has sustained losses in 3 out of the last 5 taxable years 
beginning before January 1,1976, which has sustained an overall 
loss for those 5 years, and with respect to which the taxpayer has 
terminated or will terminate all operations by reason of sale, 
liquidation, or other disposition before January 1, 1977, of such 
corporation or its assets. 
(4) LIMITATION BASED ON DEFICIT I N EARNINGS AND PROFITS.^—If 
paragraph (3) would apply to a taxpayer but for the fact that 
the loss is sustained after December 31, 1976, and if the loss is 
sustained in a taxable year beginning before January 1,1979, the 
amendments made by subsection (a) shall not apply to such loss 
to the extent that there was on December 31, 1975, a deficit in 
earnings and profits in the corporation from which the loss arose. 
SEC. 1033. DIVIDENDS FROM LESS DEVELOPED COUNTRY CORPORA-
TIONS TO BE GROSSED UP FOR PURPOSES OF DETERMIN-
ING UNITED STATES INCOME AND FOREIGN TAX CREDIT 
AGAINST THAT INCOME. 
(a) FOREIGN TAXES DEEMED PAID BY DOMESTIC CORPORATIONS.— 
26 use 902. 
Section 902 (relating to credit for corporate stockholders in foreign 
corporations) is amended to read as follows: 
"SEC. 
9
0
2
. 
CREDIT FOR CORPORATE STOCKHOLDER IN FOREIGN 
CORPORATION. 
" ( a ) TREATMENT OF TAXES PAID BY FOREIGN CORPORATION.—For 
purposes of this subpart, a domestic corporation which owns at least 
10 percent of the voting stock of a foreign corporation from which it 
receives dividends in any taxable year shall be deemed to have paid 
the same proportion of any income, war profits, or excess profits taxes 
paid or deemed to be paid by such foreign corporation to any foreign 
country or to any possession of the United States, on or with respect 
to the accumulated profits of such foreign corporation from which 
such dividends were paid, which the amount of such dividends (deter-
mined without regard to section 78) bears to the amount of such 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1627 
accumulated profits in excess of such income, war profits, and excess 
profits taxes (other than those deemed paid). 
' 
" ( b ) FoEEiGN 
SUBSIDIARY 
OF 
FIRST 
AND SECOND 
FOREIGN 
CORPORATION.— 
"(1) O N E T2ER.—If the foreign corporation described in sub-
section (a) (hereinafter in this subsection referred to as the 'first 
foreign corporation') owns 10 percent or more of the voting stock 
of a second foreign corporation from which it receives dividends 
in any taxable year, it shall be deemed to have paid the same pro-
portion of any income, war profits, or excess profits taxes paid or 
deemed to be paid by such second foreign corporation to any for-
eign country or to any possession of the United States, on or with 
respect to the accumulated profits of such second foreign corpora-
tion from which such dividends were paid, which the amount of 
such dividends bears to the amount of such accumulated profits in 
excess of such income, war profits, and excess profits taxes (other 
than those deemed paid). 
."•" •/ '• " 
"(2) Two TIERS.—If such first foreign corporation owns 10 
percent or more of the voting stock of a second foreign corpora-
tion which, in turn, owns 10 percent or more of the voting stock 
of a third foreign corporation from which the second foreign 
corporation receives dividends in any taxable year, the second 
foreign corporation shall be deemed to have paid the same pro- 
/'' •" ' '--"-^ 
portion of any income, war profits, or excess profits taxes paid 
by such third foreign corporation to any foreign country or to 
any possession of the United States, on or with respect to the 
accumulated profits of such third foreign corporation from which 
such dividends were paid, which the amount of such dividends 
bears to the amount of such accumulated profits in excess of such 
^^f]? s^ , A: 
income, war profits, and excess profits taxes. 
"(3) VOTING 
STOCK 
REQUIREMENT.—For 
purposes 
of 
this 
subpart— 
" ( A ) paragraph (1) shall not apply unless the percent- 
^ 
dv 
age of voting stock owned by the domestic corporation in the 
first foreign corporation and the percentage of voting stock 
owned by the first foreign corporation in the second foreign 
corporation when multiplied together equal at least 5 percent, 
.; 
and 
r ; 
" ( B ) paragraph (2) shall not apply unless the percentage 
arrived at for purposes of applying paragraph (1) when 
multiplied by the percentage of voting stock owned by the 
second foreign corporation in the third foreign corporation 
is equal to at least 5 percent. 
"(c) APPLICABLE RULES.— 
"(1) ACCUMULATED PROFITS DEFINED.—For purposes of this sec-
tion, the tenn 'accumulated profits' means, with respect to any 
foreign corporation, the amount of its gains, profits, or income 
computed without reduction by the amount of the income, war 
profits, and excess profits taxes imposed on or with respect to 
such profits or income by any foreign country or by any posses-
sion of the United States. Tlie Secretary shall have full power to 
determine from the accumulated profits of what year or years 
such dividends were paid, treating dividends paid in the first 60 
days of any year as having been paid from the accumulated profits 
of the preceding year or years (unless to his satisfaction shown 
otherwise), and in other respects treating dividends as having 
90 STAT. 1628 
PUBLIC LAW 94-455—OCT. 4, 1976 
been paid from the most recently accumulated gains, profits, or 
earnings. 
" (2) ACCOUNTING PERIODS.—In the case of a foreign corporation 
i 
the income, war profits, and excess profits taxes of which are 
determined on the basis of an accounting period of less than 1 
year, the word 'year' as used in this subsection, shall be construed 
' 
to mean such accounting period. 
"(d) 
CROSS REFERENCES.— 
"(1) For inclusion in gross income of an amount equal to taxes deemed 
paid under subsection (a), see section 78. 
"(2) For application of subsections (a) and (b) with respect to taxes 
deemed paid in a prior taxable year by a United States shareholder with 
respect to a controlled foreign corporation, see section 960. 
"(3) For reduction of credit with respect to dividends paid out of 
accumulated profits for years for which certain information is not 
furnished, see section 6038." 
(b) 
CONFORMING AMENDMENTS.— 
26 use 78. 
(1) Section 78 (relating to dividends received from certain 
foreign corporations) is amended— 
(A) by striking out "section 902(a) ( 1 ) " and inserting in 
lieu thereof "section 902 (a)", and 
(B) by striking out "section 960(a) (1) ( C ) " and inserting 
in lieu thereof "section 960(a) (1)". 
26 use 960. 
(2) Paragraph (1) of section 960(a) (relating to special rules 
for foreign tax credit) is amended by striking out "bears to—" 
and all that follows down through the period at the end of such 
paragraph and inserting in lieu thereof "bears to the entire 
amount of the earnings and profits of such foreign corporation 
for such taxable year.". 
26 use 535. 
(3) 
Section 535(b)(1) 
(relating to accumulated 
taxable 
income) is amended by striking out "section 902(a) (1) or 960(a) 
(1) ( C ) " and inserting in lieu thereof "section 902(a) or 960(a) 
26 use 545. 
(4) Section 545(b)(1) 
(relating to undistributed personal 
holding company income) is amended by striking out "section 
902(a) (1) or 960(a) (1) ( C ) " and inserting in lieu thereof "sec-
tion 902(a) or 960(a) (1)". 
26 use 902 
(c) EFFECTIVE DATES.—The amendments made by this section shall 
note. 
apply— 
(1) in respect of any distribution received by a domestic cor-
poration after December 31,1977, and 
(2) in respect of any distribution received by a domestic cor-
poration before January 1,1978, in a taxable year of such corpora-
tion beginning after December 31, 1975, but only to the extent 
that such distribution is made out of the accumulated profits of a 
foreign corporation for a taxable year (of such foreign corpora-
tion) beginning after December 31,1975. 
For purposes of paragraph (2), a distribution made by a foreign 
corporation out of its profits which are attributable to a distribution 
Post, p. 1626. 
received from a foreign corporation to which section 902(b) of the 
Internal Revenue Code of 1954 applies shall be treated as made out 
of the accumulated profits of a foreign corporation for a taxable year 
beginning before January 1,1976, to the extent that such distribution 
was paid out of the accumulated profits of such foreign corporation 
for a taxable year beginning before January 1,1976. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1629 
SEC. 1034. TREATMENT OF CAPITAL GAINS FOR PURPOSES OF FOR-
EIGN TAX CREDIT. 
(a) IN" GENERAL.—Section (b) of section 904 (relating to taxable 26 USC 904. 
income for purposes of computing the foreign tax credit limitation), 
as amended by section 1031 of this Act, is amended to read as follows: 
" ( b ) TAXABLE INCOME FOR PURPOSE OF COMPUTING LIMITATION.— 
"(1) PERSONAL EXEMPTIONS.—For purposes of subsection (a), 
the taxable income in the case of an individual, estate, or trust 
shall be computed without any deduction for personal exemptions 
-
under section 151 or 642(b). 
"(2) CAPITAL GAINS.—For purposes of subsection (a) — 
" ( A ) CORPORATIONS.—In the case of a corporation— 
"(i) the taxable income of such corporation 
from 
sources without the United States shall include gain 
from the sale or exchange of capital assets only in an 
amount equal to foreign source capital gain net income 
reduced by three-eighths of foreign source net capital 
S ^ ^ . 
. 
. 
. 
: 
r 
"(ii) the entire taxable income of such corporation 
shall include gain from the sale or exchange of capital 
assets only in an amount equal to capital gain net income 
reduced by three-eights of net capital gain, and 
"(iii) any net capital loss from sources without the 
United States to the extent taken into account in deter-
mining capital gain net income for the taxable year shall 
be reduced by an amount equal to three-eighths of the 
excess of net capital gain from sources within the United 
States over net capital gain. 
" ( B ) OTHER TAXPAYERS.—In the case of a taxpayer other 
than a taxpayer described in subparagraph ( A ) , taxable 
income from sources without the United States shall include 
gain from the sale or exchange of capital assets only to the 
extent of foreign source capital gain net income. 
"(3) DEFINITIONS.—For purposes of this subsection— 
" (A) FOREIGN SOURCE CAPITAL GAIN NET INCOME.—The term 
'foreign source capital gain net income' means the lesser of— 
"(i) capital gain net income from sources without the 
United States, or 
" (ii) capital gain net income. 
" ( B ) FOREIGN SOURCE NET CAPITAL GAIN.—The term 'for-
eign source net capital gain' means the lesser of— 
"(i) net capital gain from sources without the United 
States, or 
"(ii) net capital gain. 
" ( C ) EXCEPTION FOR GAIN FROM THE SALE or CERTAIN PER-
SONAL PROPERTY.—For purposes of this paragraph, there shall 
be included as gain from sources within the United States 
any gain from sources Avithout the United States from the 
sale or exchange of a capital asset which is personal property 
which— 
"(i) in the case of an individual, is sold or exchanged 
outside of the country (or possession) of the individual's 
residence, 
"(ii) in the case of a corporation, is stock in a second 
corporation sold or exchanged other than in a country (or 
possession) in which such second corporation derived 
more than 50 percent of its gross income for the 3-year 
90 STAT. 1630 
PUBLIC LAW 94-455—OCT. 4, 1976 
"Gain from the 
sale or exchange 
of capital 
assets." 
26 use 904 
note. 
Ante, p. 1620. 
26 use 907. 
Ante, p. 1620. 
period ending with the close of such second corporation's 
taxable year immediately preceding the year during 
which the sale or exchange occurred, or 
"(iii) in the case of any taxpayer, is personal property 
(other than stock in a corporation) sold or exchanged 
other than in a country (or possession) in which such 
property is used in a trade or business of the taxpayer or 
in which such taxpayer derived more than 50 percent of 
its gross income for the 3-year period ending with the 
close of its taxable year immediately preceding the year 
during which the sale or exchange occurred, 
unless such gain is subject to an income, war profits, or excess 
profits tax of a foreign country or possession of the United 
States, and the rate of tax applicable to such gain is 10 per-
cent or more of the gain from the sale or exchange (com-
puted under this chapter). 
" ( D ) SECTION I 2 3 I GAINS.—The term 'gain from the sale 
or exchange of capital assets' includes any gain so treated 
under section 1231." 
(b) EFFECTIVE DATES.—The amendment made by this section shall 
apply to taxable years beginning after December 31, 1975, except that 
the provisions of section 904(b) (3) (C) shall only apply to sales or 
exchanges made after November 12,1975. 
SEC. 1035. FOREIGN OIL AND GAS EXTRACTION INCOME. 
(a) REDUCTION I N LIMITATION ON FOREIGN TAX CREDITS ALLOWABLE 
FOR O I L AND GAS EXTRACTION INCOME.—Subsection (a) of section 907 
(relating to reduction in amounts allowable as foreign tax under sec-
tion 901) is amended to read as follows: 
"(a) 
REDUCTION IN AMOUNT ALLOWED AS FOREIGN TAX UNDER SEC-
TION 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 of— 
"(1) the amount of the foreign oil and gas extraction income 
for the taxable year, multiplied by 
" (2) the percentage which is the sum of the normal tax rate and 
the surtax rate for the taxable year specified in section 11." 
(b) 
FOREIGN O I L RELATED INCOME 
EARNED BY INDIVIDUALS.— 
Subsection (b) of section 907 (relating to special rules in case of for-
eign oil and gas income) is amended to read as follows: 
" (b) APPLICATION OF SECTION 904 LIMITATION.— 
" (1) CORPORATIONS.—In the case of a corporation, the pi-ovisions 
of section 904 shall be applied separately with respect to— 
"(A) foreign oil related income, and 
" ( B ) other taxable income. 
"(2) OTHER TAXPAYERS.—In the case of a taxpayer other than a 
corporation, the provisions of subsection (a) shall not apply and 
the provisions of section 904 shall be applied separately with 
respect to— 
" (A) foreign oil and gas extraction income, and 
" ( B ) other taxable income (including other foreign oil 
related income). 
In the case of a corporation, with respect to foreign oil-related income, 
and in the case of a taxpayer other than a corporation, with respect to 
foreign oil and gas extraction income, the overall limitation provided 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1631 
by section 904(a)(2) shall apply and the per-country limitation Ante, p. 1620. 
provided by subsection (a) (1) shall not apply." 
(c) TAX CREDIT FOR PRODUCTION-SHARING CONTRACTS.— 
26 USC 907 
(1) For purposes of section 901 of the Internal Revenue Code note, 
of 1954. there shall be treated as income, war profits, and excess 
profits tuxes to be taken into account under section 907(a) of such 
Code amounts designated as income taxes of a foreign govern-
ment by such government (which otherwise would not be treated 
as taxes for purposes of section 901 of such Code) with respect 
to production-sharing contracts for the extraction of foreign oil 
or gas. 
(2) The amounts specified in paragraph (1) shall not exceed 
the lesser of— 
(A) the product of the foreign oil and gas extraction 
income with respect to all such production-sharing contracts 
multiplied by the sum of the normal tax rate and the surtax 
rate for the taxable year specified in section 11 of such Code, 
or 
(B) the excess of the total amount of foreign oil and gas 
extraction income (as defined in section 907(c) (1) of such 
Code) for the taxable year multiplied by the sum of the nor-
mal tax rate and the surtax rate for the taxable year specified 
^ 
in section 11 of such Code over the amount of any income, 
war profits, and excess profits taxes paid or accrued (or 
deemed to have been paid) without regard to paragraph (1) 
during the taxable year with respect to foreign oil and gas 
extraction income. 
(3) The production-sharing contracts taken into account for 
purposes of paragraph (1) shall be those contracts which were 
entered into before April 8, 1976, for the sharing of foreign oil 
and gas production with a foreign government (or an entity 
owned by such government) with respect to which amounts 
claimed as taxes paid or accrued to such foreign government for 
taxable years beginning before June 30, 1976, will not be dis-
allowed as taxes. No such contract shall be taken into account for 
any taxable year ending after December 31,1977. 
(d) 
CARRYBACK AND CARRYOVER OF DISALLOWED CREDITS.— 
(1) I N GENERAL.—Section 907 (as amended by section 1032) is 
26 USC 907. 
amended by redesignating subsection (f) as subsection (g) and 
by inserting after subsection (e) the following new subsection: 
"(f) 
CARRYBACK AND CARRYOVER OF DISALLOWED CREDITS.— 
" (1) I N GENERAL.—If the amount of the oil and gas extraction 
taxes paid or accrued during any taxable year exceeds the limita-
tion provided by subsection (a) for such taxable year (herein-
after in this subsection referred to as the 'unused credit year'), 
SO much of such excess as does not exceed 2 percent of foreign oil 
and gas extraction income for such taxable year shall be deemed 
to be oil and gas extraction taxes paid or accrued in the second 
preceding taxable year, in the first preceding taxable year, and in 
the fii-st, second, third, fourth, or fifth succeeding taxable year, 
in that order and to the extent not deemed tax paid or accrued 
in a prior taxable year by reason of the limitation imposed by 
paragraph (2). Such amount deemed paid or accrued in any tax-
able year may be availed of only as a tax credit and not as a 
deduction and only if the taxpayer for such year chooses to have 
the benefits of this subpart as to taxes paid or accrued for that 
year to foreign countries or possessions. For purposes of this 
90 STAT. 1632 
PUBLIC LAW 94-455—OCT. 4, 1976 
subsection, the terms 'second preceding taxable year', and 'first 
s 
preceding taxable year' do not include any taxable year ending 
before January 1, 1975. For purposes of determining the amount 
of such taxes which may be deemed paid or accrued in any taxable 
: 
year ending in 1975, 1976, or 1977, the first sentence of this para-
graph shall be applied by substituting 'such excess' for 'so much 
of such excess as does not exceed 2 percent of the foreign oil and 
gas extraction income for such taxable year'. 
"(2) LIMITATION.—The amount of the unused oil and gas 
extraction taxes which under paragraph (1) may be deemed paid 
or accrued in any preceding or succeeding taxable year shall not 
exceed the lesser of— 
"(A) the amount by which the limitation provided by 
subsection (a) for such taxable year exceeds the sum of— 
"(i) the oil and gas extraction taxes paid or accrued 
during such taxable year, plus 
, 
"(ii) the amounts of the oil and gas extraction taxes 
which by reason of this subsection are deemed paid or 
accrued in such taxable year and are attributable to tax-
able years preceding the unused credit year; or 
"(B) the amount by which the limitation provided by 
Ante, p. 1620. 
section 904 on taxes paid or accrued with respect to foreign 
oil-related income for such taxable year exceeds the sum of— 
" (i) the taxes paid or accrued (or deemed to have been 
Ante, p. 1626. 
paid under section 902 or 960) to all foreign countries 
and possessions of the United States with respect to such 
26 use 960. 
income during such taxable year, 
"(ii) the amount of such taxes which were deemed 
paid or accrued in such taxable year under section 904(c) 
and which are attributable to taxable years preceding the 
unused credit year, plus 
"(iii) the amount of the oil and gas extraction taxes 
which by reason of this subsection are deemed paid or 
accrued in such taxable year and are attributable to 
taxable years preceding the unused credit year. 
" ( 3 ) S P E C I A L RULES.— 
"(A) In the case of any taxable year which is an unused 
credit year under this subsection and which is an unused 
credit year under section 904(c) with respect to oil-related 
income, the provisions of this subsection shall be applied 
before section 904 (c). 
"(B) For purposes of determining the amount of oil-
related taxes paid or accrued in any taxable year which may 
be deemed paid or accrued in a preceding or succeeding taxa-
ble year under section 904 (c), any tax deemed paid or accrued 
in such preceding or succeeding taxable year under this sub-
section shall be considered to be tax paid or accrued in such 
preceding or succeeding taxable year. 
"(C) For purposes of determining the amount of the unused 
oil and gas extraction taxes which under paragraph (1) may 
be deemed paid or accrued in any taxable year ending before 
January 1, 1977, subparagraph (A) of paragraph (2) shall 
be applied as if the amendment made by section 1035(a) of 
the Tax Reform Act of 1976 applied to such taxable year." 
(2) DEFINITION OF OIL AND GAS EXTRACTION TAXES.—Subsection 
26 use 907. 
(c) of section 907 is amended by adding at the end thereof the 
following new paragraph: 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1633 
"(5) O I L AND GAS EXTRACTIOX TAXES.—^The term 'oil and gas 
extraction taxes' means any income, war profits, and excess profits 
tax paid or accrued (or deemed to have been paid under section 
902 or 960) during the taxable year with respect to foreign oil Ante, p. 1626. 
and gas extraction income (determined without regard to para- 
26 USC 960. 
graph (4)) or loss which would be taken into account for purposes 
of section 901 without regard to this section." 
(3) TECHXICAL AMENDMENT.—Subsection (i) of section 6501, as 
amended by section 1031, (relating to foreign tax carrybacks) is 26 USC 6501. 
amended— 
(A) by striking out "excess foreign taxes)" and inserting 
in lieu thereof "excess foreign taxes) or under section 907(f) 
^'*^^» P- 1631. 
(relating to carryback and carryover of disallowed oil and 
gas extraction taxes)"; and 
(B) by striking out "section 904(c)" the second place it 
appears and inserting in lieu thereof "section 904(c) or 
907(f)". 
(e) 
EFTECTIVE DATES.— 
26 USC 907 
(1) The amendment made by subsection (a) shall apply to tax- 
note, 
able years ending after December 31, 1976. 
(2) The amendment made by subsection (b) shall apply to 
taxable years ending after December 31,1974; except that the last 
sentence of section 907(b) of the Internal Kevenue Code of 1954 Ante, p. 1630. 
shall only apply to taxable years ending after December 31,1975. 
(3) The amendment made by subsection (c) shall apply to tax-
able years beginning after June 29,1976. 
(4) The amendments made by subsection (d) shall apply to 
taxes paid or accrued during taxable years ending after the date 
of the enactment of this Act. 
• 
- ' 'i 
SEC. 1036. UNDERWRITING INCOME. 
(a) 
TREATMENT AS INCOME FROM SOURCES W I T H I N THE UNITED 
STATES.—Section 861(a) 
(relating to gross income from sources 26 USC 861. 
within the United States) is amended by adding the following new 
paragraph: 
"(7) Amounts received as underwriting income (as defined in 
section 832(b) (3)) derived from the insurance of United States 
risks (as defined in section 953(a)).". 
(b) TREATMENT AS FOREIGN SOURCE INCOME.—Section 862(a) (relat-
ing to gross income from sources without the United States) is 26 USC 862. 
amended by adding the following new paragraph: 
" (7) Underwriting income other than that derived from sources 
within the United States as provided in section 861(a) (7).". 
(c) ErrECTRTE DATE.—The amendments made by this section shall 
26 USC 861 
apply to taxable years beginning after December 31,1976. 
note. 
SEC. 1037. THIRD TIER FOREIGN TAX CREDIT WHEN SECTION 951 
APPLIES. 
(a) 
FOREIGN TAXES DEEMED PAID BY FOREIGN 
CORPORATIONS.— 
Section 960(a) (1) (relating to special rules for foreign tax credits), 
26 USC 960. 
as amended in section 1033, is further amended to read as follows: 
"(1) GENERAL RULE.—For purposes of subpart A of this part. 
if there is included, under section 951(a), in the gross income of 
a domestic corporation any amount attributable to earnings and 
profits— 
"(A) of a foreign corporation (hereafter in this subsection 
referred to as the 'first foreign corporation') at least 10 per-
90 STAT. 1634 
PUBLIC LAW 94-455—OCT. 4, 1976 
cent of the voting stock of which is owned by such domestic 
corporation, or 
" ( B ) of a second foreign corporation (hereinafter in this 
subsection referred to as the 'second foreign corporation') at 
least 10 percent of the voting stock of which is owned by the 
first foreign corporation, or 
"(C) of a third foreign corporation (hereinafter in this 
subsection referred to as the 'third foreign corporation') at 
least 10 percent of the voting stock of which is owned by the 
second foreign corporation, 
then, under regulations prescribed by the Secretary, such domes-
tic corporation shall be deemed to have paid the same proportion 
of the total income, war profits, and excess profits taxes paid (or 
deemed paid) by such foreign corporation to a foreign country or 
possession of the United States for the taxable year on or with 
respect to the earnings and profits of such foreign corporation 
which the amount of earnings and profits of such foreign corpo-
ration so included in gross income of the domestic corporation 
bears to the entire amount of the earnings and profits of such 
corporation for such taxable year. This paragraph shall not apply 
with respect to any amount included in the gross income of such 
domestic corporation attributable to earnings and profits of the 
second foreign corporation or of the third foreign corporation 
unless, in the case of the second foreign corporation, the percent-
age-of-voting-stock requirement of section 902(b) (3) (A) is satis-
fied, and in the case of the third foreign corporation, the percent-
age-of-voting-stock requirement of section 902(b)(3)(B) is 
satisfied." 
26 use 960 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
note. 
^PPly with respect to earnings and profits of a foreign corporation 
included, under section 951(a) of the Internal Revenue Code of 1954, 
in the gross income of a domestic corporation in taxable years begin-
ning after December 31,1976. 
PART IV—MONEY OR OTHER PROPERTY MOVING OUT 
OF OR INTO T H E UNITED 
S T A T E S 
SEC. 1041. PORTFOLIO DEBT INVESTMENTS IN UNITED STATES OF 
NONRESIDENT ALIENS AND FOREIGN CORPORATIONS. 
26 use 861. 
The last sentence of section 861 (c) (relating to interest on deposits, 
etc.) is hereby repealed. 
SEC. 1042. CHANGES IN RULING REQUIREMENTS UNDER SECTION 367; 
CERTAIN CHANGES IN SECTION 1248. 
26 use 367. 
(a) AMENDMENT OF SECTION 367.—Section 367 (relating to foreign 
corporations) is amended to read as follows: 
"SEC. 367. FOREIGN CORPORATIONS. 
"(a) 
TRANSFERS OF PROPERTY FROM TPIE UNITED STATES.— 
"(1) 
GENERAL RULE.—If, in connection w4th any exchange 
described in section 332, 351, 354, 355, 356, or 361, there is a trans-
fer of property (other than stock or securities of a foreign cor-
poration which is a party to the exchange or a party to the reorga-
nization) by a United States person to a foreign corporation, 
for purposes of determining the extent to which gain shall be 
recognized on such transfer, a foreign corporation shall not be 
considered to be a corporation unless, pursuant to a request filed 
not later than the close of the 183d day after the beginning of such 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1635 
transfer (and filed in such form and manner as may be prescribed 
by regulations by the Secretary), it is established to the satisfac- 
-
tion of the Secretary that such exchange is not in pursuance of a 
plan having as one of its principal purposes the avoidance of 
Federal income taxes. 
"(2) 
EXCEPTION FOR TRANSACTIONS DESIGNATED BY THE SECRE-
TARY.—Paragraph (1) shall not apply to any exchange (other-
wise within paragraph (1)), or to any type of property, which 
the Secretary by regulations designates as not requiring the filing 
of a request. 
"(b) 
OTHER TRANSFERS.— 
"(1) 
EFFECT or 
SECTION TO BE DETERMINED UNDER REGULA-
TIONS.—In the case of any exchange described in section 332, 351, 
354, 355, 356, or 361 in connection with which there is no transfer 
26 USC 332, 
of property described in subsection (a) (1), a foreign corporation 
351, 354, 355, 
shall be considered to be a corporation except to the extent pro- 
356, 361. 
vided in regulations prescribed by the Secretary which are neces-
sary or appropriate to prevent the avoidance of Federal income 
taxes. 
"(2) 
REGULATIONS RELATING TO SALE OR EXCHANGE OF STOCK IN 
FOREIGN CORPORATIONS.—The regulations prescribed pursuant to 
paragraph (1) shall include (but shall not be limited to) regula-
tions dealing with the sale or exchange of stock or securities in a 
foreign corporation by a United States person, including regula-
tions providing— 
" ( A ) the circumstances under which— 
"(i) gain shall be recognized currently, or amounts 
included in gross income currently as a dividend, or both, 
or 
"(ii) gain or other amounts may be deferred for inclu-
sion in the gross income of a shareliolder (or his successor 
in interest) at a later date, and 
" ( B ) the extent to which adjustments shall be made to 
earnings and profits, basis of stock or securities, and basis of 
assets. 
"(c) 
TRANSACTIONS To B E TREATED AS EXCHANGES.— 
"(1) SECTION 353 DISTRIBUTION.—For purposes of this section, 
any distribution described in section 355 (or so much of section 
356 as relates to section 355) shall be treated as an exchange 
whether or not it is an exchange. 
"(2) 
CONTRIBUTION OF CAPITAL TO CONTROLLED CORPORATIONS.— 
For purposes of this chapter, any transfer of property to a foreign 
corporation as a contribution to the capital of such corporation 
by one or more persons who, immediately after the transfer, own 
(within the meaning of section 318) stock possessing at least 80 
percent of the total combined voting power of all classes of stock 
of such corporation entitled to vote shall be treated as an 
exchange of such property for stock of the foreign corporation 
equal in value to the fair market value of the property transferred. 
"(d) TRANSITIONAL RULE.—In the case of any exchange beginning 
before January 1,1978— 
"(1) subsection (a) shall be applied without regard to whether 
or not there is a transfer of property described in subsection 
(a)(1), and 
"(2) subsection (b) shall not apply.". 
"(fl 
90 STAT. 1636 
PUBLIC LAW 94-455—OCT. 4, 1976 
(b) 
EARNINGS AND PROFITS OF SUBSIDIARIES OF FOREIGN CORPORA-
26 use 1248. 
TioNs FOR PURPOSES OF SECTION 1248.—Subparagraph (C) of section 
1248(c) (2) is amended by striking out "; and" at the end thereof and 
inserting in lieu thereof the following: " (or on the date of any sale or 
exchange of the stock of such other foreign corporation occurring dur-
ing the 5-year period ending on the date of the sale or exchange of the 
stock of such foreign corporation, to the extent not otherwise taken 
into account under this section but not in excess of the fair market 
value of the stock of such other foreign corporation sold or exchanged 
over the basis of such stock (for determining gain) in the hands of the 
transferor); and". 
(c) CERTAIN SECTION 311, 336, OR 337 TRANSACTIONS.— 
(1) GENERAL RULE.—Section 1248 (relating to gain from cer-
tain sales or exchanges of stock in certain foreign corporations) 
is amended by redesignating subsections (f) and (g) as subsec-
tions (g) and (h), respectively, and by inserting after subsection 
'e) the following new subsection: 
'(f) CERTAIN SECTION 311, 336, OR 337 TRANSACTIONS.— 
"(1) I N GENERAL.—If— 
" ( A ) a domestic corporation satisfies the stock ownership 
requirements of subsection (a) (2) with respect to a foreign 
corporation, and 
" ( B ) 
such domestic corporation 
distributes, sells, or 
exchanges stock of such foreign corporation in a transaction 
to which section 311, 336, or 337 applies, 
then, notwithstanding any other provision of this subtitle, an 
amount equal to the excess of the fair market value of such stock 
over its adjusted basis in the hands of the domestic corporation 
shall be included in the gross income of the domestic corporation 
as a dividend to the extent of the earnings and profits of the for-
eign corporation attributable (under regulations prescribed by the 
Secretary) to such stock which were accumulated in taxable 
years of such foreign corporation beginning after December 31, 
1962, and during the period or periods the stock was held by such 
domestic corporation while such foreign corporation was a con-
trolled foreign corporation. For purposes of subsections (c) (2), 
(d), and (h), a distribution, sale, or exchange of stock to which 
this subsection applies shall be treated as a sale of stock to which 
subsection (a) applies. 
"(2) ExcEiTioN FOR CERTAIN DISTRIBUTIONS.—In the casc of any 
distribution of stock of a foreign corporation, paragraph (1) shall 
not apply if such distribution is to a domestic corporation— 
"(A) which is treated under this section as holding such 
stock for the period for which the stock was held by the dis-
tributing corporation, and 
" ( B ) which, immediately after the distribution, satisfies 
the stock ownership requirements of subsection (a) (2) with 
respect to such foreign corporation. 
" ( 3 ) 
NONAPPLICATION OF PARAGRAPH ( 1 ) I N CERTAIN CASES. 
Paragraph (1) shall not apply to a sale or exchange to which 
section 337 applies if— 
"(A) throughout the period or periods the stock of the 
foreign corporation was held by the domestic corporation (or 
predecessor referred to in paragraph (2)) all the stock of 
such domestic corporation was owned by United 
States 
persons who satisfied the 10-percent stock ownership require-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1637 
ments of subsection (a) (2) with respect to such domestic cor-
poration, and 
" ( B ) subsection (a) applies to the proceeds of the sale 
or exchange and also applied to all transactions described in 
subsection (e) (1) which took place during the period or 
periods referred to in subparagraph ( A ) . 
"(4) APPLICATION TO CASES DESCRIBED I N suBSECTioisr (e).—To 
the extent that earnings and profits are taken into account under 
this subsection, they shall be excluded and not taken into account 
for purposes of subsection (e).". 
(2) INTEREST I N PARTNERSHIP HOLDING STOCK I N CERTAIN FOR-
EIGN CORPORATIONS.—The last sentence of section 751(c) (relating 26 USC 751. 
to unrealized receivables) is amended— 
(A) by striking out "(as defined in section 1245(a) (3))," 
and inserting in lieu thereof "as defined in section 1245(a) 
(3)), stock in certain foreign corporations (as described in 
section 1248)," and 
(B) by striking out "1245(a)," and inserting in lieu 
thereof "1245(a), 1248(a),". 
(3) CONFORMING AMENDMENTS.— 
(A) Subparagraph (A) of paragraph (2) of subsection 
(c) of section 1248 is amended by striking out "subsection (a) ^6 USC 1248. 
applies to a sale or exchange" and inserting in lieu thereof 
"subsection (a) or (f) applies to a sale, exchange, or 
distribution". 
(B) Subparagraph (A) of paragraph (3) of subsection 
(g) (as redesignated by paragraph (1) of this subsection) 
of section 1248 is amended to read as follows: 
" ( A ) a dividend (other than an amount treated as a divi-
dend under subsection (f)),". 
(C) Subsection (h) (as redesignated by paragraph (1) of 
this subsection) of section 1248 is amended by striking out 
"subsection ( a ) " each place it appears and inserting in lieu 
thereof "subsection (a) or (f)". 
(d) DECLARATORY JUDGMENT PROCEDURE FOR REVIEW BT THE TAX 
COURT or SECTION 367 DETERMINATIONS.— 
Ante, p. 1634. 
(1) I N GENERAL.—Part I V of subchapter C of chapter 76 (relat-
ing to declaratory judgments) is amended by adding at the end 
thereof the following new section: 
"SEC. 7477. DECLARATORY JUDGMENTS RELATING TO TRANSFERS OF 26 USC 7477. 
PROPERTY FROM THE UNITED STATES. 
" (a) CREATION or REMEDY.— 
"(1) I N GENERAL.—In a case of actual controversy involving— 
" ( A ) a determination by the Secretary— 
"(i) that an exchange described in section 367(a) (1) 
, 
is in pursuance of a plan having as one of its principal 
purposes the avoidance of Federal income taxes, or 
"(ii) of the terms and conditions pursuant to which 
an exchange described in section 367(a) (1) will be deter-
mined not to be in pursuance of a plan having as one 
of its principal purposes the avoidance of Federal income 
^ 
taxes, or 
" ( B ) a failure by the Secretary to make a determination 
as to whether an exchange described in section 367(a) (1) is 
in pursuance of a plan having as one of its principal pur-
poses the avoidance of Federal income taxes, 
90 STAT. 1638 
PUBLIC LAW 94-455—OCT. 4, 1976 
upon the filing of an appropriate pleading, the Tax Court may 
make the appropriate declaration referred to in paragraph (2). 
Such declaration shall have the force and effect of a decision of 
the Tax Court and shall be reviewable as such. 
"(2) 
SCOPE OF DECLARATION.—The declaration referred to in 
paragraph (1) shall be— 
"(A) in the case of a determination referred to in sub-
paragraph (A) of paragraph (1), whether or not such deter-
mination is reasonable, and, if it is not reasonable, a 
determination of the issue set forth in subparagraph (A) (ii) 
of paragraph (1), and 
^•.• 
(B) in the case of a failure described in subparagraph 
(B) of paragraph (1), the determination of the issues set 
forth in subparagraph (A) of paragraph (1). 
"(b) LIMITATIONS.— 
"(1) PETITIONER.—A pleading may be filed under this section 
only by a petitioner who is a transferor or transferee of stock, 
securities, or property transferred in an exchange described in 
Ante 
1634 
Section 367(a) (1). 
' ^' 
' 
" (2) EXHAUSTION or ADMINISTRATIVE REMEDIES.—The Tax Court 
shall not issue a declaratory judgment or decree under this section 
in any proceeding unless it determines that the petitioner has 
exhausted administrative remedies available to him within the 
Internal Revenue Service. A petitioner shall not be deemed to have 
exhausted his administrative remedies with respect to a failure by 
the Secretary to make a determination with respect to whether or 
not an exchange described in section 367(a) (1) is in pursuance of 
a plan having as one of its principal purposes the avoidance of 
Federal income taxes before the expiration of 270 days after the 
request for such determination was made. 
"(3) 
EXCHANGE SHALL HAVE BEGUN.—No proceeding may be 
maintained under this section unless the exchange is described in 
section 367(a)(1) with respect to which a decision of the Tax 
Court is sought has begun before the filing of the pleading. 
"(4) 
T I M E TOR BRINGING ACTION.—If the Secretary sends by 
; . 
certified or registered mail to the petitioners referred to in para-
graph (1) notice of his determination with respect to whether 
or not an exchange described in section 367(a) (1) is in pursuance 
of a plan having as one of its principal purposes the avoidance 
^'a-v \
*
< r, ^ 
^^ Federal income taxes or with respect to the terms and condi-
tions pursuant to which such an exchange will be determined not 
to be made in pursuance of such a plan, no proceeding may be 
initiated under this section by any petitioner unless the pleading 
is filed before the 91st day after the day after such notice is 
mailed to such petitioner. 
" (c) COMMISSIONERS.—The chief judge of the Tax Court may assign 
proceedings under this section to be heard by the commissioners of 
the court, and the court may authoiize a commissioner to make the 
decision of the court with respect to such proceeding, subject to such 
conditions and review as the court may by rule provide.". 
(2) TECHNICAL AND CONFORMING AMENDMENTS.— 
26 use 7482. 
(A) Section 7482(b) (1) (relating to venue for review of 
Tax Court decisions) is amended by striking out "or" at the 
end of subparagraph (B), by striking out the period at the 
end of subparagraph (C) and inserting in lieu thereof ", or ", 
and by inserting after subparagraph (C) the following new 
subparagraph: 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1639 
* 
"(D) in the case of a person seeking a declaratory judg-
ment under section 7477, the le^al residence of such person if Ante, p. 1637. 
such person is not a corporation, or the principal place of 
business or principal office or agency of such person if such 
person is a corporation,". 
(B) Section 7482 (b) (1) is further amended— 
26 USC 7482. 
(i) by striking out "subparagraph (A), (B), and (C) 
do not apply" in the second sentence and inserting in lieu 
thereof "no subparagraph of the preceding sentence 
applies"; and 
(ii) by striking out "section 7476" in the last sentence 
and inserting in lieu thereof "section 7476 or 7477". 
(C) The heading for section 7476 is amended to read as 
follows: 
"SEC. 7476. DECLARATORY JUDGMENTS RELATING TO QUALIFICATION 
OF CERTAIN RETIREMENT PLANS." 
(D) The table of sections for part IV of subchapter C of 
chapter 76 is amended to read as follows: 
"Sec. 7476. Declaratory judgments relating to qualification of certain 
retirement plans. 
"Sec. 7477. Declaratory judgments relating to transfers of property 
from United States." 
(E) The heading of part IV of subchapter C of chapter 76 
is amended to read as follows: 
"PART IV—DECLARATORY JUDGMENTS**. 
(F) The table of parts for subchapter C of chapter 76 is 
amended by striking out the item relating to part IV and 
inserting in lieu thereof the following : 
"Part IV. Declaratory judgments." 
(e) EFFECTIVE DATES.— 
26 U
S
C 367 
(1) The amendments made by this section (other than by sub- note, 
section (d)) shall apply to transfers beginning after October 9, 
1975, and to sales, exchanges, and distributions taking place after 
such date. The amendments made by subsection (d) shall apply 
with respect to pleadings filed with the Tax Court after the date 
of the enactment of this Act but only with respect to transfers 
beginning after October 9, 1975. 
(2) In the case of any exchange described in section 367 of the 
Internal Revenue Code of 1954 (as in effect on December 31,1974) 
in any taxable year beginning after December 31,1962, and before 
the date of the enactment of this Act, which does not involve the 
transfer of property to or from a United States person, a taxpayer 
shall have for purposes of such section until 183 days after the 
date of the enactment of this Act to file a request with the Secre-
tary of the Treasury or his delegate seeking to establish to the 
satisfaction of the Secretary of the Treasury or his delegate that 
such exchange was not in pursuance of a plan having as one of its 
principal purposes the avoidance of Federal income taxes and 
that for purposes of such section a foreign corporation is to be 
treated as a foreign corporation. 
SEC. 1043. CONTIGUOUS COUNTRY BRANCHES OF DOMESTIC LIFE 
INSURANCE COMPANIES. 
(a) AMENDMENT OF SUBCHAPTER L.—Subpart E of part I of sub-
chapter L of chapter 1 (relating to life insurance companies) is 
amended by inserting after section 819 the following new section: 
90 STAT. 1640 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 819A. 
"SEC. 819A. CONTIGUOUS COUNTRY BRANCHES OF DOMESTIC LIFE 
INSURANCE COMPANIES. 
"(a) EXCLUSION OF ITEMS.—In the case of a domestic mutual insur-
ance company which— 
" (1) is a life insurance company, 
~ 
" (2) has a contiguous country life insurance branch, and 
" (3) makes the election provided by subsection (g) with respect 
to such branch, 
there shall be excluded from each and every item involved in the 
determination of life insurance company taxable income the items sep-
arately accounted for in accordance with subsection (c). 
"(b) 
CONTIGUOUS COUNTRY L I F E INSURANCE BRANCH.—For pur-
poses of this section, the term 'contiguous country life insurance 
branch' means a branch which— 
"(1) issues insurance contracts insuring risks in connection 
with the lives or health of residents of a country which is contigu-
ous to the United States, 
"(2) has its principal place of business in such contiguous coun-
try, and 
"(3) would constitute a mutual life insurance company if such 
branch were a separate domestic insurance company. 
"Insurance 
For purposes of this section, the term 'insurance contract' means any 
contract." 
jjfe^ health, accident, or annuity contract or reinsurance contract or 
/ 
any contract relating thereto. 
(c) SEPARATE ACCOUNTING REQUIRED.—Any taxpayer which makes 
the election provided by subsection (g) shall establish and maintain a 
separate account for the various income, exclusion, deduction, asset, 
reserve, liability, and surplus items properly attributable to the con-
tracts described in subsection (b). Such separate accounting shall be 
made— 
" (1) in accordance with the method regularly employed by such 
company, if such method clearly reflects income derived from, 
.5? 
and the other items attributable to, the contracts described in sub-
section (b), and 
" (2) in all other cases, in accordance with regulations prescribed 
by the Secretary. 
" ( d ) RECOGNITION OF GAIN ON ASSETS I N BRANCH ACCOUNT.—If the 
aggregate fair market value of all the invested assets and tangible 
property which are separately accounted for by the domestic life insur-
ance company in the branch account established pursuant to subsection 
(c) exceeds the aggregate adjusted basis of such assets for purposes 
of determining gain, then the domestic life insurance company shall 
be treated as having sold all such assets on the first day of the first tax-
able year for which the election is in effect at their fair market value 
on such first day. Notwithstanding any other provision of this chapter, 
the net gain shall be recognized to the domestic life insurance company 
on the deemed sale described in the preceding sentence. 
^ 
"(e) TRANSACTIONS BETWEEN CONTIGUOUS COUNTRY BRANCH AND 
DOMESTIC L I F E INSURANCE COMPANY.— 
" (1) REIMBURSEMENT FOR HOME OFFICE SERVICES, ETC.—Any pay-
'
^ 
ment, transfer, reimbursement, credit, or allowance which is made 
from a separate account established pursuant to subsection (c) to 
one or more other accounts of a domestic life insurance company 
as reimbursement for costs incurred for or with respect to the 
insurance (or reinsurance) of risks accounted for in such separate 
account shall be taken into account by the domestic life insurance 
-
^ 
company in the same manner as if such payment, transfer, reim-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1641 
bursement, credit, or allowance had been received from a separate 
person. 
" (2) EEPATRIATION OF I ^ COME.— 
"(A) I N GENERAL.—Except as provided in subparagraph 
(B), any amount directly or indirectly transferred or cred- 
' 
, ^ 
ited from a branch account established pursuant to subsection 
(c) to one or more other accounts of such company shall, 
unless such transfer or credit is a reimbursement to which 
paragraph (1) applies, be added to the life insurance com-
pany taxable income of the domestic life insurance company 
(as computed without regard to this paragraph). 
" ( B ) LIMITATION.—The addition provided by subpara-
graph (A) for the taxable year with respect to any contigu-
ous country life insurance branch shall not exceed the 
amount by which— 
"(i) the aggregate decrease in the life 
insurance 
company taxable income of the domestic life insurance 
company for the taxable year and for all prior taxable 
years resulting solely from the application of subsection 
(a) of this section with respect to such branch, exceeds 
"(ii) the amount of additions to life insurance com-
pany taxable income pursuant to subparagraph (A) with 
respect to such contiguous country branch for all prior 
taxable years. 
"(f) 
OTHER RULES.— 
"(1) TREATMENT or FOREIGN TAXES.— 
" ( A ) I N GENERAL.—No iucomc, war profits, or excess prof-
its taxes paid or accrued to any foreign country or possession 
of the United States which is attributable to income excluded 
under subsection (a) shall be taken into account for purposes 
of subpait A of part I I I of subchapter N (relating to foreign 26 USC 901. 
tax credit) or allowable as a deduction. 
" ( B ) 
TREATMENT OF REPATRIATED A3IOFNTS.—P^or purposes 
of sections 78 and 902, where any amount is added to the life 
insurance company taxable income of the domestic life insur-
ance company by reason of subsection (e) (2), the contiguous 
country life insurance branch shall be treated as a foreign 
corporation. Any amount so added shall be treated as a divi- 
; 
•, H . 
dend paid by a foreign corporation, and the taxes paid to any 
;. 
foreign country or possession of the United States with 
respect to such amount shall be deemed to have been paid by 
such branch. 
"(2) 
IGNITED STATES SOURCE INCOME ALLOCABLE TO CONTIGUOUS 
COUNTRY BRANCH.—For purposes of sections 881, 882, and 1442, 
each contiguous country life insurance branch shall be treated 
as a foreign corporation. Such sections shall be applied to each 
such branch in the same manner as if such sections contained 
the provisions of any treaty to which the United States and the 
contiguou'^ country are parties, to the same extent such provisions 
would apply if such branch were incorporated in such contiguous 
country. 
"(g) ELECTION.—A taxpayer may make the election provided by 
this subsection with respect to any contiguous country for any taxable 
year beginning after December 31, 1975. An election made under this 
subsection for any taxable year shall remain in effect for all subse-
quent taxable years, except that it may be revoked with the consent 
of the Secretary. The election provided by this subsection shall be 
90 STAT. 1642 
PUBLIC LAW 94-455—OCT. 4, 1976 
inado not later tlian tlu> time, proscribed by law for filina" tlie i-e(iirii 
for the taxable year (inchidino- extensions thereof) ^vith respe<'t" to 
AYliicli sncli election is made, and snch election and any ap])rove(l I'ev-
' 
ocation thereof shall be made in the manner pro\ided l)y the Seci'etary. 
"(h) Srix'iAiv IviLK F
O
K I)O:MKSTI(^ STOCK LIFK IxsriiAxn: Co:\r-
pAxiKs.^—At the election of a domestic stock life insurance comi)any 
Avliich has a contiguous country life insurance l)i'anch descrilx'd in 
subsection (b) (M-ithout reo-ard to the mutual re(}uirement in subsec-
tion (b) (3)). the assets of such branch may be transfei'red to a forei<:'u 
corporation or<iani/ed under the laws of tlie contiguous counti'V 
Ante, pp. 1634, 
"witliout the application of section ^\Vu or 14i)l. Subsection (a) shall 
1617. 
aj^ply to the stock of such foreiiiii coi-poration as if such donu'stic 
company Avere a mutual comi)any and as if the stock were an item 
described in subsection (c). Subsection (e)("2) shall ai)ply to amounts 
transferi'cd or ci'edited to such domestic comi)any as if s\ich domestic 
company and such forei<i."n corpoi'ation constituted one domc'stic 
mutual "life insui-ance com])any. Tlie insurance conti-acts which maybe 
transferred ])ursuant to this subsection shall include only those which 
are similar to the types of insui-ance contracts issued by a nuitual life 
insurance company. Xotwithstandiuii.- the lii'st sentence of this sub-
section, if the ao-<>-i'(>o;)te fair market value of the in\ested assets and 
tan<>-il)le ])roperty which are sepai'ately accomited foi- by the domestic 
life insurance com])any in the bi-anch account exceeds th{> <'i<j;:<rrefiate 
odpisted basis of such assets for ])Ui'poses of determinin«i' <iain. tlu\ 
domestic life insui'ance c()m|)any shall be deemed to ha\e sold all 
such assets on the first day of the taxable^ yeai' foi' which the election 
muler this subsection api)lies and the net i>ain shall be recoii-ni/ed 
to the domestic life insurance company on the deeuunl sale, but not 
in. excess of the ])roi)ortion of such net f>aii) which ecpials the pr()])or-
tion which the a<i;ar(\iiate fair market value of snch assets which aiv. 
transfei'i-ed ])ursuant to this subsection is of the aa'jii'eaate fair market 
value of all such assets." 
(b) C'LKincAr A^MKNUMKNT.—The table of sections for such subpart 
E is amended l)y iiiserting after the item I'elatinii' to section 810 the 
following new item: 
"Soc. 81!)A. Coiiti.iriioiis country lirnnches of domestic life iiisurnnco 
couipiUiics." 
26 use 819A 
(c) KFFKcrn K DATK.—The amendment made by this section shall 
note. 
f^Ppl.v ^
^
o taxable yeai's beginning after I)eceiiil)ei' ol. ^!)7.^. 
SEC. 1044. TRANSITIONAL lUTLE FOR BOND, ETC., LOSSES OF FOREIGN 
BANKS. 
26 use 582. 
(a) GF.XKI^M. IJn.K.—Section r)82(c) (relating to bond. etc.. losses 
and gains of financial institutions) is amended l)y adding at the end 
thereof the following new paragi'aph : 
"(4) TiiAXsrrioxAi. VA \A: FOU I?AXKS.—In the case of a corpora-
tion which would be a bank exce])t foi' tlu> fact that it is a foivign 
cor]ioi'ation, the net gain, if any. for the taxabl(> year on sales and 
exchanges described in paragra])h (1) shall be considered as gain 
from the sale or exchange of a capital asset to the (>xti'nt such net 
gain does not exceed the ])oi'tion of any capital loss canwover to 
such taxable year which is attributable to capital lossc's on sales oi-
exchanges desci'ibed in paragi'aph (1) for a taxable^ year begin-
ning b(>foi'e duly 12, 19()i). For purposes of tlie i)rece([ing sentence, 
the portion of a net capital loss for a taxable yeai'wliicli is attribut-
able to capital losses on sales or exchanges dcscrilied in i)aragra))li 
(1) is the amount of the net cajiital loss on such sal(>s or exchanges 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1643 
for such taxable year (but not in excess of the net capital loss for 
such taxable year).'' 
(b) EFFKcrrvE DATE.— 
26 USC 582 
(1) The amendment made by subsection (a) shall apply with 
"^te. 
res])ect to taxable years beginning after July 11, 1900. 
(2) If the refund or credit of any overpayment atti'ibutablo to 
the application of the amendment made by subsection (a) to 
any taxable year is otherAvise prevented by the oi)eration of 
any law or rule of law (other than section 7122 of the Internal 
Eevenue (^ode of 1954, relating to compromises) on the day wliich 
is one year aftei- the date of the enactment of this Act. such credit 
or refund shall be nevertheless allowed or made if claim therefor 
is filed on or before such day. 
PART V—SPECIAL CATEGORIES 
OF FOREIGN 
TAX 
TREATMENT 
SEC. 1051. TAX TREATMENT OF CORPORATIONS CONDUCTING TRADE 
OR BUSINESS IN PUERTO RICO AND POSSESSIONS OF THE 
UNITED STATES. 
(a) ALLOAVAXCE OV PrKnro RICAX AXD Possicssiox TAX CKKuri.— 
Section 33 (relating to taxes of foreign countries and possessions of 
^6 USC 33. 
the United States) is amended to read as follows: 
"SEC. 33. TAXES OF FOREIGN COUNTRIES AND POSSESSIONS OF THE 
UNITED STATES; POSSESSION TAX CREDIT. 
"(a) FoREUJX TAX Cin.niT.—The amount of taxes imposed by foi'-
eign counti'ies and possessions of the United States shall be allowed 
as a ci'edit against the tax im])osed by this chapter to the extent pro-
vided in section 901. 
"(b) SECTIOX 936 CiiEmT.—In the case of a domestic cori)oration. 
the amount provided by section 936 (relating to l*uei'to Rico and pos- Infra. 
session tax credit) shall be allowed as a credit against the tax imposed 
by this chapter." 
(b) IvUEES ox PossESsu)X' TAX CREDIT.—Subpart I) of part I I I of 
subchapter I
S
T of chapter 1 (relating to possessions of the United 
\ • 
States) is amended b_y adding at the end thereof the following new 
section: 
"SEC. 936. PUERTO RICO AND POSSESSION TAX CREDIT. 
26 USC 936. 
"(a) 
ALLOWAXCE or 
CREDIT.— 
''(1) I x GEXEKAL.—Except as ])rovided in paragra])h (2), in 
the case of a domestic corporation which elects the application of 
this section, there shall be alloAved as a credit against the tax 
imposed by this chapter an amount equal to the j^oi'tion of the 
tax whicli is attributable to taxable income, from sources without 
the United States, from the active conduct of a trade or busi-
ness within a possession of the United States, and from qualified 
^ 
possession source investment income, if the conditions of both 
subparagraph (A) and subpai-agrapli (B) are satisfied: 
"(A) 3-YEAU PERTOD.—If 80 pcrccjit Or more of the gross 
income of such domestic corporation for the 3-3'ear pei-iod 
immediately preceding the close of the taxable year (or for 
such pait of such period immediately preceding the close of 
such taxable year as may be applicable) was derived from 
sources within a possession of the United States (determined 
without i-egard to sectioji 904 (f)) ; and 
^"'«' P- 1^24. 
90 STAT. 1644 
PUBLIC LAW 94-455—OCT. 4, 1976 
* 
''(1^) TRADK OK BusiNKSS."—If T
)
!
) percent oi- more of the 
<rros.s income of such domestic coi'poration for such period or 
-•* '•• ' •' 
such part tlieieof was deiived fi-om the active conduct of a 
trade or business AvitJiin a possession of the United States. 
" ( 2 ) 
CltEDIT XOT ALLOWKU AGAIXST CEKTAIX TAXKS. 
T h e C r e d i t 
provided by paragrapli (1) sliall not be allowed against the tax 
imposed by— 
Ante, p. 1549. 
''(A) section 56 (relating to minimum tax), 
26 use 531. 
"(J^) section 531 (relating to the tax on accumulated 
earnings), 
"(C) section 541 (relating to personal holding companv 
tax), 
"(D) section 1.3-33 (relating to war loss recoveries), or 
"(p]) section 1351 (relating to recoveries of foreign 
expropriation losses). 
'"(b) AAFOUXTS RECEIVED IX IJXITED STATES.—In determining tax-
able income for purposes of subsection (a), there shall not be taken 
into account as income fi'om soui'ces without the United States any 
gi'oss income which was received by such dcmiestic corporation within 
the United States, Avhether derived from sources within or Avithout 
,, o 
the United States! 
"(c) TREAT.AIEXT OF CERTAIX FOKEKJX TAXES.—For purposes of this 
title, any tax of a foreign country or a possession of the United States 
which is paid or acci'ued Avith respect to taxable income Avhich is taken 
into account in computing the credit under subsection (a) shall not be 
treated as income, Avar profits, oi- excess profits taxes paid oi- accrued to 
a foreign country or possession of the United States, and no deduction 
shall be alloAved under this title Avith respect to any amounts so paid 
or accrued. 
"(d) DEFIXITIOXS.—For purposes of this section— 
"(1) PossEssiox.—The term 'possession of the United Slates' 
includes the CommouAvealth of Puerto Eico, but does not include 
the Virgin Islands of the Ignited States. 
" ( 2 ) 
Ql'ALIFIED POSSESSIOX' SOVRCE INAESTMEXT INCOME. T h e 
term 'qualified possession source investment income' means gross 
income Avhich— 
"(A) is from sources Avithin a possession of the United 
..jf'-O'vu i
^
S ' 
States in AA-hich a trade oi- business is actiA^ely conducted, and 
"(B) the taxpayer establishes to the satisfaction of the 
Secretary is attributable to the investment in such possession 
(for use therein) of funds derived from the actiA^e conduct of 
a trade or business in such possession, or from 
such 
investment, 
' 
less the deductions properly apportioned or allocated thereto. 
"(e) 
ELECTIOX'.— 
"(1) PERIOD OF ET.ECTIOX'.—The election provided in subsection 
(a) shall be made at such time and in such manner as the Secre-
tary may by regulations prescribe. Any such election shall apply 
to the first taxable year for Avhich such election Avas made and for 
Avhich the domestic corporation satisfied the conditions of sub-
paragraphs (A) and (B) of subsection (a)(1) and foi-each tax-
able year thereafter until such election is revoked by the domestic 
corporation under paragraph (2). If any such election is revoked 
by the domestic corporation under paragraph (2), such domestic 
, ,,. 
corporation may make a subsequent election under subsection 
(a) for any taxable year thereafter for AA-hich such domestic cor-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1645 
poratioji satisfies the. conditions of sub])ai'agrai)hs (A) and (B) 
of subsection (a) (1) and any sucli subsequent election sliall 
reniaiji in efl'ect until revoked by such domestic corporatioji under 
pa]-a<^rapli (2). 
"(2) KKVOCATIOX.—An electicjn under subsection (a) — 
" ( A ) may be revoked for any taxable year beginning 
before the expiration of the 9tli taxable year following the 
taxable year for which such election first applies only with 
the consent of tlie Secretary; and 
"(B) may be revoked for any taxable year beginning after 
the expiration of such 9th taxable year without the consent 
of the Secretar}'. 
"(f) DLSC O
K FomiEH D I S C CoitPoRATiox INELIGIBLE FOR CREDIT.— 
Xo credit shall be allowed under this section to a corporation for a 
taxable year foi" which it is a DISC or former DISC (as defined in 
section 992(a)) or in which it owns at any time stock in a DISC or 
foinierDISC. 
"(g) ExcErriON TO A C C I M I LATKD EARXINGS TAX.— 
"(1) For pui'poses of section 535, the term 'accumulated taxable 
income' shall not include taxable income entitled to the credit 
under subsection (a). 
"(2) For purposes of section 587, the term 'reasonable needs 
of tlie business' includes assets which jjroduce income eligible for 
the credit under subsection (a).-" 
(c) AMEXDMEXTS OF SECTIOX 981.— 
(1) Subsection (a) of section 981 (relating to general rule in 
the case of income from souives within possessions of the United 
States) is amended to read as follows: 
"(a) 
(TEXERAL K I L E . — I n the case of individual citizens of the 
United States, gross income means only gross income from sources 
within the United States if the conditions of both paragraph (1) 
and ])aragrap]i (2) are satisfied : 
"(1) 8-yEAR PERIOD.—If 80 ])ercent or more of the gross income 
of such citizen (computed without the benefit of this section) 
foi- the 8-year period immediately preceding the close of the 
taxable year (or for such part of such period inmiediately preced-
ing th(! close of such taxable year as may be applicable) was 
derived from sources within a possession of the United States; 
and 
"(2) TRADE OR BUSIXESS.—If 50 peirent or more of his gross 
income (computed without the benefit of this section) for sucli 
period or such part thereof was derived from the active conduct 
of a trade or business within a possession of the United States 
either on his own account or as an employee or agent of another.''. 
(2) Subsection (c) of section 981 (defining the term "posses-
sion") is amended to read as follows: 
"(c) DEFIX'ITIOX.—For }nir])oses of this section, the term 'possession 
of the United States' does not include the Commonwealth of Puerto 
Rico, the Virgin Islands of the ITnited States, or Guam.". 
(8) Subsections (d). (e), and (f) of section 981 are each 
amended by striking out "))ersons" each place it a])pears and 
insei'ting in lieu thereof "a citizen of the United States". 
(d) AMEXDMEXTS OF SECTIOX' 901.— 
(1) Section 901 (d) (relating to certain coi-porations treated as 
foreign corporations) is amended to read as follows: 
"(d) TREATMEXT OF DIVIDENDS FROM A D I S C OR FORMER DISC.— 
Foi- ])urposes of this subpart, dividends from a DISC or former DISC 
"Accumulated 
taxable income. 
"Reasonable 
needs of the 
business." 
26 use 931. 
26 use 901. 
89-194 n — 7n nt 9 
10 
90 STAT. 1646 
PUBLIC LAW 94-455—OCT. 4, 1976 
(as defined in section 992(a)) shall be treated as dividends from a 
foreion corporation to the extent such dividends are treated under 
part 1 as income from sources without the United States."'. 
26 use 901. 
(^2) Section 901 (relating to taxes of foreign countries and 
possessions of the United States) is amended by redesignating 
subsection (g) as (h) and by inserting after subsection (f) the 
following new subsection: 
"(g) CEIITAIX TAXES PAID W I T H RESPECT TO DISTRIBUTIOXS FROM 
POSSESSIOXS COUPOIUTIOXS.—• 
"'(l) I x GEXERAE.—For purposcs 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, 
to the extent tliat such distribution is atti'ibutable to periods dur-
ing which such corporation is a possessions corporation, 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 witli respect to 
any amoimt so paid or accrued. 
"(2) PossEssioxs coRPORATiox.—For purposes of paragraph 
(1), a corporation shall be treated as a possessions corporation 
Ante, p. 1643. 
for any period during which an election vnider section 9;'>() 
applied to such corporation or during whicfi section 9;]1 (as in 
effect on the day before the date of the enactment of the Tax 
Reform Act of 197()) applied to such corporation." 
26 use 904. 
(e) AMEXOMEXT or SECTIOX 904(b).—Section 904(b) (as amended 
Ante, p. 1629. 
by sections 1031 and 1034(a) of this Act) is amended by adding at the 
end thereof the following new paragraph: 
"(4) CooPtDiXATiox wrrii SECTIOX D.-^C.—For puri)oses of sub-
section (a), in the case of a corporation, the taxable income shall 
not include any portion thereof taken into account for purposes 
of the credit (if any) allowed by section 936." 
(f) DiviDEXDs R E ( E I \ E D DEDUCTIOX ALLOWED.— 
26 use 243. 
(1) Section 243(b)(1) 
(defining qualifying 
dividends) is 
amended by adding "either" at the end of subparagraph (A), by 
striking out the period at the end of subparagraph (B) (ii) and 
inserting in lieu thereof a comma and "or", and by adding at the 
end thereof the following ncAv subparagraph: 
"(C) such dividends are paid by a cor-poration with respect 
to which an election undei- section 936 is in effect for the tax-
able vear in which such dividends are paid.". 
26 use 243. 
(2) Section 243(b) (5) (defining affiliated group) is amended 
by inserting '% ir)04(b) (4)," immediately after "1504(1)) (2)". 
26 use 246. 
" (3) Section 246(a) (relating to dividends from certain corpo-
rations) is amended to read as follows: 
"(a) DEDICTTOX XOT ALLOWED FOR DniDEXDs FROM CERTATX COR-
PORATJOXS.—The deductions allowed by sections 243, 244, and 245 
shall not apply to any dividend from a coi-poi-ation which, foi- the 
taxable year of the corpoi-ation in whicli the distribution is made, or 
for the next preceding taxable year of the corporation, is a corporation 
exempt from tax undei- section 501 (relating to cei'tain charitable, 
etc.. organizations) oi- section 521 (I'elating to farmei-s' cooperative 
associations)." 
26 use 1504. 
(g) (V)XsoLTDATED RETIHX TREATMEXT.—Section 1504(1)) (4) (de-
fining includible cor))()ration) is amended to read as follows: 
"(4) CorpoT-ations with respect to which an election under sec-
tion 936 (relating to ])ossession tax credit) is in effect for the tax-
able vear.". 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 164' 
( h ) 
CoNFOK.ALlNC A.MKND.MKN TS. 
(1) Section 48(a) (-2) (B)(vii) (ivlatiiig to definition of sec- 26 USC 48. 
tion 38 property) is amended by sti-iking out "(other tlian a 
corporation entitled to the benefits of section 031 or 034(b))'' 
and insertin<i- in lieu thei'eof the f'oll()\vin<r: "(other than a coi'po-
ration which has an election in effect under section 03() or which 
is entitled to the benefits of section 034(b))". 
(2) Pai'ao-raph (2) of subsection IK)(t>) (relatinf,^ to certain 26 USC 116. 
dividends excluded from partial exclusion of dividends ivceived 
by indivi(bials) is amended to read as follows: 
•' 
"(2) a corporation which, for the taxable year of the corpo-
ration in which the distribution is made, oi' for the next ])recedin,ii' 
taxable year of the corporation, is a corporation exempt from tax 
under section 501 (relating to certain char-itable, etc., organiza-
tions) or section r)21 (relating to farmers' cooperative associa- 
a: 
tions) ; or". 
(3) Section 8f)l(a) (2) (A) (relating to income fi-om sources 26 USC 861. 
within the Tinted States) is amended by striking out "othei- tlum 
a corpoi-ation entitled to the benefits of section 031," and inserting 
in lieu thei-eof the following: "other than a corpoi-ation which has 
an election in effect under section 03(5,". 
(4) Section 0001 (b) (2) (H) (ii) (relating to place of filing foi' Post, p. 1648. 
corporations) is amended by striking out "section 031 (relating 
to income from sources within possessions of the United States)," 
- v 
and inserting in lieu fhei'eof the following: "section 036 (relating 
to possession tax credit),", 
(i) P]FFE(TIVE DATE.— 
26 USC 33 note. 
(1) Except as provided by pai'agraph (2), the amendments 
made by this section shall apply to taxable years beginning after 
.- 
, . 
Decembv'r 31, 107;"), except that "(jualified possession source invest-
ment income" as defined in section 03()(d)(2) of the Internal 
Revenue Code of 1054 shall include income from any source out- ^"^^' P- 1643. 
side the United States if the taxpayer establishes to the satisfac-
tion of the Secretary of the Treasury or his delegate that the 
income from such sources was earned before October 1, 1076. 
(2) The amendment made by subsection (d) (2) shall not apj)ly 
to any tax imposed by a possession of the United States with 
respect to the complete liquidation occurring before fJanuai'y 1. 
• >' 
1070, of a corporation to the extent that such tax is attributable 
to earnings and profits accmnulated by such corporation during 
periods ending before January 1, 1076. 
SEC. 1052. WESTERN HEIVIISPHERE TRADE CORPORATIONS. 
(a) PiiASEouT OF SPECIAL DEDUCTION FOR WESTERX HEMISPHERE 
TRADE CORPORATIOXS.—Section 022 (special deduction for Westei-n 
26 USC 922. 
Hemisphere trade corporations) is amended by adding at tlie end 
thereof the following new subsection: 
"(b) PiiASEOUT OF DEDUCTIOX.—In the case of a taxable year 
beginning after December 31, 1075. and before January 1, 1080," the 
percent specified in subsection (a) (2) (A) shall be (in lieu of 14 per-
cent) the pei'cent specified in the following table: 
' 
-' 
"For a taxable year 
The percentage 
beginning in— 
shall be— 
1976 
n 
1977 
S 
1978 
o 
1979 
_ 
2". 
90 STAT. 1648 
PUBLIC LAW 94-455—OCT. 4, 1976 
(b) KKPEAL OF WKSTKRN Hf:MrspiiERE THADE (.'oRroRAxiox DEDUC-
, 
Tiox FOR TAXABLE YEARS BEGIXXIXG AFTER 1979.—Subpart C of part 
I I I of subfliaptor N of chapter 1 (relating to AVestern Hejiiisphere 
26 use 921, 
trade corporations) is hereby repealed, 
^22. 
(c) CONFORMING AMENDMENTS.— 
26 use 922. 
(1) The first sentence of section 922 (relatinjEi: to special deduc-
tion) is amended by striking out "In the case of* and inserting 
in lieu thereof the following: 
"(a) 
(TENERAE RULE.—In the case of". 
26 use 170. 
(2) Section 170(b) (2) (relating to pejcentage limitations on 
charitable conti'ibutions in the case of corporations) is amended 
by adding "'and" at the end of subparagraph (C). by sti'iking 
out subpai-agraph (D), and by redesignating subparagi-aph ( E ) 
as subparagraph (D). 
26 use 172. 
(.3) Section 172(d) (relating to modifications for purposes of 
the net operating loss deduction) is amended by striking out para-
graph (T)) and by redesignating paragraph (6) as paragraph (5). 
Repeal. 
(4) Subsection (g) of section 907 is hereby i-epealed. 
26 use 907. 
(5) Section 1503 (relating to computation and paj'ment of tax 
26 use 1503. 
jj^ ^j^p p.^gp ^f consolidated returns) is amended by striking out 
subsection (b) and bv striking out "(a) GENERAL R U L E . — " . 
26 use 6091. 
(6) Section ()091(b) (2) (B) (ii) (relating to place for filing 
returns of coi'poi-ations) is amended to I'ead as follows: 
Ante, p. 1643. 
"(ii) corporations which claim the benefits of section 936 
(relating to possession tax credit), and''. 
(7) The table of subparts for part I I I of subchapter X of 
chapter 1 is amended l)v striking out the item relating to sub-
part C. 
26 use 922 
(d) EFFECTIVE DATES.—The amendments made by subsection (a) 
note. 
and paragraph (1) of subsection (c) shall apply with respect to tax-
able years beginning after December 31, 197.5. The amendments made 
by subsecti(m (b) and by subsection (c) (other than paragraph (1)) 
shall apply with respect to taxable rears beginning after December 31, 
1979. 
SEC. 1053. REPEAL OF PROVISIONS RELATING TO CHINA TRADE ACT 
CORPORATIONS. 
26 use 941. 
(a) PiiASEouT or SECTION 941,—Section 941 (relating to special 
deductions for (!'hina Trade Act corporations) is amended by adding 
the following new subsection: 
"(d) PiiAsEouT OF DEDUCTION.—In the case of a taxable year begin-
ning after December 31, 1975, and before January 1, 1978, the amount 
of tlie special deduction under subsection (a) (determined without 
regard to this subsection) shall be reduced by the percentage reduc-
tion specified in the following table: 
"For a taxable year 
The percentage re-
beginning in— 
duction shall be— 
1976 
33% 
1977 
66%.'" 
26 use 943. 
(b) 
PHASEOUT OF SECTION 943.—Section 943 (relating to the exclu-
sion of certain dividends to residents of Formosa or Hong Kong) is 
amended by adding at the end thereof the following new sentence: "In 
the case of a taxable year beginning after December 31, 1975. and 
before January 1, 1978, the amount of the distributions which are 
excludable from gross income imder this section (determined without 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1649 
regard to this sentence) shall be reduced by the percentage reduction 
specified in the following table: 
"For a taxable year 
The percentage re-
beginning in— 
duction shall be— 
1976 
331/3 
1977 
6 6 % . " 
(c) EEPEAL.—Subpart E of part I I I of subchapter X of chapter J 26 USC 941, 
(relating to China Trade Act corporations) is hereby repealed. 
^^2, 943. 
(d) TECHXICAI. AXD COXFORMIKG AMEXDMEXTS.— 
(1) Section 116(b) is amended by striking out paragraph (1) 26 USC 116. 
and redesignating paragraphs (2) and (3) as paragraphs (1) 
and (2), respectively. 
(2) Section 1504(b) is amended by striking out paragraph (5). 26 USC 1504. 
(3) Section 6072 is amended by sti'iking out subsection (e). 26 USC 6072. 
(4) Section 6091(b) (2) (B) (ii) is amended by striking out 26 USC 6091. 
the comma after "trade corporations)" and inserting in lieu 
thereof "or'" and by striking out "or section 941 (relating to the 
special deduction for China Trade Act corporations),". 
(5) The table of subparts for part I I I of subchapter N of 
chapter 1 is amended by striking out the item relating to sub-
part E. 
(e) EFFECTIVE DATES.—The amendments made by subsections (a) 
26 USC 941 
and (b) shall apply with respect to taxable years beginning after 
"°*^-
December 31, 1975. The amendments n)ade by subsections (c) and (d) 
shall apply with respect to taxable years beginning after Decem-
ber 31, 1977. 
"
^ 
. • , 
PART VI—DENIAL OF CERTAIN TAX BENEFITS FOR 
. 
COOPERATION WITH OR PARTICIPATION IN INTER-
NATIONAL BOYCOTTS AND IN CONNECTION WITH THE 
PAYMENT OF CERTAIN 
BRIBES 
SEC. 1061. DENIAL OF FOREIGN TAX CREDIT. 
(a) I N GENERAL.—Subpart A of part I I I of subchapter N (relat-
ing to income from sources without the United States) is amended by 
adding at the end thereof the following new section: 
"SEC. 908. REDUCTION OF CREDIT FOR PARTICIPATION IN OR CO- 26 USC 908. 
OPERATION WITH AN INTERNATIONAL BOYCOTT. 
"(a) I N GENERAL.—If a person, or a member of a controlled group 
(within the meaning of section 993(a) (3)) which includes such per-
son, participates in or cooperates with an international boycott during 
the taxable year (within the meaning of section 999(b)), the amount 
^^^'^^ P- 1^50. 
of the credit allowable under section 901 to such person, or under sec-
tion 902 or 960 to United States shareholders of such person, for for- ^"'e, p. 1626. 
eign taxes paid during the taxable year shall be reduced by an amount 
equal to the product of— 
"(1) the amount of the credit which, but for this section, would 
i 
be allowed under section 901 for the taxable year, multiplied by 
"(2) the international boycott factor (determined under sec-
tion 999). 
"(b) APPLICATION W I T H SECTIONS 275(a) (4) AND 78.—Section 275 
(a) (4) and section 78 shall not apply to any amount of taxes denied 
credit under subsection (a)." 
90 STAT. 1650 
PUBLIC LAW 94-455—OCT. 4, 1976 
(b) (YKHICAL AMKNDMKXT.—Tho table of s('<'tioiis for sncli subpart 
is amended by addhifr at the end tliei'eof tlie following new itejn : 
"Sec. 908. Rfductioo of credit for i)articii)atiou in or cooperation witl) 
an international boycott." 
SEC. 1062. DENIAL OF DEFERRAL OF INTERNATIONAL 
BOYCOTT 
AMOUNTS. 
26 use 952. 
(a) DEXIAL OF DEFERUAr..—Section 1)52(a) (relating to general 
definition of subpart F income) is amended— 
(1) by striking out ''and'" at the end of paragraph (1). 
(2) by striking out the period at the end of paragraph (2) and 
inserting in lieu thereof a comma, and the word "and", and 
(3) by adding at the end thereof the following new paragraph: 
•'(?>) an amount ecjual to the pi'oduct of— 
"(A) the income of such coi'poration other than income 
wliich— 
"(i) is attributable to eai'nings and profits of the 
foreign co]'[)oration included in the gross income of a 
United States person undei- section 951 (other than by 
\ 
reason of this paragraph), or 
"(ii) is desci'ibed in subsection (b), 
multii)lied by 
" ( B ) the international 
boycott factor 
(as determined 
Infra. 
under section 999)." 
SEC. 1063. DENIAL OF DISC BENEFITS. 
(a) 
INTERXATIONAE BOYCOTT ACTIVITY.—Subparagraph 
(D) 
of 
26 use 995. 
section 995(b)(1) 
(relating to distributions in qualified years) is 
amended to read as follows: 
" ( D ) the sum of— 
" (i) one-half of the excess of the taxable income of the 
DISC; for the taxable year, before i-eduction for any dis-
tributions during the year, over tlie sum of the amounts 
deemed distributed for the taxable year under subpara-
graphs (A), ( B ) , and (C). an d 
"(ii) an amount equal to the amount determined under 
clause (i) multiplied by the international boycott factor 
determined under section 999, and'-. 
SEC. 1064. DETERMINATIONS AS TO PARTICIPATION IN OR COOPERA-
TION WITH AN INTERNATIONAL BOYCOTT. 
(a) I N GENERVL.—Subchapter X of chapter 1 (relating to tax based 
on income fiom soui'ces within oi- without the United States) is 
amended by adding at the end thereof the following new part: 
"PART V—INTERNATIONAL 
BOYCOTT 
DETERMINATIONS 
•'Sec. 95]S). Reports by taxpayers : determinations. 
26 use 999. 
"SEC. 999. REPORTS BY TAXPAYERS; DETERMINATIONS. 
"(a) IXTERNATIOXAL BOYCOTT EFFORTS BY TAXPAYERS.— 
"(1) REPORT REQUIRED.—If any person, or a member of a con-
trolled group (within the meaning of section 993(a) (3)) which 
includes that person, has operations in, or related to— 
"(A) a country (or with the government, a company, or a 
national of a country) which is on the list maintained by the 
Secretary under paragraph (3), or 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1651 
' 
" ( B ) any other country (or with the government, a com-
pany, or a national of that country) in which such person or 
such member had operations during the taxable year if such 
person (or, if such person is a foreign corporation, any 
United States shareholder of tliat corporation) knows or has 
reason to know that participation in or cooperation with an 
international boycott is required as a condition of doing busi-
ness within such country or with such government, company, 
or national, 
Lhat person or shareholder 
(within the meaning of section 
951(b)) shall report such operations to the Secretary at such 
26 USC 951. 
time and in such manner as the Secretary prescribes, except that 
in the case of a foreign corporation such report shall be required 
only of a United States shareholder (within the meaning of such 
section) of such corporation. 
" ( 2 ) 
PARTICIPATION AXO COOI'EKATIOX ; KEQUEST riiEREFOR.—A 
taxpayer shall report wliether he, a foreign corporation of which 
he is a United States shareholder, or any member of a controlled 
group which includes the taxpayer or such foreign corporation 
has participated in or cooperated with an international boycott 
at any time during the taxable year, or has been requested to 
participate in or cooperate with sucli a l)oycott, and, if so, the 
nature of any o))eration in connection with which there was par-
ticipation in or cooperation with such boycott (or there was a 
request to participate or cooperate). 
"(3) LIST TO KE MAINTAINED.—The Secretary shall maintain 
and publish not less frequently than fjuarterly a cur-rent list of 
countries which reijuire or may require participation in or 
cooperation with an international boycott (within the meaning 
of subsection ( b ) ( 3 ) ) . 
"(b) PARTICIPATION IN OR COOPERATION A\'rrn AX INTERNATIOXAI, 
BOYCOTT.— 
"(1) 
GENERAL RULE.—If the person or a member of a con-
trolled group (within the meaning of section 993(a) (3)) which 
includes the person participates in or cooperates with an inter-
national boycott in the taxable year, all operations of the tax-
payer or such group in tliat country and in any other country 
which requires participation in or cooperation vvith tlie boycott 
as a condition of doing business witliin that country, oi- with the 
government, a company, or a national of that country, sliall be 
treated as operations in connection with which such ])articipation 
of cooperation occurred, except to the extent that the person 
can clearly demonstrate that a particular operation is a clearly 
separate and identifiable oj)eration in connec^tion with which 
there was no participation in or cooperation with an international 
boycott. 
" ( 2 ) 
SPECIAI, RILE. 
"(A) XoNHOvcorr OPERATIONS.—A cleai'ly sepaiate and 
identifiable operation of a person, or of a member of the 
controlled grouf) (within the meaning of section 993(a) (3)) 
wliich includes that person, in or related to any countr7 
within the group of countries referred to in paragraph (1) 
shall not be treated as an operation in or related to a group 
of countries associated in carrying out an international 
boycott if the per-son can clearly demonstrate that he, or that 
such jnember. did not participate in or cooperate with the 
international boycott in connection with that operation. 
90 STAT. 1652 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(B) SEPARATE AND IDENTIFIABLE OPERATIONS.—A taxpayer 
may show that different operations within the same country, 
or operations in different countries, are clearly separate and 
identifiable operations. 
"(3) DEFINITION OF BOYCOTT PARTICIPATION AND COOPERATION.— 
For purposes of this section, a person participates in or cooperates 
with an international boycott if he agrees— 
" ( A ) as a condition of doing business directly or indi-
rectly within a country or with the government, a company, 
or a national of a country— 
•'(i) to refrain from doing business with or in a 
country which is the object of the boycott or with the 
government, companies, or nationals of that country; 
"(ii) to refrain from doing business with any United 
States person engaged in trade in a country which is the 
object of the boycott or with the government, companies, 
or nationals of that country; 
"(iii) to refrain 
from 
doing business with any 
company whose ownership or management is made up, 
all or in part, of individuals of a particular nationality, 
race, or religion, or to remove (or refrain 
from 
selecting) corporate directors who are individuals of 
a particular nationality, race, or religion; or 
"(iv) to refrain from employing individuals of a 
particular nationality, race, or religion; or 
"(B) as a condition of the sale of a product to the 
government, a company, or a national of a country, to refrain 
from shipping or insuring that product on a carrier owned, 
leased, or operated by a person who does not participate in or 
cooperate with an international boycott (within the meaning 
of subparagraph ( A ) ) . 
"(4) COMPLIANCE WITH CERTAIN LAWS.—This section shall not 
apply to any agreement by a person (or such member) — 
"(A) to meet requirements imposed by a foreign country 
with respect to an international boycott if United States law 
or regulations, or an Executive Order, sanctions participation 
in, or cooperation with, that international boycott, 
"(B) to comply with a prohibition on the importation of 
goods produced in whole or in part in any country which is 
the object of an international boycott, or 
"(C) to comply with a prohibition imposed by a country 
on the exportation of products obtained in such country to 
any country which is the object of an international boycott. 
"(c) INTERNATIONAL BOYCOTT FACTOR.— 
"(1) 
INTERNATIONAL BOYCOTT FACTOR.—For purposes of sec-
^nte, pp. 1649, 
tions 908(a), 952(a)(3), and 995(b)(3), the international 
1650. 
boycott factor is a fraction, determined under regulations pre-
Post, p. 1655. 
scribed by the Secretary, the numerator of which reflects the 
world-wide operations of a person (or, in the case of a controlled 
26 use 993. 
group (within the meaning of section 993(a) (3)) which includes 
that person, of the group) which are operations in or related to a 
group of countries associated in carrying out an international 
boycott in or with which that person or a member of that con-
trolled group has participated or cooperated in the taxable year, 
and the denominator of which reflects the world-wide operations 
of that person or group. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1653 
"(2) 
SPECIFICALLY ATTRIBUTABLE TAXES AND INCOME.—If the 
taxpayer clearly demonstrates that the foreign taxes paid and 
income earned for the taxable year are attributable to specific oper- 
' -
ations, then, in lieu of applying the international boycott factor 
for such taxable year, the amount of the credit disallowed under 
section 908(a), the addition to subpart F income under section Ante, p. 1649. 
952(a) (3), and the amount of deemed distribution under section 
Ante, p. 1650. 
995(b)(1) (D) (ii) for the taxable year, if any, shall be the 
amount specifically attributable to the operations in which there 
was participation in or cooperation with an international boycott 
under section 999 (b)(1). 
^ 
^ 
^rete, p. 1650. 
"(3) WORLD-WIDE OPERATIONS.—For purposes of this subsection, 
the term 'world-wide operations' means operations in or related 
to countries other than the United States. 
" ( d ) DETERMINATIONS W I T H RESPECT TO PARTICULAR OPERATIONS.— 
Upon a request made by the taxpayer, the Secretary shall issue a 
determination with respect to whether a particular operation of a 
person, or of a member of a controlled group Avhich includes that 
person, constitutes participation in or cooperation with an inter-
national boycott. The Secretary may issue such a determination in 
advance of such operation in cases which are of such a nature that an 
' '. . 
advance determination is possible and appropriate under the circum- 
... . 
stances. If the request is made before the operation is commenced, or 
before the end of a taxable year in which the operation is carried out, 
the Secretary may decline to issue such a determination before close 
of the taxable year. 
"(e) PARTICIPATION O
R COOPERATION BY RELATED PERSONS.—If a per-
son controls (within the meaning of section 304(c)) a corporation— 
' 
"(1) participation in or cooperation with an international 
boycott by such corporation shall be presumed to be such partic-
ipation or cooperation by such person, and 
"(2) participation in or cooperation with such a boycott by 
such person shall be presumed to be such participation or cooper 
a- 
*
< 
tion by such corporation. 
"(f) WILLFUL FAILURE TO REPORT.—Any person (within the mean-
ing of section 6671 (b)) required to report under this section wlio will-
fully fails to make such report shall, in addition to other penalties 
provided by law, be fined not more than $25,000, imprisoned for not 
more than one year, or both.". 
(b) CLERICAL AMENDMENT.—The table of parts for such subchapter 
is amended by adding at the end thereof the following new item: 
"Part V. International boycott determinations." 
; / .; ^ 
SEC. 1065. FOREIGN BRIBES. 
(a) DENIAL OF DEFERRAL.— 
(1) CONTROLLED FOREIGN CORPORATIONS.—Section 952(a) (relat- 
26 USC 952. 
ing to general definition of subpart F income) is amended— 
(A) by striking out "and" at the end of paragraph (2), 
(B) by striking out the period at the end of paragraph 
(3) and inserting in lieu thereof a comma and the word 
"and", and 
(C) by adding at the end thereof the following new 
paragraph: 
"(4) the sum of the amounts of any illegal bribes, kickbacks, 
or other payments (within the meaning of section 162(c)) paid 
by or on behalf of the corporation during the taxable year of 
90 STAT. 1654 
PUBLIC LAW 94^455—OCT. 4, 1976 
the corporation directly or indirectly to an official, employee, 
or agent in fact of a government." 
26 use 995. 
(2) DISC'S.—Subparagraph (D) of section 995(b)(1) (relat-
ing to distributions in qualified years) is amended— 
(A) by striking out "and" at the end of clause (i), 
(B) by adding at the end thereof the following new 
clause: 
"(iii) any illegal bribe, kickback, or other payment 
(within the meaning of section 162(c)) paid by or on 
behalf of the DISC directly or indirectly to an official, 
employee, or agent in fact of a government, and", 
(b) BRIBES NOT To REDUCE FOREIGN EARNINGS AND PROFITS.—Sec-
26 use 964. 
tion 964(a) (relating to earnings and profits of foreign corpora-
tions) is amended by adding at the end thereof the following 
sentence,: "In determining such earnings and profits, or the deficit 
in such earnings and profits, the amount of any illegal bribe, kick-
back, or other payment (within the meaning of section 162(c)) 
shall not be taken into account to decrease such earnings and profits 
or to increase such deficit.". 
SEC. 1066. EFFECTIVE DATES. 
26 use 908 
(a) 
INTERNATIONAL BOYCOTTS.— 
note. 
(1) GENERAL RULE.—The amendments made by this part (other 
than by section 1065) apply to participation in or cooperation 
with an international boycott more than 30 days after the date of 
enactment of this Act. 
(2) EXISTING CONTRACTS.—In the case of operations which con-
stitute participation in or cooperation with an international boy-
cott and which are carried out in accordance with the terms of a 
binding contract entered into before September 2,1976, the amend-
ments made by this part (other than by section 1065) apply to 
such participation or cooperation after December 31, 1977. 
26 use 952 
(b) FOREIGN BRIBES..—The amendments made by section 1065 apply 
"ot«- 
to payments described in section 162(c) of the Internal Revenue Code 
of 1954 made more than 30 days after the date of enactment of this Act. 
SEC. 1067. REPORTS BY SECRETARY. 
26 use 999 
(a) REPORTS TO THE CONGRESS.—As soon after the close of each 
note. 
calendar year as the data become available, the Secretary shall trans-
mit a report to the Committee on Ways and Means of the House of 
Representatives and to the Committee on Finance of the Senate setting 
forth, for that calendar year— 
(1) the number of reports filed under section 999(a) of the 
Ante, p. 1650. 
Internal Revenue Code of 1954 for taxable years ending with or 
within such taxable year, 
(2) the number of such rep>orts on which the taxpayer indicated 
international boycott participation or cooperation (within the 
meaning of section 999 (b)(3) of such Code), and 
(3) a detailed description of the manner in which the provisions 
of such Code relating to international boycott activity have been 
administered during such calendar year. 
(b) INITIAL LIST.—The Secretary of^the Treasury shall publish an 
initial list of those countries which may require participation in or 
cooperation with an international boycott as a condition of doing 
business within such country, or with the go^'^ernment, a company, or a 
national of such country (within the meaning of section 999(b) of 
the Internal Revenue Code of 1954) within 30 days after the enactment 
of this Act. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1655 
TITLE XI—AMENDMENTS AFFECTING 
DISC 
SEC. 1101. AMENDMENTS AFFECTING DISC. 
(a) I N GENERAL.—Section 995 (relating to taxation of DISC 
26 USC 995. 
income to shareholders) is amended— 
(1) in paragraph (1) of subsection (b) thereof, by redesignat-
ing subparagraphs (D) and (E) as subparagraphs ( F ) and (G), 
respectively, by striking out "and ( C ) " in subparagraph ( F ) (as 
so redesignated) and inserting in lieu thereof " ( C ) , (D), and 
(E)", and by inserting after subparagraph (C) the following new 
subparagraphs: 
" (D) 50 percent of the taxable income of the D I S C for the 
taxable year attributable to military property, 
" ( E ) the taxable income for the taxable year attributable 
to base period export gross receipts (as defined in subsection 
(2) in paragraph (2) (B) of subsection (b) thereof, by strikmg 
out "more than the number" and inserting in lieu thereof "more 
than twice the number"; 
(3) by adding at the end of subsection (b) thereof the follow-
ing new paragraph: 
"(3) TAXABLE INCOME ATTRIBUTABLE TO MILITARY PROPERTY.— 
" ( A ) I N GENERAL.—For purposes of paragraph ( 1 ) ( D ) , 
taxable income of a DISC for the taxable year attributable to 
military property shall be determined by only taking into 
account— 
"(i) the gross income of the DISC for the taxable 
year which is attributable to military property, and 
"(ii) the deductions which are properly apportioned 
or allocated to such income. 
" ( B ) MILITARY PROPERTY.—For purposes of subparagraph 
(A), the term 'military property' means any property which 
is an arm, ammunition, or implement of war designated in 
the munitions list published pursuant to the Military Security 
Act of 1954 (22 U.S.C. 1934)."; and 
(4) 
by adding at the end thereof the following new 
subsections: 
"(e) 
DEFINITIONS AND SPECIAL RULES RELATING TO COMPUTATION 
OF TAXABLE INCOME ATTRIBUTABLE TO BASE PERIOD EXPORT GROSS 
RECEIPTS.— 
"(1) TAXABLE INCOME ATTRIBUTABLE TO BASE PERIOD EXPORT 
GROSS RECEIPTS.—For purposes of this section, the taxable income 
attributable to base period export gross receipts shall be an 
amount equal to that portion of the adjusted taxable income of a 
D I S C which— 
" ( A ) the amount of the adjusted base period export gross 
receipts, bears to 
" ( B ) the amount of the export gross receipts of the DISC 
for the taxable year. 
"(2) ADJUSTED TAXABLE INCOME.—For purposes of this section, 
the term 'adjusted taxable income' means the income of a 
D I S C for the taxable year, reduced by the amounts described in 
subparagraphs (A), (B), (C), and (D) of paragraph (1) of sub-
section (b). 
90 STAT. 1656 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 993. 
Regulations. 
"(3) ADJUSTED 
BASE 
PERIOD 
EXPORT 
GROSS 
RECEIPTS.—For 
purposes of this section, the term 'adjusted base period export 
gross receipts' means 67 percent of the average of the export gross 
receipts of the DISC for taxable years during the base period (as 
defined in paragraph (5)). For purposes of the preceding sen-
tence, if any property would not qualify during the taxable year 
as export property by reason of section 993(c) (2), gross receipts 
from such property shall be excluded from export gross receipts 
during the taxable years in the base period. 
"(4) EXPORT GROSS RECEIPTS.—For purposes of this section, the 
term 'export gross receipts' means— 
" ( A ) qualified export receipts described in subparagraphs 
(A), ( B ) , (C), ( G ) , a n d ( H ) of section 993(a) (1), reduced 
by 
"(B) 50 percent of such qualified export receipts which 
are attributable to military property (as defined in subsection 
( b ) ( 3 ) ( B ) ) . 
" (5) BASE PERIOD.—For purposes of paragraph (3) — 
" ( A ) for any taxable year beginning before 1980, the base 
period shall be the taxable years beginning in 1972, 1973, 
1974, and 1975, and 
" ( B ) for any taxable year be2:inmng in any calendar year 
after 1979, the base period shall be the taxable years begin-
ning in the fourth, fifth, sixth, and seventh calendar years 
preceding such calendar year. 
"(6) No BASE PERIOD YEAR.—If a DISC did not have a taxable 
year beginning in a calendar year specified in paragraph (5), 
then, for purposes of computing the adjusted base period export 
gross receipts, such DISC is deemed to have a taxable year and 
export gross receipts of zero for that year. 
"(7) 
SHORT TAXABLE YEAR.—The Secretary shall prescribe such 
regulations as he deems necessary with respect to a short taxable 
year for purposes of computing base period export gross receipts 
of a DISC, or a short taxable year in which deemed distributions 
(as described in subsection (b)) are made, including the circum-
stances under which the short taxable year shall be annualized, 
and the proper method of annualization. 
"(8) CONTROLLED GROUP.—If more than one member of a con-
trolled group (as defined in section 993(a) (3)) for the taxable 
year qualifies as a DISC, then subsection (b) (1) ( E ) , this sub-
section, and subsection (f) shall each be applied in a manner pro-
vided by regulations prescribed by the Secretary by aggregating 
the export gross receipts and taxable income of such DISCs for 
the taxable year and by aggregating the export gross receipts of 
such DISCs for each taxable year in the base period. 
"(9) 
SPECIAL RULE WHERE THE OWNERSHIP OP DISC STOCK AND 
THE 
T R A D E O R B U S I N E S S GIVING RISE TO EXPORT GROSS RECEIPTS OF 
THE DISC ARE SEPARATED. 
" ( A ) I N GENERAL.—If, at any time after the beginning of 
the base period, there has been a separation of the ownership 
of the stock in the DISC from the ownership of the trade or 
business which (during the base period) produced the export 
gross receipts of the DISC, then the persons who own the 
trade or business during the taxable year shall be treated as 
having had additional export gross receipts during the base 
period attributable to such trade or business. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1657 
"(B) ExcEFnoNS.—Subparagraph (A) shall not apply— 
"(i) where the stock in the DISC and the trade or busi-
ness are owned throughout the taxable year by members 
of the same controlled group, and 
"(ii) to the extent that the taxpayer's ownership of 
the stock in the DISC for the taxable year is propor-
tionate to his ownership during the taxable year of the 
trade or business. 
" (10) D I S C BASE PERIOD ATTRIBUTED THROUGH SHAREHOLDERS IN 
CERTAIN CASES.— 
" ( A ) 
I N GENERAL.—If— 
Regulations. 
"(i) any person owns 5 percent or more of the stock 
of a DISC (hereinafter in this paragraph referred to as 
'first DISC), and 
"(ii) such person at any time during the base period 
of the first DISC owned 5 percent or more of the stock of 
a second DISC, 
then, to the extent provided in such regulations as the Sec-
retary may prescribe to prevent circumvention of the 
application of subsection (b)(1)(E), an amount equal to 
such shareholder's share of the base period export gross 
receipts of the second DISC shall be added to the base period 
export gross receipts of the first DISC. 
"(B) OWNERSHIP OF STOCK.—For purposes of subpara-
graph (A), the ownership of stock shall be determined under 
section 318. 
26 USC 318. 
"(f) SMALL DISCS.— 
"(1) 
ADJUSTED TAXABLE INCOME OF $100,000 OR LESS.—If a 
DISC has adjusted taxable income of $100,000 or less for a tax-
able year, subsection (b) (1) (E) shall not apply with respect to 
such year. 
" (2) SPECIAL RULE.—If a DISC has adjusted taxable income of 
more than $100,000 for a taxable year, then the amount taken into 
account under subsection (b) (1) (E) shall be deemed to be an 
amount equal to the excess (if any) of— 
"(A) the amount which would (but for this paragraph) 
be taken into account under subsection (b)(1)(E), over 
"(B) twice the excess (if any) of $150,000 over the 
adjusted taxable income. 
"(g) CERTAIN TRANSFERS O
F DISC ASSETS.—If— 
"(1) a corporation owns, directly or indirectly, all of the stock 
of a subsidiary and a DISC, 
^ 
"(2) the subsidiary has been engaged in the active conduct of 
a trade or business (within the meaning of section 355(b)) 
throughout the 5-year period ending on the date of the transfer 
and continues to be so engaged thereafter, and 
"(3) during the taxable year of the subsidiary in which its 
stock is transferred and its preceding taxable year, such trade or 
business gives rise to qualified export receipts of the subsidiary 
and the DISC, 
then, under such terms and conditions as the Secretary by regulations Regulations. 
shall prescribe, transfers of assets, stock, or both, will be deemed to be 
a reorganization within the meaning of section 368, a transaction to 
which section 355 applies, an exchange of stock to which section 351 
applies, or a combination thereof. The preceding sentence shall apply 
only to the extent that the transfer or transfers involved are for the 
purpose of preventing the separation of the ownership of the stock in 
90 STAT. 1658 
PUBLIC LAW 94-455—OCT. 4, 1976 
the DISC from the ownership of the trade or business which (during 
the base period) produced the export gross receipts of the DISC." 
26 use 993. 
^ (b) 
AMENDMENT or SECTION 993 (c) (2) .—Section 993 (c) (2) (relat-
ing to property excluded from export property) is amended— 
fl) by striking out "or" at the end of subparagraph (B), and 
(2) by striking out "under section 611" in subparagraph (C) 
and inserting in lieu thereof "under section 613 or 613A". 
(c) AMENDMENTS TO SECTION 993(d).—Section 993(d) (relating to 
definition of producer's loans) is amended— 
(1) by inserting in paragraph 
(1) (C) immediately 
after 
"export property", the following: "determined without regard to 
subparagraph (C) or (D) of subsection (c) (2),". 
(2) by inserting in paragraph (2) immediately after "of prop-
erty which would be export property" the following: "(deter-
mined without regard to subparagraph (C) or (D) of subsection 
(c)(2))". 
(d) RECAPTURE OF ACCUMULATED D I S C INCOME ON DISPOSITION OF 
STOCK I N A D I S C OR FORMER D I S C — 
26 use 995. 
(1) Section 995(c) is amended to read as follows: 
"(c) G A I N ON DISPOSITION OF STOCK IN A DISC.— 
" (1) I N GENERAL.—If— 
" ( A ) a shareholder disposes of stock in a DISC or former 
D I S C any gain recognized on such disposition shall be 
included in gross income as a dividend to the extent provided 
in paragraph (2), 
"(B) stock of a DISC or former DISC is disposed of in 
a transaction in which the separate corporate existence of the 
DISC or former DISC is terminated other than by a mere 
change in place of organization, however effected, any gain 
realized on the disposition of such stock in the transaction 
shall be recognized notwithstanding any other provision of 
this title to the extent provided in paragraph (2) and to 
the extent so recognized shall be included in gross income as 
a dividend, or 
"(C) a shareholder distributes, sells, or exchanges stock 
in a DISC or former DISC in a transaction to which sec-
tion 311, 336, or 337 applies, then an amoimt ec[ual to the 
excess of the fair market value of such stock over its adjusted 
basis in the hands of the shareholder shall, notwithstanding 
any provision of this title, be included in gross income of 
the shareholder as a dividend to the extent provided in 
paragraph (2). 
" (2) AMOUNT INCLUDED.—^The amounts described in paragraph 
(1) shall be included in gross income as a dividend to the extent 
of the accumulated DISC income of the D I S C or former DISC 
which is attributable to the stock disposed of and which was 
accumulated in taxable years of such corporation during the 
period or periods the stock disposed of was held by the shareholder 
which disposed of such stock." 
(2) INTEREST IN A PARTNERSHIP HOLDING STOCK I N A DISC.— 
26 use 751. 
The last sentence of section 751(c) (relating to unrealized receiv-
ables) is amended— 
(A) by striking out "(as defined in section 617(f) (2))," 
and inserting in lieu thereof "(as defined in section 617(f) 
(2), stock in a DISC (as described in section 992(a))," and 
(B) by striking out "617(d)(1), 124:5(a)," and inserting 
in lieu thereof "617(d) (1), 995(c), 1245(a),''. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1659 
' 
(e) 
RULES FOR ALLOCATING DISTRIBUTIONS MADE T O MEET QUALI-
FICATION REQUIREMENTS.—Paragraph (2) of section 996(a) (relating 26 USC 996. 
to rules for actual distributions and certain deemed distributions) is 
amended by adding at the end thereof the following new sentence: 
"In the case of any amount of any actual distribution made pursuant 
to section 992(c) which is required to satisfy the condition of section 
992(a) (1) (A), the preceding sentence shall apply to one-half of such 
amount, and paragraph (1) shall apply to the remaining one-half of 
such amount." 
(f) 
AMENDMENT OF SECTION 603(b) OF TAX REDUCTION A C T 
or 
1975.—Section 603(b) of the Tax Reduction Act of 1975 (relating to 26 USC 993 
effective date) is amended to read as follows: 
no^. 
"(b) 
EFFECTIVE DATES.— 
"(1) I N GENERAL.—Except as provided in paragraph (2), the 
amendments made by subsection 
(a) 
shall apply to sales, 
exchanges, and other dispositions made after March 18, 1975, in 
taxable years ending after such date. 
"(2) BINDING CONTRACT.—The amendments made by subsection 
(a) shall not apply to sales, exchanges, and other dispositions 
made after March 18, 1975, but before March 19, 1980, if such 
sales, exchanges, and other dispositions are made pursuant to a 
fixed contract. The term 'fixed contract' means a contract which "Fixed 
was, on March 18, 1975, and is at all times thereafter binding on contract." 
the DISC or a taxpayer which was a member of the same con-
trolled group (within the meaning of section 993(a)(3) of the 
Internal Revenue Code of 1954) as the DISC, which was entered 
into after the date on which the DISC qualified as a D I S C and 
the DISC and the taxpayer became members of the same con-
trolled group, and under which the price and quantity of the 
products sold, exchanged, or otherwise disposed of cannot be 
increased." 
(g) EFFECTIVE DATES.— 
(1) FOR SUBSECTIONS (a) AND (e).—The amendments made by 26 USC 995 
subsections (a) and (e) shall apply to taxable years beginning note. 
, 
after December 31,1975. 
(2) FOR SUBSECTION (b).— The amendments made by subsection 
26 USC 993 
(b) shall apply to sales, exchanges, and other dispositions made note, 
after March 18,1975, in taxable years ending after such date. 
(3) FOR SUBSECTIONS (C) AND (f).—The amendments made by 26 USC 993 
subsections (c) and (f) shall apply to taxable years ending after 
note. 
March 18,1975. 
(4) FOR SUBSECTION (d).—The amendments made by subsection 26 USC 995 
(d) shall apply to sales, exchanges, or other dispositions after 
note. 
December 31, 1975, in taxable years ending after such date. 
(5) 
PRORATION OF BASE PERIOD IN CASE OF FIXED CONTRACTS.— 26 USC 995 
For purposes of determining adjusted base period export gross note, 
receipts (under section 995(e) (3) of the Internal Revenue Code 
of 1954, as amended by this section), if any DISC has export 
gross receipts from export property by reason of paragraph (2) 
of section 603(b) of the Tax Reduction Act of 1975, then the 
export gross receipts of such DISC for the taxable years of the 
base period shall be increased by an amount equal to the amount 
of gross receipts which were excluded from export gross receipts 
during each taxable year of the base period by reason of the last 
sentence of section 993(e) (3) of such Code multiplied by a frac-
tion, the numerator of which is the amount of the gross receipts 
in the taxable year which are export gross receipts by reason of 
90 STAT. 1660 
PUBLIC LAW 94-455—OCT. 4, 1976 
paragraph (2) of section 603(b) of the Tax Reduction Act of 
26 use 993 
1975 and the denominator of which is the amount of total gross 
°°*®- 
receipts which are excluded from export gross receipts in the 
taxable year by reason of subparagraph (C) or (D) of paragraph 
(2) of section 993(c) (determined without regard to paragraph 
(2) of section 603(b) of the Tax Reduction Act of 1975). 
TITLE XII—ADMINISTRATIVE 
PROVISIONS 
SEC. 1201. PUBLIC INSPECTION OF WRITTEN DETERMINATIONS BY 
INTERNAL REVENUE SERVICE. 
(a) REQUIREMENT T H A T WRITTEN DETERMINATIONS B E OPEN TO 
PUBLIC INSPECTION.—Subchapter B of chapter 61 (relating to mis-
cellaneous provisions) is amended by redesignating section 6110 as 
6111 and by inserting after section 6109 the following new section: 
26 use 6110. 
"SEC. 6110. PUBLIC INSPECTION OF WRITTEN DETERMINATIONS. 
Regulations. 
" ( a ) GENERAL KuLE.—Except as otherwise provided in this section, 
the text of any written determination and any background file docu-
ment relating to such written determination shall be open to public 
inspection at such place as the Secretary may by regulations prescribe. 
"(b) DEFiNmoNs.—For purposes of this section— 
"(1) WRITTEN DETERMINATION.—The term 'written determina-
tion' means a ruling, determination letter, or technical advice 
memorandum. 
"(2) BACKGROUND FILE DOCUMENT.—The term'background file 
document' with respect to a written determination includes the 
request for that written determination, any written material 
submitted in support of the request, and any communication 
(written or otherwise) between the Internal Revenue Service and 
If 
persons outside the Internal Revenue Service in connection with 
such written determination 
(other than any communication 
between the Department of Justice and the Internal Revenue Serv-
ice relating to a pending civil or criminal case or investigation) 
received before issuance of the written determination. 
' 
" (3) REFERENCE AND GENERAL WRITTEN DETERMINATIONS.— 
. 
" ( A ) REFERENCE WRITTEN DETERMINATION.—The term'ref-
erence written determination' means any written determina-
tion which has been determined by the Secretary to have sig-
nificant reference value. 
" ( B ) GENERAL WRITTEN DETERMINATION.—The term 'gen-
eral written determination' means any written determination 
•i 
other than a reference written determination. 
"(c) EXEMPTIONS FROM DISCLOSURE.—Before making any written 
determination or background file document open or available to public 
inspection under subsection (a), the Secretary shall delete— 
"(1) the names, addresses, and other identifying details of the 
person to whom the written determination pertains and of any 
other person, other than a person with respect to,whom a notation 
is made under subsection (d) (1), identified in the written deter-
mination or any background file document; 
"(2) information specifically authorized under criteria estab-
lished by an Executive order to be kept secret in the interest of 
national defense or foreign policy, and which is in fact properly 
classified pursuant to such Executive order; 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1661 
"(3) information specifically exempted from disclosure by any 
statute (other than this title) which is applicable to the Internal 
Revenue Service; 
"(4) trade secrets and commercial or financial information 
obtained from a person and privileged or confidential; 
"(5) information the disclosure of which would constitute a 
clearly unwarranted invasion of personal privacy; 
"(6) information 
contained in or related to examination, 
operating, or condition reports prepared by, or on behalf of, or for 
use of an agency responsible for the regulation or supervision of 
financial institutions; and 
"(7) geological and geophysical information and data, includ-
ing maps, concerning wells. 
The Secretary shall determine the appropriate extent of such dele-
tions and, except in the case of intentional or willful disregard of this 
subsection, shall not be required to make such deletions (nor be liable 
for failure to make deletions) unless the Secretary has agreed to such 
deletions or has been ordered by a court (in a proceeding under sub-
section (f) (3)) to make such deletions. 
" ( d ) PROCEDURES W I T H REGARD TO THIRD PARTY CONTACTS.— 
" (1) NOTATIONS.—If, before the issuance of a written determi-
nation, the Internal Revenue Service receives any communication 
(written or otherwise) 
concerning such 
written 
determin-
ation, any request for such determination, or any other matter 
involving such written determination from a person other than an 
employee of the Internal Revenue Service or the person to whom 
such written determination pertains (or his authorized repre-
sentative with regard to such written determination), the Internal 
Revenue Service shall indicate, on the written determination open 
to public inspection, the category of the person making such com-
munication and the date of such communication. 
"(2) EXCEPTION.—Paragraph (1) shall not apply to any com-
munication made by the Chief of Staff of tl:e Joint Committee on 
Taxation. 
"(3) 
DISCLOSURE OF IDENTITY.—In the case of any written 
determination to which paragrapli (1) applies, any person may 
file a petition in the United States Tax Court or file a complaint 
in the United States District Court for the District of Columbia 
for an order requiring that the identity of any person to Avhom 
the written determination pertains be disclosed. The court shall 
order disclosure of such identity if there is evidence in the record 
from which one could reasonably conclude that an impropriety 
occurred or undue influence was exercised with respect to such 
written determination by or on behalf of such person. The court 
may also direct the Secretary to disclose any portion of any other 
deletions made in accordance with subsection (c) where such 
disclosure is in the public interest. If a proceeding is commenced 
under this paragraph, the person whose identity is subject to 
being disclosed and the person about whom a notation is made 
under paragraph (1) shall be notified of the proceeding in accord-
ance with the procedures described in subsection (f) (4) (B) and 
shall have the right to intervene in the proceeding (anonymously, 
if appropriate). 
"(4) PERIOD IN WHICH TO BRING ACTION.—Xo proceeding shall 
be commenced under paragraph (3) unless a petition is filed 
before the expiration of 36 months after the first day that the 
written determination is open to public inspection. 
89-194 O—78—pt. 2 
13 
90 STAT. 1662 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(e) 
BACKGROUND FILE DOCUMENTS.—^Whenever the 
Secretary 
makes a written determination open to public inspection under this 
section, he shall also make available to any person, but only upon the 
written request of that person, any background file document relating 
to the written determination. 
"(f) 
RESOLUTION OF DISPUTES RELATING TO DISCLOSURE.— 
"(1) NOTICE or INTENTION TO DISCLOSE.—The Secretary shall 
upon issuance of any written determination, or upon receipt of a 
request for a background file document, mail a notice of intention 
to disclose such determination or document to any person to whom 
the written determination pertains (or a successor in interest, 
executor, or other person authorized by law to act for or on 
behalf of such person). 
Regulations. 
" (2) ADMINISTRATIVE REMEDIES.—The Secretary shall prescribe 
regulations establishing administrative remedies with respect to— 
"(A) requests for additional disclosure of any written 
determination of any background file document, and 
"(B) requests to restrain disclosure. 
" ( 3 ) A C T I O N TO RESTRAIN DISCLOSURE.— 
"(A) CREATION OF REMEDY.—Any person— 
"(i) to whom a written determination pertains (or a 
successor in interest, executor, or other person authorized 
by law to act for or on behalf of such person), or who has 
a direct interest in maintaining the confidentiality of any 
such written determination or background file document 
(or portion thereof), 
"(ii) who disagrees with any failure to make a dele-
tion with respect to that portion of any written deter-
mination or any background file document which is to 
be open or available to public inspection, and 
"(iii) who has exhausted his administrative remedies 
as prescribed pursuant to paragraph (2), 
may, within 60 days after the mailing by the Secretary of a 
notice of intention to disclose any written determination or 
background file document under paragraph (1), together 
with the proposed deletions, file a petition in the United 
States Tax Court (anonymously, if appropriate) for a deter-
mination with respect to that portion of such written deter-
mination or background file document which is to be open to 
public inspection. 
"(B) NOTICE TO CERTAIN PERSONS.—The Secretary shall 
notify any person to whom a written determination pertains 
(unless such person is the petitioner) of the filing of a peti-
tion under this paragraph with respect to such written deter-
mination or related background file document, and any such 
person may intervene (anonymously, if appropriate) in any 
proceeding conducted pursuant to this paragraph. The Sec-
retary shall send such notice by registered or certified mail 
to the last known address of such person within 15 days after 
such petition is served on the Secretary. No person who has 
received such a notice may thereafter file any petition under 
this paragraph with respect to such written determination or 
background file document with respect to which such notice 
was received. 
"(4) 
ACTION T
O OBTAIN ADDITIONAL DISCLOSURE.— 
" (A) CREATION OF REMEDY.—Any person who has exhausted 
the administrative remedies prescribed pursuant to para-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1663 
graph (2) with respect to a request for disclosure may file a 
petition in the United States Tax Court or a complaint in the 
United States District Court for the District of Columbia for 
an order requiring that any written determination or back-
ground file document (or portion thereof) be made open or 
available to public inspection. Except where inconsistent with 
subparagraph (B), the provisions of subparagraphs (C), 
(D), (E), (F), and (G) of section 552(a)(4) of title 5, 
United States Code, shall apply to any proceeding under this 
paragraph. The Court shall examine the matter de novo and 
without regard to a decision of a court under paragraph (3) 
with respect to such written determination or background file 
document, and may examine the entire text of such written 
determination or background file document in order to deter-
mine whether such written determination or background file 
document or any part thereof shall be open or available to 
public inspection under this section. The burden of proof 
with respect to the issue of disclosure of any information shall 
be on the Secretary and any other person seeking to restrain 
disclosure. 
"(B) INTERVENTION.—If a proceeding is commenced under Notice, 
this paragraph with respect to any written determination or 
background file document, the Secretary shall, within 15 days 
after notice of the petition filed under subparagraph (A) is 
served on him, send notice of the commencement of such pro-
ceeding to all persons who are identified by name and address 
in such written determination or background file docimient. 
The Secretary shall send such notice by registered or certified 
mail to the last known address of such person. Ajiy person 
to whom such determination or background file document per-
tains may intervene in the proceeding (anonymously, if ap-
propriate). If such notice is sent, the Secretary shall not be 
required to defend the action and shall not be liable for public 
disclosure of the written determination or background file 
document (or any portion thereof) in accordance with the 
final decision of the court. 
"(5) EXPEDITION OF DETERMINATION.—^The Tax Court shall 
make a decision with respect to any petition described in para-
graph (3) at the earliest practicable date and the Court of 
Appeals shall expedite any review of such decision in every way 
possible. 
"(6) PUBLICITY OF TAX COURT PROCEEDINGS.—Notwithstanding 
sections 7458 and 7461, the Tax Court may, in order to preserve 26 USC 7458, 
the anonymity, privacy, or confidentiality of any person under 7461. 
this section, provide by rules adopted under section 7453 that 
portions of hearings, testimony, evidence, and reports in connec-
tion with pi-oceedings under this section may be closed to the 
public or to inspection by the public. 
"(g) TIME FOR DISCLOSURE.— 
"(1) I N GENERAL.—Except as otherwise provided in this sec-
tion, the text of any written determination or any background 
file document (as modified under subsection (c)) shall be open or 
available to public inspection— 
"(A) no earlier than 75 days, and no later than 90 days, 
after the notice provided in subsection (f) (1) is mailed, or, 
if later. 
90 STAT. 1664 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(B) within 30 days after the date on which a court 
decision under subsection (f) (3) becomes finaL 
" (2) POSTPONEMENT BY ORDER or COURT.—The court may extend 
the period referred to in paragraph (1) (B) for such time as the 
court finds necessary to allow the Secretary to comply with its 
decision. 
"(3) 
POSTPONEMENT OF DISCLOSURE FOR UP TO 9O DAYS.—^At the 
written request of the person by whom or on whose behalf the 
request for the written determination was made, the period 
referred to in paragraph (1) (A) shall be extended (for not to 
exceed an additional 90 days) until the day which is 15 days after 
the date of the Secretary's determination that the transaction set 
forth in the written determination has been completed. 
"(4) ADDITIONAL I80 DAYS.—If— 
"(A) the transaction set forth in the written determination 
is not completed during the period set forth in paragraph 
(3), and 
"(B) the person by whom or on whose behalf the request 
for the written determination was made establishes to the 
satisfaction of the Secretary that good cause exists for addi-
tional delay in opening the written determination to public 
inspection, 
the period referred to in paragraph (3) shall be further extended 
(for not to exceed an additional 180 days) until the day which 
is 15 days after the date of the Secretary's determination that the 
transaction set forth in the written determination has been com-
pleted. 
"(5) 
SPECIAL RULES FOR CERTAIN WRITTEN DETERMINATIONS, 
ETC.—Notwithstanding the provisions of paragraph (1), the Sec-
retary shall not be required to make available to the public— 
"(A) any technical advice memorandum and any related 
background file document involving any matter which is the 
subject of a civil fraud or criminal investigation or jeopardy 
or termination assessment until after any action relating to 
such investigation or assessment is completed, or 
"(B) any general written determination and any related 
background file document that relates solely to approval of 
the Secretary of any adoption or change of— 
"(i) the funding method or plan year of a plan under 
26 use 412. 
section 412, 
"(ii) a taxpayer's annual accounting period under sec-
tion 442, 
"(iii) a taxpayer's method of accounting under sec-
tion 446(e), or 
"(iv) a partnership's or partner's taxable year under 
section 706, 
but the Secretary shall make any such written determination 
and related background file document available upon the 
written request of any person after the date on which (except 
for this subparagraph) such determination would be open 
to public inspection. 
