Tax Equity and Fiscal Responsibility Act of 1982
PL 97-248 (H.R.4961), enacted 09/03/1982

96 STAT. 324 
PUBLIC LAW 97-248—SEPT. 3, 1982 
Public Law 97-248 
97th Congress 
An Act 
Sept. 3, 1982 
[ H.R. 4961] 
Tax Equity and 
Fiscal 
Responsibility 
Act of 1982. 
26 u s e 1 note. 
To provide for tax equity and fiscal responsibility, and for other purposes. 
Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, 
SECTION 1. SHORT TITLE; TABLE OF CONTENTS; AMENDMENT OF 1954 
CODE. 
(a) SHORT TITLE.—This Act may be cited as the "Tax Equity and 
Fiscal ResponsibiUty Act of 1982". 
O
t
)
) TABLE OF CONTENTS.— 
Sec. 1. Short title; table of contents; amendment of 1954 Code. 
TITLE I—PROVISIONS RELATING TO SAVINGS IN HEALTH AND INCOME 
SECURITY PROGRAMS 
Subtitle A—Medicare 
PART I—CHANGES IN PAYMENTS FOR SERVICES 
Subpart A—Amount of Payment for Institutional Services 
Sec. 101. Payment for inpatient hospital services. 
Sec. 102. Single reimbursement limit for skilled nursing facilities. 
Sec. 103. Elimination of inpatient routine nursing salary cost differential. 
Sec. 104. Elimination of duplicate overhead payments for outpatient services. 
Sec. 105. Single reimbursement limit for home health agencies. 
Sec. 106. Prohibiting payment for Hill-Burton free care. 
Sec. 107. Prohibiting payment for anti-unionization activities. 
Sec. 108. Reimbursement of provider-based physicians. 
Sec. 109. Prohibiting recognition of payments under certain percentage arrange-
ments. 
Sec. 110. Elimination of lesser-of-cost-or-charge provision. 
Sec. 111. Elimination of private room subsidy. 
Subpart B—Payments for Other Services 
Sec. 112. Reimbursement for inpatient radiology and pathology services. 
Sec. 113. Reimbursement for assistants at surgery. 
Sec. 114. Payments to health maintenance organizations and competitive medical 
plans. 
Sec. 115. Prohibition of payment for ineffective drugs. 
Subpart C—Other Payment Provisions 
Sec. 116. Medicare payments secondary for older workers covered under group 
health plans. 
Sec. 117. Interest charges on overpayments and underpayments. 
Sec. 118. Audit and medical claims review. 
Sec. 119. Private sector review initiative. 
Sec. 120. Temporary delay in periodic interim payments. 
PART II—CHANGES IN BENEFITS, PREMIUMS, AND ENROLLMENT 
Sec. 121. Medicare coverage of Federal employees. 
Sec. 122. Hospice care. 
Sec. 123. Coverage of extended care services without regard to three-day prior hos-
pitalization requirement. 
Sec. 124. Provision temporarily holding part B premium at constant percentage of 
cost. 
Sec. 125. Special enrollment provisions for merchant seamen. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 325 
PART III—MISCELLANEOUS PROVISIONS 
Sec. 126. Extending medicare proficiency examination authority. 
Sec. 127. Regulations regarding access to books and records. 
Sec. 128. Technical corrections to Omnibus Budget Reconciliation Act of 1981. 
Subtitle B—Medicaid 
Sec. 131. Copayments by medicaid recipients. 
Sec. 132. Modifications in lien provisions. 
Sec. 133. Limitation on Federal financial participation in erroneous medical assist-
ance expenditures. 
Sec. 134. Medicaid coverage of home care for certain disabled children. 
Sec. 135. Six-month moratorium on deregulation of skilled nursing and intermedi-
ate care facilities. 
Sec. 136. Medicaid program in American Samoa. 
Sec. 137. Technical corrections from Omnibus Budget Reconciliation Act of 1981. 
Subtitle C—Utilization and Quality Control Peer Review 
Sec. 141. Short title of subtitle. 
Sec. 142. Requirement for Secretary to enter into contracts. 
Sec. 143. Establishment of utilization and quality control peer review program. 
Sec. 144. Facilitation of private review. 
Sec. 145. Waiver of liability provision. 
Sec. 146. Medicaid provisions. 
Sec. 147. Demonstration projects for competitive bidding and other reimbursement 
methods. 
Sec. 148. Technical amendments. 
Sec. 149. Effective date. 
Sec. 150. Maintenance of current PSRO agreements. 
Subtitle D—Aid to Families with Dependent Children 
Sec. 151. Rounding of eligibility and benefit amounts. 
Sec. 152. Effective date of application; proration of first month's AFDC benefit. 
Sec. 153. Absence from home solely by reason of uniformed service. 
Sec. 154. Job search. 
Sec. 155. Proration of standard amount for shelter and utilities. 
Sec. 156. Limitation on Federal financial participation in erroneous assistance 
expenditures. 
Sec. 157. Exclusion from income of certain State payments. 
Sec. 158. Extension of time for States to establish a work incentive demonstration 
program. 
Sec. 159. Exclusion from income. 
Sec. 160. Technical amendments to social services and foster care provisions in 1981 
Reconciliation Act. 
Sec. 161. Delayed effective date in cases requiring conforming State legislation. 
Subtitle E—Child Support Enforcement 
Sec. 171. Fee for services to non-AFDC families. 
Sec. 172. Allotments from pay for child and spousal support owed by members of 
the uniformed services on active duty. 
Sec. 173. Reimbursement of State agency in initial month of ineligibility for AFDC. 
Sec. 174. Reduction in certain Federal pajrments to States under child support 
enforcement program. 
Sec. 175. Technical amendments to child support enforcement provisions in 1981 
Reconciliation Act. 
Sec. 176. Delayed effective date in cases requiring State legislation. 
Subtitle F—Supplemental Security Income 
Sec. 181. Effective date of application; proration of initial SSI benefit payment. 
Sec. 182. Rounding of SSI eligibility and benefit amounts. 
Sec. 183. Coordination of SSI and OASDI cost-of-living adjustments. 
Sec. 184. Phaseout of hold harmless protection. 
Sec. 185. Exclusion from resources of burial plots and certain funds set aside for 
burial expenses. 
Sec. 186. Mandatory passthrough under State supplementation provisions. 
Sec. 187. Treatment of unnegotiated checks under the supplemental security 
income program. 
Subtitle G—Unemployment Compensation 
Sec. 191. Rounding of benefit amounts. 
96 STAT. 326 
PUBLIC LAW 97-248—SEPT. 3, 1982 
Sec. 192. Use of certain amounts transferred to State unemployment funds. 
Sec. 193. Treatment of certain employees of institutions of higher education. 
Sec. 194. Short-time compensation. 
TITLE II—REVENUE MEASURES 
Subtitle A—Provisions Relating to Individuals 
Sec. 201. Alternative minimum tax on taxpayers other than corporations. 
Sec. 202. Limitation on medical deduction. 
Sec. 203. Limitation on deduction for nonbusiness casualty losses. 
Subtitle B—Provisions Primarily Relating to Business 
PART I—REDUCTION IN CERTAIN DEDUCTIONS AND CREDITS 
Sec. 204. 15 percent reduction in certain corporate preference items. 
Sec. 205. Amendments to investment credit. 
Sec. 206. Repeal of 1985 and 1986 increases in accelerated cost recovery deductions. 
Sec. 207. Section 189 made applicable to certain corporations for nonresidential real 
property. 
PART II—LEASING 
Sec. 208. Limitations and additional requirements on leases under the accelerated 
cost recovery system. 
Sec. 209. Repeal of leasing; special rule for leases with economic substance. 
Sec. 210. Motor vehicle operating leases. 
PART III—FOREIGN TAX 
Sec. 211. Foreign tax credit for taxes on oil and g£is income. 
Sec. 212. Current taxation of foreign oil related income of controlled foreign corpo-
rations. 
Sec. 213. Possession tax credit; income tax liability incurred to the Virgin Islands. 
PART IV—TAX-EXEMPT OBLIGATIONS 
Sec. 214. Modification of exemption for small issues. 
Sec. 215. Public approval and information reporting requirements applicable to pri-
vate activity bonds. 
Sec. 216. Cost recovery for certain property financed with tax-exempt bonds. 
Sec. 217. Miscellaneous. 
Sec. 218. Treatment of certain refunding obligations. 
Sec. 219. Limitation on maturity of industrial development bonds. 
Sec. 220. Mortgage subsidy bonds. 
Sec. 221. Industrial development bonds for certain residential rental property 
PART V—MERGERS AND ACQUISITIONS 
Subpart A—Changes in Tax Treatment of Partial Liquidations and of Certain 
Distributions of Appreciated Property 
Sec. 222. Partial liquidations. 
Sec. 223. Distribution of appreciated property in redemption of stock. 
Subpart B—Certain Stock Purchases Treated as Asset Purchases 
Sec. 224. Certain stock purchases treated as asset purchases. 
Subpart C—Miscellaneous Provisions 
Sec. 225. Clarification of section 368(aXlXF). 
Sec. 226. Amendments relating to bailouts through use of holding companies. 
Sec. 227. Application of attribution rules for purposes of sections 306 and 356(aX2). 
Sec. 228. Waiver of family attribution by entities. 
PART VI—METHODS OF ACCOUNTING 
Sec. 229. Modification of regulations on the completed contract method of account-
ing. 
Sec. 230. Annual accrual method of accounting extended to certain partnerships. 
PART VII—ORIGINAL ISSUE DISCOUNT 
Sec. 231. Original issue discount taken into account on basis of constant interest 
rate. 
Sec. 232. Tax treatment of stripped bonds. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 327 
PART VIII—OTHER BUSINESS PROVISIONS 
Sec. 233. Targeted jobs tax credit. 
Sec. 234. Accelerated payment of income tax by corporations. 
Subtitle C—Pensions 
PART I—CONTRIBUTION AND LOAN LIMITS 
Sec. 235. Lower contribution and benefit limits for certain annuities, etc. 
Sec. 236. Loans treated as distributions. 
PART II—REPEAL OF SPECIAL LIMITATIONS ON PLANS BENEFITING SELF-EMPLOYED 
INDIVIDUALS OR OWNER-EMPLOYEES 
Sec. 237. Repeal of special qualification requirements. 
Sec. 238. Repeal of special limitations on deduction for self-employed individuals 
and subchapter S corporations. 
Sec. 239. Allowance of exclusion of death benefit for self-employed individuals. 
Sec. 240. Special rules for top heavy plans. 
Sec. 241. Effective dates. 
PART III—OTHER REQUIREMENTS 
Sec. 242. Required distributions for qualified plans. 
Sec. 243. Required distributions in case of individual retirement plans. 
Sec. 244. Limitation on exclusion for group-term life insurance purchased for 
employees. 
Sec. 245. Limitation on estate tax exclusions under section 2039. 
Sec. 246. Organizations performing management functions. 
Sec. 247. Existing personal service corporations may liquidate under section 333 
during 1983 or 1984. 
Sec. 248. Employee leasing. 
Sec. 249. Nondiscriminatory 
coordination 
of defined 
contribution 
plans with 
OASDI. 
Sec. 250. Authority of Secretary to allocate income and deductions in the case of 
certain corporations. 
PART IV—MISCELLANEOUS 
Sec. 251. Church plans. 
Sec. 252. Deferred compensation plans for State judges. 
Sec. 253. Profit-sharing plan contributions on behalf of disabled. 
Sec. 254. Exemption for trusts which include governmental plans. 
Subtitle D—Taxation of Life Insurance Companies and Annuities 
PART I—COINSURANCE ARRANGEMENTS 
Subpart A—Modified Coinsurance Contracts 
Sec. 255. Repeal of optional treatment of policies reinsured under modified coinsur-
ance contracts. 
Sec. 256. Special accounting rules relating to repeal of section 820. 
Subpart B—Other Reinsurance Agreements 
Sec. 257. Denial of interest deduction on indebtedness incurred in connection with 
reinsurance agreements. 
Sec. 258. Allocation of income, etc. in the case of other reinsurance agreements. 
PART II—2-YEAR TEMPORARY PROVISIONS RELATING TO TAXATION OF LIFE INSURANCE 
COMPANIES 
Sec. 259. Increase in amount of dividend deduction allowed; pension plan reserves. 
Sec. 260. Computation of amount of life insurance reserves. 
Sec. 261. Modification of menge formula. 
Sec. 262. Consolidated returns to be computed on a botton line basis. 
Sec. 263. Effective dates; special rules applicable to transactions before effective 
date. 
PART III—EXCESS INTEREST; AMOUNTS RECEIVED UNDER ANNUITY CONTRACTS; 
FLEXIBLE PREMIUM CONTRACTS; COMPUTATION OF RESERVES 
Sec. 264. Allowance of deduction for excess interest. 
Sec. 265. Treatment of amounts received and under annuity contracts before annu-
ity starting date. 
96 STAT. 328 
PUBLIC LAW 97-248—SEPT. 3, 1982 
Sec. 266. Flexible premium contracts. 
Sec. 267. Reduction in approximate revaluation method of computing reserves. 
PAET IV—UNDERPAYMENTS OF ESTIMATED TAX FOB 1982 
Sec. 268. Underpayments of estimated tax for 1982. 
Subtitle E—Employment Taxes 
PART I—IN GENERAL 
Sec. 269. Treatment of real estate agents and direct sellers. 
Sec. 270. Simplified procedure for determining amount of employment taxes. 
PART II—FEDERAL UNEMPLOYMENT TAX 
Subpart A—Increase in Federal Unemployment Tax 
Sec. 271. Incre£ise in Federal unemployment tax wage base and rate. 
Subpart B—Other Financing Provisions 
Sec. 272. Credit reduction not to apply when State makes certain repayments. 
Sec. 273. Limitation of fifth year credit reduction. 
Sec. 274.-Deferral of interest in case of certain States with high unemployment 
rates. 
Sec. 275. Required 
repayments 
from 
extended 
unemployment 
compensation 
account. 
Sec. 276. Treatment of certain services performed by students. 
Sec. 277. Treatment of certain alien farm workers. 
PART III—MEDICARE COVERAGE 
Sec. 278. Medicare coverage of, and application of hospital insurance tax to, Federal 
employment. 
Subtitle F—Excise Taxes 
PART I—AIRPORT AND AIRWAY 
Sec. 279. Tax on fuel used in noncommercial aviation. 
Sec. 280. Tax on transportation by air. 
Sec. 281. Extension of Airport and Airway Trust Fund. 
Sec. 281A. Technical provisions relating to tax on transportation of persons by air. 
PART II—COMMUNICATIONS SERVICES 
Sec. 282. Extension of excise teix on communications services. 
PART III—CIGARETTES 
Sec. 283. Increase in tax on cigarettes. 
PART IV—TAPS ADJUSTMENT ELIMINATED 
Sec. 284. Elimination of the TAPS adjustment. 
Subtitle G—Miscellaneous 
Sec. 285. Two-year extension of exclusion from gross income of national research 
service awards. 
Sec. 286. Special rules for certain amateur sports organizations. 
Sec. 287. New Jersey general revenue sharing allocation. 
Sec. 288. Illegal payments to government officials or employees. 
Sec. 289. Debt management provisions. 
Sec. 290. Jefferson County mental health center. 
Sec. 291. Alaska native corporations. 
Sec. 292. Awarding of costs and certain fees. 
Sec. 293. Treatment of certain lending of finance businesses for purposes of the tax 
on person£il holding companies. 
Sec. 294. Additional refunds relating to repeal of excise tax on buses. 
TITLE III—TAXPAYER COMPLIANCE 
Subpart A—Withholding on Interest and Dividends 
Sec. 301. Withholding on interest and dividends. 
Sec. 302. Credit against tax. 
Sec. 303. Returns regarding payments of dividends and payments of interest. 
Sec. 304. Returns regarding payments of patronage dividends. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 329 
Sec. 305. Denial of deduction for certain taxes. 
Sec. 306. Penalties. 
Sec. 307. Conforming and clerical amendments. 
Sec. 308. Effective dates; special rules. 
Subtitle B—Improved Information Reporting 
PART I—EXPANDED REPORTING 
Sec. 309. Reporting of interest. 
Sec. 310. Obligations required to be registered. 
Sec. 311. Returns of brokers. 
Sec. 312. Information reporting requirements for payments of remuneration for 
services and direct sales. 
Sec. 313. State and local income tax refunds. 
Sec. 314. Employer reporting with respect to tips. 
PART II—PROVISIONS TO IMPROVE REPORTING GENERALLY 
Sec. 315. Increased penalties for failure to file information return or to furnish 
statement. 
Sec. 316. Increase in civil penalty on failure to supply identifying numbers. 
Sec. 317. Extension of withholding to certain payments where identifying number 
not furnished or inaccurate. 
Sec. 318. Minimum penalty for extended failure to file. 
Sec. 319. Information returns. 
Subtitle C—Abusive Tax Shelters, Etc.; Substantial Underpayments; False 
Documents; Frivolous Returns 
PART I—ABUSIVE TAX SHELTERS, ETC. 
Sec. 320. Penalty for promoting abusive tax shelters, etc. 
Sec. 321. Action to enjoin promoters of abusive tax shelters, etc. 
Sec. 322. Procedural rules applicable to penalties under sections 6700, 6701, and 
6702. 
PART II—SUBSTANTIAL UNDERPAYMENT; FALSE DOCUMENTS; FRIVOLOUS RETURNS; 
ETC. 
Sec. 323. Penalty for substantial understatement. 
Sec. 324. Penalties for documents understating tax liability. 
Sec. 325. Fraud penalty. 
Sec. 326. Penalty for frivolous returns. 
Sec. 327. Relief from criminal penalty for failure to file estimated tax where tax-
payer falls within statutory exceptions. 
Sec. 328. Adjustments to estimated tax provisions. 
Sec. 329. Increases in certain criminal fines. 
Sec. 330. Special rules with respect to certain cash. 
Subtitle D—Administrative Summons 
Sec. 331. Special procedures for third-party summons. 
Sec. 332. Duty of third-party recordkeeper. 
Sec. 333. Limitation on use of administrative summons. 
Subtitle E—Withholding on Pensions and Other Retirement Income 
Sec. 334. Withholding on pensions annuities, and certain other deferred income. 
Sec. 335. Partial rollovers of IRA distributions permitted. 
Subtitle F—Transactions Outside the United States or Involving Foreign Persons 
Sec. 336. Jurisdiction of court and enforcement of summons in case of persons resid-
ing outside the United States. 
Sec. 337. Admissibility of evidence maintained in foreign countries. 
Sec. 338. Penalty for failure to furnish information with respect to certain foreign 
corporations. 
Sec. 339. Information requirements with respect to certain foreign-owned corpora-
tions. 
Sec. 340. Returns with respect to foreign personal holding companies. 
Sec. 341. Authority to delay date for filing certain returns relating to foreign corpo-
rations and foreign trusts. 
Sec. 342. Withholding of tax on nonresident aliens and foreign corporations. 
Sec. 343. Technical amendment relating to penalty under section 905(c). 
96 STAT. 330 
PUBLIC LAW 97-248—SEPT. 3, 1982 
Subtitle G—Modification of Interest Provisions 
Sec. 344. Interest compounded daily. 
Sec. 345. Determination of rate of interest to be made semiannually. 
Sec. 346. Restrictions on payment of interest for certain periods. 
Subtitle H—Taxpayer Safeguard Amendments 
Sec. 347. Increase in certain exemptions from levy. 
Sec. 348. Required release of lien. 
Sec. 349. Requirement of timely notice of levy. 
Sec. 349A. Extension of period for redemption of real property. 
Sec. 350. Amount of damages in case of wrongful levy. 
Subtitle I—Other Provisions 
Sec. 351. Disallowance of deductions relating to narcotics trafficking. 
Sec. 352. Sense of Congress with respect to providing of additional funds to Internal 
Revenue Service. 
Sec. 353. Report on forms. 
Sec. 354. Exemption of veterans' organizations. 
Sec. 355. Amendment to Communications Act of 1934. 
Sec. 356. Confidentiality and disclosure of returns and return information. 
Sec. 357. Civil damages against United States for unauthorized disclosures by an 
employee. 
Sec. 358. Disclosure for use in certain audits by General Accounting Office. 
TITLE IV-TAX TREATMENT OF PARTNERSHIP ITEMS 
Sec. 401. Short title. 
Sec. 402. Tax treatment of partnership items. 
Sec. 403. Requirement that statement be furnished to partner. 
Sec. 404. Returns required from all partnerships with United States partners. 
Sec. 405. Return requirement for United States persons having interest in foreign 
partnerships. 
Sec. 406. Special rule for certain international satellite partnerships. 
TITLE V—AIRPORT AND AIRWAY IMPROVEMENT 
Sec. 501. Short title. 
Sec. 502. Declaration of policy. 
Sec. 503. Definitions. 
Sec. 504. National airport and airway system plans. 
Sec. 505. Airport improvement program. 
Sec. 506. Airway improvement program. 
Sec. 507. Apportionment of funds. 
Sec. 508. Use of apportioned and discretionary funds; miscellaneous conditions. 
Sec. 509. Submission and approval of project grant applications. 
Sec. 510. United States share of project costs. 
Sec. 511. Project sponsorship. 
Sec. 512. Grant agreements. 
Sec. 513. Project costs. 
Sec. 514. Payments under grant agreements. 
Sec. 515. Performance of construction work. 
Sec. 516. Use of Government-owned lands. 
Sec. 517. False statements. 
Sec. 518. Access to records. 
Sec. 519. General powers. 
Sec. 520. Civil rights. 
Sec. 521. Reports to Congress. 
Sec. 522. Report on ability of airports to finance airport development needs. 
Sec. 523. Repeals; effective date; saving provisions; and separability. 
Sec. 524. Miscellaneous amendments. 
Sec. 525. Safety certification of airports. 
Sec. 526. Contracting authority. 
Sec. 527. Study of airport access. 
Sec. 528. Part-time operation of flight service stations. 
Sec. 529. Explosive detection K-9 teams. 
Sec. 530. Release of certain conditions. 
Sec. 531. Continuation of certain certificates. 
Sec. 532. State taxation. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 331 
TITLE VI—FEDERAL SUPPLEMENTAL COMPENSATION PROGRAM 
Subtitle A—Extension of Benefits 
Sec. 601. Short title. 
Sec. 602. Federal-State agreements. 
Sec. 603. Payments to States having agreements for the payment of Federal supple-
mental compensation. 
Sec. 604. Financing provisions. 
Sec. 605. Definitions. 
Sec. 606. Fraud and overpayments. 
Subtitle B—Taxation of Unemployment Compensation 
Sec. 611. Taxation of unemployment compensation. 
(c) AMENDMENT OF 1954 CODE.—Except as otherwise expressly 
provided, whenever in titles II, III, and IV 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. 
TITLE I—PROVISIONS RELATING TO SAV-
INGS IN HEALTH AND INCOME SECU-
RITY PROGRAMS 
Subtitle A—Medicare 
PART I—CHANGES IN PAYMENTS FOR SERVICES 
Subpart A—Amount of Payment for Institutional Services 
P A Y M E N T FOR INPATIENT HOSPITAL SERVICES 
SEC. 101. (a)(1) Title XVIII of the Social Security Act is amended 
by adding at the end thereof the following new section: 
" P A Y M E N T TO HOSPITALS FOR INPATIENT HOSPITAL SERVICES 
"SEC. 1886. (a)(l)(A)(i) The Secretary, in determining the amount 
42USC1395w. 
of the payments that may be made under this title with respect to 
operating costs of inpatient hospital services (as defined in para-
graph (4)) shall not recognize as reasonable (in the efficient delivery 
of health services) costs for the provision of such services by a 
hospital for a cost reporting period to the extent such costs exceed 
the applicable percentage (as determined under clause (ii)) of the 
average of such costs for all hospitals in the same grouping as such 
hospital for comparable time periods. 
"(ii) For purposes of clause (i), the applicable percentage for 
hospital cost reporting periods beginning— 
"(I) on or after October 1, 1982, and before October 1, 1983, is 
120 percent; 
"(II) on or after October 1, 1983, and before October 1, 1984, is 
115 percent; and 
"(III) on or after October 1, 1984, is 110 percent. 
"(B)(i) For purposes of subparagraph (A) the Secretary shall estab-
lish case mix indexes for all short-term hospitals, and shall set 
limits for each hospital based upon the general mix of types of 
96 STAT. 332 
PUBLIC LAW 97-248—SEPT. 3, 1982 
Cost reporting 
period, 
limitation. 
"Operating 
costs of 
inpatient 
hospital 
services." 
42 u s e 1395f. 
42 u s e 1395e. 
medical cases with respect to which such, hospital provides services 
for which payment may be made under this title. 
"(ii) The Secretary shall set such limits for a cost reporting period 
of a hospital— 
"(I) by updating available data for a previous period to the 
immediate preceding cost reporting period by the estimated 
average rate of change of hospital costs industry-wide, and 
"(11) by projecting for the cost reporting period by the applica-
ble percentage increase (as defined in subsection (b)(3)(B)). 
"(C) The limitation established under subparagraph (A) for any 
hospital shall in no event be lower than the allowable operating 
costs of inpatient hospital services (as defined in paragraph (4)) 
recognized under this title for such hospital for such hospital's last 
cost reporting period prior to the hospital's first cost reporting 
period for which this section is in effect. 
"(2) The Secretary shall provide for such exemptions from, and 
exceptions and adjustments to, the limitation established under 
paragraph (IXA) as he deems appropriate, including those which he 
deems necessary to take into account— 
"(A) the special needs of sole community hospitals, of new 
hospitals, of risk based health maintenance organizations, and 
of hospitals which provide atypical services or essential commu-
nity services, and to take into account extraordinary circum-
stances beyond the hospital's control, medical and paramedical 
education costs, significantly fluctuating population in the serv-
ice area of the hospital, and unusual labor costs, 
"(B) the special needs of psychiatric hospitals and of public or 
other hospitals that serve a significantly disportionate number 
of patients who have low income or are entitled to benefits 
under part A of this title, and 
"(C) a decrease in the inpatient hospital services that a 
hospital provides and that are customarily provided directly by 
similar hospitals which results in a significant distortion in the 
operating costs of inpatient hospital services. 
"(3) The limitation established under paragraph (1)(A) shall not 
apply with respect to any hospital which— 
"(A) is located outside of a standard metropolitan statistical 
area, and 
"(B)(i) has less than 50 beds, and 
"(ii) was in operation and had less than 50 beds on the date of 
the enactment of this section. 
"(4) For purposes of this section, the term 'operating costs of 
inpatient hospital services' includes all routine operating costs, 
ancillary service operating costs, and special care unit operating 
costs with respect to inpatient hospital services and such costs are 
determined on an average per admission or per discharge basis (as 
determined by the Secretary). 
"(b)(1) Notwithstanding sections 1814(b) but subject to the provi-
sions of sections 1813, if the operating costs of inpatient hospital 
services (as defined in subsection (aX4)) of a hospital for a cost 
reporting period subject to this paragraph— 
"(A) are less than or equal to the target amount (as defined in 
paragraph (3)) for that hospital for that period, the amount of 
the payment with respect to such operating costs payable under 
part A on a per discharge or per admission basis (as the case 
may be) shall be equal to the amount of such operating costs, 
plus— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 333 
"(i) 50 percent of the amount by which the target amount 
exceeds the amount of the operating costs, or 
"(ii) 5 percent of the target amount, 
whichever is less; or 
"(B) are greater than the target amount, the amount of the 
payment with respect to such operating costs payable under 
part A on a per discharge or per admission basis (as the case 
may be) shall be equal to (i) the target amount, plus (ii) in the 
case of cost reporting periods beginning on or after October 1, 
1982, and before October 1, 1984, 25 percent of the amount by 
which the amount of the operating costs exceeds the target 
amount; 
except that in no case may the amount payable under this title with 
respect to operating costs of inpatient hospital services exceed the 
maximum amount payable with respect to such costs pursuant to 
subsection (a). 
"(2) Paragraph (1) shall not apply to cost reporting periods of 
hospitals beginning on or after October 1, 1985. 
"(3)(A) For purposes of this subsection, the term 'target amount' 
means, with respect to a hospital for a particular 12-month cost 
reporting period— 
"(i) in the case of the first such reporting period for which this 
subsection is in effect, the allowable operating costs of inpatient 
hospital services (as defined in subsection (a)(4)) recognized 
under this title for such hospital for the preceding 12-month 
cost reporting period, and 
"(ii) in the case a later reporting period, the target amount for 
the preceding 12-month cost reporting period, 
increased by the applicable percentage increase under subparagraph 
(B) for that particular cost reporting period. 
"(B) For purposes of subparagraph (A), the 'applicable percentage 
increase' for any 12-month cost reporting period shall be equal to 1 
percentage point plus the percentage, estimated by the Secretary, by 
which the cost of the mix of goods and services (including personnel 
costs but excluding non-operating costs) comprising routine, ancil-
lary, and special care unit inpatient hospital services, based on an 
index of appropriately weighted indicators of changes in wages and 
prices which are representative of the mix of goods and services 
included in such inpatient hospital services, for such cost reporting 
period exceeds the cost of such mix of goods and services for the 
preceding 12-month cost reporting period. 
"(4)(A) The Secretary shall provide for an exemption from, or an 
exception and adjustment to, the method under this subsection for 
determining the amount of payment to a hospital where events 
beyond the hospital's control or extraordinary circumstances, 
including changes in the case mix of such hospital, create a distor-
tion in the increase in costs for a cost reporting period (including 
any distortion in the costs for the base period against which such 
increase is measured). The Secretary may provide for such other 
exemptions from, and exceptions and adjustments to, such method 
as the Secretary deems appropriate, including those which he deems 
necessary to take into account a decrease in the inpatient hospital 
services that a hospital provides and that are customarily provided 
directly by similar hospitals which results in a significant distortion 
in the operating costs of inpatient hospital services. 
"(B) Paragraph (1) shall not apply to payment of hospitals which is 
otherwise determined under paragraph (3) of section 1814(b). 
"Target 
amount.' 
"Applicable 
percentage 
increase.' 
42 use 1395f. 
96 STAT. 334 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(5) In the case of any hospital having any cost reporting period of 
other than a 12-month period, the Secretary shall determine the 
12-month period which shall be used for purposes of this section. 
"(6)(A) The Secretary shall provide for an adjustment under this 
paragraph in the amount of payment otherwise provided a hospital 
under this subsection in the case of a hospital which, as of August 
15, 1982, was subject to the taxes (hereinafter in this paragraph 
referred to as the TICA taxes') imposed by section 3111 of the 
26 use 3111. 
Internal Revenue Code of 1954 and which is not subject to such 
taxes for part or all of a cost reporting period beginning on or after 
October 1,1982. 
Operating costs, 
"(B) In making such adjustment for a cost reporting period the 
estimate. 
Secretary shall estimate the amount of the operating costs of inpa-
tient hospital services that would have resulted if the hospital was 
subject to the FICA taxes during that period. In making such 
estimate the Secretary shall reduce the amount of such FICA taxes 
that would have been paid (but not below zero) by the amount of 
costs which the hospital demonstrates to the satisfaction of the 
Secretary were incurred in the period for pensions, health, and 
other fringe benefits for employees (and former employees and 
family members) comparable to, and in lieu of, the benefits provided 
42 use 401. 
under title II and this title of the Social Security Act. 
"(C) If a hospital's operating costs of inpatient hospital services 
estimated under subparagraph (B) is greater than the hospital's 
operating costs of inpatient hospital services determined without 
regard to this paragraph for a cost reporting period, then the 
Secretary shall reduce the amount otherwise paid the hospital 
(respecting operating costs of inpatient hospital services) under this 
subsection for the period by the amount by which— 
"(i) the amount that would have been paid the hospital if (I) 
the amount of the operating costs of inpatient hospital services 
estimated under subparagraph (B) were treated as the amount of 
the operating costs of inpatient hospital services and (II) subsec-
tion (a) did not apply to the determination, 
exceeds— 
"(ii) the amount that would otherwise have been paid the 
hospital if subsection (a) (and this paragraph) did not apply; 
except that, in making such determination for cost reporting periods 
beginning on or after October 1, 1984, clause (ii) of paragraph (1)(B) 
shall continue to apply. 
"(c)(1) The Secretary may provide, in his discretion, that payment 
with respect to services provided by a hospital in a State may be 
made in accordance with a hospital reimbursement control system 
in a State, rather than in accordance with the other provisions of 
this title, if the chief executive officer of the State requests such 
treatment and i
f
— 
"(A) the Secretary determines that the system, if approved 
under this subsection, will apply (i) to substantially all non-
Federal acute care hospitals (as defined by the Secretary) in the 
State and (ii) to the review of at least 75 percent of all revenues 
or expenses in the State for inpatient hospital services and of 
revenues or expenses for inpatient hospital services provided 
42 use 1396. 
under the State's plan approved under title XIX; 
"(B) the Secretary has been provided satisfactory assurances 
as to the equitable treatment under the system of all entities 
(including Federal and State programs) that pay hospitals for 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 335 
inpatient hospital services, of hospital employees, and of hospi-
tal patients; and 
"(C) the Secretary has been provided satisfactory assurances 
that under the system, over 36-month periods (the first such 
period beginning with the first month in which this subsection 
applies to that system in the State), the amount of payments 
made under this title under such system will not exceed the 
amount of payments which would otherwise have been made 
under this title not using such system. 
"(2) In determining under paragraph (1)(C) the amount of pay-
ment which would otherwise have been made under this title for a 
State, the Secretary may provide for appropriate adjustment of such 
amount to take into account previous reductions effected in the 
amount of payments made under this title in the State due to the 
operation of the hospital reimbursement control system in the State 
if the system has resulted in an aggregate rate of increase in 
operating costs of inpatient hospital services (as defined in subsec-
tion (a)(4)) under this title for hospitals in the State which is less 
than the aggregate rate of increase in such costs under this title for 
hospitals in the United States. 
"(3) The Secretary shall discontinue payments under a system 
described in paragraph (1) if the Secretary— 
"(A) determines that the system no longer meets the require-
ment of paragraph (1)(A) or 
"(B) has reason to believe that the assurances described in 
subparagraph (B) or (C) of paragraph (1) are not being (or will 
not be) met.". 
(2) Section 1861(v)(l)(L) of such Act is amended by striking out 
"(i)" and all that follows through "(ii)". 
(b)(1) The amendments made by subsection (a) shall apply to cost 
reporting periods beginning on or after October 1, 1982. 
(2)(A) The Secretary of Health and Human Services shall first 
issue such final regulations (whether on an interim or other basis) 
before October 1, 1982, as may be necessary to implement such 
amendments on a timely basis. If such regulations are promulgated 
on an interim final basis, the Secretary shall take such steps as may 
be necessary to provide opportunity for public comment, and appro-
priate revision based thereon, so as to provide that such regulations 
are not on an interim basis later than March 31, 1983. 
(B) Chapter 35 of title 5, United States Code, shall not apply, until 
January 1, 1984, to collection of information and information collec-
tion requests which the Secretary of Health and Human Services 
determines to be necessary to carry out the amendments made by 
this section. 
(3) Section 1135 of the Social Security Act is amended by adding at 
the end the following new subsection: 
"(c) The Secretary shall develop, in consultation with the Senate 
Committee on Finance and the Committee on Ways and Means of 
the House of Representatives, proposals for legislation which would 
provide that hospitals, skilled nursing facilities, and, to the extent 
feasible, other providers, would be reimbursed under title XVIII of 
this Act on a prospective basis. The Secretary shall report such 
proposals to such committees not later than December 31, 1982.". 
(c)(1) Section 1814(b) of the Social Security Act is amended— 
(A) by striking out "section 1813" in the matter before para-
graph (1) and inserting in lieu thereof "sections 1813 and 1886"; 
and 
95 Stat. 798. 
42 u s e 1395x. 
42 u s e 1395w^ 
note. 
Regulations. 
5 u s e 3501 et 
seq. 
95 Stat. 809. 
42 u s e 1320b-5. 
42 u s e 1395. 
Report to 
congressional 
committees. 
42 u s e 1395f. 
96 STAT. 336 
PUBLIC LAW 97-248—SEPT. 3, 1982 
42 use 1395Z. 
42 use 1395x. 
Ante, p. 331. 
(B) by striking out "until the Secretary determines" in the 
second sentence and inserting in lieu thereof "until the first day 
of the seventh month beginning after the date the Secretary 
determines and notifies the Governor of the State". 
(2) Section 1833(a)(2)(B) of such Act is amended by inserting "and 
except as may be provided in section 1886" after "except those 
described in subparagraph (C) of this paragraph". 
(d) Section 1861(v)(7) of such Act is amended by inserting "(A)" 
after "(7)" and by adding at the end thereof the following new 
subparagraph: 
"(B) For further limitations on reasonable cost and determination 
of payment amounts for operating costs of inpatient hospital serv-
ices and waivers for certain States, see section 1886.". 
42 use 1395x. 
Effective date. 
42 use 1395x 
note. 
SINGLE REIMBURSEMENT LIMIT FOR SKILLED NURSING FACIUTIES 
SEC. 102. (a) Section 1861(vXl) of the Social Security Act is 
amended— 
(1) in subparagraph (E), by striking out "; except that" and all 
that follows and inserting in lieu thereof a period; 
(2) in subparagraph (E), by striking out "(E)" and inserting in 
lieu thereof "(ii)"; and 
(3) by inserting after subparagraph (D) the following: 
"(E)(i) Such regulations shall provide that any determination of 
reasonable cost with respect to services provided by hospital-based 
skilled nursing facilities shall be made on the basis of a single 
standard based on the reasonableness of costs incurred by free 
standing skilled nursing facilities, subject to such adjustments as 
the Secretary may deem appropriate.". 
(b) The amendment made by subsection (a) shall be effective with 
respect to cost reporting periods beginning on or after October 1, 
1982. 
95 Stat. 797. 
42 use 1395x. 
Effective date. 
42 use 1395x 
note. 
42 use 1395. 
ELIMINATION OF INPATIENT ROUTINE NURSING SALARY COST 
DIFFERENTIAL 
SEC. 103. (a) Subparagraph (J) of section 1861(vXl) of the Social 
Security Act is amended to read as follows: 
"(J) Such regulations may not provide for any inpatient routine 
salary cost differential as a reimbursable cost for hospitals and 
skilled nursing facilities.". 
(b) The amendment made by subsection (a) shall be effective with 
respect to cost reporting periods ending after September 30, 1982, 
but in the case of any cost reporting period beginning before October 
1, 1982, any reduction in payments under title XVIII of the Social 
Security Act to a hospital or skilled nursing facility resulting from 
such amendment shall be imposed only in proportion to the part of 
the period which occurs after September 30, 1982. 
ELIMINATION OF DUPLICATE OVERHEAD PAYMENTS FOR OUTPATIENT 
SERVICES 
SEC. 104. (a) The last sentence of section 1842(b)(3) of the Social 
42 use 1395U. 
Security Act is amended by inserting after "1861(v)(l)(K)" the fol-
lowing: ", and in determining the reasonable charge for such serv-
ices, the Secretary may limit such reasonable charge to a percentage 
of the amount of the prevailing charge for similar services furnished 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 337 
in a physician's office, taking into account the extent to which 
overhead costs associated with such outpatient services have been 
included in the reasonable cost or charge of the facility". 
(b) The amendment made by subsection (a) made by this section Effective date. 
shall be effective with respect to services furnished on or after ^^ ^^^ l395u 
October 1,1982. 
note. 
SINGLE REIMBURSEMENT LIMIT FOR HOME HEALTH AGENCIES 
SEC. 105. (a) Section 1861(vXl)(L) of the Social Security Act, as 42 USC I395x 
amended by section 101(aX2) of this subtitle, is amended by inserting 
"free standing" after "75th percentile of such costs per visit for". 
(b) The amendment made by subsection (a) shall be effective with 
respect to cost reporting periods beginning on or after the date of 
the enactment of this Act. 
Effective date. 
42 USC 1395x 
note. 
PROHIBITING PAYMENT FOR HILL-BURTON FREE CARE 
SEC. 106. (a) Section 1861(vXl) of the Social Security Act is 
amended by adding at the end the following new subparagraph: 
"(M) Such regulations shall provide that costs respecting care 
provided by a provider of services, pursuant to an assurance under 
title VI or XVI of the Public Health Service Act that the provider 
will make available a reasonable volume of services to persons 
unable to pay therefor, shall not be allowable as reasonable costs.". 
(b) The amendment made by subsection (a) shall be effective with 
respect to any costs incurred under title XVIII of the Social Security 
Act, except that it shall not apply to costs which have been allowed 
prior to the date of the enactment of this Act pursuant to the final 
court order affirmed by a United States Court of Appeals. 
42 USC 1395x. 
42 USC 291a, 
300o. 
Effective date. 
42 USC 1395x 
note. 
42 USC 1395. 
PROHIBITING PAYMENT FOR ANTI-UNIONIZATION ACTIVITIES 
SEC. 107. (a) Section 1861(vXl) of the Social Security Act, as 
amended by section 106(a) of this subtitle, is further amended by 
adding after subparagraph (M) the following new subparagraph: 
"(N) In determining such reasonable costs, costs incurred for 
activities directly related to influencing employees respecting union-
ization may not be included.". 
(b) The amendment made by subsection (a) shall be effective with 
respect to costs incurred after the date of the enactment of this Act. 
REIMBURSEMENT OF PROVIDER-BASED PHYSICIANS 
SEC 108. (a) Title XVIII of the Social Security Act is amended by 
adding after section 1886 of the Social Security Act (as added by 
section lOl(aXl) of this subtitle) the following new section: 
Effective date. 
42 USC 1395x 
note. 
PAYMENT OF PROVIDER-BASED PHYSICIANS 
"SEC. 1887. (aXD The Secretary shall by regulation determine 42USCi395xx. 
criteria for distinguishing those services (including inpatient and 
outpatient services) rendered in hospitals or skilled nursing facili-
ties— 
"(A) which constitute professional medical services, which are 
personally rendered for an individual patient by a physician 
and which contribute to the diagnosis or treatment of an indi-
96 STAT. 338 
PUBLIC LAW 97-248—SEPT. 3, 1982 
vidual patient, and which may be reimbursed as physicians' 
services under part B, and 
"(B) which constitute professional services which are ren-
dered for the general benefit to patients in a hospital or skilled 
nursing facility and which may be reimbursed only on a reason-
able cost basis. 
"(2)(A) For purposes of cost reimbursement, the Secretary shall 
recognize as a reasonable cost of a hospital or skilled nursing facility 
only that portion of the costs attributable to services rendered by a 
physician in such hospital or facility which are services described in 
paragraph (1)(B), apportioned on the basis of the amount of time 
actually spent by such physician rendering such services. 
"(B) In determining the amount of the payments which may be 
made with respect to services described in paragraph (1)(B), after 
apportioning costs as required by subparagraph (A), the Secretary 
may not recognize as reasonable (in the efficient delivery of health 
services) such portion of the provider's costs for such services to the 
extent that such costs exceed the reasonable compensation equiva-
lent for such services. The reasonable compensation equivalent for 
any service shall be established by the Secretary in regulations. 
"(C) The Secretary may, upon a showing by a hospital or facility 
that it is unable to recruit or maintain an adequate number of 
physicians for the hospital or facility on account of the reimburse-
ment limits established under this subsection, grant exceptions to 
such reimbursement limits as may be necessary to allow such 
provider to provide a compensation level sufficient to provide ade-
quate physician services in such hospital or facility.". 
(2) Section 1861(v)(7) of such Act, as amended by section 101(d) of 
Ante, p. 336. 
this subtitle, is further amended by adding at the end the following 
new subparagraph: 
"(C) For provisions restricting payment for provider-based physi-
Ante, p. 337. 
cians' Services, see section 1887.". 
Regulations. 
(c) The Secretary of Health and Human Services shall first pro-
42 use I395xx 
mulgate regulations to carry out section 1887(a) of the Social Secu-
Arefe 
3
3
Y 
rity Act not later than October 1, 1982. Such regulations shall 
become effective on October 1, 1982, and shall be effective with 
respect to cost reporting periods ending after September 30, 1982, 
but in the case of any cost reporting period beginning before October 
1, 1982, any reduction in payments under title XVIII of the Social 
42 use 1395. 
Security Act to a hospital or skilled nursing facility resulting from 
such regulations shall be imposed only in proportion to the part of 
the period which occurs after September 30, 1982. 
PROHIBITING RECOGNITION OF PAYMENTS UNDER CERTAIN PERCENTAGE 
ARRANGEMENTS 
SEC. 109. (a) Section 1887 of the Social Security Act (as added by 
section 108(a) of this subtitle) is amended— 
(1) by inserting "AND PAYMENT UNDER CERTAIN PERCENTAGE 
ARRANGEMENTS" at the end of its heading, and 
(2) by adding at the end the following new subsection: 
"(b)(1) Except as provided in paragraph (2), in the case of a 
provider of services which is paid under this title on a reasonable 
cost basis, or other basis related to costs that are reasonable, and 
which has entered into a contract for the purpose of having services 
furnished for or on behalf of it, the Secretary may not include any 
cost incurred by the provider under the contract if the amount 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 339 
42 u s e 1395x., 
payable under the contract by the provider for that cost is deter-
mined on the basis of a percentage (or other proportion) of the 
provider's charges, revenues, or claim for reimbursement. 
"(2) Paragraph (1) shall not apply— 
"(A) to services furnished by a physician and described in 
subsection (a)(1)(B) and covered by regulations in effect under 
subsection (a), and 
"(B) under regulations established by the Secretary, where 
the amount involved under the percentage contract is reason-
able and the contract— 
"(i) is a customary commercial business practice, or 
"(ii) provides incentives for the efficient and economical 
operation of the provider of services.". 
(b)(1) Section 1861(vXl)(H)(iii) of such Act is amended by striking 
out "(I)" and by striking out ", or (II)" and all that follows through 
"furnished by the agency". 
(2) Section 1861(v)(7)(C) of such Act, as added by section 108(b)(2) of 
this subtitle, is further amended by inserting "and for payments Ante, p. 338. 
under certain percentage arrangements" after "services". 
(c)(1) The amendments made by this section shall become effective 
on the date of the enactment of this Act, except that section 
1887(b)(1) of the Social Security Act shall not apply before October 1, 
1982, to services furnished by a physician and described in section 
1887(a)(1)(B) of such Act. 
(2) In the case of a contract with a provider of services entered 
into prior to the date of the enactment of this Act, the amendment 
made by subsection (a) shall apply to payments under such contract 
(A) 30 days after the first date (after such date of enactment) the 
provider of services may unilaterally terminate the contract, or (B) 
one year after the date of the enactment of this Act, whichever is 
earlier. 
(3) The amendment made by subsection (b)(1) shall not apply to 
contracts entered into before the date of the enactment of this Act. 
Effective date. 
42 u s e 1395XX 
note. 
Ante, p. 338. 
42 u s e 1395x 
note. 
ELIMINATION OF LESSER-OF-COST-OR-CHARGE PROVISION 
SEC. 110. Section 1886 of the Social Security Act, as added by Ante, p. 331. 
section 101(a)(1) of this subtitle, is amended by adding at the end the 
following new subsection: 
"(d)(1) The lesser-of-cost-or-charges provisions (described in para-
graph (2)) will not apply in the case of services provided by a class of 
provider of services if the Secretary determines and certifies to 
Congress that the failure of such provisions to apply to the services 
provided by that class of providers will not result in any increase in 
the amount of payments made for those services under this title. 
Such change will take effect with respect to services furnished, or 
cost reporting periods of providers, on or after such date as the 
Secretary shall provide in the certification. Such change for a class 
of provider shall be discontinued if the Secretary determines and 
notifies Congress that such change has resulted in an increase in the 
amount of payments made under this title for services provided by 
that class of provider. 
"(2) The lesser-of-cost-or-charges provisions referred to in para-
graph (1) are as follows: 
"(A) Clause (B) of paragraph (1) and paragraph (2) of section 
1814(b). 
42 use 1395f. 
96 STAT. 340 
PUBLIC LAW 97-248—SEPT. 3, 1982 
42 use 1395/. 
"(B) So much of subparagraph (A) of section 1833(a)(2) as 
provides for payment other than of the reasonable cost of such 
42 use I395x. 
services, as determined under section 1861(v). 
"(C) Subclause (II) of clause (i) and clause (ii) of section 
1833(a)(2)(B).". 
42 use 1395x 
note. 
Regulations. 
ELIMINATION OF PRIVATE ROOM SUBSIDY 
SEC. H I . (a) The Secretary of Health and Human Services shall, 
pursuant to section 1861(v)(2) of the Social Security Act, not allow as 
a reasonable cost the estimated amount by which the costs incurred 
by a hospital or skilled nursing facility for nonmedically necessary 
private accommodations for medicare beneficiaries exceeds the costs 
which would have been incurred by such hospital or facility for 
semiprivate accommodations. 
(b) The Secretary of Health and Human Services shall first issue 
such final regulations (whether on an interim or other basis) as may 
be necessary to implement subsection (a) by October 1, 1982. If such 
regulations are promulgated on an interim final basis, the Secretary 
shall take such steps as may be necessary to provide opportunity for 
public comment, and appropriate revision based thereon, so as to 
provide that such regulations are not on an interim basis later than 
January 31, 1983. 
Subpart B—Payments for Other Services 
42 use 1395/. 
Effective date. 
42 use 1395/ 
note. 
42 use 1395u. 
42 use 1395x. 
REIMBURSEMENT FOR INPATIENT RADIOLOGY AND PATHOLOGY SERVICES 
SEC. 112. (a) Section 1833(a)(1) of the Social Security Act is 
amended— 
(1) by striking out clause (B) and inserting in lieu thereof the 
following: "(B) with respect to items and services described in 
section 1861(s)(10), the amounts paid shall be 100 percent of the 
reasonable charges for such items and services,"; 
(2) by inserting "and" at the end of clause (F); and 
(3) by striking out "and (H)" and all that follows through "for 
such items and services,". 
(b) Clause (1) of section 1833(b) of such Act is amended to read as 
follows: "(1) such total amount shall not include expenses incurred 
for items and services described in section 1861(s)(10),". 
(c) The amendments made by this section shall apply with respect 
to items and services furnished on or after October 1, 1982. 
REIMBURSEMENT FOR ASSISTANTS AT SURGERY 
SEC. 113. (a) Section 1842(b)(6) of the Social Security Act is 
amended by adding at the end thereof the following new subpara-
graph: 
"(D)(i) In the case of physicians' services furnished to a patient in 
a hospital with a teaching program approved as specified in section 
1861(b)(6) but which does not meet the conditions described in 
section 1861(b)(7), no payment shall be made under this part for 
services of assistants at surgery with respect to a surgical procedure 
if such hospital has a training program relating to the medical 
specialty required for such surgical procedure and a qualified indi-
vidual on the staff of the hospital is available to provide such 
services; except that payment may be made under this part for such 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 341 
services, to the extent that such payment is otherwise allowed under 
this paragraph, if such services, as determined under regulations of 
the Secretary— 
"(I) are required due to exceptional medical circumstances, 
"(II) are performed by team physicians needed to perform 
complex medical procedures, or 
"(III) constitute concurrent medical care relating to a medical 
condition which requires the presence of, and active care by, a 
physician of another specialty during surgery, 
and under such other circumstances as the Secretary determines by 
regulation to be appropriate. 
"(ii) For purposes of this subparagraph, the term 'assistant at 
surgery' means a physician who actively assists the physician in 
charge of a case in performing a surgical procedure. 
"(iii) Tlje Secretary shall determine appropriate methods of reim-
bursement of assistants at surgery where such services are reim-
bursable under this part.". 
(b)(1) The amendment made by subsection (a) is effective with 
respect to services performed on or after October 1, 1982. 
(2) The Secretary of Health and Human Services shall first issue 
such final regulations (whether on an interim or other basis) before 
October 1, 1982, as may be necessary to implement the amendment 
made by subsection (a) on a timely basis. If such regulations are 
promulgated on an interim final basis, the Secretary shall take such 
steps as may be necessary to provide opportunity for public com-
ment, and appropriate revision based thereon, so as to provide that 
such regulations are not on an interim basis later than January 31, 
1983. 
"Assistant at 
surgery." 
Effective date. 
42 u s e 1395u 
note. 
PAYMENTS TO HEALTH MAINTENANCE ORGANIZATIONS AND 
COMPETITIVE MEDICAL PLANS 
SEC. 114. (a) Section 1876 of the Social Security Act is amended to 
read as follows: 
42 use 
1395mm. 
PAYMENTS TO HEALTH MAINTENANCE ORGANIZATIONS AND 
COMPETITIVE MEDICAL PLANS 
"SEC. 1876. (a)(lXA) The Secretary shall annually determine— 
"(i) a per capita rate of payment for each class of individuals 
who are enrolled under this section with an eligible organiza-
tion which has entered into a risk-sharing contract and who are 
entitled to benefits under part A and enrolled under part B, and 
"(ii) a per capita rate of payment for each class of individuals 
who are so enrolled with such an organization and who are 
enrolled under part B only. 
For purposes of this section, the term 'risk-sharing contract' means 
a contract entered into under subsection (g) and the term 'reason-
able cost reimbursement contract' means a contract entered into 
under subsection (h). 
"(B) The Secretary shall define appropriate classes of members, 
based on age, disability status, and such other factors as the Secre-
tary determines to be appropriate, so as to ensure actuarial equiv-
alence. The Secretary may add to, modify, or substitute for such 
classes, if such changes will improve the determination of actuarial 
equivalence. 
42 u s e 1395c, 
1395J. 
Definitions. 
96 STAT. 342 
PUBLIC LAW 97-248—SEPT. 3, 1982 
Ante, p. 335. 
42 u s e 1395Z. 
"Adjusted 
average per 
capita cost." 
42 u s e 1395h, 
1395u. 
Post, p. 350. 
42 u s e 1395r. 
"(C) The annual per capita rate of payment for each such class 
shall be equal to 95 percent of the adjusted average per capita cost 
(as defined in paragraph (4)) for that class. 
"(D) In the case of an eligible organization with a risk-sharing 
contract, the Secretary shall make monthly payments in advance 
and in accordance with the rate determined under subparagraph (C) 
and except as provided in subsection (g)(2), to the organization for 
each individual enrolled with the organization under this section. 
"(E) The amount of payment under this paragraph may be retro-
actively adjusted to take into account any difference between the 
actual number of individuals enrolled in the plan under this section 
and the number of such individuals estimated to be so enrolled in 
determining the amount of the advance payment. 
"(2) With respect to any eligible organization which has entered 
into a reasonable cost reimbursement contract, payments shall be 
made to such plan in accordance with subsection (h)(2) rather than 
paragraph (1). 
"(3) Payments under a contract to an eligible organization under 
paragraph (1) or (2) shall be instead of the amounts which (in the 
absence of the contract) would be otherwise payable, pursuant to 
sections 1814(b) and 1833(a), for services furnished by or through the 
organization to individuals enrolled with the organization under 
this section. 
"(4) For purposes of this section, the term 'adjusted average per 
capita cost' means the average per capita amount that the Secretary 
estimates in advance (on the basis of actual experience, or retrospec-
tive actuarial equivalent based upon an adequate sample and other 
information and data, in a geographic area served by an eligible 
organization or in a similar area, with appropriate adjustments to 
assure actuarial equivalence) would be payable in any contract year 
for services covered under parts A and B, or part B only, and types 
of expenses otherwise reimbursable under parts A and B, or part B 
only (including administrative costs incurred by organizations 
described in sections 1816 and 1842), if the services were to be 
furnished by other than an eligible organization or, in the case of 
services covered only under section 1861(s)(2)(H), if the services were 
to be furnished by a physician or as an incident to a physician's 
service. 
"(5) The payment to an eligible organization under this section for 
individuals enrolled under this section with the organization and 
entitled to benefits under part A and enrolled under part B shall be 
made from the Federal Hospital Insurance Trust Fund and the 
Federal Supplementary Medical Insurance Trust Fund. The portion 
of that payment to the organization for a month to be paid by the 
latter trust fund shall be equal to 200 percent of the sum o
f
— 
"(A) the product of (i) the number of such individuals for the 
month who have attained age 65, and (ii) the monthly actuarial 
rate for supplementary medical insurance for the month as 
determined under section 1839(c)(1), and 
"(B) the product of (i) the number of such individuals for the 
month who have not attained age 65, and (ii) the monthly 
actuarial rate for supplementary medical insurance for the 
month as determined under section 1839(c)(4). 
The remainder of that payment shall be paid by the former trust 
fund. 
"(6) If an individual is enrolled under this section with an eligible 
organization having a risk-sharing contract, only the eligible organi-
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 343 
zation shall be entitled to receive payments from the Secretary 
under this title for services furnished to the individual. 
"(b) For purposes of this section, the term 'eligible organization' 
means a public or private entity (which may be a health mainte-
nance organization or a competitive medical plan), organized under 
the laws of any State, which— 
"(1) is a qualified health maintenance organization (as defined 
in section 1310(d) of the Public Health Service Act), or 
"(2) meets the following requirements: 
"(A) The entity provides to enrolled members at least the 
following health care services: 
"(i) Physicians' services performed by physicians (as 
defined in section 1861(r)(l)). 
"(ii) Inpatient hospital services, 
"(iii) Laboratory, X-ray, emergency, and preventive 
services. 
"(iv) Out-of-area coverage. 
"(B) The entity is compensated (except for deductibles, 
coinsurance, and copayments) for the provision of health 
care services to enrolled members by a payment which is 
paid on a periodic basis without regard to the date the 
health care services are provided and which is fixed without 
regard to the frequency, extent, or kind of health care 
service actually provided to a member. 
"(C) The entity provides physicians' services primarily (i) 
directly through physicians who are either employees or 
partners of such organization, or (ii) through contracts with 
individual physicians or one or more groups of physicians 
(organized on a group practice or individual practice basis). 
"(D) The entity assumes full financial risk on a prospec-
tive basis for the provision of the health care services listed 
in paragraph (1), except that such entity may— 
"(i) obtain insurance or make other arrangements for 
the cost of providing to any enrolled member health 
care services listed in subparagraph (A) the aggregate 
value of which exceeds $5,000 in any year, 
"(ii) obtain insurance or make other arrangements 
for the cost of health care service listed in subpara-
graph (A) provided to its enrolled members other than 
through the entity because medical necessity required 
their provision before they could be secured through 
the entity, 
"(iii) obtain insurance or make other arrangements 
for not more than 90 percent of the amount by which 
its costs for any of its fiscal years exceed 115 percent of 
its income for such fiscal year, and 
"(iv) make arrangements with physicians or other 
health professionals, health care institutions, or any 
combination of such individuals or institutions to 
assume all or part of the financial risk on a prospective 
basis for the provision of basic health services by the 
physicians or other health professionals or through the 
institutions. 
"(E) The entity has made adequate provision against the 
risk of insolvency, which provision is satisfactory to the 
Secretary. 
"Eligible 
organization." 
42 u s e 300e-9. 
42 u s e 1395x. 
<)7-5'nn O—R4—nt 1
l.S : OL3
96 STAT. 344 
PUBLIC LAW 97-248—SEPT. 3, 1982 
Paragraph (2)(A)(ii) shall not apply to an entity which had con-
tracted with a single State agency administering a State plan 
42 use 1396. 
approved under title XIX for the provision of services (other than 
inpatient hospital services) to individuals eligible for such services 
under such State plan on a prepaid risk basis prior to 1970. 
"(c)(1) The Secretary may not enter into a contract under this 
section with an eligible organization unless it meets the require-
ments of this subsection and subsection (e) with respect to members 
enrolled under this section. 
"(2) The organization must provide to members enrolled under 
this section, through providers and other persons that meet the 
42 use 1301. 
applicable requirements of this title and part A of title XI— 
"(A) only those services covered under parts A and B of this 
42 use 1395c, 
title, for those members entitled to benefits under part A and 
^^^^J- 
enrolled under part B, or 
"(B) only those services covered under part B, for those 
members enrolled only under such part, 
which are available to individuals residing in the geographic area 
served by the organization, except that (i) the organization may 
provide such members with such additional health care services as 
the members may elect, at their option, to have covered, and (ii) in 
the case of an organization with a risk-sharing contract, the organi-
zation may provide such members with such additional health care 
services as the Secretary may approve. The Secretary shall approve 
any such additional health care services which the organization 
proposes to offer to such members, unless the Secretary determines 
that including such additional services will substantially discourage 
enrollment by covered individuals with the organization. 
"(3)(A) Each eligible organization must have an open enrollment 
period, for the enrollment of individuals under this section, of at 
least 30 days duration every year, and must provide that at any time 
during which enrollments are accepted, the organization will accept 
up to the limits of its capacity (as determined by the Secretary) and 
without restrictions, except as may be authorized in regulations, 
individuals who are eligible to enroll under subsection (d) in the 
order in which they apply for enrollment, unless to do so would 
result in failure to meet the requirements of subsection (f) or would 
result in the enrollment of enroUees substantially nonrepresenta-
tive, as determined in accordance with regulations of the Secretary, 
of the population in the geographic area served by the organization. 
"(B) An individual may enroll under this section with an eligible 
organization in such manner as may be prescribed in regulations 
and may terminate his enrollment with the eligible organization as 
of the beginning of the first calendar month following a full calen-
dar month after the request is made for such termination (or, in the 
case of financial insolvency of the organization, as may be pre-
scribed by regulations) or, in the case of such an organization with a 
reasonable cost reimbursement contract, as may be prescribed by 
regulations. 
"(C) The Secretary may prescribe the procedures and conditions 
under which an eligible organization that has entered into a con-
tract with the Secretary under this subsection may inform individ-
uals eligible to enroll under this section with the organization about 
the organization, or may enroll such individuals with the organiza-
tion. 
"(D) The organization must provide assurances to the Secretary 
that it will not expel or refuse to re-enroll any such individual 
PUBLIC LAW 97-248-SEPT. 3, 1982 
96 STAT. 345 
because of the individual's health status or requirements for health 
care services, and that it will notify each such individual of such fact 
at the time of the individual's enrollment. 
"(4) The organization must— 
"(A) make the services described in paragraph (2) (and such 
other health care services as such individuals have contracted 
for) (i) available and accessible to each such individual, within 
the area served by the organization, promptly as appropriate 
and in a manner which assures continuity, and (ii) when medi-
cally necessary, available and accessible twenty-four hours a 
day and seven days a week, and 
(B) provide for reimbursement with respect to services which 
are described in subparagraph (A) and which are provided to 
such an individual other than through the organization, if (i) 
the services were medically necessary and immediately required 
because of an unforeseen illness, injury, or condition and (ii) it 
was not reasonable given the circumstances to obtain the serv-
ices through the organization. 