" (,h) DISCLOSURE OF PRIOR WRITTEN DETERMINATIONS AND RELATED 
BACKGROUND FILE DOCUMENTS.— 
"(1) I N GENERAL.—Except as otherwise provided in this sub-
section, a written determination issued pursuant to a request made 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1665 
before November 1,1976, and any background file document relat-
ing to such written determination shall be open or available to 
public inspection in accordance with this section. 
"(2) T I M E FOR DISCLOSURE.—In the case of any written deter-
mination or background file document which is to be made open 
or available to j)ublic inspection under paragraph (1)— 
"(A) subsection (g) shall not apply, but 
" ( B ) such written determination or background file docu-
ment shall be made open or available to public inspection at 
the earliest practicable date after funds for that purpose have 
been ai:)propriated and made available to the Internal Reve-
nue Service. 
"(3) ORDER OF RELEASE.—Any written determination or back-
ground file document described in paragraph (1) shall be open or 
available to public inspection in the following order starting with 
the most recent written determination in each category: 
" ( A ) reference written determinations issued under this 
title; 
"(B) general written determinations issued after July 4, 
1967 rand 
"(C) reference written determinations issued under the 
IiiL^nnal Kevenue Code of 1939 or corresponding provisions 53 Stat. 1. 
of prior law. 
General written determinations not described in subparagraph 
(B) shall be open to public inspection on written request, but not 
until after the written determinations referred to in subpara-
graphs (A), (B),and (C) are open to public inspection. 
"(4) NOTICE THAT PRIOR WRITTEN DEn-:RMiXATioNS ARE OPEN TO 
PUBLIC INSPECTION.—Notwithstanding the provisions of subsec- 
Publication in 
tions (f) (1) and (f) (3) (A), not less than 90 days before making 
Federal Register, 
any ^^ortion of a written determination described in this sub-
section open to public inspection, the Secretary shall issue public 
notice in the Federal Register that such written determination is 
to be made open to public inspection. The person who received a 
written determination may, within 75 days after the date of publi-
cation of notice under this jDaragraph, file a petition in the United 
States Tax Court (anonymously, if appropi-iate) for a determina-
tion witli respect to that portion of such written determination 
^ 
which is to be made open to public inspection. The provisions of 
subsections ( f ) ( 3 ) ( B ) , (5), and (6) shall apply if such a peti-
tion is filed. If no petition is filed, the text of any written deter-
mination shall be open to public inspection no earlier than 90 days, 
and no later than 120 days, after notice is published in the Fed-
eral Register. 
"(5) EXCLUSION.—Subsection (d) shall not apply to any writ-
ten determination described in paragraph (1). 
"(i) CIVIL REMEDIES.— 
" (1) CIVIL ACTION.—Whenever the Secretary— 
"(A) fails to make deletions required in accordance with 
subsection (c), or 
" ( B ) fails to follow the procedures in subsection (g), 
the recipient of the written determination or any person identified 
in the written determination shall have as an exclusive civil rem-
edy an action against the Secretary in the Court of Claims, which 
shall have jurisdiction to hear any action under this paragraph. 
"(2) DAMAGES.—In any suit brought under the provisions of 
paragraph (1) (A) in which the Court determines that an em-
90 STAT. 1666 
PUBLIC LAW 94-455—OCT. 4, 1976 
ployee of the Internal Revenue Service intentionally or willfully 
failed to delete in accordance with subsection (c), or in any suit 
brought under subparagraph (1) (B) in which the Court deter-
mines that an employee intentionally or willfully failed to act 
in accordance with subsection (g), the United States shall be 
liable to the person in an amount equal to the sum of— 
" ( A ) actual damages sustained by the person but in no 
case shall a person be entitled to receive less than the sum of 
$1,000, and 
"(B) the costs of the action together with reasonable 
attorney's fees as determined by the Court, 
"(j) SPECIAL JE^RovisioNS.— 
" (1) FEES.—The Secretary is authorized to assess actual costs— 
" (A) for duplication of any written determination or back-
ground file document made open or available to the public 
under this section, and 
" ( B ) incurred in searching for and making deletions 
required under subsection (c) from any written determination 
or background file document which is available to public 
inspection only upon written request. 
The Secretary shall furnish any written determination or back-
ground file document without charge or at a reduced charge if he 
determines that waiver or reduction of the fee is in the public 
interest because furnishing such determination or background file 
document can be considered as primarily benefiting the general 
public. 
"(2) 
RECORDS DISPOSAL PROCEDURES.—Nothing in this section 
shall prevent the Secretary from disposing of any general written 
determination or background file document described in subsec-
tion (b) in accordance with established records disposition proce-
dures, but such disposal shall, except as provided in the following 
sentence, occur not earlier than 3 years after such written deter-
mination is first made open to public inspection. In the case of 
any general written determination described in subsection (h), 
the Secretary may dispose of such determination and any related 
background file document in accordance with such procedures but 
such disposal shall not occur earlier than 3 years after such writ-
ten determination is first made open to public inspection if funds 
are appropriated for such purpose before January 20,1979, or not 
earlier than January 20, 1979, if funds are not appropriated 
before such date. The Secretary shall not dispose of any reference 
written determinations and related background file documents. 
"(3) 
PRECEDENTIAL STATUS.—Unless the Secretary otherwise 
establishes by regulations, a written determination may not be 
used or cited as precedent. The preceding sentence shall not 
apply to change the precedential status (if any) of written 
determinations with regard to taxes imposed by subtitle D of this 
title, 
"(k) 
SECTION NOT To APPLY.—This section shall not apply to— 
26 use 6104. 
" (1) any matter to which section 6104 applies, or 
«(2) any— 
" ( A ) written determination issued pursuant to a request 
made before November 1, 1976, with respect to the exempt 
status under section 501(a) of an organization described in 
section 501 (c) or (d), the status of an organization as a 
private foundation under section 509(a), or the status of 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1667 
an organization as an operating foundation under section 
4942(j)(3), 
" ( B ) written determination described in subsection (g) 
(5) (B) issued pursuant to a request made before November 
1, 1976, 
"(C) determination letter not otherwise described in sub-
paragraph ( A ) , ( B ) , or (E) issued pursuant to a request 
made before November 1,1976, 
" ( D ) background file document relating to any general 
written determination issued before July 5, 1967, or 
" ( E ) letter or other document described in section 6104 
(a) (1) (B) (iv) issued before September 2, 1974. 
"(1) 
EXCLUSIVE REMEDY.—Except as otherwise provided in this 
title, or with respect to a discovery order made in connection with a 
judicial proceeding, the Secretary shall not be required by any Court 
to make any written determination or background file document open 
or available to public inspection, or to refrain from disclosure of any 
such documents." 
(b) EFFECT UPON PEXDIXG REQUESTS.—Any written determination 
26 USC 6110 
or background file document which is the subject of a judicial pro- note, 
ceeding pursuant to section 552 of title 5, United States Code, com-
menced before January 1, 1976, shall not be treated as a written 
determination subject to subsection (h)(1), but shall be available 
to the complainant along with the background file document, if 
requested, as soon as practicable after July 1,1976. 
(c) CLERICAL AMENDMENT.—The table of sections for subchapter B 
of chapter 61 is amended by striking out the item relating to section 
6110 and inserting in lieu thereof the following: 
^"'c P- 1660. 
"Sec. 6110. Public inspection of written determinations. 
"Sec. 6111. Cross references." 
(d) LETTERS MADE PUBLIC.— 
(1) Section 6104(a)(1)(A) 
(relating to inspection of appli- 26 USC 6104. 
cations for tax exemption) is amended— 
(A) by inserting after "such application," in the first sen-
tence thereof the following: "and any letter or other docu-
ment issued by the Internal Revenue Service with respect to 
such application"; and 
t f''^ 
(B) by inserting after "such application" in the second 
sentence thereof the following: "and such letter or document". 
(2) The amendments made by this subsection apply to any 26 USC 6104 
letter or other document issued with respect to applications filed note, 
after October 31,1976. 
(e) EFFECTIVE DATE.—Except as otherwise provided in this section, 26 USC 6110 
the amendments made bv this section shall take effect on Novem- note. 
ber 1, 1976. 
SEC. 1202. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND 
RETURN INFORMATION. 
(a) CONFIDENTIALITY.— 
(1) I N GENERAL.—Section 6103 (relating to publicity of tax 26 USC 6103. 
returns and disclosure of information as to persons filing tax 
returns) is amended to read as follows: 
"SEC. 6103. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND 
RETURN INFORMATION. 
"(a) GENERAL RULE.—Returns and return information shall be 
confidential, and except as authorized by this title— 
90 STAT. 1668 
PUBLIC LAW 94^55—OCT. 4, 1976 
" (1) no officer or employee of the United States, 
"(2) no officer or employee of any State or of any local child 
support enforcement agency who has or had access to returns or 
return information under this section, and 
"(3) no other person (or officer or employee thereof) who has 
or had access to returns or return information under subsection 
(e) (1) (D) (iii) or subsection (n), 
shall disclose any return or return information obtained by him in any 
manner in connection with his service as such an officer or an employee 
"Officer or 
or otherwise or under the provisions of this section. For purposes of 
employee." 
this subsection, the term 'officer or employee' includes a former officer 
or employee. 
" (b) DEFINITIONS.—For purposes of this section— 
"(1) RETURN.—The term 'return' means any tax or information 
return, declaration of estimated tax, or claim for refund required 
by, or provided for or permitted under, the provisions of this title 
which is filed with the Secretary by, on behalf of, or with respect 
to any person, and any amendment or supplement thereto, includ-
ing supporting schedules, attachments, or lists which are sup-
plemental to, or part of, the return so filed. 
"(2) RETURN INFORMATION.—The term 'return information' 
means— 
"(A) a taxpayer's identity, the nature, source, or amount 
of his income, paj^ments, receipts, deductions, exemptions, 
credits, assets, liabilities, net worth, tax liability, tax with-
held, deficiencies, overassessments, or tax payments, whether 
the taxpayer's return was, is being, or will be examined or sub-
ject to other investigation or processing, or any other data, 
received by, recorded by, prepared by, furnished to, or col-
lected by the Secretary witn respect to a return or with respect 
to the determination of the existence, or possible existence, 
of liability (or the amount thereof) of any person under 
this title for any tax, penalty, interest, fine, forfeiture, or 
other imposition, or offense, and 
"(B) any part of any written determination or any back-
ground file document relating to such written determination 
Ante, p. 1660. 
(as such terms are defined in section 6110(b)) which is not 
open to public inspection under section 6110, 
but such term does not include data in a form which cannot be 
associated with, or otherwise identify, directly or indirectly, a 
particular taxpayer. 
"(3) 
TAXPAYER RETURN INFORMATION.—The term 'taxpayer 
return information' means return information as defined in para-
graph (2) which is filed with, or furnished to, the Secretary by 
or on behalf of the taxpayer to whom such return information 
relates. 
"(4) TAX ADMINISTRATION.—The term 'tax administration'— 
"(A) means— 
"(i) the administration, management, conduct, direc-
tion, and supervision of the execution and application 
of the internal revenue laws or related statutes (or equiv-
alent laws and statutes of a State) and tax conventions 
to which the United States is a party, and 
"(ii) the development and formulation of Federal tax 
policy relating to existing or proposed internal revenue 
laws, related statutes, and tax conventions, and 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1669 
" ( B ) includes assessment, collection, enforcement, litiga-
tion, publication, and statistical gathering functions under 
such laws, statutes, or conventions. 
"(5) STATE.—The term 'State' means any of the 50 States, the 
District of Columbia, the Commonwealth of Puerto Kico, the 
Virgin Islands, the Canal Zone, Guam, American Samoa, the 
Commonwealth of the Northern Mariana Islands, and the Trust 
Territory of the Pacific Islands. 
"(6) TAXPAYER HJENTITY.—The term 'taxpayer identity' means 
the name of a person with respect to whom a return is filed, his 
mailing address, his taxpayer identifying number (as described 
in section 6109), or a combination thereof. 
26 USC 6109. 
"(7) INSPECTION.—The terms 'inspected' and 'inspection' mean 
any examination of a return or return information. 
"(8) DISCLOSURE.—The term 'disclosure' means the making 
known to any person in any manner whatever a return or return 
information. 
"(9) FEDERAL AGENCY.—The term 'Federal agency' means an 
agency within the meaning of section 551(1) of title 5, United 
States Code. 
" (c) DISCLOSURE or RETURNS AND RETURN INFORMATION To DESIG-
NEE or TAXPAYER.—The Secretary may, subject to such requirements 
Regulations. 
and conditions as he may prescribe by regulations, disclose the return 
of any taxpayer, or return information with respect to such tax-
payer, to such person or persons as the taxpayer may designate in a 
written request for or consent to such disclosure, or to any other per-
son at the taxpayer's request to the extent necessary to comply with 
a request for information or assistance made by the taxpayer to such 
other person. However, return information shall not be disclosed to 
such person or persons if the Secretary determines that such disclosure 
would seriously impair Federal tax administration. 
" ( d ) DiscLOSLTiE TO STATE TAX OFFICIALS.—Returns and return 
information with respect to taxes imposed by chapters 1, 2, 6, 11, 12, 
26USC1,1401, 
21, 23, 24, 44, 51, and 52 and subchapter D of chapter 36, shall be open 
1501, 2001, 
to inspection by or disclosure to any State agency, body, or commis- 
^^^J' 
\^h 
sion, or its legal representative, which is charged under the laws of p , ' 1754 
such State with responsibility for the administration of State tax laws 
26 USC 5001 
for the purpose of, and only to the extent necessary in, the admin- 
5701, 4481. 
istration of such laws, including any procedures with respect to locat-
ing any person who may be entitled to a refund. Such inspection shall 
be permitted, or such disclosure made, only upon written request by the 
head of such agency, body, or commission, and only to the representa-
tives of such agency, body, or commission designated in such written 
request as the individuals who are to inspect or to receive the return 
or return information on behalf of such agency, body, or commission. 
Such representatives shall not include any individual who is the chief 
executive officer of such State or who is neither an employee or legal 
representative of such agency, body, or commission nor a person 
described in subsection (n). However, such return information shall 
not be disclosed to the extent that the Secretary determines that such 
disclosure would identify a confidential informant or seriously impair 
any civil or criminal tax investigation. 
" (e) DISCLOSURE TO PERSONS HAVING MATERIAL INTEREST.— 
"(1) I N GENERAL.—The return of a person shall, upon written 
request, be open to inspection by or disclosure to— 
"(A) in the case of the return of an individual— 
90 STAT. 1670 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(i) that individual, 
"(ii) if property transferred by that individual to a 
trust is sold or exchanged in a transaction described in 
Ante, p. 1578. 
Section 644, the trustee or trustees, jointly or separately, 
of such trust to the extent necessary to ascertain any 
amount of tax imposed upon the trust by section 644, or 
"(iii) the spouse of that individual if the individual 
and such spouse have signified their consent to consider 
a gift reported on such return as made one-half by him 
and one-half by the spouse pursuant to the provisions of 
26 use 2513. 
section 2513; 
"(B) in the case of an income tax return filed jointly, either 
of the individuals with respect to whom the return is filed; 
"(C) in the case of the return of a partnership, any person 
who was a member of such partnership during any part of 
the period covered by the return; 
"(D) in the case of the return of a corporation or a sub-
sidiary thereof— 
"(i) any person desi^ated by resolution of its board 
of directors or other similar governing body, 
"(ii) any officer or employee of such corporation upon 
written request signed by any principal officer and 
attested to by the secretary or other officer, 
"(iii) any bona fide shareholder of record owning 1 
percent or more of the outstanding stock of such corpora-
tion, 
" (iv) if the corporation was a foreign personal holding 
company, as defined by section 552, any person who was a 
shareholder during any part of a period covered by such 
return if with respect to that period, or any part thereof, 
such shareholder was required under section 551 to 
include in his gross income undistributed foreign per-
sonal holding company income of such company, 
"(v) if the corporation was an electing small business 
26 use 1371. 
corporation under subchapter S of chapter 1, any person 
who was a shareholder during any part of the period cov-
ered by such return during which an election was in 
effect, or 
"(vi) if the corporation has been dissolved, any per-
son authorized by applicable State law to act for the 
corporation or any person who the Secretary finds to 
have a material interest which will be affected by infor-
mation contained therein; 
" (E) in the case of the return of an estate— 
"(i) the administrator, executor, or trustee of such 
estate, and 
"(ii) any heir at law, next of kin, or beneficiary under 
the will, of the decedent, but only if the Secretary finds 
that such heir at law, next of kin, or beneficiary has a 
material interest which will be affected by information 
contained therein; and 
" (F) in the case of the return of a trust— 
"(i) the trustee or trustees, jointly or separately, and 
"(ii) anv beneficiary of such trust, but only if the 
Secretary 'finds that such beneficiary has a material 
interest which will be affected by information contained 
therein. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1671 
"(2) INCOMPETENCY.—If an individual described in paragraph 
(1) is legally incompetent, the applicable return shall, upon 
written request, be open to inspection by or disclosure to the com-
mittee, trustee, or guardian of his estate. 
"(3) DECEASED INDIVIDUALS.—The return of a decedent shall, 
upon written request, be open to inspection by or disclosure to— 
" ( A ) the administrator, executor, or trustee of his estate, 
and 
"(B) any heir at law, next of kin, or beneficiary under the 
will, of such decedent, or a donee of property, but only if the 
Secretary finds that such heir at law, next of kin, beneficiary, 
or donee has a material interest which will be affected by 
information contained therein. 
" (4) BANKRUPTCY.—If substantially all of the property of the 
person with respect to whom the return is filed is in the hands 
of a trustee in bankruptcy or receiver, such return or returns for 
prior years of such person shall, upon written request, be open to 
inspection by or disclosure to such trustee or receiver, but only if 
the Secretary finds that such receiver or trustee, in his fiduciary 
capacity, has a material interest which will be affected by infor-
mation contained therein. 
"(5) ATTORNEY IN FACT.—^Any return to which this subsection 
applies shall, upon written request, also be open to inspection 
by or disclosure to the attorney in fact duly authorized in writ-
ing by any of the persons described in paragraph (1), (2), (3), 
or (4) to inspect the return or receive the information on his 
behalf, subject to the conditions provided in such paragraphs. 
"(6) RETURN INFORMATION.—Return information with respect 
to any taxpayer may be open to inspection by or disclosure to any 
person authorized by this subsection to inspect any return of such 
taxpayer if the Secretary determines that such disclosure would 
not seriously impair Federal tax administration. 
" (f) DISCLOSURE TO COMMITTEES OF CONGRESS.— 
"(1) COMMITTEE ON WAYS AND MEANS, COMMITTEE ON FINANCE, 
AND JOINT COMMITTEE ON TAXATION.—^TJpon Written request from 
the chairman of the Committee on Ways and Means of the House 
of Representatives, the chairman of the Committee on Finance 
of the Senate, or the chairman of the Joint Committee on Taxa-
tion, the Secretary shall furnish such committee with any return 
or return information specified in such request, except that any 
return or return information which can be associated with, or 
otherwise identify, directly or indirectly, a particular taxpayer 
shall be furnished to such committee only when sitting in closed 
executive session unless such taxpayer otherwise consents in writ-
ing to such disclosure. 
" (2) C H I E F OF STAFF OF JOINT COMMITTEE ON TAXATION.—Upon 
written request by the Chief of Staff of the Joint Committee 
on Taxation, the Secretary shall furnish him with any return or 
return information specified in such request. Such Chief of Staff 
may submit such return or return information to any committee 
described in paragraph (1), except that any return or return 
information which can be associated with, or otherwise identify, 
directly or indirectly, a particular taxpaver shall be furnished to 
such committee only when sitting in closed executive session unless 
such taxpayer otherwise consents in writing to such disclosure. 
"(3) OTHER COMMITTEES.—Pursuant to an action by, and upon 
90 STAT. 1672 
PUBLIC LAW 94-455—OCT. 4, 1976 
written request by the chairman of, a committee of the Senate or 
the House of Representatives (other than a committee specified 
in paragraph (1)) specially authorized to inspect any return or 
return information by a resolution of the Senate or the House of 
Representatives or, in the case of a joint committee (other than 
the joint committee specified in paragraph (1)) by concurrent 
resolution, the Secretary shall furnish such committee, or a duly 
authorized and designated subcommittee thereof, sitting in closed 
executive session, with any return or return information which 
such resolution authorizes the committee or subcommittee to 
inspect. Any resolution described in this paragraph shall specify 
the purpose for which the return or return information is to be 
furnished and that such information cannot reasonably be 
obtained from any other source. 
"(4) AGENTS or COMMITTEES AND SUBMISSION or INFORMATION 
TO SENATE OR HOUSE OF REPRESENTATIVES. 
" ( A ) 
COMMITTEES 
DESCRIBED I N PARAGRAPH 
( D . — A n y 
committee described in paragraph (1) or the Chief of Staff 
of the Joint Committee on Taxation shall have the authority, 
acting directly, or by or through such examiners or agents as 
the chairman of such committee or such chief of staff may 
designate or appoint, to inspect returns and return informa-
tion at such time and in such manner as may be determined by 
such chairman or chief of staff. Any return or return informa-
tion obtained by or on behalf of such committee pursuant to 
the provisions of this subsection may be submitted by the 
committee to the Senate or the House of Representatives, or to 
both. The Joint Committee on Taxation may also submit 
such return or return information to any other committee 
described in paragraph (1), except that any return or return 
information which can be associated with, or otherwise iden-
tify, directly or indirectly, a particular taxpayer shall be fur-
nished to such committee only when sitting in closed executive 
session unless such taxpayer otherwise consents in writing to 
such disclosure. 
"(B) OTHER COMMITTEES.—Any committee or subcommittee 
described in paragraph (3) shall have the right, acting? 
directly, or by or through no more than four examiners or 
agents, designated or appointed in writing in equal numbers 
by the chairman and ranking minority member of such com-
mittee or subcommittee, to inspect returns and return infor-
mation at such time and in such manner as may be determined 
by such chairman and ranking minority member. Any return 
or return information obtained by or on behalf of such com-
mittee or subcommittee pursuant to the provisions of this sub-
section may be submitted by the committee to the Senate or 
the House of Representatives, or to both, except that any 
return or return information which can be associated with, 
or otherwise identify, directly or indirectly, a particular tax-
payer, shall be furnished to the Senate or the House of Repre-
sentatives only when sitting in closed executive session unless 
such taxpayer otherwise consents in writing to such disclo-
sure. 
"(g) DISCLOSURE TO PRESIDENT AND CERTAIN OTHER PERSONS.—-
"(1) I N GENERAL.—^ITpon written request by the President, 
signed by him personally, the Secretary shall furnish to the Presi-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1673 
dent, or to such employee or employees of the White House Office 
as the President may designate by name in such request, a return 
or return information with respect to any taxpayer named in such 
request. Any such request shall state— 
"(A) the name and address of the taxpayer whose return 
or return information is to be disclosed, 
"(B) the kind of return or return information which is 
to be disclosed, 
"(C) the taxable period or periods covered by such return 
or return information, and 
"(D) the specific reason why the inspection or disclosure 
is requested. 
"(2) DISCLOSURE OF RETURN INFORMATION AS TO PRESIDENTIAL 
APPOINTEES AND CERTAIN OTHER FEDERAL GOVERNMENT APPOINT-
EES.—The Secretary may disclose to a duly authorized represent-
ative of the Executive Office of the President or to the head of 
any Federal agency, upon written request by the President or 
head of such agency, or to the Federal Bureau of Investigation 
on behalf of and upon written request by the President or such 
head, return information with respect to an individual who is 
designated as being under consideration for appointment to a 
position in the executive or judicial branch of the Federal Gov-
ernment. Such return information shall be limited to whether 
such individual— 
" ( A ) has filed returns with respect to the taxes imposed 
under chapter 1 for not more than the immediately preceding 
3 years; 
"(B) has failed to pay any tax within 10 days after notice 
and demand, or has been assessed any penalty under this title 
for negligence, in the current year or immediately preceding 
3 years; 
"(C) has been or is under investigation for possible crimi-
nal offenses under the internal revenue laws and the results of 
any such investigation; or 
"(D) has been assessed any civil penalty under this title 
for fraud. 
Within 3 days of the receipt of any request for any return infor-
mation with respect to any individual under this paragraph, the 
Secretary shall notify such individual in writing that such infor-
mation has been requested under the provisions of this paragraph. 
"(3) 
RESTRICTION ON DISCLOSURE.—The employees to whom 
returns and return information are disclosed under this subsection 
shall not disclose such returns and return information to any 
other person except the President or the head of such agency with-
out the personal written direction of the President or the head of 
such agency. 
"(4) RESTRICTION ON DISCLOSURE TO CERTAIN EMPLOYEES.—Dis-
closure of returns and return information under this subsection 
shall not be made to any employee whose annual rate of basic pay 
is less than the annual rate of basic pay specified for positions 
subject to section 5316 of title 5, United States Code. 
"(5) REPORTING REQUIREMENTS.—Within 30 days after the close 
of each calendar quarter, the President and the head of any agency 
requesting returns and return information under this subsection 
shall each file a report with the Joint Committee on Taxation set-
ting forth the taxpayers with respect to whom such requests were 
26 use 1. 
Notification. 
Report to 
congressional 
committee. 
90 STAT. 1674 
PUBLIC LAW 94-455—OCT. 4, 1976 
made during such quarter under this subsection, the returns or 
return information involved, and the reasons for such requests. 
The President shall not be required to report on any request for 
returns and return information pertaining to an individual who 
was an officer or employee of the executive branch of the Federal 
Government at the time such request was made. Reports filed pur-
suant to this paragraph shall not be disclosed unless the Joint 
Committee on Taxation determines that disclosure thereof 
(including identifying details) would be in the national interest. 
Such reports shall be maintained by the Joint Committee on 
Taxation for a period not exceeding 2 years unless, within such 
period, the Joint Committee on Taxation determines that a dis-
closure to the Congress is necessary. 
"(h) DISCLOSURE TO CERTAIN FEDERAL OFFICERS AND EMPLOYEES FOR 
PURPOSES OF TAX ADMINISTRATION, ETC.— 
"(1) 
DEPARTMENT OF THE TREASURY.—Returns and return 
information shall, without written request, be open to inspection 
by or disclosure to officers and employees of the Department of the 
Treasury whose official duties require such inspection or disclosure 
for tax administration purposes. 
"(2) DEPARTMMENT OP JUSTICE.—^A return or return informa-
tion shall be open to inspection by or disclosure to attorneys of 
the Department of Justice (including United States attorneys) 
personally and directly engaged in, and solely for their use in, 
preparation for any proceeding (or investigation which may 
result in such a proceeding) before a Federal grand jury or any 
Federal or State court in a matter involving tax administration, 
but only if— 
(A) the taxpayer is or may be a party to such proceeding; 
"(B) the treatment of an item reflected on such return 
is or may be related to the resolution of an issue in the pro-
ceeding or investigation; or 
"(C) such return or return information relates or may 
relate to a transactional relationship between a person who is 
or may be a party to the proceeding and the taxpayer which 
affects, or may affect, the resolution of an issue in such pro-
ceeding or investigation. 
"(3) FORM OF REQUEST.—In any case in which the Secretary is 
authorized to disclose a return or return information to the 
Department of Justice pursuant to the provisions of this 
subsection— 
"(A) if the Secretary has referred the case to the Depart-
ment of Justice, or if the proceeding is authorized by sub-
26 use 7421. 
chapter B of chapter 76, the Secretary may make such 
disclosure on his own motion, or 
"(B) if the Secretary receives a written request from the 
Attorney General, the Deputy Attorney General, or an 
Assistant Attorney General for a return of, or return infor-
mation relating to, a person named in such request and set-
ting forth the need for the disclosure, the Secretary shall 
disclose return or return the information so requested. 
"(4) 
DISCLOSURE 
IN 
JUDICIAL 
AND 
ADMINISTRATIVE TAX 
PROCEEDINGS.—A return or return information may be disclosed 
in a Federal or State judicial or administrative proceeding per-
taining to tax administration, but only— 
"(A) if the taxpayer is a party to such proceeding; 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1675 
" ( B ) if the treatment of an item reflected on such return 
is directly related to the resolution of an issue in the proceed-
ing; 
"(C) if such return or return information directly relates 
to a transactional relationship between a person who is a 
party to the proceeding and the taxpayer which directly 
affects the resolution of an issue in the proceeding; or 
" ( D ) to the extent required by order of a court pursuant 
to section 3500 of title 18, United States Code, or rule 16 of 
the Federal Rules of Criminal Procedure, such court being 
18 USC app. 
authorized in the issuance of such order to give due consider-
ation to congressional policy favoring the confidentiality of 
returns and return information as set forth in this title. 
However, such return or return information shall not be disclosed 
as provided in subparagraph ( A ) , (B), or (C) if the Secretary 
determines that such disclosure would identify a confidential 
informant or seriously impair a civil or criminal tax investigation. 
"(5) 
PROSPECTIVE JURORS.—In connection with any judicial 
proceeding described in paragraph (4) to which the United States 
IS a party, the Secretary shall respond to a written inquiry from 
an attorney of the Department of Justice (including a United 
States attorney) involved in such proceeding or any person (or his 
legal representative) who is a party to such proceeding as to 
whether an individual who is a prospective juror in such proceed-
ing has or has not been the subject of any audit or other tax 
investigation by the Internal Revenue Service. The Secretary 
shall limit such response to an affirmative or negative reply to such 
inquiry, 
"(i) 
DISCLOSURE 
TO FEDERAL 
OFFICERS 
OR EMPLOYEES FOR 
ADMINISTRATION 
OF 
FEDERAL 
LAWS 
NOT RELATING 
TO TAX 
ADMINISTRATION.— 
"(1) NONTAX CRIMINAL INVESTIGATION.— 
" ( A ) 
INFORMATION FROM TAXPAYER.—A return or tax-
payer return information shall, pursuant to, and upon the 
grant of, an ex parte order by a Federal district court judge 
as provided by this paragraph, be open, but only to the extent 
necessary as provided in such order, to officers and employees 
of a Federal agency personally and directly engaged in and 
solely for their use in, preparation for anv administrative or 
judicial proceeding (or investigation which may result in 
such a proceeding) pertaining to the enforcement of a specifi-
cally designated Federal criminal statute (not involving tax 
administration) to Avhich the United States or such agency 
is or may be a party. 
" ( B ) APPLICATION FOR ORDER.—The head of any Federal 
aarency described in subparagraph (A) or, in the case of the 
Department of Justice, the Attornev General, the Deputy 
Attorney General, or an Assistant Attornev General, may 
authorize an application to a Federal district court judge for 
the order referred to in subparagraph 
(A^. 
Upon such 
application, such judge may grant such order if he dptermines 
on the basis of the facts submitted bv the applicant that— 
"(i) there is reasonable cause to believe, based upon 
information believed to be reliable, that a specific crimi-
nal act has been committed; 
"(ii)_ there is_ reason to believe that such return or 
return information is probative evidence of a matter in 
90 STAT. 1676 
PUBLIC LAW 94-455—OCT. 4, 1976 
issue related to the commission of such criminal act; 
and 
"(iii) the information sought to be disclosed cannot 
reasonably be obtained from any other source, unless it is 
determined that, notwithstanding the reasonable availa-
bility of the information from another source, the return 
or return information sought constitutes the most pro-
bative evidence of a matter in issue relating to the 
commission of such criminal act. 
However, the Secretary shall not disclose any return or 
return information under this paragraph if he determines and 
certifies to the court that such disclosure would identify a 
confidential informant or seriously impair a civil or criminal 
tax investigation. 
"(2) 
RETURN 
INFORMATION OTHER THAN TAXPAYER RETURN 
INFORMATION.—Upou written request from the head of a Federal 
agency described in paragraph ( 1 ) ( A ) , or in the case of tha 
Department of Justice, the Attorney General, the Deputy Attor-
ney General, or an Assistant Attorney General, the Secretary 
shall disclose return information (other than taxpayer return 
information) to officers and employees of such 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) described in paragraph 
(1) (A^. Such request shall set forth— 
" ( A ) the name and address of the taxpayer with respect 
to whom such return information relates; 
" ( B ) the taxable period or periods to which the return 
information relates; 
"(C) the statutory authority under which the proceeding 
or investigation is being conducted; and 
" ( D ) the specific reason or reasons why such disclosure is 
or may be material to the proceeding or investigation. 
However, the Secretary shall not disclose any return or return 
information under this paragraph if he determines that such 
disclosure would identify a confidential informant or seriously 
impair a civil or criminal tax investigation. 
"(3) 
DISCLOSURE or RETURN INFORMATION CONCERNING POSSIBLE 
CRIMINAL ACTIVITIES.—The Secretary may disclose in writing 
return information, other than taxpayer return information, which 
may constitute evidence of a violation of Federal criminal laws 
to the extent necessary to apprise the head of the appropriate 
Federal agency charged with the responsibility for enforcing such 
laws. 
"(4) 
U S E IN JUDICIAL OR ADMINISTRATIVE PROCEEDING.—Any 
return or return information obtained under paragraph (1), (2), 
or (3) may be entered into evidence in any administrative or 
judicial proceeding pertaining to enforcement of a specifically 
designated Federal criminal statute (not involving tax adminis-
tration) to which the United States or an agency described in 
paragraph (1) (A) is a party but, in the case of any return or 
return information obtained under paragraph (1), only if the 
court finds that such return or return information is probative of 
a matter in issue relevant in establishing the commission of a crime 
or the guilt of a party. However, any return or return information 
obtained under paragraph (1), (2), or (3) shall not be admitted 
into evidence in such proceeding if the Secretary determines and 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1677 
notifies the Attorney General or his delegate or the head of such 
agency that such admission would identify a confidential inform-
ant or seriously impair a civil or criminal tax investigation. The 
admission into evidence of any return or return information 
contrary to the provisions of this paragraph shall not, as such, 
constitute reversible error upon appeal of a judgment in such 
proceeding. 
"(5) RENEGOTIATIOX OF CONTR^VCTS.—A return or return infor-
mation with respect to the tax imposed by chapter 1 upon a tax-
payer subject to the provisions of the Renegotiation Act of 1951 
shall, upon request in writing by the Chairman of the Renegotia-
tion Board, be open to officers and employees of such board person-
ally and directly engaged in, and solely for their use in, verifying 
or analyzing financial information required by such Act to be 
filed with, or otherwise disclosed to, the board, or to the extent 
necessary to implement the provisions of section 1481 or 1482. The 
Chairman of the Renegotiation Board may, upon referral of any 
matter with respect to such Act to the Department of Justice for 
further legal action, disclose such return and return information 
to any employee of such department charged with the responsi-
bility for handling such matters. 
" ( 6 ) COMPTROLLER GENERAL.— 
" ( A ) RETURNS AVAILABLE FOR IXSPECTIOX.—Except as pro-
vided in subparagraph ( B ) , upon written request by the 
Comptroller General of the LTnited States, returns and 
return information shall be open to inspection by, or disclo-
sure to, officers and employees of the General Accounting 
Office for the purpose of, and to the extent necessary in, 
making— 
"(i) an audit of the Internal Revenue Service or the 
Bureau of Alcohol, Tobacco and Firearms which may be 
required by section 117 of the Budget and Accounting 
Procedures Act of 1950 (31 U.S.C. 67), or 
"(ii) any audit authorized by subsection (p) (6), 
except that no such officer or empioyee shall, except to the 
extent authorized by subsection (f) or ( p ) ( 6 ) , disclose to 
any person, other than another officer or employee of such 
office whose official duties require such disclosure, any return 
or return information described in section 4424(a) in a form 
which can be associated with, or otherwise identify, directly 
or indirectly, a particular taxpayer, nor shall such officer 
or employee disclose any other return or return informa-
tion, except as otherwise expressly provided by law, to any 
person other than such other officer or employee of such office 
in a form which can be associated with, or otherwise identify, 
directly or indirectly, a particular taxpayer. 
" ( B ) 
DISAPPROVAL BY JOINT COMMITTEE ON TAXATION.— 
Returns and return information shall not be open to inspec-
tion or disclosed under subparagraph (A) with respect to an 
audita— 
"(i) unless the Comptroller General of the United 
Statics notifies in writing the Joint Committee on Taxa-
tion of such audit, and 
" (ii) if the Joint Committee on Taxation disapproves 
such audit by a vote of at least two-thirds of its members 
within the 30-day period beginning on the day the Joint 
Committee on Taxation receives such notice. 
26 use 1. 
50 use app. 
1211 note. 
26 use 1481, 
1482. 
Notification of 
congressional 
committee. 
89-194 O—78—pt. 2 
14 
90 STAT. 1678 
PUBLIC LAW 94-455—OCT. 4, 1976 
*'(j) STATISTICAL U S E . — 
Regulations. 
"(1) DEPARTMENT OF COMMERCE.—^Upon request in writing by 
the Secretary of Commerce, the Secretary shall furnish— 
" (A) such returns, or return information reflected thereon, 
to officers and employees of the Bureau of the Census, and 
"(B) such return information reflected on returns of cor-
porations to officers and employees of the Bureau of Eco-
nomic Analysis, 
as the Secretary may prescribe by regulation for the purpose of, 
but only to the extent necessary in, the structuring of censuses and 
national economic accounts and conducting related statistical 
activities authorized by law. 
"(2) FEDERAL TRADE COMMISSION.—^Upon request in writing by 
the Chairman of the Federal Trade Commission, the Secretary 
shall furnish such return information reflected on any return of 
26 use 1. 
a corporation with respect to the tax imposed by chapter 1 to offi-
cers and employees of the Division of Financial Statistics of the 
Bureau of Economics of such commission as the Secretary may 
prescribe by regulation for the purpose of, but only to the extent 
necessary in, administration by such division of legally author-
ized economic surveys of corporations. 
"(3) DEPARTMENT or TREASURY.—Returns and return informa-
tion shall be open to inspection by or disclosure to officers and 
employees of the Department of the Treasury whose official duties 
require such inspection or disclosure for the purpose of, but only 
to the extent necessary in, preparing economic or financial fore-
casts, projections, analyses, and statistical studies and conducting 
related activities. Such inspection or disclosure shall be permitted 
only upon written request which sets forth the specific reason or 
reasons why such inspection or disclosure is necessary and which 
is signed by the head of the bureau or office of the Department of 
the Treasury requesting the inspection or disclosure. 
"(4) ANONYMOUS FORM.—No person who receives a return 
or return information under this subsection shall disclose such 
return or return information to any person other than the 
taxpayer to whom it relates except in a form which cannot be 
associated with, or otherwise identify, directly or indirectly, a 
particular taxpayer, 
"(k) DISCLOSURE OF CERTAIN RETURNS AND RETURN INFORMATION 
FOR TAX ADMINISTRATION PURPOSES.— 
"(1) DISCLOSURE OF ACCEPTED OFFERS-IN-COMPROMISE.—Return 
information shall be disclosed to members of the general public 
to the extent necessary to permit inspection of any accepted offer-
26 use 7122. 
in-compromise under section 7122 relating to the liability for a 
tax imposed by this title. 
" (2) DISCLOSURE OF AMOUNT OF OUTSTANDING LIEN.—If a notice 
of lien has been filed pursuant to section 6323(f), the amount of 
the outstanding obligation secured by such lien may be disclosed 
to any person Avho furnishes satisfactory written evidence that 
he has a right in the property subject to such lien or intends to 
obtain a right in such property. 
"(3) 
DISCLOSURE OF RETURN INFORMATION TO CORRECT MIS-
STATEMENTS OF FACT.—The Secretary may, but only following 
approval by the Joint Committee on Taxation, disclose such 
return information or any other information with respect to any 
specific taxpayer to the extent necessary for tax administration 
purposes to correct a misstatement of fact published or disclosed 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1679 
with respect to such taxpayer's return or any transaction of the 
taxpayer with the Internal Revenue Service. 
"(4) 
DISCLOSURE TO COMPETENT AUTHORITY UNDER INCOME TAX 
CONVENTION.—A return or return information may be disclosed 
to a competent authority of a foreign government which has 
an income tax convention with the United States but only to 
the extent provided in, and subject to the terms and conditions 
of, such convention. 
"(5) 
STATE AGENCIES REGULATING TAX RETURN PREPARERS.— 
Taxpayer identity information with respect to any income tax 
return preparer, and information as to whether or not any penalty 
has been assessed against such income tax return preparer under 
section 6694, 6695, or 7216, may be furnished to any agency, body, 
or commission lawfully charged under any State or local law 
with the licensing, registration, or regulation of income tax return 
preparers. Such information may be furnished only upon written 
request by the head of such agency, body, or commission desig-
nating the officers or employees to whom such information is to be 
furnished. Information may be furnished and used under this 
paragraph only for purposes of the licensing, registration, or 
regulation of income tax return preparers. 
"• (6) DISCLOSURE BY INTERNAL REVENUE OFFICERS AND EMPLOYEES 
FOR INVESTIGATIVE PURPOSES.—An internal revenue officer 
or 
employee may, in connection with his official duties relating to any 
audit, collection activity, or civil or criminal tax investigation or 
any other offense under the internal revenue laws, disclose return 
information to the extent that such disclosure is necessary in 
obtaining information, which is not otherwise reasonably avail-
able, with respect to the correct determination of tax, liability for 
tax, or the amount to be collected or with respect to the enforce-
ment of any other provision of this title. Such disclosures shall be 
made only in such situations and under such conditions as the 
Secretary may prescribe by regulation. 
"(1) 
DISCLOSURE OF RETURNS AND RETURN INFORMATION FOR P U R -
POSES OTHER T H A N TAX ADMINISTRATION.— 
"(1) 
DISCLOSURE OF CERTAIN RETURNS AND RETURN INFORMA-
TION TO SOCIAL SECURITY ADMINISTRATION AND RAILROAD RETIRE-
MENT BOARD.—The Secretary may, upon written request, disclose 
returns and return information with respect to— 
"(A) taxes imposed by chapters 2, 21, and 24, to the Social 
Security Administration for purposes of its administration 
of the Social Security Act; 
" ( B ) a plan to which part I of subchapter D of chapter 1 
applies, to the Social Security Administration for purposes 
of carrying out its responsibility under section 1131 of the 
Social Security Act, limited, however to return information 
described in section 6057(d); and 
"(C) taxes imposed by chapter 22, to the Railroad Retire-
ment Board for purposes of its administration of the Railroad 
Retirement Act. 
"(2) 
DISCLOSURE OF RETURNS AND RETURN INFORMATION TO THE 
DEPARTMENT OF LABOR AND PENSION BENEFIT GUARANTY CORPORA-
TION.—The Secretary may, upon written request, furnish returns 
and return information to the proper officers and employees of the 
Department of Labor and the Pension Benefit Guaranty Corpora-
tion for purposes of, but only to the extent necessary in, the 
Post, pp. 1689, 
1692. 
26 use 7216. 
Regulations. 
26 
use 
1401, 
3101, 
3401. 
42 
use 
1305. 
26 
use 
401. 
42 
use 
1320b-l. 
26 
use 
6057. 
26 
use 
3201. 
45 
use 
215 
note. 
90 STAT. 1680 
PUBLIC LAW 94-455—OCT. 4, 1976 
administration of titles I and IV of the Employee Retirement 
29 use 1001 
Income Security Act of 1974. 
°®*®* 
"(3) DISCLOSURE OF RETURNS AND RETURN INFORMATION TO PRI-
VACY PROTECTION STUDY COMMISSION.—The Secretary may, upon 
written request, disclose returns and return information to the 
Privacy Protection Study Commission, or to such members, ojK-
cers, or employees of such commission as may be named in such 
written request, to the extent provided under section 5 of the 
5 use 552a 
Privacy Act of 1974. 
°°*®' 
"(4) DISCLOSURE OF RETURNS AND RETURN INFORMATION FOR USE 
IN PERSONNEL OR CLAIMANT REPRESENTATIVE MATTERS.—The Sec-
retary may disclose returns and return information— 
" (A) upon written request— 
" (i) to an employee or former employee of the Depart-
ment of the Treasury, or to the duly authorized legal 
representative of such employee or former emploj^ee, 
who is or may be a party to any administrative action 
or proceeding affecting the personnel rights of such 
employee or former employee; or 
"(ii) to any person, or to the duly authorized legal 
representative of such person, whose rights are or may 
be affected by an administrative action or proceeding 
under section 3 of the Act of July 7,1884 (23 Stat. 258; 
31 U.S.C. 1026), 
solely for use in the action or proceeding, or in preparation 
for the action or proceeding, but only to the extent that the 
Secretary determines that such returns or return information 
is or may be relevant and material to the action or proceed-
ing; or 
"(B) to officers and employees of the Department of the 
Treasury for use in any action or proceeding described in 
subparagraph (A), or in preparation for such action or pro-
ceeding, to the extent necessary to advance or protect the 
interests of the United States. 
"(5) 
DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE.— 
Upon written request by the Secretary of Health, Education, and 
26 usr 
fio'ii 
Welfare, the Secretarv may disclose information returns filed 
pursuant to part III oi subchapter A of chapter 61 of this subtitle 
for the purpose of carrying out, in accordance with an agreement 
entered into pursuant to section 232 of the Social Security Act, 
an effective return processing program. 
"(6) 
DISCLOSURE OF RETURN INFORMATION TO FEDERAL, STATE, 
AND LOCAL CHILD SUPPORT ENFORCEMENT AGENCIES.— 
"(A) 
RETURN INFORMATION FROM INTERNAL REVENUE SERV-
ICE.—^The Secretary may, upon written request, disclose to the 
appropriate Federal, State, or local child support enforce-
ment agency— 
"(i) available return information from the master 
files of the Internal Revenue Service relating to the 
address, filing status, amounts and nature of income, and 
the number of dependents reported on an^ return filed 
by, or with respect to, any individual with respect to 
whom child support obligations are sought to be estab-
lished or enforced pursuant to the provisions of part D 
of title IV of the Social Security Act and with respect 
42 use 432. 
42 use 651. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1681 
: 
to any individual to whom such support obligations are 
' 
owing, and 
"(ii) available return information reflected on any 
return filed by, or with respect to, any individual 
described in clause (i) relating to the amount of such 
96 IJSC 61 
individual's gross income (as defined in section 61) or 
consisting of the names and addresses of payors of such 
income and the names of any dependents reported on 
such return, but only if such return information is not 
reasonably available from any other source. 
" ( B ) 
RESTRICTION ON DISCLOSURE.—The Secretary shall 
disclose return information under subparagraph (A) only 
for purposes of, and to the extent necessary in, establishing 
and collecting child support obligations from, and locating, 
individuals owing such obligations, 
" ( m ) 
DISCLOSURE 
or 
TAXPAYER 
IDENTII-Y 
INFORMATION.—The 
Secretary is authorized— 
" (1) to disclose taxpayer identity information to the press and 
other media for purposes of notifying persons entitled to tax 
refunds when the Secretary, after reasonable eifort and lapse of 
time, has been unable to locate such persons, and 
"(2) upon written request, to 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 Federal claim against such taxpayer in accord-
ance with the provisions of section 3 of the Federal Claims Col- 
on iicn QI;9 
lection Act of 1966. 
31 UbL 952. 
" ( n ) CERTAIN OTHER PERSONS.—Pursuant to regulations prescribed 
by the Secretary, returns and return information may be disclosed to 
any person, including any person described in section 7513(a), to the 
extent necessary in connection with the processing, storage, transmis-
sion, and reproduction of such returns and return information, and 
the programming, maintenance, repair, testing, and procurement of 
equipment, for purposes of tax administration. 
"(o) 
DISCLOSURE OF RETURNS AND RETURN INFORMATION 
W I T H 
RESPECT TO CERTAIN TAXES.— 
"(1) 
TAXES 
IMPOSED BY SUBTITLE E.—Returns and 
return 
information with respect to taxes imposed by subtitle E (relating 
to taxes on alcohol, tobacco, and firearms) shall be open to inspec-
tion by or disclosure to officers and employees of a Federal agency 
whose official duties require such inspection or disclosure. 
"(2) 
TAXES IMPOSED BY CHAPTER 3 5.—Returns and return 
26 USC 4401. 
information with respect to taxes imposed by chapter 35 (relating 
to taxes on wagering) shall, notwithstanding any other provision-
of this section, be open to inspection by or disclosure only to such 
person or persons and for such purpose or purposes as are pre-
scribed by section 4424. 
" ( p ) PROCEDURE AND RECORDKEEPING.— 
"(1) MANNER, TIME, AND PLACE OF INSPECTIONS.—Requests for 
the inspection or disclosure of a return or return information and 
such inspection or disclosure shall be made in such manner and at 
such time and place as shall be prescribed by the Secretary. 
"(2) PROCEDURE.— 
" ( A ) 
REPRODUCTION 
OF RETURNS.—A 
reproduction 
or 
certified reproduction of a return shall, upon written request, 
be furnished to any person to whom disclosure or inspection 
Regulations. 
26 USC 5001. 
90 STAT. 1682 
PUBLIC LAW 94-455—OCT. 4, 1976 
Fee. 
of such return is authorized under this section. A reasonable 
fee may be prescribed for furnishing such reproduction or 
certified reproduction. 
"(B) DISCLOSURE OF RETURN INFORMATION.—Return infor-
mation disclosed to any person under the provisions of this 
title may be provided in the form of written documents, 
reproductions of such documents, films or photoimpressions, 
or electronically produced tapes, disks, or records, or by any 
other mode or means which the Secretary determines neces-
Fee. 
sary or appropriate. A reasonable fee may be prescribed for 
furnishing such return information. 
"(C) USE OF REPRODUCTIONS.—Any reproduction of any 
return, document, or other matter made in accordance with 
this paragraph shall have the same legal status as the origi-
nal, and any such reproduction shall, if properly authen-
ticated, be admissible in evidence in any judicial or 
administrative proceeding as if it were the original, whether 
or not the original is in existence. 
"(3) RECORDS OF INSPECTION AND DISCLOSURE.— 
"(A) SYSTEM OF RECORDKEEPING.—Except as otherwise 
provided by this paragraph, the Secretary shall maintain a 
permanent svstem of standardized records or accountings of 
all requests tor inspection or disclosure of returns and return 
information (including the reasons for and dates of such 
requests) and of returns and return information inspected or 
disclosea under this section. Notwithstanding the provisions 
of section 552a (c) of title 5, United States Code, the Secretary 
shall not be required to maintain a record or accounting of 
requests for inspection or disclosure of returns and return 
information, or of returns and return information inspected 
or disclosed, under the authority of subsections (c), (e), (h) 
(1), (3) (A), or (4), (i) (4) or (6) (A) (ii), (k) (1), (2), or 
(6), (1)(1) or (4)(B) or (5), (m), or (n). The records or 
accountings required to be maintained under this paragraph 
shall be available for examination by the Joint Committee on 
Taxation or the Chief of Staff of such joint committee. Such 
record or accounting shall also be available for examination 
by such person or persons as may be, but only to the extent, 
authorized to make such examination under section 552a(c) 
(3) of title 5, United States Code. 
Report to 
"(B) REPORT B
Y THE SECRETARY.—The Secretary shall, 
<^o^F®^sional 
within 90 days after the close of each calendar year, furnish 
""" 
to the Joint Committee on Taxation a report with respect 
to, or summary of, the records or accounting described in 
subparagraph (A) in such form and containing such infor-
mation as such joint committee or the Chief of Staff of such 
joint committee may designate. Such report or summary shall 
not, however, include a record or accounting of any request 
by the President under subsection (g) for, or the disclosure 
in response to such request of, any return or return informa-
tion with respect to any individual who, at the time of such 
request, was an officer or employee of the executive branch of 
the Federal Government. Such report or summary, or any 
part thereof, may be disclosed by such joint committee to such 
persons and for such purposes as the joint committee may, 
committee. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1683 
by record vote of a majority of the members of the joint com-
mittee, determine. 
" (C) PUBLIC REPOKT ON DISCLOSURES.—The Secretary shall, 
within 90 days after the close of each calendar year, furnish to 
the Joint Committee on Taxation for disclosure to the public 
a report with respect to the records or accountings described 
in subparagraph (A) which— 
" (i) provides with respect to each Federal agency, each 
agency, body, or commission described in subsection (d) 
or (1) (3) or (6), and the General Accounting Office the 
number of— 
"(I) requests for disclosure of returns and return 
information, 
"(II) instances in which returns and return 
information 
were disclosed 
pursuant to such 
requests, 
"(III) taxpayers whose returns, or return infor-
mation with respect to whom, were disclosed pursu-
ant to such requests, and 
"(ii) describes the general purposes for which such 
requests were made, 
"(4) SArEGUARDS.—Any Federal agency described in subsection 
(h)(2), (i) (1), (2) or (5), (j)(l) or (2), (1) (1), (2), or (5), 
or (o) (1), the General Accounting Office, or any agency, body, or 
commission described in subsection (d) or (1) (3) or (6) shall, 
as a condition for receiving returns or return information— 
"(A) establish and maintain, to the satisfaction of the Sec-
retary, a permanent system of standardized records with 
respect to any request, the reason for such request, and the 
date of such request made by or of it and any disclosure of 
return or return information made by or to it; 
"(B) establish and maintain, to the satisfaction of the Sec-
retary, a secure area or place in which such returns or return 
information shall be stored; 
"(C) restrict, to the satisfaction of the Secretary, access to 
the returns or return information only to persons whose 
duties or responsibilities require access and to whom dis-
closure may be made under the provisions of this title; 
"(D) provide such other safeguards which the Secretary 
determines (and which he prescribes in regulations) to be 
necessary or appropriate to protect the confidentiality of the 
returns or return information; 
"(E) furnish a report to the Secretary, at such time and 
containing such information as the Secretary may prescribe, 
which describes the procedures established and utilized by 
such agency, body, or commission or the General Accounting 
Office for ensuring the confidentialty of returns and return 
information required by this paragraph; and 
"(F) upon completion of use of such returns or return 
information— 
"(i) in the case of an agency, body, or commission 
described in subsection (d) or (1) (6), return to the Secre-
t&Tj such returns or return information (along with any 
copies made therefrom) or make such returns or return 
information undisclosable in any manner and furnish a 
written report to the Secretary describing such manner; 
and 
Report to 
congressional 
committee. 
Record 
maintenance. 
Report. 
Report. 
90 STAT. 1684 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(ii) in the case of an agency described in subsections 
(h)(2), (i) (1), (2), or (5), (j)(l) or (2), (1) (1), (2), 
or(5),or(o)(l), the commission described in subsection 
(1) (3), or the General Accounting Office, either— 
"(I) return to the Secretary such returns or 
return information (along with any copies made 
therefrom), 
"(II) otherwise make such returns or return 
information widisclosable, or 
"(III) to the extent not so returned or made 
undisclosable, ensure that the conditiees ef subpapa-
graphs (A), (B), (C), (D), and (E) of this para-
graph continue to be met with respect to such 
returns or return information, 
except that the conditions of subparagraphs (A), (B), (C), (D), 
and (E) shall cease to apply with respect to any return or return 
information if, and to the extent that, such return or return 
information is disclosed in the course of any judicial or administra-
tive proceeding and made a part of the public record thereof. If 
the Secretary determines that any such agency, body, or com-
mission or the General Accounting Office has failed to, or does 
not, meet the requirements of this paragraph, he may, after any 
proceedings for review established under paragraph (7), take 
such actions as are necessary to ensure such requirements are met, 
including refusing to disclose returns or return information to 
such agency, body, or commission or the General Accounting 
Office until he determines that such requirements have been or will 
be met. 
"(5) 
REPORT ON PROCEDURES AND SAFEGUARDS.—After the 
close of each calendar quarter, the Secretary shall furnish to each 
committee described in subsection (f) (1) a report which describes 
the procedures and safeguards established and utilized by such 
agencies, bodies, or commissions and the General Accounting 
Office for ensuring the confidentiality of returns and return infor-
mation as required by this subsection. Such report shall also 
describe instances of deficiencies in, and failure to establish or 
utilize, such procedures. 
" (6) AUDIT or PROCEDURES AND SAFEGUARDS.— 
"(A) AUDIT BY COMPTROLLER GENERAL.—The Comptroller 
General may audit the procedures and safeguards established 
by such agencies, bodies, or commissions pursuant to this 
subsection to determine whether such safeguards and pro-
cedures meet the requirements of this subsection and ensure 
the confidentiality of returns and return information. The 
Comptroller General shall notify the Secretary before any 
such audit is conducted, 
"(B) RECORDS OF INSPECTION AND REPORTS BY THE COMP-
TROLLER GENERAL.—The Comptroller General shall— 
"(i) maintain a permanent system of standardized 
records and accountings of returns and return informa-
tion inspected by officers and employees of the General 
Accounting Office under subsection (i)(6)(A)(ii) and 
shall, within 90 days after the close of each calendar 
year, furnish to the Secretary a report with respect to, 
or summary of, such records or accountings in such form 
and containing such information as the Secretary may 
prescribe, and 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1685 
"(ii) furnish an annual report to each committee Report to 
described in subsection (f) and to the Secretary setting congressional 
forth his findings with respect to any audit conducted committees, 
pursuant to subparagraph (A). 
The Secretary may disclose to the Joint Committee any 
report furnished to him under clause (i). 
" (7) ADMINISTRATIVE REVIEW.—The Secretary shall by regula- Regulations, 
tions prescribe procedures which provide for administrative 
review of any determination under paragraph (4) that any 
agency, body, or commission described in subsection (d) has failed 
to meet the requirements of such paragraph. 
" ( 8 ) S T A T E LAW REQUIREMENTS.— 
"(A) SAFEGUARDS.—Notwithstanding any other provision 
of this section, no return or return information shall be dis-
closed after December 31, 1978, to any oflGlcer or employee of 
any State which requires a taxpayer to attach to, or include in, 
any State tax return a copy of any portion of his Federal 
return, or information reflected on such Federal return, unless 
such State adopts provisions of law which protect the confi-
dentiality of the copy of the Federal return (or portion 
thereof) attached to, or the Federal return information 
reflected on, such State tax return. 
"(B) 
DISCLOSURE or RETURNS OR RETURN INFORMATION IN 
S
T
A
T
E RETURNS.—Nothing in subparagraph (A) shall be con-
strued to prohibit the disclosure by an officer or employee of 
any State of any copy of any portion of a Federal return 
or any information on a Federal return which is required to 
be attached or included in a State return to another ofiicer 
or employee of such State (or political subdivision of such 
State) if such disclosure is specifically authorized by State 
law. 
"(q) REGULATIONS.—The Secretary is authorized to prescribe such Regulations, 
other regulations as are necessary to carry out the provisions of this 
section." 
(2) CONFORMING AMENDMENT.—The table of sections for sub-
chapter B of chapter 61 is amended by striking out the item 
relating to section 6103 and inserting in lieu thereof the following : 
"Sec. 6103. Confidentiality and disclosure of returns and return 
information." 
(b) STATISTICAL PUBLICATIONS AND STUDIES.—Section 6108 (relating 26 USC 6108. 
to publication of statistics of income) is amended to read as follows: 
•SEC. 6108. STATISTICAL PUBLICATIONS AND STUDIES. 
"(a) PUBLICATION O
R OTHER DISCLOSURE OF STATISTICS O
F INCOME.— 
The Secretary shall prepare and publish not less than annually 
statistics reasonably available with respect to the operations of 
the internal revenue laws, including classifications of taxpayers and 
of income, the amounts claimed or allowed as deductions, exemptions, 
and credits, and any other facts deemed pertinent and valuable. 
"(b) SPECIAL STATISTICAL STUDIES.—The Secretary may, upon writ-
ten request by any party or parties, make special statistical studies 
and compilations involving return information (as defined in section 
6103(b) (2)) and furnish to such party or parties transcripts of any 
such special statistical study or compilation. A reasonable fee may be Fee. 
prescribed for the cost of the work or services performed for such 
party or parties. 
90 STAT. 1686 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(c) ANONTMOUS FORM.—No publication or other disclosure of 
statistics or other information required or authorized by subsection 
(a) or special statistical study authorized by subsection ^b) shall in 
any manner permit the statistics, study, or any information so pub-
lished, furnished, or otherwise disclosed to be associated with, or 
otherwise identify, directly or indirectly, a particular taxpayer." 
(c) INSPECTION OF CERTAIN RECORDS BY LOCAL OFFICERS.— 
26 use 4102. 
(1) I N GENERAL.—Section 4102 (relating to inspection of rec-
ords, returns, etc., by local officers) is amended to read as follows: 
*SEC. 4102. INSPECTION OF RECORDS BY LOCAL OFFICERS. 
Regulations. 
"Under regulations prescribed by the Secretary, records required 
to be kept with respect to taxes under this part shall be open to inspec-
tion by such officers of a State, or a political subdivision of any such 
State, as shall be charged with the enforcement or collection of any 
tax on gasoline or lubricating oils." 
(2) CONFORMING AMENDMENT.—The table of sections for sub-
part B of part I I I of chapter 32 is amended by striking out the 
item relating to section 4102 and inserting in lieu thereof the 
following: 
"Sec. 4102. Inspection of records by local officers." 
(d) PENALTY FOR UNAUTHORIZED DISCLOSURE OF INFORMATION.— 
26 use 7213. 
Section 7213 (relating to unauthorized disclosure of information) is 
amended by striking out subsection (c), redesignating subsections 
(d) and (e) as (c) and (d), respectively, and by amending subsec-
tion (a) to read as follows: 
" ( a ) RETURNS AND RETURN INFORMATION.— 
"(1) 
FEDERAL EMPLOYEES AND OTHER PERSONS.—It shall be 
unlawful for any officer or employee of the United States or any 
Ante, p. 1681. 
person described in section 6103 (n) (or an officer or employee of 
any such person), or any former officer or employee, to disclose to 
any person, except as authorized in this title, any return or return 
Ante, p. 1668. 
information (as defined in section 6103(b)). Any violation of 
this paragraph shall be a felony punishable upon conviction by a 
fine in any amount not exceeding $5,000, or imprisonment of not 
more than 5 years, or both, together with the costs of prosecution, 
and if such offense is committed by any officer or employee of the 
United States, he shall, in addition to any other punishment, be 
dismissed from office or discharged from employment upon con-
viction for such offense. 
"(2) STATE AND OTHER EMPLOYEES.—It shall be unlawful for 
any officer, employee, or agent, or former officer, employee, or 
agent, of any State (as defined in section 6103(b)(5)) or any 
local child support enforcement agency to disclose to any person, 
except as authorized in this title, any return or return informa-
tion (as defined in section 6103(b)) acquired by him or another 
person under section 6103(d) or (1)(6). Any violation of this 
paragraph shall be a felony punishable by a fine in any amount 
not exceeding $5,000, or imprisonment of not more than 5 years, 
or both, together with the costs of prosecution. 
"(3) OTHER PERSONS.—It shall be unlawful for anv person to 
whom any return or return information (as defined in section 
6103(b)) is disclosed in a manner unauthorized by this title to 
thereafter print or publish in any manner not provided by law 
any such return or return information. Any violation of this 
paragraph shall be a felony punishable by a fine in any amount 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1687 
not exceeding $5,000, or imprisonment of not more than 5 years, 
or both, together with the costs of prosecution. 
" (4) SOLICITATION.—It shall be unlawful for any person to offer 
any item of material value in exchange for any return or return 
information (as defined in section 6103(b)) and to receive as a ^nte, p. 1668. 
result of such solicitation any such return or return information. 
Any violation of this paragraph shall be a felony punishable by 
a fine in any amount not exceeding $5,000, or imprisonment of not 
more than 5 years, or both, together with the costs of prosecution. 
"(5) SHAREHOLDERS.—It shall be unlawful for any person to 
whom a return or return information (as defined in section 6103 
(b)) is disclosed pursuant to the provisions of section 6103(e) (1) 
(D) (iii) to disclose such return or return information in any 
i 
manner not provided by law. Any violation of this paragraph 
shall be a felony punishable by a fine in any amount not to exceed 
$5,000, or imprisonment of not more than 5 years, or both, together 
with the costs of prosecution." 
(e) CrviL DAMAGES FOR UNAUTHORIZED DISCLOSURE OF RETURNS 
AND RETURN INFORMATION.— 
(1) I N GENERAL.—Part I of subchapter A of chapter 75 (relat-
ing to miscellaneous penalties and forfeitures) is amended by 
adding at the end thereof the following new section: 
"SEC. 
7217. CIVIL DAMAGES FOR UNAUTHORIZED DISCLOSURE OF 26 USC 7217. 
RETURNS AND RETURN INFORMATION. 
" (a) GENERAL RULE.—Whenever any person knowingly, or by reason 
of negligence, discloses a return or return information (as defined in 
section 6103(b)) with respect to a taxpayer in violation of the provi-
sions of section 6103, such taxpayer may bring a civil action for dam-
ages against such person, and the district courts of the United States 
shall have jurisdiction of any action commenced under the provisions 
of this section. 
"(b) DAMAGES.—In any suit brought under the provisions of sub-
section (a), upon a finding of liability on the part of the defendant, the 
defendant shall be liable to the plaintiff in an amount equal to the 
sum of— 
"(1) actual damages sustained by the plaintiff as a result of the 
unauthorized disclosure of the return or return information and, 
in the case of a willful disclosure or a disclosure which is the result 
of gross negligence, punitive damages, but in no case shall a plain-
tiff entitled to recovery receive less than the sum of $1,000 with 
respect to each instance of such unauthorized disclosure; and 
"(2) the costs of the action. 
"(c) An action to enforce any liability created under this section 
may be brought, without regard to the amount in controversy, within 
2 years from the date on which the cause of action arises or at any time 
within 2 years after discovery by the plaintiff of the unauthorized 
disclosure." 
(2) CONFORMING AMENDMENT.—The table of sections for such 
part is amended by adding at the end thereof the following new 
item: 
"Sec. 7217. Civil damages for unauthorized disclosure of returns and 
return information." 
(f) 
PROCESSING OF RETURNS, RETURN INFORMATION, AND OTHER 
DOCUMENTS.—Section 7513 (relating to reproduction of returns and 26 USC 7513. 
other documents) is amended by striking out subsection (c) and redes-
ignating subsection (d) as subsection (c). 
90 STAT. 1688 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 7852. 
26 
use 
6106. 
26 
use 
6323. 
26 
use 
7213. 
26 
use 
7515. 
26 
use 
7809. 
26 
use 
4424. 
26 use 6103 
note. 
26 use 7701. 
"Income tax 
return 
preparer." 
26 use 1. 
(g) OTHER APPLICABLE RULES.—Section 7852 (relating to other 
rules applicable under title 26) is amended by adding at the end thereof 
the following new subsection: 
"(e) PRIVACY ACT OF 1974.—The provisions of subsections (d) (2), 
(3), and (4), and (g) of section 552a of title 5, United States Code, 
shall not be applied, directly or indirectly, to the determination of the 
existence or possible existence of liability (or the amount thereof) of 
any person for any tax, penalty, interest, fine, forfeiture, or other impo-
sition or offense to which the provisions of this title apply." 
(h) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) Section 6106 (relating to publicity of unemployment tax 
returns) is hereby repealed. 
(2) Section 6323 (relating to validity and priority of tax liens 
against certain persons) is amended by striking out paragraph 
(3) of subsection (i). 
(3) Subsection (d) of section 7213 (relating to cross references) 
is amended by striking out paragraph (1) and inserting in lieu 
thereof: 
"(1) Penalties for disclosure of information by preparers of 
returns.—For penalty for disclosure or use of information by preparers 
of returns, see section 7216." 
(4) Section 7515 (relating to special statistical studies and com-
pilations and other services on request) is hereby repealed, 
(5) Subsection (c) of section 7809 (relating to deposit of col-
lections) is amended by striking out in paragraph (1) "section 
7515 (relating to special statistical studies and compilations for 
other services on request)" and inserting in lieu thereof "section 
6103(p) (relating to furnishing of copies of returns or of return 
information), and section 6108(b) (relating to special statistical 
studies and compilations)". 
(6) Subsection (d) of section 4424 (relating to disclosure of 
wagering tax information) is amended by striking out "6103(d)" 
and inserting in lieu thereof "6103 (f)". 
(i) EFFECTIVE DATE.—The amendments made by this section take 
effect January 1, 1977. 
SEC. 1203. INCOME TAX RETURN PREPARERS. 
(a) 
DEFINITION.—Section 7701(a) 
(relating to definitions) is 
amended by adding at the end thereof the following new paragraph: 
"(36) INCOME TAX RETURN PREPARER.— 
" ( A ) I N GENERAL.—The term 'income tax return preparer' 
means any person who prepares for compensation, or who 
employs one or more persons to prepare for compensation, 
any return of tax imposed by subtitle A or any claim for 
refund of tax imposed by subtitle A. For purposes of the pre-
ceding sentence, the preparation of a substantial portion of a 
return or claim for refund shall be treated as if it were the 
preparation of such return or claim for refund. 
" ( B ) EXCEPTIONS.—A person shall not be an 'income tax 
return preparer' merely because such person— 
"(i) furnishes typing, reproducing, or other mechani-
cal assistance, 
"(ii) prepares a return or claim for refund of the 
employer (or of an officer or employee of the employer) 
by whom he is regularly and continuously employed, 
"(iii) prepares a return or claim for refund for any 
trust or estate with respect to which he is a fiduciary, or 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1689 
"(iv) prepares a claim lor refund for a taxpayer in 
response to any notice of deficiency issued to such tax-
payer or in response to any waiver of restriction after the 
commencement of an audit of such taxpayer or another 
taxpayer if a determination in such audit of such other 
taxpayer directly or indirectly affects the tax liability of 
such taxpayer." 
(b) 
ASSESSABLE PENALTIES WHERE PREPARER UNDERSTATES TAX-
PAYER'S LIABILITY.— 
(1) I N GENERAL.—Subchapter B of chapter 68 (relating to 
assessable penalties) is amended by adding at the end thereof the 
following new section: 
"SEC. 6694. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME 
26 USC 6694. 
TAX RETURN PREPARER. 
"(a) NEGLIGENT OR INTENTIONAL DISREGARD or RULES AND REGULA- 
Penalties. 
TioNS.—If any part of any understatement of liability with respect to 
any return or claim for refund is due to the negligent or intentional 
disregard of rules and regulations by any person who is an income tax 
return preparer with respect to such return or claim, such person shall 
pay a penalty of $100 with respect to such return or claim. 
"(b) WILLFUL UNDERSTATEMENT OF LIABILITY.—If any part of any 
understatement of liability with respect to any return or claim for 
refund is due to a willful attempt in any manner to understate the lia-
bility for a tax by a person who is an income tax return preparer with 
respect to such return or claim, such person shall pay a penalty of $500 
with respect to such return or claim. With respect to any return or 
claim, the amount of the penalty payable by any person by reason of 
this subsection shall be reduced by the amount of the penalty paid by 
such person by reason of subsection (a). 
, 
"(c) EXTENSION OF PERIOD OF COLLECTION W H E R E PREPARER PAYS 
15 PERCENT OF PENALTY.— 
"(1) I N GENERAL.—If, within 30 days after the day on which 
notice and demand of any penalty under subsection (a) or (b) is 
made against any person who is an income tax return preparer, 
such person pays an amount which is not less than 15 percent of 
the amount of such penalty and files a claim for rfefund of the 
amount so paid, no levy or proceeding in court for the collection 
of the remainder of such penalty shall be made, begun, or prose-
cuted until the final resolution of a proceeding begun as provided 
in paragraph (2). Notwithstanding the provisions of section 7421 
(a), the beginning of such proceeding or levy during the time 
such prohibition is in force may be enjoined by a proceeding in 
the proper court. 
" (2) PREPARER MUST BRING SUIT I N DISTRICT COURT TO DETERMINE 
HIS LIABILITY FOR PENALTY.—If, within 30 days after the day on 
which his claim for refund of any partial payment of any penalty 
under subsection (a) or (b) is denied (or, if earlier, within 30 
days after the expiration of 6 months after the day on which he 
filed the claim for refund), the income tax return preparer fails 
to begin a proceeding in the appropriate United States district 
court for the determination of his liability for such penalty, para-
graph (1) shall cease to apply with respect to such penalty, effec-
tive on the day following the close of the applicable 30-day period 
referred to in this paragraph. 
"(3) SUSPENSION OF RUNNING OF PERIOD OF LIMITATIONS ON COL-
LECTION.—The running of the period of limitations provided in 
90 STAT. 1690 
PUBLIC LAW 94-455—OCT. 4, 1976 
section 6502 on the collection by levy or by a proceeding in court 
in respect of any penalty described in paragraph (1) shall be 
suspended for the period during which the Secretary is prohibited 
from collecting by levy or a proceeding in court. 
" ( d ) ABATEMENT or PENALTY W H E R E TAXPAYER'S LIABILITY N O T 
UNDERSTATED.—If at any time there is a final administrative determi-
nation or a final judicial decision that there was no understatement of 
liability in the case of any return or claim for refund with respect 
to which a penalty under subsection (a) or (b) has been assessed, 
such assessment shall be abated, and if any portion of such penalty 
has been paid the amount so paid shall be refunded to the person who 
made such payment as an overpayment of tax without regard to any 
period of limitations which, but for this subsection, would apply to 
the making of such refund. 
" (e) UNDERSTATEMENT OF LIABILITY DEFINED.—For purposes of this 
section, the term 'understatement of liability' means any understate-
ment of the net amount payable with respect to any tax imposed by 
26 use 1. 
subtitle A or any overstatement of the net amount creditable or 
refundable with respect to any such tax. Except as otherwise provided 
in subsection (d), the determination of whether or not there is an 
J 
understatement of liability shall be made without regard to any 
administrative or judicial action involving the taxpayer. 
"(f) CROSS REFERENCE.— 
"For definition of income tax return preparer, see section 7701 
Ante, p. 1688. 
(a)(36)." 
(2) BURDEN OF PROOF UNDER 0694(b).— 
(A) Subchapter B of chapter 76 (relating to proceedings 
by taxpayers and third parties) is amended by redesignating 
26 use 7428. 
section 7427 as section 7428 and by inserting after section 
7426 the following new section: 
26 use 7427. 
"SEC. 7427. INCOME TAX RETURN PREPARERS. 
"In any proceeding involving the issue of whether or not an income 
tax return preparer has willfully attempted in any manner to under-
Ante, p. 1689. 
state the liability for tax (within the meaning of section 6694(b)), the 
burden of proof in respect to such issue shall be upon the Secretary." 
(B) The table of sections for such subchapter B is amended 
by striking out the last item and inserting in lieu thereof the 
following: 
"Sec. 7427. Income tax return preparers. 
"Sec. 7428. Cross references." 
(c) PREI'ARER MUST FUTINISH COPY OF RETURN TO TAXPAYER AND 
MUST RETAIN COPY OR LIST.—Subchapter B of chapter 61 (relating 
to information and returns) is amended by inserting after section 
6106 the following new section: 
26 use 6107 
"SEC. 6107. INCOME TAX RETURN PREPARER MUST FURNISH COPY OF 
RETURN TO TAXPAYER AND MUST RETAIN A COPY OR 
LIST. 
"(a) 
FuKxisiiiNG COPY TO TAXPAYER.—Any person who is an 
income tax return pieparer with respect to any return or claim for 
refund shall furnish a completed copy of such return or claim to the 
taxpayer not later than the time such return or claim is presented for 
such taxpayer's signature. 
"(b) 
COPY OR LIST To B E RETAINED BY INCOME TAX RETURN 
PREPARER.—Any person who is an income tax return preparer with 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1691 
respect to a return or claim for refund shall, for the period ending 3 
years after the close of the return period— 
" (1) retain a completed copy of such return or claim, or retain, 
on a list, the name and taxpayer identification number of the tax-
payer for whom such return or claim was prepared, and 
"(2) make such copy or list available for inspection upon 
request by the Secretary. 
"(c) EEGULATIONS.—The Secretary 
shall prescribe 
regulations 
under which, in cases where 2 or more persons are income tax return 
preparers with respect to the same return or claim for refund, com-
pliance with the requirements of subsection (a) or (b), as the case 
may be, of one such person shall be deemed to be compliance with the 
requirements of such subsection by the other persons. 
, 
. 
"(d) DEFINITIONS.—For purposes of this section, the terms'return' 
and 'claim for refund' have the respective meanings given to such 
terms by section 6696 (e), and the term 'return period' has the meaning Post, p. 1693. 
given to such term by section 6060(c)." 
infra. 
(d) 
TAXPAYER IDENTIFYING NUMBER OF PREPARER To B E F U R -
NISHED.—Section 6109(a) (relating to supplying of identifying num- 26 USC 6109. 
bers) is amended by adding at the end thereof the following: 
"(4) 
FURNISHING IDENTIFYING NUMBER OF INCOME TAX RETURN 
PREPARER.—Any return or claim for refund prepared by an income 
tax return preparer shall bear such identifying number for 
securing proper identification of such preparer, his employer, or 
both, as may be prescribed. For purposes of this paragraph, the Definitions, 
terms 'return' and 'claim for refund' have the respective mean-
ings given to such terms by section 6696 (e). 
For purposes of this subsection, the identifying number of an indi-
vidual (or his estate) shall be such individual's social security account 
number." 
(e) PREPARER MUST F I L E ANNUAL INFORMATION RETURN.—Part I I I 
of subchapter A of chapter 61 (relating to information returns) is 
amended by adding at the end thereof the following new subpart: 
"Subpart F—Information Concerning Income Tax 
Return Preparers 
"Sec. 6060. Information returns of income tax return preparers. 
"SEC. 6060. INFORMATION 
RETURNS 
OF INCOME 
TAX RETURN 
26 USC 6060. 
PREPARERS. 
"(a) 
GENERAL RULE.—Any person who employs an income tax 
return preparer to prepare any return or claim for refund other than 
for such person at any time during a return period shall make a return 
setting forth the name, taxpayer identification number, and place of 
work of each income tax return preparer employed by him at any 
time during such period. For purposes of this section, any individual 
who in acting as an income tax return preparer is not the employee 
of another income tax return preparer shall be treated as his own 
employer. The return required by this section shall be filed, in such 
Regulations, 
manner as the Secretary may by regulations prescribe, on or before 
the first July 31 following the end of such return period. 
"(b) ALTERNATIVE REPORTING.—In lieu of the return required by 
subsection (a), the Secretary may approve an alternative reporting 
method if he determines that the necessary information is available 
to him from other sources. 
"(c) 
RETURN 
PERIOD DEFINED.—For purposes of subsection (a), 
the term 'return period' means the 12-month period beginning on 
90 STAT. 1692 
PUBLIC LAW 94-455—OCT. 4, 1976 
July 1 of each year, except that the first return period shall be the 
6-month period beginning on January 1,1977, and ending on June 30, 
1977." 
(f) OTHER ASSESSABLE PENALTIES W I T H RESPECT TO THE PREPARA-
TION OF INCOME TAX RETURNS FOR OTHER PERSONS.—Subchapter B of 
chapter 68 (relating to assessable penalties) is amended by adding at 
the end thereof the following new sections: 
26 use 6695. 
"SEC. 6695. OTHER ASSESSABLE PENALTIES WITH RESPECT TO THE 
PREPARATION OF INCOME TAX RETURNS FOR OTHER 
PERSONS. 
" ( a ) FAILURE To F U R N I S H COPY TO TAXPAYER.—^Any person who 
is an income tax return preparer with respect to any return or claim 
Ante, p. 1690. 
for refund who fails to comply with section 6107(a) with respect to 
such return or claim shall pay a penalty of $25 for such failure, unless 
it is shown that such failure is due to reasonable cause and not due to 
willful neglect. 
Regulations. 
"(b) FAILURE To SiGN RETURN.—Any persou who is an income tax 
return preparer with respect to any return or claim for refund, who 
is required by regulations prescribed by the Secretary to sign such 
return or claim, and who fails to comply with such regulations with 
respect to such return or claim shall pay a penalty of $25 for such 
failure, unless it is shown that such failure is due to reasonable cause 
and not due to willful neglect. 
"(c) FAILURE To F U R N I S H IDENTIFYING NUMBER.—Any person who 
*' 
is an income tax return preparer with respect to any return or claim for 
refund and who fails to comply with section 6109(a) (4) with respect 
to such return or claim shall pay a penalty of $25 for such failure, 
unless it is shown that such failure is due to reasonable cause and not 
due to willful neglect. 
" ( d ) FAILURE To RETAIN COPY OR LIST.—Any person who is an 
income tax return preparer with respect to any return or claim for 
refund who fails to comply with section 6107(b) with respect to such 
return or claim shall pay a penalty of $50 for each such failure, unless 
it is shown that such failure is due to reasonable cause and not due to 
willful neglect. The maximum penalty imposed under this subsection 
on any person with respect to any return period shall not exceed 
$25,000. 
^ 
"(e) FAILURE To F I L E CORRECT INFORMATION RETURN.—Any person 
required to make a return under section 6060 who fails to comply with 
the requirements of such section shall pay a penalty of— 
"(1) $100 for each failure to file a return as required under 
such section, and 
"(2) $5 for each failure to set forth an item in the return as 
required under such section, 
unless it is shown that such failure is due to reasonable cause and not 
due to willful neglect. The maximum penalty imposed under this sub-
section on any person with respect to any return period shall not 
exceed $20,000. 
"(f) NEGOTIATION OF CHECK.—Any person who is an income tax 
return preparer who endorses or otherwise negotiates (directly or 
through an agent) any check made in respect of the taxes imposed by 
26 use 1. 
subtitle A which is issued to a taxpayer (other than the income tax 
return preparer) shall pay a penalty of $500 with respect to each such 
check. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1693 
"SEC. 6696. RULES APPLICABLE WITH RESPECT TO SECTIONS 6694 AND 26 USC 6696. 
6695. 
" (a) PENALTIES T O B E ADDITIONAL TO A N Y OTHER PENALTIES.—The 
penalties provided by section 6694 and 6695 shall be in addition to any ^"^^' P- 1689. 
other penalties provided by law. 
J^^' P' ^"'°" 
"(b) 
DEFICIENCY PROCEDURES N O T T O APPLY.—Subchapter B of 
^"^^' P- l^^^. 
chapter 63 (relating to deficiency procedures for income, estate, gift, 
26 USC 6211. 
and certain excise taxes) shall not apply with respect to the assessment 
or collection of the penalties provided by sections 6694 and 6695. 
"(c) 
PROCEDURE FOR CLAIMING REFUND.—Any claim for credit or Regulations, 
refund of any penalty paid under section 6694 or 6695 shall be filed 
in accordance with regulations prescribed by the Secretary. 
" ( d ) PERIODS OF LIMITATION.— 
"(1) ASSESSMENT.—The amount of any penalty under section 
6694(a) or under section 6695 shall be assessed within 3 years 
after the return or claim for refund with respect to which the 
penalty is assessed was filed, and no proceeding in court without 
assessment for the collection of such tax shall be begun after the 
expiration of such period. In the case of any penalty under section 
6694 (b), the penalty may be assessed, or a proceeding in court for 
the collection of the penalty may be begun without assessment, 
at any time. 
"(2) CLAIM FOR REFUND,—Except as provided in section 6694 
(d), any claim for refund of an overpayment of any penalty 
assessed under section 6694 or 6695 shall be filed within 3 years 
from the time the penalty was paid. 
"(e) DEFINITIONS.—For purposes of sections 6694 and 6695— 
"(1) RETURN.—The term 'return' means any return of any tax 
imposed by subtitle A. 
"(2) CLAIM FOR REFUND.—The term 'claim for refund' means a 
j^ 
, 
claim for refund of, or credit against, any tax imposed by sub-
title A." 
(g) AUTHORITY T O SEEK INJUNCTION AGAINST INCOME TAX RETURN 
PREPARERS.—Subchapter A of chapter 76 (relating to civil actions by 
^ 
^,, 
the United States) is amended by redesignating section 7407 as section 
7408 and by inserting after section 7406 the following new section: 
"SEC. 7407. ACTION TO ENJOIN INCOME TAX RETURN PREPARERS. 
26 USC 7407. 
" (a) AUTHORITY T O SEEK INJUNCTION.—Except as provided in sub-
section (c), a civil action in the name of the United States to enjoin 
any person who is an income tax return preparer from further engag-
ing in any conduct described in subsection (b) or from further acting 
as an income tax return preparer may be commenced at the request 
of the Secretary. Any action under this section shall be brought in 
the District Court of the United States for the district in which the 
income tax preparer resides or has his principal place of business or 
in which the taxpayer with respect to whose income tax return the 
action is brought resides. The court may exercise its jurisdiction over 
such action (as provided in section 7402(a)) separate and apart from 
any other action brought by the United States against such income 
tax preparer or any taxpayer. 
"(b) ADJUDICATION AND DECREES.—In any action under subsection 
(a), if the court finds— 
" (1) that an income tax return preparer has— 
" ( A ) engaged in any conduct subject to penalty under 
section 6694 or 6695, or subject to any criminal penalty pro-
vided by this title, 
90 STAT. 1694 
PUBLIC LAW 94-455—OCT. 4, 1976 
Off , • 
" ( B ) misrepresented his eligibility to practice before the 
Internal Eevenue Service, or otherwise misrepresented his 
experience or education as an income tax return preparer, 
A-m' ^ 
- 
"(C) guaranteed the payment of any tax refund or the 
allowance of any tax credit, or 
" ( D ) engaged in any other fraudulent or deceptive con-
.' 
.->••, 
duct which substantially interferes with the proper adminis-
tration of the Internal Revenue laws, and 
"(2) that injunctive relief is appropriate to prevent the recur-
jfi.- 'i. vi.;-' 
rence of such conduct, 
the court may enjoin such person from further engaging in such 
conduct. If the court finds that an income tax return preparer has 
continually or repeatedly engaged in any conduct described in sub-
paragraphs (A) through (D) of this subsection and that an injunc-
tion prohibiting such conduct would not be sufficient to prevent such 
person's interference with the proper administration of this title, the 
court may enjoin such person from acting as an income tax return 
preparer. 
"(c) BOND T O STAY iNJUNCTioisr.—No action to enjoin under sub-
section ( b ) ( 1 ) ( A ) shall be commenced or pursued with respect to 
any income tax return preparer who files and maintains, with the 
Secretary in the internal revenue district in which is located such 
preparer's legal residence or principal place of business, a bond in 
a sum of $50,000 as surety for the payment of penalties under section 
Ante, p. 1689; 
6694 and 6695." 
Post, p. 1878; 
(h) CROSS REFERENCES.— 
Ante, p. 1692. 
(1) Section 6503(h), as redesignated by this Act, is amended 
26 use 6503. 
by adding at the end thereof the following new paragraph: 
"(4) Income tax return preparers, see section 6694(c)(3)." 
26 use 6504. 
(2) Section 6504, as amended by this Act, is amended by adding 
' 
at the end thereof the following new paragraph: 
"(11) Assessment of civil penalties under section 6694 or 6695, see 
section 6696(d)(1)." 
26 use 6511. 
(3) Section 6511(g) is amended by adding at the end thereof 
the following new paragraph: 
"(7) For a period of limitations for refund of an overpayment of 
' ' >'"• ' ' ' 
penalties imposed under section 6694 or 6695, see section 6696(d)(2).'' 
(i) CONFORMING AMENDMENTS.— 
(1) The table of subparts for part I I I of suchapter A of chap-
ter 61 is amended by adding at the end thereof the following new 
item: 
"Subpart F. Information concerning income tax return preparers." 
(2) The table of sections for subchapter B of chapter 61 is 
amended by inserting immediately after the item relating to sec-
tion 6106 the following new item: 
"Sec. 6107. Income tax return preparer must furnish copy of return to 
taxpayer and must retain a copy or list." 
(3) The table of sections for subchapter B of chapter 68 is 
amended by adding at the end thereof the following new items: 
* 
"Sec. 6694. Understatement of taxpayer's liability by income tax return 
preparer. 
"Sec. 6695. Other assessable penalties with respect to the preparation of 
•i., 
income tax returns for other persons. 
"Sec. 6696. Rules applicable with respect to sections 6694 and 6695." 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1695 
(4) The table of sections for subchapter A of chapter 76 is 
amended by striking out the last item and inserting in lieu thereof 
the following: 
"Sec. 7407. Action to enjoin income tax return preparers. 
"Sec. 7408. Cross references." 
(j) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 7701 
apply to documents prepared after December 31,1976. 
°°*^" 
SEC. 1204. JEOPARDY AND TERMINATION ASSESSMENTS. 
(a) 
REVIEW OF JEOPARDY AND TERMINATION ASSESSMENTS.—Sub-
chapter B of chapter 76 (relating to proceedings by taxpayers and 
third parties) is amended by inserting after section 7428 the following 
new section: 
"SEC. 7429. REVIEW OF JEOPARDY ASSESSMENT PROCEDURES. 
26 USC 7429. 
"(a) ADMINISTRATIVE REVIEW.— 
"(1) INFORMATION TO TAXPAYER.—Within 5 days after the day 
on which an assessment is made under section 6851(a), 6861(a), 
or 6862, the Secretary shall provide the taxpayer with a written 
statement of the information upon which the Secretary relies in 
making such assessment. 
"(2) REQUEST FOR REVIEW.—Within 30 days after the day on 
which the taxpayer is furnished the written statement described in 
paragraph (1), or within 30 days after the last day of the period 
within which such statement is required to be furnished, the tax-
payer may request the Secretary to review the action taken. 
"(3) 
REDETERMINATION BY SECRETARY.—After a request for 
review is made under paragraph (2), the Secretary shall deter-
mine whether or not— 
"(A) the making of the assessment under section 6851, 
6861, or 6862, as the case mfiy be, is reasonable under the 
circumstances, and 
" ( B ) the amount so assessed or demanded as a result of the 
action taken under section 6851, 6861, or 6862 is appropriate 
under the circumstances. 
"(b) JUDICIAL REVIEW.— 
' ; 
"(1) ACTIONS PERMITTED.—Within 30 days after the earlier of— 
"(A) the day the Secretary notifies the taxpayer of his 
determination described in subsection (a) (3), or 
"(B) the 16th day after the request described in subsection 
(a) (2) was made, 
the taxpayer may bring a civil action against the United States 
in a district court of the United States for a determination under 
this subsection. 
" (2) DETERMINATION BY DISTRICT COURT.—^Within 20 days after 
an action is commenced under paragraph (1), the district court 
shall determine whether or not— 
"(A) the making of the assessment under section 6851, 
6861, or 6862, as the case may be, is reasonable under the cir-
cumstances, and 
" ( B ) the amount so assessed or demanded as a result of the 
action taken under section 6851, 6861, or 6862, is appropriate 
under the circumstances. 
"(3) ORDER OF DISTRICT COURT.—If the court determines that 
the making of such assessment is unreasonable or that the amount 
assessed or demanded is inappropriate, the court may order the 
Secretary to abate such assessment, to redetermine (in whole or 
90 STAT. 1696 
PUBLIC LAW 94-455—OCT. 4, 1976 
in part) the amount assessed or demanded, or to take such other 
action as the court finds appropriate. 
"(c) EXTENSION or 20-DAY PERIOD W H E R E TAXPAYER So REQUESTS.— 
If the taxpayer requests an extension of the 20-day period set forth in 
subsection (b) (2) and establishes reasonable grounds why such exten-
. ji;; 
sion should be granted, the district court may grant an extension of not 
more than 40 additional days. 
"(d) COMPUTATION OF DAYS.—For purposes of this section, Satur-
day, Sunday, or a legal holiday in the District of Columbia shall not 
be counted as the last day of any period. 
"(e) VENUE.—A civil action under subsection (b) shall be com-
menced only in the judicial district described in section 1402(a) (1) 
or (2) of title 28, United States Code. 
.'. 
', 
"(f) FINALITY OF DETERMINATION.—Any determination made by a 
district court under this section shall be final and conclusive and shall 
not be reviewed by any other court. 
"(g) BURDEN OF PROOF.— 
"(1) 
REASONABLENESS OF TERMINATION OR JEOPARDY ASSESS-
MENT.—In an action under subsection (b) involving the issue of 
whether the making of an assessment under section 6851, 6861, or 
6862 is reasonable under the circumstances, the burden of proof in 
respect to such issue shall be upon the Secretary. 
"(2) REASONABLENESS OF AMOUNT OF ASSESSMENT.—In an action 
under subsection (b) involving the issue of whether an amount 
assessed or demanded as a result of action taken under section 
6851, 6861, or 6862 is appropriate under the circumstances, the 
Secretary shall provide a written statement which contains any 
information with respect to which his determination of the 
amount assessed was based, but the burden of proof in respect of 
such issue shall be upon the taxpayer." 
(b) JEOPARDY ASSESSMENT OF INCOME TAX.— 
(1) 
TERMINATION ASSESSMENTS.—So much of section 
6851 
(relating to termination of taxable year) as precedes subsection 
(c) is amended to read as follows: 
26 use 6851. 
"SEC. 6851. TERMINATION ASSESSMENTS OF INCOME TAX. 
"(a) AUTHORITY FOR MAKING.— 
"(1) I N GENERAL.—If the Secretary finds that a taxpayer 
designs quickly to depart from the United States or to remove his 
property therefrom, or to conceal liiiPself or his pi-operty therein, 
or to do any other act (including in the case of a corporation dis-
' 
tributing all or a part of its assets in liquidation or otherwise) 
tending to prejudice or to render wholly or partially ineffectual 
proceedings to collect the income tax for the current or the imme-
diately 
preceding 
taxable 
year 
unless such 
proceeding be 
brought without delay, the Secretary shall immediately make a 
determination of tax for the current taxable year or for the pre-
. ceding taxable year, or both, as the case may be, and notwith-
standing any other provision of law, such tax shall become 
immediately due and payable. The Secretary shall immediately 
assess the amount of the tax so determined (together with all 
interest, additional amounts, and additions to the tax provided 
by law) for the current taxable year or such preceding taxable 
year, or both, as the case may be, and shall cause notice of such 
determination and assessment to be given the taxpayer, together 
with a demand for immediate payment of such tax. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1697 
"(2) COMPUTATION OF TAX.—In the case of a current taxable 
year, the Secretary shall determine the tax for the period begin-
ning on the first day of such current taxable year and ending on 
the date of the determination under paragraph (1) as though 
such period were a taxable year of the taxpayer, and shall take 
into account any prior determination made under this subsection 
with respect to such current taxable year. 
"(3) 
TREATMENT OF AMOUNTS COLLECTED.—Any amounts col-
lected as a result of any assessments under this subsection shall, 
• 
to the extent thereof, be treated as a payment of tax for such tax-
able year. 
"(4) T H I S SECTION INAPPLICABLE WHERE SECTION esei APPLIES.— 
This section shall not authorize any assessment of tax for the pre-
ceding taxable year which is made after the due date of the 
taxpayer's return for such taxable year (determined with regard 
to any extensions). 
"(b) NOTICE OF DEFICIENCY.—If an assessment of tax is made under 
the authority of subsection (a), the Secretary shall mail a notice under 
section 6212(a) for the taxpayer's full taxable year (determined with-
out regard to any action taken under subsection (a)) with respect to 
which such assessment was made within 60 days after the later of (i) 
the due date of the taxpayer's return for such taxable year (determined 
with regard to any extensions), or (ii) the date such taxpayer files such 
return. Such deficiency may be in an amount greater or less than the 
amount assessed under subsection (a)." 
(2) BONDS.—Section 6851 is amended by striking out subsection 
26 USC 6851. 
(e) (relating to bonds) and inserting in lieu thereof the following: 
"(e) SECTIONS 6861 (f) AND (g) To APPLY.—The provisions of sec-
tion 6861(f) (relating to collection of unpaid amounts) and 6861(g) 
(relating to abatement if jeopardy does not exist) shall apply with 
respect to any assessment made under subsection (a). 
"(f) CROSS REFERENCES.— 
"(1) For provisions permitting immediate levy in case of jeopardy, see 
section 6331(a). 
"(2) For provisions relating to the review of jeopardy, see section 
, 
,^^^ 
7429." 
Ante, p. 1695. 
(c) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) Section 1346(e) of title 28, United States Code (relat-
ing to jurisdiction of district courts with the United States as 
defendant) is amended by inserting "or section 7429" immedi-
ately after "section 7426". 
(2) Section 443(a)(3) 
(relating to returns for terminated 
26 USC 443. 
period) is repealed. 
(3) Section 6091(b) (relating to place for filing returns) is 26 USC 6091. 
amended— 
(A) by striking out "and" at the end of paragraph (1) (B) 
(iii) thereof, and by striking out paragraph (1) (B) (iv) and 
the matter following such paragraph and inserting in lieu 
thereof the following: 
"(iv) nonresi(fent alien persons, and 
Regulations. 
"(v) persons with respect to whom an assessment was 
made under section 6851(a) 
(relating to termination 
assessments) with respect to the taxable year, 
shall be made at such place as the Secretary may by regulations 
designate."; and 
(B) by striking out "and" at the end of paragraph (2) (B) 
(ii), and by striking out paragraph (2) (B) (iii) and the 
90 STAT. 1698 
PUBLIC LAW 94-455—OCT. 4, 1976 
Regulations. 
26 use 6211. 
26 use 6212. 
26 use 6213. 
26 use 6863. 
Ante, p. 1695. 
matter following such paragraph and inserting in lieu 
thereof the following: 
"(iii) foreign corporations, and 
" (iv) corporations with respect to which an assessment 
was made under section 6851(a) (relating to termina-
tion assessments) with respect to the taxable year, 
shall be made at such place as the Secretary may by regulations 
designate." 
(4) Section 6211(b) (1) (relating to rules for determining defi-
ciencies) is amended by striking out "and" after "31," and by 
inserting before the period at the end thereof the following: ", 
and without regard to any credits resulting from the collection 
of amounts assessed under section 6851 (relating to termination 
assessments)". 
(5) Section 6212(c) (relating to restrictions on further defi-
ciency letters) is amended by inserting after "errors)," the follow-
ing: "in section 6851 (relating to termination assessments),". 
(6) Section 6213(a) (relating to time for filing petition with 
the Tax Court) is amended by inserting "section 6851 or" before 
"section 6861". 
(7) Section 6863(a) (relating to bond to stay collection) is 
amended— 
(A) by striking out "6861" and inserting in lieu thereof 
"6851, 6861," j 
(B) by striking out "a jeopardy assessment" in the first 
sentence thereof and inserting in lieu thereof "an assess-
ment"; and 
(C) by striking out "the jeopardy assessment" each place 
it appears therein and inserting in lieu thereof "such 
assessment". 
(8) Section 6863(b) (3) (A) (relating to stay of sale of seized 
property) is amended to read as follows: 
"(A) GENERAL RULE.—^Where, notwithstanding the provi-
"^' 
sions of section 6213(a), an assessment has been made under 
fij,- 
section 6851 or 6861, the property seized for collection of the 
tax shall not be sold— 
"(i) before the expiration of the periods described in 
subsection (c)(1) (A) and (B), 
"(ii) before the issuance of the notice of deficiency 
described in section 6851 (b) or 6861 (b), and the expira-
tion of the period provided in section 6213(a) for filing 
a petition with the Tax Court, and 
" (iii) if a petition is filed with the Tax Court (whether 
before or after the making of such assessment), before 
the expiration of the period during which the assessment 
of the deficiency would be prohibited if neither sections 
6851(a) nor 6861(a) were applicable. 
Clauses (ii) and (iii) shall not apply in the case of a termina-
tion assessment under section 6851 if the taxpayer does not file 
a return for the taxable year by the due date (determined 
^ 
with regard to any extensions)." 
(9) Section 6863 (relating to stay of collection of jeopardy 
assessments) is amended by adding at the end thereof the follow-
ing new subsection: 
"(c) 
STAY OF SALE or SEIZED PROPERTY PENDING DISTRICT COURT 
DETERMINATION UNDER SECTION 7429.— 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1699 
"(1) GENERAL RULE.—Where a jeopardy assessment has been 
made under section 6862(a), the property seized for the collection 
of the tax shall not be sold— 
" (A) if a civil action is commenced in accordance with sec-
tion 7429(b), on or before the day on which the district court 
Ante, p. 1695. 
judgment in such action becomes j&nal, or 
" ( B ) if subparagraph (A) does not apply, before the day 
after the expiration of the period provided in section 7429(a) 
for requesting an administrative review, and if such review 
is requested, before the day after the expiration of the period 
provided in section 7429(b), for commencing an action in the 
district court. 
"(2) 
EXCEPTIONS.—With respect to any property described 
in paragraph (1), the exceptions provided by subsection (b) (3) 
(B) shall apply." 
(10) Section 7103(a)(4) 
(relating to a cross reference) is 
26 USC 7103. 
repealed. 
(11) Section 7421(a) 
(relating to prohibition of suits to 
26 USC 7421. 
restrain assessment or collection of taxes) is amended by striking 
out "and 7426 (a) and ( b ) ( 1 ) " and inserting in lieu thereof 
"7426 (a) and (b)(1), and 7429(b)". 
(12) The table of sections for part I of subchapter A of chapter 
70 is amended to read as follows: 
"Sec. 6851. Termination assessments of income tax." 
(13) The table of sections for subchapter B of chapter 76 is 
amended by inserting after the item relating to section 7428 
the following: 
"Sec. 7429. Review of jeopardy assessment procedures." 
(d) EFFECTIVE DATE.—The amendments made by this section apply 
26 USC 6851 
with respect to action taken under section 6851, 6861, or 6862 of the 
note. 
Internal Revenue Code of 1954 where the notice and demand takes 
place after December 31,1976. 
SEC. 1205. ADMINISTRATIVE SUMMONS. 
(a) 
REQUIREMENT T H A T NOTICE B E SERVED ON PERSON 
WHOSE 
BOOKS, ETC., ARE BEING SUMMONED.—Subchapter A of chapter 78 
(relating to examination and inspection) is amended by redesignating 
section 7609 as section 7611 and by inserting after section 7608 the 
following new sections: 
"SEC. 7609. SPECIAL PROCEDURES FOR THIRD-PARTY SUMMONSES. 
26 USC 7609. 
"(a) 
NOTICE.— 
" (1) I N GENERAL.—If— 
" ( A ) any summons described in subsection (c) is served 
on any person who is a third-party recordkeeper, and 
" ( B ) the summons requires the production of any portion 
of records made or kept of the business transactions or affairs 
of any person (other than the person summoned) who is 
identified in the description of the records contained in the 
summons, 
then notice of the summons shall be given to any person so 
identified within 3 days of the day on which such service is made, 
but no later than the 14th day before the day fixed in the sum-
mons as the day upon which such records are to be examined. 
Such notice shall be accompanied by a copy of the summons which 
has been served and shall contain directions for staying compli-
ance with the summons under subsection (b) (2). 
90 STAT. 1700 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(2) SurnciENCY OF NOTICE.—Such notice shall be sufficient if, 
on or before such third day, such notice is served in the manner 
26 use 7603. 
provided in section 7603 (relating to service of summons) upon 
the person entitled to notice, or is mailed by certified or registered 
mail to the last known address of such person, or, in the absence 
of a last known address, is left with the person summoned. If 
such notice is mailed, it shall be sufficient if mailed to the last 
known address of the person entitled to notice or, in the case of 
notice to the Secretary under section 6903 of the existence of a 
fiduciary 
relationship, to the last known address of the 
fiduciary 
of such person, even if such person or fiduciary is then deceased, 
under a legal disability, or no longer in existence. 
" (3) THIRD-PAKTY RECORDKEEPER DEFINED.—For purposes of this 
subsection, the term 'third-party recordkeeper' means— 
" ( A ) any mutual savings bank, cooperative bank, domestic 
' '• 
building and loan association, or other savings institution 
chartered and supervised as a savings and loan or similar 
• " 
•^'- •• 
association under Federal or State law, any bank (as defined 
in section 581), or any credit union (within the meaning of 
section 501(c) (14) ( A ) ) ; 
" (B) any consumer reporting agency (as defined under sec-
•' : 
tion 603(d) of the Fair Credit Reporting Act (15 U.S.C. 
1681a(f))); 
"(C) any person extending credit through the use of credit 
. cards or similar devices; 
V 
" ( D ) any broker (as defined in section 3(a)(4) of the 
. 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a) ( 4 ) ) ) ; 
" ( E ) any attorney; and 
" ( F ) any accountant. 
' 
"(4) EXCEPTIONS.—Paragraph (1) shall not apply to any 
summons— 
"(A) served on the person with respect to whose liability 
the summons is issued, or any officer or employee of such 
person, 
" ( B ) to determine whether or not records of the business 
transactions or affairs of an identified person have been made 
or kept, or 
"(C) described in subsection (f). 
"(5) NATURE OF SUMMONS.—^Any summons to which this sub-
t%/ 
; i 
section applies (and any summons in aid of collection described 
in subsection ( c ) ( 2 ) ( B ) ) shall identify the taxpayer to whom 
the summons relates or the other person to whom the records 
pertain and shall provide such other information as will enable 
the person summoned to locate the records required under the 
summons. 
"(b) 
RIGHT T O INTERVENE; RIGHT To STAY COMPLIANCE.— 
" (1) INTERVENTION.—Notwithstanding any other law or rule of 
law, any person who is entitled to notice of a summons under 
subsection (a) shall have the right to intervene in any proceeding 
with respect to the enforcement of such summons under section 
7604. 
"(2) RIGHT TO STAY COMPLIANCE.—Notwithstanding any other 
law or rule of law, any person who is entitled to notice of a sum-
mons under subsection (a) shall have the right to stay compliance 
with the summons if, not later than the 14th day after the day 
such notice is given in the manner provided in subsection (a) 
( 2 ) -
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1701 
" ( A ) notice in writing is given to the person summoned 
not to comply with the summons, and 
" ( B ) a copy of such notice not to comply with the summons 
is mailed by registered or certified mail to such person and 
to such office as the Secretary may direct in the notice re-
ferred to in subsection (a)(1). 
" (c) SUMMONS TO W H I C H SECTION APPLIES.— 
"(1) I N GENERAL.—Except as provided in paragraph (2), a 
summons is described in this subsection if it is issued under para-
graph (2) of section 7602 or under section 6420(e) (2), 6421(f) 
26 USC 7602, 
(2), 6424(d) (2), or 6427(e) (2) and requires the production of 
6420, 6421, 
records. 
^ 2 ^ ' ^•^^• 
" (2) EXCEPTIONS.—A summons shall not be treated as described 
in this subsection if— 
* 
" ( A ) it is solely to determine the identity of any person 
having a numbered account (or similar arrangement) with a 
bank or other institution described in subsection (a) (3) (A), 
or 
" ( B ) it is in aid of the collection of— 
"(i) the liability of any person against whom an 
assessment has been made or judgment rendered, or 
" (ii) the liability at law or in equity of any transferee 
or fiduciary of any person referred to in clause (i). 
"(3) RECORDS; CERTAIN RELATED TESTIMONY.—For purposes of 
this section— 
" ( A ) the term 'records' includes books, papers, or other 
"Records." 
data, and 
" ( B ) a summons requiring the giving of testimony relating 
to records shall be treated as a summons requiring the pro-
duction of such records. 
"(d) RESTRICTION ON EXAMINATION OF RECORDS.—No examination 
of any records required to be produced under a summons as to which 
notice is required under subsection (a) may be made— 
" (1) before the expiration of the 14-day period allowed for the 
notice not to comply under subsection (b) (2), or 
"(2) when the requirements of subsection (b)(2) have been 
met, except in accordance with an order issued by a court of com-
petent jurisdiction authorizing examination of such records or 
with the consent of the person staying compliance. 
" (e) SUSPENSION or STATUTE or LIMITATIONS.—If any person takes 
any action as provided in subsection (b) and such person is the person 
with respect to whose liability the summons is issued (or is the agent, 
nominee, or other person acting under the direction or control of 
such person), then the running of any period of limitations under sec-
tion 6501 (relating to the assessment and collection of tax) or under 
section 6531 (relating to criminal prosecutions) with respect to such 
person shall be suspended for the period during which a proceeding, 
and appeals therein, with respect to the enforcement of such sum-
mons is pending. 
"(f) 
ADDITIONAL REQUIREMENT I N THE CASE OF A J O H N DOE 
SUMMONS.—Any summons described in subsection (c) which does not 
identify the person with respect to whose liability the summons is 
issued may be served only after a court proceeding in which the Secre-
tary establishes that— 
"(1) the summons relates to the investigation of a particular 
person or ascertainable group or class of persons. 
90 STAT. 1702 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(2) there is a reasonable basis for believing that such person 
or group or class of persons may fail or may have failed to comply 
witn any provision of any internal revenue law, and 
"(3) the information sought to be obtained from the examina-
tion of the records (and the identity of the person or persons with 
respect to whose liability the summons is issued) is not readily 
available from other sources. 
" (g) SPECIAL EXCEPTION FOR CERTAIN SUMMONSES.—In the case of 
any summons described in subsection (c), the provisions of subsections 
;v, 
(a) (1) and (b) shall not apply if, upon petition by the Secretary, the 
court determines, on the basis of the facts and circumstances alleged, 
that there is reasonable cause to believe the giving of notice may lead 
to attempts to conceal, destroy, or alter records relevant to the exami-
nation, to prevent the communication of information from other per-
sons through intimidation, bribery, or collusion, or to flee to avoid* 
prosecution, testifying, or production of records. 
"(h) JURISDICTION or DISTRICT COURT.— 
"(1) The United States district court for the district within 
which the person to be summoned resides or is found shall have 
:.:, jurisdiction to hear and determine proceedings brought under 
subsections (f) or (g). The determinations required to be made 
under subsections (f) and (g) shall be made ex parte and shall be 
made solely upon the petition and supporting affidavits. An order 
denying the petition shall be deemed a final order which may be 
appealed. 
,5, . , 
"(2) Except as to cases the court considers of greater impor-
tance, a proceeding brought for the enforcement of any summons, 
or a proceeding under this section, and appeals, take precedence 
on the docket over all cases and shall be assigned for hearing and 
decided at the earliest practicable date. 
26 use 7610. 
"SEC. 7610. FEES AND COSTS FOR WITNESSES. 
Regulations. 
«^a) jj^ GENERAL.—The Secretary shall by regulations establish the 
rates and conditions under which payment may be made of— 
"(1) fees and mileage to persons who are summoned to appear 
before the Secretary, and 
"(2) reimbursement for such costs that are reasonably neces-
sary which have been directly incurred in searching for, reproduc-
ing, or transporting books, papers, records, or other data required 
to be produced by summons. 
"(b) EXCEPTIONS.—No payment may be made under paragraph (2) 
of subsection (a) if— 
"(1) the person with respect to whose liability the summons is 
issued has a proprietary interest in the books, papers, records or 
other data required to be produced, or 
"(2) the person summoned is the person with respect to whose 
liability the summons is issued or an officer, employee, agent, 
accountant, or attorney of such person who, at the time the sum-
mons is served, is acting as such. 
"(c) SUMMONS TO W H I C H SECTION APPLIES.—This section applies 
with respect to any summons authorized under section 6420(e)(2), 
6421(f) (2), 6424(d) (2), 6427(e) (2), or 7602." 
(b) CLERICAL AMENDMENT.—^The table of sections for such subchap-
ter A is amended by striking out the item relating to section 7609 and 
inserting in lieu thereof the following: 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1703 
"Sec. 7609. Special procedures for third-party summonses. 
"Sec. 7610. Fees and costs for witnesses. 
"Sec. 7611. Cross references." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 7609 
apply with respect to any summons issued after December 31, 1976. note. 
SEC. 1206. ASSESSMENTS IN CASE OF MATHEMATICAL OR CLERICAL 
ERRORS. 
(a) I N GENERAL.—Section 6213(b) 
(relating to exceptions to 26 USC 6213. 
restrictions on assessment in certain cases) is amended— 
(1) by redesignating paragraphs (2) and (3) as paragraphs 
(3) and (4), respectively, and 
(2) by striking out paragraph (1) and inserting in lieu thereof 
the following new paragraphs: 
"(1) ASSESSMENTS ARISING OUT or MATHEMATICAL OR CLERICAL 
ERRORS.—If the taxpayer is notified that, on account of a mathe-
matical or clerical error appearing on the return, an amount of tax 
in excess of that shown on the return is due, and that an assessment 
of the tax has been or will be made on the basis of what would have 
been the correct amount of tax but for the mathematical or clerical 
error, such notice shall not be considered as a notice of deficiency 
for the purposes of subsection (a) (prohibiting assessment and 
collection until notice of the deficiency has been mailed), or of 
section 6212(c) (1) (restricting further deficiency letters), or of 
section 6512(a) (prohibiting credits or refunds after petition to 
the Tax Court), and the taxpayer shall have no right to file a 
petition with the Tax Court based on such notice, nor shall such 
assessment or collection be prohibited by the provisions of sub-
section (a) of this section. Each notice under this paragraph shall 
set forth the error alleged and an explanation thereof. 
"(2) ABATEMENT OF ASSESSMENT OF MATHEMATICAL OR CLERICAL 
ERRORS. 
" ( A ) REQUEST FOR ABATEMENT.—Notwithstanding section 
6404(b), a taxpa;^er may file with the Secretary within 60 
days after notice is sent under paragraph (1) a request for 
an abatement of any assessment specified in such notice, and 
upon receipt of such request, the Secretary shall abate the 
assessment. Any reassessment of the tax with respect to which 
an abatement is made under this subparagraph shall be sub-
ject to the deficiency procedures prescribed by this subchapter. 
" ( B ) STAY OF COLLECTION.—In the case of any assessment 
referred to in paragraph (1), notwithstanding paragraph 
(1), no levy or proceeding in court for the collection of such 
assessment shall be made, begun, or prosecuted during the 
period in which such assessment may be abated under this 
paragraph." 
(b) DEFINITIONS RELATING TO MATHEMATICAL OR CLERICAL ERRORS.— 
Section 6213 is amended by redesignating subsection (f) as subsection 
26 USC 6213. 
(g), and by inserting immediately after subsection (e) the following 
new subsection: 
"(f) DEFINITIONS.—For purposes of this section— 
"(1) RETURN.—The term 'return' includes any return, state-
ment, schedule, or list, and any amendment or supplement thereto, 
filed with respect to any tax imposed by subtitle A or B, or chap- 
^6 USC 1,2001. 
ter 42 or 43. 
26 USC 4940, 
"(2) MATHEMATICAL OR CLERICAL ERROR.—The term 'mathemati- 
4971. 
cal or clerical error' means— 
90 STAT. 1704 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(A) an error in addition, subtraction, multiplication, or 
division shown on any return, 
" (B) an incorrect use of any table provided by the Internal 
^''-' 
Revenue Service with respect to any return if such incorrect 
use is apparent from the existence of other information on 
the return, 
"(C) an entry on a return of an item which is inconsistent 
; 
with another entry of the same or another item on such return, 
" ( D ) an omission of information which is required to be 
supplied on the return to substantiate an entry on the return, 
and 
" ( E ) an entry on a return of a deduction or credit in an 
amount which exceeds a statutory limit imposed by subtitle 
26 use 1,2001, 
A or B, or chapter 42 or 43, if such limit is expressed— 
4940, 4971. 
"(i) as a specified monetary amount, or 
"(ii) as a percentage, ratio, or fraction, 
and if the items entering into the application of such limit 
appear on such return." 
(c) TECHNICAL AND CONFORMING AMENDMENTS.— 
26 use 6213. 
(1) Section 6213(b) (3) (relating to assessments arising out of 
tentative carryback adjustments), as redesignated by subsection 
(a), is amended— 
(A) by striking out "he may assess" and inserting in lieu 
thereof "he may assess without regard to the provisions of 
paragraph (2)", and 
(B) by striking out "mathematical error" and inserting 
in lieu thereof "mathematical or clerical error". 
26 use 6201. 
(2) Section 6201(a)(3) 
(relating to assessments regarding 
erroneous income tax prepayment credits) and section 6201(a) 
(4) (relating to assessments regarding erroneous credit under 
section 39 or 43) are each amended— 
(A) by striking out "mathematical error" and inserting 
in lieu thereof "mathematical or clerical error", and 
(B) by inserting immediately before the period at the end 
thereof the following: ", except that the provisions of section 
6213(b) (2) (relating to abatement of mathematical or cleri-
cal error assessments) shall not apply with regard to any 
assessment under this paragraph". 
26 use 6212. 
(3) Section 6212(c)(1) 
(relating to deficiency letters) is 
amended by striking out "(relating to mathematical errors)" and 
inserting in lieu thereof "(relating to mathematical or clerical 
errors)". 
26 use 6213 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply with respect to returns (within the meaning of section 6213 
(f) (1) of the Internal Revenue Code of 1954) filed after December 31, 
1976. 
> U 
SEC. 1207. WITHHOLDING. 
(a) WITHHOLDING STATE AND DISTRICT INCOME TAXES FROM COM-
PENSATION OF MEMBERS OF ARMED FORCES W H O ARE RESIDENTS OF THE 
STATE OR DISTRICT OF COLUMBIA.— 
(1) WITHHOLDING OF STATE INCOME TAXES.—The last sentence 
of section 5517(a) of title 5, United States Code, is amended to 
read as follows: "In the case of pay for service as a member of 
the armed forces, the preceding sentence shall be applied by 
substituting 'who are residents of the State with which the agree-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1705 
ment is made' for 'whose regular place of Federal employment 
is within the State with which the agreement is made'." 
(2) 
WITHHOLDING OF DISTRICT INCOME TAXES.—Subsection 
(a) 
of section 5516 of title 5, United States Code, is amended— 
(A) by striking out in the third sentence "pay for service 
as a member of the armed forces, or to"; and 
(B) by adding after the third sentence the following new 
sentence: "In the case of pay for service as a member of the 
armed forces, the second sentence of this subsection shall be 
applied by substituting 'who are residents of the District of 
Columbia for 'whose regular place of employment is within 
the District of Columbia'." 
(b) WITHHOLDING STATE AND CITY INCOME TAXES FROM THE COM-
PENSATION or MEMBERS OF THE NATIONAL GUARD OR THE READY R E -
SERVE.—Section 5517 of title 5, United States Code, is amended by 
adding at the end thereof the following new subsection: 
"(d) For the purpose of this section and sections 5516 and 5520, the 
Definitions, 
terms 'serve as a member of the armed forces' and 'service as a member 
5 USC 5516, 
of the Armed Forces' do not include— 
5520. 
"(1) participation in exercises or the performance of duty 
under section 502 of title 32, United States Code, by a member 
of the National Guard; and 
"(2) participation in scheduled drills or training periods, or 
service on active duty for training, under section 270(a) of title 
10, United States Code, by a member of the Ready Reserve." 
(c) VOLUNTARY WITHHOLDING OF STATE INCOME TAXES FROM THE 
COMPENSATION OF FEDERAL EMPLOYEES.—Paragraphs (1) and 
(2) 
of 
section 5517(a) of title 5, United States Code, are amended to read as 
follows: 
"(1) provides for the collection of a tax either by imposing on 
employers generally the duty of withholding sums from the pay 
of employees and making returns of the sums to the State, or by 
f
ranting to employers generally the authority to withhold sums 
rom the pay of employees if any employee voluntarily elects 
to have such sums withheld; and 
"(2) imposes the duty or grants the authority to withhold 
generally with respect to the pay of employees who are residents 
of the State;". 
(d) WITHHOLDING TAX ON CERTAIN GAMBLING WINNINGS.—Section 
3402 (relating to income tax collected at source) is amended by adding 
26 USC 3402. 
at the end thereof the following new subsection: 
"(q) 
EXTENSION or 
WITHHOLDING TO CERTAIN GAMBLING 
W I N -
NINGS.— 
"(1) GENERAL RULE.—Every person, including the Government 
of the United States, a State, or a political subdivision thereof, or 
any instrumentalities of the foregoing, making any payment of 
winnings which are subject to withholding shall deduct and with-
hold from such payment a tax in an amount equal to 20 percent of 
such payment. 
"(2) 
EXEMPTION WHERE TAX OTHERWISE WITHHELD.—In 
the 
case of any payment of winnings which are subject to withholding 
made to a nonresident alien individual or a foreign corporation, 
the tax imposed under paragraph (1) shall not apply to any such 
payment subject to tax under section 1441 (a) (relating to with-
holding on nonresident aliens) or tax under section 1442(a) 
(relating to withholding on foreign corporations). 
90 STAT. 1706 
PUBLIC LAW 94-455—OCT. 4, 1976 
Definition. 
26 use 3403, 
3404. 
26 use 6001, 
7205. 
26 use 3121. 
"(3) 
W I N N I N G S WHICH ARE SUBJECT TO WITHHOLDING.—For 
purposes of this subsection, the term 'winnings which are subject 
to withholding' means proceeds from a wager determined in 
accordance with the following: 
"(A) I N GENERAL.—Except as provided in subparagraphs 
(B) and (C), proceeds of more than $1,000 from a wagering 
transaction, if the amount of such proceeds is at least 300 
times as large as the amount wagered. 
" ( B ) STATE-CONDUCTED LOTTERIES.—Proceeds of more than 
$5,000 from a wager placed in a lottery conducted by an 
agency of a State acting under authority of State law, but 
only if such wager is j)laced with the State agency conducting 
such lottery, or with its authorized employees or agents. 
"(C) 
SWEEPSTAKES, WAGERING POOLS, AND OTHER LOTTER-
IES.—Proceeds of more than $1,000 from a wager placed in a 
sweepstakes, wagering pool, or lottery (other than a wager 
described in subparagraph ( B ) ) . 
"(4) 
RULES FOR DETERMINING PROCEEDS FROM A WAGER.—For 
purposes of this subsection— 
"(A) 
proceeds from a wager shall be determined by 
reducing the amount received by the amount of the wager, 
and 
" ( B ) proceeds which are not money shall be taken into 
account at their fair market value. 
"(5) EXEMPTION FOR BINGO, KENO, AND SLOT MACHINES.—The 
tax imposed under paragraph (1) shall not apply to winnings 
from a slot machine, keno, and bingo. 
"(6) STATEMENT BY RECIPIENT.—Every person who is to receive 
a payment of winnings which are subject to withholding shall 
furnish the person making such payment a statement, made under 
the penalties of perjury, containing the name, address, and tax-
payer identification number of the person receiving the payment 
and of each person entitled to any portion of such payment. 
"(7) 
COORDINATION WITH OTHER SECTIONS.—For purposes of 
sections 3403 and 3404 and for purposes of so much of subtitle 
F (except section 7205) as relates to this chapter, payments to 
any person of winnings which are subject to withholding shall 
be treated as if they were wages paid by an employer to an 
employee." 
(e) WITHHOLDING OF FEDERAL TAXES ON CERTAIN 
INDIVIDUALS 
ENGAGED IN F I S H I N G . — 
(1) I N GENERAL.— 
(A) Section 3121(b) (defining employment) is amended 
by striking out "or" at the end of paragraph (18), by strik-
ing out the period at the end of paragraph (19) and inserting 
in lieu thereof " ; or", and by adding after paragraph (19) 
the following new paragraph: 
"(20) service performed by an individual on a boat engaged 
in catching fish or other forms of aquatic animal life under an 
arrangement with the owner or operator of such boat pursuant 
to which— 
" ( A ) such individual does not receive any cash remunera-
tion (other than as provided in subparagraph ( B ) ) , 
" ( B ) such individual receives a share of the boat's (or 
the boats' in the case of a fishing operation involving more 
than one boat) catch of fish or other forms of aquatic animal 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1707 
life or a share of the proceeds from the sale of such catch, 
and 
"(C) the amount of such individual's share depends on 
the amount of the boat's (or the boats' in the case of a fishing 
operation involving more than one boat) catch of fish or other 
forms of aquatic animal life, 
but only if the operating crew of such boat (or each boat from 
which the individual receives a share in the case of a fishing opera-
tion involving more than one boat) is normally made up of fewer 
than 10 individuals." 
(B) Section 1402(c)(2) (defining trade or business) is 26 USC 1402. 
amended by striking out "and" at the end of subparagraph 
(D), by striking out the semicolon at the end of subpara-
graph (E) and inserting in lieu thereof ", and", and by 
adding after subparagraph (E) the following new subpara-
graph : 
"(F) service described in section 3121(b) (20);". 
Ante, p. 1706. 
(C) Section 3401(a) (defining wages for purposes of 26 USC 3401. 
withholding) is amended by striking out the period at the 
end of paragraph (16) and inserting in lieu thereof "; or", 
and by adding after paragraph (16) the following new 
paragraph: 
" (17) for service described in section 3121 (b) (20)." 
(2) C O N F O R M I N G AMENDMENTS.— 
(A) Section 210(a) of the Social Security Act is amended 42 USC 410. 
by striking out "or" at the end of paragraph (18), by striking 
out the period at the end of paragraph (19) and inserting 
in lieu thereof "; or," and by adding after paragraph (19) 
the following new paragraph: 
"(20) Service performed by an individual on a boat engaged 
in catching fish or other forms of aquatic animal life under an 
arrangement with the owner or operator of such boat pursuant 
to which— 
"(A) such individual does not receive any cash remunera-
tion (other than as provided in subparagraph (B)), 
"(B) such individual receives a share of the boat's (or the 
boats' in the case of a fishing operation involving more than 
,, 
one boat) catch of fish or other forms of aquatic animal life 
or a share of the proceeds from the sale of such catch, and 
"(C) the amount of such individual's share depends on 
the amount of the boat's (or boats' in the case of a fishing 
operation involving more than one boat) catch of fish or 
other forms of aquatic animal life, 
but only if the operating crew of such boat (or each boat from 
which the individual receives a share in the case of a fishing opera-
tion involving more than one boat) is normally made up of fewer 
than 10 individuals." 
(B) Section 211(c) (2) of such Act is amended by striking 42 USC 411. 
out "and" at the end of subparagraph (D), by striking out 
the semicolon at the end of subparagraph (E), and inserting 
in lieu thereof ", and" and by adding after subparagraph 
(E) the following new paragraph: 
"(F) service described in section 210(a) (20);". 
(3) R E P O R T I N G REQUIREMENT.— 
(A) Subpart B of part III of subchapter A of chapter 61 
(relating to information concerning transactions with other 
90 STAT. 1708 
PUBLIC LAW 94-455—OCT. 4, 1976 
persons) is amended by adding at the end thereof the follow-
ing new section: 
26 use 6050A. 
"SEC. 6050A. REPORTING REQUIREMENTS OF CERTAIN FISHING BOAT 
OPERATORS. 
"(a) REPORTS.—The operator of a boat on which one or more indi-
viduals, during a calendar year, perform services described in section 
Ante, p. 1706. 
f^l21(b) (20) shall submit to the Secretary (at such time, and in such 
manner and form, as the Secretary shall by regulations prescribe) 
information respecting— 
r,.,f i , 
"(1) the identity of each individual performing such services; 
"(2) the percentage of each such individual's share of the 
catches of fish or other forms of aquatic animal life, and the per-
centage of the operator's share of such catches; 
"(3) if such individual receives his share in kind, the type and 
weight of such share, together with such other information as the 
Secretary may prescribe by regulations reasonably necessary to 
determine the value of such share; and 
" (4) if such individual receives a share of the proceeds of such 
catches, the amount so received. 
"(b) WRITTEN STATEMENT.—Every pereon making a return under 
subsection (a) shall furnish to each person whose name is set forth in 
such return a written statement showing the information relating to 
such person contained in such return. The written statement required 
under the preceding sentence shall be furnished to the person on or 
before January 31 of the year following the calendar year for which 
the return under subsection (a) was made." 
26 use 6652. 
(B) Section 6652(b) (relating to failure to file certain 
information returns) is amended by inserting after "with-
held)," the following: "in the case of each failure to make a 
Supra. 
return required by section 6050A(a) (relating to reporting 
requirements of certain fishing boat operators),". 
(C) Section 6652(b) is further amended by inserting after 
"tips)," the following: "or section 6050A(b) (relating to 
statements furnished by certain fishing boat operators),", 
(f) EFFECTIVE DATES.— 
5 use 5516 
(1) SUBSECTION (a).—The amendments made by subsection (a) 
note. 
shall apply to wages withheld after the 120-day period following 
any request for an agreement after the date of the enactment of 
this Act. 
5 use 5517 
(2) SUBSECTIONS (b) AND (C).—The 
amendments made by sub-
note, 
sections (b) and (c) shall apply to wages withheld after the 120-
day period following the date of the enactment of this Act. 
26 use 3402 
(3) SUBSECTION (d).—The amendments made by subsec+ion (d) 
note. 
shall apply to payments of winnings made after tlie 90th day after 
the date of the enactment of this Act. 
26 use 3121 
(4) SUBSECTION (e) .— 
note. 
(A) The amendments made by paragraphs (1) (A) and 
(2) (A) of subsection (e) shall apply to services performed 
after December 31, 1971. The amendments made by para-
graphs (1) (B), (1) (C), and (2 U B) of such subsection shall 
apply to taxable years ending after December 31, 1971. The 
amendments made by paragraph (3) of such subsection shall 
apply to calendar years beginning after the date of tlie 
enactment of this Act. 
(B) Notwithstanding subparagraph (A), if the owner or 
operator of any boat treated a share of the boat's catch of fish 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1709 
or other aquatic animal life (or a share of the proceeds there-
from) received by an individual after December 31, 1971, 
and before the date of the enactment of this Act for services 
performed by such individual after December 31, 1971, on 
such boat as being subject to the tax under chapter 21 of the 
Internal Revenue Code of 1954, then the amendments made 26 USC 3101. 
by paragraphs (1) (A) and (B) and (2) of subsection (e) 
shall not apply with respect to such services performed by 
such individual (and the share of the catch, or proceeds 
therefrom, received by him for such services). 
SEC. 1208. STATE-CONDUCTED LOTTERIES. 
(a) 
EXEMPTION FROM WAGERING TAX.—Paragraph (3) of section 
4402 (relating to State-conducted sweepstakes) is amended to read as 26 USC 4402. 
follows: 
"(3) STAI^-CONDUCTED LOTTERIES, ETC.—On any wager placed 
in a sweepstakes, wagering pool, or lottery which is conducted by 
an agency of a State acting under authority of State law, but 
only if such wager is placed with the State agency conducting 
such sweepstakes, wagering pool, or lottery, or with its authorized 
employees or agents." 
(b) 
EXEMPTION 
FROM 
OCCUPATIONAL TAX ON COIN-OPERATED 
DEVICES.—Section 4462(b) (relating to exclusions from definition of 26 USC 4462. 
coin-operated gaming devices) is amended— 
(1) by striking out "or" at the end of paragraph (1), 
(2) by striking out the period at the end of paragraph (2) and 
inserting in lieu thereof " ; or", and 
(3) by adding at the end thereof the following new paragraph : 
"(3) a vending machine which— 
" ( A ) dispenses tickets on a sweepstakes, wagering pool, 
or lottery which is conducted by an agency of a State acting 
under authority of State law, and 
" ( B ) is maintained by the State agency conducting such 
sweepstakes, wagering pool, or lottery, or by its authorized 
employees or agents." 
(c) EFFECTIVE DATES.— 
(1) The amendment made by subsection (a) shall apply with 
26 USC 4402 
respect to wagers placed after March 10, 1964. 
note. 
(2) The amendments made by subsection (b) shall apply with 
26 USC 4462 
respect to periods after March 10, 1964. 
note-
SEC. 1209. MINIMUM EXEMPTION FROM LEVY FOR WAGES, SALARY, 
AND OTHER INCOME. 
(a) GENERAL RULE.—Subsection (a) of section 6334 (relating to 26 USC 6334. 
property exempt from levy) is amended by adding at the end thereof 
the following new paragraph: 
"(9) 
M I N I M U M EXEMPTION FOR WAGES, SALARY, AND OTHER 
INCOME —Any amoimt payable to or received by an individual as 
wages or salary for personal services, or as income derived from 
other sources, during any period, to the extent that the total of 
such amounts payable to or received by him during such period 
does not exceed the applicable exempt amount determined under 
subsection (d)." 
(b) DETERMINATION or EXEMPT AMOUNT.—Section 6334 is amended 
by adding at the end thereof the following new subsection: 
"(d) 
EXEMPT AMOUNT OF WAGES, SALARY, OR OTHER INCOME.— 
"(1) INDIVIDUALS ON WEEKLY BASIS.—In the case of an individ-
ual who is paid or receives all of his wages, salary, and other in-
89-194 O—78—pt. 2 
16 
90 STAT. 1710 
PUBLIC LAW 94-455—OCT. 4, 1976 
come on a weekly basis, the amount of the wages, salary, and other 
income payable to or received by him during any week which is 
exempt from levy under subsection (a) (9) shall be— 
" ( A ) $50, plus 
" ( B ) $15 for each individual who is specified in a written 
•' 
statement which is submitted to the person on whom notice of 
levy is served and which is verified in such manner as the Sec-
retary shall prescribe by regulations and— 
" (i) over half of whose support for the payroll period 
was received from the taxpayer, 
" (ii) who is the spouse of the taxpayer, or who bears a 
relationship to the taxpayer specified in paragraphs (1) 
through (9) of section 152(a) (relating to definition of 
dependents), and 
"(iii) who is not a minor child of the taxpayer with 
respect to whom amounts are exempt from levy under 
subsection (a) (8) for the payroll period. 
For purposes of subparagraph (B) (ii) of the preceding sentence, 
'payroll period' shall be substituted for 'taxable year' each place 
it appears in paragraph (9) of section 152(a). 
Regulations. 
" (2) iNDrVIDUALS ON BASIS OTHER THAN WEEKLY.—In t h e Case of 
any individual not described in paratrraph (1), the ainoinit o^" 'he 
wages, salary, and other income payable to or received by him dur-
ing any applicable pay period or other fiscal period (as determined 
under regulations prescribed by the Secretary) which is exempt 
from levy under subsection (a) (9) shall be an amount (deter-
mined under such regulations) which as nearly as possible will 
result in the same total exemption from levy for such individual 
over a period of time as he would have under paragraph (1) if 
(during such period of time) he were paid or received such wages, 
salary, and other income on a regular weekly basis." 
(c) CONFORMING AMENDMENT.—The paragraph heading for para-
graph (8) of section 6334(a) is amended to read as follows: 
" ( 8 ) J U D G M E N T S FOR SUPPORT OF MINOR CHILDREN.—". 
(d) LEVY ON WAGES, ETC., To B E CONTINUING.— 
26 use 6331. 
(1) Subsection (d) of section 6331 (relating to levy on salaries 
and wages) is amended by adding at the end thereof the following 
new paragraph: 
" ( 3 ) 
C O N T I N U I N G LEVY ON SALARY AND WAGES.— 
" ( A ) 
EFFECT OF LEVY.—The effect of a levy on salary or 
wages payable to or received by a taxpayer shall be con-
tinuous from the date such levy is first made until the lia-
*t(,v5 '•: 
bility out of which such levy arose is satisfied or becomes 
unenforceable by reason of lapse of time. 
" ( B ) 
REI^EASE AND NOTICE or REUIASE.—With respect to a 
levy described in subparagraph (A), the Secretary shall 
promptly release the lev^y when the liability out of which such 
levy arose is satisfied or becomes unenforceable by reason of 
lapse of time, and shall promptly notify the person upon 
whom such levy was made that such levy has been released." 
(2) The second sentence of section 6331 (b) (relating to seizure 
and sale of property) is amended by striking out "A levy" and 
inserting in lieu thereof "Except as otherwise provided in sub-
section (d) (3), a levy". 
26 use 6332. 
(3) The first sentence of section 6332(c) (1) (relating to 
enforcement of levy) is amended by striking out "from the date of 
such levy" and inserting in lieu thereof "from the date of such levy 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1711 
Ante, p. 1710. 
26 use 6331. 
26 use 6334 
note. 
26 use 6405. 
26 use 4940, 
4971. 
26 use 8023. 
(or, in the case of a levy described in section 6331 (d) (3), from the 
date such person would otherwise have been obligated to pay over 
such amounts to the taxpayer)". 
(4) Paragraph (1) of section 6331(d) 
(relating to levy on 
salaries and wages) is amended by striking out the last sentence, 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
apply only with respect to levies made after December 31, 1976. 
SEC. 1210. JOINT COMMITTEE REFUND CASES. 
(a) I N GENERAL.—Section 6405(a) (relating to reports of refunds 
and credits) is amended to read as follows: 
"(a) B Y TREASURY TO JOINT COMMITTEE.—No refund or credit of 
any income, war profits, excess profits, estate, or gift tax, or any tax 
imposed with respect to private foundations and pension plans under 
chapters 42 and 43, in excess of $200,000 shall be made until after the 
expiration of 30 days from the date upon which a report giving the 
name of the person to whom the refund or credit is to be made, the 
amount of such refund or credit, and a summary of the facts and the 
decision of the Secretary, is submitted to the Joint Conmiittee on 
Taxation." 
(b) TENTATIVE REFUNDS.—Section 6405(c) is amended by striking 
out "$100,000" and inserting in lieu thereof "$200,000". 
(c) 
AUDIT.—Section 
8023(a) 
(relating to powers to 
obtain 
information from the Internal Revenue Service) is amended by 
adding at the end thereof the following new sentence: "In the 
investigation by the Joint Committee on Taxation of the administra-
tion of the internal revenue taxes by the Internal Revenue Service, 
the Chief of Staflf of the Joint Committee on Taxation is authorized 
to secure directly from the Internal Revenue Service such tax returns, 
or copies of tax returns, and other relevant information, as the Chief 
of Staff deems necessary for such investigation, and the Internal 
Revenue Service is authorized and directed to furnish such tax 
returns and information to the Chief of Staff together with a brief 
report, with respect to each return, as to any action taken or proposed 
to be taken by the Service as a result of any audit of the return." 
(d) EFFECTIVE DATES.— 
(1) The amendments made by subsections (a) and (b) shall 
take effect on the date of the enactment of this Act, except that 
such amendments shall not apply with respect to any refund or 
credit with respect to which a report has been made before the 
date of the enactment of this Act under subsection (a) or (c) of 
section 6405 of the Internal Revenue Code of 1954, 
(2) The amendment made by subsection (c) shall take effect 
on January 1,1977. 
SEC. 1211. SOCIAL SECURITY ACCOUNT NUMBERS. 
(a) Section 208(g) of the Social Security Act is amended, in the 42 USe 408. 
matter preceding clause (1) thereof, by striking out "entitled—" and 
inserting in lieu thereof "entitled, or for any other purpose—". 
(b) Section 205(c) (2) of such Act is amended by adding at the end 42 USe 405. 
thereof the following new subparagraphs: 
"(C) (i) I t is the policy of the United States that any State (or 
political subdivision thereof) may, in the administration of any tax, 
general public assistance, driver's license, or motor vehicle registration 
law within its jurisdiction, utilize the social security account numbers 
issued by the Secretary for the purpose of establishing the identifica-
tion of individuals affected by such law, and may require any individ-
26 use 6405 
note. 
26 use 8023 
note. 
90 STAT. 1712 
PUBLIC LAW 94-455—OCT. 4, 1976 
ual who is or appears to be so affected to furnish to such State (or 
political subdivision thereof) or any agency thereof having adminis-
trative responsibility for the law involved, the social security account 
number (or numbers, if he has more than one such number) issued to 
him by the Secretary. 
"(ii) If and to the extent that any provision of Federal law hereto-
fore enacted is inconsistent with the policy set forth in clause (i) of 
this subparagraph, such provision shall, on and after the date of the 
enactment of this subparagraph, be null, void, and of no effect. 
"(iii) For purposes of clause (i) of this subparagraph, an agency 
of a State (or political subdivision thereof) charged with the admin-
istration of any general public assistance, driver's license, or motor 
vehicle registration law which did not use the social security account 
number for identification under a law or regulation adopted before 
January 1,1975, may require an individual to disclose his or her social 
security number to such agency solely for the purpose of administer-
ing the laws referred to in clause (i) above and for the purpose of 
responding to requests for information from an agency operating pur-
suant to the provisions of part A or D of title I V of the Social Security 
42 use 601, 
Act. 
651. 
"(iv) For purposes of this subparagraph, the term 'State' includes 
"State." 
the District of Columbia, the Commonwealth of Puerto Rico, 
the Virgin Islands, Guam, the Commonwealth of the Northern Mari-
anas, and the Trust Territory of the Pacific Islands." 
26 use 6109. 
(c) Section 6109 (relating to identifying numbers) is amended by 
adding at the end thereof the following new subsection: 
Regulations. 
"(d) UsE OF SociAL SECURITY AccouNT NuMBER.—The social secu-
rity account number issued to an individual for purposes of section 
42 use 405. 
205(c) (2) (A) of the Social Security Act shall, except as shall other-
wise be specified under regulations of the Secretary, be used as the 
identifying number for such individual for purposes of this title." 
42 use 408. 
(d) (1) Section 208 of the Social Security Act is amended by insert-
ing after subsection (g) the following new subsection: 
"(h) discloses, uses, or compels the disclosure of the social security 
number of any person in violation of the laws of the United States;" 
(2) section 208(g) (2) of such Act is amended by adding "or" at 
the end thereof. 
SEC. 1212. ABATEMENT OF INTEREST WHEN RETURN IS PREPARED 
FOR TAXPAYER BY THE INTERNAL REVENUE SERVICE. 
26 use 6404. 
(a) I N GENERAL.—Section 6404 (relating to abatements) is amended 
by adding at the end thereof the following new subsection: 
"(d) ASSESSMENTS ATTRIBUTABLE TO CERTAIN MATHEMATICAL ERRORS 
BY INTERNAL REVENUE SEI^VICE.—In the case of an assessment of any 
tax imposed by chapter 1 attributable in whole or in part to a mathe-
matical error described in section 6213(f) (2) (A), if the return was 
prepared by an officer or employee of the Internal Revenue Service 
acting in his official capacity to provide assistance to taxpayers in the 
> 
preparation of income tax returns, the Secretary is authorized to abate 
the assessment of all or any part of any interest on such deficiency for 
any period ending on or before the 30th day following the date of 
notice and demand by the Secretary for payment of the deficiency." 
26 use 6404 
(b) EEFECTIVE DATE.—The amendment made by subsection (a) 
"lote. 
shall apply with respect to returns filed for taxable years ending after 
the date of the enactment of this Act. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1713 
TITLE XIII—TAX EXEMPT 
ORGANIZATIONS 
SEC. 1301. DISPOSITION OF PRIVATE FOUNDATION PROPERTY UNDER 
TRANSITION RULES OF TAX REFORM ACT OF 1969. 
(a) I N GENERAL.—Paragraph (2) of section 101(1) of the Tax 
Reform Act of 1969 (relating to private foundations savings provi- 26 USC 4940 
sions) is amended— 
"
°
*
®
" 
(1) by striking out "and" at the end of subparagraph (D) ; 
(2) by striking out the period at the end of subparagraph (E) 
and inserting in lieu thereof "; and"; and 
(3) by adding at the end thereof the following new subpara-
graph: 
"(F) the sale, exchange, or other disposition (other than 
by lease) of property which is owned by a private foundation 
to a disqualified person if— 
"(i) such foundation is leasing substantially all of 
such property under a lease to which subparagraph (C) 
applies. 
" (ii) the disposition to such disqualified person occurs 
before January 1,1978, and 
"(iii) such foundation receives in return for the dis-
position to such disqualified person an amount which 
equals or exceeds the fair market value of such property 
at the time of the disposition or at the time (after 
June 30, 1976) a contract for the disposition was previ-
ously executed in a transaction which would not consti-
tute a prohibited transaction (within the meaning of 
section 503(b) or any corresponding provision of prior 
law).". 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
26 USC 4940 
shall apply to dispositions after the date of the enactment of this Act °°*^-
in taxable years ending after such date. 
SEC. 1302. NEW PRIVATE FOUNDATION SET-ASIDES. 
(a) I N GENERAL.—Section 4942(g)(2) (relating to definition of 26 USC 4942. 
qualifying distributions) is amended to read as follows: 
"(2) 
CERTAIN SET-ASIDES.— 
"(A) I N GENERAL.—^For all taxable years beginning ou or Effective date, 
after January 1, 1975, subject to such terms and conditions 
as may be prescribed by the Secretary, an amount set aside 
for a specific project which comes within one or more pur-
poses described in section 170(c)(2)(B) may be treated as 
a qualifying distribution if it meets the requirements of sub-
paragraph (B). 
"(B) REQUIREMENTS.—An amount set aside for a specific proj-
ect shall meet the requirements of this subparagraph if at the 
time of the set-aside the foundation establishes to the satisfaction 
of the Secretary that the amount will be paid for the specific 
project within 5 years, and either— 
"(i) at the time of the set-aside the private foundation 
establishes to the satisfaction of the Secretary that the proj-
ect is one which can better be accomplished by such set-aside 
than by immediate payment of funds, or 
"(ii)(I) the project will not be completed before the end 
of the taxable year of the foundation in which the set-aside 
is made, 
90 STAT. 1714 
PUBLIC LAW 94-455—OCT. 4, 1976 
" ( I I ) the private foundation in each taxable year begin-
ning after December 31, 1975 (or after the end of the fourth 
taxable year following the year of its creation, whichever is 
later), distributes amounts, in cash or its equivalent, equal to 
not less than the distributable amount determined under sub-
section (d) (without regard to subsection (i)) for purposes 
described in section 170(c) (2) (B) (includingbut not limited 
to payments with respect to set-asides which were treated as 
qualifying distributions in one or more prior years), and 
" ( I I I ) the private foundation has distributed (including 
but not limited to payments with respect to set-asides which 
were treated as qualifying distributions in one or more prior 
years) during the four taxable years immediately preceding 
its first taxable year beginning after December 31, 1975, or 
the fifth taxable year following the year of its creation, 
whichever is later, an aggregate amount, in cash or its equiva-
lent, of not less than the sum of the following: 80 percent of 
the first preceding taxable year's distributable amount; 60 
percent of the second preceding taxable year's distributable 
amount; 40 percent of the third preceding taxable year's dis-
tributable amount; and 20 percent of the fourth preceding 
taxable year's distributable amount. 
"(C) 
CERTAIN FAILURES TO DISTRIBUTE.—If, for any taxable 
year to which clause (ii) (II) of subparagraph (B) applies, the 
private foundation fails to distribute in cash or its equivalent 
amounts not less than those required by such clause and— 
"(i) the failure to distribute such amounts was not willful 
and was due to reasonable cause, and 
"(ii) the foundation distributes an amount in cash or its 
equivalent which is not less than the difference between the 
amounts required to be distributed under clause (ii) (II) of 
subparagraph (B) and the amounts actually distributed in 
cash or its equivalent during that taxable year within the 
initial correction period provided in subsection (j) (2), 
such distribution in cash or its equivalent shall be treated for the 
purposes of this subparagraph as made during such year. 
" ( D ) REDUCTION IN DISTRIBUTION AMOUNT.—If, during the 
taxable years in the adjustment period for which the organi-
zation is a private foundation, the foundation distributes 
amounts in cash or its equivalent which exceed the amount 
required to be distributed under clause (ii) (II) of subpara-
graph (B) (including but not limited to payments with 
respect to set-asides which were treated as qualifying distri-
butions in prior years), then for purposes of this subsection 
the distribution required under clause (ii) (II) of subpara-
graph (B) for the taxable year shall be reduced by an 
amount equal to such excess. 
" ( E ) ADJUSTMENT PERIOD.—For purposes of subparagraph 
(D), with respect to any taxable year of a private founda-
tion, the taxable years in the adjustment period are the tax-
able years (not exceeding 5) beginning after December 31, 
1975, and immediately preceding the taxable year. 
In the case of a set-aside which satisfies the requirements of clause 
(i) of subparagraph (B), for good cause shown, the period for 
paying the amount set aside may be extended by the Secretary." 
26 use 6501. 
(b) STATUTE or LIMITATIONS.—Subsection (n) of "section 6501 (re-
lating to limitations on assessments and collections) is amended by 
adding at the end thereof the following new paragraph: 
PUBLIC LAW 94^55—OCT. 4, 1976 
90 STAT. 1715 
"(3) CERTAIN SET-AsroEs DESCRIBED IN SECTION 4942(g) (2).—In 
the case of a deficiency attributable to the failure of an amount 
set aside by a private foundation for a specific project to be 
treated as a qualifying distribution under the provisions of sec-
tion 4942(g) (2) (B) (i) ( I I ) , such deficiency mav be assessed at 
any time before the expiration of 2 years after the expiration of 
the period within which a deficiency may be assessed for the taxa-
ble year to which the amount set aside relates." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 4942 
^PPly to taxable years beginning after December 31, 1974. 
note. 
SEC. 1303. MINIMUM DISTRIBUTION AMOUNT FOR PRIVATE FOUN-
DATIONS. 
(a) I N GENERAL.—Subsection (e) of section 4942 (relating to mini- 26 USC 4942. 
mum investment return) is amended to read as follows: 
"(e) M I N I M U M INVESTMENT RETURN.— 
"(1) I N GENERAL.—For purposes of subsection (d), the mini- 
. . , . - ; ; 
mum investment return for any private foundation for any tax-
able year is 5 percent of the excess of— 
" ( A ) the aggregate fair market value of all assets of the 
foundation other than those which are used (or held for use) 
directly in carrying out the foundation's exempt purpose, 
over 
" ( B ) the acquisition indebtedness with respect to such 
assets (determined under section 614(c) (1) without regard 
to the taxable year in which the indebtedness was incurred). 
"(2) VALUATION.— 
"(A) I N GENERAL.—For purposes of paragraph 
( 1 ) ( A ) , 
the fair market value of securities for which market quota-
tions are readily available shall be determined on a monthly 
basis. For all other assets, the fair market value shall be deter- Regulations, 
mined at such times and in such manner as the Secretary shall 
by regulations prescribe. 
" ( B ) 
REDUCTIONS IN VALUE FOR BLOCKAGE OR SIMILAR FAC-
TORS.—In determining the value of any securities under this 
paragraph, the fair market value of such securities (deter-
mined without regard to any reduction in value) shall not be 
reduced unless, and only to the extent that, the private foun-
dation establishes that as a result of— 
" (i) the size of the block of such securities, 
"(ii) the fact that the securities held are securities in a 
closely held corporation, or 
"(iii) the fact that the sale of such securities would 
result in a forced or distress sale, 
the securities could not be liquidated within a reasonable 
period of time except at a price less than such fair market 
value. Any reduction in value allowable under this subpara-
graph shall not exceed 10 percent of such fair market value." 
(b) EFFECTIVE DATE.—The amendment made by this section applies 26 USC 4942 
to taxable years beginning after December 31,1975. 
"o*^-
SEC. 1304. EXTENSION OF TIME TO AMEND CHARITABLE REMAINDER 
TRUST GOVERNING INSTRUMENT. 
(a) EXTENSION OF TIME.—Section 2055(e) (3) (relatingto the allow- 26 USC 2055. 
ance of deductions in certain cases) is amended— 
(1) by striking out "Sentember 21, 1974," and inserting in lieu 
thereof "December 31,1977,", and 
(2) by striking: out "December 31, 1975" each place it appears 
and inserting in lieu thereof "December 31.1977". 
90 STAT. 1716 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 2055 
(b) EXTENSION OF PERIOD FOR FILING CLAIM FOR REFUND OF ESTATE 
'^°*®- 
TAX PAID.—A claim for refund or credit of an overpayment of the tax 
Post, p. 1846. 
imposed by section 2001 of the Internal Revenue Code of 1954 allow-
26 use 2055. 
able under section 2055(e) (3) of such Code (as amended.by subsec-
tion (a)) shall not be denied because of the expiration of the time for 
filing such a claim under section 6511(a) if such claim is filed not 
later than June 30,1978. 
26 use 2055 
(c) ErrECTiVE DATE.—The amendments made by this section shall 
"ot®- 
apply in the case of decedents dying after December 31, 1969. 
SEC. 1305. UNRELATED TRADE OR BUSINESS INCOME OF TRADE 
SHOWS, STATE FAIRS, ETC. 
26 use 513. 
(a) I N GENERAL.—Section 513 (relating to unrelated trade or busi-
ness) is amended by adding at the end thereof the following new 
subsection: 
" ( d ) 
CERTAIN ACTIVITIES OF TRADE SHOWS, STATE FAIRS, E T C . — 
Definitions. 
"(1) GENERAL RULE.—The term 'unrelated trade or business' 
does not include qualified public entertainment activities of an 
organization described in paragraph (2) (C), or qualified conven-
tion and trade show activities of an organization described in 
paragraph (3) (C). 
"(2) QUALIFIED PUBLIC ENTERTAINMENT ACTIVITIES.—For pur-
poses of this subsection— 
" ( A ) PUBLIC ENTERTAINMENT ACTIVITY.—The term 'public 
entertainment activity' means any entertainment or recrea-
tional activity of a kind traditionally conducted at fairs or 
expositions promoting agricultural and educational purposes, 
including, but not limited to, any activity one of the pur-
poses of which is to attract the public to fairs or expositions 
or to promote the breeding of animals or the development of 
products or equipment. 
" ( B ) 
QUALIFIED PUBLIC ENTERTAINMENT ACTIVITY.—The 
term 'qualified public entertainment activity' means a public 
entertainment activity which is conducted by a qualifying 
organization described in subparagraph (C) in— 
"(i) conjunction with an international, national. State, 
regional, or local fair or exposition, 
"(ii) accordance with the provisions of State law 
which permit the activity to be operated or conducted 
solely by such an organization, or by an agency, instru-
mentality, or political subdivision of such State, or 
"(iii) accordance with the provisions of State law 
which permit such an organization to be granted a license 
to conduct not more than 20 days of such activity on 
payment to the State of a lower percentage of the reve-
nue from such licensed activity than the State requires 
from organizations not described in section 501(c) (3), 
(4), or (5). 
" ( C ) QUALIFYING ORGANIZATION.—For purposes of this 
paragraph, the term 'qualifying organization' means an orga-
nization which is described in section 501(c) (3), (4), or 
(5) which regularly conducts, as one of its substantial exempt 
purposes, an agricultural and educational fair or exposition. 
"(3) QUALIFIED CONVENTION AND TRADE SHOW ACTIVITIES.— 
" ( A ) 
CONVENTION AND TRADE SHOW ACTIVITY.—^The term 
'convention and trade show activity' means any activity of a 
kind traditionally conducted at conventions, annual meetings, 
or trade shows, including, but not limited to, any activity one 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1717 
- •' • 
of the purposes of which is to attract persons in an industry 
generally (without regard to membership in the sponsoring 
organization) as well as members of the public to the show 
for the purpose of displaying industry products or to stimu-
late interest in, and demand for, industry products or serv-
ices, or to educate persons engaged in the industry in the 
development of new products and services or new rules and 
regulations affecting the industry. 
" ( B ) 
QlTALiriED CONVENTION AND TRADE SHOW ACTIVITY.— 
The term 'qualified convention and trade show activity' means 
a convention and trade show activity carried out by a qualify-
ing organization described in subparagraph (C) in conjunc-
tion with an international, national. State, regional, or local 
convention, annual meeting, or show conducted by an orga-
nization described in subparagraph (C) if one of the purposes 
of such organization in sponsoring the activity is the promo-
tion and stimulation of interest in, and demand for, the prod-
ucts and services of that industry in general, and the show is 
designed to achieve such purpose through the character of 
the exhibits and the extent of the industry products displayed. 
"(C) 
QUALIFYING ORGANIZATION.—For purposes of this 
paragraph, the term 'qualifying organization' means an orga-
nization described in section 501(c)(5) or (6) which regu-
larly conducts as one of its substantial exempt purposes a 
show which stimulates interest in, and demand for, the prod-
ucts of a particular industry or segment of such industry. 
"(4) SUCH ACTIVITIES NOT TO AFEECT EXEMPT STATUS.—An Orga-
nization described in section 501(c) (3), (4), or (5) shall not be 
considered as not entitled to the exemption allowed under section 
501(a) solely because of qualified public entertainment activities 
conducted by it." 
(b) EFFECTIVE DATES.—The amendments made by subsection (a) 26 USC 513 
ripply to qualified public entertainment activities in taxable years ""*^-
beginning after December 31, 1962, and to qualified convention and 
trade show activities in taxable years beginning after the date of 
enactment of this Act. 
SEC. 1306. DECLARATORY JUDGMENTS WITH RESPECT TO SECTION 
501(c)(3) STATUS AND CLASSIFICATION. 
(a) GENERAL RULE.—Subchapter B of chapter 76 (relating to pro-
ceedings by taxpayers and third parties) is amended by redesignating 
section 7428 as 7430, and by inserting after section 7427 the following 
new section: 
"SEC. 7428. DECLARATORY JUDGMENTS RELATING TO STATUS AND 26 USC 7428. 
CLASSIFICATION OF ORGANIZATIONS UNDER SECTTION 
501(c)(3), ETC. 
"(a) CREATION OF REMEDY.—In a case of actual 
controversy 
involving— 
" (1) a determination by the Secretary— 
"(A) with respect to the initial qualification or continuing 
qualification of an organization as an organization described 
in section 501(c) (3) which is exempt from tax under section 
501(a) or as an organization described in section 170(c) (2), 
" ( B ) with respect to the initial classification or continuing 
classification of an organization as a private foundation (as 
defined in section 509 ( a ) ) , or 
90 STAT. 1718 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(C) with respect to the initial classification or continu-
ing classification of an organization as a private operating 
26 use 4942. 
foundation (as defined in section 4942(j) (3)), or 
"(2) a failure by the Secretary to make a determination with 
respect to an issue referred to in paragraph (1), 
upon the filing of an appropriate pleading, the United States Tax 
Court, the United States Court of Claims, or the district court of the 
United States for the District of Columbia may make a declaration 
with respect to such initial qualification or continuing qualification or 
with respect to such initial classification or continuing classification. 
Any such declaration shall have the force and efi^ect of a decision of 
the Tax Court or a final judgment or decree of the district court or 
the Court of Claims, as the case may be, and shall be reviewable as 
such. 
"(b) LIMITATIONS.— 
"(1) PETITIONER.—A pleading may be filed under this section 
only by the organization the qualification or classification of 
which is at issue. 
" (2) EXHAUSTION OF ADMINISTRATIVE REMEDIES.—A declaratory 
judgment or decree under this section shall not be issued in any 
proceeding unless the Tax Court, the Court of Claims, or the dis-
trict court of the United States for the District of Columbia deter-
mines that the organization involved has exhausted administrative 
remedies available to it within the Internal Revenue Service. An 
organization requesting the determination of an issue referred to 
in subsection (a) (1) shall be deemed to have exhausted its admin-
istrative remedies with respect to a failure by the Secretary to 
make a determination with respect to such issue at the expiration 
of 270 days after the date on which the request for such deter-
mination was made if the organization has taken, in a timely 
manner, all reasonable steps to secure such determination. 
" (3) T I M E FOR BRINGING ACTION.—If the Secretary sends by cer-
tified or registered mail notice of his determination with respect 
to an issue referred to in subsection (a) (1) to the organization 
referred to in paragraph (1), no proceeding may be initiated 
under this section by such organization unless the pleading is 
filed before the 91st day after the date of such mailing. 
"(c) VALIDATION OF CERTAIN CONTRIBUTIONS MADE DURING PEND-
ENCY or PROCEEDINGS.— 
" ( 1 ) I N GENERAL.—If— 
"(A) the issue referred to in subsection (a)(1) involves 
the revocation of a determination that the organization is 
described in section 170(c) (2), 
"(B) a proceeding under this section is initiated within 
the time provided by subsection (b)(3), and 
"(C) either— 
"'- * 
"(i) a decision of the Tax Court has become final 
(within the meaning of section 7481), or 
"(ii) a judgment of the district court of the United 
States for the District of Columbia has been entered, or 
"(iii) a judgment of the Court of Claims has been 
entered,", 
and such decision or judgment, as the case may be, deter-
mines that the organization was not described in section 
170(c)(2), 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1719 
then, notwithstanding such decision or judgment, such organiza-
tion shall be treated as having been described in section 170 (c) (2) 
' * 
for purposes of section 170 for the period beginning on the date 
on which the notice of the revocation was published and ending 
on the date on which the court first determined in such proceed- 
i 
ing that the organization was not described in section 170(c) (2). 
"(2) LIMITATION.—Paragraph (1) shall apply only— 
"(A) with respect to individuals, and only to the extent 
that the aggregate of the contributions made by any individ-
ual to or for the use of the organization during the period 
specified in paragraph (1) does not exceed $1,000 (for this 
purpose treating a husband and wife as one contributor), and 
, 
"(B) with respect to organizations described in section 
V; 
170(c) (2) which are exempt from tax under section 501(a) 
(for this purpose excluding any such organization with 
respect to which there is pending a proceeding to revoke the 
determination under section 170 (c)(2)). 
"(3) ExcEPTiOK-.—This subsection shall not apply to any indi-
vidual who was responsible, in whole or in part, for the activities 
(or failures to act) on the part of the organization which were 
the basis for the revocation.", 
(b) TECHNICAL AND CONFORMING AMENDMENTS.— 
'* 
(1) Section 7451 (relating to fee for filing petition) is amended 26 USC 7451. 
by inserting before the period at the end thereof the following: 
"or under section 7428". 
Ante, p. 1717. 
(2) Section 7459(c) (relating to date of decision) is amended 26 USC 7459. 
by inserting after "under part IV of this subchapter" the follow-
ing : "or under section 7428". 
(3) Section 7476(c) (relating to use of Tax Court commission- 26 USC 7476. 
ers) is amended by striking out "this section" and inserting in lieu 
thereof "this section or section 7428". 
(4) Section 7482(b) (1) (relating to venue for review of Tax 26 USC 7482. 
Court decisions) is amended by striking out "or" at the end of 
subparagraph (C), by striking out the period at the end of sub-
paragraph (D) and inserting in lieu thereof ", or", and by insert-
ing after subparagraph (D) the following new subparagraph: 
"(E) in the case of an organization seeking a declaratory 
decision under section 7428, the principal office or agency of 
the organization.". 
(5) Section 7482(b)(1) is further amended by striking out 
, 
. 
"section 7476" in the last sentence and inserting in lieu thereof 
" ^ ' 
"section 7428,7476,". 
(6) The table of sections for subchapter B of chapter 76 is 
amended by striking out the item relating to section 7428 and 
inserting in lieu thereof the following: 
"Sec. 7428. Declaratory judgments relating to status and classification 
of organizations under section 501(c)(3), etc. 
"Sec. 7430. Cross references." 
(7) Section 1346(e) of title 28, United States Code (relating 
to jurisdiction of district courts with the United States as 
defendant), is amended by inserting "or section 7428 (in the case 
of the United States district court for the District of Columbia)" 
immediately after "section 7426". 
(8) Section 2201 of title 28, United States Code (relating to 
creation of declaratory judgment remedy), is amended by strik-
ing out "taxes" and inserting in lieu thereof "taxes other than 
90 STAT. 1720 
PUBLIC LAW 94-455—OCT. 4, 1976 
actions brought under section 7428 of the Internal Eevenue Code 
Ante, p. 1717. 
of 1954". 
(9) (A) Chapter 92 of title 28, United States Code, is amended 
by adding at the end thereof the following new section: 
28 use 1507. 
"§ 1507. Jurisdiction for certain declaratory judgments 
"The Court of Claims shall have jurisdiction to hear any suit for 
and issue a declaratory judgment under section 7428 of the Internal 
Kevenue Code of 1954.". 
(B) The table of sections for such chapter is amended by add-
ing at the end thereof the following new item: 
"1507. Jurisdiction for certain declaratory judgments." 
26 use 7428 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
"°*^- 
apply with respect to pleadings filed with the United States Tax 
Court, the district court of the United States for the District of Colum-
bia, or the L^nited States Court of Claims more than 6 months after the 
date of the enactment of this Act but only with respect to determina-
tions (or requests for determinations) made after January 1, 1976. 
SEC. 1307. LOBBYING BY PUBLIC CHARITIES. 
(a) Loss OF EXEMPT STATUS.— 
( 1 ) 
L o s s OF EXEMPT STATUS BECAUSE OF SUBSTANTIAL LOBBY-
26 use 501. 
iNG.—Section 501 (relating to exemption from income tax) is 
amended by redesignating subsection (h) as subsection (i) and by 
inserting after subsection (g) the following new subsection: 
"(h) 
EXPENDITURES 
BY 
PUBLIC 
CHARITIES 
To 
INFLUENCE 
LEGISLATION.— 
"(1) GENERAL RULE.—In the case of an organization to which 
this subsection applies, exemption from taxation under subsection 
(a) shall be denied because a substantial part of the activities of 
such organization consists of carrying on propaganda, or other-
wise attempting, to influence legislation, but only if such organi-
zation normally— 
" (A) makes lobbying expenditures in excess of the lobbying 
ceiling amount for such organization for each taxable year, or 
"(B) makes grass roots expenditures in excess of the grass 
roots ceiling amount for such organization for each taxable 
year. 
"(2) DEFINITIONS.—For purposes of this subsection— 
" ( A ) 
LOBBYING 
EXPENDITURES.—The 
term 
'lobbying 
expenditures' means expenditures for the purpose of infiu-
Post, p. 1723. 
encing legislation (as defined in section 4911 ( d ) ) . 
" ( B ) 
LOBBYING CEILING AMOUNT.—The lobbying ceiling 
amount for any organization for any taxable year is 150 per-
cent of the lobbying nontaxable amount for such organiza-
tion for such taxable year, determined under section 4911. 
"(C) 
GRASS ROOTS EXPENDITURES.—The term 'grass roots 
expenditures' means expenditures for the purpose of influ-
encing legislation (as defined in section 4911(d) without 
regard to paragraph (1)(B) thereof). 
" ( D ) GRASS ROOTS CEILING AMOUNT.—The grass roots ceiling 
amount for any organization for any taxable year is 150 per-
cent of the grass roots nontaxable amount for such organiza-
tion for such taxable year, determined under section 4911. 
"(3) ORGANIZATIONS TO WHICH THIS SUBSECTION APPLIES.—This 
subsection shall apply to any organization which has elected (in 
such manner and at such time as the Secretary may prescribe) 
to have the provisions of this subsection apply to such organiza-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1721 
tion and which, for the taxable year which includes the date the 
election is made, is described in subsection (c) (3) and— 
"(A) is described in paragraph (4), and 
"(B) is not a disqualified organization under paragraph 
(5). 
"(4) 
ORGANIZATIOXS PERMITI'ED TO ELECT TO HAVE THIS SUB-
SECTION APPLY.—An organization is described in this paragraph if 
it is described in— 
"(A) section 170(b) (1) (A) (ii) (relating to educational 
institutions), 
"(B) section 170(b)(1) (A) (iii) (relatingto hospitals and 
medical research organizations), 
"(C) section 170(b)(1) (A) (iv) (relating to organizations 
supporting government schools), 
"(D) section 170(b) (1) (A) (vi) (relating to organizations 
publicly supported by charitable contributions), 
" ( E ) section 509(a) (2) (relatingto organizations publicly 
supported by admissions, sales, etc.), or 
" ( F ) section 509(a)(3) 
(relating to organizations sup-
porting certain types of public charities) except that for pur-
poses of this subparagraph, section 509(a)(3) 
shall be 
applied without regard to the last sentence of section 509(a). 
"(5) DISQUALIFIED ORGANIZATIONS.—For purposes of paragraph 
(3) an organization is a disqualified organization if it is— 
" ( A ) described in section 170(b) (1) (A) (i) (relating to 
churches), 
"(B) an integrated auxiliary of a church or of a conven-
tion or association of churches, or 
"(C) a member of an affiliated group of organizations 
(within the meaning of section 4911(f) (2)) if one or more Post, p.l723. 
Z 
members of such group is described in subparagraph (A) 
or (B). 
"(6) 
YEARS FOR WHICH ELECTION IS EFFECTIVE.—An election 
by an organization under this subsection shall be effective for all 
taxable years of such organization which— 
" (A) end after the date the election is made, and 
" ( B ) begin before the date the election is revoked by such Regulations, 
organization (under regulations prescribed by the Secretary). 
"(7) No EFFECT ON CERTAIN ORGANIZATIONS.—With respect to 
any organization for a taxable year for which— 
' 
"(A) such organization is a disqualified 
organization 
(within the meaning of paragraph (5)), or 
"(B) an election under this subsection is not in effect for 
such organization, 
nothing in this subsection or in section 4911 s' all bo construed 
to affect the interpretation of the phrase, 'no substantial part of 
the activities of which is carrying on propaganda, or otherwise 
attempting, to influence legislation,' under subsection (c) (3). 
"(8) AFFILIATED ORGANIZATIONS.— 
"For rules regarding affiliated organizations, see section 4911(f).". 
(2) STATUS OF ORGANIZATION WHICH CEASES TO QUALIFY FOR 26 USC 504. 
EXEMPTION 
UNDER 
SECTION 
5 0 1 ( C ) ( 3 ) 
BECAUSE OF SUBSTANTIAL 
LOBBYING.—Part I of subchapter F of chapter 1 (relating to gen-
eral rules as to exempt organizations) is amended by adding at the 
end thereof the following new section: 
90 STAT. 1722 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 504. 
"SEC. 504. STATUS AFTER ORGANIZATION CEASES TO QUALIFY FOR 
EXEMPTION UNDER SECTION 501(c)(3) BECAUSE OF SUB-
STANTIAL LOBBYING. 
"(a) GENERAL RULE.—^An organization which— 
"(1) was exempt (or was determined by the Secretary to be 
exempt) from taxation under section 501(a) by reason of being 
an organization described in section 501(c) (3), and 
"(2) is not an organization described in section 501(c)(3) by 
reason of carrying on propaganda, or otherwise attempting, to 
influence legislation, 
shall not at any time thereafter be treated as an organization described 
in section 501 (c) (4). 
"(b) REGULATIONS To PREVENT AVOIDANCE.—The Secretary shall 
prescribe such regulations as may be necessary or appropriate to pre-
vent the avoidance of subsection (a), including regulations relating to 
a direct or indirect transfer of all or part of the assets of an organi-
zation to an organization controlled (directly or indirectly) by the 
same person or persons who control the transferor organization. 
"(c) CHURCHES, ETC.—Subsection (a) shall not apply to any orga-
nization which is a disqualified organization within the meaning of 
section 501(h)(5) 
(relating to churches, etc.) for the taxable year 
immediately preceding the first taxable year for which such organiza-
tion is described in paragraph (2) of subsection (a).". 
26 use 504 
(3) RULES OF INTERPRETATION.—It is the intent of Congress that 
note. 
enactment of this section is not to be regarded in any way as an 
approval or disapproval of the decision of the Court of Appeals 
for the Tenth Circuit in Christian Echoes National Ministry, 
Inc. versus United States, 470 F.2d 849 (1972), or of the reason-
ing in any of the opinions leading to that decision. 
26 use 6033. 
(4) DISCLOSURE.—Section 6033(b) 
(relating to information 
required to be furnished annually by certain exempt organiza-
tions) is amended by striking out "and" at the end of paragraph 
(6), by striking out the period at the end of paragraph (7) and 
inserting in lieu thereof ", and", and by adding at m e end thereof 
the following: 
"(8) in the case of an organization with respect to which an 
Ante, p. 1720. 
election under section 501 (h) is effective for the taxable year, the 
following amounts for such organization for such taxable year: 
" ( A ) the lobbying expenditures (as defined in section 4911 
Post, f.1723. 
( c ) ( 1 ) ) , 
" ( B ) the lobbying nontaxable amount (as defined in sec-
tion 4911(c) (2)), 
"(C) the grass roots expenditures (as defined in section 
4911(c) (3)), and 
" ( D ) the grass roots nontaxable amount (as defined in sec-
tion 4911(c) (4)). 
For purposes of paragraph (8), if section 4911 (f) applies to the orga-
nization for the taxable year, such organization shall furnish the 
amounts with respect to the alfiliated group as well as with respect to 
such organization.". 
(b) TAXES ON EXCESS EXPENDITURES T O INFLUENCE LEGISLATION.— 
Subtitle D (relating to miscellaneous excise taxes) is amended by 
inserting before chapter 42 the following new chapter: 
PUBLIC LAW 94-455—OCT. 4, 1976 
"CHAPTER 41—PUBLIC CHARITIES 
90 STAT. 1723 
"Excess 
lobbying 
expenditures." 
"Sec. 4911. Tax on excess expenditures to influence legislation. 
"SEC. 4911. TAX ON EXCESS EXPENDITURES TO INFLUENCE LEGISLA- 26 USC 4911 
TION. 
" ( a ) TAX IMPOSED.— 
" (1) I N GENERAL.—There is hereby imposed on the excess lobby-
ing expenditures of any organization to which this section applies 
a tax equal to 25 percent of the amount of the excess lobbying 
expenditures for the taxable year. 
"(2) 
ORGANIZATIONS TO WHICH THIS SECTION APPLIES.—This 
section applies to any organization with respect to which an elec-
tion under section 501(h) (relating to lobbying expenditures by ^nte, p. 1720 
public charities) is in effect for the taxable year. 
"(b) EXCESS LOBBYING EXPENDITURES.—For purposes of this section, 
the term 'excess lobbying expenditures' means, for a taxable year, the 
greater of— 
"(1) the amount by which the lobbying expenditures made by 
the organization during the taxable year exceed the lobbying non-
taxable amount for such organization for such taxable year, or 
"(2) the amount by which the grass roots expenditures made 
by the organization during the taxable year exceed the grass roots 
nontaxable amount for such organization for such taxable year. 
"(c) DEFINITIONS.—For purposes of this section— 
"(1) LOBBYING EXPENDITURES.—The term 'lobbying expendi-
tures' means expenditures for the purpose of influencing legisla-
tion (as defined in subsection ( d ) ) . 
"(2) LOBBYING NONTAXABLE AMOUNT.—The lobbying nontaxable 
amount for any organization for any taxable year is the lesser of 
(A) $1,000,000 or (B) the amount determined under the follow-
ing table: 
"If the proposed ex- 
The lobbying nontaxable 
penditures are— 
amount is— 
Not over $500,000 
20 percent of the exempt 
purpose 
expenditures. 
Over $500,000 but not over $1,000,000— $100,000, plus 15 percent of the excess 
of the exempt puriwse expenditures 
over $500,000. 
Over $1,000,000 but not over $1,500,000__ $175,000 plus 10 percent of the excess 
of the exempt purpose expenditures 
over $1,000,000. 
Over $1,500,000 
$225,000 plus 5 percent of the excess of 
the exempt purpose expenditures over 
$1,500,000. 
"(3) 
GRASS 
ROOTS 
EXPENDITURES.—The term 
'grass 
roots 
expenditures' means expenditures for the purpose of influencing 
legislation (as defined in subsection (d) without regard to para-
graph (1) (B) thereof). 
" (4) GRASS ROOTS NONTAXABLE AMOUNT.—The grass roots non-
taxable amount for any organization for any taxable year is 25 
percent of the lobbying nontaxable amount (determined under 
paragraph (2)) for such organization for such taxable year. 
" ( d ) INFLUENCING 
LEGISLATION.— 
"(1) GENERAL RULE.—Except as otherwise provided in para- 
"Influencing 
graph (2), for purposes of this section, the term 'influencing leg- 
legislation." 
islation' means— 
"(A) any attempt to influence any legislation through an 
attempt to affect the opinions of the general public or any 
segment thereof, and 
90 STAT. 1724 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(B) any attempt to influence any legislation through com-
munication with any member or employee of a legislative 
body, or with any government official or employee who may 
participate in the formulation of the legislation. 
"Influencing 
" (2) EXCEPTIONS.—For purposes of this section, the term 'influ-
legislation." 
encing legislation', with respect to an organization, does not 
include— 
"(A) making available the results of nonpartisan analysis, 
study, or research; 
" ( B ) providing of technical advice or assistance (where 
such advice would otherwise constitute the influencing of leg-
islation) to a governmental body or to a committee or other 
subdivision thereof in response to a written request by such 
body or subdivision, as the case may be; 
"(C) appearances before, or communications to, any legis-
lative body with respect to a possible decision of such body 
which might affect the existence of the organization, its pow-
ers and duties, tax-exempt status, or the deduction of con-
tributions to the organization; 
"(D) communications between the organization and its 
bona fide members with respect to legislation or proposed 
legislation of direct interest to the organization and such 
members, other than communications described in paragraph 
(3^ ; and 
(E) any communication with a government official or 
employee, other than— 
" (i) a communication with a member or employee of a 
legislative body 
(where such communication 
would 
otherwise constitute the influencing of legislation), or 
"(ii) a communication the principal purpose of which 
is to influence legislation. 
"(3) COMMUNICATIONS WITH MEMBERS.— 
"(A) A communication between an organization and any 
bona fide member of such organization to directly encourage 
such member to communicate as provided in paragraph (1) 
(B) shall be treated as a communication described in para-
graph ( 1 ) ( B ) . 
" ( B ) A communication between an organization and any 
bona fide member of such organization to directly encourage 
such member to urge persons other than members to com-
municate as provided m either subparagraph (A) or sub-
paragraph (B) of paragraph (1) shall be treated as a 
communication described in paragraph ( 1 ) ( A ) . 
"(e) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
. 
"(1) EXEMPT PURPOSE EXPENDITURES.— 
"(A) I N GENERAL.—The term 'exempt purpose expendi-
tures' means, with respect to any organization for any taxable 
year, the total of the amounts paid or incurred by such orga-
nization to accomplish purposes described in section 170(c) 
26 use 170. 
(2) (B) (relating to religious, charitable, educational, etc., 
purposes). 
" ( B ) CERTAIN AMOUNTS INCLUDED.—The term 'exempt pur-
pose expenditures' includes— 
"(i) administrative expenses paid or incurred for pur-
poses described in section 170(c)(2)(B), and 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1725 
' 
"(ii) amounts paid or incurred for the purpose of 
influencing legislation (whether or not for purposes 
described in section 170(c) (2) (B)). 
26 USC 170. 
"(C) CERTAIN" AMOUNTS EXCLUDED.—The term 'exempt pur-
pose expenditures' does not include amounts paid or incurred 
to or for— 
"(i) a separate fundraising unit of such organization, 
or 
"(ii) one or more other organizations, if such amounts 
are paid or incurred primarily for fundraising. 
"(2) LEGISLATION.—The term 'legislation' includes action with 
respect to Acts, bills, resolutions, or similar items by the Congress, 
any State legislature, any local council, or similar governing body, 
or by the public in a referendum, initiative, constitutional amend-
ment, or similar procedure. 
"(3) ACTION,—The term 'action' is limited to the introduction, 
amendment, enactment, defeat, or repeal of Acts, bills, resolutions, 
. ,, 
or similar items. 
"(4) DEPRECIATION, ETC., TREATED AS EXPENDITURES.—In com-
puting expenditures paid or incurred for the purpose of influ-
encing legislation (within the meaning of subsection (b) (1) or 
(b)(2)) or exempt purpose expenditures (as defined in para-
graph (1)), amounts properly chargeable to capital account shall 
not be taken into account. There shall be taken into account a rea-
sonable allowance for exhaustion, wear and tear, obsolescence, or 
amortization. Such allowance shall be computed only on the basis 
of the straight-line method of depreciation. For purposes of this 
section, a determination of whether an amount is properly charge-
able to capital account shall be made on the basis of the principles 
that apply under subtitle A to amounts which are paid or incurred 26 USC 1. 
in a trade or business. 
"(f) AFFILIATED ORGANIZATIONS.— 
"(1) I N GENERAL.—^Except as otherwise provided in paragraph 
(4), if for a taxable year two or more organizations described 
in section 501(c) (3) are members of an affiliated group of orga-
nizations as defined in paragraph (2), and an election under sec-
tion 501(h) is effective for at least one such organization for Ante, p. 1720. 
such year, then— 
"(A) the determination as to whether excess lobbying 
expenditures have been made and the determination as to 
whether the expenditure limits of section 501(h)(1) have 
been exceeded shall be made as though such affiliated group 
is one organization, 
"(B) if such group has excess lobbying expenditures, 
each such organization as to which an election under section 
501(h) is effective for such year shall be treated as an orga-
nization which has excess lobbying expenditures in an amount 
which equals such organization's proportionate share of such 
group's excess lobbying expenditures, 
^-
"(C) if the expenditure limits of section 501(h)(1) are 
exceeded, each such organization as to which an election 
under section 501 (h) is effective for such year shall be treated 
as an organization which is not described in section 501(c) 
(3) by reason of the application of 501 (h), and 
"(i)) subparagraphs (C) and (D) of subsection (d)(2), 
paragraph (3) of subsection (d), and clause (i) of subsec-
89-194 O—78—nt 9 
17 
90 STAT. 1726 
PUBLIC LAW 94-455—OCT. 4, 1976 
tion (e) (1) (C) shall be applied as if such affiliated group 
were one organization. 
" (2) DEFINITION OF AFFILIATION.—For purposes of paragraph 
(1), two organizations are members of an affiliated group of 
organizations but only if— 
"(A) the governing instrument of one such organization 
requires it to be bound by decisions of the other organization 
on legislative issues, or 
"(B) the governing board of one such organization 
includes persons who— 
"(i) 
are specifically designated representatives of 
another such organization or are members of the 
governing board, officers, or paid executive staff members 
of such other organization, and 
" (ii) by aggregating their votes, have sufficient voting 
power to cause or prevent action on legislative issues by 
the first such organization. 
Regulations. 
"(3) DrFFERENT T
A
X
A
B
L
E YEARS.—If members of an affiliated 
group of organizations have different taxable years, their expend-
itures shall be computed for purposes of this section in a manner 
to be prescribed by regulations promulgated by the Secretary. 
"(4) LIMITED CONTROL.—If two or more organizations are 
members of an affiliated group of organizations (as defined in 
paragraph (2) without regard to subparagraph (B) thereof), no 
two members of such affiliated group are affiliated (as defined in 
paragraph (2) without regard to subparagraph (A) thereof), 
and the governing instrument of no such organization requires it 
to be bound by decisions of any of the other such organizations on 
legislative issues other than as to action with respect to Acts, bills, 
resolutions, or similar items by the Congress, then— 
" (A) in the case of any organization whose decisions bind 
one or more members of such affiliated group, directly or 
indirectly, the determination as to whether such organization 
has paid or incurred excess lobbying expenditures and the 
determination as to whether such organization has exceeded 
Ante, p. 1720. 
f]^Q expenditure limits of section 501(h) (1) shall be made as 
though such organization has paid or incurred those amounts 
paid or incurred by such members of such affiliated group to 
influence legislation with respect to Acts, bills, resolutions, or 
similar items by the Congress, and 
"(B) in the case of any organization to which subpara-
graph (A) does not apply, but which is a member of such 
affiliated group, the determination as to whether such organi-
zation has paid or incurred excess lobbying expenditures and 
the determination as to whether such organization has 
exceeded the expenditure limits of section 501(h) (1) shall be 
made as though such organization is not a member of such 
affiliated group.", 
(c) DISALLOWING OF DEDUCTION FOR CONTRIBUTION To INFLUENCE 
26 use 170. 
LEGISLATION.—Section 170(f) (relating to disallowance of charitable 
contribution deductions in certain cases) is amended by striking out 
paragraph (6) and inserting in lieu thereof the following: 
" (6) DEDUCTIONS FOR OUT-OF-POCKET EXPENDITURES.—No deduc-
tion shall be allowed under this section for an out-of-pocket 
expenditure made by any person on behalf of an organization 
described in subsection (c) (other than an organization described 
in section 501(h) (5) (relating to churches, etc.)) if the expendi-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1727 
ture is made for the purpose of influencing legislation (within the 
meaning of section 501 (c) (3)).". 
(d) 
TECHNICAL AMENDMENTS.— 
(1) AMENDMENTS CONFORMING TO NEW SECTION 501(h).— 
Ante, p. 1720. 
(A) Section 501 (c) (3) is amended by striking out "no sub- 26 USC 501. 
stantial part of the activities of which is carrying on propa-
ganda, or otherwise attempting, to influence legislatioUj" and 
inserting in lieu thereof "no substantial part of the activities 
of which is carrying on propaganda, or otherwise attempting, 
to influence legislation (except as otherwise provided in sub' 
section (h)),". 
(B) The following sections are amended by striking out 
' 'N-- >:•) - 3 
"no substantial part of the activities of which is carrying on 
propaganda, or otherwise attempting, to influence legisla-
tion," each place it appears and inserting in lieu thereojp in 
- («s 
each such place "which is not disqualified for tax exemption 
under section 501(c) (3) by reason of attempting to influence 
.1 
legislation,": 
(i) section 170(c)(2)(D) (relating to the definition of 26 USC 170. 
charitable contributions); 
; . 
(ii) section 2055(a) (2) (relatingto transfers for pub- 26 USC 2055. 
lie, charitable, and religious uses); 
(iii) section 2106(a) (2) (A) (ii) (relatingto transfers 26 USC 2106. 
for public, charitable, and religious uses); 
(iv) section 2522(a)(2) (relating to charitable and 26 USC 2522. 
similar gifts of citizens or residents); and 
(v) section 2522(b) (2) (relating to charitable and 
similar gifts of nonresidents). 
(C) Sections 2055(a) (3) and 2106(a) (2) (A) (iii) (relat- 26 USC 2055, 
ing to transfers for public, charitable, and religious uses) are 2106. 
amended by striking out "no substantial part of the activities 
of such trustee or trustees, or of such fraternal society, order, 
or association, is carrying on propaganda, or otherwise 
attempting, to influence legislation," each place it appears and 
inserting m lieu thereof in each such place "such trust, fra-
ternal society, order, or association would not be disqualified 
for tax exemption under section 501(c)(3) by reason of 
attempting to influence legislation,". 
(2) 
AMENDMENTS CONFORMING TO NEW CHAPTER 41.— 
(A) Paragraph (6) of section 275 (a) (denying deductions 26 USC 275. 
for certain taxes), as amended by this Act, is amended to read 
as follows: 
" (6) Taxes imposed by chapters 41, 42, 43, and 44." 
!n.^^?,?^^^' 
(B) Section 6104(c)(1)(B) (relating to notification of t 
' ^ 7 ^ , 
state officers regarding taxes imposed on certain exempt orga- 
''*^' P' 
nizations), is amended by striking out "chapter 42" and ^6 USC 6104. 
inserting in lieu thereof "chapter 41 or 42". 
(C) Section 6161 ('b) (relating to extensions of time for 26 USC 6161. 
paying tax) is amended— 
(i) in paragraph (1) by striking out "12" and insert-
ing in lieu thereof "12, 41"; and 
(ii) in the second sentence by striking out "42," and 
inserting in lieu thereof "41, 42,". 
(D) Section 6201(d) (relating to assessment authority) 26 USC 6201. 
is amended by striking out "chapter 42, and chapter 43 taxes" 
and inserting in lieu thereof "and certain excise taxes". 
90 STAT. 1728 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 6211. 
(E) Section 6211(a) (defining deficiency) is amended by 
striking out "chapters 42" and inserting in lieu thereof 
"chapters 41, 42,''. 
(F) The following sections are amended by striking out 
"chapter 42" each place it appears and inserting in lieu 
thereof in each such place "chapter 41,42,"; 
(i) subsections (a) and (b) (2) of section 6211 (defin-
ing deficiency); 
26 use 6212. 
(ii) section 6212(a) (relating to notice of deficiency); 
26 use 6213. 
(iii) section 6213(a) (relating to restrictions appli-
cable to deficiencies and petitions to Tax Court); 
26 use 6214. 
(iv) subsections (c) and (d) of section 6214 (relating 
to determinations by Tax Court); 
26 use 6344. 
(v) section 6344(a) (1) (relating to cross references); 
26 use 6501. 
(vi) section 6501(e)(3) (relating to limitations on 
assessment and collection); 
26 use 6512. 
(vii) subsections (a) and (b) (1) of section 6512 (relat-
ing to limitations in case of petition to Tax Court); and 
26 use 7422. 
(viii) section 7422(e) (relating to civil actions for 
refund). 
26 use 6212. 
(G) Section 6212 (relating to notice of deficiency) is 
amended— 
(i) in subsection (b) (1) by striking out "chapter 42" 
each place it appears and inserting in lieu thereof in each 
place "chapter 41, chapter 42"; and 
(ii) in subsection (c) (1) by striking out "of chapter 
43 tax for the same taxable years," and inserting in lieu 
thereof "of chapter 41 tax for the same taxable year, of 
chapter 43 tax for the same taxable year,". 
(H) The headings of section 6214(c) (relating to determi-
nations by Tax Court) and 6601(c) (relating to interest on 
underpayments, etc.) are amended by striking out "Chapter 
42" and inserting in lieu thereof in each such place "Chapter 
41, 42.". 
(3) AMENDMENTS TO TABLES OF CHAPTERS AND SECTIONS.— 
(A) The table of chapters for subtitle D is amended by 
inserting before the item relating to chapter 42 the following: 
"Chapter 41. Public charities." 
(B) The table of sections for part I of subchapter F of 
chapter 1 is amended by adding at the end thereof the fol-
lowing : 
"Sec. 504. Status after organization ceases to qualify for exemp-
tion under section 501(c)(3) because of substantial 
lobbying." 
26 use 501 
(e) EFFECTIVE DATE.—^The amendments made by this section shall 
note. 
a-pply— 
(1) except as otherwise specified in paragraph (2), in the case of 
26 use 1. 
amendments to subtitle A, to taxable years beginning after Decem-
ber 31,1976; 
(2) in the case of the amendments made by subsection (a) (2), 
to activities occurring after the date of the enactment of this Act; 
26 use 2001. 
(3) in the case of amendments to chapter 11, to the estates of 
decedents dying after December 31,1976; 
26 use 2501. 
(4) in the case of amendments to chapter 12, to gifts in calendar 
years beginning after December 31,1976; 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1729 
26 use 514 
note. 
26 use 4940 
note. 
(5) in the case of amendments to subtitle D, to taxable years 26 USC 4001. 
beginning after December 31,1976; and 
(6) in the case of amendments to subtitle F , on and after the 26 USC 6001. 
date of the enactment of this Act. 
SEC. 1308. TAX LIENS, ETC., NOT TO CONSTITUTE 
ACQUISITION 
INDEBTEDNESS. 
(a) 
GENERAL KULE.—Section 514(c)(2) 
(relating to property 26 USC 514. 
acquired subject to mortgages, etc.) is amended by adding at the end 
thereof the following new subparagraph: 
"(C) LIENS FOR TAXES O
R ASSESSMENTS.—^Where State law 
.. 
» 
provides that— 
"(i) a lien for taxes, or 
,j 
" (ii) a lien for assessments, 
made by a State or a political subdivision thereof attaches to 
property prior to the time when such taxes or assessments 
become due and payable, then such lien shall be treated as 
similar to a mortgage (within the meaning of subparagraph 
, ,,,. 
(A)) but only after such taxes or assessments become due 
and payable and the organization has had an opportunity to 
pay such taxes or assessments in accordance with State law.". 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
apply to taxable years ending after December 31,1969. 
SEC. 1309. EXTENSION OF SELF-DEALING TRANSITION RULES FOR 
PRIVATE FOUNDATIONS. 
(a) EXTENSION OF RULE.—Section 101 (1) (2) (B) of the Tax Reform 
Act of 1969 is amended by striking out "January 1, 1975" and insert-
ing in lieu thereof "January 1, 1977". 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
apply to dispositions made after the date of the enactment of this 
Act. 
SEC. 1310. IMPUTED INTEREST. 
(a) GENERAL RULE.—Section 4942(f) (2) (relating to income modi- 26 USC 4942. 
fications) is amended— 
(1) by striking out "and" at the end of subparagraph (B), 
(2) by striking out the period at the end of subparagraph (C) 
and inserting in lieu thereof " ; and", and 
(3) by adding at the end thereof the following new sub-
paragraph : 
" ( D ) section 483 (relating to imputed interest) shall not 
^Pply ill the case of a binding contract made in a taxable 
year beginning before January 1, 1970.". 
(b) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 4942 
apply to taxable years ending after the date of the enactment of note. 
this Act. 
SEC. 1311. CERTAIN HOSPITAL SERVICES. 
(a) I N GENERAL.—Section 513 (relating to unrelated trade or 26 USC 513. 
business) is amended by adding at the end thereof the following new 
subsection: 
"(e) 
CERTAIN 
HOSPITAL SERVICES.—In the case of a 
hospital 
described in section 170(b) (1) (A) (iii), the term 'unrelated trade or 
business' does not include the furnishing of one or more of the services 
described in section 501(e) (1) (A) to one or more hospitals described 
in section 170(b) (1) (A) (iii) if— 
"Unrelated trade 
or business." 
90 STAT. 1730 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(1) such services are furnished solely to such hospitals which 
have facilities to serve not more than 100 inpatients; 
"(2) such services, if performed on its own behalf by the 
recipient hospital, would constitute activities in exercising or 
performing the purpose or function constituting the basis for 
its exemption; and 
"(3) such services are provided at a fee or cost which does not 
exceed the actual cost of providing such services, such cost includ-
ing straight line depreciation and a reasonable amount for return 
on capital goods used to provide such services," 
26 use 513 
(b) ErrECTivE DATE.—The amendment made by this section shall 
note. 
a,pply to all taxable years to which the Internal Revenue Code of 
26 use 1. 
1954 applies. 
SEC. 1312. CLINICAL SERVICES OF COOPERATIVE HOSPITALS. 
26 use 501. 
(a) I N GENERAL.—Section 501(e) (1) (A) (relating to cooperative 
hospital service organizations) is amended by inserting "clinical," 
after "food,". 
26 use 501 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
note. 
apply to taxable years ending after December 31, 1976. 
SEC. 1313. EXEMPTION OF CERTAIN AMATEUR ATHLETIC ORGANIZA-
TIONS FROM TAX. 
26 use 501. 
(a) I N GENERAL.—Paragraph (3) of section 501(c) (relating to 
exempt religious, charitable, etc., organizations) is amended by insert-
ing after "or educational purposes," the following: "or to foster 
national or international amateur sports competition (but only if no 
part of its activities involve the provision of athletic facilities or 
equipment),". 
(b) 
TREATMENT OF GIFTS TO S U C H ORGANIZATIONS FOR INCOME, 
ESTATE AND G I F T TAX PURPOSES.— 
26 use 170. 
(1) Subparagraph (B) of section 170(c) (2) (relating to defi-
nition of charitable contribution) is amended by inserting after 
"or educational purposes" the following: ", or to foster national 
or international amateur sports competition (but only if no part 
of its activities involve the provision of athletic facilities or 
equipment),". 
26 use 2055. 
(2) Paragraph (2) of section 2055(a) (relating to transfers 
for public, charitable, and religious uses) is amended by inserting 
after "the encouragement of art" the following: ", or to foster 
national or international amateur sports competition (but only 
if no part of its activities involve the provision of athletic facili-
ties or equipment),". 
26 use 2522. 
(3) Paragraph (2) of section 2522(a) (relating to charitable 
and similar gifts) is amended by inserting after "or educational 
purposes" the following: ", or to foster national or international 
amateur sports competition (but only if no part of its activities 
involve the provision of athletic facilities or equipment),". 
26 use 501 
(c) An organization which (Avithout regard to the amendments 
"°^- 
made by this section) is an organization described in section 170(c) (2) 
(B), 501(c) (3), 2055(a) (2), or 2522(a) (2) of the Internal Revenue 
Code of 1954 shall not be treated as an organization not so described as 
a result of the amendments made by this section. 
26 use 501 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply on the day following the date of the enactment of this Act. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1731 
TITLE XIV—TREATMENT OF CERTAIN 
CAPITAL LOSSES; HOLDING PERIOD FOR 
CAPITAL GAINS AND LOSSES 
' 
SEC. 1401. INCREASE IN AMOUNT OF ORDINARY INCOME AGAINST 
WHICH CAPITAL LOSS MAY BE OFFSET. 
(a) 
GENERAL RULE.—Subparagraph (B) of section 1211(b)(1) 
26 USC1211. 
(relating to limitation on capital losses for taxpayers other than cor-
porations) is amended by striking out "$1,000" and inserting in lieu 
. „ , .-
thereof "the applicable amount". 
(b) 
APPLICABLE 
AMOUNT DEFINED.—Paragraph 
(2) 
of section 
, 
^ 
1211(b) (relating to limitation on capital losses for taxpayers other 
than corporations) is amended to read as follows: 
" (2) APPLICABLE AMOUNT.—For purposes of paragraph (1) ( B ) , 
the term 'applicable amount' means— 
"(A) $2,000 in the case of any taxable year beginning in 
- . . . - • 
1977; and 
" (]3) $3,000 in the case of any taxable year beginning after 
1977. 
In the case of a separate return by a husband or wife, the appli-
cable amount shall be one-half of the amount determined under 
the preceding sentence." 
»£ 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 1211 
apply to taxable years beginning after December 31,1976. 
note. 
SEC. 1402. INCREASE IN HOLDING PERIOD REQUIRED FOR CAPITAL 
GAIN OR LOSS TO BE LONG TERM. 
(a) INCREASE I N Two STEPS FROM 6 MONTHS TO 1 YEAR.— 
.i. 
(1) TAXABLE YEARS BEGINNING IN 1977.—Effective with respect 
to taxable years beginning in 1977, paragraphs (1), (2), (3), and 
(4) of section 1222 (relating to other terms relating to capital 26 USC 1222. 
gains and losses) are each amended by striking out "6 months" 
and inserting in lieu thereof "9 months . 
(2) 
TAXABLE YEARS BEGINNING AFTER 1977.—Effective with 
; 
respect to taxable years beginning after December 31, 1977, para-
graphs (1), (2), (3), and (4) of section 1222 are each amended 
by striking out "9 months" and inserting in lieu thereof "1 year". 
S 
^ eg 
(b) CONFORMING AMENDMENTS.— 
(1) TAXABLE YEARS BEGINNING IN 1977.—Effective with respect 
-^ " ''"^ 
to taxable years beginning in 1977, the following provisions are 
each amended by striking out "6 months" each place it appears 
and inserting in lieu thereof "9 months": 
(A) Paragraph (1) (B) of section 166(d) (relating to non- 26 USC 166. 
business debts). 
(B) Subsection (a) of section 341 (relating to treatment 26 USC 341. 
of gain to shareholders in the case of collapsible corpora-
tions). 
•' 
(C) Paragraph (2) of subsection (a) of section 402 (relat- 26 USC 402. 
ing to capital gains treatment for certain distributions in the 
case of a beneficiary of an exempt employees' trust) and sub-
paragraph (L) of paragraph (4) of section 402(e) (relating 
, 
v-
to election to treat pre-1974 participation as post-1973 par-
ticipation). 
(D) Subparagraph (A) of section 403(a) (2) (relating to 26 USC 403. 
capital gains treatment for certain distributions in the case of 
a beneficiary under a qualified annuity plan). 
90 STAT. 1732 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 423. 
(E) Paragraph (1) of section 423 (a) (relating to employee 
stock purchase plans). 
(F) Paragraph (1) of subsection (a) and paragraphs (1) 
26 use 424. 
and (2) of subsection (c) of section 424 (relating to restricted 
stock options). 
26 use 582. 
(G) Paragraph (2) of section 582(c) (relating to capital 
gains of banks). 
26 use 584. 
(H) Subparagraphs (A) and (B) of section 584(c)(1) 
(relating to inclusions in taxable income of participants in 
common trust funds). 
26 use 631. 
(I) Section 631 (relating to gain or loss in the case of 
timber, coal, or domestic iron ore). 
26 use 642. 
(J) Paragraphs (3) and (4) of section 642(c) (relating 
to charitable deductions for certain trusts). 
26 use 644. 
(K) Section 644 (relating to special holding period rules 
for gain on property transferred to trust at less than fair 
market value). 
26 use 702. 
(L) Paragraphs (1) and (2) of section 702(a) (relating to 
income and credits of partner). 
26 use 817. 
(M) Subparagraph (A) of section 817(a) (1) (relating to 
certain gains and losses in the case of life insurance 
companies). 
(N) Subparagraph (B) of paragraph (3). and paragraph 
26 use 852. 
(4), of section 852 (b) (relating to taxation or shareholders of 
regulated investment companies). 
26 use 856. 
(O) Subparagraph (A) of section 856(c) (4) (relating to 
definition of real estate investment trust). 
(P) Subparagraph (B) of paragraph (3), and paragraph 
26 use 857. 
(5), of section 857(b) (relating to taxation of shareholders 
of real estate investment trusts). 
26 use 1223. 
(Q) Paragraph (11) of section 1223 (relating to holding 
period of property). 
26 use 1231. 
(R) Section 1231 (relating to property used in the trade or 
business and involuntary conversions). 
26 use 1232. 
(S) Paragraph (2) of section 1232(a) (relating to sale 
or exchange in the case of bonds and other evidences of 
indebtedness). 
26 use 1233. 
(T) Subsections (b), (d), and (e) of section 1233 (relat-
ing to gains and losses from short sales). 
Post, p. 1929. 
(U) Paragraph (1) of section 1234(b) (relating to special 
rule for gain on lapse of an option granted as part of a 
straddle), as amended by this Act. 
26 use 1235. 
(V) Subsection (a) of section 1235 (relating to sale or 
exchange of patents). 
26 use 1246. 
(W) Paragraph (4) of section 1246(a) (relating to hold-
ing period in the case of gain on foreign investment company 
stock). 
26 use 1247. 
(X) Subsection (i) of section 1247 (relating to loss on sale 
or exchange of certain stock in the case of foreign investment 
companies electing to distribute income currently). 
(Y) Subsection (b), and subparagraph (C) of subsection 
26 use 1248. 
("f) C^)? of section 1248 (relating to gain from certain sales 
or exchanges of stock in certain foreign corporations). 
26 use 1251. 
'^Z) Paragraph (1) of section 1251(6) (defining farm 
recapture property). 
(2) TAXABLE TEARS BEGINNING AFTER 1977.—^Effective with 
respect to taxable years beginning after December 31, 1977, each 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1733 
provision referred to in paragraph (1) is amended by striking out Ante, p. 1731. 
"9 months" each place it appears and inserting in lieu thereof 
"1 year". 
(3) TECHNICAL AMENDMENT.—Effective with respect to taxable 
years beginning after December 31,1976, section 631 (a) (relating 26 USC 631. 
to gain or loss in the case of timber) is amended by striking out 
"before the beginning of such year". 
(c) TRANSITIONAL RULE FOR CERTAIN INSTALLMENT OBLIGATIONS.— 
26 USC 453 
I n the case of amounts received from sales or other dispositions of note, 
capital assets pursuant to binding contracts, including sales or other 
dispositions the income from which is returned on the basis and in the 
manner prescribed in section 453(a) (1) of the Internal Revenue Code 
of 1954, if the gain or loss was treated as long-term for the taxable year 
for which the amount was realized, such gain or loss shall be treated 
as long-term for the taxable year for which the gain or loss is returned 
or otherwise recognized. 
(d) 
RETENTION OF 6-MONTH PERIOD FOR FUTURES TRANSACTIONS 
IN COMMODITIES.—Section 1222 (relating to other terms relating to 26 USC 1222. 
capital gains and losses) is amended by adding at the end thereof the 
following new sentence: 
"For purposes of this subtitle, in the case of futures transactions 
in any commodity subject to the rules of a board of trade or com-
modity exchange, the length of the holding period taken into account 
under this section or under any other section amended by section 1402 
of the Tax Reform Act of 1976 shall be determined without regard to 
the amendments made by subsections (a) and (b) of such section 
1402." 
SEC. 1403. ALLOWANCE OF 8-YEAR CAPITAL LOSS CARRYOVER IN 
CASE OF REGULATED INVESTMENT COMPANIES. 
(a) GENERAL RULE.—Paragraph (1) of section 1212(a) (relating to 26 USC 1212. 
capital loss carrybacks and carryovers for corporations) is amended 
by striking out "and" at the end of subparagraph (A) and by striking 
out subparagraph (B) and inserting in lieu thereof the following: 
"(B) except as provided in subparagraph (C), a capital 
loss carryover to each of the 5 taxable years succeeding the 
loss year; and 
" ( C ) a capital loss carryover— 
" (i) in the case of a regulated investment company (as 
defined in section 851) to each of the 8 taxable years 
succeeding the loss year, and 
" (ii) to the extent such loss is attributable to a foreign 
exproj)riation capital loss, to each of the 10 taxable years 
exceeding the loss year." 
(b) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 1212 
apply to loss years (within the meaning of section 1212(a) (1) of the note. 
Internal Revenue Code of 1954) ending on or after January 1, 1970. 
SEC. 1404. SALE OF RESIDENCE BY ELDERLY. 
(a) I N GENERAL.—Section 121(b) (1) (relating to gain from sale 26 USC 121. 
or exchange of residence of individual who has attained age 65) is 
amended by striking out "$20,000" each place it appears therein and 
inserting in lieu thereof "$35,000". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC 121 
shall apply to taxable years beginning after December 31, 1976. 
note. 
90 STAT. 1734 
PUBLIC LAW 94-455—OCT. 4, 1976 
TITLE XV—PENSION AND INSURANCE 
TAXATION 
*^3;i 
SEC. 1501. RETIREMENT SAVINGS FOR CERTAIN MARRIED INDIVID-
UALS. 
(a) ALLOWANCE OF DEDUCTION.—Part VII of subchapter B of chap-
a 4 „ ; 
ter 1 (relating to additional itemized deductions for individuals) is 
; 
amended by redesignating section 220 as 221 and by inserting after 
section 219 the following new section: 
26 use 220. 
«SEC. 220. RETIREMENT SAVINGS FOR CERTAIN MARRIED INDIVID-
UALS. 
"(a) DEDUCTION ALLOWED.—In the case of an individual, there is 
allowed as a deduction amounts paid in cash for a taxable year by or 
on behalf of such individual for the benefit of himself and 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 (but only 
if the bond is not redeemed within 12 months of the date of its 
issuance). 
For purposes of this title, any amount paid by an employer to such a 
retirement account or for such a retirement annuity or retirement bond 
constitutes payment of compensation to the employee (other than a 
self-employed individual who is an employee within the meaning of 
section 401(c) (1)) includible in his gross income, whether or not a 
deduction for such payment is allowable under this section to the 
employee after the application of subsection (b). 
^ J -. i 
"(b) LIMITATIONS AND RESTRICTIONS.— 
"(1) MAXIMUM DEDUCTION.—The amount allowable as a deduc-
tion under subsection (a) to an individual for any taxable year 
may not exceed— 
"(A) twice the amount paid to the account or annuity, or 
for the bond, established for the individual or for his spouse 
to or for which the lesser amount was paid for the taxable 
year, 
"(B) an amount equal to 15 percent of the compensation 
includible in the individual's gross income for the taxable 
year, or 
"(C) $1,750, 
whichever is the smallest amount. 
" (2) ALTERNATIVE DEDUCTION.—No deduction is allowed under 
,,, 
subsection (a) for the taxable year if the individual claims the 
deduction allowed by section 219 for the taxable year. 
"(3) 
COVERAGE UNDER CERTAIN OTHER PLANS.—No deduction is 
allowed under subsection (a) for an individual for the taxable 
year if for any part of such year— 
'* -•' * ^ 
"(A.) he or his spouse was an active participant in— 
"(i) a plan described in section 401(a) which includes 
a trust exempt from tax under section 501 (a), 
" (ii) an annuity plan described in section 403 (a), 
'• 
* 
" (iii) a qualified bond purchase plan described in sec-
"*^' 
- tion 405(a), or 
, 
- 
-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1735 
. 
-^ 
" (iv) a plan established for its employees by the United 
States, by a State or political subdivision thereof, or by 
an agency or instrumentality of any of the foregoing, or 
" ( B ) amounts were contributed by his employer, or his 
spouse's employer, for an annuity contract described in sec-
tion 403 (b) (whether or not his, or his spouse's, rights in such 26 USC 403. 
contract are nonforfeitable). 
"(4) CONTRIBUTIONS AFTER AGE 70^/4.—No deduction is allowed 
under subsection (a) with respect to any payment which is made 
for a taxable year of an individual if either the individual or his 
spouse has attained age 701/^ before the close of such taxable year. 
" (5) EECONTRIBUTED AMOUNTS.—No deduction is allowed under 
this section with respect to a rollover contribution described in 
section 402(a)(5), 403(a)(4), 408(d)(3), or 409(b)(3)(C). 
"(6) AMOUNTS CONTRIBUTED UNDER ENDOWMENT CONTRACT.—In 
the case of an endowment contract described in section 408(b), no 
deduction is allowed under subsection (a) for that portion of the 
amounts paid under the contract for the taxable year properly 
allocable, under regulations prescribed by the Secretary, to the 
cost of life insurance. 
"(7) EMPLOYED SPOUSES.—No deduction is allowed under sub-
section (a) with respect to a payment described in subsection (a) 
made for any taxable year of the individual if the spouse of the 
individual has any compensation (determined without regard to 
section 911) for the taxable year of such spouse ending with or 
within such taxable year. 
"(c) DEFINITIONS AND SPECIAL RULES.— 
"(1) COMPENSATION.—For purposes of this section, the term 
'compensation' includes earned income as defined in section 401 
• <•••> 
(c)(2). 
"(2) MARRIED INDIVIDUALS.—This section shall be applied with-
out regard to any community property laws. 
" (3) DETERMINATION OF MARITAL STATUS.—The determination of 
whether an individual is married for purposes of this section shall 
be made in accordance with the provisions of section 143(a). 
" (4) T I M E WHEN CONTRIBUTIONS DEEMED MADE.—-For purposes of 
this section, a taxpayer shall be deemed to have made a contribu-
tion on the last day of the preceding taxable year if the contri- 
] " 
bution is made on account of such taxable year and is made not 
later than 45 days after the end of such taxable year. 
"(5) PARTICIPATION I N GOVERNMENTAL PLANS BY CERTAIN INDI-
VIDUALS.—A member of a reserve component of the armed forces 
or a volunteer firefighter is not considered to be an active par- 
* 
ticipant in a plan described in subsection (b) (3) (A) (iv) if, 
under section 219(c)(4), he is not considered to be an active 
participant in such a plan." 
(b) CONFORMING AMENDMENTS.— 
(1) Paragraph (10) of section 62 (relating to retirement sav- 26 USC 62. 
ings) is amended by inserting before the period the following: 
"and the deduction allowed by section 220 (relating to retirement 
savings for certain married individuals)". 
(2) Paragraph (2) of section 408(c) is amended by inserting 26 USC 408. 
"(or spouse of an employee or member)" after "member". 
(3) Subsection (a) of section 415 (relating to limitations on 26 USC 415. 
benefits and contributions under qualified plans) is amended— 
(A) by striking out "In the case" in paragraph (2) and 
inserting in lieu thereof "Except as provided in paragraph 
(3), in the case", and 
90 STAT. 1736 
PUBLIC LAW 94-455—OCT. 4, 1976 
(B) by adding at the end thereof the following new para-
graph : 
"(3) ACCOUNTS, ETC., ESTABLISHED FOR NON-EMPLOYED SPOUSE.— 
Paragraph (2) shall not apply for any year to an account, 
annuity, or bond described in section 408(a), 408(b), or 409, 
>
• 
respectively, established for the benefit of the spouse of the indi-
vidual contributing to such account, or for such annuity or bond. 
Ante, p. 1734. 
if a deduction is allowed under section 220 to such individual 
with respect to such contribution for such year.". 
26 use 219. 
(4) Section 219 (relating to retirement savings) is amended— 
(A) by striking out "during" in subsection (a) and 
inserting in lieu thereof "for", 
(B) by adding at the end of subsection (b) the following 
new paragraph: 
"(6) ALTERNATIVE DEDUCTION.—No deduction is allowed under 
subsection (a) for the taxable year if the individual claims the 
deduction allowed by section 220 for the taxable year.", 
(C) by adding at the end of subsection (c) (2) the follow-
ing new sentence: "For purposes of this section, the deter-
mination of whether an individual is married shall be made 
in accordance with the provisions of section 143(a).", and 
(D) by adding at the end of subsection (c) the following 
new paragraph: 
"(3) 
TIME WHEN CONTRIBUTIONS DEEMED MADE.—For purposes 
of this section, a taxpayer shall be deemed to have made a contri-
bution on the last day of the preceding taxable year if the contri-
bution is made on account of such taxable year and is made not 
later than 45 days after the end of such taxable year." 
26 use 408. 
(5) Paragraph (4) of section 408(d) (relating to excess con-
tributions returned before due date of return) is amended— 
(A) by inserting "or 220" after "219", and 
(B) by striking out the last sentence and inserting in lieu 
thereof the following: "In the case of such a distribution, for 
purposes of section 61, any net income described in subpara-
graph (C) shall be deemed to have been earned and receiv-
able in the taxable year in which such excess contribution is 
made." 
26 use 409. 
(6) Paragraph (4) of section 409(a) (relating to retirement 
bonds) is amended by striking out "in any taxable year" and 
inserting in lieu thereof "for any taxable year". 
26 use 3401. 
(7) Paragraph (12) of section 3401(a) (relating to definition 
of wages) is amended by inserting "or 220(a)" after "219(a)". 
26 use 4973. 
(8) Section 4973 (relating to tax on excess contributions to 
individual retirement accounts, etc.) is amended— 
(A) by striking out "such individual" in the last sentence 
of subsection (a) and inserting in lieu thereof the following: 
"the individual to whom a deduction is allowed for the tax-
'.«..'. 
' 
able year under section 219 (determined without regard to 
subsection (b) (1) thereof) or section 220 (determined with-
out regard to subsection (b) (1) thereof), wnichever is appro-
priate" ; 
-n- 
(B) by inserting "or 220" after "219" in subsection (b) (1) 
(B);and 
;; - - 
(C) by striking out paragraph (2) of subsection (b) and 
inserting in lieu thereof the following: 
"(2) the amount determined under this subsection for the 
preceding taxable year, reduced by the excess (if any) of the 
maximum amount allowable as a deduction under section 219 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1737 
or 220 for the taxable year over the amount contributed to the Ante, p. 1734. 
accounts or for the annuities or bonds for the taxable year and 
reduced by the sum of the distributions out of the account (for 
the taxable year and all prior taxable years) which were included 
in the gross income of the payee under section 408(d) (1). 
For purposes of this subsection, any contribution which is distributed 
from the individual retirement account, individual retirement annu-
ity, or bond in a distribution to which section 408(d)(4) applies 
-
shall be treated as an amount not contributed if such distribution con-
sists of an excess contribution solely because of employer contributions 
to a plan or contract described in section 219(b) (2) or by reason of 
the application of section 219(b)(1) (without regard to the $1,500 
limitation) or section 220(b) (1) (without regard to the $1,750 limi-
tation) and only if such distribution does not exceed the excess of 
$1,500 or $1,750 if applicable, over the amount described in paragraph 
( 1 ) ( B ) . " 
(9) Subsection (d) of section 6047 (relating to other pro- 26 USC 6047. 
grams) is amended by inserting "or 220(a)" after "219(a)". 
(10) Paragraph (1) of section 408(d) (relating to tax treat- 26 USC 408. 
ment of distributions) is amended by striking out the second sen-
tence and inserting in lieu thereof the following: "Notwithstand-
ing any other provision of this title (including chapters 11 and 
12), the basis any person in such an account or annuity is zero.". 
(c) CLERICAL AMENDMENT.—The table of sections for part V I I of 
subchapter B of chapter 1 is amended by striking out the item relat-
ing to section 220 and inserting in lieu thereof the following: 
"Sec. 220. Retirement savings for certain married individuals. 
"Sec. 221. Cross references.". 
(d) EFFECTIVE DATE.—The amendments made by this section, other 
26 USC 220 
than the amendment made by subsection (b) (3), shall apply to taxa- 
note. 
ble years beginning after December 31, 1976. The amendment made 
I 
by subsection (b) (3) shall apply to years beginning after December 31, 
1976. 
SEC. 1502. LIMITATION ON CONTRIBUTIONS TO CERTAIN PENSION, 
ETC., PLANS. 
" 
(a) I N GENERAL.— 
(1) L I M I T ON CONTRIBUTIONS.—Section 415 (c) (relating to limi- 
26 USC 415. 
tation for defined contribution plans) is amended by adding at 
the end thereof the following new paragraph: 
/ 
"(5) APPLICATION WITH SECTION 404(e) (4).—In the case of a 
plan which provides contributions or benefits for employees some 
or all of whom are employees within the meaning of section 401 
(c)(1), the amount determined under paragraph (1) (B) with 
respect to any participant shall not be less than the amount deduct-
ible under section 404(e) with respect to any individual who is 
an employee within the meaning of section 401(c)(1)." 
(2) M I N I M U M DEDUCTION LIMITATION.—Section 404(e)(4) of 
26 USC 404. 
such Code (relating to minimum deductible amount for pension 
plan contributions by self-employed individuals) is amended by 
,; 
adding after subparagraph (B) the following: "This paragraph 
does not apply for any taxable year to any employee whose 
adjusted gross income for such taxable year (determined sepa-
rately for each individual, without regard to any community 
property laws, and without regard to the deduction allowable 
under subsection (a)) exceeds $15,000," 
90 STAT. 1738 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 415 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) (1) 
note. 
sball apply to years beginning after December 31, 1975. The amend-
ment made by subsection (a) (2) shall apply to taxable years beginning 
after December 31, 1975. 
SEC. 1503. PARTICIPATION BY MEMBERS OF RESERVES OR NATIONAL 
GUARD, AND VOLUNTEER FIREFIGHTERS IN INDIVIDUAL 
RETIREMENT ACCOUNTS, ETC. 
26 use 219. 
(a) GENERAL EULE.—Section 219(c) (relating to definitions and 
special rules for retirement savings deduction) is amended by adding 
at the end thereof the following new paragraph: 
"(4) PARTICIPATION 
I N GOVERNMENTAL 
PLANS 
BY CERTAIN 
INDIVIDUALS. 
" ( A ) MEMBERS or RESERVE COMPONENTS.—A member of a 
reserve component of the armed forces (as defined in section 
261 (a) of title 10) is not considered to be an active participant 
in a plan described in subsection ( b ) ( 3 ) ( A ) ( i v ) for a taxable 
•
"
"
^ *
'
~ 
'"- 
year solely because he is a member of a reserve component 
unless he has served in excess of 90 days on active duty (other 
*' '• "- 
than active duty for training) during the year. 
" ( B ) 
VOLUNTEER 
FIREFIGHTERS.—An individual 
whose 
participation in a plan described in subsection (b) (3) (A) 
(iv) is based solely upon his activity as a volunteer 
firefighter 
and whose accrued benefit as of the beginning of the taxable 
year is not more than an annual benefit of $1,800 (when 
expressed as a single life annuity commencing at age 65) is 
not considered to be an active participant in such a plan for 
the taxable year." 
26 use 219 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
°<*t®- 
a.pply to taxable years beginning after December 31, 1975. 
SEC. 1504. CERTAIN INVESTMENTS BY ANNUITY PLANS. 
26 use 403. 
(a) I N GENERAL.—Paragraph (7) of section 403(b) (relating to 
custodial 
accounts for regulated 
investment company stock) is 
amended by striking out ", and which issues only redeemable stock" in 
subparagraph (C). 
26 use 403 
(b) EFFECTIVE 
DATE.—The amendment made by this 
section 
°°*®' 
applies to taxable j^ears beginning after December 31, 1975. 
. ; 
' 
SEC. 1505. SEGREGATED ASSET ACCOUNTS. 
(a) SEGREGATED ASSET ACCOUNTS OF L I F E INSURANCE COMPANIES.— 
26 use 801. 
Paragraph (1) (B) of section 801(g) is amended— 
(1) by striking out clause (ii) and inserting in lieu thereof the 
following: 
"(ii) which is described in subparagraph ( A ) , ( B ) , 
(C), ( D ) , o r (E) of section 805(d) (1) (otherthanalife, 
health or accident, property, casualty, or liability insur-
ance contract) or which provides for the payment of 
annuities, and", and 
?,{•;. >; 
^': 
(2) by striking out "as annuities" in clause (iii) and inserting in 
lieu thereof "out". 
26 use 401. 
(b) CONFORMING AMENDMENT.—Section 401 (relating to qualified 
pension, etc. plans) is amended by striking out subsection (f) and 
inserting in lieu thereof the following: 
" (f) CERTAIN CUSTODIAL ACCOUNTS AND CONTRACTS.—For purposes 
of this title, a custodial account, an annuity contract, or a contract 
(other than a life, health or accident, property, casualty, or liability 
insurance contract) issued by an insurance company qualified to do 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1739 
business in a State shall be treated as a qualified trust under this 
section if— 
"(1) the custodial account or contract would, except for the 
fact that it is not a trust, constitute a qualified trust under this 
section, and 
"(2) in the case of a custodial account the assets thereof are 
held by a bank (as defined in subsection ( d ) ( 1 ) ) or another per-
son who demonstrates, to the satisfaction of the Secretary, that 
the manner in which he will hold the assets will be consistent with 
the requirements of this section. 
, 
. * ' . <
: 
For purposes of this title, in the case of a custodial account or contract 
treated as a qualified trust under this section by reason of this subsec-
tion, the person holding the assets of such account or holding such 
contract shall be treated as the trustee thereof.". 
(c) EFFECTIVE DATE.—The amendments made by this section apply 
26 USC 801 
for taxable years beginning after December 31, 1975. 
note. 
SEC. 1506. STUDY OF SALARY REDUCTION PENSION PLANS. 
Section 2006 of the Employee Retirement Income Security Act of 
1974 is amended— 
26 USC 401 
(1) by striking out "January 1,1977" each place it appears and 
note, 
inserting in lieu thereof "January 1, 1978", and 
(2) by striking out "December 31, 1976" in subsection (d) and 
inserting in lieu thereof "December 31, 1977". 
SEC. 1507. CONSOLIDATED RETURNS FOR LIFE AND OTHER INSUR-
ANCE COMPANIES. 
(a) I N GENERAL.—Section 1504(c) (relating to the definition of 
26 USC 1504. 
includible insurance companies) is amended to read as follows: 
" (c) INCLUDIBLE INSURANCE COMPANIES.—Notwithstanding the pro-
visions of paragraph (2) of subsection (b) — 
"(1) Two or more domestic insurance companies each of which 
is subject to tax under section 802 shall be treated as includible 
corporations for purposes of applying subsection (a) to such 
insurance companies alone. 
"(2) (A) If an affiliated group (determined without regard to 
subsection (b) (2) includes one or more domestic insurance com-
panies taxed under section 802 or 821, the common parent of such 
group may elect (pursuant to regulations prescribed by the Sec-
retary) to treat all such companies as includible corporations for 
purposes of applying subsection (a) except that no such company 
shall be so treated until it has been a member of the affiliated 
group for the 5 taxable years immediately preceding the taxable 
year for which the consolidated return is filed. 
" ( B ) If an election under this paragraph is in effect for a 
taxable year— 
"(i) section 243(b) (6) and the exception provided under 
section 243(b) (5) with respect to subsections (b) (2) and (c) 
of this section, 
"(ii) section 542(b) (5), and 
"(iii) subsection (a)(4) and ( b ) ( 2 ) ( D ) of section 1563, 
and the reference to section 1563 (b) (2) (D) contained in sec-
tion 1563(b) (3) (C), 
shall not be effective for such taxable vear. 
(b) 
SPECIAL RULES AND CONFORMING AMENDMENTS,— 
(1) Section 821 (relating to tax on mutual insurance companies 
26 USC 821. 
to which part I I applies, as amended by section 1901(a) (104) (C) 
of this Act,) is amended by redesignating subsection (e) as sub- Post, p. 1764. 
90 STAT. 1740 
PUBLIC LAW 94-455—OCT. 4, 1976 
i 
section (f), and by adding after subsection (d) the following 
new subsection: 
"(e) 
TAX APPLICABLE TO MEMBER or GROUP FILING CONSOLIDATED 
RETURN.—Notwithstanding any other provision of this section, if a 
mutual insurance company to which this section applies joins in the 
filing of a consolidated return (or is required to so file), the applicable 
tax shall consist of a normal tax and a surtax computed as provided 
Ante, p. 1606. 
i^^ section 11 as though the mutual insurance company taxable income 
of such company were the taxable income referred to in section 11.". 
26 use 843. 
(2) Section 843 (relating to annual accounting period) 
is 
amended by adding at the end thereof the following sentence: 
"Under regulations prescribed by the Secretary, an insurance 
company which joins in the filing of a consolidated return (or 
is required to so file) may adopt the taxable year of the common 
parent corporation even though such year is not a calendar year." 
26 use 1503. 
(3) Section 1503 (relating to computation and payment of tax) 
is amended by adding the following new subsection: 
"(c) 
SPECIAL RULE FOR APPLICATION or CERTAIN LOSSES AGAINST 
INCOME OF INSURANCE COMPANIES TAXED UNDER SECTION 802.— 
"(1) I N GENERAL.—If an election under section 1504(c) (2) is 
in effect for the taxable year and the consolidated taxable income 
of the members of the group not taxed under section 802 results 
in a consolidated net operating loss for such taxable year, then 
under regulations prescribed by the Secretary, the amount of such 
loss which cannot be absorbed in the applicable carryback periods 
against the taxable income of such members not taxed under sec-
tion 802 shall be taken into account in determining the consoli-
dated taxable income of the affiliated group for such taxable year 
to the extent of 35 percent of such loss or 35 percent of the taxable 
income of the members taxed under section 802, whichever is less. 
The unused portion of such loss shall be available as a carryover, 
. 
subject to the same limitations (applicable to the sum of the loss 
for the carryover year and the loss (or losses) carried over to such 
year), in applicable carryover years. For purposes of this subsec-
tion, in determining the taxable income of each insurance com-
pany subject to tax under section 802, section 802(b) (3) shall not 
be taken into account. For taxable years ending with or within 
calendar year 1981, '25 percent' shall be substituted for '35 per-
cent' each place it appears in the first sentence of this subsection. 
For taxable years ending with or within calendar year 1982, '30 
percent' shall be substituted for '35 percent' each place it appears 
in that sentence. 
"(2) 
LOSSES or RECENT NONLIFE AFFILIATES.—Notwithstanding 
the provisions of paragraph (1), a net operating loss for a taxable 
year of a member of the group not taxed under section 802 shall 
not be taken into account in determining the taxable income of a 
member taxed under section 802 (either for the taxable year or as 
a carryover or carryback) if such taxable year precedes the sixth 
taxable year such members have been members of the same affili-
ated group (determined without regard to section 1504(b) (2))." 
26 use 1504 
(c) 
EFFECTIVE DATE AND TRANSITIONAL RULES.— 
note. 
(1) EFFECTIVE DATE.—The amendments made by subsections 
(a) and (b) shall apply to taxable years beginning after Decem-
ber 31, 1980. 
(2) 
TRANSITION RULES WITH RESPECT TO CARRYOVERS OR CARRY-
BACKS RELATING TO PRE-ELECTION TAXABLE YEARS AND NONTERMINA-
*
'
«
>
T
> 
i. 1 
TiON OF GROUP.— 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1741 
(A) 
LIMITATIONS ON CARRYOVERS OR CARRYBACKS FOR GROUPS 
ELECTING UNDER SECTION 1504(c) (2).—If an affiliated group 
elects to file a consolidated return pursuant to section 1504 
(c) (2) of the Internal Revenue Code of 1954, a carryover of 
a loss or credit from a taxable year ending before January 1, 
1981, and losses or credits which may be carried back to tax-
able years ending before such date, shall be taken into account 
-
as if this section had not been enacted. 
(B) NoNTERMiNATioN OF AFFILIATED GROUP.—The mere 
election to file a consolidated return pursuant to such sec-
tion 1504(c) (2) shall not cause the termination of an affiliated 
group filing consolidated returns. 
SEC. 1508. TREATMENT OF CERTAIN LIFE INSURANCE CONTRACTS 
GUARANTEED RENEWABLE. 
(a) I N GENERAL.—Paragraph (d) (5) of section 809 (relating to 26 USC 809. 
certain nonparticipating contracts) is amended by adding at the end 
thereof the following sentence: "For purposes of this paragraph, the 
period for which any contract is issued or renewed includes the period 
for which such contract is guaranteed renewable." 
(b) 
EFFECTIVE DATE.—The amendment made by subsection (a) 
26 USC 809 
shall apply to taxable years beginning after December 31, 1957. 
note. 
SEC. 1509. STUDY OF EXPANDED PARTICIPATION IN INDIVIDUAL 26 USC 8022 
RETIREMENT ACCOUNTS. 
note-
The Joint Committee on Taxation shall carry out a study with 
respect to broadening the class of individuals who are eligible to claim 
a deduction for retirement savings under section 219 or 220 of the 
Internal Revenue Code of 1954 to include individuals who are partici- 
26 USC 219. 
pants in pension plans described in section 401(a) of such Code Ante, p. 1734. 
(relating to qualified pension, profit-sharing, and stock bonus plans) 
or similar plans established for its employees by the United States, 
by a State or political division thereof, or by an agency or instru-
mentality of the United States or a State or political division thereof. 
The Joint Committee shall report its findings to the Committee on 
Report to 
Ways and Means of the House of Representatives and to the Commit- 
congressional 
tee on Finance of the Senate. 
committees. 
SEC. 1510. TAXABLE 
STATUS 
OF 
PENSION 
BENEFIT 
GUARANTY 
CORPORATION. 
(a) I N GENERAL.—Section 4002(g) (1) of the Employee Retirement 
' 
Income Security Act of 1974 (29 U.S.C. 1302(f) (1)) is amended by 
inserting "by the United States (other than taxes imposed under 
chapter 21 of the Internal Revenue Code of 1954, relating to Federal 
26 USC 3101. 
Insurance Contributions Act, and chapter 23 of such Code, relating to 
26 USC 3301. 
Federal Unemployment Tax Act), or" immediately after "imposed". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) sliall 
29 USC 1302 
take effect on September 2,1974. 
note. 
SEC. 1511. LEVEL PREMIUM PLANS COVERING OWNER-EMPLOYEES. 
(a) I N GENERAL.—Section 415(c) (relating to limitation for defined 
26 USC 415. 
contribution plans) is amended by adding after paragraph (6) the 
following new paragraph: 
" ( 7 ) C E R T A I N LEVEL PREMIUM A N N U I T Y CONTRACTS UNDER PLANS 
BENEFITING OWNER-EMPLOYEES.—Paragraph 
(1) (B) 
shall 
not 
apply to a contribution described in section 401 (e) which is made 
on behalf of a participant for a year to a plan Avhich benefits an 
owner-employee (within the meaning of section 401(c) (3)), if— 
89-194 O—78—pt. 2 
18 
90 STAT. 1742 
PUBLIC LAW 94-455—OCT. 4, 1976 
•i^^'C""'' • 
" ( A ) the annual addition determined under this section 
with respect to the participant for such year consists solely 
of such contribution, and 
"(B) the participant is not an active participant at any 
time during such year in a defined benefit plan maintained 
by the employer. 
26 use 401. 
For purposes of this section and section 401(e), in the case of a 
plan which provides contributions or benefits for employees who 
are not owner-employees, such plan will not be treated as failing 
to satisfy section 401(a)(4) merely because contributions made 
on behalf of employees who are not owner-employees are not 
permitted to exceed the limitations of paragraph (1) (B)." 
26 use 415 
(b) ErrECTivE DATE.—The amendment made by this section shall 
note. 
apply for years beginning after December 31, 1975. 
SEC. 1512. LUMP-SUM DISTRIBUTIONS FROM QUALIFIED PENSION, 
ETC., PLANS. 
26 use 402. 
(a) I N GENERAL.—Section 402(e)(4) (relating to definitions and 
special rules) is amended by adding at the end thereof the following 
new subparagraph: 
f»,)p;^;. ! 
" ( L ) ELECTION TO TREAT PRE-I9 74 PARTICIPATION AS POST-
1973 PARTICIPATION.—For purposes of subparagraph ( E ) , 
V., 
subsection (a) (2), and section 403 (a) (2), if a taxpayer elects 
(at the time and in the manner provided under regulations 
prescribed by the Secretary), all calendar years of an employ-
ee's active participation in all plans in which the employee 
has been an active participant shall be considered years of 
active participation by such employee after December 31, 
1973. An election made under this subparagraph, once made, 
shall be irrevocable and shall apply to all lump-sum distri-
butions received by the taxpayer with respect to the employee. 
This subparagraph shall not apply if the taxpayer received 
a lump-sum distribution in a previous taxable year of the 
^ 
employee beginning after December 31, 1975, unless no por-
tion of such lump-sum distribution was treated under sub-
section (a) (2) or section 403(a) (2) as gain from the sale or 
exchange of a capital asset held for more than 6 months." 
26 use 402 
(^) EFFECTIVE DATE.—The amendment made by this section shall 
note 
apply to distributions and payments made after December 31,1975, in 
taxable years beginning after such date. 
TITLE XVI—REAL ESTATE INVESTMENT 
TRUSTS 
' 
" 
SEC. 1601. DEFICIENCY DIVIDEND PROCEDURE. 
(a) I N GENERAL.— 
(1) Part I I of subchapter M of chapter 1 (relating to real 
;?J.# v*^j ii^ 
estate investment trusts) is amended by adding at the end thereof 
the following new section: 
26 use 859. 
"SEC. 859. DEDUCTION FOR DEFICIENCY DIVIDENDS. 
"(a) 
GENERAL RULE.—If a determination (as defined in subsec-
tion (c)) with respect to a real estate investment trust results in any 
adjustment (as defined in subsection (b)(1)) for any taxable year, 
a deduction shall be allowed to such trust for the amount of deficiency 
dividends (as defined in subsection (d)) for purposes of determining 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1743 
the deduction for dividends paid (for purposes of section 857) for 26 USC 857. 
such year. 
"(b) RULES FOR APPUCATION OF SECTION.— 
"(1) 
ADJUSTMENT.—For purposes of this section, the term 
"Adjustment." 
'adjustment' means— 
" (A) any increase in the sum of— 
"(i) the real estate investment trust taxable income 
.,,!:, t,;' 
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 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 Post, p. 1756. 
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 
gains dividends. 
"(2) 
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 real 
estate investment trust 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 
by section 6601 (c)) 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. 
"(3) 
CREDIT OR REFUND.—If the allowance of a deficiency 
dividend deduction results in an overpayment of tax for any tax-
able 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. 
"(c) DETERMINATION.—For purposes of this section, the term 
'determination' 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 
"(3) under regulations prescribed by the Secretary, an agree-
ment signed by the Secretary and by, or on behalf of, the real 
estate investment trust relating to the liability of such trust for 
tax. 