"(5)(A) The organization must provide meaningful procedures for 
hearing and resolving grievances between the organization (includ-
ing any entity or individual through which the organization 
provides health care services) and members enrolled with the orga-
nization under this section. 
"(B) A member enrolled with an eligible organization under this 
section who is dissatisfied by reason of his failure to receive any 
health service to which he believes he is entitled and at no greater 
charge than he believes he is required to pay is entitled, if the 
amount in controversy is $100 or more, to a hearing before the 
Secretary to the same extent as is provided in section 205(b), and in 
42 USC 405. 
any such hearing the Secretary shall make the eligible organization 
a party. If the amount in controversy is $1,000 or more, the individ-
ual or eligible organization shall, upon notifying the other party, be 
entitled to judicial review of the Secretary s final decision as pro-
vided in section 205(g), and both the individual and the eligible 
organization shall be entitled to be parties to that judicial review. 
"(6) The organization must have arrangements, established in 
accordance with regulations of the Secretary, for an ongoing quality 
assurance program for health care services it provides to such 
individuals, which program (A) stresses health outcomes and (B) 
provides review by physicians and other health care professionals of 
the process followed in the provision of such health care services. 
"(d) Subject to the provisions of subsection (c)(3), every individual 
entitled to benefits under part A and enrolled under part B or 42 USC 1395c, 
enrolled under part B only (other than an individual medically 
1395j. 
determined to have end-stage renal disease) shall be eligible to 
enroll under this section with any eligible organization with which 
the Secretary has entered into a contract under this section and 
which serves the geographic area in which the individual resides. 
"(e)(1) In no case may— 
"(A) the portion of an eligible organization's premium rate 
and the actuarial value of its deductibles, coinsurance, and 
copayments charged (with respect to services covered under 
parts A and B) to individuals who are enrolled under this 
section with the organization and who are entitled to benefits 
under part A and enrolled under part B, or 
"(B) the portion of its premium rate and the actuarial value of 
its deductibles, coinsurance, and copayments charged (with 
96 STAT. 346 
PUBLIC LAW 97-248—SEPT. 3, 1982 
42 u s e 1395c, 
1395J. 
"Adjusted 
community 
rate." 
"Community 
rating system.' 
95 Stat. 575. 
42 u s e 300e-l. 
respect to services covered under part B) to individuals who are 
enrolled under this section with the organization and enrolled 
under part B only 
exceed the actuarial value of the coinsurance and deductibles that 
would be applicable on the average to individuals enrolled under 
this section with the organization (or, if the Secretary finds that 
adequate data are not available to determine that actuarial value, 
the actuarial value of the coinsurance and deductibles applicable on 
the average to individuals in the area, in the State, or in the United 
States, eligible to enroll under this section with the organization, or 
other appropriate data) and entitled to benefits under part A and 
enrolled under part B, or enrolled under part B only, respectively, if 
they were not members of an eligible organization. 
"(2) If the eligible organization provides to its members enrolled 
under this section services in addition to services covered under 
parts A and B of this title, election of coverage for such additional 
services (unless such services have been approved by the Secretary 
under subsection (c)(2)) shall be optional for such members and such 
organization shall furnish such members with information on the 
portion of its premium rate or other charges applicable to such 
additional services. In no case may the sum o
f
— 
"(A) the portion of such organization's premium rate charged, 
with respect to such additional services, to members enrolled 
under this section, and 
"(B) the actuarial value of its deductibles, coinsurance, and 
copayments charged, with respect to such services to such mem-
bers 
exceed the adjusted community rate for such services. 
"(3) For purposes of this section, the term 'adjusted community 
rate' for a service or services means, at the election of an eligible 
organization, either— 
"(A) the rate of payment for that service or services which the 
Secretary annually determines would apply to a member 
enrolled under this section with an eligible organization if the 
rate of payment were determined under a 'community rating 
system' (as defined in section 1302(8) of the Public Health 
Service Act, other than subparagraph (O), or 
"(B) such portion of the weighted aggregate premium, which 
the Secretary annually estimates would apply to a member 
enrolled under this section with the eligible organization, as the 
Secretary annually estimates is attributable to that service or 
services, 
but adjusted for differences between the utilization characteristics 
of the members enrolled with the eligible organization under this 
section and the utilization characteristics of the other members of 
the organization (or, if the Secretary finds that adequate data are 
not available to adjust for those differences, the differences between 
the utilization characteristics of members in other eligible organiza-
tions, or individuals in the area, in the State, or in the United 
States, eligible to enroll under this section with an eligible organiza-
tion and the utilization characteristics of the rest of the population 
in the area, in the State, or in the United States, respectively). 
"(4) Notwithstanding any other provision of law, the eligible 
organization may (in the case of the provision of services to a 
member enrolled under this section for an illness or injury for which 
the member is entitled to benefits under a workmen's compensation 
law or plan of the United States or a State, under an automobile or 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 347 
liability insurance policy or plan, including a self-insured plan, or 
under no fault insurance) charge or authorize the provider of such 
services to charge, in accordance with the charges allowed under 
such law or policy— 
"(A) the insurance carrier, employer, or other entity which 
under such law, plan, or policy is to pay for the provision of such 
services, or 
"(B) such member to the extent that the member has been 
paid under such law, plan, or policy for such services. 
"(f)(1) Each eligible organization with which the Secretary enters 
into a contract under this section shall have, for the duration of 
such contract, an enrolled membership at least one-half of which 
consists of individuals who are not entitled to benefits under this 
title or under a State plan approved under title XIX. 
"(2) The Secretary may modify or waive the requirement imposed 
by paragraph (1) only if the Secretary determines that— 
"(A) special circumstances warrant such modification or 
waiver, and 
"(B) the eligible organization has taken and is making reason-
able efforts to enroll individuals who are not entitled to benefits 
under this title or under a State plan approved under title XIX. 
"(g)(1) The Secretary may enter a risk-sharing contract with any 
eligible organization, as defined in subsection (b)(1), which has at 
least 5,000 members, except that the Secretary may enter into such 
a contract with an eligible organization that has fewer members if 
the organization primarily serves members residing outside of 
urbanized areas. 
"(2) Each risk-sharing contract shall provide that— 
"(A) if the adjusted community rate, as defined in subsection 
(e)(3), for services under parts A and B (as reduced for the 
actuarial value of the coinsurance and deductibles under those 
parts) for members enrolled under this section with the organi-
zation and entitled to benefits under part A and enrolled in part 
B,or 
"(B) if the adjusted community rate for services under part B 
(as reduced for the actuarial value of the coinsurance and 
deductibles under that part) for members enrolled under this 
section with the organization and entitled to benefits under part 
B only 
is less than the average of the per capita rates of payment to be 
made under subsection (a)(1) at the beginning of an annual contract 
period for members enrolled under this section with the organiza-
tion and entitled to benefits under part A and enrolled in part B, or 
enrolled in part B only, respectively, the eligible organization shall 
provide to members enrolled under a risk-sharing contract under 
this section with the organization and entitled to benefits under part 
A and enrolled in part B, or enrolled in part B only, respectively, the 
additional benefits described in paragraph (3) which are selected by 
the eligible organization and which the Secretary finds are at least 
equal in value to the difference between that average per capita 
payment and the adjusted community rate (as so reduced); except 
that this paragraph shall not apply with respect to any organization 
which elects to receive a lesser payment to the extent that there is 
no longer a difference between the average per capita payment and 
adjusted community rate (as so reduced). If the Secretary finds that 
there is insufficient enrollment experience to determine an average 
of the per capita rates of payment to be made under subsection (aXD 
42 use 1396. 
Waiver. 
Risk-sharing 
contract. 
Provisions. 
42 use 1395c, 
1395J. 
96 STAT. 348 
PUBLIC LAW 97-248—SEPT. 3, 1982 
at the beginning of a contract period, the Secretary may determine 
such an average based on the enrollment experience of other con-
tracts entered into under this section. 
"(3) The additional benefits referred to in paragraph (2) are— 
"(A) the reduction of the premium rate or other charges made 
with respect to services furnished by the organization to mem-
bers enrolled under this section, or 
"(B) the provision of additional health benefits, 
or both. 
"(h)(1) If-
"(A) the Secretary is not satisfied that an eligible organization 
has the capacity to bear the risk of potential losses under a risk-
sharing contract under this section, or 
"(B) the eligible organization so elects or has an insufficient 
number of members to be eligible to enter into a risk-sharing 
contract under subsection (g)(1), 
the Secretary may, if he is otherwise satisfied that the eligible 
organization is able to perform its contractual obligations effectively 
and efficiently, enter into a contract with such organization pursu-
ant to which such organization is reimbursed on the basis of its 
42 use 1395x. 
reasonable cost (as defined in section 1861(v)) in the manner pre-
scribed in paragraph (3). 
"(2) A reasonable cost reimbursement contract under this subsec-
tion may, at the option of such organization, provide that the 
Secretary— 
"(A) will reimburse hospitals and skilled nursing facilities 
either for the reasonable cost (as determined under section 
1861(v)) or for payment amounts determined in accordance with 
Ante, p. 331. 
section 1886, as applicable, of services furnished to individuals 
enrolled with such organization pursuant to subsection (d), and 
"(B) will deduct the amount of such reimbursement from 
payment which would otherwise be made to such organization. 
If such an eligible organization pays a hospital or skilled nursing 
facility directly, the amount paid shall not exceed the reasonable 
cost of the services (as determined under section 1861(v)) or the 
amount determined under section 1886, as applicable, unless such 
organization demonstrates to the satisfaction of the Secretary that 
such excess payments are justified on the basis of advantages gained 
by the organization. 
"(3) Payments made to an organization with a reasonable cost 
reimbursement contract shall be subject to appropriate retroactive 
corrective adjustment at the end of each contract year so as to 
assure that such organization is paid for the reasonable cost actually 
incurred (excluding any part of incurred cost found to be unneces-
sary in the efficient delivery of health services) or the amounts 
otherwise determined under section 1886 for the types of expenses 
otherwise reimbursable under this title for providing services cov-
ered under this title to individuals described in subsection (a)(1). 
"(4) Any reasonable cost reimbursement contract with an eligible 
organization under this subsection shall provide that the Secretary 
shall require, at such time following the expiration of each account-
ing period of the eligible organization (and in such form and in such 
detail) as he may prescribe— 
"(A) that the organization report to him in an independently 
certified financial statement its per capita incurred cost based 
on the types of components of expenses otherwise reimbursable 
under this title for providing services described in subsection 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 349 
(a)(1), including therein, in accordance with accounting proce-
dures prescribed by the Secretary, its methods of allocating 
costs between individuals enrolled under this section and other 
individuals enrolled with such organization; 
"(B) that failure to report such information as may be 
required may be deemed to constitute evidence of likely over-
payment on the basis of which appropriate collection action 
may be taken; 
"(C) that in any case in which an eligible organization is 
related to another organization by common ownership or con-
trol, a consolidated financial statement shall be filed and that 
the allowable costs for such organization may not include costs 
for the types of expense otherwise reimbursable under this title, 
in excess of those which would be determined to be reasonable 
in accordance with regulations (providing for limiting reim-
bursement to costs rather than charges to the eligible organiza-
tion by related organizations and owners) issued by the Secre-
tary; and 
"(D) that in any case in which compensation is paid by an 
eligible organization substantially in excess of what is normally 
paid for similar services by similar practitioners (regardless of 
method of compensation), such compensation may as appropri-
ate be considered to constitute a distribution of profits. 
"(i)(l) Each contract under this section shall be for a term of at 
least one year, as determined by the Secretary, and may be made 
automatically renewable from term to term in the absence of notice 
by either party of intention to terminate at the end of the current 
term; except that the Secretary may terminate any such contract at 
any time (after such reasonable notice and opportunity for hearing 
to the eligible organization involved as he may provide in regula-
tions), if he finds that the organization— 
"(A) has failed substantially to carry out the contract, 
"(B) is carrying out the contract in a manner inconsistent 
with the efficient and effective administration of this section, or 
"(C) no longer substantially meets the applicable conditions of 
subsections (b), (c), and (e). 
"(2) The effective date of any contract executed pursuant to this 
section shall be specified in the contract. 
"(3) Each contract under this section— 
"(A) shall provide that the Secretary, or any person or organi-
zation designated by him— 
"(i) shall have the right to inspect or otherwise evaluate 
(I) the quality, appropriateness, and timeliness of services 
performed under the contract and (II) the facilities of the 
organization when there is reasonable evidence of some 
need for such inspection, and 
"(ii) shall have the right to audit and inspect any books 
and records of the eligible organization that pertain (I) to 
the ability of the organization to bear the risk of potential 
financial losses, or (II) to services performed or determina-
tions of amounts payable under the contract; 
"(B) shall require the organization with a risk-sharing con-
tract to provide (and pay for) written notice in advance of the 
contract's termination, as well as a description of alternatives 
for obtaining benefits under this title, to each individual 
enrolled under this section with the organization; and 
Filing of a 
consolidated 
financial 
statement. 
Distribution of 
profits. 
96 STAT. 350 
PUBLIC LAW 97-248—SEPT. 3, 1982 
42 u s e 300e-17. 
42 u s e 300e. 
42 u s e 1395x. 
Ante, p. 341. 
42 u s e 1395mm 
note. 
42 u s e 1395c, 
1395J. 
"(C) shall require the organization to comply with subsections 
(a) and (c) of section 1318 of the Public Health Service Act 
(relating to disclosure of certain financial information) and with 
the requirement of section 1301(c)(8) of such Act (relating to 
liability arrangements to protect members); and 
"(D) shall contain such other terms and conditions not incon-
sistent with this section (including requiring the organization to 
provide the Secretary with such information) as the Secretary 
may find necessary and appropriate. 
"(4) The Secretary may not enter into a risk-sharing contract with 
an eligible organization if a previous risk-sharing contract with that 
organization under this section was terminated at the request of the 
organization within the preceding five-year period, except in circum-
stances which warrant special consideration, as determined by the 
Secretary. 
"(5) The authority vested in the Secretary by this section may be 
performed without regard to such provisions of law or regulations 
relating to the making, performance, amendment, or modification of 
contracts of the United States as the Secretary may determine to be 
inconsistent with the furtherance of the purpose of this title.". 
(b) Section 1861(s)(2) of the Social Security Act is amended— 
(1) by striking out "and" at the end of subparagraph (F); 
(2) by inserting "and" after the semicolon in subparagraph 
(G); and 
(3) by adding after subparagraph (G) the following new sub-
paragraph: 
"(H) services furnished pursuant to a contract under section 
1876 to a member of an eligible organization by a physician 
assistant or by a nurse practitioner (as defined in subsection 
(aa)(3)) and such services and supplies furnished as an incident 
to his service to such a member as would otherwise be covered 
under this part if furnished by a physician or as an incident to a 
physician's service;". 
(c)(1) Subject to paragraph (2), the amendment made by subsection 
(a) shall apply with respect to services furnished on or after the 
initial effective date (as defined in paragraph (4)), except that such 
amendment shall not apply— 
(A) with respect to services furnished by an eligible organiza-
tion to any individual who is enrolled with that organization 
under an existing cost contract (as defined in paragraph (3)(A)) 
and entitled to benefits under part A, or enrolled in part B, of 
title XVIII of the Social Security Act at the time the organiza-
tion first enters into a new risk-sharing contract (as defined in 
paragraph (3)(D)) unless— 
(i) the individual requests at any time that the amend-
ment apply, or 
(ii) the Secretary determines at any time that the amend-
ment should apply to all members of the organization 
because of administrative costs or other administrative bur-
dens involved and so informs in advance each affected 
member of the eligible organization; 
(B) with respect to services furnished by an eligible organiza-
tion during the five-year period beginning on the initial effec-
tive date, if— 
(i) the organization has an existing risk-sharing contract 
(as defined in paragraph (3)(B)) on the initial effective date, 
or 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 351 
(ii) on the date of the enactment of this Act the organiza-
tion was furnishing services pursuant to an existing demon-
stration project (as defined in paragraph (3)(C)), such 
demonstration project is concluded before the initial 
effective date, and before such initial effective date the 
organization enters into an existing risk-sharing contract, 
unless the organization requests that the amendment apply 
earlier; or 
(C) with respect to services furnished by an eligible organiza-
tion during the period of an existing demonstration project if on 
the initial effective date the organization was furnishing serv-
ices pursuant to the project and if the project concludes after 
such date. 
(2)(A) In the case of an eligible organization which has in effect an 
existing cost contract (as defined in paragraph (3)(A)) on the initial 
effective date, the organization may receive payment under a new 
risk-sharing contract with respect to a current, nonrisk medicare 
enroUee (as defined in subparagraph (O) only to the extent that the 
organization enrolls, for each such enroUee, two new medicare 
enroUees (as defined in subparagraph (D)). The selection of those 
current nonrisk medicare enrollees with respect to whom payment 
may be so received under a new risk-sharing contract shall be made 
in a nonbiased manner. 
(B) Subparagraph (A) shall not be construed to prevent an eligible 
organization from providing for enrollment, on a basis described in 
subsection (a)(6) of section 1876 of the Social Security Act (as 
amended by this Act, other than under a reasonable cost reimburse-
ment contract), of current, nonrisk medicare enrollees and from 
providing such enrollees with some or all of the additional benefits 
described in section 1876(gX2) of the Social Security Act (as amended 
by this Act), but (except as provided in subparagraph (A))— 
(i) payment to the organization with respect to such enrollees 
shall only be made in accordance with the terms of a reasonable 
cost reimbursement contract, and 
(ii) no payment may be made under section 1876 of such Act 
with respect to such enrollees for any such additional benefits. 
Individuals enrolled with the organization under this subparagraph 
shall be considered to be individuals enrolled with the organization 
for the purpose of meeting the requirement of section 1876(g)(2) of 
the Social Security Act (as amended by this Act). 
(C) For purposes of this paragraph, the term "current, nonrisk 
medicare enrollee" means, with respect to an organization, an 
individual who on the initial effective date— 
(i) is enrolled with that organization under an existing cost 
contract, and 
(ii) is entitled to benefits under part A, or enrolled in part B, 
of title XVIII of the Social Security Act. 
(D) For purposes of this paragraph, the term "new medicare 
enrollee" means, with respect to an organization, an individual 
who— 
(i) is enrolled with the organization after the date the organi-
zation first enters into a new risk-sharing contract, 
(ii) at the time of such enrollment is entitled to benefits under 
part A, or enrolled in part B, of title XVIII of the Social Security 
Act, and 
Ante, p. 341. 
"Current, 
nonrisk 
medicare 
enrollee." 
42 u s e 1395c, 
1395J. 
96 STAT. 352 
PUBLIC LAW 97-248—SEPT. 3, 1982 
Definitions. 
Ante, p. 341. 
42 u s e 1395/. 
81 Stat. 930. 
86 Stat. 1390. 
42 u s e 1395. 
Study. 
42 u s e 1395mm 
note. 
Report to 
eongress. 
Study. 
42 u s e 1395mm 
note. 
95 Stat. 813. 
42 u s e 1396a 
note. 
(iii) was not enrolled with the organization at the time the 
individual became entitled to benefits under part A, or to enroll 
in part B, of such title. 
(3) For purposes of this subsection: 
(A) The term "existing cost contract" means a contract which 
is entered into under section 1876 of the Social Security Act, as 
in effect before the initial effective date, or reimbursement on a 
reasonable cost basis under section 1833(a)(1)(A) of such Act, and 
which is not an existing risk-sharing contract or an existing 
demonstration project. 
(B) The term "existing risk-sharing contract" means a con-
tract entered into under section 1876(i)(2)(A) of the Social Secu-
rity Act, as in effect before the initial effective date. 
(C) The term "existing demonstration project" means a dem-
onstration project under section 402(a) of the Social Security 
Amendments of 1967 or under section 222(a) of the Social 
Security Amendments of 1972, relating to the provision of 
services for which payment may be made under title XVIII of 
the Social Security Act. 
(D) The term "new risk-sharing contract" means a contract 
entered into under section 1876(g) of the Social Security Act, as 
amended by this Act. 
(E) The term "reasonable cost reimbursement contract" 
means a contract entered into under section 1833(a)(1) of the 
Social Security Act or under section 1876(h) of such Act, as 
amended by this Act. 
(4) As used in this section, the term "initial effective date" 
means— 
(A) the first day of the thirteenth month which begins after 
the date of the enactment of this Act, or 
(B) the first day of the first month after the month in which 
the Secretary of Health and Human Services notifies the Com-
mittee on Finance of the Senate and the Committees on Ways 
and Means and on Energy and Commerce of the House of 
Representatives that he is reasonably certain that the method-
ology to make appropriate adjustments (referred to in section 
1876(a)(4) of the Social Security Act, as amended by this Act) has 
been developed and can be implemented to assure actuarial 
equivalence in the estimation of adjusted average per capita 
costs under that section, 
whichever is later. 
(d) The Secretary of Health and Human Services shall conduct a 
study of the additional benefits selected by eligible organizations 
pursuant to section 1876(g)(2) of the Social Security Act, as amended 
by subsection (a) of this section. The Secretary shall report to the 
Congress within 24 months of the initial effective date (as defined in 
subsection (c)(4)) with respect to the findings and conclusions made 
as a result of such study. 
(e) The Secretary of Health and Human Services shall conduct a 
study evaluating the extent of, and reasons for, the termination by 
medicare beneficiaries of their memberships in organizations with 
contracts under section 1876 of the Social Security Act. Such study 
may be coordinated with the study provided for under section 
2178(d) of the Omnibus Budget Reconciliation Act of 1981. In con-
ducting such study, the Secretary shall place special emphasis on 
the quantity and quality of medical care provided in such organiza-
tions and the quality of such care when provided on a fee-for-service 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 353 
basis. The Secretary shall submit an interim report to the Congress, 
within two years after the initial effective date (as defined in 
subsection (c)(4)), and a final report within five years after such date 
containing the respective interim and final findings and conclusions 
made as a result of such study. 
Report to 
Congress. 
PROHIBITION OF PAYMENT FOR INEFFECTIVE DRUGS 
SEC. 115. (a) Effective September 30, 1982, section 131 of Public 
Law 97-92 is repealed, and the provisions of such section, and of 
section 210 of the Departments of Labor, Health and Human Serv-
ices, and Education and Related Agencies Appropriation Act, 1982 
(H.R. 4560), as passed by the House of Representatives on October 6, 
1981, and of section 209 of such Act as reported by the Senate 
Committee on Appropriations on November 9, 1981, shall not apply 
to any sums appropriated for fiscal year 1983 or any succeeding 
fiscal year. 
(b) No provision of law limiting the use of funds for purposes of 
enforcing or implementing section 1862(c) or section 1903(i)(5) of the 
Social Security Act, section 2103 of the Omnibus Budget Reconcili-
ation Act of 1981, or any rule or regulation issued pursuant to any 
such section (including any provision contained in, or incorporated 
by reference into, any appropriation Act or resolution making con-
tinuing appropriations) shall apply to any period after September 
30, 1982, unless such provision of law is enacted after the date of the 
enactment of this Act and specifically states that such provision is to 
supersede this section. 
Subpart C—Other Payment Provisions 
Repeal. 
95 Stat. 1199. 
42 use 1395y 
note. 
42 use 1395y, 
1396b. 
95 Stat. 787. 
MEDICARE PAYMENTS SECONDARY FOR OLDER WORKERS COVERED 
UNDER GROUP HEALTH PLANS 
SEC. 116. (a) Section 4 of the Age Discrimination in Employment 
Act of 1967 is amended by adding at the end thereof the following 
new subsection: 
"(g)(1) For purposes of this section, any employer must provide 
that any employee aged 65 through 69 shall be entitled to coverage 
under any group health plan offered to such employees under the 
same conditions as any employee under age 65. 
"(2) For purposes of paragraph (1), the term 'group health plan' 
has the meaning given to such term in section 162(i)(2) of the 
Internal Revenue Code of 1954.". 
(b) Section 1862(b) of the Social Security Act is amended by adding 
at the end thereof the following new paragraph: 
"(3)(A)(i) Payment under this title may not be made, except as 
provided in clause (ii), with respect to any item or service furnished 
during the period described in clause (iii) to an individual who is 
over 64 but under 70 years of age (or to the spouse of such individ-
ual, if the spouse is over 64 but under 70 years of age) who is 
employed at the time such item or service is furnished to the extent 
that payment with respect to expenses for such item or service has 
been made, or can reasonably be expected to be made, under a group 
health plan (as defined in clause (iv)) under which such individual is 
covered by reason of such employment. 
"(ii) Any payment under this title with respect to any item or 
service during the period described in clause (iii) shall be condi-
29 use 623. 
"Group health 
plan." 
26 use 162. 
42 use 13953^ 
96 STAT. 354 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"Waiver." 
42 u s e 426. 
42 use 426-1. 
"Group health 
plan." 
26 use 162. 
Ante, p. 331. 
Effective date. 
29 use 623 
note. 
tioned on reimbursement to the appropriate Trust Fund established 
by this title when notice or other information is received that 
payment for such item or service has been made under a group 
health plan. The Secretary may waive the provisions of this clause 
in the case of an individual claim if he determines that the probabil-
ity of recovery or amount involved in such claim does not warrant 
the pursuing of the claim. 
"(iii) The provisions of clauses (i) and (ii) shall apply to an individ-
ual only for the period beginning with the month in which such 
individual becomes entitled to benefits under this title under section 
226(a) and ending with the month in which such individual attains 
the age of 70 and shall not include any month for which the 
individual would, upon application, be entitled to benefits under 
section 226A. 
"(iv) For purposes of this paragraph, the term 'group health plan' 
has the meaning given to such term in section 162(i)(2) of the 
Internal Revenue Code of 1954. 
"(B) Where payment for an item or service under a group health 
plan is less than the amount of the charge for such item or service, 
payment may be made under this title (without regard to deducti-
bles and coinsurance under this title) for the remainder of such 
charge, but— 
"(i) such payment under this title may not exceed an amount 
which would be payable under this title for such item or service 
in the absence of such group health plan; and 
"(ii) such payment under this title, when combined with the 
amount payable under such plan, may not exceed— 
"(I) in the case of an item or service payment for which is 
determined under this title on the basis of reasonable cost 
(or other cost-related basis) or under section 1886, the 
amount which would be payable under this title on such 
basis; and 
"(II) in the case of an item or service for which payment 
is authorized under this title on another basis, the greater 
of— 
"(a) the amount which would be payable under the 
group health plan (without regard to deductibles and 
coinsurance under such plan), or 
"(b) the reasonable charge or other amount which 
would be payable under this title (without regard to 
deductibles and coinsurance under this title).". 
(c) The amendment made by subsection (a) shall become effective 
on January 1, 1983, and the amendment made by subsection (b) shall 
apply with respect to items and services furnished on or after such 
date. 
INTEREST CHARGES ON OVERPAYMENTS AND UNDERPAYMENTS 
42 use I395g. 
SEC. 117. (a)(1) Section 1815 of the Social Security Act is amended 
by adding at the end the following new subsection: 
"(d) Whenever a final determination is made that the amount of 
payment made under this part to a provider of services was in excess 
of or less than the amount of payment that is due, and payment of 
such excess or deficit is not made (or effected by offset) within 30 
days of the date of the determination, interest shall accrue on the 
balance of such excess or deficit not paid or offset (to the extent that 
the balance is owed by or owing to the provider) at a rate deter-
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 355 
42 u s e 1395/. 
mined in accordance with the regulations of the Secretary of the 
Treasury applicable to charges for late payments.". 
(2) Section 1833 of such Act is amended by adding at the end the 
following new subsection: 
"(j) Whenever a final determination is made that the amount of 
payment made under this part either to a provider of services or to 
another 
person 
pursuant 
to 
an 
assignment 
under 
section 
1842(b)(3)(B)(ii) was in excess of or less than the amount of payment 42 USC 1395u. 
that is due, and payment of such excess or deficit is not made (or 
effected by offset) within 30 days of the date of the determination, 
interest shall accrue on the balance of such excess or deficit not paid 
or offset (to the extent that the balance is owed by or owing to the 
provider) at a rate determined in accordance with the regulations of 
the Secretary of the Treasury applicable to charges for late pay-
ments.". 
(b) The amendments made by subsection (a) apply to final determi-
nations made on or after the date of the enactment of this Act. 
42 USC 1395g 
note. 
AUDIT AND MEDICAL CLAIMS REVIEW 
SEC. 118. In addition to any funds otherwise provided for fiscal 
years 1983, 1984, and 1985 for payments to intermediaries and 
carriers under agreements entered into under sections 1816 and 
1842 of the Social Security Act, there are transferred from the 
Federal Hospital Insurance Trust Fund and the Federal Supplemen-
tary Medical Insurance Fund in such proportions as the Secretary of 
Health and Human Services determines to be appropriate, an addi-
tional $45,000,000 for each of such fiscal years for payments to such 
intermediaries and carriers under such agreements to be used exclu-
sively for the purpose of carrying out provider cost audits and 
reviews of medical necessity, consistent with the provisions of sec-
tions 1816 and 1842 of the Social Security Act. 
42 USC 1395h 
note. 
42 USC 1395h, 
1395u. 
PRIVATE SECTOR REVIEW INITIATIVE 
42 USC 1395CC 
note. 
SEC. 119. (a) The Secretary of Health and Human Services shall 
undertake an initiative to improve medical review by intermediaries 
and carriers under title XVIII of the Social Security Act and to 42 USC 1395 
encourage similar review efforts by private insurers and other 
private entities. The initiative shall include the development of 
specific standards for measuring the performance of such interme-
diaries and carriers with respect to the identification and reduction 
of unnecessary utilization of health services. 
(b) Where such review activity results in the denial of payment to 
providers of services under title XVIII of the Social Security Act, 
such providers shall be prohibited, in accordance with sections 1866 
and 1879 of such title, from collecting any payments from benefici-
aries unless otherwise provided under such title. 
TEMPORARY DELAY IN PERIODIC INTERIM PAYMENTS 
SEC. 120. Notwithstanding section 1815(a) of the Social Security 
Act, in the case of a hospital which is paid periodic interim pay-
ments under such section, the Secretary of Health and Human 
Services shall provide that— 
42 USC 1395g 
note. 
42 USC 1395g. 
96 STAT. 356 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(1) with respect to the last 21 days for which such payments 
would otherwise be made during fiscal year 1983, such pay-
ments shall be deferred until fiscal year 1984; and 
(2) with respect to the last 21 days for which such payments 
would otherwise be made during fiscal year 1984, such pay-
ments shall be deferred until fiscal year 1985. 
PART II—CHANGES IN BENEFITS, PREMIUMS, AND 
ENROLLMENT 
MEDICARE COVERAGE OF FEDERAL EMPLOYEES 
SEC. 121. For provisions providing certain employees of the United 
States and instrumentalities thereof with entitlement to hospital 
insurance benefits under part A of title XVIII of the Social Security 
Post, p. 559. 
Act, see section 278 of this Act. 
HOSPICE CARE 
42 use 1395c. 
SEC. 122. (aXD Section 1811 of the Social Security Act is amended 
by striking out "and home health services" and inserting in lieu 
thereof "home health services, and hospice care". 
45USC23if. 
(2) Section 7(dXl) of the Railroad Retirement Act of 1974 is 
amended by inserting "hospice care," after "home health services,", 
42 use I395d. 
(b)(1) Section 1812(a) of the Social Security Act is amended by 
striking out "and" at the end of paragraph (2), by striking out the 
period at the end of paragraph (3) and inserting in lieu thereof "; 
and", and by adding after paragraph (3) the following new para-
graph: 
"(4) in lieu of certain other benefits, hospice care with respect 
to the individual during up to two periods of 90 days each and 
one subsequent period of 30 days with respect to which the 
individual makes an election under subsection (d)(1).". 
(2) Section 1812 of such Act is further amended by inserting after 
subsection (c) the following new subsection: 
"(d)(1) Payment under this part may be made for hospice care 
provided with respect to an individual only during two periods of 90 
days each and one subsequent period of 30 days during the individ-
ual's lifetime and only, with respect to each such period, if the 
individual makes an election under this paragraph to receive hos-
pice care under this part provided by, or under arrangements made 
by, a particular hospice program instead of certain other benefits 
under this title. 
"(2)(A) Except as provided in subparagraphs (B) and (C) and except 
in such exceptional and unusual circumstances as the Secretary 
may provide, if an individual makes such an election for a period 
with respect to a particular hospice program, the individual shall be 
deemed to have waived all rights to have payment made under this 
title with respect to— 
"(i) hospice care provided by another hospice program (other 
than under arrangements made by the particular hospice pro-
gram) during the period, and 
"(ii) services furnished during the period that are determined 
(in accordance with guidelines of the Secretary) to be— 
"(I) related to the treatment of the individual's condition 
with respect to which a diagnosis of terminal illness has 
been made or 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 357 
"(II) equivalent to (or duplicative of) hospice care; 
except that clause (ii) shall not apply to physicians' services fur-
nished by the individual's attending physician (if not an employee of 
the hospice program) or to other than services provided by (or under 
arrangements made by) the hospice program. 
"(B) After an individual makes such an election with respect to a 
90- or 30-day period, the individual may revoke the election during 
the period, in which case— 
"(i) the revocation shall act as a waiver of the right to have 
payment made under this part for any hospice care benefits for 
the remaining time in such period and (for purposes of subsec-
tion (a)(4) and subparagraph (A)) the individual shall be deemed 
to have been provided such benefits during such entire period, 
and 
"(ii) the individual may at any time after the revocation 
execute a new election for a subsequent period, if the individual 
otherwise is entitled to hospice care benefits with respect to 
such a period. 
"(C) An individual may, once in each such period, change the 
hospice program with respect to which the election is made and such 
change shall not be considered a revocation of an election under 
subparagraph (B). 
"(D) For purposes of this title, an individual's election with respect 
to a hospice program shall no longer be considered to be in effect 
with respect to that hospice program after the date the individual's 
revocation or change of election with respect to that election takes 
effect.". 
(c)(i) Section 1814(a) of the Social Security Act is amended by 42 USC 1395f. 
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 inserting after paragraph (7) the following new 
paragraph: 
"(8) in the case of hospice care provided an individual— 
"(A)(i) in the first 90-day period— 
"(I) the individual's attending physician (as defined 
in section 1861(dd)(3)(B)), and 
Post, p. 359. 
"(II) the medical director (or physician member of the 
interdisciplinary 
group 
described 
in 
section 
1861(dd)(2)(B)) of the hospice program providing (or 
arranging for) the care, 
each certify, not later than two days after hospice care is 
initiated, that the individual is terminally ill (as defined in 
section 1861(dd)(3)(A)), and 
"(ii) in a subsequent 90- or 30-day period, the medical 
director or physician described in clause (i)(II) recertifies at 
the beginning of the period that the individual is terminally 
ill; 
"(B) a written plan for providing hospice care with 
respect to such individual has been established (before such 
care is provided by, or under arrangements made by, that 
hospice program) and is periodically reviewed by the indi-
vidual's attending physician and by the medical director 
(and the interdisciplinary group described in section 
1861(dd)(2)(B)) of the hospice program; and 
"(C) such care is being or was provided pursuant to such 
plan of care.". 
96 STAT. 358 
PUBLIC LAW 97-248—SEPT. 3, 1982 
42 use 1395f. 
(2)(A) Section 1814(b) of such Act is amended by inserting "(other 
than a hospice program providing hospice care)" after "The amount 
paid to any provider of services". 
(B) Section 1814 of such Act is further amended by adding at the 
end the following new subsection: 
PAYMENT FOR HOSPICE CARE 
"(i)(l) Subject to the limitation under paragraph (2) and the 
Post, p. 361. 
provisions of section 1813(a)(4), the amount paid to a hospice pro-
gram with respect to hospice care for which payment may be made 
under this part shall be an amount equal to the costs which are 
reasonable and related to the cost of providing hospice care or which 
are based on such other tests of reasonableness as the Secretary may 
prescribe in regulations (including those authorized under section 
1861(v)(l)(A)), except that no payment may be for bereavement 
counseling and no reimbursement may be made for other counseling 
services (including nutritional and dietary counseling) as separate 
services. 
"(2)(A) The amount of payment made under this part for hospice 
care provided by (or under arrangements made by) a hospice pro-
gram located in a region (as defined by the Secretary) for an 
accounting year may not exceed the 'cap amount' for the region for 
the year (computed under subparagraph (B)) multiplied by the 
number of medicare beneficiaries in the hospice program in that 
year (determined under subparagraph (O). 
"Cap amount." 
"(B) For purposes of subparagraph (A), the 'cap amount' for a 
region for a year is computed as follows: 
"(i) The Secretary, using records of the program under this 
title, shall identify individuals (or a representative sample of 
such individuals)— 
"(I) who died during the base period (as defined in 
clause (v)), 
"(II) with respect to whom the primary cause of death 
was cancer, and 
"(III) who, during the six-month period preceding death, 
were provided benefits under this title, 
"(ii) The Secretary shall determine a national average medi-
care per capita expenditure amount by (I) determining (or 
estimating) the amount of payments made under this title with 
respect to services provided to individuals identified in clause (i) 
during the six months before death, and (II) dividing such 
amount of payments by the number of such individuals. 
"(iii) The Secretary, using the best available data, shall then 
compute a regional average medicare per capita expenditure 
amount for each region, by adjusting the national average 
medicare per capita expenditure amount (computed under 
clause (ii)) to reflect the relative difference between that 
region's average cost of delivering health care and the national 
average cost of delivering health care. 
"Cap amount." 
"(iv) The 'cap amount' for a region for an accounting year is 
40 percent of the regional average determined under clause (iii) 
for that region, increased or decreased by the same percentage 
as the percentage increase or decrease, respectively, in the 
medical care expenditure category of the consumer price index 
for all urban consumers (U.S. city average), published by the 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 359 
"Number of 
medicare 
beneficiaries.' 
Bureau of Labor Statistics, from the fourth month of the base 
period to the fifth month of the accounting year. 
"(v) For purposes of this subparagraph, the term 'base period' 
"Base period." 
means the most recent period of 12 months (ending before the 
date proposed regulations are first issued to carry out this 
paragraph) for which the Secretary determines he has sufficient 
data to make the determinations required under clauses (i) 
through (iii). 
"(C) For purposes of subparagraph (A), the 'number of medicare 
beneficiaries' in a hospice program in an accounting year is equal to 
the number of individuals who have made an election under subsec-
tion (d) with respect to the hospice program and have been provided 
hospice care by (or under arrangements made by) the hospice pro-
gram under this part in the accounting year, such number reduced 
to reflect the proportion of hospice care that each such individual 
was provided in a previous or subsequent accounting year or under a 
plan of care established by another hospice program.". 
(3) Section 1816(e) of such Act is amended by adding at the end 
42 USC I395h. 
thereof the following new paragraph: 
"(5) Notwithstanding any other provision of this title, the Secre-
tary shall designate the agency or organization which has entered 
into an agreement under this section to perform functions under 
such an agreement with respect to each hospice program, except 
that with respect to a hospice program which is a subdivision of a 
provider of services (and such hospice program and provider of 
services are under common control) due regard shall be given to the 
agency or organization which performs the functions under this 
section for the provider of services.". 
(d)(1) Section 1861(u) of the Social Security Act is amended by 42 USC I395x. 
inserting "hospice program," after "home health agency,". 
(2) Section 1861(wXl) of such Act is amended by striking out "or 
home health agency" and by inserting in lieu thereof "home health 
agency, or hospice program". 
(3) Section 1861 of such Act is further amended by adding at the 
end the following new subsection: 
HOSPICE CARE; HOSPICE PROGRAM 
"(dd)(l) The term 'hospice care' means the following items and 
services provided to a terminally ill individual by, or by others 
under arrangements made by, a hospice program under a written 
plan (for providing such care to such individual) established and 
periodically reviewed by the individual's attending physician and by 
the medical director (and by the interdisciplinary group described in 
paragraph (2)(B)) of the program— 
"(A) nursing care provided by or under the supervision of a 
registered professional nurse, 
"(B) physical or occupational therapy or speech-language 
pathology, 
"(C) medical social services under the direction of a physician, 
"(D)(i) services of a home health aide who has successfully 
completed a training program approved by the Secretary and 
(ii) homemaker services, 
"(E) medical supplies (including drugs and biologicals) and the 
use of medical appliances, while under such a plan, 
"(F) physicians' services, 
"Hospice care. 
96 STAT. 360 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(G) short-term inpatient care (including both respite care 
and procedures necessary for pain control and acute and 
chronic symptom management) in an inpatient facility meeting 
such conditions as the Secretary determines to be appropriate to 
provide such care, but such respite care may be provided only 
on an intermittent, nonroutine, and occasional basis and may 
not be provided consecutively over longer than five days, and 
"(H) counseling (including dietary counseling) with respect to 
care of the terminally ill individual and adjustment to his 
death. 
The care and services described in subparagraphs (A) and (D) may be 
provided on a 24-hour, continuous basis only during periods of crisis 
(meeting criteria established by the Secretary) and only as necessary 
to maintain the terminally ill individual at home. 
"Hospice 
"(2) The term 'hospice program' means a public agency or private 
program." 
organization (or a subdivision thereof) which— 
"(A)(i) is primarily engaged in providing the care and services 
described in paragraph (1) and makes such services available (as 
needed) on a 24-hour basis and which also provides bereavement 
counseling for the immediate family of terminally ill individ-
uals, 
"(ii) provides for such care and services in individuals' homes, 
on an outpatient basis, and on a short-term inpatient basis, 
directly or under arrangements made by the agency or organi-
zation, except that— 
"(I) the agency or organization must routinely provide 
directly substantially all of each of the services described in 
subparagraphs (A), (C), (F), and (H) of paragraph (1), and 
"(II) in the case of other services described in paragraph 
(1) which are not provided directly by the agency or organi-
zation, the agency or organization must maintain profes-
sional management responsibility for all such services 
furnished to an individual, regardless of the location or 
facility in which such services are furnished; and 
"(iii) provides assurances satisfactory to the Secretary that 
the aggregate number of days of inpatient care described in 
paragraph (1)(G) provided in any 12-month period to individuals 
42 use I395d. 
who have an election in effect under section 1812(d) with respect 
to that agency or organization does not exceed 20 percent of the 
aggregate number of days during that period on which such 
elections for such individuals are in effect; 
"(B) has an interdisciplinary group of personnel which— 
"(i) includes at least— 
"(I) one physician (as defined in subsection (r)(l)), 
"(II) one registered professional nurse, and 
"(III) one social worker, 
employed by the agency or organization, and also includes 
at least one pastoral or other counselor, 
"(ii) provides (or supervises the provision of) the care and 
services described in paragraph (1), and 
"(iii) establishes the policies governing the provision of 
such care and services; 
"(C) maintains central clinical records on all patients; 
"(D) does not discontinue the hospice care it provides with 
respect to a patient because of the inability of the patient to pay 
for such care; 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 361 
"Terminally 
ill." 
"Attending 
physician.' 
"(E)(i) utilizes volunteers in its provision of care and services 
in accordance with standards set by the Secretary, which stand-
ards shall ensure a continuing level of effort to utilize such 
volunteers, and (ii) maintains records on the use of these volun-
teers and the cost savings and expansion of care and services 
achieved through the use of these volunteers; 
"(F) in the case of an agency or organization in any State in 
which State or applicable local law provides for the licensing of 
agencies or organizations of this nature, is licensed pursuant to 
such law; and 
"(G) meets such other requirements as the Secretary may find 
necessary in the interest of the health and safety of the individ-
uals who are provided care and services by such agency or 
organization. 
"(3)(A) An individual is considered to be 'terminally ill' if the 
individual has a medical prognosis that the individual's life 
expectancy is 6 months or less. 
"(B) The term 'attending physician' means, with respect to an 
individual, the physician (as defined in subsection (r)(l)), who may be 
employed by a hospice program, whom the individual identifies as 
having the most significant role in the determination and delivery 
of medical care to the individual at the time the individual makes 
an election to receive hospice care. 
"(4)(A) An entity which is certified as a provider of services other 
than a hospice program shall be considered, for purposes of certifica-
tion as a hospice program, to have met any requirements under 
paragraph (2) which are also the same requirements for certification 
as such other type of provider. The Secretary shall coordinate 
surveys for determining certification under this title so as to pro-
vide, to the extent feasible, for simultaneous surveys of an entity 
which seeks to be certified as a hospice program and as a provider of 
services of another type. 
"(B) Any entity which is certified as a hospice program and as a 
provider of another type shall have separate provider agreements 
under section 1866 and shall file separate cost reports with respect 
42 USC 1395cc. 
to costs incurred in providing hospice care and in providing other 
services and items under this title.'. 
(e) Section 1813(a) of such Act is amended by adding at the end the 
following new paragraph: 
"(4)(A) The amount payable for hospice care shall be reduced— 
"(i) in the case of drugs and biologicals provided on an outpa-
tient basis by (or under arrangements made by) the hospice 
program, by a coinsurance amount equal to an amount (not to 
exceed $5 per prescription) determined in accordance with a 
drug copayment schedule (established by the hospice program) 
which is related to, and approximates 5 percent of, the cost of 
the drug or biological to the program, and 
"(ii) in the case of respite care provided by (or under arrange-
ments made by) the hospice program, by a coinsurance amount 
equal to 5 percent of the amount estimated by the hospice 
program (in accordance with regulations of the Secretary) to be 
equal to the amount of payment under section 1814(i) to that 
program for respite care; 
except that the total of the coinsurance required under clause (ii) for 
an individual may not exceed for a hospice coinsurance period the 
inpatient hospital deductible applicable for the year in which the 
period began. For purposes of this subparagraph, the term 'hospice 
"Hospice 
coinsurance 
period." 
42 USC 1395e. 
Ante, p. 358. 
96 STAT. 362 
PUBLIC LAW 97-248—SEPT. 3, 1982 
Ante, p. 356. 
42 use 1395y. 
42 use 1395x. 
42 use 1395y. 
42 use 1395z. 
42 use 1395aa. 
42 use 1395bb. 
42 use 1395CC. 
42 use 1395c 
note. 
coinsurance period' means, for an individual, a period of consecutive 
days beginning with the first day for which an election under 
section 1812(d) is in effect for the individual and ending with the 
close of the first period of 14 consecutive days on each of which such 
an election is not in effect for the individual. 
"(B) During the period of an election by an individual under 
section 1812(d)(1), no copayments or deductibles other than those 
under subparagraph (A) shall apply with respect to services fur-
nished to such individual which constitute hospice care, regardless 
of the setting in which such services are furnished.". 
(f) Section 1862(a) of the Social Security Act is amended— 
(1) by amending paragraph (1) to read as follows: 
"(1)(A) which, except for items and services described in 
subparagraph (B) or (C), are not reasonable and necessary for 
the diagnosis or treatment of illness or injury or to improve the 
functioning of a malformed body member, 
"(B) in the case of items and services described in section 
1861(s)(10), which are not reasonable and necessary for the 
prevention of illness, and 
"(C) in the case of hospice care, which are not reasonable and 
necessary for the palliation or management of terminal ill-
ness;"; 
(2) by inserting "(except, in the case of hospice care, as is 
otherwise permitted under paragraph (1)(C))" in paragraph (6) 
after "comfort items"; 
(8) by striking out "paragraph (1)" in paragraph (7) and 
inserting in lieu thereof "paragraph (1)(B)"; and 
(4) by inserting "(except, in the case of hospice care, as is 
otherwise permitted under paragraph (1)(C))" in paragraph (9) 
after "custodial care". 
(g)(1) Section 1862(f) of the Social Security Act is amended by 
striking out "paragraph (1)" and inserting in lieu thereof "para-
graph (1)(A)". 
(2) Section 1863 of the Social Security Act is amended by striking 
out "and (cc)(2)(I)" and inserting in lieu thereof "(cc)(2)(I), and 
(dd)(2)". 
(3) Section 1864(a) of such Act is amended— 
(A) by inserting "or whether an agency is a hospice program" 
in the first sentence after "home health agency,"; and 
(B) by striking out "or home health agency" in the second 
sentence and inserting in lieu thereof "home health agency, or 
hospice program". 
(4) Section 1865(a) of such Act is amended by striking out "or (o)" 
in the last sentence and inserting in lieu thereof "(o), or (dd)". 
(5) Section 1866(b)(2)(A) of such Act is amended by striking out "or 
(a)(3)" and inserting in lieu thereof "(a)(3), or (a)(4)". 
(6) Section 1866(b)(4)(A) of such Act is amended by inserting "or 
hospice care" after "home health services". 
(h)(1)(A) Subject to subparagraph (B), the amendments made by 
this section apply to hospice care provided on or after November 1, 
1983, and before October 1,1986. 
(B) An individual who on October 1, 1986, has an election under 
section 1812(d)(1) of the Social Security Act in effect for a period, is 
entitled to hospice care benefits after that date during the remain-
der of that period and any consecutive period to which the individ-
ual would have been entitled before such date. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 363 
(2) In order to provide for the timely implementation of the 
amendments made by this Act, the Secretary of Health and Human 
Services shall, not later than September 1, 1983, promulgate such 
final regulations as may be necessary to set forth— 
(A) a description of the care included in "hospice care" and 
the standards for qualification of a "hospice program", under 
section 1861(dd) of the Social Security Act, and 
(B) the standards for payment for hospice care under part A 
of title XVIII of such Act, pursuant to section 1814(i) of such 
Act. 
(h)(1) Notwithstanding any provision of law which has the effect of 
restricting the time period of a hospice demonstration project in 
effect on July 15, 1982, pursuant to section 402(a) of the Social 
Security Amendments of 1967, the Secretary of Health and Human 
Services, upon request of the hospice involved, shall permit continu-
ation of the project until November 1, 1983, or, if later, the date on 
which payments can first be made to any hospice program under the 
amendments made by this section. 
(2) Prior to September 30, 1983, the Secretary shall submit to 
Congress a report on the effectiveness of demonstration projects 
referred to in paragraph (1), including an evaluation of the cost-
effectiveness of hospice care, the reasonableness of the 40-percent 
cap amount for hospice care as provided in section 1814(i) of the 
Social Security Act (as added by this section), proposed methodology 
for determining such cap amount, proposed standards for requiring 
and measuring the maintenance of effort for utilizing volunteers as 
required under section 1861(dd) of such Act, an evaluation of physi-
cian reimbursement for services furnished as a part of hospice care 
and for services furnished to individuals receiving hospice care but 
which are not reimbursed as a part of the hospice care, and any 
proposed legislative changes in the hospice care provisions of title 
XVIII of such Act. 
(i)(l) The Secretary of Health and Human Services shall conduct a 
study and, prior to January 1, 1986, report to the Congress on 
whether or not the reimbursement method and benefit structure 
(including copayments) for hospice care under title XVIII of the 
Social Security Act are fair and equitable and promote the most 
efficient provision of hospice care. Such report shall include the 
feasibility and advisability of providing for prospective reimburse-
ment for hospice care, an evaluation of the inclusion of payment for 
outpatient drugs, an evaluation of the need to alter the method of 
reimbursement for nutritional, dietary, and bereavement counseling 
as hospice care, and any recommendations for legislative changes in 
the hospice care reimbursement or benefit structure. 
(2) The Comptroller General shall monitor and evaluate the study 
and the preparation of the report under paragraph (1). 
Q) The Secretary of Health and Human Services shall grant 
waivers of the limitations imposed by section 1814(i)(2) of the Social 
Security Act (relating to the cap amount), section 1861(dd)(l)(G) of 
such Act (relating to the limitations on the frequency and number of 
respite care days), and section 1861(dd)(2)(A)(iv) of such Act (relating 
to the aggregate limit on the number of days of inpatient care), as 
may be necessary to allow any institution which commenced oper-
ations as a hospice prior to January 1, 1975, to participate until 
October 1, 1986, in a viable manner as a hospice program under title 
XVIII of the Social Security Act. 
42 u s e 1395f 
note. 
Ante, p. 359. 
42 u s e 1395; 
Ante, p. 358. 
42 u s e 1395b-l 
note. 
81 Stat. 930. 
Report to 
Congress. 
42 u s e 1395. 
Study; report to 
Congress. 
42 u s e 1395f 
note. 
Waivers. 
42 u s e 1395f 
note. 
96 STAT. 364 
PUBLIC LAW 97-248—SEPT. 3, 1982 
42 use 1395d. 
42 use 1395f, 
1395x; Ante, 
p. 331. 
COVERAGE OF EXTENDED CARE SERVICES WITHOUT REGARD TO THREE-
DAY PRIOR HOSPITALIZATION REQUIREMENT 
SEC. 123. (a) Section 1812(a)(2) of the Social Security Act is 
amended by inserting "(A)" after "(2)" and' by inserting before the 
semicolon at the end the following: ", and (B) to the extent provided 
in subsection (f), extended care services that are not post-hospital 
extended care services". 
(b) Section 1812 of such Act is further amended by redesignating 
subsection (f) as subsection (g) and by inserting after subsection (e) 
the following new subsection: 
"(f)(1) The Secretary shall provide for coverage, under clause (B) of 
subsection (a)(2), of extended care services which are not post-
hospital extended care services at such time and for so long as the 
Secretary determines, and under such terms and conditions 
(described in paragraph (2)) as the Secretary finds appropriate, that 
the inclusion of such services will not result in any increase in the 
total of payments made under this title and will not alter the acute 
care nature of the benefit described in subsection (a)(2). 
"(2) The Secretary may provide— 
"(A) for such limitations on the scope and extent of services 
described in subsection (a)(2)(B) and on the categories of individ-
uals who may be eligible to receive such services, and 
"(B) notwithstanding sections 1814, 1861(v), and 1886, for such 
restrictions and alternatives on the amounts and methods of 
payment for services described in such subsection, 
as may be necessary to carry out paragraph (1).". 
PROVISION TEMPORARILY HOLDING PART B PREMIUM AT CONSTANT 
PERCENTAGE OF COST 
42 use I395r. 
SEC. 124. (a)(1) Section 1839(c)(2) of the Social Security Act is 
amended by striking out "except as provided in subsection (d)" and 
inserting in lieu thereof "except as provided in subsections (d) and 
(g)". 
(2) Section 1839(c)(3) of such Act is amended by inserting "(except 
as otherwise provided in subsection (g))" after "The monthly 
premium shall". 
(b) Section 1839 of such Act is amended by adding at the end 
thereof the following new subsection: 
"(g)(1) Notwithstanding the provisions of subsection (c), the 
monthly premium for each individual enrolled under this part for 
each month after June 1983 and prior to July 1985 shall be an 
amount equal to 50 percent of the monthly actuarial rate for 
enroUees age 65 and over, as determined under subsection (c)(1) and 
applicable to such month. 
"(2) Any increases in premium amounts taking effect prior to July 
1985 by reason of paragraph (1) shall be taken into account for 
purposes of determining increases thereafter under subsection 
(c)(3).". 
42 use I395w. 
(c) Section 1844(a)(1) of such Act is amended by striking out 
"section 1839(c)(3)" each place it appears in subparagraphs (A)(i) and 
(B)(i) and inserting in lieu thereof in each instance "section 
Supra. 
1839(c)(3) or 1839(g), as the case may be". 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 365 
SPECIAL ENROLLMENT PROVISIONS FOR MERCHANT SEAMEN 
SEC. 125. (a) Any individual who— 
(1) was entitled to medical, surgical, and dental treatment and 
hospitalization under section 322(a) of the Public Health Service 
Act (as in effect on September 30, 1981), including such entitle-
ment on the basis of continuing medical care under 42 C.F.R. 
§ 32.17, at any time during the period beginning on March 10, 
1981, and ending on October 1, 1981, and 
(2) as of September 30, 1981, was eligible under section 1818(a) 
or section 1836 of the Social Security Act to enroll in the 
insurance program established by part A or part B, respectively, 
of title XVIII of that Act (hereinafter in this section referred to 
as the "respective program"), 
may enroll (if not otherwise enrolled) in the respective program 
during the period beginning on the first day of the first month 
beginning at least 20 days after the date of the enactment of this Act 
and ending on December 31,1982. 
(b)(1) The coverage period under the respective program of an 
individual who enrolls under subsection (a) shall begin— 
(A) on the first day of the month following the month in 
which the individual enrolls, or 
(B) on October 1, 1981, if the individual files a request for this 
subparagraph to apply and pays the monthly premiums for the 
months so covered. 
(2) The coverage period under the respective program of an indi-
vidual described in subsection (a) who enrolled in the respective 
program before the enrollment period described in that subsection 
shall be retroactively extended to October 1, 1981, if the individual 
files a request before January 1, 1983, for such retroactive extension 
and pays the monthly premiums for the months so covered. 
(c)(1) For purposes of section 1839(d) of the Social Security Act 
with respect to the monthly premium for months after September 
1981, if an individual described in subsection (a) has enrolled in the 
insurance program under part B of title XVIII of the Social Security 
Act at any time before the end of the enrollment period described in 
subsection (a), any month (before the end of that enrollment period) 
in which he was not enrolled in that program shall not be treated as 
a month in which he could have been enrolled in the program. 
(2) Paragraph (1) shall not apply to an individual— 
(A) if the individual has enrolled in the insurance program 
before March 10, 1981, unless the enrollment was terminated 
solely because the individual lost eligibility to be so enrolled, or 
(B) unless the individual applies for the benefit of such para-
graph before January 1, 1983. 
(d)(1) The Secretary of Health and Human Services, beginning as 
soon as possible but not later than 30 days after the date of the 
enactment of this Act, shall provide for the dissemination of infor-
mation— 
(A) to unions and other associations representing or assisting 
seamen, 
(B) to offices enrolling individuals under the respective pro-
grams, and 
(C) to such other entities and in such a manner as will 
effectively inform individuals eligible for benefits under this 
section, 
concerning the special benefits provided under this section. 
42 u s e 1395i-2 
note. 
95 Stat. 603. 
42 u s e 249. 
42 u s e 1395i-2, 
1395o. 
42 u s e 1395c, 
1395J. 
42 u s e 1395r. 
96 STAT. 366 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(2) An individual may establish that the individual was entitled at 
a date to medical, surgical, and dental treatment and hospitalization 
95 Stat. 603. 
under section 322(a) of the Public Health Service Act (as in effect 
42 use 249. 
before October 1, 1981) by providing— 
(A) documentation relating to the status under which the 
individual was provided care in (or under arrangements with) a 
Public Health Service facility on that date, 
(B) the individual's seamen's papers covering that date, or 
(C) such other reasonable documentation as the Secretary 
may require. 
PART III—MISCELLANEOUS PROVISIONS 
EXTENDING MEDICARE PROFICIENCY EXAMINATION AUTHORITY 
42 use l320a-2. 
SEC. 126. Section 1123(a) of the Social Security Act is amended by 
striking out "December 31, 1981" and inserting in lieu thereof 
"September 30, 1983". 
42 u s e 1395x 
note. 
94 Stat. 2646. 
42 u s e 1395x. 
REGULATIONS REGARDING ACCESS TO BOOKS AND RECORDS 
SEC. 127. Section 952 of the Omnibus Reconciliation Act of 1980 
(94 Stat. 2646) is amended— 
(1) by inserting "(a)" after "SEC. 952.", and 
(2) by adding at the end the following new subsection: 
"(b) Unless the Secretary of Health and Human Services first 
publishes final regulations prescribing the criteria and procedures 
described in the last sentence of section 1861(v)(l)(I) of the Social 
Security Act by January 1, 1983, after providing a period of not less 
than 60 days for public comment on proposed regulations, the 
amendment made by subsection (a) shall only apply to books, docu-
ments, and records relating to services furnished (pursuant to con-
tract or subcontract) on or after the date on which final regulations 
of the Secretary are first published.". 
TECHNICAL CORRECTIONS TO OMNIBUS BUDGET RECONCILIATION ACT OF 
1981 
42 use I395x. 
SEC. 128. (a)(1) Section 1861(cc)(l) of the Social Security Act is 
amended, in the matter following subparagraph (H), by striking out 
"outpatient" and inserting in lieu thereof "inpatient". 
42USei395y. 
(2) The second sentence of section 1862(b)(1) of such Act is 
amended by striking out "or plan". 
95 Stat. 800. 
(3) Section 1862(b)(2)(A) of such Act is amended by striking out 
42 use 1395y. 
"section 162(h)(2)" and inserting in lieu thereof "section 162(i)(2)". 
(4) The first sentence of section 1862(b)(2)(B) of such Act is 
amended by inserting "furnished" before "to an individual". 
42 use 1
3
9
5
C
C
. 
(5) Section 1866(b) of such Act is amended by striking out "(and in 
the case of a skilled nursing facility, prior to the end of the term 
specified in subsection (a)(1))" in the matter preceding paragraph (1). 
95 Stat. 785. 
(6) The second subsection (c) of section 1884 of such Act is redesig-
42 use I395uu. 
nated as subsection (d). 
26 use 162. 
(b) Section 162 of the Internal Revenue Code of 1954 is amended— 
(1) by redesignating the subsection (i) (relating to cross refer-
ence), as redesignated by the Economic Recovery Tax Act of 
95 Stat. 202. 
1981 (Public Law 95-34), as subsection (j), and 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 367 
(2) by redesignating the subsection (h) (relating to group 
health plans), as added by section 2146(b) of the Omnibus 
Budget Reconciliation Act of 1981, as subsection (i). 
(c)(1) Section 2143(b)(1) of the Omnibus Budget Reconciliation Act 
of 1981 is amended by striking out "costs" and inserting in lieu 
thereof "cost". 
(2) Section 2203(f)(3) of such Act is amended by striking out 
"August 1982" and inserting in lieu thereof "August 1981". 
(d)(1) Sections 1842(b)(3)(B)(ii)(II) and 1870(c) of the Social Security 
Act are each amended by striking out "1862" and inserting in lieu 
thereof "1862(a)". 
(2) The final subparagraph (C) of section 1861(e) of such Act is 
amended by striking out "may (i)," and inserting in lieu thereof "(i) 
may". 
(3) Section 1865(b) of such Act is amended by striking out "an 
institution" and "such institution" and inserting in lieu thereof "a 
hospital" and "the hospital", respectively. 
(4) Section 1866(a)(1)(B) of such Act is amended by inserting "of 
section 1862(a)" after "(1) or (9)". 
(e)(1) Any amendment to the Omnibus Budget Reconciliaton Act 
of 1981 made by this section shall be effective as if it had been 
originally included in the provision of the Omnibus Budget Recon-
ciliation Act of 1981 to which such amendment relates. 