"Determina-
tion." 
Regulations. 
M.?( 
90 STAT. 1744 
PUBLIC LAW 94-455—OCT. 4, 1976 
" ( d ) DEFICIENCT DIVIDENDS.— 
' 
. ~ 
..^ 
"(1) DEFINITION.—For purposes of this section, the term 
'deficiency dividends' means a distribution of property made by 
'"' 
the real estate investment trust on or after the date of the determi-
nation and before filing claim under subsection (e), which would 
have been includible in the computation of the deduction for divi-
26 use 561. 
dends paid under section 561 for the taxable year with respect to 
which the liability for tax resulting from the determination exists, 
if distributed during such taxable year. No distribution of prop-
erty shall be considered as deficiency dividends for purposes of 
subsection (a) unless distributed within 90 days after the deter-
mination, and unless a claim for a deficiency dividend deduction 
with respect to such distribution is filed pursuant to subsection 
(e). ^ 
"(2) LIMITATIONS.— 
" ( A ) 
ORDINARY DIVIDENDS.—The amount of deficiency 
dividends (other than deficiency dividends qualifying as 
capital gain dividends) paid by a real estate investment trust 
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 subsection (b) (1) over the 
amount of any increase in the deduction for dividends 
paid (computed without regard to capital gain divi-
dends) for such taxable year which results from such 
determination, and 
"(ii) the amount of decrease referred to in subpara-
graph (C) of subsection (b)(1). 
" ( B ) CAPITAL GAIN DIVIDENDS.—The amount of deficiency 
dividends qualifying as capital gain dividends paid by a real 
estate investment trust for the taxable year with respect to 
which the liability for tax resulting from the determination 
exists shall not exceed the amount by which (i) the increase 
referred to in subparagraph (B) of subsection (b) (1) 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 ) 
F O R TAXABLE YEAR I N WHICH 
PAID.—Deficiency 
dividends 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 any taxable year shall not be allowed for purposes of 
section 858 (a) in the computation of the dividends paid deduc-
tion for the taxable year preceding the taxable year in which 
paid. 
"(e) CLAIM REQUIRED.—No deficiency dividend deduction shall be 
allowed under subsection (a) unless (under regulations prescribed by 
the Secretary) claim therefor is filed within 120 days after the date of 
the determination. 
"(f) 
SUSPENSION OF STATUTE OF LIMITATIONS AND STAY OF COL-
LECTION.— 
"(1) SUSPENSION OF RUNNING OF STATUTE.—If the real estate 
investment trust files a claim as provided in subsection (e), the 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1745 
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 interest, 
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 or COLLECTION.—In the case of any deficiency estab-
lished by a determination under this section— 
" ( A ) the collection of the deficiency, and all interest, addi- 
v 
r'*' C 
tions to tax, additional amounts, and assessable penalties in 
respect thereof, shall, except in cases of jeopardy, be stayed 
until the expiration of 120 days after the date of the deter-
mination, and 
" ( B ) if claim for a deficiency dividend deduction is filed 
under subsection (e), 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 
' j. 
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 
collection of such amount is stayed. 
"(g) DEDUCTION DENIED IN CASE OF FRAUD.—No deficiency dividend 
deduction shall be allowed under subsection (a) if the determination 
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 willful failure to file an income tax return within 
the time prescribed by law or prescribed by the Secretary in pursuance 
r' 
,., iv 
of law. 
" ( h ) 
PENALTY.— 
"For assessable penalty with respect to liability for tax of real estate 
investment trust which is allowed a deduction under subsection (a), see 
section 6697." 
(2) The table of sections for such part I I is amended by adding 
at the end thereof the following new item: 
"Sec. 859. Deduction for deficiency dividends." 
(b) PENALTY.— 
(1) Subchapter B of chapter 68 (relating to assessable penal-
ties) is amended by adding at the end thereof the following new 
section: 
"SEC. 6697. ASSESSABLE PENALTIES WITH RESPECT TO LIABILITY FOR 26 USC 6697. 
TAX OF REAL ESTATE INVESTMENT TRUSTS. 
"(a) CIVIL PENALTY.—In addition to any other penalty provided by 
law, any real estate investment trust whose tax liability for any tax-
able year is deemed to be increased pursuant to section 859(b) (2) (A) 
Anu, p. 1742. 
(relating to interest and additions to 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 trust is liable that 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 859(a) for such 
taxable year. 
90 STAT. 1746 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(c) 
DEFICIENCY PROCEDURES NOT T O APPLY.—Subchapter B 
of 
26 use 6211. 
chapter 63 (relating to deficiency procedure 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)." 
(2) The table of sections for such subchapter B is amended by 
adding at the end thereof the following: 
"Sec. 6697. Assessable penalties with respect to liability for tax of real 
( 
estate investment trusts." 
(c) LATE DESIGNATION AND PAYMENT OF CAPITAL GAIN DIVIDEND.— 
26 use 857. 
The first sentence of subparagraph (C) of section 857(b) (3) (defin-
ing 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) (ii) of this paragraph 
for such year which results from a determination (as defined in sec-
tion 859(c)), 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". 
26 use 316. 
(d) 
DEFINITION OF DIVIDEND.—Subsection 
(b) 
of 
section 
316 
(relating to the definition of dividend) is amended by adding a new 
paragraph (3) at the end thereof, to read as follows: 
"(3) 
DEFICIENCY DIVIDEND DISTRIBUTIONS BY A REAL ESTATE 
INVESTMENT TRUST.—The term 'dividend' also means any distribu-
tion of property 
(whether or not a dividend as defined in 
subsection (a)) which constitutes a 'deficiency dividend' as defined 
in section 859(d)." 
26 use 381. 
(e) CARRYOVER OF DEFICIENCY DIVIDEND.—Section 381(c) (relating 
to carryovers in certain corporate acquisitions) is amended by adding 
a new paragraph (25) at the end thereof, to read as follows: 
" (25) DEFICIENCY DIVIDEND OF REAL ESTATE INVESTMENT TRUST.— 
If the acquiring corporation pays a deficiency dividend 
(as 
Ante, p. 1742. 
defined in section 859(d)) with respect to the distributor or trans-
feror corporation, such distributor or transferor corporation shall, 
with respect to such payments, be entitled to the deficiency divi-
dend deduction provided in section 859." 
(f) TECHNICAL AMENDMENTS.— 
26 use 6422. 
(1) 
Section 6422 (relating to certain cross references) 
is 
amended by adding a new paragraph (14) at the end thereof to 
read as follows: 
"(14) for credit or refund in case of deficiency dividends paid by a 
real estate investment trust, see section 859." 
26 use 6503. 
(2) Section 6503(i) (relating to certain cross references) is 
amended by adding a new paragraph (5) at the end thereof, to 
read as follows: 
"(5) Deficiency dividends of a real estate investment trust, see section 
859(f).'' 
26 use 6515. 
(3) Section 6515 (relating to certain cross references) 
is 
amended by adding a new paragraph (8) at the end thereof, to 
^,_ 
read as follows: 
"(8) Deficiency dividends of a real estate investment trust, see section 
859." 
SEC. 1602. TRUST NOT DISQUALIFIED IN CERTAIN CASES WHERE 
INCOME TESTS WERE NOT MET. 
26 use 856. 
(a) DISQUALIFICATION Nor APPLIED.—Section 856(c) (relating to 
limitations) is amended by adding at the end thereof the following 
new paragraph: 
, , 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1747 
" (7) A corporation, trust, or association which fails to meet the 
requirements of paragraph (2) or (3), or of both such para-
graphs, for any taxable year shall nevertheless be considered to 
S 
nave satisfied the requirements of such paragraphs for such tax-
able year if— 
"(A) the nature and amount of each item of its gross 
income described in such paragraphs is set forth in a schedule 
attached to its income tax return for such taxable year; 
"(B) the inclusion of any incorrect information in the 
schedule referred to in subparagraph (A) is not due to fraud 
with intent to evade tax; and 
"(C) the failure to meet the requirements of paragraph 
(2) or (3), or of both such paragraphs, is due to reasonable 
cause and not due to willful neglect.", 
(b) 
IMPOSITION or SPECIAL TAXES.— 
(1) Section 857(b) (relating to method of taxation of real 26 USC 857. 
estate investment trusts, etc.) is amended by redesignating para-
graph (5) as paragraph (7) and by inserting after paragraph 
(4) the following new paragraph: 
"(6) 
IMPOSITION or TAX IN CASE or FAILURE TO MEET CERTAIN 
REQUIREMENTS.—If section 856(c)(7) applies to a real estate Ante, p. 174-2. 
investment trust for any taxable year, there is hereby imposed on 
such trust a tax in an amount equal to the greater of— 
"(A) the excess of— 
" (i) 95 percent (90 percent in the case of taxable years 
beginning before January 1, 1980) of the gross income 
(excluding gross income from prohibited transactions) 
of the real estate investment trusty over 
" (ii) the amount of such gross income which is derived 
from sources referred to in section 856(c) (2); or 
; ^ 
"(B) the excess of— 
"(i) 75 percent of the gross income (excluding gross 
income from prohibited transactions) of the real estate 
investment trust, over 
" (ii) the amount of such gross income which is derived 
from sources referred to in section 856(c) (3), 
multiplied by a fraction the numerator of which is the real 
estate investment trust taxable income for the taxable year 
(determined without regard to the deductions provided in 
paragraphs (2) (B) and (2) (E), without regard to any net 
operating loss deduction, and by excluding any net capital 
gain) and the denominator of which is the gross income for 
the taxable year (excluding gross income from prohibited 
transactions; gross income and gain from foreclosure prop-
erty (as defined in section 856 (e), but only to the extent such 
gross income and gain is not described in subparagraph (A), 
(B), (C), (D), (E), or (G) of section 856(c)(3)); long- 26 USC 856. 
term capital gain; and short-term capital gain to the extent Post, p. 1750. 
of any short-term capital loss)." 
(2) Section 857(b)(2) (relating to real estate investment trust 26 USC 857. 
taxable income) is amended by inserting after subparagraph (D) 
(as redesignated by section 1606(a) of this Act) the following 
new subparagraph: 
"(E) There shall be deducted an amount equal to the tax 
imposed by paragraph (5) for the taxable year.". 
90 STAT. 1748 
PUBLIC LAW 94-455—OCT. 4, 1976 
SEC. 1603. TREATMENT OF PROPERTY HELD FOR SALE TO CUSTOMERS. 
(a) ELIMINATION OF HOLDING FOR SALE RULE AS QUALIFICATION 
26 use 856. 
REQUIREMENT.—Section 856 (a) (defining real estate investment trust) 
is amended by striking out paragraph (4). 
(b) TAX ON INCOME FROM PROPERTY DESCRIBED IN SECTION 1221(1) 
26 use 857. 
THAT IS NOT FORECLOSURE PROPERTY.—Section 857(b) (relating to 
method of taxation of real estate investment trusts, etc.) is amended 
by inserting after paragraph (5) (as added by section 1602(b) (1) of 
this Act) the following new paragraph: 
" ( 6 ) I N C O M E FROM PROHIBITED TRANSACTIONS.— 
"(A) IMPOSITION OF TAX.—There is hereby imposed for 
each taxable year of every real estate investment trust a tax 
equal to 100 percent of the net income derived from pro-
hibited transactions. 
"(B) DEFINITIONS.—For purposes of this part— 
*""'' 
"(i) the term 'net income derived from prohibited 
transactions' means the excess of the gain from prohib-
ited transactions over the deductions allowed by this 
chapter which are directly connected with prohibited 
transactions; 
i
»
> • t
? '>.i. 
"(ii) the term 'net loss derived from prohibited trans-
actions' means the excess of the deductions allowed by 
this chapter which are directly connected with prohib-
ited transactions over the gain from prohibited trans-
actions; and 
"(iii) the term 'prohibited transaction' means a sale 
or other disposition of property described in section 
1221 (1) which is not foreclosure property." 
(c) TECHNICAL AMENDMENTS.— 
26 use 856. 
(1) So much of paragraph (3) of section 856(c) (relating to 
limitations) as precedes subparagraph (A) thereof is amended to 
read as follows: 
"(3) at least 75 percent of its gross income (excluding gross 
income from prohibited transactions) is derived from—". 
(2) Section 856(c) (2) (relating to limitations) is amended by 
inserting before the semicolon m subparagraph (D) thereof 
"which is not property described in section 1221(1)". 
(3) Section 856(c) (3) (relating to limitations) is amended by 
inserting before the semicolon in subparagraph (C) thereof 
"which IS not property described in section 1221(1)". 
(4) Section 856(e)(1) 
(defining foreclosure property) is 
amended by adding at the end thereof the following sentence: 
"Such term does not include property acquired by the real estate 
investment trust as a result of indebtedness arising from the sale 
or other disposition of property of the trust described in section 
1221(1) which was not originally acquired as foreclosure 
property." 
26 use 857. 
(5) Section 857(b) (2) (relating to real estate investment trust 
taxable income) is amended by adding a new subparagraph (F) 
immediately after subparagraph (E) (as added by section 1602 
(b) (2) of this Act), to read as follows: 
"(F) There shall be excluded an amount equal to any net 
income derived from prohibited transactions and there shall 
be included an amount equal to any net loss derived from pro-
hibited transactions." 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1749 
SEC. 1604. OTHER CHANGES IN LIMITATIONS AND REQUIREMENTS. 
(a) 
INCREASE I N 90-PERCENT GROSS INCOME REQUIREMENT TO 95 
PERCENT.—Section 856(c) (2) (relating to limitations) is amended by 26USC856. 
striking out "90 percent of its gross income" and inserting in lieu 
thereof "95 percent (90 percent for taxable years beginning before 
January 1, 1980) of its gross income (excluding gross income from 
prohibited transactions)". 
(b) APPORTIONMENT OF RENTAL INCOME AND CHARGES FOR CUSTOM-
ARY SERVICES ; CHANGE IN DEFINITION OF INDEPENDENT CONTRACTOR.— 
Subsection (d) of section 856 (defining rents from real property) is 
amended to read as follows: 
" ( d ) RENTS FROM REAL PROPERTY DEFINED.— 
"(1) AMOUNTS INCLUDED.—For purposes of paragraphs (2) and 
(3) of subsection (c), the term 'rents from real property' includes 
(subject to paragraph (2)) — 
" (A) rents from interests in real property, 
"(B) charges for services customarily furnished or rendered 
in connection with the rental of real property, whether or not 
such charges are separately stated, and 
"(C) rent attributable to personal property which is leased 
under, or in connection with, a lease of real property, but 
only if the rent attributable to such personal property for 
the taxable year does not exceed 15 percent of the total rent 
for the taxable year attributable to both the real and personal 
property leased under, or in connection with, such lease. 
For purposes of subparagraph (C), with respect to each lease of 
real property, rent attributable to personal property for the tax-
able year is that amount which bears the same ratio to total rent 
for the taxable year as the average of the adjusted bases of the 
personal property at the beginning and at the end of the taxable 
year beai-s to the average of the aggregate adjusted bases of both 
the real property and the personal property at the beginning and 
at the end of such taxable year. 
"(2) AMOUNTS EXCLUDED.—For purposes of paragraphs (2) and 
(3) of subsection (c), the term 'rents from real property' does not 
include— 
" ( A ) except as provided in paragraph (4), any amount 
- •'-
received or accrued, directly or indirectly, with respect to any 
real or personal property, if the determination of such amount 
depends in whole or in part on the income or profits derived 
by any person from such property (except that any amount 
so received or accrued shall not be excluded from the term 
'rents from real property' solely by reason of being based on a 
fixed percentage or percentages of receipts or sales); 
"(B) any amount received or accrued directly or indirectly 
from any person if the real estate investment trust owns, 
directly or indirectly— 
*'(i) in the case of any person which is a corporation, 
stock of such person possessing 10 percent or more of the 
total combined voting power of all classes of stock 
entitled to vote, or 10 percent or more of the total number 
of shares of all classes of stock of such person; or 
"(ii) in the case of any person which is not a corpora-
tion, an interest of 10 percent or more in the assets or net 
profits of such person; and 
"(C) any amount received or accrued, directly or indirectly, 
with respect to any real or personal property if the real 
90 STAT. 1750 
PUBLIC LAW 94-455—OCT. 4, 1976 
estate investment trust furnishes or renders services to the ten-
ants of such property, or manages or operates such property, 
,«»ft8 ><• f ')<; 
other than through an independent contractor from whom the 
trust itself does not derive or receive any income. 
"(3) INDEPENDENT CONTRACTOR DEFINED.—For purposes of this 
subsection and subsection (e), the term 'independent contractor' 
means any person— 
" (A) who does not own, directly or indirectly, more than 
35 percent of the shares, or certificates of beneficial interest, 
in the real estate investment trust; and 
" (B) if such person is a corporation, not more than 35 per-
cent of the total combined voting power of whose stock (or 35 
percent of the total shares of all classes of whose stock), or, if 
such person is not a corporation, not more than 35 percent of 
the interest in whose assets or net profits is owned, directly or 
indirectly, by one or more persons owning 35 percent or more 
of the shares or certificates of beneficial interest in the trust. 
"(4) 
SPECIAL RULE FOR CERTAIN CONTINGENT RENTS.—^Where a 
real estate investment trust receives or accrues, with respect to real 
or personal property, any amount which would be excluded from 
the term 'rents from real property' solely because the tenant of the 
real estate investment trust receives or accrues, directly or indi-
rectly, from subtenants any amount the determination of which 
depends in whole or in part on the income or profits derived by 
any person from such property, only a proportionate part (deter-
mined pursuant to regulations prescribed by the Secretary) 
of the amount received or accrued by the real estate investment 
trust from that tenant will be excluded from the term 'rents from 
real property'. 
"(5) CONSTRUCTIVE OWNERSHIP OF STOCK.—For purposes of this 
subsection, the rules prescribed by section 318(a) for determining 
the ownership of stock shall apply in determining the ownership 
of stock, assets, or net profits of any person; except that '10 per-
cent' shall be substituted for '50 percent' in subparagraph (C) 
of section 318(a) (2) and 318 (a) (3)." 
(c) COMMITMENT F E E S . — 
26 use 856. 
(1) I N GENERAL.—Paragraphs (2) and (3) of section 856(c) 
(relating to limitations) are each amended by striking out "and" 
after the semicolon at the end of subparagraph ( E ) , by inserting 
"and" after the semicolon at the end of subparagraph ( F ) , and 
by adding at the end thereof the following new subparagraph: 
"(G) amounts (other than amounts the determination of 
^
^ 
which depends in whole or in part on the income or profits of 
any person) received or accrued as consideration for entering 
into agreements (i) to make loans secured by mortgages on 
real property or on interests in real property or (ii) to pur-
chase or lease real property (including interests in real prop-
erty and interests in mortgages on real property);". 
26 use 857. 
(2) CONFORMING AMENDMENT.—Section 857(b) (4) (B) 
(relat-
ing to net income from foreclosure property) is amended by strik-
ing out " ( D ) , or ( E ) " in subdivision (i) and inserting in lieu 
thereof " ( D ) , ( E ) , o r (G)". 
(d) INCOME FROM SALE OF MORTGAGES HELD LESS T H A N 4 YEARS.— 
Section 856(c)(4) (relating to limitations) is amended to read as 
follows: 
. 
. 
n . 
, n 
"(4) less than 30 percent of its gross income is derived from 
the sale or other disposition of— 
. 
,.. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1751 
"Real estate 
investment 
trust," 
%;'• 
"(A) stock or securities held for less than 6 months; 
" ( B ) section 1221(1) property (other than 
foreclosure 
property) ; and 
"(C) real property (including interests in real property 
and interests in mortgages on real property) held for less 
than 4 years other than— 
"(i) property compulsorily or involuntarily converted 
within the meaning of section 1033, and 
"(ii) property which is foreclosure property within 
the definition of section 856 (e); and". 
(e) 
OPTIONS To PURCHASE REAL PROPERTY TREATED AS INTERESTS 
IN REAL PROPERTY.—Section 856(c) (6) (C) (relating to limitations) is 26 USC 856. 
amended to read as follows: 
" (C) The term 'interests in real property' includes fee own- "Interests in real 
ership and co-ownership of land or improvements thereon, property." 
leaseholds of land or improvements thereon, options to acquire 
land or improvements thereon, and options to acquire lease-
holds of land or improvements thereon, but does not include 
mineral, oil, or gas royalty interests." 
(f) 
REAL ESTATE INVESTMENT TRUSTS MAY B E INCORPORATED.— 
(1) I N GENERAL.—So much of subsection (a) of section 856 
(defining real estate investment trust) as precedes paragraph (3) 
thereof is amended to read as follows: 
"(a) I N GENERAL.—For purposes of this title, the term 'real estate 
investment trust' means a corporation, trust, or association— 
"(1) which is managed by one or more trustees or directors; 
"(2) the beneficial ownership of which is evidenced by trans-
ferable 
shares, or by transferable 
certificates 
of 
beneficial 
interest;". 
(2) EXCEPTION FOR FINANCIAL INSTITUTIONS AND INSURANCE COM-
PANIES.—Section 856(a) (defining real estate investment trust) 
Ante, p. 1748 
is amended by inserting after paragraph (3) the following new 
paragraph: 
"(4) which is neither (A) a financial institution to which sec-
tion 585, 586, or 593 applies, nor (B) an insurance company to 
which subchapter L applies;". 
26 USC 801. 
(3) CONFORMING AMENDMENTS.— 
(A) So much of section 856(c) (relating to limitations) as 
precedes paragraph (1) thereof is amended by striking out 
"A trust or association" and inserting in lieu thereof "A cor-
poration, trust, or association". 
(B) The second sentence of section 857(d) (relating to 
26 USC 857. 
earnings and profits) is amended by striking out "a domestic 
unincorporated trust" and inserting in lieu thereof "a domes-
tic corporation, trust,". 
(g) INTEREST.—Section 856 (relating to definition of real estate 
investment trust) is amended by adding after subsection (e) the 
following new subsection: 
"(f) INTEREST.—For purposes of paragraphs (2) (B) and (3) (B) of 
"Interest." 
subsection (c), the term 'interest' does not include any amount received 
or accrued, directly or indirectly, if the determination of such amount 
depends in whole or in part on the income or profits of any person 
except that: 
"(1) any amount so received or accrued shall not be excluded 
from the term 'interest' solely by reason of being based on a fixed 
percentage or percentages of receipts or sales, and 
"(2) where a real estate investment trust receives or accrues 
any amount which would be excluded from the term 'interest' 
90 STAT. 1752 
PUBLIC LAW 94-455—OCT. 4, 1976 
solely because the debtor of the real estate investment trust receives 
or accrues any amount the determination of which depends in 
whole or in part on the income or profits of any person, only a 
proportionate part (determined pursuant to regulations pre-
scribed by the Secretary) of the amount received or accrued by 
the real estate investment trust from such debtor will be excluded 
from the term'interest'. 
The provisions of this subsection shall apply only with respect to 
amounts received or accrued pursuant to loans made after May 27, 
1976. For purposes of the preceding sentence, a loan is considered to be 
made before May 28,1976, if such loan is made pursuant to a binding 
commitment entered into before May 28,1976." 
26 use 858. 
(h) CERTAIN DIVIDENDS.—The first sentence of section 858 (a) (relat-
ing to dividends paid by real estate investment trust after close of 
taxable year) is amended— 
(1) by inserting "(and specifies in dollar amounts)" after "to 
the extent the trust elects in such return", and 
(2) by striking out "paid during such taxable year" and insert-
ing in lieu thereof "paid only during such taxable year". 
(i) ADOPTION or ANNUAL ACCOUNTING PERIOD.— 
(1) Part I I of subchapter M of chapter 1 (relating to real 
estate investment trusts) is amended by adding at the end thereof 
the following new section: 
26 use 860. 
"SEC. 860. ADOPTION OF ANNUAL ACCOUNTING PERIOD. 
"For purposes of this subtitle, a real estate investment trust shall 
not change to or adopt any annual accounting period other than the 
calendar year." 
(2) The table of sections for such part II is amended by adding 
at the end thereof the following: 
" 
' 
"Sec. 860, Adoption of annual accounting period." 
26 use 857. 
(j) CHANGE IN DISTRIBUTION KEQUIREMENTS.—Section 857(a)(1) 
(relating to requirements applicable to real estate investment trusts) 
is amended to read as follows: 
"(1) the deduction for dividends paid during the taxable year 
• ' 
(as defined in section 561, but determined without regard to capi-
tal gains dividends) equals or exceeds— 
"(A) the sum of— 
"(i) 95 percent (90 percent for taxable years begin-
ning before January 1,1980) of the real estate investment 
trust taxable income for the taxable year (determined 
•'•''': 
' 
without regard to the deduction for dividends paid (as 
defined in section 561) and by excluding any net capital 
gain); and 
"(ii) 95 percent (90 percent for taxable years begin-
ing before January 1, 1980) of the excess of the net 
income from foreclosure property over the tax imposed 
on such income by subsection (b)(4)(A); minus 
'^"'^" •' 
"(B) the sum of— 
"(i) the amount of any penalty imposed on the real 
Ante, p. 1745. 
estate investment trust by section 6697 which is paid by 
such trust during the taxable year; and 
" (ii) the net loss derived from prohibited transactions, 
and", 
(k) MANNER AND EFFECT OF TERMINATION OR REVOCATION OF 
ELECTION.— 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1753 
(1) I N GENERAL.—Section 856 (relating to definition of real 26USC856. 
estate investment trust) is amended by adding after subsection 
(f) (as added by section 1604(g) of this Act) the following new 
subsection: 
"(g) 
TERMINATION OF ELECTION.— 
" (1) FAILURE TO QUALIEY.—^An election under subsection (c) (1) 
made by a corporation, trust, or association shall terminate if 
the corporation, trust, or association is not a real estate invest-
ment trust to which the provisions of this part apply for the tax-
able year with respect to which the election is made, or for any 
succeeding taxable year. Such termination shall be effective for 
the taxable year for which the corporation, trust, or association 
is not a real estate investment trust to which the provisions of 
this part apply, and for all succeeding taxable years. 
"(2) REVOCATION.—An election under subsection (c)(1) made 
by a corporation, trust, or association may be revoked by it for 
any taxable year after the first taxable year for which the elec-
tion is effective. A revocation under this paragraph shall be effec-
tive for the taxable year in which made and for all succeeding 
taxable years. Such revocation must be made on or before the 90th 
day after the first day of the first taxable year for which the 
revocation is to be effective. Such revocation shall be made in such Regulations, 
manner as the Secretary shall prescribe by regulations. 
"(3) 
ELECTION AFTER TERMINATION OR REVOCATION.—Except as 
provided in paragraph (4), if a corporation, trust, or association 
has made an election under subsection (c) (1) and such election 
has been terminated or revoked under paragraph (1) or para-
graph (2), such corporation, trust, or association (and any suc-
cessor corporation, trust, or association) shall not be eligible to 
make an election under subsection (c)(1) for any taxable year 
prior to the fifth taxable year which begins after the first taxable 
.; ? .^ 
year for which such termination or revocation is effective. 
"(4) EXCEPTION.—If the election of a corporation, trust, or 
association has been terminated under paragraph (1), paragraph 
(3) shall not apply if— 
^ .m d*i 
"(A) the corporation, trust, or association does not will-
fully fail to file within the time prescribed by law an income 
tax return for the taxable year with respect to which thei ter-
mination of the election under subsection (c) (1) occurs; 
"(B) the inclusion of any incorrect information in the 
return referred to in subparagraph (A) is not due to fraud 
with intent to evade tax; and 
, . j ^y. 
"(C) the corporation, trust, or association establishes to 
the satisfaction of the Secretary that its failure to qualify as 
a real estate investment trust to which the provisions of this 
part apply is due to reasonable cause and not due to willful 
neglect." 
, 
^ 
(2) CONFORMING AMENDMENTS.— 
(A) Section 856(c)(1) (relating to limitations) is amended 
by striking out the semicolon at the end and inserting in lieu 
thereof ", and such election has not been terminated or revoked 
under subsection (g);". 
(B) Section 857 (a) (relating to requirements applicable to real 26 USC 857. 
estate investment trust) is amended by striking out "(other than 
subsection (d) of this section)" and inserting in lieu thereof 
"(other than subsection (d) of this section and subsection (g) of 
section 856)". 
90 STAT. 1754 
PUBLIC LAW 94-455—OCT. 4, 1976 
.;:^t^.... ^ 
SEC. 1605. EXCISE TAX. 
,....,..,.„» ...i 
/ i \ 
(a) IMPOSITION OF TAX.—Subtitle D (relating to miscellaneous excise 
taxes) is amended by adding at the end thereof the following new 
chapter: 
"CHAPTER 44—REAL ESTATE INVEST-
MENT TRUSTS 
"Sec. 4981. Excise tax based on certain real estate investment trust 
taxable income not distributed during the taxable year. 
26 use 4981. 
"SEC. 4981. EXaSE TAX BASED ON CERTAIN REAL ESTATE INVEST-
MENT TRUST TAXABLE INCOME NOT DISTRIBUTED 
DURING THE TAXABLE YEAR. 
"Effective with respect to taxable years beginning after Decem-
ber 31, 1979, there is hereby imposed on each real estate investment 
trust for the taxable year a tax equal to 3 percent of the amount (if 
any) by which 75 percent of the real estate investment trust taxable 
income (as defined in section 857(b)(2), but determined without 
regard to section 857(b) (2) (B), and by excluding any net capital gain 
for the taxable year) exceeds the amount of the dividends paid deduc-
tion (as defined in section 561, but computed without regard to capital 
gains dividends as defined in section 857(b)(3)(C) 
and without 
regard to any dividend paid after the close of the taxable year) for the 
taxable year. For purposes of the preceding sentence, the determina-
tion of the real estate investment trust taxable income shall be made by 
taking into account only the amount and character of the items of 
income and deduction as reported by such trust in its return for the 
taxable year." 
(b) TECHNICAL AMENDMENTS.— 
26 use 275. 
(1) Paragraph (6) of section 275(a) (relating to denial of 
deduction for certain taxes) is amended by striking out "and 
chapter 43." and inserting in lieu thereof ", chapter 43, and chap-
ter 44." 
26 use 857. 
(2) Section 857 (relating to taxation of real estate investment 
trusts and their beneficiaries) is amended by adding at the end 
thereof the following new subsection: 
"(e) 
CROSS REFERENCE.— 
"For provisions relating to excise tax based on certain real estate 
investment trust taxable income not distributed during the taxable 
year, see section 4981." 
26 use 6161. 
(3) Section 6161(b) (1) relating to extensions of time for pay-
ment of tax), as amended by this Act, is amended by striking 
out "42 or 43" and inserting in lieu thereof "42, 43, or 44". The 
second sentence of section 6161 (b) is amended by striking out "or 
chapter 43" and inserting in lieu thereof "43, or 44". 
26 use 6211. 
(4) Section 6211 (defining deficiency) is amended— 
(A) by strikmg out "and 43" in subsection (a) and insert-
ing in lieu thereof "43, and 44", 
(B) by striking out "or 43" in subsection (a) and insert-
ing in lieu thereof "43, or 44", and 
(C) by striking out "or 43" in subsection (b) (2) and 
i' 
inserting in lieu thereof "43, or 44". 
26 use 6212. 
(5) Section 6212 (relating to notice of deficiency) is amended— 
(A) by striking out "or 43" in subsection (a) and insert-
„=, 
ing in lieu thereof "43, or 44", 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1755 
.,:, 
(B) by striking out "or chapter 43" in subsection (b) (1) 
and inserting in lieu thereof "chapter 43, or chapter 44", 
26 USC 4971, ^ 
(C) by striking out "chapter 43, and this chapter" in sub- ^"^' P- ^'^^^ 
section (b) (1) and inserting in lieu thereof "chapter 43, chap-
ter 44, and this chapter", and 
(D) by striking out "of chapter 43 tax for the same tax-
able years," in subsection (c) (1) and inserting in lieu thereof 
"of chapter 43 tax for the same taxable years, of chapter 44 
tax for the same taxable years,". 
(6) Section 6213(a) (relating to restrictions applicable to defi- 26 USC 6213. 
ciencies and petition to Tax Court) is amended by striking out 
"or 43" and inserting in lieu thereof "43, or 44". 
(7) Section 6214 (relating to determinations by Tax Court) is 26 USC 6214. 
amended— 
(A) by striking out "or 43" in the heading of subsection 
(c) and inserting in lieu thereof "43, or 44", and 
(B) by striking out "or 43" each place it appears in sub-
section (c) and inserting in lieu thereof "43, or 44", and 
(C) by striking out "or 43" in subsection (d) and insert-
ing in lieu thereof "43, or 44". 
(8) Section 6344(a)(1) 
(relating to cross references) is 26 USC 6344. 
amended by striking out "or 43" and inserting in lieu thereof "43, 
or 44". 
(9) Section 6512 (relating to limitations in case of petition to 26 USC 6512. 
Tax Court) is amended by striking out "or 43" each place it 
appears and inserting in lieu thereof "43, or 44". 
(10) Section 6601(c) (relating to suspension of interest in cer- 26 USC 6601. 
tain income, etc. tax cases) is amended by striking out in the head-
ing thereof "or 43" and inserting in lieu thereof "43, or 44". 
(11) Section 7422 (relating to civil actions for refund) is 26 USC 7422. 
amended by striking out "or 43" in subsection (e) and inserting 
in lieu thereof "43, or 44". 
(c) CLERICAL AMENDMENT.—The table of chapters for subtitle D 
is amended by adding at the end thereof the following: 
"Chapter 44. Real estate investment trusts." 
SEC. 1606. ALLOWANCE OF NET OPERATING LOSS CARRYOVER. 
(a) ALLOWANCE OF DEDUCTION.—Section 857(b)(2) (relating to 26 U
S
C 857. 
real estate investment trust taxable income) is amended by striking 
out subparagraph (E) and by redesignating subparagraph (F) as 
subparagraph (D). 
(b) YEARS TO WHICH LOSS MAY BE CARRIED.—Section 172(b) (1) 26 USC 172. 
(relating to years to which a net operating loss may be carried) is 
amended by inserting after subparagraph (D) thereof the following: 
"(E) In the case of a taxpayer which has a net operating 
loss for any taxable year for which the provisions of part II 
of subchapter M (relating to real estate investment trusts) 
apply to such taxpayer, such loss shall not be a net operating 
loss carryback to any taxable year preceding the taxable year 
of such loss and shall be a net operating loss carryover to 
' 
' * 
each of the 8 taxable years following the taxable year of such 
loss, except, in the case of a net operating loss for a taxable 
year ending before January 1,1976, such loss shall not be car-
ried to the 6th, 7th, or 8th taxable year following the taxable 
year of such loss unless part I I of subchapter M applied to the 26 USC 856. 
taxpayer for the taxable year to which the loss is carried and 
for all intervening taxable years following the year of loss. 
90 STAT, 1756 
PUBLIC LAW 94-455—OCT. 4, 1976 
A net operating loss shall not be carried back to a taxable 
26 use 856. 
year for which part II of subchapter M applied to the 
taxpayer." 
(c) DETERMINATION or THE AMOUNT OF THE NET OPERATING LOSS 
26 use 172. 
A
N
D THE CARRYOVER.—Section 172(d) (relating to modifications in 
computing net operating loss) is amended by adding a new paragraph 
(7) at the end thereof, to read as follows: 
" (7) In the case of any taxable year for which part I I of sub-
chapter M (relating to real estate investment trusts) applies to 
the taxpayer— 
"(A) the net operating loss for such taxable year shall be 
computed by taking into account the adjustments described 
in section 857(b) (2) (other than the deduction for dividends 
paid described in section 857 (b) (2) (B)); and 
"(B) where such taxable year is a 'prior taxable year' 
referred to in paragraph (2) of subsection (b), the term 
'taxable income' in such paragraph shall mean 'real estate 
investment trust taxable income' (as defined in section 857 
(b)(2))." 
(d) CONFORMING AMENDMENT.—Subparagraph (B) of section 857 
26 use 857. 
(b)(2) (relating to real estate investment trust taxable income), as 
redesignated by section 1607(b) of this Act, is amended by striking 
out "subparagraph (F)" and inserting in lieu thereof "subparagraph 
(D)". 
SEC. 1607. ALTERNATIVE TAX IN CASE OF CAPITAL GAINS. 
26 use 857. 
(a) ALTERNATIVE TAX.—Section 857(b) (3) (A) (relating to imposi-
tion of tax on capital gain) is amended to read as follows: 
"(A) 
ALTERNATIVE TAX IN CASE OF CAPITAL GAINS.—If for 
any taxable year a real estate investment trust has a net 
capital gain, then, in lieu of the tax imposed by subsection 
(b) (1), there is hereby imposed a tax (if such tax is less 
than the tax imposed by such subsection) which shall con-
sist of the sum of— 
" (i) a tax, computed as provided in subsection (b) (1), 
on the real estate investment trust taxable income (deter-
mined by excluding such net capital gain and by com-
puting the deduction for dividends paid without regard 
to capital gain dividends), and 
" (ii) a tax of 30 percent of the excess of the net capital 
gain over the deduction for dividends paid (as defined 
in section 561) determined with reference to capital gains 
dividends only." 
(b) 
CONFORMING AMENDMENTS.— 
(1)(A) Section 857(b)(2) (relating to method of taxation 
of real estate investment trust taxable income) is amended by 
deleting subparagraph (A) and redesignating subparagraphs 
(B), (C), and (D) as subparagraphs (A), (B), and (C), respec-
tively. 
26 use 46. 
(B) Subsection (e)(2) of section 46 (relating to investment 
credit) is amended— 
(i) by striking out "857(b) (2) (C)" in subparagraph (B) 
and inserting in lieu thereof "857(b) (2) (B)", and 
(ii) by inserting "determined without regard to any deduc-
tion for capital gains dividends (as defined in section 
857(b)(3)(C)) and by excluding any net capital gain" 
immediately before the period at the end of the last sentence 
thereof. 
PUBLIC LAW 94^55—OCT. 4, 1976 
90 STAT. 1757 
(C) Section 443 (e)(6) (relating to cross references) is amended 
26 USC 443. 
by striking out " 8 5 7 ( b ) ( 2 ) ( D ) " and inserting in lieu thereof 
"857(b)(2)(C)''. 
(2) Subparagraph (B) of section 857(b) (2) (relating to real 
26 USC 857. 
estate investment trust taxable income), as redesignated by para-
graph (1) of this subsection, is amended by striking out "shall 
be computed without regard to capital gains dividends and". 
(3) Section 857(b)(3)(C) 
(relating to definition of capital 
gain dividend) is amended by inserting after the second sentence 
thereof the following: "For purposes of this subparagraph, the 
net capital gain shall be deemed not to exceed the real estate 
> •'{ •
^
*
'
"
'
^
~ 
investment trust taxable income (determined without regard to 
the deduction for dividends paid (as defined in section 561) for 
the taxable year)." 
' . , , • ' 
SEC. 1608. EFFECTIVE DATE FOR TITLE. 
(a) DEriciENCY DIVIDEND PROCEDURES.—The amendments made by 
26 USC 859 
section 1601 shall apply with respect to determinations (as defined 
"o*®-
in section 859(c) of the Internal Revenue Code of 1954) occurring 
Ante, p. 1742. 
after the date of the enactment of this Act. If the amendments made 
by section 1601 apply to a taxable year ending on or before the date of 
enactment of this Act: 
(1) the reference to section 857(b) (3) (A) (ii) in sections 
857(b)(3)(C) and 859(b)(1)(B) of such Code, as amended, shall 
be considered to be a reference to section 857(b) (3) (A) of such 
Code, as in effect immediately before the enactment of this Act, 
and 
(2) the reference to section 857(b)(2)(B) in section 859(a) 
of such Code, as amended, shall be considered to be a reference to 
section 857(b) (2) (C) of such Code, as in effect immediately before 
the enactment of this Act. 
(b) TRUST NOT DISQUALIFIED I N CERTAIN CASES W H E R E INCOME 
26 USC 856 
TESTS NOT MET.—The amendment made by section 1602 shall apply to °
*
*
*
®
-
taxable years of real estate investment trusts beginning after the date 
of the enactment of this Act. I n addition, the amendments made by 
section 1602 shall apply to a taxable year of a real estate investment 
trust beginning before the date of the enactment of this Act if, as the 
result of a determination (as defined in section 859(c) of the Internal 
Revenue Code of 1954) with respect to such trust occurring after the 
date of the enactment of this Act, such trust for such taxable years 
does not meet the requirements of section 856(c)(2) or section 856 
(c) (3), or of both such sections, of such Code as in effect for such tax-
able year. In any case, the amendment made by section 1602(a) 
requiring a schedule to be attached to the income tax return of certain 
real estate investment trusts shall apply only to taxable years of such 
trusts beginning after the date of the enactment of this Act. If the 
amendments made by section 1602 apply to a taxable year ending on 
or before the date of enactment of this Act, the reference to paragraph 
(2) (B) in section 857(b) (5) of such Code, as amended, shall be con- 
Ante, p. 1747. 
sidered to be a reference to paragraph (2) (C) of section 857(b) of 
such Code, as in effect immediately before the enactment of this Act. 
(c) ALTERATIVE TAX AND N"ET OPERATING Loss.—The amendments 
made by sections 1606 and 1607 shall apply to taxable years ending 
^^^ ^^' 
after the date of the enactment of this Act, except that in the case of 
°^**" 
a taxpayer which has a net operating loss (as defined in section 172 (c) 
of the Internal Revenue CcKle of 1954) for any taxable year ending 
after the date of enactment of this Act for which the provisions of 
90 STAT. 1758 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 856. 
part II of subchapter M of chapter 1 of subtitle A of such Code apply 
to such taxpayer, such loss shall not be a net operating loss carryback 
under section 172 of such Code to any taxable year ending on or before 
the date of enactment of this Act. 
26 use 856 
((J) OTHER AMENDMENTS.— 
°***®- 
(1) Except as provided in paragraphs (2) and (3), the amend-
ments made by sections 1603,1604, and 1605 shall apply to taxable 
years of real estate investment trusts beginning after the date of 
the enactment of this Act. 
(2) If, as a result of a determination (as defined in section 
Ante, p. 1742. 
859(c) of the Internal Revenue Code of 1954), occurring after 
the date of enactment of this Act, with respect to the real estate 
investment trust, such trust does not meet the requirement of sec-
Ante, p. 1751. 
tion 856(a) (4) of the Internal Revenue Code of 1954 (as in effect 
before the amendment of such section by this Act) for any tax-
able year beginning on or before the date of the enactment of this 
Act, such trust may elect, within 60 days after such determina-
< 
tion in the manner provided in regulations prescribed by the Sec-
retary of the Treasury or his delegate, to have the provisions of 
section 1603 (other than paragraphs (1), (2), (3), and (4) of 
section 1603(c)) apply with respect to such taxable year. Where 
the provisions of section 1603 apply to a real estate investment 
trust with respect to any taxable year beginning on or before the 
date of the enactment of this Act— 
(A) credit or refund of any overpayment of tax which 
results from the application oi section 1603 to such taxable 
year shall be made as if on the date of the determination (as 
defined in section 859(c) of the Internal Revenue Code of 
, 
1954) 2 years remained before the expiration of the period of 
limitation prescribed by section 6511 of such Cocfe on the 
filing of claim for refund for the taxable year to which the 
overpayment relates, 
(B) the running of the statute of limitations provided in 
section 6501 of such Code on the making of assessments, and 
the bringing of distraint or a proceeding in court for collec-
tion, in respect of any deficiency (as defined in section 6211 
, 
of such Code) established by such a determination, and all 
interest, additions to tax, additional amounts, or assessable 
penalties in respect thereof, shall be suspended for a period 
of 2 years after the date of such determination, and 
(C) the collection of any deficiency (as defined in section 
6211 of such Code) establisned by such determination and all 
interest, additions to tax, additional amounts, and assessable 
penalties in respect thereof shall, except in cases of jeopardy, 
" 
be stayed until the expiration of 60 days after the date of 
such determination. 
No distraint or proceeding in court shall be begun for the collec-
tion of an amount the collection of which is stayed under sub-
paragraph (C) during the period for which the collection of 
such amount is stayed. 
(3) Section 856(g) (3) of the Internal Revenue Code of 1954, 
;; 
as added by section 1604 of this Act, shall not apply with respect 
to a termination of an election, filed by a taxpayer under section 
856(c) (1) of such Code on or before the date of the enactment of 
this Act, unless the provisions of part II of subchapter M of chap-
ter 1 of subtitle A of such Code apply to such taxpayer for a tax-
able year ending after the date of the enactment of this Act for 
which such election is in effect. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1759 
TITLE XVII—RAILROAD AND AIRLINE 
PROVISIONS 
26 use 263. 
SEC. 1701. CERTAIN PROVISIONS RELATING TO RAILROADS. 
(a) TREATMENT OF CERTAIN KAIUIOAD TIES.—Section 263 (relating 
to capital expenditures) is amended by adding at the end thereof the 
following new subsection: 
"(g) RAILROAD TIES.—In the case of a domestic common carrier by 
rail (including a railroad switching or terminal company) which uses 
the retirement-replacement method of accounting for depreciation of 
its railroad track, expenditures for acquiring and installing replace-
ment ties of any material (and fastenings related to such ties) shall be 
accorded the same tax accounting treatment as expenditures for 
---.jr"; 
replacement ties of wood (and fastenings related to such ties)." 
(b) INCREASE I N 50-PERCENT LIMITATION.—Subsection (a) of section 
, . . - ^ 
^ 
46 (relating to determination of amount of investment credit) is 
amended by adding at the end thereof the following new paragraph: 
"(8) 
ALTERNATIVE 
LIMITATION 
IN THE CASE OF CERTAIN 
RAILROADS.— 
"(A) I N GENERAL.—If, for a taxable year ending after 
calendar year 1976, and before calendar year 1983, the amount 
of the qualified investment of the taxpayer which is attribut-
able to railroad property is 25 percent or more of his aggre-
gate 
qualified 
investment, 
then 
subparagraph 
(C) of 
paragraph (3) of this subsection shall be applied by sub-
stituting for 50 percent his applicable percentage for such 
year. 
" ( B ) APPLICABLE PERCENTAGE.—The applicable percentage 
of any taxpayer for any taxable year 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 bears to his aggre-
gate qualified investment. 
If the proportion referred to m clause (ii) is 75 percent or 
more, the applicable percentage of the taxpayer for the year 
shall be 50 percent plus the tentative percentage for such 
year. 
"(C) 
TENTATIVE PERCENTAGE.—For purposes of subpara-
graph ( B ) , the tentative percentage shall be determined 
under the following table: 
"If the taxable 
The tentative 
year ends in: 
percentage is: 
1977 or 1978 
50 
1979 
40 
1980 
30 
1981 
20 
1982 
10 
" ( 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)." 
90 STAT. 1760 
PUBLIC LAW 94-455—OCT. 4, 1976 
SEC. 1702. AMORTIZATION OVER 50-YEAR PERIOD OF RAILROAD GRAD-
ING AND TUNNEL BORES PLACED IN SERVICE BEFORE 
1969. 
26 use 185. 
(a) I N GENERAL.—Section 185 (relating to amortization of railroad 
grading and tunnel bores) is amended by redesignating subsections 
(d), (e), (f), (g), and (h) as subsections (f), (g), (h), (i),and (j), 
respectively, and by inserting after subsection (c) the following new 
subsections: 
" (d) ELECTION W I T H RESPECT TO PRE-1969 PROPERTY.—^A taxpayer 
may, lor any taxable year beginning a:^er December 31,1974, elect for 
purposes of this section to treat the term 'qualified railroad grading 
and tunnel bores' as including pre-1969 railroad grading and tunnel 
Filing 
bores. An election under this subsection shall be made by filing with 
requirement. 
I\^Q Secretary, in such manner, in such form, and within such time, as 
the Secretary may by regulations prescribe, a statement of such elec-
tion. The election under this subsection shall remain in effect for all 
taxable years, after the first year for which it is effective, for which an 
election under subsection (c) is effective. The election under this sub-
section shall apply to all pre-1969 railroad grading and tunnel bores of 
the taxpayer, unless, on application by the taxpayer, the Secretary 
permits him, subject to such conditions as the Secretary deems neces-
sary, to revoke such election. 
"(e) ADJUSTED BASIS FOR PRE-1969 RAILROAD GRADING AND TUNNEL 
BORES.— 
" (1) I N GENERAL.—The adjusted basis of any pre-1969 railroad 
grading and tunnel bore shall be determined under this subsection. 
"(2) 
PROPERTY ACQUIRED OR CONSTRUCTED AFTER FEBRUARY 28, 
1913.— 
"(A) In the case of pre-1969 railroad grading and tunnel 
bores— 
" (i) acquired by the taxpayer after February 28,1913, 
or 
"(ii) the construction of which was completed by the 
taxpayer after February 28,1913, 
the adjusted basis of such j)roperty shall be equal to the 
adjusted basis (for determining gam) of such property in 
the hands of the taxpayer. 
"(B) In the case of property described in subparagraph 
( A ) ( i ) -
"(i) which was in existence on February 28,1913, 
"(ii) for which the taxpayer has a substituted basis, 
and 
"(iii) such substituted basis for which would, but for 
the provisions of this section, be determined under sec-
tion 1053, 
then the adjusted basis of such property shall be determined 
as if such property were property described in paragraph 
(3) (A). 
"(3) 
PROPERTY ACQUIRED OR CONSTRUCTED BEFORE MARCH i, 
1913.— 
" (A) In the case of pre-1969 railroad grading and tunnel 
bores— 
i) acquired by the taxpayer before March 1,1913, or 
ii) the construction of which was completed by the 
taxpayer before March 1, 1913, 
"(ii) 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1761 
the adjusted basis of such property shall be determined 
under the provisions of subparagraph (B), (C), or (D) of 
this paragraph. 
"(B) In the case of any property valued under an original 
valuation made by the Interstate Commerce Commission pur-
suant to section 19a of part I of the Interstate Commerce Act 
(49 U.S.C. 19a), the adjusted basis of such property shall be 
equal to the amount ascertained by the Interstate Commerce 
Commission as of the date of such valuation to be such prop-
erty's cost of reproduction new (as the term 'cost of repro-
duction new' is used in such section 19a). 
"(C) In the case of property which was not valued by the 
Interstate Commerce Commission in the manner described in 
subparagraph (B), but which was valued under an original 
valuation made by a comparable State regulatory body, the 
adjusted basis of such property shall be equal to the amount 
ascertained by such State regulatory body as of the date of 
its original valuation to be such property's value. 
"(D) If, in the case of any property to which this para-
graph applies— 
"(i) neither subparagraph (B) nor (C) applies, or 
"(ii) notwithstanding subparagraphs (B) and (C), 
either the taxpayer or the Secretary can establish the 
adjusted basis (for purposes of determining gain) of 
such property in the hands of the taxpayer, 
then the adjusted basis of such property shall be equal to its 
adjusted basis (for purposes of determining gain) in the 
hands of the taxpayer." 
(b) 
DEFiNmoN O
F PRE-1969 RAILROAD GRADING AND TUNNEL 
BORES.—Subsection (f) of section 185 (as redesignated by subsection 
26 USC 185. 
(a) of this section) is amended by adding at the end thereof the 
following new paragraph: 
"(3) 
PRE-1969 RAILROAD GRADING AND TUNNEL BORES.—The 
term 'pre-1969 railroad grading and tunnel bores' means rail-
road grading and tunnel bores the original use of which com-
mences before January 1, 1969.". 
SEC. 1703. CERTAIN PROVISIONS RELATING TO AIRLINES. 
Subsection (a) of section 46 (relating to determination of amount 
26 USC 46. 
of investment credit) is amended by adding at the end thereof the 
following new paragraph: 
"(9) 
ALTERNATIVE LIMITATION IN THE CASE OF CERTAIN 
AIRLINES 
"(A) I N GENERAL.—If, for a taxable year ending after 
calendar year 1976 and before calendar year 1983, the amount 
of the qualified investment of the taxpayer which is attribut-
able to airline property is 25 percent or more of his aggregate 
qualified investment, then subparagraph (C) of paragraph 
^ . 
(3) of this subsection shall be applied by substituting for 50 
percent his 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 
90 STAT. 1762 
PUBLIC LAW 94-455—OCT. 4, 1976 
investment which is airline property bears to his aggre-
gate qualified investment. 
If the proportion referred to in clause (ii) is 75 percent or 
more, the applicable percentage of the taxpayer for the year 
shall be 50 percent plus the tentative percentage for such 
year. 
- 
"(C) TENTATIVE PERCENTAGE.—For purposes of subpara-
graph (B), the tentative percentage shall be determined 
under the following table: 
"If the taxable 
The tentative 
year ends in: 
percentage is; 
1977 or 1978 
50 
1979 
40 
1980 
30 
1981 
20 
1982 
10 
"(D) AIRLINE PROPERTY DEFINED.—For purposes of this 
paragraph, the term 'airline property' means section 38 prop-
erty used by the taxpayer directly in connection with the 
trade or business carried on by the taxpayer of the furnish-
ing or sale of transportation as a common carrier by air 
subject to the jurisdiction of the Civil Aeronautics Board or 
the Federal Aviation Administration." 
TITLE XVIII—INTERNATIONAL TRADE 
AMENDMENTS 
SEC. 1801. UNITED STATES INTERNATIONAL TRADE COMMISSION. 
(a) TERMS OP OFFICB.—^The last sentence of section 330(b) of the 
Tariff Act of 1930 (19 U.S.C. 1330 (b)) is amended to read as follows: 
"The term of office of each commissioner appointed after such date 
shall expire 9 years from the date of the expiration of the term for 
which his predecessor was appointed, except that— 
"(1) any commissioner appointed to fill a vacancy occurring 
prior to the expiration of the term for which his predecessor was 
appointed shall be appointed for the remainder of such term, and 
" (2) any commissioner may continue to serve as a commissioner 
after an expiration of his term of office until his successor is 
appointed and qualified." 
19 use 1330. 
(b) VOTING PROCEDURES.—Section 330(d) of the Tariff Act of 1930 
is amended by— 
(1) redesignating paragraph (2) as i)aragraph (5); and 
(2) striking out paragraph (1) and inserting in lieu thereof 
the following new paragraphs: 
"(1) In a proceeding in which the Commission is required to 
determine— 
19 use 2251. 
" (A) under section 201 of the Trade Act of 1974, whether 
increased imports of an article are a substantial cause of 
serious injury, or the threat thereof, as described in sub-
section (b) (1) of that section (hereafter in this subsection 
referred to as 'serious injury'), or 
19 use 2436. 
"(B) under section 406 of such Act, whether market dis-
ruption exists, 
and the commissioners voting are equally divided with respect 
to such determination, then the determination agreed upon by 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1763 
19 
use 
2251, 
2436. 
19 
use 
2252, 
2253. 
Congressional 
consideration. 
either group of commissioners m&j be considered by the President 
as the determination of the Commission. 
" (2) If under section 201 or 406 of the Trade Act of 1974 there 
is an affirmative determination of the Commission, or a determina-
tion of the Commission which the President may consider an 
affirmative determination under paragraph (1), that serious 
injury or market disruption exists, respectively, and a majority of 
the commissioners voting are unable to agree on a finding or rec-
ommendation described in section 201(d) (1) of such Act or the 
finding described in section 406(a) (3) of such Act, as the case may 
be (hereafter in this subsection referred to as a 'remedy finding'), 
then— 
"(A) if a plurality of not less than three commissioners so 
voting agree on a remedy finding, such remedy finding shall, 
for purposes of sections 202 and 203 of such Act, be treated as 
the remedy finding of the Commission, or 
"(B) if two groups, both of which include not less than 3 
commissioners, each agree upon a remedy finding and the 
President reports under section 203(b) of such Act that— 
"(i) he is taking the action agreed upon by one such 
group, then the remedy finding agreed upon by the other 
group shall, for purposes of sections 202 and 203 of 
such Act, be treated as the remedy finding of the Com-
mission, or 
"(ii) he is taking action which differs from the action 
agreed upon by both such groups, or that he will not 
take any action, then the remedy finding agreed upon 
by either such group may be considered by the Congress 
as the remedy finding of the Commission and shall, for 
purposes of sections 202 and 203 of such Act, be treated 
as the remedy finding of the Commission. 
"(3) In any proceeding to which paragraph (1) applies in 
which the commissioners voting are equally divided on a deter-
mination that serious injury exists, or that market disruption 
exists, the Commission shall report to the President the deter-
mination of each group of commissioners. In any proceeding to 
which paragraph (2) applies, the Commission shall report to the 
President the remedy finding of each group of commissioners 
voting. 
"(4) In a case to which paragraph (2)(B)(ii) applies, for 
purposes of section 203(c) (1) of the Trade Act of 1974, notwith-
standing section 152(a)(1)(A) of such Act, the second blank 
space in the concurrent resolution described in such section 162 
shall be filled with the appropriate date and the following: 
'The action which shall take effect under section 203(c)(1) of 
the Trade Act of 1974 is the finding or recommendation 
agreed upon by Commissioners 
, 
, and 
.' The three blank spaces shall be filled with the 
names of the appropriate Commissioners." 
(c) EFFECTTVE DATE.—The amendments made by subsection (b) 
shall apply to determinations, findings, and recommendations made 
under sections 201 and 406 of the Trade Act of 1974 after the date 
of the enactment of this Act. 
SEC. 1802. TRADE ACT OF 1974 AMENDMENTS. 
Section 502(b) of the Trade Act of 1974 (Public Law 93-618; 88 19 USC 2462. 
Stat. 1978) is amended— 
(1) by striking out "and" at the end of paragraph (6), 
Report to 
President. 
19 
USC 
2253. 
19 
USC 
2192. 
19 
USC 
1330 
n
o
t
e
. 
90 STAT. 1764 
PUBLIC LAW 94-455—OCT. 4, 1976 
(2) by striking out the period at the end of paragraph (6) and 
inserting in lieu thereof " ; and", 
.1 
^ 
(3) by inserting inmiediately after paragraph (6) the follow-
ing new paragraph: 
"(7) if such country aids or abets, by granting sanctuary from 
prosecution to, any individual or group which has committed an 
act of international terrorism." ; and 
(4) by striking out "and (6)" in the unnumbered paragraph 
at the end of such section and inserting in lieu thereof " ( 6 ) , and 
TITLE XIX—REPEAL AND REVISION OF 
OBSOLETE, RARELY USED, ETC., PROVI-
SIONS OF INTERNAL REVENUE CODE 
OF 1954 
SUBTITLE A—AMENDMENTS OF INTERNAL 
REVENUE CODE GENERALLY 
SEC. 1901. AMENDMENTS OF SUBTITLE A; INCOME TAXES. 
(a) I N GENERAL.— 
26 use 2. 
(1) AMENDMENT OF SECTION 2.—Subsection (c) of section 2 
(relating to certain married individuals living apart) is amended 
to read as follows: 
"(c) CERTAIN MARRIED INDIVIDUALS LIVING APART.—For purposes 
of this part, an individual shall be treated as not married at the close 
of the taxable year if such individual is so treated under the provi-
sions of section 143 (b)." 
26 use 35. 
(2) EEPEAL OF SECTION 35.—Section 35 (relating to partially 
tax-exempt interest received by individuals) is repealed. 
26 use 39. 
(3) AMENDMENT OF SECTION 39.—Section 39 (relating to certain 
uses of gasoline, special fuels, and lubricating oil) is amended 
by striking out subsections (b) and (c) and inserting after sub-
section (a) the following new subsection: 
"(b) EXCEPTION.—^Credit shall not be allowed under subsection (a) 
for any amount payable under section 6421, 6424, or 6427, if a claim 
for such amount is timely filed and, under section 6421 (i), 6424(f), or 
6427(f), is payable under such section." 
(4) AMENDMENTS or SECTION 46.— 
26 use 46. 
(A) The second sentence of section 46(a) (4), as redesig-
nated by this Act, is amended by striking out "section 408 (e)" 
and inserting in lieu thereof "section 408(f)". 
(B) Clause (iii) of section 46(c) (3) (B) (relating to pub-
lic utility property) is amended by striking out "47 TJ.S.C, 
sec. 222(a)(5)" and inserting in lieu thereof "47 U.S.C. 
222(a)(5)". 
(5) AMENDMENTS or SECTION 4 8.— 
26 use 48. 
(A) Section 48 (a) (2) (B) (vi) (relating to section 38 prop-
erty used outside the United States) is amended by striking 
out " ; 43 U.S.C, sec. 1331)" and inserting in lieu thereof " (43 
U.S.C. 1331))". 
(B) Section 48(a) (2) (B) (viii) is amended by strikinsr o^it 
'" •' 
"47 U.S.C, sec. 702" and inserting in lieu thereof "47 U.S.C 
702". 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1765 
(6) AMENDMENT OF SECTION 5OA.—The second sentence of sec-
tion 50A(a)(3) 
(relating to liability for tax) is amended by 
26 USC 50A. 
striking out "section 408 (e)" and inserting in lieu thereof "section 
408(f)". 
(7) REPEAL OF SECTION SI.—Subchapter A of chapter 1 is 
26 USC 51. 
amended by striking out part V (relating to tax surcharge). 
(8) AMENDMENTS OF SECTION 6 2.—^^Section 62 (relating to defi- 
26 USC 62. 
nition of adjusted gross income) is amended by redesignating 
paragraph (11), as added by the Act of October 26, 1974 (Public 
Law 93-483), as paragraph (12). 
(9) ADDITIONAL AMENDMENT OF SECTION 62.—Section 62(12), as 
redesignated by subparagraph (A) of this paragraph, is amended 
by striking out "trade or business to the extent" and inserting in 
lieu thereof "trade or business, to the extent". 
(10) DEFINITION OF ORDINARY INCOME.—Part I of subchapter B 
of chapter 1 (relating to definitions of gross income, adjusted 
26 USC 61. 
gross income, and taxable income) is amended by adding at the 
end thereof the following new section: 
"SEC. 64. ORDINARY INCOME DEFINED. 
26 USC 64. 
"For purposes of this subtitle, the term 'ordinary income' includes 
any gain from the sale or exchange of property which is neither a 
capital asset nor property described in section 1231(b). Any gain 
from the sale or exchange of property which is treated or considered, 
under other provisions of this subtitle, as 'ordinary income' shall be 
treated as gain from the sale or exchange of property which is neither 
' 
' • 
a capital asset nor property described in section 1231(b)." 
(11) DEFINITION OF ORDINARY LOSS.—Part I of subchapter B of 
chapter 1 (relating to definitions of gross income, adjusted gross 
26 USC 61. 
income, and taxable income) is amended by adding at the end 
thereof the following new section: 
"SEC. 65. ORDINARY LOSS DEFINED. 
26 USC 65. 
"For purposes of this subtitle, the term 'ordinary loss' includes any 
loss from the sale or exchange of property which is not a capital asset. 
Any loss from the sale or exchange of property which is treated or con-
sidered, under other provisions of this subtitle, as 'ordinary loss' shall 
be treated as loss from the sale or exchange of property which is not a 
capital asset." 
(12) AMENDMENT OF SECTION 72.—Section 72(d) (1) (relating 
26 USC 72. 
to employees' annuities) is amended by striking out "(whether 
or not before January 1,1954)" and by striking out "(under this 
paragraph and prior income tax laws)". 
(13) ADDITIONAL AMENDMENT or SECTION 72.—Section 72(m) 
(4) (A) (relating to assignments or pledges) is amended by 
striking out "an individual retirement amount" and inserting 
in lieu thereof "an individual retirement account". 
2^ j,cp 7A 
(14) REPEAL OF SECTION 7 6.—Section 76 (relating to mortgages 
made or obligations issued by joint stock land banks) is repealed. 
(15) AMENDMENT OF SECTION 8 3.—Section 83(b) (2) (relating 
26 USC 83. 
to election to include the value of restricted property in gross 
income) is amended by striking out "(or, if later, 30 days after 
26 USC 1 note, 
the date of the enactment of the Tax Reform Act of 1969)". 
(16) AMENDMENT OF SECTION 101.—Section 101 is amended by 
26 USC 101. 
striking out subsection (f) (relating to effective date of section). 
(17) A M E N D M E N T S OF SECTION 103.— 
(A) Section 103(a) (relating to tax-exempt interest), as 
26 USC 103. 
amended by this Act, is amended by inserting "and" at the 
90 STAT. 1766 
PUBLIC LAW-94-455—OCT. 4, 1976 
end of paragraph (1), by striking out paragraphs (2) and 
(3), and by redesignating paragraph (4) as paragraph (2). 
26 use 103. 
(B) Section 103 is amended by striking out subsection (b) 
(relating to certain exceptions) and by redesignating sub-
sections (c), (d), (e), (f), and (g) (as added by this Act) 
as subsections (b), (c), (d), (e), and (f) respectively. 
(C) Section 103(b)(1) 
(relating to industrial develop-
ment bonds), as redesignated by subparagraph (B) of this 
paragraph, is amended by inserting "or (2)" after "(a) (1)". 
(D) Section 103(c) (2) (A) (relating to definition of arbi-
trage bonds), as redesignated by subparagraph (B) of this 
paragraph, is amended by inserting "or (2)" after " ( a ) ( 1 ) " . 
(E) Section 103(e) (relating to certain cross references) 
as redesignated by subparagraph (B) of this paragraph, 
is amended to read as follows: 
- ' 
"(e) CROSS REFERENCES.— 
"For provisions relating to the taxable status o
f
— 
"(1) Puerto Rican bonds, see section 3 of the Act of March 2, 1917, as 
amended (48 U.S.C. 745). 
"(2) Virgin Islands insular and municipal bonds, see section 1 of the 
Act of October 27, 1919 (48 U.S.C. 1403). 
"(3) Certain obligations issued under title I of the Housing Act of 
1949, see section 102(g) of title I of such Act (42 U.S.C. 1452(g)).'' 
(18) 
AMENDMENTS OF SECTION IO4.— 
26 use 104. 
(A) Section 104(a)(4) 
(relating to exclusion of com-
pensation for injuries or sickness) is amended by striking out 
"; 60 Stat. 1021". 
(B) Section 104(c) (2) as redesignated by section 505 of 
Ante, p. 1567. 
^j^-g ^^^^ -g amended to read as follows: 
"(2) For exclusion of part of disability retirement pay from the 
application of subsection (a)(4) of this section, see section 1403 of title 
10, United States Code (relating to career compensation laws)." 
26 use 115. 
(19) 
AMENDMENT or SECTION lis.—Section 115 (relating to 
income of States, municipalities, etc.) is amended to read as 
follows: 
"SEC. 115. INCOME OF STATES, MUNICIPALITIES, ETC. 
"Gross income does not include— 
"(1) income derived from any public utility or the exercise 
of any essential governmental function and accruing to a State 
or any political subdivision thereof, or the District of Columbia; 
or 
"(2) income accruing to the government of any possession of 
the United States, or any political subdivision thereof." 
^^^^ AMENDMENT or SECTION H6.—Subsection (a) of section 
26 Use 116. 
-
j
^
j
i
^
g (relating to partial exclusion of dividends received by indi-
viduals) is amended by striking out "Effective with respect to 
any taxable year ending after July 31, 1954, gross income" and 
inserting in lieu thereof "Gross income". 
26 use 124. 
(21) 
AMENDMENT OF SECTION 124.—Section 124 (relating to 
cross references to other Acts) is amended to read as follows: 
"SEC. 124. CROSS REFERENCES TO OTHER ACTS, 
"(a) For exemption o
f
— 
"(1) Adjustments of indebtedness under wage earners' plans, see 
section 679 of the Bankruptcy Act (11 U.S.C. 1079). 
"(2) Allowances and expenditures to meet losses sustained by per-
sons serving the United States abroad, due to appreciation of foreign 
currencies, see section 5943 of title 5, United States Code. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1767 
"(3) Amounts credited to the Maritime Administration under sec-
tion 9(b)(6) of the Merchant Ship Sales Act of 1946, see section 
9(c)(1) of that Act (50 U.S.C. App. 1742). 
"(4) Benefits under laws administered by the Veterans' Admin-
istration, see section 3101 of title 38, United States Code. 
"(5) Earnings of ship contractors deposited in special reserve funds, 
see section 607(d) of the Merchant Marine Act, 1936 (46 U.S.C. 1177). 
"(6) Income derived from Federal Reserve banks, including capital 
stock and surplus, see section 7 of the Federal Reserve Act (12 U.S.C. 
531). 
"(7) Railroad retirement annuities and pensions, see section 12 of 
the Railroad Retirement Act of 1935 (45 U.S.C. 2281). 
"(8) Railroad unemployment benefits, see section 2(e) of the Rail-
road Unemployment Insurance Act (45 U.S.C. 352). 
"(9) Special pensions of persons on Army and Navy medal of honor 
roll, see 38 U.S.C. 562(a)-(c). 
"(b) For extension of military income-tax-exemption benefits to commis-
sioned officers of Public Health Service in certain circumstances, see section 
212 of the Public Health Service Act (42 U.S.C. 213)." 
(22) AMENDMENT OP SECTION 143.—Section 143 (relating to 
26 USC 143. 
determination of marital status) is amended by striking out "this 
= 
part" each place it appears and inserting in lieu thereof "this part 
and part V". 
(23) AMENDMENT OF SECTION 151.—Section 151(e) (4) (defining 
26 USC 151. 
student and educational institution) is amended to read as 
follows: 
"(4) STUDENT DEFINED.—For purposes of paragraph 
( 1 ) ( B ) 
(ii), the term 'student' means an individual who during each of 
5 calendar months during the calendar year in which the taxable 
year of the taxpayer begins— 
" ( A ) is a full-time student at an educational organization 
described in section 170(b) (1) (A) (ii); or 
"(B) is pursuing a full-time 
course of institutional 
on-farm training under the supervision of an accredited 
agent of an educational organization described in section 
170(b) (1) (A) (ii) or of a State or political subdivision of 
a State." 
(24) AMENDMENTS OF SECTION 152.— 
(A) Section 152(a) (defining dependent) is amended— 
26 USC 152. 
(i) by inserting "or" at the end of paragraph (8), 
(ii) by striking out ", or" at the end of paragraph (9) 
and inserting in lieu thereof a period, and 
(iii) by striking out paragraph (10). 
(B) Section 152(b) (3) (relating to rules concerning the 
definition of dependent) is amended to read as follows: 
" (3) The term 'dependent' does not include any individual who 
"Dependent." 
is not a citizen or national of the United States unless such 
individual is a resident of the United States or of a country con-
tiguous to the tjnited States. The preceding sentence shall not 
exclude from the definition of 'dependent' any child of the tax-
payer legally adopted by him, if, tor the taxable year of the tax-
payer, the child has as his principal place of abode the home of the 
taxpayer and is a member of the taxpayer's household, and if the 
taxpayer is a citizen or national of the United States." 
(25) AMENDMENTS OF SECTION 164.—Section 164(d) (2) (relat- 
26 USC 164. 
ing to apportionment of taxes on real property between tlie seller 
and purchaser) is amended by striking out subparagraphs (B) 
and (C), and by redesignating subparagraph (D) as subpara-
graph ( B ) . 
(26) AMENDMENTS OF SECTION les.—Section 165 (relating to 
26 USC 165. 
deduction of losses) is amended by striking out subsection (i) 
90 STAT. 1768 
PUBLIC LAW 94-455—OCT. 4, 1976 
(relating to property confiscated by Cuba), and by redesignating 
subsection (j) as subsection (i). 
26 use 167 
(^^) AMENDMENTS OF SECTION 1 6 7 . — 
(A) Section 167(d) (relating to agreement as to useful life 
for depreciation) is amended by striking out "after the date 
of enactment of this title" and inserting m lieu thereof "after 
August 16, 1954". 
(B) Section 167(f)(2) (defining personal property) is 
amended by striking out "the date of the enactment of the 
Revenue Act of 1962" and inserting in lieu thereof "Octo-
ber 16, 1962". 
(C) Section 167(1) (4) (A) (relating to election as to 
increased-capacity property) is amended by striking out 
"within 180 days after the date of the enactment of this 
subparagraph" and inserting in lieu thereof "before June 29, 
1970,". 
9fi Iter i7n 
(^^) AMENDMENTS OF SECTION I7O,— 
M U
5
»
L 170. 
^^^ ^j^ Section 170 (relating to charitable deductions) is 
amended by striking out subsections (f) (6) and (g) (relating 
to unlimited charitable deductions allowed for taxable years 
beginning before January 1,1975), and by redesignating sub-
sections (h), (i), and (j) as subsections (g), (h), and (i), 
respectively. 
(ii) Section 170(b) (1) (relating to percentage limitations 
on deductions for individuals) is amended by striking out 
subparagraph (C) (relating to unlimited deductions), and 
by redesignating subparagraphs (D), (E), and (F) as sub-
paragraphs (C), (D), and (E), respectively. 
(iii) Section lTO(b) (1) (A) (vii) is amended by striking 
out "subparagraph (E)" and inserting in lieu thereof "sub-
paragraph (D)". 
(iv) Section 170(b) (1) (B) (ii) is amended by striking out 
"subparagraph (D)" and inserting in lieu thereof "subpara-
graph (C)". 
(v) Section 170(c) (relating to definition of charitable 
contribution) is amended by striking out in the last sentence 
"subsection (h)" and inserting in lieu thereof "subsec-
tion (g)". 
(vi) Section 170(e) (1) (B) (ii) (relating to certain con-
tributions of ordinary income and capital gain property) is 
amended by striking out "subsection (b) (1) (E)" and insert-
ing in lieu thereof "subsection (b) (1) (D)". 
(B) Section 170(d) (1) (A) (relating to carryover of excess 
charitable contributions) is amended by striking out "(30 
percent, in the case of a contribution year beginning before 
January 1,1970)". 
(C) Section 170(h) (relating to disallowance of deduc-
tions in certain cases), as redesignated by subparagraph 
(A) (i) of this paragraph, is amended by striking out "64 
Stat. 996;". 
(D) Section 170(i) (relating to cross references), as 
redesignated by subparagraph (A) (i) of this paragraph, is 
amended to read as follows: 
"(i) 
OTHER CROSS REFERENCES.— 
"(1) For charitable contributions of estates and trusts, see sec-
tion 642(c). 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1769 
"(2) For nondeductibility of contributions by common trust funds, 
see section 584. 
"(3) For charitable contributions of partners, see section 702. 
"(4) For charitable contributions of nonresident aliens, see sec-
tion 873. 
"(5) For treatment of gifts for benefit of or use in connection with 
the Naval Academy as gifts to or for use of the United States, see 
section 6973 of title 10, United States Code. 
"(6) For treatment of gifts accepted by the Secretary of State under 
the Foreign Service Act of 1946 as gifts to or for the use of the United 
States, see section 1021(e) of that Act (22 U.S.C. 809(e)). 
"(7) For treatment of gifts of money accepted by the Attorney Gen-
eral for credit to the 'Commissary Funds, Federal Prisons' as gifts 
to or for the use of the United States, see section 2 of the Act of May 15, 
1952. as amended by the Act of July 9, 1952 (31 U.S.C. 7258-4)." 
(29) AMENDMENTS OF SECTION 172.— 
(A) (i) Section 172(b) (1) (relating to years to which loss 
Ante, p. 1755. 
may be carried) is amended by striking out subparagraph 
( E ) . 
(ii) Section 172(b) (3) is amended by striking out subpara- 
26 USC 172. 
graphs (E) and ( F ) . 
(B) Section 172(c) (relating to definition of net operating 
loss) is amended by striking out "(for any taxable year end-
ing after December 31, 1953)". 
(C) (i) Section 172 (relating to net operating loss deduc-
tion) is amended by striking out subsections (f), (g), and 
(i), and by redesignating subsections (h), (j), (k), and (1) 
as subsections (f), (g), (h),and (i), respectively. 
(ii) Section 172(b) (1) (C) (relating to regulated transpor-
tation corporations) is amended by striking out "subsection 
( j ) ( l ) " and "subsection (j)", and inserting in lieu thereof 
"subsection ( g ) ( 1 ) " and "subsection (g)", respectively. 
(iii) Paragraphs (1) (D) and (3) (C) (i) of section 172 
Post, p. 1920. 
(b) (relating to net operating loss carryovers and carry-
backs) are each amended by striking out "subsection ( k ) " and 
inserting in lieu thereof "subsection (h)". 
(iv) Section 172(b) (2) (relating to amount of carrybacks 
,, » ; , , i 
and carryovers) is amended by striking out "subsections (i) 
" ' * 
and (]*)" and inserting in lieu thereof 'Subsection (g)". 
(D) Section 172(e) (relating to law applicable to compu-
tations) is amended by striking out the last sentence. 
(E) 
Section 172(g) (2) 
(relating to certain regulated 
transportation corporations), as redesignated by subpara-
graph (C) of this paragraph, is amended by striking out 
paragraph (4). 
26 USC 174 
(30) AMENDMENTS OF SECTIONS 174 AND 175.—Section 174(a) (2) 
j^g 
(A) (i) (relating to research and development expenditures) 
and section 175(d) (1) (A) (relating to soil and water conserva-
tion expenditures) are each amended by striking out "the date on 
which this title is enacted," and inserting in lieu thereof 
"August 16, 1954,". 
(31) REPEAL OF SECTION I87.—Section 187 (relating to rapid 
26 USC 187. 
amortization for certain coal mine safety equipment) is repealed. 
(32) AMENDMENT OF SECTION 219.—Section 219(b) (2) (A) (iv) 
26 USC 219. 
(disqualifying goveinmental plan participants from contributing 
to individual retirement accounts, etc.) is amended by striking out 
"division" and inserting in lieu thereof "subdivision". 
(33) REPEAL OF SECTION 242.—Section 242 (relating to par- 
26 USC 242. 
tially tax-exempt interest received by corporations) is repealed. 
(34) 
AMENDMENTS OF SECTION 243.— 
90 STAT. 1770 
26 use 243. 
26 use 247. 
Definition. 
Regulations. 
26 use 1081. 
53 Stat. 1. 
26 use 248. 
26 use 265. 
PUBLIC LAW 94-455—OCT. 4, 1976 
(A) Section 243(a) (2) (relating to the dividends received 
deduction) is amended by inserting after "Small Business 
Investment Act of 1958" the following: "(16 U.S.C. 661 and 
following)". 
(B) Section 243(b) (2) (A) (relating to dividends received 
by a member of an affiliated group) is amended by striking 
out "(except that in the case of a taxable year of a mem-
ber beginning in 1963 and ending in 1964, if the election 
is effective for the taxable year of the common parent cor-
poration which includes the last day of such taxable year 
of such member, such election shall be effective for such tax-
able year of such member, if such member consents to such 
election with respect to such taxable year)". 
(35) AMENDMENT OF SECTION 247.—Section 247(b) (2) (relating 
to preferred stock) is amended to read as follows: 
"(2) PREFERRED STOCK.— 
"(A) IN GENERAL.—The term 'preferred stock' means stock 
issued before October 1, 1942, which during the whole of the 
taxable year (or the part of the taxable year after its issue) 
was stock the dividends in respect of which were cumulative, 
limited to the same amount, and payable in preference to 
the payment of dividends on other stock. 
" ( B ) 
C E R T A I N STOCK ISSUED O N OR AFTER OCTOBER 1, 1942.— 
Stock issued on or after October 1, 1942, shall be deemed for 
purposes of this paragraph to have been issued before Octo-
ber 1, 1942, if it was issued to refund or replace bonds or 
debentures issued before October 1, 1942, or to refund or 
replace other preferred stock (including stock which is 
preferred stock by reason of this subparagraph or subpara-
graph (D)), but only to the extent that the par or stated 
value of the new stock does not exceed the par, stated, or face 
value of the bonds or debentures issued before October 1,1942, 
or the other preferred stock, which such new stock is issued 
to refund or replace. 
"(C) DETERMINATION TINDER REGULATIONS.—The determi-
nation of whether stock was issued to refund or replace bonds 
or debentures issued before October 1, 1942, or to refund or 
replace other preferred stock, shall be made under regula-
tions prescribe by the Secretary. 
"(D) ISSUANCE OF STOCK.—For purposes of subparagraph 
(B), issuance of stock includes issuance either by the same 
or another corporation in a transaction which is a reorganiza-
tion (as defined in section 368(a)), a transaction to which 
section 371 (relating to insolvency reorganizations) applies, 
or a transaction subject to part VI of subchapter O (relating 
to exchanges in SEC obedience orders), or the respectively 
corresponding provisions of the Internal Revenue Code of 
1939." 
(36) AMENDMENT O
F SECTION 2 4 8.—Section 248(c) (relating to 
organizational expenditures) is amended b^^ striking out "the 
date of enactment of this title" and inserting in lieu thereof 
"August 16,1954". 
(37) AMENDMENT OF SECTION 26 5.—Section 265(2) (relating to 
tax-exempt interest) is amended by striking out" (other than obli-
gations of the United States issued after September 24,1917, and 
originally subscribed for by the taxpayer)". 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1771 
; 
* (38) AMENDMENT OF SECTION 269.—Section 269 (relating to 26USC269. 
acquisitions made to evade or avoid income tax) is amended by 
striking out subsection (c) (relating to presumption in the case 
of disproportionate purchase price). 
(39) 
AMENDMENT OF SECTION 275.—Section 275(a)(1)(C) 
26 USC 275. 
relating to nondeductible taxes) is amended by striking out 
(", and corresponding provisions of prior revenue laws". 
( 40) AMENDMENTS OF SECTION 2 81.— 
(A) Section 281(d) (1) (A) (relating to definition of ter- 26 USC 281. 
minal railroad corporation) is amended by inserting after 
"Interstate Commerce Act" the following: " (49 U.S.C. 1 and 
following)". 
(B) Section 281 (relating to terminal railroad corpora-
tions and their shareholders) is amended by striking out 
subsection (e) (relating to taxable years ending before Octo-
ber 23,1962) and by redesignating subsection (f) as subsection 
(e). 
(41) AMENDMENT OF SECTION 301.—Section 301 (relating to dis- 
26 USC 301. 
tributions of property) is amended by striking out subsec-
tion (e) (relating to certain distributions by personal service 
corporations). 
(42) AMENDMENTS OF SECTION 311.— 
(A) Section 311(d) (1) (relating to appreciated property 
26 USC 311. 
used to redeem stock) is amended by striking out "then again 
shall be recognized" and inserting in lieu thereof "then a gain 
shall be recognized". 
(B) (i) Section 311(d)(2) 
(relating to exceptions and 
limitations) is amended by striking out subparagraph (C) 
(relating to certain distributions before December 1, 1974) 
and by redesignating subparagraphs ( D ) , ( E ) , ( F ) , and (G) 
as subparagraphs (C), (D), ( E ) , and ( F ) , respectively. 
(ii) The amendments made by clause (i) shall apply only 
26 USC 311 
with respect to distributions after November 30, 1974. 
°°*®-
(C) Section 311(d)(2)(C), as redesignated by subpara-
graph (B) of this paragraph, is amended by striking out 
"26 Stat. 209;" and "38 Stat. 730;". 
(43) AMENDMENTS OF SECTION 312.— 
(A) Section 312(d)(1) (relating to certain distributions 
26 USC 312. 
of stock and securities) is amended by striking out "this 
Code" each place it appears and inserting in lieu thereof 
"this title". 
(B) Section 312 (relating to earnings and profits) is 
' ''^ 
amended by striking out subsection (h) (relating to per-
sonal service corporations) and by redesignating subsections 
(i) and (j) as subsections (h) and (i), respectively. 
(C) Subsection (i) of section 312 (relatinfif to distribution 
'• 
'*-'^-* 
of proceeds of certain loans), as redesignated by subpara-
graph (B) of this paragraph, is amended to read as follows: 
"(i) 
DISTRIBUTION OF PROCEEDS OF LOAN INSURED BY THE UNITED 
STATES.—If a corporation distributes property with respect to its stock 
and if, at the time of distribution— 
"(1) there is outstanding a loan to such corporation which 
was made, guaranteed, or insured by the United States (or by any 
agency or instrumentality thereof), and 
'• '-: • ;
" 
"(2) the amount of such loan so outstanding exceeds the 
adjusted basis of the property constituting security for such loan, 
then the earnings and profits of the corporation shall be increased by 
90 STAT. 1772 
PUBLIC LAW 94-455—OCT. 4, 1976 
the amount of such excess, and (immediately after the distribution) 
shall be decreased by the amount of such excess. For purposes of para-
graph (2), the adjusted basis of the property at the time of distribu-
tion shall be determined without regard to any adjustment under 
section 1016(a) (2) (relating to adjustment for depreciation, etc.). For 
purposes of this subsection, a commitment to make, guarantee, or 
insure a loan shall be treated as the making, guaranteeing, or insuring 
of a loan." 
26 use 312. 
(D) Section 312(j)(3) 
(relating to foreign investment 
companies), as redesignated by subsection (b) (32) (B) (i), is 
amended to read as follows: 
"(3) 
PARTIAL LIQUIDATIONS AND REDEMPTIONS.—If a foreign 
investment company (as defined in section 1246) distributes 
amounts in partial liquidation or in a redemption to which sec-
tion 302(a) or 303 applies, the part of such distribution which is 
properly chargeable to earnings and profits shall be an amount 
which is not in excess of the ratable share of the earnings and 
profits of the company accumulated after February 28, 1913, 
attributable to the stock so redeemed." 
26 use 333. 
(44) AMENDMENT or SECTION 333.—Section 333 (a) (1) (relating 
to election as to recognition of gain in certain liquidations) is 
<if. Tier oo 
amended by striking out "on or after June 22,1954". 
26 use 334. 
(45) 
AMENDMENT OF SECTION 334.—Section 
334(b)(2)(A) 
(relating to liquidation of subsidiary) is amended to read as 
follows: 
" ( A ) the distribution is pursuant to a plan of liquidation 
adopted not more than 2 years after the date of the transac-
tion described in subparagraph (B) (or, in the case of a series 
of transactions, the date of the last such transaction); and". 
(46) AMENDMENTS OP SECTION 337.— 
26 use 337. 
(A) Section 337(a) (relating to nonrecognition of gain 
or loss on certain liquidations) is amended to read as follows: 
"(a) GENERAL RULE.—If, within the 12-month period beginning on 
the date on which a corporation adopts a plan of complete liquidation, 
all of the assets of the corporation are distributed in complete liquida-
tion, less assets retained to meet claims, then no gain or loss shall be 
recognized to such corporation from the sale or exchange by it of 
property within such 12-month period." 
(B) The first sentence of section 337(d) (relating to cer-
tain minority stockholders) is amended by striking out "on 
or after January 1,1958". 
26 use 342. 
(47) REPEAL OF SECTION 342.—Section 342 (relating to the 
liquidation of certain foreign personal holding companies) is 
repealed. 
(48) AMENDMENTS OP SECTION 351.— 
26 use 351 
(A) Section 351 (a^ (relating to transfer to corporation 
controlled by transieror) is amended by striking out 
"(including, in the case of transfers made on or before 
June 30, 1967, an investment company)". 
(B) Section 351(d) (relating to application of June 30, 
1967, date) is amended to read as follows: 
"(d) EXCEPTION.—This section shall not apply to a transfer of 
property to an investment company." 
26 use 351 
(C) The amendments made by this paragraph shall take 
note. 
effect with respect to transfers of property occurring after 
the date of the enactment of this Act. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1773 
(49) EEPEAL OF SECTION 363.—Section 363 (a cross reference to 26 USC 363. 
other sections) is repealed. 
(50) AMENDMENTS OF SECTION 3 71.—Section 371(a) (1) (relat- 
26 USC 371. 
ing to certain reorganization exchanges by corporations) is 
amended— 
(A) by striking out "49 Stat. 922;" and 
(B) by striking out " (52 Stat. 883-905; 11 U.S.C, chapter 
10) or the corresponding provisions of prior law" and 
inserting in lieu thereof "(11 U.S.C. 501 and following)". 
(51) AMENDMENT OF SECTION 372.—Section 372(a) (relating 
26 USC 372. ^ 
to basis in connection with bankruptcy proceedings) is amended 
by striking out "54 Stat. 709;". 
_ 
(52) REPEAL OF SECTION 373.—Section 373 (relating to nonrec- 
26 USC 373. 
ognition of loss in certain railroad reorganizations) is repealed. 
(53) AMENDMENT OF SECTION 374.—Section 374(a) (1) (relating 26 USC 374. 
to nonrecognition of gain or loss in certain railroad reorganiza-
tions) is amended by striking out "49 Stat. 922;". 
(54) AMENDMENT OF SECTION 381.—Section 381(c) (relating to 26 USC 381. 
items carried over in certain corporate acquisitions) is amended 
by striking out paragraph (20). 
(55) REPEAL OF SECTIONS 391 THROUGH 395.—Subchapter C of 
26 USC 
chapter 1 (relating to corporate distributions and adjustments) 
391-395. 
is amended by striking out part V I I (relating to effective dates 
of subchapter C). 
(56) AMENDMENTS OF SECTION 401.— 
(A) Paragraphs (12) and (13) of section 401(a) (relat- 
26 USC 401. 
ing to requirements for qualification) are each amended by 
striking out "the date of the enactment of the Employee 
> * vi 
Retirement Income Security Act of 1974" and inserting in lieu 
thereof "September 2,1974", 
(B) Paragraph (15) of section 401(a) is amended by 
striking out "the date of the enactment of the Employee 
Retirement Income Security Act of 1974" and inserting in lieu 
^^ ^^^ ^^^ 
thereof "September 2,1974,". 
"•'*^-
(C) Paragraph (19) of section 401(a) is amended by 
,, 
striking out "enactment of the Employee Retirement Income 
.'" 
Security Act of 1974" and inserting in lieu thereof "Septem-
ber 2,1974". 
(D) The last sentence of section 401 (a) is amended to read 
as follows: 
"Paragraphs (11), (12), (13), (14), (15), (19), and (20) shall apply 
only in the case of a plan to which section 411 (relating to minimum 
vesting standards) applies without regard to subsection (e) (2) of such 
section." 
(57) AMENDMENTS OF SECTION 402.— 
(A) Section 402(a)(4) (relating to distributions made to 26 USC 402. 
non-resident alien individuals) is amended by striking out 
"basic salary" each place it appears therein and inserting in 
lieu thereof "basic pay", and by amending the last sentence in 
such paragraph to read as follows: 
"In the case of distributions under the civil service retirement 
laws, the term 'basic pay' shall have the meaning provided in 
section 8331(3) of title 5, United States Code." 
(B) Section 402 (relating to taxability of beneficiary of 
employees' trusts) is amended by striking out subsection (d) 
(relatmg to certain trust agreements made before October 21, 
1942). 
-194 O—78—Dt. 2 
20 
90 STAT. 1774 
PUBLIC LAW 94-455—OCT. 4, 1976 
o* f
> 
(C) (i) So much of the third sentence of section 402(e) (4) 
26 use 402. 
(A) (relating to definition of lump sum distributions) as pre-
cedes "a distribution of an annuity contract" is amended to 
read as follows: "Except for purposes of subsection (a) (2) 
and section 403(a) (2),". 
26 use 402 
(ii) The amendment made by clause (i) shall apply with 
note. 
respect to distributions or payments made after December 31, 
1973, in taxable years beginning after such date. 
(58) AMENDMENT OF SECTION 403.—The last two sentences of 
26 use 403. 
section 403(a)(4) (relating to taxation of employee annuities) 
are amended to read as follows: "For purposes of this title, 
a transfer described in subparagraph (B) (i) shall be treated 
as a rollover contribution described in section 408(d)(3). Sub-
paragraph (B) (ii) does not apply in the case of a transfer to an 
employees' trust, or annuity plan if any part of a payment 
described in subparagraph (A) is attributable to an annuity plan 
under which the employee was an employee within the meaning 
of section 401(c) (1) at the time contributions were made on his 
behalf under the plan." 
26 use 404. 
(59) AMENDMENT OF SECTION 4 04.—Section 404 (relating to 
deduction for contributions to pension plans, etc.) is amended 
by striking out subsection (d) (relating to carryover of pre-1954 
unused deductions). 
26 use 409. 
(60) 
AMENDMENT or 
SECTION 
4 09.—Section 
409(b)(3)(C) 
(relating to tax-free rollovers of individual retirement bonds) 
is amended by striking out "section 403(d)(3)." and inserting 
in lieu thereof "section 408 (d) (3)." 
(61) AMENDMENTS OF SECTION 41O.— 
26 use 410. 
(A) Subparagraphs (C) and (D) of section 410(a) (5) 
(relating to breaks in service) are each amended by striking 
out "purposes of subsection ( a ) ( 1 ) " and inserting in lieu 
thereof "purposes of paragraph (1)". 
fA.,r 
(B) Paragraph (1) (C) of section 410(c) 
(relating to 
application of minimum participation standards) is amended 
by striking out "the date of the enactment of the Employee 
29 use 1001 
Ketirement Income Security Act of 1974" and inserting in 
'Hote. 
lieu thereof "September 2,1974,". 
(C) Paragraph (2) of section 410(c) is amended by strik-
ing out "the day before the date of the enactment of this 
' 
section" and inserting in lieu thereof "September 1, 1974". 
(62) AMENDMENTS or SECTION 4 1 1 . — 
26 use 411. 
(A) Subsection (a) of section 411 (relating to minimum 
vesting standards) is amended by striking out "subsection 
(a) ( 8 ) " and inserting in lieu thereof "paragraph (8)". 
(B) Subsection (a) (3) (D) (iii) of section 411 is amended— 
^, 
(i) by striking out "the date of the enactment of the 
Employee Eetirement Income Security Act of 1974" and 
"the date of the enactment of such Act" and inserting 
in lieu thereof in both such places "September 2, 1974 , 
and 
(ii) by striking out "the date of the enactment of the 
Act" and inserting in lieu thereof "September 2, 1974,". 
(C) The heading for subparagraph (C) of section 411 
(a) (7) is amended to read as follows: 
"(C) 
REPAYMENT OF SUBPARAGRAPH (B) DISTRIBUTIONS.—" 
(D) Subsection (b) (1) (D) (i) and (e) (1) (C) of section 
411 are each amended by striking out "the date of the 
,i^m-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1775 
enactment of the Employee Retirement Income Security Act 
• 
of 1974" and inserting in lieu thereof "September 2, 1974". 29 USC 1001 
(E) Subsection (e) (2) of section 411 is amended by strik- noth-
ing out "the date before the date of the enactment of the 
Employee Retirement Income Security Act of 1974" and "^^ ^^^ *^^-
inserting in lieu thereof "September 1, 1974". 
(63) AMENDMENTS or SECTION 412.— 
(A) Subsection (h) of section 412 (relating to minimum 26 USC 412. 
funding standards) is amended by striking out "the day 
before the date of the enactment of the Employee Retirement 
Income Security Act of 1974" and inserting in lieu thereof 
'^'' '"" ''" 
"September 1,1974". 
. 
" 
(B) Subsection (h) (5) of section 412 is amended by strik-
ing out "the date of the enactment of the Employee Retire-
ment Income Security Act of 1974" and inserting in lieu 
thereof "September 2,1974". 
(64) AMENDMENTS OF SECTION 414.— 
(A) The heading for section 414(f) (relating to multi- 26 USC 414. 
employer plans) is amended to read as follows: 
* 
"(f) 
MULTIEMPLOYER P L A N . — " 
(B) Section 414(1) (relating to mergers and consolidations 
of plans or transfers of plan assets) is amended by striking 
out "the date of the enactment of the Employee Retirement 
Income Security Act of 1974" and inserting in lieu thereof 
"September 2,1974". 
(65) 
AMENDMENTS OF SECTION 415.— 
(A) Section 415(b)(2)(A) (relating to adjustments for 26 USC 415. 
certain forms of benefits) is amended by striking out "and 
409(b) (3) ( C ) " and inserting in lieu thereof "and 409(b) (3) 
(C))"-
(B) Section 415(b)(2)(B) is amended by strikmg out 
"(as defined in section 401(a) (11) (II) (iii))" and inserting 
in lieu thereof "(as defined in section 401(a) (11) (G) (iii))". 
(66) 
AMENDMENTS OP SECTION 453.— 
~ 
(A) Section 453(c) (3) (relating to adjustment in tax for 26 USC 453. 
amounts previously taxed) is amended by striking out "cor-
responding provisions of the Internal Revenue Code of 1939" 
and inserting in lieu thereof "corresponding provisions of the 
Internal Revenue Code of 1954". 
(B) Section 453(d)(4)(B) 
(relating to liquidations to 
which section 337 applies) is amended by striking out "or 
section 617(d) (1)" and inserting in lieu thereof 
, 617(d) 
(1)". 
(67) 
AMENDMENT OF SECTION 455.—Section 455(c)(3)(B) 
26 USC 455. 
(relating to prepaid subscription income) is amended by striking 
out "for his first taxable year (i) which begins after December 31, 
1957, and (ii) in which he receives prepaid subscription income 
in the trade or business" and inserting in lieu thereof "for his 
first taxable year in which he receives prepaid subscription income 
in the trade or business". 
(68) 
AMENDMENT OF SECTION 456.—Section 456(c)(3)(B) 
26 USC 456. 
(relating to election without consent with respect to treatment of 
prepaid dues) is amended by striking out "for its first taxable 
year (i) which begins after December 31, 1960, and (ii)" and 
; 
inserting in lieu thereof "for its first taxable year". 
(69) 
AMENDMENTS OF SECTION 4 6 I . — 
90 STAT. 1776 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 461. 
(A) Section 461(c) (relating to accrual of real property 
taxes) is amended by striking out paragraph (2) and by 
redesignating paragraph (3) as paragraph (2). 
(B) Section 461(c) (2) (relating to elections without con-
' '* 
sent), as redesignated by subparagraph (A), is amended by 
striking out "his first taxable year which begins after Decem-
ber 31,1953, and ends after the date of enactment of this title 
in which the taxpayer" and inserting in lieu thereof "his first 
taxable year in which he". 
(70) 
AMENDMENTS OF SECTION 481.— 
26 use 481. 
(A) Section 481(b) (relating to limitation on tax where 
substantial adjustments are required by a change in account-
ing method) is amended by striking out paragraphs (4), (5), 
and (6) (relating to pre-1954 adjustments). 
(B) Section 481(b) (1) and (2) are each amended by 
striking out ", other than the amount of such adjustments to 
which paragraph (4) or (5) applies," each place it appears. 
(71) 
AMENDMENTS OF SECTION SO8.— 
26 use 508. 
(A) Subsections (a) and (b) of section 508 (relating to 
special rules relating to 501(c)(3) organizations) are each 
amended by striking out the last sentence therein. 
(B) Section 508(e) (2) (relating to special rules for exist-
ing private foundations) is amended by striking out subpara-
graph (A) (relating to taxable years beginning before 1972), 
by redesignating subparagraphs (B) and (C) as subpara-
graphs (A) and (B), respectively, and by strikmg out "(B)" 
in subparagraph (B) (as so redesignated) and inserting in 
lieu thereof "(A)". 
(C) Section 508(d)(2)(A) (relating to disallowance of 
deductions for certain charitable gifts or bequests) is amended 
by striking out "(e) (2) (B) and (C)" and inserting in lieu 
thereof "(e)(2)". 
(72) AMENDMENTS OF SECTION 5 1 4 . — 
26 use 514. 
(A) Section 514(c)(1) (relating to definition of acquisi-
tion indebtedness) is amended by striking out the comma at 
the end of subparagraph (C) and all that follows, and insert-
ing in lieu thereof a period. 
(B) Section 514 (relating to unrelated debt-financed 
income) is amended by striking out subsection (f) (relating 
to definition of business lease), by striking out subsection (g) 
(relating to definition of business lease indebtedness), and by 
redesignating subsection (h) as subsection (f). 
(C) Section 514(b) (3) (C) (iii) (relating to definition of 
^ 
debt-financed property) is amended to read as follows: 
"(iii) shall not apply to property subject to a lease 
which is a business lease (as defined in this section 
immediately before the enactment of the Tax Reform Act 
of 1976)." 
(D) Section 514(f) (relating to personal property leased 
with real property), as redesignated by subparagraph (B) 
of this paragraph, is amended by striking out "and the term 
'premises' include" and inserting in lieu thereof "includes". 
(73) AMENDMENTS or SECTION 534.— 
26 use 534. 
(^) 
Section 534(b) 
(relating to mailing notices of 
deficiency) is amended by striking out the last sentence. 
(B) Subsection (e) of section 534 (relating to effective 
date of section) is repealed. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1777 
(74) AMENDMENT OF SECTION 533.—Section 535 (b) (1) (relating 26 USC 535. 
to adjustments in computing accumulated taxable income) is 
amended by striking out "(other than the excess profits tax 
imposed by subchapter E of chapter 2 of the Internal Revenue 
Co<le of 1939 for taxable years beginning after December 31, 
1940)". 
(75) A M E N D M E N T S OF SECTION 5a7.— 
(A) Section 537(b)(2) (relating to definition of excess 26 U
S
C 537. ^
, 
business holdings redemption needs) is amended by striking 
out ", with respect to taxable years of the corporation ending 
after May 26, 1969,". 
.
^ 
; ,,. 
(B) Section 537(b) (4) (relating to inferences as to prior 
years) is amended by striking out "or (2)". 
(76) AMENDMENTS OF SECTION 542.— 
(A) Section 542(a) (2) (relating to definition of personal 26 USC 542. 
holding company) is amended by striking out the last 
sentence. 
(B) Section 542(b)(2) (relating to ineligible affiliated 
group) is amended by striking out ", other than an affiliated 
group of railroad corporations the common parent of which 
would be eligible to file a consolidated return under section 
141 of the Internal Revenue Code of 1939 prior to its amend-
ment by the Revenue Act of 1942,". 
(C) Section 542(c) (2) (relating to financial institutions) 
is amended by striking out "without regard to subparagraphs 
(D) and (E) thereof". 
(D) Section 542(c) (8) (relating to small business invest-
ment companies) is amended by inserting after "Small Busi-
ness Investment Act of 1958" the following: " (15 U.S.C. 661 
and following)". 
(77) AMENDMENTS O
F SECTION 545.— 
(A) Section 545(b) (1) (relating to deduction of taxes in 26 USC 545. 
computing undistributed personal holding company income) 
is amended— 
(i) in the first sentence, by striking out "(other than 
the excess profits tax imposed by subchapter E of chap-
ter 2 of the Internal Revenue Code of 1939 for taxable 
years beginning after December 31, 1940)"; and 
(ii) by striking out the last two sentences (relating 
to deduction of taxes). 
(B) Section 545(b) (relating to adjustments in computing 
undistributed personal holding company income) is amended 
by striking out paragraph (7) (relating to payment of 
indebtedness incurred before 1934). 
(C) Section 545(c)(2)(A) (relating to corporations to 
which special adjustment applies) is amended by striking 
out "the date of enactment of this subsection" and inserting 
in lieu thereof "February 26,1964". 
(78) ^ AMENDMENT OF SECTION 547.—Section 547 (relating to the 26 USC 547. 
deduction of deficiency dividends) is amended by striking out 
subsection (h) (relating to the effective date). 
(79) AMENDMENT O
F SECTION 551.—Section 551(c) (relating to 26 USC 551. 
foreign personal holding company income tax returns), as 
redesignated by subsection (b) (1) (F) of this section, is amended 
by striking out "taxable income, foreign personal holding com-
90 STAT. 1778 
PUBLIC LAW 94-455—OCT. 4, 1976 
pany," and inserting in lieu thereof "taxable income, foreign per-
sonal holding company income,". 
(80) AMENDMENT OF SECTION 5 56.—The first sentence of section 
26 use 556. 
556(b)(1) (relating to deduction of taxes in computing undis-
tributed foreign pei-sonal holding company income) is amended 
by striking out "(other than the excess profits tax imposed by 
subchapter E of chapter 2 of the Internal Revenue Code of 1939 
for taxable years begmning after December 1,1940)". 
26 use 564. 
(81) AMENDMENT OF SECTION 564.—Section 564 (relating to 
dividend carryovers) is amended by striking out subsection (c) 
(relating to carryovers from pre-1954 years). 
26 use 583. 
(82) REPEAL OF SECTION 5 83.—Section 583 (relating to deduc-
tion of dividends paid on certain preferred stock by banks or 
trust companies) is repealed. 
26 use 592. 
(83) REPEAL OF SECTION 592.—Section 592 (relating to the 
deduction by mutual savings banks for repayment of certain 
loans) is repealed. 
(84) AMENDMENTS OF SECTION 593.— 
26 use 593. 
(A) Section 593(b) (2) (relating to additions to bad debt 
reserves for mutual savings banks, etc.) is amended by strik-
ing out, in the table in subparagraph (A), the following: 
"1969 
60 percent. 
1970 
57 percent. 
1971 
54 percent. 
' 
1972 
51 percent. 
1973 
49 percent. 
1974 
47 percent. 
1975 
45 percent." 
(B) Section 593(c) (relating to reserves for mutual sav-
ings banks) is amended by striking out paragraphs (2), (3), 
(4), and (5), by redesignating paragraph (6) as paragraph 
(3), and by inserting immediately after paragraph (1) tne 
following: 
"(2) CERTAIN PRE-1963 RESERVES.—Notwithstanding the second 
sentence of paragraph (1), any amount allocated pursuant to 
paragraph (5) (as in effect immediately before the enactment of 
the Tax Reform Act of 1976) during a taxable year beginning 
before January 1,1977, to the reserve for losses on qualifying real 
property loans out of the surplus, undivided profits, and bad 
debt reserves (determined as of December 31, 1962) attributable 
to the period before the first taxable year beginning after Decem-
ber 31,1951, shall not be treated as a reserve for bad debts for any 
purpose other than determining the amount referred to in subsec-
tion (b)(1)(B), and for such purpose such amount shall be 
treated as remaining in such reserve." 
(C) Section 593 is amended by striking out subsection (d) 
(relating to taxable years beginning in 1962 and ending in 
1963), and by redesignating subsections (e) and (f) as sub-
sections (d) and (e),respectively. 
(D) Section 593(b) (2) (E) (i) is amended by striking out 
"subsection (f)" and inserting in lieu thereof "subsection 
(e)". 
(85) REPEAL or SECTION 6 01.—Subchapter H of chapter 1 relat-
26 use 601. 
ing to banking institutions) is amended by striking out part III 
(relating to special deduction for bank affiliates). 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1779 
(86) A M E N D M E N T S o r SECTION 6 1 3 A . — 
(A) Section 613A(b)(1)(C) (relating to exemption for 26 USC 613A. 
certain domestic gas wells) is amended by striking out "within 
the meaning of section 613(b)(1)(A)". 
(B) Section 613A(c) (6) (i) (relating to limitations on 
percentage depletion in case of oil and gas wells) is amended 
by striking out "determined with" and inserting in lieu 
thereof "determined without". 
(87) AMENDMENTS OF SECTION 6 1 4 . — 
? 
(A) (i) Section 614(c) (relating to aggregation of mineral 
26 USC 614. 
interests in mines) is amended by striking out paragraph (4) 
(relating to special rule as to exploration deductions prior to 
i 
aggregation). 
(ii) The amendment made by clause (i) shall apply with 26 USC 614 
respect to elections to form aggregations of operating min- "o*®-
eral interests made under section 614(c)(1) of the Internal 
Revenue Code of 1954 for taxable years beginning after 
December 31, 1976. 
(B) The third sentence of section 614(c) (2) (relating to 
election to treat a single interest as more than one property) 
is amended to read as follows: "A separate property so 
•>!::; 
formed may, under regulations prescribed by the Secretary, 
be included as a part of an aggregation in accordance Avith 
paragraphs (1) and (3)." 
(C) Section 614(c)(3) (relating to manner and scope of 
election) is amended to read as follows: 
"(3) MANNEK AND SCOPE OF ELECTION.—The elections provided 
by paragraphs (1) and (2) shall be made, in accordance with 
.•&}^i 
regulations prescribed by the Secretary, not later than the time 
prescribed for filing the return (including extensions thereof) for 
the first taxable year— 
" ( A ) in which, in the case of an election under paragraph 
(1), any expenditure for development or operation in respect 
' 
of the separate operating mineral interest is made by the 
taxpayer after the acquisition of such interest, or 
" ( B ) in which, in the case of an election under paragraph 
(2), expenditures for development or operation of more than 
one mine in respect of a property are made by the taxpayer 
after the acquisition of the property. 
An election made under paragraph (1) or (2) for a taxable year 
shall be binding upon the taxpayer for such year and all subse-
quent taxable years, except that the Secretary may consent to a 
different treatment of any interest with respect to which an elec-
tion has been made." 
(88) REPEAL OF SECITON 615.—Section 615 (relating to deduc- 26 USC 615. 
tion of pre-1970 exploration expenses) is repealed. 
(89) AMENDMENT 
OF SECTION 
617.—Section 6 1 7 ( a ) ( 2 ) ( B ) 
26 USC 617. 
(relating to time and scope of election to deduct certain mining 
exploration expenditures) is amended by striking out "may not be 
revoked after the last day of the third month following the month 
in which the final regulations issued under the authority of tliis 
subsection are published in the Fedei-al Register, unless" and 
inserting in lieu thereof "may not be revoked unless". 
(90) REPEAL OF SECTION 6;52.—Section 632 (relating to tax in 
26 USC 632. 
case of sale of oil and gas properties) is repealed. 
(91) AMENDMENT 
OF SECTION 
69I.—Section 
6 9 1 ( c ) ( 1 ) ( B ) 
26 USC 691. 
(relating to deduction for estate tax) is amended by striking out 
the last sentence. 
90 STAT. 1780 
PUBLIC LAW 94-455—OCT. 4, 1976 
(92) AMKNDMKNT OF SI-ICTION cy2.—The heading of section 692 
(rehxting to income taxes of members of Armed Forces who die 
in a combat zone) is amended by striking out "ON" tlie first time 
it appears in the section heading and inserting in lieu thereof 
"OF". 
26 use 751. 
(93) AMKNDMKNT OF SKCTION 75] .—Section 751(c) (relating to 
unrealized receivables) is amended by striking out "1254(a), or 
1250(a)," and inserting in lieu thereof "1245(a), 1250(a),". 
26 use 771. 
(94) RKI'KAL OF SKCTION 771.—Part IV of subchapter K of 
chapter 1 (relating to effective date of subchapter K) is repealed. 
(95) 
XVMKNOMKNTS OF SKCTION 802.— 
26 use 802. 
(A) Section 802(a)(1) (relating to tax imposed on life 
insurance companies) is amended by striking out "beginning 
after December 31, 1957,". 
(B) Section 802(a) (2) (relating to alternative tax in case 
of capital gains) is amended by striking out "beginning after 
December 31,1961,". 
(C) Section 802(a) is amended by striking out paragraph 
(3) (relating to special rules for 1959 and 1960). 
(96) 
A M K N D M K N T S O F SKCTION 804.— 
26 use 804. 
(^) Section 804(a) is amended by striking out paragraph 
(6) (relating to certain exceptions). 
(B) Section 804(b)(2) (relating to short-term capital 
gains) is amended by striking out "In the case of a taxable 
year beginning after December 31,1958, the" and inserting in 
lieu thereof "The". 
(97) AMKNDMKNTS OF SKCTION 805.— 
26 use 805. 
(A) Section 805(b)(3)(B) (relating to average earnings 
rate) is amended to read as follows: 
"(B) Si'KciAL RULE.—For purposes of subparagraph (A), 
the current earnings rate for any taxable year of any company 
which, for such year, is an insurance company (but not a life 
insurance company) shall be determined as if this part 
applied to such company for such year." 
(B) Section 805(b)(4)(B) (relating to basis of assets) is 
amended by striking out " (determined without regard to fair 
market value on December 31, 1958)". 
(C) Section 805(d) (relating to pension plan reserves) is 
amended to read as follows: 
"Pension plan 
"(d) PENSION Pi^N RESERVES.—For purposes of this part, the 
reserves." 
teiTii 'pension plan reserves' means that portion of the life insurance 
reserves which is allocable to contracts— 
"(1) purchased under contracts entered into with trusts which 
(as of the time the contracts were entered into) were deemed to be 
(A) trusts described in section 401 (a) and exempt from tax under 
section 501 (a), or (B) trusts exempt from tax under section 165 of 
the Internal Revenue Code of 1939 or the corresponding provi-
sions of prior revenue laws; 
"(2) purchased under contracts entered into under plans which 
(as of the time the contracts were entered into) were deemed to be 
plans described in section 403(a), or plans meeting the require-
ments of paragraphs (3), (4), (5), and (6) of section 165(a) of 
the Internal Revenue Code of 1939; 
"(3) provided for employees of the life insurance company 
under a plan which, for the taxable year, meets the requirements 
of paragraphs (3), (4), (5), (6), (7), (8), (11), (12), (13), 
(14^, (15), (16), (19),and (20) of section40i(a)/ 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1781 
" (4) purchased to provide retirement annuities for its employ-
ees by an organization which (as of the time the contracts were 
purchased) was an organization described in section 501(c)(3) 
which was exempt from tax under section 501 (a) or was an orga-
nization exempt from tax under section 101(6) of the Internal 
Revenue Code of 1939 or the corresponding provisions of prior 
revenue laws, or purchased to provide retirement annuities for 
employees described in section 403(b) (1) (A) (ii) by an employer 
which is a State, a political subdivision of a State, or an agency 
or instrumentality of any one or more of the foregoing; or 
"(5) purchased under contracts entered into with trusts which 
(at the time the contracts were entered into) were individual 
retirement accounts described in section 408(a) or under contracts 
entered into with individual retirement annuities described in 
section 408(b)." 
(98) AMENDMEN'ra OF SECTION 809. 
(A) Section 809(b) (relating to definition of gain and loss 26 USC 809. 
from operations) is amended by striking out paragraph (4). 
(B) (i) Section 809(d) (relating to life insurance company 
deductions) is amended by striking out paragraph (11) 
relating to mutualization distributions before 1963), and by 
redesignating paragraph (12) as paragraph (11). 
(ii) Section 809(e) is amended by striking out "subsection 
(d) (12)" and inserting in lieu thereof "subsection (d) (11)". 
j. ? y 
(C) Section 809 (relating to computation of gain and loss 
from operations) is amended by striking out subsection (g) 
(relating to deduction for certain mutualization distributions 
before 1963). 
(99) AMENDMENT or SECTION 812.—Section 812(b) (1) (relat- 26 USC 812. 
ing to years to which operating losses of an insurance company 
may be carried), other than the last sentence thereof, as added by 
section 806(d) (1) (A) of this Act, is amended to read as follows: 
"(1) YEARS TO WHICH LOSS MAY BE CARRIED.—The loss from 
operations for any taxable year (hereinafter in this section 
referred to as the'loss year') shall be— 
"(A) an operations loss carryback to each of the 3 taxable 
years preceding the loss year, 
"(B) an operations loss carryover to each of the 5 taxable 
years following the loss year, and 
"(C) subject to subsection (e), if the life insurance com-
pany is a new company for the loss year, an operations loss 
carryover to each of the 3 taxable years following the 5 tax-
able years described in subparagraph (B)." 
(100) AMENDMENTS OF SECTION 8IT.—Section 817 (relating to 
26 USC 817. 
rules applicable to certain gains and losses) is amended by strik-
ing out subsection (c) (relating to treatment of pre-1959 capital 
losses) and subsection (e) (relating to certain 1958 reinsurance 
transactions). 
(101) AMENDMENT O
F SECTION sis.—Section 818 (relating to 26 USC 818. 
life insurance accounting provisions) is amended by striking out 
subsection (e) (relating to certain rules applicable to taxable 
years 1957,1958, and 1959), and by redesignating subsections (f) 
and (g) as subsections (e) and (f), respectively. 
(102) A M E N D M E N T S o r SECTION 8i9.— 
(A) The first sentence of section 819(a) (2) (A) (relating 26 USC 819. 
to definition of minimum figure for foreign life insurance 
companies) is amended to read as follows: "The minimum 
figure is the amount determined by multiplying the tax-
90 STAT. 1782 
PUBLIC LAW 94-455—OCT. 4, 1976 
payer's total insurance liabilities on United States business 
by a percentage for the taxable year to be determined and 
proclaimed by the Secretary.-' 
26 use 819. 
(B) The second sentence of section 819(a)(2)(A) is 
amended by striking out "under clause (ii)" and inserting in 
lieu thereof "under the preceding sentence". 
(C) Clause (i) of section 819(b)(2)(B) (relating to dis-
tributions pursuant to certain mutualizations) is amended to 
read as follows: 
"(i) the minimum figure for 1958 determined under 
subsection (a) (2) (A) computed by using a percentage of 
9 percent in lieu of the percentage determined and pro-
claimed by the Secretary, or". 
(103) 
AMENDMENTS or SECTION 82O.— 
26 use 820. 
(A) Section 820(c) (relating to optional treatment of cer-
tain reinsured policies) is amended by striking out paragraph 
(6) (relating to reimbursement for 1957 income taxes), and 
by redesignating paragraph (7) as paragraph (6). 
(B) The last sentence of section 820(c) is amended by 
striking out "(5). and (6) and the rules prescribed under 
paragraph (7)" and inserting in lieu thereof "and (5) and 
the rules prescribed under paragraph (6)". 
(104) 
AMENDMENTS OF SECTION 8 21.— 
26 use 821. 
(A) Section 821(a) (relating to imposition of tax on cer-
tain mutual insurance companies) is amended by striking out 
"beginning after December 31, 1963,". 
(B) Section 821(c)(1) (relating to alternative tax for 
certain small insurance companies) is amended by striking 
out "In the case of taxable years beginning after December 31, 
1963, there is" and inserting in lieu thereof "There is". 
(C) Section 821 (relating to tax on certain mutual insur-
ance companies) is amended by striking out subsection (e) 
(relating to 1962 transitional rules) and by redesignating 
subsection (f) as subsection (e). 
(105) AMENDMENTS OF SECTION 822.— 
26 use 822. 
(A) Section 822(c) (5) (relating to deduction of interest) 
is amended by strildng out "(other than obligations of the 
United States issued after September 24,1917, and originally 
subscribed for by the taxpayer)". 
(B) The last sentence of section 822(d) (2) (relating to 
amortization of premium and accrual of discount) is amended 
by striking out "For taxable years beginning after Decem-
ber 31, 1962, no accrual" and inserting in lieu thereof "No 
accrual". 
26 use 825. 
(106) AMENDMENTS or SECTION 82 5.—Section 825(g) (relating 
to imused loss deduction of certain insurance companies) is 
amended by striking out paragraph (1) and by redesignating 
' 
paragraphs (2) and (3) as paragraphs (1) and (2), respectively. 
26 use 831. 
(107) AMENDMENT O
F SECTION 831.—Section 831(a) (relating 
to tax on certain insurance companies) is amended by striking out 
"or the taxable income" and inserting in lieu thereof "on the tax-
able income." 
(108) AMENDMENTS OF SECTION 832.—Paragraphs (1) and (6) 
26 use 832. 
of section 832(b) (definitions relating to insurance company tax-
able income) are each amended by striking out "Convention" and 
inserting in lieu thereof "Association". 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1783 
(109) 
AMENDMENTS OF SECTION 851.— 
(A) Section 851Ca)(l) (relating to definition of regu- 26USC851. 
lated investment company) is amended by striking out 
"54 Stat. 789;". 
(B) Section 851(b) (1) (relating to regulated investment 
companies) is amended by striking out "which began after 
December 31, 1941". 
(110) 
AMENDMENTS OF SECTION 85 2.— 
(A) Subparagraph (C) of section 852(b)(3) (relating 26 USC 852. 
to method of taxation of regulated investment companies 
and their shareholders) is amended by striking out the third 
sentence. 
•'•''-
(B)(i) Section 852(b) (3) (D) (iii) is amended by strik-
ing out "by 75 percent of so much of such amounts as equals 
the amount subject to tax in accordance with section 1201 
(a) (1) (A) and by 70 percent (72 percent in the case of a Post, p. 1786. 
taxable year beginning after December 31, 1969, and before 
''^ 
January 1, 1971) of so much of such amounts as equals the 
amount subject to tax in accordance with section 1201(a) 
(1) (B) or (2)" and inserting in lieu thereof "by 70 percent 
.rX 
of so much of such amounts as equals the amount subject to 
tax in accordance with section 1201(a)". 
(ii) The amendment made by clause (i) shall not be con- 26 USC 852 
sidered to affect the amount of any increase in the basis °ote. 
of stock under the provisions of section 852(b) (3) (D) (iii) 
of the Internal Revenue Code of 1954 which is based upon 
amounts subject to tax under section 1201 of such Code in 
taxable years beginning before January 1, 1975. 
(C) Section 852(d) is amended by inserting after "Invest-
ment Company Act of 1940" the'following: "(15 U.S.C. 
80a-l and following)". 
(111) AMENDMENTS OF SECTION 856.— 
(A) Section 856(c) (1) (relating to real estate investment 26 USC 856. 
trusts) is amended by striking out "which began after 
December 31, 1960". 
(B) Section 856(c) (6) (D) (relating to definition of other 
terms) is amended by inserting after "Investment Company 
Act of 1940, as amended" the following: "(15 U.S.C. 80a-l 
and following)". 
(112) AMENDMENT OF SECTION 857.—Section 857(b)(3)(C) 
26 USC 857. 
(relating to the taxation of capital gains in the case of real estate 
investment trusts) is amended by striking out the last sentence. 
(113) AMENDMENTS or SECTION 864.— 
' 
(A) Subsection (a) of section 864 (definitions relating to 26 USC 864. 
determinations of sources of income) is amended to read 
as follows: 
"(a) PRODUCED.—For purposes of this part, the term 'produced' "Produced." 
includes created, fabricated, manufactured, extracted, processed, 
cured, or aged." 
(B) Clauses (i) and (iii) of section 864(c)(4)(B) and 
subparagraph (C) of section 864(c)(5) (relating to eifec-
tively connected income) are each amended by striking out 
"sale" each place it appears and inserting in lieu thereof "sale 
or exchange". 
; r 
(C) Section 864(c) (4) (B) (iii) (relating to effectively 
connected income) is amended by striking out "sold" and 
inserting in lieu thereof "sold or exchanged". 
90 STAT. 1784 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 905. 
(114) AMENDMENT OF SECTION 905.—Section 905(b) (relating 
to proof of foreign tax credits) is amended by striking out the last 
sentence (relating to the treatment of certain royalty payments). 
26 use 911. 
(115) AMENDMENT OF SECTION 911.—Section 911(c) (relating 
to earned income from sources without the United States) is 
amended by striking out paragraph (7) (relating to taxable years 
ending in 1963,1964, or 1965). 
26 use 921. 
(116) AMENDMENT OF SECTION 92I.—Section 921 (relating to 
definition of Western Hemisphere Trade Corporation) is amended 
by striking out the last sentence (relating to taxable years before 
1954). 
26 use 931. 
(11''') AMENDMENTS OF SECTION 931.—Section 931 (relating to 
income from sources within possession) is amended by striking out 
subsection (h) (relating to certain persons taken as prisoners of 
war while working in a possession), and by redesignating sub-
section (i) as subsection (h). 
26 use 934. 
(118) AMENDMENT or SECTION 9 34.—Section 934(b) (relating 
to gross income received by a corporation from the Virgin 
Islands) is amended by striking out the last sentence. 
26 use 951. 
(119) AMENDMENT OF SECTION 9 51.—Section 951(a) (1) (relat-
ing to treatment of subpart F income) is amended by striking out 
"beginning after December 31,1962". 
26 use 972. 
(120) REPEAL OF SECTION 9 7 2.—Section 972 (relating to con-
solidation of export trade corporations) is repealed. 
26 use 1001. 
(121) AMENDMENT OF SECTION looi.—Section 1001(c) (relat-
ing to recognition of gain or loss) is amended to read as follows; 
"(c) RECOGNITION OF GAIN OR Loss.—Except as otherwise provided 
in this subtitle, the entire amount of the gain or loss, determined under 
this section, on the sale or exchange of property shall be recognized." 
(122) AMENDMENTS OF SECTION i O 15.— 
26 use 1015. 
(A) Subparagraph (A) of section 1015(d)(1) 
(relating 
to increased basis for gift tax paid) is amended by strikinar 
out "the date of the enactment of the Technical Amendments 
Act of 1958" and inserting in lieu thereof "September 2, 
1958". 
(B) Subparagraph (B) of section 1015(d) (1) is amended 
by striking out "the date of the enactment of the Technical 
Amendments Act of 1958" and inserting in lieu thereof 
"September 2,1958,". 
26 use 1016. 
(123) AMENDMENT OF SECTION loie.—Section 1016(a) (relat-
ing to adjustments to basis) is amended by striking out paragraph 
(19). 
26 use 1018. 
(124) AMENDMENT OF SECTION lois.—Section 1018 (relating to 
adjustment of capital structure before September 22, 1938) is 
amended by striking out "54 Stat. 709;". 
26 use 1020. 
(125) REPEAL OF SECTION 1020.—Section 1020 (relating to elec-
tion in respect of depreciation allowed before 1952) is repealed. 
(126) REPEAL OF SECTION 1022.— 
26 use 1022. 
(A) Section 1022 (relating to the basis of certain foreign 
personal holding company stock) is repealed. 
26 use 1022 
(B) The repeal made by subparagraph (A) shall apply 
°*'*®" 
with respect to stock or securities acquired from a decedent 
dying after the date of the enactment of this Act. 
26 use 1024. 
(12<) AMENDMENT OF SECTION 1024.—Section 1024 (containing 
cross references) is amended by striking out paragraph (4). 
PUBLIC LAW 94^55—OCT. 4, 1976 
90 STAT. 1785 
(128) AMENDMENTS O
F SECTiox 1033.— 
(A) Section 1033(a) (relating to involuntary conversions) 
26 USC 1033. 
is amended by striking out paragraph (2) and by redesig-
nating paragraph (3) as paragi-aph (2). 
(B) Section 1033(a)(2) 
(relating to conversion into 
money), as redesignated by subparagraph (A) of this para-
graph and as amended by this Act, is amended— 
(i) by striking out "WHERE nisposrriox OCCURRED AFTER 
19 5 0" in the paragraph heading; 
(ii) by striking out "(g)" each place it appears and 
inserting in lieu thereof "(h)"; 
(iii) by striking out "and the disposition of the con-
verted property (as defined in paragraph (2)) occurred 
after December 31,1950," in the text; and 
(iv) by adding at the end thereof the following new 
subparagraph: 
"(E) DEFINITIONS.—For purposes of this paragraph— 
"(i) CONTROL.—The term 'control' means the owner-
ship of stock possessing at least 80 percent of the total 
combined voting power of all classes of stock entitled to 
vote and at least 80 percent of the total number of 
shares of all other classes of stock of the corporation. 
"(ii) 
DISPOSITION OF THE CONVERTED PROPERTY.—^The 
term 'disposition of the converted property' means the 
destruction, theft, seizure, requisition, or condemnation 
of the converted property, or the sale or exchange of 
such property under threat or imminence of requisition 
or condemnation." 
(C) Section 1033 (relating to involuntary conversions) is 
amended by striking out subsection (b) (relating to certain 
conversions occurring before 1954) and by redesignating sub-
sections (c), (d), (e), (f), (g), and (h), as subsections (b), 
(c), (d), (e), (f),and (g),respectively. 
(D) The first sentence of section 1033(b) (relating to basis 
of a property acquired through involuntary conversions), as 
redesignated by subparagraph (C) of this paragraph, is 
amended by striking out "or (2)" and inserting in lieu thereof 
"or section 112(f) (2) of the Internal Kevenue Code of 1939". 
(E) Section 1033(f) (2) (relating to condemnation of real 
property), as redesignated by subparagraph (C) of this par-
agraph, is amended to read as follows: 
^'(2) LIMITATION.—Paragraph (1) shall not apply to the pur-
chase of stock in the acquisition of control of a corporation 
described in subsection (a)(2)(A)." 
(F) Section 1033(g) (4) (relating to condemnation of real 
property), as amended by section 2140(a) of this Act, is 
amended by striking out "(a) (3) (B) (i)" and inserting in 
lieu thereof "(a) (2) (B) (i)". 
(129) AMENDMENTS or SECTION 1034.— 
(A) Section 1034(a) (relating to gain on sale of residence) 
26 USC 1034. 
is amended by striking out "after December 31, 1953,". 
(B) Section 1034(b) (defining adjusted sales price) is 
amended by striking out paragraph (3) (relating to effective 
date of subsection (b)). 
(C) Section 1034(d) (relating to certain limitations) is 
amended by striking out "or section 112(n) of the Internal 
Eevenue Code of 1939". 
90 STAT. 1786 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 1034. 
(D) Section 1034(i) (relating to involuntary convei"sions) 
is amended to read as folloAvs: 
"(ii) SPECIAL RULE FOR COXDEMXATIOX.—In the case of the seizure, 
requisition, or condemnation of a residence, or the sale or exchange of 
a residence under threat or imminence thereof, the provisions of this 
section, in lieu of section 1033 (relating to involuntary conversions), 
shall be applicable if the taxpayer so elects. If such election is made, 
such seizure, requisition, or condemnation shall be treated as the sale 
of the residence. Such election shall be made at such time and in such 
manner as the Secretary shall prescribe by regulations." 
(E) Section 1034:(j) (relating to statute of limitations) 
is amended by striking out ''after December 31, 1950,". 
26USC1037. 
(130) 
AMENDMENT OF SECTION 
IOST.—Section 
1037(b)(1) 
(relating to certain exchanges of United States obligations) is 
amended bv striking out "section 1232(a) (2) ( A ) " and inserting 
in lieu thereof "section 1232(a) (2) (B)". 
26 use 1051. 
(131) AMENDMENT OF SECTION losi.—Section 1051 (relating to 
property acquired before 1929 during affiliation) is amendea by 
striking out the last two sentences. 
(132) AMENDMENTS or SECTION losi.— 
26 use 1081. 
(A) Subsection (c) of section 1081 (relating to distribu-
tions required by the SEC) is amended to read as follows: 
"(c) DISTRIBUTION OF STOCK OR SECURITIES ONLY.—If there is dis-
tributed, in obedience to an order of the Securities and Exchange 
Commission, to a shareholder in a corporation which is a registered 
holding company or a majority-owned subsidiary company, stock or 
securities (other than stock or securities which are nonexempt prop-
erty), without the surrender by such shareholder of stock or securities 
in such corporation, no gain to the distributee from the receipt of the 
stock or securities so distributed shall be recognized." 
(B) Section 1081(f) (relating to conditions for applica-
tion of section) is amended by striking out "Except in the case 
of a distribution described in subsection (c)(2), the provi-
^ 
sions" and inserting in lieu thereof "The provisions", and by 
striking out "49 Stat. 820;". 
(C) Section 1081(g) (relating to applicability of other 
provisions) is amended by striking out "If a distribution 
described in subsection (c) (2), or an" and inserting in lieu 
thereof "If an", and by striking out the comma after "Com-
mission". 
(133) AMENDMENTS OF SECTION loss.— 
26 use 1083. 
(A) Section 1083(a) is amended by striking out "49 Stat. 
820;". 
(B) Section 1083(b) is amended by striking out "49 Stat. 
804:". 
(C) Section 1083(e)(4) is amended by striking out "49 
Stat. 820;". 
(134) REPEAL OF SECTION m i . — P a r t I X of subchapter O of 
26 use 1111. 
chapter 1 (relating to distributions pursuant to orders enforcing 
the antitrust laws) is repealed. 
(135) AMENDMENTS OF SECTION 1201.— 
26 use 1201. 
(A) Section 1201(a) (relating to the alternative tax on 
capital gain) is amended to read as follows: 
"(a) CORPORATIONS.—If for any taxable year a corporation has a 
net capital gain, then, in lieu of the tax imposed by sections 11, 511, 
821 (a) or (c) and 831(a), there is hereby imposed a tax (if such tax 
• 
is less than the tax imposed by such sections) which shall consist of 
the sum of— 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1787 
"(1) a tax computed on the taxable income reduced by the 
amount of the net capital gain, at the rates and in the manner as 
< _ 
if this subsection had not been enacted, plus 
"(2) a tax of 30 percent of the net capital gain." 
(B) Section 1201(c) (relating to computation of alterna- 
26 USC 1201. 
tive tax) is amended to read as follows: 
" (c) COMPUTATION OF TAX W H E R E CAPITAL G A I N EXCEEDS $50,000.— 
The tax computed for purposes of subsection (b) (3) shall be the 
amount by which a tax determined under section 1 or 511 on an amount 
equal to the taxable income (but not less than 50 percent of the net 
capital gain) for the taxable year exceeds a tax determined under 
section 1 or 511 on an amount equal to the sum of (A) the amount 
subject to tax under subsection (b) (1) plus (B) an amount equal to 
50 percent of the sum referred to in subsection (b) (2) (A)." 
( C H i ) Section 1201 is amended by striking out subsection 
(d) (defining subsection (d) gain) and by redesignating sub- 
' 
'•••-' 
section (e) as subsection (d). 
(ii) Section 1201(b)(2)(A) (relating to alternative tax 
on noncorporate taxpayers) is amended by striking out "the 
amount of the subsection (d) gain" and inserting in lieu 
thereof "the sum of the long-term capital gains for the taxable 
0 
year, but not to exceed $50,000 ($25,000 in the case of a 
married individual filing a separate return)". 
(iii) Section 1201(b)(3) is amended by striking out "the 
f 
amount of the subsection (d) gain" and inserting in lieu 
' '•' 
thereof "the sum referred to in subparagraph (A)". 
(136) A M E N D M E N T S OF SECTION 1222.— 
(A) Paragraph (9) of section 1222 (relating to definition 
26 USC 1222. 
of terms applicable to capital gains and losses) is amended 
to read as follows: 
"(9) CAPITAL GAIN NET INCOME.—The term 'capital gain net 
income' means the excess of the gains from sales or exchanges of 
capital assets over the losses from such sales or exchanges." 
(B) Paragraph (11) of section 1222 (relating to definition 
of terms applicable to capital gains and losses) is amended 
•^•i'' 
to read as follows: 
"(11) N E T CAPITAL GAIN.—The term 'net capital gain' means 
"Net capital 
the excess of the net long-term capital gain for the taxable year 
gain-" 
over the net short-term capital loss for such year." 
(137) AMENDMENT OF SECTION 1233.—Section 1233(c) (relating 
26 USC 1233. 
to certain options to sell) is amended by striking out "the date 
of enactment of this title" and inserting in lieu thereof "August 
16,1954". 
(138) AMENDMENT OF SECTION 1237.—Section 1237 (relating 
26 USC 1237. 
to real property subdivided for sale) is amended by striking out 
subsection (d) (relating to effective date). 
(139) REPEAL OF SECTION 1240.—Section 1240 (relating to tax- 
26 USC 1240. 
ability to employee of certain termination payments) is repealed. 
(140) AMENDMENT OF SECTION 1245.—Section 1245(b) (7) (B) 
26 USC 1245. 
(relating to transfers to tax-exempt organization M-here property 
will be used in unrelated business) is amended by striking out 
"such organization acquiring such property,". 
(141) AMENDMENT OF SECTION 1240.—Section 1246(f) (relating 26 USC 1246. 
to gain on foreign investment company stock) is amended by 
striking out "beginning after December 31,1962". 
90 STAT. 1788 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 1311. 
26 
use 
1315. 
26 
use 
1321. 
26 use 
1331-1337. 
Effective date. 
26 use 1331 
note. 
26 use 1341, 
26 use 1342. 
26 use 1346. 
26 use 1372. 
Regulations. 
26 use 1374. 
26 use 1375. 
(142) AMENDMENT OF SECTION isii.—Paragraphs (2) (A), (2) 
(B), and (3) of section 1311 (b) (relating to mitigation of effect of 
limitations) are each amended by striking out "Tax Court of the 
United States" and inserting in lieu thereof "Tax Court"'. 
(143) REPEAL OF SECTION isis.—Section 1315 (relating to effec-
tive date of part II of subchapter Q of chapter 1) is repealed. 
(144) REPEAL OF SECTION 1321.—Part III of subchapter Q of 
chapter 1 (relating to involuntary liquidation of LIFO inven-
tories) is repealed. 
(145) REPEAL OF SECTIONS 1331 THROUGH 1337.— 
(A) Part IV of subchapter Q of chapter 1 (relating to war 
loss recoveries) is repealed. 
(B) The repeal by subparagraph (A) shall apply with 
respect to war loss recoveries in taxable years beginning after 
December 31,1976. 
(146) AMENDMENT 
OF SECTION 1341.—Section 1341(b)(2) 
(relating to claim of right) is amended by striking out the last 
sentence. 
(147) REPEAL OF SECTION 1342.—Section 1342 (relating to com-
putation of tax on certain amounts recovered as a result of a patent 
infringement suit) is repealed. 
(148) REPEAL OF SECTION 134 6.—Section 1346 (relating to 
recovery of unconstitutional Federal taxes) is repealed. 
(149) AMENDMENTS OF SECTION 1372.— 
(A) Section 1372(b) (1) (relating to effect of election 
under subchapter S) is amended by striking out "(other than 
the tax imposed by section 1378)" and inserting in lieu there-
of "(other than as provided by section 58(d) (2) and by sec-
tion 1378)". 
(B) Section 1372(c) (relating to subchapter S elections by 
small business corporations) is amended to read as follows: 
"(c) WHERE AND How MADE.—An election under subsection (a) 
may be made by a small business corporation for any taxable year at 
any time during the first month of such taxable year, or at any time 
during the month preceding such first month. Such election shall be 
made in such manner as the Secretary shall prescribe by regulations." 
(C) Section 1372 is amended by striking out subsection 
(g) (relating to certain elections for years beginning before 
1961). 
(150) AMENDMENTS OF SECTION 1374.— 
(A) Section 1374(b) (relating to net operating losses of 
subchapter S corporations) is amended by adding at the end 
thereof the following new sentence: "The deduction allowed 
by this subsection shall, for purposes of this chapter, be con-
sidered as a deduction attributable to a trade or business car-
ried on by the shareholder." 
(B) Subsection (d) of section 1374 (relating to treatment 
of net operating losses of subchapter S corporations) is 
repealed. 
(151) AMENDMENTS OF SECTION 1375.— 
(A) The heading of subsection (b) of section 1375 is 
amended by striking^ out "RECEIVED CREDIT NOT ALLOWED" 
and inserting in lieu thereof "NOT TREATED AS SUCH FOR 
CERTAIN PURPOSES". 
(B) Section 1375 (f) (relating to elections as to certain dis-
tributions) is amended by striking out paragraph (3). 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 178:^ 
,. 
(152) AMENDMENT OF SECTION 1378.^Section 1378(b) (relat- 26 USC 1378. 
ing to the taxation of capital gain in the case of electing small 
business corporations) is amended by striking out the last sentence. 
(153) AMENDMENTS or SECTION 13 8 8.— 
(A) 
Section 1388(c) (2) (B) (i) (relating to patronage 
26 USC 1388. ; 
dividends) is amended by striking out "the date of the enact-
ment of the Kevenue Act of 1962" and inserting in lieu there-
of "October 16,1962". 
(B) Section 1388 (h) (2) (B) (i) (relating to per-unit retain 
certificates) is amended by striking out "the date of the enact-
ment of this subsection" and inserting in lieu thereof "Novem- 
<
, j . 
ber 13, 1966". 
' 
(154) AMENDMENTS OF SECTION 14 O i.— 
(A) Section 1401(a) 
(relating to rate of tax on self- 26 USC 1401. 
employment income) is amended to read as follows: 
"(a) 
OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE.—In addition 
to other taxes, there shall be imposed for each taxable year, on the 
self-employment income of every individual, a tax equal to 7.0 percent 
of the amount of the self-employment income for such taxable year." 
(B) Section 1401 (b) (relating to rate of tax on self-employ-
ment income for hospital insurance) is amended by striking 
out paragraphs (1) and (2) and by redesignating paragraphs 
.. 
f > 
• 
(3), (4), (5), and (6), as paragraphs (1), (2), (3) and (4), 
, 
respectively. 
(155) 
AMENDMENTS OF SECTION I 4 0 2 . — 
(A) Paragraph (1) of section 1402(b) (relating to defini- 
26 USC 1402. 
tion of self-employment income) is amended to read as follows: 
"(1) that part of the net earnings from self-employment which 
is in excess of (i) an amount equal to the contribution and benefit 
base (as determined under section 230 of the Social Security Act) 
42 USC 430, 
which is effective for the calendar year in which such taxable year 
begins, minus (ii) the amount of the wages paid to such individual 
during such taxable years; or". 
(B) Section 1402 amended by striking out subsection (g) 
26 USC\1402, 
(relating to treatment of self-employment income for years 
.^r ; 
prior to 1962), and by redesignating subsections (h) and (i) 
as subsections (g) and (h), respectively. 
(C) 
Section 1402(g)(2) 
(relating to self-employment 
income of members of certain religious faiths), as redesig-
nated by subparagraph (B) of this paragraph, is amended to 
read as follows: 
" (2) T I M E FOR FILING APPLICATIONS.—For purposes of this sub-
section, an application must be filed on or before the time pre-
scribed for filing the return (including any extension thereof) 
for the first taxable year for which the individual has self-employ-
ment income (determined without regard to this subsection or 
subsection (c) ( 6 ) ) , except that an application filed after such date 
but on or before the last day of the third calendar month follow-
ing the calendar month in which the taxpayer is first notified in 
writing by the Secretary that a timely application for an exemp- 
;;•• j,,? ,^. 
tion from the tax imposed by this chapter has not been filed by him 
shall be deemed to be filed timely." 
(156) EEPEAL or SECTION 14 e 5.—Section 1465 (relating to defini- 
26 USC 1465. 
tion of withholding agent) is repealed. 
(157) 
AMENDMENTS OF SECTION I 4 8 I . — 
(A) Section 1481(a)(1)(A) 
(relating to mitigation of 
26 USC 14fil. 
effect of renegotiation of Government contracts) is amended 
9-194 O—78—pt. 2 
21 
90 STAT. 1790 
PUBLIC LAW 94-455—OCT. 4, 1976 
'* ' '' 
/ 
by striking out "within the meaning of the Federal renegotia-
tion act applicable to such transaction" and inserting in lieu 
thereof "within the meaning of the Eenegotiation Act of 
1951, as amended (50 U.S.C. App. 1211 and following)". 
26 use 1481. 
(B) Section 1481(a)(1) (relating to renegotiation) if? 
amended by striking out subparagraph (D). 
(C) Subparagraphs (B) and (C) of section 1481(a) (1) 
are each amended by striking out "applicable Federal rene-
gotiation act" and inserting in lieu thereof "Renegotiation 
Act of 1951, as amended". 
26 use 1551. 
(158) AMENDMENT OF SECTION 155I.—Section 1551(a) (relating 
to disallowance of surtax exemption) is amended by striking out 
"determined under subsection (d)" and inserting in lieu thereof 
"determined under subsection (c)". 
26 use 1552. 
(159) AMENDMENT OF SECTION 1552.—The first sentence of sec-
tion 1552(a) (relating to earnings and profits of an affiliated 
group) is amended by striking out "beginning after December 31, 
> 
1953, and ending after the date of enactment of this title,", 
(b) CONFORMING AND CLERICAL AMENDMENTS.— 
(1) AMENDMENTS CONFORMING TO REPEAL OF SECTIONS 35 AND 
2 4 2 . — 
26 use 36. 
^A) Section 36, as amended by this Act, is amended by 
\' 
striking out "sections 32 and 35" and inserting in lieu thereof 
"section 32". 
26 use 41. 
(B) Section 41(b) (2) is amended by striking out "section 
35 (relating to partially tax-exempt interest),", 
^nte, p. 1580. 
(C) Section 46(a)(3) is amended by striking out sub-
paragraph (B), by inserting "and" at the end of subpara-
graph (A), and by redesignating subparagraph (C) as 
subparagraph (B). 
26 use 50A. 
(D) Section 50A(a)(3) is amended by striking out sub-
paragraph (B) and redesignating subparagraphs (C), (D), 
and (E), as subparagraphs (B), (C), and (D), respectively. 
26 use 171. 
(E) (i) The heading of paragraph (1) of section 171 (a) is 
amended to read "(1) TAXABLE BONDS.—". 
* 
(ii) The heading of paragraph (2) of section 171(a) is 
I 
amended to read "(2) TAX-EXEMPT BONDS.—". 
(iii) Section 171 (a) is amended by striking out paragraph 
(3) and by redesignating paragraph (4) as paragraph (3). 
(iv) Section 171 (b) (1) (B) (ii) is amended by striking out 
"subsection (c)(1)(B)" and inserting in lieu thereof "sub-
section (a)(1)". 
(v) So much of section 171(c) as precedes paragraph (2) 
is amended to read as follows: 
" (c) ELECTION AS TO TAXABLE BONDS.— 
" (1) ELIGIBILITY T
O ELECT ; BONDS WITH RESPECT T
O WHICH ELEC-
TION PERMITTED.—In the case of bonds the interest on which is not 
excludible from gross income, this section shall apply only if 
the taxpayer has so elected." 
26 use 551. 
(F) (i) Section 551 is amended by striking out subsection 
(c), and by redesignating subsections (d), (e), (f), and (g), 
as subsections (c), (d), (e), and (f), respectively. 
26 use 1016. 
(ii) Section 1016(a) (13) is amended by striking out "sec-
tion 551(f)" and inserting in lieu thereof "section 551(e)". 
26 use 584. 
(G) Section 584(c) (2) is amended to read as follows: 
"(2) DIVIDENDS RECEIVED.—The proportionate share of each 
participant in the amount of dividends received by the common 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1791 
trust fund and to which section 116 applies shall be considered 
-.:,,.. 
for purposes of such section as having been received by such 
participant." 
(H) (i) Section 642(a) is amended by striking out para- ^^ ^^^ ^^^ 
graph (1), and by redesignating paragraphs (2) and (3) 
as paragraphs (1) and (2), respectively. 
(ii) Section 41(d) is amended by striking out "section 26 USC 41. 
642(a) (3)" and inserting in lieu thereof "section 642(a) (2)". 
(iii) Section 901(g)(3), as amended by this Act, is 26 USC 901. 
amended by striking out "section 642(a)(2)" and inserting 
in lieu thereof "section 642(a) (1)". 
(I)(i) Section 702(a) is amended by striking out para- 26 USC 702. 
graph (7) and by redesignating paragraphs (8) and (9) as 
paragraphs (7) and (8), respectively. 
(ii) Section 702 (b) is amended by striking out "paragraphs 
• -
^ <
> -^^ *' • 
(1) through (8)" and inserting in lieu thereof "paragraphs 
(1) through (7)". 
(iii) Section 1402(a) is amended by striking out "702(a) 26 USC 1402. 
(9)" each place it appears and inserting in lieu thereof "702 
(a)(8)". 
' 
' 
(J)(i) Section 804(a) is amended by striking out para- 26 USC 804. 
graph (3), and by redesignating paragraphs (4) and (5) as 
paragraphs (3) and (4), respectively. 
(ii) Section 243(b) (3) (C) (iii), as redesignated by para- 26 USC 243. 
graph (21) (A) of this subsection, is amended by striking 
out "sections 804(a)(4)" and inserting in lieu thereof "sec-
tions 804(a)(3)". 
r 
;: 
(iii) Section 804(a) (2) is amended by striking out "para-
graph (5)" and inserting in lieu thereof "paragraph (4)", 
and by striking out "paragraph (4)" and inserting in lieu 
thereof "paragraph (3)". 
(iv) Section 809(d) (10) is amended by striking out "sec- 26 USC 809. 
tion 804(a)(4)", and inserting in lieu thereof "section 804 
(a)(3)". 
(v) Section 1561(a)(3) is amended by striking out "sec- 26 USC 1561. 
tions 804(a) (4)" and inserting in lieu thereof "sections 804 
(a)(3)". 
(vi) Section 1564(a)(1)(C) is amended by striking out 26 USC 1564. 
"sections 804(a) (4)" inserting in lieu thereof "sections 804 
(a)(3)". 
(K) Section 804(a)(2)(A) is amended by striking out 
- '-- ' 
clause (ii), by inserting "and" at the end of clause (i), and 
by redesignating clause (iii) as clause (ii). 
(L) (i) Section 809(d) (8) (A) is amended by striking out 
clause (ii), bjr inserting "and" at the end of clause (i), and 
'^* ' ' ' 
by redesignating clause (iii) as clause (ii). 
(ii) Section 809(d)(8)(B) is amended by striking out 
"subparagraph (A) (iii)" and inserting in lieu thereof "'sub-
paragraph (A)(ii)". 
(M) Sections804(a)(1),804(a)(2),809(a)(1),809(b)(1) 
" ^ 
(A) and 809(b)(2)(A) are each amended by striking out 
^ 
", partially tax-exempt interest,". 
CN) Section 809(e) is amended by striking out paragraph 
f. ^,< 
(6), and by redesignating paragraph (7) as paragraph (6). 
(O) Section 815(b)(2)(A) (iii) is amended by striking 26 USC 815. 
out "the deduction for partially tax-exempt interest, provided 
90 STAT. 1792 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 242. 
by section 242 (as modified bv section 804(a) (3))," and by 
striking out the comma after '^809(d) (8) (B))". 
26 use 822. 
(P) Section 822(c) (2) is amended by striking out "par-
tially tax-exempt interest and". 
(Q) Section 822(c) (6) (A) is amended by striking out "or 
to the deduction provided in section 242 for partially tax-
- ^ 
" 
exempt interest". 
(R) Section 822(c)(7) is amended by striking out "par-
i 
* 
" 
tially tax-exempt interest and to". 
(S) Section 822(d) (2) is amended by striking out ", the 
deduction provided in subsection (c) (1), and the deduction 
' > 
allowed by section 242 (relating to partially tax-exempt 
interest)" and inserting in lieu wiereof "and the deduction 
provided in subsection (c) (1)". 
26 use 832. 
(T) Section 832(c) (5) (A) is amended by striking out "or 
to the deductions provided in section 242 for partially tax-
exempt interest". 
(U) Section 832(c) (12) is amended by striking out "par-
tially tax-exempt interest and to". 
26 use 852, 
(V) Sections 852(b) (1) and 857(b) (1) are each amended 
857. 
by striking out the last sentence. 
26 use 1244. 
(W) Section 1244(c) (1) (E) is amended by striking out 
"sections 172, 242, 243" and inserting in lieu thereof "sections 
" '•' 
172 243". 
26 use 1402. 
(X) Section 1402 (a) (2) is amended by striking out" (other 
than interest described in section 35)". 
26 use 1503. 
(Y) Section 1503(b) (3) is amended by striking out sub-
paragraph (C). 
(Z) The taole of sections for subpart A of part IV of 
subchapter A of chapter 1 is amended by striking out the 
item relating to section 35. 
W8 D?y 
(AA) The table of sections for part VIII of subchapter B 
of chapter 1 is amended by striking out the item relating to 
section 242. 
. 
J 
, 
(2) 
AMENDMENT CONFORMING TO REPEAL OP SECTION 5I.—The 
table of parts for subchapter A of chapter 1 is amended by 
striking out the item relating to part V. 
I^jgl 
(3) AMENDMENTS CONFORMING TO ADDITIONS OF SECTIONS 64 AND 
65.— 
(A) Paragraphs (1)(C), (5) (A), (6)(D), and (12) of 
26 use 341. 
section 341(e) are each amended by striking out "gain from 
the sale or exchange of property which is neither a capital 
asset nor property described in section 1231(b)" each place 
it appears and inserting in lieu thereof "ordinary income". 
26 use 483. 
(B) Section 483(f)(3) is amended by striking out "no 
part of any gain on such" and inserting in lieu thereof "all of 
the gain, if any, on vSuch" and by striking out "gain from the 
sale or exchange of a capital asset or property described in 
section 1231" and inserting in lieu thereof "ordinary income". 
26 use 707. 
(C) Section 707(b)(2) is amended by striking out "as 
gain from the sale or exchange of property other than a capi-
tal asset" and inserting in lieu thereof "as ordinary income". 
26 use 735. 
(D) Paragraphs (1) and (2) of section 735(a) are each 
amended by striking out "gain or loss from the sale or 
;,,; 
^ 
exchange of property other than a capital asset" and inserting 
in lieu thereof "as ordinary income or as ordinary loss, as the 
case may be". 
ti^ll 
M 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1793 
(E) Section 1236 (b) is amended by striking out "loss from 
26 USC 1236. ,• 
the sale or exchange of property which is not a capital asset" 
and inserting in lieu thereof "ordinary loss". 
(F) Sections 1242 and 1243 are each amended by striking 26 USC 1242, 
out "a loss from the sale or exchange of property which is ^243. 
not a capital asset" each place it appears and inserting in 
; ?
t 
lieu thereof "an ordinary loss". 
(G) Section 1244 is amended by striking out "a loss from 
26 USC 1244. 
the sale or exchange of an asset which is not a capital asset" 
each place it appears and inserting in lieu thereof "an ordi-
nary loss". 
(H) Section 1248(g) (3) (B), as redesignated by this Act, 
26 USC 124a. 
is amended by striking out "gain from the sale of an asset 
which is not a capital asset" and inserting "ordinary income". 
(I) The following provisions are each amended by striking 
' 
' ^ '-
out "gain from the sale or exchange of property which is not 
a capital asset" each place it appears and inserting in lieu 
thereof "ordinary income": sections 341(a), 871(a)(1)(C) 
(i) and (ii), 881(a) (3) (A) and (B), 996(d) (1) and (2), 
1037(b)(1) (A), 1232(a) (2) (A) and (B), 1232(c), 1246(a), 
and 1385(c)(2)(C). 
(J) The following provisions are each amended by strik-
ing out "gain from the sale of property which is not a capital 
asset" and inserting in lieu thereof "ordinary income": sec-
tions 306(a) (1) (A), 306(a) (1) (B), and 306(]E). 
(K) The following provisions are each amended by striking 
out "gain from the sale or exchange of property which is 
neither a capital asset nor property described in section 1231" 
each place it appears and inserting in lieu thereof "ordinary 
**.•: ;,:. 
income": sections 80(c) (1), 163(d) (3) and (5), 613(a), 617 
(d) (1), 995(b) (1) (C), 1238, 1245(a) (1), 1249(a), 1250 (f) 
and (g), 1251 (b) (3) (B), (c) (1), and (c) (2), and 1252(a) 
(1). 
(4) 
CLERICAL AMENDMENTS CONFORMING TO ADDITIONS OF SEC- 
>, 
, 
T I O N S 6 4 A N D 6 5 . 
(A) The table of sections for part I of subchapter B of 
chapter 1 is amended by adding at the end thereof the 
following new items: 
"Sec. 64. Ordinary income defined. 
"Sec. 65. Ordinary loss defined." 
(B) The heading for part I of subchapter B of chapter 1 
• -" 
is amended by striking out "AND TAXABLE INCOME" 
and inserting in lieu thereof "TAXABLE INCOME, ETC." 
ETC." 
(C) The table of parts for subchapter B of chapter 1 is 
amended by striking out "and taxable income." in the item 
relating to part I and inserting in lieu thereof "taxable 
income, etc." 
(5) AMENDMENT CONFORMING TO REPEAL OF SECTION 7 6.—The 
table of sections for part II of subchapter B of chapter 1 is 
amended by striking out the item relating to section 76. 
(6) AMENDMENTS CONFORMING TO AMENDMENT OF SECTION IO3.— 
(A) Section 6049(b)(2)(A) is amended by striking out 
26 USC 6049. 
"section 103(a) (1) or (3)" and inserting in lieu thereof 
"section 103(a)". 
90 STAT. 1794 
Post, p. 1930. 
26 use 153, 
154. 
26 use 152. 
26 use 153. 
26 use 117, 
152, 170, 403. 
26 use 103. 
26 use 163. 
26 use 415. 
"Educational 
organization." 
26 use 508. 
26 use 512. 
PUBLIC LAW 94-455—OCT. 4, 1976 
(B) Section 852(a)(1)(B), as added by this Act, is 
amended by striking out "section 103(a) (1)" and inserting in 
lieu thereof "section 103 (a)". 
(7) AMENDMENTS CONFORMING TO AMENDMENT OF SECTION I 4 3 . — 
(A) (i) Part V of subchapter B of chapter 1 is amended 
by striking out section 153 (relating to determination of 
marital status) and by redesignating section 154 as section 
153. 
(ii) The table of sections for part V of subchapter B of 
chapter 1 is amended by striking out the items relating to 
sections 153 and 154 and inserting in lieu thereof the 
following: 
"Sec. 153. Cross references.", 
(B) Section 152(a) (9) is amended b,y striking out "section 
153" and inserting in lieu thereof "section 143". 
(C) Section 153, as redesignated by subparagraph (A) 
of this paragraph, is amended by adding at the end thereof 
the following new paragraph: 
"(5) For deternrination of marital status, see section 143." 
(8) AMENDMENTS CONFORMING TO AMENDMENT OF SECTION I 5 I . — 
(A) The following provisions are each amended by strik-
ing out "educational institution (as defined in section 151 
(e) (4))" each place it appears and inserting in lieu thereof 
"educational organization described in section 170(b)(1) 
(A)(ii)": sections 117(a)(1)(A), 117(b)(1), 117(b)(2), 
152(d), 170(g)(1)(B) (as redesignated by subsection (a) 
(28UA) (i) of this section'), and 403(b) (1) (A) (ii). 
(B) Section 103(c) (3) (A), as redesignated by subsection 
(a) (17) of this section, is amended by striking out "educa-
tional institution (within the meaning of section 151 (e) (4))" 
and inserting in lieu thereof "educational organization 
described in section 170(b) (1) (A) (ii)". 
(C) Section 163(b) (1) is amended h^ striking out "edu-
cational institution (as defined in section 151(e)(4)) and 
which is provided for a student of such institution" and 
inserting in lieu thereof "educational organization described 
in section 170(b) (1) (A) (ii) and which is provided for a 
student of such organization". 
(D)(i) Subparagraphs (A), (B), and (C) of section 415 
(c) (4) are each amended by striking out "educational insti-
tution" each place it appears and inserting in lieu thereof 
"educational organization". 
(ii) Subparagraph 
(D) (ii) of section 415(c)(4) is 
amended to read as follows: 
"(ii) For purposes of this paragraph the term 'edu-
cational organization' means an educational organiza-
tion described in section 170(b) (1) (A) (ii)." 
(iii) Section 415(c) (4) is amended by striking out "EDU-
CATIONAL INSTITUTIONS" from the paragraph heading and 
inserting in lieu thereof "EDUCATIONAL ORGANIZATIONS". 
(E) Section 508(c) (2) (A) is amended to read as follows; 
"(A) educational organizations described in section 170 
(b)(l)(A)(ii),and". 
(F) Section 512(b) (15) (B), as redesignated by section 
1951(b) (8) (A) of this Act, is amended by striking out "edu-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1795 
cational institution (as defined in section 151(e) (4))" and 
^
^ >- -'> 
inserting in lieu thereof "educational organizaticm described 
in section 170(b) (1) (A) (ii)". 
(G) Section 1303(d) is amended by striking out "educa- 26 USC 1303. 
tional institution (as defined in section 151(e) (4))" each 
place it appears and inserting in lieu thereof "educational 
organization described in section 170(b) (1) (A) (ii)". 
(H) Sections 4941(d) (2) (G) (ii) and 4945(g)(1) each 26 USC 4941, 
are amended by striking out "educational institution 4.945. 
described in section 151 (e) (4)" and inserting in lieu thereof 
"educational organization described in section 170(b)(1) 
(AUii)". 
(9) AMENDMENTS CONFORMING TO THE AMENDMENTS OF SECTION 
152.—Section 2(b) (3) (B) is amended by striking out clause (ii), 26 USC 2. 
by adding "or" at the end of clause (i), and by redesignating 
clause (iii) as clause (ii). 
(10) 
A M E N D M E N T CONFORMING TO T H E A M E N D M E N T OF SECTION 
172.— 
(A) Section 374(e) (2) is amended by striking out "sec- Ante, p. 296. 
tion 172(j)" and inserting in lieu thereof "172(g)". 
(B) Section 904(f) (2) (B) (i) and 904(f) (4) (B) (i), as Ante, p. 1624. 
amended by this Act, are each amended by striking out 
"section 172(k)(l)" and inserting in lieu thereof "section 
172(h)". 
(11) AMENDMENTS CONFORMING TO REPEAL OF SECTION IS7.— 
(A) Section 48(a) (8) (relating to section 38 property) is 26 USC 48. 
amended by striking out "187,". 
(B) The table of sections for part VI of subchapter B of 
chapter 1 is amended by striking out the item relating to sec-
tion 187. 
(C) Section 1082(a) (2) (B) (relating to basis for deter- 26 USC 1082. 
mining gain or loss) is amended by striking out "187,". 
(D) Section 1245(a)(2) (relating to gain from disposi- 26 USC 1245. 
tions of certain depreciable property) is amended by strildng 
out "187," each place it appears. 
(12) AMENDMENTS CONFORMING TO THE REPEAL, OF SECTION 342.— 
(A) Section 551 (f), as redesignated by paragraph (1) ^F) 
26 USC 551. 
of this subsection, is amended by striking out paragraph (3). 
(B) The table of subparts for part II of subchapter C of 
chapter 1 is amended by striking out the item relating to 
subpart C and inserting in lieu thereof: 
"Subpart 0, CJollapsible corporations." 
(C) The table of sections for subpart C of part II of sub-
chapter C of chapter 1 is amended by striking out the item 
relating to section 342. 
(D) The heading of subpart C of part II of subchapter 
. ^^ 
C of chapter 1 is amended to read as follows: 
"Subpart C—Collapisible Corporations". 
(13) AMENDMENTS CONFORMING TO THE REPEAL OF SECTION 363.— 
The table of sections for subpart C of part III of subchapter C of 
chapter 1 is amended by striking out the item relating to section 
363. 
(14) AMENDMENTS CONFORMING TO THE REPEAL OF SECTION 373.— 
(A) Section 372(b)(1) is amended by striking out "373 26 USC 372. 
(b) or". 
90 STAT. 1796 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 374. 
(B) Section 374(b) is amended to read as follows: 
«(b) 
BASIS.— 
"(1) RAILROAD CORPORATIONS.—If the property of a railroad 
- 
corporation, as defined in section 77(m) of the Bankruptcy Act 
(11 U.S.C. 205 ( m ) ) , was acquired after December 31, 1938, in 
pursuance of an order of the court having jurisdiction of such 
corporation— 
" (A) in a receivership proceeding, or 
"(B) in a proceeding under section 77 of the Bankruptcy 
Act, 
and the acquiring corporation is a railroad corporation (as 
defined in section 77(m) of the Bankruptcy Act) organized or 
made use of to effectuate a plan of reorganization approved by the 
S ?: 
\ 
court in such proceeding, the basis shall be the same as it would be 
in the hands of the railroad corporation whose property was so 
acquired, increased in the amount of gain recognized under sub-
section (a) (2) to the transferor on such transfer. 
"(2) PROPERTY ACQUIRED BY STREET, SUBURBAN, O
R INTERURBAN 
•" t ^
^ - 
ELECTRIC RAILWAY CORPORATION.—If the property of any street, 
suburban, or interurban electric railway corporation engaged as 
* > i 
a common carrier in the transportation of persons or property in 
interstate commerce was acquired after December 31, 1934, in 
pursuance of an order of the court having jurisdiction of such 
corporation in a proceeding under section 77 of the Bankruptcy 
Act (11 U.S.C. 501 and following), and the acquiring corpora-
ls >
* 
tion is a street, suburban, or interurban electric railway engaged 
as a common carrier in the transportation of persons or property 
in interstate commerce, organized or made use of to effectuate a 
plan of reorganization approved by the court in such proceeding, 
then, notwithstanding the provisions of section 270 of the Bank-
s'- 
'' 
' 
ruptcy Act (11 U.S.C. 670), the basis shall be the same as it would 
be in the hands of the corporation whose property was so 
acquired." 
Ante, p. 295. 
(C) Section 374(c) (3) is amended by striking out "sub-
section ( b ) " and inserting in lieu thereof "subsection (b) 
(1)". 
26 use 1232. 
(D) Section 1232(b) (2) is amended by striking out "sec-
tion 371, 373, or 374" and inserting in lieu thereof "section 
371 or 374". 
(E) The table of sections for part I V of subchapter C of 
chapter 1 is amended by striking out the item relating to sec-
tion 373. 
(15) 
AMENDMENT CONFORMING TO REPEAL or 
SECTIONS 391 
THROUGH 39 5.—The table of parts for subchapter C of chapter 1 
is amended by striking out the item relating to part V I I . 
(16) AMENDMENT CONFORMING TO THE AMENDMENTS OF SECTION 
26 use 381. 
481.—Section 381(c) is amended by striking out paragraph (21). 
(17) AMENDMENT CONFORMING TO THE AMENDMENTS OF SECTION 
545.—Section 381(c) (15) is amended by striking out "subsections 
(b) (7) and (c)" and inserting in lieu thereof "subsection (c)". 
(18) AMENDMENT CONFORMING TO THE REPEAL OF SECTION 583.— 
The table of sections for part I of subchapter H of chapter 1 is 
amended by striking out the item relating to section 583. 
(19) AMENDMENT CONFORMING TO THE REPEAL OF SECTION 592.— 
The table of sections for part I I of subchapter H of chapter 1 is 
.?v; ;„ ,r 
amended by striking out the item relating to section 592. 
*<3M«lp-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1797 
(20) AMENDMENTS CONFORMING TO THE REPEAL OF SECTION 60I.— 
(A) Section 535(b) is amended by striking out paragraph 26 USC 535. 
(8). 
(B) (i) Section 545(b) is amended by striking out para- 26 USC 545. 
graph (6), and by redesignating paragraph (8) as para-
graph (6). 
(ii) Section 545(b) (2) is amended by striking out "para-
graph (8)" and inserting in lieu thereof "paragraph (6)". 
(iii) Section 545(c) (5) is amended by striking out "sub-
section (b)(8)" and inserting in lieu thereof "subsection 
(b)(6)". 
(C) Tlie table of parts for subchapter H of chapter 1 is 
amended by striking out the item relating to part III. 
(21) AMENDMENTS CONFORMING TO THE REPEAL OF SECTION 615.— 
(A) (i) Section 243(b)(3)(C) is amended— 
26 USC 243. 
(I) by striking out clauses (ii) and (iii) and inserting 
in lieu thereof the following: 
"(ii) 
$400,000 limitation for certain exploration 
A 
- = 
expenditures under section 617(h) (1),", and 
(II) by redesignating clauses (iv) and (v) as clauses 
(ill) and (iv), respectively. 
(ii) Section 1564(b) (2) (C) is amended by striking out 26 USC 1564. 
"section 243(b) (3) (C) (v)" and inserting in lieu thereof 
"243(b) (3) (C)(iv)". 
(B) Section 381(c) (10) is amended to read as follows: 
26 USC 381. 
" ( 1 0 ) 
TREAraiKNT OF CERTAIN MINING DEVELOPMENT AND EXPLO-
RATION EXPENSES OF DISTRIBUTOR OR TRANSFEROR CORPORATION.— 
The acquiring corporation shall be entitled to deduct, as if it were 
the distributor or transferor corporation, expenses deferred under 
section 616 (relating to certain development expenditures) if the 
distributor or transferor corporation has so elected. For the pur-
pose of applying the limitation provided in section 617(h), if, for 
any taxable year, the distributor or transferor corporation was 
allowed a deduction under section 617(a), the acquiring corpora-
tion shall be deemed to have been allowed such deduction." 
(C) Section 617(h)(1) is amended by striking out "and 26 USC 617. 
section 615(a) and the amounts which are or have been 
treated as deferred expenses under section 615(b) "and insert- 
•-
ing in lieu thereof "and subsection (a) of section 615 (as in 
elfect before the enactment of the Tax Refonn Act of 1976)". 
(D) Section 617(h)(3) is amended to road as follows: 
"(3) APPLICATION OF P
A
R
A
G
R
A
P
H (2)(B).—Paragraph (2) (B) 
shall apply with respect to all amounts deducted before the latest 
' 
such transfer from the individual or corporation to the taxpayer. 
Paragraph (2) (B) shall apply only if— 
"(A) the taxpayer acquired any mineral property from 
the individual or corporation under circumstances which 
make paragraph (7), (8), (11), (15), (17), (20), or (22) 
of section 113(a) of the Internal Revenue Code of 1939 apply 
to such transfer; or 
"(B) the taxpayer acquired any mineral property from 
the individual or corporation under circumstances which 
make section 334(b), 362 (a) and (b), 372(a), 374(b)(1), 
1051, or 1082 apply to such transfer." 
(E) Section 617 is amended by adding at the end thereof 
the following new subsection: 
"(i) CERTAIN PRE-1970 EXPLORATION EXPENDITURES.—If— 
90 STAT. 1798 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(1) the taxpayer receives mineral property in a transaction as 
.:• .i ^P: 
. 
g, result of which the basis of such property in the hands of the 
transferee is determined by reference to the basis in the hands 
^' 
of the transferor, 
"(2) an election made by the transferor under subsection (e) 
of section 615(e) (as in effect before the enactment of the Tax 
Keform Act of 1976) applied with respect to expenditures which 
were made by him and which were properly chargeable to such 
property, and 
"(3) the taxpayer has made or makes an election under subsec-
tion (a), 
then in the application of this section with respect to the transferee, 
the amounts allowed as deductions under such section 615 to the 
transferor, which (but for the transferor's election) would be reflected 
.i-M r);-! J 
in the adjusted basis of such property in the hands of the transferee, 
shall be treated as expenditures allowed as deductions under subsection 
(a) to the transferor." 
26 use 703. 
(F) Section 703 (b) is amended by striking out "under sec-
tion 615 (relating to pre-1970 exploration expenditures),". 
26 use 1016. 
((J) Section 1016(a) is amended by striking out paragraph 
(10). 
..-•' i :••" 'r: 
(H) The table of sections for part I of subchapter I of 
chapter 1 is amended by striking out the item relating to sec-
tion 615. 
(22) AMENDMENTS CONFORMING TO THE REPEAL OF SECTION 63 2.— 
(A) The table of sections for part III of subchapter I of 
chapter 1 is amended by striking out the item relating to 
section 632. 
26 use 5. 
(B) Section 5(b) is amended by striking out paragraph 
(1). 
(23) A M E N D M E N T CONFORMING TO THE REPEAL OF SECTION 771.— 
The table of parts for'subchapter K of chapter 1 is amended by 
striking out the item relating to part IV. 
(24) 
AMENDMENT CONFORMING TO THE AMENDMENT OF SECTION 
26 use 815. 
802.—Section 815(c) (3) (B) is amended by striking out "(deter-
mined without regard to section 802(a) (3))". 
(25) 
AMENDMENT CONFORMING TO THE AMENDMENT OF SECTION 
26 use 844. 
812.—Section 844(b)(2) is amended by striking out "section 
812(b) (1) (A) (iii)" and inserting in lieu thereof "section 812 
(b)(1)(C)". 
(26) 
AMENDMENTS CONFORMING TO THE AMENDMENTS OF SECTION 
8 6 4 . — 
26 use 861. 
(A) Paragraphs (5) and (6) of section 861(a) (relating 
to items treated as income from within United States) are 
each amended by striking out in the heading "SALE" and 
,^ 
inserting in lieu thereof "SALE OR EXCHANGE", and by striking 
out "sale" in the text and inserting in lieu thereof "sale or 
exchange". 
(B) Section 861(e)(1) (relating to income from certain 
aircraft and vessels) is amended by striking out "sale or other 
disposition" and inserting in lieu thereof "sale, exchange, or 
other disposition". 
26 use 862. 
(C) Paragraphs (5) and (6) of section 862(a) (relating 
to items treated as income from without the United States) 
26 use 863, 
and paragraphs (2) and (3) of section 863(b) (relating to 
sources of income) are each amended by striking out "sale" 
and inserting in lieu thereof "sale or exchange". 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1799 
(D) Paragraph (2) of section 863(b) (relating to sources 26 USC 863. 
of income) is amended by striking out "sold" each place it 
appears and inserting in lieu thereof "sold or exchanged". 
(27) 
AMENDMENTS CONFORMING TO THE REPEAL OF JSECTION 
972.— 
(A) Section 970(b)(1) (relating to inclusion of certain 26 U
S
C 970. 
previously excluded amounts of subpart F income) is 
amended by striking out "application of section 972" and 
inserting in lieu thereof "treatment (under section 972 as in 
effect before the date of the enactment of the Tax Reform , 
Act of 1976) of two or more controlled foreign corporations 
which are export trade corporations as a single controlled ' 
•^•' ' • 
foreign corporation". 
(B) The table of sections for subpart G of part III of 
subchapter N of chapter 1 is amended by striking out the 
item relating to section 972. 
(28) AMENDMENTS CONFORMING TO THE AMENDMENT OF SECTION 
1001.— 
(A) Subsection (c) of section 331 is amended to read as 26 USC 331. 
follows: 
"(c) 
CROSS REFERENCE.— 
"For general rule for determination of the amount of gain or loss 
recognized, see section 1001." 
(B;) (i) Section 1002 (relating to recognition of gain or 26 USC 1002. 
loss) is repealed. 
(ii) The table of sections for part I of subchapter O of 
chapter 1 is amended by striking out the item relating to sec-
tion 1002. 
(29) 
AMENDMENTS CONFORMING TO THE REPEAL OF SECTION 
1020.— 
(A) The third sentence of subsection (a) of section 1016 is 26 U
S
C 101 
amended by striking out "under section 1020" and inserting 
- \ 
in lieu thereof "under section 1020 (as in effect before the 
| 
date of the enactment of the Tax Reform Act of 1976)". 
Ante, p. 1520| 
(B) The table of sections for part II of subchapter O of 
-. ' 
chapter 1 is amended by striking out the item relating to 
; 
j 
section 1020. 
i 
(30) 
AMENDMENTS CONFORMING TO THE REPEAL OF SECTION 
1022.— 
i 
(A) Section 1016(a) is amended— 
(i) by striking out paragraph (21), and 
(ii) by redesignating paragraphs (20) and (22) as 
paragraphs (19) and (20), respectively. 
(B) The amendment made by subparagraph (A) (i) shall 
apply with respect to stock or securities acquired from a 
decedent dying after the date of the enactment of this Act. 
(C) The table of sections for part II of subchapter O 
of chapter 1 is amended by strikmg out the item relating 
to section 1022. 
(31) 
AMENDMENTS CONFORMING TO AMENDMENTS OF SECTION 
1033.— 
(A) Section 1260(d)(4)(B) is amended by striking out 26 USC 1250; 
"1033(a) (3) (A)" and inserting in lieu thereof "1033(a) (2) 
(B) Section 1250(d)(4) (C) and (D) are each amended 
by striking out "1033(a) (3)" and inserting in lieu thereof 
"1033(a)(2)". 
; 
,
1 
26 USC 1016 
26 USC 1016; 
note. 
90 STAT. 1800 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 6212. 
(C) Section 6212(c) (2) (B) is amended by striking out 
"1033(a)(3) (C) and (D)" and inserting in lieu thereof 
"1033(a)(2) (C)and(D)". 
26 use 6504. 
(D) Section 6504(4) is amended by striking out "1033(a) 
(3) (C) and (D)" and inserting in lieu thereof "1033(a) (2) 
(C)and(D)". 
26 use 1071, 
(E) 
Sections 1071(b) and 1250(d) (4) (]>) are each 
1250. 
amended by striking out "1033(c)" and inserting in lieu 
thereof "1033(b)". 
(32) 
AMENDMENTS CONFORMING TO THE REPEAL OF SECPION 
1 1 1 1 . — 
26 use 301. 
(A) Section 301 is amended by striking out subsection (f), 
and by redesignating subsection (g) as subsection (e). 
26 use 312. 
(B) (i) Section 312 is amended by striking out subsection 
(k), and by redesignating subsections (1) and (m) as subsec-
tions (j) and (k),respectively. 
26 use 1246. 
(ii) Section 1246(g) is amended by striking out "312(1)" 
and inserting in lieu tnereof "312 (j)". 
26 use 964, 
(iii) Sections 964(a) and 1248(c) (1) are each amended by 
1248. 
striking out "312(m) (3)" and inserting in lieu thereof "312 
(k)(3)". 
Ante, p. 1608. 
(iv) Subsection (d) of section 1377, as added by this Act, 
is amended by striking out "312(m)" and inserting in lieu 
thereof "312 (k)". 
26 use 535. 
(C) Section 535 (b) is amended by striking out paragraphs 
(9) and (10). 
26 use 543. 
(D) Section 543(a) (1) is amended by inserting "and" at 
the end of subparagraph (A), and by striking out sub-
paragraphs (B) and (C) and inserting in lieu tnereof the 
following: 
"(B) interest on amounts set aside in a reserve fund under 
section 511 or 607 of the Merchant Marine Act, 1936 (46 
U.S.C. 1161 or 1177)." 
26 Use 545. 
(E) Section 545 (b) is amended by striking out paragraphs 
(10) and (11). 
26 use 553. 
(F^ Section 553(a) (1) is amended to read as follows: 
"(1) 
DIVIDENDS, ETC.—^Dividends, interest, royalties, and 
annuities." 
26 use 556. 
(G) Section 556(b) is amended by striking out paragraphs 
(7) and (8). 
26 use 561. 
(H) Section 561 (b) is amended to read as follows: 
"(b) SPECIAL RULES APPLICABLE.—In determining the deduction for 
dividends paid, the rules provided in section 562 (relating to rules 
applicable in determining dividends eligible for dividends paid deduc-
tion) and section 563 (relating to dividends paid after the close of the 
taxable year) shall be applicable." 
(I) The table of parts for subchapter O of chapter 1 is 
amended by striking out the item relating to part IX. 
(33) 
AMENDMENTS CONFORMING TO AMENDMENT OF SECTION 
1222.— 
26 use 57. 
(A) Section 57(a) (9) (A) is amended by striking out "the 
amount by which the net long-term capital gain exceeds the 
• 
net short-term capital loss" and inserting in lieu thereof "the 
net capital gain". 
(B) So much of the first sentence of section 57(a) (9) (B) 
as precedes "by a fraction" is amended to read as follows; "In 
the case of a corporation having a net capital gain for the 
PUBLIC LAW 94-455~OCT. 4, 1976 
90 STAT. 1801 
taxable year, an amount equal to the product obtained by 
multiplying the net capital gain". 
(C) Section 527(b)(2) is amended by striking out "net 26 USC 527. 
section 1201 gain" and inserting in lieu thereof "net capital 
gain". 
(D) Sections 535 (b) (6) and 545 (b) (5) are each amended— 26 USC 535, 
(1) by striking out from the paragraph heading ^'^^' 
"LONG-TERM" and inserting in lieu thereof "NET", 
(2) by striking out from the text "the excess of the net 
long-term capital gain for the taxable year over the net 
short-term capital loss for such year" each place it 
appears and inserting in lieu thereof "the net capital gain 
for the taxable year", and 
(3) by striking out from the text "such excess" each 
f
'
"
- -
^ '-
place it appears and inserting in lieu thereof "such net 
capital gain". 
(E) Section 802(a) (2) is amended— 
^ 
26 USC 802. 
(i) by striking out "the net long-term capital gain of 
any life insurance company exceeds the net short-term 
capital loss" and inserting in lieu thereof "any life insur- 
''^ •'' • 
ance company has a net capital gain", and 
(ii) by striking out "such excess" each place it appears 
and inserting in lieu thereof "such net capital gam". 
(F) Section 804(a)(2) is amended by striking out "by 26 USC 804. 
which the net long-term capital gain exceeds the net short-
term capital loss" and inserting m lieu thereof "of the net 
capital gain". 
(G) Sections 809(b)(1)(B) and 809(b) (2) (B) are each 26 USC 809. 
amended by striking out "by which the net long-term capital 
gain exceeds the net short-term capital loss" and inserting in 
lieu thereof "of the net capital gain". 
(H) Section 815 (b) (2) (A) (ii) is amended by striking out 26 USC 815. 
"by which the net long-term capital gain exceeds the net short-
term capital loss" and inserting in lieu thereof "of the net 
capital gain". 
(I) Section 852(b)(2)(A) is amended by striking out 26 USC 852. 
"the excess, if any, of the net long-term capital gain over the 
net short-term capital loss" and inserting in lieu thereof "the 
amount of the net capital gain, if any". 
(J) (i) Section 852(b)(3)(A) is amended to read as 
follows: 
"(A) IMPOSITION OF TAX.—There is hereby imposed for 
each taxable year in the case of every regulated investment 
company a tax, determined as provided in section 1201 (a), on 
the excess, if any, of the net capital gain over the deduction 
for dividends paid (as defined in section 561) determined 
'
^ 
with reference to capital gain dividends only." 
(ii) The second sentence of section 852(b) (3) (C) is 
amended by striking out "excess of the net long-term capi-
tal gain over the net short-term capital loss" each place it 
appears and inserting in lieu thereof "net capital gain". 
(K) The second sentence of section 857(b)(3)(C) is 26 USC 857. 
amended by striking out "excess of the net long-term capital 
gain over the net short-term capital loss" each place it appears 
• ^ 
and inserting in lieu thereof "net capital gain". 
(L) Section 1201(b) is amended by striking out "net sec- 26 USC 1201. 
tion 1201 gain" each place it appears and inserting in lieu 
thereof "net capital gain". 
90 STAT. 1802 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 1202. 
(M) The first sentence of section 1202 is amended to read 
as follows: "If for any taxable year, a taxpayer other than a 
corporation has a net capital gain, 50 percent of the amount of 
the net capital gain shall be a deduction from gross income." 
26 use 381, 
(N) Sections 381(c) (3) (B), 381(c) (3) (C), 852(d), 4940 
852, 4940. 
(c) (1), and 4940 (c) (4) axe each amended by striking out "net 
capital gain" and inserting in lieu thereof "capital gain net 
income". 
26 use 1212. 
(O) Section 1212(a) (1) is amended by striking out "net 
capital gain" each place it appears and inserting in lieu 
thereof "capital gain net income", and by striking out "net 
capital gains" and inserting in lieu thereof "capital gain net 
income". 
26 use 1247, 
(P) Section 1247(a)(1)(B) is amended by striking out 
"the excess (determined as if such corporation were a domestic 
corporation) of the net long-term capital gain over the net 
' 
' • • 
short-term capital loss" and inserting in lieu thereof "the 
amount (determined as if such corporation were a domestic 
corporation) of the net capital gain". 
26 use 1375. 
(Q)(i) Section 1375(a)(1) is amended by striking out 
*'the excess of the corporation's net long-term capital gain 
over its short-term capital loss" and inserting in lieu thereof 
"the corporation's net capital gain". 
.1)8 .")>:; : 
(ii) The second sentence of section 1375(a) (1) is amended 
by striking out "such excess" and inserting in lieu thereof 
"such net capital gain". 
(iii) Section 1375(a) (3) is amended by striking out "the 
'*' 
excess of an electing small business corporation's net long-
term capital gain over its net short-term capital loss" and 
inserting in lieu thereof "an electing small business corpora-
tion's net capital gain". 
(R) The following provisions are each amended by strik-
ing out "the excess of the net long-term capital gain over the 
net short-term capital loss," and inserting in lieu thereof "the 
26 use 1247, 
net capital gain": Sections 1247(a) (2) (A) (i), 1247(a) (2) 
1378. 
(C), 1247(d) (1) and (2), 1378(a) (1), 1378(b) (1), and 1378 
(c)(3). 
(34) AMENDMENT CONFORMING TO THE REPEAL or SECTION 1240.— 
The table of sections of part IV of subchapter P of chapter 1 is 
amended by striking out the item relating to section 1240. 
(35) AMENDMENT CONFORMING TO THE REPEAL OF SECTION 1315.-— 
The table of sections for part II of subchapter Q of chapter 1 is 
amended by striking out the item relating to section 1315. 
(36) 
AMENDMENTS CONFORMING TO THE REPEAL OF SECTION 
1321.— 
26 use 472. 
(A) Section 472 is amended by striking out subsection (f). 
26 use 6422. 
(B) Section 6422, as amended by this Act, is amended by 
striking out paragraph (2), and by redesignating paragraphs 
(3) through (13) as paragraphs (2) through (12), 
respectively. 
(C) Section 6504 is amended by striking out paragraph 
Po5(, p. 1829. 
(1). 
(D) Section 6515 is amended by striking out paragraph 
Post, f. 1803. 
(1). 
(E) The table of parts for subchapter Q of chapter 1 is 
amended by striking out the item relating to part III. 
(37) AMENDMENTS CONFORMING TO THE REPEAL OF SECTIONS 1331 
THROUGH 1337.— 
,, 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1803 
.--..= 
(A) The third sentence of section 901(a) is amended by 26USC901. 
striking out "under section 1333 (relating to war loss 
recoveries) or". 
„; 
(B) 
Section 936(a)(2), as added by this Act, is 26USC936. 4 
amended— 
(i) by inserting "or" at the end of subparagraph (C), 
and 
(ii) by striking out subparagraph (D). 
(C) Section 6212(c),(2) is amended by striking out sub- 26 USC 6212. 
paragraph (D). 
(D) Section 6515 is amended by s<^iking out paragraph 26 U
S
C 6515. 
1 . 4 
-.. ( 6 ) . 
(E) Section 6515, as amended by this Act,_is amended by 
striking out paragraph (2), and by redesignating paragraphs 
(3), (4), (5), (6), (Y),and (8) as paragraphs (1), (2), (3), 
(4), (5),and (6) respectively. 
(F) The table of parts for subchapter Q of chapter 1 is 
amended by striking out the item relating to part IV. 
(38) A M E N D M E N T CONFORMING TO THE REPEAL OF SECTION 1342.— 
The table of sections for part V of subchapter Q of chapter 1 is 
amended by striking out the item relating to section 1342. 
(39) 
AMENDMENTS CONI*ORMING TO THE REPEAL OF SECTION 
1346.— 
(A) The table of sections for part VI of subchapter Q of 
• 
chapter 1 is amended by striking out the item relating to sec-
tion 1346. 
- 
(B) Section 6504 is amended by striking out paragraph Post, p. 1829. > 
(7). 
(40) 
AMENDMENT CONFORMING TO AMENDMENT OF SECTION 
1372.—Section 58(d) (2) is amended by striking out ", notwith- 26 USC 58. 
standing the provisions of section 13Tl(b) (1),". 
(41) 
AMENDMENT CONFORMING TO THE REPEAL OF SECTION 
1465.—The table of sections for subchapter C of chapter 3 is 
amended by striking out the item relating to section 1465. 
(c) 
AMENDMENTS TO PROVISIONS EEFERRINQ TO TERRITORIES.— 
(1) Section 37(f) is amended by striking out "a Territory,", ^nte, p. 1559. 
(2) Sections 105(e) (2), 273, and 454(b) (2) are each amended 26 USC 105, 
by striking out", a Territory,". 
273, 454. 
(3) Section 117(b) (2) (A) (iv) is amended by striking out "a 26 USC 117. 
territory,". 
(4) Section 162(a) is amended b^ striking out "territory". 
26 USC 162. 
(5) Section 581 is amended by striking out ", of any State, or 26 USC 581. 
of any Territory" and inserting in lieu thereof "or of any State", 
and by striking out", Territorial,". 
(6) Section 801(b)(3) 
is amended by striking out "or 26 USC 801. 
Territorial". 
(7) Section 861(a) (1) is amended by striking out ", any Ter- 26 USC 861. 
ritorv, any political subdivision of a Territory,". 
(8) Paragraphs (6) and (7) of section 1014(b) are each 26 USC 1014., 
amended by striking out "Territory,". 
(9) Section 1221 (5) is amended by striking out "or Territory,". 26 USC 1221. 
(d) EFFECTIVE DATE.—Except as otherwise expressly provided in 26 USC 2 note, 
this section, the amendments made by this section shall apply with 
respect to taxable years beginning after December 31,1976. The amend-
ments made by subsections (a) (29) and (b) (10) shall apply with 
respect to taxable years ending after the date of the enactment of this 
Act. 
"(d) ( 
90 STAT. 1804 
PUBLIC LAW 94-455—OCT. 4, 1976 
SEC. 1902. AMENDMENTS OF SUBTITLE B; ESTATE AND GIFT TAXES. 
(a) I N GENERAL.— 
(1) 
A M E N D M E N T S OF SECTION 2012.— 
26 use 2012. 
(A) Section 2012(b) (relating to credit for gift tax) is 
amended— 
(i) by striking out "(b) I n applying," and inserting 
in lieu thereof "(b) VALUATION KEDUCTIONS.—In apply-
ing,", and 
-/ 
' 
(ii) by striking out in paragraphs (2) and (3) "deduc-
tion)—then" and inserting in lieu thereof "deduction), 
• ' 
"- 
then". 
(B) Section 2012(c) (relating to gift by spouse or third 
party) is amended by striking out "(c) Where the decedent" 
and inserting in lieu thereof "(c) WHERE G I F T CONSIDERED 
MADE. O N E - H A L F BY SPOUSE.—^Where the decedent". 
(G) Section 2012(d)(1) 
(relating to computation of 
aMount of gift tax) is amended by striking out "(d) (1) For 
//purposes of" and inserting in lieu thereof the following: 
COMPUTATION OF AMOUNT OF G I F T TAX PAID.^— 
•(1) AMOUNT OF TAX.—For purposes of". 
(D) Section 2012(d) (2) (relating to credit for gift tax) 
is amended by striking out "(2) For purposes" and inserting 
in lieu thereof: "(2) AMOUNT OF GIFT.—^^For purposes". 
26 use 2013. 
(2) AMENDMENTS OF SECTION 2013.—Section 2013(d)(3) is 
amended by striking out ", or the corresponding provision of 
prior law,". 
26 use 2038. 
(3) AMENDMENT OF SECTION 2038,—Section 2038 (relating to 
revocable transfers) is amended by striking out subsection (c) 
(relating to effect of disability in certain cases). 
(4) AMENDMENTS OF SECTION 2055.— 
26 use 2055. 
( ^ ) Section 2055 (b) (relating to powers of appointment) 
is amended to read as follows: 
"(b) POWERS OF APPOINTMENT.—Property includible in the dece-
dent's gross estate under section 2041 (relating to powers of appoint-
ment) received by a donee described in this section shall, for purposes 
of this section, be considered a bequest of such decedent." 
(B) 
Section 2055(f) 
(relating to cross references) is 
amended to read as follows: 
(f) CROSS REFERENCES.— 
"(1) For option as to time for valuation for purpose of deduction 
under this section, see section 2032. 
"(2) For exemption of gifts and bequests to or for the benefit of 
Library of Congress, see section 5 of the Act of March 3, 1925, as 
amended (2 U.S.C. 161). 
"(3) For treatment of gifts and bequests for the benefit of the OflBce 
r 
of Naval Records and History as gifts or bequests to or for the use 
of the United States, see section 7222 of title 10, United States Code. 
"(4) For treatment of gifts and bequests to or for th« benefit of 
National Park Foundation as gifts or bequests to or for the use of the 
United States, see section 8 of the Act of December 18, 1967 (16 
16 use 19Z. 
U.S.C. 191). 
(5) For treatment of gifts, devises, or bequests accepted by the 
Secretary of State under the Foreign Service Act of 1946 as gifts, 
devices, or bequests to or for the use of the United States, see section 
t^/r 
1021 fe) of that Act (22 U.S.C. 809(e)) . 
"(6) For treatment of gifts or bequests of money accepted by the 
Attorney General for credit to 'Commissary Funds, Federal Prisons,* 
as gifts or bequests to or for the use of the United States, see section 
2 of the Act of May 15, 1952, as amended by the Act of July 9, 1952 
(31 U.S.C. 725S-4). 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1805 
' 
"(7) For payment of tax on gifts and bequests of United States obli-
gations to the United States, see section 24 of the Second Liberty 
Bond Act (31 U.S.C. 757e). 
"(8) For treatment of gifts and bequests for benefit of the Naval 
Academy as gifts or bequests to or for the use of the United States, 
see section 6973 of title 10, United States Code. 
"(9) For treatment of gifts and bequests for benefit of the Naval 
Academy Museum as gifts or bequests to or for the use of the United 
States, see section 6974 of title 10, United States Code. 
"(10) For exemption of gifts and bequests received by National 
Archives Trust Fund Board, see section 2308 of title 44, United States 
Code." 
(5) AMENDMENTS OF SECTION 2106.— 
(A) Section 2106(a) (2) ( F ) (relating to cross references 26 USC 2106. 
concerning the charitable deduction for estate tax purposes) 
is amended to read as follows: 
" ( F ) 
CROSS REFERENCES.— 
"(1) For option as to time for valuation for purposes of deduc- 
N 
tion under this section, see section 2032. 
"(2) For exemption of certain bequests for the benefit of the United 
States and for rules, of construction for certain bequests, see sec- 
.,..;• -': -
tion 2C55(f)." 
(B) Section 2106 (relating to taxable estate of nonresi-
dents) is amended by striking out subsection (c) (relating to 
^ '^- 
" -• ''"'-
treatment of United States bonds). 
^' 
(6) AMENDMENT OF SECTIONS 2107 AND 2108.—Section 2107(a) 
(relating to estate tax on expatriates) and section 2108(a) (relat- 26 USC 2107, 
ing to application of pre-1967 estate tax provisions) are each 2108. 
amended by striking out "the date of enactment of this section" 
and inserting in lieu thereof "November 13,1966", 
(7) AMENDMENT RELATING TO SECTION 2201.— 
(A) Section 6(b) (1) of the Act of January 2,1975 (Pub-
lic Law 93-597; 88 Stat. 1950) is amended by striking out 26 USC 2201. 
"Section 2210" and inserting in lieu thereof "Section 2201". 
(B) The amendment made by subsection (A) is effective 26 USC 2201 
July 1,1973. 
not«-
(8) REPEAL OF SECTION 2202.—Section 2202 (relating to mis- 26 USC 2202. 
sionaries in foreign service) is repealed. 
(9) AMENDMENT OF SECTION 2204.—The last sentence of sec-
tion 2204(b) (relating to the discharge from personal liability of 26 USC 2204. 
a fiduciary other than the executor) is amended by striking out 
"has not been" and inserting in lieu thereof "has been". 
(10) AMENDMENT OF SECTION 2501.—Section 2501 (a) (1) (relat- 
26 USC 2501. 
ing to imposition of gift tax) is amended to read as follows: 
"(1) GENERAL RULE.—A tax, computed as provided in section 
2502, is hereby imposed for each calendar quarter on the transfer 
of property by gift during such calendar quarter by any individ-
ual, resident or nonresident." 
(11) AMENDMENT OF SECTION 2522.—Subsection (d) of section 26 USC 2522. 
2522 (relating to cross references) is amended to read as follows: 
" ( d ) CROSS REFERENCE.— 
"For exemption of certain gifts to or for the benefit of the United 
States and for rules of construction with respect to certain gifts, see 
section 2055(f).'' 
(12) AMENDMENTS T
O SECTIONS REFERRING TO TERRITORIES.— 
(A) The following provisions are each amended by strik-
ing out "Territory,'^: sections 2055(a) (1), 2056(c) (2) ( B ) , 26 USC 2055, 
and 2106(a) (2) (A) (i). 
2056,2106. 
89-194 O—78—pt. 2 
22 
90 STAT. 1806 
PUBLIC LAW 94-455—OCT. 4, 1976 
-4 
(B) The following provisions are each amended by strik-
26 use 2011, 
ing out "or Territory": sections 2011(a), 2011(e), and 2053 
2053. 
((J) 
26 use 2016. 
(C) Section 2016 is amended by striking out "Territory 
or". 
26 use 2522. 
(D) 
Sections 2522(a)(1) 
and 2522(b)(1) 
are each 
amended by striking out "Territory,". 
26 use 2523. 
(E) Section 2523(f) (1) is amended by striking out "Ter-
ritory, or". 
. 
(b) CONFORMING AND CLERICAL AMENDMENTS.— 
(1) AMENDMENT CONFORMING TO REPEAL OF SECTION 2202.—^The 
' i' 
table of sections for subchapter C of chapter 11 is amended by 
striking out the item relating to section 2202. 
(2) AMENDMENTS CONFORMING TO AMENDMENT OF SECTION 2055.— 
26 use 6503. 
(A) Section 6503, as amended by this Act, is amended by 
striking out subsection (e), and by redesignating subsections 
(f), (g), (h),and (i) as subsections (e), (f), (g), and (h), 
respectively. 
26 use 6167. 
(B) Section 6167(h) (2) is amended by striking out "sec-
tion 6503(f)" and inserting in lieu thereof "section 6503(e)". 
(c) EFFECTIVE DATES.— 
26 use 2011 
(1) ESTATE TAX AMENDMENTS.—The amendments made by 
note. 
paragraphs (1) through (10), and paragraphs (14) (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 (11) of sub-
section (a) shall apply in the case of estates of decedents dying 
after December 31,197*0. 
26 use 2501 
(2) GIFT TAX AMENDMENTS,—^The amendments made by para-
note- 
graphs (12), (13), and (14) (D) and (E) of subsection (a) shall 
apply with respect to gifts made after December 31, 1976. 
SEC. 1903. AMENDMENTS OF SUBTITLE C; EMPLOYMENT TAXES. 
(a) I N GENERAL.— 
(1) AMENDMENTS OF SECTIONS 3101 AND 3111,— 
26 use 3101. 
(A) Section 3101(a) (relating to rate of tax on employees 
for old-age, survivors, and disability insurance) and section 
26 use 3111. 
3111 (a) (relating to rate of tax on employers for such insur-
ance) are each amended by striking out paragraphs (1), (2), 
(3), and (4), and by redesignating paragraphs (5) and (6) 
. ,j,. ;;,,„ , 
as paragraphs (1) and (2),respectively. 
•' ' 
' 
" 
(B) Section 3101(b) (relating to rate of tax on employees 
for hospital insurance) and section 3111(b) (relating to rate 
of tax on employers for such insurance) are each amended 
) 
by striking out paragraphs (1) and (2), and by redesignat-
ing paragraphs (3), (4)j (5), and (6) as paragraphs (1), 
(2), (3), and (4), respectively. 
26 use 3113. 
(2) REPEAL OF SECTION 3113.—Section 3113 (relating to appli-
cation of social security tax on District of Columbia credit unions) 
is repealed. 
(3 ) AMENDMENTS OF SECTION 3121.— 
26 use 3121. 
(A) 
Section 3121(b) 
(relating to employment) 
is 
amended-— 
(i) by striLing out "performed after 1936 and prior to 
1955 which was employment for purposes of subchapter 
A of chapter 9 of the Internal Revenue Code of 1939 
under the law applicable to the period in which such 
service was performed, and any service, of whatever 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1807 
m- Bfi?tf i 
nature, performed after 1954" and inserting in lieu 
thereof ", of whatever nature, performed", and 
f 
'>« 
(ii) by striking out ", in the case of service performed 
after 1954 ". 
(B) Section 3121(b)(1) is amended by striking out "65 26 USC 3121. 
Stat. 119;". 
(C) Section 3121(b) (6) (B) (v) is amended by striking 
'- 
out "Secretary of the Treasury" and inserting in lieu thereof 
'f 
"Secretary of Transportation". 
^ - • * ""i 
(D) Section 3121(g)(3) (relating to agricultural labor) 
il. < 
is amended by striking out "46 Stat. 1550, § 3;". 
(E) Section 3121 (k) (1) (relating to exemption of certain 
organizations) is amended by striking out subparagraphs 
(F) and (H) and by redesignating subparagraph (G) as 
subparagraph (F). 
(F) Section 3121(1) (2) (relating to employees of foreign 
subsidiaries) is amended by striking out", but in no case prior 
HH-, 
to January 1, 1955". 
(G) Section 3121 (m)(l) (relating to service in the uni-
formed services) is amended by striking out "after Decem-
ber 1956". 
(4) AMENDMENTS OF SECTION 3122.—The last sentence of section 
3122 (relating to Federal service) is amended by striking out 26 U
S
C 3122. 
"Secretary" each place it appears and inserting in lieu thereof 
"Secretary of Transportation". 
(5) AMENDMENT or SECTION 3125.—Section 3125(c) (relating 26 USC 3125. 
to returns in the case of Governmental employees in the District 
of Columbia) is amended by striking out "Commissioners of the 
District of Columbia or such agents as they may designate" and 
by inserting in lieu thereof "Mayor of the District of Columbia 
or such agents as he may designate". 
(6) AMENDMENT OF SECTION 3201.—Section 3201 (relating to 26 USC 3201. 
rate of tax on railroad employees) is amended— 
(A) by striking out "of the Internal Revenue Code of 1954" 
each place it appears; 
•.(,0 
(B) by striking out "of such Code"; 
(C) by striking out "after September 30, 1973, as is" and 
3i ' 
inserting in lieu thereof "as is"; and 
(D) by striking out "any month after September 30,1973" 
• ? 
and inserting in lieu thereof "any month". 
(7) AMENDMENTS OF SECTION 3202.— 
• (A) The second sentence of section 3202(a) (relating to 26 USC 3202. 
reduction of tax by railroad employer) is amended— 
(i) by striking out "after September 30, 1973," each 
place it appears; 
(ii) by striking out "after September 30, 1973 and 
the aggregate" and inserting in lieu thereof "and the 
aggregate"; 
' ' y.;' ' 
(iii) by striking out "of the Internal Revenue Code of 
; 
>;; 
• ;
4 
1954" each place it appears; and 
(iv) by inserting a comma immediately after "for any 
month" each place it appears. 
(B) Section 3202(b) 
(relating to indemnification of 
! 
employer) is amended by striking out "made". 
(8) AMENDMENTS OF SECTION 3211.—Section 3211(a) (relating 26 USC 3211. 
to rate of tax on railroad employee representatives) is amended— 
90 STAT. 1808 
PUBLIC LAW 94-455--0CT. 4, 1976 
){> 
(A) by striking out "3111(a), 3111(b)" and inserting in 
lieu thereof "3111 (a), and 3111 (b)"; 
(B) by striking out "of the Internal Kevenue Code of 
1954" each place it appears; 
'" '•'• • "-' 
; 
(C) by striking out "rendered by him after September 30, 
1973," and inserting in lieu thereof "rendered by him"; and 
(D) by striking out "after September 30, 1973". 
(9) AMENDMENTS or SECTION 3221.— 
26 use 3221. 
(A) The first sentence of section 3221 (a) (relating to rate 
• 
of tax on railroad employers) is amended— 
(i) by striking out "after September 30, 1973," each 
place it appears; 
(ii) by striking out "after September 30, 1973; except 
that" and inserting in lieu thereof ", except that"; 
(iii) by striking out "after September 30, 1973 of 
the aggregate" and inserting in lieu thereof "of the 
aggregate"; 
(iv) by striking out "of the Internal Revenue Code 
of 1954" each place it appears; and 
(v) by inserting a comma before "the tax imposed". 
(B) Section 3221(b) (relating to rate of tax on railroad 
employers) is amended to read as follows: 
*"' ' ' '"''"' "(b) The rate of tax imposed by subsection (a) shall be increased 
by the rate of tax imposed with respect to wages by section 3111 (a) 
, ,, .,^ . 
plus the rate imposed by section 3111(b)." 
': 
(C) Section 3221(c) 
(relating to additional railroad 
retirement tax) is amended— 
(i) by striking out "(1) at the rate of 2 cents for the 
period beginning November 1, 1966, and ending March 
' '•' ' 
31,1970, and (2) commencing April 1,1970," and 
(ii) by striking out "commencing with the quarter 
"-' ' 
• 
beginning April 1, 1970". 
(10) AMENDMENTS or SECTION 3231.— 
26 use 3231. 
iN 
(A) Section 3231(a) (defining employer) is amended by 
striking out "44 Stat. 577;". 
(B) Section 3231(b) (defining employee) is amended by 
fc- 
- striking out "50 Stat. 312;"._ 
(C) Section 3231(c) (defining employee representative) is 
^' ^ 
amended by striking out "44 Stat. 577;". 
(D) Section 3231(d) (7) (defining service) is amended by 
striking out "50 Stat. 308;". 
26 use 3301. 
^ 
(11) AMENDMENTS O
F SECTION 3 301.—Section 3301 (relating to 
Federal unemployment tax rate) is amended— 
' 
(A) by striking out "the calendar year 1970 and each calen-
dar year thereafter" and inserting in lieu thereof "each calen-
dar year", and 
(B) by striking out the last sentence. 
' 
(12) AMENDMENTS or SECTION 3302.— 
26 use 3302. 
t ' 
(^) Section 3302(a) (relating to credits against tax) is 
! 
amended by striking out "(10-month period in the case of 
October 31, 1972)". 
I 
, 
(B) Section 3302(b) (relating to additional credit) is 
'•*' ' 
amended— 
(i) by striking out "(10-month period in the case of 
" ' : • * •
;
:
^
; ;;.' r) ,' 
October 31, 1972)", and 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1809 
(ii) by striking out "12 or 10-month period, as the 
• 
' 
case may be," and inserting in lieu thereof "12-month 
period". 
(C) (i) Section 3302(c) (relating to limitation on credits 26 USC 3302. 
against unemployment tax) is amended by striking out para-
graph (2) and the unnumbered paragraph immediately fol-
lowing such paragraph (2) (relating to advances made to a 
State unemployment account before September 13, 1960), 
and by redesignating paragraphs (3) and (4) as paragraphs 
(2) and (3), respectively. 
(ii) Section 3302(c)(2) (relating to advances made to a 
State unemployment account after September 12, 1960), as 
redesignated by clause (i) of this subparagraph, is amended 
by striking out "on or after the date of the enactment of the 
Employment Security Act of 1960", and by striking out 
"paragraphs (1) and (2)" and inserting in lieu thereof 
"paragraph (1)". 
(iii) Section 3302(c)(3) 
(relating to reductions with 
respect to certain agreements under the Trade Act of 1974), as 
redesignated by clause (i) of this subparagraph, is amended 
by striking out "paragraphs (1), (2), and (3)" and inserting 
in lieu thereof "paragraphs (1) and (2)". 
(iv) Section 3302(d) (3) (relating to effect of repayment 
- ' 
- . 
of advances) is amended by striking out "or (3)". 
(v) Section 3302(d) (4), (5), and (6) (relating to special 
rules) are each amended by striking out "subsection (c) (3)" 
/ 
each place it appears and inserting in lieu thereof "subsection 
(c)(2)". 
(vi) Section 3302(d) (7) (relating to determination and 
certification of percentages) is amended by striking out "sub-
section (c)(3)(B) or (C)" and inserting in lieu thereof "sub-
section (c) (2) (B) or (C)". 
• • 
•'• 
(T>) Section 3302(d) (relating to special rules for credits 
"*' 
against the unemployment tax) is amended by striking out 
paragraph (8) (across reference). 
(13) AMENDMENTS TO SECTION 3303.—Section 3303(b) (relating 26 USC 3303. 
to certification with respect to additional credit allowance) is 
amended— 
(A) by striking out "(10-month period in the case of 
\ 
October 31,1972)" each place it appears, 
(B) by striking out "12 or 10-month period, as the case may 
be," each place it appears in paragraphs (1) and (2), and 
inserting in lieu thereof "12-month period", and 
(C) by striking out "12 or 10-month period, as the case 
may be," in paragraph (3) and inserting m lieu thereof "12-
month period,". 
(14) AMENDMENTS TO SECTION 3304.— 
(A) Section 3B04(a)(3) (relating to requirements) is 26 USC 3304. 
amended by striking out "49 Stat. 640; 52 Stat. 1104, 1105;". 
(B) Section 3304(c) (relating to certification) is amended 
by striking out "(10-month period in the case of October 31, 
1972)". 
(15) AMENDMENTS OF SECTION 3305.— 
(A) Section 3305(g) (relating to vessels operated by 26 USC 3305. 
general agents of the United States) is amended by striking 
out "on or after July 1,1953,". 
90 STAT. 1810 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 3305. 
i^]} ;., 
(B) Section 3305(h) (relating to certain contributions to 
States) is amended by striking out "on or after July 1,1953, 
and". 
'-'Mh >:J .. 
(Q) Section 3305(j) (relating to denial of credits in cer-
tain cases) is amended by striking out "after December 31, 
1971,". 
(16) 
AMENDMENTS OF SECTION 3 3 0 6 . — 
26 use 3306. 
(A) Section 3306(c) (9) (relating to the exclusion of serv-
ice performed by certain employees and employee representa-
tives from the definition of employment) is amended by 
striking out "52 Stat. 1094,1095;". 
(B) Section 3306(c) (18) (relating to the exclusion of cer-
tain service performed by nonresident aliens from the defini-
, 
tion of employment) is amended by inserting after the 
"Immigration and Nationality Act, as amended" the follow-
ing: "(8 U.S.C. 1101(a) (15) (F) or (J))". 
(C) Section 3306(f) (relating to the definition of an 
' 
unemployment fund) is amended by striking out "49 Stat. 
640; 52 Stat. 1104, 1105;". 
(D) Section 3306(n) (relating to vessels operated by gen-
eral agents of the United States) is amended by striking out 
"on or after July 1,1953,". 
26 use 34^2. . 
(17) AMENDMENT or SECTION 3402.—Section 3402(1) (3) (B) 
(relating to marital status) is amended by striking out "section 
2 (b)" and inserting in lieu thereof "section 2 (a)". 
(b) AMENDMENT CONFORMING TO THE REPEAL OF SECTION 3113.— 
The table of sections for subchapter B of chapter 21 is amended by 
striking out the item relating to section 3113. 
(c) AMENDMENTS TO PROVISIONS REFERRING TO TERRITORIES.—Sec-
26 use 3401, 
tions 3401(c) and 3404 are each amended by striking out "Territory," 
3404. 
each place it appears. 
26 use 3101 
(d) EFFECTIVE DATES.—The amendments made by this section shall 
"
*
*
*
*
• 
^PP^y with respect to wages paid after December 31,1976, except that 
the amendments made to chapter 22 of the Internal Revenue Code of 
26 use 3201. 
1954 shall apply with respect to compensation paid for services ren-
^ 
dered after December 31,1976. 
SEC. 1904. AMENDMENTS OF SUBTITLE D; MISCELLANEOUS EXCISE 
TAXES. 
(a) I N GENERAL.— 
(1) AMENDMENTS OF CHAPTER 31.— 
(A) So much of chapter 31 (relating to retailers excise 
taxes) as precedes section 4041 is amended to read as follows: 
j:^ 
"CHAPTER 31—SPECIAL FUELS 
"Sec. 4041. Imposition of tax." 
26 use 4041. 
(B^ Section 4041(g) (relating to exemptions from fuel 
taxes) is amended to read as follows: 
"(g) OTHER EXEMPTIONS.—Under regulations prescribed by the 
Secretary, no tax shall be imposed under this section— 
"(l) on Rny liquid sold for use or used as supplies for vessels 
or aircraft (within the meaning of section 4221(d) (3)); 
-,,, 
v) j 
j 
"(2) with respect to the sale of any liquid for the exclusive use 
of any State, any political subdivision of a State, or the District 
of Columbia, or with respect to the use by any of the foregoing of 
any liquid as a fuel; 
/ 
PUBLIC LAW Q4-455—OCT. 4, 1976 
90 STAT. 1811 
"(3) upon the sale of any liquid for export, or for shipment to 
a possession of the United States, and in due course so exported 
or shipped; and 
"(4) with respect to the sale of any liquid to a nonprofit educa-
tional organization for its exclusive use, or with respect to the use 
by a nonprofit educational organization of any liquid as a fuel. 
For purposes of paragraph (4), the term 'nonprofit educational orga-
nization' means an educational organization described in section 170(b) 
(l)(A)(ii) which is exempt from income tax under section 501(a). 
The term also includes a school operated as an activity of an organiza-
tion de:-;cribed in section 501(c) (3) which is exempt from income tax 
under section 501(a), if such school normally maintains a regular 
faculty and curriculum and normally has a regularly enrolled body of 
pupils or students in attendance at the place where its educational 
activities are regularly carried on."' 
(C) Section 4041 (relating to tax on fuels) is amended by 
adding at the end thereof the following new subsection: 
"(i) SALES BY UNITED STATES, ETC.—The taxes imposed by this sec-
tion shall apply with respect to liquids sold at retail by the United 
States, or by any agency or instrumentality of the United States, 
unless sales by such agency or instrumentality are by statute specifi-
cally exempted from such taxes." 
(D) Chapter 31 is amended by striking out section 4042 
(a cross reference) and subchapter F (special provisions 
applicable to retailers taxes). 
(2) AMENDMENTS or SECTION 4216.— 
(A) Section 4216 (relating to definition of price) is 
amended by redesignating subsections (e), (f), and (g) as 
subsections (d), (e), and (f), respectively. 
(B) Paragraphs (3), (4), and (5) of section 4216(b) 
(relating to constructive sales price) are each amended by 
striking out "subsections (a) and (f)" each place it appears 
and inserting in lieu thereof "subsections (a) and (e)". 
(3) AMENDMENT OF SECTION 4217.—Section 4217(d) (relating 
to lease treated as sale) is amended by striking out paragraph (4) 
(relating to certain 1958 transitional rules). 
(4) REPEAL or SECTION 4226.—Section 4228 (relating to floor-
stock taxes imposed before 1967) is repealed. 
(5) AMENDMENT OF SECTION 4227.—Section 4227 (relating to 
cross references) is amended to read as follows: 
"SEC. 4227. CROSS REFERENCE. 
"For credit for taxes on tires and inner tubes, see section 6416(c).'* 
(6) AMENDMENT OF SECTION 42.-53.—Section 4253 (relating to 
exemptions from the tax on communications services) is amended 
by adding at the end thereof the following new subsections: 
"(ij STATE AND LOCAL GOVERNMENTAL EXEMPTION.—^Under regula-
tions prescribed by the Secretary, no tax shall be imposed under 
section 4251 upon any payment received for services or facilities 
furnished to the government of any State, or any political subdivision 
thereof, or the District of Columbia. 
"(j) EXEMPTION FOR NONPROFIT EDUCATIONAL ORGANIZATIONS.— 
Under regulations prescribed by the Secretary, no tax shall be 
imposed under section 4251 on any amount paid by a nonprofit educa-
tional organization for services or facilities furnished to such organiza-
tion. For purposes of this subsection, the term 'nonprofit educational 
organization' means an educational organization described in section 
"Nonprofit 
educational 
organization." 
26 use 4041. 
26 use 4042, 
4054-4058. 
26 use 4216. 
26 use 4217. 
26 use 4226. 
26 use 4227. 
26 use 4253. 
"Nonprofit 
educational 
organization. 
90 STAT. 1812 
PUBLIC LAW 94-455—OCT. 4, 1976 
170(b) (1) (A) (ii) which is exempt from income tax under section 
501(a). The term also includes a school operated as an activity of an 
organization described in section 501(c)(3) which is exempt from 
income tax under section 501(a), if such school normally maintains 
a regular faculty and curriculum and normally has a regularly 
enrolled body of pupils or students in attendance at the place where its 
educational activities are regularly carried on." 
(7) AMENDMENTS OF SECTION 4261.— 
26 use 4261. 
(A) Subsections (a) and (b) of section 4261 (relating to 
tax on transportation of persons by air) are each amended by 
striking out "which begins after June 30,1970,". 
(B) Section 4261(c) is amended by striking out "and 
begins after June 30,1970". 
26 use 4271. 
(8) AMENDMENT or SECTION 4 2 71.—Section 4271 (a) (relating to 
tax on transportation of property by air) is amended by striking 
out "which begins after June 30,1970,". 
26 use 4292. 
(9) REPEAL OF SECTION 4292.—Section 4292 (relating to State 
and local governmental exemption from the tax on communica-
tions services) is repealed. 
26 use 4294. 
(10) 
REPEAL OF SECTION 4294.—Section 4294 (relating to 
exemption of nonprofit educational organizations from the tax on 
communications services) is repealed. 
26 use 4295. 
( H ) REPEAL or SECTION 4295.—Section 4295 (a cross reference) 
, 
is repealed. 
(12) AMENDMENT OF CHAPTER 34.—Chapter 34 (relating to doc-
> 
_ •, ; V 
umentary stamp taxes) is amended to read as follows: 
"CHAPTER 34—POLICIES ISSUED BY FOREIGN 
INSURERS 
"Sec. 4371. Imposition of tax. 
.,,^5^-i-.i ,K» 
"Sec. 4372. Definitions. 
' ; - ' * " ' 
"Sec. 4373. Exemptions. 
* ' 
' 
' 
"Sec. 4374. Liability for tax. 
26 use 4371. 
"SEC. 4371. IMPOSITION OF TAX. 
"There is hereby imposed, on each policy of insurance, indemnity 
^, 
bond, annuity contract, or policy of reinsurance issued by any foreign 
insurer or reinsurer, a tax at the following rates: 
"(1) 
CASUALTY INSURANCE AND INDEMNITY BONDS.—4 cents on 
each dollar, or fractional part thereof, of the premium paid on 
the policy of casualty insurance or the indemnity bond, if issued 
• - , . - " ; 
to or for, or in the name of, an insured as defined in section 
4372(d); 
"(2) L I F E INSURANCE, SICKNESS AND ACCIDENT POLICIES, AND 
ANNUITY CONTRACTS.—1 cent on each dollar, or fractional part 
thereof, of the premium paid on the policy of life, sickness, or 
accident insurance, or annuity contract, unless the insurer is sub-
ject to tax under section 819; and 
"(3) REINSURANCE.—1 cent on each dollar, or fractional part 
thereof, of the premium paid on the policy of reinsurance cover-
ing any of the contracts taxable under paragraph (1) or (2). 
26 use 4372. 
"SEC. 4372. DEFINITIONS. 
" (a) FOREIGN INSURER OR REINSURER.—For purposes of section 4371, 
the term 'foreign insurer or reinsurer' means an insurer or reinsurer 
\»- *,'...,. :
> who is a nonresident alien individual, or a foreign partnership, or a 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1813 
foreign corporation. The term includes a nonresident alien individual, 
foreign partnership, or foreign corporation which shall become bound 
by an obligation of the nature of an indemnity bond. The term does 
not include a foreign government, or municipal or other corporation 
exercising the taxing power. 
"(b) POLICY OF CASUALTY INSURANCE.—For purposes of section 
4371(1), the term 'policy of casualty insurance' means any policy 
Ante, p. 1S12. 
(other than life) or other instrument by whatever name called whereby 
a contract of insurance is made, continued, or renewed. 
"(c) INDEMNITY BOND.—For purposes of this chapter, the term 
'indemnity bond' means any instrument by whatever name called 
whereby an obligation of the nature of an indemnity, fidelity, or surety 
bond is made, continued, or renewed. The term includes any bond for 
indemnifying any person who shall have become bound or engaged as 
surety, and any bond for the due execution or performance of any con-
tract, obligation, or requirement, or the duties of any office or position, 
and to account for money received by virtue thereof, where a premium 
is charged for the execution of such bond. 
"(d) INSURED.—For purposes of section 4371 (1), the term 'insured' 
means— 
"(1) a domestic corporation or partnership, or an individual 
resident of the United States, against, or with respect to, hazards, 
risks, losses, or liabilities wholly or partly within the United 
States, or 
- 
"(2) a foreign corporation, foreign partnership, or nonresident 
individual, engaged in a trade or business within the United 
States, against, or with respect to, hazards, risks, losses, or lia-
bilities within the United States. 
•', 
"(e) 
POLICY or L I F E , SICKNESS, OR ACCIDENT INSURANCE, OR A N N U -
ITY CONTRACT.—For purposes of section 4371(2), the term 'policy of 
life, sickness, or accident insurance, or annuity contract' means any 
policy or other instrument by whatever name called whereby a contract 
of insurance or an annuity contract is made, continued, or renewed 
with respect to the life or hazards to the person of a citizen or resident 
of the United States. 
"(f) 
POLICY OF REINSURANCE.—For purposes of section 4371(3), 
the term 'policy of reinsurance' means any policy or other instrument 
by whatever name called whereby a contract of reinsurance is made, 
' 
continued, or renewed against, or with respect to, any of the hazards, 
risks, losses, or liabilities covered by contracts taxable under paragraph 
(1) or (2) of section 4371. 
"SEC. 4373. EXEMPTIONS. 
26 USC 4373. 
"The tax imposed by section 4371 shall not apply to— 
"(1) DOMESTIC AGENT.—Any policy, indemnity bond, or annu-
ity contract signed or countersigned by an officer or agent of the 
insurer in a State, or in the District of Columbia, within which 
such insurer is authorized to do business; or 
"(2) 
INDEMNITY BOND.—Any indemnity bond required to be 
filed by any person to secure payment of any pension, allowance, 
allotment, relief, or insurance by the United States, or to secure 
a duplicate for, or the payment of, any bond, note, certificate 
of indebtedness, war-saving certificate, warrant, or check, issued 
by the United States. 
"SEC. 4374. LIABILITY FOR TAX. 
26 USC 4374. 
"The tax imposed by this chapter shall be paid, on the basis of a 
return, by any person who makes, signs, issues, or sells any of the 
90 STAT. 1814 
PUBLIC LAW 94-455—OCT. 4, 1976 
documents and instruments subject to the tax, or for whose use or 
benefit the same are made, signed, issued, or sold. The United States 
or any agency or instrumentality thereof shall not be liable for the 
tax." 
(13) AMENDMENT OF SECTION 4493.— 
26 use 4493. 
(A) Section 4493(b)(1) 
(relating to certain 
persons 
engaged in foreign air commerce) is amended by striking out 
"beginning on or after July 1,1970". 
(B) Section 4493(b)(2) is amended by striking out the 
last sentence. 
(14) AMENDMENT OF CHAPTER 37.—So much of chapter 37 as 
precedes section 4501 (relating to tax on sugar) is amended to read 
as follows: 
"CHAPTER 37—SUGAR 
"Sec. 4501. Imposition of tax. 
"Sec. 4502. Definitions. 
"Sec. 4503. Exemptions 
for 
consumption." 
sugar 
manufactured 
for 
home 
26 use 
4591-4597. 
26 use 
4801-4806. 
26 use 
4811-4826. 
26 use 
4881-4886. 
26 use 4901. 
26 use 4905. 
26 use 
4911-4931. 
26 use 4911 
note. 
26 use 4973. 
(15) REPEAL OF SECTIONS 4591 THROUGH 4597.—Chapter 38 
(relating to import taxes on oleomargarine) is repealed. 
(16) REPEAL or SECTIONS 4 8 0 I THROUGH 4806.—Subchapter B 
of chapter 39 (relating to tax on white phosphorus matches) is 
repealed. 
(17) REPEAL OF SECTIONS 4811 THROUGH 4826.—Subchapter C of 
chapter 39 (relating to tax on unadulterated butter) is repealed. 
^ 
(18) REPEAL OF SECTIONS 4 8 81 THROUGH 488 e.—Subchapter E of 
chapter 39 (relating to tax on circulation other than of national 
banks) is repealed, 
(19) AMENDMENT OF SECTION 4901.—Section 4901 (relating to 
payment of occupational taxes) is amended by striking out sub-
section (c). 
(20) AMENDMENT OF SECTION 4905.—Section 4905(a) (relating 
to liability for occupational taxes in case of death or change 01 
location) is amended by striking out "wife" and inserting in lieu 
thereof "spouse". 
(21) REPEAL OP SECTION 4911 THROUGH 4931.— 
(A) Chapter 41 (relating to interest equalization tax) is 
repealed. 
(B) The repeal made by subparagraph (A) shall apply 
with respect to acquisitions of stock and debt obligations 
made after June 30, 1974. 
(22) AMENDMENTS OF SECTION 4973.— 
(A) So much of section 4973(a) (relating to tax on excess 
contributions) as follows "of any individual," in paragraph 
(3) thereof is amended to read as follows: 
"there is imposed for each taxable year a tax in an amount equal 
to 6 percent of the amount of the excess contributions to such 
individual's accounts, annuities, or bonds (determined as of the 
close of the taxable year). The amount of such tax for any taxable 
year shall not exceed 6 percent of the value of the account, 
annuity, or bond (determined as of the close of the taxable year). 
In the case of an endowment contract described in section 408(b), 
the tax imposed by this section does not apply to any amount 
allocable to life, health, accident, or other insurance under such 
contract. The tax imposed by this subsection shall be paid by such 
individual." 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1815 
(B) Section 4973(c) is amended by striking out "subsec- 26 USC 4973. 
tion (a)(3)" and inserting in lieu thereof "subsection (a) 
(2)". 
. . . 
(b) 
CONFORMING AND CLERICAL AMENDMENTS.— 
(1) AMENDMENTS CONFORMING TO AMENDMENT OF CHAPTER SI.— 
(A) Section 6416(a)(1) is amended by striking out 26 USC 6416. 
"(retailers taxes)" and inserting in lieu thereof "(special 
fuels)". 
( B ) Section 6416(e) is amended by striking out "subchap-
ter E of". 
(2) 
AMENDMENT CONFORMING TO AMENDMENT OF SECTION 
4216.—Section 6416(b)(1) is amended by striking out "section 
4216(f) (2) and (3)" and inserting in lieu thereof "section 4216 
(e) (2) and (3)'\ 
(3) AMENDMENT CONFORMING TO THE REPEAL OF SECTION 4226.— 
The table of sections for subchapter G of chapter 32 is amended 
by striking out the item relating to section 4226. 
(4) AMENDMENT CONFORMING TO THE REPEAL OF SECTIONS 4292, 
4294, A
N
D 4295.—^Thc table of sections for subchaptet E of chapter 
33 is amended by striking out the items relating to sections 4292, 
4294, and 4295. 
(5) AMENDMENTS CONFORMING TO THE AMENDMENT OF CHAPTER 
3 4 . — 
(A) Section 7270 is amended by striking out "the affixing 26 USC 7270. 
of stamps on insurance policies, etc." and inserting in lieu 
thereof "liability for tax on policies issued by foreign 
insurers". 
(B) Section 6808 is amended by striking out paragraph 26 USC 6808. 
, (4)-
(6) AMENDMENTS CONFORMING TO THE AMENDMENT OF CHAPI'ER 
3 7 . — 
(A^ Section 7240 is amended by striking out "subchapter 26 USC 7240. 
A of". 
(B) Section 7655(a) is amended— 
26 USC 7655. 
(i) by striking out "Stibchapter A of chapter 37" in 
paragraph (5) and inserting in lieu thereof "Chapter 
37", and 
I 
-; 
(ii) by redesignating paragraph (5) as paragraph 
(3). 
, - - - - ^ > . : 
(7) 
AMENDMENTS CONFORMING TO REPEAL OF SECTIONS 4591 
THROUGH 4597.— 
(A) Section 6808 is amended by striking out paragraph 26 USC 6808. 
(B) (i) Section 7234 (relating to violations of laws con- 26 USC 7234. 
cerning oleomargarine or adulterated butter operations) is 
repealed. 
(ii) The table of sections for part I I of subchapter A of 
chapter 75 is amended by striking out the item relating to 
section 7234. 
(C) (i) Section 7265 (relating to other offenses concerning 26 USC 7265. 
oleomargarine or adulterated butter operations) is repealed. 
(ii) The table of sections for subchapter B of chapter 75 is 
amended by striking out the item relating to section 7265. 
(D) Section 7611(a), as redesignated by this Act, is Ante, p. 1699. 
amended by striking out paragraph (1). 
(E) The table of chai)ters for subtitle D is amended by 
striking out the item relating to chapter 38. 
90 STAT. 1816 
PUBLIC LAW 94-455—OCT. 4, 1976 
!^>. 
= a 
(8) 
AMENDMENTS CONFORMING TO REPEAL OP SECTIONS 4 8 0 I 
THROUGH 480 6. 
26 use 4905. 
(A) Section 4905 (b) is amended to read as follows: 
"(b) 
REGISTRATION.— 
"For registration in case of wagering, see section 4412." 
26tfSC6808. 
(B) Section 6808 is amended by striking out paragraph 
(12). 
26 use 7012. 
(C) Section 7012 is amended by striking out subsection 
(e). 
26 use 7239. 
(D) (i) Section 7239 (relating to violations of laws con-
cerning white phosphorus matches) is repealed. 
(ii) The table of sections for part II of subchapter A of 
chapter 75 is amended by striking out the item relating to 
section 7239 
26 use 7267, 
, , ' 
(E) (i) Sections 7267 and 7274 (relating to offenses and 
'7274. 
'• 
penalties concerning white phosphorus matches) are each 
repealed. 
(ii) The table of sections for subchapter B of chapter 75 
is amended by striking out the items relating to sections 7267 
and 7274. 
26 use 7272. 
(F) Section 7272(b) is amended by striking out "4804 
26 use 7303. 
(G) Section 7303 is amended by striking out paragraph 
(6). 
(H) (i) Part I I of subchapter C of chapter 75 (relating 
26 use 7201. 
to provisions common to forfeitures) is amended by striking 
out section 7328 (relating to confiscation of white phosphorus 
26 use 7328, 
matches), and by redesignating section 7329 (relating to cross 
7329. 
references) as section 7328. 
(ii) The table of sections for part I I of subchapter C of 
chapter 75 is amended by striking out the last two items and 
inserting in lieu thereof the following: 
. 
-, 
"Sec. 7328. Cross references." 
(9) 
AMENDMENTS CONFORMING TO REPEAL OP SECTIONS 4 8 1 1 
THROUGH 48 2 6. 
26 use 6808. 
(A) Section 6808 (relating to cross references) is amended 
by striking out paragraph (10). 
26 use 7235. 
' (B) (i) Section 7235 (relating to violations of laws con-
cerning adulterated butter and process or renovated butter) 
is repealed. 
'•:'• 
- J ; 
(ii) The table of sections for part II of subchapter A of 
chapter 75 is amended by striking out the item relating to 
section 7235. 
26 use 7264. 
(C) (i) Section 7264 (relating to offenses concerning reno-
vated or adulterated butter) is repealed. 
(ii) The table of sections for subchapter B of chapter 75 
is amended by striking out the item relating to section 7264. 
26 use 7303. 
(D) Section 7303 is amended by striking out paragraphs 
, ;, 
: ! 
(3), (4), and (5), and by redesignating paragraphs (7) and 
(8) as paragraphs (2) and (3), respectively. 
^rete, p. 1699. 
(E) Section 7611(a), as redesignated by this Act, is 
amended by striking out paragraph (2), and by redesignat-
.. ,; ; ..... 
ing paragraphs (5) and (6) as paragraphs (1) and (2), 
respectively. 
(10) 
AMENDMENTS CONFORMING TO THE REPEAL OF SECTIONS 
' 
4911 T H R O U G H 4931. 
^\.'• 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1817 
(A) (i) (I) Section 263, as amended by this Act, is amended 26 use 263. 
by striking out subsections (a) (3) and (d) (relating to the 
allowance of deductions for payment of interest equalization 
tax), and by redesignating subsections (e), (f), and (g) as 
^^ 
• 
' 
subsections (d), (e),and (f), respectively. 
(II) Section 263(d), as redesignated by clause (i) (I) of 
this subparagraph, is amended by striking out "subsection 
(f)" and inserting in lieu thereof "subsection (e)". 
(ii) Section 6011 (relating to requirement of return, state- 26 USC 6011. 
ment, or list) is amended by striking out subsection (d) 
(relating to interest equalization tax returns, etc.), and by 
redesignating subsections (e) and (f) as subsections (c) and 
(d), respectively. 
(iii) (I) Section 6076 (relating to time for filing interest 26 USC 6076. 
equalization tax returns) is repealed. 
. ./.. 
(II) The table of sections for part V of subchapter A of 
chapter 61 is amended by striking out the item relating to 
- ' 
section 6076. 
(iv) Section 6611 (relating to interest on overpayments) 26 USC 6611. 
is amended by striking out subsection (h) (relating to over-
payments of interest equalization tax) and by redesignating 
subsection (i) as subsection (h). 
(v) Section 6651 (relating to failure to file tax return 26 USC 6651. 
or to pay tax) is amended by striking out subsection (e) 
(relating to certain interest equalization tax returns). 
(vi)(I) Section 6680 (relating to failure to file interest 26 U
S
C 6680. 
equalization tax returns) is repealed. 
(II) The table of sections for subchapter B of chapter 68 
is amended by striking out the item relating to section 6680. 
(vii) The amendments made by this subparagraph shall 26 U
S
C 263 
apply with respect to acquisitions of stock or debt obligations "
*
>
*
®
-
made after June 30,1974, except that the repeal of paragraph 
(2) of section 6011(d) under clause (ii) shall apply with 
respect to loans and commitments made after such date. 
(B) Section 861(a)(1)(G) 
(relating to income from 26 USC 861. 
sources within the United States) is amended— 
(i) by striking out "section 4912(c)" and inserting in 
lieu thereof "subsection (c) of section 4912 (as in effect 
before July 1,1974)"; and 
(ii) by striking out "section 4912 (c) (2)" and inserting 
in lieu thereof "subsection (c) (2) of such section". 
(C) The second sentence of section 1232(b)(2) (relating 26 USC 1232. 
to the definition of the issue price of bonds and otner evidences 
of indebtedness) is amended by striking out "section 4911" 
and inserting in lieu thereof "section 4911, as in effect before 
July 1, 1974". 
(D) (i) Section 6681 (relating to false equalization tax 26 USC 6681. 
certificates) is repealed. 
(ii) The table of sections for subchapter B of chapter 68 
is amended by striking out the item relating to section 6681. 
(iii) The amendments made by this subparagraph shall 26 USC 6681 
apply with respect to actions occurring after June 30, 1974. not*-
(E) (i) Section 6689 (relating to failure by certain foreign 26 USC 6689. 
issuers and obligors to comply with United States investment 
equalization tax requirements) is repealed, 
(ii) The table of sections for subchapter B of chapter 68 
is amended by striking out the item relating to section 6689. 
90 STAT. 1818 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 6689 i ' 
(iii) The amendments made by this subparagraph shall 
"ote. 
apply with respect to stock or deot obligations issued after 
June 30, 1974. 
26 use 7241. 
(F) (i) Section 7241 (relating to penalty for fraudulent 
equalization tax certificates) is repealed. 
(ii) The table of sections for part II of subchapter A of 
chapter 75 is amended by striking out the item relating to 
section 7241. 
26 use 7241 
(iii) The amendments made by this subparagraph shall 
note- 
apply with respect to statements and certificates executed 
after June 30, 1974. 
(G) The table of chapters for subtitle D is amended by 
striking out the item relating to chapter 41. 
'' 
(c) AMENDMENT TO PROVISION KEFERRING TO TERRITORIES.—Section 
26 use 4482. 