(2) Except as otherwise provided in this section, any amendment 
to the Social Security Act or the Internal Revenue Code of 1954 
made by this section (other than subsection (d)) shall be effective as 
if it had been originally included as a part of that provision of the 
Social Security Act or Internal Revenue Code of 1954 to which it 
relates, as such provision of such Act or Code was amended by the 
Omnibus Budget Reconciliaton Act of 1981. 
(3) The amendments made by subsection (d) shall take effect upon 
enactment. 
95 Stat. 800. 
95 Stat. 798. 
42 use 1395x 
note. 
95 Stat. 835. 
42 use 1395u, 
1395gg. 
42 use 1395x. 
42 use 1395bb. 
42 use 1395CC. 
Effective date. 
42 use 1395x 
note. 
95 Stat. 357. 
42 use 1305; 26 
usei. 
Effective date. 
Subtitle B—Medicaid 
COPAYMENTS BY MEDICAID RECIPIENTS 
SEC. 131. (a) Section 1902(a)(14) of the Social Security Act is 
42 use I396a. 
amended to read as follows: 
"(14) provide that enrollment fees, premiums, or similar 
charges, and deductions, cost sharing, or similar charges, may 
be imposed only as provided in section 1916;". 
(b) Title XIX of the Social Security Act is amended by adding at 
42 USe 1396. 
the end thereof the following new section: 
USE OF ENROLLMENT FEES, PREMIUMS, DEDUCTIONS, COST SHARING, 
AND SIMILAR CHARGES 
"SEC. 1916. (a) The State plan shall provide that in the case of 
individuals described in section 1902(a)(10)(A) who are eligible under 
the plan— 
"(1) no enrollment fee, premium, or similar charge will be 
imposed under the plan; 
"(2) no deduction, cost sharing or similar charge will be 
imposed under the plan with respect to— 
42 use 13960. 
95 Stat. 807. 
96 STAT. 368 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(A) services furnished to individuals under 18 years of 
age (and, at the option of the State, individuals under 21, 
20, or 19 years of age, or any reasonable category of individ-
uals 18 years of age or over), 
"(B) services furnished to pregnant women, if such serv-
ices relate to the pregnancy or to any other medical condi-
tion which may complicate the pregnancy (or, at the option 
of the State, any services furnished to pregnant women), 
"(C) services furnished to any individual who is an inpa-
tient in a hospital, skilled nursing facility, intermediate 
care facility, or other medical institution, if such individual 
is required, as a condition of receiving services in such 
institution under the State plan, to spend for costs of 
medical care all but a minimal amount of his income 
required for personal needs, or 
"(D) emergency services (as defined by the Secretary), 
family planning services and supplies described in section 
42 use I396d. 
1905(a)(4)(C), or services furnished to such an individual by 
a health maintenance organization (as defined in section 
42 use 1396b. 
1903(m)) in which he is enrolled; and 
"(3) any deduction, cost sharing, or similar charge imposed 
under the plan with respect to other such individuals or other 
care and services will be nominal in amount (as determined by 
the Secretary in regulations which shall, if the definition of 
'nominal' under the regulations in effect on July 1, 1982 is 
changed, take into account the level of cash assistance provided 
in such State and such other criteria as the Secretary deter-
mines to be appropriate); except that a deduction, cost-sharing, 
or similar charge of up to twice the nominal amount established 
for outpatient services may be imposed by a State under a 
waiver granted by the Secretary for services received at a 
hospital emergency room if the services are not emergency 
services (referred to in paragraph (2)(D)) and the State has 
established to the satisfaction of the Secretary that individuals 
eligible for services under the plan have actually available and 
accessible to them alternative sources of nonemergency, outpa-
tient services. 
"(b) The State plan shall provide that in the case of individuals 
95 Stat. 807. 
other than those described in section 1902(a)(10)(A) who are eligible 
42 use 1396a. 
under the plan— 
"(1) there may be imposed an enrollment fee, premium, or 
similar charge, which (as determined in accordance with stand-
ards prescribed by the Secretary) is related to the individual's 
income, 
"(2) no deduction, cost sharing, or similar charge will be 
imposed under the plan with respect to— 
"(A) services furnished to individuals under 18 years of 
age (and, at the option of the State, individuals under 21, 
20, or 19 years of age, or any reasonable category of individ-
uals 18 years of age or over), 
"(B) services furnished to pregnant women, if such serv-
ices relate to the pregnancy or to any other medical condi-
tion which may complicate the pregnancy (or, at the option 
of the State, any services furnished to pregnant women), 
"(C) services furnished to any individual who is an inpa-
tient in a hospital, skilled nursing facility, intermediate 
care facility, or other medical institution, if such individual 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 369 
42 use 1396cl. 
42 use 1396b. 
is required, as a condition of receiving services in such 
institution under the State plan, to spend for costs of 
medical care all but a minimal amount of his income 
required for personal needs, or 
"(D) emergency services (as defined by the Secretary), 
family planning services and supplies described in section 
1905(a)(4)(C), or (at the option of the State) services fur-
nished to such an individual by a health maintenance 
organization (as defined in section 1903(m)) in which he is 
enrolled; and 
"(3) any deduction, cost sharing, or similar charge imposed 
under the plan with respect to other such individuals or other 
care and services will be nominal in amount (as determined by 
the Secretary in regulations which shall, if the definition of 
'nominal' under the regulations in effect on July 1, 1982 is 
changed, take into account the level of cash assistance provided 
in such State and such other criteria as the Secretary deter-
mines to be appropriate); except that a deduction, cost-sharing, 
or similar charge of up to twice the nominal amount established 
for outpatient services may be imposed by a State under a 
waiver granted by the Secretary for services received at a 
hospital emergency room if the services are not emergency 
services (referred to in paragraph (2)(D)) and the State has 
established to the satisfaction of the Secretary that individuals 
eligible for services under the plan have actually available and 
accessible to them alternative sources of nonemergency, outpa-
tient services. 
"(c) The State plan shall require that no provider participating 
under the State plan may deny care or services to an individual 
eligible for such care or services under the plan on account of such 
individual's inability to pay a deduction, cost sharing, or similar 
charge. The requirements of this subparagraph shall not extinguish 
the liability of the individual to whom the care or services were 
furnished for payment of the deduction, cost sharing, or similar 
charge. 
"(d) No deduction, cost sharing, or similar charge may be imposed 
under any waiver authority of the Secretary unless authorized 
under this section, unless such waiver is for a demonstration project 
which the Secretary finds after public notice and opportunity for 
comment— 
"(1) will test a unique and previously untested use of copay-
ments, 
"(2) is limited to a period of not more than two years, 
"(3) will provide benefits to recipients of medical assistance 
which can reasonably be expected to be equivalent to the risks 
to the recipients, 
"(4) is based on a reasonable hypothesis which the demonstra-
tion is designed to test in a methodologically sound manner, 
including the use of control groups of similar recipients of 
medical assistance in the area, and 
"(5) in which participation is voluntary, or in which provision 
is made for assumption of liability for preventable damage to 
the health of recipients of medical assistance resulting from 
involuntary participation.". 
(b) Section 1902(a)(10) of such Act is amended in the matter 42 USC 1396a. 
following subparagraph (D)— 
(1) by striking out "and" before "(III)"; and 
96 STAT. 370 
PUBLIC LAW 97-248—SEPT. 3, 1982 
Ante, p. 367. 
Effective date. 
42 u s e 13960 
note. 
42 u s e 1396. 
(2) by inserting before the semicolon at the end thereof the 
following: "and (IV) the imposition of a deductible, cost sharing, 
or similar charge for any item or service furnished to an 
individual not eligible for the exemption under section 
1916(a)(2) or (b)(2) shall not require the imposition of a deduct-
ible, cost sharing, or similar charge for the same item or service 
furnished to an individual who is eligible for such exemption". 
(c)(1) Except as provided in paragraph (2), the amendments made 
by this section shall become effective on October 1, 1982. 
(2) In the case of a State plan for medical assistance under title 
XIX of the Social Security Act which the Secretary of Health and 
Human Services determines requires State legislation in order for 
the plan to meet the additional requirements imposed by the amend-
ments made by this section, the State plan shall not be regarded as 
failing to comply with the requirements of such title solely on the 
basis of its failure to meet these additional requirements before the 
first day of the first calendar quarter beginning after the close of the 
first regular session of the State legislature that begins after the 
date of the enactment of this Act. 
MODIFICATIONS IN LIEN PROVISIONS 
42 use 1396a. 
SEC. 132. (a) Section 1902(a)(18) of the Social Security Act is 
amended to read as follows: 
Infra. 
"(18) comply with the provisions of section 1917 with respect 
to liens, adjustments and recoveries of medical assistance cor-
rectly paid, and transfers of assets;", 
(b) Title XIX of such Act is amended by adding after section 1916 
(added by section 131 of this Act) the following new section: 
LIENS, ADJUSTMENTS AND RECOVERIES, AND TRANSFERS OF ASSETS 
42 use 1396p. 
"SEC. 1917. (a)(1) No lien may be imposed against the property of 
any individual prior to his death on account of medical assistance 
paid or to be paid on his behalf under the State plan, except— 
"(A) pursuant to the judgment of a court on account of 
benefits incorrectly paid on behalf of such individual, or 
"(B) in the case of the real property of an individual— 
"(i) who is an inpatient in a skilled nursing facility, 
intermediate care facility, or other medical institution, if 
such individual is required, as a condition of receiving 
services in such institution under the State plan, to spend 
for costs of medical care all but a minimal amount of his 
income required for personal needs, and 
"(ii) with respect to whom the State determines, after 
notice and opportunity for a hearing (in accordance with 
procedures established by the State), that he cannot reason-
ably be expected to be discharged from the medical institu-
tion and to return home, 
except as provided in paragraph (2). 
"(2) No lien may be imposed under paragraph (1)(B) on such 
individual's home if— 
"(A) the spouse of such individual, 
"(B) such individual's child who is under age 21, or (with 
respect to States eligible to participate in the State program 
42 use 1381. 
established under title XVI) is blind or permanently and totally 
disabled, or (with respect to States which are not eligible to 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 371 
participate in such program) is blind or disabled as defined in 
section 1614, or 
42 USC 1382c. 
"(C) a sibling of such individual (who has an equity interest in 
such home and who was residing in such individual's home for a 
period of at least one year immediately before the date of the 
individual's admission to the medical institution), 
is lawfully residing in such home. 
"(3) Any lien imposed with respect to an individual pursuant to 
paragraph (1)(B) shall dissolve upon that individual's discharge from 
the medical institution and return home. 
"(b)(1) No adjustment or recovery of any medical assistance cor-
rectly paid on behalf of an individual under the State plan may be 
made, except— 
"(A) in the case of an individual described in subsection 
(a)(1)(B), from his estate or upon sale of the property subject to a 
lien imposed on account of medical assistance paid on behalf of 
such individual, and 
"(B) in the case of any other individual who was 65 years of 
age or older when he received such assistance, from his estate. 
"(2) Any adjustment or recovery under paragraph (1) may be made 
only after the death of the individual's surviving spouse, if any, and 
only at a time— 
"(A) when he has no surviving child who is under age 21, or 
(with respect to States eligible to participate in the State pro-
gram established under title XVI) is blind or permanently and 
42 USC 1381. 
totally disabled, or (with respect to States which are not eligible 
to participate in such program) is blind or disabled as defined in 
section 1614; and 
"(B) in the case of a lien on an individual's home under 
subsection (a)(1)(B), when— 
"(i) no sibling of the individual (who was residing in the 
individual's home for a period of at least one year immedi-
ately before the date of the individual's admission to the 
medical institution), and 
"(ii) no son or daughter of the individual (who was resid-
ing in the individual's home for a period of at least two 
years immediately before the date of the individual's admis-
sion to the medical institution, and who establishes to the 
satisfaction of the State that he or she provided care to such 
individual which permitted such individual to reside at 
home rather than in an institution), 
is lawfully residing in such home and has lawfully resided in 
such home on a continuous basis since the date of the individ-
ual's admission to the medical institution. 
"(c)(1) Notwithstanding any other provision of this title, an indi-
vidual who would otherwise be eligible for medical assistance under 
the State plan approved under this title may be denied such assist-
ance if such individual would not be eligible for such medical 
assistance but for the fact that he disposed of resources for less than 
fair market value. If the State plan provides for the denial of such 
assistance by reason of such disposal of resources, the State plan 
shall specify a procedure for implementing such denial which, 
except as provided in paragraph (2), is not more restrictive than the 
procedure specified in section 1613(c) of this Act, and which may 
42 USC 1382b. 
provide for a waiver of denial of such assistance in any instance 
where the State determines that such denial would work an undue 
hardship. 
96 STAT. 372 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(2)(A) In any case where the uncompensated value of disposed of 
resources exceeds $12,000, the State plan may provide for a period of 
ineligibility which exceeds 24 months. If a State plan provides for a 
period of ineligibility exceeding 24 months, such plan shall provide 
for the period of ineligibility to bear a reasonable relationship to 
such uncompensated value. 
"(B)(i) In the case of any individual who is an inpatient in a skilled 
nursing facility, intermediate care facility, or other medical institu-
tion, if such individual is required, as a condition of receiving 
services in such institution under the State plan, to spend for costs 
of medical care all but a minimal amount of his income required for 
personal needs, and, who, at any time during or after the 24-month 
period immediately prior to application for medical assistance under 
the State plan, disposed of a home for less than fair market value, 
the State plan (subject to clause (iii)) may provide for a period of 
ineligibility for medical assistance in accordance with clause (ii). 
"(ii) If the State plan provides for a period of ineligibility under 
clause (i), such plan— 
"(I) shall provide that such individual shall be ineligible for 
all medical assistance for a period of 24 months after the date 
on which he disposed of such home, except that, in the case 
where the uncompensated value of the home is less than the 
average amount payable under the State plan as medical assist-
ance for 24 months of care in a skilled nursing facility, the 
period of ineligibility shall be such shorter time as bears a 
reasonable relationship (based upon the average amount pay-
able under the State plan as medical assistance for care in a 
skilled nursing facility) to the uncompensated value of the 
home, and 
"(II) may provide (at the option of the State) that, in the case 
where the uncompensated value of the home is more than the 
average amount payable under the State plan as medical assist-
ance for 24 months of care in a skilled nursing facility, such 
individual shall be ineligible for all medical assistance for a 
period in excess of 24 months after the date on which he 
disposed of such home which bears a reasonable relationship 
(based upon the average amount payable under the State plan 
as medical assistance for care in a skilled nursing facility) to the 
uncompensated value of the home, 
"(iii) An individual shall not be ineligible for medical assistance 
by reason of clause (ii) i
f
— 
"(I) a satisfactory showing is made to the State (in accordance 
with any regulations promulgated by the Secretary) that the 
individual cannot reasonably be expected to be discharged from 
the medical institution and to return to that home, 
"(II) title to such home was transferred to the individual's 
spouse or child who is under age 21, or (with respect to States 
eligible to participate in the State program established under 
42 use 1381. 
title XVI) is blind or permanently and totally disabled, or (with 
respect to States which are not eligible to participate in such 
42 use 1382c. 
program) is blind or disabled as defined in section 1614, 
"(III) a satisfactory showing is made to the State (in accord-
ance with any regulations promulgated by the Secretary) that 
the individual intended to dispose of the home either at fair 
market value, or for other valuable consideration, or 
"(IV) if the State determines that denial of eligibility would 
work an undue hardship. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 373 
"(3) In any case where an individual is ineligible for medical 
assistance under the State plan solely because of the applicability to 
such individual of the provisions of section 1613(c), the State plan 
may provide for the eligibility of such individual for medical assist-
ance under the plan if such individual would be so eligible if the 
State plan requirements with respect to disposal of resources appli-
cable under paragraphs (1) and (2) of this subsection were applied in 
lieu of the provisions of section 1613(c).". 
(c) Section 1902 of such Act is amended by striking out subsection 
(j) thereof. 
(d) The amendments made by this section shall become effective 
on the date of the enactment of this Act, but the provisions of 
section 1917(c)(2)(B) of the Social Security Act shall not apply with 
respect to a transfer of assets which took place prior to such date of 
enactment. 
42 u s e 1382b. 
42 u s e 1396a. 
Effective date. 
42 u s e 1396p 
note. 
Ante, p. 370. 
Waiver. 
LIMITATION OF FEDERAL FINANCIAL PARTICIPATION IN ERRONEOUS 
MEDICAL ASSISTANCE EXPENDITURES 
SEC. 133. (a) Section 1903 of the Social Security Act is amended by 42 use 1396b. 
adding at the end thereof the following new subsection: 
"(u)(l)(A) Notwithstanding subsection (a)(1), if the ratio of a State's 
erroneous excess payments for medical assistance (as defined in 
subparagraph (D)) to its total expenditures for medical assistance 
under the State plan approved under this title exceeds 0.03, for the 
period consisting of the third and fourth quarters of fiscal year 1983, 
or for any full fiscal year thereafter, then the Secretary shall make 
no payment for such period or fiscal year with respect to so much of 
such erroneous excess payments as exceeds such allowable error 
rate of 0.03. 
"(B) The Secretary may waive, in certain limited cases, all or part 
of the reduction required under subparagraph (A) with respect to 
any State if such State is unable to reach the allowable error rate 
for a period or fiscal year despite a good faith effort by such State. 
"(C) In estimating the amount to be paid to a State under subsec-
tion (d), the Secretary shall take into consideration the limitation on 
Federal financial participation imposed by subparagraph (A) and 
shall reduce the estimate he makes under subsection (d)(1), for 
purposes of payment to the State under subsection (d)(3), in light of 
any expected erroneous excess payments for medical assistance 
(estimated in accordance with such criteria, including sampling 
procedures, as he may prescribe and subject to subsequent adjust-
ment, if necessary, under subsection (d)(2)). 
"(D)(i) For purposes of this subsection, the term 'erroneous excess 
payments for medical assistance' means the total o
f
— 
"(I) payments under the State plan with respect to ineligible 
individuals and families, and 
"(II) overpayments on behalf of eligible individuals and fami-
lies by reason of error in determining the amount of expendi-
tures for medical care required of an individual or family as a 
condition of eligibility. 
"(ii) In determining the amount of erroneous excess payments for 
medical assistance to an ineligible individual or family under clause 
(i)(I), if such ineligibility is the result of an error in determining the 
amount of the resources of sueh individual or family, the amount of 
the erroneous excess payment shall be the smaller of (I) the amount 
of the payment with respect to such individual or family, or (II) the 
"Erroneous 
excess 
payments for 
medical 
assistance." 
96 STAT. 374 
PUBLIC LAW 97-248—SEPT. 3, 1982 
Effective date. 
42 use 1396b 
note. 
42 use 1396b 
note. 
42 use 1896. 
42 use 1396b. 
difference between the actual amount of such resources and the 
allowable resource level established under the State plan. 
"(iii) In determining the amount of erroneous excess payments for 
medical assistance to an individual or family under clause (i)(II), the 
amount of the erroneous excess payment shall be the smaller of (I) 
the amount of the payment on behalf of the individual or family, or 
(II) the difference between the actual amount incurred for medical 
care by the individual or family and the amount which should have 
been incurred in order to establish eligibility for medical assistance. 
"(E) For purposes of subparagraph (D), there shall be excluded, in 
determining both erroneous excess payments for medical assistance 
and total expenditures for medical assistance— 
"(i) payments with respect to any individual whose eligibility 
therefor was determined exclusively by the Secretary under an 
agreement pursuant to section 1634 and such other classes of 
individuals as the Secretary may by regulation prescribe whose 
eligibility was determined in part under such an agreement; 
and 
"(ii) payments made as the result of a technical error. 
"(2) The State agency administering the plan approved under this 
title shall, at such times and in such form as the Secretary may 
specify, provide information on the rates of erroneous excess pay-
ments made (or expected, with respect to future periods specified by 
the Secretary) in connection with its administration of such plan, 
together with any other data he requests that are reasonably neces-
sary for him to carry out the provisions of this subsection. 
"(3)(A) If a State fails to cooperate with the Secretary in providing 
information necessary to carry out this subsection, the Secretary, 
directly or through contractual or such other arrangements as he 
may find appropriate, shall establish the error rates for that State 
on the basis of the best data reasonably available to him and in 
accordance with such techniques for sampling and estimating as he 
finds appropriate. 
"(B) In any case in which it is necessary for the Secretary to 
exercise his authority under subparagraph (A) to determine a 
State's error rates for a fiscal year, the amount that would other-
wise be payable to such State under this title for quarters in such 
year shall be reduced by the costs incurred by the Secretary in 
making (directly or otherwise) such determination. 
"(4) This subsection shall not apply with respect to Puerto Rico, 
Guam, the Virgin Islands, the Northern Mariana Islands, or Ameri-
can Samoa.". 
(b) The amendment made by subsection (a) shall become effective 
on the date of the enactment of this Act. 
(c) No provision of law limiting Federal financial participation 
with respect to erroneous payments made by States under a State 
plan approved under title XIX of the Social Security Act (including 
any provision contained in, or incorporated by reference into, any 
appropriation Act or resolution making continuing appropriations), 
other than the limitations contained in section 1903 of such Act, 
shall be effective with respect to payments to States under such 
section 1903 for quarters beginning on or after October 1, 1982, 
unless such provision of law is enacted after the date of the date of 
the enactment of this Act and expressly provides that such limita-
tion is in addition to or in lieu of the limitations contained in section 
1903 of the Social Security Act. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 375 
MEDICAID COVERAGE OF HOME CARE FOR CERTAIN DISABLED CHILDREN 
SEC. 134. (a) Section 1902(e) of the Social Security Act is amended 
by adding at the end the following new paragraph: 
"(3) At the option of the State, any individual who— 
"(A) is 18 years of age or younger and qualifies as a disabled 
individual under section 1614(a); 
"(B) with respect to whom there has been a determination by 
the State that— 
"(i) the individual requires a level of care provided in a 
hospital, skilled nursing facility, or intermediate care 
facility, 
"(ii) it is appropriate to provide such care for the individ-
ual outside such an institution, and 
"(iii) the estimated amount which would be expended for 
medical assistance for the individual for such care outside 
an institution is not greater than the estimated amount 
which would otherwise be expended for medical assistance 
for the individual within an appropriate institution; and 
"(C) if the individual were in a medical institution, would be 
eligible to have a supplemental security income (or State sup-
plemental) payment made with respect to him under title XVI, 
shall be deemed, for purposes of this title only, to be an individual 
with respect to whom a supplemental security income payment, or 
State supplemental payment, respectively, is being paid under title 
XVI.". 
(b) The amendment made by subsection (a) shall become effective 
on October 1,1982. 
42 u s e 1396a. 
42 u s e 1382c. 
42 u s e 1381. 
Effective date. 
42 u s e 1396a 
note. 
SIX-MONTH MORATORIUM ON DEREGULATION OF SKILLED NURSING AND 
INTERMEDIATE CARE FACILITIES 
SEC. 135. The Secretary of Health and Human Services may not 
promulgate any change in the regulations prescribed under— 
(1) subpart K of part 405 of subchapter B (relating to medicare 
conditions of participation of skilled nursing facilities), 
(2) so much of subpart S of part 405 of subchapter B (relating 
to certification procedure for providers) as relates to certifica-
tion of skilled nursing facilities, and 
(3) subparts C, D, and E of part 442 of subchapter C (relating 
to medicaid certification and requirements for skilled nursing 
and intermediate care facilities), 
of chapter IV of title 42 of the Code of Federal Regulations until the 
first day of the seventh calendar month beginning after the date of 
the enactment of this Act unless ordered to do so by a court of 
competent jurisdiction. 
MEDICAID PROGRAM IN AMERICAN SAMOA 
SEC. 136. (a) Section 1101(a)(1) of the Social Security Act is 42 use 1301. 
amended by inserting "and American Samoa" after "Such term 
when used in title XIX also includes the Northern Mariana 
Islands". 
(b) Section 1108(c) of such Act is amended— 
42 use 1308. 
(1) by striking out "and" at the end of paragraph (3); 
(2) by striking out the period at the end of paragraph (4) and 
inserting in lieu thereof ", and"; and 
97-200 O—84—pt, 1 
14 : QL3 
96 STAT. 376 
PUBLIC LAW 97-248—SEPT. 3, 1982 
42 u s e 1396d. 
42 u s e 1396a. 
42 u s e 1308. 
42 u s e 1396d. 
Effective date. 
42 u s e 1301 
note. 
(3) by adding at the end thereof the following: 
"(5) American Samoa shall not exceed $750,000.". 
(c) Section 1905(b)(2) of such Act is amended by striking out "and 
the Northern Mariana Islands" and inserting in lieu thereof "the 
Northern Mariana Islands, and American Samoa". 
(d) Section 1902 of such Act (as amended by section 132(c) of this 
Act) is amended by adding at the end thereof the following new 
subsection: 
"(j) Notwithstanding any other requirement of this title, the 
Secretary may waive or modify any requirement of this title with 
respect to the medical assistance program in American Samoa, 
other than a waiver of the Federal medical assistance percentage, 
the limitation in section 1108(c), or the requirement that payment 
may be made for medical assistance only with respect to amounts 
expended by American Samoa for care and services described in 
paragraphs (1) through (18) of section 1905(a).". 
(e) The amendments made by this section shall become effective 
on October 1, 1982. 
95 Stat. 803. 
42 u s e 1396b. 
95 Stat. 807. 
42 u s e 1396a. 
95 Stat. 815. 
42 u s e 603 note. 
42 u s e 1396. 
42 u s e 603. 
95 Stat. 826. 
42 u s e 1320a-l. 
95 Stat. 819. 
42 u s e 701. 
TECHNICAL CORRECTIONS FROM OMNIBUS BUDGET RECONCILIATION ACT 
OF 1981 
SEC. 137. (a)(1) Section 2161(b) of the Ominbus Budget Reconcili-
ation Act of 1981 is amended by striking out "Section 1902" and 
inserting in lieu thereof "Section 1903". 
(2) Paragraphs (1) and (2) of section 2161(c) of such Act are each 
amended by striking out "section 1902" and inserting in lieu thereof 
in each instance "section 1903". 
(3) Section 2171(a)(3) of such Act is amended by striking out "by 
striking out paragraph (C)" and inserting in lieu thereof "by strik-
ing out '(C) if medical assistance' and all that follows through the 
semicolon preceding 'except that' ". 
(4) Section 2181(b) of such Act is amended by inserting before the 
period at the end thereof the following: ", except that, in the case of 
a State plan under title XIX of the Social Security Act which the 
Secretary determines requires State legislation in order to incorpo-
rate the provisions required to be included by this section into such 
State plan, the State plan shall not be regarded as failing to comply 
with the requirements of such title solely on the basis of its failure 
to include the provisions required to be included in such State plan 
by subsection (a)(2) of this section before the first day of the first 
calendar quarter beginning after the close of the first regular 
session of the State legislature that begins after the date of enact-
ment of this Act, but the requirements previously set forth in 
paragraphs (1) through (3) of section 403(g) of the Social Security Act 
(prior to its repeal by this section) shall apply under title XIX of 
such Act to such State on and after October 1, 1981, whether or not 
the provisions required to be included by this section in the State 
plan under title XIX have been incorporated into such State plan". 
(5) Section 2193(c)(3)(B) of such Act is amended by striking out "or 
X' " and inserting in lieu thereof "or XIX' ". 
(b)(1) Section 501(b)(1)(D) of the Social Security Act is amended by 
striking out "title IV" and inserting in lieu thereof "title VI' . 
(2) Section 501(b)(2) of such Act is amended by striking out "sec-
tion 624 of the Economic Opportunity Act of 1964" and inserting in 
lieu thereof "section 673(2) of the Omnibus Budget Reconciliation 
Act of 1981". 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 377 
(3) Section 505(2)(B) of such Act is amended by striking out 
"502(b)(1)" and inserting in lieu thereof "501(b)(1)". 
(4) Section 505(2)(D) of such Act is amended by striking out "the 
State imposes any charges" and inserting in lieu thereof "any 
charges are imposed". 
(5) Section 1134(4) of such Act is amended by striking out "scale" 
and inserting in lieu thereof "sale". 
(6) The heading of title XVI of such Act as such title applies in the 
case of Puerto Rico, Guam, and the Virgin Islands is amended by 
striking out ", OR FOR SUCH AID FOR THE AGED". 
(7) Section 1902(a)(10)(A) of such Act is amended to read as follows: 
"(A) for making medical assistance available, including at 
least the care and services listed in paragraphs (1) through (5) 
and (17) of section 1905(a), to— 
"(i) all individuals receiving aid or assistance under any 
plan of the State approved under title I, X, XIV, or XVI, or 
part A or part E of title IV (including pregnant women 
deemed by the State to be receiving such aid as authorized 
in section 406(g) and individuals considered by the State to 
be receiving such aid as authorized under section 414(g)), or 
with respect to whom supplemental security income bene-
fits are being paid under title XVI; and 
"(ii) at the option of the State, to any group or groups of 
individuals described in section 1905(a) (or, in the case of 
individuals described in section 1905(a)(i), to any reasonable 
categories of such individuals) who are not individuals 
described in clause (i) of this subparagraph but— 
"(I) who meet the income and resources requirements 
of the appropriate State plan described in clause (i) or 
the supplemental security income program (as the case 
may be), 
"(II) who would meet the income and resources 
requirements of the appropriate State plan described in 
clause (i) if their work-related child care costs were 
paid from their earnings rather than by a State agency 
as a service expenditure, 
"(III) who would be eligible to receive aid under the 
appropriate State plan described in clause (i) if cover-
age under such plan was as broad as allowed under 
Federal law, 
"(IV) with respect to whom there is being paid, or 
who are eligible, or would be eligible if they were not in 
a medical institution, to have paid with respect to 
them, aid or assistance under the appropriate State 
plan described in clause (i), supplemental security 
income benefits under title XVI, or a State supplemen-
tary payment; 
' (V) who are in a medical institution, who meet the 
resource requirements of the appropriate State plan 
described in clause (i) or the supplemental security 
income program, and whose income does not exceed a 
separate income standard established by the State 
which is consistent with the limit established under 
section 1903(f)(4)(C), or 
"(VI) who would be eligible under the State plan 
under this title if they were in a medical institution, 
with respect to whom there has been a determination 
95 Stat. 822. 
42 use 705. 
42 use 1320b-4. 
42 use 1381. 
95 Stat. 807. 
42 use 1396a. 
42 use 1396d. 
42 use 606. 
42 use 1396d. 
42 u s e 1396b. 
96 STAT. 378 
PUBLIC LAW 97-248—SEPT. 3, 1982 
95 Stat. 809. 
42 u s e 1396n. 
95 Stat. 807. 
42 u s e 1396a. 
95 Stat. 807. 
42 u s e 1396a. 
42 u s e 1396a. 
42 u s e 1396b. 
95 Stat. 816. 
42 u s e 1396b. 
95 Stat. 813. 
42 u s e 1396b. 
95 Stat. 803. 
42 u s e 1396b. 
that but for the provision of home or community-based 
services described in section 1915(c) they would require 
the level of care provided in a hospital, skilled nursing 
facility or intermediate care facility the cost of which 
could be reimbursed under the State plan, and who will 
receive home or community-based services pursuant to 
a waiver granted by the Secretary under section 
1915(c)"". 
(8) Section 1902(a)(10)(C)(i) of such Act is amended— 
(A) by striking out "and (II)" and inserting in lieu thereof ", 
(II)"; and 
(B) by inserting before the semicolon at the end thereof ", and 
(III) the single standard to be employed in determining income 
and resource eligibility for all such groups, and the methodology 
to be employed in determining such eligibility, which shall be 
the same methodology which would be employed under the 
supplemental security income program in the case of groups 
consisting of aged, blind, or disabled individuals in a State in 
which such program is in effect, and which shall be the same 
methodology which would be employed under the appropriate 
State plan (described in subparagraph (A)(i)) to which such 
group is most closely categorically related in the case of other 
groups". 
(9) Section 1902(a)(10)(C)(ii)(I) of such Act is amended by striking 
out "described in section 1905(a)(i)" and inserting in lieu thereof 
"under the age of 18 who (but for income and resources) would be 
eligible for medical assistance as an individual described in subpara-
graph (A)(i)". 
(10) Section 1902(b) of such Act is amended by striking out para-
graph (2) and redesignating paragraphs (3) and (4) as paragraphs (2) 
and (3), respectively. 
(11) Section 1903(g)(1) of such Act is amended by inserting "or 
which is a qualified health maintenance organization (as defined in 
section 131()(d) of the Public Health Service Act)" after "as defined 
in section 1876". 
(12) Section 1903(g)(1)(A) of such Act is amended by striking out 
"intermediate care facility services described in section 1905(d)' and 
inserting in lieu thereof "intermediate care facility services pro-
vided in an institution for the mentally retarded". 
(13) Section 1903(k) of such Act is amended by striking out "sec-
tion 1876" and inserting in lieu thereof "subsection (m) of this 
section". 
(14) Section 1903(m)(2)(A) of such Act is amended— 
(A) by striking out "and" before "(II)" in clause (iv) and 
inserting in lieu thereof "or"; and 
(B) by striking out "unforseen" in clause (vii) and inserting in 
lieu thereof "unforeseen". 
(15) Section 1903(s) of such Act is amended— 
(A) in paragraph (1)(A), by striking out "made before fiscal 
year 1981" and inserting in lieu thereof "made before fiscal year 
1982"; 
(B) in paragraph (1)(A), by striking out "without regard to 
payments under subsection (t) and" and inserting in lieu thereof 
'without regard to payments under subsections (a)(6) and (t), 
without regard to payments for claims relating to expenditures 
made for medical assistance for services received through a 
facility of the Indian Health Service, and"; 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 379 
(C) in paragraph (1)(C), by inserting "a program in operation 
under" before "a plan approved under this title"; 
(D) in paragraph (3)(D)— 
(i) by striking out "determines that" and inserting in lieu 
thereof "must determine that"; 
(ii) by striking out "most recent calendar year" and 
inserting in lieu thereof "most recent year (which shall 
consist of a 12-month period determined by the Secretary 
for this purpose)"; 
(iii) by striking out "2 or 3 calendar year period" and 
inserting in lieu thereof "2- or 3-year period"; and 
(iv) by striking out "calendar" each place it appears; 
(E) in paragraph (4)(B), by inserting "and paragraph (3)(D)" 
after "subparagraph (A)"; and 
(F) in paragraph (5)(A)(i), by inserting "(including amounts 
saved, to the extent such amounts can be documented to the 
satisfaction of the Secretary, by reason of the suspension or 
termination of a provider or other person for fraud or abuse, but 
only during the period of such suspension or termination or, if 
shorter, the 1-year period beginning on the date of such termi-
nation or suspension)" after "recovered or diverted". 
(16) Section 1903(t) of such Act (as added by section 2161(b) of the 
Omnibus Budget Reconciliation Act of 1981 as amended by subsec-
tion (a) of this section) is amended— 
(A) in paragraphs (1)(A) and (2)(A), by striking out "other than 
interest paid under subsection (d)(5)" each place it appears and 
inserting in lieu thereof in each instance "other than payments 
under subsection (a)(6), interest paid under subsection (d)(5), and 
payments for claims relating to expenditures made for medical 
assistance for services received through a facility of the Indian 
Health Service"; 
(B) in paragraph (1)(B), by striking out "between September 
1982 and September 1983" and inserting in lieu thereof "for the 
12-month period ending on September 30, 1983"; 
(C) in paragraph (1)(C), by striking out "between September 
1982 and September 1984" and inserting in lieu thereof "for the 
24-month period ending on September 30, 1984"; 
(D) in subparagraphs (B) and (C) of paragraph (1), by striking 
out "consumer price index for all urban consumers (published 
by the Bureau of Labor Statistics)" each place it appears and 
inserting in lieu thereof in each instance "Consumer Price 
Index for all urban consumers (U.S. city average) published by 
the Bureau of Labor Statistics"; and 
(E) by amending paragraph (3) to read as follows: 
"(3) Only for the purpose of computing under this subsection the 
Federal share of expenditures for a State for fiscal years 1982, 1983, 
and 1984 (in the case of the payment which may be made for the 
first quarter of fiscal years 1983, 1984, and 1985, respectively), the 
Federal medical assistance percentage for fiscal years 1982, 1983, 
and 1984 shall be the Federal medical assistance percentage for 
States in effect for fiscal year 1981, disregarding any change in such 
percentage after fiscal year 1981.". 
(17) Section 1905(a)(i) of such Act is amended by striking out "or 
any reasonable category of such individuals,". 
(18) Section 1905(a) of such Act is amended by striking out "or" at 
the end of clause (vi), inserting "or" at the end of clause (vii), and 
inserting after clause (vii) the following: 
95 Stat. 803. 
42 use 1396b.. 
95 Stat. 808. 
42 use 1396d. 
96 STAT. 380 
PUBLIC LAW 97-248—SEPT. 3, 1982 
95 Stat. 809. 
42 u s e 1396n. 
42 u s e 1396n 
note. 
95 Stat. 789. 
42 u s e 1320a-7a. 
42 u s e 1320a-7, 
1820C-9, 1395y. 
42 u s e 1395CC. 
42 u s e 1395u. 
"(viii) pregnant women,". 
(19)(A) Section 1915(b) of such Act is amended by striking out "and 
section 1903(m)". 
(B) The amendment made by subparagraph (A) shall not apply 
with respect to any waiver if such waiver was granted, and the 
arrangement covered by the waiver was in place, prior to August 10, 
1982. 
(20) Section 1915(b)(1) of such Act is amended— 
(A) by inserting "primary care" before "case-management 
system"; and 
(B) by striking out "primary care services" and inserting in 
lieu thereof "medical care services". 
(21) Section 1915(c)(1) of such Act is amended by inserting "pay-
ment for part or all of the cost o f after "may include as 'medical 
assistance' under such plan". 
(22) Section 1915(c)(2)(B) of such Act is amended to read as follows: 
"(B) the State will provide, with respect to individuals who— 
"(i) are entitled to medical assistance for skilled nursing 
facility or intermediate care facility services under the 
State plan, 
"(ii) may require such services, and 
"(iii) may be eligible for such home or community-based 
care under such waiver, 
for an evaluation of the need for such services;". 
(23) Section 1915(c)(3) of such Act is amended— 
(A) by striking out "subsection (a)(1)" and inserting in lieu 
thereof "section 1902(a)(1)"; and 
(B) by striking out "subsection (a)(10) of section 1902" and 
inserting in lieu thereof "section 1902(a)(10)". 
(24) Section 1915(c)(4) of such Act is amended by striking out "this 
section" and inserting in lieu thereof "this subsection". 
(25) Section 1915(f) of such Act is amended by inserting "approval 
of before "a proposed State plan". 
(26) Subsection (a) of section 1128A of such Act is amended by 
striking out all that precedes "shall be subject" and inserting in lieu 
thereof the following: 
"(a) Any person (including an organization, agency, or other 
entity) that— 
"(1) presents or causes to be presented to an officer, employee, 
or agent of the United States, or of any department or agency 
thereof, or of any State agency (as defined in subsection (h)(1)), a 
claim (as defined in subsection (h)(2)) that the Secretary deter-
mines is for a medical or other item or service— 
"(A) that the person knows or has reason to know was not 
provided as claimed, or 
"(B) payment for which may not be made under the 
program under which such claim was made, pursuant to a 
determination by the Secretary under section 1128, 1160(b), 
or 1862(d), or pursuant to a determination by the Secretary 
under section 1866(b)(2) with respect to which the Secretary 
has initiated termination proceedings; or 
"(2) presents or causes to be presented to any person a request 
for payment which is in violation of the terms of (A) an assign-
ment under section 1842(b)(3)(B)(ii), or (B) an agreement with a 
State agency not to charge a person for an item or service in 
excess of the amount permitted to be charged,". 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 381 
(27) Section 1903(s)(5)(B) of such Act is amended by inserting "or 
quarters" after "carried forward to the following quarter". 
(c)(1) Section 914(b)(2)(A) of the Omnibus Reconciliation Act of 
1980 is amended by striking out "medical assistance" and all that 
follows and inserting in lieu thereof "cost reporting periods, begin-
ning on or after April 1,1981, of an entity providing services under a 
State plan approved under title XIX of the Social Security Act.". 
(2) Section 914(cX2) of the Omnibus Reconciliation Act of 1980 is 
amended by striking out "services provided" and all that follows and 
inserting in lieu thereof "cost reporting periods, beginning on or 
after April 1,1981, of an entity providing services under a State plan 
approved under title V of the Social Security Act.". 
(d)(1) Except as otherwise provided in this section, any amend-
ment to the Omnibus Budget Reconciliation Act of 1981 made by 
this section shall be effective as if it had been originally included in 
the provision of the Omnibus Budget Reconciliation Act of 1981 to 
which such amendment relates. 
(2) Except as otherwise provided in this section, any amendment 
to the Social Security Act made by the preceding provisions of this 
section shall be effective as if it had been originally included as a 
part of that provision of the Social Security Act to which it relates, 
as such provision of the Social Security Act was amended by the 
Omnibus Budget Reconciliation Act of 1981. 
(e) Section 1902(a) of the Social Security Act is amended in the 
matter following paragraph (44) by inserting ", (26)" after "(9)(A)". 
(f) Section 1905(h)(1)(C) of the Social Security Act is amended by 
redesignating clauses (i) and (ii) as subclauses (I) and (II) respec-
tively, and by redesignating clauses (A) and (B) as clauses (i) and (ii) 
respectively. 
(g) Effective October 1, 1982, section 1903(f)(3) of the Social Secu-
rity Act is amended by striking out "(without regard to section 
408)". 
95 Stat. 803. 
42 u s e 1396b. 
42 u s e 1896a 
note. 
42 u s e 1396. 
42 u s e 705 note. 
42 u s e 701. 
42 u s e 1396a 
note. 
95 Stat. 357. 
42 u s e 1305. 
95 Stat. 815. 
42 u s e 1396a. 
42 u s e 1396d. 
42 u s e 1396b. 
Subtitle C—Utilization and Quality Control 
Peer Review 
Peer Review 
Improvement 
Act of 1982. 
SHORT TITLE OF SUBTITLE 
SEC. 141. This subtitle may be cited as the "Peer Review Improve- 42 use 1305 
ment Act of 1982". 
"°^^-
REQUIREMENT FOR SECRETARY TO ENTER INTO CONTRACTS 
SEC. 142. Section 1862 of the Social Security Act is amended by 42 use I395y. 
adding at the end thereof the following new subsection: 
"(g) The Secretary shall, in making the determinations under 
paragraphs (1) and (9) of subsection (a), and for the purposes of 
promoting the effective, efficient, and economical delivery of health 
care services, and of promoting the quality of services of the type for 
which payment may be made under this title, enter into contracts 
with utilization and quality control peer review organizations pursu-
ant to part B of title XI of this Act.". 
42 use I320c. 
96 STAT. 382 
PUBLIC LAW 97-248—SEPT. 3, 1982 
ESTABLISHMENT OF UTILIZATION AND QUALITY CONTROL PEER REVIEW 
PROGRAM 
SEC. 143. Part B of title XI of the Social Security Act is amended 
to read as follows: 
"PART B—PEER REVIEW OF THE UTILIZATION AND 
QUALITY OF HEALTH CARE SERVICES 
"PURPOSE 
42 use 1320c. 
"SEC. 1151. The purpose of this part is to establish the contracting 
process which the Secretary must follow pursuant to the require-
42 use I395y. 
ments of section 1862(g) of this Act, including the definition of the 
utilization and quality control peer review organizations with which 
the Secretary shall contract, the functions such peer review organi-
zations are to perform, the confidentiality of medical records, and 
related administrative matters to facilitate the carrying out of the 
purposes of this part. 
"DEFINITION OF UTILIZATION AND QUALITY CONTROL PEER REVIEW 
ORGANIZATION 
42 use 1320C-1 
"SEC. 1152. The term 'utilization and quality control peer review 
organization' means an entity which— 
"(1)(A) is composed of a substantial number of the licensed 
doctors of medicine and osteopathy engaged in the practice of 
medicine or surgery in the area and who are representative of 
the practicing physicians in the area, designated by the Secre-
tary under section 1153, with respect to which the entity shall 
perform services under this part, or (B) has available to it, by 
arrangement or otherwise, the services of a sufficient number of 
licensed doctors of medicine or osteopathy engaged in the prac-
tice of medicine or surgery in such area to assure that adequate 
peer review of the services provided by the various medical 
specialties and subspecialties can be assured; and 
"(2) is able, in the judgment of the Secretary, to perform 
review functions required under section 1154 in a manner 
consistent with the efficient and effective administration of this 
part and to perform reviews of the pattern of quality of care in 
an area of medical practice where actual performance is meas-
ured against objective criteria which define acceptable and 
adequate practice. 
CONTRACTS WITH UTILIZATION AND QUALITY CONTROL PEER REVIEW 
ORGANIZATIONS 
42 use 1320C-2. 
"SEC. 1153. (a)(1) The Secretary shall establish throughout the 
United States geographic areas with respect to which contracts 
under this part will be made. In establishing such areas, the Secre-
tary shall use the same areas as established under section 1152 of 
this Act as in effect immediately prior to the date of the enactment 
of the Peer Review Improvement Act of 1982, but subject to the 
provisions of paragraph (2). 
"(2) As soon as practicable after the date of the enactment of the 
Peer Review Improvement Act of 1982, the Secretary shall consoli-
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 383 
date such geographic areas, taking into account the following crite-
ria: 
"(A) Each State shall generally be designated as a geographic 
area for purposes of paragraph (1). 
"(B) The Secretary shall establish local or regional areas 
rather than State areas only where the volume of review activ-
ity or other relevant factors (as determined by the Secretary) 
warrant such an establishment, and the Secretary determines 
that review activity can be carried out with equal or greater 
efficiency by establishing such local or regional areas. In apply-
ing this subparagraph the Secretary shall take into account the 
number of hospital admissions within each State for which 
payment may be made under title XVIII or a State plan 42 USC1395. 
approved under title XIX, with any State having fewer than 42 USC 1396. 
180,000 such admissions annually being established as a single 
statewide area, and no local or regional area being established 
which has fewer than 60,000 total hospital admissions (includ-
ing public and private pay patients) under review annually, 
unless the Secretary determines that other relevant factors 
warrant otherwise. 
"(C) No local or regional area shall be designated which is not 
a self-contained medical service area, having a full spectrum of 
services, including medical specialists' services. 
"(b)(1) The Secretary shall enter into a contract with a utilization 
and quality control peer review organization for each area estab-
lished under subsection (a) if a qualified organization is available in 
such area and such organization and the Secretary have negotiated 
a proposed contract which the Secretary determines will be carried 
out by such organization in a manner consistent with the efficient 
and effective administration of this part. If more than one such 
qualified organization meets the requirements of the preceding 
sentence, priority shall be given to any such organization which is 
described in section 1152(1)(A). 
"(2)(A) During the first twelve months in which the Secretary is 
entering into contracts under this section, the Secretary shall not 
enter into a contract under this part with any entity which is, or is 
affiliated with (through management, ownership, or common con-
trol), an entity which directly or indirectly makes payments to any 
practitioner or provider whose health care services are reviewed by 
such entity or would be reviewed by such entity if it entered into a 
contract with the Secretary under this part. 
"(B) If, after the expiration of the twelve-month period referred to 
in subparagraph (A), the Secretary determines that there is no other 
entity available for an area with which the Secretary can enter into 
a contract under this part, the Secretary may then enter into a 
contract under this part with an entity described in subparagraph 
(A) for such area if such entity otherwise meets the requirements of 
this part. 
"(3) The Secretary shall not enter into a contract under this part 
with any entity which is, or is affiliated with (through management, 
ownership, or common control), a health care facility, or association 
of such facilities, within the area served by such entity or which 
would be served by such entity if it entered into a contract with the 
Secretary under this part. 
"(c) Each contract with an organization under this section shall 
provide that— 
96 STAT. 384 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(1) the organization shall perform the functions set forth in 
section 1154(a), or may subcontract for the performance of all or 
some of such functions (and for purposes of paragraphs (2) and 
(3) of subsection (b), a subcontract under this paragraph shall 
not constitute an affiliation with the subcontractor); 
"(2) the Secretary shall have the right to evaluate the quality 
and effectiveness of the organization in carrying out the func-
tions specified in the contract; 
"(3) the contract shall be for an initial term of two years and 
shall be renewable on a biennial basis thereafter; 
"(4) if the Secretary intends not to renew a contract, he shall 
notify the organization of his decision at least 90 days prior to 
the expiration of the contract term, and shall provide the 
organization an opportunity to present data, interpretations of 
data, and other information pertinent to its performance under 
the contract, which shall be reviewed in a timely manner by the 
Secretary; 
"(5) the organization may terminate the contract upon 90 
davs notice to the Secretary; 
'(6) the Secretary may terminate the contract prior to the 
expiration of the contract term upon 90 days notice to the 
organization if the Secretary determines that— 
"(A) the organization does not substantially meet the 
requirements of section 1152; or 
"(B) the organization has failed substantially to carry out 
the contract or is carrying out the contract in a manner 
inconsistent with the efficient and effective administration 
of this part, but only after such organization has had an 
opportunity to submit data and have such data reviewed by 
the panel established under subsection (d); 
"(7) the Secretary shall include in the contract negotiated 
objectives against which the organization's performance will be 
judged, and negotiated specifications for use of regional norms, 
or modifications thereof based on national norms, for perform-
ing review functions under the contract; and 
"(8) reimbursement shall be made to the organization in 
accordance with the terms of the contract. 
"(d)(1) Prior to making any termination under subsection (c)(5)(B), 
the Secretary must provide the organization with an opportunity to 
provide data, interpretations of data, and other information perti-
nent to its performance under the contract. Such data and other 
information shall be reviewed in a timely manner by a panel 
appointed by the Secretary, and the panel shall submit a report of 
its findings to the Secretary in a timely manner. The Secretary shall 
make a copy of the report available to the organization. 
"(2) The Secretary may accept or not accept the findings of the 
panel. After the panel has submitted a report with respect to an 
organization, the Secretary may, with the concurrence of the organi-
zation, amend the contract to modify the scope of the functions to be 
carried out by the organization, or in any other manner. The 
Secretary may terminate a contract under the authority of subsec-
tion (c)(5)(C) upon 90 days notice after the panel has submitted a 
report, or earlier if the organization so agrees. 
"(3) A panel appointed by the Secretary under this subsection 
shall consist of not more than five individuals, each of whom shall 
be a member of a utilization and quality control peer review organi-
zation having a contract with the Secretary under this part. While 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 385 
serving on such panel individuals shall be paid at a per diem rate 
not to exceed the current per diem equivalent at the time that 
service on the panel is rendered for grade GS-18 under section 5332 
of title 5, United States Code. Appointments shall be made without 
regard to title 5, United States Code. 
"(e) Contracting authority of the Secretary under this section may 
be carried out without regard to any provision of law relating to the 
making, performance, amendment, or modification of contracts of 
the United States as the Secretary may determine to be inconsistent 
with the purposes of this part. The Secretary may use different 
contracting methods with respect to different geographical areas. 
"(f) Any determination by the Secretary to terminate or not to 
renew a contract under this section shall not be subject to judicial 
review. 
"FUNCTIONS OF PEER REVIEW ORGANIZATIONS 
"SEC. 1154. (a) Any utilization and quality control peer review 42 USC i320c-3. 
organization entering into a contract with the Secretary under this 
part must perform the following functions: 
"(1) The organization shall review some or all of the profes-
sional activities in the area, subject to the terms of the contract, 
of physicians and other health care practitioners and institu-
tional and noninstitutional providers of health care services in 
the provision of health care services and items for which pay-
ment may be made (in whole or in part) under title XVIII for 42 USC 1395. 
the purpose of determining whether— 
"(A) such services and items are or were reasonable and 
medically necessary or otherwise allowable under section 
1862(a)(1); 
"(B) the quality of such services meets professionally 
recognized standards of health care; and 
"(C) in case such services and items are proposed to be 
provided in a hospital or other health care facility on an 
inpatient basis, such services and items could, consistent 
with the provision of appropriate medical care, be effec-
tively provided more economically on an outpatient basis or 
in an inpatient health care facility of a different type. 
"(2) The organization shall determine, on the basis of the 
review carried out under subparagraphs (A) and (C) of para-
graph (1), whether payment shall be made for services under 
title XVIII. Such determination shall constitute the conclusive 
determination on those issues for purposes of payment under 
title XVIII, except that payment may be made i
f
— 
"(A) such payment is allowed by reason of section 1879; 
"(B) in the case of inpatient hospital services or posthospi-
tal extended care services, the peer review organization 
determines that additional time is required in order to 
arrange for postdischarge care, but payment may be contin-
ued under this subparagraph for not more than two days, 
bui only in the case where the provider of such services did 
not know and could not reasonably have been expected to 
know (as determined under section 1879) that payment 42 USC I395pp. 
would not otherwise be made for such services under title 
XVIII prior to notification by the organization under para-
graph (3); 
96 STAT. 386 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(C) such determination is changed as the result of any 
hearing or review of the determination under section 1155; 
or 
"(D) 
such 
payment 
is 
authorized 
under 
section 
42 use 1395X. 
1861(v)(l)(G). 
"(3) Whenever the organization makes a determination that 
any health care services or items furnished or to be furnished to 
a patient by any practitioner or provider are disapproved, the 
organization shall promptly notify such practitioner or pro-
vider, such patient, and the agency or organization responsible 
for the payment of claims under title XVIII of this Act. In the 
case of practitioners and providers of services, the organization 
shall provide an opportunity for discussion and review of the 
determination. 
"(4) The organization shall, after consultation with the Secre-
tary, determine the types and kinds of cases (whether by type of 
health care or diagnosis involved, or whether in terms of other 
relevant criteria relating to the provision of health care serv-
ices) with respect to which such organization will, in order to 
most effectively carry out the purposes of this part, exercise 
review authority under the contract. The organization shall 
notify the Secretary periodically with respect to such determi-
nations. 
"(5) The organization shall consult with nurses and other 
professional health care practitioners (other than physicians 
described in section 1861(r)(l)) and with representatives of insti-
tutional and noninstitutional providers of health care services, 
with respect to the organization's responsibility for the review 
under paragraph (1) of the professional activities of such practi-
tioners and providers. 
"(6) The organization shall, consistent with the provisions of 
its contract under this part, apply professionally developed 
norms of care, diagnosis, and treatment based upon typical 
patterns of practice within the geographic area served by the 
organization as principal points of evaluation and review, 
taking into consideration national norms where appropriate. 
Such norms with respect to treatment for particular illnesses or 
health conditions shall include— 
"(A) the types and extent of the health care services 
which, taking into account differing, but acceptable, modes 
of treatment and methods of organizing and delivering care, 
are considered within the range of appropriate diagnosis 
and treatment of such illness or health condition, consistent 
with professionally recognized and accepted patterns of 
care; and 
"(B) the type of health care facility which is considered, 
consistent with such standards, to be the type in which 
health care services which are medically appropriate for 
such illness or condition can most economically be provided. 
"(7) The organization, to the extent necessary and appropriate 
to the performance of the contract, shall— 
"(A) make arrangements to utilize the services of persons 
who are practitioners of, or specialists in, the various areas 
of medicine (including dentistry), or other types of health 
care, which persons shall, to the maximum extent practica-
ble, be individuals engaged in the practice of their profes-
sion within the area served by such organization; 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 387 
"(B) undertake such professional inquiries either before 
or after, or both before and after, the provision of services 
with respect to which such organization has a responsibility 
for review which in the judgment of such organization will 
facilitate its activities; 
"(C) examine the pertinent records of any practitioner or 
provider of health care services providing services with 
respect to which such organization has a responsibility for 
review under paragraph (1); and 
"(D) inspect the facilities in which care is rendered or 
services are provided (which are located in such area) of any 
practitioner or provider of health care services providing 
services with respect to which such organization has a 
responsibility for review under paragraph (1). 
"(8) The organization shall perform such duties and functions 
and assume such responsibilities and comply with such other 
requirements as may be required by this part or under regula-
tions of the Secretary promulgated to carry out the provisions of 
this part. 
"(9) The organization shall collect such information relevant 
to its functions, and keep and maintain such records, in such 
form as the Secretary may require to carry out the purposes of 
this part, and shall permit access to and use of any such 
information and records as the Secretary may require for such 
purposes, subject to the provisions of section 1160. 
Post, p. 391. 
"(10) The organization shall coordinate activities, including 
information exchanges, which are consistent with economical 
and efficient operation of programs among appropriate public 
and private agencies or organizations including— 
"(A) agencies under contract pursuant to sections 1816 42 USC I395h, 
and 1842 of this Act; 
"(B) other peer review organizations having contracts 
under this part; and 
"(C) other public or private review organizations as may 
be appropriate. 
"(11) The organization shall make available its facilities and 
resources for contracting with private and public entities paying 
for health care in its area for review, as feasible and appropri-
ate, of services reimbursed by such entities. 
"(b)(1) No physician shall be permitted to review— 
"(A) health care services provided to a patient if he was 
directly responsible for providing such services; or 
"(B) health care services provided in or by an institution, 
organization, or agency, if he or any member of his family has, 
directly or indirectly, a significant financial interest in such 
institution, organization, or agency. 
"(2) For purposes of this subsection, a physician's family includes 
only his spouse (other than a spouse who is legally separated from 
him under a decree of divorce or separate maintenance), children 
(including legally adopted children), grandchildren, parents, and 
grandparents. 
"(c) No utilization and quality control peer review organization 
shall utilize the services of any individual who is not a duly licensed 
doctor of medicine, osteopathy, or dentistry to make final determi-
nations of denial decisions in accordance with its duties and func-
tions under this part with respect to the professional conduct of any 
other duly licensed doctor of medicine, osteopathy, or dentistry, or 
1395u. 
96 STAT. 388 
PUBLIC LAW 97-248—SEPT. 3, 1982 
any act performed by any duly licensed doctor of medicine, osteop-
athy, or dentistry in the exercise of his profession. 
"RIGHT TO HEARING AND JUDICIAL REVIEW 
42 use 1320C-4. 
"SEC. 1155. Any beneficiary who is entitled to benefits under title 
42 use 1395. 
XVIII, and any practitioner or provider, who is dissatisfied with a 
determination made by a contracting peer review organization in 
conducting its review responsibilities under this part, shall be 
entitled to a reconsideration of such determination by the reviewing 
organization. Where the reconsideration is adverse to the benefici-
ary and where the matter in controversy is $200 or more, such 
beneficiary shall be entitled to a hearing by the Secretary (to the 
42 use 405. 
same extent as is provided in section 205(b)), and, where the amount 
in controversy is $2,000 or more, to judicial review of the Secretary's 
final decision. 
OBLIGATIONS OF HEALTH CARE PRACTITIONERS AND PROVIDERS OF 
HEALTH CARE SERVICES; SANCTIONS AND PENALTIES; HEARINGS AND 
REVIEW 
42 use 1320C-5. 
"SEC. 1156. (a) It shall be the obligation of any health care 
practitioner and any other person (including a hospital or other 
health care facility, organization, or agency) who provides health 
care services for which payment may be made (in whole or in part) 
under title XVIII, to assure, to the extent of his authority that 
services or items ordered or provided by such practitioner or person 
to beneficiaries and recipients under such title— 
"(1) will be provided economically and only when, and to the 
extent, medically necessary; 
"(2) will be of a quality which meets professionally recognized 
standards of health care; and 
"(3) will be supported by evidence of medical necessity and 
quality in such form and fashion and at such time as may 
reasonably be required by a reviewing peer review organization 
in the exercise of its duties and responsibilities. 
"(b)(1) If after reasonable notice and opportunity for discussion 
with the practitioner or person concerned, any organization having 
a contract with the Secretary under this part determines that such 
practitioner or person has— 
"(A) failed in a substantial number of cases substantially to 
comply with any obligation imposed on him under subsection 
(a), or 
"(B) grossly and flagrantly violated any such obligation in one 
or more instances, 
such organization shall submit a report and recommendations to the 
Secretary. If the Secretary agrees with such determination, and 
determines that such practitioner or person, in providing health 
care services over which such organization has review responsibility 
and for which payment (in whole or in part) may be made under 
title XVIII, has demonstrated an unwillingness or a lack of ability 
substantially to comply with such obligations, the Secretary (in 
addition to any other sanction provided under law) may exclude 
(permanently or for such period as the Secretary may prescribe) 
such practitioner or person from eligibility to provide such services 
on a reimbursable basis. If the Secretary fails to act upon the 
recommendations submitted to him by such organization within 120 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 389 
days after such submission, such practitioner or person shall be 
excluded from eligibility to provide services on a reimbursable basis 
until such time as the Secretary determines otherwise. 
"(2) A determination made by the Secretary under this subsection 
to exclude a practitioner or person shall be effective at such time 
and upon such reasonable notice to the public and to the 
practitioner or person furnishing the services involved as may be 
specified in regulations. Such determination shall be effective with 
respect to services furnished to an individual on or after the effec-
tive date of such determination (except that in the case of institu-
tional health care services such determination shall be effective in 
the manner provided in title XVIII with respect to terminations of 
provider agreements), and shall remain in effect until the Secretary 
finds and gives reasonable notice to the public that the basis for 
such determination has been removed and that there is reasonable 
assurance that it will not recur. 
"(3) In lieu of the sanction authorized by paragraph (1), the 
Secretary may require that (as a condition to the continued eligibil-
ity of such practitioner or person to provide such health care 
services on a reimbursable basis) such practitioner or person pays to 
the United States, in case such acts or conduct involved the provi-
sion or ordering by such practitioner or person of health care 
services which were medically improper or unnecessary, an amount 
not in excess of the actual or estimated cost of the medically 
improper or unnecessary services so provided. Such amount may be 
deducted from any sums owing by the United States (or any instru-
mentality thereof) to the practitioner or person from whom such 
amount is claimed. 
"(4) Any practitioner or person furnishing services described in 
paragraph (1) who is dissatisfied with a determination made by the 
Secretary under this subsection shall be entitled to reasonable 
notice and opportunity for a hearing thereon by the Secretary to the 
same extent as is provided in section 205(b), and to judicial review of 42 USC 405. 
the Secretary's final decision after such hearing as is provided in 
section 205(g). 
"(c) It shall be the duty of each utilization and quality control peer 
review organization to use such authority or influence it may pos-
sess as a professional organization, and to enlist the support of any 
other professional or governmental organization having influence or 
authority over health care practitioners and any other person 
(including a hospital or other health care facility, organization, or 
agency) providing health care services in the area served by such 
review organization, in assuring that each practitioner or person 
(referred to in subsection (a)) providing health care services in such 
area shall comply with all obligations imposed on him under subsec-
tion (a). 