4482(c) (1) is amended by striking out ", a Territory of the United 
States,". 
26 use 4041 
(d) EPEECTIVE DATE.—Except as otherwise provided in this section, 
note. 
the amendments made by this section shall take effect on the first day 
of the first month which begins more than 90 days after the date of the 
enactment of this Act. 
SEC. 1905. AMENDMENTS OF SUBTITLE E; ALCOHOL, TOBACCO, AND 
V . ,
5
^ 
CERTAIN OTHER EXaSE TAXES. 
(a) I N GENERAL.— 
26 use 5005. 
(1) AMENDMENT OP SECTION SOOS.—Section 5005(c) (2) (relat-
ing to transfers in bond of distilled spirits) is amended by strik-
ing out the last two sentences and inserting in lieu thereof the 
following: "Such relief from liability shall be effective from the 
time of removal from the transferor's bonded premises, or from 
the time of divestment of interest, whichever is later." 
(2) AMENDMENTS OF SECTION 500 8.— 
26 use 5008. 
(A) Section 5008(b) (1) (relating to abatement, remission, 
refund, and allowance for loss of destruction of distilled 
spirits) is amended by inserting immediately after "the tax 
tfti; 
c'. 
imposed by this chapter" the following: "or by section 7652". 
(B) Section 5008(b) (2) is amended by striking out "the 
taxes imposed under section 5001 (a) (1)" and all that follows 
and inserting in lieu thereof the following: "the taxes 
imposed under section 5001(a) (1), under subpart B of this 
part, or under section 7652 on the spirits so destroyed, to the 
, .,j J
. 
proprietor of the distilled spirits plant who withdrew the 
*•' ' 
distilled spirits on payment or determination of tax." 
(C) Subsections (c) (1) and (d) (1) of section 5008 are 
each amended by inserting immediately after "under section 
5001 (a) (1)" the following: "or under section 7652". 
- 
(D) Section 5008(d) (1) is amended by striking out ", on 
or after July 1,1959,". 
26 use 5009. 
(3) AMENDMENT OF SECTION SOOO.—Section 5009(b)(3) is 
amended by striking out "46 Stat. 694;". 
26 use 5025. 
(4) AMENDMENT OF SECTION 5025.—Section 5025(j) (relating to 
stabilization of distilled spirits) is amended by striking out "the 
bottling of distilled spirits," and inserting in lieu thereof "the 
bottling of distilled spirits, or preparatory to exportation,". 
26 use 5054. 
(5) AMENDMENT OF SECTION 5054.—Section 5054 (relating to 
determination and collection of tax on beer) is amended by strik-
ing out subsection (c) (relating to stamps or other devices as 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1819 
evidence of payment of tax) and by redesignating subsection (d) 
: 
as subsection (c). 
(6) AMENDMENTS OF SECTION 5 0 6 I . — 
(A) Section 5061(a) 
(relating to collections of alcohol 26 USC 5061. 
taxes) is amended by striking out the last sentence. 
(B) Section 5061(b) (relating to methods of collection) is 
amended to read as follows: 
"(b) EXCEPTIONS.—Notwithstanding the provisions of subsection 
(a), any taxes imposed on, or amounts to be paid or collected in respect 
of, distilled spirits, wines, rectified distilled spirits and wines, and 
beer under— 
"(1) section5001 (a) (5), (6),or (7), 
"(2) section 5006(c) or (d), 
" • 
" 
"(3) section 5026(a) (2), 
"(4) section 5041(d), 
• 
"(5) section 5043(a) (3), 
"(6) section5054(a) (3) or (4),or 
"(7) section5505(a), 
shall be immediately due and payable at the time provided by such 
provisions (or if no specific time for payment is provided, at the time 
the event referred to in such provision occurs). Such taxes and amounts 
shall be assessed and collected by the Secretary on the basis of the 
information available to him in the same manner as taxes payable 
by return but with respect to which no return has been 
filed." 
- ' 
(C) Section 5061(c) (relatingtoapplicability of other pro-
visions of law) is amended to read as follows: 
"(c) IMPORT DUTIES.—The internal revenue taxes imposed by this 
part shall be in addition to any import duties unless such duties are 
specifically designated as being in lieu of internal revenue tax." 
(7) AMENDMENT or SECTION 5II3.—Section 5113(f) (1) (relat- 26 USC 5113. 
ing to retail dealers in liquors) is amended by striking out "wines 
or beer" and inserting in lieu thereof "distilled spirits, wines, or 
beer". 
(8) AMENDMENTS OF SECTION 5117.—Section 5117 (relating to 26 USC 5117. 
prohibited purchases by dealers) is amended by redesignating 
subsection (b) as subsection (c) and by inserting after subsection 
(a) the following new subsection: 
"(b) LIMITED EETAIL DEALERS.—A limited retail dealer may law-
fully purchase distilled spirits for resale from a retail dealer in 
liquors." 
(9) AMENDMENT OF SECTION 5121.—Section 5121(c) (relating 26 USC 5121. 
to limited retail dealers) is amended to read as follows: 
"(c) LIMITED RETAIL DEALERS.—Every limited retail dealer shall 
pay a special tax of $4.50 for each calendar month in which sales are 
made as such dealer; except that the special tax shall be $2.20 for each 
calendar month in which only sales of beer or wine are made." 
(10) AMENDMENT OF SECTION 5122.—Section 5122(c) (relating 26 USC 5122. 
to definition of limited retail dealer) is amended by striking out 
"beer or wine" each place it appears and inserting in lieu thereof 
"distilled spirits, wine, or beer". 
(11) AMENDMENT OF SECTION 5131.—Section 5131(a) (relating 
26 USC 5131. 
to eligibility^ for drawback) is amended by striking out "produced 
in a domestic registered distillery or industrial alcohol plant and 
withdrawn from bond, or using distilled spirits withdrawn from 
the bonded premises of a distilled spirits plant,". 
90 STAT. 1820 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 5142. 
(12) AMENDMENT OF SECTION 5142.—Section 5142(c) (relating 
to payment of occupational taxes) is amended to read as follows: 
"(c) How PAID.— 
Regulations. 
"(1) PAYMENT BY RETURN.—The special taxes imposed by this 
part shall be paid on the basis of a return under such regulations 
as the Secretary shall prescribe. 
" (2) STAMP DENOTING PAYMENT OF TAX.—After receiving a prop-
erly executed return and remittance of any special tax imposed 
by this subpart, the Secretary shall issue to the taxpayer an 
appropriate stamp as a receipt denoting payment of the tax. This 
paragraph shall not apply in the case of a return covering liability 
for a past period." 
26 use 5171. 
(13) AMENDMENTS OF SECTION 5171.—Section 5171(b) (relating 
to permits for operation of business as distillers, etc.) is 
amended— 
(A) in paragraph (1), by striking out "49 Stat. 978;", and 
(B) by striking out paragraph (3) (relating to continuance 
of business after June 30, 1959, pending application for 
permit). 
26 use 5174. 
(14) AMENDMENT OF SECTION 5174.—Section 5174(a)(2)(A) 
(relating to withdrawal bonds for distilled spirits) is amended by 
striking out "such spirits" and inserting in lieu thereof "distilled 
spirits from bond". 
26 use 5232. 
(15) AMENDMENT OF SECTION 5232.—Section 5232(a) (relating 
to transfer of imported distilled spirits) is amended by striking 
out "and the importer" and inserting in lieu thereof "and the 
importer, or the person bringing such distilled spirits into the 
United States,". 
26 use 5233. 
(16) AMENDMENT OF SECTION 5233.—Section 5233(b) (4) (relat-
ing to bottling requirements) is amended by striking out "49 
Stat. 977;". 
26 use 5234. 
(17) AMENDMENT OF SECTION 5234.—The first sentence of section 
5234(a)(2) 
(relating to the mingling of distilled spirits) is 
amended by striking out "8 years" and inserting in lieu thereof 
"20 years". 
26 use 5314. 
(18) AMENDMENT OF SECTION 5314.—Section 5314(a) (2) (relat-
ing to application of certain provisions to Puerto Rico) is 
amended by striking out "section 5001(a) ( 4 ) " and inserting in 
lieu thereof "section 5001 (a) (10)". 
26 use 5815. 
(19) REPEAL OF SECTION 5315.—Section 5315 (relating to the 
status of certain distilled spirits on July 1, 1959) is repealed. 
26 use 5368. 
(20) AMENDMENTS OF SECTION 5368.— 
(A) The heading of section 5368 is amended to read as 
follows: 
"SEC. 5368. GAUGING AND MARKING." 
(B) Section 5368(b) (relating to removal of wines) is 
amended to read as follows: 
Regulations. 
" (b) MARKING.—^Wines shall be removed in such containers (includ-
ing vessels, vehicles, and pipelines) bearing such marks and labels, 
evidencing compliance with this chapter, as the Secretary may by reg-
ulations prescribe." 
26 use 5392. 
(21) AMENDMENT OF SECTION 5392.—Section 5392(f) (defining 
own production) is amended by striking out "49 Stat. 990;". 
26 use 5601. 
(22) AMENDMENTS or SECTION 560I.—Section 5601(b) (relating 
to presumptions in the case of criminal penalties) is amended to 
read as follows: 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1821 
"(b) PRESUMPTION.—Whenever on trial for violation of subsection 
(a) (4) the defendant is shown to have been at the site or place where, 
and at the time when, the business of a distiller or rectifier was so 
engaged in or carried on, such presence of the defendant shall be 
• 
; 
deemed sufficient evidence to authorize conviction, unless the defendant 
explains such presence to the satisfaction of the jury (or of the court 
when tried without jury)." 
(23) AMENDMENTS or SECTION 5 6S5.— 
(A) Section 5685(a) (relating to penalty for possession 
26 USC 5685. 
of devices for emitting gas, smoke, etc.) is amended by strik-
ing out "section 5848" and inserting in lieu thereof "section 
5845". 
(B) Section 5685(c) (relating to forfeiture of firearms, 
- -
;i 
devices, etc.) is amended by striking out "section 5862" and 
inserting in lieu thereof "section 5872". 
* 
(C) Section 5685(d) (relating to the definition of machine 
•"' '•• -" 
gun) is amended to read as follows: 
" ( d ) DEFINITION or MACHINE GUN.—As used in this section, the 
term 'machine gun' means a machinegun as defined in section 5845 (b)." 
(24) AMENDMENT OF SECTION 5701.—Section 5701(e) (relating 
26 USC 5701. 
to imported tobacco products, etc.) is amended by striking out 
"such articles" and inserting in lieu thereof "such articles, unless 
such import duties are imposed in lieu of internal revenue tax". 
(25) AMENDMENTS OF SECTION 5703.— 
(A) Section 5703(a) (2) (relating to transfer of liability 
26 USC 5703. 
for tobacco taxes) is amended by adding at the end thereof 
the following new sentence: "All provisions of this chapter 
' ' 
applicable to tobacco products and cigarette papers and tubes 
in bond shall be applicable to such articles returned to bond 
, . , 
upon withdrawal from the market or returned to bond after 
previous removal for a tax-exempt purpose." 
(B) The second sentence of section 5703(b) (relating to 
method of payment of tobacco taxes) is amended by striking 
out ", except that the taxes shall continue to be paid by stamp 
until the Secretary or his delegate provides, by regulations, 
for the payment of the taxes on the basis of a return". 
(C) Section 5703 is amended by striking out subsection (c) 
(relating to stamps to evidence tobacco taxes) and by 
redesignating subsections (d) and (e) as subsections (c) and 
(d), respectively. 
(26) AMENDMENTS or SECTION 5704.—Subsections (c) and (d) 
of section 5704 (relating to exemptions from tobacco taxes) are 26 USC 5704. 
each amended by inserting after "to a manufacturer of tobacco 
products or cigarette papers and tubes" the following: "or to the 
proprietor of an export warehouse". 
(27) AMENDMENT OF SECTION 5712.—Section 5712 (relating to 
26 USC 5712. 
' 
application for permit) is amended by striking out the last 
sentence. 
(28) AMENDMENTS OF SECTION 5723.— 
(A) The heading of section 5723 is amended by striking 26 USC 5723. 
out "NOTICES, AND STAMPS" and inserting in lieu thereof 
"AND NOTICES". 
(B) Section 5723(b) (relating to marks, and so forth, on 
packages) is amended to read as follows: 
" (b) MARKS, LABELS, AND NOTICES.—Every package of tobacco prod- Regulation, 
ucts or cigarette papers or tubes shall, before removal, bear the marks, 
labels, and notices, if any, that the Secretary by regulation prescribes." 
-194 O—78—pt. 2 
23 
90 STAT. 1822 
PUBLIC LAW 94-455—OCT. 4, 1976 
(b) CONFORMING AND CLERICAL AMENDMENTS.— 
, 
(1) AMENDMENTS coNroRMiNG TO AMENDMENT OP SECTION 
5054.— 
26 use 5676. 
(A) Section 5676 (relating to beer stamp penalties) is 
repealed. 
(B) The table of sections for part III of subchapter J of 
chapter 51 is amended by striking out the item relating to 
section 5676. 
, 
(2) 
AMENDMENTS CONFORMING TO AMENDMENTS OF SECTION 
5061.— 
26 use 5007. 
(A) Section 5007(b)(1) is amended by striking out the 
second sentence. 
26 use 5026. 
(B) Section 5026(b) is amended by striking out "Except 
as provided in subsection (a)(2), the taxes" and inserting 
in llGU tllGrGOI ^'TllB tRXGS 
26 use 5043. 
(C) Section 5043(b) is amended by striking out "Except 
as provided in subsection (a)(3), the taxes" and inserting 
in lieu thereof "The taxes". 
26 use 5662. 
(D) Section 5662 is amended by striking out "stamp," 
each place it appears. 
26 use 5689. 
(E) (i) Section 5689 (relating to penalty and forfeiture 
for tampering with a stamp machine) is repealed. 
(ii) The table of sections for part IV of subchapter J of 
, 
chapter 61 is amended by striking out the item relating to 
-'•'"•" 
section 5689. 
26 use 5061. 
(iii) Section 5061 is amended by striking out subsec-
tion (d). 
(3) 
AMENDMENTS CONFORMING TO AMENDMENT OF SECTION 
5142. 
26 use 5104. 
(A) (i) Section 5104 (relating to method of payment of 
tax on stills) is repealed. 
. 
, 
(ii) The table of sections for subpart C of part II of sub-
chapter A of chapter 51 is amended by striking out the item 
relating to section 5104. 
26 use 5111. 
(B) Section 5111 (a) is amended by striking out the second 
sentence. 
26 use 5121. 
(C) Section 5121 (a) is amended by striking out the second 
sentence. 
26 use 5144. 
(D) (i) Section 5144 (relating to supply of stamps) is 
repealed. 
(ii) The table of sections for subpart G of part II of sub-
chapter A of chapter 51 is amended by striking out the item 
relating to section 5144. 
26 use 5148. 
(E) Section 5148(3) is amended by striking out "penalties" 
and inserting in lieu thereof "penalties, authority for 
, 
assessments,". 
(4) A M E N D M E N T CONFORMING TO THE REPEAL OF SECTION 5315.-— 
The table of sections for part III of subchapter E of chapter 51 
is amended by striking out the item relating to section 5315. 
(5) 
AMENDMENT CONFORMING TO THE AMENDMENT OP SECTION 
\ 
5368.—The item relating to section 5368 in the table of sections 
for part II of subchapter F of chapter 51 is amended to read as 
, 
follows: 
"Sec. 5368. Gauging and marking." 
' i i^-;/' 
(6) AMENDMENTS CONFORMING TO THE AMENDMENT OF SECTION 
5601.— 
-
X
A 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1823 
(A) Section 6105 (b)(2) is amended by striking out ",6601 
26 USC 5105. 
(b)(1),". 
(B) Section 6177(b) (2) is amended by striking out "5601 26 USC 5177. 
. n * 
(b) (2)," and inserting in lieu thereof "5601 (b),". 
(C) Section 5179 (b) (1) is amended by striking out ", 5601 26 USC 5179. 
(b)(1),". 
(D) Section 5222(d) is amended by striking out "5601 (b) 
26 USC 5222. 
(3), 5601(b) (4),". 
(E) Section 5505(i) is amended by striking out "5601(b) 
26 USC 5505. 
(I),"-
(7) AMENDMENTS CONFORMING TO THE AMENDMENT OF SECTION 
5723.— 
(A) Paragraphs (2) and (3) of section 6751(a) are each 
26 USC 5751. 
amended by striking out "notices, and stamps" and inserting 
in lieu thereof "and notices". 
(B) (i) Section 5752 is amended to read as follows: 
"SEC. 5752. RESTRICTIONS RELATING TO MARKS, LABELS, NOTICES, 26 USC 5752. 
AND PACKAGES. 
"No person shall, with intent to defraud the United States, destroy, 
obliterate, or detach any mark, label, or notice prescribed or authorized, 
by this chapter or regulations thereunder, to appear on, or be affixed 
to, any package of tobacco products or cigarette papers or tubes, before 
such package is emptied." 
(ii) Section 5762(a) is amended by striking out paragraphs 26 USC 5762. 
(6), (7), (8), (9), (10), and (11) and inserting in lieu thereof 
' 
the following: 
"(6) 
DESTROYING, OBLITERATING, OR DETACHING MARKS, LABELS, 
O
R NOTICES BEFORE PACKAGES ARE EMPTIED.—Violates any provision 
of section 5752;". 
(iii) The item relating to section 5752 in the table of sec-
tions for subchapter E of chapter 62 is amended to read as 
follows: 
"Sec. 5752. Restrictions relating to marks, labels, notices, and 
packages." 
(C)(i) Section 5763(a)(2) is amended by striking out 26 USC 5763. 
"notices, and stamps" and inserting in lieu thereof "and 
notices". 
(ii) Section 5763(b) is amended by striking out "internal 
;- -
revenue stamps,". 
(D) The item relating to section 5723 in the table of sections 
for subchapter C of chapter 52 is amended to read as follows: 
"Sec. 5723. Packages, marks, labels, and notices." 
' • 
(c) AMENDMENTS TO PROVISIONS REFERRING TO TERRITORIES.— 
(1) Section 6114(b) is amended by striking out "or Territory" 26 USC 5114. 
each place it appears and by striking out "Territories,". 
(2) Section 6214(a) (2) is amended by striking out "or Ter- 26 USC 5214. 
ritory" each place it appears. 
(3) Section 5272(b) is amended by striking out "and 26 USC 5272. 
Territories". 
(4) Section 5362(c)(9) is amended by striking out "and 26 USC 5362. 
Territories". 
(5) Section 5651(b) (2) is amended by striking out "Territory, 26 USC 5551. 
or". 
(6) Section 5685(a) is amended by striking out "Territory 26 USC 5685. 
or". 
90 STAT. 1824 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 5005 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
°ot6- 
take effect on the first day of the first month which begins more than 
90 days after the date of the enactment of this Act. 
SEC. 1906. AMENDMENTS OF SUBTITLE F; PROCEDURE AND ADMIN-
^ 
ISTRATION. 
(a) I N GENERAL.— 
(1) AMENDMENTS OF SECTION eois.— 
26 use 6013. 
(A) Section 6013(b)(2)(C) 
(relating to petition to the 
Tax Court) is amended by striking out "of the United 
States". 
(B) The heading of section 6013(d) is amended to read 
as follows: 
" ( d ) SPECIAL RULES.—". 
(C) Section 6013(d)(1) 
(relating to joint return after 
death of one spouse) is amended by striking out "and" at 
the end of subparagraph ^A) and inserting in lieu thereof 
"or", and by striking out "and" at the end of the subpara-
graph ( B ) . 
26 use 6015. 
(2) AMENDMENT OF SECTION eois.—Section 6015 (relating to 
declaration of estimated tax by individuals) is amended by strik-
ing out subsection (j) (relating to an effective date provision). 
26 use 6037. 
(3) AMENDMENT OF SECTION 60 37.—Section 6037 (relating to 
returns of subchapter S corporations) is amended by striking out 
"section 1371(a) (2)" and inserting in lieu thereof "section 1371 
(b)". 
26 use 6046. 
(4) AMENDMENT OF SECTION 6046.—Section 6046 (e) (relating to 
information 
as to organization of foreign 
corporation) 
is 
amended to read as follows: 
"(e) LIMITATION.—No information shall be required to be furnished 
under this section with respect to any foreign corporation unless such 
information was required to be furnished under regulations which 
have been in effect for at least 90 days before the date on which the 
United States citizen, resident, or person becomes liable to file a return 
required under subsection ( a ) . " 
26 use 6051. 
(5) AMENDMENT OF SECTION 6051.—Section 6051(a) (relating 
to information required to be furnished to employees) is amended 
by striking out "and" where it appears at the end of paragraph 
(6). 
26 use 6065. 
(6) AMENDMENTS or SECTION eoes.—Section 6065 (relating to 
verification of returns) is amended by striking out subsection (b) 
(relating to verification by oath), and by striking out in subsection 
(a) the following: "(a) PENALTIES OF PERJURY.—". 
26 use 6105. 
(7) REPEAL OF SECTION 6IO5.—Section 6105 (relating to com-
pilation of data for certain excess profits tax cases) is repealed. 
26 use 6111. 
(8) AMENDMENT OF SECTION em.—Section 6111 (relating to 
cross references), as redesignated by this Act, is amended to read 
as follows: 
"SEC. 6111. CROSS REFERENCE. 
"For inspection of records, returns, etc., concerning gasoline or 
Ante, p. 1686. 
lubricating oils, see section 4102." 
26 use 6152. 
(9) AMENDMENT OF SECTION 6152.—Section 6152(a) (1) (relat-
ing to installment payments by corporations) is amended to read 
as follows: 
" (1) CORPORATIONS.—^A corporation subject to the taxes imposed 
26 use 1. 
by chapter 1 may elect to pay the unpaid amount of such taxes in 
two equal installments." 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1825 
(10) AMENDMENTS OF SECTION 615 4.— 
(A) Section 6154(c) (1) (B) (relating to definition of esti- 26 USC 6154. 
mated tax) is amended— 
(i) by adding "and" after the comma at the end of 
clause (i), and 
(ii) by striking out clauses (ii) and (iii) and inserting 
in lieu thereof the following: 
"(ii) in the case of a taxable year beginning before 
January 1, 1977, the amount of the corporation's tempo-
rary estimated tax exemption for such year." 
(B) Section 6154(c) (2) (A) (ii) (relating to temporary 
estimated tax payments) is amended by striking out "clauses 
(ii) and (iii)" and inserting in lieu thereof "clause (ii)". 
' 
' 
(C) Section 6154(c)(2)(B) 
(relating to estimated tax) 
is amended by striking out the following: 
"1968, 1969, 1970, 1971, and 1972 
100 percent 
1973 
80 percent 
" 
'-
1974 
60 percent". 
(D) 
Section 6154(c) 
(relating to estimated tax) is 
amended by striking out paragraph (3) (relating to transi-
tional exemption for taxable years beginning before 1972). 
(11) AMENDMENTS or SECTION 6157.— 
(A) Section 6157 (relating to payment of Federal unem- 26 USC 6157. 
ployment tax) is amended by striking out subsection (c) 
(relating to special rules for 1970 and 1971), and by redesig-
nating subsection (d) as subsection (c). 
(B) Section 6157(a) is amended by striking out "subsec-
tions (c) and ( d ) " and inserting in lieu thereof "subsection 
(c)". 
(12) REPEAL OF SECTION 6I62.—Section 6162 (relating to pay- 26 USC 6162. 
ment of tax on gain on liquidation of certain personal holding 
companies) is repealed. 
(13) AMENDMENT OF SECTION 6 20 5.—Section 6205(a) (4) (relat- 26 USC 6205. 
ing to District of Columbia as employer) is amended by striking 
out "Commissioners of the District of Columbia and each agent 
-,. 
designated by them" and inserting in lieu thereof "Mayor of the 
District of Columbia and each agent designated by him". 
(14) AMENDMENT OF SECTION 6207.—Section 6207 (relating to 26 USC 6207. 
cross references) is amended by striking out paragraph (7). 
(15) AMENDMENT OF SECTION 6213.—Section 6213(a) (relating Ante, p. 1698. 
to time for filing petition with the Tax Court) is amended by 
striking out "States of the Union and the District of Columbia" 
and inserting in lieu thereof "United States". 
(16) AMENDMENT OF SECTION 6215.—Section 6215(b)(5) 
(a 26 USC 6215. 
cross reference) is amended by striking out "60 Stat. 48;". 
(17) AMENDMENT OP SECTION 6302.—Section 6302(b) (relating 26 USC 6302. 
to collection of certain excise taxes) is amended by striking out 
"sections 4501 (a) or 4511 of chapter 37, or section 4701 or 4721 of 
chapter 39" and inserting in lieu thereof "section 4501 (a) of chap-
ter 37". 
(18) REPEAL OF SECTION 6304.—Section 6304 (relating to a cross 26 USC 6304. 
reference) is repealed. 
(19) AMENDMENT OF SECTION 6313.—Section 6313 (relating to 
26 USC 6313. 
fractional parts of a cent) is amended by striking out "not pay-
able by stamp". 
(20) AMENDMENTS OF SECTION 632 6.— 
90 STAT. 1826 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 6326. 
(A) Paragraph (2) of section 6326 (cross references) is 
amended by striking out "52 Stat. 851;". 
(B) Paragraph (3) of section 6326 is amended by striking 
out "52 Stat. 867;". 
(C) Paragraph (4) of section 6326 is amended by striking 
out "62 Stat. 867-877;". 
(D) Paragraph (5) of section 6326 is amended by striking 
out "52 Stat. 938;". 
26 use 6365. 
(21) AMENDMENT OF SECTION 6365.—Section 6365(b) (relating 
to definition of governor) is amended by striking out "Commis-
sioner of the District of Columbia" and inserting in lieu thereof 
"Mayor of the District of Columbia". 
26 use 6412. 
(22) AMENDMENT or SECTION 6412.—Section 6412(a) (relating 
to floor stock refunds) is amended by redesignating paragraphs 
(2) and (4) as paragraphs (1) and (2), respectively. 
(23) AMENDMENTS OF SECTION 6 413.— 
26 use 6413. 
(A) Section 6413(a) (4) (relating to District of Columbia 
as employer) is amended by striking out "Commissioners of 
the District of Columbia and each agent designated by them" 
and inserting in lieu thereof "Mayor of the District of Colum-
bia and each agent designated by him". 
(B) (i) Section 6413(c) (1) (relating to refunds of certain 
. f. , w'. - «
?
r
" 
employment taxes) is amended to read as follows: 
" (1) I N GENERAL.—If by reason of an employee receiving wages 
from more than one employer during a calendar year the wages 
received by him during such year exceed the contribution and 
benefit base (as determined under section 230 of the Social 
42 use 430. 
Security Act) which is effective with respect to such year, the 
employee shall be entitled (subject to the provisions of section 31 
. ; 
(b)) to a credit or refund of any amount of tax, with respect to 
such wages, imposed by section 3101 or section 3201, or by both such 
sections, and deducted from the employee's wages (whether or 
not paid to the Secretary), which exceeds the tax with respect 
to the amount of such wages received in such year which is equal 
"Wages." 
to such contribution and oenefit base. The term 'wages' as used 
in this paragraph shall, for purposes of this paragraph, include 
> 
'compensation'as defined in section 3231(e)." 
.Tt^S^-:** " c
- 
(ii) So much of section 6413(c) (2) (A) (relating to Fed-
eral employees) as follows "and the term 'wages' includes" 
g^^j g 
is amended to read as follows: "for purposes of this sub-
section the amount, not to exceed an amount equal to the 
contribution and benefit base (as determined under section 
230 of the Social Security Act) for any calendar year with 
>; ., - i r 
respect to which such contribution and benefit base is effective, 
determined by each such head or agent as constituting wages 
paid to an employee." 
26 use 6413 
(iii) The amendments made by clauses (i) and (ii) shall 
i»ote. 
apply with respect to remuneration paid after December 31, 
1976. 
26 use 6413. 
(C) Section 6413(c)(2)(F) 
(relating to government 
employees in the District of Columbia) is amended by striking 
out "Commissioners of the District of Columbia and each 
agent designated by them" and inserting in lieu thereof 
"Mayor of the District of Columbia and each agent desig-
nated by him". 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1827 
(D) Section 6413(c)(3) (relating to special refunds) is 26USC6413. 
amended by striking out "after 1967". 
(24) AMENDMENTS OF SECTION 6 416.— 
(A) Section 6416(a)(3) (relating to special rules for 26 USC 6416. 
refund of overpayment of tax) is amended by redesignating 
subparagraphs (C) and (D) as subparagraphs (A) and 
(B), respectively. 
(B)(i) Section 6416(b)(2) (relating to overpayments of 
certam excise taxes), as amended by section 2108 of this Act, Post, p. 1904. 
is amended by striking out subparagraphs (G), (H), (I), and 
(J), and by redesignating subparagraphs (F), (K), (L), 
(M), (K), (S), and (T) as subparagraphs (E), (F), (G), 
(H), (I), (J),and (K),respectively. 
•..,»f 
(ii) The repeals made by clause (i) shall apply with 
26 USC 6416 
respect to the use or resale for use of liquids after December 31, "o*®-
1976. 
(25) REPEAL or SECTION 64IT.—Section 6417 (relating to coco- 26 USC 6417. 
nut and palm oil) is repealed. 
(26) A M E N D M E N T S OF SECTION 6420.— 
(A) Section 6420(b) (relating to time for filing refund 26 USC 6420. 
claims on gasoline) is amended to read as follows: 
"(b) TIME FOR FILING CLAIMS; PERIOD COVERED.—Not more than 
one claim may be filed under this section by any person with respect 
to gasoline used during his taxable year, and no claim shall be allowed 
; ; 
under this section with respect to gasoline used during any taxable year 
unless filed by such person not later than the time prescribed by law for 
filing a claim for credit or refund of overpayment of income tax for 
such taxable year. For purposes of this subsection, a person's taxable 
year shall be his taxable year for purposes of subtitle A." 
26 USC 1. 
(B) Section 6420(e) (1) (relating to application of other 
' 
laws) is amended by striking out "apply in in respect" and 
inserting in lieu thereof "apply in respect". 
(C) (1) Section 6420 is amended by striking out subsection 
(g) (relating to effective date) and by redesignating sub-
sections (h) and (i) as subsections (g) and (h), respectively. 
(ii) Section 6420(a) is amended by striking out "subsec-
tion (h)" and inserting in lieu thereof "subsection (g)". 
(D) Section 6420(g) (relating to income tax credit in liei|^ 
of gas tax refund), as redesignated by subparagraph (C) (i) 
of this paragraph, is amended by striking out "with respect to 
gasoline used after June 30. 1965," and "for gasoline used 
after June 30, 1965". 
(27) AMENDMENTS OP SECTION 6 4 21.— 
(A)(i) Subsections (a) and (e) (3) of section 6421 (relat- 26 USC 6421. 
in^ to nonhighway use of gasoline) are each amended by 
striking out "after June 30,1970,". 
(ii) The amendments made by clause (i) shall only apply 26 USC 6421 
with respect to gasoline used as a fuel after June 30, 1970. 
note. 
(B) Section 6421(c) (relating to nonhighway use of gaso-
line) is amended to read as follows: 
"(c) TIME FOR FILING CLAIMS; PERIOD COVERED.— 
^ 
"(1) I N GENERAL.—Except as provided in paragraph (2), not 
more than one claim may be filed under subsection (a), and not 
more than one claim may be filed under subsection (b), by any 
person with respect to gasoline used during his taxable year; and 
no claim shall be allowed under this paragraph with respect to 
gasoline used during any taxable year unless filed by such person 
90 STAT. 1828 
PUBLIC LAW 94-455—OCT. 4, 1976 
not later than the time prescribed by law for filing a claim for 
credit or refund of overpayment of income tax for such taxable 
year. For purposes of this subsection, a person's taxable year shall 
26 use 1. 
be his taxable year for purposes of subtitle A. 
"(2) EXCEPTION-.—If $1,000 or more is payable under this 
section to any person with respect to gasoline used during any of 
the first three quarters of his taxable year, a claim may be filed 
under this section by such person Avith respect to gasoline used 
' 
during such quarter. No claim filed under this paragraph shall be 
allowed unless filed on or before the last day of the first quarter 
following the quarter for which the claim is filed." 
26 use 6421. 
(C) Section 6421(h) 
(relating to effective dates) is 
amended by striking out "after June 30, 1956, and". 
(D) Section 6421 (i) (relating to income tax credit in lieu 
of refund) is amended— 
(i) by striking out, in paragraph (1), "with respect to 
'*' ' ' 
gasoline used after June 30,1965,", 
(ii) by striking out, in paragraph (2), "subsection (c) 
(3)(B)" and inserting in lieu thereof "subsection (c) 
"- - 
•'• 
(2)", and 
(iii) by striking out, in paragraph (3), "for gasoline 
used after June 30,1965." 
(28) AMENDMENTS OF SECTION 642 2.— 
26 use 6422. 
(A) Paragraph (9) of section 6422 (relating to cross ref-
erences), as redesignated by section 1901(b) (36) (B), is 
amended by striking out "60 Stat. 48;". 
(B) Paragraph (11) of section 6422, as so redesignated, is 
amended by striking out "47 Stat. 1516;". 
(29) AMENDMENTS OF SECTION 6423.— 
(A) Section 6423(b) (relating to filing of refund claim in 
case of alcohol and tobacco taxes) is amended to read as 
follows: 
"(b) FILING or CLAIMS.—No credit or refund of any amount to 
which subsection (a) applies shall be allowed or made unless a claim 
therefor has been filed by the person who paid the amount claimed, 
and unless such claim is filed within the time prescribed by law and in 
accordance with regulations prescribed by the Secretary. All evidence 
relied upon in support of such claim shall be clearly set forth and sub-
mitted with the claim." 
(B) Section 6423 is amended by striking out subsection (c) 
(relating to suits barred on April 30, 1958) and by redesig-
nating subsections (d) and (e) as subsections (c) and (d), 
respectively. 
; vM J^.-'» of- 
(C) Section 6423(c) (relating to application of section), as 
redesignated by subparagraph (B) of this paragraph, is 
amended by adding "and" at the end of paragraph (1), by 
' • 
striking out ", and" at the end of paragraph (2) and insert-
ing in lieu thereof a period, and by striking out paragraph 
(3). 
(30) AMENDMENTS OF SECTION 6424.— 
^6 use 6424. 
(A) The last sentence of section 6424(b) (1) (relating to 
refund claims with respect to lubricating oil) is amended by 
striking out ", except that a person's first taxable year begin-
ning after December 31, 1965, shall include the period after 
December 31, 1965, and before the beginning of such first 
taxable year". 
26 use 6423. 
Regulations. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1829 
(B) Section 6424 (relating to lubricating oil not used in 26 USC 6424. 
highway motor vehicles) is amended by striking out subsec-
tion (f) 
(relating to effective date of section), and by 
redesignating subsections (g) and (h) as subsections (f) and 
.. 
(g), respectively. 
(31) 
AMENDMENTS or SECTION 6427.— 
(A) Subsections (a), (b), and (c) of section 6427 (relating 
26 USC 6427. 
to fuels not used for taxable purposes) are each amended 
by striking out ", after June 30. 1970,". 
(B) The amendments made by subparagraph (A) shall 
26 USC 6427 
apply only with respect to fuel used or resold after June 30, °
<
*
*
®
' 
1970. 
(32) AMENDMENTS OF SECTION 6 5 0 4 . — 
(A) Section 6504 (relating to cross references) is amended 
26 USC 6504. 
by striking out paragraphs (13) and (14) and inserting in 
lieu thereof: 
"(13) Assessments to recover excessive amounts paid under section 
6420 (relating to gasoline used on farms), 6421 (relating to gasoline 
used for certain nonhighway purposes or by local transit systems), 
6424 (relating to lubricating oil not used in highway motor vehicles), 
or 6427 (relating to fuels not used for taxable purposes) and assess- 
, 
. 
ments of civil penalties under section 6675 for excessive claims under 
section 6420, 6421, 6424, or 6427, see section 6206." 
(B) Section 6504, as amended by this Act, is further 
amended by redesignating paragraphs (2), (3), (4), (5), 
•=.. 
(9), (10),'(11), (12), (13), and (15) as paragraphs (1), 
" 
' 
(2), (3), (4), (5), (6), (7), (8), (9), and (10), respectively. 
. 
^ 
(33) AMENDMENTS OF SECTION 6 S 11.— 
(A) Section 6511(d) (2) (A) (ii) 
(relating to net oper- 26 USC 6511. 
, 
ating loss carryback) is amended by striking out "Septem-
ber 1, 1959, or" and by striking out ", whichever is the later". 
(B) Section 6511(d) (5) is amended by striking out "the 
later of the following dates: (A)", and by strikmg out ", 
* 
or (B) December 31, 1965". 
(34) AMENDMENT OF SECTION 6GOI.—Section 6601(h) (relating 
26 USC 6601. 
to interest on estimated tax payments) is amended by striking 
out " (or section 59 of the Internal Revenue Code of 1939)". 
53 Stat. 32. 
(35) AMENDMENT OF SECTION 6654.—Section 6654 (relating to 26 USC 6654. 
payment of estimated income tax) is amended by striking out 
subsection (h) (relating to applicability of section). 
(36) AMENDMENT OF SECTION 6802.—Section 6802(2) (relating 26 USC 6802. 
to supply and distribution of stamps) is amended by striking 
out the semicolon at the end and inserting in lieu thereof a 
period. 
(37) AMENDMENT OF SECTION 6803.—Section 6803 (relating to 26 USC 6803. 
accounting and safeguarding is amended to read as follows: 
"SEC. 6803. ACCOUNTING AND SAFEGUARDING. 
"(a) BOND.—In cases coming within the provisions of paragraph 
(2) of section 6802, the Secretary may require a bond, with sufficient 
sureties, in a sum to be fixed by the Secretary, conditioned for the 
faithful return, whenever so required, of all quantities or amounts 
undisposed of and for the payment monthly for all quantities or 
amounts sold or not remaining on hand. 
"(b) REGULATIONS.—The Secretary may from time to time make 
such regulations as he may find necessary to insure the safekeeping or 
prevent the illegal use of all adhesive stamps referred to in paragraph 
(2) of section 6802." 
90 STAT. 1830 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 6863. 
(38) 
AMENDMENT or 
SECTION 
6863.—Section 
6863(b)(3) 
(relating to stay of sale of seized property pending Tax Court 
decision) is amended by striking out subparagraph (C) (relating 
to effective date). 
26 use 7012. 
(39) AMENDMENT or SECTION 7OI2.—Section 7012 (relating to 
cross references), as amended by section 1904(b)(8)(C) of this 
^ ,p, 
Act, is amended to read as follows: 
' 
"SEC. 7012. CROSS REFERENCES. 
"(1) For proyisions relatinjf to registration in connection with fire-
arms, see sections 5802,5841, and 5861. 
"(2) For special rules with respect to registration by persons engaged 
in receiving wagers, see section 4412. 
"(3) For provisions relating to registration in relation to the produc-
tion or importation of gasoline, see section 4101. 
,; , ,•• 
"(4) For provisions relating to registration in relation to the manu-
facture or production of lubricating oils, see section 4101. 
"(5) For penalty for failure to register, see section 7272. 
"(6) For other penalties for failure to register with respect to wager-
ing, see section 7262." 
26 use 7103. 
(40) AMENDMENT OF SECTION 7IO3.—Section 7103 (relating to 
cross references regarding bonds) is amended by striking out sub-
section (d). 
26 use 7271. 
(41) AMENDMENTS OF SECTION 7271.—Section 7271 (relating to 
penalties for offenses concerning stamps) is amended by striking 
out paragraph (2), and by redesignating paragraphs (3) and 
(4) as paragraphs (2) and (3), respectively. 
26 use 7272. 
(42) AMENDMENT OF SECTION 7272.—Section 7272(b) (relating 
to cross references) is amended by striking out "4722, 4753,". 
26 use 7326. 
(43) AMENDMENTS OF SECTION 7326.—Section 7326 (relating to 
disposal of forfeited property) is amended— 
(A) by striking out "section 5862(b)" and inserting in 
lieu thereof "section 5872 (b)", and 
(B) by redesignating subsection (c) as subsection (b). 
26 use 7422. 
(44) AMENDMENTS OF SECTION 7422.—Section 7422(c) (relating 
to suits against collection officers) is amended by striking out 
"instituted after June 15, 1942,", and by striking out "where the 
petition to the Tax Court was filed after such date". 
(45) AMENDMENTS OF SECTION 7428.— 
26 use 7428. 
(A) Paragraph (1) of section 7428 (cross references), as 
redesignated by this Act, is amended by striking out "52 
Stat. 851;". 
?
-
;
g
,
^
< p } ; . 
(B) Paragraph (2) of such section 7428 is amended by 
striking out "52 Stat. 867;". 
(C) Paragraph (3) of such section 7428 is amended by 
striking out "52 Stat. 876-877;". 
. 
.: ^ 
(D) Paragraph (4) of such section 7428 is amended by 
striking out ^52 Stat. 938;". 
(46) A M E N D M E N T S OF SECTION 7448.— 
26 use 7448. 
(A) Subsection 
(a)(6) 
of section 7448 (relating to 
annuities to widows and dependent children of Tax Court, 
judges) is amended— 
"Surviving 
(i) by striking out "The term 'widow' means a surviv-
spouse." 
ing wife of" and inserting in lieu thereof "The terra 
'surviving spouse' means a surviving spouse of"; and 
(ii) by striking out "the mother of issue" and insert-
ing in lieu thereof "a parent of issue". 
(B) Section 7448(h) is amended— 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1831 
(i) by striking out "surviving widow or widower" 
and inserting in lieu thereof "surviving spouse"; 
(ii) by striking out "such widow" each place it appears 
and inserting in lieu thereof "such surviving spouse"; 
(iii) by striking out "a widow" each place it appears 
-^ ;^: 
and inserting in lieu thereof "a surviving spouse"; 
(iv) by striking out "widow's" each place it appears 
and inserting in lieu thereof "surviving spouse's"; and 
(v) by striking out "surviving her" and inserting in 
lieu thereof "surviving such spouse". 
(C) Sections 7448 (h) and (o) are each amended by strik- 26 USC 7448. 
ing out "she" and inserting in lieu thereof "such spouse". 
(D) Section 7448 (o) is amended by striking out "her" and 
:t: 1, 
inserting in lieu thereof "such spouse's". 
(E) Sections 7448 (d), (j), (m), (n), (o), and (q) are 
i. .; 
each amended by striking out "widow" each place it 
appears and inserting in lieu thereof "surviving spouse". 
. .. 
(F) The section heading for section 7448 is amended by 
^
^ f -^ 
striking out "WIDOWS" and inserting in lieu thereof "SUR-
VIVING SPOUSES". 
(47) 
A M E N D M E N T S o r SECTION 7471.— 
(A) Subsection (a) of section 7471 (relating to Tax Court 26 USC 7471. 
employees) is amended by striking out "is authorized in ac-
cordance with the civil service laws to appoint, and in ac-
cordance with the Classification Act of 1949 (63 Stat. 954; 
5 U.S.C. chapter 21), as amended, to fix the compensation 
of," and inserting in lieu thereof "is authorized to appoint, 
;
• 
in accordance with the provisions of title 5, United States 
Code, governing appointment in the competitive service, and 5 USC 101 et 
to fix the basic pay of, in accordance with chapter 51 and **9-
subchapter III of chapter 53 of such title,". 
5 USC 5101, 
(B) Subsection (b) of section 7471 is amended by striking 5331. 
out "as provided in the Travel Expense Act of 1949 (63 Stat. 
166; 5 U.S.C. chapter 16)." and inserting in lieu thereof "as 
provided in chapter 57 of title 5, United States Code." 
5 U
S
C 5701. 
(48) AMENDMENT O
F SECTION 7476.—Section 7476(a) (relating 26 USC 7476. 
to declaratory judgments) is amended by striking out so much 
thereof as follows paragraph (2) (B) and inserting in lieu 
thereof the following: 
"upon the filing of an appropriate pleading, the Tax Court may 
make a declaration with respect to such initial qualification or con-
tinuing qualification. Any such declaration shall have the force and 
effect of a decision of the Tax Court and shall be reviewable as 
; 
such." 
(49) AMENDMENT O
F SECTION 7502.—Section 7502(b) (relating 26 USC 7502. 
to timely mailing treated as timely filing and paying) is amended 
n 
by striking out "United State Post Office" and inserting in lieu 
thereof "United States Postal Service". 
(50) AMENDMENTS or SECTION 7507.—Paragraphs (2) and (3) 
of section 7507(c) (relating to insolvent banks) are each amended 26 USC 7507. 
by striking out "after May 28,1938,". 
(51) AMENDMENTS OF SECTION 7508.— 
(A) The heading of section 7508 (relating to time for 26 USC 7508. 
performing certain acts) is amended by striking out "BY 
REASON OF WAR" and inserting in lieu thereof "BY REASON 
OF SERVICE IN COMBAT ZONE". 
90 STAT. 1832 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 7508. 
(B) Section 7508(a) (relating to time to be disregarded) 
is amended by striking out "States of the Union and the 
District of Columbia" each place it appears and inserting in 
lieu thereof "United States". 
26 use 7509. 
(52) AMENDMENTS OF SECTION 7 509.—Section 7509 (relating to 
expenditures 
incurred 
by the Post 
Office 
Department) 
is 
amended— 
(A) in the section heading, by striking out "POST OFFICE 
DEPARTMENT" and inserting in lieu thereof "UNITED STATES 
POSTAL SERVICE"; 
(B) by striking out "Post Office Department" each place it 
, 
appears and inserting in lieu thereof "United States Postal 
Service"; 
(C) by striking out "such Department" and inserting in 
lieu thereof "such Service"; and 
(D) by striking out ", together with the receipts required 
Ante, p. 1829. 
to be deposited under section 6803(a),". 
26 use 7621. 
(63) AMENDMENT OF SECTION 7621.—Section 7621(b) (relating 
to boundaries of internal revenue districts) is amended to read 
as follows: 
"(b) BOUNDARIES.—For the purpose mentioned in subsection (a), 
the President may subdivide any State or the District of Columbia, or 
may unite into one district two or more States." 
Repeal 
(54) REPEAL or SECTION 764I.—Subchapter C of chapter 78 
26 use 7641. 
(relating to supervision of operations of certain manufacturers) 
is repealed. 
26 use 7652. 
(55) AMENDMENTS OF SECTION 
7652.—Section 
7652(b)(3) 
(relating to disposition of internal revenue collections) 
is 
amended— 
(A) by striking out subparagraph (B) and by redesignat-
ing subparagraph (C) as subparagraph ( B ) . 
(B) by striking out "approved emergency relief purposes 
and essential public projects as provided m subparagraph 
( B ) " and inserting in lieu thereof "emergency relief purposes 
and essential public projects, with the prior approval of the 
President or his designated representative", and 
(C) by striking out ", including payments under subpara-
graph (B),". 
26 use 7653. 
(56) AMENDMENT OF SECTION 765 3.—Section 7653(d) (across 
reference) is amended by striking out "c. 512, 64 Stat. 392, 
section 30;". 
(57) 
AMENDMENTS OF SECTION 7701.— 
26 use 7701. 
(A) Section 7701(a) (11) (relating to definitions of Sec-
retary) is amended to read as follows: 
"(11) 
SECRETARY OF THE TREASURY AND SECRETARY.— 
Definitions. 
" ( A ) SECRETARY OF THE TREASURY.—The term 'Secretary 
of the Treasury' means the Secretary of the Treasury, per-
sonally, and shall not include any delegate of his. 
" ( B ) SECRETARY.—The term 'Secretary' means the Secre-
tary of the Treasury or his delegate.". 
(B) Section 7701(a) (12) (A) (relating to definition of 
Secretary or his delegate) is amended to read as follows: 
i*- , 
• 
" ( A ) I N GENERAL.—The term'or his delegate'— 
"(i) when used with reference to the Secretary of the 
Treasury, means any officer, employee, or agency of the 
Treasury Department duly authorized by the Secretary 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1833 
of the Treasury directly, or indirectly by one or more 
redelegations of authority, to perform the function 
mentioned or described in the context; and 
"(ii) when used with reference to any other official of 
the United States, shall be similarly construed." 
(58) AMENDMENT OF SECTION TSOS.—Section 7803 (relating to 26 USC 7803. 
other personnel) is amended by redesignating subsection (d) as 
subsection (c). 
(59) AMENDMENT OF SECTION 7809.—Section 7809(a) (relating 26 USC 7809. 
to deposit of collections) is amended by striking out "4735,4762,". 
(b) CONFORMING AND CLERICAL 
AMENDMENTS.— 
(1) 
AMENDMENT 
CONFORMING 
TO THE REPEAL 
OF 
SECTION 
6105.—The table of sections for subchapter B of chapter 61 is 
amended by striking out the item relating to section 6105. 
(2) AMENDMENT CONFORMING TO AMENDMENT OF SECTION e m . — 
The item relating to section 6111 in the table of sections for sub-
chapter B of chapter 61 is amended to read as follows: 
"Sec. 6111. Cross reference." 
(3) 
AMENDMENTS 
CONFORMING 
TO AMENDMENTS 
OF SECTION 
6154. 
(A) Paragraph (1) (B) of section 6655(e) is amended: 
26 USC 6655. 
(i) by adding "and" at the end of clause (i), and 
(ii) by striking out clauses (ii) and (iii) and insert-
ing in lieu thereof the following: 
"(ii) in the case of a taxable year beginning before 
January 1, 1977, the amount of the corporation's tempo-
.; 
rary estimated tax exemption for snch year." 
(B) Paragraph (2) (B) of section 6655(e) is amended by 
striking out "clauses (ii) and (iii)" and inserting in lieu 
thereof "clause (ii)". 
(C) (i) Section 6655(e) is amended by striking out para-
graph (3) and by redesignating paragraph (4) as paragraph 
(3). 
(ii) Section 243(b) (3) (C) (iv), as redesignated by section Ante, T^. 1797. 
1901 (b) (20) (A) of this Act, is amended by striking out "sec-
tions 6154(c) (2) and (3)" and inserting in lieu thereof "sec-
tion 6154(c) (2)", and by striking out "sections 6655(e) (2) 
and ( 3 ) " and inserting in lieu thereof "section 6665(e) (2)". 
(4) A M E N D M E N T CONFORMING TO THE REPEAL OF SECTION 0162.— 
The table of sections for subchapter B of chapter 62 is amended 
by striking out the item relating to section 6162. 
(5) A M E N D M E N T CONFORMING TO T H E REPEAL OF SECTION 63O4.— 
The table of sections for subchapter A of chapter 64 is amended 
by striking out the item relating to section 6304. 
(6) 
AMENDMENTS 
CONFORMING TO THE AMENDMENT 
or 
SEC-
TION 6416.— 
(A) Subparagraph (A) of section 6420(c) (3) is amended 26 USC 6420. 
to read as follows: 
" ( A ) by the owner, tenant, or operator of a farm, in con-
nection with cultivating the soil, or in connection with raising 
or harvesting any agricultural or horticultural commodity, 
including the raising, shearing, feeding, caring for, training, 
and management of livestock, bees, poultry, and fur-bearing 
animals and wildlife, on a farm of which he is the owner, 
tenant, or operator; except that if such use is by any person 
90 STAT. 1834 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 4041. 
26 use 6420 
note. 
Ante, p. 1827. 
26 use 39. 
Ante, p. 1829. 
Ante, p. 1832. 
26 use 1 et seq. 
26 use 4293, 
4483, 5551, 
7801, 7802, 
9006, 9007. 
26 use 3121, 
3303, 3304, 
3305, 3306, 
9005, 9007, 
9010, 9012. 
26 use 31. 
26 use 3304. 
other than the owner, tenant, or operator of such farm, then 
for purposes of this subparagraph, in applying subsection 
(a) to this subparagraph, the owner, tenant, or operator of 
the farm on which gasoline or a liquid taxable under section 
4041 issued shall be treated as the user and the ultimate pur-
chaser of such gasoline or liquid;". 
(B) The amendments made by subparagraph (A) shall 
apply with respect to the use of liquids after December 31, 
1970. 
(7) AMENDMENT CONFORMING TO THE REPEAL or SECTION 64IT.— 
The table of sections for subchapter B of chapter 65 is amended 
by striking out the item relating to section 6417. 
(8) AMENDMENT CONFORMING TO AMENDMENT OF SECTION 642O.— 
Section 39(a) (1) is amended by striking out "section 6420(h)" 
and inserting in lieu thereof "section 6420(g)". 
(9) AMENDMENT CONFORMING TO AMENDMENT OF SECTION 6424.— 
Section 39(a) (3) is amended by striking out "section 6424(g)" 
and inserting in lieu thereof "section 6424(f)". 
(10) 
AMENDMENT 
CONFORMING TO AMENDMENT or 
SECTION 
7 448.—The item relating to section 7448 in the table of sections 
for part I of subchapter C of chapter 76 is amended to read as 
follows: 
"Sec. 7448. Annuities of surviving spouses and dependent children.". 
(11) 
AMENDMENT 
CONFORMING TO AMENDMENT OF SECTION 
7 508.—The item relating to section 7508 in the table of sections 
for chapter 77 is amended to read as follows: 
"Sec. 7508. Time for performing certain acts postponed by reason of 
service in combat zone.". 
(12) 
AMENDMENT 
CONFORMING TO AMENDMENT OF SECTION 
7 509.—The item relating to section 7509 in the table of sections 
for chapter 77 is amended to read as follows: 
"Sec. 7509. Expenditures incurred by the United States Postal 
Service.". 
(13) 
AMENDMENT CONFORMING TO REPEAL OF SECTION T 6 4 I . — 
The table of subchapters for chapter 78 is amended by striking 
out the item relating to subchapter C. 
(A) The Internal Revenue Code of 1954, as amended by 
this Act, is amended by striking out "Secretary or his 
delegate" each place it appears and inserting in lieu thereof 
"Secretary". 
(B) The following provisions are each amended by strik-
ing out "Secretary" each place it appears and inserting in 
lieu thereof "Secretary of the Treasury": sections 4293, 4483 
(b), 5551, 7801(b), 7802(a), 9006(a), 9006(b), and 9007(d). 
(C) The following provisions are each amended by striking 
out "to the Secretary" each place it appears and inserting in 
lieu thereof "to the Secretary of the Treasury": sections 3121 
(b) (12) (B), 3303(b), 3304(a) (3), 3304(c), 3305(j), 3306(c) 
(12) ( B ) , 9005(a), 9007(b), 9'010(b), and 9012(e) (3). 
(D) Section 31(b) (1) is amended by striking out "(or his 
delegate)". 
(E) The last sentence of section 3304(c) is amended by 
striking out "the Secretary shall" and inserting in lieu thereof 
"the Secretary of Labor shall". 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1835 
(F) Section 3310(d) (2) is amended by striking out "the 26 USC 3310. 
Secretary's action" each place it appears and inserting in lieu 
thereof "the Secretary of Labor's action". 
(G) Section 3221(a) and 3221(c) are each amended by 26 USC 3221. 
striking out "of the Treasury" each place it appears. 
(H) Section 3310(e) is amended by striking out "of the 26 USC 3310. 
Secretary" and inserting in lieu thereof "of the Secretary of 
Labor". 
(I) Section 4412(c) is amended by striking out "he or his 26 USC 4412. 
delegate" and inserting in lieu thereof "the Secretary". 
(J) Section 5845(f) is amended by striking out "of the 26 USC 5845. 
Treasury or his delegate". 
(K) Section 6402(b) is amended by striking out "(or his 26 USC 6402. 
delegate)". 
(L) Section 7458 is amended by striking out "nor his 26 USC 7458. 
delegate". 
(M) Section 7514 is amended by striking out "functions of 26 USC 7514. 
the Secretary" and inserting in lieu thereof "functions of the 
Secretary of the Treasury". 
(c) AMENDMENTS TO SECTIONS REFERRING TO TERRITORIES.— 
(1) Section 6871(a) is amended by striking out "or Territory". 26 USC 6871. 
(2) Section 7622(b) is amended by striking out ", Territory,". 26 USC 7622. 
(3) Section 7701(a)(4) is amended by striking out "or 26 USC 7701. 
Territory". 
(d) EFFECTIVE DATE.— 
26 USC 6013 
(1) GENERAL RULE.—Except as otherwise expressly provided 
°°^' 
in this section, the amendments made by this section shall take 
effect on the first day of the first month which begins more than 
90 days after the date of the enactment of this Act. 
(2) AMENDMENTS RELATING TO INCOME TAX.—The amendments 
made by this section, when relating to a tax imposed by chapter 26 USC 1,1401. 
1 or chapter 2 of the Internal Revenue Code of 1954, shall take 
effect with respect to taxable years beginning after December 31, 
1976. 
\ SEC. 1907. AMENDMENTS OF SUBTITLE G; THE JOINT COMMITTEE ON 
INTERNAL REVENUE TAXATION. 
\(a) I N GENERAL.— 
(1) AMENDMENT or SECTION sooi.—Section 8001 (relating to 26 USC 8001. 
creation of the Joint Committee) is amended by striking out 
"Joint Committee on Internal Revenue Taxation'^ and inserting 
in lieu thereof "Joint Committee on Taxation". 
(2) AMENDMENT OF SECTION 8OO4.—Section 8004 (relating to 26 USC 8004. 
compensation of staff) is amended by striking out "compensation 
of a clerk" and inserting in lieu thereof "compensation of the 
Chief of Staff of the Joint Committee". 
(3) AMENDMENT OF SECTION 8021.—Section 8021(d) (relating 26 USC 8021. 
to authority to make expenditures) is amended to read as follows: 
"(d) 
To MAKE EXPENDITURES.—The Joint Committee, or any 
subcommittee thereof, is authorized to make such expenditures as it 
deems advisable.". 
(4) AMENDMENT OF SECTION 8023.—Section 8023(c) (relating 26 USC 8023. 
to reorganization plans) is amended to read as follows: 
"(c) AMPLICATION OF SUBSECTIONS (a) AND (b).—Subsections (a) 
and (b) shall be applied in accordance with their provisions without 
regard to any reorganization plan becoming effective on, before, or 
after the date of the enactment of this subsection.". 
90 STAT. 1836 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 8001 
(5) All references in any other statute, or in any rule, regula-
note. 
tion, or order, to the Joint Committee on Internal Revenue Taxa-
tion shall be considered to be made to the Joint Committee on 
Taxation, 
(b) AMENDMENTS CONFORMING TO THE AMENDMENT or SECTION 
8001.— 
(1) The heading of subtitle G is amended by striking out 
"Internal Revenue". 
(2) The table of subtitles for the Internal Revenue Code of 
1954 is amended by striking out the item relating to subtitle G 
and inserting in lieu thereof the following: 
"SUBTITLE G. The Joint Committee on Taxation.". 
26 use 8001 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
take effect on the first day of the first month which begins more than 
90 days after the date of the enactment of this Act. 
26 use 1 note. 
SEC. 1908. EFFECTIVE DATE OF CERTAIN DEFINITIONS AND DESIGNA-
TIONS 
For purposes of any amendment made by any provision of this Act 
(other than this title)— 
(1) which contains a term the meaning of which is defined in or 
modified by any provision of this title, and 
(2) which has an effective date earlier than the effective date of 
the provision of this title defining or modifying such term, 
that definition or modification shall be considered to take effect as of 
such earlier effective date. 
Subtitle B—Amendments of Code Provisions 
With Limited Current Application; Repeals 
and Saving's Provisions 
SEC. 1951. PROVISIONS OF SUBTITLE A. 
(a) REFERENCES TO INTERNAL REVENUE CODE.—Except as otherwise 
expressly provided, whenever in this section a reference is made to a 
section or other provision, the reference shall be considered to be made 
26 use 1. 
to a section or other provision of the Internal Revenue Code of 1954. 
(b) AMENDMENTS.— 
(1) A M E N D M E N T OF SECTION 72.— 
26 use 72. 
(A) 
REPEAL.—Section 72 (relating to annuities) is 
amended by striking out subsection (i) (relating to joint and 
survivor annuities where first annuitant died in 1951, 1952, 
or 1953). 
26 use 72 note. 
(B) SAVINGS PROVISION.—Notwithstanding subparagraph 
(A), if the provisions of section 72(i) applied to amounts 
received in taxable years beginning before January 1, 1977, 
under an annuity contract, then amounts received under such 
contract on or after such date shall be treated as if such pro-
visions were not repealed. 
26 use 108. 
(2) AMENDMENTS OF SECTION IO8.— 
(A) REPEAL.—Section 108 (relating to income from dis-
charge of indebtedness) is amended by striking out subsection 
(b) (relating to certain railroad corporations) and by strik-
ing out of subsection (a) the following: "(a) SPECIAL RULE 
OP EXCLUSION.—". 
., 
, 
„ 
. . . 
, , . -
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1837 
(B) SAVINGS PROVISION.—If any discharge, cancellation, 26 USC 108 
or modification of indebtedness of a railroad corporation °°*^-
occurs in a taxable year beginning after December 31, 1976, 
pursuant to an order of a court in a proceeding referred to in 
section 108(b) (A) or (B) which commenced before Janu-
ary 1, 1960, then, notwithstanding the amendments made by 
subparagraph (A), the provisions of subsection (b) of sec-
tion 108 shall be considered as not repealed with respect to 
such discharge, cancellation, or modification of indebtedness. 
(3) AMENDMENTS OF SECTION I6 4,— 
(A) REPEAL.—Section 164 (relating to taxes) is amended 26 USC 164. 
by striking out subsection (f) (relating to payments for 
municipal services in atomic energy communities) and by 
redesignating subsection (g) as subsection (f). 
(B) SAVINGS PROVISION.—Notwithstanding subparagraph 26 USC 164 
(A), any amount paid or accrued in a taxable year beginning note, 
after December 31, 1976, to the Atomic Energy Commission 
or its successors for municipal-type services shall be allowed 
as a deduction under section 164 if such amount would have 
been deductible by reason of section 164(f) (as in effect for 
a taxable year ending on December 31, 1976) and if the 
amount is paid or accrued with respect to real property in 
a community (within the meaning of section 21 b. of the 
Atomic Energy Community Act of 1955 (42 U.S.C. 2304 
(b))) in which the Commission on December 31, 1976, was 
rendering municipal-type services for which it received com-
pensation from 
the owners of property 
within such 
community. 
(4) 
R E P E A L OF SECTION 1 6 8 . — 
(A) REPEAL.—Section 168 (relating to amortization of 26 USC 168. 
emergency facilities) is repealed. 
(B) SAVINGS PROVISION.—Notwithstanding the repeal 26 USC 168 
made by subparagraph (A), if a certificate was issued before note. 
January 1, 1960, with respect to an emergency facility which 
is or has been placed in service before the date of the enact-
ment of this Act, the provisions of section 168 shall not, with 
respect to such facility, be considered repealed. The benefit 
^ 
of deductions by reason of the preceding sentence shall be 
allowed to estates and trusts in the same manner as in the 
case of an individual. The allowable deduction shall be 
apportioned between the income beneficiaries and the fidu-
ciary in accordance with regulations prescribed under section 
642(f). 
(5) A M E N D M E N T OF SECTION 171.— 
(A) REPEAL.— 
(i) Section 171(b)(1)(B) (relating to amount of 26 USC 171. 
bond premium) is amended by striking out clause (iii) 
(relating to certain bonds acquired before 1958). 
(ii) Section 171(b) (1) (B) (i) is amended by striking 
out "clause (ii) or (iii) applies," and inserting in lieu 
thereof "clause (ii) applies, or", and by inserting 
"and" at the end thereof. 
(iii) Section 171(b) (l)(B)(ii) is amended by strik-
ing out ", or" and inserting ", and" in lieu thereof. 
(iv) The second sentence in section 171(b)(2) is 
amended by striking out "or (iii)". 
89-194 O—78—pt. 2 
24 
90 STAT. 1838 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 171 
(B) 
SAVINGS PROVISION.—Notwithstanding the amend-
note. 
^ ments made by subparagraph (A), in the case of a bond the 
interest on which is not excludable from gross income— 
(i) which was issued after January 22, 1951, with a 
call date not more than 3 years after the date of such 
issue, and 
(ii) which was acquired by the taxpayer after Janu-
ary 22,1954, and before .January 1,1958, 
the bond premium for a taxable year beginning after Decem-
• 
ber 31, 1975, shall not be determined under section 171(b) 
(1) (B) (i) but shall be determined with reference to the 
amount payable on maturity, and if the bond is called before 
its maturity, the bond premium for the year in which the 
,», 
bond is called shall be determined in accordance with the 
provisions of section 171 (b) (2). 
(6) AMENDMENT or SECTION 333.— 
26 use 333. 
(A) REPEAL.—Section 333 (relating to election as to recog-
nition of gain in certain liquidations) is amended by striking 
out subsection (g) (relating to the liquidation of certain 
personal holding companies). 
26 use 333 
(B) SAVINGS PROVISION.—Nothwdthstanding subparagraph 
aote. 
(A), if any corporation meets all the requirements of sec-
tion 333(g) (2) (B), as in effect before its repeal by this Act, 
the liquidation of such corporation shall be treated as if 
paragraphs (2), (3), and (4) of section 333(g) had not been 
repealed. 
26 use 333 
(C) 
PHASE-IN 
OF 12-MONTH HOLDING PERIOD REQUIRE-
note. 
MENT.—For purposes of subparagraph (B), the period for 
holding of stock specified in section 333(g) (2) (A) (ii), as in 
effect before such repeal, shall— 
(i) in the case of taxable years beginning in 1977, be 
considered to be "9 months"; and 
(ii) in the case of taxable years beginning after De-
cember 31,1977, be considered to be "1 year". 
(7) AMENDMENT or SECTION 453.— 
26 use 453. 
(A) REPEAL.—Section 453(b) (2) (relating to limitation 
on use of installment sales method) is amended to read as 
follows: 
"(2) LIMITATION.—Paragraph (1) shall apply only if in 
the taxable year of the sale or other disposition— 
"(A) there are no payments, or 
"(B) the payments (exclusive of evidences of indebted-
ness of the purchaser) do not exceed 30 percent of the selling 
price.". 
26 use 453 
(B) SAVINGS PROVISION.—Notwithstanding subparagraph 
note. 
(A), in the case of installment payments received during tax-
able years beginning after December 31, 1976, on account of 
a sale or other disposition made during a taxable year begin-
ning before January 1, 1954, subsection (b) (1) of section 
453 (relating to sales of realty and casual sales of person-
alty) shall apply only if the income was (by reason of sec-
53 Stat. 24. 
tion 44(b) of the Internal Revenue Code of 1939) returnable 
on the basis and in the manner prescribed in section 44(a) 
of such Code. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1839 
(8) 
A M B N I I M E N T S OF SECTION 512. 
(A) EEPEAL.—Section 512(b) (relating to unrelated busi- 26 USC 512. 
ness taxable income) is amended by striking out paragraphs 
(13) and (14) and by redesignating paragraphs (15), (16), 
and (17) as paragraphs (13), (14), and (15), respectively. 
(B) SAVINGS PROVISION.—Notwithstanding subparagraph 26 USC 512 
(A), income received in a taxable year beginning after 
note. 
December 31, 1975, shall be excluded from gross income in 
determining unrelated business taxable income, if such 
income would have been excluded by paragraph (13) or (14) 
of section 512(b) if received in a taxable year beginning 
before such date. Any deductions directly connected with 
income excluded under the preceding sentence in determining 
unrelated business taxable income shall also be excluded for 
such purpose. 
(9) AMENDMENT OF SECTION 545.— 
(A) REPEAL.—Section 545(b) (relating to adjustments in 26 USC 545. 
computing undistributed personal holding company income) 
is amended by striking out paragraph (9) (relating to deduc-
tions on account of certain liens in favor of the United 
States). 
(B) SAVINGS PROVISION.—Notwithstanding subparagraph 26 USC 545 
(A), if any amount was deducted under paragraph (9) of note, 
section 545(b) in a taxable year beginning before January 1, 
1977, on account of a lien which is satisfied or released m a 
taxaole year beginning on or after such date, the amount so 
deducted shall be included in income, for purposes of section 
545, as provided in the second sentence of such paragraph. 
Shareholders of any corporation which has amounts included 
in its income by reason of the preceding sentence may elect 
to compute the income tax on dividends attributable to 
amounts so included as provided in the third sentence of such 
paragraph. 
(10) AMENDMENTS or SECTION 691.— 
(A) REPEAL.—Section 691 (relating to income in respect 26 USC 691. 
of decedents) is amended by striking out subsection (e) 
(relating to certain installment obligations transmitted at 
death) and by redesignating subsection (f) as subsection (e). 
(B) SAVINGS PROVISION.—Notwithstanding subparagraph 26 USC 691 
(A), any election made under section 691(e) to have subsec- note. 
tion (a) (4) of such section apply in the case of an installment 
obligation shall continue to be effective with respect to tax-
able years beginning after December 31,1976. Section 691(c) 
shall not apply in respect of any amount included in gross 
income by reason of the preceding sentence. The liability 
under bond filed under section 44(d) of the Internal Revenue 
Code of 1939 (or corresponding provisions of prior law) in 53 Stat. 24. 
respect of which such an election applies is hereby released 
with respect to taxable years to which such elex^tion applies. 
(11) AMENDMENTS or SECTION 817.— 
(A) REPEAL.—Section 817 is amended by striking out 26 USC 817. 
subsection (d) (relating to certain gains occurring Itefore 
1959). 
(B) SAVINGS PROVISION.—Notwithstanding subparagraph 26 USC 817 
(A), any gain in a taxable year beginning after Decern- note. 
ber 31, 1976, from any sale or other disposition of property 
prior to January 1,1959, would be excluded or not taken into 
90 STAT. 1840 
Ante, p. 1839. 
26 use 1347. 
26 use 1347 
note. 
26 use 1471. 
26 use 1471 
note. 
26 use 1481. 
26 use 1481 
note. 
53 Stat. 1. 
26 use 1017. 
26 use 1238. 
Ante, p. 1520. 
26 use 642, 
1082. 
Ante, p. 1837. 
26 use 1245, 
1250. 
PUBLIC LAW 94-455—OCT. 4, 1976 
account for purposes of part 1 of subchapter L of chapter 
1 if subsection (d) of section 817 of such Code were still in 
effect for such taxable year, such gain shall be excluded for 
purposes of such part. 
(12) REPEAL or SECTION 1347.— 
(A) REPEAL.—Section 1347 (relating to certain claims filed 
against the United States before January 1,1958) is repealed. 
(B) SAVINGS PROVISION.—Notwithstanding subparagraph 
(A), if amounts received in a taxable ;^ear oeginning after 
December 31,1976, would have been subject to the provisions 
of section 1347 if received in a taxable year beginning before 
such date, the tax imposed by section 1 attributable to such 
receipt shall be computed as if section 1347 had not been 
repealed. 
(13) 
REPEAL or SECTION 1471.— 
(A) REPEAL.—Subchapter A of chapter 4 (relating to 
recovery of excessive profits on certain Government con-
tracts) is repealed. 
(B) SAVINGS PROVISION.—If the amount of profit required 
to be paid into the Treasury under section 2382 or 7300 of 
title 10, United States Code, is not voluntarily paid, the Sec-
retary of the Treasury or his delegate shall collect the same 
under the methods employed to collect taxes under subtitle 
A. All provisions of law (including penalties) 
applicable 
with respect to such taxes and not inconsistent with section 
2382 or 7300 of title 10 of such Code, shall apply with respect 
to the assessment, collection, or payment of excess profits to 
the Treasury as provided in the preceding sentence, and to 
refunds by the Treasury of overpayments of excess profits 
into the Treasury. 
(14) AMENDMENT or SECTION I 4 8 I . — 
(A) 
REPEAL.—Section 1481 (relating to mitigation of 
effect of renegotiation of Government contracts) is amended 
by striking out subsection (d) (relating to renegotiation for 
years prior to 1954). 
(B) SAVINGS PROVISION.—If, during a taxable year begin-
ning after December 31, 1976, a recovery of excessive profits 
through renegotiation which relates to profits of a taxable 
year subject to the Internal Revenue Code of 1939, the 
adjustments in respect to such renegotiation shall be made 
under section 3806 of such Code. 
(c) CONFORMING AND CLERICAL AMENDMENTS.— 
(1) 
AMENDMENT CONFORMING TO THE AMENDMENT OF SECTION 
108.—Section 1017 is amended by striking out "section 108(a)" 
each time it appears therein and inserting m lieu thereof "section 
108". 
(2) AMENDMENTS CONFORMING TO REPEAL OF SECTION 16§.— 
(A) Section 1238 is amended by striking out "(relating to 
amortization deduction of emergency facilities)" and insert-
ing in lieu thereof "(as in effect before its repeal by the Tax 
Reform Act of 1976)". 
(B) Sections 642(f) and 1082(a) (2) (B) are each amended 
by striking out "168,". 
(C) Sections 1245(a) (2) and 1250(b) (3) are each amended 
by striking out "168," each place it appears and inserting in 
lieu thereof "168 (as in effect before its repeal by the Tax 
Reform Act of 1976),". 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1841 
(D) The table of sections for part VI of subchapter B of 
chapter 1 is amended by striking out the item relating to 
section 168. 
Ante, p. 1837. 
(3) 
AMENDMENTS COXFORMIXG TO THE REPEAL or SECTION 
1347.— 
(A) Section 5(b) is amended by striking out paragraph 
26 USC 5. 
(5) and by redesignating paragraphs (2), (3), and (4), as 
paragraphs (1), (2), and (3), respectively. 
(B) The table of sections for part VI of subchapter Q of 
chapter 1 is amended by striking out the item relating to 
section 1347. 
Ante, p. 1840. 
(C) The heading of part VI of subchapter Q of chapter 1 
is amended to read as follows: 
"PART VI—MAXIMUM RATE ON PERSONAL SERVICE 
INCOME.'* 
(D) The table of parts for subchapter Q of chapter 1 is 
amended by striking out the item relating to part VI and 
inserting in lieu thereof the following: 
"Part VI. Maximum rate on personal service Income." 
(4) AMENDMENT CONFORMING TO THE REPEAL OF SECTION 1471.— 
The table of subchapters for chapter 4 is amended by striking 
out the item relating to subchapter A. 
(d) EFFECTIVE DATE.—Except as otherwise expressly provided, the 
amendments made by this section shall apply with respect to taxable 
years beginning after December 31,1976. 
SEC. 1952. PROVISIONS OF SUBCHAPTER D OF CHAPTER 39; COTTON 
FUTURES. 
(a) SHORT TITLE.—This section may be cited as the "United States 
Cotton Futures Act". 
(b) REPEAL OF TAX ON COTTON FUTURES.—Subchapter D of chap-
ter 39 (relating to tax on cotton futures) is repealed. 
(c) DEFINITIONS.—For purposes of this section— 
(1) COTTON FUTURES CONTRACT.—The term "cotton futures con-
tract" means any contract of sale of cotton for future delivery 
made at, on, or in any exchange, board of trade, or similar institu-
tion or place of business which has been designated a "contract 
market" by the Commodity Futures Trading Commission pur-
suant to the Commodity Exchange Act and the term "contract of 7 USC 1. 
sale" as so used shall be held to include sales, agreements of sale, 
and agreements to sell. 
(2) FUTURE DELIVERY.—^The term "future delivery" shall not 
include any cash sale of cotton for deferred shipment or deliy^e^l 
(3) PERSON.—The term "person" includes an individual, tnilfc, 
estate, partnership, association, company, or corporation. 
(4) SECRETARY.—The term "Secretary" means tM 
'§^^Ui9§ 
of Agriculture of the United States. 
-
(5) STANDARDS.—The term "standards"meansthe ofiiciaLlcbHon 
standards of the United States established tfy the Sec'retairy pur-
suant to the United States Cotton Standards Act, as atneiided. 
(d) BONA FIDE SPOT MARKETS AND 06|itefcitciAL DIFFERENCES.— 
(1) DEFINITION.—For purposes of thi^geCtionj the 6riij^ markets 
which shall be considered bon^'flde'^^t Markets shkll be those 
which the Secretary shall, ffdm time to flme,'.&Mr ih^fetigati 
determine and designate t^ be SuCh, ahd'bf wHifeRHe '^hall give 
public notice. 
26 USC 72 note. 
United States 
Cotton Futures 
Act. 
7 USC 15b. 
26 USC 4851. 
90 STAT. 1842 
PUBLIC LAW 94-455—OCT. 4, 1976 
Rules and 
(2) DETERMINATION.—In determining, pursuant to the provi-
regulations. 
sions of this section, what markets are bona fide spot markets, the 
Secretary is directed to consider only markets in which spot cotton 
is sold in such volume and under such conditions as customarily 
to reflect accurately the value of middling cotton and the differ-
ences between the prices or values of middling cotton and of other 
grades of cotton for which standards shall have been established 
by the Secretary; except that if there are not sufficient places, in 
the markets of which are made bona fide sales of spot cotton of 
, 
grades for which standards are established by the Secretary, to 
enable him to designate at least five spot markets in accordancia 
with subsection (f) (3), he shall, from data as to spot sales col-
lected by him, make rules and regulations for determining the 
. 
actual commercial differences in the value of spot cotton of the 
grades established by him as reflected by bona fide sales of spot 
cotton, of the same or different grades, in the market selected and 
designated by him, from time to time, for that purpose, and in 
that event differences in value of cotton of various grades involved 
in contracts made pursuant to subsection (f) (1) and (2) shall be 
determined in compliance with such rules and regulations. It shall 
be the duty of any person engaged in the business of dealing in 
cotton, when requested by the Secretary or any agent acting under 
his instructions, to answer correctly to the best of his knowledge, 
55' 
under oath or otherwise, all questions touching his knowledge of 
the number of bales, the classification, the price or bona fide price 
offered, and other terms of purchase or sale, of any cotton involved 
in any transaction participated in by him, or to produce all books, 
letters, papers, or documents in his possession or under his control 
relating to such matter. 
(3) WITHHOLDING INFORMATION.—Any person engaged in the 
business of dealing in cotton who shall, within a reasonable time 
prescribed by the Secretary or any agent acting under his instruc-
tions, willfully fail or refuse to answer questions or to produce 
books, letters, papers, or documents, as required under paragraph 
(2) of this subsection, or who shall willfully give any answer 
that is false or misleading, shall, upon conviction thereof, be fined 
not more than $500. 
(e) FORM AND VALIDITY OF COTTON FUTURES CONTRACTS.—Each 
^ 
cotton futures contract shall be a basis grade contract, or a tendered 
grade contract, or a specific grade contract as specified in subsections 
(f), (g), or (h) and shall be in writing plainly stating, or evidenced 
^^ written memorandum showing, the terms of such contract, includ-
mg^.the quantity of the cotton involved and the names and addresses 
(MTmejSeller and buyer in such contract, and shall be signed by the 
|)arry t o ^ charged, or by his agent in his behalf. No cotton futures 
contjact*j3v|jpji does not conform to such requirements shall be enforce-
abfe oy^ Dr on behalf of, any party to such contract or his privies. 
noffiD?4Bffii|Mii£?^'^Tr-' 
,.^ Each basis grade cotton futures contract shall 
)^fe® following conditions: 
ORMiW, WITH REGULATIONS.—Conform to the 
8ie'JiBmfP.##f^ifiMifiWaai^t to this section. 
, n o i i B s i i l ^ ' § ? ? ^ f I ^ # I ^ W 
grade for the cotton involved 
9Yi§ l f B d ? ? 9 f t a o W W b ^ i i i * r # | ¥ # 
of the grades for which 
"
^ 
standards are established by the Secretary, except grades pro-
hibited from being delivered on a contract made under this 
-.asrovrajia 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1843 
subsection by subparagraph ( E ) , the price per pound at 
^ j n 
which the cotton of such basis grade is contracted to be bought 
or sold, the date when the purchase or sale was made, and 
the month or months in which the contract is to be fulfilled 
or settled; except that middling shall be deemed the basis -
grade incorporated into the contract if no other basis grade 
be specified either in the contract or in the memorandum 
evidencing the same. 
(C) 
PROVISION FOR DELIVERY OF STANDARD GRADES ONLY.— 
Provide that the cotton dealt with therein or delivered there-
under shall be of or within the grades for which standards 
, 
are established by the Secretary except grades prohibited 
from being delivered on a contract made under this subsection 
by subparagraph (E) and no other grade or grades. 
(D) PROVISION FOR SETTLEMENT ON BASIS or ACTUAL COMMER-
CIAL DIFFERENCES.—Provide that in case cotton of grade other 
than the basis grade be tendered or delivered in settlement 
of such contract, the differences above or below the contract 
price which the receiver shall pay for such grades other than 
the basis grade shall be the actual commercial differences, 
determined as hereinafter provided. 
(E) 
PROHIBITION OF DELIVERY OF INFERIOR COTTON.—Pro-
vide that cotton that, because of the presence of extraneous 
matter of any character, or irregularities or defects, is 
reduced in value below that of low middling, or cotton that is 
below the grade of low middling, or, if tinged, cotton that is 
below the grade of strict middling, or, if yellow stained, cot-
ton that is below the grade of good middling, the grades men-
tioned being of the official cotton standards of the United 
States, or cotton that is less than seven-eighths of an inch in 
length of staple, or cotton of perished staple, or of imma-
ture staple, or cotton that is "gin cut" or reginned, or cotton 
that is "repacked" or "false packed" or "mixed packed" or 
"water packed", shall not be delivered on, under, or in settle-
ment of such contract. 
( F ) 
PROVISIONS FOR TENDER IN FULL, NOTICE OF DELIVERY 
DATE, AND CERTIFICATE OF GRADE.—Provide that all tenders of 
cotton under such contract shall be the full number of bales 
involved therein, except that such variations of the number 
of bales may be permitted as is necessary to bring the total 
weight of the cotton tendered within the provisions of the 
contract as to weight; that, on the fifth business day prior 
to delivery, the person making the tender shall give to the 
person receiving the same written notice of the date of 
delivery, and that, on or prior to the date so fixed for delivery, 
and in advance of final settlement of the contract, the person 
making the tender shall furnish to the person receiving the 
sam3 a written notice or certificate stating the grade of each 
individual bale to be delivered and, by means of marks or 
numbers, identifying each bale with its grade. 
(G) PROVISION FOR TENDER AND SETTLEMENT I N ACCORDANCE 
WITH GOVERNMENT CLASSIFICATION.—Provide that all tenders 
of cotton and settlements therefor under such contract shall 
be in accordance with the classification thereof made under 
, 
the regulations of the Secretary by such officer or officers of 
the Government as shall be designated for the purpose, and 
the costs of such classification shall be fixed, assessed, col-
90 STAT. 1844 
PUBLIC LAW 94-455—OCT. 4, 1976 
Regulations. 
Ante, p. 1841. 
Rules and 
regulations. 
lected, and paid as provided in such regulations. The Secre-
tary is authorized to prescribe regulations for carrying out 
the purposes of this subparagraph and the certificates of the 
officers of the Government as to the classification of any cot-
ton for the purposes of this subparagraph shall be accepted 
in the courts of the United States in all suits between the 
parties to such contract, or their privies, as prima facie evi-
dence of the true classification of the cotton involved. 
(2) INCORPORATION OF CONDITIONS I N CONTRACTS.—The provi-
sions of paragraphs (1) (C), ( D ) , ( E ) , ( F ) , and (G) shall be 
deemed fully incorporated into any such contract if there be 
written or printed thereon, or on the memorandums evidencing 
the same, at or prior to the time the same is signed, the phrase 
"Subject to United States Cotton Futures Act, subsection (f)." 
(3J DELIVERY ALLOWANCES.—For the purpose of this subsection, 
the differences above or below the contract price which the 
receiver shall pay for cotton of grades above or below the basic 
grade in the settlement of a contract of sale for the future 
delivery of cotton shall be determined by the actual commercial 
differences in value thereof upon the sixth business day prior to 
the day fixed, in accordance with paragraph (1) ( F ) , for the 
delivery of cotton on the contract, established by the sale of spot 
cotton in the spot markets of not less than five places designated 
for the purpose from time to time by the Secretary, as such values 
were established by the sales of spot cotton, in such designated 
five or more markets. For purposes of this paragraph, such values 
in the such spot markets shall be based upon the standards for 
grades of cotton established by the Secretary. Whenever the value 
of one grade is to be determined from the sale or sales of spot cot-
ton of another grade or grades, such value shall be fixed in accord-
ance with rules and regulations which shall be prescribed for the 
purpose by the Secretary, 
(g) TENDERED GRADE CONTRACTS.— 
(1) CONDITIONS.—Each tendered grade cotton future contract 
shall comply with each of the following conditions: 
(A) COMPLIANCE WITH SUBSECTION (f).—Comply with all 
the terms and conditions of subsection (f) not inconsistent 
with this subsection; and 
(B) PROVISION FOR CONTINGENT SPECIFIC PERFORMANCE.— 
Provide that, in case cotton of grade or grades other than the 
basis grade specified in the contract shall be tendered in per-
formance of the contract, the parties to such contract may 
agree, at the time of the tender, as to the price of the grade 
or grades so tendered, and that if they shall not then agree 
as to such price, then, and in that event, the buyer of said 
contract shall have the right to demand the specific fulfill-
ment of such contract by the actual delivery of cotton of 
the basis grade named therein and at the price specified for 
such basis grade in said contract. 
(2) 
INCORPORATION OF CONDITIONS I N CONTRACT.—Contracts 
made in compliance with this subsection shall be known as "sub-
section (g) Contracts". The provisions of this subsection shall be 
deemed fully incorporated into any such contract if there be 
written or printed thereon, or on the memorandum evidencing the 
same, at or prior to the time the same is signed, the phrase 
"Subject to United States Cotton Futures Act, subsection (g)". 
PUBLIC LAW 94^455—OCT. 4, 1976 
90 STAT. 1845 
^ 
(3) APPLICATION or SUBSECTION.—Nothing in this subsection 
shall be so construed as to authorize any contract in which, or in 
the settlement of or in respect to which, any device or arrange-
ment whatever is resorted to, or any agreement is made, for the 
determination or adjustment of the price of the grade or grades 
tendered other than the basis grade specified in the contract by 
any "fixed difference" system, or by arbitration, or by any other 
method not provided for by this section, 
(h) SPECIFIC GRADE CONTRACTS.— 
(1) CONDITIONS.—Each specific grade cotton futures contract 
shall comply with each of the following conditions: 
(A) 
CONFORMITY WITH RULES AND REGULATIONS.—Conform 
to the rules and regulations made pursuant to this section. 
(B) SPECIFICATION OF GRADE, PRICE, DATES OF SALE AND DELIV-
ERY.—Specify the grade, type, sample, or description of the 
cotton involved in the contract, the price per pound at which 
such cotton is contracted to be bought or sold, the date of 
V- 
the purchase or sale, and the time when shipment or delivery 
of such cotton is to be made. 
(C) PROHIBITION OF DELIVERY OF OTHER THAN SPECIFIED 
GRADE.—Provide that cotton of or within the grade or of the 
type, or according to the sample or description, specified in 
the contract shall be delivered thereunder, and that no cot-
ton which does not conform to the type, sample, or descrip-
tion, or which is not of or within the grade specified in the 
contract shall be tendered or delivered thereunder. 
(D) PROVISION FOR SPECIFIC PERFORMANCE.—Provide that 
rt' 
the delivery of cotton under the contract shall not be effected 
by means of "setoff" or "ring" settlement, but only by the 
actual transfer of the specified cotton mentioned in the 
contract. 
(2) INCORPORATION OF CONDITIONS I N CONTRACT.—The provisions 
of paragraphs (1) (A), (C), and (D) shall be deemed fully incor-
porated into any such contract if there be written or printed 
thereon, or on the document or memorandum evidencing the same, 
at or prior to the time the same is entered into, the words "Sub- Ante, p. 1841. 
ject to United States Cotton Futures Act, subsection (h)". 
. 
(3) APPLICATION OF SUBSECTION.—This subsection shall not be 
construed to apply to any contract of sale made in compliance 
with subsection (fj or (g). 
(i) LIABILITY OF PRINCIPAL FOR ACTS OF AGENT.—When construing 
and enforcing the provisions of this section, the act, omission, or fail-
ure of any official, agent, or other person acting for or employed by any 
association, partnership, or corporation within the scope of his employ-
ment or office shall, in every case, also be deemed the act, omission, or 
failure of such association, partnership, or corporation, as well as that 
• * 
of the person. 
(j) REGULATIONS.—The Secretary is authorized to make such regu-
lations with the force and effect of law as he determines may be 
necessary to carry out the provisions of this section and the powers 
vested in him by this section. 
(k) VIOLATIONS.—Any person who knowingly violates any regula-
tion made m pursuance of this section, shall, upon conviction thereof, 
be fined not less than $100 nor more than $500, for each violation 
thereof, m the discretion of the court, and, in case of natural persons, 
may, in addition be punished by imprisonment for not less than 30 
days nor more than 90 days, for each violation, in the discretion of the 
90 STAT. 1846 
PUBLIC LAW 94-455—OCT. 4, 1976 
court except that this subsection shall not apply to violations subject 
to subsection (d) (3). 
(1) APPLICABILITY TO CONTRACTS PRIOR TO EFFECTIVE DATE.—The 
provisions of this section shall not apply to any cotton futures contract 
entered into prior to the effective date of this section or to any act or 
failure to act by any person prior to such effective date and all such 
prior contracts, acts or failure to act shall continue to be governed by 
26 use 1. 
the applicable provisions of the Internal Revenue Code of 1964 as in 
effect prior to the enactment of this section. All designations of bona 
fide spot markets and all rules and regulations issued by the Secretary 
pursuant to the applicable provisions of the Internal Revenue Code of 
, 
1954 which were in effect on the effective date of this section, shall 
remain fully effective as designations and regulations under this 
section until superseded, amended, or terminated by the Secretary. 
(m) AUTHORIZATION.—There are authorized to be appropriated 
such sums as may be necessary to carry out this section. 
(n) CONFORMING AND CLERICAL AMENDMENTS.— 
26 use 6808. 
(1) Section 6808 (relating to cross references) is amended by 
striking out paragraph (2), and by redesignating paragraphs 
(3), (6), and (11) as paragraphs (1), (2), and (3), respectively. 
26 use 7233. 
(2) (A) Section 7233 (relating to failure to pay tax on cotton 
futures) is repealed. 
(B) The table of sections for part II of subchapter A of 
chapter 75 is amended by striking out the item relating to section 
7233. 
26 use 7263. 
(3) (A) Section 7263 (relating to penalties concerning cotton 
futures) is repealed. 
(B) The table of sections for subchapter B of chapter 75 is 
amended by striking out the item relating to section 7263. 
26 use 7492. 
(4) (A) Subchapter E of chapter 76 (relating to miscellaneous 
provisions regarding cotton futures contracts) is repealed. 
(B) The table of subchapters for chapter 76 is amended by 
striking out the items relating to subchapter E. 
^ 
(5) Chapter 39 (relating to regulatory taxes) is amended by 
striking out the chapter heading and the table of subchapters. 
(6) The table of chapters for subtitle D is amended by striking 
out the item relating to chapter 39. 
7 use 15b 
(o) EFFECTIVE DATE.—The provisions of this section shall take 
note. 
effect on the 90th day after the date of the enactment of this Act. 
TITLE XX—ESTATE AND GIFT TAXES 
SEC. 2001. UNIFIED RATE SCHEDULE FOR ESTATE AND GIFT TAXES; 
UNIFIED CREDIT IN LIEU OF SPECIFIC EXEMPTIONS. 
(a) CHANGES IN ESTATE TAX.— 
26 use 2001. 
(1) IMPOSITION OF TAX; RATE SCHEDULE.—Section 2001 (relat-
ing to rate of tax) is amended to read as follows: 
"SEC. 2001. IMPOSITION AND RATE OF TAX. 
"(a) IMPOSITION.—A tax is hereby imposed on the transfer of the 
taxable estate of every decedent who is a citizen or resident of the 
United States. 
"(b) COMPUTATION or TAX.—The tax imposed by this section shall 
be the amount equal to the excess (if any) of— 
"(1) a tentative tax computed in accordance with the rate 
schedule set forth in subsection (c) on the sum of— 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 18^t7 
" (A) the amount of the taxable estate, and 
"(B) the amount of the adjusted taxable gifts, over 
"(2) the aggregate amount of tax payable under chapter 12 26USC250I. 
with respect to gifts made by the decedent after December 31, 
1976. 
For purposes of paragraph (1) (B), the term 'adjusted taxable gifts' "Adjusted 
means the total amount of the taxable gifts (within the meaning of taxable gifts." 
section 2503) made by the decedent after December 31, 1976, other 
than gifts which are includible in the gross estate of the decedent. 
"(c) 
RATE SCHEDULE.— 
"If the amount with respect to which the The tentative tax is: 
tentative tax to be computed is: 
Not over $10,000 
18 percent of such amount. 
Over '$10,000 but not over $20,000 
$1,800, plus 20 percent of the excess 
Of such amount over $10,000. 
Over $20,000 but not over $40,000 
$3,800, plus 22 percent of the excess 
of such amount over $20,000. 
Over $40,000 but not over $60,000 
$8,200, plus 24 percent of the excess 
of such amount over $40,000. 
Over $60,000 but not over $80,000 
$13,000, plus 26 percent of the excess 
of such amount over $60,000. 
Over $80,000 but not over $100,000 
$18,200, plus 28 percent of the excess 
of such amount over $80,000. 
Over $100,000 but not over $150,000 
$23,800, plus 30 percent of the excess 
of such amount over "$100,000. 
Over $150,000 but not over $250,000- 
$38,800, plus 32 percent of the excess 
of such amount over $150,000. 
Over $250,000 but not over $500,000 
$70,800, plus 3i percent of the excess 
" 
Of such amount over $250,000. 
Over $500,000 but not over $750,000- 
$155,800, plus 37 percent of the excess 
of such amount over $500,000. 
Over $750,000 but not over $1,000,000 
$248,300, plus 39 percent of the ex-
cess of such amount over $750,000. 
Over '$1,000,000 but not over $1,250,000 
$345,800 plus 41 percent of the excess 
of such amount over $1,000,000. 
Over $1,250,000 but not over $1,500,000 
$448,300, plus 43 percent of the excess 
of such amount over $1,250,000. 
Over $1,500,000 but not over $2,000,000 
$555,800, plus 45 percent of the excess 
of such amount over $1,500,000. 
Over $2,000,000 but not over $2,500,000 
$780,800, plus 49 percent of the excess 
of such amount over $2,000,000. 
Over $2,500,000 but not over $3,000,000__ $1,025,800, plus 53 percent of the ex-
cess of such amount over $2,500,000. 
Over $3,000,000 but not over $3,500,000. _ $1,290,800, plus 57 percent of the ex-
cess of such amount over $3,000,000. 
Over $3,500,000 but not over $4,000,000— $1,575,800, plus 61 percent of the ex-
cess of such amount over $3,500,000. 
Over $4,000,000 but not over $4,500,000. _ $1,880,800, plus 65 percent over the ex-
cess of such amount over $-^,000,000. 
Over $4,500,000 but not over $5,000,000.. $2,205,800, plus 69 percent of the ex-
cess of such amount over $'< ,500,000. 
Over $5,000,000 
$2,550,800, plus 70 percent of the ex-
cess of such amount over $5,000,000. 
"(d) 
ADJUSTMENT FOR GIFT TAX PAID BY SPOUSE.—For purposes 
of subsection (b) (2), if— 
"(1) the decedent was the donor of any gift one-half of which 
was consideY-ed under section 2513 as made by the decedent's 
spouse, and 
"(2) the amount of such gift is includible in the gross estate 
of the decedent, 
any tax payable by the spouse under chapter 12 on such gift (as 
determined under section 2012(d)) shall be treated as a tax payable 
with respect to a gift made by the decedent." 
90 STAT. 1848 
PUBLIC LAW 9 4 - 4 5 5 ~ 0 C T . 4, 1976 
(2) ALLOWANCE or UNIFTJED CREDIT.—Part I I of subchapter A of 
chapter 11 (relating to credits against the estate tax) is amended 
by inserting before section 2011 the following new section: 
26 use 2010. 
*«EC. 2010. UNIFIED CREDIT AGAINST ESTATE TAX. 
"(a) GENERAL RULE.—A credit of $47,000 shall be allowed to the 
estate of every decedent against the tax imposed by section 2001. 
"(b) PHASE-IN OP I47,000 CREDIT.— 
Subsection (a) shall be applied by sub-
stituting for '$47,000' the following 
"In the case of decedents djring in: 
amount: 
1977 
$30,000 
1978 
34,000 
1979 
38,000 
1980 
42,500 
"(c) 
ADJUSTMENT TO CREDIT FOR CERTAIN GIFTS MADE BEFORE 
1977.—The amount of the credit allowable under subsection (a) shall 
be reduced by an amount equal to 20 percent of the aggregate amount 
allowed as a specific exemption under section 2521 (as in effect before 
its repeal by the Tax Reform Act of 1976) with respect to gifts made 
by the decedent after September 8,1976. 
" ( d ) LIMITATION BASED ON AMOUNT OF TAX.—The amount of the 
credit allowed by subsection (a) shall not exceed the amount of the 
tax imposed by section 2001." 
26 use 2012. 
(3) TERMINATION OF CREDIT FOR GIFF TAX.—Section 2012 (relat-
ing to credit for gift tax) is amended by adding at the end thereof 
the following new subsection: 
"(e) SECTION INAPPLICABLE TO GIFTS MADE AFTER DECEMBER 31, 
1976.—No credit shall be allowed under this section with respect to 
the amount of any tax paid under chapter 12 on any gift made after 
December 31,1976." 
26 use 2052. 
(4) REPEAL OF SPECIFIC EXEMPTION.—Section 2052 (relating to 
exemption for purposes of the estate tax) is hereby repealed. 
(5) ADJUSTMENTS FOR GIFTS MADE WITHIN 3 TFLARS OF DEATH.— 
26 use 2035. 
Section 2035 (relating to transactions in contemplation of death) 
is amended to read as follows: 
"SEC. 2035. ADJUSTMENTS FOR GIFTS MADE WITHIN 3 YEARS OF 
DECEDENTS DEATH. 
" ( a ) INCLUSION OP GIFTS MADE BY DECEDENT.—Except as provided 
in sul«ection (b), the value of the gross estate shall include the value 
of all property to the extent of any interest therein of which the dece-
dent has at any time made a transfer, by trust or otherwise, during 
the 3-year period ending on the date of the decedent's death. 
"(b) EXCEPTIONS.—Subsection (a) shall not apply to— 
"(1) any bona fide sale for an adequate and full consideration 
in money or money's worth, and 
"(2) any gift excludable in computing taxable gifts by reason 
of section 2503(b) (relating to $3,000 annual exclusion for pur-
poses of the gift tax) determined without regard to section 2513 
(a). 
"(c) INCLUSION OF G I F T TAX ON CERTAIN GIFTS MADE DURING 3 
YEARS BEFORE DECEDENT'S DEATH.—The amount of the gross estate 
(determined without regard to this subsection) shall be increased by 
the amount of any tax paid under chapter 12 by the decedent or his 
estate on any gift made by the decedent or his spouse after DeoC'm-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 184.9 
ber 31, 1976, and during the 3-year period ending on the date of the 
decedent's death." 
(b) CHANGES I N G I F T T A X . — 
(1) EATE OF TAX.—Subsection (a) of section 2502 (relating 
26USC2502. 
to rate of gift tax) is amended to read as follows: 
"(a) COMPUTATION OF TAX.—The tax imposed by section 2501 for 
each calendar quarter shall be an amount equal to the excess of— 
"(1) a tentative tax, computed in accordance with the rate 
schedule set forth in section 2001(c), on the aggregate sum of Ante, p. 1846. 
the taxable gifts for such calendar quarter and for each of the 
preceding calendar years and calendar quarters, over 
"(2) a tentative tax, computed in accordance with such rate 
schedule, on the aggregate sum of the taxable gifts for each of 
the preceding calendar years and calendar quarters." 
(2) UNIFIED CREDIT.—Subchapter A of chapter 12 (relating 
*
; 
to determination of gift tax liability) is amended by adding at the 
end thereof the following new section: 
"SEC. 2505. UNIFIED CREDIT AGAINST GIFT TAX. 
25 USC 2505. 
"(a) GENERAL KULE.—In the case of a citizen or resident of the 
United States, there shall be allowed as a credit against the tax 
imposed by section 2501 for each calendar quarter an amount equal 
to— 
" (1) $47,000, reduced by 
"(2) the sum of the amounts allowable as a credit to the 
individual under this section for all preceding calendar quarters. 
"(b) PHASE-IN OF $47,000 CREDIT.— 
Subsection (a)(1) shall be applied by 
substituting for '$47,000' the foUow-
"In the case of gifts made: 
ing amount: 
•.. -
After December 31, 1976, and before July 1, 1977 
$6,000 
After June 30, 1977, and before January 1, 1978 
$30,000 
After December 31, 1977, and before January 1, 1979 
$34, 000 
After December 31, 1978, and before January 1, 1980 
$38,000 
After December 31, 1979, and before January 1, 1981 
$42, 500 
"(c) ADJUSTMENT TO CREDIT FOR CERTAIN GIFTS MADE 
BEFORE 
1977.—The amount allowable under subsection (a) shall be reduced 
by an amount equal to 20 percent of the aggregate amount allowed as 
a specific exemption under section 2521 (as in effect before its repeal 
by the Tax Reform Act of 1976) with respect to gifts made by the 
individual after September 8,1976. 
" ( d ) 
LIMITATION BASED ON AMOUNT OF TAX.—The amount of the 
credit allowed under subsection (a) for any calendar quarter shall 
not exceed the amount of the tax imposed by section 2501 for such 
calendar quarter." 
(3) REPEAL OF SPECIFIC EXEMPTION.—Section 2521 (relating to 26 USC 2521. 
specific exemption in the case of the gift tax) is hereby repealed. 
(c) TECHNICAL, CLERICAL, AND CONFORMING 
CHANGES.— 
(1) CHANGES I N ESTATE TAX.— 
(A) CREDIT FOR STATE DEATH TAXES.—Section 2011 (relat- 26 USC 2011. 
ing to credit for State death taxes) is amended— 
(i) by striking out "taxable estate" each place it 
appears in subsection (b) (including the heading to the 
table) and inserting in lieu thereof "adjusted taxable 
' ;; 
estate"; 
(ii) by adding at the end of subsection (b) the follow-
ing new sentence: 
90 STAT. 1850 
PUBLIC LAW 94-455—OCT. 4, 1976 
"Adjusted 
"For purposes of this section, the term 'adjusted taxable estate' means 
taxable estate." 
the taxable estate reduced by $60,000.", 
(iii) by striking out "taxable estate" each place it 
appears in subsection (e) and inserting in lieu thereof 
"adjusted taxable estate"; and 
(iv) by adding at the end thereof the following new 
subsection: 
"(f) 
LIMITATION BASED ON AMOUNT OF TAX.—The credit provided 
by this section shall not exceed the amount of the tax imposed by sec-
tion 2001, reduced by the amount of the unified credit provided by 
section 2010." 
26 use 2012. 
(B) CREDIT FOR GIFT TAX.—Subsection (a) of section 2012 
(relating to credit for gift tax) is amended by striking out 
"provided by section 2011" and inserting in lieu thereof 
Ante, p. 1848. 
"provided by section 2011 and the unified credit provided by 
section 2010". 
(C) CREDIT FOR TAX ON PRIOR TRANSFERS.— 
26 use 2013. 
(i) The first sentence of section 2013(b) is amended 
by striking out "and increased by the exemption provided 
for by section 2052 or section 2106(a) (3), or the corre-
sponding provisions of prior laws, in determining the 
taxable estate of the transferor for purposes of the estate 
tax". 
(ii) Subparagraph 
(A) of section 2013(e)(1) is 
amended to read as follows: 
" (A) the estate tax imposed by section 2001 or section 2101 
(after deducting the credits provided for in sections 2010, 
2011, 2012, and 2014) computed without regard to this section, 
exceeds". 
26 use 2101. 
(D) RATE OF TAX I N CASE or NONRESIDENTS NOT CITIZENS.— 
Section 2101 (relating to tax imposed in the case of estates 
of nonresidents not citizens) is amended to read as follows: 
"SEC. 2101. TAX IMPOSED. 
"(a) IMPOSITION.—Except as provided in section 2107, a tax is 
hereby imposed on the transfer of the taxable estate (determined as 
provided in section 2106) of every decedent nonresident not a citizen 
of the United States. 
"(b) COMPUTATION OF TAX.—The tax imposed by this section shall 
be the amount equal to the excess (if any) of— 
"(1) a tentative tax computed in accordance with the rate 
schedule set forth in subsection (d) on the sum of— 
" ( A ) the amount of the taxable estate, and 
" ( B ) the amount of the adjusted taxable gifts, over 
"(2) a tentative tax computed in accordance with the rate 
. *£' 
schedule set forth in subsection (d) on the amount of the adjusted 
taxable gifts. 
"(c) ADJUSTMENTS FOR TAXABLE GIFTS.— 
"(1) ADJUSTED TAXABLE GIFTS DEFINED.—For purposes of this 
section, the term 'adjusted taxable gifts' means the total amount 
of the taxable gifts (within the meaning of section 2503 as modi-
fied by section 2511) made by the decedent after December 31, 
1976, other than gifts which are includible in the gross estate of 
the decedent. 
"(2) ADJUSTMENT FOR CERTAIN GIFT TAX.—For purposes of this 
section, the rules of section 2001 (d) shall apply. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1851 
" ( d ) 
RATE SCHEDULE.— 
"If the amount with respect to which 
the tentative tax to be computed is: 
The tentative tax is: 
Not over $100,000 
6% of such amount. 
Over $100,000 but not over $500,000 
$6,000, plus 12% of excess over 
$100,000. 
Over $500,000 but not over $1,000,000__. $54,000, plus 18% of excess over 
$500,000. 
Over $1,000,000 but not over $2,000,000- $144,000, plus 24% of excess over 
$1,000,000. 
' ^ 
Over 2,000,000 
$384,000, plus 30% of excess over 
$2,000,000." 
(E) 
CREDIT I N CASE OF ESTATE OF NONRESIDENTS NOT 
CITIZENS.— 
(i) Section 2102 (relating to credits against tax in 26 USC 2102. 
case of estates of nonresidents not citizens) is amended by 
adding at the end thereof the following new subsection: 
*' (c) UNIFIED CREDIT.— 
"(1) I N GENERAL.—A credit of $3,600 shall be allowed against 
Ante, p. 1850. 
the tax imposed by section 2101. 
"(2) RESIDENTS OF POSSESSIONS or THE UNITED STATES.—In the 
case of a decedent who is considered to be a 'nonresident not a 
citizen of the United States' under section 2209, the credit under 
this subsection shall be the greater of— 
" ( A ) $3,600, or 
" ( B ) that proportion of $15,075 which the value of that 
part of the decedent's gross estate which at the time of his 
death is situated in the United States bears to the value of his 
; 
entire gross estate wherever situated. 
"(3) PHASE-IN OF PARAGRAPH ( 2 ) ( B ) AMOUNT.—In the case of 
i 
a decedent dying before 1981, paragraph 
(2) (B) 
shall be 
applied— 
" ( A ) in the case of a decedent dying during 1977, by sub-
stituting '$8,480' for '$15,075', 
" ( B ) in the case of a decedent dying during 1978, by sub-
stituting '$10,080' for '$15,075', 
"(C) in the case of a decedent dying during 1979, by sub-
stituting '$11,680' for '$15,075', and 
" ( D ) in the case of a decedent dying during 1980, by sub-
stituting '$13,388' for '$15,075'. 
" (4) LIMITATION BASED ON AMOUNT OF TAX.—The credit allowed 
under this subsection shall not exceed the amount of the tax 
imposed by section 2101. 
"(5) APPLICATION OF OTHER CREDITS.—For purposes of subsec-
tion (a), sections 2011 to 2013, inclusive, shall be applied as if 
the credit allowed under this subsection were allowed under sec-
tion 2010." 
(ii) Subsection (c) of section 2107 (relating to expa- 
26 USC 2107. 
triation to avoid tax) is amended to read as follows: 
"(c) CREDITS.— 
"(1) UNIFIED CREDIT.— 
" ( A ) I N GENERAL.—^A credit of $13,000 shall be allowed 
against the tax imposed by subsection (a). 
' }•• *
• ' • 
" ( B ) 
LIMITATION BASED ON AMOUNT OF TAX.—The credit 
allowed under this paragraph shall not exceed the amount of 
the tax imposed by subsection (a). 
'"-'• 
"(2) OTHER CREDITS.—The tax imposed by subsection (a) shall 
be credited with the amounts determined in accordance with sub-
90 STAT. 1852 
PUBLIC LAW 94-455—OCT. 4, 1976 
sections (a) and (b) of section 2102. For purposes of subsection 
(a) of section 2102, sections 2011 to 2013, inclusive, shall be 
applied as if the credit allowed under paragraph (1) were allowed 
/ 
under section 2010." 
(F) 
REPEAL or SPECIFIC EXEMPTION.—Paragraph (3) 
of 
26 use 2106. 
section 2106(a) 
(relating to specific exemption in case of 
decedents nonresidents not citizens) is hereby repealed. 
(G) CREDIT FOR FOREIGN DEATH TAXES.—Paragraph (2) of 
26 use 2014. 
section 2014(b) (relating to limitations on credit) is amended 
by striking out "sections 2011 and 2012" and inserting in lieu 
thereof "sections 2010,2011, and 2012". 
( H ) LIABILITY OF LIFE INSURANCE BENEFICIARIES,—The first 
26 use 2206. 
sentence of section 2206 (relating to liability of life insurance 
beneficiaries) is amended by striking out "the sum of the tax-
able estate and the amount of the exemption allowed in com-
puting the taxable estate, determined under section 2051" and 
inserting in lieu thereof "the taxable estate". 
(I) 
LIABILITY OF RECIPIENTS OF CERTAIN PROPERTY.—The 
26 use 2207. 
first 
sentence of section 2207 (relating to liability of recipient 
of property over which decedent had power of appointment) 
is amended by striking out "the sum of the taxable estate and 
the amount of the exemption allowed in computing the tax-
able estate, determined under section 2052, or section 2106 (a), 
as the case may be" and inserting in lieu thereof "the taxable 
estate". 
26 use 6018. 
(J) RETURN BY EXECUTOR,—Subsection (a) of section 6018 
(relating to estate tax returns by executor) is amended— 
(i) by striking out "$60,000" in paragraph (1) and 
inserting in lieu thereof "$175,000"; 
(ii) by striking out "$30,000" in paragraph (2) and 
inserting in lieu thereof "$60,000"; and 
(iii) by adding at the end thereof the following new 
paragraphs: 
"(3) PHASE-IN OF FILING REQUIREMENT AMOUNT.—^In the case of 
a decedent dying before 1981, paragraph (1) shall be applied— 
" ( A ) in the case of a decedent dying during 1977, by sub-
stituting '$120,000' for '$175,000', 
" ( B ) in the case of a decedent dying during 1978, by sub-
stituting'$134,000'for'$175,000', 
"(C) in the case of a decedent dying during 1979, by sub-
stituting'$147,000'for'$175,000', and 
" ( D ) in the case of a decedent dying during 1980, by sub-
stituting '$161,000' for '$175,000'. 
" (4) ADJUSTMENT FOR CERTAIN GIFTS.—The amount a.pplicable 
under paragraph (1) and the amount set forth in paragraph (2) 
shall each be reduced (but not below zero) by the sum of— 
" ( A ) the amount of the adjusted taxable gifts (within the 
Ante, p. 1846. 
meaning of section 2001 (b)) made by the decedent after 
December 31,1976, plus 
' 
" ( B ) the aggregate amount allowed as a specific exemption 
under section 2521 (as in effect before its repeal by the Tax 
19 use 2101. 
Reform Act of 1976) with respect to gifts made by the dece-
dent after September 8,1976." 
(K) REVOCABLE TRANSFERS.— 
26 use 2038. 
(i) Paragraph (1) of section 2038(a) 
(relating to 
revocable transfers) is amended by striking out "in con-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1853 
templation of decedent's death" and inserting in lieu 
thereof "during the 3-year period ending on the date of 
the decedent's death". 
(ii) Paragraph (2) of section 2038(a) (relating to 26 USC 2038. 
revocable transfer) is amended by striking out "in con-
templation of his death" and inserting in lieu thereof 
"during the 3-year period ending on the date of the 
decedent's death". 
(L) PROPERTY WITHIN THE UNITED STATES.—Subsection (b) 
of section 2104 (relating to revocable transfers and transfers 26 USC 2104. 
in contemplation of death) is amended by striking out "AND 
TRANSFERS I N CONTEMPLATION OF D E A T H " in the subsection 
heading and inserting in lieu thereof "AND TRANSFERS W I T H I N 
3 YEARS OF DEATH". 
(M) PRIOR INTERESTS.—Section 2044 (relating to prior 
26 USC 2044. 
interests) is amended by striking out "specifically provided 
therein" and inserting in lieu thereof "specifically provided 
by law". 
(N) CLERICAL AMENDMENTS.— 
(i) The item relating to section 2001 in the table of 
sections for part I of subchapter A of chapter 11 is 
amended to read as follows: 
"Sec. 2001. Imposition and rate of tax." 
(ii) The table of sections for part I I of subchapter 
A of chapter 11 is amended by inserting before the item 
relating to section 2011 the following new item: 
"Sec. 2010. Unified credit against estate tax." 
(iii) The table of sections for part I I I of subchapter 
A of chapter 11 is amended by striking out the item 
relating to section 2035 and inserting in lieu thereof the 
following new item: 
"Sec. 2035. Adjustments for gifts made witliin 3 years of decedent's 
death." 
(iv) The table of sections for part I V of subchapter 
A of chapter 11 is amended by striking out the item 
relating to section 2052. 
(2) CHANGES I N GIFT TAX.— 
(A) TAXABLE GIFTS FOR PRECEDING YEARS AND QUARTERS.— 
Subsection (a) of section 2504 (relating to taxable gifts for 26 USC 2504. 
preceding years and quarters) is amended by striking out 
"except that" and all that follows and inserting in lieu thereof 
"except that the specific exemption in the amount, if any, 
allowable under section 2521 (as in effect before its repeal 
by the Tax Reform Act of 1976) shall be applied in all com-
putations in respect of calendar years or calendar quarters 
ending before January 1, 1977, for purposes of computing 
the tax for any calendar quarter." 
(B) CLERICAL AMENDMENTS.— 
(i) The table of sections for subchapter A of chapter 
12 is amended by adding at the end thereof the following 
new item: 
"Sec. 2505. Unified credit against gift tax." 
(ii) The table of sections for subchapter C of chapter 
12 is amended by striking out the item relating to sec-
tion 2521. 
89-194 O—78—pt. 2 
25 
90 STAT. 1854 
PUBLIC LAW 94-455—OCT. 4, 1976 
(d) EFFECTIVE DATES.— 
26 use 2001 
(1) The amendments made by subsections (a) and (c) (1) shall 
note. 
apply to the estates of decedents dying after December 31, 1976; 
except that the amendments made by subsection (a) (5) and sub-
paragraphs (K) and (L) of subsection (c) (1) shall not apply to 
transfers made before January 1,1977. 
26 use 2502 
(2) The amendments made by subsections (b) and (c) (2) 
note. 
shall apply to gifts made after December 31, 1976. 
SEC. 2002. INCREASE IN LIMITATIONS ON MARITAL DEDUCTIONS; 
FRACTIONAL INTERESTS OF SPOUSE. 
(a) INCREASE IN ESTATE TAX MARITAL DEDUCTION.—Paragraph 
(1) 
26 use 2056. 
of section 2056(c) (relating to limitation on marital deduction) is 
amended to read as follows: 
"(1) 
LIMITATION.— 
" ( A ) I N GENERAL.—The aggregate amount of the deduc-
tions allowed under this section (computed without regard to 
this subsection) shall not exceed the greater of— 
"(i) $250,000, or 
"(ii) 50 percent of the value of the adjusted gross 
estate (as defined in paragraph (2)). 
" ( B ) 
ADJUSTMENT FOR CERTAIN GIFTS TO SPOUSE.—If 
a 
deduction is allowed to the decedent under section 2523 with 
respect to any gift made to his spouse after December 31, 
1976, the limitation provided by subparagraph (A) 
(deter-
mined without regard to this subparagraph) shall be reduced 
(but not below zero) by the excess (if any) of— 
"(i) the aggregate of the deductions allowed to the 
decedent under section 2523 with respect to gifts made 
after December 31,1976, over 
"(ii) the aggregate of the deductions which would 
have been allowable under section 2523 with respect to 
gifts made after December 31,1976, if the amount deduc-
tible under such section with respect to any gift were 
50 percent of its value. 
"(C) 
COMMUNITY PROPERTY ADJUSTMENT.—The $250,000 
amount set forth in subparagraph (A) (i) shall be reduced by 
the excess (if any) of— 
"(i) the amount of the subtraction determined under 
clauses (i), (ii), and (iii) of paragraph ( 2 ) ( B ) , over 
"(ii) the excess of the aggregate of the deductions 
allowed under sections 2053 and 2054 over the amount 
taken into account with respect to such deductions under 
clause (iv) of paragraph (2) (B)." 