"LIMITATION ON LIABILITY 
"SEC. 1157. (a) Notwithstanding any other provision of law, no 42 USC l320c-6. 
person providing information to any organization having a contract 
with the Secretary under this part shall be held, by reason of having 
provided such information, to have violated any criminal law, or to 
be civilly liable under any law of the United States or of any State 
(or political subdivision thereof) unless— 
"(1) such information is unrelated to the performance of the 
contract of such organization; or 
96 STAT. 390 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(2) such information is false and the person providing it 
knew, or had reason to believe, that such information was false. 
"(b) No person who is employed by, or who has a fiduciary 
relationship with, any such organization or who furnishes profes-
sional services to such organization, shall be held by reason of the 
performance by him of any duty, function, or activity required or 
authorized pursuant to this part or to a valid contract entered into 
under this part, to have violated any criminal law, or to be civilly 
liable under any law of the United States or of any State (or political 
subdivision thereof) provided he has exercised due care. 
"(c) No doctor of medicine or osteopathy and no provider (includ-
ing directors, trustees, employees, or officials thereof) of health care 
services shall be civilly liable to any person under any law of the 
United States or of any State (or political subdivision thereof) on 
account of any action taken by him in compliance with or reliance 
upon professionally developed norms of care and treatment applied 
by an organization under contract pursuant to section 1153 operat-
ing in the area where such doctor of medicine or osteopathy or 
provider took such action; but only i
f
— 
"(1) he takes such action in the exercise of his profession as a 
doctor of medicine or osteopathy or in the exercise of his 
functions as a provider of health care services; and 
"(2) he exercised due care in all professional conduct taken or 
directed by him and reasonably related to, and resulting from, 
the actions taken in compliance with or reliance upon such 
professionally accepted norms of care and treatment. 
"(d) The Secretary shall make payment to an organization under 
contract with him pursuant to this part, or to any member or 
employee thereof, or to any person who furnishes legal counsel or 
services to such organization, in an amount equal to the reasonable 
amount of the expenses incurred, as determined by the Secretary, in 
connection with the defense of any suit, action, or proceeding 
brought against such organization, member, or employee related to 
the performance of any duty or function under such contract by 
such organization, member, or employee. 
42 u s e 1320C-7. 
42 u s e 1396. 
42 u s e 1395y. 
42 u s e 1396b. 
APPLICATION OF THIS PART TO CERTAIN STATE PROGRAMS RECEIVING 
FEDERAL FINANCIAL ASSISTANCE 
"SEC. 1158. (a) A State plan approved under title XIX of this Act 
may provide that the functions specified in section 1154 may be 
performed in an area by contract with a utilization and quality 
control peer review organization that has entered into a contract 
with the Secretary in accordance with the provisions of section 
1862(g). 
"(b) In the event a State enters into a contract in accordance with 
subsection (a), the Federal share of the expenditures made to the 
contracting organization for its costs in the performance of its 
functions under the State plan shall be 75 percent (as provided in 
section 1903(a)(3)(C)). 
AUTHORIZATION FOR USE OF CERTAIN FUNDS TO ADMINISTER THE 
PROVISIONS OF THIS PART 
42 use 1320C-8. 
"SEC. 1159. Expenses incurred in the administration of the con-
42 use 1395y. 
tracts described in section 1862(g) shall be payable from— 
"(1) funds in the Federal Hospital Insurance Trust Fund; and 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 391 
"(2) funds in the Federal Supplementary Medical Insurance 
Trust Fund, 
in such amounts from each of such Trust Funds as the Secretary 
shall deem to be fair and equitable after taking into consideration 
the expenses attributable to the administration of this part with 
respect to each of such programs. The Secretary shall make such 
transfers of moneys between such Trust Funds as may be appropri-
ate to settle accounts between them in cases where expenses prop-
erly payable from one such Trust Fund have been paid from the 
other such Trust Fund. 
"PROHIBITION AGAINST DISCLOSURE OF INFORMATION 
"SEC. 1160. (a) An organization, in carrying out its functions under 42 USC i320c-9. 
a contract entered into under this part, shall not be a Federal 
agency for purposes of the provisions of section 552 of title 5, United 
States Code (commonly referred to as the Freedom of Information 
Act). Any data or information acquired by any such organization in 
the exercise of its duties and functions shall be held in confidence 
and shall not be disclosed to any person except— 
"(1) to the extent that may be necessary to carry out the 
purposes of this part, 
"(2) in such cases and under such circumstances as the Secre-
tary shall by regulations provide to assure adequate protection 
of the rights and interests of patients, health care practitioners, 
or providers of health care, or 
' (3) in accordance with subsection (b). 
"(b) An organization having a contract with the Secretary under 
this part shall provide in accordance with procedures and safe-
guards established by the Secretary, data and information— 
"(1) which may identify specific providers or practitioners as 
may be necessary— 
"(A) to assist Federal and State agencies recognized by 
the Secretary as having responsibility for identifying and 
investigating cases or patterns of fraud or abuse, which 
data and information shall be provided by the peer review 
organization to any such agency at the request of such 
agency relating to a specific case or pattern; 
"(B) to assist appropriate Federal and State agencies 
recognized by the Secretary as having responsibility for 
identifying cases or patterns involving risks to the public 
health, which data and information shall be provided by the 
peer review organization to any such agency— 
"(i) at the discretion of the peer review organization, 
at the request of such agency relating to a specific case 
or pattern with respect to which such agency has made 
a finding, or has a reasonable belief, that there may be 
a substantial risk to the public health, or 
"(ii) upon a finding by, or the reasonable belief of, the 
peer review organization that there may be a substan-
tial risk to the public health; and 
"(C) to assist appropriate State agencies recognized by the 
Secretary as having responsibility for licensing or certifica-
tion of providers or practitioners, which data and informa-
tion shall be provided by the peer review organization to 
any such agency at the request of such agency relating to a 
specific case, but only to the extent that such data and 
96 STAT. 392 
PUBLIC LAW 97-248—SEPT. 3, 1982 
information is required by the agency in carrying out a 
function which is within the jurisdiction of such agency 
under State law; and 
"(2) to assist the Secretary, and such Federal and State 
agencies recognized by the Secretary as having health planning 
or related responsibilities under Federal or State law (including 
health systems agencies and State health planning and develop-
ment agencies), in carrying out appropriate health care plan-
ning and related activities, which data and information shall be 
provided in such format and manner as may be prescribed by 
the Secretary or agreed upon by the responsible Federal and 
State agencies and such organization, and shall be in the form 
of aggregate statistical data (without explicitly identifying any 
individual) on a geographic, institutional, or other basis reflect-
ing the volume and frequency of services furnished, as well as 
the demographic characteristics of the population subject to 
review by such organization. 
The penalty provided in subsection (c) shall not apply to the disclo-
sure of any information received under this subsection, except that 
such penalty shall apply to the disclosure (by the agency receiving 
such information) of any such information described in paragraph 
(1) unless such disclosure is made in a judicial, administrative, or 
other formal legal proceeding resulting from an investigation con-
ducted by the agency receiving the information. An organization 
may require payment of a reasonable fee for providing information 
under this subsection in response to a request for such information. 
"(c) It shall be unlawful for any person to disclose any such 
information described in subsection (a) other than for the purposes 
provided in subsections (a) and (b), and any person violating the 
provisions of this section shall, upon conviction, be fined not more 
than $1,000, and imprisoned for not more than 6 months, or both, 
and shall be required to pay the costs of prosecution. 
"(d) No patient record in the possession of an organization having 
a contract with the Secretary under this part shall be subject to 
subpena or discovery proceedings in a civil action. 
"ANNUAL REPORTS 
42 use 1320C-10. 
"SEC. 1161. The Secretary shall submit to the Congress not later 
than April 1 of each year, a full and complete report on the 
administration, impact, and cost of the program under this part 
during the preceding fiscal year, including data and information 
on— 
"(1) the number, status, and service areas of all utilization 
and quality control peer review organizations participating in 
the program; 
"(2) the number of health care institutions and practitioners 
whose services are subject to review by such organizations, and 
the number of beneficiaries and recipients who received services 
subject to such review during such year; 
"(3) the various methods of reimbursement utilized in con-
tracts under this part, and the relative efficiency of each such 
method of reimbursement; 
"(4) the imposition of penalties and sanctions under this title 
for violations of law and for failure to comply with the obliga-
tions imposed by this part; 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 393 
"(5) the total costs incurred under titles XVIII and XIX of this 
Act in the implementation and operation of all procedures 
required by such titles for the review of services to determine 
their medical necessity, appropriateness of use, and quality; and 
"(6) descriptions of the criteria upon which decisions are 
made, and the selection and relative weights of such criteria. 
42 use 1395, 
1396. 
EXEMPTIONS OF CHRISTIAN SCIENCE SANATORIUMS 
"SEC. 1162. The provisions of this part shall not apply with respect 
42 USC I320c-ll. 
to a Christian Science sanatorium operated, or listed and certified, 
by the First Church of Christ, Scientist, Boston, Massachusetts. 
" M E D I C A L 
O F F I C E R S 
I N AMERICAN SAMOA, THE NORTHERN 
MARIANA 
ISLANDS, AND THE TRUST TERRITORY OF THE PACIFIC ISLANDS TO BE 
INCLUDED IN THE UTILIZATION AND QUALITY CONTROL PEER REVIEW 
PROGRAM 
"SEC. 1163. For purposes of applying this part to American Samoa, 
42 USC I320c-12. 
the Northern Mariana Islands, and the Trust Territory of the 
Pacific Islands, individuals licensed to practice medicine in those 
places shall be considered to be physicians and doctors of medicine.". 
FACILITATION OF PRIVATE REVIEW 
42 USC 1395CC. 
SEC. 144. Section 1866(a)(1) of the Social Security Act is amended— 
(1) by striking out "and" at the end of subparagraphs (A), (B), 
and (C); 
(2) by striking out the period at the end of subparagraph (D) 
and inserting in lieu thereof ", and"; and 
(3) by inserting after subparagraph (D) the following new 
subparagraph: 
"(E) to release data with respect to patients of such provider 
upon request to an organization having a contract with the 
Secretary under part B of title XI as may be necessary (i) to 42 USC 1320c. 
allow such organization to carry out its functions under such 
contract, or (ii) to allow such organization to carry out similar 
review functions under any contract the organization may have 
with a private or public agency paying for health care in the 
same area with respect to patients who authorize release of 
such data for such purposes.". 
WAIVER OF LIABILITY PROVISION 
SEC. 145. Section 1879(a) of the Social Security Act is amended by 42 USC 1395pp. 
adding at the end thereof the following new sentence: "Any provider 
or other person furnishing items or services for which payment may 
not be made by reason of section 1862(a)(1) or (9) shall be deemed to 42 USC I395y. 
have knowledge that payment cannot be made for such items or 
services if the claim relating to such items or services involves a 
case, provider or other person furnishing services, procedure, or test, 
with respect to which such provider or other person has been 
notified by the Secretary (including notification by a utilization and 
quality control peer review organization) that a pattern of inappro-
priate utilization has occurred in the past, and such provider or 
other person has been allowed a reasonable time to correct such 
inappropriate utilization.". 
96 STAT. 394 
PUBLIC LAW 97-248—SEPT. 3, 1982 
95 Stat. 795. 
42 u s e 1396a. 
95 Stat. 795. 
42 u s e 1396b. 
MEDICAID PROVISIONS 
SEC. 146. (a) Section 1902(d) of the Social Security Act is 
amended— 
(1) by striking out "a Professional Standards Review Organi-
zation designated, conditionally or otherwise," and inserting in 
lieu thereof "a utilization and quality control peer review orga-
nization having a contract with the Secretary"; and 
(2) by striking out "such Organization (or Organizations)" 
each place it appears and inserting in lieu thereof in each 
instance "such organization (or organizations)". 
(b) Section 1903(a)(3)(C) of such Act is amended by striking out 
"Professional Standards Review Organization" and inserting in lieu 
thereof "utilization and quality control peer review organization". 
DEMONSTRATION PROJECTS FOR COMPETITIVE BIDDING AND OTHER 
REIMBURSEMENT METHODS 
42 use I395b-l. 
SEC 147. Section 402(a)(1) of the Social Security Amendments of 
1967 (Public Law 90-248) is amended— 
(1) by striking out "and" at the end of subparagraph (I); 
(2) by striking out the period at the end of subparagraph (J) 
and inserting in lieu thereof "; and"; and 
(3) by inserting after subparagraph (J) the following new 
subparagraph: 
"(K) to determine whether the use of competitive bidding in 
the awarding of contracts, or the use of other methods of 
reimbursement, under part B of title XI would be efficient and 
effective methods of furthering the purposes of that part.". 
42 u s e 1395y. 
42 u s e 1395g, 
1395x. 
42 u s e 1395k. 
42 u s e 1395Z. 
42 u s e 1395pp. 
TECHNICAL AMENDMENTS 
SEC. 148. (a) Section 1862(d)(1)(C) of such Act is amended by 
striking out ", on the basis of reports transmitted to him in accord-
ance with section 1157 of this Act (or, in the absence of any such 
report, on the basis of such data as he acquires in the administration 
of the program under this title)," and inserting in lieu thereof "on 
the basis of information acquired by the Secretary in the adminis-
tration of this title". 
(b) Sections 1815(b), 1861(v)(l)(G), and 1861(w)(2) of such Act are 
each amended by striking out "Professional Standards Review Orga-
nization" and inserting in lieu thereof in each instance "quality 
control and peer review organization". 
(c) Section 1832(a)(2)(F)(ii) of such Act is amended by striking out 
"Professional Standards Review Organization (designated, condi-
tionally or otherwise," and inserting in lieu thereof "quality control 
and peer review organization (having a contract with the Secre-
tary". 
(d) Section 1833(i) of such Act is amended by striking out "the 
National Professional Standards Review Council and". 
(e) Section 1879(e) of such Act is amended by striking out "profes-
sional standards review organization" and inserting in lieu thereof 
"quality control and peer review organization". 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 395 
EFFECTIVE DATE 
SEC. 149. The amendments made by this part shall, subject to 
section 150, be effective with respect to contracts entered into or 
renewed on or after the date of the enactment of this Act. 
42 u s e 1320c 
note. 
MAINTENANCE OF CURRENT PSRO AGREEMENTS 
SEC. 150. (a) The Secretary of Health and Human Services shall 
not terminate or fail to renew any agreement in effect with a 
professional standards review organization under part B of title XI 
of the Social Security Act on the earlier of the date of the enactment 
of this Act or September 30, 1982 until such time as he enters into a 
contract with a utilization and quality control peer review organiza-
tion under such part, as amended by this subtitle, for the area 
served by such professional standards review organization. In com-
plying with this subsection, the Secretary may renew any such 
contract with a professional standards review organization for a 
period of less than 12 months. 
(b) The provisions of part B of title XI of the Social Security Act as 
in effect prior to the amendments made by this subtitle shall remain 
in effect with respect to contracts with professional standards 
review organizations in effect on the earlier of the date of the 
enactment of this Act or September 30, 1982, until such time as such 
contract is terminated or is not renewed, in accordance with subsec-
tion (a). Any matters awaiting a determination by a Statewide 
Professional Standards Review Council on the date of the enactment 
of this Act shall be transferred to the Secretary of Health and 
Human Services for a determination unless such determination is 
made by such Council within 30 days after the date of the enactment 
of this Act. No payments shall be made under part B of title XI of 
the Social Security Act to Statewide Professional Standards Review 
Councils for services performed under section 1162 of such Act after 
the end of such 30-day period. 
42 u s e 1320c 
note. 
42 u s e 1301. 
42 u s e 1320c. 
42 u s e 1320c. 
42 u s e 1320C-11. 
Subtitle D—Aid to Families with Dependent 
Children 
ROUNDING OF ELIGIBILITY AND BENEFIT AMOUNTS 
SEC. 151. (a) Section 402(a) of the Social Security Act is amended— 
(1) by striking out "and" at the end of paragraph (32); 
(2) by striking out the period at the end of paragraph (33) and 
inserting in lieu thereof "; and"; and 
(3) by adding at the end thereof the following new paragraph: 
"(34) provide that both the standard of need applied to a 
family and the amount of aid determined to be payable, when 
not a whole dollar amount, shall be rounded to the next lower 
whole dollar amount.", 
(b) The amendment made by this section shall become effective on 
October 1, 1982. 
95 Stat. 857. 
42 u s e 602. 
Effective date. 
42 u s e 602 note. 
96 STAT. 396 
PUBLIC LAW 97-248—SEPT. 3, 1982 
EFFECTIVE DATE OF APPUCATION; PRORATION OF FIRST-MONTH'S AFDC 
BENEFIT 
42 use 602. 
SEC. 152. (a) Section 402(a)(10) of the Social Security Act is 
amended— 
(1) by striking out "provide, effective July 1, 1951, that all 
individuals" and inserting in lieu thereof "(A) provide that all 
individuals"; 
(2) by adding "and" after the semicolon; and 
(3) by adding at the end thereof the following new subpara-
graph: 
"(B) provide that an application for aid under the plan will be 
effective no earlier than the date such application is filed with 
the State agency or local agency responsible for the administra-
tion of the State plan, and the amount payable for the month in 
which the application becomes effective, if such application 
becomes effective after the first day of such month, shall bear 
the same ratio to the amount which would be payable if the 
application had been effective on the first day of such month as 
the number of days in the month including and following the 
effective date of the application bears to the total number of 
days in such month;". 
42 use 602 note. 
(b) The amendments made by this section shall become effective 
on October 1,1982. 
ABSENCE FROM HOME SOLELY BY REASON OF UNIFORMED SERVICE 
42 use 606. 
SEC. 153. (a) Section 406(a)(1) of the Social Security Act is amended 
by inserting "(other than absence occasioned solely by reason of the 
performance of active duty in the uniformed services of the United 
States)" after "continued absence from the home". 
^o^fr'i^iy nJ?/?*^\ 
(b) The amendment made by this section shall become effective on 
42 use 606 note. Qctober 1, 1982. 
JOB SEARCH 
42 use 602. 
SEC. 154. (a) Section 402(a) of the Social Security Act (as amended 
by section 151(a) of this Act) is further amended— 
(1) by striking out "and" at the end of paragraph (33); 
(2) by striking out the period at the end of paragraph (34) and 
inserting in lieu thereof "; and"; and 
(3) by adding at the end thereof the following new paragraph: 
"(35) at the option of the State, provide— 
"(A) that as a condition of eligibility for aid under the 
State plan of any individual claiming such aid who is 
required to register pursuant to paragraph (19)(A) (or who 
would be required to register under paragraph (19)(A) but 
for clause (iii) thereof), including all such individuals or 
only such groups, types, or classes thereof as the State 
agency may designate for purposes of this paragraph, such 
individual will be required to participate in a program of 
employment search— 
"(i) beginning at the time he applies for such aid (or 
an application including his need is filed) and continu-
ing for a period (prescribed by the State) of not more 
than eight weeks (but this requirement may not be 
used as a reason for any delay in making a determina-
tion of an individual's eligibility for aid or in issuing a 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 397 
payment to or in behalf of any individual who is other-
wise eligible for such aid); and 
"(ii) at such time or times after the close of the period 
prescribed under clause (i) as the State agency may 
determine but not to exceed a total of 8 weeks in any 12 
consecutive months; 
"(B) that any individual participating in a program of 
employment search under this paragraph will be furnished 
such transportation and other services, or paid (in advance 
or by way of reimbursement) such amounts to cover trans-
portation costs and other expenses reasonably incurred in 
meeting requirements imposed on him under this para-
graph, as may be necessary to enable such individual to 
participate in such program; and 
"(C) that, in the case of an individual who fails without 
good cause to comply with requirements imposed upon him 
under this paragraph, the sanctions imposed by paragraph 
(19)(F) shall be applied in the same manner as if the 
individual had made a refusal of the type which would 
cause the provisions of such paragraph (19)(F) to be applied 
(except that the State may at its option, for purposes of this 
paragraph, reduce the period for which such sanctions 
would otherwise be in effect).". 
(b)(1) Section 403(a)(3)(C) of such Act is amended by inserting 42 USC 603. 
immediately after "expenditures" the following: "(including as 
expenditures under this subparagraph the value of any services 
furnished, and the amount of any payments made (to cover expenses 
incurred by individuals under a program of employment search), 
under section 402(a)(35)(B))". 
(2) Section 403(a)(3) of such Act is further amended by striking out 
"other than services" in the matter immediately following subpara-
graph (C) and inserting in lieu thereof the following: "other than 
services furnished under section 402(a)(35)(B) (as described in the 
parenthetical phrase in subparagraph (C)), and other than services". 
(c) Section 409(b)(3) of such Act is amended— 
95 Stat. 846. 
(1) in the first sentence— 
(A) by inserting ", any program of employment search 
under section 402(a)(35)," after "pursuant to this section", 
(B) by striking out "both such programs" and inserting in 
lieu thereof "more than one such program", and 
(C) by striking out "in the other" and inserting in lieu 
thereof "in another"; and 
(2) in the second sentence, by striking out "both such pro-
grams" and inserting in lieu thereof "more than one such 
program". 
(d) The amendments made by this section shall become effective 
Effective date. 
on October 1,1982. 
'"""''""" 
PRORATION OF STANDARD AMOUNT FOR SHELTER AND UTILITIES 
42 USC 609. 
42 USC 602 note. 
SEC. 155. (a) Section 412 of the Social Security Act is amended to 42 USC 612. 
read as follows: 
96 STAT. 398 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"PRORATING SHELTER ALLOWANCE OF AFDC FAMILY LIVING WITH 
ANOTHER HOUSEHOLD 
"SEC. 412. A State plan for aid and services to needy families with 
children may provide that, in determining the need of any depend-
ent child or relative claiming aid who is living with other individ-
uals (not claiming aid together with such child or relative) as a 
household (as defined, for purposes of this section, by the Secretary), 
the amount included in the standard of need, and the payment 
standard, applied to such child or relative for shelter, utilities, and 
similar needs may be prorated on a reasonable basis, in such 
manner and under such circumstances as the State may determine 
to be appropriate. For purposes of any method of proration used by a 
State under this section, there shall not be included as a member of 
42 use 1381. 
a household an individual receiving benefits under title XVI in any 
month to whom the one-third reduction prescribed by section 
42 use 1382a. 
1612(a)(2)(A)(i) is applied.". 
Effective date. 
(b) The amendment made by this section shall become effective on 
42 u s e 612 note. 
Qctober 1, 1982. 
LIMITATION ON FEDERAL FINANCIAL PARTICIPATION IN ERRONEOUS 
ASSISTANCE EXPENDITURES 
42 use 603. 
SEC. 156. (a) Section 403(i) of the Social Security Act is amended to 
read as follows: 
"(i)(l)(A) Notwithstanding subsection (a)(1), if the ratio of a State's 
erroneous excess payments (as defined in subparagraph (O) to its 
total payments under the State plan approved under this part 
exceeds— 
"(i) 0.04 for fiscal year 1983, or 
"(ii) 0.03 for any fiscal year thereafter, 
then the Secretary shall make no payment for such fiscal year with 
respect to so much of the erroneous excess payments (as so defined) 
as exceeds the allowable error rate for such fiscal year. 
"(B) The Secretary may waive, in certain limited cases, all or part 
of the reduction required under subparagraph (A) with respect to 
any State if such State is unable to reach the allowable error rate 
for a fiscal year despite a good faith effort by such State. 
"(C) For purposes of this subsection, the term 'erroneous excess 
payments' means the total of (i) payments to ineligible families, and 
(ii) overpayments to eligible families. 
"(2) The State agency administering the plan approved under this 
part shall, at such times and in such form as the Secretary may 
specify, provide information on the rates of erroneous excess pay-
ments made in connection with its administration of such plan, 
together with any other data he requests that are reasonably neces-
sary for him to carry out the provisions of this subsection. 
"(3)(A) If a State fails to cooperate with the Secretary in providing 
information necessary to carry out this subsection, the Secretary, 
directly or through contractual or such other arrangements as he 
may find appropriate, shall establish the error rates for that State 
on the basis of the best data reasonably available to him and in 
accordance with such techniques for sampling and estimating as he 
finds appropriate. 
"(B) In any case in which it is necessary for the Secretary to 
exercise his authority under subparagraph (A) to determine a 
State's error rate for a fiscal year, the amount that would otherwise 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 399 
be payable to such State under this part for quarters in such year 
shall be reduced by the costs incurred by the Secretary in making 
(directly or otherwise) such determination. 
"(4) This subsection shall not apply with respect to Puerto Rico, 
Guam, or the Virgin Islands.". 
(b) Section 403(a) of such Act is amended by striking out "In the 42 USC 603. 
case of calendar quarters beginning after September 30, 1977, and 
prior to April 1, 1978, the amount to be paid to each State (as 
determined under the preceding provisions of this subsection or 
section 1118, as the case may be) shall be increased in accordance 
with the provisions of subsection (i) of this section.". 
(c) Section 4030') of such Act is amended by striking out "If the 42 USC 603. 
dollar error rate of aid furnished by a State" and inserting in lieu 
thereof "In the case of Puerto Rico, Guam, or the Virgin Islands, if 
the dollar error rate of aid furnished by such State". 
(d)(1) The amendments made by subsections (a) and (b) shall 
become effective on October 1, 1982. 
(2) The inapplicability of section 403(j) of the Social Security Act to 
States other than Puerto Rico, Guam, and the Virgin Islands by 
reason of the amendment made by subsection (c) shall be effective 
with respect to six-month periods beginning after April 1983. 
(e) The regulations currently in effect for fiscal year 1982 with 
respect to erroneous payments made by States under a State plan 
approved under part A of title IV of the Social Security Act (45 CFR 
205.42) shall remain in effect with respect to erroneous payments 
made by States until new regulations reflecting the changes made 
by subsection (a) are promulgated and placed in effect. 
Effective date. 
42 USC 603 note. 
42 USC 603 note. 
42 USC 601. 
EXCLUSION FROM INCOME OF CERTAIN STATE PAYMENTS 
SEC. 157. (a) The last sentence of section 403(a) of the Social 42 USC 603. 
Security Act is amended by inserting before the period at the end 
thereof the following: ", but any such amount, if determined to have 
been paid by the State in recognition of the difference between the 
current or anticipated needs of a family for a month based upon 
actual income or other relevant circumstances for such month, and 
the needs of such family for such month based upon income and 
other relevant circumstances as retrospectively determined under 
section 402(a)(13)(A)(ii), shall not be considered income within the 42 USC 602. 
meaning of section 402(a)(13) for the purpose of determining the 
amount of aid in the succeeding months". 
(b) The amendment made by this section shall become effective on 
October 1, 1982. 
Effective date. 
42 USC 603 note. 
EXTENSION OF TIME FOR STATES TO ESTABLISH A WORK INCENTIVE 
DEMONSTRATION PROGRAM 
SEC. 158. (a) Section 445(b)(1) of the Social Security Act is amended 
by striking out "Not later than sixty days following the date of the 
enactment of this section" and inserting in lieu thereof "Not later 
than June 30, 1984". 
(b) Section 445(b)(1)(B) of such Act is amended by inserting before 
the semicolon at the end thereof the following: ", but subject to 
waiver of such criteria as provided under section 1115". 
(c) The amendments made by this section shall become effective 
on the date of the enactment of this Act. 
95 Stat. 850. 
42 USC 645. 
42 USC 1315. 
Effective date. 
42 USC 645 note. 
96 STAT. 400 
PUBLIC LAW 97-248—SEPT. 3, 1982 
42 u s e 602 note. 
42 u s e 601. 
EXCLUSION FROM INCOME 
SEC. 159. Notwithstanding any other provision of law, payments 
which are made, under a statutorily established State program, to 
meet certain needs of children receiving aid under the State's plan 
approved under part A of title IV of the Social Security Act, i
f
— 
(1) the payments are made to such children by the State 
agency administering such plan, but are made without Federal 
financial participation (under section 403(a) of such Act or 
otherwise), and 
(2) the State program has been continuously in effect since 
before January 1, 1979, 
shall be excluded from the income of such children and their 
families for purposes of section 402(a)(17) of such Act, and for all the 
other purposes of such part A and of such plan, effective on the date 
of the enactment of this Act. 
42 u s e 1308. 
95 Stat. 868. 
42 u s e 1397b. 
95 Stat. 871. 
42 u s e 1301. 
95 Stat. 871. 
42 u s e 671. 
Effective date. 
42 u s e 1301 
note. 
42 u s e 602 note. 
TECHNICAL AMENDMENTS TO SOCIAL SERVICES AND FOSTER CARE 
PROVISIONS IN 1981 RECONCILIATION ACT 
SEC. 160. (a) Section 1108(a) of the Social Security Act is amended 
by adding at the end thereof (after and below paragraph (3)(F)) the 
following new sentence: 
"Each jurisdiction specified in this subsection may use in its pro-
gram under title XX any sums available to it under this subsection 
which are not needed to carry out the programs specified in this 
subsection." 
(b) Section 2003(b) of such Act is amended in the matter following 
clause (2) by inserting "(other than Puerto Rico, Guam, the Virgin 
Islands, and the Northern Mariana Islands)" after "the population 
ofall the States". 
(c) The last sentence of section 1101(a)(1) of such Act is amended 
by striking out "American Samoa, the Northern Mariana Islands, 
and the Trust Territory of the Pacific Islands" and inserting in lieu 
thereof "Guam, and the Northern Mariana Islands". 
(d) Section 2353(r) of the Omnibus Budget Reconciliation Act of 
1981 is amended to read as follows: 
"(r) Section 471(a)(10) of such Act is amended to read as follows: 
" '(10) provides for the establishment or designation of a State 
authority or authorities which shall be responsible for establish-
ing and maintaining standards for foster family homes and 
child care institutions which are reasonably in accord with 
recommended standards of national organizations concerned 
with standards for such institutions or homes, including 
standards related to admission policies, safety, sanitation, and 
protection of civil rights, and provides that the standards so 
established shall be applied by the State to any foster family 
home or child care institution receiving funds under this part or 
part B of this title;'". 
(e) The amendments made by this section shall be effective as of 
October 1, 1981. 
DELAYED E F F E C T I V E DATE IN CASES REQUIRING CONFORMING STATE 
LEGISLATION 
SEC. 161. In the case of a State with respect to which the Secretary 
of Health and Human Services has determined that State legislation 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 401 
is required in order to conform the State plan approved under part 
A of title IV of the Social Security Act to the requirements imposed 
by any amendment made by this subtitle, the State plan shall not be 
regarded as failing to comply with the requirements of such part 
solely by reason of its failure to meet the requirements imposed by 
such amendment prior to the end of the first session of the State 
legislature which begins after October 1, 1982, or which began prior 
to October 1, 1982, and remained in session for at least twenty-five 
calendar days after such date. For purposes of the preceding sen-
tence, the term "session" means a regular, special, budget, or other 
session of a State legislature. 
42 u s e 601. 
Subtitle E—Child Support Enforcement 
95 Stat. 862. 
42 u s e 654. 
FEE FOR SERVICES TO NON-AFDC FAMILIES 
SEC. 171. (a) Section 454(6) of the Social Security Act is amended— 
(1) in clause (A), by inserting "including, at the option of the 
State, support collection services for the spouse (or former 
spouse) with whom the absent parent's child is living (but only 
if a support obligation has been established with respect to such 
spouse)," after "with the State,"; 
(2) in clause (B), by striking out "services under the State plan 
(other than collection of support)" and inserting in lieu thereof 
"such services"; and 
(3) by amending clause (C) to read as follows: "(C) any costs in 
excess of the fee so imposed may be collected— 
"(i) from the parent who owes the child or spousal sup-
port obligation involved, or 
"(ii) at the option of the State, from the individual to 
whom such services are made available, but only if such 
State has in effect a procedure whereby all persons in such 
State having authority to order child or spousal support are 
informed that such costs are to be collected from the indi-
vidual to whom such services were made available;". 
(b)(1) Section 454 of such Act is further amended— 
(A) by adding "and" after the semicolon at the end of para-
graph (18); 
(B) by striking out paragraph (19); and 
(C) by redesignating paragraph (20) as paragraph (19). 
(2) Section 2333(c) of the Omnibus Budget Reconciliation Act of 
1981 is amended by striking out "Section 453(a) of such Act is 
amended" and inserting in lieu thereof "Section 455(a) of such Act is 
amended". 
(3) Section 303(e)(2)(A)(iii)(II) of the Social Security Act is amended 
42 use 503 
by striking out "454(20)(B)(i)" and inserting in lieu thereof 
"454(19)(B)(i)". 
(c) The amendments made by this section shall be effective on and 
after August 13,1981. 
95 Stat. 863. 
95 Stat. 862. 
42 u s e 655. 
Effective date. 
42 u s e 503 note. 
ALLOTMENTS FROM PAY FOR CHILD AND SPOUSAL SUPPORT OWED BY 
MEMBERS OF THE UNIFORMED SERVICES ON ACTIVE DUTY 
SEC. 172. (a) Part D of title IV of the Social Security Act is 
amended by adding at the end thereof the following new section: 
96 STAT. 402 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"ALLOTMENTS FROM PAY FOR CHILD AND SPOUSAL SUPPORT OWED BY 
MEMBERS OF THE UNIFORMED SERVICES ON ACTIVE DUTY 
42 use 665. 
"SEC. 465. (a)(1) In any case in which child support payments or 
child and spousal support payments are owed by a member of one of 
the uniformed services (as defined in section 101(3) of title 37, 
United States Code) on active duty, such member shall be required 
to make allotments from his pay and allowances (under chapter 13 
of title 37, United States Code) as payment of such support, when he 
has failed to make periodic payments under a support order that 
meets the criteria specified in section 303(b)(1)(A) of the Consumer 
Credit Protection Act (15 U.S.C. 1673(b)(1)(A)) and the resulting 
delinquency in such payments is in a total amount equal to the 
support payable for two months or longer. Failure to make such 
payments shall be established by notice from an authorized person 
(as defined in subsection O
t
>
)
) to the designated official in the appro-
priate uniformed service. Such notice (which shall in turn be given 
to the affected member) shall also specify the person to whom the 
allotment is to be payable. The amount of the allotment shall be the 
amount necessary to comply with the order (which, if the order so 
provides, may include arrearages as well as amounts for current 
support), except that the amount of the allotment, together with any 
other amounts withheld for support from the wages of the member, 
as a percentage of his pay from the uniformed service, shall not 
exceed the limits prescribed in sections 303 (b) and (c) of the Con-
sumer Credit Protection Act (15 U.S.C. 1673 (b) and (c)). An allot-
ment under this subsection shall be adjusted or discontinued upon 
notice from the authorized person. 
"(2) Notwithstanding the preceding provisions of this subsection, 
no action shall be taken to require an allotment from the pay and 
allowances of any member of one of the uniformed services under 
such provisions (A) until such member has had a consultation with a 
judge advocate of the service involved (as defined in section 801(13) 
of title 10, United States Code), or with a law specialist (as defined in 
section 801(11) of such title) in the case of the Coast Guard, or with a 
legal officer designated by the Secretary concerned (as defined in 
section 101(5) of title 37, United States Code) in any other case, in 
person, to discuss the legal and other factors involved with respect 
to the member's support obligation and his failure to make pay-
ments thereon, or (B) until 30 days have elapsed after the notice 
described in the second sentence of paragraph (1) is given to the 
affected member in any case where it has not been possible, despite 
continuing good faith efforts, to arrange such a consultation. 
"Authorized 
"(b) For purposes of this section the term 'authorized person' with 
person." 
respect to any member of the uniformed services means— 
"(1) any agent or attorney of a State having in effect a plan 
approved under this part who has the duty or authority under 
such plan to seek to recover any amounts owed by such member 
as child or child and spousal support (including, when author-
ized under the State plan, any official of a political subdivision); 
and 
"(2) the court which has authority to issue an order against 
such member for the support and maintenance of a child, or any 
agent of such court. 
"(c) The Secretary of Defense, in the case of the Army, Navy, Air 
Force, and Marine Corps, and the Secretary concerned (as defined in 
section 101(5) of title 37, United States Code) in the case of each of 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 403 
the other uniformed services, shall each issue regulations applicable 
to allotments to be made under this section, designating the officials 
to whom notice of failure to make support payments, or notice to 
discontinue or adjust an allotment, should be given, prescribing the 
form and content of the notice and specifying any other rules 
necessary for such Secretary to implement this section.". 
(b) The amendment made by subsection (a) shall become effective 
on October 1,1982. 
Effective date. 
42 u s e 665 note. 
REIMBURSEMENT OF STATE AGENCY IN INITIAL MONTH OF 
INELIGIBILITY FOR AFDC 
SEC. 173. (a) Section 454(5) of the Social Security Act is amended 
42 USC 654. 
by inserting "following the first month" after "for any month". 
(b) The amendment made by this section shall become effective on Effective date. 
October 1,1982. 
42 USC 654 note. 
REDUCTION IN CERTAIN FEDERAL PAYMENTS TO STATES UNDER CHILD 
SUPPORT ENFORCEMENT PROGRAM 
SEC. 174. (a) Section 455(a)(1) of the Social Security Act is amended 
by striking out "75 percent" and inserting in lieu thereof "70 
percent". 
(b) Section 455(c) of such Act is repealed. 
(c) Section 458(a) of such Act is amended by striking out "15 per 
centum" and inserting in lieu thereof "12 percent". 
(d) The amendment made by subsection (a) shall apply with 
respect to quarters beginning on or after October 1, 1982. Subsection 
Ot)) shall apply with respect to quarters beginning on or after Octo-
ber 1, 1983; and the amendment made by subsection (c) shall apply 
with respect to amounts collected on or after October 1, 1983. 
42 USC 655. 
42 USC 658. 
42 USC 655 note. 
TECHNICAL AMENDMENTS TO CHILD SUPPORT ENFORCEMENT 
PROVISIONS IN RECONCILIATION ACT 
SEC. 175. (a)(1) The first sentence of section 452(b) of the Social 42 USC 652 
Security Act is amended by striking out "certify" and all that 
follows and inserting in lieu thereof "certify to the Secretary of the 
Treasury for collection pursuant to the provisions of section 6305 of 
the Internal Revenue Code of 1954 the amount of any child support 
obligation (including any support obligation with respect to the 
parent who is living with the child and receiving aid under the State 
plan approved under part A) which is assigned to such State or is 
undertaken to be collected by such State pursuant to section 454(6)." 
(2) Section 303(e)(2)(A)(i) of such Act is amended by striking out "of 
this subsection" and inserting in lieu thereof "of paragraph (1)". 
(b) The amendments made by this section shall be effective as of 
October 1,1981. 
26 USC 6305. 
42 USC 654. 
95 Stat. 863. 
42 USC 503. 
Effective date. 
42 USC 503 note. 
DELAYED EFFECTIVE DATE IN CASES REQUIRING STATE LEGISLATION 
SEC. 176. In the case of a State with respect to which the Secretary 
of Health and Human Services has determined that State legislation 
is required in order to conform the State plan approved under part 
D of title IV of the Social Security Act to the requirements imposed 
by any amendment made by this subtitle, the State plan shall not be 
regarded as failing to comply with the requirements of such part 
42 USC 654 note. 
42 USC 601. 
96 STAT. 404 
PUBLIC LAW 97-248—SEPT. 3, 1982 
solely by reason of its failure to meet the requirements imposed by 
such amendment prior to the end of the first session of the State 
legislature which begins after October 1, 1982, or which began prior 
to October 1, 1982, and remained in session for at least twenty-five 
'Session." 
calendar days after such date. For purposes of the preceding sen-
tence, the term "session" means a regular, special, budget, or other 
session of a State legislature. 
Subtitle F—Supplemental Security Income 
95 Stat. 865. 
42 u s e 1382. 
Effective date. 
42 u s e 1382 
note. 
42 u s e 1382f. 
EFFECTIVE DATE OF APPUCATION; PRORATION OF INITIAL SSI BENEFIT 
PAYMENT 
SEC. 181. (a) Section 1611(c) of the Social Security Act is amended 
by striking out paragraphs (2) and (3) and inserting in lieu thereof 
the following new paragraphs: 
"(2) The amount of such benefit for the month in which an 
application for benefits becomes effective (or, if the Secretary so 
determines, for such month and the following month) and for any 
month immediately following a month of ineligibility for such bene-
fits (or, if the Secretary so determines, for such month and the 
following month) shall— 
"(A) be determined on the basis of the income of the individ-
ual and the eligible spouse, if any, of such individual and other 
relevant circumstances in such month; and 
"(B) in the case of the month in which an application becomes 
effective or the first month following a period of ineligibility, if 
such application becomes effective, or eligibility is restored, 
after the first day of such month, bear the same ratio to the 
amount of the benefit which would have been payable to such 
individual if such application had become effective, or eligibility 
had been restored, on the first day of such month as the number 
of days in such month including and following the effective date 
of such application or restoration of eligibility bears to the total 
number of days in such month. 
"(3) For purposes of this subsection, an application of an individ-
ual for benefits under this title shall be effective on the later of— 
"(A) the date such application is filed, or 
"(B) the date such individual first becomes eligible for such 
benefits with respect to such application.". 
(b) The amendment made by this section shall become effective on 
October 1,1982. 
ROUNDING OF SSI ELIGIBIUTY AND BENEFIT AMOUNTS 
SEC. 182. (a) Section 1617 of the Social Security Act is amended to 
read as follows: 
42 u s e 401. 
42 u s e 415. 
42 u s e 1382, 
411. 
COST-OF-LIVING ADJUSTMENTS IN BENEFITS 
"SEC. 1617. (a) Whenever benefit amounts under title II are 
increased by any percentage effective with any month as a result of 
a determination made under section 215(i)— 
"(1) each of the dollar amounts in effect for such month under 
subsections (a)(1)(A), (a)(2)(A), (b)(1), and (b)(2) of section 1611, 
and subsection (a)(1)(A) of section 211 of Public Law 93-66, as 
specified in such subsections or as previously increased under 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 405 
this section, shall be increased by the amount (if any) by 
which— 
"(A) the amount which would have been in effect for such 
month under such subsection but for the rounding of such 
amount pursuant to paragraph (2), exceeds 
"(B) the amount in effect for such month under such 
subsection; and 
"(2) the amount obtained under paragraph (1) with respect to 
each subsection shall be further increased by the same percent-
age by which benefit amounts under title II are increased for 
such month (and rounded, when not a multiple of $12, to the 
next lower multiple of $12), effective with respect to benefits for 
months after such month. 
"(b) The new dollar amounts to be in effect under section 1611 of 
this title and under section 211 of Public Law 93-66 by reason of this 
section shall be published in the Federal Register together with, and 
at the same time as, the material required by section 215(i)(2)(D) to 
be published therein by reason of the determination involved.". 
(b) The amendment made by this section shall become effective on 
October 1, 1982. 
42 u s e 401. 
Publication in 
Federal 
Register. 
42 u s e 1382, 
411. 
42 u s e 415. 
Effective date. 
42 u s e 1382f 
note. 
COORDINATION OF SSI AND OASDI COST-OF-LIVING ADJUSTMENTS 
SEC. 183. (a) Section 1611(c) of the Social Security Act (as amended 
by section 181 of this Act) is further amended— 
(1) in paragraph (1) by striking out "paragraph (2)" and 
inserting in lieu thereof "paragraphs (2), (3), and (4)"; 
(2) by redesignating paragraphs (3) and (4) as paragraphs (5) 
and (6), respectively; and 
(3) by inserting after paragraph (2) the following new para-
graphs: 
"(3) For purposes of this subsection, an increase in the benefit 
amount payable under title II (over the amount payable in the 
preceding month, or, at the election of the Secretary, the second 
preceding month) to an individual receiving benefits under this title 
shall be included in the income used to determine the benefit under 
this title of such individual for any month which is— 
"(A) the first month in which the benefit amount payable to 
such individual under this title is increased pursuant to section 
1617, or 
"(B) at the election of the Secretary, the month immediately 
following such month. 
"(4)(A) Notwithstanding paragraph (3), if the Secretary deter-
mines that reliable information is currently available with respect 
to the income and other circumstances of an individual for a month 
(including information with respect to a class of which such individ-
ual is a member and information with respect to scheduled cost-of-
living adjustments under other benefit programs), the benefit 
amount of such individual under this title for such month may be 
determined on the basis of such information. 
"(B) The Secretary shall prescribe by regulation the circum-
stances in which information with respect to an event may be taken 
into account pursuant to subparagraph (A) in determining benefit 
amounts under this title.". 
(b) The amendment made by subsection (a) shall become effective 
October 1, 1982. 
42 u s e 1382. 
Effective date. 
42 u s e 1382 
note. 
96 STAT. 406 
PUBLIC LAW 97-248—SEPT. 3, 1982 
42 u s e 1382e 
note. 
Effective date. 
42 u s e 1382e 
note. 
PHASEOUT OF HOLD HARMLESS PROTECTION 
SEC. 184. (a) Section 401 of the Social Security Amendments of 
1972 (Public Law 92-603) is amended by adding at the end thereof 
the following new subsection: 
"(d) In addition to the amount which a State must pay to the 
Secretary for the fiscal year 1983 or the fiscal year 1984, as deter-
mined under subsection (a), the State shall also pay, for the fiscal 
year 1983, 60 percent of the further amount that would be payable 
but for the limit specified in subsection (a), and, for the fiscal year 
1984, 80 percent of such further amount. For each fiscal year 
thereafter, the limit prescribed in subsection (a) shall be inapplica-
ble and a State shall pay to the Secretary the full amount of any 
supplementary payments he makes on behalf of such State.". 
(b) The amendment made by subsection (a) shall become effective 
on the date of the enactment of this Act. 
EXCLUSION FROM RESOURCES OF BURIAL PLOTS AND CERTAIN FUNDS 
SET ASIDE FOR BURIAL EXPENSES 
42 use 1382b. 
SEC. 185. (a) Section 1613(a)(2) of the Social Security Act is 
amended by inserting "(A)" after "(2)", by adding "and" after the 
semicolon, and by adding at the end thereof the following new 
subparagraph: 
"(B) the value of any burial space (subject to such limits as to 
size or value as the Secretary may by regulation prescribe) held 
for the purpose of providing a place for the burial of the 
individual, his spouse, or any other member of his immediate 
family;". 
O
t
>
) Section 1613 of such Act is further amended by adding at the 
end thereof the following new subsection: 
"Funds Set Aside for Burial Expenses 
"(dXD In determining the resources of an individual, there shall 
be excluded an amount, not in excess of $1,500 each with respect to 
such individual and his spouse (if any), that is separately identifi-
able and has been set aside to meet the burial and related expenses 
of such individual or spouse if the inclusion of any portion of such 
amount or amounts would cause the resources of such individual, or 
of such individual and spouse, to exceed the limits specified in 
42 use 1382. 
paragraph (1) or (2) (whichever may be applicable) of section 1611(a). 
"(2) The amount of $1,500, referred to in paragraph (1), with 
respect to an individual shall be reduced by an amount equal to (A) 
the total face value of all insurance policies on his life which are 
owned by him or his spouse and the cash surrender value of which 
has been excluded in determining the resources of such individual or 
of such individual and his spouse, and (B) the total of any amounts 
in an irrevocable trust (or other irrevocable arrangement) available 
to meet the burial and related expenses of such individual or his 
spouse. 
"(3) If the Secretary finds that any part of the amount excluded 
under paragraph (1) was used for purposes other than those for 
which it was set aside, he shall reduce any future benefits payable to 
the eligible individual (or to such individual and his spouse) by an 
amount equal to such part. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 407 
"(4) The Secretary may provide by regulations that whenever an 
amount set aside to meet burial and related expenses is excluded 
under paragraph (1) in determining the resources of an individual, 
any interest earned or accrued on such amount (and left to accumu-
late), and any appreciation in the value of prepaid burial arrange-
ments for which such amount was set aside, shall also be excluded 
(to such extent and subject to such conditions or limitations as such 
regulations may prescribe) in determining the resources (and the 
income) of such individual.". 
(c) The amendment made by this section shall take effect on the 
first day of the second month after the month in which this Act is 
enacted. 
Effective date. 
42 u s e 1382b 
note. 
MANDATORY PASSTHROUGH UNDER STATE SUPPLEMENTATION 
PROVISIONS 
SEC. 186. Section 1618 of the Social Security Act is amended by 42 USC I382g. 
adding at the end thereof the following new subsection: 
"(c) Any State which satisfies the requirements of this section 
solely by reason of subsection (b) for a particular month or months 
in any 12-month period (described in such subsection) ending on or 
after June 30, 1982, may elect, with respect to any month in any 
subsequent 12-month period (so described), to apply subsection (aX4) 
as though the reference to December 1976 in such subsection were a 
reference to the month of December which occurred in the 12-month 
period immediately preceding such subsequent period.". 
TREATMENT OF UNNEGOTIATED CHECKS UNDER SUPPLEMENTAL 
SECURITY INCOME PROGRAM 
SEC. 187. (a) Section 1631(iX2) of the Social Security Act (as added 
by section 2343(a) of the Omnibus Budget Reconciliation Act of 1981) 
is amended by striking out "included in all checks payable to 
individuals entitled to benefits under this title but" in the first 
sentence and inserting in lieu thereof "included in all such benefit 
checks". 
(b) The amendment made by subsection (a) shall become effective 
October 1,1982. 
Subtitle G—Unemployment Compensation 
95 Stat. 866. 
42 USC 1383. 
Effective date. 
42 USC 1383 
note. 
ROUNDING OF BENEFIT AMOUNTS 
SEC. 191. (a) Section 204(a)(2) of the Federal-State Extended Unem-
ployment Compensation Act of 1970 is amended by striking out "or" 
at the end of clause (B), and by inserting before the period at the end 
thereof the following: ", or (D) paid to an individual with respect to a 
week of unemployment to the extent that such amount exceeds the 
amount of such compensation which would be paid to such individ-
ual if such State had a benefit structure which provided that the 
amount of compensation otherwise payable to any individual for any 
week shall be rounded (if not a full dollar amount) to the nearest 
lower full dollar amount". 
(bXD Except as provided in paragraph (2), the amendments made 
by this section shall apply in the case of compensation paid to 
individuals during eligibility periods beginning on or after October 
1,1983. 
95 Stat. 884. 
26 USC 3304 
note. 
Effective date. 
42 USC 3304 
note. 
97-200 O—84—pt. 1 
15 : QL3 
96 STAT. 408 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(2) In the case of a State with respect to which the Secretary of 
Labor has determined that State legislation is required in order to 
provide for 
rounding down of unemployment 
compensation 
amounts, the amendment made by this section shall apply in the 
case of compensation paid to individuals during eligibility periods 
which begin on or after October 1, 1983, and after the end of the first 
session of the State legislature which begins after the date of the 
enactment of this Act, or which began prior to the date of the 
enactment of this Act and remained in session for at least twenty-
"Session." 
five 
Calendar days after such date of enactment. For purposes of the 
preceding sentence, the term "session" means a regular, special, 
budget, or other session of a State legislature. 
USE OF CERTAIN AMOUNTS TRANSFERRED TO STATE UNEMPLOYMENT 
FUNDS 
42 use 1103. 
SEC. 192. (a) Paragraph (2) of section 903(c) of the Social Security 
Act is amended— 
(1) by striking out "twenty-four" each place it appears and 
inserting in lieu thereof "thirty-four"; and 
(2) by striking out "twenty-fourth" in the second sentence and 
inserting in lieu thereof "thirty-fourth". 
O
t
>
) Subsection (c) of section 903 of such Act is amended by adding 
at the end thereof the following new paragraph: 
"(3)(A) If-
"(i) amounts transferred to the account of a State pursuant to 
subsections (a) and 0?) of this section were used in payment of 
unemployment benefits to individuals; and 
"(ii) the Governor of such State submits a request to the 
Secretary of Labor that such amounts be restored under this 
paragraph, 
then the amounts described in clause (i) shall be restored to the 
status of funds transferred under subsections (a) and Ot)) of this 
section which have not been used by eliminating any charge against 
amounts so transferred for the use of such amounts in the payment 
of unemployment benefits. 
"(B) Subparagraph (A) shall apply only to the extent that the 
amounts described in clause (i) of such subparagraph do not exceed 
the amount then in the State's account. 
"(C) Subparagraph (A) shall not apply if the State has a balance of 
42 use 1321. 
advances made to its account under title XII of this Act. 
"(D) If the Secretary of Labor determines that the requirements of 
this paragraph are met with respect to any request, the Secretary 
shall notify the Governor of the State that such requirements are 
met with respect to such request and the amount restored under 
this paragraph. Such restoration shall be as of the first day of the 
first month following the month in which the notification is made.". 
TREATMENT OF CERTAIN EMPLOYEES OF INSTITUTIONS OF HIGHER 
EDUCATION 
— 
26 use 3304. 
SEC. 193. (a) Clause (ii) of section 3304(a)(6XA) of the Internal 
Revenue Code of 1954 (relating to requirements for approval of State 
unemployment compensation laws) is amended to read as follows: 
"(ii) with respect to services in any other capacity for an 
26 use 3309. 
educational institution to which section 3309(aXl) applies— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 409 
"(I) compensation payable on the basis of such serv-
ices may be denied to any individual for any week 
which commences during a period between 2 successive 
academic years or terms if such individual performs 
such services in the first of such academic years or 
terms and there is a reeisonable assurance that such 
individu£il will perform such services in the second of 
such academic years or terms, except that 
"(ID if compensation is denied to any individual for 
any week under subclause (I) and such individual was 
not offered an opportunity to perform such services for 
the educational institution for the second of such aca-
demic years or terms, such individual shall be entitled 
to a retroactive payment of the compensation for each 
week for which the individual filed a timely claim for 
compensation and for which compensation was denied 
solely by reason of subclause (I),". 
(b)(1) The amendment made by subsection (a) shall apply to weeks 
of unemployment beginning after the date of the enactment of this 
Act. 
(2) The amendment made by subsection (a), insofar £is it requires 
retroactive payments of compensation to employees of educational 
institutions other than institutions of higher education (as defined 
in section 3304(f) of the Internal Revenue Code of 1954), shall not be 
a requirement for any State law before January 1,1984. 
Effective date. 
26 u s e 3304 
note. 
SHORT-TIME COMPENSATION 
26 u s e 3304 
note. 
SEC. 194. (a) It is the purpose of this section to assist States which 
provide partial unemployment benefits to individuals whose work-
weeks are reduced pursuant to an employer plan under which such 
reductions are made in lieu of temporary layoffs. 
Ot))(l) The Secretary of Labor (hereinafter in this section referred 
to as the "Secretary") shall develop model legislative language 
which may be used by States in developing and enacting short-time 
compensation programs, and shall provide technical assistance to 
States to assist in developing, enacting, and implementing such 
short-time compensation program. 
(2) The Secretary shall conduct a study or studies for purposes of 
evaluating the operation, costs, effect on the State insured rate of 
unemployment, and other effects of State short-time compensation 
programs developed pursuant to this section. 
(3) This section shall be a three-year experimental provision, and 
the provisions of this section regarding guidelines shall terminate 3 
years following the date of the enactment of this Act. 
(4) States are encouraged to experiment in carrying out the 
purpose and intent of this section. However, to assure minimum 
uniformity. States are encouraged to consider requiring the provi-
sions contained in subsections (c) and (d). 
(c) For purposes of this section, the term "short-time compensa- Definitions. 
tion program" means a program under which— 
(1) individuals whose workweeks have been reduced pursuant 
to a qualified employer plan by at least 10 per centum will be 
eligible for unemployment compensation; 
(2) the amount of unemployment compensation payable to 
any such individual shall be a pro rata portion of the unemploy-
96 STAT. 410 
PUBLIC LAW 97-248—SEPT. 3, 1982 
ment compensation which would be payable to the individual if 
the individual were totally unemployed; 
(3) eligible employees may be eligible for short-time compen-
sation or regular unemployment compensation, as needed; 
except that no employee shall be eligible for more than the 
maximum entitlement during any benefit year to which he or 
she would have been entitled for total unemployment, and no 
employee shall be eligible for short-time compensation for more 
than twenty-six weeks in any twelve-month period; and 
(4) eligible employees will not be expected to meet the avail-
ability for work or work search test requirements while collect-
ing short-time compensation benefits, but shall be available for 
their normal workweek. 
(d) For purposes of subsection (c), the term "qualified employer 
plan" means a plan of an employer or of an employers' association 
which association is party to a collective bargaining agreement 
(hereinafter referred to as "employers' association") under which 
there is a reduction in the number of hours worked by employees 
rather than temporary layoffs i
f
— 
(1) the employer's or employers' association's short-time com-
pensation plan is approved by the State agency; 
(2) the employer or employers' association certifies to the 
State agency that the aggregate reduction in work hours pursu-
ant to such plan is in lieu of temporary layoffs which would 
have affected at least 10 per centum of the employees in the 
unit or units to which the plan would apply and which would 
have resulted in an equivalent reduction of work hours; 
(3) during the previous four months the work force in the 
affected unit or units has not been reduced by temporary layoffs 
of more than 10 per centum; 
(4) the employer continues to provide health benefits, and 
retirement benefits under defined benefit pension plans (as 
29 use 1002. 
defined in section 3(35) of the Employee Retirement Income 
Security Act of 1974, to employees whose workweek is reduced 
under such plan as though their workweek had not been 
reduced; and 
(5) in the case of employees represented by an exclusive 
bargaining representative, that representative has consented to 
the plan. 
The State agency shall review at least annually any qualified 
employer plan put into effect to assure that it continues to meet the 
requirements of this subsection and of any applicable State law. 
(e) Short-time compensation shall be charged in a manner consist-
ent with the State law. 
(f) For purposes of this section, the term "State" includes the 
District of Columbia, the Commonwealth of Puerto Rico, and the 
Virgin Islands. 
(g)(1) The Secretary shall conduct a study or studies of State short-
time compensation 
programs consulting with employee 
and 
employer representatives in developing criteria and guidelines to 
measure the following factors: 
(A) the impact of the program upon the unemployment trust 
fund, and a comparison with the estimated impact on the fund 
of layoffs which would have occurred but for the existence of the 
program; 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 411 
(B) the extent to which the program has protected and pre-
served the jobs of workers, with special emphasis on newly 
hired employees, minorities, and women; 
(C) the extent to which layoffs occur in the unit subsequent to 
initiation of the program and the impact of the program upon 
the entitlement to unemployment compensation of the employ-
ees; 
(D) where feasible, the effect of varying methods of adminis-
tration; 
(E) the effect of short-time compensation on employers' State 
unemployment tax rates, including both users and nonusers of 
short-time compensation, on a State-by-State basis; 
(F) the effect of various State laws and practices under those 
laws on the retirement and health benefits of employees who 
are on short-time compensation programs; 
(G) a comparison of costs and benefits to employees, employ-
ers, and communities from use of short-time compensation and 
layoffs; 
(H) the cost of administration of the short-time compensation 
program; and 
(I) such other factors as may be appropriate. 
(2) Not later than October 1, 1985, the Secretary shall submit to Report to 
the Congress and to the President a final report on the implementa- congre^*^ 
tion of this section. Such report shall contain an evaluation of 
short-time compensation programs and shall contain such recom-
mendations as the Secretary deems advisable, including recommen-
dations as to necessary changes in the statistical practices of the 
Department of Labor. 
TITLE II—REVENUE MEASURES 
Subtitle A—Provisions Relating to Individuals 
SEC. 201. ALTERNATIVE MINIMUM TAX ON TAXPAYERS OTHER THAN COR-
PORATIONS. 
(a) IN GENERAL.—Section 55 (relating to alternative minimum tax 26 USC 55. 
for taxpayers other than corporations) is amended to read as follows: 
"SEC. 55. ALTERNATIVE MINIMUM TAX FOR TAXPAYERS OTHER THAN 
CORPORATIONS. 
"(a) TAX IMPOSED.—In the case of a taxpayer other than a corpora-
tion, there is imposed (in addition to any other tax imposed by this 
subtitle) a tax equal to the excess (if any) o
f
— 
"(1) an amount equal to 20 percent of so much of the alterna-
tive minimum taxable income as exceeds the exemption 
amount, over 
"(2) the regular tax for the taxable year. 
"(b) ALTERNATIVE MINIMUM TAXABLE INCOME.—For purposes of 
this title, the term 'alternative minimum taxable income' means the 
adjusted gross income (determined without regard to the deduction 
allowed by section 172) of the taxpayer for the taxable year— 
"(1) reduced by the sum o
f
— 
"(A) the alternative tax net operating loss deduction, plus 
"(B) the alternative tax itemized deductions, plus 
96 STAT. 412 
PUBLIC LAW 97-248—SEPT. 3, 1982 
26 use 667. 
<'(C) any amount included in income under section 667, 
and 
"(2) increased by the amount of items of tax preference. 
"(c) CREDITS.— 
"(1) IN GENERAL.—For purposes of determining any credit 
26 use 31. 
allowable under subpart A of part IV of this subchapter (other 
than the foreign tax credit allowed under section 33(a))— 
"(A) the tax imposed by this section shall not be treated 
as a tax imposed by this chapter, and 
"(B) the amount of the foreign tax credit allowed by 
section 33(a) shall be determined without regard to this 
section. 
"(2) FOREIGN TAX CREDIT ALLOWED AGAINST ALTERNATIVE MINI-
MUM TAX.— 
"(A) DETERMINATION OF FOREIGN TAX CREDIT.—The total 
amount of the foreign tax credit which can be taken against 
the tax imposed by subsection (a) shall be determined under 
subpart A of part III of subchapter N (section 901 and 
following). 
"(B) INCREASE IN AMOUNT OF FOREIGN TAXES TAKEN INTO 
ACCOUNT.—For purposes of the determination provided by 
subparagraph (A), the amount of the taxes paid or accrued 
to foreign countries or possessions of the United States 
during the taxable year shall be increased by an amount 
equal to the lesser o
f
— 
"(i) the foreign tax credit allowable under section 
33(a) in computing the regular tax for the taxable year, 
or 
"(ii) the tax imposed by subsection (a). 
"(C) SECTION 904(a) UMITATION.—For purposes of the 
determination provided by subparagraph (A), the limitation 
of section 904(a) shall be an amount equal to the same 
proportion of the sum of the tax imposed by subsection (a) 
against which such credit is taken and the regular tax as— 
"(i) the taxpayer's alternative minimum taxable 
income from sources without the United States (but not 
in excess of the taxpayer's entire alternative minimum 
taxable income), bears to 
"(ii) his entire alternative minimum taxable income. 
For such purpose, the amount of the limitation of section 
904(a) shall not exceed the tax imposed by subsection (a). 
"(D) 
DEFINITION OF ALTERNATIVE MINIMUM TAXABLE 
INCOME FROM SOURCES WITHOUT THE UNITED STATES.—For 
purposes of subparagraph (C), the term 'alternative mini-
mum taxable income from sources without the United 
States' means adjusted gross income from sources without 
the United States, adjusted as provided in paragraphs (1) 
and (2) of subsection (b) (taking into account in such adjust-
ment only items described in such paragraphs which are 
properly attributable to items of gross income from sources 
without the United States). 
"(E) SPECIAL RULE FOR APPLYING SECTION 904(C).—In 
determining the amount of foreign taxes paid or accrued 
during the taxable year which may be deemed to be paid or 
accrued in a preceding or succeeding taxable year under 
section 904(c)--
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 413 
"(i) the limitation of section 904(a) shall be increased 26 USC 904. 
by the amount of the limitation determined under 
subparagraph (C), and 
"(ii) any increase under subparagraph (B) shall be 
taken into account. 
"(3) CARRYOVER AND CARRYBACK OF CERTAIN CREDITS.— 
"(A) IN GENERAL.—In the case of any taxable year in 
which a tax is imposed by this section, for purposes of 
determining the amount of any carryback or carryover of 
any applicable credit to any other taxable year, the amount 
of the applicable credit limitation for such taxable year 
shall be deemed to be— 
"(i) the amount of the applicable credit allowable for 
such taxable year (determined without regard to this 
paragraph), reduced (but not below zero) by 
"(ii) the amount of the tax imposed by this section for 
the taxable year, reduced by— 
"(I) the amount of the credit allowable under 
section 33(a), and 
"(II) the amount of such tax taken into account 
under this clause with respect to any applicable 
credit having a lower number or letter designation. 
"(B) APPUCABLE CREDITS, ETC.—For purposes of this para-
graph— 
"(i) APPUCABLE CREDIT.—The term 'applicable credit' 
means any credit Eillowable under section 38, 40, 44B, 
44C, 44E, or 44F. 
"(ii) APPUCABLE CREDIT UMITATION.—The term 'appli-
cable credit limitation' means, with respect to any 
applicable credit, the limitation under section 46(a)(3), 
53(a), 44C(b)(5), 44E(eXl), 44F(g)(l), or 50A(aX2), which-
ever is appropriate. 
"(d) 
ALTERNATIVE 
TAX 
NET 
OPERATING 
LOSS 
DEDUCTION 
DEFINED.—For purposes of this section— 
"(1) IN GENERAL.—The term 'alternative tax net operating 
loss deduction' means the net operating loss deduction allow-
able for the taxable year under section 172, except that in 
determining the amount of such deduction— 
"(A) in the case of taxable years beginning after Decem-
ber 31, 1982, section 172(bX2) shall be applied by substitut-
ing 'alternative minimum taxable income' for 'tsixable 
income' each place it appears, and 
"(B) the net operating loss (within the meaning of section 
172(c)) for any loss year shall be adjusted as provided in 
paragraph (2). 
"(2) ADJUSTMENTS TO NET OPERATING LOSS COMPUTATION.— 
"(A) PosT-1982 LOSS YEARS.—In the case of a loss year 
beginning after December 31, 1982, the net operating loss 
for such year under section 172(c) shall— 
"(i) be reduced by the amount of the items of tax 
preference arising in such year which are taken into 
account in computing the net operating loss, and 
"(ii) be computed by taking into account only item-
ized deductions which are alternative tax itemized 
deductions for the taxable year and which are other-
wise described in section 172(c). 
96 STAT. 414 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(B) PRE-1983 YEARS.—In the case of loss years beginning 
before January 1, 1983, the amount of the net operating loss 
which may be carried over to taxable years beginning after 
December 31, 1982, for purposes of subparagraph (A), shall 
be equal to the amount which may be carried from the loss 
year to the first taxable year of the taxpayer beginning 
after December 31,1982. 
"(e) ALTERNATIVE TAX ITEMIZED DEDUCTIONS.—For purposes of 
this section— 
"(1) IN GENERAL.—The term 'alternative tax itemized deduc-
tions' means an amount equal to the sum of any amount 
allowable as a deduction for the taxable year (other than a 
deduction allowable in computing adjusted gross income) 
under— 
26 use 165. 
"(A) section 165(a) for losses described in subsection (c)(3) 
or (d) of section 165, 
"(B) section 170 (relating to charitable deductions), 
"(C) section 213 (relating to medical deductions), 
"(D) this chapter for qualified interest, or 
"(E) section 691(c) (relating to deduction for estate teix). 
"(2) AMOUNTS WHICH MAY BE CARRIED OVER.—No amount shall 
be taken into account under paragraph (1) to the extent such 
amount may be carried to another taxable year for purposes of 
the regular tax. 
"(3) QUALIFIED INTEREST.—The term 'qualified interest' means 
the sum of— 
"(A) any qualified housing interest, and 
"(B) any amount allowed as a deduction for interest 
(other than qualified housing interest) to the extent such 
amount does not exceed the qualified net investment 
income of the taxpayer for the taxable year. 
"(4) QUALIFIED HOUSING INTEREST.— 
' (A) IN GENERAL.—The term 'qualified housing interest' 
means interest which is paid or accrued during the taxable 
year on indebtedness which is incurred in acquiring, con-
structing, or substantially rehabilitating any property 
which— 
"(i) is the principal residence (within the meaning of 
section 1034) of the taxpayer at the time such interest 
accrues or is paid, or 
"(ii) is a qualified dwelling used by the taxpayer (or 
any member of his family within the meaning of sec-
tion 267(c)(4)) during the taxable year. 
"(B) QuAUFiED DWELLING.—The term 'qualified dwelling'-
means any— 
"(i) house, 
"(ii) apartment, 
"(iii) condominium, or 
"(iv) mobile home not used on a transient basis 
(within the meaning of section 7701(aX19XCXv)), 
including all structures or other property appurtenant 
thereto. 
"(C) SPECIAL RULE FOR INDEBTEDNESS INCURRED BEFORE 
JULY 1, 1982.—The term 
'qualified 
housing 
interest' 
includes interest paid or accrued on indebtedness which— 
"(i) was incurred by the taxpayer before July 1, 1982, 
and 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 415 
"(ii) is secured by property which, at the time such 
indebtedness was incurred, was— 
"(I) the principal residence (within the meaning 
of section 1034) of the taxpayer, or 
26 USC 1034. 
"(ID a qualified dwelling used by the taxpayer (or 
any member of his family (within the meaning of 
section 267(c)(4))). 
"(5) QUALIFIED NET INVESTMENT INCOME.—For purposes of this 
subsection— 
"(A) I N GENERAL.—The term 'qualified net investment 
income' means the excess of— 
"(i) qualified investment income, over 
"(ii) qualified investment expenses. 
"(B) QUALIFIED INVESTMENT INCOME.—The term 'qualified 
investment income' means the sum of— 
"(i) investment income (within the meaning of sec-
tion 163(d)(3)(B) other than clause (ii) thereof), 
"(ii) any net capital gain attributable to the disposi-
tion of property held for investment, and 
"(iii) the amount of items of tax preference described 
in paragraph (1) of section 57(a). 
"(C) QUALIFIED INVESTMENT EXPENSES.—The term 'quali-
fied investment expenses' means the deductions directly 
connected with the production of qualified 
investment 
income to the extent that— 
"(i) such deductions are allowable in computing 
adjusted gross income, and 
"(ii) such deductions are not items of tax preference. 
"(6) SPECIAL RULES FOR ESTATES AND TRUSTS.— 
"(A) IN GENERAL.—In the case of an estate or trust, the 
alternative tax itemized deductions for any taxable year 
includes the deductions allowable under sections 642(c), 
651(a), and 661(a). 
"(B) DETERMINATION OF ADJUSTED GROSS INCOME.—The 
adjusted 
gross income of an estate or trust shall be 
computed in the same manner as in the case of an individ-
ual, except that the deductions for costs paid or incurred in 
connection with the administration of the estate or trust 
shall be treated as allowable in arriving at adjusted gross 
income. 
"(7) LIMITATION ON MEDICAL DEDUCTION.—In applying subpar-
agraph (C) of paragraph (1), the amount allowable as a deduc-
tion under section 213 shall be determined by substituting '10 
percent' for '5 percent' in section 213(a). 
Post, p. 421. 
"(8) TREATMENT OF INTERESTS IN LIMITED PARTNERSHIPS AND 
SUBCHAPTER S CORPORATIONS.— 
"(A) CERTAIN INTEREST TREATED AS NOT ALLOWABLE IN 
COMPUTING ADJUSTED GROSS INCOME.—Any amount allow-
able as a deduction for interest on indebtedness incurred or 
continued to purchase or carry a limited business interest 
shall be treated as not allowable in computing adjusted 
gross income. 
"(B) INCOME TREATED AS QUALIFIED INVESTMENT INCOME.— 
Any income derived from a limited business interest shall 
be treated as qualified investment income. 
"(C) LIMITED BUSINESS INTEREST.—The term 'limited busi-
ness interest' means an interest— 
96 STAT. 416 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(i) as a limited partner in a partnership, or 
"(ii) as a shareholder in an electing small business 
corporation (as defined in section 1371(b)) if the tax-
payer does not actively participate in the management 
of such corporation. 
"(t) OTHER DEFINITIONS.—For purposes of this section— 
"(1) EXEMPTION 
AMOUNT.—The term 
'exemption 
amount' 
means— 
"(A) $40,000 in the case of— 
"(i) a joint return, or 
"(ii) a surviving spouse (as defined in section 2(a)), 
"(B) $30,000 in the case of an individual who— 
"(i) is not a married individual (as defined in section 
143), and 
"(ii) is not a surviving spouse (as so defined), and 
"(C) $20,000 in the case of— 
"(i) a married individual (as so defined) who files a 
separate return, or 
"(ii) an estate or trust. 
"(2) REGULAR TAX.—The term 'regular tax' means the taxes 
imposed by this chapter for the taxable year (computed without 
regard to this section and without regard to the taxes imposed 
Post, pp. 509, 
by sections 72(m)(5)(B), 72(q), 402(e), 408(f), 409(c), and 667(b)) 
^^^- 
reduced by the sum of the credits allowable under subpart A of 
Post, p. 585. 
part IV of this subchapter (other than under sections 31, 39, and 
43). For purposes of this paragraph, the amount of the credits 
allowable under such subpart shall be determined 
without 
regard to this section." 
(b) ITEMS OF TAX PREFERENCE.— 
26 use 57. 
(1) I^f GENERAL.—Subsection (a) of section 57 (relating to items 
of tax preference) is amended— 
(A) by striking out paragraph (1) and inserting in lieu 
thereof the following new paragraph: 
"(1) 
EXCLUSION OF INTEREST AND DIVIDENDS.—Any amount 
excluded from gross income for the taxable year under section 
116 or 128.", 
(B) by striking out paragraphs (5) and (6) and inserting in 
lieu thereof the following new paragraphs: 
"(5) 
M I N I N G 
EXPLORATION AND DEVELOPMENT COSTS.—With 
respect to each mine or other natural deposit (other than an oil 
or gas well) of the taxpayer, an amount equal to the excess of— 
"(A) the amount allowable as a deduction under section 
616(a) or 617, over 
"(B) the amount which would have been allowable if the 
expenditures had been capitalized and amortized ratably 
over the 10-year period beginning with the taxable year in 
which such expenditures were made. 
"(6) CIRCULATION AND RESEARCH AND EXPERIMENTAL EXPENDI-
TURES.—An amount equal to the excess of— 
"(A) the amount allowable as a deduction under section 
173 or 174(a) for the taxable year, over 
"(B) the amount which would have been allowable for the 
taxable year if the circulation expenditures described in 
section 173 or the research and experimental expenditures 
described in section 174 had been capitalized and amortized 
ratably over the 10-year period beginning with the taxable 
year in which such expenditures were made.", and 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 417 
(C) by striking out paragraph (10) and inserting in lieu 
thereof the following: 
"(10) INCENTIVE STOCK OPTIONS.—With respect to the transfer 
of a share of stock pursuant to the exercise of an incentive stock 
option (as defined in section 422A), the amount by which the 
fair market value of the share at the time of exercise exceeds 
the option price." 
(2) CONFORMING AMENDMENTS.— 
(A) The next to last sentence of section 57(a) is amended 95 Stat. 224. 
by striking out "(3), (11), and (12)" and inserting in lieu ^6 use 57. 
thereof "(1), (3), (5), (6), (11), and (12)(A)". 
(B) Section 57(a) is amended by striking out the last 
sentence. 
(c) OPTIONAL 10-YEAR WRITEOFF OF CERTAIN TAX PREFERENCES— 
(1) Section 58 (relating to rules for application of minimum 26 USC 58. 
tax) is amended by adding at the end thereof the following new 
subsection: 
"(i) OPTIONAL 10-YEAR WRITEOFF OF CERTAIN TAX PREFERENCES.— 
"(1) IN GENERAL.—For purposes of this title, in the case of an 
individual, any qualified expenditure to which an election 
under this paragraph applies shall be allowed as a deduction 
ratably over the 10-year period beginning with the taxable year 
in which such expenditure was made. 
"(2) QuAUFiED EXPENDITURE.—For purposes of this subsection, 
the term 'qualified expenditure' means any amount which, but 
for an election under this subsection, would have been allowable 
as a deduction for the taxable year in which paid or incurred 
under— 
"(A) section 173 (relating to circulation expenditures), 
"(B) section 174(a) (relating to research and experimental 
expenditures), 
"(C) section 263(c) (relating to intangible drilling and 
development expenditures), 
"(D) section 616(a) (relating to development expendi-
tures), or 
"(E) section 617 (relating to deduction of certain mining 
exploration expenditures). 
"(3) OTHER SECTIONS NOT APPLICABLE.—Except as provided in 
this subsection, no deduction shall be allowed under any other 
section for any qualified expenditure to which an election under 
this subsection applies. 
"(4) SPECIAL ELECTION FOR INTANGIBLE DRILLING AND DEVELOP-
MENT COSTS NOT ALLOCABLE TO INTEREST AS LIMITED PARTNER.— 
"(A) IN GENERAL.—In the case of any nonlimited partner-
ship intangible drilling costs to which an election under 
this paragraph applies— 
"(i) the applicable percentage of such costs (adjusted 
as provided in section 48(q)) shall be allowed as a Post, p. 427. 
deduction for the taxable year in which paid or 
incurred and for each of the 4 succeeding taxable years, 
and 
"(ii) such costs shall be treated, for purposes of deter-
mining the amount of the credit allowable under sec-
tion 38 for the taxable year in which paid or incurred, 
as qualified investment (within the meaning of subsec-
tions (c) and (d) of section 46) with respect to property 
placed in service during such year. 
96 STAT. 418 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(B) APPLICABLE PERCENTAGE.—For purposes of subpara-
graph (A), the term 'appUcable percentage' means the per-
centage determined in accordance with the following table: 
Applicable 
"Taxable Year: 
percentage: 
1 
15 
2 
22 
3 
21 
4 
21 
5 
21 
"(C) 
NONLIMITED 
PARTNERSHIP 
INTANGIBLE DRILLING 
COSTS.—For purposes of this paragraph, the term 'non-
limited partnership intangible drilling costs' means any 
qualified expenditure described in paragraph (2)(C) of an 
individual which is not allocable to such individual's inter-
est as a limited partner in a limited partnership. 
"(5) ELECTION.— 
"(A) IN GENERAL.—An election may be made under this 
subsection with respect to any qualified expenditure. 
"(B) REVOCABLE ONLY WITH CONSENT.—An election under 
this subsection with respect to any qualified expenditure 
may be revoked only with the consent of the Secretary. 
"(C) TIME AND MANNER.—An election under this subsec-
tion shall be made at such time and in such manner as the 
Secretary shall by regulations prescribe. 
"(D) PARTNERS.—In the case of a partnership, any elec-
tion under this subsection shall be made separately by each 
partner with respect to the partner's allocable share of any 
qualified expenditure. 
"(6) DISPOSITIONS.— 
"(A) OIL, GAS, AND GEOTHERMAL PROPERTY.—In the case of 
any disposition of any oil, gas, or geothermal property to 
which section 1254 applies (determined without regard to 
this section)— 
"(i) any deduction under paragraph (1) or (4)(A) with 
respect to costs which are allocable to such property 
shall, for purposes of section 1254, be treated as a 
deduction allowable under section 263(c), and 
"(ii) in the case of any credit allowable under section 
38 by reason of paragraph (4XB) which is allocable to 
such property, such disposition shall, for purposes of 
section 47, be treated as a disposition of section 38 
recovery property which is not 3-year property. 
"(B) APPLICATION OF SECTION 617(d).—In the case of any 
disposition of mining property to which section 617(d) 
applies (determined without regard to this subsection), any 
amount allowable as a deduction under paragraph (1) which 
is allocable to such property shall, for purposes of section 
617(d), be treated as a deduction allowable under section 
617(a). 
"(7) AMOUNTS TO WHICH ELECTION APPLY NOT TREATED AS TAX 
PREFERENCE.—Any qualified expenditure to which an election 
under paragraph (1) or (4) applies shall not be treated as an item 
of tax preference under section 57(a)." 
95 Stat. 239. 
(2) Subsection (a) of section 1016 (relating to adjustments to 
26 use 1016. 
basis) is amended by striking out "and" at the end of paragraph 
(23), by striking out the period at the end of paragraph (24) and 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 419 
inserting in lieu thereof ", and", and by adding at the end 
thereof the following new paragraph: 
"(25) for amounts allowed as deductions under section 58(i) 
(relating to optional 10-year writeoff of certain tax prefer-
ences)." 
(c) CONFORMING AMENDMENTS.— 
(1) Section 56 (relating to corporate minimum tax) is 26 USC 56. 
amended— 
(A) by striking out "person" each place it appears and 
inserting in lieu thereof "corporation", 
(B) by striking out "one-half (or in the case of a corpora-
tion, an amount equal to)" in subsection (c), 
(C) by striking out "sections 72(m)(5)(B), 402(e), 408(f), 531, 
and 541" in subsection (c) and inserting in lieu thereof 
"sections 531 and 541" 
(D) by striking out "31, 39, 43, and 440" in subsection (c) 95 Stat. 293. 
and inserting in lieu thereof "39 and 44G", and 
(E) by striking out the section heading and inserting in 
lieu thereof the following: 
"SEC. 56. CORPORATE MINIMUM TAX." 
(2) The table of sections for part IV of subchapter A of chapter 
1 is amended by striking out the item relating to section 56 and 
inserting in lieu thereof the following: 
"Sec. 56. Corporate minimum tax." 
(3) Section 58 (relating to rules for application of minimum 
26 USC 58. 
taxes) is amended— 
(A) by striking out subsection (a), 
(B) by striking out subsection (c) and inserting in lieu 
thereof the following: 
"(c) ESTATES AND TRUSTS.—In the case of an estate or trust, the 
items of tax preference for any taxable year shall be apportioned 
between the estate or trust and the beneficiaries in accordance with 
regulations prescribed by the Secretary.", and 
(C) in subsection (g)— 
(i) by striking out "paragraphs (6) and" in paragraph 
(1) and inserting in lieu thereof "paragraph", and 
(ii) by striking out so much of paragraph (2) as pre-
cedes the last two sentences thereof and inserting in 
lieu thereof the following: 
"(2) CAPITAL GAINS.—For purposes of section 56, the items of 
tax preference set forth in section 57(a)(9) which are attributa-
ble to sources within any foreign country or possession of the 
United States shall not be taken into account if preferential 
treatment is not accorded gain from the sale or exchange of 
capital assets (or property treated as capital assets)." 
(4) Section 5(a)(4) is amended by striking out "sections 55 and 26 USC 5. 
56" and inserting in lieu thereof "section 55". 
(5) Section 511(d)(2) is amended by striking out "and section 56 26 USC 511. 
(as the case may be)". 
(6) Subparagraph (A) of section 897(a)(2) (relating to 20-per- 
26 USC 897. 
cent minimum tax on nonresident alien individuals) is amended 
to read as follows: 
"(A) IN GENERAL.—In the case of any nonresident alien 
individual, the amount determined under section 55(aXl) 
96 STAT. 420 
PUBLIC LAW 97-248—SEPT. 3, 1982 
for the taxable year shall not be less than 20 percent of the 
lesser of— 
"(i) the individual's alternative minimum taxable 
income (as defined in section 550))) for the taxable year, 
or 
"(ii) the individual's net United States real property 
gain for the taxable year." 
26 use 6015, 
(7) Sections 6015(dXl), 6362(b)(2XA), and 6654(gXl) are each 
6362, 6654. 
amended by striking out "or 56". 
26 use 46, 53, 
(8)(A) Sections 46(aX4), 53(a), and 901(a) are each amended by 
^^^- 
striking out "(relating to minimum tax for tax preferences)" 
and inserting in lieu thereof "(relating to corporate minimum 
tax)". 
26 use 936. 
(B) Subparagraph (A) of section 936(aX3) is amended by strik-
ing out "(relating to minimum tax)" and inserting in lieu 
thereof "(relating to corporate minimum tax)". 
26 use 173. 
(9)(A) Section 173 (relating to circulation expenditures) is 
amended— 
(i) by striking out "Notwithstanding section 263" and 
inserting in lieu thereof 
"(a) GENERAL RULE.—Notwithstanding section 263", and 
(ii) by adding at the end thereof the following new subsec-
tion: 
"
O
t
>
) CROSS REFERENCE.— 
"For election of 10-year amortization of expenditures allowable as a 
deduction under subsection (a), see section 58(i)." 
26 use 174. 
(B) Subsection (e) of section 174 (relating to research and 
experimental expenditures) is amended— 
(i) by striking out "For adjustments" and inserting in 
lieu thereof 
"(1) For adjustments", 
(ii) by adding at the end thereof the following new para-
graph: 
"(2) For election of 10-year amortization of expenditures allowable as a 
deduction under subsection (a), see section 58(i).", 
and 
(iii) by striking out "CROSS REFERENCE" and inserting in 
lieu thereof "CROSS REFERENCES". 
26 use 616. 
(C) Section 616 (relating to development expenditures) is 
amended by adding at the end thereof the following new subsec-
tion: 
"(d) CROSS REFERENCE.— 
"For election of 10-year amortization of expenditures allowable as a 
deduction under subsection (a), see section 58(i)." 
26 use 617. 
(D) Section 617 (relating to deduction of certain mining explo-
ration expenditures) is amended by adding at the end thereof 
the following new subsection: 
"(j) CROSS REFERENCE.— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 421 
"For election of 10-year amortization of expenditures allowable as a 
deduction under this section, see section 58(i)." 
(10) Subsection (a) of section 7701 (relating to definitions) is 26 USC 7701. 
amended by adding at the end thereof the following new para-
graph: 
"(38) JOINT RETURN.—The term 'joint return' means a single 
return made jointly under section 6013 by a husband and wife." 
(e) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by this section shall 26 USC 55 note. 
apply to taxable years beginning after December 31, 1982. 
(2) SPECIAL RULE FOR PRE-1983 SECTION 56 (b) TAX DEFERRALS.— 26 USC 56 note. 
The amendments made by subsection (c)(1) of this section to 
section 56(b) of the Internal Revenue Code of 1954 shall not 
apply to any net operating loss carryover from any taxable year 
beginning before January 1, 1983, which is attributable to any 
excess described in section 56(b)(1)(B) of such Code for such 
taxable year. 
SEC. 202. LIMITATION ON MEDICAL DEDUCTION. 
(a) GENERAL RULE.—Subsection (a) of section 213 (relating to 
26 USC 213. 
deduction for medical, dental, etc., expenses) is amended to read as 
follows: 
"(a) ALLOWANCE OF DEDUCTION.—There shall be allowed as a 
deduction the expenses paid during the taxable year, not compen-
sated for by insurance or otherwise, for medical care of the tax-
payer, his spouse, or a dependent (as defined in section 152), to the 
extent that such expenses exceed 5 percent of adjusted gross 
income." 
(b) TREATMENT OF MEDICINE AND DRUGS.— 
(1) IN GENERAL.—Subsection (b) of section 213 (relating to 
limitation with respect to medicine and drugs) is amended to 
read as follows: 
"(b) LIMITATION WITH RESPECT TO MEDICINE AND DRUGS.—An 
amount paid during the taxable year for medicine or a drug shall be 
taken into account under subsection (a) only if such medicine or 
drug is a prescribed drug or is insulin." 
(2) DEFINITION OF PRESCRIBED DRUG.—Subsection (e) of section 
213 is amended by inserting after paragraph (1) the following 
new paragraphs: 
"(2) PRESCRIBED DRUG.—The term 'prescribed drug' means a 
drug or biological which requires a prescription of a physician 
for its use by an individual. 
"(3) PHYSICIAN.—The term 'physician' has the itieaning given 
to such term by section 1861(r) of the Social Security Act (42 
U.S.C. 1395x(r))." 
(3) CONFORMING AMENDMENTS.— 
(A) Subsection (e) of section 213 (as in effect before the 
amendment made by paragraph (2)) is amended by redes-
ignating paragraphs (2), (3), and (4) as paragraphs (4), (5), 
and (6), respectively. 
(B) Subsections (d), (e), and (f) of section 213 are redesig-
nated as subsections (c), (d), and (e), respectively. 
(C) Subsection (b) of section 105 is amended by striking 
26 USC 105. 
out "section 213(e)" and inserting in lieu thereof "section 
213(d)". 
(c) EFFECTIVE DATES.— 
26 use 213 note. 
96 STAT. 422 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(1) SUBSECTION (a).—The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1982. 
(2) SUBSECTION (b).—The amendments made by subsection (b) 
shall apply to taxable years beginning after December 31, 1983. 
SEC. 203. LIMITATION ON DEDUCTION FOR NONBUSINESS CASUALTY 
LOSSES. 
26 use 165. 
(a) GENERAL RULE.—Section 165 (relating to losses) is amended by 
striking out subsection (h), by redesignating subsection (i) as subsec-
tion (j). and by inserting after subsection (g) the following new 
subsections: 
"(h) CASUALTY AND THEFT LOSSES.— 
"(1) GENERAL RULE.—Any loss of an individual described in 
subsection (c)(3) shall be allowed for any taxable year only to the 
extent that— 
"(A) the amount of loss to such individual arising from 
each casualty, or from each theft, exceeds $100, and 
"(B) the aggregate amount of all such losses sustained by 
such individual during the taxable year (determined after 
application of subparagraph (A)) exceeds 10 percent of the 
adjusted gross income of the individual. 
"(2) SPECIAL RULES.— 
"(A) JOINT RETURNS.—For purposes of the $100 and 10 
percent limitations described in paragraph (1), a husband 
and wife making a joint return for the taxable year shall be 
treated as one individual. 
"(B) COORDINATION WITH ESTATE TAX.—No loss described 
in subsection (cX3) shall be allowed if, at the time of filing 
the return, such loss has been claimed for estate tax pur-
poses in the estate tax return. 
"(i) DISASTER LOSSES.— 
"(1) ELECTION TO TAKE DEDUCTION FOR PRECEDING YEAR.— 
Notwithstanding the provisions of subsection (a), any loss 
attributable to a disaster occurring in an area subsequently 
determined by the President of the United States to warrant 
assistance by the Federal Government under the Disaster Relief 
Act of 1974 may, at the election of the taxpayer, be taken into 
account for the taxable year immediately preceding the taxable 
year in which the disaster occurred. 
"(2) YEAR OF LOSS.—If an election is made under this subsec-
tion, the casualty resulting in the loss shall be treated for 
purposes of this title as having occurred in the taxable year for 
which the deduction is claimed. 
"(3) AMOUNT OF LOSS.—The amount of the loss taken into 
account in the preceding taxable year by reason of paragraph (1) 
shall not exceed the uncompensated amount determined on the 
basis of the facts existing at the date the taxpayer claims the 
(b) CONFORMING AMENDMENT.—Subsection (c) of section 165 (relat-
ing to limitation on losses of individuals) is amended— 
(1) by inserting "except as provided in subsection (h)," before 
"losses" the first place it appears in paragraph (3) thereof, and 
(2) by striking out the last three sentences. 
26 use 165 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31, 1982. Such 
amendments shall also apply to the taxpayer's last taxable year 
beginning before January 1, 1983, solely for purposes of determining 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 423 
the amount allowable as a deduction with respect to any loss taken 
into account for such year by reason of an election under section 
165(i) of the Internal Revenue Code of 1954 (as amended by this 
section). 
Subtitle B—Provisions Primarily Relating to 
Business 
PART I—REDUCTION IN CERTAIN DEDUCTIONS AND 
CREDITS 
SEC. 204. 15 PERCENT REDUCTION IN CERTAIN CORPORATE PREFERENCE 
ITEMS. 
(a) IN GENERAL.—Subchapter B of chapter 1 (relating to computa-
tion of taxable income) is amended by adding at the end thereof the 
following new part: 
"PART XI—SPECIAL RULES RELATING TO CORPORATE 
PREFERENCE ITEMS 
"Sec. 291. Special rules relating to corporate preference items. 
"SEC. 291. SPECIAL RULES RELATING TO CORPORATE PREFERENCE 
26 USC 291. 
ITEMS. 
"(a) 15-PERCENT REDUCTION IN CERTAIN PREFERENCE ITEMS, ETC.— 
For purposes of this subtitle, in the case of an applicable corpora-
tion— 
"(1) SECTION 1250 CAPITAL GAIN TREATMENT.—In the case of 
section 1250 property which is disposed of during the taxable 
year, 15 percent of the excess (if any) o
f
— 
"(A) the amount which would be treated as ordinary 
income if such property was section 1245 property or sec-
tion 1245 recovery property, over 
"(B) the amount treated as ordinary income under section 
1250, 
shall be treated as gain which is ordinary income and shall be 
recognized notwithstanding any other provision of this title. 
"(2) REDUCTION IN PERCENTAGE DEPLETION.—In the case of iron 
ore and coal (including lignite), the amount allowable as a 
deduction under section 613 with respect to any property (as 
defined in section 614) shall be reduced by 15 percent of the 
amount of the excess (if any) of— 
"(A) the amount of the deduction allowable under section 
613 for the taxable year (determined without regard to this 
paragraph), over 
"(B) the adjusted basis of the property at the close of the 
taxable year (determined without regard to the depletion 
deduction for the taxable year). 
"(3) CERTAIN FINANCIAL INSTITUTION PREFERENCE ITEMS.—The 
amount allowable £is a deduction under this chapter (deter-
mined without regard to this section) with respect to any finan-
cial institution preference item shall be reduced by 15 percent. 
"(4) CERTAIN DEFERRED DISC INCOME.—If an applicable corpo-
ration is a shareholder of a DISC, in the case of taxable years 
beginning after December 31,1982, section 995(b)(lXF)(i) shall be 
96 STAT. 424 
PUBLIC LAW 97-248—SEPT. 3, 1982 
applied with respect to such corporation by substituting '57.5 
percent' for 'one-half. 
"(5) AMORTIZATION OF POLLUTION CONTROL FACILITIES.—If an 
26 use 169. 
election is made under section 169 with respect to any certified 
pollution control facility, the amortizable basis of such facility 
for purposes of such section shall be reduced by 15 percent. 
"(b) SPECIAL RULES FOR TREATMENT OF INTANGIBLE DRILLING COSTS 
AND MINERAL EXPLORATION AND DEVELOPMENT COSTS.—For pur-
poses of this subtitle, in the case of an applicable corporation— 
"(1) IN GENERAL.—The amount allowable as a deduction for 
any taxable year (determined without regard to this section)— 
"(A) under section 263(c) in the case of an integrated oil 
company, or 
"(B) under section 616(a) or 617, 
shall be reduced by 15 percent. 
"(2) Special rule for amounts not allowable as deductions 
under paragraph (1).— 
"(A) INTANGIBLE DRILLING COSTS.—The amount not allow-
able as a deduction under section 263(c) for any taxable 
year by reason of paragraph (1) shall be allowable as a 
deduction ratably over the 36-month period beginning with 
the month in which the costs are paid or incurred. 
"(B) MINERAL EXPLORATION AND DEVELOPMENT COSTS.—In 
the case of any amount not allowable as a deduction under 
section 616(a) or 617 for any taxable year by reason of 
paragraph (1)— 
"(i) the applicable percentage of the amount not so 
allowable as a deduction shall be allowable as a deduc-
tion for the taxable year in which the costs are paid or 
incurred and in each of the 4 succeeding taxable years, 
and 
"(ii) such costs shall be treated, for purposes of deter-
mining the amount of the credit allowable under sec-
tion 38 for the taxable year in which paid or incurred, 
as qualified investment (within the meaning of subsec-
tions (c) and (d) of section 46) with respect to property 
placed in service during such year. 
"(3) APPLICABLE PERCENTAGE.—For purposes of paragraph 
(2)(B), the term 'applicable percentage' means the percentage 
determined in accordance with the following table: 
Applicable 
"Taxable Year: 
Percentage: 
1 
15 
2 
22 
3 
21 
4 
21 
5 
21. 
"(4) DISPOSITIONS.— 
"(A) OIL, GAS, AND GEOTHERMAL PROPERTY.—In the case of 
any disposition of any oil, gas, or geothermal property to 
which section 1254 applies (determined without regard to 
this section) any deduction under paragraph (2)(A) with 
respect to intangible drilling and development costs under 
section 263(c) which are allocable to such property shall, for 
purposes of section 1254, be treated as a deduction allow-
able under section 263(c). 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 425 
"(B) APPLICATION OF SECTION 617(d).—In the case of any 
disposition of mining property to which section 617(d) 
26 USC 617. 
applies (determined without regard to this section), any 
amount allowable as a deduction under paragraph (2)(B) 
which is allocable to such property shall, for purposes of 
section 617(d), be treated as a deduction allowable under 
section 617(a). 
"(C) RECAPTURE OF INVESTMENT CREDIT.—In the case of 
any disposition of any property to which the credit allow-
able under section 38 by reason of paragraph (2)(B) is 
allocable, such disposition shall, for purposes of section 47, 
be treated as a disposition of section 38 recovery property 
which is not 3-year property. 
"(5) INTEGRATED OIL COMPANY DEFINED.—For purposes of this 
subsection, the term 'integrated oil company' means, with 
respect to any taxable year, any producer (within the meaning 
of section 4996(a)(1)) of crude oil other than an independent 
producer (within the meaning of section 4992(b)). 
"(6) COORDINATION WITH COST DEPLETION.—The portion of the 
adjusted basis of any property which is attributable to intangi-
ble drilling and development costs or mining exploration and 
development costs shall not be taken into account for purposes 
of determining depletion under section 611. 
"(c) SPECIAL RULES RELATING TO POLLUTION CONTROL FACILITIES.— 
For purposes of this subtitle— 
"(1) ACCELERATED COST RECOVERY DEDUCTION.—For purposes of 
subclause (I) of section 168(d)(l)(A)(ii), a taxpayer shall not be 
95 Stat. 204. 
treated as electing the amortization deduction under section 169 
with respect to that portion of the basis not taken into account 
under section 169 by reason of subsection (a)(5). 
"(2) 1250 RECAPTURE.—Subsection (a)(1) shall not apply to any 
section 1250 property which is part of a certified pollution 
control facility (within the meaning of section 169(d)(1)) with 
respect to which an election under section 169 was made. 
"(d) SPECIAL RULE FOR REAL ESTATE INVESTMENT TRUSTS.—In the 
case of a real estate investment trust (as defined in section 856), the 
difference between the amounts described in subparagraphs (A) and 
(B) of subsection (a)(1) shall be reduced to the extent that a capital 
gain dividend (as defined in section 857(b)(3)(C), applied without 
regard to this section) is treated as paid out of such difference. Any 
capital gain dividend treated as having been paid out of such 
difference to a shareholder which is an applicable corporation 
retains its character in the hands of the shareholder as gain from 
the disposition of section 1250 property for purposes of applying 
subsection (a)(1) to such shareholder. 
"(e) DEFINITIONS.—For purposes of this section— 
"(1) 
FINANCIAL INSTITUTION PREFERENCE ITEM.—The 
term 
'financial institution preference item' includes the following: 
"(A) EXCESS RESERVES FOR LOSSES ON BAD DEBTS OF FINANCIAL 
INSTITUTIONS.—In the case of a financial institution to which 
section 585 or 593 applies, the excess of— 
"(i) the amount which would, but for this section, be 
allowable as a deduction for the taxable year for a reason-
able addition to a reserve for bad debts, over 
"(ii) the amount which would have been allowable had 
such institution maintained its bad debt reserve for all 
taxable years on the basis of actual experience. 
96 STAT. 426 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(B) INTEREST ON DEBT TO CARRY TAX-EXEMPT OBLIGATIONS 
ACQUIRED 
AFTER 
DECEMBER 31, 
1982.— 
"(i) IN GENERAL.—In the case of a financial institu-
tion to which section 585 or 593 applies, the amount of 
interest on indebtedness incurred or continued to pur-
chase or carry obligations acquired after December 31, 
1982, the interest on which is exempt from taxes for the 
taxable year, to the extent that a deduction would (but 
for this paragraph) be allowable with respect to such 
interest for such taxable year. 
"(ii) 
DETERMINATION 
OF INTEREST 
ALLOCABLE TO 
INDEBTEDNESS ON TAX-EXEMPT OBLIGATIONS.—UnleSS t h e 
taxpayer (under regulations prescribed by the Secre-
tary) establishes otherwise, the amount determined 
under clause (i) shall be an amount which bears the 
same ratio to the aggregate amount allowable (deter-
mined without regard to this section) to the taxpayer as 
a deduction for interest for the taxable year as— 
"(I) the taxpayer's average adjusted basis (within 
the 
meaning of section 
1016) of obligations 
described in clause (i), bears to 
"(II) such average adjusted basis for all assets of 
the taxpayer. 
"(2) APPLICABLE CORPORATION.—For purposes of this section, 
the term 'applicable corporation' means any corporation other 
than an electing small business corporation (as defined in sec-
tion 1371(b)). 
"(3) SECTION 1245 AND 1250 PROPERTY.—The terms 'section 
1245 property', 'section 1245 recovery property', and 'section 
1250 property' have the meanings given such terms by sections 
95 Stat. 222. 
1245(a)(3), 1245(a)(5), and 1250(c), respectively." 
9
R TT^r ^7^^' 
^^^ COORDINATION WITH MINIMUM TAX.—Section 57(b) (relating to 
26 UbC 57. 
adjusted itemized deductions) is amended to read as follows: 
"(b) APPLICATION WITH SECTION 291.— 
"(1) IN GENERAL.—In the case of any item of tax preference of 
an applicable corporation described in— 
"(A) paragraph (4) or (7) of subsection (a), or 
"(B) paragraph (8) of subsection (a) (but only to the extent 
such item is allocable to a deduction for depletion for iron 
ore and coal (including lignite)), 
only 71.6 percent of the amount of such item of tax preference 
(determined without regard to this subsection) shall be taken 
into account as an item of tax preference. 
"(2) CERTAIN CAPITAL GAINS.—In determining the net capital 
gain of any applicable corporation for purposes of paragraph 
(9)(B) of subsection (a), there shall be taken into account only 
71.6 percent of any gain from the sale or exchange of section 
1250 property which is equal to 85 percent of the excess deter-
Ante, p. 423. 
mined under section 291(a)(1) with respect to such property. 
"(3) APPLICABLE CORPORATION DEFINED.—For purposes of this 
subsection, the term 'applicable corporation' has the meaning 
given such term by section 291(e)(2)." 
(c) CONFORMING AMENDMENTS.— 
26 use 263. 
(1) Subsection (c) of section 263 (relating to intangible drilling 
and development costs) is amended by adding at the end thereof 
the following new sentence: "This subsection shall not apply 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 427 
with respect to any costs to which any deduction is allowed 
under section 58(i) or 291." 
(2) The table of parts for subchapter B of chapter 1 is amended 
by adding at the end thereof the following: 
"Part XI. Special rules relating to corporate preference items." 
(d) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in this subsection, the 
amendments made by this section shall apply to taxable years 
beginning after December 31, 1982. 
(2) 1250 GAIN.—Section 291(a)(1) of the Internal Revenue Code 
of 1954 shall apply to sales or other dispositions after December 
31, 1982, in taxable years ending after such date. 
(3) POLLUTION CONTROL FACILITIES.—Section 291(a)(5) of such 
Code shall apply to property placed in service after December 
31, 1982, in taxable years ending after such date. 
(4) DRILLING AND MINING COSTS.—Section 291(b) of such Code 
shall apply to expenditures after December 31, 1982, in taxable 
years ending after such date. 
(5) REDUCTION IN PERCENTAGE DEPLETION FOR COAL AND IRON 
ORE.—Section 291(a)(2) of such Code shall apply to taxable years 
beginning after December 31, 1983. 
(6) MINIMUM TAX.—The amendment made by subsection (b) 
shall apply to taxable years ending after December 31, 1982, 
with respect to items of tax preference described in section 57(b) 
of such Code to which section 291 of such Code applies; except 
that in the case of an item described in section 291(a)(2) of such 
Code, such amendment shall apply to taxable years beginning 
after December 31, 1983. 
SEC. 205. AMENDMENTS TO INVESTMENT CREDIT. 
(a) BASIS ADJUSTMENT TO REFLECT INVESTMENT TAX CREDIT.— 
(1) I N GENERAL.—Section 48 (relating to definitions and spe-
cial rules involving section 38 property) is amended by redes-
ignating subsection (q) as subsection (r) and by inserting after 
subsection (p) the following new subsection: 
"(q) BASIS ADJUSTMENT TO SECTION 38 PROPERTY.— 
"(1) IN GENERAL.—For purposes of this subtitle, if a credit is 
determined under section 46(a)(2) with respect to section 38 
property, the basis of such property shall be reduced by 50 
percent of the amount of the credit so determined. 
"(2) CERTAIN DISPOSITIONS.—If during any taxable year there 
is a recapture amount determined with respect to any section 38 
property the basis of which was reduced under paragraph (1), 
the basis of such property (immediately before the event result-
ing in such recapture) shall be increased by an amount equal to 
50 percent of such recapture amount. For purposes of the 
preceding sentence, the term 'recapture amount' means any 
increase in tax (or adjustment in carrybacks or carryovers) 
determined under section 47. 
"(3) SPECIAL RULE FOR QUALIFIED REHABILITATED BUILDINGS.— 
In the case of any credit determined under section 46(a)(2) for 
any qualified rehabilitation expenditure in connection with a 
qualified rehabilitated building other than a certified historic 
structure, paragraphs (1) and (2) shall be applied without regard 
to the phrase '50 percent of. 
Ante, pp. 417, 
423. 
26 u s e 291 note. 
Ante, p. 423. 
Ante, p. 426. 
26 u s e 48. 
"Recapture 
amounts." 
96 STAT. 428 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(4) ELECTION OF REDUCED CREDIT IN LIEU OF BASIS ADJUSTMENT 
FOR REGULAR PERCENTAGE.— 
"(A) I N GENERAL.—If the taxpayer elects to have this 
paragraph apply with respect to any recovery property— 
"(i) paragraphs (1) and (2) shall not apply to so much 
26 use 46. 
of the credit determined under section 46(a)(2) with 
respect to such property as is attributable to the regu-
lar percentage set forth in section 46(a)(2)(B); and 
"(ii) the amount of the credit allowable under section 
38 with respect to such property shall be determined 
under subparagraph (B). 
"(B) REDUCTION IN CREDIT.—In the case of any recovery 
property to which an election under subparagraph (A) 
applies— 
"(i) solely for the purposes of applying the regular 
percentage, the applicable percentage under subsection 
(c) or (d) of section 46 shall be deemed to be 100 percent, 
and 
"(ii) notwithstanding section 46(a)(2)(B), the regular 
percentage shall be— 
"(I) 8 percent in the case of recovery property 
other than 3-year property, or 
"(II) 4 percent in the case of recovery property 
which is 3-year property. 
For purposes of the preceding sentence, RRB replacement 
95 Stat. 204. 
property (within the meaning of section 168(f)(3)(B)) shall be 
treated as property which is not 3-year property. 
"(C) TIME AND MANNER OF MAKING ELECTION.— 
"(i) I N GENERAL.—An election under this subsection 
with respect to any property shall be made on the 
taxpayer's return of the tax imposed by this chapter for 
the taxpayer's taxable year in which such property is 
placed in service (or in the case of property to which an 
election under section 46(d) applies, for the first taxable 
year for which qualified progress expenditures were 
taken into account with respect to such property). 
"(ii) REVOCABLE ONLY WITH CONSENT.—An election 
under this subsection with respect to any property, 
once made, may be revoked only with the consent of 
the Secretary. 
"(5) RECAPTURE OF REDUCTIONS.— 
"(A) I N GENERAL.—For purposes of sections 1245 and 
1250, any reduction under this subsection shall be treated 
as a deduction allowed for depreciation. 
"(B) SPECIAL RULE FOR SECTION 1250.—For purposes of 
section 1250(b), the determination of what would have been 
the 
depreciation 
adjustments 
under the straight 
line 
method shall be made as if there had been no reduction 
under this section." 
(2) ALLOWANCE OF DEDUCTION FOR CERTAIN UNUSED INVEST-
MENT CREDITS.—Part VI 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 196. 
"SEC. 196. DEDUCTION FOR CERTAIN UNUSED INVESTMENT CREDITS. 
"(a) ALLOWANCE OF DEDUCTIONS.—If— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 429 
"(1) the amount of the credit determined under section 
46(a)(2) for any taxable year exceeds the limitation provided by 
26 USC 46. 
section 46(a)(3) for such taxable year, and 
"(2) the amount of such excess has not, after the application of 
section 46(b), been allowed to the taxpayer as a credit under 
section 38 for any taxable year, 
then an amount equal to 50 percent of the amount of such excess (to 
the extent attributable to property the basis of which is reduced 
under section 48(q)) not so allowed as a credit shall be allowed to the 
Ante, p. 427. 
taxpayer as a deduction for the first taxable year following the last 
taxable year in which such excess could under section 46(b) have 
been allowed as a credit. 
"(b) TAXPAYERS DYING OR CEASING TO EXIST.—If a taxpayer dies or 
ceases to exist prior to the first taxable year following the last 
taxable year in which the excess described in subsection (a) could 
under section 46(b) have been allowed as a credit, the amount 
described in subsection (a), or the proper portion thereof, shall, 
under regulations prescribed by the Secretary, be allowed to the 
taxpayer as a deduction for the taxable year in which such death or 
cessation occurs. 
"(c) SPECIAL RULE FOR QUALIFIED REHABILITATED BUILDINGS.—In 
the case of any credit to which section 48(qX3) applies, subsection (a) 
shall be applied without regard to the phrase '50 percent of." 
(3) BASIS ADJUSTMENT NOT TAKEN INTO ACCOUNT FOR PURPOSES 
OF EARNINGS AND PROFITS.—Section 312(k) (relating to effect of 26 USC 312. 
depreciation on earnings and profits) is amended by adding at 
the end thereof the following new paragraph: 
"(5) BASIS ADJUSTMENT NOT TAKEN INTO ACCOUNT.—In comput-
ing the earnings and profits of a corporation for any taxable 
year, the allowance for depreciation (and amortization, if any) 
shall be computed without regard to any basis adjustment 
under section 48(q)." 
(4) SPECIAL RULES FOR CERTAIN LEASED PROPERTY.—Section 
48(d) (relating to certain leased property) is amended by adding 26 USC 48. 
at the end thereof the following new paragraph: 
"(5) COORDINATION WITH BASIS ADJUSTMENT.—In the case of 
any property with respect to which an election is made under 
this subsection— 
"(A) subsection (q) (other than paragraph (4)) shall not 
apply with respect to such property, 
"(B) the lessee of such property shall include ratably in 
gross income over the shortest recovery period which could 
be applicable under section 168 with respect to such prop-
erty an amount equal to 50 percent of the amount of the 
credit allowable under section 38 to the lessee with respect 
to such property, and 
"(C) in the case of a disposition of such property to which 
section 47 applies, this paragraph shall be applied in 
accordance with regulations prescribed by the Secretary." 
(5) CONFORMING AMENDMENTS.— 
(A) Section 48(g) (relating to special rules for qualified 
rehabilitated buildings) is amended by striking out para-
graph (5). 
(B) Paragraph (24) of section 1016(a) (relating to adjust- 95 Stat. 239. 
ments to basis) is amended by striking out "section 48(g)(5)" 
and inserting in lieu thereof "section 48(q)" 
96 STAT. 430 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(C) The table of sections for part VI of subchapter B of 
chapter 1 is amended by adding at the end thereof the 
following new item: 
"Sec. 196. Deduction for certain unused investment credits." 
(b) INVESTMENT CREDIT LIMITED TO 85 PERCENT OF TAX LIABILITY 
INSTEAD OF 90 PERCENT.— 
26 use 46. 
(1) IN GENERAL.—Subparagraph (B) of section 46(a)(3) (relating 
to limitation based on amount of tax) is amended to read as 
follows: 
"(B) 85 percent of so much of the liability for tax for the 
taxable year as exceeds $25,000." 
(2) TECHNICAL AMENDMENTS.— 
(A) Subsection (a) of section 46 is amended by striking out 
paragraphs (7) and (8) and by redesignating paragraph (9) as 
paragraph (7). 
(B) Clause (i) of section 46(a)(7)(B), as redesignated by 
subparagraph (A), is amended to read as follows: 
"(i) paragraph (3)(B) shall be applied by substituting 
'100 percent' for '85 percent', and". 
(C) Subparagraph (B) of section 46(a)(7), as redesignated 
by subparagraph (A), is amended by striking clause (ii) and 
by redesignating clause (iii) as clause (ii). 
(c) EFFECTIVE DATES.— 
26 u s e 196 note. 
(1) SUBSECTION ( a ) . — 
(A) GENERAL RULE.—Except as otherwise provided in this 
paragraph, the amendments made by subsection (a) shall 
apply to periods after December 31, 1982, under rules simi-
lar to the rules of section 48(m) of the Internal Revenue 
Code of 1954. 
(B) EXCEPTION.—The amendments made by subsection (a) 
shall not apply to any property which— 
(i) is constructed, reconstructed, erected, or acquired 
pursuant to a contract which was entered into after 
August 13, 1981, and was, on July 1, 1982, and at all 
times thereafter, binding on the taxpayer, 
(ii) is placed in service after December 31, 1982, and 
before January 1, 1986, 
(iii) with respect to which an election under section 
Post, p. 442. 
168(f)(8)(A) of such Code is not in effect at any time, and 
(iv) is not described in section 167(1)(3)(A) of such 
Code. 
(C) SPECIAL RULE FOR INTEGRATED MANUFACTURING FACILI-
TIES.— 
(i) IN GENERAL.—In the case of any integrated manu-
facturing facility, the requirements of clause (i) of sub-
paragraph (B) shall be treated as met i
f
— 
(I) the on-site construction of the facility began 
before July 1, 1982, and 
(II) during the period beginning after August 13, 
1981, and ending on July 1, 1982, the taxpayer 
constructed (or entered into binding contracts for 
the construction of) more than 20 percent of the 
cost of such facility. 
PUBLIC LAW 97-248—SEFr. 3, 1982 
96 STAT. 431 
(ii) INTEGRATED MANUFACTURING FACILITY.—For pur-
poses of clause (i), the term 'integrated manufacturing 
facility' means 1 or more facilities— 
(I) located on a single site, 
(II) for the manufacture of 1 or more manufac-
tured 
products 
from 
raw 
materials 
by 
the 
application of 2 or more integrated manufacturing 
processes. 
(D) SPECIAL RULE FOR HISTORIC STRUCTURES.—In the case 
of any certified historic structure (as defined in section 
48(g)(3) of the Internal Revenue Code of 1954), clause (i) of 
26 USC 48. 
subparagraph (B) shall be applied by substituting "Decem-
ber 31,1980" for "August 13, 1981." 
(E) CERTAIN PROJECTS WITH RESPECT TO HISTORIC STRUC-
TURES.—In the case of any certified historic structure (as so 
defined), the requirements of clause (i) of subparagraph (B) 
shall be treated as met with respect to such property— 
(i) if the rehabilitation begins after December 31, 
1980, and before July 1,1982, or 
(ii) if-
(I) before July 1, 1982, a public offering with 
respect to interests in such property was registered 
with the Securities and Exchange Commission, 
(II) before such date an application with respect 
to such property was filed under section 8 of the 
United States Housing Act of 1937, and 
42 USC 1437f, 
(III) such property is placed in service before 
July 1,1984. 
(2) SUBSECTION (b).—The amendments made by subsection (b) 26 USC 46 note, 
shall apply to taxable years beginning after December 31, 1982. 
SEC. 206. REPEAL OF 1985 AND 1986 INCREASES IN ACCELERATED COST 
RECOVERY DEDUCTIONS. 
(a) IN GENERAL.—Paragraph (1) of section 168(b) (relating to 95 Stat. 204. 
amount of accelerated cost recovery deduction) is amended— 
(1) by striking out "tables" and inserting in lieu thereof 
"table"; 
(2) by striking out: 
"(A) 
FOR 
PROPERTY 
PLACED 
IN 
SERVICE 
AFTER 
DECEMBER 
31, 
1980, AND BEFORE JANUARY 1, 1985.—"; and 
(3) by striking out subparagraphs (B) and (C). 
(b) CONFORMING AMENDMENTS.—Paragraph (4) of section 168(e) 
(relating to property excluded from application of section) is 
amended— 
(1) by striking out subparagraph (H); and 
(2) by striking out "l986" in the heading thereof and inserting 
in lieu thereof "i98i". 
SEC. 207. SECTION 189 MADE APPLICABLE TO CERTAIN CORPORATIONS 
FOR NONRESIDENTIAL REAL PROPERTY, 
(a) IN GENERAL.—Subsection (a) of section 189 is amended to read 
26 USC 189. 
as follows: 
"(a) 
CAPITALIZATION OF CONSTRUCTION PERIOD INTEREST AND 
TAXES.—Except as otherwise provided in this section or in section 
266 (relating to carrying charges), no deduction shall be allowed for 
real property construction period interest and taxes." 
96 STAT. 432 
PUBLIC LAW 97-248—SEPT. 3, 1982 
95 Stat. 264. 
(b) EXCLUSION OF CERTAIN PROPERTY.—Subsection (d) of section 
189 (relating to certain property excluded) is amended— 
(1) by striking out "or" at the end of paragraph (1), 
(2) by redesignating paragraph (2) as paragraph (3), and 
(3) by inserting after paragraph (1) the following new para-
graph: 
"(2) residential real property (other than low income housing) 
acquired, constructed, or carried by a corporation other than an 
electing small business corporation (within the meaning of sec-
tion 1371(b)), a personal holding company (within the meaning 
of section 542), or a foreign personal holding company (within 
the meaning of section 552), or". 
26 use 189. 
(c) ALLOCATION OF INTEREST.—Paragraph (1) of section 
189(e) 
(relating to construction period interest and taxes) is amended by 
adding at the end thereof the following sentence: "The Secretary 
shall prescribe regulations which provide for the allocation of inter-
est to real property under construction." 
(d) CONFORMING AMENDMENT.—Paragraph (1) of section 189(e) 
(relating to construction period interest and taxes) is amended— 
(1) by striking out "construction period interest and taxes" 
and inserting in lieu thereof "real property construction period 
interest and taxes", and 
(2) by striking out the caption thereof and inserting in lieu 
thereof: 
"(1) 
REAL 
PROPERTY 
CONSTRUCTION 
PERIOD 
INTEREST AND 
TAXES.—". 
26 u s e 189 note. 
(e) EFFECTIVE D A T E . — 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to taxable years 
beginning after December 31, 1982, with respect to construction 
which commences after such date. 
(2) CERTAIN PLANNED CONSTRUCTION.—The amendments made 
by this section shall not apply with respect to construction of 
property which is used in a trade or business described in 
section 48(a)(3)(B) of the Internal Revenue Code of 1954 or which 
is a hospital or nursing home if— 
(A) such construction is conducted pursuant to a written 
plan of the taxpayer which was in existence on July 1, 1982, 
and as to which approval from a governmental unit has 
been requested in writing, and 
(B) such construction commences before January 1, 1984, 
and shall not apply to the Alaska Natural Gas Transportation 
System (15 U.S.C. 719) and its related facilities. 
PART II—LEASING 
SEC. 208. LIMITATIONS AND ADDITIONAL REQUIREMENTS ON LEASES 
UNDER THE ACCELERATED COST RECOVERY SYSTEM. 
(a) LIMITATIONS ON LEASES UNDER THE ACCELERATED COST RECOV-
ERY SYSTEM.— 
95 Stat. 204. 
(1) IN GENERAL.—Section 168 (relating to the accelerated cost 
Post, p. 445. 
recovery system) is amended by redesignating subsection (i) as 
subsection (j) and by inserting after subsection (h) the following 
new subsection: 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 433 
"(i) LIMITATIONS RELATING TO LEASES OF QUALIFIED LEASED PROP-
ERTY.—For purposes of this subtitle, in the case of safe harbor lease 
property, the following limitations shall apply: 
"(1) LESSOR MAY NOT REDUCE TAX LIABILITY BY MORE THAN 50 
PERCENT.— 
"(A) IN GENERAL.—The aggregate amount allowable as 
deductions or credits for any taxable year which are alloca-
ble to all safe harbor lease property with respect to which 
the taxpayer is the lessor may not reduce the liability for 
tax of the taxpayer for such taxable year (determined 
without regard to safe harbor lease items) by more than 50 
percent of such liability. 
"(B) CARRYOVER OF AMOUNTS NOT ALLOWABLE AS DEDUC-
TIONS O
R CREDITS.—Any amount not allowable as a deduc-
tion or credit under subparagraph (A)— 
"(i) may be carried over to any subsequent taxable 
year, and 
"(ii) shall be treated as a deduction or credit allocable 
to safe harbor lease property in such subsequent tax-
able year. 
"(C) ALLOCATION AMONG DEDUCTIONS AND CREDITS.—The 
Secretary shall prescribe regulations for determining the 
amount— 
"(i) of any deduction or credit allocable to safe harbor 
lease property for any taxable year to which subpara-
graph (A) applies, and 
"(ii) of any carryover of any such deduction or credit 
under subparagraph (B) to any subsequent taxable 
year. 
"(D) LIABILITY FOR TAX AND SAFE HARBOR LEASE ITEMS 
DEFINED.—For purposes of this paragraph— 
"(i) LIABILITY FOR TAX DEFINED.—Except as provided 
in this subparagraph, the term 'liability for tax' means 
the tax imposed by this chapter, reduced by the sum of 
the credits allowable under subpart A of part IV of 
subchapter A of this chapter. 
"(ii) SAFE HARBOR LEASE ITEMS DEFINED.—The term 
'safe harbor lease items' means any of the following 
items which are properly allocable to safe harbor lease 
property with respect to which the taxpayer is the 
lessor: 
"(I) Any deduction or credit allowable under this 
chapter (other than any deduction for interest). 
"(II) Any rental income received by the taxpayer 
from any lessee of such property. 
"(Ill) Any interest allowable as a deduction 
under this chapter on indebtedness of the taxpayer 
(or any related person within the meaning of sub-
section (eX4XD)) which is paid or incurred to the 
lessee of such property (or any person so related to 
the lessee), 
"(iii) CERTAIN TAXES NOT INCLUDED.—The term 'tax 
imposed by this chapter' shall not include any tax 
treated as not imposed by this chapter under the last 
sentence of section 53(a) (other than the tax imposed by 
26 USC 53. 
section 56). 
96 STAT. 434 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(2) METHOD OF COST RECOVERY.—The deduction allowable 
under subsection (a) with respect to any safe harbor lease 
property shall be determined by using the 150 percent declining 
balance method, switching to the straight-line method at a time 
to maximize the deduction (with a half-year convention in the 
first recovery year and without regard to salvage value) and a 
recovery period determined in accordance with the following 
table: 
"In the case of: 
The recovery period is: 
3-year property 
5 years. 
5-year property 
8 years. 
10-year property 
15 years. 
"(3) INVESTMENT CREDIT ALLOWED ONLY OVER 5-YEAR PERIOD.— 
In the case of any credit which would otherwise be allowable 
under section 38 with respect to any safe harbor lease property 
for any taxable year (determined without regard to this para-
graph), only 20 percent of the amount of such credit shall be 
allowable in such taxable year and 20 percent of such amount 
shall be allowable in each of the succeeding 4 taxable years. 
"(4) N o CARRYBACKS OF CREDIT OR NET OPERATING LOSS ALLOCA-
BLE TO ELECTED QUAUFIED LEASED PROPERTY.— 
"(A) CREDIT CARRYBACKS.—In determining the amount of 
any credit allowable under subpart A of part IV of sub-
chapter A of this chapter which may be carried back to any 
preceding taxable year— 
"(i) the liability for tax for the taxable year from 
which any such credit is to be carried shall be reduced 
first by any credit not properly allocable to safe harbor 
lease property, and 
"(ii) no credit which is properly allocable to safe 
harbor lease property shall be taken into account in 
determining the amount of any credit which may be 
carried back. 
"(B) NET OPERATING LOSS CARRYBACKS.—The net operating 
26 use 172. 
loss carryback provided in section 172(b) for any taxable 
year shall be reduced by that portion of the amount of such 
carryback which is properly allocable to the items described 
in paragraph (IXDXii) with respect to all safe harbor lease 
property with respect to which the taxpayer is the lessor. 
"(5) LIMITATION ON DEDUCTION FOR INTEREST PAID BY THE 
L
E
S
S
O
R T
O THE LESSEE.—In the case of interest described in 
paragraph (l)(DXii)(III), the amount allowable as a deduction for 
any taxable year with respect to such interest shall not exceed 
the amount which would have been computed if the rate of 
interest under the agreement were equal to the rate of interest 
in effect under section 6621 at the time the agreement was 
entered into. 
"(6) COMPUTATION OF TAXABLE INCOME OF LESSEE FOR PURPOSES 
OF PERCENTAGE DEPLETION.— 
"(A) IN GENERAL.—For purposes of section 613 or 613A, 
the taxable income of any taxpayer who is a lessee of any 
safe harbor lease property shall be computed £is if the 
taxpayer was the owner of such property, except that the 
amount of the deduction under subsection (a) of this section 
shall be determined after application of paragraph (2) of 
this subsection. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 435 
"(B) COORDINATION WITH CRUDE OIL WINDFALL PROFIT 
TAX.—Section 4988(b)(3)(A) shall be applied without regard 
to subparagraph (A). 