(b) 
INCREASE I N G I F T TAX MARITAL DEDUCTION.—^Subsection (a) 
of 
26 use 2523. 
section 2523 (relating to deduction for gift to spouse) is amended to 
read as follows: 
"(a) ALLOWANCE OF DEDUCTION.— 
"(1) I N GENERAL.—^Where a donor who is a citizen or resident 
transfers during the calendar quarter by gift an interest in prop-
erty to a donee who at the time of the gift is the donor's spouse, 
there shall be allowed as a deduction in computing taxable gifts 
for the calendar quarter an amount with respect to such intei'est 
equal to its value. 
"(2) LIMITATION.—The aggregate of the deductions allowed 
under paragraph (1) for any calendar quarter shall not exceed 
the sum of— 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1855 
" ( A ) $100,000 reduced (but not below zero) by the aggre-
gate of the deductions allowed under this section for preced-
ing calendar quarters beginning after December 31,1976; plus 
" ( B ) 50 percent of the lesser of— 
"(i) the amount of the deductions allowable under 
paragraph (1) for such calendar quarter (determined 
without regard to this paragraph); or 
"(ii) the amount (if any) by which the aggregate of 
the amounts determined under clause (i) for the calen-
dar quarter and for each preceding calendar quarter 
beginning after December 31, 1976, exceeds $200,000." 
(c) FRACTIONAL INTEREST OF SPOUSE.— 
(1) I N GENERAL.—Section 2040 (relating to joint interests) is 26 USC 2040. 
amended by adding at the end thereof the following new 
subsection: 
"(b) 
CERTAIN JOINT INTERESTS OF HUSBAND AND W I F E . — 
"(1) INTERESTS OF SPOUSE EXCLUDED FROM GROSS ESTATE.—Not-
withstanding subsection (a), in the case of any qualified joint 
interest, the value included in the gross estate with respect to 
such interest by reason of this section is one-half of the value of 
such qualified joint interest. 
"(2) QUALIFIED JOINT INTEREST DEFINED.—For purposes of 
paragraph (1), the term 'qualified 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 if— 
" ( A ) such joint interest was created by the decedent, the 
decedent's spouse, or both, 
"(B) (i) in the case of personal property, the creation of 
such joint interest constituted in whole or m part a gift for 
purposes of chapter 12, or 
"(ii) in the case of real property, an election under section 
2515 applies with respect to the creation of such joint interest, 
and 
"(C) in the case of a joint tenancy, only the decedent and 
the decedent's spouse are joint tenants." 
(2) AMENDMENT OF RELATED GIFT TAX PROVISION.—Subsection 
(c) of section 2515 (relating to election with respect to tenancies 26 USC 2515. 
by the entirety) is amended to read as follows: 
"(c) EXERCISE or ELECTION.— 
"(1) I N GENERAL.—The election provided by subsection (a) 
shall be exercised by including such creation of a tenancy by the 
entirety as a transfer by gift, to the extent such transfer consti-
tutes a gift (determined without regard to this section), in the 
gift tax return of the donor for the calendar quarter in which 
such tenancy by the entirety was created, filed within the time 
prescribed by law, irrespective of whether or not the gift exceeds 
the exclusion provided by section 2503(b). 
" (2) SUBSEQUENT ADDITIONS I N VALUE.—If the election provided 
by subsection (a) has been made with respect to the creation of 
any tenancy by the entirety, such election shall also apply to each 
addition made to the value of such tenancy by the entirety. 
"(3) CERTAIN ACTUARIAL COMPUTATIONS NOT REQUIRED.—In the 
case of any election under subsection (a) with respect to any 
property, the retained interest of each spouse shall be treated as 
one-half of the value of their joint interest." 
90 STAT. 1856 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 2040. 
(3) CLERICAL AMENDMENT.—Section 2040 is amended by strik-
ing out "The value" and inserting in lieu thereof the following: 
"(a) 
GENERAL RULE,—The value", 
(d) EFFECTIVE DATES.— 
26 use 2056 
(1) (A) Except as provided in subparagraph ( B ) , the amend-
°ote. 
ment made by subsection (a) shall apply with respect to the 
estates of decedents dying after December 31, 1976. 
(B) 
I f -
(i) the decedent dies after December 31, 1976, and before 
January 1,1979, 
(ii) by reason of the death of the decedent property passes 
from the decedent or is acquired from the decedent under a 
will executed before January 1,1977, or a trust created before 
such date, which contains a formula expressly providing 
that the spouse is to receive the maximum amount of property 
qualifying for the marital deduction allowable by Federal 
law, 
(iii) the formula referred to in clause (ii) was not 
amended at any time after December 31, 1976, and before 
the death of the decedent, and 
(iv) the State does not enact a statute applicable to such 
estate which construes this type of formula as referring to the 
marital deducton allowable by Federal law as amended by 
subsection (a), 
then the amendment made by subsection (a) shall not apply to the 
estate of such decedent. 
26 use 2523 
^2) The amendment made by subsection (b) shall apply to gifts 
°°*^- 
made after December 31,1976. 
26 use 2040 
(3) The amendments made by subsection (c) shall apply to 
note. 
joint interests created after December 31,1976. 
SEC. 2003. VALUATION FOR PURPOSES OF THE FEDERAL ESTATE TAX 
OF CERTAIN REAL PROPERTY DEVOTED TO FARMING OR 
CLOSELY HELD BUSINESSES. 
(a) GENERAL RULE.—Part I I I of subchapter A of chapter 11 (relat-
ing to gross estate) is amended by inserting after section 2032 the 
following new section: 
26 use 2032A. 
"SEC. 2032A. VALUATION OF CERTAIN FARM, ETC., REAL PROPERTY. 
"(a) 
VALUE BASED ON U S E UNDER W H I C H PROPERTY QUALIFIES.— 
"(1) 
GENERAL RULE.—If— 
" ( A ) the decedent was (at the time of his death) a citizen 
or resident of the United States, and 
" ( B ) the executor elects the application of this section and 
files the agreement referred to in subsection ( d ) ( 2 ) , 
then, for purposes of this chapter, the value of qualified real prop-
erty shall be its value for the use under which it qualifies, under 
subsection (b), as qualified real property. 
"(2) LIMITATION.—The aggregate decrease in the value of 
qualified real property taken into account for purposes of this 
chapter which results from the application of paragraph (1) with 
respect to any decedent shall not exceed $500,000. 
"(b) 
QUALIFIED REAL PROPERTY.— 
" (1) I N GENERAL.—For purposes of this section, the term 'quali-
fied real property' means real property located in the United 
States which, on the date of the decedent's death, was being used 
for a qualified use, but only if— 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1857 
" (A) 50 percent or more of the adjusted value of the gross 
estate consists of the adjusted value of real or personal prop-
erty which— 
"(i) on the date of the decedent's death, was being 
used for a qualified use, and 
" (ii) was acquired from or passed from the decedent to 
a qualified heir of the decedent. 
" ( B ) 25 percent or more of the adjusted value of the gross 
estate consists of the adjusted value of real property which 
meets the requirements of subparagraphs (A) (ii) and (C), 
"(C) during the 8-year period ending on the date of the 
decedent's death there have been periods aggregating 5 years 
or more during which— 
"(i) such real property was owned by the decedent or 
a member of the decedent's family and used for a qualified 
use, and 
"(ii) there was material participation by the decedent 
or a member of the decedent's family in the operation of 
the farm or other business, and 
"(D) such real property is designated in the agreement 
referred to in subsection ( d ) ( 2 ) . 
"(2) QUALIFIED USE.—For purposes of this section, the term 
'qualified use' means the devotion of the property to any of the 
following: 
" (A) use as a farm for farming purposes, or 
" ( B ) use in a trade or business other than the trade or 
business of farming. 
"(3) ADJUSTED VALUE.—For purposes of paragraph (1), the 
term 'adjusted value' means— 
" ( A ) in the case of the gross estate, the value of the gross 
estate for purposes of this chapter (determined without 
regard to this section), reduced by any amounts allowable as 
a deduction under paragraph (4) of section 2053 (a), or 
" ( B ) in the case of any real or personal property, the value 
of such property for purposes of this chapter (determined 
without regard to this section), reduced by any amounts 
allowable as a deduction in respect of such property under 
paragraph (4) of section 2053 (a). 
"(c) T A X TREATMENT OF DISPOSITIONS AND FAILURES To U S E FOR 
QUALIFIED U S E . — 
" (1) IMPOSITION OF ADDITIONAL ESTATE TAX.—If, within 15 years 
after the decedent's death and before the death of the qualified 
heir— 
" ( A ) the qualified heir disposes of any interest in qualified 
real property (other than by a disposition to a member of his 
family), or 
" ( B ) the qualified heir ceases to use for the qualified use 
the qualified real property which was acquired (or passed) 
from the decedent, 
then, there is hereby imposed an additional estate tax. 
" (2) AMOUNT OF ADDITIONAL TAX.— 
" ( A ) I N GENERAL.—The amount of the additional tax 
imposed by paragraph (1) with respect to any interest shall 
be the amount equal to the lesser of— 
"(i) the adjusted tax difference attributable to such 
interest, or 
90 STAT. 1858 
PUBLIC LAW 94-455—OCT. 4, 1976 
"Estate tax 
liability." 
Ante, p. 1846. 
"(ii) the excess of the amount realized with respect 
to the interest (or, in any case other than a sale or 
exchange at arm's length, the fair market value of the 
interest) over the value of the interest determined under 
subsection (a). 
" ( B ) 
ADJUSTED TAX DIFFERENCE ATTRIBUTABLE TO INTER-
EST.—For purposes of subparagraph (A), the adjusted tax 
difference attributable to an interest is the amount which 
bears the same ratio to the adjusted tax difference with 
respect to the estate (determined under subparagraph (C)) 
as— 
"(i) the excess of the value of such interest for pur-
poses of this chapter (determined without regard to 
subsection (a)) over the value of such interest deter-
mined under subsection (a), bears to 
" (ii) a similar excess determined for all qualified real 
property. 
" ( C ) ADJUSTED TAX DIFFERENCE WITH RESPECT TO THE 
ESTATE.—For purposes of subparagraph 
( B ) , the term 
'adjusted tax difference with respect to the estate' means the 
excess of what would have been the estate tax liability but 
for subsection (a) over the estate tax liability. For purposes 
of this subparagraph, the term 'estate tax liability' means 
the tax imposed by section 2001 reduced by the credits allow-
able against such tax. 
" ( D ) 
PARTIAL DISPOSITIONS.—For purposes of this para-
graph, where the qualified heir disposes of a portion of the 
interest acquired by (or passing to) such heir (or a predeces-
sor qualified heir) or there is a cessation of use of such a 
portion— 
"(i) the value determined under subsection (a) taken 
into account under subparagraph (A) (ii) with respect 
to such portion shall be its pro rata share of such value of 
such interest, and 
"(ii) the adjusted tax difference attributable to the 
interest taken into account with respect to the transaction 
involving the second or any succeeding portion shall be 
reduced by the amount of the tax imposed by this subsec-
tion with respect to all prior transactions involving por-
tions of such interest. 
"(3) 
PHASEOUT OF ADDITIONAL TAX BETWEEN lOTH AND 15TH 
TEARS.—If the date of the disposition or cessation referred to in 
paragraph (1) occurs more than 120 months and less than 180 
months after the date of the death of the decedent, the amount of 
the tax imposed by this subsection shall be reduced (but not below 
zero) by an amount determined by multiplying the amount of 
such tax (determined without regard to this paragraph) by a 
fraction— 
" (A) the numerator of which is the number of full months 
after such death in excess of 120, and 
" (B) the denominator of which is 60. 
"(4) 
O N L Y i ADDITIONAL TAX IMPOSED WITH RESPECT TO ANT i 
PORTION.—In the case of an interest acquired from (or passing 
from) any decedent, if subparagraph (A) or (B) of paragraph 
(1) applies to any portion of an interest, subparagraph (B) or 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1859 
(A), as the case may be, of paragraph (1) shall not apply with 
respect to the same portion of such interest. 
"(5) D U E DATE.—The additional tax imposed by this subsec-
tion shall become due and payable on the day which is 6 months 
after the date of the disposition or cessation referred to in para-
graph (1). 
"(6) LIABILITY FOR TAX.—The qualified heir shall be personally 
liable for the additional tax imposed by this subsection with 
respect to his interest. 
"(7) CESSATION OF QUALIFIED USE.—For purposes of paragraph 
(1) ( B ) , real property shall cease to be used for the qualified use 
if— 
"(A) such property ceases to be used for the qualified use 
set forth in subparagraph (A) or (B) of subsection (b) (2) 
under which the property qualified under subsection (b), or 
"(B) during any period of 8 years ending after the date of 
the decedent's death and before the date of the death of the 
qualified heir, there had been periods aggregating 3 years or 
more during which— 
"(i) in the case of periods during which the property 
was held by the decedent, there was no material partici-
pation by the decedent or any member of his family in 
the operation of the farm or other business, and 
" (ii) in the case of periods during which the property 
was held by any qualified heir, there was no material par-
ticipation by such qualified heir or any member of his 
family in the operation of the farm or other business. 
"(d) 
ELECTION; AGREEMENT.— 
"(1) ELECTION.—The election under this section shall be made 
not later than the time prescribed by section 6075(a) for filing 26 USC 6075. 
the return of tax imposed by section 2001 (including extensions Ante, p. 1846. 
thereof), and shall be made in such manner as the Secretary shall 
by regulations prescribe. 
" (2) AGREEMENT-—The agreement referred to in this paragraph 
is a written agreement signed by each person in being who has an 
interest (whether or not in possession) in any property desig-
nated in such agreement consenting to the application of subsec-
tion (c) with respect to such property. 
"(e) DEFINITIONS; SPECIAL RULES.—For purposes of this section— 
"(1) QUALIFIED HEIR.—The term 'qualified heir' means, with ^ 
respect to any property, a member of the decedent's family who 
acquired such property (or to whom such property passed) from 
the decedent. If a qualified heir disposes of any interest in quali-
fied real property to any member of his family, such member 
shall thereafter be treated as the qualified heir with respect to 
such interest. 
"(2) MEMBER OF FAMILY.—The term 'member of the family' 
means, with respect to any individual, only such individual's 
ancestor or lineal descendant, a lineal descendant of a grand-
parent of such individual, the spouse of such individual, or the 
spouse of any such descendant. For purposes of the preceding 
sentence, a legally adopted child of an individual shall be treated 
as a child of such individual by blood. 
"(3) 
CERTAIN REAL PROPERTY INCLUDED.—In the case of real 
property which meets the requirements of subparagraph (C) 
of subsection (b) (1), residential buildings and related improve-
ments on such real property occupied on a regular basis by the 
90 STAT. 1860 
PUBLIC LAW 94-455—OCT. 4, 1976 
owner or lessee of such real property or by persons employed by 
such owner or lessee for the purpose of operating or maintaining 
such real property, and roads, buildings, and other structures 
and improvements functionally related to the qualified use shall 
be treated as real property devoted to the qualified use. 
"(4) FARM.—The term 'farm' includes stock, dairy, poultry, 
fruit, furbearing animal, and truck farms, plantations, ranches, 
nurseries, ranges, greenhouses or other similar structures used 
primarily for the raising of agricultural or horticultural com-
modities, and orchards and woodlands. 
" (5) FARMING PURPOSES.—The term 'farming purposes' means— 
"(A) cultivating the soil or raising or harvesting any agri-
cultural or horticultural commodity (including the raising, 
shearing, feeding, caring for, training, and management of 
animals) on a farm; 
" ( B ) handling, drying, packing, grading, or storing on a 
farm any agricultural or horticultural commodity in its 
unmanufactured state, but only if the owner, tenant, or oper-
ator of the farm regularly produces more than one-half of 
the commodity so treated; and 
"(C) (i) the planting, cultivating, caring for, or cutting 
of trees, or 
"(ii) the preparation (other than milling) of trees for 
market. 
"(6) MATERIAL PARTICIPATION.—Material participation shall be 
determined in a manner similar to the manner used for purposes 
26 use 1402. 
of paragraph (1) of section 1402(a) (relating to net earnings 
from self-employment). 
" (7) METHOD or VALUING FARMS.— 
" ( A ) I N GENERAL.—Except as provided in subparagraph 
(B), the value of a farm for farming purposes shall be 
determined by dividing— 
" (i) the excess of the average annual gross cash rental 
for comparable land used for farming purposes and 
located in the locality of such farm over the average 
annual State and local real estate taxes for' such com-
parable land, by 
"(ii) the average annual effective interest rate for all 
new Federal Land Bank loans. 
For purposes of the preceding sentence, each average annual 
computation shall be made on the basis of the 5 most recent 
calendar years ending before the date of the decedent's death. 
"(B) EXCEPTION.—The formula provided by subpara-
graph (A) shall not be used— 
"(i) where it is established that there is no compa-
rable land from which the average annual gross cash 
rental may be determined, or 
"(ii) where the executor elects to have the value of 
the farm for farming purposes determined under para-
graph (8). 
"(8) METHOD OF VALUING CLOSELY HELD BUSINESS INTERESTS, 
ETC.—In any case to which paragraph (7) (A) does not apply, 
the following factors shall apply in determining the value of any 
qualified real property: 
" ( A ) The capitalization of income which the property can 
be expected to yield for farming or closely held business pur-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1861 
poses over a reasonable period of time under prudent manage-
ment using traditional cropping patterns for the area, taking 
into account soil capacity, terrain configuration, and similar 
factors, 
" ( B ) The capitalization of the fair rental value of the land 
for farm land or closely held business purposes, 
"(C) Assessed land values in a State which provides a dif-
ferential or use value assessment law for farmland or closely 
held business, 
" ( D ) Comparable sales of other farm or closely held busi-
ness land in the same geographical area far enough removed 
from a metropolitan or resort area so that nonagricultural 
use is not a significant factor in the sales price, and 
" ( E ) Any other factor which fairly values the farm or 
closely held business value of the property. 
"(f) STATUTE OF LIMITATIONS.—If qualified real property is dis-
posed of or ceases to be used for a qualified use, then— 
' 
"(1) the statutory period for the assessment of any additional 
tax under subsection (c) attributable to such disposition or ces-
sation shall not expire before the expiration of 3 years from the 
date the Secretary is notified (in such manner as the Secretary 
may by regulations prescribe) of such disposition or cessation, 
and 
"(2) such additional tax may be assessed before the expiration 
of such 3-year period notwithstanding the provisions of any other 
law or rule of law which would otherwise prevent such assessment. 
"(g) APPLICATION OF T H I S SECTION AND SECTION 6324B TO INTERESTS 
IN PARTNERSHIPS, CORPORATIONS, AND TRUSTS.—The Secretary shall Regulations. 
prescribe regulations setting forth the application of this section and 
section 6324B in the case of an interest in a partnership, corporation, 
or trust which, with respect to the decedent, is an interest in a closely 
held business (within the meaning of paragraph (1) of section 
6166(b))." 
(b) SPECIAL LIEN.—Subchapter C of chapter 64 (relating to lien 
for taxes) is amended by inserting after section 6324A the following 
new section: 
"SEC 6324B. SPECIAL LIEN FOR ADDITIONAL ESTATE TAX ATTRIBUT- 
26 USC 6324B. 
ABLE TO FARM, ETC., VALUATION. 
"(a) GENERAL RULE.—In the case of any interest in qualified real 
property (within the meaning of section 2032A(b)), an amount equal 
^nte, p. 1856. 
to the adjusted tax difference attributable to such interest (within the 
meaning of section 2032A(c) (2) ( B ) ) shall be a lien in favor of the 
United States on the property in which such interest exists. 
"(b) PERIOD OF LIEN.—The lien imposed by this section shall arise 
at the time an election is filed under section 2032A and shall continue 
with respect to any interest in the qualified farm real property— 
"(1) until the liability for tax under subsection (c) of section 
2032A with respect to such interest has been satisfied or has become 
unenforceable by reason of lapse of time, or 
"(2) until it is established to the satisfaction of the Secretary 
that no further tax liability may arise under section 2032A(c) 
with respect to such interest. 
"(c) 
CERTAIN RULES MADE APPLICABLE.—The rules set forth in 
paragraphs (1), (3), and (4) of section 6324A(d) shall apply with 
Post, p. 1868. 
respect to the lien imposed by this section as if it were a lien imposed 
by section 6324A. 
90 STAT. 1862 
PUBLIC LAW 94-455—OCT. 4, 1976 
" ( d ) SUBSTITUTION OF SECURITY FOR L I E N . — T o the extent provided 
in regulations prescribed by the Secretary, the furnishing of security 
may be substituted for the lien imposed by this section." 
26 use 2013. 
(c) CREDIT FOR TAX ON PRIOR TRANSFERS.—Section 2013 (relating 
to credit for tax on prior transfers) is amended by adding at the end 
thereof the following new subsection: 
"(f) 
TREATMENT OF ADDITIONAL TAX IMPOSED UNDER 
SECTION 
2032A.—If section 2032A applies to any property included in the 
gross estate of the transferor and an additional tax is imposed with 
respect to such property under section 2032A(c) before the date which 
is 2 years after the date of the decedent's death, for purposes of this 
section— 
"(1) the additional tax imposed by section 2032A(c) shall be 
treated as a Federal estate tax payable with respect to the estate of 
the transferor; and 
"(2) the value of such property and the amount of the taxable 
estate of the transferor shall be determined as if section 2032A did 
not apply with respect to such property." 
(d) CLERICAL AMENDMENTS.— 
(1) The table of sections for part I I I of subchapter A of 
chapter 11 is amended by inserting after the item relating to sec-
tion 2032 the following new item: 
"Sec. 2032A. Valuation of certain farm, etc., real property." 
(2) The table of sections for subchapter C of chapter 64 is 
amended by inserting after the item relating to section 6324A the 
folloAving new item: 
"Sec. 6324B. Special lien for additional estate tax attributable to farm, 
etc., valuation." 
26 use 2032A 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply to the estates of decedents dying after December 31, 1976. 
SEC. 2004. EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX. 
(a) GENERAL RULE.—Subchapter B of chapter 62 (relating to 
extensions of time for payment of tax) is amended by redesignating 
section 6166 as section 6166A and by inserting after section 6165 the 
following new section: 
26 use 6166. 
"SEC. 6166. ALTERNATE EXTENSION OF TIME FOR PAYMENT OF 
ESTATE TAX WHERE ESTATE CONSISTS LARGELY OF 
INTEREST IN CLOSELY HELD BUSINESS. 
"(a) 5-YEAR DEFERRAL; 10-YEAR INSTALLMENT PAYMENT.— 
"(1) I N GENERAL.—If the value of an interest in a closely held 
business which is included in determining the gross estate of a 
decedent who was (at the date of his death) a citizen or resident 
of the United States exceeds 65 percent of the adjusted gross 
estate, the executor may elect to pay part or all of the tax imposed 
by section 2001 in 2 or more (but not exceeding 10) equal 
installments. 
"(2) LIMITATION.—The maximum amount of tax which may 
be paid in installments under this subsection shall be an amount 
which bears the same ratio to the tax imposed by section 2001 
(reduced by the credits against such tax) as— 
" ( A ) the closely held business amount, bears to 
" ( B ) the amount of the adjusted gross estate. 
"(3) DATE FOR PAYMENT OF INSTALLMENTS.—If an election is 
made under paragraph (1), the first installment shall be paid on 
or before the date selected by the executor which is not more than 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1863 
5 years after the date prescribed by section 6151(a) for payment 
26 USC 6151,. 
of the tax, and each succeeding installment shall be paid on or 
before the date which is 1 year after the date prescribed by this 
paragraph for payment of the preceding installment. 
" (4) ELIGIBILITY FOR ELECTION.—No election may be made under 
this section by the executor of the estate of any decedent if an 
election under section 6166A applies with respect to the estate Ante, p. 1862. 
of such decedent. 
" ( b ) DEFINITIONS AND SPECIAL RULES.— 
" (1) INTEREST IN CLOSELY HELD BUSINESS.—For purposes of this 
section, the term 'interest in a closely held business' means— 
" ( A ) an interest as a proprietor in a trade or business 
carried on as a proprietorship; 
" ( B ) an interest as a partner in a partnership carrying on 
a trade or business, if— 
" (i) 20 percent or more of the total capital interest in 
such partnership is included in determining the gross 
estate of the decedent, or 
"(ii) such partnership had 15 or fewer partners; or 
"(C) stock in a corporation carrying on a trade or busi-
ness if— 
"(i) 20 percent or more in value of the voting stock of 
such corporation is included in determining the gross 
estate of the decedent, or 
"(ii) such corporation had 15 or fewer shareholders. 
"(2) RULES 'FOR APPLYING PARAGRAPH (i).—For purposes of 
paragraph (1) — 
" ( A ) T I M E FOR TESTING.—Determinations shall be made as 
of the time immediately before the decedent's death. 
" ( B ) 
CERTAIN INTERESTS HELD BY HUSBAND AND WIFE.— 
Stock or a partnership interest which— 
"(i) is community property of a husband and wife (or 
the income from which is community income) under the 
applicable community property law of a State, or 
"(ii) is held by a husband and wife as joint tenants, 
tenants by the entirety, or tenants in common, 
shall be treated as owned by one shareholder or one partner, as 
the case may be. 
"(C) 
INDIRECT OWNERSHIP.—Property owned, directly or 
indirectly, by or for a corporation, partnership, estate, or trust 
shall be considered as being owned proportionately by or for 
its shareholders, partners, or beneficiaries. For purposes of 
the preceding sentence, a person shall be treated as a bene-
ficiary of any trust only if such person has a present interest 
in the trust. 
"(3) FARMHOUSES AND CERTAIN OTHER STRUCTURES TAKEN INTO 
ACCOUNT.—For purposes of the 65-percent requirement of sub-
section (a) (1), an interest in a closely held business which is the 
business of farming includes an interest in residential buildings 
and related improvements on the farm which are occupied on a 
regular basis by the owner or lessee of the farm or by persons 
employed by such owner or lessee for purposes of operating or 
maintaining the farm, 
"(4) VALUE.—For purposes of this section, value shall be value 
determined for purposes of chapter 11 (relating to estate tax). 
"(5) CLOSELY HELD BUSINESS AMOUNT.—For purposes of this 
section, the term 'closely held business amount' means the value of 
90 STAT. 1864 
PUBLIC LAW 94-455—OCT. 4, 1976 
the interest in a closely held business which qualifies under sub-
section (a)(1). 
"(6) ADJUSTED GROSS ESTATE.—For purposes of this section, the 
term, 'adjusted gross estate' means the value of the gross estate 
reduced by the sum of the amounts allowable as a deduction under 
26 use 2053, 
section 2053 or 2054. Such sum shall be determined on the basis of 
2054. 
the facts and circumstances in existence on the date (including 
Ante, p. 1846. 
extensions) for filing the return of tax imposed by section 2001 
(or, if earlier, the date on which such return is filed). 
"(c) 
SPECIAL E U L E FOR INTERESTS I N 2 OR MORE CLOSELY HELD 
BUSINESSES.—For purposes of this section, interests in 2 or more 
closely held businesses, with respect to each of which there is included 
in determining the value of the decedent's gross estate more than 20 
percent of the total value of each such business, shall be treated as an 
interest in a single closely held business. For purposes of the 20-percent 
requirement of the preceding sentence, an interest in a closely held 
business wliich represents the surviving spouse's interest in property 
held by the decedent and the surviving spouse as community property 
or as joint tenants, tenants by the entirety, or tenants in common shall 
be treated as having been included in determining the value of the 
decedent's gross estate. 
"(d) ELECTION.—Any election under subsection (a) 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 regula-
tions prescribe. If an election under subsection (a) is made, the pro-
visions of this subtitle shall apply as though the Secretary were 
extending the time for payment of the tax. 
" (e) PRORATION OF DEFICIENCY TO INSTALLMENTS.—If an election is 
made under subsection (a) to pay any part of the tax imposed by 
section 2001 in installments and a deficiency has been assessed, the 
deficiency shall (subject to the limitation provided by subsection (a) 
(2)) be prorated to the installments payable under subsection (a). 
The part of the deficiency so prorated to any installment the date for 
payment of which has not arrived shall be collected at the same time 
as, and as a part of, such installment. The part of the deficiency so 
prorated to any installment the date for payment of which has arrived 
shall be paid upon notice and demand from the Secretary. This sub-
section shall not apply if the deficiency is due to negligence, to inten-
tional disregard of rules and regulations, or to fraud with intent to 
evade tax. 
"(f) 
T I M E FOR PAYMENT OF INTEREST.—If the time for payment of 
any amount of tax has been extended under this section— 
"(1) INTEREST FOR FIRST 5 YEARS.—Interest payable under sec-
tion 6601 of any unpaid portion of such amount attributable to the 
first 5 years after the date prescribed by section 6151(a) for pay-
ment of the tax shall be paid annually. 
"(2) INTEREST FOR PERIODS AFTER FIRST S YEARS.—Interest pay-
able under section 6601 on any unpaid portion of such amount 
attributable to any period after the 5-year period referred to in 
paragraph (1) shall be paid annually at the same time as, and as 
a part of, each installment payment of the tax. 
"(3) 
INTEREST I N THE CASE or CERTAIN DEFICIENCIES.—In the 
case of a deficiency to which subsection (e) applies which is 
assessed after the close of the 5-year period referred to in para-
graph (1), interest attributable to such 5-year period, and interest 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 18(35 
assigned under paragraph (2) to any installment the date for 
payment of which has arrived on or before the date of the assess-
ment of the deficiency, shall be paid upon notice and demand from 
the Secretary. 
" (4) SELECTION or SHORTER PERIOD.—^If the executor has selected 
a period shorter than 5 years under subsection (a)(3), such 
shorter period shall be substituted for 5 years in paragraphs (1), 
(2), and (3) of this subsection. 
"(g) ACCELERATION OF PAYMENT.— 
"(1) 
DISPOSITION OF INTEREST; WITHDRAWAL OF FUNDS FROM 
BUSINESS.— 
"(A) If— 
_ 
^ 
"(i) one-third or more in value of an interest in a 
closely held business which qualifies under subsection 
(a) (1) is distributed, sold, exchanged, or otherwise dis-
posed of, or 
" (ii) aggregate withdrawals of money and other prop-
erty from the trade or business, an interest in which qual-
ifies under subsection (a) (1), made with respect to such 
interest, equal or exceed one-third of the value of such 
trade or business, 
then the extension of time for payment of tax provided in 
subsection (a) shall cease to apply, and any unpaid portion 
of the tax payable in installments shall be paid upon notice 
and demand from the Secretary. 
"(B) In the case of a distribution in redemption of stock 
to which section 303 (or so much of section 304 as relates to 26 U
S
C 303. 
section 303) applies— 
"(i) subparagraph (A) (i) does not apply with respect 
to the stock redeemed; and for purposes of such subpara-
graph the interest in the closely held business shall be 
considered to be such interest reduced by the value of the 
stock redeemed, and 
"(ii) subparagraph (A) (ii) does not apply with 
respect to withdrawals of money and other property dis-
tributed; and for purposes of such subparagraph the 
value of the trade or business shall be considered to be 
such value reduced by the amount of money and other 
property distributed. 
This subparagraph shall apply only if, on or before the 
date prescribed by subsection (a) (3) for the payment of 
the first installment Avhich becomes due after the date of the 
distribution (or, if earlier, on or before the day which is 
1 year after the date of the distribution), there is paid an 
amount of the tax imposed by section 2001 not less than 
the amount of money and other property distributed. 
"(C) Subparagraph (A) (i) does not apply to an exchange 
of stock pursuant to a plan of reorganization described in 
subparagraph (D), (E), or (F) of section 368(a)(1) nor 
to an exchange to which section 355 (or so much of sec-
tion 356 as relates to section 355) applies; but any stock 
received in such an exchange shall be treated for piirposes of 
subparagraph (A) (i) as an interest qualifying under sub-
section (a)(1). 
"(D) Subparagraph (A) (i) does not apply to a trans-
fer of property of the decedent to a person entitled by rea-
son of the decedent's death to receive such pi-operty under 
90 STAT. 1866 
PUBLIC LAW 94-455—OCT. 4, 1976 
the decedeiifs will, the applicable law of descent and dis-
tribution, or a trust created by the decedent. 
" (2) UNDISTRIBUTED INCOME or ESTATE.— 
" ( A ) If an election is made under this section and the 
estate has undistributed net income for any taxable year 
ending on or after the due date for the first installment, the 
executor shall, on or before the date prescribed by law for 
filing the income tax return for such taxable year (including 
extensions thereof), pay an amount equal to such undis-
tributed net income in liquidation of the unpaid portion of the 
tax payable in installments. 
"(B) For purposes of subparagraph (A), the undistrib-
uted net income of the estate for any taxable year is the 
amount by which the distributable net income of the estate 
26 use 643. 
for such taxable year (as defined in section 643) exceeds 
the sum of— 
"(i) the amounts for such taxable year specified in 
paragraphs (1) and (2) of section 661(a) (relating to 
deductions for distributions, etc.); 
"(ii) the amount of tax imposed for the taxable year 
on the estate under chapter 1; and 
Ante, p. 1846. 
"(iii) the amount of the tax imposed by section 2001 
(including interest) paid by the executor during the tax-
able year (other than any amount paid pursuant to this 
paragraph). 
"(3) FAILURE TO PAY INSTALLMENT.—If any installment under 
! 
this section is not paid on or before the date fixed for its pay-
ment by this section (including any extension of time for the 
payment of such installment), the unpaid portion of the tax 
payable in installments shall be paid upon notice and demand 
from the Secretary. 
" ( h ) ELECTION IN CASE OF CERTAIN DEFICIENCIES.— 
" (1) I N GENERAL.—If— 
" ( A ) a deficiency in the tax imposed by section 2001 is 
assessed, 
" ( B ) the estate qualifies under subsection (a) (1), and 
"(C) the executor has not made an election under sub-
section (a), 
the executor may elect to pay the deficiency in installments. This 
subsection shall not apply if the deficiency is due to negligence, 
to intentional disregard of rules and regulations, or to fraud with 
intent to evade tax. 
" (2) T I M E OF ELECTION.—An election under this subsection shall 
be made not later than 60 days after issuance of notice and 
demand by the Secretary for the payment of the deficiency, and 
shall be made in such manner as the Secretary shall by regulations 
prescribe. 
"(3) EFFECT or ELECTION ON PAYMENT.—If an election is made 
under this subsection, the deficiency shall (subject to the limita-
tion provided by subsection (a) (2)) be prorated to the install-
ments which would have been due if an election had been timely 
made under subsection (a) at the time the estate tax return was 
filed. The part of the deficiency so prorated to any installment 
the date for payment of which would have arrived shall be paid 
at the time of the making of the election under this subsection. 
The portion of the deficiency so prorated to installments the date 
PUBLIC LAW 94^55—OCT. 4, 1976 
90 STAT. 1867 
for payment of which would not have so arrived shall be paid at 
the time such installments would have been due if such an election 
had been made. 
"(i) REGULATIONS.—The Secretary shall prescribe such regulations 
as may be necessary to the application of this section. 
"(j) CROSS REFERENCES.— 
"(1) Security.— 
"For authority of the Secretary to require security in the case 
of an extension under this section, see section 6165. 
"(2) Lien^ 
"For special lien (in lieu of bond) in the case of an extension 
under this section, see section 6324A. 
"(3) Period of limitation.— 
"For extension of the period of limitation in the case of an 
extension under this section, see section 6503(d). 
"(4) Interest.— 
"For provisions relating to interest on tax payable in install-
ments under this section, see subsection (j) of section 6601." 
(b) 4-PERCENT INTEREST RATE.—Section 6601 (relating to interest 
26 USC 6601. 
on underpayment, nonpayment, or extension of time for payment of 
tax) is amended by redesignating subsection (j) as subsection (k) 
and by inserting after subsection (i) the following new subsection: 
" (j) 4-PERCENT RATE ON CERTAIN PORTION OF ESTATE TAX EXTENDED 
UNDER SECTION 6166.— 
"(1) I N GENERAL.—If the time for payment of an amount of 
tax imposed by chapter 11 is extended as provided in section 26 USC 2001. 
6166, interest on the 4-percent portion of such amount shall (in 
lieu of the annual rate provided by subsection (a)) be paid at the 
rate of 4 percent. For purposes of this subsection, the amount of 
any deficiency which is prorated to installments payable under 
section 6166 shall be treated as an amount of tax payable in install- 
,, 
ments under such section. 
"(2) 
4-PERCENT PORTION.—For purposes of this subsection, the 
term '4-percent portion' means the lesser of— 
" ( A ) $345,800 reduced by the amount of the credit allow-
able under section 2010 ( a ) ; or 
^"^«' P- l^^-
" ( B ) the amount of the tax imposed by chapter 11 which 
is extended as provided in section 6166. 
"(3) TREATMENT OF PAYMENTS.—If the amount of tax imposed 
by chapter 11 which is extended as provided in section 6166 
exceeds the 4-percent portion, any payment of a portion of such 
amount shall, for purposes of computing interest for periods after 
such payment, be treated as reducing the 4-percent portion by an 
amount which bears the same ratio to the amount of such pay-
ment as the amount of the 4-percent portion (determined with-
out regard to this paragraph) bears to the amount of the tax 
which is extended as provided in section 6166." 
(c) REASONABLE CAUSE SUBSTITUTED FOR UNDUE HARDSHIP IN DETER-
MINING ELIGIBILITY FOR EXTENSIONS OF PAYMENT OF ESTATE T A X . — 
(1) Paragraph (2) of section 6161(a) (relating to extension 
26 USC 6161. 
of time for paying estate tax) is amended to read as follows: 
"(2) ESTATE TAX.—The Secretary may, for reasonable cause, 
extend the time for payment of— 
" ( A ) any part of the amount determined by the executor 
as the tax imposed by chapter 11, or 
" ( R ) any part of any installment under section 6166 or 
6166A (including any part of a deficiency prorated to any 
installment under such section), 
90 STAT. 1868 
PUBLIC LAW 94-455—OCT. 4, 1976 
for a reasonable period not in excess of 10 years from the date pre-
scribed by section 6151(a) for payment of the tax (or, in the case 
of an amount referred to in subparagraph ( B ) , if later, not 
beyond the date which is 12 months after the due date for the last 
installment)." 
26 use 6161. 
(2) Subsection (b) of section 6161 (relating to extension of time 
for payment of certain deficiencies) is amended to read as follows: 
" (b) AMOUNT DETERMINED AS DEFICIENCY.— 
"(1) INCOME, GIFT, AND CERTAIN OTHER TAXES.—Under regula-
tions prescribed by the Secretary, the Secretary may extend the 
time for the payment of the amount determined as a deficiency of a 
tax imposed by chapter 1, 12, 41, 42, 43, or 44 for a period not to 
exceed 18 months from the date fixed for the payment of the 
deficiency, and in exceptional cases, for a further period not to 
exceed 12 months. An extension under this paragraph may be 
granted only where it is shown to the satisfaction of the Secretary 
that payment of a deficiency upon the date fixed for the payment 
thereof will result in undue hardship to the taxpayer in the case 
of a tax imposed by chapter 1, 41, 42, 43, or 44, or to the donor in 
the case of a tax imposed by chapter 12. 
"(2) ESTATE TAX,—Under regulations prescribed by the Secre-
tary, the Secretary may, for reasonable cause, extend the time for 
the payment of any deficiency of a tax imposed by chapter 11 for a 
reasonable period not to exceed 4 years from the date otherwise 
fixed for the payment of the deficiency. 
"(3) No EXTENSION FOR CERTAIN DEFICIENCIES.—No extension 
shall be granted under this subsection for any deficiency if the 
deficiency is due to negligence, to intentional disregard of rules 
and regulations, or to fraud with intent to evade tax." 
26 use 6163. 
(3) Subsection (b) of section 6163 (relating to extension to pre-
vent undue hardship in case of reversionary or remainder interest) 
is amended to read as follows: 
•'(b) EXTENSION FOR REASONABLE CAUSE.—^At the expiration of the 
period of postponement provided for in subsection (a), the Secretary 
may, for reasonable cause, extend the time for payment for a reasonable 
period or periods not in excess of 3 years from the expiration of the 
period of postponement provided in subsection (a)," 
26 use 6503. 
(4) Subsection (d) of section 6503 (relating to extensions of 
time for payment of estate tax) is amended by striking out "sec-
tion 6166" and inserting in lieu thereof "section 6163, 6166, or 
6166A". 
(d) SPECIAL L I E N FOR ESTATE TAX DEFERRED UNDER SECTION 6166.— 
(1) I N GENERAL.—Subchapter C of chapter 64 (relating to lien 
for taxes) is amended by inserting after section 6324 the follow-
ing new section: 
26 use 6324A. 
«SEC. 6324A. SPECIAL LIEN FOR ESTATE TAX DEFERRED UNDER SEC-
TION 6166 OR 6166A. 
"(a) 
GENERAL RULE.—In the case of any estate with respect to 
which an election has been made under section 6166 or 6166A, if the 
executor makes an election under this section (at such time and in 
such manner as the Secretary shall by regulations prescribe) and files 
the agreement referred to in subsection (c), the deferred amount (plus 
any interest, additional amount, addition to tax, assessable penalty, 
and costs attributable to the deferred amount) shall be a lien in favor 
of the United States on the section 6166 lien property. 
" (b) SECTION 6166 L I E N PROPERTY.— 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1869 
"(1) I N GENERAL.—For purposes of this section, the term 'sec- "Section 6166 
tion 6166 lien property' means interests in real and other property 
lien property." 
to the extent such interests— 
" ( A ) can be expected to survive the deferral period, and 
" ( B ) are designated in the agreement referred to in sub-
section (c). 
"(2) MAXIMUM VALUE or REQUIRED PROPERTY.—The maximum 
value of the property which the Secretary may require as section 
6166 lien property with respect to any estate shall be a value which 
is not greater than the sum of— 
" ( A ) the deferred amount, and 
"(B) the aggregate interest amount. 
For purposes of the preceding sentence, the value of any prop-
erty shall be determined as of the date prescribed by section 6151 26 USC 6151. 
(a) for payment of the tax imposed by chapter 11 and shall be 
determined by taking into account any encumbrance such as a lien 
under section 6324B. 
Ante, p. 1861. 
"(3) 
PARTIAL SUBSTITUTION or BOND FOR LIEN.—If the value 
required as section 6166 lien property pursuant to paragraph (2) Ante, p. 1862. 
exceeds the value of the interests in property covered by the agree-
ment referred to in subsection (c), the Secretary may accept bond 
in an amount equal to such excess conditioned on the payment 
of the amount extended in accordance with the terms of such 
extension. 
"(c) AGREEMENT.—The agreement referred to in this subsection is 
a written agreement signed by each person in being who has an interest 
(whether or not in possession) in any property designated in such 
agreement— 
"(1) consenting to the creation of the lien under this section 
with respect to such property, and 
"(2) designating a responsible person who shall be the agent 
for the beneficiaries of the estate and for the persons w^ho have 
consented to the creation of the lien in dealings with the Secretary 
on matters arising under section 6166 or 6166A or this section. Ante, p. 1862. 
" ( d ) SPECIAL RULES.— 
"(1) REQUIREMENT THAT LIEN BE FILED.—The lien imposed by 
this section shall not be valid as against any purchaser, holder of 
a security interest, mechanic's lien, or judgment lien creditor 
until notice thereof which meets the requirements of section 6323 
(f) has been filed by the Secretary. Such notice shall not be 
required to be refiled. 
"(2) PERIOD OF LIEN.—The lien imposed by this section shall 
arise at the time the executor is discharged from liability under 
section 2204 (or, if earlier, at the time notice is filed pursuant to 
paragraph (1)) and shall continue until the liability for the 
deferred amount is satisfied or becomes unenforceable by reason of 
lapse of time. 
"(3) PRIORITIES.—Even though notice of a lien imposed by 
this section has been filed as provided in paragraph (1), such lien 
shall not be valid— 
" ( A ) REAL PROPERTY TAX AND SPECIAL ASSESSMENT LIENS.— 
To the extent provided in section 6323(b) (6). 
" ( B ) 
REAL PROPERTY SUBJECT TO A MECHANIC'S LIEN FOR 
REPAIRS AND IMPROVEMENTS.—In the case of any real property 
subject to a lien for repair or improvement, as against a 
mechanic's lienor. 
89-194 O—78—pt. 2 
26 
90 STAT. 1870 
PUBLIC LAW 94-455—OCT. 4, 1976 
" ( C ) REAL 
PROPERTY 
CONSTRUCTION 
OR IMPROVEMENT 
FINANCING AGREEMENT.—As against any security interest set 
forth in paragraph (3) of section 6328(c) (whether such secu-
rity interest came into existence before or after tax lien filing), 
Subparagraphs (B) and (C) shall not apply to any security 
interest which came into existence after the date on which the 
Secretary filed notice (in a manner similar to notice filed under 
section 6323(f)) that payment of the deferred amount has been 
Ante, p. 1862. 
accelerated under section 6166 (g) or 6166A (h). 
" (4) L I E N TO BE IN LIEU OF SECTION 6 3 24 LIEN.—If there is a lien 
under this section on any property with respect to any estate, there 
shall not be any lien under section 6324 on such property with 
respect to the same estate. 
"(5) ADDITIONAL LIEN PROPERTY REQUIRED IN CERTAIN CASES.— 
If at any time the value of the property covered by the agree-
ment is less than the unpaid portion of the deferred amount 
and the aggregate interest amount, the Secretary may require the 
addition of property to the agreement (but he may not require 
under this paragraph that the value of the property covered by 
the agreement exceed such unpaid portion). If property having 
the required value is not added to the property covered by the 
agreement (or if other security equal to the required value is not 
furnished) within 90 days after notice and demand therefor by the 
Secretary, the failure to comply with the preceding sentence shall 
be treated as an act accelerating payment of the installments under 
section 6166(g) or 6166a (h). 
"(6) L I E N TO BE IN LIEU OF BOND.—The Secretary may not 
require under section 6165 the furnishing of any bond for the 
payment of any tax to which an agreement which meets the 
requirements of subsection (c) applies. 
" (e) DEFINITIONS.—For purposes of this section— 
"(1) DEFERRED AMOUNT.—The term 'deferred amount' means 
the aggregate amount deferred under section 6166 or 6166A 
(determined as of the date prescribed by section 6151 (a) for pay-
ment of the tax imposed by chapter 11). 
"(2) AGGREGATE INTEREST AMOUNT.—The term 'aggregate inter-
est amount' means the aggregate amount of interest which will be 
payable over the deferral period with respect to the deferred 
amount (determined as of the date prescribed by section 6151(a) 
for payment of the tax imposed by chapter 11). 
"(3) DEFERRAL PERIOD.—The term 'deferral period' means the 
period for which the payment of tax is deferred pursuant to the 
election under section 6166 or 6166A. 
" (4) APPLICATION OF DEFINITIONS IN CASE OF DEFICIENCIES.—In 
the case of a deficiency, a separate deferred amount, aggregate 
interest amount, and deferral period shall be determined as of the 
due date of the first installment after the deficiency is prorated 
to installments under section 6166 or 6166A." 
(2) DISCHARGE OF EXECUTOR FROM PERSONAL LIABILITY.—Section 
26 use 2204. 
2204 (relating to discharge of fiduciary from personal liability) 
is amended by adding at the end thereof the following new sub-
section : 
'*(c) SPECIAL L I E N UNDER SECTION 6324A.—For purposes of the 
second sentence of subsection (a) and the last sentence of subsection 
Ante, p. 1868. 
(b), an agreement which meets the requirements of section 6324A 
(relating to special lien for estate tax deferred under section 6166 or 
6166A) shall be treated as the furnishing of bond with respect to the 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1871 
amount for which the time for payment has been extended under 
-^nte, p. 1862. 
section 6166 or 6166A." 
(e) AMENDMENTS OF SECTION 303.— 
(1) EXTENSION or PERIOD FOR DISTRIBUTION.—Paragraph (1) of 
section 303(b) (relating to distributions in redemption of stock 
26 USC 303. 
to pay death taxes) is amended by striking out "or" at the end 
of subparagraph ( A ) , by striking out the period at the end of 
subparagraph (B) and inserting in lieu thereof ", or ", and by 
adding at the end thereof the following new subparagraph: 
"(C) If an election has been made under section 6166 or 
6166A and if the time prescribed by this subparagraph expires 
at a later date than the time prescribed by subparagraph 
(B) of this paragraph, within the time determined under 
section 6166 or 6166A for the payment of the installments." 
(2) 
RELATIONSHIP OF STOCK TO DECEDENT'S ESTATE.— 
(A) Subparagraph (A) of section 303(b) (2) is amended 
to read as follows: 
" ( A ) I N GENERAL.—Subsection (a) shall apply to a distri-
bution by a corporation only if the value (for Federal estate 
tax purposes) of all of the stock of such corporation which is 
included in determining the value of the decedent's gross 
estate exceeds 50 percent of the excess of— 
" (i) the value of the gross estate of such decedent, over 
"(ii) the sum of the amounts allowable as a deduction 
under section 2053 or 2054." 
r 
(B) The first sentence of subparagraph (B) of section 303 
(b) (2) is amended by striking out "the 35 percent and 50 
percent requirements" and inserting in lieu thereof "the 50 
percent requirement". 
(3) RELATIONSHIP OF SHAREHOLDER TO ESTATE TAX.—Subsection 
(b) of section 303 is amended by adding at the end thereof the 
**' 
following new paragraphs: 
" (3) RELATIONSHIP OF SHAREHOLDER TO ESTATE TAX.—Subsection 
(a) shall apply to a distribution by a corporation only to the 
extent that the interest of the shareholder is reduced directly (or 
through a binding obligation to contribute) by any payment of 
an amount described in paragraph (1) or (2) of subsection (a). 
"(4) 
ADDITIONAL REQUIREMENTS FOR DISTRIBUTIONS MADE MORE 
'^ 
THAN 4 YEARS AFTER DECEDENT'S DEATH.—In the case of amounts 
distributed more than 4 years after the date of the decedent's 
death, subsection (a) shall apply to a distribution by a corpora-
tion only to the extent of the lesser of— 
" ( A ) the aggregate of the amounts referred to in para-
graph (1) or (2) of subsection (a) which remained unpaid 
immediately before the distribution, or 
" ( B ) the aggregate of the amounts referred to in para-
graph (1) or (2) of subsection (a) which are paid during 
the 1-year period beginning on the date of such distribution." 
(4) STOCK WITH SUBSTITUTED BASIS.—Subsection (c) of section 
303 (relating to stock with substituted basis) is amended by strik-
ing out "limitation specified in subsection (b) ( 1 ) " and inserting 
in lieu thereof "limtations specified in subsection (b)". 
(f) TECHNICAL, CLERICAL, AND CONFORMING CHANGES.— 
(1) The table of sections for subchapter C of chapter 64 is 
amended by inserting after the item relating to section 6324 the 
foUowinsr new item: 
90 STAT. 1872 
PUBLIC LAW 94-455—OCT. 4, 1976 
"Sec. 6324A. Special lien for estate tax deferred under section 6166 or 
6166A." 
26 use 7403. 
(2) Section 7403(a) (relating to action to enforce lien or to 
subject property to payment of tax) is amended by adding at the 
end thereof the following new sentence: "For purposes of the pre-
Ante, p. 1862. 
ceding sentence, any acceleration of payment under section 6166 
(g) or 6166A(h) shall be treated as a neglect to pay tax." 
26 use 2011. 
(3) Paragraph (2) of section 2011(c) (relating to credit for 
State death taxes) is amended by striking out "section 6161" and 
inserting in lieu thereof "section 6161, 6166 or 6166A". 
26 use 2204. 
^4^ ^he last sentence of section 2204 (b) is amended by striking 
out "has not been extended under" and inserting in lieu thereof 
"has been extended under". 
(5) The table of sections for subchapter B of chapter 62 is 
amended by striking out the item relating to section 6166 and 
inserting in lieu thereof the following: 
"Sec. 6166. Alternate extension of time for payment of estate tax wtiere 
estate consists largely of interest in closely held business. 
"Sec. 6166A. Extension of time for payment of estate tax where estate 
tax consists largely of interest in closely held business.". 
(6) Subsections (a) and (b) of section 2204 (relating to dis-
charge of fiduciary from personal liability) are as amended by 
striking out "or 6166" and inserting in lieu thereof "6166 or 
6166A". 
26 use 6166 
(g) EFFECTIVE DATE,—The amendments made by this section shall 
note. 
apply to the estates of decedents dying after December 31, 1976. 
SEC. 2005. CARRYOVER BASIS. 
(a) GENERAL R U L E . — 
(1) AMENDMENT OF SECTION 1014.—Subsection (d) of section 
26 use 1014. 
1014 (relating to basis of property acquired from a decedent) is 
amended to read as follows: 
" (d) DECEDENTS DYING AFTER DECEMBER 31,1976.—In the case of a 
decedent dying after December 31,1976, the section shall not apply to 
any property for which a carryover basis is provided by section 1023." 
(2) CARRYOVER BASIS.—Part I I of subchapter O of chapter 1 
(relating to basis rules of general application) is amended by 
26 use 1024. 
redesignating section 1023 as section 1024 and by inserting after 
section 1022 the following new section: 
26 use 1023. 
"SEC. 1023. CARRYOVER BASIS FOR CERTAIN PROPERTY ACQUIRED 
FROM A DECEDENT DYING AFTER DECEMBER 31, 1976. 
" ( a ) GENERAL R U L E . — 
"(1) CARRYOVER BASIS.—Except as otherwise provided in this 
section, the basis of carryover basis property acquired from a 
decedent dying after December 31,1976, in the hands of the person 
so acquiring it shall be the adjusted basis of the property immedi-
ately before the death of the decedent, further adjusted as pro-
vided in this section. 
" ( 2 ) Loss ON PERSONAL AND HOUSEHOLD EFFECTS. 
I n t h e CaSC 
of any carryover basis property which, in the hands of the 
decedent, was a personal or household effect, for purposes of deter-
mining loss, the basis of such property in the hands of the person 
acquiring such property from the decedent shall not exceed its fair 
market value. 
"(b) CARRYOVER BASIS PROPERTY DEFINED.— 
" (1) I N GENERAL.—For purposes of this section, the term 'carry-
over basis property' means any property which is acquired from 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1873 
or passed from a decedent (within the meaning of section 
1014(b)) and which is not excluded pursuant to paragraph (2) 26 USC 1014. 
or (3). 
(2) CERTAIN PROPERTY NOT CARRYOVER BASIS PROPERTY.—The 
teraa 'carryover basis property' does not include— 
" ( A ) any item of gross income in respect of a decedent 
described in section 691; 
"(B) property described in section 2042 (relating to pro-
ceeds of life insurance) ; 
"(C) a joint and survivor annuity under which the surviv-
ing annuitant is taxable under section 72, and payments and 
distributions under a deferred compensation plan described 
in part I of subchapter D of chapter 1 to the extent such pay-
ments and distributions are taxable to the decedent's bene-
ficiary under chapter 1; 
" ( D ) property included in the decedent's gross estate by 
reason of section 2035, 2038, or 2041 which has been disposed 
of before the decedent's death in a transaction in which gain 
or loss is recognizable for purposes of chapter 1; 
" ( E ) stock or a stock option passing from the decedent to 
the extent income in respect of such stock or stock option is 
includable in gross income under section 422(c) (1), 423(c), 
or 424(c)(1); and 
" ( F ) property described in section 1014(b) (5). 
"(3) $10,000 EXCLUSION FOR CERTAIN ASSETS.— 
"(A) 
EXCLUSION.—The term 'carryover basis property' 
does not include any asset— 
"(i) which, in the hands of the decedent, was a per-
sonal or household effect, and 
"(ii) with respect to which the executor has made an 
election under this paragraph. 
" ( B ) 
LIMITATION.—The fair market value of all assets 
designated under this subsection with respect to any decedent 
shall not exceed $10,000. 
"(C) ELECTION.—An election under this paragraph with 
respect to any asset shall be made by the executor not later 
than the date prescribed by section 6075(a) for filing the 
return of the tax imposed by section 2001 or 2101 (including 
Ante, pp. 1846, 
extensions thereof), and shall be made in such manner as 1^50. 
the Secretary shall by regulations prescribe. 
"(c) 
INCREASE I N BASIS FOR FEDERAL AND STATE ESTATE TAXES 
ATTRIBUTABLE TO APPRECIATION.—The basis of appreciated carryover 
basis property (determined after any adjustment under subsection 
(h)) which is subject to the tax imposed by section 2001 or 2101 in the 
hands of the person acquiring it from the decedent shall be increased 
by an amount which bears the same ratio to the Federal and State 
estate taxes as— 
"(1) the net appreciation in value of such property, bears to 
"(2) the fair market value of all property which is subject to 
the tax imposed by section 2001 or 2101. 
" ( d ) $60,000 M I N I M U M FOR BASES OF CARRYOVER BASIS PROPERTIES.— 
"(1) I N GENERAL.—If $60,000 exceeds the aggregate bases (as 
determined after any adjustment under subsection (h) or (c)) of 
all carryover basis property, the basis of each appreciated carry-
over basis property (after any adjustment under subsection (h) or 
(c)) shall be increased by an amount which bears the same ratio 
to the amount of such excess as— 
90 STAT. 1874 
PUBLIC LAW 94-455—OCT. 4, 1976 
" (A) the net appreciation in value of such property, bears 
to 
" ( B ) the net appreciation in value of all such property. 
"(2) 
SPECIAL RULE FOR PERSONAL OR HOUSEHOLD EFFECT.—For 
purposes of paragraph (1), the basis of any property which is a 
personal or household effect shall be treated as not greater than 
the fair market value of such property. 
"(3) NONRESIDENT NOT CITIZEN.—This subsection shall not 
apply to any carryover basis property acquired from any decedent 
who was (at the time of his death) a nonresident not a citizen of 
the United States. 
"(e) FURTHER INCREASE IN BASIS FOR CERTAIN STATE SUCCESSION 
TAX PAID BY TRANSFEREE OF PROPERTY.—If— 
"(1) any person acquires appreciated carryover basis property 
from a decedent, and 
" (2) such person actually pays an amount of estate, inheritance, 
legacy, or succession taxes with respect to such property to any 
State or the District of Columbia for which the estate is not liable, 
then the basis of such property (after any adjustment under subsec-
tion (h), ( c ) , o r (d)) shall be increased by an amount which bears 
the same ratio to the aggregate amount of all such taxes paid by such 
person as— 
" ( A ) the net appreciation in value of such property, bears to 
" ( B ) the fair market value of all property acquired by such 
person which is subject to such taxes. 
"(f) SPECIAL RULES AND DEFINITIONS FOR APPLICATION OF SUBSEC-
TIONS (c), (d), AND (e).— 
"(1) FAIR MARKET VALUE LIMITATION.—The adjustments under 
subsections (c), (d), and (e) shall not increase the basis of prop-
erty above its fair market value. 
"(2) NET APPRECIATION.—For purposes of this section, the net 
appreciation in value of any property is the amount by which 
the fair market value of such property exceeds the adjusted basis 
of such property immediately before the death of the decedent 
(as determined after any adjustment under subsection ( h ) ) . 
For purposes of subsection ( d ) , such adjusted basis shall be 
increased by the amoimt of any adjustment under subsection (c), 
and, for purposes of subsection (e), such adjusted basis shall be 
increased by the amount of any adjustment under subsection (c) 
or ( d ) . 
"(3) FEDERAL AND STATE ESTATE TAXES.—For purposes of sub-
section (c), the term 'Federal and State estate taxes' means— 
Ante, pp. 1846, 
" ( A ) the tax imposed by section 2001 or 2101, reduced by 
1850. 
the credits against such tax, and 
"(B) 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. 
"(4) 
CERTAIN 3IARITAL AND CHARITABLE DEDUCTION PROPERTY 
TREATED AS NOT SUBJECT TO TAX.—For purposes of subsections (c) 
and (e), property shall be treated as not subject to a tax— 
"(A) with respect to the tax imposed by section 2001 or 
2101, to the extent that a deduction is allowable with respect 
to sucli propertv under section 2055 or 2056 or under section 
26 use 2055, 
2106(a) (2), and 
2056,2106. 
" ( B ) with respect to State estate taxes and with respect 
to the State taxes referred to in subsection (e)(2), to the 
extent that such property is not subject to such taxes. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1875 
"(5) APPRECIATED CARRYOVER BASIS PROPERTY.—For purposes of 
this section, the term 'appreciated carryover basis property' means 
any carryover basis property if the fair market value of such 
property exceeds the adjusted basis of such property immediately 
before the death of the decedent. 
" (g) OTHER SPECIAL RULES AND DEFINITIONS.— 
"(1) FAIR MARKET VALUE.—For purposes of this section, when 
not otherwise distinctly expressed, the term 'fair market value' 
means value as determined under chapter 11. 
"(2) PROPERTY PASSING FROM THE DECEDENT.—For purposes of 
this section, property passing from the decedent shall be treated 
as property acquired from the decedent. 
"(3) 
DECEDENT'S BASIS UNKNOWN.—If the facts necessary to 
determine the basis (unadjusted) of carryover basis property 
immediately before the death of the decedent are unknown to the 
person acquiring such property from the decedent, such basis shall 
be treated as being the fair market value of such property as of 
the date (or approximate date) at which such property was 
acquired by the decedent or by the last preceding owner in whose 
hands it did not have a basis determined in whole or in part by 
reference to its basis in the hands of a prior holder. 
"(4) 
CERTAIN MORTGAGES.—For purposes of subsections 
(c), 
( d ) , a n d (e),if— 
" ( A ) there is an unpaid mortgage on, or indebtedness in 
respect of, property, 
" ( B ) such mortgage or indebtedness does not constitute a 
liability of the estate, and 
"(C) such property is included in the gross estate undi-
minished by such mortgage or indebtedness, 
then the fair market value of such property to be treated as 
included in the §ross estate shall be the fair market value of such 
property, diminished by such mortgage or indebtedness. 
" ( h ) ADJUSTMENT TO BASIS FOR DECEMBER 31, 1976, FAIR MARKET 
VALUE.— 
"(1) MARKETABLE BONDS AND SECURITIES.—If the adjusted basis 
immediately before the death of the decedent of any property 
which is carryover basis property reflects the adjusted basis of any 
marketable bond or security on December 31,1976, and if the fair 
market value of such bond or security on December 31, 1976, 
exceeded its adjusted basis on such date, then, for purposes of 
determining gain, the adjusted basis of such property shall be 
increased by the amount of such excess. 
" (2) PROPERTY OTHER THAN MARKETABLE BONDS AND SECURITIES.— 
" ( A ) I N GENERAL. 
I f 
"(i) the adjusted basis immediately before the death 
of the decedent of any property which is carryover basis 
property reflects the adjusted basis on December 31, 
1976, of any property other than a marketable bond or 
security, and 
"(ii) the value of such carryover basis property (as 
determined with respect to the estate of the decedent 
without regard to section 2032) exceeds the adjusted 
26 USC 2032. 
basis of such property immediately before the death of 
the decedent (determined without regard to this sub-
section), 
then, for purposes of determining gain, the adjusted basis of 
such property immediately before the death of the decedent 
90 STAT. 1876 
PUBLIC LAW 94-455—OCT. 4, 1976 
(determined without regard to this subsection) shall be 
increased by the amount determined under subparagraph ( B ) . 
" ( B ) AMOUNT OF INCREASE.—^The amount of the increase 
under this subparagraph for any property is the sum of— 
"(i) the excess referred to in subparagraph (A) (ii), 
reduced by an amount equal to all adjustments for 
depreciation, amortization, or depletion for the holding 
period of such property, and then multiplied by the 
applicable fraction 
determined 
under 
subparagraph 
(C),and 
"(ii) the adjustments to basis for depreciation, amor-
tization, or depletion which are attributable to that por-
tion of the holding period for such property which occurs 
before January 1,1977. 
"(C) 
APPLICABLE PRACTioN.^For purposes of subpara-
graph ( B ) ( i ) , the term 'applicable fraction' means, with 
respect to any property, a fraction— 
"(i) the numerator of which is the number of days in 
the holding period with respect to such property which 
occurs before January 1,1977, and 
"(ii) the denominator of which is the total number of 
days in such holding period. 
" ( D ) 
SUBSTANTIAL 
IMPROVEMENTS.—Under 
r e f l a t i o n s 
prescribed by the Secretary, if there is a substantial improve-
ment of any property, such substantial improvement shall be 
treated as a separate property for purposes of this paragraph. 
" ( E ) DEFINITIONS.—For purposes of this paragraph— 
"(i) The term 'marketable bond or security' means 
any security for which, as of December 1976, there was a 
market on a stock exchange, in an over-the-counter mar-
ket, or otherwise. 
" (ii) The term 'holding period' means, with respect to 
any carryover basis property, the period during which 
the decedent (or, if any other person held such property 
immediately before the death of the decedent, such other 
person) held such property as determined under section 
1223; except that such period shall end on the date of the 
decedent's death, 
"(i) REGULATIONS.—The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section." 
26 use 1016. 
(3) AMENDMENT or SECTION 1016.—Section 1016(a) (relating 
to adjustments to basis) is amended by striking out the period at 
the end thereof and by inserting in lieu thereof a semicolon and 
by adding at the end thereof the following new paragraph: 
"(23) to the extent provided in section 1023, relating to carry-
over basis for certain property acquired from a decedent dying 
after December 31,1976." 
(4) 
A M E N D M E N T S OF SECTION 691.— 
26 use 691. 
(A) Section 691(c)(2)(A) 
(relating to deduction for 
estate tax in case of income in respect of decedents) is 
amended to read as follows: 
"Estate tax." 
" ( A ) The term 'estate tax' means Federal and State estate 
taxes (within the meaning of section 1023(f)(3))." 
(B) Section 691(c) (2) (C) is amended to read as follows: 
"(C) The estate tax attributable to such net value shall be 
an amount which bears the same ratio to the estate tax as 
such net value bears to the value of the gross estate." 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1877 
(5) REPEAL OF SECTION 1246(e).—Section 1246 (relating to gain 
26 USC 1246. 
on foreign investment company stock) is amended by striking out 
subsection (e) and by redesignating subsections (f) and (g) as 
subsections (e) and (f), respectively. 
(b) NONRECOGNITION OF G A I N W H E R E C E R T A I N APPRECIATED CARRY-
OVER B A S I S 
P R O P E R T Y I s 
U S E D I N SATISFACTION OF A 
P E C U N I A R Y 
REQUEST.—Part I I I of subchapter O of chapter 1 (relating to common 
nontaxable exchanges) is amended by adding at the end thereof the 
following new section: 
"SEC. 1040. USE OF CERTAIN APPRECIATED CARRYOVER BASIS PROP- 26 USC 1040. 
ERTY TO SATISFY PECUNIARY REQUEST. 
" (a) GENERAL RULE.—If the executor of the estate of any decedent 
satisfies the right of any person to receive a pecuniary bequest with 
appreciated carryover basis property (as defined in section 1023(f) 
-^nte, p. 1872. 
(5)), then gain on such exchange shall be recognized to the estate only 
to the extent that, on the date of such exchange, the fair market value 
of such property exceeds the value of such property for purposes of 
chapter 11. 
"(b) SIMILAR R U L E FOR CERTAIN TRUSTS.—To the extent provided 
in regulations prescribed by the Secretary, a rule similar to the rule 
provided in subsection (a) shall apply where— 
"(1) by reason of the death of the decedent, a person has a 
right to receive from a trust a specific dollar amount which is the 
equivalent of a pecuniary bequest, and 
"(2) the trustee of the trust satisfies such right with carryover 
basis property to which section 1023 applies. 
"(c) BASIS OF PROPERTY ACQUIRED IN EXCHANGE DESCRIBED I N SUB-
SECTION (a) OR (b).—The basis of property acquired in an exchange 
with respect to which gain realized is not recognized by reason of SUD-
section (a) or (b) shall be the basis of such property immediately 
before the exchange, increased by the amount of the gain recognized 
to the estate or trust on the exchange." 
(c) LIMITATION OF INCREASE I N BASIS FOR G I F T TAX PAID TO T H A T 
PORTION OF G I F T TAX ATTRIBUTABLE TO NET APPRECIATION I N VALUE.— 
Subsection (d) of section 1015 (relating to increased basis for gift tax 26 USC 1015. 
paid) is amended by adding at the end thereof the following new 
paragraph : 
" ( 6 ) 
S P E C I A L RULE FOR GIFTS MADE AFTER DECEMBER 31, 1976.— 
(A) I N GENERAL.—In the case of any gift made after 
December 31, 1976, the increase in basis provided by this 
subsection with respect to any gift for the gift tax paid under 
chapter 12 shall be an amount (not in excess of the amount 
of tax so paid) which bears the same ratio to the amount of 
tax so paid as— 
"(i) the net appreciation in value of the gift, bears to 
"(ii) the amount of the gift. 
"(B) N E T APPRECIATION.—For purposes of paragraph (1), 
the net appreciation in value of any gift is the amount by 
which the fair market value of the gift exceeds the donor's 
adjusted basis immediately before the gift." 
(d) INFORMATION REQUIREMENT.— 
(1) I N GENERAL.—Subpart A of part I I I of subchapter A of 
chapter 61 (relating to information concerning persons subject to 
special provisions) is amended by inserting after section 6039 
the following new section: 
90 STAT. 1878 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 6039A. 
Ante, p. 1872. 
26 use 6694. 
Penalties. 
Supra. 
26 use 1023 
note. 
"SEC. 6039A. INFORMATION REGARDING CARRYOVER BASIS PROPERTY 
ACQUIRED FROM A DECEDENT. 
"(a) I N GENERAL.—Every executor (as defined in section 2203) 
shall furnish the Secretary such information with respect to carryover 
basis property to which section 1023 applies as the Secretary may by 
regulations prescribe. 
(b) STATEMENTS T O B E FURNISHED TO PERSONS W H O ACQUIRE 
PROPERTY FROM A DECEDENT.—Every executor who is required to fur-
nish information under subsection (a) shall furnish in writing to each 
person acquiring an item of such property from the decedent (or to 
whom the item passes from the decedent) the adjusted basis of such 
item." 
(2) PENALTIES.—Subchapter B of chapter 68 (relating to 
assessable penalties) is amended by adding at the end thereof the 
following new section: 
"SEC. 6694. FAILURE TO FILE INFORMATION WITH RESPECT TO CARRY-
OVER BASIS PROPERTY. 
"(a) 
INFORMATION REQUIRED To B E FURNISHED TO THE SECRE-
TARY.—Any executor who fails to furnish information required under 
subsection (a) of section 6039A on the date prescribed therefor (deter-
mined with regard to any extension of time for filing), unless it is 
shown that such failure is due to reasonable cause and not to willful 
neglect, shall pay a penalty of $100 for each such failure, but the total 
amount imposed for all such failures shall not exceed $5,000. 
"(b) INFORMATION REQUIRED To B E FURNISHED TO BENEFICIARIES.— 
Any executor who fails to furnish in writing to each person described 
in subsection (b) of section 6039A the information required under 
such subsection, unless it is shown that such failure is due to reasonable 
cause and not to willful neglect, shall pay a penalty of $50 for each 
such failure, but the total amount imposed for all such failures shall 
not exceed $2,500." 
(e) CLERICAL AMENDMENTS.— 
(1) The table of sections for part I I of subchapter O of chapter 
1 is amended by striking out the item relating to section 1023 and 
inserting in lieu thereof the following: 
"Sec. 1023. Carryover basis for certain property acquired from a 
decedent dying after December 31, 1976. 
"Sec. 1024. Cross references." 
(2) The table of sections for part I I I of subchapter O of chap-
ter 1 is amended by adding at the end thereof the following: 
"Sec. 1040. Use of certain appreciated carryover basis property to sat-
isfy pecuniary bequest." 
(3) The table of sections for part I I I of subchapter A of 
chapter 61 is amended by inserting after the item relating to 
section 6039 the following: 
"Sec. 6039A. Information regarding carryover basis property acquired 
from a decedent." 
(4) The table of sections for subchapter B of chapter 68 is 
amended by adding at the end thereof the following: 
"Sec. 6694. Failure to file information with respect to carryover basis 
property." 
(f) EFFECTIVE DATES.— 
(1) Except as provided in paragraph (2), the amendments 
made by this section shall apply in respect of decedents dying 
after December 31,1976. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1879 
(2) The amendment made by subsection (c) shall apply to gifts 26 USC 1023 
made after December 31,1976. 
note. 
SEC. 2006. CERTAIN GENERATION-SKIPPING TRANSFERS. 
(a) IMPOSITION OF TAX.—Subtitle B (relating to estate and gift 
taxes) is amended by adding at the end thereof the following new 
chapter: 
"CHAPTER IS—TAX ON CERTAIN GENERATION-SKIPPING 
TRANSFERS 
"SUBCHAPTER A. Tax imposed. 
"SUBCHAPTER B . Definitions and special rules. 
"SUBCHAPTER C. Administration. 
"Subchapter A—Tax Imposed 
"Sec. 2601. Tax imposed. 
"Sec. 2602. Amount of tax. 
"Sec. 2603. Liability for tax. 
"SEC. 2601. TAX IMPOSED. 
26 USC 2601. 
"A tax is hereby imposed on every generation-skipping transfer in 
the amount determined under section 2602. 
"SEC. 2602. AMOUNT OF TAX. 
26 USC 2602. 
"(a) GENERAL EULE.—The amount of the tax imposed by section 
2601 with respect to any transfer shall be the excess of— 
"(1) a tentative tax computed in accordance with the rate 
schedule set forth in section 2001(c) (as in effect on the date Ante, p. 1846. 
of transfer) on the sum of— 
"(A) the fair market value of the property transferred 
determined as of the date of transfer (or in the case of an 
election under subsection (d), as of the applicable valuation 
date prescribed by section 2032), 
"(B) the aggregate fair market value (determined for 
purposes of this chapter) of all prior transfers of the deemed 
transferor to which this chapter applied, 
"(C) the amount of the adjusted taxable gifts (within 
the meaning of section 2001(b)) made by the deemed trans-
feror before this transfer, and 
"(D) if the deemed transferor has died at the same time 
as, or before, this transfer, the taxable estate of the deemed 
transferor, over 
"(2) a tentative tax (similarly computed) on the sum of the 
amounts determined under subparagraphs (B), (C), and (D) 
of paragraph (1). 
"(b) MULTIPLE SIMULTANEOUS TRANSFERS.—If two or more transfers 
which are taxable under section 2601 and which have the same deemed Supra. 
transferor occur by reason of the same event, the tax imposed by sec-
tion 2601 on each such transfer shall be the amount which bears 
the same ratio to— 
"(1) the amount of the tax which would be imposed by section 
2601 if the aggregate of such transfers were a single transfer, as 
"(2) the fair market value of the property transferred in such 
transfer bears to the aggregate fair market value of all property 
transferred in such transfers. 
"(c) DEDUCTIONS, CREDITS, ETC.— 
90 STAT. 1880 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(1) 
GENERAL RULE.—Except as otherwise provided in this 
subsection, no deduction, exclusion, exemption, or credit shall be 
Ante, p. 1879. 
allowed against the tax imposed by section 2601. 
"(2) CHARITABLE DEDUCTIONS ALLOWED.—The deduction under 
26 use 2055, 
section 2055, 2106(a) (2), or 2522, whichever is appropriate, shall 
2106, 2522. 
be allowed in determining the tax imposed by section 2601. 
"(3) UNUSED PORTION OF UNIFIED CREDIT.—If the generation-
skipping transfer occurs at the same time as, or after, the death 
of the deemed transferor, then the portion of the credit under 
Anu, p. 1848. 
section 2010(a) (relating to unified credit) which exceeds the 
sum of— 
Ante, p. 1846. 
" ( A ) the tax imposed by section 2001, and 
" ( B ) the taxes theretofore imposed by section 2601 with 
respect to this deemed transferor, 
shall be allowed as a credit against the tax imposed by section 
2601. The amount of the credit allowed by the preceding sentence 
shall not exceed the amount of the tax imposed by section 2601. 
"(4) CREDIT FOR TAX ON PRIOR TRANSFERS.—The credit under 
section 2013 (relating to credit for tax on prior transfers) shall 
be allowed against the tax imposed by section 2601. For purposes 
of the preceding sentence, section 2013 shall be applied as if so 
much of the property subject to tax under section 2601 as is not 
taken into account for purposes of determining the credit allow-
able by section 2013 with respect to the estate or the deemed trans-
feror passed from the transferor (as defined in section 2013) to 
the deemed transferor. 
"(5) COORDINATION WITH ESTATE TAX.— 
" (A) ADJUSTMENTS TO MARITAL DEDUCTION.—If the genera-
tion-skipping transfer occurs at the same time as, or within 
9 months after, the death of the deemed transferor, for pur-
poses of section 2056 (relating to bequests, etc., to surviving 
spouse), the value of the gross estate of the deemed transferor 
shall be deemed to be increased by the amount of such 
transfer. 
" ( B ) 
CERTAIN EXPENSES ATTRIBUTABLE TO GENERATION-SKIP-
PING TRANSFER.—If the generation-skipping transfer occurs 
at the same time as, or after, the death of the deemed trans-
feror, for purposes of this section, the amount taken into 
account with respect to such transfer shall be reduced— 
"(i) in the case of a taxable termination, by any item 
referred to in section 2053 or 2054 to the extent that a 
deduction would have been allowable under such section 
for such item if the amount of the trust had been includi-
ble in the deemed transferor's gross estate and if the 
deemed transferor had died immediately before such 
transfer, or 
"(ii) in the case of a taxable distribution, by any 
expense incurred in connection with the determination, 
collection, or refund of the tax imposed by section 2601 
on such transfer. 
"(C) CREDIT FOR STATE INHERITANCE TAX.—If the genera-
tion-skipping transfer occurs at the same time as, or after, 
the death of the deemed transferor, there shall be allowed 
as a credit against the tax imposed by section 2601 an amount 
equal to that portion of the estate, inheritance, legacy, or 
succession tax actually paid to any State or the District of 
Columbia in respect of any property included in the genera-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1881 
tion-skipping transfer, but only to the extent of the lesser 
of— 
"(i) that portion of such taxes which is levied on such 
transfer, or 
"(ii) the excess of the limitation applicable under sec-
tion 2011 (b) if the adjusted taxable estate of the decedent 
had been increased by the amount of the transfer and all 
prior generation-skipping transfers to which this sub-
paragraph applied which had the same deemed trans-
feror, over the sum of the amount allowable as a credit 
under section 2011 with respect to the estate of the 
decedent plus the aggregate amounts allowable under this 
subparagraph with respect to such prior generation-
skipping transfers. 
"(d) 
ALTERNATE VALUATION.— 
" (1) I N GENERAL.—In the case of— 
" ( A ) 1 or more generation-skipping transfers from the 
same trust which have the same deemed transferor and which 
are taxable terminations occurring at the same time as the 
death of such deemed transferor; or 
" ( B ) 1 or more generation-skipping transfers from the 
same trust with different deemed transferors— 
"(i) which are taxable terminations occurring on the 
same day; and 
"(ii) which would, but for section 2613(b) (2), have 
occurred at the same time as the death of the individuals 
who are the deemed transferors with respect to the 
transfers; 
the trustee may elect to value all of the property transferred in 
such transfers in accordance with section 2032. 
"(2) SPECIAL RULES.—If the trustee makes an election under 
paragraph (1) with respect to any generation-skipping trans-
fer, section 2032 shall be applied by taking into account (in lieu 
of the date of the decedent's death) the following date: 
" ( A ) in the case of any generation-skipping 
transfer 
described in paragraph (1) (A), the date of the death of the 
deemed transferor described in such paragraph, or 
"(B) 
in the case of any generation-skipping 
transfer 
described in paragraph (1) (B), the date on which such trans-
fer occurred. 
"(e) 
TRANSFERS W I T H I N 3 YEARS or 
DEATH or 
DEEMED TRANS-
FEROR.—Under regulations prescribed by the Secretary, the principles 
of section 2035 shall apply with respect to transfers made during the 
3-year period ending on the date of the deemed transferor's death. In 
the case of any transfer to which this subsection applies, the amount 
of the tax imposed by this chapter shall be determined as if the trans-
fer occurred after the death of the deemed transferor and appropriate 
adjustments shall be made with respect to the amount of any prior 
transfer which is taken into account under subparagraph (B) or (C) 
of subsection (a)(1). 
"SEC. 2603. LIABILITY FOR TAX. 
26 USC 2603. 
"(a) 
PERSONAL LIABILITY.— 
"(1) I N GENERAL.—If the tax imposed by section 2601 is not Ante, p. 1879. 
paid, when due then— 
" ( A ) except to the extent provided in paragraph (2), the 
trustee shall be personally liable for any portion of such tax 
which is attributable to a taxable termination, and 
90 STAT. 1882 
PUBLIC LAW 94-455—OCT. 4, 1976 
" ( B ) the distributee of the property shall be personally 
liable for such tax to the extent provided in paragraph (3). 
" (2) LIMITATION OF PERSONAL LIABILITY OF TRUSTEE WHO RELIES 
ON CERTAIN INFORMATION FURNISHED BY THE SECRETARY.— 
" ( A ) INFORMATION WITH RESPECT TO RATES.—The trustee 
shall not be personally liable for any increase in the tax 
Anu, p. 360. 
imposed by section 2601 which is attributable to the applica-
tion to the transfer of rates of tax which exceeds the rates of 
tax furnished by the Secretary to the trustee as being the rates 
at which the transfer may reasonably be expected to be taxed. 
" ( B ) AMOUNT OF REMAINING EXCLUSION.—The trustee shall 
not be personally liable for any increase in the tax imposed by 
section 2601 which is attributable to the fact that— 
"(i) the amount furnished by the Secretary to the 
trustee as being the amount of the exclusion for a trans-
fer to a grandchild of the grantor of the trust which may 
reasonably be expected to remain with respect to the 
deemed transferor, is less than 
"(ii) the amount of such exclusion remaining with 
respect to such deemed transferor. 
"(3) LIMITATION ON PERSONAL LIABILITY OF DISTRIBUTEE.—The 
distributee of the property shall be personally liable for the tax 
imposed by section 2601 only to the extent of an amount equal to 
the fair market value (determined as of the time of the distribu-
tion) of the property 
received by the distributee in the 
distribution. 
"(b) LIEN.—The tax imposed by section 2601 on any transfer shall 
be a lien on the property transferred until the tax is paid in full or 
becomes unenforceable by reason of lapse of time. 
^'Subchapter B—Definitions and Special Rules 
"Sec. 2611. Generation-skipping transfer. 
"Sec. 2612. Deemed transferor. 
"Sec. 2613. Other definitions. 
"Sec. 2614. Special rules. 
26 use 2611. 
"SEC. 2611. GENERATION-SKIPPING TRANSFER. 
"(a) GENERATION-SKIPPING TRANSFER DEFINED.—^For purposes of 
this chapter, the terms 'generation-skipping transfer' and 'transfer' 
mean any taxable distribution or taxable termination with respect to a 
generation-skipping trust or trust equivalent. 
"(b) GENERATION-SKIPPING TRUST.—For purposes of this chapter, 
the term 'generation-skipping trust' means any trust having younger 
Post, p. 1884. 
generation beneficiaries (within the meaning of section 2613(c) (1)) 
who are assigned to more than one generation. 
Rules. 
"(c) ASCERTAINMENT OF GENERATION.—For purposes of this chapter, 
the generation to which any person (other than the grantor) belongs 
shall be determined in accordance with the following rules: 
"(1) an individual who is a lineal descendent of a grandparent 
of the grantor shall be assigned to that generation which results 
from comparing the number of generations between the grandpar-
ent and such individual with the number of generations between 
the grandparent and the grantor, 
"(2) an individual who has been at any time married to a per-
son described in paragraph (1) shall be assigned to the generation 
of the person so described and an individual who has been at any 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1883 
time married to the grantor shall be assigned to the grantor's 
generation, 
"(3) a relationship by the half blood shall be treated as a rela-
tionship by the whole blood, 
"(4) a relationship by legal adoption shall be treated as a rela-
tionship by blood, 
"(5) an individual who is not assigned to a generation by rea-
son of the foregoing paragraphs shall be assigned to a generation 
on the basis of the date of such individual's birth, with— 
" ( A ) an individual born not more than 121/^ years after 
the date of the birth of the grantor assigned to the grantor's 
generation, 
"(B) an individual born more than 121/^ years but not 
more than 371/^ years after the date of the birth of the grantor 
assigned to the first generation younger than the grantor, and 
"(C) similar rules for a new generation every 25 years, 
"(6) an individual who, but for this paragraph, would be 
assigned to more than one generation shall be assigned to the 
youngest such generation, and 
"(7) if any beneficiary of the trust is an estate or a trust, part-
nership, corporation, or other entity (other than an organization 
described in section 511(a) (2) and other than a charitable trust 
described in section 511(b)(2)), each individual having an 
indirect interest or power in the trust through such entity shall be 
treated as a beneficiary of the trust and shall be assigned to a gen-
eration under the foregoing provisions of this subsection. 
" ( d ) GENERATION-SKIPPING TIRUST EQUIVALENT.— 
"(1) I N GENERAL.—For purposes of this chapter, the term 
'generation-skipping trust equivalent' means any arrangement 
which, although not a trust, has substantially the same effect as a 
generation-skipping trust. 
"(2) EXAMPLES 
OF ARRANGEMENTS TO WHICH 
SUBSECTION 
RELATES.—Arrangements to be taken into account for purposes of 
determining whether or not paragraph (1) applies include (but 
are not limited to) arrangements involving life estates and 
remainders, estates for years, insurance and annuities, and split 
interests. 
"(3) REFERENCES TO TRUST INCLUDE REFERENCES TO TRUST EQUIV-
ALENTS.—Any reference in this chapter in respect of a generation-
skipping trust shall include the appropriate reference in respect 
of a generation-skipping trust equivalent. 
"SEC. 2612. DEEMED TRANSFEROR. 
26 USC 2612. 
"(a) GENERAL EULE.—For purposes of this chapter, the deemed 
transferor with respect to a transfer is— 
"(1) except as provided in paragraph (2), the parent of the 
transferee of the property who is more closely related to the 
grantor of the trust than the other parent of such transferee (or 
if neither parent is related to such grantor, the parent having a 
closer affinity to the grantor), or 
"(2) if the parent described in paragraph (1) is not a younger 
generation beneficiary of the trust but 1 or more ancestors of the 
transferee is a younger generation beneficiary related by blood or 
adoption to the grantor of the trust, the youngest of such ancestors. 
"(b) DETERMINATION OF RELATIONSHIP.—For purposes of subsection 
(a), a parent related to the grantor of the trust by blood or adoption is 
more closely related than a parent related to such grantor by 
marriage. 
90 STAT. 1884 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 2613. 
"SEC. 2613. OTHER DEFINITIONS. 
"(a) TAXABLE DISTRIBUTION.—For purposes of this chapter— 
"(1) I N GENERAL.—The term 'taxable distribution' means any 
distribution which is not out of the income of the trust (within 
the meaning of section 643(b)) from a generation-skipping trust 
to any younger generation beneficiary who is assigned to a genera-
tion younger than the generation assignment of any other person 
who is a younger generation beneficiary. For purposes of the pre-
ceding sentence, an individual who at no time has had anything 
other than a future interest or future power (or both) in the trust 
shall not be considered as a younger generation beneficiary. 
"(2) SOURCE OF DISTRIBUTION.—If, during the taxable year of 
the trust, there are distributions out of the income of the trust 
(within the meaning of section 643(b)) and out of other amounts, 
for purposes of paragraph (1) the distributions of such income 
shall be deemed to have been made to the beneficiaries (to the 
extent of the aggregate distributions made to each such benefici-
ary during such year) in descending order of generations, begin-
ning with the beneficiaries assigned to the oldest generation. 
"(3) PAYMENT or TAX.—If any portion of the tax imposed by 
this chapter with respect to any transfer is paid out of the income 
or corpus of the trust, an amount equal to the portion so paid 
shall be deemed to be a generation-skipping transfer. 
"(4) 
CERTAIN DISTRIBUTIONS EXCLUDED FROM TAX.—The term 
'taxable distribution' does not include— 
" (A) any transfer to the extent such transfer is to a grand-
child of the grantor of the trust and does not exceed the 
limitation provided by subsection (b)(6), and 
"(13) any transfer to the extent such transfer is subject to 
tax imposed by chapter 11 or 12. 
"(b) TAXABLE TERMINATION.—For purposes of this chapter— 
"(1) I N GENERAL.—The term 'taxable termination' means the 
termination (by death, lapse of time, exercise or nonexercise, or 
otherwise) of the interest or power in a generation-skipping trust 
of any younger generation beneficiary who is assigned to any 
generation older than the generation assignment of any other 
person who is a younger generation beneficiary of that trust. Such 
term does not include a termination of the interest or power of 
any person who at no time has had anything other than a future 
interest or future power (or both) in the trust. 
"(2) T I M E CERTAIN TERMINATIONS DEEMED TO OCCUR.— 
" ( A ) W H E R E 2 OR MORE BENEFICIARIES ARE ASSIGNED TO 
SAME GENERATION.—In any case where 2 or more younger 
generation beneficiaries of a trust are assigned to the same 
generation, except to the extent provided in regulations pre-
scribed by the Secretary, the transfer constituting the termi-
nation with respect to each such beneficiary shall be treated 
as occurring at the time when the last such termination occurs. 
" ( B ) 
SAME BENEFICIARY HAS MORE THAN i INTEREST OR 
POWER.—In any case where a younger generation beneficiary 
of a trust has both an interest and a power, or more than 1 
interest or power, in the trust, except to the extent provided 
in regulations prescribed by the Secretary, the termination 
with respect to each such interest or power shall be treated as 
occurring at the time when the last such termination occurs. 
" ( C ) UNUSUAL ORDER OF TERMINATION.— 
" ( i ) I N GENERAL.—If— 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1885 
"(I) but for this subparagraph, there would have 
been a termination (determined after the applica-
tion of subparagraphs (A) and (B)) of an interest 
or power of a younger generation beneficiary (here-
inafter in this subparagraph referred to as the 
'younger beneficiary'), and 
''(II) at the time such termination would have 
^ 
occurred, a beneficiary (hereinafter in this subpara-
graph referred to as the 'older beneficiary') of the 
trust assigned to a higher generation than the gener-
ation of the younger beneficiary has a present inter-
est or power in the trust, 
_^ 
then, except to the extent provided in regulations pre-
scribed by the Secretary, the transfer constituting the 
termination with respect to the younger beneficiary shall 
be treated as occurring at the time when the termination 
of the last present interest or power of the older bene-
ficiary occurs. 
"(ii) SPECIAL RULES.—If clause (i) applies with 
respect to any younger beneficiary— 
" (I) this chapter shall be applied first to the termi-r 
nation of the interest or power of the older bene-
ficiary as if such termination occurred before the 
termination of the power or interest of the younger 
beneficiary; and 
" (II) the value of the property taken into account 
for purposes of determining the tax (if any) 
imposed by this chapter with respect to the termi-
nation of the interest or power of the younger bene-
ficiary shall be reduced by the tax (if any) imposed 
by this chapter with respect to the termination of 
the interest or power of the older beneficiary. 
"(D) SPECIAL RULE.—Subparagraphs (A) and (C) shall 
also apply where a person assigned to the same generation as, 
or a higher generation than, the person whose power or inter-
est terminates has a present power or interest immediately 
after the termination and such power or interest arises as a 
result of such termination. 
"(3) 
DEEMED TRANSFEREES OF CERTAIN TERMINATIONS.—^Where, 
at the time of any termination, it is not clear who will be the 
transferee of any portion of the property transferred, except to 
the extent provided in regulations prescribed by the Secretary, 
such portion shall be deemed transferred pro rata to all benefi-
ciaries of the trust in accordance with the amount which each of 
them would receive under a maximum exercise of discretion on 
their behalf. For purposes of the preceding sentence, where it is 
not clear whether discretion will be exercised per stirpes or per 
capita, it shall be presumed that the discretion will be exercised 
per stirpes. 
" (4) TERMINATION or POWER.—In the case of the termination of 
any power, the property transferred shall be deemed to be the 
property subject to the power immediately before the termination 
(determined without the application of paragraph (2)). 
"(5) CERTAIN TERMINATIONS EXCLUDED FROM TAX.—The term 
'taxable termination' does not include— 
"(A) any transfer to the extent such transfer is to a grand-
child of the grantor of the trust and does not exceed the 
limitation provided by paragraph (6), and 
89-194 0 7fl—nt 7 
97 
90 STAT. 1886 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(B) any transfer to the extent such transfer is subject 
26 use 2001 
^o ^ ^^^ imposed by chapter 11 or 12. 
2501, 
' 
"(6) $250,000 LIMIT ON EXCLUSION OF TRANSFERS TO GRANDCHIL-
DREN,—In the case of any deemed transferor, the maximum 
amount exchided from the terms 'taxable distribution' and 'tax-
able termination' by reason of provisions exempting from such 
terms transfers to the grandchildren of the grantor of the trust 
shall be $250,000, The preceding sentence shall be applied to 
transfers from one or more trusts in the order in which such 
transfers are made or deemed made. 
I 
"(7) COORDINATION WITH SUBSECTION (a).— 
" ( A ) 
TERMINATIONS TAKE 
PRECEDENCE OVER DISTRIBU-
TIONS.—If— 
"(i) the death of an individual or any other occurrence 
is a taxable termination with respect to any property, 
and 
"(ii) such occurrence also requires the distribution of 
part or all of such property in a distribution which would 
(but for this subparagraph) be a taxable distribution, 
then a taxable distribution shall be deemed not to have 
occurred with respect to the portion described in clause (i). 
" ( B ) 
CERTAIN PRIOR TRANSFERS.—To the extent that— 
"(i) the deemed transferor in any prior transfer of 
the property of the trust being transferred in this trans-
fer was assigned to the same generation as (or a lower 
generation than) the generation assignment of the 
deemed transferor in this transfer, 
"(ii) the transferee in such prior 
transfer was 
assigned to the same generation as (or a higher generation 
than) the generation assignment of the transferee in this 
transfer, and 
"(iii) such transfers do not have the effect of avoiding 
tax under this chapter with respect to any transfer, 
the terms 'taxable termination' and 'taxable aistribution' do 
not include this later transfer. 
"(c) YOUNGER GENERATION BENEFICIARY; BENEFICIARY.—For pur-
poses of this chapter— 
"(1) YOUNGER GENERATION BENEFICIARY.—The term 'younger 
generation beneficiary' means any beneficiary who is assigned to a 
, 
generation younger than the grantor's generation. 
"(2) 
T I M E FOR ASCERTAINING YOUNGER GENERATION BENEFI-
CIARIES.—A person is a younger generation beneficiary of a trust 
with respect to any transfer only if such person was a younger 
generation beneficiary of the trust immediately before the trans-
fer (or, in the case of a series of related transfers, only if such 
person was a younger generation beneficiary of the trust imme-
diately before the first of such transfers). 
"(3) BENEFICIARY.—The term 'beneficiary' means any person 
who has a present or future interest or power in the trust, 
I 
" ( d ) INTEREST O
R POWER.—For purposes of this chapter— 
"(1) INTEREST.—A person has an interest in a trust if such 
person— 
" ( A ) has a right to receive income or corpus from the 
trust, or 
^ _ 
" ( B ) is a permissible recipient of such income or corpus. 
"(2) POWER.—The term 'power' means any power to establish 
or alter beneficial enjoyment of the corpus or income of the trust. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1887 
"(e) 
LIMITED POWER TO APPOINT AMONG LINEAL DESCENDANTS OF 
GRANTOR NOT TAKEN INTO ACCOUNT IN CERTAIN CASES.—For purposes 
of this chapter, if any individual does no^ 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, then such 
individual shall be treated as not having any power in the trust. 
"(f) EFFECT OP ADOPTION.—For purposes of this chapter, a relation-
ship by legal adoption shall be treated as a relationship by blood. 
"SEC. 2614. SPECIAL RULES. 
26 USC 2614. 
"(a) BASIS ADJUSTMENT.—If property is transferred to any person 
pursuant to a generation-skipping transfer which occurs before the 
death of the deemed transferor, the basis of such property in the 
hands of the transferee shall be increased (but not above the fair 
market value of such property) by an amount equal to that portion of 
the tax imposed by section 2601 with respect to the transfer wliich is 
attributable to the excess of the fair market value of such property 
over its adjusted basis immediately before the transfer. If property 
is transferred in a generation-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 in 
a manner similar to the manner provided by section 1023 without Ante, p. 1872. 
regard to subsection (d) thereof (relating to basis of property passing 
from a decedent dying after December 31, 1976). 
"(b) 
NONRESIDENTS NOT CITIZENS OP THE UNITED STATES.—If the 
deemed transferor of any transfer is, at the time of the transfer, a 
nonresident not a citizen of the United States and— 
"(1) if the deemed transferor is alive at the time of the trans-
fer, there shall be taken into account only property which would 
be taken into account for purposes of chapter 12, or 
26 USC 2501. 
"(2) if the deemed transferor has died at the same time as, or 
before, the transfer, there shall be taken into account only prop-
erty which would be taken into account for purposes of chapter 11. 26 USC 2001. 
"(c) 
DISCLAIMERS.— 
"For provisions relating to the effect of a qualified disclaimer for pur-
poses of this chapter, see section 2518. 
"Subchapter C—Administration 
"Sec. 2621. Administration. 
"Sec. 2622. Regulations. 
•^EC. 2621. ADMINISTRATION. 
26 USC 2621. 
"(a) GENERAL EULE.—Insofar as applicable and not inconsistent 
with the provisions of this chapter— 
"(1) if the deemed transferor is not alive at the time of the 
transfer, all provisions of subtitle F (including penalties) appli-
cable to chapter 11 or section 2001 are hereby made applicable in Ante, p. 1846. 
respect of this chapter or section 2601, as the case may be, and 
"(2) if the deemed transferor is alive at the time of the trans-
fer, all provisions of subtitle F (including penalties) applicable 26 USC 6001. 
to chapter 12 or section 2501 are hereby made applicable in respect 
of this chapter or section 2601, as the case may be. 
"(b) SECTIONS 6166 A
N
D 6166A NOT APPLICABLE.—For purposes of 
this chapter, sections 6166 and 6166A (relating to extensions of time ^"'e. P- 1862. 
90 STAT. 1888 
PUBLIC LAW 94-455—OCT. 4, 1976 
for payment of estate tax where estate consists largely of interest in 
closely held business) shall not apply. 
"(c) 
RETURN KEQUIREMENTS.— 
Regulations. 
\ 
" (1) I N GENERAL.—^The Secretary shall prescribe by regulations 
the person who is required to make the return with respect to 
the tax imposed by this chapter and the time by which any such 
return must be filed. To the extent practicable, such regulations 
shall provide that— 
"(A) the person who is required to make such return 
shall be— 
"(i) in the case of a taxable distribution, the dis-
tributee^ or 
"(ii) in the case of a taxable termination, the trustee; 
and 
"(B) the return shall be filed— 
"(i) in the case of a generation-skipping transfer 
occurring before the death of the deemed transferor, on 
or before the 90th day after the close of the taxable 
year of the trust in which such transfer occurred, or 
, 
"(ii) in the case of a generation-skipping transfer 
occurring at the same time as, or after, the death of 
the deemed transferor, on or before the 90th day after the 
last day prescribed by law (including extensions) for 
filing the return of tax under chapter 11 with respect 
to the estate of the deemed transferor (or if later, the 
day which is 9 months after the day on which such 
generation-skipping transfer occurred). 
Regulations. 
" (2) INFORMATION RETURNS.—^The Secretary may by reflations 
require the trustee to furnish the Secretary with such informa-
tion as he determines to be necessary tor purposes of this 
chapter. 
26 use 2622. 
"SEC. 2622. REGULATIONS. 
"The Secretary shall prescribe such regulations as may be necessary 
or appropriate to carry out the purposes of this chapter, including 
regulations providing the extent to which substantially separate and 
independent shares of different beneficiaries in the trust shall be 
treated as separate trusts." 
(b) TECHNICAL, CLERICAL, AND CONFORMING CHANGES.— 
(1) CLERICAL CHANGE.—The table of chapters for subtitle B is 
amended by adding at the end thereof the following new item: 
"OHAPTEE 13. Tax on certain generation-skipping transfers." 
26 use 2013. 
(2) CREDIT FOR TAX ON PRIOR TRANSFERS.—Section 2013 (relating 
to credit for tax on prior transfers) is amended by adding at the 
end thereof the following new subsection: 
" (g) TREATMENT OF TAX IMPOSED ON CERTAIN GENERATION-SKIPPING 
TRANSFERS.—If any property was transferred to the decedent in a 
transfer which is taxable under section 2601 (relating to tax imposed 
on generation-skipping transfers) and if the deemed transferor (as 
defined in section 2612) is not alive at the time of such transfer, for 
purposes of this section— 
"(1) such property shall be deemed to have passed to the de-
cedent from the deemed transferor; 
" (2) the tax payable under section 2601 on such transfer shall 
be treated as a Federal estate tax payable with respect to the es-
' 
tate of the deemed transferor; and 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 18819 
' 
"(3) the amount of the taxable estate of the deemed transferor 
shall be increased by the value of such property as determined 
for purposes of the tax imposed by section 2601 on the transfer." 
(3) INCOME IN RESPECT OF A DECEDENT.—Subsection (c) of sec-
tion 691 (relating to deduction for estate tax) is amended by 26 USC 691. 
adding at the end thereof the following new paragraph: 
"(3) SPECIAL RULE FOR GENERATION-SKIPPING TRANSFERS.—^For 
purposes of this section— 
"(A) the tax imposed by section 2601 or any State inherit-
ance tax described in section 2602(c) (5) (C) on any genera-
tion-skipping transfer shall be treated as a tax imposed by 
section 2001 on the estate of the deemed transferor (as defined Ante, p. 1846. 
= 
in section 2612 (a); 
"(B) any property transferred in such a transfer shall be 
treated as if it were included in the gross estate of the deemed 
transferor at the value of such property taken into account 
for purposes of the tax imposed by section 2601; and 
"(C) under regulations prescribed by the secretary, any 
item of gross income subject to the tax imposed under sec-
tion 2601 shall be treated as income described in subsec-
' 
tion (a) if such item is not properly includible in the gross 
income of the trust on or before the date of the generation- 
• '*' 
skipping transfer (within the meaning of section 2611(a)) 
and if such transfer occurs at or after the death of the deemed 
tranferor (as so defined)." 
(4) 
SPECIAL RULES FOR GENERATION-SKIPPING TRANSFERS.— 
Section 303 is amended by adding at the end thereof the following 26 USC 303, 
new subsection: 
"(d) SPECIAL RULES F
O
R GENERATION-SKIPPING TRANSFERS.—Under 
regulations prescribed by the Secretary, where stock in a corporation 
is subject to tax under section 2601 as a result of a generation-skipping 
transfer (within the meaning of section 2611(a)), which occurs at or 
after the death of the deemed transferor (within the meaning of 
section 2612)— 
"(1) the stock shall be deemed to be included in the gross estate 
of the deemed transferor; 
"(2) taxes of the kind referred to in subsection (a) (1) which 
are imposed because of the generation-skipping transfer shall be 
treated as imposed because of the deemed transferor's death (and 
for this purpose the tax imposed by section 2601 shall be treated 
as an estate tax); 
, 
"(3) the period of distribution shall be measured from the date 
of the generation-skipping transfer; and 
"(4) the relationship of stock to the decedent's estate shall be 
measured with reference solely to the amount of the generation-
skipping transfer." 
(c) EFFECTIVE DATES.— 
26 USC 2601 
(1) I N GENERAL.—Except as provided in paragraph (2), the note. 
amendments made by this section shall apply to any generation-
skipping transfer (within the meaning of section 2611(a) of the 
Internal Revenue Code of 1954) made after April 30, 1976. 
(2) EXCEPTIONS.—The amendments made by this section shall 
not apply to any generation-skipping transfer— 
(A) under a trust which was irrevocable on April 30,1976, 
but only to the extent that the transfer is not made out of 
corpus added to the trust after April 30, 1976, or 
90 STAT. 1890 
PUBLIC LAW 94-455—OCT. 4, 1976 
(B) in the case of a decedent dying before January 1,1982, 
pursuant to a will (or revocable trust) which was in existence 
on April 30, 1976, and was not amended at any time after 
that date in any respect which will result in the creation of, or 
' ' 
' 
increasing the amount of, any generation-skipping transfer. 
For purposes of subparagraph (B), if the decedent on April 30, 
1976, was under a mental disability to change the disposition of 
his property, the period set forth in such subparagraph shall not 
expire before the date which is 2 years after the date on which 
he first regains his competence to dispose of such property. 
(3) TRUST EQUIVALENTS.—For purposes of paragraph (2), in 
the case of a trust equivalent within the meaning of subsection (d) 
of section 2611 of the Internal Revenue Code of 1954, the provi-
sions of such subsection (d) shall apply. 
SEC. 2007. ORPHANS' EXCLUSION. 
(a) GENERAL RULE.—Part IV of subchapter A of chapter 11 (relat-
ing to taxable estate) is amended by adding at the end thereof the 
following new section: 
26 use 2057. 
"SEC. 2057. BEQUESTS, ETC., TO CERTAIN MINOR CHILDREN. 
"(a) ALLOWANCE OF DEDUCTION.—For purposes of the tax imposed 
Ante, p. 1846. 
by section 2001, if— 
"(1) the decedent does not have a surviving spouse, and 
" (2) the decedent is survived by a minor child who, immediately 
after the death of the decedent, has no known parent, 
then the value of the taxable estate shall be determined by deducting 
• > , . 
from the value of the gross estate an amount equal to the value of any 
interest in property which passes or has passed from the decedent to 
such child, but only to the extent that such interest is included in deter-
mining the value of the gross estate. 
"(b) LIMITATION.—The aggregate amount of the deductions allowed 
under this section (computed without regard to this subsection) 
with respect to interests in property passing to any minor child shall 
J 
not exceed an amount equal to $5,000 multiplied by the excess of 21 
over the age (in years) which such child has attained on the date of 
the decedent's death. 
"(c) LIMITATION IN THE CASE O
F LIFE ESTATE O
R OTHER TERMINABLE 
INTEREST.—A deduction shall be allowed under this section with 
respect to any interest in property passing to a minor child only to the 
extent that a deduction would have been allowable under section 
2056(b) if such interest had passed to a surviving spouse of the dece-
dent. For purposes of this subsection, an interest shall not be treated 
as terminable solely because the property will pass to another person 
if the child dies before the youngest child of the decedent attains 
age 21. 
"(d) DEFINITIONS.—For purposes of this section— 
, • 
"(1) MINOR CHILD.—The term 'minor child' means any child 
of the decedent who has not attained the age of 21 before the 
date of the decedent's death. 
"(2) ADOPTED CHILDREN.—A relationship by legal adoption 
shall be treated as replacing a relationship by blood. 
"(3) PROPERTY PASSING FROM THE DECEDENT.—The determina-
tion of whether an interest in property passes from the decedent 
Post, p. 1894. 
to any person shall be made in accordance with section 2056(d)." 
(b) CLERICAL AMENDMENT.—The table of sections for part IV of 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1891 
subchapter A of chapter 11 is amended by adding at the end thereof 
the following new item: 
"Sec. 2057. Bequests, etc., to certain minor children." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 2057 
apply to the estates of decedents dying after li)ecember 31, 1976. note. 
SEC. 2008. ADMINISTRATIVE CHANGES. 
(a) 
FURNISHING OF STATEMENT EXPLAINING ESTATE OR G I F T 
VALUATION.— 
(1) I N GENERAL.—Chapter 77 (relating to miscellaneous pro-
visions) is amended by adding at the end thereof the following 
new section: 
"SEC. 7517. FURNISHING ON REQUEST OF STATEMENT EXPLAINING 
26 USC 7517. 
ESTATE OR GIFT VALUATION. 
" ( a ) GENERAL RULE.—If the Secretary makes a determination or 
a proposed determination of the value of an item of property for 
purposes of the tax imposed under chapter 11, 12, or 13, he shall 26 USC 2001, 
furnish, on the written request of the executor, donor, or the person 2501. 
required to make the return of the tax imposed by chapter 13 (as the 
case may be), to such executor, donor, or person a written statement 
containing the material required by subsection (b). Such statement Ante, p. 1879. 
shall be furnished not later than 45 days after the later of the date of 
such 
request or the date of such determination or proposed 
determination. 
"(b) 
CONTENTS OF STATEMENT.—^A statement required to be fur-
nished under subsection (a) with respect to the value of an item of 
property shall— 
"(1) explain the basis on which the valuation was determined 
or proposed, 
"(2) set forth any computation used in arriving at such value, 
and 
' ' 
"(3) contain a copy of any expert appraisal made by or for 
the Secretary. 
"(c) EFFECT OF STATEMENT.—Except to the extent otherwise pro-
vided by law, the value determined or proposed by the Secretary with 
respect to which a statement is furnished under this section, and the 
method used in arriving at such value, shall not be binding on the 
Secretary." 
(2) CONFORMING AND CLERICAL AMENDMENTS.— 
(A) Section 2031 (defining gross estate) is amended by 26 USC 2031. 
adding at the end thereof the following new subsection: 
"(c) CROSS REFERENCE.— 
"For executor's right to be furnished on request a statement regard-
ing any valuation made by the Secretary within the gross estate, see 
section 7517." 
(B) 
Section 2512 (relating to valuation of gifts) is 26 USC 2512. 
amended by adding at the end thereof the following new 
subsection: 
"(c) CROSS REFERENCE.— 
Tor individual's right to be furnished on request a statement regard-
ing any valuation made by the Secretary of a gift by that individual, 
..,, .„., 
see section 7517." 
' " 
(C) The table of sections for chapter 77 is amended by 
adding at the end thereof the following: 
. 
! , 
' 
"Sec. 7517. Furnishing on request of statement explaining estate or 
gift valuation." 
90 STAT. 1892 
PUBLIC LAW 94-455—OCT. 4, 1976 
(b) SPECIAL RULE FOR FILING RETURNS WHERE GIFTS IN CALENDAR 
26 use 6075. 
QUARTER TOTAL $25,000 OR LESS.—Subsection (b) of section 6075 
relating to gift tax returns) is amended to read as follows: 
"(b) 
GIFT TAX RETURNS.— 
"(1) GENERAL RULE.—Except as provided in paragraph (2), 
returns made under section 6019 (relating to gift taxes) shall be 
filed on or before the 15th day of the second month following the 
close of the calendar quarter. 
"(2) 
SPECIAL RULE WHERE GIFTS IN A CALENDAR QUARTER TOTAL 
125,000 O
R LESS.—If the total amount of taxable gifts made by a 
person during a calendar quarter is $25,000 or less, the return 
under section 6019 for such quarter shall be filed on or before the 
15th dav of the second month after— 
"(A) the close of the first subsequent calendar quarter in 
the calendar year in which the sum of— 
"(i) the taxable gifts made during such subsequent 
quarter, plus 
"(ii) all other taxable gifts made during the calendar 
year and for which a return has not yet been required to 
be filed under this subsection, 
- - 
exceeds $25,000, or 
"(B) if a return is not required to be filed under sub-
paragraph (A), the close of the fourth calendar quarter of 
the calendar year. 
" (3) NONRESIDENTS NOT CITIZENS OF THE UNITED STATES.—In the 
case of a nonresident not a citizen of the United States, paragraph 
^' 
(2) shall be applied by substituting '$12,500' for '$25,000' each 
place it appears." 
(c) PUBLIC INDEX OF FILED TAX LIENS.— 
(1) INITIAL FILING OF NOTICE.— 
26 use 6323. 
(A) Section 6323(f) (relating to filing of notice of lien) 
is amended by adding at the end thereof the following new 
paragraph: 
"(4) INDEX.—The notice of lien referred to in subsection (a) 
shall not be treated as meeting the filing requirements under para-
graph (1) unless the fact of filing is entered and recorded in a 
public index at the district office of the Internal Revenue Service 
for the district in which the property subject to the lien is 
situated." 
(B) Paragraph (2) of section 6323(f) is amended by strik-
ing out "paragraph (1)" and inserting in lieu thereof "para-
graphs (1) and (4)". 
(2) REFILING OF NOTICE.—Section 6323(g) (2) (A) (relating to 
refiling of notice of lien) is amended to read as follows: 
"(A) if such notice of lien is refiled in the office in which 
,?lx£ J' 
^^ prior notice of lien was filed and the fact of refiling is 
entered and recorded in an index in accordance with subsec-
tion (f) (4); and ". 
(d) EFFECTIVE DATES.— 
26 use 7517 
(1) The amendments made by subsection (a)— 
note. 
(A) insofar as they relate to the tax imposed under chapter 
26 use 2001. 
11 of the Internal Revenue Code of 1954, shall apply to the 
estates of decedents dying after December 31,1976, and 
(B) insofar as they relate to the tax imposed under chap-
26 use 2501. 
ter 12 of such Code, shall apply to gifts made after Decem-
ber 31,1976. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 18S)3 
(2) The amendment made by subsection (b) shall apply to gifts 
26 USC 6075 
made after December 31,1976. 
note. 
(3) The amendment made by subsection (c) shall take effect— 26 USC 6323 
(A) in the case of liens filed before the date of the enact- note, 
ment of this Act, on the 270th day after such date of enact-
ment, or 
(B) in the case of liens filed on or after the date of 
enactment of this Act, on the 120th day after such date 
of enactment. 
SEC. 2009. MISCELLANEOUS PROVISIONS. 
(a) INCLUSION OF STOCK I N DECEDENT'S ESTATE W H E R E DECEDENT 
RETAINED VOTING RIGHTS.—Subsection (a) of section 2036 (relating to 26 USC 2036. 
transfer with retained life estate) is amended by adding at the end 
thereof the following new sentence: 
"For purposes of paragraph (1), the retention of voting rights in 
retained stock shall be considered to be a retention of the enjoyment 
of such stock." 
(b) DISCLAIMERS.— 
(1) 
AMENDMENT OF GIFT TAX PROVISIONS.—Subchapter B of 
chapter 12 (relating to transfers for purposes of the gift tax) is 
amended by adding at the end thereof the following new section: 
"SEC. 2518. DISCLAIMERS. 
26 USC 2518. 
"(a) GENERAL RULE.—For purposes of this subtitle, if a person 
makes a qualified disclaimer with respect to any interest in property, 
this subtitle shall apply with respect to such interest as if the interest 
had never been transferred to such person. 
"(b) QUALIFIED DISCLAIMER DEFINED.—For purposes of subsection 
(a), the term 'qualified disclaimer' means an irrevocable and unquali-
fied refusal by a person to accept an interest in property but only if— 
, i, 
r 
" (1) such refusal is in writing, 
"(2) such writing is received by the transferor of the interest, 
his legal representative, or the holder of the legal title to the 
property to which the interest relates not later than the date 
which is 9 months after the later of— 
" (A) the day on which the transfer creating the interest in 
such person is made, or 
- 
- ' 
" ( B ) the day on which such person attains age 21, 
"(3) such person has not accepted the interest or any of its 
benefits, and 
"(4) as a result of such refusal, the interest passes to a person 
• |5 
other than the person making the disclaimer (without any direc-
tion on the part of the person making the disclaimer). 
" (c) OTHER RULES.—For purposes of subsection ( a ) — 
"(1) 
DISCLAIMER OF UNDIVIDED PORTION or INTEREST.—A dis-
claimer with respect to an undivided portion of an interest which 
meets the requirements of the preceding sentence shall be treated 
as a qualified disclaimer of such portion of the interest. 
"(2) 
POWERS.—A power with respect to property shall be 
treated as an interest in such property." 
(2) AMENDMENT or ESTATE TAX PROVISIONS.—Part I I I of sub-
chapter A of chapter 11 (relating to gross estate) is amended by 
adding at the end thereof the following new section: 
90 STAT. 1894 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 2045. 
"SEC. 2045. DISCLAIMERS. 
"For provisions relating to the effect of a qualified disclaimer for 
purposes of this chapter, see section 2518." 
(3) CLERICAL AMENDMENTS.— 
(A) The table of sections for subchapter B of chapter 12 is 
amended by adding at the end thereof the following: 
"Sec. 2518. Disclaimers." 
(B) The table of sections for part III of subchapter A of 
chapter 11 is amended by adding at the end thereof the 
following: 
.r 
"Sec. 2045. Disclaimers." 
(4) TECHNICAL AND CONFORMING CHANGES.— 
26 use 2041. 
(A) Paragraph (2) of section 2041 (a) (relating to release 
of general powers of appointment) is amended by striking 
out the second sentence thereof. 
26 use 2055. 
(B) The first sentence of subsection (a) of section 2055 
(relating to transfers for public, charitable, and religious 
uses) is amended by striking out "(including the interest 
which falls into any such bequest, legacy, devise, or transfer 
as a result of an irrevocable disclaime^r of a bequest, legacy, 
devise, transfer, or power, if the disclaimer is made before 
the date prescribed for the filing of the estate tax return)". 
(C) The second sentence of subsection (a) of section 2055 
is amended— 
(i) by striking out "an irrevocable" and inserting in 
lieu thereof "a qualified", and 
(ii) by striking out "such irrevocable" and inserting in 
lieu thereof "such qualified". 
26 use 2056. 