"(7) TRANSITIONAL RULE FOR APPLICATION OF PARAGRAPH (i) 
T
O CERTAIN TRANSACTIONS.—In the case of any deduction or 
credit with respect to— 
"(A) any transitional safe harbor lease property (within 
the meaning of section 208(d)(3) of the Tax Equity and 
Fiscal Responsibility Act of 1982), or 
"(B) any other safe harbor lease property placed in serv-
ice during 1982 and to which paragraph (1) does not apply, 
paragraph (1) shall not operate to disallow any such deduction 
or credit for the taxable year for which such deduction or credit 
would otherwise be allowable but deductions and credits with 
respect to such property shall be taken into account first in 
determining whether any deduction or credit is allowable under 
paragraph (1) with respect to any other safe harbor lease 
property. 
"(8) SAFE HARBOR LEASE PROPERTY.—For purposes of this sec-
tion, the term 'safe harbor lease property' means qualified 
leased property with respect to which an election under section 
168(f)(8) is in effect." 
(2) CONFORMING AMENDMENT.— 
(A) Subparagraph (A) of section 168(0(8) (relating to spe- 95 Stat. 204. 
cial rules for leases) is amended by inserting "except as 
provided in subsection (i)," before "for purposes of this 
subtitle". 
(B) Subparagraph (D) of section 47(aX5) (relating to cer- 26 USC 47. 
tain dispositions, etc., of section 38 property) is amended by 
adding at the end thereof the following new sentence: "If, 
prior to a disposition to which this subsection applies, any 
portion of any credit is not allowable with respect to any 
property by reason of section 168(iX3), such portion shall be 
treated (for purposes of this subparagraph) as not having 
been used to reduce tax liability." 
Qo) ADDITIONAL REQUIREMENTS TO QUALIFY AS LEASE FOR PURPOSES 
OF ACCELERATED COST RECOVERY.— 
(1) RELATED PERSONS MAY NOT QUALIFY AS LESSORS.—Subclause 
(I) of section 168(fK8XBXi) (relating to qualified lessors) is 
amended by inserting "which is not a related person with 
respect to the lessee" before the comma at the end thereof. 
(2) MAXIMUM LEASE TERM REDUCED.—Clause (iii) of section 
168(fK8XB) (relating to term of lease) is amended to read as 
follows: 
"(iii) the term of the lease (including any extensions) 
does not exceed the greater o
f
— 
"(I) 120 percent of the present class life of the 
property, or 
"(II) the period equal to the recovery period 
determined with respect to such property under 
subsection (iX2)." 
(3)' DEFINITION OF QUAUFIED LEASED PROPERTY.—Subparagraph 
(D) of section 168(fX8) (defining qualified leased property) is 
amended to read as follows: 
"(D) QUAUFIED LEASED PROPERTY DEFINED.—For purposes 
of this section— 
96 STAT. 436 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(i) IN GENERAL.—The term 'qualified leased prop-
erty' means recovery property— 
"(I) which is new section 38 property of the 
lessor, which is leased within 3 months after such 
property was placed in service, and which, if 
acquired by the lessee, would have been new sec-
tion 38 property of the lessee, or 
"(II) which was new section 38 property of the 
lessee, which is leased within 3 months after such 
property is placed in service by the lessee, and with 
respect to which the adjusted basis of the lessor 
does not exceed the adjusted basis of the lessee at 
the time of the lease. 
"(ii) ONLY 45 PERCENT OF THE LESSEE'S PROPERTY MAY 
BE TREATED AS QUALIFIED.—The cost basis of all Safe 
harbor lease property (determined without regard to 
this clause)— 
"(I) which is placed in service during any calen-
dar year, and 
"(II) with respect to which the taxpayer is a 
lessee, 
shall not exceed an amount equal to the 45 percent of 
the cost basis of the taxpayer's qualified base property 
placed in service during such calendar year. 
"(iii) ALLOCATION OF DISQUALIFIED BASIS.—The cost 
basis not treated as qualified leased property under 
clause (ii) shall be allocated to safe harbor lease prop-
erty for such calendar year (determined without regard 
to clause (ii)) in reverse order to when the agreement 
described in subparagraph (A) with respect to such 
property was entered into. 
"(iv) CERTAIN PROPERTY MAY NOT BE TREATED AS 
QUALIFIED 
LEASED 
PROPERTY.—The term 
'qualified 
leased property' shall not include recovery property— 
"(I) which is a qualified rehabilitated building 
26 use 48. 
(within the meaning of section 48(gXl)), 
"(II) which is public utility property (within the 
meaning of section 167(1)(3)(A)), 
"(III) which is property with respect to which a 
Ante, p. 423. 
deduction is allowable by reason of section 291(b), 
"(IV) with respect to which the lessee of the 
property (other than property described in clause 
(v)) under the agreement described in subpara-
graph (A) is a nonqualified tax-exempt organiza-
tion, or 
"(V) property with respect to which the user of 
such property is a person (other than a United 
States person) not subject to United States tax on 
income derived from the use of such property. 
"(v) 
QUALIFIED 
MASS 
COMMUTING 
VEHICLES 
INCLUDED.—The 
term 
'qualified 
leased 
property' 
includes recovery property which is a qualified mass 
commuting vehicle (as defined in section 103(bX9)) 
which is financed in whole or in part by obligations the 
interest on which is excludable under section 103(a). 
"(vi) QUALIFIED BASE PROPERTY.—For purposes of this 
subparagraph, the term 'qualified base property' means 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 437 
property placed in service during any calendar year 
which— 
"(I) is new section 38 property of the taxpayer, 
"(II) is safe harbor lease property (not described 
in subclause (I)) with respect to which the taxpayer 
is the lessee, or 
"(III) is designated leased property (other than 
property described in subclause (I) or (II)) with 
respect which the taxpayer is the lessee. 
Any designated leased property taken into account by 
any lessee under the preceding sentence shall not be 
taken into account by the lessor in determining the 
lessor's qualified base property. The lessor shall pro-
vide the lessee with such information with respect to 
the cost basis of such property as is necessary to carry 
out the purposes of this clause. 
"(vii) DEFINITION OF DESIGNATED LEASED PROPERTY.— 
For purposes of this subparagraph, the term 'desig-
nated leased property' means property— 
"(I) which is new section 38 property, 
"(II) which is subject to a lease with respect to 
which the lessor of the property is treated (without 
regard to this paragraph) as the owner of the 
property for Federal tax purposes, 
"(III) with respect to which the term of the lease 
to which such property is subject is more than 50 
percent of the present class life (or, if no present 
class life, the recovery period used in subsection 
(iX2)) of such property, and 
"(IV) which the lessee designates on his return 
as designated leased property, 
"(viii) DEFINITION; SPECIAL RULE.—For purposes of 
this subparagraph— 
"(I) NEW SECTION 38 PROPERTY.—The term 'new 
section 38 property' has the meaning given such 
term by section 48(b). 
"(II) PROPERTY PLACED IN SERVICE.—For purposes 
of this title (other than clause (i)), any property 
described in clause (i) to which subparagraph (A) 
applies shsdl be deemed originally placed in service 
not earlier than the date such property is used 
under the lease." 
(4) DEFINITIONS AND SPECIAL RULES.—Paragraph (8) of section 
168(f) (relating to special rules for leases) is amended by redes- 95 Stat. 204. 
ignating subparagraph (H) as subparagraph (K) and by insert-
ing after subparagraph (G) the following new subparagraphs: 
"(H) DEFINITIONS.—For purposes of this paragraph— 
"(i) RELATED PERSON.—A person is related to another 
person if both persons are members of the same affili-
ated group (within the meaning of subsection (a) of 
section 1504 and determined without regard to subsec-
tion (b) of section 1504). 
"(ii) NONQUALIFIED TAX-EXEMPT ORGANIZATION.— 
"(I) IN GENERAL.—The term 'nonqualified tax-
exempt organization' means, with respect to any 
agreement to which subparagraph (A) applies, any 
organization (or predecessor organization which 
96 STAT. 438 
PUBLIC LAW 97-248—SEPT. 3, 1982 
was engaged in substantially similar activities) 
which was exempt from taxation under this title at 
any time during the 5-year period ending on the 
date such agreement was entered into. 
"(II) SPECIAL RULE FOR FARMERS' COOPERATIVES.— 
The term 'nonqualified tax-exempt organization' 
shall not include any farmers' cooperative organi-
26 use 521. 
zation described in section 521 whether or not 
exempt from taxation under section 521. 
"(Ill) SPECIAL RULE FOR PROPERTY USED IN UNRE-
LATED TRADE O
R BUSINESS.—An Organization shsill 
not be treated as a nonqualified tax-exempt organi-
zation with respect to any property if such prop-
erty is used in an unrelated trade or business 
(within the meaning of section 513) of such organi-
zation which is subject to tax under section 511. 
"(I) TRANSITIONAL RULES FOR CERTAIN TRANSACTIONS.— 
"(i) IN GENERAL.—Except as provided in clause (ii), 
clause (ii) of subparagraph (D) shall not apply to any 
transitional safe harbor lease property (within the 
meaning of section 208(dX3) of the Tax Equity and 
Fiscal Responsibility Act of 1982). 
"(ii) SPECIAL RULES.—For purposes of subparagraph 
(DXii)-
"(I) 
DETERMINATION OF QUALIFIED BASE PROP-
ERTY.—The cost basis of property described in 
clause (i) (and other property placed in service 
during 1982 to which subparagraph (DXii) does not 
apply) shall be taken into account in determining 
the qualified base property of the taxpayer for the 
taxable year in which such property was placed in 
service. 
"(II) REDUCTION IN QUAUFIED LEASED PROPERTY.— 
The cost basis of property which may be treated as 
qualified leased property under 
subparagraph 
(DXii) for the taxable year in which such property 
was placed in service (determined without regard 
to this subparagraph) shall be reduced by the cost 
basis of the property taken into account under 
subclause (I). 
"(J) COORDINATION WITH AT RISK RULES.— 
"(i) IN GENERAL.—For purposes of section 465, in the 
case of property placed in service after the date of the 
enactment of this subparagraph, if^ 
"(I) an activity involves the leasing of section 
1245 property which is safe harbor lease property, 
and 
"(II) the lessee of such property (as determined 
under this paragraph) would, but for this para-
graph, be treated as the owner of such property for 
purposes of this title, 
then the lessor (as so determined) shall be considered to 
be at risk with respect to such property in an amount 
equal to the amount the lessee is considered at risk 
with respect to such property (determined under sec-
tion 465 without regard to this paragraph). 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 439 
"(ii) SUBPARAGRAPH NOT TO APPLY TO CERTAIN SERVICE 
CORPORATIONS.—Clause (i) shall not apply to any lessor 
which is a corporation the principal function of which 
is the performance of services in the field of health, 
law, engineering, architecture, accounting, actuarial 
science, performing arts, athletics, or consulting. 
"(iii) SPECIAL RULE FOR PROPERTY PLACED IN SERVICE 
BEFORE D
A
T
E OF ENACTMENT OF THIS SUBPARAGRAPH.— 
This subparagraph shall apply to property placed in 
service before the date of enactment of this subpara-
graph if the provisions of section 465 did not apply to 
the lessor before such date but become applicable to 
such lessor after such date." 
(c) CERTAIN LEASES BEFORE OCTOBER 20, 1981, TREATED AS QUAU- 
26 USC168 note. 
FiED LEASES.—Nothing in paragraph (8) of section 168(f) of the 
Internal Revenue Code of 1954, or in any regulations prescribed 
Post, p. 442. 
thereunder, shall be treated as making such paragraph inapplicable 
to any agreement entered into before October 20, 1981, solely 
because under such agreement 1 party to such agreement is entitled 
to the credit allowable under section 38 of such Code with respect to 
property and another party to such agreement is entitled to the 
deduction allowable under section 168 of such Code with respect to 
such property. Section 168(f)(8)(BXii) of such Code shall not apply to 
the party entitled to such credit. 
(d) EFFECTIVE DATES.— 
26 use 168 note. 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by subsections (a) and (b) of this 
section shall apply to agreements entered into after July 1, 
1982, or to property placed in service after July 1, 1982. 
(2) 
TRANSITIONAL RULE FOR CERTAIN SAFE HARBOR LEASE 
PROPERTY.— 
(A) IN GENERAL.—The amendments made by subsections 
(a) and (b) shall not apply to transitional safe harbor lease 
property. 
(B) SPECIAL RULE FOR CERTAIN PROVisiONS.^Subpara-
graph (A) shall not apply with respect to the provisions of 
paragraph (6) of section 168(i) of the Internal Revenue Code 
of 1954 (as added by subsection (aXD), to the provisions of 
^"^e. P- 432. 
section 168(f)(8)(J) of such Code (as added by subsection 
Ante, p. 437. 
(b)(4)), or to the amendment made by subsection (b)(1). 
(3) TRANSITIONAL SAFE HARBOR LEASE PROPERTY.—For purposes 
of this subsection, the term "transitional safe harbor lease 
property" means property described in any of the following 
subparagraphs: 
(A) IN GENERAL.—Property is described in this subpara-
graph if such property is placed in service before January 1, 
1983, if— 
(i) with respect to such property a binding contract to 
acquire or to construct such property was entered into 
by the lessee after December 31, 1980, and before 
July 2, 1982, or 
(ii) such property was acquired by the lessee, or 
construction of such property was commenced by or for 
the lessee, after December 31, 1980, and before July 2, 
1982. 
97-200 O—84—pt. 1 
16 : QL3 
96 STAT. 440 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(B) CERTAIN QUALIFIED LESSEES.—Property is described in 
this subparagraph if such property is placed in service 
before July 1, 1982, and with respect to which— 
Post, p. 442. 
(i) an agreement to which section 168(f)(8)(A) of the 
Internal Revenue Code of 1954 applies was entered into 
before August 15, 1982, and 
(ii) the lessee under such agreement is a qualified 
lessee (within the meaning of paragraph (6)). 
(C) MANUFACTURERS OF CERTAIN PRODUCTS.—Property is 
described in this subparagraph if such property— 
(i) is used to produce a class of products (within the 
meaning of paragraph (6)(B)) in an industry described 
in paragraph (6)(A)(ii)(II) (determined without regard to 
the phrase "other than the taxpayer"), and 
(ii) would be described in subparagraph (A) if "Octo-
ber 1" were substituted for "January 1". 
(D) CERTAIN AIRCRAFT.—Property is described in this sub-
paragraph if such property— 
(i) is a commercial passenger aircraft (other than a 
helicopter), and 
(ii) would be described in subparagraph (A) if "Janu-
ary 1, 1984" were substituted for "January 1, 1983". 
For purposes of determining whether property described in 
this subparagraph is described in subparagraph (A), subpar-
agraph (A)(ii) shall be applied by substituting "June 25, 
1981" for "December 31, 1980" and by substituting "Febru-
ary 20, 1982" for "July 2, 1982" and construction of the 
aircraft shall be treated as having been begun during the 
period referred to in subparagraph (A)(ii) if during such 
period construction or reconstruction of a subassembly was 
commenced, or the stub wing join occurred. 
(E) TURBINES AND BOILERS.—Property is described in this 
subparagraph if such property— 
(i) is a turbine or boiler of a cooperative organization 
26 use 1381. 
described in section 1381(a), and 
(ii) would be property described in subparagraph (A) 
if "July 1" were substituted for "January 1". 
For purposes of determining whether property described in 
this subparagraph is described in subparagraph (A), such 
property shall be treated as having been acquired during 
the period referred to in subparagraph (A)(ii) if at least 20 
percent of the cost of such property is paid during such 
period. 
(F) PROPERTY USED IN THE PRODUCTION OF STEEL.—Prop-
erty is described in this subparagraph if such property— 
(i) is used by the taxpayer directly in connection with 
the trade or business of the taxpayer of the manufac-
ture or production of steel, and 
(ii) would be described in subparagraph (A) if "Janu-
ary 1, 1984" were substituted for "January 1, 1983". 
(4) SPECIAL RULE FOR ANTIAVOIDANCE PROVISIONS.—The provi-
sions of paragraph (6) of section 168(i) of such Code (as added by 
Ante, p. 432. 
subsection (a)(1)), and the amendment made by subsection (b)(1), 
shall apply to leases entered into after February 19, 1982, in 
taxable years ending after such date. 
(5) 
SPECIAL 
RULE 
FOR MASS 
COMMUTING 
VEHICLES.—The 
amendments made by this section (other than section 168(i) (1) 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 441 
and (7) of such Code, as added by subsection (a)(1)) and section 
209 shall not apply to qualified leased property described in 
section 168(f)(8)(D)(V) of such Code (as in effect after the amend- Ante, p. 435. 
ments made by this section) which— 
(A) is placed in service before January 1, 1988, or 
(B) is placed in service after such date— 
(i) pursuant to a binding contract or commitment 
entered into before April 1, 1983, and 
(ii) solely because of conditions which, as determined 
by the Secretary of the Treasury or his delegate, are 
not within the control of the lessor or lessee. 
(6) QUALIFIED LESSEE DEFINED.— 
(A) IN GENERAL.—The term "qualified lessee" means a 
taxpayer which is a lessee of an agreement to which section 
168(f)(8)(A) of such Code applies and which— 
Post, p. 442. 
(i) had net operating losses in each of the three most 
recent taxable years ending before July 1, 1982, and 
had an aggregate net operating loss for the five most 
recent taxable years ending before July 1, 1982, and 
(ii) which uses the property subject to the agreement 
to manufacture and produce within the United States a 
class of products in an industry with respect to which— 
(I) the taxpayer produced less than 5 percent of 
the total number of units (or value) of such prod-
ucts during the period covering the three most 
recent taxable years of the taxpayer ending before 
July 1, 1982, and 
(II) four or fewer United States persons (includ-
ing as one person an affiliated group as defined in 
section 1504(a)) other than the taxpayer manufac- 26 USC 1504. 
tured 85 percent or more of the total number of all 
units (or value) within such class of products man-
ufactured and produced in the United States 
during such period. 
(B) CLASS OF PRODUCTS.—For purposes of subparagraph 
(A)-
(i) the term "class of products" means any of the 
categories designated and numbered as a "class of prod-
ucts" in the 1977 Census of Manufacturers compiled 
and published by the Secretary of Commerce under 
title 13 of the United States Code, and 
(ii) information— 
(I) compiled or published by the Secretary of 
Commerce, as part of or in connection with the 
Statistical Abstract of the United States or the 
Census of Manufacturers, regarding the number of 
units (or value) of a class of products manufactured 
and produced in the United States during any 
period, or 
(II) if information under subclause (I) is not 
available, so compiled or published with respect to 
the number of such units shipped or sold by such 
manufacturers during any period, 
shall constitute prima facie evidence of the total 
number of all units of such class of products manufac-
tured and produced in the United States in such period. 
96 STAT. 442 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(6) UNDERPAYMENTS OF TAX FOR 1982.—No addition to the tax 
shall be made under section 6655 of the Internal Revenue Code 
26 use 6655. 
of 1954 (relating to failure by corporation to pay estimated 
income tax) for any period before October 15, 1982, with respect 
to any underpayment of estimated tax by a taxpayer with 
respect to any tax imposed by chapter 1 of such Code, to the 
extent that such underpayment was created or increased by any 
provision of this section. 
SEC. 209. REPEAL OF LEASING; SPECIAL RULE FOR LEASES WITH 
ECONOMIC SUBSTANCE. 
(a) SPECIAL RULE FOR LEASES WITH ECONOMIC SUBSTANCE.—Para-
95 Stat. 204. 
graph (8) of section 168(f) (relating to special rules for leasing) is 
amended to read as follows: 
"(8) SPECIAL RULES FOR FINANCE LEASES.— 
"(A) IN GENERAL.—For purposes of this title, except as 
provided in subsection (i), in the case of any agreement with 
respect to any finance lease property, the fact that— 
"(i) a lessee has the right to purchsise the property at 
a fixed price which is not less than 10 percent of the 
original cost of the property to the lessor, or 
(ii) the property is of a type not readily usable by 
any person other than the lessee, 
shall not be taken into account in determining whether 
such agreement is a lease. 
"(B) FINANCE LEASE PROPERTY DEFINED.—For purposes of 
this section— 
"(i) IN GENERAL.—The term 'finance lease property' 
means recovery property which is subject to an agree-
ment which meets the requirements of subparagraph 
(C) and— 
"(I) which is new section 38 property of the 
lessor, which is leased within 3 months after such 
property was placed in service, and which, if 
acquired by the lessee, would have been new sec-
tion 38 property of the lessee, or 
"(II) which was new section 38 property of the 
lessee, which is leased within 3 months after such 
property is placed in service by the lessee, and with 
respect to which the adjusted basis of the lessor 
does not exceed the adjusted basis of the lessee at 
the time of the lease. 
"(ii) ONLY 40 PERCENT OF THE LESSEE'S PROPERTY MAY 
BE TREATED AS QUALIFIED.—The cost basis of all finance 
lease property (determined without regard to this 
clause)— 
"(I) which is placed in service during any calen-
dar year beginning before January 1, 1986, and 
"(II) with respect to which the taxpayer is a 
lessee, 
shall not exceed an amount equal to 40 percent of the 
cost basis of the taxpayer's qualified base property 
placed in service during such calendar year. 
"(iii) ALLOCATION OF DISQUAUFIED BASIS.—The cost 
basis not treated as finance lease property under clause 
(ii) shall be allocated to finance lease property for such 
calendar year (determined without regard to clause (ii)) 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 443 
in reverse order to when the agreement described in 
subparagraph (A) with respect to such property was 
entered into. 
"(iv) CERTAIN PROPERTY MAY NOT BE TREATED AS 
FINANCE LEASE PROPERTY.—The term 'finance lease 
property' shall not include recovery property— 
"(I) which is a qualified rehabilitated building 
(within the meaning of section 48(gXl)), 
26 USC 48. 
"(11) which is public utility property (within the 
meaning of section 167(1X3XA)), 
"(III) which is property with respect to which a 
deduction is allowable by reason of section 291(b), -^"fe, p. 423. 
"(IV) with respect to which the lessee of the 
property under the agreement described in subpar-
agraph (A) is a nonqualified tax-exempt organiza-
tion, or 
"(V) property with respect to which the user of 
such property is a person (other than a United 
States person) not subject to United States tax on 
income derived from the use of such property. 
"(v) QUALIFIED BASE PROPERTY.—For purposes of this 
subparagraph, the term 'qualified base property' means 
property placed in service during any calendar year 
which— 
"(I) is new section 38 property of the taxpayer, 
"(II) is finance lease property (not described in 
subclause (I)) with respect to which the taxpayer is 
the lessee, or 
"(III) is designated leased property (other than 
property described in subclause (I) or (ID) with 
respect to which the taxpayer is the lessee. 
Any designated leased property taken into account by 
any lessee under the preceding sentence shall not be 
taken into account by the lessor in determining the 
lessor's qualified base property. The lessor shall pro-
vide the lessee with such information with respect to 
the cost basis of such property as is necessary to carry 
out the purposes of this clause. 
"(vi) DEFINITION OF DESIGNATED LEASED PROPERTY.— 
For purposes of this subparagraph, the term 'desig-
nated leased property' means property— 
"(I) which is new section 38 property, 
"(II) which is subject to a lease with respect to 
which the lessor of the property is treated (without 
regard to this paragraph) as the owner of the 
property for Federal tax purposes, 
"(III) with respect to which the term of the lease 
to which such property is subject is more than 50 
percent of the present class life (or, if no present 
class life, the recovery period under subsection (a)) 
of such property, and 
"(XV) which the lessee designates on his return 
as designated leased property, 
"(vii) DEFINITION; SPECIAL RULES.—For purposes of 
this subparagraph— 
96 STAT. 444 
PUBLIC LAW 97-248—SEPT. 3, 1982 
26 u s e 2032A. 
"(I) 
NEW SECTION 38 PROPERTY DEFINED,—The 
term 'new section 38 property' has the meaning 
given such term by section 4803). 
"(II) LESSEE LIMITATION NOT TO APPLY TO CERTAIN 
FARM PROPERTY.—Clause (ii) shall not apply to any 
property which is used for farming purposes 
(within the meaning of section 2032A(eX5)) and 
which is placed in service during the calendar year 
but only if the cost basis of such property, when 
added to the cost basis of other finance lease prop-
erty used for such purpose does not exceed $150,000 
(determined under rules similar to the rules of 
section 209(d)(1)(B) of the Tax Equity and Fiscal 
Responsibility Act of 1982). 
"(Ill) PROPERTY PLACED IN SERVICE.—For pur-
poses of this title (other than clause (i), any finance 
lease property shall be deemed originally placed in 
service not earlier than the date such property is 
used under the lease. 
"(C) AGREEMENTS MUST MEET CERTAIN REQUIREMENTS.— 
The requirements of this subparagraph are met with 
respect to any agreement if— 
"(i) LESSOR REQUIREMENT.—Any lessor under the 
agreement must be— 
"(I) a corporation (other than an electing small 
business corporation within the meaning of section 
1371(b) or a personal holding company within the 
meaning of section 542(a)), 
"(II) a partnership all of the partners of which 
are corporations described in subclause (I), or 
"(III) a grantor trust with respect to which the 
grantor and all the beneficiaries of the trust are 
described in subclause (I) or (II). 
"(ii) CHARACTERIZATION OF AGREEMENT.—The parties 
to the agreement characterize such agreement as a 
lease. 
"(iii) AGREEMENT CONTAINS CERTAIN PROVISIONS.— 
The agreement contains the provision described in 
clause (i) or (ii) of subparagraph (A), or both. 
"(iv) AGREEMENT OTHERWISE LEASE, ETC.—For pur-
poses of this title (determined without regard to the 
provisions described in clause (iii)), the agreement 
would be treated as a lease and the lessor under 
the agreement would be treated as the owner of the 
property. 
"(D) PARAGRAPH NOT TO APPLY TO AGREEMENTS BETWEEN 
RELATED PERSONS.—This paragraph shall not apply to any 
agreement if the lessor and lessee are both persons who are 
members of the same affiliated group (within the meaning 
of subsection (a) of section 1504 and determined without 
regard to subsection (b) of section 1504). 
'(E) NONQUAUFIED TAX-EXEMPT ORGANIZATION.— 
"(i) IN GENERAL.—The term 'nonqualified tax-exempt 
organization' means, with respect to any agreement to 
which subparagraph (A) applies, any organization (or 
predecessor organization which was engaged in sub-
stantially similar activities) which was exempt from 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 445 
taxation under this title at any time during the 5-year 
period ending on the date such agreement was entered 
into. 
"(ii) SPECIAL RULE FOR FARMERS' COOPERATIVES.—The 
term 'nonqualified tax-exempt organization' shall not 
include any farmers' cooperative organization which is 
described in section 521 whether or not exempt from 
26 USC 521. 
taxation under section 521. 
"(iii) SPECIAL RULE FOR PROPERTY USED IN UNRELATED 
TRADE OR BUSINESS.—An organization shall not be 
treated as a nonqualified tax-exempt organization with 
respect to any property if such property is used in an 
unrelated trade or business (within the meaning of 
section 513) of such organization which is subject to 
taxation under section 511. 
"(F) CROSS REFERENCE.— 
"For special recapture in case where lessee acquires financed recovery 
property, see section 1245." 
(b) SPECIAL LIMITATIONS ON FINANCE LEASE PROPERTY.—Subsec-
tion (i) of section 168 (relating to limitations and additional require- ^"^e> P- 432. 
ments with respect to leases) is amended to read as follows: 
"(i) 
LIMITATIONS 
RELATING TO LEASES OF FINANCE 
LEASE 
PROPERTY.—For purposes of this subtitle, in the case of finance lease 
property, the following limitations shall apply: 
"(1) LESSOR MAY NOT REDUCE TAX UABIUTY BY MORE THAN 50 
PERCENT.— 
"(A) IN GENERAL.—The aggregate amount allowable as 
deductions or credits for any taxable year which are alloca-
ble to all finance lease property with respect to which the 
taxpayer is the lessor may not reduce the liability for tax of 
the taxpayer for such taxable year (determined without 
regard to finance lease items) by more than 50 percent of 
such liability. 
"(B) CARRYOVER OF AMOUNTS NOT ALLOWABLE AS DEDUC-
TIONS O
R CREDITS.—Any amount not allowable as a deduc-
tion or credit under subparagraph (A)— 
"(i) may be carried over to any subsequent taxable 
year, and 
"(ii) shall be treated as a deduction or credit allocable 
to finance lease property in such subsequent taxable 
year. 
"(C) ALLOCATION AMONG DEDUCTIONS AND CREDITS.—The 
Secretary shall prescribe regulations for determining the 
amount— 
"(i) of any deduction or credit allocable to finance 
lease property for any taxable year to which subpara-
graph (A) applies, and 
"(ii) of any carryover of any such deduction or credit 
under subparagraph (B) to any subsequent taxable 
year. 
"(D) LIABILITY FOR TAX AND FINANCE LEASE ITEMS 
DEFINED.—For purposes of this paragraph— 
"(i) LIABILITY FOR TAX DEFINED.—Except as provided 
in this subparagraph, the term 'liability for tax' means 
the tax imposed by this chapter, reduced by the sum of 
96 STAT. 446 
PUBLIC LAW 97-248—SEPT. 3, 1982 
the credits allowable under subpart A of part IV of 
subchapter A of this chapter. 
"(ii) 
FINANCE 
LEASE 
ITEMS 
DEFINED.—The 
term 
'finance lease items' means any of the following items 
which are properly allocable to finance lease property 
with respect to which the taxpayer is the lessor: 
"(I) Any deduction or credit allowable under this 
chapter. 
"(II) Any rental income received by the taxpayer 
from any lessee of such property. 
"(iii) CERTAIN TAXES NOT INCLUDED.—The term 'tax 
imposed by this chapter' shall not include any tax 
treated as not imposed by this chapter under the last 
26 use 53. 
sentence of section 53(a) (other than the tax imposed by 
section 56). 
"(E) CERTAIN SAFE HARBOR LEASE PROPERTY TAKEN INTO 
ACCOUNT.—Under regulations prescribed by the Secretary, 
deductions and credits and safe harbor lease items which 
are allocable to safe harbor lease property to which this 
paragraph (as in effect for taxable years beginning in 1983) 
applies shall be taken into account for purposes of applying 
this paragraph. 
"(2) INVESTMENT CREDIT ALLOWED ONLY OVER 5-YEAR PERIOD.— 
In the case of any credit which would otherwise be allowable 
under section 38 with respect to any finance lease property for 
any taxable year (determined without regard to this paragraph), 
only 20 percent of the amount of such credit shall be allowable 
in such taxable year and 20 percent of such amount shall be 
allowable in each of the succeeding 4 taxable years. 
"(3) COMPUTATION OF TAXABLE INCOME OF LESSEE FOR PURPOSES 
OF PERCENTAGE DEPLETION.— 
"(A) I N GENERAL.—For purposes of section 613 or 613A, 
the taxable income of any taxpayer who is a lessee of any 
financed recovery property shall be computed as if the 
taxpayer was the owner of such property, except that the 
amount of the deduction under subsection (a) of this section 
shall be determined after application of paragraph (2) of 
this subsection. 
"(B) COORDINATION WITH 
CRUDE OIL WINDFALL PROFIT 
TAX.—Section 4988(b)(3)(A) shall be applied without regard 
to subparagraph (A). 
"(4) LIMITATIONS.— 
"(A) TERMINATION OF CERTAIN PROVISIONS.— 
"(i) PARAGRAPH (i).—Paragraph (1) shall not apply 
to property placed in service after September 30, 1985, 
in taxable years beginning after such date. 
"(ii) PARAGRAPH (2).—Paragraph (2) shall not apply 
to property placed in service after September 30, 1985. 
"(B) CERTAIN FARM PROPERTY.—This subsection shall not 
apply to property which is used for farming 
purposes 
(within the meaning of section 2032A(e)(5)) and which is 
placed in service during the taxable year but only if the cost 
basis of such property, when added to the cost basis of other 
finance lease property used for such purpose, does not 
exceed $150,000 (determined under rules similar to the 
Ante, p. 442. 
rules of section 209(d)(1)(B) of the Tax Equity and Fiscal 
Responsibility Act of 1982)." 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 447 
(c) DEFINITION OF NEW SECTION 38 PROPERTY.—Subsection (b) of 
section 48 (defining new section 38 property) is amended by adding 
26 USC 48. 
at the end thereof the following new sentence: "For purposes of 
determining whether section 38 property subject to a lease is new 
section 38 property, such property shall be treated as originally 
placed in service not earlier than the date such property is used 
under the lease but only if such property is leased within 3 months 
after such property is placed in service." 
(d) EFFECTIVE DATES.— 
26 USC 168 note. 
(1) SUBSECTION (a).— 
(A) IN GENERAL.—Except as provided in subparagraph (B) 
and paragraph (2), the amendments made by this section 
shall apply to agreements entered into after December 31, 
1983. 
(B) 
SPECIAL RULE FOR FARM PROPERTY AGGREGATING 
$150,000 OR LESS.— 
(i) IN GENERAL.—The amendments made by subsec-
tion (a) shall also apply to any agreement entered into 
after July 1, 1982, and before January 1, 1984, if the 
property subject to such agreement is section 38 
property which is used for farming purposes (within 
the meaning of section 2032A(e)(5)). 
(ii) $150,000 UMiTATiON.—The provisions of clause (i) 
shall not apply to any agreement if the sum o
f
— 
(I) the cost basis of the property subject to the 
agreement, plus 
(II) the cost basis of any property subject to an 
agreement to which this subparagraph previously 
applied, which was entered into during the same 
calendar year, and with respect to which the lessee 
was the lessee of the agreement described in sub-
clause (I) (or any related person within the mean-
ing of section 168(eX4)(D)), 
exceeds $150,000. For purposes of subclause (II), in the 
case of an individual, there shall not be taken into 
account any agreement of any individual who is a 
related person involving property which is used in a 
trade or business of farming of such related person 
which is separate from the trade or business of farming 
of the lessee described in subclause (II). 
(2) 
SPECIAL 
RULE FOR DEFINITION OF NEW SECTION 
38 
PROPERTY.—The amendment made by subsection (c) shall apply 
to property placed in service after December 31,1983. 
SEC. 210. MOTOR VEHICLE OPERATING LEASES. 
26 USC 168 note. 
(a) IN GENERAL.—In the case of any qualified motor vehicle agree-
ment, the fact that such agreement contains a terminal rental 
adjustment clause shall not be taken into account in determining 
whether such agreement is a lease. 
(b) DEFINITIONS.—For purposes of this section— 
(1) QUALIFIED MOTOR VEHICLE AGREEMENT.—The term "quali-
fied motor vehicle agreement" means any agreement with 
respect to a motor vehicle (including a trailer)— 
(A) which was entered into before— 
(i) the enactment of any law, or 
(ii) the publication by the Secretary of the Treasury 
or his delegate of any regulation. 
96 STAT. 448 
PUBLIC LAW 97-248—SEPT. 3, 1982 
which provides that any agreement with a terminal rental 
adjustment clause is not a lease, 
(B) with respect to which the lessor under the agree-
ment— 
(i) is personally liable for the repayment of, or 
(ii) has pledged property (but only to the extent of the 
net fair market value of the lessor's interest in such 
property), other than property subject to the agreement 
or property directly or indirectly financed by indebted-
ness secured by property subject to the agreement, as 
security for, 
all amounts borrowed to finance the acquisition of property 
subject to the agreement, and 
(C) with respect to which the lessee under the agreement 
uses the property subject to the agreement in a trade or 
business or for the production of income. 
(2) TERMINAL RENTAL ADJUSTMENT CLAUSE.—The term "termi-
nal rental adjustment clause" means a provision of an agree-
ment which permits or requires the rental price to be adjusted 
upward or downward by reference to the amount realized by the 
lessor under the agreement upon sale or other disposition of 
such property. 
PART III—FOREIGN TAX 
SEC. 211. FOREIGN TAX CREDIT FOR TAXES ON OIL AND GAS INCOME. 
(a) AMENDMENT OF SECTION 907(CX4) TO RECAPTURE FOREIGN OIL 
AND GAS EXTRACTION LOSSES BY RECHARACTERIZING LATER EXTRAC-
26 use 907. 
TiON INCOME.—Paragraph (4) of section 907(c) (relating to certain 
losses) is amended to read as follows: 
"(4) RECAPTURE OF FOREIGN OIL AND GAS EXTRACTION LOSSES BY 
RECHARACTERIZING LATER EXTRACTION INCOME.— 
"(A) IN GENERAL.—That portion of the income of the 
taxpayer for the taxable year which (but for this paragraph) 
would be treated as foreign oil and gas extraction income 
shall be treated as income (from sources without the United 
States) which is not foreign oil and gas extraction income to 
the extent of the excess of— 
"(i) the aggregate amount of foreign oil extraction 
losses for preceding taxable years beginning after 
December 31,1982, over 
"(ii) so much of such aggregate amount as was 
recharacterized under this subparagraph for preceding 
taxable years beginning after December 31,1982. 
"(B) FOREIGN OIL EXTRACTION LOSS DEFINED.— 
"(i) IN GENERAL.—For purposes of this paragraph, the 
term 'foreign oil extraction loss' means the amount by 
which— 
"(I) the gross income for the taxable year from 
sources without the United States and its posses-
sions (whether or not the taxpayer chooses the 
benefits of this subpart for such taxable year) 
taken into account in determining the foreign oil 
and gas extraction income for such year, is 
exceeded by 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 449 
"(II) the sum of the deductions properly appor-
tioned or allocated thereto. 
"(ii) NET OPERATING LOSS DEDUCTION NOT TAKEN INTO 
ACCOUNT.—For purposes of clause (i), the net operating 
loss deduction allowable for the taxable year under 
section 172(a) shall not be taken into account. 
26 USC 172. 
"(iii) EXPROPRIATION AND CASUALTY LOSSES NOT TAKEN 
INTO ACCOUNT.—For purposes of clause (i), there shall 
not be taken into account— 
"(I) any foreign expropriation loss (as defined in 
section 172(h)) for the taxable year, or 
"(II) any loss for the taxable 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." 
(b) EXTRACTION INCOME REMOVED FROM FOREIGN OIL RELATED 
INCOME.—Paragraph (2) of section 907(c) (defining foreign oil related 
26 USC 907. 
income) is amended to read as follows: 
"(2) FOREIGN OIL RELATED INCOME.—The term 'foreign oil 
related income' means the taxable income derived from sources 
outside the United States and its possessions from— 
"(A) the processing of minerals extracted (by the tax-
payer or by any other person) from oil or gas wells into 
their primary products, 
"(B) the transportation of such minerals or primary 
products, 
"(C) the distribution or sale of such minerals or primary 
products, 
"(D) the disposition of assets used by the taxpayer in the 
trade or business described in subparagraph (A), (B), or (C), 
or 
"(E) the performance of any other related service." 
(c) REPEAL OF SEPARATE APPLICATION OF SECTION 904 TO FOREIGN 
OIL RELATED INCOME; AMOUNTS TREATED AS FOREIGN TAXES ON SUCH 
INCOME.— 
(1) IN GENERAL.—Subsection (b) of section 907 (relating to 
special rules in case of foreign oil and gas income) is amended to 
read as follows: 
"(b) FOREIGN TAXES ON FOREIGN OIL RELATED INCOME.—For pur-
poses of this subtitle, in the csise of taxes paid or accrued to any 
foreign country with respect to foreign oil related income, the term 
'income, war profits, and excess profits taxes' shall not include any 
amount paid or accrued after December 31, 1982, to the extent that 
the Secretary determines that the foreign law imposing such 
amount of tax is structured, or in fact operates, so that the amount 
of tax imposed with respect to foreign oil related income will 
generally be materially greater, over a reasonable period of time, 
than the amount generally imposed on income that is neither 
foreign oil related income nor foreign oil and gas extraction income. 
In computing the amount not treated as tax under this subsection, 
such amount shall be treated as a deduction under the foreign law." 
(2) REPEAL OF SEPARATE TREATMENT OF FOREIGN OIL RELATED 
LOSS.—Subsection (f) of section 904 (relating to recapture of 26 USC 904. 
overall foreign loss) is amended by striking out paragraph (4) 
and redesignating paragraphs (5) and (6) as paragraphs (4) and 
(5), respectively. 
96 STAT. 450 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(d) CARRYBACK AND CARRYOVER OF DISALLOWED CREDITS; TRANSI-
TIONAL RULES.— 
26 use 907. 
(1) TRANSITIONAL RULES.—Subsection (e) of section 907 (relat-
ing to transitional rules) is amended to read as follows: 
"(e) TRANSITIONAL RULES.— 
"(1) CREDITS ARISING IN TAXABLE YEARS BEGINNING BEFORE 
JANUARY 1, 1983.—The amount of taxes paid or accrued in any 
taxable year beginning before January 1, 1983 (hereinafter in 
this paragraph referred to as the 'excess credit year') which 
under section 904(c) or 907(f) may be deemed paid or accrued in 
a taxable year beginning after December 31, 1982, shall not 
exceed the amount which could have been deemed paid or 
accrued if sections 907(b), 907(f), and 904(f)(4) (as in effect on the 
day before the date of the enactment of the Tax Equity and 
Ante, p. 324. 
Fiscal Responsibility Act of 1982) remained in effect for taxable 
years beginning after December 31,1982. 
"(2) CARRYBACK OF CREDITS ARISING IN TAXABLE YEARS BEGIN-
NING AFTER D
E
C
E
M
B
E
R 31, 1982.—The amount of the taxes paid 
or accrued in a taxable year beginning after December 31, 1982, 
which may be deemed paid or accrued under section 904(c) or 
907(f) in a taxable year beginning before January 1, 1983, shall 
not exceed the amount which could have been deemed paid or 
accrued if sections 907(b), 907(f), and 904(f)(4) (as in effect on the 
day before the date of the enactment of the Tax Equity and 
Fiscal Responsibility Act of 1982) remained in effect for taxable 
years beginning after December 31, 1982." 
(2) R E P E A L OF 2-PERCENT LIMITATION O N CARRYBACK A N D CAR-
RYOVER OF DISALLOWED EXTRACTION TAXES.— 
(A) IN GENERAL.—Paragraph (1) of section 907(f) (relating 
to carryback and carryover of disallowed credits) is 
amended— 
(i) by striking out "so much of such excess as does not 
exceed 2 percent of foreign oil and gas extraction 
income for such taxable year" and inserting in lieu 
thereof "such excess", 
(ii) by striking out the last sentence. 
(B) TECHNICAL AMENDMENTS.— 
(i) Subparagraph (B) of section 907(f)(2) is amended— 
(I) by striking out "on taxes paid or accrued with 
respect to foreign oil related income", and 
(II) by striking out "with respect to such income" 
in clause (i). 
(ii) Subparagraph (A) of section 907(f)(3) is amended 
by striking out "with respect to oil-related income". 
(iii) Subparagraph (B) of section 907(f)(3) is amended 
by striking out "oil-related". 
26 u s e 907 note. 
(e) EFFECTIVE D A T E . — 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to taxable years 
beginning after December 31, 1982. 
(2) RETENTION OF OLD SECTIONS 907(b) AND 904(f) (4) WHERE 
TAXPAYER HAD FOREIGN LOSS FROM AN ACTIVITY NOT RELATED TO 
OIL AND GAS.—If, after applying old sections 907(b) and 904(f)(4) 
to a taxable year beginning before January 1, 1983, the tax-
payer had a foreign loss attributable to activities not taken into 
account in determining foreign oil related income (as defined in 
old section 907(c)(2)), such loss shall not be recaptured from 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 451 
foreign oil related income more rapidly than ratably over the 
8-year period beginning with the first taxable year beginning 
after December 31, 1982. For purposes of the preceding sen-
tence, an "old" section is such section as in effect on the day 
before the date of the enactment of this Act. 
SEC. 2
1
2
. 
CURRENT 
TAXATION 
OF 
FOREIGN 
OIL 
RELATED INCOME 
OF 
CONTROLLED 
FOREIGN 
CORPORATIONS. 
(a) FOREIGN OIL RELATED INCOME ADDED TO CURRENTLY TAXED 
AMOUNTS.—Subsection (a) of section 954 (defining foreign base com- 26 USC 954. 
pany income) is amended by adding at the end thereof the following 
new paragraph: 
"(5) the foreign bsise company oil related income for the 
taxable year (determined under subsection (h) and reduced as 
provided in subsection (b)(5))." 
(b) SPECIAL RULES.— 
(1) 
ALLOWANCE OF DEDUCTIONS 
AGAINST 
FOREIGN 
BASE 
C
O
M
P
A
N
Y OIL RELATED INCOME.—Paragraph (5) of section 954(b) 
is amended by striking out "and the foreign base company 
shipping income" and inserting in lieu thereof ", the foreign 
base company shipping income, and the foreign base company 
oil related income'. 
(2) PREEMPTION OF FOREIGN BASE COMPANY OIL RELATED 
INCOME.—Subsection (b) of section 954 is amended by adding at 
the end thereof the following new paragraph: 
"(8) FOREIGN BASE COMPANY OIL RELATED INCOME NOT TREATED 
AS ANOTHER KIND OF B
A
S
E COMPANY INCOME.—Income of a Corpo-
ration which is foreign base company oil related income shall 
not be considered foreign base company income of such corpora-
tion under paragraph (1), (2), or (3) of subsection (a)." 
(c) DEFINITION OF FOREIGN BASE COMPANY OIL RELATED INCOME.— 
Section 954 (relating to foreign base company income) is amended by 
adding at the end thereof the following new subsection: 
"(h) FOREIGN BASE COMPANY OIL RELATED INCOME.—For purposes 
of this section— 
"(1) IN GENERAL.—Except as otherwise provided in this sub-
section, the term 'foreign base company oil related income' 
means foreign oil related income (within the meaning of section 
907(c)(2)) other than income derived from a source within a 
foreign country in connection with— 
"(A) oil or gas which was extracted from an oil or gas well 
located in such foreign country, or 
"(B) oil, gas, or a primary product of oil or gas which is 
sold by the foreign corporation or a related person for use 
or consumption within such country or is loaded in such 
country on a vessel or aircraft as fuel for such vessel or 
aircraft. 
"(2) PARAGRAPH (i) APPLIES ONLY WHERE CORPORATION HAS 
PRODUCED 1,000 BARRELS PER DAY OR MORE.— 
"(A) IN GENERAL.—The term 'foreign base company oil 
related income' shall not include any income of a foreign 
corporation if such corporation is not a large oil producer 
for the taxable year. 
"(B) LARGE OIL PRODUCER.—For purposes of subparagraph 
(A), the term 'large oil producer' means any corporation if, 
for the taxable year or for the preceding taxable year, the 
average daily production of foreign crude oil and natural 
96 STAT. 452 
PUBLIC LAW 97-248—SEPT. 3, 1982 
gas of the related group which includes such corporation 
equaled or exceeded 1,000 barrels. 
"(C) RELATED GROUP.—The term 'related group' means a 
group consisting of the foreign corporation and any 
other person who is a related person with respect to such 
corporation. 
"(D) AVERAGE DAILY PRODUCTION OF FOREIGN CRUDE OIL 
AND NATURAL GAS.—For purposes of this paragraph, the 
average daily production of foreign crude oil or natural gas 
of any related group for any taxable year (and the conver-
sion of cubic feet of natural gas into barrels) shall be 
determined under rules similar to the rules of section 613A 
except that only crude oil or natural gas from a well located 
outside the United States shall be taken into account." 
(d) EXCEPTION FROM FOREIGN BASE COMPANY INCOME FOR CERTAIN 
FOREIGN CORPORATIONS NOT TO APPLY.—Paragraph (4) of section 
26 use 954. 
954(b) is amended by adding at the end thereof the following new 
sentence: "The preceding sentence shall not apply to foreign base 
company oil related income described in subsection (aX5)." 
(e) CONFORMING AMENDMENTS.—Subsection (a) of section 954 is 
amended by striking out "and" at the end of paragraph (3), and by 
striking out the period at the end of paragraph (4) and inserting in 
lieu thereof, and". 
26 use 954 note. 
(f) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after 
December 31, 1982, and to taxable years of United States sharehold-
ers in which, or with which, such taxable years of foreign corpora-
tions end. 
SEC. 213. POSSESSION TAX CREDIT; INCOME TAX LIABILITY INCURRED TO 
THE VIRGIN ISLANDS. 
(a) POSSESSION TAX CREDIT.— 
(1) ACTIVE TRADE OR BUSINESS REQUIREMENT.—Paragraph (2) of 
26 use 936. 
section 936(a) (relating to conditions which must be satisfied) is 
amended— 
(A) by striking out "50 percent" in subparagraph (B) and 
inserting in lieu thereof "65 percent", and 
(B) by adding at the end thereof the following new sub-
paragraph: 
"(C) TRANSITIONAL RULE.—In applying subparagraph (B) 
with respect to taxable years beginning after December 31, 
1982, and before January 1, 1985, the following percentage 
shall be substituted for "65 percent": 
"For taxable years begin-
ning in calendar year: 
The percentage tax is: 
1983 
55 
1984 
60". 
(2) INCOME ATTRIBUTABLE TO CERTAIN INTANGIBLE PROPERTY.— 
Section 936 (relating to Puerto Rico and possession tax credit) is 
amended by adding at the end thereof the following new sub-
section: 
"(h) TAX TREATMENT OF INTANGIBLE PROPERTY INCOME.— 
"(1) IN GENERAL.— 
"(A) INCOME ATTRIBUTABLE TO SHAREHOLDERS.—The intan-
gible property income of a corporation electing the applica-
tion of this section for any taxable year shall be included on 
a pro rata basis in the gross income of all shareholders of 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 453 
such electing corporation at the close of the taxable year of 
such electing corporation as income from sources within the 
United States for the taxable year of such shareholder in 
which or with which the taxable year of such electing 
corporation ends. 
"(B) EXCLUSION FROM THE INCOME OF AN ELECTING CORPO-
RATION.—Any intangible property income of a corporation 
electing the application of this section which is included in 
the gross income of a shareholder of such corporation by 
reason of subparagraph (A) shall be excluded from the gross 
income of such corporation. 
"(2) 
FOREIGN SHAREHOLDERS; SHAREHOLDERS NOT SUBJECT TO 
TAX.— 
"(A) IN GENERAL.—Paragraph (1)(A) shall not apply with 
respect to any shareholder— 
"(i) who is not a United States person, or 
"(ii) who is not subject to tax under this title on 
intangible property income which would be allocated to 
such shareholder (but for this subparagraph). 
"(B) TREATMENT OF NONALLOCATED INTANGIBLE PROPERTY 
INCOME.—For purposes of this subtitle, intangible property 
income of a corporation electing the application of this 
section which is not included in the gross income of a 
shareholder of such corporation by reason of subparagraph 
(A)-
"(i) shall be treated as income from sources within 
the United States, and 
"(ii) shall not be taken into account under subsection 
(a)(2). 
"(3) INTANGIBLE PROPERTY INCOME.—For purposes of this sub-
section— 
"(A) IN GENERAL.—The term 'intangible property income' 
means the gross income of a corporation attributable to any 
intangible property other than intangible property which 
has been licensed to such corporation since prior to 1948 
and is in use by such corporation on the date of the 
enactment of this subparagraph. 
"(B) INTANGIBLE PROPERTY.—The term 'intangible prop-
erty' means any— 
"(i) patent, invention, formula, process, design, pat-
tern, or know-how; 
"(ii) 
copyright, 
literary, 
musical, 
or 
artistic 
composition; 
"(iii) trademark, trade name, or brand name; 
"(iv) franchise, license, or contract; 
"(v) method, program, system, procedure, campaign, 
survey, study, forecast, estimate, customer list, or tech-
nical data; or 
"(vi) any similar item, 
which has substantial value independent of the services of 
any individual. 
"(C) EXCLUSION OF REASONABLE PROFIT.—The term 'intan-
gible property income' shall not include any portion of the 
income from the sale, exchange or other disposition of any 
product, or from the rendering of services, by a corporation 
electing the application of this section which is determined 
by the Secretary to be a reasonable profit on the direct and 
96 STAT. 454 
PUBLIC LAW 97-248—SEPT. 3, 1982 
indirect costs incurred by such electing corporation which 
are attributable to such income. 
"(D) RELATED PERSON.— 
"(i) IN GENERAL.—A person (hereinafter referred to 
as the 'related person') is related to any person i
f
— 
"(I) the related person bears a relationship to 
26 use 267. 
such person specified in section 267(b) or section 
707(bXl), or 
"(II) the related person and such person are 
members 
of 
the 
same 
controlled 
group 
of 
corporations, 
"(ii) SPECIAL RULES.—For purposes of clause (i)— 
"(I) section 267(b) and section 707(b)(1) shall be 
applied by substituting '10 percent' for '50 percent', 
and 
"(II) section 267(b)(3) shall be applied without 
regard to whether a person was a personal holding 
company or a foreign personal holding company, 
"(E) CONTROLLED GROUP OF CORPORATIONS.—The term 
'controlled group of corporations' has the meaning given to 
such term by section 1563(a), except that— 
"(i) 'more than 10 percent' shall be substituted for 'at 
least 80 percent' and 'more than 50 percent' each place 
either appears in section 1563(a), and 
"(ii) the determination shall be made without regard 
to subsections (a)(4), (b)(2), and (e)(3)(C) of section 1563. 
"(4) DISTRIBUTIONS TO MEET QUALIFICATION REQUIREMENTS.— 
"(A) IN GENERAL.—If the Secretary determines that a 
corporation does not satisfy a condition specified in subpar-
agraph (A) or (B) of subsection (a)(2) for any taxable year by 
reason of the exclusion from gross income under paragraph 
(1)(B), such corporation shall nevertheless be treated as 
satisfying such condition for such year if it makes a pro 
rata distribution of property after the close of such taxable 
year to its shareholders (designated at the time of such 
distribution as a distribution to meet qualification require-
ments) with respect to their stock in an amount which is 
, 
equal to— 
"(i) if the condition of subsection (aX2XA) is not satis-
fied, that portion of the gross income for the period 
described in subsection (aX2XA)— 
"(I) which was not derived from sources within a 
possession, and 
"(II) which exceeds the amount of such income 
\ 
for such period which would enable such corpora-
tion to satisfy the condition of subsection (aX2XA), 
"(ii) if the condition of subsection (aX2XB) is not 
^ 
satisfied, that portion of the gross income for such 
period— 
"(I) which was not derived from the active con-
duct of a trade or business within a possession, and 
"(II) which exceeds the amount of such income 
for such period which would enable such corpora-
tion to satisfy the conditions of subsection (aX2XB), 
or 
"(iii) if neither of such conditions is satisfied, that 
portion of the gross income which exceeds the amount 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 455 
of gross income for such period which would enable 
such corporation to satisfy the conditions of subpara-
graphs (A) and (B) of subsection (a)(2). 
"(B) EFFECTIVELY CONNECTED INCOME.—In the case of a 
shareholder who is a nonresident alien individual or a 
foreign corporation, trust, or estate, any distribution 
described in subparagraph (A) shall be treated as income 
which is effectively connected with the conduct of a trade or 
business conducted through a permanent establishment of 
such shareholder within the United States. 
"(C) DISTRIBUTION DENIED IN CASE OF FRAUD OR WILLFUL 
NEGLECT.—Subparagraph (A) shall not apply to a corpora-
tion if the determination of the Secretary described in 
subparagraph (A) contains a finding that the failure of such 
corporation to satisfy the conditions in subsection (a)(2) was 
due in whole or in part to fraud with intent to evade tax or 
willful neglect on the part of such corporation. 
'(5) ELECTION OUT.— 
"(A) IN GENERAL.—The rules contained in paragraphs (1) 
through (4) do not apply for any taxable year if an election 
pursuant to subparagraph (F) is in effect to use one of the 
methods specified in subparagraph (C). 
"(B) ELIGIBILITY.— 
"(i) 
REQUIREMENT OF SIGNIFICANT BUSINESS PRES-
ENCE.—An election may be made to use one of the 
methods specified in subparagraph (C) with respect to a 
product or type of service only if an electing corpora-
tion has a significant business presence in a possession 
with respect to such product or type of service. An 
election may remain in effect with respect to such 
product or type of service for any subsequent taxable 
year only if such electing corporation maintains a sig-
nificant business presence in a possession with respect 
to such product or type of service in such subsequent 
taxable year. If an election is not in effect for a taxable 
year because of the preceding sentence, the electing 
corporation shall be deemed to have revoked the elec-
tion on the first day of such taxable year. 
"(ii) DEFINITION.—For purposes of this subparagraph, 
an electing corporation has a 'significant business pres-
ence' in a possession for a taxable year with respect to 
a product or type of service if: 
"(I) the total production costs (other than direct 
material costs and other than interest excluded by 
regulations prescribed by the Secretary) incurred 
by the electing corporation in the possession in 
producing units of that product sold or otherwise 
disposed of during the taxable year by the affili-
ated group to persons who are not members of the 
affiliated group are not less than 25 percent of the 
difference between (a) the gross receipts from sales 
or other dispositions during the taxable year by the 
affiliated group to persons who are not members of 
the affiliated group of such units of the product 
produced, in whole or in part, by the electing 
corporation in the possession, and (b) the direct 
material costs of the purchase of materials for such 
96 STAT. 456 
PUBLIC LAW 97-248—SEPT. 3, 1982 
units of that product by all members of the affili-
ated group from persons who are not members of 
the affiliated group; or 
"(11) no less than 65 percent of the direct labor 
costs of the affiliated group for units of the product 
produced during the taxable year in whole or in 
part by the electing corporation or for the type of 
service rendered by the electing corporation during 
the taxable year, is incurred by the electing corpo-
ration and is compensation for services performed 
in the possession; or 
"(III) with respect to purchases and sales by an 
electing corporation of all goods not produced in 
whole or in part by any member of the affiliated 
group and sold by the electing corporation to per-
sons other than members of the affiliated group, no 
less than 65 percent of the total direct labor costs 
of the affiliated group in connection with all pur-
chases and sales of such goods sold during the 
taxable year by such electing corporation is 
incurred by such electing corporation and is com-
pensation for services performed in the possession. 
Notwithstanding satisfaction of one of the foregoing 
tests, an electing corporation shall not be treated as 
having a significant business presence in a possession 
with respect to a product produced in whole or in part 
by the electing corporation in the possession, for pur-
poses of an election to use the method specified in 
subparagraph (C)(ii), unless such product is manufac-
tured or produced in the possession by the electing 
corporation within the meaning of subsection (d)(1)(A) 
26 use 954. 
of section 954. 
"(iii) SPECIAL RULES.— 
"(I) An electing corporation which produces a 
product or renders a type of service in a possession 
on the date of the enactment of this clause is not 
required to meet the significant business presence 
test in a possession with respect to such product or 
type of service for its taxable years beginning 
before January 1,1986. 
"(II) For purposes of this subparagraph, the costs 
incurred by an electing corporation or any other 
member of the affiliated group in connection with 
contract manufacturing by a person other than a 
member of the affiliated group, or in connection 
with a similar arrangement thereto, shall be 
treated as direct labor costs of the affiliated group 
and shall not be treated as production costs 
incurred by the electing corporation in the posses-
sion or as direct material costs or as compensation 
for services performed in the possession, except to 
the extent as may be otherwise provided in regula-
tions prescribed by the Secretary, 
"(iv) REGULATIONS.—The Secretary may prescribe 
regulations setting forth: 
"(I) an appropriate transitional (but not in excess 
of three taxable years) significant business pres-
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 457 
ence test for commencement in a possession of 
operations with respect to products or types of 
service after the date of the enactment of this 
clause and not described in subparagraph (BXiiiXD, 
"(ID a significant business presence test for other 
appropriate cases, consistent with the tests speci-
fied in subparagraph (B)(ii), 
"(III) rules for the definition of a product or type 
of service, and 
"(IV) rules for treating components produced in 
whole or in part by a related person as materials, 
and the costs (including direct labor costs) related 
thereto as a cost of materials, where there is an 
independent resale price for such components or 
where otherwise consistent with the intent of the 
substantial business presence tests. 
"(C) METHODS OF COMPUTATION OF TAXABLE INCOME.—If 
an election of one of the following methods is in effect 
pursuant to subparagraph (F) with respect to a product or 
type of service, an electing corporation shall compute its 
income derived from the active conduct of a trade or busi-
ness in a possession with respect to such product or type of 
service in accordance with the method which is elected. 
"(i) COST SHARING.— 
"(I) PAYMENT OF COST SHARING.—If an election of 
this method is in effect, the electing corporation 
must make a payment for its share of the cost (if 
any) of product area research which is paid or 
accrued by the affiliated group during that taxable 
year. Such share shall not be less than the same 
proportion of the cost of such product area 
research which the amount of 'possession sales' 
bears to the amount of 'total sales of the affiliated 
group. The cost of product area research paid or 
accrued solely by the electing corporation in a 
taxable year (excluding amounts paid directly or 
indirectly to or on behalf of related persons and 
excluding amounts paid under any cost sharing 
agreements with related persons) will reduce (but 
not below zero) the amount of the electing corpora-
tion's cost sharing payment under this method for 
that year. 
"(a) PRODUCT AREA RESEARCH.—For purposes 
of this section, the term 
'product 
area 
research' includes (notwithstanding any provi-
sion to the contrary) the research, develop-
ment and experimental costs, losses, expenses 
and 
other 
related 
deductions—including 
amounts paid or accrued for the perfbrmance 
of research or similar activities by another 
person; qualified research expenses within the 
meaning of section 44F(b); amounts paid or 95 Stat. 241. 
accrued for the use of, or the right to use, 
research or any of the items specified in sub-
section (hX3)(BXi); and a proper allowance for 
amounts incurred for the acquisition of any of 
the items specified in subsection (hX3XBXi)— 
96 STAT. 458 
PUBLIC LAW 97-248—SEPT. 3, 1982 
which are properly apportioned or allocated to 
the same product area as that in which the 
electing corporation conducts its activities, and 
a ratable part of any such costs, losses, 
expenses and other deductions which cannot 
definitely be allocated to a particular product 
area. 
"(b) AFFILIATED GROUP.—For purposes of this 
subsection, the term 'affiliated group' shall 
mean the electing corporation and all other 
organizations, trades or businesses (whether or 
not incorporated, whether or not organized in 
the United States, and whether or not affili-
ated) owned or controlled directly or indirectly 
by the same interests, within the meaning of 
26 use 482. 
section 482. 
"(c) POSSESSION SALES.—For purposes of this 
section, the term 'possession sales' means the 
aggregate sales or other dispositions for the 
taxable year to persons who are not members 
of the affiliated group by members of the affili-
ated group of products produced, in whole or in 
part, by the electing corporation in the posses-
sion which are in the same product area as is 
used for determining the amount of product 
area research, and of services rendered, in 
whole or in part, in the possession in such 
product area to persons who are not members 
of the affiliated group. 
"(d) TOTAL SALES.—For purposes of this sec-
tion, the term 'total sales' means the aggregate 
sales or other dispositions for the taxable year 
to persons who are not members of the affili-
ated group by members of the affiliated group 
of all products in the same product area as is 
used for determining the amount of product 
area research, and of services rendered in such 
product area to persons who are not members 
of the affiliated group. 
"(e) PRODUCT AREA.—For purposes of this 
section, the term 'product area' shall be 
defined by reference to the three-digit classifi-
cation of the Standard Industrial Classification 
code. The Secretary may provide for the aggre-
gation of two or more three-digit classifications 
where appropriate, and for a classification 
system other than the Standard Industrial 
Classification code in appropriate cases. 
"(II) EFFECT OF ELECTION.—For purposes of deter-
mining the amount of its gross income derived 
from the active conduct of a trade or business in a 
possession with respect to a product produced by, 
or type of service rendered by, the electing corpora-
tion for a taxable year, if an election of this method 
is in effect, the electing corporation shall be 
treated as the owner (for purposes of obtaining a 
return thereon) of intangible property described in 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 459 
subsection (h)(3)(B)(i) which is related to the units 
of the product produced, or type of service ren-
dered, by the electing corporation. Such electing 
corporation shall not be treated as the owner (for 
purposes of obtaining a return thereon) of any 
intangible 
property 
described 
in 
subsection 
(h)(3XB)(ii) through (v) (to the extent not described 
in subsection (h)(3)(B)(i)) or of any other nonmanu-
facturing intangible. Notwithstanding the preced-
ing sentence, an electing corporation shall be 
treated as the owner (for purposes of obtaining a 
return thereon) of (a) intangible property which 
was developed solely by such corporation in a pos-
session and is owned by such corporation, (b) intan-
gible property described in subsection (h)(3)(B)(i) 
acquired by such corporation from a person who 
was not related to such corporation (or to any 
person related to such corporation) at the time of, 
or in connection with, such acquisition, and (c) any 
intangible 
property 
described 
in 
subsection 
(h)(3)(B)(ii) through (v) (to the extent not described 
in subsection (h)(3)(B)(i)) and other nonmanufactur-
ing intangibles which relate to sales of units of 
products, or services rendered, to unrelated per-
sons for ultimate consumption or use in the posses-
sion in which the electing corporation conducts its 
trade or business. 
"(Ill) PAYMENT PROVISIONS.— 
"(a) The cost sharing payment determined 
under subparagraph (C)(i)(I) for any taxable 
year shall be made to the person or persons 
specified in subparagraph (C)(i)(IV)(a) not later 
than the time prescribed by law for filing the 
electing corporation's return for such taxable 
year (including any extensions thereof). If all 
or part of such payment is not timely made, 
the amount of the cost sharing payment 
required to be paid shall be increased by the 
amount of interest that would have been due 
under section 6601(a) had the portion of the 26 USC 6601. 
cost sharing payment that is not timely made 
been an amount of tax imposed by this title 
and had the last date prescribed for payment 
been the due date of the electing corporations 
return (determined without regard to any 
extension thereof). The amount by which a 
cost sharing payment determined under sub-
paragraph (C)(i)(I) is increased by reason of the 
preceding sentence shall not be treated as a 
cost sharing payment or as interest. If failure 
to make timely payment is due in whole or in 
part to fraud or willful neglect, the electing 
corporation shall be deemed to have revoked 
the election made under subparagraph (A) on 
the first day of the taxable year for which the 
cost sharing payment was required. 
96 STAT. 460 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(b) For purposes of this title, any tax of a 
foreign country or possession of the United 
States which is paid or accrued with respect to 
the payment or receipt of a cost sharing pay-
ment determined under subparagraph (CXiXD 
or of an amount of increase referred to in 
subparagraph (CXiXIIIXa) shall not be treated 
as income, war profits, or excess profits taxes 
paid or accrued to a foreign country or posses-
sion of the United States, and no deduction 
shall be allowed under this title with respect 
to any amounts of such tax so paid or accrued. 
"(IV) SPECIAL RULES.— 
"(a) The amount of the cost sharing payment 
determined under subparagraph (C)(i)(I), and 
any increase in the amount thereof in accord-
ance with subparagraph (C)(iXIIIXa), shall not 
be treated as income of the recipient, but shall 
reduce the amount of the deductions (and the 
amount of reductions in earnings and profits) 
otherwise allowable to the appropriate domes-
tic member or members (other than an elect-
ing corporation) of the affiliated group, or, if 
there is no such domestic member, to the for-
eign member or members of such affiliated 
group as the Secretary may provide under 
regulations. 
"(b) If an election of this method is in effect, 
the electing corporation shall determine its 
intercompany pricing under the appropriate 
26 use 482. 
section 482 method, provided, however, that an 
electing corporation shall not be denied use of 
the resale price method for purposes of such 
intercompany pricing merely because the 
reseller adds more than an insubstantial 
amount to the value of the product by the use 
of intangible property. 
"(c) The amount 
of qualified 
research 
95 Stat. 241. 
expenses, within the meaning of section 44F, of 
any member of the controlled group of corpo-
rations (as defined in section 44F(f)) of which 
the electing corporation is a member shall not 
be affected by the cost sharing payment 
required under this method. 
"(ii) PROFIT SPLIT.— 
"(I) GENERAL RULE.—If an election of this method 
is in effect, the electing corporation's taxable 
income derived from the active conduct of a trade 
or business in a possession with respect to units of 
a product produced or type of service rendered, in 
whole or in part, by the electing corporation shall 
be equal to 50 percent of the combined taxable 
income of the affiliated group (other than foreign 
affiliates) derived from covered sales of units of the 
product produced or type of service rendered, in 
whole or in part, by the electing corporation in a 
possession. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 461 
"(II) 
COMPUTATION 
OF 
COMBINED 
TAXABLE 
INCOME.—Combined taxable income shall be com-
puted separately for each product produced or type 
of service rendered, in whole or in part, by the 
electing corporation in a possession. Combined tax-
able income shall be computed (notwithstanding 
any provision to the contrary) for each such prod-
uct or type of service rendered by deducting from 
the gross income of the affiliated group (other than 
foreign affiliates) derived from covered sales of 
such product or type of service all expenses, losses, 
and other deductions properly apportioned or allo-
cated to gross income from such sales or services, 
and a ratable part of all expenses, losses, or other 
deductions which cannot definitely be allocated to 
some item or class of gross income, which are 
incurred by the affiliated group (other than foreign 
affiliates). Notwithstanding any other provision to 
the contrary, in computing the combined taxable 
income for each such product or type of service 
rendered, the research, development, and experi-
mental costs, expenses and related deductions for 
the taxable year which would otherwise be appor-
tioned or allocated to the gross income of the affili-
ated group (other than foreign affiliates) derived 
from covered sales of such product produced or 
type of service rendered, in whole or in part, by the 
electing corporation in a possession, shall not be 
less than the same proportion of the amount of the 
share of product area research determined under 
subparagraph (CXi)(I) (without regard to the third 
sentence thereof) in the product area which 
includes such product or type of service, that such 
gross income from the product or type of service 
bears to such gross income from all products pro-
duced and types of service rendered, in whole or 
part, by the electing corporation in a possession. 
"(Ill) DIVISION OF COMBINED TAXABLE INCOME.— 
50 percent of the combined taxable income com-
puted as provided in subparagraph (C)(ii)(II) shall 
be allocated to the electing corporation. Combined 
tsixable income, computed without regard to the 
last sentence of subparagraph (C)(ii)(II), less the 
amount allocated to the electing corporation under 
the preceding sentence, shall be allocated to the 
appropriate domestic member or members (other 
than any electing corporation) of the affiliated 
group and shall be treated as income from sources 
within the United States, or, if there is no such 
domestic member, to a foreign member or mem-
bers of such affiliated group as the Secretary may 
provide under regulations. 
"(IV) COVERED SALES.—For purposes of this para-
graph, the term 'covered sales means sales by 
members of the affiliated group (other than foreign 
affiliates) to persons who are not members of the 
affiliated group or to foreign affiliates. 
96 STAT. 462 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(D) UNRELATED PERSON.—For purposes of this para-
graph, the term 'unrelated person' means any person other 
than a person related within the meaning of paragraph 
(3)(D) to the electing corporation. 
"(E) ELECTING CORPORATION.—For purposes of this subsec-
tion, the term 'electing corporation' means a domestic cor-
poration for which an election under this section is in 
effect. 
"(F) TIME AND MANNER OF ELECTION; REVOCATION.— 
"(i) IN GENERAL.—An election under subparagraph 
(A) to use one of the methods under subparagraph (C) 
shall be made only on or before the due date prescribed 
by law (including extensions) for filing the tax return of 
the electing corporation for its first taxable year begin-
ning after December 31, 1982. If an election of one of 
such methods is made, such election shall be binding on 
the electing corporation and such method must be used 
for each taxable year thereafter until such election is 
revoked by the electing corporation under subpara-
graph (F)(iii). If any such election is revoked by the 
electing corporation under subparagraph (F)(iii), such 
electing corporation may make a subsequent election 
under subparagraph (A) only with the consent of the 
Secretary. 
"(ii) MANNER OF MAKING ELECTION.—An election 
under subparagraph (A) to use one of the methods 
under subparagraph (C) shall be made by filing a state-
ment to such effect with the return referred to in 
subparagraph (F)(i) or in such other manner as the 
Secretary may prescribe by regulations, 
"(iii) REVOCATION.— 
"(I) Except as provided in subparagraph (F)(iii) 
(II), an election may be revoked for any taxable 
year only with the consent of the Secretary. 
"(II) An election shall be deemed revoked for the 
year in which the electing corporation is deemed to 
have revoked such election under subparagraph 
(B)(i) or (C) (i)(III) (a), 
"(iv) AGGREGATION.— 
"(I) Where more than one electing corporation in 
the affiliated group produces any product or ren-
ders any services in the same product area, all 
such electing corporations must elect to compute 
their taxable income under the same method 
under subparagraph (C). 
"(II) All electing corporations in the same affili-
ated group that produce any products or render 
any services in the same product area may elect, 
subject to such terms and conditions as the Secre-
tary may prescribe by regulations, to compute 
their taxable income from export sales under a 
different method from that used for all other sales 
and services. For this purpose, export sales means 
all sales by the electing corporation of products to 
foreign persons for use or consumption outside the 
United States and its possessions, provided such 
products are manufactured or produced in the pos-
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 463 
session within the meaning of subsection (dXlXA) 
of section 954, and further provided (except to the 
26 USC 954. 
extent otherwise provided by regulations) the 
income derived by such foreign person on resale of 
such products (in the same state or in an altered 
state) is not included in foreign base company 
income for purposes of section 954(a). 
"(Ill) All members of an affiliated group must 
consent to an election under this subsection at 
such time and in such manner as shall be pre-
scribed by the Secretary by regulations. 
"(6) TREATMENT OF CERTAIN SALES MADE AFTER JULY i, 1982.— 
"(A) IN GENERAL.—For purposes of this section, in the 
case of a disposition of intangible property made by a 
corporation after July 1, 1982, any gain or loss from such 
disposition shall be treated as gain or loss from sources 
within the United States to which paragraph (5) does not 
apply. 
(B) EXCEPTION.—Subparagraph (A) shall not apply to 
any disposition by a corporation of intangible property if 
such disposition is to a person who is not a related person to 
such corporation. 
"(C) PARAGRAPH DOES NOT AFFECT EUGIBILTTY.—This para-
graph shall not apply for purposes of determining whether 
the corporation meets the requirements of subsection (aX2). 
"(7) REGULATIONS.—The Secretary shall prescribe such regu-
lations as may be necessary or appropriate to carry out the 
purposes of this subsection, including rules for the application 
of this subsection to income from leasing of products to unre-
lated persons." 
(b) INCOME TAX LIABIUTY INCURRED TO THE VIRGIN ISLANDS.— 
Section 934 (relating to limitation on reduction in income tax liabil- 26 USC 934. 
ity incurred to the Virgin Islands) is amended— 
(1) by striking out "50 percent" in subsection (b)(2) and insert-
ing in lieu thereof "65 percent", and 
(2) by adding at the end thereof the following new subsections: 
"(e) TAX TREATMENT OF INTANGIBLE PROPERTY INCOME OF CERTAIN 
DOMESTIC CORPORATIONS.— 
"(1) IN GENERAL.— 
"(A) INCOME ATTRIBUTABLE TO SHAREHOLDER.—The intan-
gible property income (within the meaning of section 
936(hX3)) for any taxable year of any domestic corporation ^nte, p. 452. 
which is described in subsection (b) and which is an inhabi-
tant of the Virgin Islands (within the meaning of section 
28(a) of the Revised Organic Act of the Virgin Islands (48 
U.S.C. 1642)), shall be included on a pro rata basis in the 
gross income of all shareholders of such corporation at the 
close of the taxable year of such corporation as income from 
sources within the United States for the taxable year of 
such shareholder in which or with which the taxable year 
of such corporation ends. 
"(B) EXCLUSION FROM THE INCOME OF THE CORPORATION.— 
Any intangible property income of a corporation described 
in subparagraph (A) which is included in the gross income 
of a shareholder of such corporation by reason of subpara-
graph (A) shall be excluded from the gross income of such 
corporation. 
96 STAT. 464 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(2) FOREIGN SHAREHOLDERS; SHAREHOLDERS NOT SUBJECT TO 
TAX; INHABITANTS OF THE VIRGIN ISLANDS.— 
"(A) IN GENERAL.—Paragraph (1)(A) shall not apply with 
respect to any shareholder— 
"(i) who is not a United States person, 
"(ii) who is not subject to tax under this title on 
intangible property income which would be allocated to 
such shareholder (but for this subparagraph), or 
"(iii) who is an inhabitant of the Virgin Islands. 
"(B) TREATMENT OF NONALLOCATED INTANGIBLE PROPERTY 
INCOME.—For purposes of this subtitle, intangible property 
income of a corporation described in paragraph (IXA) which 
is not included in the gross income of a shareholder of such 
corporation by reason of subparagraph (A)— 
"(i) shall be treated as income from sources within 
the United States, and 
"(ii) shall not be taken into account for purposes of 
determining whether the conditions specified in para-
graph (1) or (2) of subsection (b) are satisfied. 
"(3) DISTRIBUTION TO MEET QUALIFICATION REQUIREMENTS.— 
"(A) IN GENERAL.—If the Secretary determines that a 
corporation does not satisfy a condition specified in para-
graph (1) or (2) of subsection (b) for any taxable year by 
reason of the exclusion from gross income under paragraph 
(1)(B), such corporation shall nevertheless be treated as 
satisfying such condition for such year if it makes a pro 
rata distribution of property after the close of such taxable 
year to its shareholders (designated at the time of such 
distribution as a distribution to meet qualification require-
ments) with respect to their stock in an amount which is 
equal to— 
"(i) if the condition of subsection (b)(1) is not satisfied, 
that portion of the gross income for the period 
described in subsection (b)(1)— 
"(I) which was not derived from sources within 
the Virgin Islands, and 
"(II) which exceeds the amount of such income 
for such period which would enable such corpora-
tion to satisfy the condition of subsection (b)(1), 
"(ii) if the condition of subsection (b)(2) is not satis-
fied, that portion of the aggregate gross income for 
such period— 
"(I) which was not derived from the active con-
duct of a trade or business within the Virgin 
Islands, and 
"(II) which exceeds the amount of such income 
for such period which would enable such corpora-
, 
tion to satisfy the conditions of subsection Cb)(2), or 
"(iii) if neither of such conditions is satisfied, that 
portion of the gross income which exceeds the amount 
of gross income for such period which would enable 
such corporation to satisfy the conditions of paragraphs 
(1) and (2) of subsection (b). 
"(B) EFFECTIVELY CONNECTED INCOME.—In the case of a 
shareholder who is a nonresident alien individual, an 
inhabitant of the Virgin Islands, or a foreign corporation, 
trust, or estate, any distribution described in subparagraph 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 465 
(A) shall be treated as income which is effectively connected 
with the conduct of a trade or business conducted through a 
permanent establishment of such shareholder within the 
United States. 
"(C) DISTRIBUTION DENIED IN CASE OF FRAUD OR WILLFUL 
NEGLECT.—Subparagraph (A) shall not apply to a corpora-
tion if the determination of the Secretary described in 
subparagraph (A) contains a finding that the failure of such 
corporation to satisfy the conditions in subsection Qa) was 
due in whole or in part to fraud with intent to evade tax or 
willful neglect on the part of such corporation. 
"(4) CERTAIN PROVISIONS OF SECTION 936 TO APPLY.— 
"(A) IN GENERAL.—The rules contained in paragraphs (5), 
(6), and (7) of section 936(h) shall apply to a domestic Ante, p. 452. 
corporation described in paragraph (IXA) of this subsection. 
"(B) CERTAIN MODIFICATIONS.—For purposes of subpara-
graph (A), section 936(h) shall be applied by substituting 
wherever appropriate— 
"(i) 'Virgin Islands' for 'possession', and 
"(ii) qualification under paragraphs (1) and (2) of 
subsection (b) for qualification under section 936(a)(2). 
"(f) TRANSITIONAL RULE.—In applying subsection (b)(2) with 
respect to taxable years beginning after December 31, 1982, and 
before January 1, 1985, the following percentage shall be substituted 
for '65 percent': 
"For taxable years begin-
ning in calendar year: 
The percentage is: 
1983 
55 
1984 
60". 
(c) DENIAL OF DIVIDEND RECEIVED DEDUCTION IN CASE OF A DISTRI-
BUTION T
O MEET QUALIFICATION REQUIREMENTS.—Section 246 (relat- 26 USC 246. 
ing to rules applying to deduction for dividends received) is amended 
by redesignating subsection (e) as subsection (f) and by inserting 
after subsection (d) the following new subsection: 
"(e) 
CERTAIN 
DISTRIBUTIONS TO SATISFY 
REQUIREMENTS.—No 
deduction shall be allowed under section 243(a) with respect to a 
dividend received pursuant to a distribution described in section 
936(h)(4) or 934(e)(3)." 
Ante, pp. 452, 
(d) 
TRANSFER OF INTANGIBLES BY POSSESSION 
CORPORATION 
^^^ 
TREATED AS TRANSFER TO AVOID TAXES.—Section 367 (relating to 26 USC 367. 
foreign corporations) is amended by redesignating subsection (d) as 
subsection (e) and by inserting after subsection (c) the following new 
subsection: 
"(d) SPECIAL RULE RELATING TO TRANSFER OF INTANGIBLES BY 
POSSESSION CORPORATIONS.— 
"(1) IN GENERAL.—If, after August 14, 1982, any possession 
corporation transfers, directly or indirectly, any intangible 
property (within the meaning of section 936(h)(3)(B)) to any 
foreign corporation, such transfer shall be treated for purposes 
of subsection (a) as pursuant to a plan having as one of its 
principal purposes the avoidance of Federal income taxes. 
"(2) POSSESSION CORPORATION.— 
"(A) IN GENERAL.—The term 'possession corporation' 
means any corporation— 
"(i) to which an election under section 936 applies, or 
96 STAT. 466 
PUBLIC LAW 97-248—SEPT. 3, 1982 
26 use 934. 
"(ii) which is described in subsection (b) of section 934 
and which is an inhabitant of the Virgin Islands 
(within the meaning of section 28(a) of the Revised 
48 use 1642. 
Organic Act of the Virgin Islands). 
"(B) FORMER POSSESSION CORPORATION.—A corporation 
shall be treated as a possession corporation with respect to 
any transfer if such corporation was a possession corpora-
tion (within the meaning of subparagraph (A)) at any 
time during the 5-year period ending on the date of such 
transfer. 
"(3) TRANSFER BY UNITED STATES AFFILIATES.—A rule similar 
to the rule of paragraph (1) shall apply in the case of a direct or 
indirect transfer by a United States affiliate to a foreign person 
of intangible property which, after August 14, 1982, was being 
used (or held for use) by a possession corporation under an 
arrangement with a United States affiliate. For purposes of the 
preceding sentence, the term "United States affiliate" means 
any United States person who is a member of an affiliated 
Ante, p. 452. 
group (within the meaning of section 936(h)(5)(C)(i)(I)(b)) which 
includes the possession corporation. 
"(4) WAIVER AUTHORITY.—Subject to such terms and condi-
tions as the Secretary may provide, paragraph (1) or (3) shall not 
apply to any case where the Secretary is satisfied that the 
transfer will not result in the reduction of current or future 
Federal income taxes." 
26 u s e 936 note. 
(e) EFFECTIVE D A T E S . — 
(1) IN GENERAL.—Except as provided in paragraphs (2) and (3), 
the amendments made by this section shall apply to taxable 
years beginning after December 31, 1982. 
(2) CERTAIN SALES MADE AFTER JULY i, 1982.—Paragraph (6) of 
section 936(h) of the Internal Revenue Code of 1954, and so 
much of section 934 to which such paragraph applies by reason 
Ante, p. 463. 
of section 934(e)(4) of such Code, shall apply to taxable years 
ending after July 1, 1982. 
(3) CERTAIN TRANSFERS OF INTANGIBLES MADE AFTER AUGUST 
14, 1982.—Subsection (d) shall apply to taxable years ending 
after August 14, 1982. 
PART IV—TAX-EXEMPT OBLIGATIONS 
SEC. 214. MODIFICATION OF EXEMPTION FOR SMALL ISSUES. 
26 use 103. 
(a) COMPOSITE ISSUES.—Paragraph (6) of section 103(b) (relating to 
exemption for certain small issues) is amended by adding at the end 
thereof the following new subparagraphs: 
"(K) LIMITATIONS ON TREATMENT OF OBUGATIONS AS PART 
OF THE SAME ISSUE.—For purposes of this paragraph, sepa-
rate lots of obligations which (but for this subparagraph) 
would be treated as part of the same issue shall be treated 
as separate issues unless the proceeds of such lots are to be 
used with respect to 2 or more facilities— 
"(i) which are located in more than 1 State, or 
"(ii) which have, or will have, as the same principal 
user the same person or related persons. 
"(L) FRANCHISES.—For purposes of subparagraph (K), a 
person (other than a governmental unit) shall be considered 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 467 
a principal user of a facility if such person (or a group of 
related persons which includes such person)— 
"(i) guarantees, arranges, participates in, or assists 
with the issuance (or pays any portion of the cost of 
issuance) of any obligation the proceeds of which are to 
be used to finance or refinance such facility, and 
"(ii) provides any property, or any franchise, trade-
mark, or trade name (within the meaning of section 
1253), which is to be used in connection with such 
facility." 
(b) SMALL ISSUE EXEMPTION N O T ALLOWED WHERE OBLIGATIONS 
ISSUED AS PART OF ISSUE EXEMPT FROM TAX OTHER T H A N AS A 
SMALL ISSUE.—Paragraph (6) of section 103(b), as amended by sub- 
26 USC 103. 
section (a), is amended by adding at the end thereof the following 
new subparagraph: 
"(M) PARAGRAPH NOT TO APPLY IF OBLIGATIONS ISSUED 
WITH CERTAIN OTHER TAX-EXEMPT OBLIGATIONS.—This para-
graph shall not apply to any obligation which is issued as 
part of an issue (other than an issue to which subparagraph 
(D) applies) if the interest on any other obligation which is 
part of such issue is excluded from gross income under any 
provision of law other than this paragraph." 
(c) TERMINATION OF SMALL ISSUE EXEMPTION AFTER DECEMBER 31, 
1986.—Paragraph (6) of section 103(b), as amended by subsections (a) 
and (b), is amended by adding at the end thereof the following new 
subparagraph: 
"(N) PARAGRAPH NOT TO APPLY TO OBLIGATIONS ISSUED 
AFTER DECEMBER 31, 1986.—This paragraph shall not apply 
to any obligation issued after December 31, 1986 (including 
any obligation issued to refund an obligation issued on or 
before such date)." 
(d) EXCLUSION OF CERTAIN RESEARCH EXPENDITURES FROM THE 
LIMITATION ON CERTAIN INDUSTRIAL DEVELOPMENT BONDS.—Subpar-
agraph (F) of section 103(b)(6) (relating to exclusion of certain capital 
expenditures) is amended— 
(1) by striking out "or" at the end of clause (ii), 
(2) by adding "or" at the end of clause (iii), and 
(3) by adding at the end thereof the following new clause: 
"(iv) 
described 
in 
clause 
(i) or (ii) of 
section 
44F(b)(2)(A) for which a deduction was allowed under 
95 Stat. 241. 
section 174(a),". 
(e) RESTRICTIONS ON FINANCING CERTAIN FACILITIES.—Paragraph 
(6) of section 103(b) is amended by adding at the end thereof the 
following new subparagraph: 
"(O) 
RESTRICTIONS ON FINANCING CERTAIN FACIUTIES.— 
This paragraph shall not apply to an issue if— 
"(i) more than 25 percent of the proceeds of the issue 
are used to provide a facility the primary purpose of 
which is one of the following: retail food and beverage 
services, automobile sales or service, or the provision of 
recreation or entertainment; or 
"(ii) any portion of the proceeds of the issue is to be 
used to provide the following: any private or commer-
cial golf course, country club, massage parlor, tennis 
club, skating facility (including roller skating, skate-
board, and ice skating), racquet sports facility (includ-
96 STAT. 468 
PUBLIC LAW 97-248—SEPT. 3, 1982 
ing any handball or racquetball court), hot tub facility, 
suntan facility, or racetrack." 
26 u s e 103 note. 
(f) EFFECTIVE D A T E S . — 
(1) COMPOSITE ISSUES; SMALL ISSUE EXEMPTION.—The amend-
ments made by subsections (a) and (b) shall apply to obligations 
issued after the date of the enactment of this Act. 
(2) TERMINATION.—The amendment made by subsection (c) 
shall take effect on the date of the enactment of this Act. 
(3) RESEARCH EXPENDITURES.—The amendment made by sub-
section (d) shall apply wdth respect to expenditures made after 
the date of the enactment of this Act. 
(4) CERTAIN FACILITIES.—The amendment made by subsection 
(e) shall apply to obligations issued after December 31, 1982. 
SEC. 215. PUBLIC APPROVAL AND INFORMATION REPORTING REQUIRE-
MENTS APPLICABLE TO PRIVATE ACTIVITY BONDS. 
Post, p. 596. 
(a) PuBuc APPROVAL.—Section 103 (relating to interest on certain 
governmental obligations) is amended by redesignating subsection 
(k) as subsection (1) and by inserting after subsection (j) the following 
new subsection: 
"(k) PUBLIC APPROVAL FOR INDUSTRIAL DEVELOPMENT BONDS.— 
"(1) IN GENERAL.—Notwithstanding subsection (b), an indus-
trial development bond shall be treated as an obligation not 
described in subsection (a) unless the requirements of para-
graph (2) of this subsection are satisfied. 
"(2) PUBLIC APPROVAL REQUIREMENT.— 
"(A) IN GENERAL.—An obligation shall satisfy the require-
ments of this paragraph if such obligation is issued as a 
part of an issue which has been approved by— 
"(i) the governmental unit— 
"(I) which issued such obligation, or 
"(II) on behalf of which such obligation was 
issued, and 
"(ii) each governmental unit having jurisdiction over 
the area in which any facility, with respect to which 
financing is to be provided from the proceeds of such 
issue, is located (except that if more than 1 governmen-
tal unit within a State has jurisdiction over the entire 
area within such State in which such facility is located, 
only 1 such unit need approve such issue). 
"(B) APPROVAL BY A GOVERNMENTAL UNIT.—For purposes 
of subparagraph (A), an issue shall be treated as having 
been approved by any governmental unit if such issue is 
approved— 
"(i) by the applicable elected representative of such 
governmental unit after a public hearing following 
reasonable public notice, or 
"(ii) by voter referendum of such governmental unit. 
"(C) SPECIAL RULES FOR APPROVAL OF FACIUTY.—If there 
has been public approval under subparagraph (A) of the 
plan of financing a facility, such approval shall constitute 
approval under subparagraph (A) for any issue— 
"(i) which is issued pursuant to such plan within 3 
years after the date of the first issue pursuant to the 
approval, and 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 469 
"(ii) all or substantially all of the proceeds of which 
are to be used to finance such facility or to refund 
previous financing under such plan. 
"(D) REFUNDING OBLIGATIONS.—No approval under sub-
paragraph (A) shall be necessary with respect to any obliga-
tion which is issued to refund an obligation approved under 
subparagraph (A) (or treated as approved under subpara-
graph (C)) unless the maturity date of such obligation is 
later than the maturity date of the obligation to be 
refunded. 
"(E) APPLICABLE ELECTED REPRESENTATIVE.—For purposes 
of this paragraph— 
"(i) IN GENERAL.—The term 'applicable elected repre-
sentative' means with respect to any governmental 
unit— 
"(I) an elected legislative body of such unit, or 
"(II) the chief elected executive officer, the chief 
elected State legal officer of the executive branch, 
or any other elected official of such unit designated 
for purposes of this paragraph by such chief elected 
executive officer or by State law. 
"(ii) No APPUCABLE ELECTED REPRESENTATIVE.—If (but 
for this clause) a governmental unit has no applicable 
elected representative, the applicable elected repre-
sentative for purposes of clause (i) shall be the applica-
ble elected representative of the governmental unit— 
"(I) which is the next higher governmental unit 
with such a representative, and 
"(II) from which the authority of the governmen-
tal unit with no such representative is derived." 
(b) INFORMATION REPORTING.— 
(1) IN GENERAL.—Section 103 is amended by redesignating 
26 USC 103. 
subsection (1) as subsection (m) and by adding at the end thereof 
the following new subsection: 
"(1) 
INFORMATION 
REPORTING 
REQUIREMENTS 
FOR 
CERTAIN 
BONDS.— 
"(1) IN GENERAL.—Notwithstanding subsection (b), any indus-
trial development bond or any other obligation which is issued 
as part of an issue all or a major portion of the proceeds of 
which are to be used directly or indirectly— 
"(A) to finance loans to individuals for educational 
expenses, or 
"(B) by an organization described in section 501(c)(3) 
which is exempt from taxation by reason of section 501(a), 
shall be treated as an obligation not described in paragraph (1) 
or (2) of subsection (a) unless such bond satisfies the require-
ments of paragraph (2). 
"(2) INFORMATION REPORTING REQUIREMENT.—An obligation 
satisfies the requirement of this paragraph if the issuer submits 
to the Secretary, not later than the 15th day of the 2nd calendar 
month after the close of the calendar quarter in which the 
obligation is issued, a statement concerning the issue of which 
the obligation is a part which contains— 
"(A) the name and address of the issuer, 
"(B) the date of issue, the amount of lendable proceeds of 
the issue, and the stated interest rate, term, and face 
amount of each obligation which is part of the issue, 
96 STAT. 470 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(C) where required, the name of the appHcable elected 
representative who approved the issue, or a description of 
the voter referendum by which the issue was approved, 
"(D) the name, address, and employer identification 
number o
f
— 
"(i) each initial principal user of any facilities pro-
vided with the proceeds of the issue, 
"(ii) the common parent of any affiliated group of 
corporations (Within the meaning of section 1504(a)) of 
which such initial principal user is a member, and 
"(iii) if the issue is treated as a separate issue under 
subsection (b)(6)(K), any person treated as a principal 
user under subsection (b)(6)(L), and 
"(E) a description of any property to be financed from the 
proceeds of the issue. 
"(3) EXTENSION OF TIME.—The Secretary may grant an exten-
sion of time for the filing of any statement required under 
paragraph (2) if there is reasonable cause for the failure to file 
such statement in a timely fashion." 
26 use 103. 
(2) CONFORMING AMENDMENT.—Paragraph (2) of section 103(b) 
(defining industrial development bond) is amended by striking 
out "For purposes of this subsection" and inserting in lieu 
thereof "For purposes of this section". 
26 u s e 103 note. 
(c) EFFECTIVE D A T E S . — 
(1) PUBLIC APPROVAL.—The amendment made by subsection 
(a) shall apply to obligations issued after December 31, 1982, 
other than obligations issued solely to refund any obligation 
which— 
(A) was issued before July 1, 1982, and 
(B) has a maturity which does not exceed 3 years. 
(2) INFORMATION REPORTING.—The amendments made by sub-
section (b) shall apply to obligations issued after December 31, 
1982 (including any obligation issued to refund an obligation 
issued before such date). 
SEC. 216. COST RECOVERY FOR CERTAIN PROPERTY FINANCED WITH 
TAX-EXEMPT BONDS. 
95 Stat. 204. 
(a) CosT RECOVERY METHOD.—Subsection (f) of section 168 (relating 
to special rules for the accelerated cost recovery system) is amended 
by adding at the end thereof the following new paragraph: 
"(12) LIMITATIONS ON PROPERTY FINANCED WITH TAX-EXEMPT 
BONDS.— 
"(A) IN GENERAL.—Notwithstanding any other provision 
of this section, to the extent that any property is financed 
by the proceeds of an industrial development bond (within 
the meaning of section 10303)(2)) the interest of which is 
exempt from taxation under section 103(a), the deduction 
allowed under subsection (a) (and any deduction allowable 
in lieu of the deduction allowable under subsection (a)) for 
any taxable year with respect to such property shall be 
determined under subparagraph (B). 
"(B) RECOVERY METHOD.— 
"(i) IN GENERAL.—Except as provided in clause (ii), 
the amount of the deduction allowed with respect to 
property described in subparagraph (A) shall be deter-
mined by using the straight-line method (with a half-
year convention and without regard to salvage value) 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 471 
and a recovery period determined in accordance with 
the following table: 
"In the case of: 
The recovery period is: 
3-year property 
3 years. 
5-year property 
5 years. 
10-year property 
10 years. 
15-year public utility property 
15 years. 
"(ii) 15-YEAR REAL PROPERTY.—In the case of 15-year 
real property, the amount of the deduction allowed 
shall be determined by using the straight-line method 
(determined on the basis of the number of months in 
the year in which such property was in service and 
without regard to salvage value) and a recovery period 
of 15 years. 
"(C) EXCEPTIONS.—Subparagraph (A) shall not apply to 
any recovery property which is placed in service— 
"(i) in connection with projects for residential rental 
property financed by the proceeds of obligations 
described in section 103(b)(4)(A), 
Post, pp. 477, 
"(ii) in connection with a sewage or solid waste dis- ^^^• 
posal facility— 
"(I) which provides sewage or solid waste dis-
posal services for the residents of part or all of 1 or 
more governmental units, and 
"(II) with respect to which substantially all of 
the sewage or solid waste processed is collected 
from the general public, 
"(iii) as an air or water pollution control facility 
which is— 
"(I) installed in connection with an existing 
facility, or 
"(II) installed in connection with the conversion 
of an existing facility which uses oil or natural gas 
(or any product of oil or natural gas) as a primary 
fuel to a facility which uses coal as a primary fuel, 
or 
"(iv) in connection with a facility with respect to 
which an urban development action grant has been 
made under section 119 of the Housing and Community 
Development Act of 1974. 
42 USC 5318. 
"(D) EXISTING FACILITY.—For purposes of this paragraph, 
the term 'existing facility' means a plant or property in 
operation before July 1, 1982. 
"(E) EXCEPTION WHERE LONGER RECOVERY PERIOD APPLICA-
BLE.—Subparagraph (A) shall not apply to any recovery 
property if the recovery period which would be applicable 
to such property by reason of an election under subsection 
(b)(3) exceeds the recovery period for such property deter-
mined under subparagraph (B)." 
(b) EFFECTIVE DATES.— 
26 USC 168 note. 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply with 
respect to property placed in service after December 31, 1982, to 
the extent such property is financed by the proceeds of an 
obligation (including a refunding obligation) issued after June 
30, 1982. 
(2) EXCEPTIONS.— 
97-200 O-84-pt. 1 
17 : QL3 
96 STAT. 472 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(A) CONSTRUCTION OR BINDING AGREEMENT.—The amend-
ments made by this section shall not apply with respect to 
facilities the original use of which commences with the 
taxpayer and— 
(i) the construction, reconstruction, or rehabilitation 
of which began before July 1, 1982, or 
(ii) with respect to which a binding agreement to 
incur significant expenditures was entered into before 
July 1, 1982. 
(B) REFUNDING.— 
(i) IN GENERAL.—Except as provided in clause (ii), in 
the case of property placed in service after December 
31, 1982 which is financed by the proceeds of an obliga-
tion which is issued solely to refund another obligation 
which was issued before July 1, 1982, the amendments 
made by this section shall apply only with respect to 
the basis in such property which has not been recov-
ered before the date such refunding obligation is issued, 
(ii) SIGNIFICANT EXPENDITURES.—In the case of facili-
ties the original use of which commences with the 
taxpayer and with respect to which significant expendi-
tures are made before January 1, 1983, the amend-
ments made by this section shall not apply with respect 
to such facilities to the extent such facilities are 
financed by the proceeds of an obligation issued solely 
to refund another obligation which was issued before 
July 1, 1982. 
In the case of an inducement resolution adopted by an issuing 
authority before July 1, 1982, for purposes of applying subpara-
graphs (A)(i) and (B)(ii) with respect to obligations described in 
such resolution, the term "facilities" means the facilities 
described in such resolution. 
(3) CERTAIN PROJECTS FOR RESIDENTIAL REAL PROPERTY.—For 
purposes of clause (i) of section 168(f)(12)(C) of the Internal 
Ante, p. 470. 
Revenue Code of 1954 (as added by this section), any obligation 
issued to finance a project described in the table contained in 
paragraph (1) of section 1104(n) of the Mortgage Subsidy Bond 
26 use 103A 
Tax Act of 1980 shall be treated as an obligation described in 
note. 
section 103(b)(4)(A) of the Internal Revenue Code of 1954. 
Post, pp. 477, 
599. 
SEC. 217. MISCELLANEOUS. 
(a) EXEMPT OBLIGATIONS FOR LOCAL DISTRICT HEATING AND COOL-
ING FACILITIES.— 
95 Stat. 349. 
(1) IN GENERAL.—Paragraph (4) of section 103(b) (relating to 
certain exempt activities) is amended— 
(A) by striking out "or" at the end of subparagraph (H), 
(B) by striking out the period at the end of subparagraph 
(I), and inserting in lieu thereof ", or", and 
(C) by inserting after subparagraph (I) the following new 
subparagraph: 
"(J) local district heating or cooling facilities." 
(2) LOCAL DISTRICT HEATING OR COOLING FACILITIES DEFINED.— 
95 Stat. 349. 
Subsection (b) of section 103 is amended by redesignating para-
graph (10) as paragraph (13) and by inserting after paragraph (9) 
the following new paragraph: 
"(10) LOCAL DISTRICT HEATING OR COOLING FACILITY,—For pur-
poses of this section— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 473 
"(A) IN GENERAL.—The term 'local district heating or 
cooling facility' means property used as an integral part of 
a local district heating or cooling system. 
"(B) LOCAL DISTRICT HEATING OR COOLING SYSTEM.— 
"(i) IN GENERAL.—The term 'local district heating or 
cooling system' means any local system consisting of a 
pipeline or network (which may be connected to a 
heating or cooling source) providing hot water, chilled 
water, or steam to 2 or more users for— 
"(I) residential, commercial, or industrial heat-
ing or cooling, or 
"(II) process steam, 
"(ii) LOCAL SYSTEM.—For purposes of this subpara-
graph, a local system includes facilities furnishing 
heating and cooling to an area consisting of a city and 
one contiguous county." 
(3) CONFORMING AMENDMENT.—Subparagraph (C) of section 
103(b)(6) is amended by striking out "paragraph (7)" and insert- 26 USC 103. 
ing in lieu thereof "paragraph (13)". 
(b) FACILITIES FOR THE LOCAL FURNISHING OF GAS.—Paragraph (4) 
of section 103(b) is amended by striking out "electric energy from" 
in the last sentence and inserting in lieu thereof "electric energy or 
gas from". 
(c) QUALIFIED MASS COMMUTING VEHICLE.—Subparagraph (A) of 
section 103(b)(9) (defining qualified mass commuting vehicle) is 95 Stat. 349. 
amended— 
(1) by inserting "ferry," after "rail car", and 
(2) by inserting after "mass commuting services" in clause (ii) 
the phrase "(or, in the case of a ferry, mass transportation 
services)". 
(d) POLLUTION CONTROL FACILITIES ACQUIRED BY REGIONAL POLLU-
TION CONTROL AUTHORITY.—Subsection (b) of section 103 is amended 
by inserting after paragraph (10) (as added by subsection (a)) the 
following new paragraph: 
"(11) POLLUTION CONTROL FACIUTIES ACQUIRED BY REGIONAL 
POLLUTION CONTROL AUTHORITIES.— 
"(A) IN GENERAL.—For purposes of subparagraph (F) of 
paragraph (4), an obligation shall be treated as described in 
such subparagraph if it is part of an issue substantially all 
of the proceeds of which are used by a qualified regional 
pollution control authority to acquire existing air or water 
pollution control facilities which the authority itself will 
operate in order to maintain or improve the control of 
pollutants. 
"(B) RESTRICTIONS.—Subparagraph (A) shall apply only 
i
f
— 
"(i) the amount paid, directly or indirectly, for the 
facilities does not exceed their fair market value, 
"(ii) the fees or charges imposed, directly or indi-
rectly, on the seller for any use of the facilities after 
the sale are not less than the amounts that would be 
charged if the facilities were financed with obligations 
the interest on which is not exempt from tax, and 
"(iii) no person other than the qualified regional 
pollution control authority is considered after the sale 
as the owner of the facilities for purposes of Federal 
income taxes. 
96 STAT. 474 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(C) QUALIFIED REGIONAL POLLUTION CONTROL AUTHORITY 
DEFINED.—For purposes of this paragraph, the term 'quali-
fied regional pollution control authority' means an author-
ity which— 
"(i) is a political subdivision created by State law to 
control air or water pollution, 
"(ii) has within its jurisdictional boundaries all or 
part of at least 2 counties (or equivalent political subdi-
visions), and 
"(iii) 
operates 
air or 
water 
pollution 
control 
facilities." 
26 use 103 note. 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
apply to obligations issued after the date of the enactment of this 
Act. 
SEC. 218. TREATMENT OF CERTAIN REFUNDING OBLIGATIONS. 
26 use 103. 
(a) GENERAL RULE.—Paragraph (1) of section 103(b) of the Internal 
Revenue Code of 1954 shall not apply to any qualified 
refunding 
obligation issued by a qualified issuer after the date of the enact-
ment of this Act. 
(b) QUALIFIED REFUNDING OBLIGATION.—For purposes of subsec-
tion (a), a qualified refunding obligation is any obligation issued as 
part of an issue if— 
(1) substantially all of the proceeds of such issue are used to 
defease refunded bonds which were issued under a pooled secu-
rity arrangement pursuant to a bond resolution which was 
adopted in 1974 and under which at least 20 facilities have been 
financed before 1978, and 
(2) each refunded bond is to be retired within 6 months after 
the first date on which there is no premium for early retirement 
of such bond. 
(c) QUALIFIED ISSUER.—For purposes of subsection (a), a qualified 
issuer is a political subdivision created by a State in 1932 which is 
engaged primarily in promoting economic development. 
SEC. 219. LIMITATION ON MATURITY OF INDUSTRIAL DEVELOPMENT 
BONDS. 
(a) GENERAL RULE.—Subsection (b) of section 103 (relating to 
industrial development bonds) is amended by adding at the end 
thereof the following new paragraph: 
"(14) MATURITY MAY NOT EXCEED 120 PERCENT OF ECONOMIC 
LIFE 
Ante, p. 472. 
"(A) GENERAL RULE.—Paragraphs (4), (5), (6), and (7) shall 
not apply to any obligation issued as part of an issue if— 
"(i) the average maturity of the obligations which are 
part of such issue, exceeds 
"(ii) 120 percent of the average reasonably expected 
economic life of the facilities being financed with the 
proceeds of such issue. 
"(B) DETERMINATION OF AVERAGES.—For purposes of sub-
paragraph (A)— 
"(i) the average maturity of any issue shall be deter-
mined by taking into account the respective issue 
prices of the obligations which are issued as part of 
such issue, and 
"(ii) the average reasonably expected economic life of 
the facilities being financed with any issue shall be 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 475 
determined by taking into account the respective cost 
of such facilities. 
"(C) SPECIAL RULES.— 
"(i) DETERMINATION OF ECONOMIC LIFE.—For purposes 
of this paragraph, the reasonably expected economic 
life of any facility shall be determined as of the later 
of— 
"(I) the date on which the obligations are issued, 
or 
"(II) the date on which the facility is placed in 
service (or expected to be placed in service), 
"(ii) TREATMENT OF LAND.— 
"(I) LAND NOT TAKEN INTO ACCOUNT.—Except as 
provided in subclause (II), land shall not be taken 
into account under subparagraph (A)(ii). 
"(II) ISSUES WHERE 25 PERCENT OR MORE OF PRO-
CEEDS USED TO FINANCE LAND.—If 25 percent or 
more of the proceeds of any issue is used to finance 
land, such land shall be taken into account under 
subparagraph (A)(ii) and shall be treated as having 
an economic life of 50 years." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC103 note. 
shall apply to obligations issued after December 31, 1982. 
SEC. 220. MORTGAGE SUBSIDY BONDS. 
(a) INCREASE IN AMOUNT OF MORTGAGE INTEREST LIMITATION.— 
(1) IN GENERAL.—Subparagraph (A) of section 103A(i)(2) (relat- 
26 USC 103A. 
ing to effective rate of mortgage interest) is amended by striking 
out "1 percentage point" and inserting in lieu thereof "1.125 
percentage points". 
(2) CLARIFICATION OF PREPAYMENT ASSUMPTIONS.—Clause (iv) 
of section 103A(i)(2)(B) (relating to prepayment assumptions) is 
amended to read as follows: 
"(iv) PREPAYMENT ASSUMPTIONS.—In determining the 
effective rate of interest— 
"(I) it shall be assumed that the mortgage pre-
payment rate will be the rate set forth in the most 
recent mortgage maturity experience table pub-
lished by the Federal Housing Administration for 
the State (or, if available, the area within the 
State) in which the residences are located, and 
"(II) prepayments of principal shall be treated as 
received on the last day of the month in which 
the issuer reasonably 
expects to receive 
such 
prepayments." 
(3) CONFORMING AMENDMENTS.— 
(A) The paragraph heading of paragraph (2) of section 
103A(i) is amended by striking out "i PERCENTAGE POINT" 
and inserting in lieu thereof " 1.125 PERCENTAGE POINTS". 
(B) Subparagraph (C) of section 103A(i)(4) is amended— 
(i) by striking out "1 percentage point" in clause (ii) 
and inserting in lieu thereof "1.125 percentage points", 
and 
(ii) by striking out "i 
PERCENTAGE POINT" in the 
caption and inserting in lieu thereof " 1.125 PERCENTAGE 
POINTS". 
96 STAT. 476 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(b) DISPOSITION OF NONMORTGAGE INVESTMENT IN CASE OF LOSS.— 
26 use 103A. 
Paragraph (3) of section 103A(i) (relating to nonmortgage invest-
ment requirements) is amended by adding at the end thereof the 
following new subparagraph: 
"(D) 
N O DISPOSITION IN CASE OF LOSS.—This paragraph 
shall not require the sale or disposition of any investment if 
such sale or disposition would result in a loss which exceeds 
the amount which would be paid or credited to the mortga-
gors under paragraph (4)(A) (but for such sale or disposition) 
at the time of such sale or disposition." 
(c) 
REQUIREMENT 
THAT 
MORTGAGORS 
B E 
FIRST 
TIME 
HOME-
BUYERS.—Subsection (e) of section 103A (relating to 3-year require-
ment) is amended to read as follows: 
"(e) 3-YEAR REQUIREMENT.— 
"(1) IN GENERAL.—An issue meets the requirements of this 
subsection only if 90 percent or more of the lendable proceeds of 
such issue are used to finance the residences of mortgagors who 
had no present ownership interest in their principal residences 
at any time during the 3-year period ending on the date their 
mortgage is executed. 
"(2) EXCEPTIONS.—For purposes of paragraph (1), the proceeds 
of an issue which are used— 
"(A) to provide financing with respect to targeted area 
residences, 
"(B) to provide qualified home improvement loans, and 
"(C) to provide qualified rehabilitation loans, 
shall not be taken into account. 
"(3) MORTGAGOR'S INTEREST IN RESIDENCE BEING FINANCED.— 
For purposes of paragraph (1), a mortgagor's interest in the 
residence with respect to which the financing is being provided 
shall not be taken into account." 
(d) 
INCREASE IN MAXIMUM PURCHASE PRICE.—Subsection (f) 
of 
section 103A (relating to purchase price requirement) is amended— 
(1) by striking out "90 percent" each place it appears and 
inserting in lieu thereof "110 percent" and 
(2) by striking out "110 percent" in paragraph (5) and insert-
ing in lieu thereof "120 percent". 
(e) TREATMENT OF COOPERATIVE HOUSING CORPORATIONS.—Subsec-
tion (1) of section 103A (relating to other definitions and special 
rules) is amended by adding at the end thereof the following new 
paragraph: 
"(10) COOPERATIVE HOUSING CORPORATIONS.— 
"(A) I N GENERAL.—In the case of any cooperative housing 
corporation— 
"(i) each dwelling unit shall be treated as if it were 
actually owned by the person entitled to occupy such 
dwelling unit by reason of his ownership of stock in the 
corporation, and 
"(ii) any indebtedness of the corporation allocable to 
the dwelling unit shall be treated as if it were indebted-
ness of the shareholder entitled to occupy the dwelling 
unit. 
"(B) 
ADJUSTMENT TO TARGETED AREA REQUIREMENT.—In 
the case of any issue to provide financing to a cooperative 
housing corporation with respect to cooperative housing not 
located in a targeted area, to the extent provided in regula-
tions, such issue may be combined with 1 or more other 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 477 
26 u s e 216. 
26 u s e 103A 
note. 
issues for purposes of determining whether the require-
ments of subsection (h) are met. 
"(C) 
COOPERATIVE 
HOUSING 
CORPORATION.—The term 
'cooperative housing corporation' has the meaning given to 
such term by section 216(bXl)." 
(f) EFFECTIVE DATES.— 
(1) IN GENERAL.—The amendments made by this section shall 
apply to obligations issued after the date of the enactment of 
this Act. 
(2) FIRST TIME HOMEBUYER REQUIREMENT.—The amendments 
made by subsection (c) shall also apply to obligations issued 
after April 24, 1979, and before the date of the enactment of this 
Act but only to the extent that the proceeds of such obligations 
are not committed as of the date of the enactment of this Act. 
SEC. 221. INDUSTRIAL DEVELOPMENT BONDS FOR CERTAIN RESIDEN-
TIAL RENTAL PROPERTY. 
(a) IN GENERAL.—Subparagraph (A) of section 103(b)(4) (relating to Post, p. 599. 
certain exempt activities) is amended to read as follows: 
"(A) projects for residential rental property if each obliga-
tion issued pursuant to the issue is in registered form and if 
at all times during the qualified project period— 
"(i) 15 percent or more in the case of targeted area 
projects, or 
"(ii) 20 percent or more in the case of any other 
project, 
of the units in each project are to be occupied by individuals 
of low or moderate income,". 
(b) DEFINITIONS.—Subsection (b) of section 103 (relating to indus-
trial development bonds) is amended by inserting after paragraph 
(11) the following new paragraph: 
"(12) PROJECTS FOR RESIDENTIAL RENTAL PROPERTY.—For pur-
poses of paragraph (4)(A)— 
"(A) TARGETED AREA PROJECT.—The term 'targeted area 
project' means— 
"(i) a project located in a qualified census tract 
(within the meaning of section 103A(k)(2)), or 
"(ii) an area of chronic economic distress (within the 
meaning of section 103A(k)(3)). 
"(B) QUALIFIED PROJECT PERIOD.—The term 
'qualified 
project period' means the period beginning on the first day 
on which 10 percent of the units in the project are occupied 
and ending on the later o
f
— 
"(i) the date which is 10 years after the date on which 
50 percent of the units in the project are occupied, 
"(ii) the date which is a qualified number of days 
after tlie date on which any of the units in the project 
are occupied, or 
"(iii) the date on which any assistance provided with 
respect to the project under section 8 of the United 
States Housing Act of 1937 terminates. 
For purposes of clause (ii), the term 'qualified number' 
means, with respect to an obligation described in paragraph 
(4)(A), 50 percent of the number of days which comprise the 
term of the obligation with the longest maturity. 
"(C) INDIVIDUALS OF LOW AND MODERATE INCOME.—Indi-
viduals of low and moderate income shall be determined by 
Ante, p. 473. 
42 u s e 1437f. 
"Qualified 
number." 
96 STAT. 478 
PUBLIC LAW 97-248—SEPT. 3, 1982 
the Secretary in a manner consistent with determinations 
of lower income families under section 8 of the United 
42 use 1437f. 
States Housing Act of 1937 (or if such program is termi-
nated, under such program as in effect immediately before 
such termination), except that the percentage of median 
gross income which qualifies as low or moderate income 
shall be 80 percent." 
(c) CONFORMING AMENDMENTS.— 
26 use 103. 
(1) Paragraph (4) of section 103(b) is amended by striking out 
the second sentence thereof. 
(2) Subsection (k) of section 1104 of the Mortgage Subsidy 
26 use 103A 
Bond Tax Act of 1980 is hereby repealed. 
26 use 103 note. 
^^ ^^ GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to obligations 
issued after the date of the enactment of this Act. 
(2) EXCEPTION.—The amendments made by this section shall 
not apply with respect to any obligation to which the amend-
ments made by section 1103 of the Mortgage Subsidy Bond Tax 
26 use 103. 
Act of 1980 do not apply by reason of section 1104 of such Act. 
PART V—MERGERS AND ACQUISITIONS 
Subpart A—Changes in Tax Treatment of Partial Liquidations 
and of Certain Distributions of Appreciated Property 
SEC. 222. PARTIAL LIQUIDATIONS. 
(a) SECTION 331 (WHICH PROVIDES CAPITAL GAIN OR Loss TREAT-
MENT F
O
R SHAREHOLDERS IN LIQUIDATIONS) LIMITED TO COMPLETE 
26 use 331. 
LIQUIDATIONS.—Subsection (a) of section 331 (relating to gain or loss 
to shareholders in corporate liquidations) is amended to read as 
follows: 
"(a) 
DISTRIBUTIONS 
IN 
COMPLETE 
LIQUIDATION 
TREATED 
AS 
EXCHANGES.—Amounts received by a shareholder in a distribution 
in complete liquidation of a corporation shall be treated as in full 
payment in exchange for the stock." 
(b) SECTION 336 (WHICH PROVIDES NONRECOGNITION OF GAIN AND 
Loss ON DISTRIBUTIONS BY LIQUIDATING CORPORATION) LIMITED TO 
26 use 336. 
COMPLETE LIQUIDATIONS.—Subsection (a) of section 336 (relating to 
distributions of property in liquidation) is amended by striking out 
"partial or complete liquidation" and inserting in lieu thereof "com-
plete liquidation". 
(c) 
DISTRIBUTIONS 
TO 
NONCORPORATE 
SHAREHOLDERS 
WHICH 
QUALIFY AS PARTIAL LIQUIDATIONS UNDER EXISTING LAW TREATED AS 
REDEMPTIONS.— 
26 use 302. 
(1) Subsection (b) of section 302 (relating to redemptions 
treated as exchanges) is amended by redesignating paragraph 
(4) as paragraph (5) and by inserting after paragraph (3) the 
following new paragraph: 
"(4) REDEMPTION FROM NONCORPORATE SHAREHOLDER IN PAR-
TIAL LIQUIDATION.—Subsection (a) shall apply to a distribution if 
such distribution is— 
"(A) in redemption of stock held by a shareholder who is 
not a corporation, and 
"(B) 
in 
partial 
liquidation 
of 
the 
distributing 
corporation." 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 479 
(2) Section 302 is amended by redesignating subsection (e) as 26 USC 302. 
subsection (f) and by inserting after subsection (d) the following 
new subsection: 
"(e) PARTIAL LIQUIDATION DEFINED.— 
"(1) IN GENERAL.—For purposes of subsection (b)(4), a distribu-
tion shall be treated as in partial liquidation of a corporation 
if— 
"(A) the distribution is not essentially equivalent to a 
dividend (determined at the corporate level rather than at 
the shareholder level), and 
"(B) the distribution is pursuant to a plan and occurs 
within the taxable year in which the plan is adopted or 
within the succeeding taxable year. 
"(2) TERMINATION OF BUSINESS.—The distributions which meet 
the requirements of paragraph (1)(A) shall include (but shall not 
be limited to) a distribution which meets the requirements of 
subparagraphs (A) and (B) of this paragraph: 
"(A) The distribution is attributable to the distributing 
corporation's ceasing to conduct, or consists of the assets of, 
a qualified trade or business. 
"(B) Immediately after the distribution, the distributing 
corporation is actively engaged in the conduct of a qualified 
trade or business. 
"(3) QUALIFIED TRADE OR BUSINESS.—For purposes of para-
graph (2), the term 'qualified trade or business' means any trade 
or business which— 
"(A) was actively conducted throughout the 5-year period 
ending on the date of the redemption, and 
"(B) was not acquired by the corporation within such 
period in a transaction in which gain or loss was recognized 
in whole or in part. 
"(4) 
REDEMPTION MAY BE PRO RATA.—Whether or not 
a 
redemption meets the requirements of subparagraphs (A) and 
(B) of paragraph (2) shall be determined without regard to 
whether or not the redemption is pro rata with respect to all of 
the shareholders of the corporation. 
"(5) TREATMENT OF CERTAIN PASS-THRU ENTITIES.—For pur-
poses of determining under subsection (b)(4) whether any stock 
is held by a shareholder who is not a corporation, any stock held 
by a partnership, estate, or trust shall be treated as if it were 
actually held proportionately by its partners or beneficiaries." 
(3) Subsection (a) of section 302 is amended by striking out 
"paragraph (1), (2), or (3)" and inserting in lieu thereof "para-
graph (1), (2), (3), or (4)". 
(4) Paragraph (5) of section 302(b) (as redesignated by para-
graph (1)) is amended— 
(A) by striking out "paragraph (2) or (3)" and inserting in 
lieu thereof "paragraph (2), (3), or (4)", and 
(B) by striking out "paragraph (1) or (2)" and inserting in 
lieu thereof "paragraph (1), (2), or (4)". 
(d) DEFINITION AND SPECIAL RULE.—Section 346 (defining partial 
26 USC 346. 
liquidation) is amended to read as follows: 
"SFX\ 346. DEFINITION AND SPECIAL RULE. 
"(a) COMPLETE LIQUIDATION.—For purposes of this subchapter, a 
distribution shall be treated as in complete liquidation of a corpora-
96 STAT. 480 
PUBLIC LAW 97-248—SEPT. 3, 1982 
tion if the distribution is one of a series of distributions in redemp-
tion of all of the stock of the corporation pursuant to a plan. 
Regulations. 
"(b) TRANSACTIONS W H I C H M I G H T R E A C H S A M E R E S U L T AS PARTIAL 
LIQUIDATIONS.—The Secretary shall prescribe such regulations as 
may be necessary to ensure that the purposes of subsections (a) and 
(b) of section 222 of the Tax Equity and Fiscal Responsibility Act of 
Ante, p. 478. 
1982 (which repeal the special tax treatment for partial liquidations) 
26 use 355, 351, may not be circumvented through the use of section 355, 351, 337, or 
^^'^- 
any other provision of law or regulations (including the consolidated 
return regulations)." 
(e) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) The following provisions are each amended by striking out 
"partial or complete liquidation" and inserting in lieu thereof 
"complete liquidation": 
26 use 306. 
(A) Paragraph (2) of section 306(b) (relating to exceptions). 
26 use 331. 
(B) Subsection (b) of section 331 (relating to nonapplica-
tion of section 301). 
26 use 334. 
(C) Subsection (a) of section 334 (relating to basis of 
property received in liquidations). 
26 use 336. 
(D) Paragraph (1) of section 336(b) (relating to distribu-
tions of LIFO inventory). 
26 use 306. 
(2) Subparagraph (B) of section 306(b)(1) (relating to exception 
for redemptions) is amended by striking out "section 302(b)(3)" 
and inserting in lieu thereof "paragraph (3) or (4) of section 
302(b)". 
26 use 312. 
(3) Subsection (e) of section 312 (relating to special rule for 
partial liquidation and certain redemptions) is amended— 
(A) by striking out "in partial liquidation (whether 
before, on, or after June 22, 1954) or"; and 
(B) by striking out "PARTIAL LIQUIDATIONS AND" in the 
heading thereof. 
26 use 338. 
(4) Section 338 (as in effect on the day before the date of the 
enactment of this Act) is hereby repealed. 
26 use 341. 
(5) Paragraph (2) of section 341(a) (relating to collapsible 
corporations) is amended to read as follows: 
"(2) a distribution— 
"(A) in complete liquidation of a collapsible corporation if 
such distribution is treated under this part as in part or full 
pavment in exchange for stock, or 
'(B) in partial liquidation (within the meaning of section 
Ante, p. 479. 
302(e)) of a collapsible corporation if such distribution is 
Ante, p. 478. 
treated under section 302(b)(4) as in part or full payment in 
exchange for the stock, and". 
26 use 543. 
(6) Paragraph (1) of section 543(a) (relating to personal holding 
company income) is amended— 
(A) by striking out "and" at the end of subparagraph (A), 
(B) by striking out 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 sub-
paragraph: 
"(C) dividends to which section 302(b)(4) would apply if 
the corporation were an individual." 
26 use 562. 
(7) Paragraph (1) of section 562(b) (relating to distributions in 
liquidation) is amended by adding at the end thereof the follow-
ing new sentence: 
"For purposes of subparagraph (A), a liquidation includes a 
redemption of stock to which section 302 applies." 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 481 
(8)(A) The heading and table of sections for subpart D of part 
II of subchapter C of chapter 1 are amended to read as follows: 
"Subpart D—Definition and Special Rule 
"Sec. 346. Definition and special rule." 