(D) Section 2056 (relating to bequests, etc., to surviving 
spouse) is amended by striking out subsection (d) and by 
redesignating subsection (e) as subsection (d). 
(E) Subsection (a) of section 2056 is amended by strik-
ing out "subsections (b), (c), and (d)" and inserting in 
lieu thereof "subsections (b) and (c)". 
26 use 2514 
^^) Subsection (b) of section 2514 (relating to powers 
of appointment for purposes of the giit tax) is amended 
by striking out the second sentence thereof, 
(c) CERTAIN RETIREMENT BENEFITS.— 
(1) 
EXCLUSION FROM GROSS ESTATE OF INDIVIDUAL RETIREMENT 
26 use 2039. 
ACCOUNTS, ETC.—Section 2039 (relating to annuities) is amended 
by adding at the end thereof the following new subsection: 
"(e) EXCLUSION O
F INDIVIDUAL RETIREMENT ACCOUNTS, ETC.—-Not-
withstanding the provisions of this section or of any other provision 
/ 
. 
of law, there shall be excluded from the value of the gross estate the 
value of an annuity receivable by any beneficiary (other than the 
executor^ under— 
"(1) an individual retirement account described in section 
408(a), 
"(2) an individual retirement annuity described in section 
408(b), or 
"(3) a retirement bond described in section 409(a). 
If any payment to an account described in paragraph (1) or for an 
annuity described in paragraph (2) or a bond described in paragraph 
PUBLIC LAW 94^55—OCT. 4, 1976 
90 STAT. 1895 
(3) was not allowable as a deduction under section 219 and was not a 
rollover contribution described in section 402(a) (5), 403(a) (4), 408 
'f 
(d) (3), or 409(b) (3) (C), the preceding sentence shall not apply to 
that portion of the value of the amount receivable under such account, 
* 
annuity, or bond (as the case may be) which bears the same ratio to 
the total value of the amount so receivable as the total amount which 
was paid to or for such account, annuity, or bond and which was not 
allowable as a deduction under section 219 and was not such a rollover 
contribution bears to the total amount paid to or for such account, 
annuity, or bond. For purposes of this subsection, the term 'annuity' "Annuity." 
means an annuity contract or other arrangement providing for a series 
of substantially equal periodic payments to be made to a beneficiary 
(other than the executor) for his life or over a period extending for 
at least 36 months after the date of the decedent's death." 
(2) EXCLUSION FROM GROSS ESTATE or SELF-EMPLOYED PLANS.— 
The fifth sentence of section 2039(c) (relating to exemption of 26 USC2039. 
annuities under certain trusts and plans) is amended to read as 
follows: "For purposes of this subsection, contributions or pay-
ments on behalf of the decedent while he was an employee 
within the meaning of section 401(c) (1) made under a trust or 
plan described in paragraph (1) or (2) shall, to the extent allow-
able as a deduction under section 404, be considered to be made 
by a person other than the decedent and, to the extent not so 
allowable, shall be considered to be made by the decedent." 
(3) EXCLUSION INAPPLICABLE IN CASE OF LUMP SUM DISTRIBU-
TioNS.—The first sentence of subsection (c) of section 2039 (relat-
ing to exemption of annuities under certain trusts and plans) is 
amended by striking out "other payment receivable by any bene-
ficiary" and inserting in lieu thereof "other payment (other than 
a lump sum distribution described in section 402(e)(4), deter-
mined without regard to the next to the last sentence of section 
402(e) (4) (A)) receivable by any beneficiary". 
(4) G I F T TAX TREATMENT OF ELECTIONS UNDER CERTAIN RETIRE-
MENT PLANS. 
(A) INDIVIDUAL RETIREMENT ACCOUNTS, ETC.— 
(i) Subsection (a) of section 2517 (relating to certain 26 USC 2517. 
annuities under qualified plans) is amended by striking 
out "or" at the end of paragraph (3), by striking out 
the period at the end of paragraph (4) and inserting 
in lieu thereof "; or", and by inserting after paragraph 
(4) the following new paragraph: 
"(5) an individual retirement account described in section 408 
(a) an individual retirement annuity described in section 408 
(b), or a retirement bond described in section 409(a)." 
(ii) Subsection (b) of section 2517 (relating to trans-
fers attributable to employee contributions) is amended 
by striking out "other than paragraph (4)" and insert-
ing in lieu thereof "other than paragraphs (4) and (5)". 
(iii) Subsection (c) of section 2517 (defining em-
ployee) is amended by adding at the end thereof the 
following new sentence: "In the case of a retirement 
'^ 
plan described in paragraph (5) of subsection (a), such 
term means the individual for whose benefit the plan 
was established." 
(B) SELF-EMPLOYED PLANS.—The last sentence of section 
2517(b) (relating to transfers attributable to employee con-
90 STAT. 1896 
PUBLIC LAW 94-455—OCT. 4, 1976 
tributions) is amended to read as follows; "For purposes of 
' 
this subsection, contributions or payments on behalf of an 
individual while he was an employee within the meaning of 
section 401(c)(1) made under a trust or plan described in 
paragraph (1) or (2) of subsection (a) shall, to the extent 
allowable as a deduction under section 404, be considered to 
be made by a person other than such individual and, to the 
extent not so allowable, shall be considered to be made by 
such individual." 
(5) GIFT TAX TREATMENT or CERTAIN COMMUNITY PROPERTY.— 
26 use 2517. 
Section 2517 (relating to certain annuities under qualified plans) 
is amended by redesignating subsection (c) (as amended by para-
graph (4) (A) (iii)) as subsection (d) and by inserting after sub-
section (b) the following new subsection: 
"(c) EXEMPTION OF CERTAIN ANNUITY INTERESTS CREATED BY COM-
MUNITY PROPERTY LAWS.—Notwithstanding any other provision of 
law, in the case of an employee on whose behalf contributions or pay-
ments are made— 
"(1) by his employer or former employer under a trust or plan 
described in paragraph (1) or (2) of subsection (a), or toward 
the purchase of a contract described in paragraph (3) of subsec-
tion (a), which under subsection (b) are not considered as con-
tributed by the employee, or 
"(2) by the employee to a retirement plan described in para-
graph (5) of subsection (a), 
a transfer of benefits attributable to such contributions or payments 
shall, for purposes of this chapter, not be considered as a transfer by 
the spouse of the employee to the extent that the value of any interest 
of such spouse in such contributions or payments or in such trust or 
plan or such contract— 
"(A) is attributable to such contribution or payments, and 
"(B) arises solely by reason of such spouse's interest in 
community income under the community property laws of 
the State." 
(d) INCOME TAX TREATMENT OF CERTAIN EXPENSES OF ESTATE.—Sec-
26 use 642. 
tion 642(g) (relating to disallowance of double deductions) is 
amended by inserting after "shall not be allowed as a deduction" the 
following: "(or as an offset against the sales price of property in 
determining gain or loss)". 
(e) EFFECTIVE DATES.— 
26 use 2036 
(1) FOR SUBSECTION (a).—The amendment made by subsection 
" < » * * • 
(a) shall apply to transfers made after June 22, 1976. 
26 use 2518 
(2) FOR SUBSECTION (b).—The amendments made by subsection 
"o**- 
(b) shall apply with respect to transfers creating an interest in 
the person disclaiming made after December 31,1976. 
(3) F O R SUBSECTION ( c ) . — 
26 use 2039 
(A) The amendments made by paragraphs (1), (2), and 
no*«' 
(3) of subsection (c) shall apply to the estates of decedents 
dying after December 31,1976. 
26 use 2517 
(B) The amendments made by paragraphs (4) and (5) of 
"
*
*
*
*
• 
subsection (c) shall apply to transfers made after Decem-
ber 31,1976. 
26 use 642 
(4) FOR SUBSECTION (d).—The amendment made by subsection 
°®**- 
(d) shall apply to taxable years ending after the date of the enact-
ment of this Act. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1897 
SEC. 2010. CREDIT AGAINST CERTAIN ESTATE TAXES 
(a) I N GENERAL.—Subject to the provisions of subsections (b), (c), 
and (d), credit against the tax imposed by chapter 11 of the Internal 
Kevenue Code of 1954 (relating to estate tax) with respect to the estate 26 USC 2001. 
of LaVere Kedfield shall be allowed by the Secretary of the Treasury 
or his delegate for the conveyance of real property located within the 
boundaries of the Toiyabe National Forest. 
(b) AMOUNT OF CREDIT.—The amount treated as a credit shall be 
equal to the fair market value of the real property transferred as of 
the valuation date used for purposes of the tax imposed (and interest 
thereon) by chapter 11 of the Internal Revenue Code of 1954. 
(c) DEED REQUIREMENTS.—The provisions of this section shall apply 
^ 
only if the executrixes of the estate execute a deed (in accordance with 
the laws of the State in which such real estate is situated) transferring 
title to the United States which is satisfactory to the Attorney General 
or his designee. 
(d) ACCEPTANCE AS NATIONAL FOREST.—The provisions of this sec-
tion shall apply only if the real property transferred is accepted by 
the Secretary of Agriculture and added to the Toiyabe National 
Forest. The lands shall be transferred to the Secretary of Agriculture 
without reimbursement or payment from the Department of 
Agriculture. 
(e) INTEREST.—Unless the Secretary of Agriculture determines and 
certifies to the Secretary of the Treasury that there has been an 
expeditious transfer of the real property under this section, no interest 
payable with respect to the tax imposed by chapter 11 of the Internal 
Revenue Code of 1954 shall be deemed to be waived by reason of the 
provisions of this section for any period before the date of such 
transfer. 
(f) EFFECTIVE DATE.—The provisions of this section shall be effec-
tive on the date of the enactment of this Act. 
TITLE XXI—MISCELLANEOUS 
PROVISIONS 
SEC. 2101. TAX TREATMENT OF CERTAIN HOUSING ASSOCIATIONS. 
(a) GENERAL RULE.—Subchapter F of chapter 1 (relating to exempt 
organizations) is amended by adding at the end thereof the following 
new part: 
"PART VII—CERTAIN HOMEOWNERS ASSOCIATIONS 
"Sec. 528. Certain homeowners associations. 
"SEC. 528. CERTAIN HOMEOWNERS ASSOCIATIONS. 
26 USC 528. 
" (a) GENERAL RULE.—A homeowners association (as defined in sub-
section (c)) shall be subject to taxation under this subtitle only to the 
extent provided in this section. A homeowners association shall be con-
sidered an organization exempt from income taxes for the purpose of 
any law which refers to organizations exempt from income taxes. 
"(b) TAX IMPOSED.— 
"(1) I N GENERAL.—A tax is hereby imposed for each taxable 
year on the homeowners association taxable income of every 
homeowners association. Such tax shall consist of a normal tax 
and surtax computed as provided in section 11 as though the 
homeowners association were a corporation and as though the 
90 STAT. 1898 
PUBLIC LAW 94-455—OCT. 4, 1976 
homeowners association taxable income were the taxable income 
26 use 11. 
referred to in section 11. For purposes of this subsection, the sur-
Ante, p. 1606. 
tax exemption provided by section 11(d) shall not be allowed. 
"(2) 
ALTERNATIVE TAX IN CASE OF CAPITAL GAINS.—If for 
any 
taxable year any homeowners association has a net capital gain, 
then in lieu of the tax imposed by paragraph (1), there is hereby 
imposed a tax (if such tax is less that the tax imposed by para-
graph (1)) which shall consist of the sum of.— 
"(A) a partial tax, computed as provided by paragraph 
(1), on the homeowners association taxable income deter-
mined by reducing such income by the amount of such gain, 
and 
" (B) a tax of 30 percent of such gain. 
"(c) HOMEOWNERS ASSOCIATION DEFINED.—For purposes of this 
section— 
"(1) HOMEOWNERS ASSOCIATION.—The term'homeowners associa-
tion means an organization which is a condominium management 
association or a residential real estate management association 
if— 
"(A) such organization is organized and operated to pro-
vide for the acquisition, construction, management, mainte-
nance, and care of association property, 
"(B) 60 percent or more of the gross income of such 
organization for the taxable year consists solely of amounts 
received as membership dues, fees, or assessments from— 
"(i) owners of residential units in the case of a con-
dominium management association, or 
" (ii) owners of residences or residential lots in the case 
of a residential real estate management association. 
" (C) 90 percent or more of the expenditures of the organi-
zation for the taxable year are expenditures for the acquisi-
tion, construction, management, maintenance, and care of 
association property, 
"(D) no part of the net earnings of such organization 
inures (other than by acquiring, constructing, or providing 
management, maintenance, and care of association property, 
and other than by a rebate of excess membership dues, fees, 
or assessments) to the benefit of any private shareholder or 
individual, and 
"(E) such organization elects (at such time and in such 
manner as the Secretary by regulations prescribes) to have 
this section apply for the taxable year. 
"(2) CONDOMINIUM MANAGEMENT ASSOCIATION.'—The term 'con-
dominium management association' means any organization 
meeting the requirement of subparagraph (A) of paragraph (1) 
with respect to a condominium project substantially all of the units 
of which are used as residences. 
" ( 3 ) 
R E S I D E N T I A L REAL ESTATE MANAGEMENT ASSOCIATION.—The 
term 'residential real estate management association' means any 
organization meeting the requirements of subparagraph (A) of 
paragraph (1) with respect to a subdivision, development, or sim-
ilar area substantially all the lots or buildings of which may only 
be used by individuals for residences. 
"(4) ASSOCIATION PROPERTY.—The term 'association property' 
means— 
" (A) property held by the organization. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1899 
" ( B ) property commonly held by the members of the 
organization, 
"(C) property within the organization privately held by 
the members of the organization, and 
" ( D ) property owned by a governmental unit and used for 
the benefit of residents of such unit. 
" ( d ) 
HOMEOWNERS ASSOCIATION TAXABLE INCOME DEFINED.— 
"(1) 
TAXABLE INCOME DEFINED.—For purposes of this section, 
the homeowners association taxable income of any organization 
for any taxable year is an amount equal to the excess (if any) 
of-^ 
" (A) the gross income for the taxable year (excluding any 
exempt function income), over 
" ( B ) the deductions allowed by this chapter which are 
directly connected with the production of the gross income 
(excluding exempt function income), computed with the 
modifications provided in paragraph (2). 
"(2) MODIFICATIONS.—For purposes of tnis subsection— 
" ( A ) there shall be allowed a specific deduction of $100, 
" (B) no net operating loss deduction shall be allowed under 
section 172, and 
"(C) no deduction shall be allowed under part V I I I of 
subchapter B (relating to special deductions for corpora-
tions). 
"(3) EXEMPT FUNCTION INCOME.—For purposes of this subsec-
tion, the term 'exempt function income' means any amount received 
as membership dues, fees, or assessments from— 
" ( A ) owners of condominium housing units in the case 
of a condominium management association, or 
" ( B ) owners of real property in the case of a residential 
real estate management association." 
(b) Section 216(c) (relating to treatment of property subject to 26 USC 216. 
depreciation) is amended by adding at the end thereof the following 
new sentence: "The preceding sentence shall not be construed to limit 
or deny a deduction for depreciation under 167(a) by a cooperative 
housing corporation with respect to property owned by such a cor-
poration and leased to tenant-stockholders." 
(c) REQUIREMENT OF RETURN.—Section 6012 (a) (relating to persons 
26 USC 6012. ^ 
required to make returns of income) is amended by striking out "and" 
at the end of paragraph (5), by inserting "and" at the end of para-
graph (6), and by inserting after paragraph (6) the following new 
paragraph: 
"(7) Every homeowners association (within the meaning of 
section 528(c)(1)) which has homeowners association taxable Ante, f. 1897. 
income (within the meaning of section 528(d)) for the taxable 
year." 
(d) CLERICAL AMENDMENT.—The table of parts for subchapter F of 
chapter 1 is amended by adding at the end thereof the following new 
item: 
"Part VII. Certain homeowners associations." 
(e) EFFECTIVE DATE.—Except as provided in subsection (f) (2), the 
26 USC 528 
amendments made by this section shall apply to taxable years begin- 
note, 
ning after December 31,1973. 
(i) CERTAIN STOCK OF COOPERATIVE HOUSING CORPORATIONS.— 
(1) Section 216(b) is amended by adding at the end thereof the 
26 USC 216. 
following new paragraph: 
90 STAT. 1900 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(5) STOCK ACQUIRED THROUGH FORECLOSURE BY LENDING INSTI-
TUTION.—If a bank or other lending institution acquires by fore-
closure (or by instrument in lieu of foreclosure) the stock of a 
tenant-stockholder, and a lease or the right to occupy an apart-
ment or house to which such stock is appurtenant, such bank or 
other lending institution shall be treated as a tenant-stockholder 
for a period not to exceed three years from the date of acquisition. 
The preceding sentence shall apply even though, by agreement 
with the cooperative housing corporation, the banK (or other 
lending institution) or its nominee may not occupy the house or 
apartment without the prior approval of such corporation." 
26 use 216 
(2) The amendment made by paragraph (1) shall apply to 
note. 
stock acquired by banks or other lending institutions after the 
date of the enactment of this Act. 
SEC. 2102. TREATMENT OF CERTAIN DISASTER PAYMENTS. 
26 use 451. 
(a) GENERAL RULE.—Subsection (d) of section 451 (relating to 
special rule for crop insurance proceeds) is amended by inserting after 
the first sentence the following new sentence: "For purposes of the 
preceding sentence, payments received under the Agricultural Act of 
1949, as amended, as a result of (1) destruction or damage to crops 
caused by drought, flood, or any other natural disaster, or (2) the 
inability to plant crops because of such a natural disaster shall be 
treated as insurance proceeds received as a result of destruction or 
damage to crops." 
(b) TECHNICAL AMENDMENT.^—The subsection heading for such sub-
section (d) is amended by striking out "Proceeds" and inserting in 
lieu thereof "Proceeds or Disaster Payments". 
26 use 451 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note- 
apply to payments received after December 31,1973, in taxable years 
ending after such date. 
26 use 165 
SEC. 2103. TAX TREATMENT OF CERTAIN 1972 DISASTER LOSSES. 
""**• 
(a) APPLICATION OF SECTION.—^This section shall apply to any 
individual— 
(1) who was allowed a deduction under section 165 of the 
Internal Revenue Code of 1954 (relating to losses) for a loss 
attributable to a disaster occurring during calendar year 1972 
which was determined by the President, under section 102 of the 
42 use 4402. 
Disaster Relief Act of 1970, to warrant disaster assistance by the 
Federal Government, 
(2) who in connection with such disaster— 
(A) received income in the form of cancellation of a disas-
15 use 636. 
ter loan under section 7 of the Small Business Act or an 
emergency loan under subtitle C of the Consolidated Farm 
75 Stat. 311. 
and Rural Development Act, or 
(B) received income in the form of compensation (not 
taken into account in computing the amount of the deduc-
tion) for such loss in settlement of any claim of the taxpayer 
against a person for that person's liability in tort for the 
damage or destruction of that taxpayer's property in connec-
tion with the disaster, and 
"•'• 
(3) who elects (at such time and in such manner as the Secre-
— • • 
tary of the Treasury or his delegate may by regulations prescribe) 
to take the benefits of this section, 
(b) EFFECT OF ELECTION.—In the case of any individual to whom 
* i ^
-
^ 
this section applies^ 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1901 
(1) the tax imposed by chapter 1 of the Internal Revenue Code 
of 1954 for the taxable year in which the income taken into 26 USC 1. 
account is received or accrued which is attributable to such income 
shall not exceed the additional tax under such chapter which 
would have been payable for the year in which the deduction for 
the loss was taken if such deduction had not been taken for such 
year, 
(2) any amount of tax imposed by chapter 1 attributable to 
the income taken into account which, on October 1, 1975, was 
unpaid may be paid in 3 equal annual installments (with the first 
such installment due and payable on April 15, 1977), and 
(3) no interest on any deficiency shall be payable for any 
period before April 16,1977, to the extent such deficiency is attrib-
utable to the receipt of such compensation, and no interest on 
j 
. 
any installment referred to in paragraph (2) shall be payable for 
any period before the due date of such installment. 
(c) INCOME TAKEN INTO ACCOUNT.—For purposes of this section, 
the income taken into account is— 
(1) in the case of an individual described in subsection (a) (2) 
(A), the amount of income (not in excess of $5,000) attributable 
to the cancellation of a disaster loan under section 7 of the Small 
Business Act or an emergency loan under subtitle C of the Con- 
15 USC 636. 
solidated Farm and Rural Development Act received by reason 19 USC 1961. 
of the disaster described in subsection (a) (1), or 
(2) in the case of an individual described in subsection (a) (2) 
(B), the amount of compensation (not in excess of $5,000) for the 
loss in settlement of any claim of the taxpayer against a person 
for that person's liability in tort for the damage or destruction of 
that taxpayer's property in connection with the disaster described 
in subsection (a)(1). 
(d) PHASEOUT W H E R E ADJUSTED GROSS INCOME EXCEEDS $15,000.— 
If for the taxable year for which the deduction for the loss was taken 
the individual's adjusted gross income exceeded $15,000, the $5,000 
limit set forth in paragraph (1) or (2) of subsection (c) (whichever 
applies) shall be reduced by one dollar for each full dollar that such 
adjusted gross income exceeds $15,000. In the case of a married indi-
vidual filing a separate return, the preceding sentence shall be applied 
by substituting "$7,500" for "$15,000". 
(e) STATUTE OF LIMITATIONS.—If refund or credit of any overpay-
ment of income tax resulting from an election made under tins section 
is prevented on the date of the enactment of this Act, or at any time 
within one year after such date, by the operation of any law, or rule of 
law, refund or credit of such overpayment (to the extent attributable 
* ' 
to such election) may, nevertheless, be made or allowed if claim there-
for is filed within one year after such date. If the taxpayer makes an 
election under this section and if assessment of any deficiency for any 
taxable year resulting from such election is prevented on the date of 
the enactment of this Act, or at any time within one year after such 
date, by the operation of any law or rule of law, such asst^ssment (to 
the extent attributable to such election) may, nevertheless, be made if 
. * , - ; . • 
made within one year after such date. 
-" • 
SEC. 2104. TAX TREATMENT OF CERTAIN DEBTS OWED BY POLITICAL 
PARTIES, ETC., TO ACCRUAL BASIS TAXPAYERS. 
(a) I N GENERAL.—Section 271 (relating to debts owed by political 
26 USC 271. 
parties, etc.) is amended by adding at the end thereof the following 
new subsection: 
RQ-IQil n 
7«—nf 9 
5S 
90 STAT. 1902 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(c) EXCEPTION.—In the case of a taxpayer who uses an accrual 
method of accounting, subsection (a) shall not apply to a debt which 
accrued as a receivable on a bona fide sale of goods or services in the 
ordinary course of the taxpayer's trade or business if— 
"(1) for the taxable year in which such receivable accrued, 
more than 30 percent of all receivables which accrued in the 
ordinary course of the trades and businesses of the taxpayer were 
due from political parties, and 
"(2) the taxpayer made substantial continuing efforts to col-
lect on the debt." 
26 use 271 
(b) ErFECTivE DATE.—The amendment made by subsection (a) 
note. 
shall apply to taxable years beginning after December 31, 1975. 
SEC. 2105. TAX-EXEMPT BONDS FOR STUDENT LOANS. 
26 use 103. 
(a) I N GENERAL.—Section 103(a) (relating to interest on certain 
governmental obligations) is amended by striking out "or" at the end 
of paragraph (2), striking out the period at the end of paragraph (3) 
and inserting in lieu thereof "; or", and by adding at the end thereof 
the following: 
"(4) qualified scholarship funding bonds." 
(b) DEFINITION OF QUALIFIED SCHOLARSHIP FUNDING BONDS.—Sec-
tion 103 is amended by redesignating subsection (f) as (g), and by 
inserting after subsoction (e) the following new subsection: 
"(f) 
QUALIFIED SCHOLARSHIP FUNDING BONDS.—For purposes of 
subsection (a), the term 'qualified scholarship funding bonds' means 
obligations issued by a corporation which— 
"(1) is a corporation not for profit established and operated 
exclusively for the purpose of acquiring student loan notes 
20 use 1001 
incurred under the Higher Education Act of 1965, and 
o
*
*
*
*
- 
"(2) is organized at the request of a State or one or more 
political subdivisions thereof or is requested to exercise such 
power by one or more political subdivisions and required by its 
corporate charter and bylaws, or required by State law, to devote 
any income (after payment of expenses, debt service, and the 
I 
creation of reserves for the same) to the purchase of additional 
student loan notes or to pay over any income to the State or a 
political subdivision thereof." 
(c) CONFORMING AMENDMENTS.— 
(1) Section 103(d) (relating to arbitrage bonds) is amended 
by redesignating paragraph (5) as paragraph (6) and inserting 
after paragraph (4) the following new paragraph: 
"(5) STUDENT LOAN INCENTIVE PAYMENTS.—Payments made by 
the Commissioner of Education pursuant to section 2 of the Emer-
20 use 1078a. 
gency Insured Student Loan Act of 1969 are not to be taken into 
account, for purposes of subsection ( d ) ( 2 ) ( A ) , in determining 
yields on student loan notes." 
(2) Section 103(d) (relating to arbitrage bonds) is amended 
by striking out "(a) (1)" each place it appears in paragraph (1) 
(including the heading) and paragraph (2) and inserting in lieu 
thereof "(a)(1) or (4)". 
26 use 103 
(d) EFFECTIVE DATE.—^The amendments made by this section apply 
"°*®- 
to obligations issued on or after the date of the enactment of this Act. 
SEC. 2106. PERSONAL HOLDING COMPANY INCOME AMENDMENTS. 
26 use 543. 
(a) I N GENERAL.—Section 543(a)(6) 
(relating to definition of 
:. 
personal holding company income) is amended to read as follows: 
"(6) U S E OF CORPORATE PROPERTY BY SHAREHOLDER.— 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1903 
"(A) Amounts received as compensation (however des-
ignated and from whomever received) for the use of, or the 
right to use, tangible property of the corporation in any case 
; 
where, at any time during the taxable year, 25 percent or 
I '1 
more in value of the outstanding stock of the corporation is 
owned, directly or indirectly, by or for an individual entitled 
to the use of the property (whether such right is obtained 
directly from the corporation or by means of a sublease or 
other arrangement). 
" ( B ) Subparagraph (A) shall apply only to a corporation 
which has personal holding company income in excess of 10 
. ,. 
, ... 
percent of its ordinary gross income. 
^ ' 
^ 
"(C) For purposes of the limitation in subparagraph ( B ) , 
personal holding company income shall be computed— 
"(i) without regard to subparagraph (A) or para-
graph (2), 
"(ii) by excluding amounts received as compensation 
for the use of (or right to use) intangible property (other 
than mineral, oil, or gas royalties or copyright royalties) 
if a substantial part of the tangible property used in con-
nection with such intangible property is owned by the 
corporation and all such tangible and intangible prop-
erty is used in the active conduct of a trade or business 
by an individual or individuals described in subpara-
graph (A), and 
"(iii) by including copyright royalties and adjusted 
income from mineral, oil, and gas royalties." 
(b) EFFECTIVE DATE.—^The amendment made by subsection (a) 
26 USC 543 
shall apply to taxable years beginning after December 31, 1976. 
note. 
SEC. 2107. WORK INCENTIVE PROGRAM EXPENSES. 
(a) INCREASE I N LIMITATION BASED ON AMOUNT OF T A X . — 
(1) Paragraph (2) of section 50A(a) (relating to limitation 
26 USC 50A. 
based on amount of tax) is amended by striking out "$25,000" each 
^ 
place it appears and inserting in lieu thereof "$50,000". 
(2) Paragraph (4) of section 50A(a) 
(relating to married 
individuals) is amended— 
(A) by striking out "$12,500" and inserting in lieu thereof 
"$25,000^ and 
.^ . 
(B) by striking out "$25,000" and inserting in lieu thereof 
' 
* 
"$50,000^^'. 
(3) Paragraph (5) of section 50A(a) (relating to controlled 
groups) is amended by striking out "$25,000" each place it appears 
therein and inserting in lieu thereof "$50,000". 
(4) Paragraph (3) of section 50B(e) is amended by striking 26 USC SOB. 
out "$25,000" each place it appears therein and inserting in lieu 
thereof "$50,000". 
(b) EEDUCTION or PERIOD DURING W H I C H DISCHARGE OF EMPLOYEE 
CAUSES RECAPTURE.—Subparagraph (A) of section 50A(c) (1) (relat- 26 USC 50A. 
ing to work incentive program expenses) is amended— 
(1) by striking out "12 months" each place it appears and 
inserting in lieu thereof "90 days", 
(2) by striking out "12th calendar month" and inserting in 
' ' ' 
lieu thereof "90th calendar day", and 
(3) by striking out "the calendar month" and inserting in lieu 
thereof "the day". 
90 STAT. 1904 
PUBLIC LAW 94-455—OCT. 4, 1976 
(c) BECAPTURE NOT TO APPLY WHERE TERMINATION IS RESULT OF 
26 use 50A. 
DECLINING BUSINESS.—Subparagraph 
(A) 
of section 50A(c) (2) 
(relating to certain terminations of employment) is amended— 
(1^ by striking out "or" at the end of clause (iii), 
(2) by striking out the period at the end of clause (iv) and 
inserting in lieu thereof a comma and "or", and 
(3) by adding at the end thereof the following: 
"(v) a termination of employment of an individual 
due to a substantial reduction in the trade or business 
operations of the taxpayer." 
(d) Ex'raNSiON OF WELFARE EMPLOYEE INCENTIVES.—Paragrafth (2) 
26 use SOB. 
of section SOB (a) (relating to definition of Federal welfare recipient 
employment incentive expenses) is amended by striking out "before 
July 1, 1976," and inserting in lieu thereof "before January 1, 1980,". 
(e) 
LIMITATION OF FEDERAL WELFARE RECIPIENT EMPLOYMENT 
INCENTIVE EXPENSES TO FIRST 12 MONTHS OF EMPLOYMENT.—Sub-
paragraph (B) of section 50B(a) (1) is amended to read as follows: 
" ( B ) the amount of Federal welfare recipient employment 
incentive expenses paid or incurred by the taxpayer for serv-
ices rendered during the first 12 months of employment 
(whether or not consecutive)." 
(f) 
CERTIFICATION OF WELFARE RECIPIENT EMPLOYEES BY SECRE-
TARY OF LABOR.—Subparagraph (A) of section 50B(g) (1) (relating to 
eligible employees) is amended by inserting "the Secretary of Labor 
or by" after "certified by". 
(g) 
TECHNICAL AMENDMENTS.— 
26 use 6411. 
(1) The second sentence of section 6411(a) (relating to appli-
cation for adjustment) is amended by inserting "(or, in the case 
of a work incentive program carryback, to an investment credit 
carryback)" after "capital loss carryback". 
(2) The folloAving provisions are each amended by inserting 
", an investment credit carryback," after "net operating loss 
carryback": 
26 use 6501. 
(A) Section 6501 (o). 
26 use 6511. 
(B) Section 6511(d) (7). 
26 use 6601. 
(C) Section 6601(d) (4). 
26 use 6611. 
(D) Section 6611 (f) (4). 
SEC. 2108. REPEAL OF EXCISE TAX ON LIGHT-DUTY TRUCK PARTS. 
26 use 6416. 
(a) I N GENERAL.—Section 6416(b) (2) (relating to special cases in 
which tax payments are considered overpayments) is amended— 
(1) by striking "or" at the end of subparagraph ( R ) ; 
(2) by striking the period at the end of subparagraph (S) and 
inserting in lieu thereof "; or "; and 
;P i, ' 
(3) 
by 
adding 
at 
the 
end 
thereof 
the 
following 
new 
subparagraph: 
" ( T ) in the case of any article taxable under section 4061 
(b), sold on or in connection with the first retail sale of a 
.on : c i :'• 
light-duty truck, as described in section 4061 (a) (2), if credit 
or refund of such tax is not available under any other provi-
sions of law." 
26 use 6416 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply to parts and accessories sold after the date of the enactment of 
this Act. 
SEC. 2109. EXCLUSION FROM EXCISE TAX ON CERTAIN ARTICLES 
RESOLD AFTER MODIFICATION. 
26 use 4063. 
(a) I N GENERAL.—Section 4063 (relating to exemptions 
from 
excise tax on motor vehicles) is amended by adding at the end thereof 
the following new subsection: 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1905 
" ( d ) 
RESALE AFTER CERTAIN MODIFICATIONS.—Under regulations 
Regulations, 
prescribed by the Secretary, the tax imposed by section 4061 shaU not 
apply to the resale of any article described in section 4061(a) (1) if 
before such resale such article was merely combined with any cou-
pling device (including any fifth wheel), wrecker crane, loading and 
unloading equipment (including any crane, hoist, winch, or power 
liftgate), aerial ladder or tower, snow and ice control equipment, 
eartnmoving, excavation and construction equipment, spreader, sleeper 
*'" 
cab, cab shield, or wood or metal floor." 
(b) EFFECTIVE DATE.—The amendment made by this section shall 26 USC 4063 
apply to the resale of any article on or after the date of the enact- ^°^^-
ment of this Act. 
SEC. 2110. FRANCHISE TRANSFERS. 
(a) APPLICATION OF FRANCHISE RULES TO PARTNERSHIPS.—Section 
751(c) 
(relating to unrealized receivables of a partnership), as 26 USC 751. 
amended by this Act, is amended— 
(1) by striking out "farm land (as defined in section 1252 
( a ) ) , " and inserting in lieu thereof "farm land (as defined in 
section 
1252(a)), 
franchises, 
trademarks, or trade 
names 
(referred to in section 1253 ( a ) ) , " and 
(2) by striking out "1252(a)" and inserting in lieu thereof 
"1252(a), 1253(a)". 
(b) EFFECTIVE DATE.—Subsection (a) shall apply to transactions 
26 USC 751 
described in sections 731,736,741, or 751 of the Internal Revenue Code °o*®-
of 1954 which occur after December 31, 1976, in taxable years ending 
after that date. 
SEC. 2111. EMPLOYER'S DUTIES IN CONNECTION WITH THE RECORD- 26 USC 6041 
ING AND REPORTING OF TIPS. 
note-
(a) SUSPENSION OF RULINGS.—Until January 1, 1979, the law with 
respect to the duty of an employer under section 6041(a) of the Inter-
nal Revenue Code of 1954 to report charge account tips of employees 
to the Internal Revenue Service (other than charge account tips 
included in statements furnished to the employer under section 6053 
(a) of such Code) shall be administered— 
^1) without regard to Revenue Rulings 75-400 and 76-231, and 
(2) in accordance with the manner in which such law was 
administered before the issuance of such rulings. 
(b) EFFECTIVE DATE.—This section shall take effect on January 1, 
1976. 
SEC. 2112. TREATMENT OF CERTAIN POLLUTION CONTROL FACILI-
TIES. 
(a) AVAILABILITY OF INVESTMENT CREDIT FOR CERTAIN POLLUTION 
CONTROL FACILITIES.— 
(1) I N GENERAL.—Section 48(a)(8) 
(relating to amortized 26 USC 48. 
property) is amended by striking out "169," and by striking out 
the second sentence thereof. 
(2) APPLICABLE 
PERCENTAGE 
I N 
DETERMINING 
AMOUNT OF 
CREDIT.—Section 46(c) (relating to qualified investment) is 26 USC 46. 
amended by adding at the end thereof the following new 
paragraph: 
"(5) APPLICABLE PERCENTAGE I N THE CASE OF CERTAIN POLLU-
TION CONTROL FACILITIES.—Notwithstanding subsection (c) (2), in 
the case of property— 
" ( A ) with respect to which an election under section 169 
applies, and 
90 STAT. 1906 
PUBLIC LAW 94-455—OCT. 4, 1976 
. ..-i;',. 
(B) the useful life of which (determined without regard 
to section 169) is not less than 5 years, 
50 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." 
(b) DEFINITION OF CERTIFIED POLLUTION CONTROL FACILITIES.—Par-
26 use 169. 
agraph (1) of section 169(d) (defining certified pollution control 
facilities) is amended— 
(1) by striking out "January 1, 1969," and inserting in lieu 
thereof ^'January 1,1976,"; 
(2) by striking out "or storing" and inserting in lieu thereof 
"storing, or preventing the creation or emission of"; and 
(3) by striking out "and" at the end of subparagraph (A), by 
striking out the period at the end of subparagraph (B) and 
inserting in lieu thereof "; and", and by adding at the end thereof 
the following new subparagraph: 
"(C) does not significantly— 
"(i) increase the output or capacity, extend the useful 
life, or reduce the total operating costs of such plant or 
other property (or any unit thereof), or 
"(ii) alter the nature of the manufacturing or pro-
duction process or facility." 
(c) EXTENSION OF AMORTIZATION.—Paragraph (4) of section 169(d) 
(relating to new identifiable treatment facility) is amended to read 
as follows: 
" (4) N E W IDENTIFIABLE TREATMENT FACILITY.— 
Definition. 
" ( A ) I N GENERAL.—For purposes of paragraph (1), the 
term 'new identifiable treatment facility' includes only tangi-
ble property (not including a building and its structural 
components, other than a building which is exclusively a 
treatment facility) which is of a character subject to the 
allowance for depreciation provided in section 167, which is 
identifiable as a treatment facility, and which is property— 
"(i) the construction, reconstruction, or erection of 
which is completed by the taxpayer after December 31, 
1968, or 
"(ii) acquired after December 31,1968, if the original 
use of the property commences with the taxpayer and 
commences after such date. 
In applying this section in the case of property described in 
clause (i) there shall be taken into account only that portion 
of the basis which is properly attributable to construction, 
reconstruction, or erection after December 31, 1968. 
* 
" ( B ) 
CERTAIN PLANTS, ETC., PLACED I N OPERATION AFTER 
19 68.—In the case of any treatment facility used in connec-
tion with any plant or other property not in operation before 
January 1, 1969, the preceding sentence shall be applied by 
substituting December 31, 1975, for December 31, 1968." 
(d) EFFECTIVE DATES.— 
26 use 46 note. 
(1) The amendments made by subsection (a) shall apply to— 
(A) property acquired by the taxpayer after December 31, 
1976, and 
(B) property the construction, reconstruction, or erection 
of which was completed by the taxpayer after December 31, 
1976, (but only to the extent of the basis thereof attributable 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1907 
to construction, reconstruction, or erection after such date), 
in taxable years beginning after such date. 
(2) The amendments made by subsection (b) shall apply to 26 USC 169 
taxable years beginning after December 31, 1975. Such amend- note, 
ments shall not apply in the case of any property with respect to 
which the amortization period under section 169 of the Internal 
Revenue Code of 1954 has begun before January 1, 1976. 
SEC. 2113. CLARIFICATION OF STATUS OF CERTAIN FISHERMEN'S 
ORGANIZATIONS. 
(a) I N GENERAL.—Section 501 (relating to exemption from tax on 26 USC 501. 
corporations, etc.) is amended by redesignating subsection (g) as (h) 
and by inserting after subsection (f) the following new subsection: 
" ( g ) 
DEFINITION OF AGRICULTURAL.—For purposes of subsection 
(c)(5), the term 'agricultural' includes the art or science of cultivating 
land, harvesting crops or aquatic resources, or raising livestock." 
(b) EFFECTIVE DATE.—The amendment made by this section applies 26 USC 501 
to taxable years ending after December 31,1975. 
note-
SEC 2114. APPUCATION OF SECTION 6013(e) OF THE INTERNAL REVE-
NUE CODE OF 1954. 
(a) I N GENERAL.—Section 3 of the Act of January 12,1971, Public 26 USC 6013 
Law 91-679 (84 Stat. 2064), is amended by adding at the end thereof 
note. 
the following new sentences: "Upon application oy a taxpayer, the 
Secretary of the Treasury shall redetermine the liability for tax 
(including interest, penalties, and other amounts) of such taxpayer 
for taxable years beginning after December 31, 1961, and ending 
before January 13,1971. The preceding sentence shall apply solely to a 
taxpayer to whom the application of the provisions of section 6013(e) 
of the Internal Revenue Code of 1954, as added by this Act, for such 
taxable years is prevented by the operation of res judicata, and such 
redetermination shall be made without regard to such rule of law. Any 
overpayment of tax by such taxpayer for such taxable years resulting 
from the redetermination made under this Act shall be refunded to 
such taxpayer." 
(b) EFFECTIVE DATE.—^The application permitted under the amend- 26 USC 6013 
ment made by subsection (a) of this section must be filed with the note. 
Secretary of the Treasury during the first calendar year beginning 
after the date of the enactment of this Act. 
SEC. 2115. AMENDMENTS TO RULES RELATING TO LIMITATION ON PER-
CENTAGE DEPLETION IN CASE OF OIL AND GAS WELLS, 
TRANSFERS OF OIL AND GAS PROPERTY WITHIN THE 
SAME CONTROLLED GROUP OR FAMILY. 
(a) 
RETAILER EXCLUSION.—Paragraph 
(2) of section 613A(d) 
26USC613A. 
(relating to the retailer exclusion) is amended by inserting "(exclud-
ing bulk sales of such items to commercial or industrial users)" after 
"natural gas" where it first appears, and by adding at the end thereof 
the following: 
"Notwithstanding the preceding sentence this paragraph shall not 
apply in any case where the combined gross receipts from the sale 
of such oil, natural gas, or any product derived therefrom, for the 
taxable year of all retail outlets taken into account for purposes 
of this paragraph do not exceed $5,000,000. For purposes of this 
paragraph, sales of oil, natural gas, or any product derived from 
oil or natural gas shall not include sales made of such items out-
side the United States, if no domestic production of the taxpayer 
90 STAT. 1908 
PUBLIC LAW 94-455—OCT. 4, 1976 
or a related person is exported during the taxable year or the 
immediately preceding taxable year." 
(b) TRANSFER EULE.— 
26USC613A, 
(1) I N GENERAL.—Subparagraph (B) of section 613A(c)(9) 
(relating to exceptions to the transfer rule) is amended by strik-
ing 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) a change of beneficiaries of a trust by reason of 
the death, birth, or adoption of any vested beneficiary if 
' 
the transferee was a beneficiary of such trust or is a 
lineal descendant of the settlor or any other vested bene-
ficiary of such trust, except in the case of any trust 
where any beneficiary of such trust is a member of the 
family (as defined in section 267(c) (4)) of a settlor who 
,^,,, 
created inter vivos and testamentary trusts for members 
^ ''' 
of the family and such settlor died within the last six 
days of the fifth month in 1970, and the law in the juris-
diction in which such trust was created requires all or a 
portion of the gross or net proceeds of any royalty or 
• ' 
other interest in oil, §as, or other mineral representing 
any percentage depletion allowance to be allocated to the 
principal of the trust." 
(2) CONFORMING AMENDMENTS.—Paragraph (1) of section 613A 
(d) (relating to the limitation on percentage depletion based 
upon taxable income) is amended— 
(A) by striking out subparagraph (A) and inserting in 
lieu thereof the following: 
" (A) any depletion on production from an oil or gas prop-
erty which is subject to the provisions of subsection (c),", 
(B) by striking out "and" at the end of subparagraph (B), 
(C) by striking out the period at the end of subparagraph 
(C) and inserting in lieu thereof ", and", and 
(D) by adding at the end thereof the following new 
'' 
. 
subparagraph: 
"(D) in the case of a trust, any distributions to its benefi-
ciary, except in the case of any trust where any beneficiary of 
such trust is a member of the family (as defined in section 
267(c) (4)) of a settlor who created inter vivos and testamen-
tary trusts for members of the family and such settlor died 
within the last six days of the fifth month in 1970, and the 
law in the jurisdiction in which such trust was created 
requires all or a portion of the gross or net proceeds of any 
royalty or other interest in oil, gas, or other mineral repre-
senting any percentage depletion allowance to be allocated 
to the principal of the trust." 
(c) PARTNERSHIP RULES.— 
0 
(1) Subparagraph (D) of section 613A(c) (7) (relating to the 
computation of depletion in the case of partnerships) is amended 
to read as follows: 
"(D) PARTNERSHIPS.—In the case of a partnership, the 
depletion allowance shall be computed separateljr by the part-
ners and not by the partnership. The partnership shall allo-
cate to each partner his proportionate share of the adjusted 
basis of each partnership oil or gas property. The allocation 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1909 
is to be made as of the later of the date of acquisition of the 
oil or gas property by the partnership, or January 1,1975. A 
partner's proportionate share of the adjusted basis of part-
nership property shall be determined in accordance with his 
interest in partnership capital or income and, in the case of 
an agreement described m section 704(c)(2) (relating to 
effect of a partnership agreement on contributed property), 
such share shall be determined by taking such agreement into 
account. Each partner shall separately keep records of his 
share of the adjusted basis in each oil and gas property of 
the partnership, adjust such share of the adjusted basis for 
any depletion taken on such property, and use such adjusted 
basis each year in the computation of his cost depletion or 
in the computation of his gain or loss on the disposition of 
such property by the partnership. For purposes of section 
/05 
732 (relating to basis of distributed p»roperty other than 
money), the partnership's adjusted basis m mineral prop-
erty shall be an amount equal to the sum of the partners' 
adjusted basis in such property as determined under this 
paragraph." 
(2) Subparagraph (G) of section 703(a)(2) 
(relating to 26 USC 703. 
deductions not allowed to a partnership) is amended by striking 
out "production subject to the provisions of section 613A(c)" and 
inserting in lieu thereof "wells". 
(3) Subsection (a) of section 705 (relating to the determination 26 USC 705. 
of basis of a partner's interest in a partnership) is amended— 
(A) by striking out "and" m paragraph (1) (C), 
(B) by striking out the period at the end of paragraph (2) 
and inserting in lieu thereof "; and", and 
--
(C) by adding at the end thereof the following: 
"(3) decreased (but not below zero), by the amount of the 
partner's deduction for depletion under section 611 with respect 
to oil and gas wells." 
(d) RELATED PERSON.—Paragraph (3) of section 613A(d) (relating 26 USC 613A. 
to the definition of related person) is amended by adding at the end 
thereof the following: 
"For purposes of determining a significant ownership interest, an 
interest owned by or for a corporation, partnership, trust, or estate 
shall be considered as owned directly both by itself and propor-
tionately by its shareholders, partners, or beneficiaries, as the case 
may be." 
(e) TRANSFERS or OIL AND GAS PROPERTY WITHIN THE SAME CON-
TROLLED GROUP OR FAMILY.—Subparagraph (B) of section 613A(c) 
(9) (relating to transfer of oil or gas property), as amended by sub-
section (b) (1), is amended— 
^1^ by striking out "or" at the end of clause (ii), 
(2) by striking out the period at the end of clause (iii) and 
inserting in lieu thereof a comma, and 
(3) by adding at the end thereof the following: 
"(iv) a transfer of property between corporations 
which are members of the same controlled group of 
corporations (as defined in paragraph (8)(D)(i)),or 
" (v) a transfer of property between business entities 
which are under common control (within the meaning 
of paragraph (8) (B)) or between related persons in the 
same family (within the meaning of paragraph (8) 
(C)),or 
90 STAT. 1910 
PUBLIC LAW 94-455—OCT. 4, 1976 
"(vi) a transfer of property between a trust and 
related persons in the same family (within the meaning of 
paragraph (8) (C)) to the extent that the beneficiaries 
of that trust are and continue to be related persons in 
the family that transferred the property, and to the 
extent that the tentative oil quantitjr is allocated among 
/ 
the members of the family (within the meaning of 
paragraph (8)(C)). 
Clause (iv) or (v) shall apply only so long as the tentative oil 
quantity determined under the table contained in paragraph (3) 
(B) is allocated under paragraph (8) between the transferor and 
transferee." 
26 use 613A 
(f) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
take effect on January 1,1975, and shall apply to taxable years ending 
after December 31, 1974. 
SEC. 2116. IMPLEMENTATION OF FEDERAL-STATE TAX COLLECTION 
ACT OF 1972. 
(a) ELECTIOK BY STATES To PARTICIPATE.—Section 204(b) (2) of 
26 use 6361 
the Federal-State Tax Collection Act of 1972 is amended to read as 
note. 
follows: 
"(2) the first January 1 which is more than one year after the 
first date on which at least one State has notified the Secretary 
of the Treasury or his delegate of an election to enter into an 
agreement under section 6363 of such Code." 
• 
' 
(b) ADJUSTMENTS TO QUALIFIED RESIDENT TAXES FOR PURPOSES OF 
FEDERAL COLLECTION or STATE INDIVIDUAL INCOME TAXES.— 
(1) 
QUALIFIED RESIDENT TAX BASED ON TAXABLE INCOME.— 
26 use 6362. 
(A) REQUIRED ADJUSTMENTS.—Section 6362(b) (1) (relat-
ing to required adjustments) is amended— 
(i) by striking out "and" at the end of subparagraph 
(ii) by striking out the period at the end of subpara-
grajjh (C) and inserting in lieu thereof ", and", and 
' * 
(iii) by adding at the end thereof the following new 
subparagraph: 
"(D) if a credit is allowed against such tax for State or 
local sales tax in accordance with paragraph (2) (C), by add-
ing an amount equal to the amount of his deduction under 
section 164(a) (4) for such sales tax." 
(B) PERMITTED ADJUSTMENTS.—Section 6362(b) (2) (relat-
ing to permitted adjustments) is amended by adding at the 
. 
end thereof the following new subparagraph: 
"(C) A credit is allowed against such tax for all or a 
portion of any general sales tax imposed by the same State or 
a political subdivision thereof with respect to sales to the tax-
payer or his dependents." 
( 2 ) QUALIFIELD RESIDENT TAX W H I C H IS A PERCENTAGE OF THE 
FEDERAL TAX 
(A) PERMITTED ADJUSTMENTS.—Section 6362(c) (3) (relat-
ing to permitted adjustments) is amended— 
(i) by striking out "both" and inserting in lieu thereof 
"all", 
(ii) by striking out "and" at the end of subparagraph 
(A), 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1911 
,
.
> 
(iii) by striking out the period at the end of subpara-
graph (B) and inserting in lieu thereof ", and", and 
(iv) by adding at the end thereof the following new 
subparagraph: 
"(C) if a credit is allowed against such tax for State or 
local sales tax in accordance with paragraph (4)(B), the 
. j -. 
liability for tax is increased by the increase in sucn liability 
which would result from including as an item of income an 
amount equal to the amount of his deduction under section 
164(a) (4) for such sales tax." 
(B) FURTHER PERMITTED ADJUSTMENTS.—Section 6362(c) 26 USC 6362. 
(4) (relating to further permitted adjustments) is amended 
to read as follows: 
"(4) FURTHER PERMITTED ADJUSTMENTS.—A tax which other-
wise meets the requirements of paragraphs (1) and (2) shall not 
be deemed to fail to meet such requirements solely because it 
provides for one or both of the following adjustments: 
"(A) A credit determined under rules prescribed by the 
Secretary is allowed against such tax for income tax paid to 
-^.,, , , ^
^
_ 
another State or a political subdivision thereof. 
'" 
^5,," 
"(B) A credit is allowed against such tax for all or a 
portion of any general sales tax imposed by the same State or 
a political subdivision thereof with respect to sales to the 
taxpayer or his dependents." 
(c) 
PROHIBITION ON CHARGES FOR FEDERAL COLLECTION OF STATE 
INCOME TAXES.—Section 6361(a) (relating to general rules for Fed- 26 USC 6361. 
eral collection and administration of State individual income taxes) 
is amended by inserting, after the first sentence thereof, the follow-
ing : "No fee or other charge shall be imposed upon any State for the 
collection or administration of the qualified State individual income 
taxes of such State or any other State.". 
(d) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 6361 
take effect on the date of the enactment of this Act. 
note. 
SEC. 2117. CANCELLATION OF CERTAIN STUDENT LOANS. 
26 USC 61 note. 
(a) IN GENERAL.—In the case of an individual, no amount shall be 
included in gross income for purposes of section 61 of the Internal 
Revenue Code of 1954 by reason of the discharge of all or part of the 
indebtedness of the individual under a student loan if such discharge 
was pursuant to a provision of such loan under which all or part of 
the indebtedness of the individual would be discharged if the individ-
ual worked for a certain period of time in certain geographical areas 
or for certain classes of employers. 
(b) STUDENT LOAN.—For purposes of this section the term "student "Student loan." 
loan" means any loan to an individual to assist the individual in 
attending an educational organization described in section 170(b) (1) 
(A) (ii) of such Code— 
(1) by the United States, or an instrumentality or agency 
thereof, or a State, territory, or possession of the United States, or 
any political subdivision thereof, or the District of Columbia, or 
(2)by any such educational organization pursuant to an agree- 
s 
ment with the United States, or an instrumentality or agency 
thereof, or a State, territory, or possession of the United States, 
or any political subdivision thereof, or the District of Columbia 
under which the funds from which the loan was made were' 
provided to such educational organization. 
'.••.•v\-'-
90 STAT. 1912 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 61 note. 
(c) EFFECTIVE DATE.—The provisions of this section shall apply to 
discharges of indebtedness made before January 1,1979. 
SEC. 2118. TREATMENT OF GAIN OR LOSS ON SALES OR EXCHANGES 
IN CONNECTION WITH SIMULTANEOUS LIQUIDATION OP 
A PARENT AND SUBSIDIARY CORPORATION. 
26 use 337. 
(a) I N GEXERAL.—Section 337 (relating to gain or loss on sales or 
exchanges in connection with certain liquidations) is amended by add-
ing the following sentence at the end of subsection (c)(2) thereof: 
"This paragraph shall not apply to a sale or exchange by a 
_ 
member of an affiliated group of corporations, as defined in sec-
tion 1504(a) (but without regard to the exceptions contained in 
section 1504(b)), if each member of such group (including the 
common parent corporation) which receives, within the 12-month 
period beginning on the date of the adoption of a plan of complete 
liquidation by the corporation which made the sale or exchange, 
a distribution in complete liquidation from any other member of 
such group is itself completely liquidated within such 12-month 
period." 
26 use 337 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
note. 
apply to sales or exchanges made pursuant to a plan of complete 
liquidation adopted after December 31,1975. 
26 use 61 note. 
SEC. 2119. REGULATIONS RELATING TO TAX TREATMENT OF CER-
TAIN PREPUBLICATION EXPENDITURES OF PUBLISH-
ERS. 
(a) GENERAL RULE.—With respect to taxable years beginning on or 
before the date on which regulations dealing with prepublication 
expenditures are issued after the date of the enactment of this Act, the 
application of sections 61 (as it relates to cost of goods sold), 162,174, 
263, and 471 of the Internal Revenue Code of 1954 to any prepublica-
tion expenditure shall be administered— 
(1) without regard to Revenue Ruling 73-395, and 
(2) in the manner in which such sections were applied consist-
ently by the taxpayer to such expenditures before the date of the 
'^'" * 
issuance of such revenue ruling. 
(b) 
REGULATIONS T O B E PROSPECTIVE ONLY.—^Any regulations 
issued after the date of the enactment of this Act which deal with the 
application of sections 61 (as it relates to cost of goods sold), 162,174, 
263, and 471 of the Internal Revenue Code of 1954 to prepublication 
expenditures shall apply only with respect to taxable years beginning 
after the date on which such regulations are issued. 
(c) PREPUBLICATION EXPENDITURES DEFINED.—For purposes of this 
section, the term "prepublication expenditures" means expenditures 
"' 
paid or incurred by the taxpayer (in connection with his trade or busi-
ness of publishing) for the writing, editing, compiling, illustrating, 
designing, or other development or improvement of a book, teaching 
aid, or similar product. 
SEC. 2120. CONTRIBUTIONS IN AID OF CONSTRUCTION FOR CERTAIN 
UTILITIES. 
26 use 118. 
(a) I N GENERAL.—Section 118 (relating to contributions to the cap-
ital of a corporation) is amended by redesignating subsection (b) as 
subsection (c) and inserting immediately after subsection (a) the fol-
lowing new subsection: 
"(b) CONTRIBUTIONS I N A I D OF CONSTRUCTION.— 
Definition. 
"(1) GENERAL RULE.—For purposes of this section, the term 
'contribution to the capital of the taxpayer' includes any amount 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1913 
of money or other property received from any person (whether 
or not a shareholder) by a regulated public utility which provides 
water or sewerage disposal services if— 
"(A) such amount is a contribution in aid of construction, 
"(B) where the contribution is in property which is other 
than water or sewerage disposal facilities, such amount meets 
the requirements of the expenditure rule of paragraph (2), 
and 
"(C) such amounts (or any property acquired or con-
structed with such amounts) are not included in the taxpay-
er's rate base for rate-making purposes. 
"(2) EXPENDITURE RULE.—An amount meets the requirements 
of this paragraph if— 
' '' •' 
"(A) an amount equal to such amount is expended for 
the acquisition or construction of tangible property described 
in section 1231(b)— 
"(i) which was the purpose motivating the contribu-
tion, and 
" (ii) which is used predominantly in the trade or busi-
ness of furnishing water or sewerage disposal services, 
"(B) the expenditure referred to in subparagraph (A) 
occurs before the end of the second taxable year after the 
year in which such amount was received, and 
ij 
"(C) accurate records are kept of the amounts contributed 
and expenditures made on the basis of the project for which 
the contribution was made and on the basis of the year of 
contribution or expenditure. 
"(3) DEFiNrnoNS.—For purposes of this section— 
"(A) CONTRIBUTION IN AID OF CONSTRUCTION.—^The term 
'contribution in aid of construction'shall be defined by regu- 
,, . 
.
^ 
lations prescribed by the Secretary; except that such term 
• 
" 
shall not include amounts paid as customer connection fees 
(including amounts paid to connect the customer's property 
to a main water or sewer line and amounts paid as service 
charges for starting or stopping services). 
"(B) PREDOMINANTLY.—The term 'predominantly' means 
80 percent or more. 
"(C) 
REGULATED PUBLIC UTILITY.—The term 'regulated 
public utility' has the meaning given such term by section 
7701(a) (33); except that such term shall not include any 
such utility which is not required to provide water or sewer-
age disposal services to members of the general public in its 
service area. 
"(4) 
DISALLOWANCE OF DEDUCTIONS AND INVESTMENT CREDIT; 
ADJUSTED BASIS.—Notwithstanding any Other provisiou of this Sub-
title, no deduction or credit shall be allowed for, or by reason 
of, the expenditure which constitutes a contribution in aid of con-
struction to which this subsection applies. The adjusted basis of 
any property acquired with contributions in aid of construction to 
which this subsection applies shall be zero." 
(b) CONFORMING AMENDMENT.—Section 362(c) (relating to special 26 USC 362. 
rule for contributions to capital) is amended by adding the following 
new paragraph immediately after paragraph (2) : 
"(3) 
EXCEPTION FOR CONTRIBUTIONS IN AID OF CONSTRUCTION.— 
The provisions of this subsection shall not apply to contributions 
in aid of construction to which section 118(b) applies." 
Ante, p. 1912. 
(c) EFFECTIVE DATE.—The amendments made by tins section apply 
26 USC 118 
to contributions made after January 31, 1976. 
note. 
90 STAT. 1914 
PUBLIC LAW 94-455—OCT. 4, 1976 
SEC. 2121. PROHIBITION OF DISCRIMINATORY STATE TAXES ON PRO-
DUCTION AND CONSUMPTION OF ELECTRICITY. 
(a) I N GENERAL.—The Act entitled "An Act relating to the power 
of the States to impose net income taxes on income derived from inter-
state commerce, and authorizing studies by congressional committees 
of matters pertaining thereto", approved September 14,1959 (73 Stat. 
555; 15 U.S.C. 381 et seq.) is amended by striking out title I I (relating 
to studies) and inserting in lieu thereof the following: 
"TITLE II—DISCRIMINATORY TAXES 
15 use 391. 
"Sec. 201. No State, or political subdivision thereof, may impose or 
assess a tax on or with respect to the generation or transmission of 
electricity which discriminates against out-of-State manufacturers, 
producers, wholesalers, retailers, or consumers of that electricity. For 
purposes of this section a tax is discriminatory if it results, either 
directly or indirectly, in a greater tax burden on electricity which is 
generated and transmitted in interstate commerce than on electricity 
which is generated and transmitted in intrastate commerce." 
15 use 391 
(b) 
EFFECTIVE DATE.—The amendment made by subsection 
(a) 
note. 
shall take effect beginning June 30, 1974. 
SEC. 2122. ALLOWANCE OF DEDUCTION FOR ELIMINATING ARCHITEC-
TURAL AND TRANSPORTATION 
BARRIERS FOR THE 
HANDICAPPED. 
(a) I N GENERAL.—Part V I of subchapter B of chapter 1 (relating 
to itemized deductions for individuals and corporations) is amended 
by adding at the end thereof the following new section; 
26 use 190. 
"SEC. 190. EXPENDITURES TO REMOVE ARCHITECTURAL AND TRANS-
PORTATION BARRIERS TO THE HANDICAPPED AND 
ELDERLY. 
" (a) TREATMENT AS EXPENSES.— 
"(1) I N GENERAL.—A taxpayer may elect to treat qualified 
architectural and transportation barrier removal expenses which 
are paid or incurred bv him during the taxable year as expenses 
which are not chargeable to capital account. The expenditures so 
treated shall be allowed as a deduction. 
"(2) ELECTION.—An election under paragraph (1) shall be 
made at such time and in such manner as the Secretary prescribes 
by regulations. 
"(b) DEFINITIONS.—For purposes of this section— 
"(1) 
ARCHITECTURAL AND TRANSPORTATION BARRIER REMOVAL 
EXPENSES.—The term 'architectural and transportation barrier 
removal ex{)enses' means an expenditure for the purpose of mak-
ing any facility or public transportation vehicle owned or leased 
by the taxpayer for use in connection with his trade or business 
more accessible to, and usable by, handicapped and elderly 
individuals. 
"(2) QUALIFIED ARCHITECTURAL AND TRANSPORTATION BARRIER 
REMOVAL EXPENSE.—The term 'qualified architectural and trans-
portation barrier removal expense' means, with respect to any 
such facility or public transportation vehicle, an architectural or 
transportation barrier removal expense with respect to which the 
taxpayer establishes, to the satisfaction of the Secretary, that 
the resulting removal of any such barrier meets the standards 
promulgated by the Secretary with the concurrence of the Archi-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1911: 
tectural and Transportation Barriers Compliance Board and 
set forth in regulations prescribed by the Secretary. 
"(3) HANDICAPPED INDIVIDUAL.—The term 'handicapped indi-
vidual' means any individual who has a physical or mental dis-
ability (including, but not limited to, blindness or deafness) which 
for such individual constitutes or results in a functional limita-
tion to employment, or who has any physical or mental impair-
ment 
(including, but not limited to, a sight or hearing 
impairment) which substantially limits one or more major life 
activities of such individual. 
"(c) LIMITATION.—The deduction allowed by subsection (a) for any 
taxable year shall not exceed $25,000. 
"(d) REGULATIONS.—The Secretary shall prescribe such regulations 
as may be necessary to carry out the provisions of this section within 
180 days after the date of the enactment of the Tax Reform Act of 
1976." 
Ante, p. 1520. 
(b) 
TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) The table of sections for such part VI is amended by add-
ing at the end thereof the following new item: 
,, 
s; 
"Sec. 190. Expenditures to remove architectural and transportation bar-
riers to the handicapped and elderly," 
(2) Section 263(a)(1) (relating to capital expenditures) is 26USC263. 
amended— 
(A) by striking out "or" at the end of subparagraph (D) 
thereof, 
(B) by striking out the period at the end of subsection 
(E) thereof and inserting in lieu thereof a comma and the 
word "or", and 
(C) by adding at the end thereof the following new 
subparagraph: 
"(F) expenditures for removal of architectural and trans-
portation barriers to the handicapped and elderly which 
^ 
the taxpayer elects to deduct under section 190." 
(3) Section 1245(a) (relating to gain from dispositions of cer- 26 USC 1245. 
tain depreciable property) is amended— 
(A) by striking out "or 188" each place it appears in para-
graphs (2) and (3) (D) and inserting in lieu thereof "188, or 
190^ 
(B) by striking out "or 185" in paragraph (2) (D) and 
inserting in lieu thereof "185, or 190"; and 
(C) by adding at the end of paragraph (2) the following 
new sentence: "For purposes of this section, any deduction 
allowable under section 190 shall be treated as if it were a 
deduction allowable for amortization." 
(4) Section 1250(b) (3) (relating to depreciation adjustments) 
26 USC 1250. 
is amended by striking out "or 188" and inserting in lieu thereof 
"188, or 190". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 190 
apply to taxable years beginning after December 31,1976, and before note. 
January 1,1980. 
SEC. 2123. HIGH INCOME TAXPAYER REPORT. 
26 USC 56 note. 
The Secretary of the Treasury shall publish annually information 
on the amount of tax paid by individual taxpayers with high total 
incomes. Total income for this purpose is to be calculated and set forth 
in three ways: 
90 STAT. 1916 
PUBLIC LAW 94-455—OCT. 4, 1976 
(1) by adding to adjusted gross income any items of tax pref-
erence excluded from, or deducted in arriving at, adjusted gross 
income, 
(2) by subtracting any investment expenses incurred in the 
production of such, income to the extent of the investment income, 
and 
(3) by making both of the adjustments referred to in para-
graphs (1) and (2). 
In any event these data are to include the number of such individuals 
with total income over $200,000 who owe no Federal income tax (after 
credits) and the deductions, exclusions or credits used by them to 
avoid tax. 
SEC. 2124. TAX INCENTIVES TO ENCOURAGE THE PRESERVATION OF 
HISTORIC STRUCTURES. 
(a) AMORTIZATION or REHABILITATION EXPENDITURES.— 
(1) ALLOWANCE OF DEDUCTION.—Part V I of subchapter B of 
chapter 1 (relating to itemized deductions) is amended by adding 
at the end thereof the following new section: 
26 use 191. 
"SEC. 191. AMORTIZATION OF CERTAIN REHABILITATION EXPENDI-
TURES FOR CERTIFIED HISTORIC STRUCTURES. 
"(a) ALLOWANCE or DEDUCTION.—Every person, at his election, 
V 
shall be entitled to a deduction with respect to the amortization of the 
amortizable basis of any certified historic structure (as defined in 
subsection (d)) based on a period of 60 months. Such amortization 
deduction shall be an amount, with respect to each month of such 
period within the taxable year, equal to the amortizable basis at the 
end of such month divided by the number of months (including the 
month for which the deduction is computed) remaining in the period. 
Such amortizable basis at the end of the month shall be computed 
without regard to the amortization deduction for such month. The 
amortization deduction provided by this section with respect to any 
month shall be in lieu of the depreciation deduction with respect to 
such basis for such month provided by section 167. The 60-month 
period shall begin, as to any historic structure, at the election of the 
taxpayer, with the month following the month in which the basis is 
acquired, or with the succeeding taxable year. 
" ( b ) ELECTION OF AMORTIZATION.—The election of the taxpayer to 
take the amortization deduction and to begin the 60-month period 
with the month following the month in which the basis is acquired, or 
with the taxable year succeeding: the taxable year in which such basis 
is ac(iuired, shall be made by filing with the Secretary, in such man-
ner, in such form, and within such time as the Secretary may by regu-
lations prescribe, a statement of such election. 
"(c) TERMINATION or AMORTIZATION DEDUCTION.—A taxpayer who 
has elected under subsection (b) to take the amortization deduction 
provided in subsection (a) may, at any time after making such election, 
discontinue the amortization deduction with respect to the remainder 
of the amortization period, such discontinuance to begin as of the 
beginning of any month specified by the taxpayer in a notice in writ-
ing filed with the Secretary before the beginning of such month. The 
depreciation deduction provided under section 167 shall be allowed, 
beginning with the first month as to which the amortization deduction 
does not apply, and the taxpayer shall not be entitled to any further 
amortization deduction under this section with respect to such certified 
historic structure. 
\ 
. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1917 
"(d) DEFINITIONS.—For purposes of this section— 
"(1) CERTIFIED HISTORIC STRUCTURE.—The term 'certified his-
toric structure' means a building or structure which is of a char-
acter subject to the allowance for depreciation provided in section 
167 which— 
" (A) is listed in the National Register, 
" ( B ) is located in a Registered Historic District and is 
certified by the Secretary of the Interior as being of historic 
significance to the district, or 
"(C) is located in an historic district designated under a 
statute of the appropriate State or local government if such 
,, , ,; 
statute is certified by the Secretary of the Interior to the Sec-
retary as containing criteria which will substantially achieve 
the purpose of preserving and rehabilitating buildings of his-
toric significance to the district. 
"(2) AMORTIZABLE BASIS.—The term 'amortizable basis' means 
the portion of the basis attributable to amounts expended in con-
nection with certified rehabilitation. 
"(3) CERTIFIED REHABILITATION.—^The term'certified rehabilita-
tion' means any rehabilitation of a certified historic structure 
which the Secretary of the Interior has certified to the Secretary 
as being consistent with the historic character of such property or 
the district in which such property is located. 
"(e) DEPRECIATION DEDUCTION.—The depreciation deduction pro-
vided by section 167 shall, despite the provisions of subsection (a), 
be allowed with respect to the portion of the adjusted basis which is 
not the amortizable basis. 
"(f) 
L I F E 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. 
"(g) 
CROSS REFERENCES.— 
"(1) For rules relating to the listing of buildings and structures in 
the National Register and for definitions of 'National Register* and 
'Registered Historic District', see section 470 et seq. of title 16 of the 
United States Code. 
"(2") For special rule with respect to certain gain derived from the dis-
position of property the adjusted basis of which is determined with 
regard to this section, see section 1245." 
(2) GAIN ON DISPOSITION.—Section 1245(a) (relating to gain 
26 USC 1245. 
from dispositions of certain depreciable property) is amended by 
strikina: out "or 190" each place it appears and inserting in lieii 
thereof "190, or 191". 
(3) CONFORMING AMENDMENTS.—• 
(A) The table of sections for part V I of subchapter B of 
chapter 1 is amended by inserting at the end thereof the fol-
lowing new item: 
"Sec. 191. Amortization of certain rehabilitation expenditures for certi-
fied historic structures." 
(B) Section 642(f) (relating to amortization deductions 
26 USC 642. 
of estates and trust) is amended by striking out "and 188" 
and inserting in lieu thereof "188, and 191". 
(C) Section 1082(a) (2) (B) (relating to basis for deter- 
26 USC 1082. 
mining gain or loss) is amended by striking out "or 188" and 
inserting in lieu thereof "188, or 191". 
89-194 O—78—pt. 2 
29 
90 STAT. 1918 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 1250. 
Ante, pp. 1914, 
1916. 
26 use 191 
note. 
26 use 280B. 
26 use 280B 
note. 
26 use 167. 
"Reasonable 
allowance." 
26 use 167 
note. 
(D) Section 1250(b) (3) (relating to depreciation adjust-
ments) is amended by striking out "or 190" and inserting in 
lieu thereof "190 or 191". 
(4) EFFECTIVE DATE.—The amendments made by this subsec-
tion shall apply with respect to additions to capital account made 
after June 14,1976 and before June 15,1981. 
(b) DEMOLITION.— 
(1) DISALLOWANCE OF DEDUCTIONS.—Part I X of subchapter B 
of chapter 1 (relating to items not deductible) is amended by add-
ing at the end thereof the following new section: 
"SEC. 280B. DEMOLITION OF CERTAIN HISTORIC STRUCTURES. 
"(a) GENERAL R U L E . — I n the case of the demolition of a certified 
historic structure (as defined in section 191 ( d ) ( 1 ) ) — 
"(1) no deduction otherwise allowable under this chapter shall 
be allowed to the owner or lessee of such structure for— 
"(A) any amount expended for such demolition, or 
" ( B ) any loss sustained on account of such demolition; and 
"(2) amounts described in paragraph (1) shall be treated as 
properly chargeable to capital account with respect to the land 
on which the demolished structure was located. 
"(b) SPECIAL RULE FOR REGISTERED HISTORIC DISTRICTS.—For pur-
poses of this section, any building or other structure located in a Regis-
tered Historic District shall be treated as a certified historic structure 
unless the Secretary of the Interior has certified, prior to the demoli-
tion of such structure, that such structure is not of historic significance 
to the district." 
(2) CLERICAL AMENDMENT.—The table of sections for part I X 
of subchapter B of chapter 1 is amended by adding at the end 
thereof the following new item: 
"Sec. 280B. Demolition of certain historic structures." 
(3) EFFECTIVE DATE.—The amendments made by this subsection 
shall apply with respect to demolitions commencing 
after 
June 30, 1976, and before January 1, 1981. 
(c) DEPRECIATION OF IMPROVEMENTS.— 
(1) METHOD OF DEPRECIATION.—Section 167 (relating to depre-
ciation) is amended by redesignating subsection (n) as (p), and 
by inserting after subsection (m) the following new subsection: 
" ( n ) STRAIGHT L I N E METHOD I N CERTAIN CASES.— 
"(1) I N GENERAL.—In the case of any property in whole or in 
part constructed, reconstructed, erected, or used on a site which 
was, on or after June 30, 1976, occupied by a certified historic 
structure (as defined in section 191(d) (1)) which is demolished 
or substantially altered (other than by virtue of a certified reha-
bilitation as defined in section 191(d) (3)) after such date— 
" ( A ) subsections (b), (j), (k), and (1) shall not apply, 
"(B) the term 'reasonable allowance' as used in subsection 
(a) shall mean only an allowance computed under the straight 
line method. 
"(2) EXCEPTION.—The limitations imposed by this subsection 
shall not apply to personal property." 
(2) EFFECTIVE DATE.—The amendment made by this subsection 
shall apply to that portion of the basis which is attributable to 
construction, reconstruction, or erection after December 31, 1975, 
and before January 1, 1981. 
(d) SUBSTANTIALLY REHABILITATED PROPERTY.— 
(1) Section 167 (relating to depreciation) is amended by insert-
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1919 
ing" after subsection (n) (as added by subsection (c) of this 
section) the following new subsection: 
"(o) SUBSTANTIALLY REHABILITATED HISTORIC PROPERTY.— 
" (1) GENERAL RULE.—Pursuant to regulations prescribed by the 
y 
Secretary, the taxpayer may elect to compute the depreciation 
deduction attributable to substantially rehabilitated historic prop-
erty as though the original use of such property commenced with 
him. The election shall be effective with respect to the taxable year 
' 
referred to in paragraph (2) and all succeeding taxable years. 
"(2) 
SUBSTANTIALLY REHABILITATED PROPERTY.—For purposes 
of paragraph (1), the term 'substantially rehabilitated historic 
property' means any certified historic structure (as defined in sec- 
.i-
tion 191(d) (1)) with respect to which the additions to capital 
Ante, p. 1916. m 
account for any certified rehabilitation (as defined in section 
191(d)(3)) during the 24-month period ending on the last day of 
any taxable year, reduced by any amounts allowed or allowable as 
depreciation or amortization with respect thereto, exceeds the 
greater of— 
,, ,„i. 
" (A) the adjusted basis of such property, or 
" ( B ) $5,000. 
_ 
,: 
v.|. 
The adjusted basis of the property shall be determined as of the 
beginning of the first day of such 24-month period, or of the hold-
ing period of the property (within the meaning of section 1250 
,.-
(e)), whichever is later." 
(2) EFFECTIVE DATE.—The amendment made by this subsection 
26 USC 167 
shall apply with respect to additions to capital account occurring 
note, 
after June 30,1976, and before July 1, 1981. 
at 
(e) TRANSFERS OF PARTIAL INTERESTS I N PROPERTY FOR CONSERVA-
TION PURPOSES.— 
(1) INCOME TAX DEDUCTIONS FOR CHARITABLE CONTRIBUTIONS OF 
PARTIAL INTERESTS I N PROPERTY FOR CONSERVATION PURPOSES. 
SEC-
tion 
170(f)(3) 
(relating 
to 
charitable 
contributions) 
is 26 USC 170. 
amended— 
(A) by striking out "or" at the end of subparagraph 
( B ) ( i ) , 
(B) by striking out "property.", at the end of subpara-
graph (B) (ii) and inserting in lieu thereof "property, , 
(C) by adding after clause (ii) of subparagraph (B) the 
following new clauses: 
"(iii) a lease on, option to purchase, or easement with 
respect to real property of not less than 30 years' dura-
tion granted to an organization described in subsection 
( b ) ( 1 ) ( A ) exclusively for conservation purposes, or 
"(iv) a remainder interest in real property which is 
granted to an organization described in subsection (b) 
(1)(A) exclusively for conservation purposes.", and 
(D) by adding at the end thereof the following new sub-
paragraph : 
"(C) 
CONSERVATION PURPOSES DEFINED.—For purposes of 
subparagraph ( B ) , the term 'conservation purposes' means—• 
"(i) the preservation of land areas for public outdoor 
recreation or education, or scenic enjoyment; 
"(ii) the preservation of historically important land 
areas or structures; or 
"(iii) the protection of natural environmental systems.". 
(2) ESTATE TAX DEDUCTION FOR TRANSFER OF PARTIAL INTERESTS 
IN PROPERTY FOR CONSERVATIONS PURPOSES.—Section 2055(e)(2) 
26 USC 2055. 
90 STAT. 1920 
PUBLIC LAW 94-455—OCT. 4, 1976 
(relating to deductions from gross estate) is amended by strik-
ing out "(other than a remainder interest in a personal residence 
or farm or an undivided portion of the decedent's entire interest 
in property)" and inserting in lieu thereof "(other than an inter-
Ante, p. 1919. 
^gt described in section 170(f) (3) (B))». 
(3) G I F T TAX DEDUCATION FOR TRANSFERS OF PARTIAL INTERESTS I N 
26 use 2522. 
PROPERTY 
FOR 
CONSERVATION 
PURPOSES.—Section 
2522(c)(2) 
(relating to deductions from taxable gifts) is amended by strik-
ing out "(other than a remainder interest in a personal residence 
or farm or an undivided portion of the donor's entire interest in 
property)" and inserting in lieu thereof "(other than an inter-
26 use 170 
^^ described in section 170(f) (3) ( B ) ) " . 
jjQ^g 
(4) EFFECTIVE DATE.—The amendments made by this subsection 
shall apply with respect to contributions or transfers made after 
June 13,1976, and before June 14,1977. 
SEC. 2125. AMENDMENT TO SUPPLEMENTAL SECURITY INCOME 
PROGRAM. 
Ante, p. 782. 
Section 1612(a) (2) (A) (iii) of the Social Security Act is amended 
by striking out "fifth month" and inserting in lieu thereof "seven-
42 use 1382a. 
teenth month". 
SEC. 2126. EXTENSION OF CARRY-OVER PERIOD FOR CUBAN EXPRO-
PRIATION LOSSES 
26 use 172. 
Subparagraph (D) of section 172(b) (1) (relating to years to which 
loss may be carried) is amended by striking out "15" and inserting in 
lieu thereof "20". 
26 use 1033. 
SEC. 2127. OUTDOOR ADVERTISING DISPLAYS. 
(a) I N GENERAL.—Section 1033(g) (relating to condemnation of 
real property held for productive use in trade or business or for invest-
ment) is amended by adding at the end thereof the following new 
paragraph: 
"(3) ELECTION TO TREAT OUTDOOR ADVERTISING DISPLAYS AS REAL 
PROPERTY. 
"(A) I N GENERAL.—^A taxpayer may elect, at such time 
and in such manner as the Secretary may prescribe, to treat 
property which constitutes an outdoor advertising display 
as real property for purposes of this chapter. The election 
provided by this subparagraph may not be made with respect 
to any property with respect to which the credit allowed by 
section 38 (relating to investment in certain depreciable 
property) is or has been claimed or with respect to which 
an election under section 179(a) (relating to additional first-
year depreciation allowance for small business) is in effect. 
"(B) ELECTION.—An election made under subparagraph 
(A) may not be revoked without the consent of the Secretary. 
" ( C ) OUTDOOR ADVERTISING DISPLAY.—For purposes of this 
paragraph, the term 'outdoor advertising display' means a 
^ 
rigidly assembled sign, display, or device permanently affixed 
to the ground or permanently attached to a building or other 
inherently permanent structure constituting, or used for the 
display of, a commercial or other advertisement to the public. 
" ( D ) CHARACTER OF REPLACEMENT PROPERTY.—For purposes 
of this subsection, an interest in real property purchased as 
replacement property for a compulsorily or involuntarily con-
verted outdoor advertising display defined in subparagraph 
(C) (and treated by the taxpayer as real property) shall oe 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1921 
considered property of a like kind as the property converted 
without regard to whether the taxpayer's interest in the 
replacement property is the same kind of interest the tax-
payer held in the converted property." 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
26 USC 1033 
apply to taxable years beginning after December 31, 1970. 
note. 
SEC. 2128. TAX TREATMENT OF LARGE CIGARS. 
(a) I N GENERAL.—So much of section 5701(a) (relating to the 
26 USC 5701. 
manner of taxation and the rates of tax on cigars) as follows para-
graph (1) is amended to read as follow^: 
"(2) LARGE CIGARS.—On cigars weighing more than 3 pounds 
per thousand, a tax equal to 81/^ percent of the wholesale price, 
but not more than $20 per thousand. 
Cigars not exempt from tax under this chapter which are removed but 
not intended for sale shall be taxed at the same rate as similar cigars 
removed for sale." 
(b) DEFINITION OF WHOLESALE PRICE.—Section 5702 is amended by 
26 USC 5702. 
adding at the end thereof the following new subsection: 
"(m) WHOLESALE PRICE.—'Wholesale price' means the manufactur-
er's, or importer's, suggested delivered price at which the cigars are to 
be sold to retailers, inclusive of the tax imposed by this chapter or sec-
tion 7652, but exclusive of any State or local taxes imposed on cigars 
as a commodity, and before any trade, cash, or other discounts, or any 
promotion, advertising, display, or similar allowances. Where the 
manufacturer's or importer's suggested delivered price to retailers is 
, 
« 
not adequately supported by bona fide arm's length sales, or where the 
manufacturer or importer has no suggested delivered price to retailers, 
the wholesale price shall be the price for which cigars of comparable 
retail price are sold to retailers in the ordinary course of trade as 
determined by the Secretary." 
(c) RECORDKEEPING REQUIREMENT.—Section 5741 is amended to read 
as follows: 
"SEC. 5741. RECORDS TO BE MAINTAINED. 
26 USC 5741, 
"Every manufacturer of tobacco products or cigarette papers and 
tubes, every importer, and every export warehouse proprietor shall 
keep such records in such manner as the Secretary shall by regulation 
prescribe. The records required under this section shall be available 
for inspection by any internal revenue officer during business hours." 
(d) CLERICAL AMENDMENTS.— 
(1) The heading of subchapter D of chapter 52 is amended to 
read as follows: 
"Subchapter D—Records of Manufacturers and Importers of 
Tobacco 
Products 
and 
Cigarette 
Papers and 
Tubes, 
and 
Export Warehouse Proprietors". 
(2) The table of subchapters for chapter 52 is amended by 
striking out the item relating to subchapter D and inserting in 
lieu thereof the following: 
"SxjBCHAPTEE D. Records of manufacturers and importers of tobacco 
products and cigarette papers and tubes, and export 
warehouse proprietors." 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 5701 
take effect on the first month which begins more than 90 days after the 
note. 
date of the enactment of this Act. 
90 STAT. 1922 
PUBLIC LAW 94-455—OCT. 4, 1976 
SEC. 2129. TREATMENT OF GAIN FROM SALES OR EXCHANGES 
BETWEEN RELATED PARTIES. 
(a) I x GEXERAL.—Section 1239 (relating to gain from sale of cer-
tain property between spouses or between an individual and a con-
trolled corporation) is amended to read as follows: 
26 use 1239. 
"SEC. 1239. GAIN FROM SALE OF DEPRECIABLE PROPERTY BETWEEN 
CERTAIN RELATED TAXPAYERS. 
*'^ 
"(a) 
TREATMKXT OF GAIX AS ORDINARY IXCOME,—In the case of a 
sale or exchange of property, directly or indirectly, between related 
persons, any gain recognized to the transferor shall be treated as ordi-
nary income if such property is, in the hands of the transferee, sub-
ject to the allowance lor depreciation provided in section 167. 
"(b) RELATED PERSOXS.—For purposes of subsection (a), the term 
'related persons' means— 
"(1) a husband and wife, 
" (2) an individual and a corporation 80 percent or moi'e in value 
-' 
of the outstanding stock of which is owned, directly or indirectly, 
by or for such individual, or 
"(3) two or more corporations 80 percent or more in value of 
the outstanding stock of each of which is owned, directly or 
indirectly, by or for the same individual. 
"(c) CONSTRUCTIVE OWNERSHIP OF STOCK.—Section 318 shall apply 
in determining the ownership of stock for purposes of this section, 
except that sections 318(a) (2) (C) and 318(a) (3) (C) shall be applied 
26 use 1239 
without regard to the 50-percent limitation contained therein." 
note. 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
apply to sales or exchanges after the date of the enactment of this Act. 
For purposes of the preceding sentence, a sale or exchange is considered 
to have occurred on or before such date of enactment if such sale or 
exchange is made pursuant to a binding contract entered into on or 
before that date. 
SEC. 2130. APPLICATION OF SECTION 117 TO CERTAIN EDUCATION 
' ^
^
^
< ' 
PROGRAMS FOR MEMBERS OF THE UNIFORMED SERVICES. 
Subsection (c) of section 4 of the Act entitled an Act to suspend 
until the close of June 30. 1975, the duty on certain carboxymethyl 
26 use 117 
cellulose salts, and for otlier purposes, approved October 26, 1974 (88 
note 
Stat. 1457; Public Law 93-483). is amended by striking out "and 
1975'' and inserting in lieu thereof the following: "and 1975, and, in 
the case of a member of a uniformed service receiving training in 
^ 
programs described in subsection (a) during calendar year 1976, with 
respect to amounts received during calendar years 1976,1977,1978, and 
1979." 
SEC. 2131. EXCHANGE FUNDS. 
26 use 368. 
(a) CORPORATE REORGANIZATIONS.—Paragraph (2) of section 368(a) 
(special rules relating to definition of reorganization) is amended by 
adding at the end thereof the following new subparagraph: 
" ( F ) 
CERTAIN TR^VNSACTIOXS IXVOLVIXG 2 OR MORE IX\I-:ST-
MEXT COMPAXIES. 
"(i) If immediately before a transaction described in 
paragraph (1) (other than subparagraph (E) thereof), 
, / . 
2 or more parties to the transaction were investment com-
•*' ' 
panics, then the transaction shall not be considered to be 
a reorganization with respect to any such investment 
company (and its shareholders and security holders) 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1923 
unless it was a regulated investment company, a real 
estate investment trust, or a corporation which meets the 
requirements of clause (ii). 
"(ii) A corporation meets the requirements of this 
clause if not more than 25 percent of the value of its total 
assets is invested in the stock and securities of any one 
issuer, and not more than 50 percent of the value of its 
total assets is invested in the stock and securities of 5 or 
fewer issuers. For purposes of this clause, all members of 
a controlled group of corporations (within the meaning 
of section 1563 (a)) shall be treated as one issuer. 
26 USC 1563. 
"(iii) For purposes of this subparagraph the term "Investment 
'investment company' means a regulated investment com- company." 
pany, a real estate investment trust, or a corporation 
more than 50 percent of the value of whose total assets 
are stock and securities and more than 80 percent of the 
value of whose total assets are assets held for investment. 
In making the 50-percent and 80-percent determinations 
under the preceding sentence, stock and securities in any 
subsidiary corporation shall be disregarded and the par-
ent corporation shall be deemed to own its ratable share 
of the subsidiary's assets, and a corporation shall be 
considered a subsidiary if the parent owns 50 percent or 
more of the combined voting power of all classes of stock 
entitled to vote, or 50 percent or more of the total value 
of shares of all classes of stock outstanding. 
"(iv) For purposes of this subparagraph, in deter- Total assets, 
mining total assets there shall be excluded cash and cash 
items (including receivables). Government securities, 
and, under regulations prescribed by the Secretary, assets 
acquired (through incurring indebtedness or otherwise^ 
for purposes of meeting the requirements of clause (ii) 
or ceasing to be an investment company. 
" (v) This subparagraph shall not apply if the stock of 
each investment company is owned substantially by the 
same persons in the same proportions. 
"(vi) If an investment company which is not diversi-
fied within the meaning of clause (ii) acquires assets of 
another corporation, clause (i) shall be applied to such 
investment company and its shareholders and security 
holders as though its assets had been acquired by such 
' 
other corporation. If such investment company acquires 
' 
stock of another corporation in a reorganization described 
in section 368(a)(1)(B) (hereafter referred to as the 
'actual acquisition'), clause (i) shall be applied to the 
shareholders and security holders of such investment com-
pany as though they had exchanged with such other cor-
poration all of their stock in such investment company 
for a percentage of the value of the total outstanding 
stock of the other corporation equal to the percentage of 
ft-
the value of the total outstanding stock of such invest-
ment company which such shareholders own immediately 
after the actual acquisition. For purposes of section 1001, 
the deemed acquisition or exchange referred to in the two 
preceding sentences shall be treated as a sale or exchange 
of property by the corporation and by the shareholders 
and security holders to which clause (i) is applied." 
90 STAT. 1924 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 721. 
(b) PARTNERSHIPS.—Section 721 (relating to nonrecognition of gain 
or loss on transfers to partnerships) is amended to read as follows: 
"SEC. 721. NONRECOGNITION OF GAIN OR LOSS ON CONTRIBUTION. 
" (a) GENERAL RULE.—No gain or loss shall be recognized to a part-
nership or to any of its partners in the case of a contribution of prop-
erty to the partnership m exchange for an interest in the partnership. 
"(b) SPECIAL EULE.—Subsection (a) shall not apply to gain realized 
on a transfer of property to a partnership which would be treated as an 
investment company (within the meaning of section 351) if the part-
nership were incorporated." 
^^ use 722, 
(c) CONFORMING AMENDMENT.—Sections 722 and 723 (relating to 
tax basis) are each amended by striking out "contribution." and insert-
ing in lieu thereof "contribution increased by the amount (if any) of 
gain recognized to the contributing partner at such time." 
26 use 584. 
((J) COMMON TRUST FUNDS.—Subsection (e) of section 584 (relating 
to admission to and withdrawal from a common trust fund) 
is 
amended by inserting after the first sentence the following new sen-
tence : "The admission of a participant shall be treated with respect to 
the participant as the purchase of, or an exchange for, the participat-
ing interest." 
26 use 683 
^^^ TRUSTS. 
• 
(1) I N GENERAL.—Section 683 (relating to applicability of pro-
visions) is amended to read as follows; 
"SEC. 
6
8
3
. 
USE 
OF 
TRUST 
AS 
AN 
EXCHANGE 
FUND. 
"(a) 
GENERAL RULE.—Except as provided in subsection (b), if 
property is transferred to a trust in exchange for an interest in other 
trust property and if the trust would be an investment company 
(within the meaning of section 351) if it were a corporation, then 
X 
gain shall be recognized to the transferor. 
"(b) 
EXCEPTION FOR POOLED INCOME FUNDS.—Subsection (a) shall 
not apply to any transfer to a pooled income fund (within the mean-
ing of section 642(c) (5))." 
(2) CONFORMING AMENDMENT.—The table of sections for sub-
part F of part I of subchapter J of chapter 1 is amended by 
striking out the item relating to section 683 and inserting in lieu 
thereof the following: 
"Sec. 683. Use of trust as an exchange fund." 
(f) EFFECTIVE DATES.— 
26 use 368 
(1) Except as provided in paragraph (2), the amendment 
note. 
made by subsection (a) shall apply to transfers made after 
February 17, 1976, in taxable years ending after such date. 
(2) The amendment made by subsection (a) shall not apply 
to transfers made in accordance with a ruling issued by the 
Internal Revenue Service before February 18, 1976, holding that 
a proposed transaction would be a reorganization described in 
paragraph (1) of section 368(a) of the Internal Revenue Code 
of 1954. 
26 use 721 
(3) Except as provided in paragraph (4), the amendments 
note. 
made by subsections (b) and (c) shall apply to transfers made 
after February 17, 1976, in taxable years ending after such date. 
(4) The amendments made by subsections (b) and (c) shall 
not apply to transfers to a partnership made on or before the 
90th day after the date of the enactment of this Act if— 
(A) either— 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1925 
(i) a ruling request with respect to such transfers 
was filed with the Internal Revenue Service before 
March 27,1976, or 
(ii) a registration statement with respect to such 
transfers was filed with the Securities and Exchange 
f 
Commission before March 27,1976, 
(B) the securities transferred were deposited on or before 
the 60th day after the date of the enactment of this Act, and 
(C) either— 
(i) the aggregate value (determined as of the close of 
the 60th day referred to in subparagraph (B), or, if 
' " 
earlier, the close of the deposit period) of the securities 
so transferred does not exceed $100,000,000, or 
(ii) the securities transferred were all on deposit on 
February 29, 1976, pursuant to a registration statement 
referred to in subparagraph (A) (ii). 
(5) If no registration statement was required to be filed with 26 USC 721 
the Securities and Exchange Commission with respect to the note, 
transfer of securities to any partnership, then paragraph (4) 
shall be applied to such transfers— 
(A) as if paragraph (4) did not contain subparagraph 
(A) (ii) thereof, and 
(B) by substituting "$25,000,000" for "$100,000,000" in 
subparagraph (C) (i) thereof. 
(6) The amendments made by subsections (d) and (e) shall 26 USC 584 
take effect on April 8, 1976, in taxable years ending on or after note, 
such date. 
SEC. 2132. CONTRIBUTIONS OF CERTAIN GOVERNMENT PUBLICATIONS. 
(a) I N GENERAL.—Section 1221 (relating to definition of capital 26 USC 1221. 
asset) is amended by— 
(1) striking out "or" at the end of paragraph (4); 
(2) striking out the period at the end of paragraph (5) and 
inserting in lieu thereof "; or", and 
(3) adding after paragraph (5) the following new paragraph: 
"(6) a publication of the United States Government (including 
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) a taxpayer who so received such publication, or 
"(B) a taxpayer in whose hands the basis of such publica-
tion is determined, for purposes of determining gain from a 
sale or exchange, in whole or in part by reference to the basis ^ 
of such publication in the hands of a taxpayer described in 
subparagraph (A).". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC 1221 
shall apply to sales, exchanges, and contributions made after the date note. 
of enactment of this Act. 
SEC. 2133. TAX INCENTIVES STUDY. 
26 USC 8022 
(a) STUDY.—The Joint Committee on Taxation, in consultation note, 
with the Treasury, shall make a full and complete study and compara-
tive analysis of the cost effectiveness of different kinds of tax incentives, 
including an analysis and study of the most effective way to use tax 
cuts in a period of business recession to provide a stimulus to the 
economy. 
90 STAT. 1926 
\ 
PUBLIC LAW 94-455—OCT. 4, 1976 
(b) REPORT.—The Joint Committee on Taxation shall submit to the 
Committee on Finance of the Senate and to the Committee on Ways 
and Means of the House of Representatives a final report of its study 
and investigation together with its recommendations, including recom-
mendations for legislation, as it deems advisable. 
(c) REPORTING DATE.—The final report called for in subsection (b) 
of this section shall be submitted no later than September 30,1977. 
, 
SEC. 2134. PREPAID LEGAL EXPENSES. 
(a) EXCLUSION.—Part I I I of subchapter B of chapter 1 is amended 
by inserting after section 119 the following new section: 
26 use 120. 
"SEC. 120. AMOUNTS RECEIVED UNDER QUALIFIED GROUP LEGAL 
SERVICES PLANS. 
"(a) 
EXCLUSION BY EMPLOYEE FOR CONTRIBUTIONS AND LEGAL SERV-
ICES PROVIDED BY EMPLOYER.—Gross income of an employee, his spouse, 
or his dependents, does not include— 
"(1) amounts contributed by an employer on behalf of an 
employee, his spouse, or his dependents under a qualified group 
legal services plan (as defined in subsection ( b ) ) ; or 
" (2) the value of legal services provided, or amounts paid for 
legal services, under a qualified group legal services plan (as 
defined in subsection (b)) to, or with respect to, an employee, his 
spouse, or his dependents. 
"(b) QUALIFIED GROUP LEGAL SERVICES P L A N . — F o r purposes of 
this section, a qualified group legal services plan is a separate written 
plan of an employer for the exclusive benefit of his employees or their 
spouses or dependents to provide such employees, spouses^ or depend-
ents with specified benefits consisting of personal legal services through 
prepayment of, or provision in advance for, legal fees in whole or in 
part by the employer, if the plan meets the requirements of subsec-
tion (c). 
"(c) REQUIREMENTS.— 
"(1) DISCRIMINATION.—The contributions or benefits provided 
under the plan shall not discriminate in favor of employees who 
are officers, shareholders, self-employed individuals, or highly 
compensated. 
"(2) ELIGIBILITY.—The plan shall benefit employees who qual-
ify under a classification set up by the employer and found by 
the Secretary not to be discriminatory in favor of employees who 
are described in paragraph (1). For purposes of this paragraph, 
there shall be excluded from consideration employees not included 
in the plan who are included in a unit of employees covered by 
an agreement which the Secretary of Labor finds to be a collec-
tive bargaining agreement between employee representatives and 
one or more employers, if there is evidence that group legal serv-
ices plan benefits were the subject of good faith bargaining 
!S J >' 
between such employee representatives and such employer or 
employers. 
"(3) CONTRIBUTION LIMITATION.—Not more than 25 percent of 
the amounts contributed under the plan 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) NOTIFICATION.—The plan shall give notice to the Secre-
tary, in such manner as the Secretary may by regulations pre-
- 
scribe, that it is applying for recognition of the status of a 
qualified group legal services plan. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1927 
"(5) 
CONTRIBUTIONS.—Amounts contributed under the plan 
shall be paid only (A) to insurance companies, or to organiza-
tions or persons that provide personal legal services, or indem-
nification against the cost of personal legal services, in exchange 
for a prepayment or payment of a premium, (B) to organizations 
or trusts described in section 501(c) (20), (C) to organizations Infra. 
described in section 501(c) which are permitted by that section 
to receive payments from an employer for support of one or more 
qualified group legal services plan or plans, except that such 
organizations shall pay or credit the contribution to an organiza-
tion or trust described in section 501(c) (20), (D) as prepayments 
to providers of legal services under the plan, or (E) a combina- 
^ 
tion of the above. 
'"^ ' ' . ; 
" ( d ) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
"(1) 
SELF-EMPLOYED INDIVIDUAL; EMPLOYEE.—The term 'self-
employed individual' means, and the term 'employee' includes, 
for any year, an individual who is an employee within the mean-
ing of section 401(c) (1) (relating to self-employed individuals). 
"(2) EMPLOYER.—An individual who owns the entire interest 
in an unincorporated trade or business shall be treated as his own 
employer. A partnership shall be treated as the employer of each 
partner who is an employee within the meaning of paragraph (1). 
' 
"(3) ALLOCATIONS.— Allocations of amounts contributed under 
the plan shall be made in accordance with regulations prescribed 
by the Secretary and shall take into account the expected relative 
utilization of benefits to be provided from such contributions or 
plan assets and the manner in which any premium or other charge 
was developed. 
" (4) DEPENDENT.—The term 'dependent' has the meaning given 
"Dependent." 
to it by section 152. 
"(5) EXCLUSIVE BENEFIT.—In the case of a plan to which con-
tributions are made by more than one employer, in determining 
whether the plan is for the exclusive benefit of an employer's 
employees or their spouses or dependents, the employees of any 
employer who maintains the plan shall be considered to be the 
employees of each employer who maintains the plan. 
"(6) ATTRIBUTION RULES.—For purposes of this section— 
"(A) ownership of stock in a corporation shall be deter-
mined in accordance with the rules provided under subsec-
tions (d) and (e) of section 1563 (without regard to section 
^ 
1563(e)(3)(C)), and 
" ( B ) 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 ) . 
" (7) T I M E OF NOTICE TO SECRETARY.—A plan shall not be a quali-
fied group legal services plan for any period prior to the time 
notification was provided to the Secretary in accordance with 
subsection (c) (4), if such notice is given after the time prescribed 
by the Secretary by regulations for giving such notice." 
(b) EXEMPT STATUS.—Section 501(c) (relating to exempt organi- 
26 USC 501. 
zations) is amended by adding at the end thereof the following new 
paragraph: 
"(20) an organization or trust created or organized in the 
United States, the exclusive function of which is to form part of 
\r 'tfiJ^ ' ««*-5P'^L,-V^,«S - >J 
90 STAT. 1928 
PUBLIC LAW 94-455—OCT. 4, 1976 
26 use 120 
note. 
Report to 
President and 
Congress. 
26 use 120 
note. 
a qualified group legal services plan or plans, within the meaning 
Ante, p. 1926. 
of section 120. An organization or trust which receives contribu-
tions because of section 120(c) (5) (C) shall not be prevented from 
Ante, p. 1927. 
qualifying as an organization described in section 501(c) (20) 
merely because it provides legal services or indemnification 
against the cost of legal services unassociated with a qualified 
group legal services plan." 
(c) TECHNICAL AMENDMENT.—The table of sections for part I I I of 
subchapter B of chapter 1 is amended by inserting after the item relat-
ing to section 119 the following new item : 
"Sec. 120. Amounts received under qualified group legal services plans." 
(d) STUDY AND REPORT BY SECRETARIES OF TREASURY AND LABOR.— 
(1) A complete study and investigation with respect to the 
desirability and feasibility of continuing the exclusion from 
income of certain prepaid group legal services benefits under sec-
tion 120 of the Internal Revenue Code of 1954 shall be made by 
the Secretary of Labor and by the Secretary of the Treasury. 
(2) The Secretary of Labor and the Secretary of the Treasury 
shall report to the President and the Congress with respect to the 
study and investigation conducted under paragraph (1) not later 
than December 31,1980. 
(e) EFFECTIVE DATES.— 
(1) I N GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to taxable years 
beginning after December 31,1976, and ending before January 1, 
1982. 
(2) NOTICE REQUIREMENT.—For purposes of section 120(d) (6) 
of the Internal Revenue Code of 1954, the time prescribed by the 
Secretary of the Treasury by regulations for giving the notice 
required by section 120(c)(4) of such Code shall not expire 
before the 90th day after the day on which regulations prescribed 
under such section 120(c) (4) first become final. 
(3) EXISTING PLANS.— 
(A) For purposes of section 120 of the Internal Revenue 
Code of 1954, a written group legal services plan which was 
in existence on June 4,1976, shall be considered as satisfying 
the requirements of subsections (b) and (c) of such section 
120 for the period ending with the compliance date (deter-
mined under subparagraph ( B ) ) . 
"Compliance 
(B) COMPLIANCE DATE.—For purposes of this paragraph, 
date." 
the term "compliance date" means— 
(i) the date occurring 180 days after the date of the 
enactment of this Act, or 
(ii) if later, in the case of a plan which is maintained 
pursuant to one or more agreements which the Secre-
tary of Labor finds to be collective bargaining agree-
ments, the earlier of December 31, 1981, or the date on 
which the last of the collective bargaining agreements 
relating to the plan terminates (determined without 
regard to any extension thereof agreed to after the date 
of the enactment of this Act). 
JSEC. 2135. SPECIAL RULE FOR CERTAIN CHARITABLE CONTRIBUTIONS 
OF INVENTORY AND OTHER PROPERTY. 
26 use 170. 
(a) I N GENERAL.—Section 170(e) (relating to certain contributions 
of ordinary income and capital gain property) is amended by adding 
at the end thereof the following new paragraph: 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1929 
"(3) SPECIAL RULE FOR CERTAIN CONTRIBUTIONS OF INVENTORY 
AND OTHER PROPERTY. 
" ( A ) 
QUALIFIED CONTRIBUTIONS.—For purposes of this 
paragraph, a qualified contribution shall mean a charitable 
contribution of property described in paragraph (1) or (2) 
of section 1221, hj a corporation (other than a corporation 
26 USC 1221. 
which is an electing small business corporation within the 
meaning of section 1371(b)) to an organization which is 
described in section 501(c) (3) and is exempt under section 
501 (a^ (other than a private foundation, as defined in section 
509(a), which is not an operating foundation, as defined in 
section 4942(j) (3)), but only if— 
"(i) the use of the property by the donee is related to 
the purpose or function constituting the basis for its 
exemption under section 501 and the property is to be 
used by the donee solely for the care of the ill, the needy, 
or infants; 
"(ii) the property is not transferred by the donee in 
exchange for money, other property, or services; 
"(iii) the taxpayer receives from the donee a written 
statement representing that its use and disposition of the 
property will be in accordance with the provisions of 
clauses (i) and (ii); and 
" (iv) in the case where the property is subject to regu-
lation under the Federal Food, Drug, and Cosmetic Act, 
26 USC 301. 
as amended, such property must fully satisfy the applica-
ble requirements of such Act and regulations promul-
gated thereunder on the date of transfer and for one 
hundred and eighty days prior thereto. 
" ( B ) AMOUNT OF REDUCTION.—The reduction under para-
graph (1) (A) for any qualified contribution (as defined in 
subparagraph ( A ) ) shall be no greater than the sum of— 
"(i) one-half of the amount computed under para-
graph (1) (A) (computed without regard to this para-
graph), and 
" (ii) the amount (if any) by which the charitable con-
tribution deduction under this section for any qualified 
contribution 
(computed by taking into account the 
t^;..:. , 
amount determined in clause (i), but without regard to 
this clause) exceeds twice the basis of such property. 
"(C) This paragraph shall not apply to so much of the 
amount of the gain described in paragraph (1) (A) which 
would be long-term capital gain but for the application of 
sections 617,1245.1250,1251, or 1252." 
(b) EFFECTIVE DATE.—^The amendment made by this section applies 
26 USC 170 
to charitable contributions made after the date of enactment of this note. 
Act, in taxable years ending after such date. 
SEC. 2136. TAX TREATMENT OF THE GRANTOR OF OPTIONS OF STOCK, 
SECURITIES, AND COMMODITIES. 
(a) Section 1234 (relating to options to buy or sell) is amended to 26 USC 1234. 
read as follows: 
"SEC. 1234. OPTIONS TO BUY OR SELL. 
" (a) TREATMENT or GAIN OR Loss I N THE CASE OF THE PURCHASER.— 
"(1) GENERAL RULE.—Gain or loss attributable to the sale or 
exchange of, or loss attributable to failure to exercise, an option 
90 STAT. 1930 
PUBLIC LAW 94-455—OCT. 4, 1976 
to buy or sell property shall be considered gain or loss from the 
sale or exchange of property which has the same character as the 
property to which the option relates has in the hands of the tax-
payer (or would have in the hands of the taxpayer if acquired 
by him). 
., ;;; : r 
"(2) SPECIAL RULE FOR LOSS ATTRIBUTABLE TO FAILURE TO EXER-
CISE OPTION".—For purposes of paragraph (1), if loss is attribut-
able to failure to exercise an option, the option shall be deemed 
to have been sold or exchanged on the day it expired. 
" (3) NoNAppLiCATiON" OF SUBSECTION.—This subsection shall not 
' 
apply to— 
"(A) an option which constitutes property described in 
paragraph (1) of section 1221; 
" ( B ) in the case of gain attributable to the sale or 
, 
exchange of an option, any income derived in connection with 
such option which, without regard to this subsection, is 
treated as other than gain from the sale or exchange of a 
capital asset; and 
"(C) a loss attributable to failure to exercise an option 
described in section 1233 (c). 
"(b) 
TREATMENT OF GRANTOR OF OPTION I N THE CASE or STOCK, 
SECURITIES, OR COMMODITIES.— 
"(1) GENERAL RULE.—In the case of the grantor of the option, 
^ 
gain or loss from any closing transaction with respect to, and 
'IS 
gain on lapse of, an option in property shall be treated as a gain 
or loss from the sale or exchange of a capital asset held not more 
than 6 months. 
" (2) DEFINITIONS.—For purposes of this subsection— 
" ( A ) 
CLOSING TRANSACTION.—The term 'closing transac-
tion' means any termination of the taxpayer's obligation 
under an option in property other than through the exercise 
or lapse of the option. 
"^ 
" ( B ) PROPERTY.—The term 'property' means stocks and 
securities (including stocks and securities dealt with on a 
'when issued' basis), commodities, and commodity futures. 
" (3) NoNAPPLICATION OF SUBSECTION.—This subsectiou shall not 
apply to any option granted in the ordinary course of the tax-
payer's trade or business of granting options. 
26 use 1234 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
note. 
apply to options granted after September 1,1976. 
SEC. 2137. EXEMPT-INTEREST DIVIDENDS OF REGULATED INVEST-
MENT COMPANIES. 
26 use 852. 
(a) GENERAL.—Section 852(a) (1) (relating to regulated investment 
companies) is amended to read as follows: 
" (1) the deduction for dividends paid during the taxable year 
(as defined in section 561, but without regard to capital gain 
dividends^ equals or exceeds the sum of— 
" (A) 90 percent of its investment company taxable income 
for the taxable year determined without regard to subsection 
4f, 
: 
(b) (2) (D) ; and 
" ( B ) 90 percent of the excess of (i) its interest income 
excludable from gross income under section 103(a) (1) over 
(ii) its deductions disallowed under sections 265, 171 (a) (2), 
and". 
(b) DIVIDENDS PAID DEDUCTION.—Section 852(b) (2) (D) (relating 
to taxable income) is amended to read as follows: 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1931 
" ( D ) the deduction for dividends paid (as defined in sec-
tion 561) shall be allowed, but shall be computed without 
regard to capital 
gain 
dividends and exempt-interest 
' 
dividends." 
(c) EXEMPT-INTEREST 
DIVIDENDS.—Section 852(b) 
(relating to 
26 USC 852. 
method of taxation of regulated investment companies and share-
holders) is amended by inserting after paragraph (4) the following 
new paragraph (5) : 
"(5) EXEMPT-INTEREST DIVIDENDS.—If, at the close of each quar-
ter of its taxable year, at least 50 percent of the value (as defined 
;.. 
in section 851(c) (4)) of the total assets of the regulated invest-
ment 
company 
consists of obligations described in section 
103 (a) (1), such company shall be qualified to pay exempt-interest 
dividends, as defined herein, to its shareholders. 
" ( A ) 
DEFINITION.—An exempt-interest dividend means 
any dividend or part thereof (other than a capital gain 
?": . 
: 
dividend) paid by a regulated investment company and des-
;.,, 
ignated by it as an exempt-interest dividend in a written 
notice mailed to its shareholders not later than 45 days after 
the close of its taxable year. If the aggregate amount so 
^ , 
, .: 
designated with respect to a taxable year of the company 
(including exempt-interest dividends paid after the close of 
the taxable year as described in section 855) is greater than 
the excess of— 
"(i) the amount of interest excludable from gross 
income under section 103(a)(1), over 
"(ii) the amounts disallowed as deductions under 
sections 265 and l7l (a) (2), 
the portion of such distribution which shall constitute an 
exempt-interest dividend shall be only that proportion of the 
amount so designated as the amount of such excess for such 
taxable year bears to the amount so designated. 
" ( B ) 
TREATMENT or EXEMPT-INTEREST DIVIDENDS BY SHARE-
HOLDERS.—An exempt-interest dividend shall be treated by 
ill 
the shareholders for all purposes of this subtitle as an item 
of interest excludable from gross income under section 103(a) 
(1). Such purposes include but are not limited to— 
' 
''~ 
"(i) the determination of gross income and taxable 
income, 
"(ii) the determination of distributable net income 
• 
" ' ' 
under subchapter J, 
"(iii) the allowance of, or calculation of the amount 
of, any credit or deduction, and 
"(iv) the determination of the basis in the hands of 
any shareholder- of any share of stock of the company." 
(d) TECHNICAL AMENDMENT.—Section 103(g), as redesignated by 
26 USC 103. 
section 1305 of this Act (relating to exclusions from gross income of 
interest on certain government obligations) is amended by inserting 
after paragraph (23) the following new paragraph: 
"(24) Exempt-interest dividends.—For treatment of exempt-interest 
''''' 
dividends, see section 852(b)(5)(B)." 
' 
(e) DISALLOWANCE OF DEDUCTIONS.—Section 265 (relating to non- 
26 USC 265. 
allowance of deductions for expenses and interest relating to tax-
exempt income) is amended by adding at the end thereof the following 
new paragraphs: 
90 STAT. 1932 
PUBLIC LAW 94-455—OCT. 4, 1976 
Ante, p. 1787. 
26 use 852 
note. 
26 use 584. 
26 use 152. 
26 use 152 
note. 
26 use 1033. 
26 use 1033 
note. 
"(3) CERTAIN REGULATED INVESTMENT COMPANIES.—In the case 
of a regulated investment company which distributes during 
the taxable year an exempt-interest dividend (including exempt-
interest dividends paid after the close of the taxable year as 
described in section 855), that portion of any amount othervfise 
allowable as a deduction which the amount of the income of such 
company wholly exempt from taxes under this subtitle bears to 
the total of such exempt income and its gross income (excluding 
from gross income, for this purpose, capital gain net income, as 
defined in section 1222(9)). 
"(4) INTEREST RELATED TO EXEMPT-INTEREST DIVIDENDS.—Inter-
est on indebtedness incurred or continued to purchase or carry 
shares of stock of a regulated investment company which during 
the taxable year of the holder thereof distributes exempt-interest 
dividends." 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31, 1975. 
SEC. 2138. COMMON TRUST FUND TREATMENT OF CERTAIN CUSTODIAL 
ACCOUNTS. 
(a) I N GENERAL.—Section 584 (a) (1) (relating to definition of com-
mon trust fund) is amended to read as follows: 
" (1) exclusively for the collective investment and reinvestment 
of moneys contributed thereto by the bank in its capacity— 
"(A) as a trustee, executor, administrator, or guardian, or 
" ( B ) as a custodian of accounts— 
"(i) which the Secretary determines are established 
pursuant to a State law which is substantially similar to 
the Uniform Gifts to Minors Act as published by the 
American Law Institute, and 
" (ii) with respect to which the bank establishes, to the 
satisfaction of the Secretary, that it has duties and 
responsibilities similar to duties and responsibilities of 
a trustee or guardian; and". 
SEC. 2139. SUPPORT TEST FOR DEPENDENT CHILDREN OF DIVORCED 
ETC., PARENTS. 
(a) I N GENERAL.—Section 152 (relating to definition of depend-
ents) is amended by striking the word "all in subsection (e) (2) (B) 
(i) thereof and inserting in lieu thereof "each". 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act. 
SEC. 2140. INVOLUNTARY CONVERSION OF REAL PROPERTY. 
(a) I N GENERAL.—Section 1033(g) (relating to involuntary con-
versions), as amended by this Act, is amended by adding at the end 
thereof the following new paragraph: 
"(4) 
SPECIAL RULE.—In the case of a compulsory or involun-
tary conversion described in paragraph (1), subsection (a)(3) 
(B) (i) shall be applied by substituting '3 years' for '2 years'". 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
apply with respect to any disposition of converted property (within 
the meaning of section 1033(a) (2) of the Internal Revenue Code of 
1954) after December 31, 1974, unless a condemnation proceeding 
with respect to such property began before the date of the enactment 
of this Act. 
PUBLIC LAW 94-455—OCT. 4, 1976 
90 STAT. 1933 
SEC. 2141. UVESTOCK SOLD ON ACCOUNT OF DROUGHT. 
(a) I N GENERAL.—Section 451 (relating to general rules for taxable 26 USC 451. 
year of inclusion) is amended by adding at the end thereof the fol-
lowing new subsection: 
" (e) SPECIAL KULE FOB PROCEEDS FROM LIVESTOCK SOLD ON ACCOUNT 
O
F DROUGHT.— 
"(1) I N GENERAL.—In the case of income derived from the sale 
or exchange of livestock (other than livestock described in sec-
tion 1231 (b) (3)) in excess of the number the taxpayer would sell 
if he followed his usual business practices, a taxpayer reporting 
on the cash receipts and disbursements method of accounting may 
elect to include such income for the taxable year following the 
taxable year in which such sale or exchange occurs if he estab-
lishes that, under his usual business practices, the sale or exchange 
•; 
would not have occurred in the taxable year in which it occurred 
if it were not for drought conditions, and that these drought con- 
^ 
; . 
ditions had resulted in the area being designated as eligible for 
' 
assistance by the Federal Government. 
"(2) LIMITATION.—^Paragraph (1) shall apply only to a tax-
payer whose principal trade or business is farming (within the 
meaning of section 6420 (c)(3))." 
(b) EFFECTIVE DATE.—The amendment made by this section applies 26 USC 451 
to taxable years beginning after December 31,1975. 
Approved October 4, 1976. 
note. 
LEGISLATIVE HISTORY: 
HOUSE REPORTS: No. 94-658 (Comm. on Ways and Means) and No. 94-1515 (Coram, of 
Conference). 
SENATE REPORTS: No. 94-938 and No. 94-938, Part 2 (Coram, on Finance) and No. 
94-1236 (Comra. of Conference). 
CONGRESSIONAL RECORD: 
Vol. 121 (1975): Dec. 3, 4, considered and passed House. 
Vol. 122 (1976): June 16-18, 21-25, 28-30, July 1, 20-23, 26-30, Aug. 3-6, 
considered and passed Senate, amended. 
Sept. 16, House and Senate agreed to conference report, resolved 
amendments in disagreement. 
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS: 
Vol. 12, No. 41 (1976): Oct. 4, Presidential stateraent. 
89-194 O—78—pt. 2 
30