(B) The item relating to subpart D in table of subparts for 
such part II is amended to read as follows: 
"Subpart D—Definition and special rule." 
(f) EFFECTIVE DATES.— 
26 USC 302 note. 
(1) I N GENERAL.—The amendments made by this section shall 
apply to distributions after August 31, 1982. 
(2) EXCEPTIONS.— 
(A) RULING REQUESTS.—The amendments made by this 
section shall not apply to distributions made by any corpo-
ration if— 
(i)(l) on July 22, 1982, there was a ruling request by 
such corporation pending with the Internal Revenue 
Service as to whether such distributions would qualify 
as a partial liquidation, or 
(II) within the period beginning on July 12, 1981, and 
ending on July 22, 1982, the Internal Revenue Service 
granted a ruling to such corporation that the distribu-
tions would qualify as a partial liquidation, and 
(ii) such distributions are pursuant to a plan of par-
tial liquidation adopted before October 1, 1982 (or, if 
later, 90 days after the date on which the Internal 
Revenue Service granted a ruling pursuant to the 
request described in clause (i)(I)). 
(B) PLANS ADOPTED BEFORE JULY 23, 1982.—The amend-
ments made by this section shall not apply to distributions 
made pursuant to a plan of partial liquidation adopted 
before July 23, 1982. 
(C) CONTROL ACQUIRED AFTER I 9 8 1 AND BEFORE JULY 23, 
1982 —The amendments made by this section shall not 
apply to distributions made pursuant to a plan of partial 
liquidation adopted before October 1, 1982, where control of 
the corporation making the distributions was acquired after 
December 31, 1981, and before July 23, 1982. 
(D) TENDER OFFER OR BINDING CONTRACT OUTSTANDING ON 
JULY 22, 1982.— 
(i) IN GENERAL.—The amendments made by this sec-
tion shall not apply to distributions made by a corpora-
tion if— 
(I) such distributions are pursuant to a plan of 
liquidation adopted before October 1, 1982, and 
(II) control of such corporation was acquired 
after July 22, 1982, pursuant to a tender offer or 
binding contract outstanding on such date. 
(ii) EXTENSION OF TIME FOR ADOPTING PLAN WHERE 
ACQUISITION 
SUBJECT 
TO 
FEDERAL 
REGULATORY 
APPROVAL.—If the acquisition described in clause (i)(II) 
is subject to approval by a Federal regulatory agency, 
clause (i) shall be applied by substituting for "Octo-
ber 1, 19S2" the date which is 90 days after the date on 
96 STAT. 482 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"Control." 
26 use 368. 
Post, p. 485. 
which approval by the Federal regulatory agency of 
such acquisition becomes final. 
(iii) SPECIAL RULE WHERE OFFER SUBJECT TO APPROVAL 
B
Y FOREIGN REGULATORY BODY.—In any case where an 
offer to acquire stock in a corporation was subject to 
intervention by a foreign regulatory body and a public 
announcement of such an offer resulted in the inter-
vention by such foreign regulatory body before July 23, 
1982— 
(I) such public announcement shall be treated as 
a tender offer, and 
(II) clause (i) shall be applied by substituting for 
"October 1, 1982" the date which is 90 days after 
the date on which such regulatory body approves a 
public offer to acquire stock in such corporation. 
(iv) 
SPECIAL 
RULE 
WHERE 
ONE-THIRD 
OF SHARES 
ACQUIRED DURING MARCH AND APRIL 1982.—If— 
(I) one-third or more of the shares of a corpora-
tion were acquired by another corporation during 
March and April 1982, and 
(II) during March or April 1982, the acquiring 
corporation filed with the Federal Trade Commis-
sion notification of its intent to acquire control of 
the acquired corporation, 
subclause (II) of clause (i) shall not apply with respect 
to distributions made by the acquired corporation. 
(E) INSURANCE COMPANIES.—The amendments made by 
this section shall not apply to distributions made by an 
insurance company pursuant to a plan of partial liquidation 
adopted before October 1, 1982, where control was acquired 
by the distributee or its parent after December 31, 1980, 
and before July 23, 1982, and the conduct of the insurance 
business by the distributee is conditioned on approval by a 
State regulatory authority. 
For purposes of this paragraph, the term "control" has the 
meaning given to such term by section 368(c) of the Internal 
Revenue Code of 1954. 
(3) APPROVAL OF PLAN BY BOARD OF DIRECTORS.—For purposes 
of— 
(A) paragraph (2), and 
(B) applying section 346(a)(2) of the Internal Revenue 
Code of 1954 (as in effect on the day before the date of the 
enactment of this Act) to distributions to which (but for 
paragraph (2)) the amendments made by this section would 
apply, 
a plan of liquidation shall be treated as adopted when approved 
by the corporation's board of directors. 
(4) COORDINATION WITH AMENDMENTS MADE BY SECTION 224.— 
For purposes of section 338(e)(2)(C) of the Internal Revenue Code 
of 1954 (as added by section 224), any property acquired in a 
distribution to which the amendments made by this section do 
not apply by reason of paragraph (2) shall be treated as acquired 
before September 1, 1982. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 483 
SEC. 223. DISTRIBUTION OF APPRECIATED PROPERTY IN REDEMPTION 
OF STOCK. 
(a) AMENDMENTS TO CERTAIN 
EXCEPTIONS TO RECOGNITION OF 
G A I N . — 
(1) IN GENERAL.—Subparagraphs (A), (B), and (C) of section 
311(d)(2) (relating to appreciated property used to redeem stock) 
26 USC 311. 
are amended to read as follows: 
"(A) a distribution to a corporate shareholder if the basis 
of the property distributed is determined under section 
301(d)(2); 
"(B) a distribution to which section 302(b)(4) applies and Ante, p. 478. 
which is made with respect to qualified stock; 
"(C) a distribution of stock or an obligation of a corpora-
tion if the requirements of paragraph (2) of subsection (e) 
are met with respect to the distribution;". 
(2) DEFINITIONS AND SPECIAL RULES.—Section 311 is amended 
26 USC 311. 
by adding at the end thereof the following new subsection: 
"(e) DEFINITIONS AND SPECIAL RULES FOR SUBSECTION (d)(2).—For 
purposes of subsection (d)(2) and this subsection— 
"(1) QUALIFIED STOCK.— 
"(A) IN GENERAL.—The term 'qualified stock' means stock 
held by a person (other than a corporation) who at all times 
during the lesser of— 
"(i) the 5-year period ending on the date of distribu-
tion, or 
"(ii) the period during which the distributing corpo-
ration (or a predecessor corporation) was in existence, 
held at least 10 percent in value of the outstanding stock of 
the distributing corporation (or predecessor corporation). 
"(B) DETERMINATION OF STOCK HELD.—Section 318 shall 
apply in determining ownership of stock under subpara-
graph (A); except that, in applying section 318(a)(1), the 
term 'family' includes any individual described in section 
267(c)(4) and any spouse of any such individual. 
"(2) DISTRIBUTIONS OF STOCK OR OBLIGATIONS OF CONTROLLED 
CORPORATIONS.— 
"(A) REQUIREMENTS.—A distribution of stock or an obliga-
tion of a corporation (hereinafter in this paragraph referred 
to as the 'controlled corporation') meets the requirements of 
this paragraph if— 
"(i) such distribution is made with respect to quali-
fied stock, 
"(ii) substantially all of the assets of the controlled 
corporation consists of the assets of 1 or more qualified 
businesses, 
"(iii) no substantial part of the controlled corpora-
tion's nonbusiness assets were acquired from the dis-
tributing corporation, in a transaction to which section 
351 applied or as a contribution to capital, within the 
5-year period ending on the date of the distribution, 
and 
"(iv) more than 50 percent in value of the outstand-
ing stock of the controlled corporation is distributed by 
the distributing corporation with respect to qualified 
stock. 
"(B) DEFINITIONS.—For purposes of subparagraph (A)— 
96 STAT. 484 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(i) QUALIFIED BUSINESS.—The term 'qualified busi-
ness' means any trade or business which— 
"(I) was actively 
conducted 
throughout the 
5-year period ending on the date of the distri-
bution, and 
"(II) was not acquired by any person within such 
period in a transaction in which gain or loss was 
recognized in whole or in part. 
"(ii) 
NONBUSINESS ASSET.—The term 
'nonbusiness 
asset' means any asset not used in the active conduct of 
a trade or business." 
26 use 311. 
(3) CONFORMING AMENDMENT.—Section 311(d)(2) is amended— 
(A) by inserting "and" at the end of subparagraph (E), 
(B) by striking out the semicolon and "and" at the end of 
subparagraph (F) and inserting in lieu thereof a period, and 
(C) by striking out subparagraph (G). 
26 u s e 311 note. 
(b) EFFECTIVE D A T E S . — 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply to 
distributions after August 31, 1982. 
(2) DISTRIBUTIONS PURSUANT TO RULING 
REQUESTS BEFORE 
JULY 23, 1982.—In the case of a ruling request under section 
311(d)(2)(A) of the Internal Revenue Code of 1954 (as in effect 
before the amendments made by this section) made before 
July 23, 1982, the amendments made by this section shall not 
apply to distributions made— 
(A) pursuant to a ruling granted 
pursuant to such 
request, and 
(B) within 90 days after the date of such ruling. 
(3) DISTRIBUTIONS PURSUANT TO FINAL JUDGMENTS OF COURT.— 
In the case of a final judgment described in section 311(d)(2)(C) 
of such Code (as in effect before the amendments made by this 
section) rendered before July 23, 1982, the amendments made by 
this section shall not apply to distributions made before Janu-
ary 1, 1986, pursuant to such judgment. 
(4) CERTAIN DISTRIBUTIONS WITH RESPECT TO STOCK ACQUIRED 
BEFORE MAY 1982.—The amendments made by this section shall 
not apply to distributions— 
(A) which meet the requirements of section 311(d)(2)(A) of 
such Code (as in effect on the day before the date of the 
enactment of this Act), 
(B) which are made on or before August 31, 1983, and 
(C) which are made with respect to stock acquired after 
1980 and before May 1982. 
(5) DISTRIBUTIONS OF TIMBERLAND WITH RESPECT TO STOCK OF 
FOREST PRODUCTS COMPANY.—If— 
(A) a forest products company distributes timberland to a 
shareholder in redemption of the common and preferred 
stock in such corporation held by such shareholder, 
(B) section 311(d)(2)(A) of the Internal Revenue Code of 
1954 (as in effect before the amendments made by this 
section) would have applied to such distributions, and 
(C) such distributions are made pursuant to 1 of 2 options 
contained in a contract between such company and such 
shareholder which is binding on August 31, 1982, and at all 
times thereafter. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 485 
then such distributions of timberland having an aggregate fair 
market value on August 31, 1982, not in excess of $10,000,000 
shall be treated as distributions to which section 311(d)(2)(A) of 
such Code (as in effect before the date of the enactment of this 
Act) applies. 
Subpart B—Certain Stock Purchases Treated as Asset Purchases 
SEC. 
2
2
4
. 
CERTAIN STOCK PURCHASES TREATED AS 
ASSET 
PURCHASES. 
(a) GENERAL RULE.—Subpart B of part II of subchapter C of 
chapter 1 (relating to effects on corporation) is amended by adding 
at the end thereof the following new section: 
"SEC. 338. CERTAIN STOCK PURCHASES TREATED AS ASSET ACQUISI- 
26 USC 338. 
TIONS. 
"(a) GENERAL RULE.—For purposes of this subtitle, if a purchasing 
corporation makes an election under this section (or is treated under 
subsection (e) as having made such an election), then, in the case of 
any qualified stock purchase, the target corporation— 
"(1) shall be treated as having sold all of its assets at the close 
of the acquisition date in a single transaction to which section 
337 applies, and 
"(2) shall be treated as a new corporation which purchased all 
of the assets referred to in paragraph (1) as of the beginning of 
the day after the acquisition date. 
"(b) PRICE AT WHICH DEEMED SALE MADE.— 
"(1) IN GENERAL.—For purposes of subsection (a), the assets of 
the target corporation shall be treated as sold (and purchased) 
at an amount equal to— 
"(A) the grossed-up basis of the purchasing corporation's 
stock in the target corporation on the acquisition date, 
"(B) properly adjusted under regulations prescribed by 
the Secretary for liabilities of the target corporation and 
other relevant items. 
"(2) GROSSED-UP BASIS.—For purposes of paragraph (1), the 
grossed-up basis shall be an amount equal to the basis of the 
purchasing corporation's stock in the target corporation on the 
acquisition date multiplied by a fraction— 
"(A) the numerator of which is 100 percent, and 
"(B) the denominator of which is the percentage of stock 
(by value) of the target corporation held by the purchasing 
corporation on the acquisition date. 
"(3) ALLOCATION 
AMONG 
ASSETS.—The amount 
determined 
under paragraph (1) shall be allocated among the assets of 
the target corporation under regulations prescribed by the 
Secretary 
"(c) SPECIAL RULES.— 
"(1) C O O R D I N A T I O N W I T H SECTION 337 W H E R E P U R C H A S I N G COR-
PORATION HOLDS LESS THAN 100 PERCENT OF STOCK.—If d u r i n g t h e 
1-year period beginning on the acquisition date the maximum 
percentage (by value) of stock in the target corporation held by 
the purchasing corporation is less than 100 percent, then in 
applying section 337 for purposes of subsection (a)(1), the non-
recognition of gain or loss shall be limited to an amount deter-
mined by applying such maximum percentage to such gain or 
loss. The preceding sentence shall not apply if the target corpo-
ration is liquidated during such 1-year period. 
96 STAT. 486 
P U B L I C L A W 97-248—SEPT. 3, 1982 
"(2) CERTAIN REDEMPTIONS WHERE ELECTION MADE.—If, in con-
nection with a qualified stock purchase with respect to which an 
election is made under this section, the target corporation 
makes a distribution in complete redemption of all of the stock 
26 use 302. 
of a shareholder which qualifies under section 302(b)(3) (deter-
mined 
without 
regard 
to 
the 
application 
of 
section 
302(c)(2)(A)(ii)), section 336 shall apply to such distribution as if 
it were a distribution in complete liquidation. 
"(d) PURCHASING CORPORATION; TARGET CORPORATION; QUALIFIED 
STOCK PURCHASE.—For purposes of this section— 
"(1) PURCHASING CORPORATION.—The term 'purchasing corpo-
ration' means any corporation which makes a qualified stock 
purchase of stock of another corporation. 
"(2) TARGET CORPORATION.—The term 
'target 
corporation' 
means any corporation the stock of which is acquired by 
another corporation in a qualified stock purchase. 
"(3) QUALIFIED STOCK PURCHASE.—The term 'qualified stock 
purchase' means any transaction or series of transactions in 
which stock of 1 corporation possessing— 
"(A) at least 80 percent of total combined voting power of 
all classes of stock entitled to vote, and 
"(B) at least 80 percent of the total number of shares of 
all other classes of stock (except nonvoting stock which is 
limited and preferred as to dividends), 
is acquired by another corporation by purchase during the 
12-month acquisition period. 
"(e) 
DEEMED 
ELECTION 
WHERE 
PURCHASING 
CORPORATION 
ACQUIRES ASSET OF TARGET CORPORATION.— 
"(1) I N GENERAL.—A purchasing corporation shall be treated 
as having made an election under this section with respect to 
any target corporation if, at any time during the consistency 
period, it acquires any asset of the target corporation (or a 
target affiliate). 
"(2) EXCEPTIONS.—Paragraph (1) shall not apply with respect 
to any acquisition by the purchasing corporation if— 
"(A) such acquisition is pursuant to a sale by the target 
corporation (or the target affiliate) in the ordinary course of 
its trade or business, 
"(B) the basis of the property acquired is determined (in 
whole or in part) by reference to the adjusted basis of such 
property in the hands of the person from whom acquired, 
"(C) such acquisition was before September, 1, 1982, 
"(D) to the extent provided in regulations, the property 
acquired is located outside the United States, or 
"(E) such acquisition is described in regulations pre-
scribed by the Secretary. 
"(3) ANTI-AVOIDANCE RULE.—Whenever necessary to carry out 
the purpose of this subsection and subsection (f), the Secretary 
may treat stock acquisitions which are pursuant to a plan and 
which meet the 80 percent requirements of subparagraphs (A) 
and (B) of subsection (d)(3) as qualified stock purchases. 
"(f) CONSISTENCY REQUIRED FOR ALL STOCK ACQUISITIONS FROM 
SAME AFFILIATED GROUP.—If a purchasing corporation makes quali-
fied stock purchases with respect to the target corporation and 1 or 
more target affiliates during any consistency period, then (except as 
otherwise provided in subsection (e))— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 487 
"(1) any election under this section with respect to the first 
such purchase shall apply to each other such purchase, and 
"(2) no election may be made under this section with respect 
to the second or subsequent such purchase if such an election 
was not made with respect to the first such purchase. 
"(g) ELECTION.— 
"(1) W H E N MADE.—Except as otherwise provided in regula-
tions, an election under this section shall be made not later 
than 75 days after the acquisition date. 
"(2) MANNER.—An election by the purchasing corporation 
under this section shall be made in such manner as the Secre-
tary shall by regulations prescribe. 
"(3) ELECTION IRREVOCABLE.—An election by a 
purchasing 
corporation under this section, once made, shall be irrevocable. 
"(h) 
DEFINITIONS AND SPECIAL 
RULES.—For 
purposes 
of 
this 
section— 
"(1) 12-MONTH ACQUISITION PERIOD.—The term 
'12-month 
acquisition period' means the 12-month period beginning with 
the date of the first acquisition by purchase of stock included in 
a qualified stock purchase. 
"(2) ACQUISITION DATE.—The term 'acquisition date' means, 
with respect to any corporation, the first day on which there is a 
qualified stock purchase with respect to the stock of such corpo-
ration. 
"(3) PURCHASE.— 
"(A) IN GENERAL.—The term 'purchase' means any acqui-
sition of stock, but only if— 
"(i) the basis of the stock in the hands of the purchas-
ing corporation is not determined (I) in whole or in part 
by reference to the adjusted basis of such stock in the 
hands of the person from whom acquired, or (II) under 
section 1014(a) (relating to property acquired from a 
26 USC 1014. 
decedent), 
"(ii) the stock is not acquired in an exchange to 
which section 351 applies, and 
"(iii) the stock is not acquired from a person the 
ownership of whose stock would, under section 318(a) 
(other than paragaraph (4) thereof), be attributed to the 
person acquiring such stock. 
"(B) DEEMED 
PURCHASE OF STOCK OF SUBSIDIARIES.—If 
stock in a corporation is acquired by purchase (within the 
meaning of subparagraph (A)) and, as a result of such 
acquisition, the corporation 
making 
such 
purchase is 
treated (by reason of section 318(a)) as owning stock in a 3rd 
corporation, the corporation making such purchase shall be 
treated as having purchased such stock in such 3rd corpora-
tion. The corporation 
making such purchase shall be 
treated as purchasing stock in the 3rd corporation by 
reason of the preceding sentence on the first day on which 
the purchasing corporation is considered under section 
318(a) as owning such stock. 
"(4) CONSISTENCY PERIOD.— 
"(A) I N GENERAL.—Except as provided in subparagraph 
(B), the term 'consistency period' means the period consist-
ing of^ 
"(i) the 1-year period before the beginning of the 
12-month acquisition period for the target corporation, 
96 STAT. 488 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(ii) such acquisition period (up to and including the 
acquisition date), and 
"(iii) the 1-year period beginning on the day after the 
acquisition date. 
"(B) 
EXTENSION 
WHERE 
THERE 
IS PLAN.—The 
period 
referred to in subparagraph (A) shall also include any 
period during which the Secretary determines that there 
was in effect a plan to make a qualified stock purchase plus 
1 or more other qualified stock purchases (or asset acquisi-
tions described in subsection (e)) with respect to the target 
corporation or any target affiliate. 
"(5) AFFILIATED GROUP.—The term 'affiliated group' has the 
26 use 1504. 
meaning given to such term by section 1504(a) (determined 
without regard to the exceptions contained in section 1504(b)). 
"(6) TARGET AFFILIATE.— 
"(A) IN GENERAL.—A corporation shall be treated as a 
target affiliate of the target corporation if each of such 
corporations was, at any time during so much of the consist-
ency period as ends on the acquisition date of the target 
corporation, a member of an affiliated group which had the 
same common parent. 
"(B) CERTAIN FOREIGN CORPORATIONS, ETC.—Except as oth-
erwise provided in regulations (and subject to such condi-
tions as may be provided in regulations)— 
"(i) the term 'target affiliate' does not include a 
foreign corporation, a DISC, a corporation described in 
section 934(b), or a corporation to which an election 
under section 936 applies, and 
"(ii) stock held by a target affiliate in a foreign 
corporation or a domestic corporation which is a DISC 
or described in section 1248(e) shall be excluded from 
the operation of this section. 
"(7) 
ACQUISITIONS 
BY PURCHASING 
CORPORATION 
INCLUDE 
ACQUISITIONS BY CORPORATIONS AFFILIATED WITH 
PURCHASING 
CORPORATION.—Except as otherwise provided in regulations, an 
acquisition of stock or assets by any member of an affiliated 
group which includes a purchasing corporation shall be treated 
as made by the purchasing corporation. 
"(i) REGULATIONS.—The Secretary shall prescribe such regulations 
as may be necessary to ensure that the purposes of this section to 
require consistency of treatment of stock and asset purchases with 
respect to a target corporation and its target affiliates (whether by 
treating all of them as stock purchases or as asset purchases) may 
not be circumvented through the use of any provision of law or 
regulations (including the consolidated return regulations)." 
26 u s e 334. 
(b) REPEAL OF SECTION 334(b)(2).—Subsection (b) of section 334 
(relating to limitation of subsidiary) is amended to read as follows: 
"(b) LIQUIDATION OF SUBSIDIARY.— 
"(1) DISTRIBUTION IN COMPLETE LIQUIDATION.—If property is 
received by a corporation in a distribution in a complete liquida-
tion to which section 332(a) applies, the basis of the property in 
the hands of the distributee shall be the same as it would be in 
the hands of the transferor. 
"(2) TRANSFERS TO WHICH SECTION 332(C) APPLIES.—If property 
is received by a corporation in a transfer to which section 332(c) 
applies, the basis of the property in the hands of the transferee 
shall be the same as it would be in the hands of the transferor. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 489 
"(3) DISTRIBUTEE DEFINED.—For purposes of this subsection, 
the term 'distributee' means only the corporation which meets 
the 80-percent stock ownership requirements specified in sec-
tion 332(b)." 
(c) TECHNICAL AMENDMENTS.— 
(1) Subparagraph (E) of section 168(e)(4) (relating to liquida- 
95 Stat. 204. 
tion of subsidiary, etc.) is amended by adding at the end thereof 
the following new sentence: "A similar rule shall apply in the 
case of a deemed liquidation under section 338." 
(2) Clause (i) of section 168(f)(10)(B) is amended by striking out 
"(other than a transaction with respect to which the basis is 
determined under section 334(b)(2))". 
(3) Paragraph (4) of section 318(b) is amended to read as 
26 USC 318. 
follows: 
"(4) section 338(h)(3)(B) (relating to purchase of stock from 
subsidiaries, etc.);". 
(4) Paragraph (2) of section 336(b) is amended by striking out 26 USC 336. 
"334(b)(1)" each place it appears and inserting in lieu thereof 
"334(b)". 
(5) Paragraph (2) of section 337(c) (relating to liquidations to 
26 USC 337. 
which section 332 applies) is amended to read as follows: 
"(2) LIQUIDATIONS TO WHICH SECTION 332 APPLIES.—In the case 
of any sale or exchange following the adoption of a plan of 
complete liquidation, if section 332 applies with respect to such 
liquidation, this section shall not apply." 
(6) Subsection (d) of section 337 is amended by striking out 
"subsection (c)(2)(A)" each place it appears and inserting in lieu 
thereof "subsection (c)(2)". 
(7) Paragraph (1) of section 381(a) is amended by striking out ^6 USC 381. 
", except in a case in which the basis of the assets distributed is 
determined under section 334(b)(2)". 
(8) Subparagraph (B) of section 617(h)(3) is amended by insert- 
26 USC 617. 
ing "338," after "334(b),". 
(9) The table of sections for subpart B of part II of subchapter 
C of chapter 1 is amended by striking out the item relating to 
section 338 and inserting in lieu thereof the following: 
"Sec. 338. Certain stock purchases treated as asset acquisitions." 
(d) EFFECTIVE DATES.— 
26 USC338 note. 
(1) IN GENERAL.—The amendments made by this section shall 
apply to any target corporation (within the meaning of section 
338 of the Internal Revenue Code of 1954 as added by this 
section) with respect to which the acquisition date (within the 
meaning of such section) occurs after August 31, 1982. 
(2) CERTAIN ACQUISITIONS BEFORE SEPTEMBER i, 1982.—If— 
(A) an acquisition date under paragraph (1) occurred after 
August 31, 1980, and before September 1, 1982, 
(B) the target corporation (within the meaning of section 
338 of such Code) is not liquidated before September 1, 1982, 
and 
(C) the purchasing corporation (within the meaning of 
section 338 of such Code) makes, not later than Novem-
ber 15, 1982, an election under section 338 of such Code, 
then the amendments made by this section shall apply to the 
acquisition of such target corporation. 
(3) CERTAIN ACQUISITIONS OF FINANCIAL INSTITUTIONS.—In any 
case in which— 
96 STAT. 490 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(A) there is, on July 22, 1982, a binding contract to 
acquire control (within the meaning of section 368(c) of such 
Code) of any financial institution, 
(B) the approval of one or more regulatory authorities is 
required in order to complete such acquisition, and 
(C) within 90 days after the date of the final approval of 
the last such regulatory authority granting final approval, 
a plan of complete liquidation of such financial institution 
is adopted, 
then the purchasing corporation may elect not to have the 
amendments made by this section apply to the acquisition 
pursuant to such contract. 
Subpart C—Miscellaneous Provisions 
SEC. 225. CLARI^MCATION OF SECTION 368(a)(1)(F). 
26 use 368. 
(a) GENERAL RULE.—Subparagraph (F) of section 368(a)( 1) (defining 
reorganization) is amended by inserting "of one corporation" after 
"place of organization". 
26 use 368 note. 
(b) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendment made by subsection (a) shall apply with respect to 
transactions occurring after August 31, 1982. 
(2) PLANS 
ADOPTED ON OR BEFORE 
AUGUST 
SI, 
1982.—The 
amendment made by subsection (a) shall not apply with respect 
to plans of reorganization adopted on or before August 31, 1982, 
but only if the transaction occurs before January 1, 1983. 
SEC. 226. A M E N D M E N T S RELATING TO BAILOUTS THROUGH USE OF 
HOLDING COMPANIES. 
(a) AMENDMENTS TO SECTION 304.— 
(1) COORDINATION OF SECTIONS 304 AND 351.— 
26 use 304. 
(A) Subsection (b) of section 304 (relating to special rules 
for application of subsection (a)) is amended by adding at 
the end thereof the following new paragaph: 
"(3) COORDINATION WITH SECTION 351.— 
"(A) PROPERTY TREATED AS RECEIVED IN REDEMPTION.— 
Except as otherwise provided in this paragraph, subsection 
(a) (and not part III) shall apply to any property received in 
a distribution described in subsection (a). 
"(B) CERTAIN ASSUMPTIONS OF LIABILITY, ETC.— 
"(i) I N GENERAL.—Subsection (a) shall not apply to 
any liability— 
"(I) assumed by the acquiring corporation, or 
"(II) to which the stock is subject, 
if such liability was incurred by the transferor to 
"Stock." 
acquire the stock. For purposes of the preceding sen-
tence, the term 'stock' means stock referred to in para-
graph (1)(B) or (2)(A) of subsection (a). 
"(ii) EXTENSION OF OBLIGATIONS, ETC.—For purposes 
of clause (i), an extension, renewal, or refinancing of a 
liability which meets the requirements of clause (i) 
shall be treated as meeting such requirements. 
"(C) DISTRIBUTIONS INCIDENT TO FORMATION OF BANK HOLD-
ING COMPANIES.—If— 
"(i) pursuant to a plan, control of a bank is acquired 
, 
and within 2 years after the date on which such control 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 491 
is acquired, stock constituting control of such bank is 
transferred to a BHC in connection with its formation, 
"(ii) incident to the formation of the BHC there is a 
distribution of property described in subsection (a), and 
"(iii) the shareholders of the BHC who receive distri-
butions of such property do not have control of such 
BHC, 
then, subsection (a) shall not apply to any securities 
received by a qualified minority shareholder incident to the 
formation of such BHC. 
"(D) DEFINITIONS AND SPECIAL RULE.—For purposes of 
subparagraph (C) and this subparagraph— 
"(i) QUALIFIED 
MINORITY SHAREHOLDER.—The 
term 
'qualified 
minority shareholder' 
means any share-
holder who owns less than 10 percent (in value) of the 
stock of the BHC. For purposes of the preceding sen-
tence, the rules of paragraph (3) of subsection (c) shall 
apply. 
"(ii) BHC—The term ' B H C means a bank holding 
company (within the meaning of section 2(a) of the 
Bank Holding Company Act of 1956). 
12 USC 1841. 
"(iii) SPECIAL RULE IN CASE OF BHC'S FORMED BEFORE 
1985.—In the case of a BHC which is formed before 
1985, clause (i) of subparagraph (C) shall not apply." 
(B) Subsection (f) of section 351 (relating to cross refer- 
26 USC 351. 
ences) is amended by adding at the end thereof the follow-
ing new paragraph: 
"(5) For coordination of this section with section 304, see section 
304(b)(3)." 
(2) APPLICATION OF SECTION 304 WHERE STOCK IS ACQUIRED IN 
THE TRANSACTION.— 
(A) Subsection (c) of section 304 is amended by redes-
ignating paragraph (2) as paragraph (3) and by inserting 
after paragraph (1) the following new paragraph: 
"(2) STOCK ACQUIRED IN THE TRANSACTION.—For purposes of 
subsection (a)(1)— 
"(A) GENERAL RULE.—Where 1 or more persons in control 
26 USC 304. 
of the issuing corporation transfer stock of such corporation 
in exchange for stock of the acquiring corporation, the stock 
of the acquiring corporation received shall be taken into 
account in determining whether such person or persons are 
in control of the acquiring corporation. 
"(B) DEFINITION OF CONTROL GROUP.—Where 2 or more 
persons in control of the issuing corporation transfer stock 
of such corporation to the acquiring corporation and, after 
the transfer, the transferors are in control of the acquiring 
corporation, the person or persons in control of each corpo-
ration shall include each of the persons who so transfer 
stock." 
(B) Paragraph (3) of section 304(c) (as redesignated by 
paragraph (D) is amended by striking out "paragraph (1)" 
and inserting in lieu thereof "this section". 
(3) DETERMINATION OF EARNINGS AND PROFITS.—Subparagraph 
(A) of section 304(b)(2) (relating to amount constituting dividend) 
is amended to read as follows: 
96 STAT. 492 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(A) WHERE SUBSECTION (a)(1) 
APPLIES.—In the case of 
any acquisition of stock to which paragraph (1) (and not 
paragraph (2)) of subsection (a) of this section applies, the 
determination of the amount which is a dividend shall be 
made as if the property were distributed by the issuing 
corporation to the acquiring corporation and immediately 
thereafter distributed by the acquiring corporation." 
(b) APPLICATION OF SECTION 306 TO CERTAIN STOCK ACQUIRED IN 
26 u s e 306. 
SECTION 351 EXCHANGES.—Subsection (c) of section 306 (defining 
section 306 stock) is amended by adding at the end thereof the 
following new paragraph: 
"(3) CERTAIN STOCK ACQUIRED IN SECTION 351 EXCHANGE.—The 
term 'section 306 stock' also includes any stock which is not 
common stock acquired in an exchange to which section 351 
applied if receipt of money (in lieu of the stock) would have been 
treated as a dividend to any extent. In the case of such stock, 
rules similar to the rules of section 304(b)(2) shall apply for 
purposes of this section." 
26 use 304 note. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to transfers occur-
ring after August 31, 1982, in taxable years ending after such 
date. 
(2) APPROVAL BY FEDERAL RESERVE BOARD.—The amendments 
made by this section shall not apply to transfers pursuant to an 
application to form a BHC filed with the Federal Reserve Board 
before August 16, 1982, if the BHC was formed not later than 
the later of— 
(A) the 90th day after the date of the last required 
approval of any regulatory authority to form such BHC, or 
(B) January 1, 1983. 
For purposes of this paragraph, the term "BHC" means a bank 
holding company (within the meaning of section 2(a) of the 
12 use 1841. 
Bank Holding Company Act of 1956). 
SEC. 227. APPLICATION OF .ATTRIBUTION RULES FOR PURPOSES OF 
SECTIONS 306 AND 356(a)(2). 
(a) APPLICATION FOR PURPOSES OF SECTION 306.—Subsection (c) of 
26 use 306. 
section 306 is amended by adding at the end thereof the following 
new paragraph: 
"(4) APPLICATION OF ATTRIBUTION RULES FOR CERTAIN PUR-
POSES.—For purposes of paragraphs (l)(B)(ii) and (3), section 
318(a) shall apply. For purposes of applying the preceding sen-
tence to paragraph (3), sections 318(a)(2)(C) and 318(a)(3)(C) shall 
be applied without regard to the 50 percent limitation contained 
therein." 
(b) APPLICATION FOR PURPOSES OF SECTION 356(a)(2).—Paragraph 
26 use 356. 
(2) of section 356(a) (relating to treatment as dividend) is amended by 
inserting "(determined with the application of section 318(a)'" after 
"distribution of a dividend" 
(c) EFFECTIVE DATES.— 
26 use 306 note. 
(1) SECTION 306.—The amendment made by subsection (a) 
shall apply to stock received after August 31, 1982, in taxable 
years ending after such date. 
26 use 356 note. 
(2) SECTION 356.—The amendment made by subsection (b) 
shall applv to distributions after August 31, 1982, in taxable 
years ending after such date. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 493 
SEC. 228. WAIVER OF FA.MILY ATTRIBUTION BY ENTITIES. 
(a) GENERAL RULE.—Paragraph (2) of section 302(c) (relating to 26 USC 302. 
constructive ownership of stock) is amended by adding at the end 
thereof the following new subparagraph: 
"(C) SPECIAL RULE FOR WAIVERS BY ENTITIES.— 
"(i) IN GENERAL.—Subparagraph (A) shall not apply 
to a distribution to any entity unless— 
"(I) such entity and each related person meet the 
requirements of clauses (i), (ii), and (iii) of subpara-
graph (A), and 
"(II) each related person agrees to be jointly and 
severally liable for any deficiency (including inter-
est and additions to tax) resulting from an acquisi-
tion described in clause (ii) of subparagraph (A). 
In any case to which the preceding sentence applies, 
the second sentence of subparagraph (A) and subpara-
graph (B)(ii) shall be applied by substituting 'distribu-
tee or any related person' for 'distributee' each place it 
appears. 
"(ii) 
DEFINITIONS.—For 
purposes 
of 
this 
sub-
paragraph— 
"(I) the 
term 
'entity' 
means 
a 
partnership, 
estate, trust, or corporation; and 
"(II) the term 'related person' means any person 
to whom ownership of stock in the corporation is 
(at the time of the distribution) attributable under 
section 318(a)(1) if such stock is further attributa-
ble to the entity under section 318(a)(3).". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
26 USC 302 note, 
shall apply with respect to distributions after August 31, 1982, in 
taxable years ending after such date. 
PART VI—METHODS OF ACCOUNTING 
SEC. 
229. 
MODIFICATION 
OF 
REGULATIONS 
ON 
THE 
COMPLETED 
26 USC 451 note. 
CONTRACT METHOD OF ACCOUNTING. 
(a) IN GENERAL.—The Secretary of the Treasury shall modify the 
income tax regulations relating to accounting for long-term con-
tracts to— 
(1) clarify the time at which a contract is to be considered 
completed, 
(2) clarify when— 
(A) one agreement will be treated as more than one 
contract, and 
(B) two or more agreements will be treated as one con-
tract, and 
(3) properly allocate all costs which directly benefit, or are 
incurred by reason of, the extended period long-term contract 
activities of the taxpayer. 
(b) EXTENDED PERIOD LONG-TERM CONTRACTS DEFINED.—For pur-
poses of this section— 
(1) IN GENERAL.—The term "extended period long-term con-
tract" means any long-term contract which the taxpayer esti-
mates (at the time such contract is entered into) will not be 
completed within the 2-year period beginning on the contract 
commencement date of such contract. 
96 STAT. 494 
PUBLIC LAW 97-248—SEPT. 3, 1982 
26 use 52. 
Regulations. 
(2) CERTAIN CONSTRUCTION CONTRACTS.— 
(A) IN GENERAL.—The term "extended period long-term 
contract" 
does not include any construction 
contract 
entered into by a taxpayer— 
(i) who estimates (at the time such contract is entered 
into) that such contract will be completed within the 
3-year period beginning on the contract commencement 
date of such contract, or 
(ii) whose average annual gross receipts over the 3 
taxable years preceding the taxable year in which such 
contract is entered into do not exceed $25,000,000. 
(B) DETERMINATION OF TAXPAYER'S GROSS RECEIPTS.—For 
purposes of subparagraph (A), the gross receipts of— 
(i) all trades or businesses (whether or not incorpora-
ted) which are under common control with the tax-
payer (within the meaning of section 52(b)), and 
(ii) all members of any controlled group of corpora-
tions of which the taxpayer is a member, 
for the 3 taxable years of such persons preceding the tax-
able year in which the contract described in subparagraph 
(A) is entered into shall be included in the gross receipts of 
the taxpayer for the period described in subparagraph (A). 
The Secretary shall prescribe regulations which provide 
attribution rules that take into account, in addition to the 
persons and entities described in the preceding sentence, 
taxpayers who engage in construction contracts through 
partnerships, joint ventures, and corporations. 
(C) CONTROLLED GROUP OF CORPORATIONS.—The term "con-
trolled group of corporations" has the meaning given to 
such term by section 1563(a), except that— 
(i) "more than 50 percent" shall be substituted for 
"at least 80 percent" each place it appears in section 
15()3(a)(l), and 
(ii) the determination shall be made without regard 
to subsections (a)(4) and (e)(3)(C) of section 1563. 
(3) CONSTRUCTION CONTRACT.—The term "construction con-
tract" means any contract for the building, construction, recon-
struction, or rehabilitation of, or the installation of any integral 
component to, improvements to real property. 
(4) CONTRACT COMMENCEMENT DATE.—The term 
"contract 
commencement date" means, with respect to any contract, the 
first date on which any costs (other than costs such as bidding 
expenses or expenses incurred in connection with negotiating 
the contract) allocable to such contract are incurred. 
(c) EFFECTIVE DATES; SPECIAL RULES.— 
(1) IN GENERAL.—The modifications to regulations which are 
required to be made under paragraphs (1) and (2) of subsection 
(a) shall apply with respect to taxable years ending after Decem-
ber 31, 1982. 
(2) COST ALLOCATION.— 
(A) IN GENERAL.—Any modification to Income Tax Regu-
lation 1.451-3 made under subsection (a)(3) which requires 
additional costs to be allocated to a contract shall apply 
only to the applicable percentage of such additional costs 
incurred in taxable years beginning after December 31, 
1!)82, with respect to contracts entered into after such date. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 495 
(B) APPLICABLE PERCENTAGE.—For purposes of subpara-
graph (A), the applicable percentage shall be determined in 
accordance with the following table: 
"If the taxable year begins 
in calendar year: 
The applicable percentage is: 
1983 
33Vii 
1984 
66% 
1985 or thereafter 
100.". 
(3) SPECIAL RULES.— 
(A) TIME OF COMPLETION.—Any contract of a taxpayer 
which would (but for this paragraph) be treated as having 
been completed prior to the first taxable year of such 
taxpayer ending after December 31, 1982, solely by reason 
of any modification to regulations made under subsection 
(a)(1), shall be treated as having been completed on the first 
day of such taxable year. 
(B) AGGREGATION AND SEVERANCE.—Any contract of a 
taxpayer which would (but for this paragraph) be treated as 
having been completed prior to the first taxable year of 
such taxpayer ending after December 31, 1982— 
(i) solely by reason of any modification to regulations 
made under subsection (a)(2), or 
(ii) solely by reason of any modifications to regula-
tions made under both paragraphs (1) and (2) of subsec-
tion (a), 
shall be treated as having been completed on the first day 
after December 31, 1982, on which any contract which was 
severed from such contract (by reason of the modifications 
made by subsection (a)(2)) is completed (determined after 
the application of any modifications to regulations made 
under subsection (a)(1)). 
SEC. 230. ANNUAL ACCRUAL METHOD OF ACCOUNTING EXTENDED TO 
CERTAIN PARTNERSHIPS. 
(a) IN GENERAL.—Section 447(g) (relating to certain annual 
^^ ^SC 447. 
accrual accounting methods) is amended— 
(1) by inserting "or qualified partnership" after "corporation" 
each place it appears in paragraph (1), 
(2) by amending paragraph (3) to read as follows: 
"(3) CERTAIN NONRECOGNITION TRANSFERS.—For purposes of 
this subsection, if— 
"(A) a corporation acquired substantially all the assets of 
a qualified farming trade or business from another corpora-
tion in a transaction in which no gain or loss was recog-
nized to the transferor or transferee corporation, or 
"(B) a qualified partnership acquired substantially all the 
assets of a qualified farming trade or business from one of 
its partners in a transaction to which section 721 applies, 
the transferee corporation or qualified partnership shall be 
deemed to have computed its taxable income on an annual 
accrual method of accounting during the period for which the 
transferor corporation or partnership computed its taxable 
income from such trade or business on an annual accrual 
method.", and 
(3) by adding at the end thereof the following new paragraph: 
"(4) QUALIFIED PARTNERSHIP DEFINED.—For purposes of this 
subsection— 
96 STAT. 496 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(A) QUALIFIED PARTNERSHIP.—The term 'qualified part-
nership' means a partnership which is engaged in a quali-
fied farming trade or business and each of the partners of 
which is a corporation other than— 
"(i) an electing small business corporation (within 
26 use 1371. 
the meaning of section 1371(b)), or 
"(ii) a personal holding company (within the meaning 
of section 542(a)). 
"(B) QUALIFIED FARMING TRADE OR BUSINESS.—The term 
'qualified farming trade or business' means the trade or 
business of farming sugar cane.". 
26 use 447 note. 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31, 1981. 
PART VII—ORIGINAL ISSUE DISCOUNT 
SEC. 231. ORIGINAL ISSUE DISCOUNT TAKEN INTO ACCOUNT ON BASIS OF 
CONSTANT INTEREST RATE. 
(a) IN GENERAL.—Part IV of subchapter P of chapter 1 (relating to 
special rules for determining capital gains and losses) is amended by 
inserting after section 1232 the following new section: 
26 u s e 1232A. 
"SEC. 1232A. ORIGINAL ISSUE DISCOUNT. 
"(a) ORIGINAL ISSUE DISCOUNT ON BONDS ISSUED AFTER JULY 1, 
1982, INCLUDED IN INCOME ON BASIS OF CONSTANT INTEREST RATE.— 
"(1) GENERAL RULE.—For purposes of this subtitle, there shall 
be included in the gross income of the holder of any bond having 
an original issue discount issued after July 1, 1982 (and which is 
a capital asset in the hands of the holder) an amount equal to 
the sum of the daily portions of the original issue discount for 
each day during the taxable year on which such holder held 
such bond. 
"(2) EXCEPTIONS.—Paragraph (1) shall not apply to— 
"(A) NATURAL PERSONS.—Any obligation issued by a natu-
ral person. 
"(B) TAX-EXEMPT OBLIGATIONS.—Any obligation if— 
"(i) the interest on such obligation is not includible in 
gross income under section 103, or 
"(ii) the interest on such obligation is exempt from 
tax (without regard to the identity of the holder) under 
any other provision of law. 
"(C) SHORT-TERM GOVERNMENT OBLIGATIONS.—Any short-
term Government obligation (within the meaning of section 
1232(a)(3)). 
"(D) UNITED STATES SAVINGS BONDS.—Any United States 
savings bond. 
"(3) DETERMINATION OF DAILY PORTIONS.—For purposes of 
paragraph (1), the daily portion of the original issue discount on 
any bond shall be determined by allocating to each day in any 
bond period its ratable portion of the increase during such bond 
period in the adjusted issue price of the bond. For purposes of 
the preceding sentence, the increase in the adjusted issue price 
for any bond period shall be an amount equal to the excess (if 
any) of— 
"(A) the product of— 
"(i) the adjusted issue price of the bond at the begin-
ning of such bond period, and 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 497 
"(ii) the yield to maturity (determined on the basis of 
compounding at the close of each bond period), over 
"(B) the sum of the amounts payable as interest on such 
bond during such bond period. 
"(4) ADJUSTED ISSUE PRICE.—For purposes of this subsection, 
the adjusted issue price of any bond at the beginning of any 
bond period is the sum of— 
"(A) the issue price of such bond, plus 
"(B) the adjustments under this subsection to such issue 
price for all periods before the first day of such bond period. 
"(5) BOND PERIOD.—Except as otherwise provided in regula-
tions prescribed by the Secretary, the term 'bond period' means 
a 1-year period (or the shorter period to maturity) beginning on 
the day in the calendar year w^hich corresponds to the date of 
original issue of the bond. 
"(6) REDUCTION IN CASE OF CERTAIN SUBSEQUENT HOLDERS.— 
For purposes of this subsection, in the case of any purchase of a 
bond to which this subsection applies after its original issue, the 
daily portion shall not include an amount (determined at the 
time of purchase) equal to the excess (if any) of— 
"(A) the cost of such bond incurred by the purchaser, over 
"(B) the issue price of such bond, increased by the sum of 
the daily portions for such bond for all days before the date 
of purchase (computed without regard to this paragraph), 
divided by the number of days beginning on the date of such 
purchase and ending on the day before the stated maturity date. 
"(7) REGULATION AUTHORITY.—The Secretary may prescribe 
regulations providing that where, by reason of varying rates of 
interest, put or call options, or other circumstances, the inclu-
sion under paragraph (1) for the taxable year does not accu-
rately reflect the income of the holder, the proper amount of 
income shall be included for such taxable year (and appropriate 
adjustments shall be made in the amounts included for subse-
quent taxable years). 
"(b) RATABLE INCLUSION RETAINED FOR CORPORATE BONDS ISSUED 
BEFORE JULY 2, 1982.— 
"(1) GENERAL RULE.—There shall be included in the gross 
income of the holder of any bond issued by corporation after 
May 27, 1969, and before July 2, 1982 (and which is a capital 
asset in the hands of the holder)— 
"(A) the ratable monthly portion of original issue dis-
count, multiplied by 
"(B) the number of complete months (plus any fractional 
part of a month determined under paragraph (3)) such 
holder held such bond during the taxable year. 
"(2) DETERMINATION OF RATABLE MONTHLY PORTION —Except 
as provided in paragraph (4), the ratable monthly portion of 
original issue discount shall equal— 
"(A) the original issue discount, divided by 
"iB) the number of complete months from the date of 
original issue to the stated maturity date of the bond. 
"(3) MONTH DEFINED.—For purposes of this subsection, a com-
plete month commences with the date of original issue and the 
corresponding day of each succeeding calendar month (or the 
last day of a calendar month in which there is no corresponding 
day). In any case where a bond is acquired on any day other 
than a day determined under the preceding sentence, the rat-
96 STAT. 498 
PUBLIC LAW 97-248—SEPT. 3, 1982 
able monthly portion of original issue discount for the complete 
month (or partial month) in which such acquisition occurs shall 
be allocated between the transferor and the transferee in 
accordance with the number of days in such complete (or par-
tial) month each held the bond. 
"(4) REDUCTION IN CASE OF CERTAIN SUBSEQUENT HOLDERS.— 
For purposes of this subsection, the ratable monthly portion of 
original issue discount shall not include an amount, determined 
at the time of any purchase after the original issue of the bond, 
equal to the excess of— 
"(A) the cost of such bond incurred by the holder, over 
"(B) the issue price of such bond, increased by the portion 
of original discount previously includible in the gross 
income of any holder (computed without regard to this 
paragraph), 
divided by the number of complete months (plus any fractional 
part of a month) from the date of such purchase to the stated 
maturity date of such bond. 
"(c) DEFINITIONS AND SPECIAL RULES.— 
"(1) BOND INCLUDES OTHER EVIDENCES OF INDEBTEDNESS.—For 
purposes of this section, the term 'bond' means a bond, deben-
ture, note, or certificate or other evidence of indebtedness. 
"(2) PURCHASE DEFINED.—For purposes of this section, the 
term 'purchase' means any acquisition of a bond, but only if the 
basis of the bond is not determined in whole or in part by 
reference to the adjusted basis of such bond in the hands of the 
26 use 1014. 
person from whom acquired, or under section 1014(a) (relating 
to property acquired from a decedent). 
"(3) ORIGINAL ISSUE DISCOUNT, ETC.—For purposes of this sec-
tion, the terms 'original issue discount', 'issue price', and 'date 
of original issue' shall have the respective meanings given to 
such terms by section 1232(b). 
"(4) EXCEPTIONS.—This section shall not apply to any holder— 
"(A) who has purchased the bond at a premium, or 
"(B) which is a life insurance company to which section 
818(b) applies. 
"(5) BASIS ADJUSTMENTS.—The basis of any bond in the hands 
of the holder thereof shall be increased by the amount included 
in his gross income pursuant to this section." 
(b) DEDUCTION 
DETERMINED ON BASIS OF CONSTANT 
INTEREST 
26 use 163. 
RATE.—Section 163 (relating to deduction for interest) is amended by 
redesignating subsection (e) as subsection (0 and by inserting after 
subsection (d) the following new subsection: 
"(e) ORIGINAL ISSUE DISCOUNT.— 
"(1) IN GENERAL.—In the case of any bond issued after July 1, 
1982, by an issuer (other than a natural person), the portion of 
the original issue discount with respect to such bond which is 
allowable as a deduction to the issuer for any taxable year shall 
be equal to the aggregate daily portions of the original issue 
discount for days during such taxable year. 
"(2) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
"(A) BOND.—The term 'bond' has the meaning given to 
such term by section 1232A(c)(l). 
"(B) DAILY PORTIONS.—The daily portion of the original 
issue discount for any day shall be determined under sec-
tion 1232A(a) (without regard to paragraphs (2)(B) and (6) 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 499 
thereof and without regard to the second sentence of section 
1232(b)(1))." 
(c) CONFORMING AMENDMENTS.— 
(1) Subparagraph (A) of section 1232(a)(2) is amended— 
26 USC 1232. 
(A) by striking out "by a corporation after May 27, 1969" 
and inserting in lieu thereof "by a corporation after May 
27, 1969, or by a government or political subdivision thereof 
after July 1, 1982", 
(B) by striking out "as provided in paragraph (3)(B)" and 
inserting in lieu thereof "without regard to subsection (a)(6) 
or (b)(4) of section 1232A (or the corresponding provisions of 
prior law)", and 
(C) by striking out the subparagraph heading and insert-
ing in lieu thereof the following: 
"(A) CORPORATE BONDS ISSUED AFTER MAY 27, 1969, AND 
GOVERNMENT BONDS ISSUED AFTER JULY 1, 1982.—". 
(2) Subparagraph (B) of section 1232(a)(2) is amended— 
(A) by striking out "by a government or political subdivi-
sion thereof after December 31, 1954" and inserting in lieu 
thereof "by a government or political subdivision thereof 
after December 31, 1954, and on or before July 1, 1982,", 
and 
(B) by striking out "GOVERNMENT BONDS" in the subpara-
graph heading and inserting in lieu thereof "GOVERNMENT 
BONDS ISSUED ON OR BEFORE JULY 1, 1982". 
(3) Subparagraph (D) of section 1232(a)(2) is amended by strik-
ing out "This section" and inserting in lieu thereof "This sec-
tion and sections 1232A and 1232B". 
(4) Subsection (a) of section 1232 is amended by striking out 
paragraph (3) and by redesignating paragraph (4) as paragraph 
(3). 
(d) CLERICAL AMENDMENT.—The table of sections for such part IV 
is amended by inserting after the item relating to section 1232 the 
following: 
"Sec. 1232A. Original issue discount." 
(e) TRANSITIONAL RULE.—For purposes of the amendments made 
26 USC 1232A 
by this section, any evidence of indebtedness issued pursuant to a 
"°*'^' 
written commitment which was binding on July 1, 1982, and at all 
times thereafter shall be treated as issued on July 1, 1982. 
SEC. 232. TAX TREATMENT OF STRIPPED BONDS. 
(a) IN GENERAL.—Part IV of subchapter P of chapter 1 (relating to 
special rules for determining capital gains and losses) is amended by 
inserting after section 1232A the following new section: 
"SEC. 1232B. TAX TREATMENT OF STRIPPED BONDS, 
26 USC 1232B. 
"(a) INCLUSION IN INCOME AS IF BOND AND COUPONS WERE ORIGI-
NAL ISSUE DISCOUNT BONDS.—If any person purchases after July 1, 
1982, a stripped bond or a stripped coupon, then such bond or 
coupon while held by such purchaser (or by any other person whose 
basis is determined by reference to the basis in the hands of such 
purchaser) shall be treated for purposes of section 1232A(a) as a 
•^"^«. P- 496. 
bond originally issued by a corporation on the purchase date and 
having an original issue discount equal to the excess (if any) of— 
"(1) the stated redemption price at maturity (or, in the case of 
a coupon, the amount payable on the due date of such coupon), 
over 
96 STAT. 500 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(2) such bond's or coupon's ratable share of the purchase 
price. 
For purposes of paragraph (2), ratable shares shall be determined on 
the basis of their respective fair market values on the date of 
purchase. 
"(b) TAX TREATMENT OF PERSON STRIPPING BOND.—For purposes of 
this subtitle, if any person strips 1 or more coupons from a bond and 
after July 1, 1982, disposes of the bond or such coupon— 
"(1) such person shall include in gross income an amount 
equal to the interest accrued on such bond before the time that 
such coupon or bond was disposed of (to the extent such interest 
has not theretofore been included in such person's gross 
income), 
"(2) the basis of the bond and coupons shall be increased by 
the amount of the accrued interest described in paragraph (1), 
"(3) the basis of the bond and coupons immediately before the 
disposition (as adjusted pursuant to paragraph (2)) shall be 
allocated among the items retained by such person and the 
items disposed of by such person on the basis of their respective 
fair market values, and 
"(4) for purposes of subsection (a), such person shall be treated 
as having purchased on the date of such disposition each such 
item which he retains for an amount equal to the basis allocated 
to such item under paragraph (3). 
A rule similar to the rule of paragraph (4) shall apply in the case of 
any person whose basis in any bond or coupon is determined by 
reference to the basis of the person described in the preceding 
sentence. 
"(c) RETENTION OF EXISTING LAW FOR STRIPPED BONDS PURCHASED 
BEFORE JULY 2, 1982.—If a bond issued at any time with interest 
coupons— 
"(1) is purchased after August 16, 1954, and before January 1, 
1958, and the purchaser does not receive all the coupons which 
first become payable more than 12 months after the date of the 
purchase, or 
"(2) is purchased after December 31, 1957, and before July 2, 
1982, and the purchaser does not receive all the coupons which 
first become payable after the date of the purchase, 
then the gain on the sale or other disposition of such bond by such 
purchaser (or by a person whose basis is determined by reference to 
the basis in the hands of such purchaser) shall be considered as 
ordinary income to the extent that the fair market value (deter-
mined as of the time of the purchase) of the bond with coupons 
attached exceeds the purchase price. If this subsection and section 
26 use 1232. 
1232(a)(2)(A) apply with respect to gain realized on the sale or 
exchange of any evidence of indebtedness, then section 1232(a)(2)(A) 
shall apply with respect to that part of the gain to which this 
subsection does not apply. 
"(d) SPECIAL RULES FOR TAX-EXEMPT OBLIGATIONS.—In the case of 
any obligation the interest on which is not includible in gross 
income under section 103 or is exempt from tax (without regard to 
the identity of the holder) under any other provision of law— 
"(1) subsections (a) and (b)(1) shall not apply, 
"(2) the rules of subsection (b)(4) shall apply for purposes of 
subsection (c), and 
"(3) subsection (c) shall be applied without regard to the 
requirement that the bond be purchased before July 2, 1982. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 501 
"(e) 
DEFINITIONS 
AND SPECIAL 
RULES.—For 
purposes 
of 
this 
section— 
"(1) BOND.—The term 'bond' means a bond, debenture, note, 
or certificate or other evidence of indebtedness. 
"(2) STRIPPED BOND.—The term 'stripped bond' means a bond 
issued at any time with interest coupons where there is a 
separation in ownership between the bond and any coupon 
which has not yet become payable. 
"(3) STRIPPED COUPON.—The term 'stripped coupon' means 
any coupon relating to a stripped bond. 
"(4) 
STATED 
REDEMPTION 
PRICE 
AT MATURITY.—The 
term 
'stated redemption price at maturity' has the meaning given 
such term by the third sentence of section 1232(b)(1). 
"(5) COUPON.—The term 'coupon' includes any right to receive 
interest on a bond (whether or not evidenced by a coupon). This 
paragraph shall apply for purposes of subsection (c) only in the 
case of purchases after July 1, 1982. 
"(f) REGULATION AUTHORITY.—The Secretary may prescribe regu-
lations providing that where, by reason of varying rates of interest, 
put or call options, extendable maturities, or other circumstances, 
the tax treatment under this section does not accurately reflect the 
income of the bolder of a stripped coupon or stripped bond, or of the 
person disposing of such bond or coupon, as the case may be, for any 
period, such treatment shall be modified to require that the proper 
amount of income be included for such period." 
(b) CONFORMING AMENDMENT.—Section 1232 is amended by strik- 
26 USC 1232. 
ing out subsections (c) and (d). 
(c) CLERICAL AMENDMENT.—The table of sections for such part IV 
is amended by inserting after the item relating to section 1232A the 
following: 
"Sec. 1232B. Tax treatment of stripped bonds." 
PART VIII—OTHER BUSINESS PROVISIONS 
SEC. 233. TARGETED JOBS TAX CREDIT. 
(a) 2-YEAR EXTENSION.—Paragraph (3) of section 51(c) (relating to 
95 Stat. 260. 
termination of credit for employment of certain new employees) is 
amended by striking out "1982" and inserting in lieu thereof "1984". 
(b) QUALIFIED SUMMER YOUTH EMPLOYEE.—Subsection (d) of sec-
tion 51 (defining members of targeted groups) is amended— 
(1) by striking out "or" at the end of subparagraph (H), 
(2) by striking out the period at the end of subparagraph (I) 
and inserting in lieu thereof ", or", 
(3) by inserting after subparagraph (I) the following new 
subparagraph: 
"(J) a qualified summer youth employee.", 
(4) by redesignating paragraphs (12), (13), (14), and (15) as 
paragraphs (13), (14), (15), and (16), respectively, and 
(5) by inserting after 
paragraph (11) the following new 
paragraph: 
"(12) QUALIFIED SUMMER YOUTH EMPLOYEE.— 
"(A) IN GENERAL.—The term 'qualified summer youth 
employee' means an individual— 
"(i) who performs services for the employer between 
May 1 and September 15, 
96 STAT. 502 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(ii) who is certified by the designated local agency as 
having attained age 16 but not 18 on the hiring date (as 
defined in paragraph (14)), 
"(iii) who has not been an employee of the employer 
during any period prior to the 90-day period described 
in subparagraph (BXiii), and 
"(iv) who is certified by the designated local agency 
as being a member of an economically disadvantaged 
family (as determined under paragraph (11)). 
"(B) 
SPECIAL 
RULES 
FOR DETERMINING 
AMOUNT 
OF 
CREDIT.—For purposes of applying this subpart to wages 
paid or incurred to any qualified summer youth employee— 
"(i) subsection (a)(1) shall be applied by substituting 
*85 percent' for '50 percent', 
"(ii) subsections (a)(2) and (b)(3) shall not apply, 
"(iii) subsection (b)(2) shall be applied by substituting 
'any 90-day period between May 1 and September 15' 
for 'the 1-year period beginning with the day the indi-
vidual begins work for the employer', and 
"(iv) subsection (b)(4) shall be applied by substituting 
'$3,000' for '$6,000'. 
"(C) SPECIAL RULE FOR CONTINUED EMPLOYMENT FOR SAME 
EMPLOYER.—In the case of an individual who, with respect 
to the same employer, is certified as a member of another 
targeted group after such individual has been a qualified 
summer youth employee, paragraph (14) shall be applied by 
substituting 'certified' for 'hired by the employer'." 
(c) TERMINATION OF INVOLUNTARILY TERMINATED C E T A EMPLOYEE 
26 u s e 51. 
AS MEMBER OF TARGETED GROUP.—Paragraph (10) of section 51(d) 
(relating to involuntarily terminated CETA employee) is amended 
by adding at the end thereof the following new sentence: "This 
paragraph shall not apply to any individual who begins work for the 
employer after December 31, 1982." 
(d) VOUCHER OR SCRIP 
PAYMENTS TO GENERAL 
RECIPIENTS IN 
QUALIFIED GENERAL ASSISTANCE PROGRAMS.—Subclause (II) of sec-
tion 51(d)(6)(B)(i) (defining qualified general assistance programs) is 
amended by inserting before the comma the following: "or voucher 
or scrip". 
26 u s e 51 note. 
(e) ADDITIONAL AUTHORIZATION OF APPROPRIATIONS; REPORTS.— 
95 Stat. 260. 
Paragraph (2) of section 261(f) of the Economic Recovery Tax Act of 
1981 is amended— 
(1) by inserting after "for fiscal year 1982 the sum of 
$30,000,000" the following: ", and for fiscal years 1983 and 1984 
such sums as may be necessary,"; and 
(2) by inserting at the end thereof the following new sentence: 
"The Secretary of Labor shall each calendar year beginning 
with calendar year 1983 report to the Committee on Ways and 
Means of the House of Representatives and to the Committee on 
Finance of the Senate with respect to the results of the testing 
conducted under subparagraph (A) during the preceding calen-
dar year." 
(f) CERTIFICATIONS.—Effective only with respect to individuals who 
begin work for the taxpayer after May 11, 1982, subparagraph (A) of 
95 Stat. 260. 
section 51(d)(15) (relating to special rules for certifications), as in 
effect before the amendments made by this Act, is amended by 
striking out "before the day" and inserting in lieu thereof "on or 
before the day". 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 503 
(g) EFFECTIVE DATES.— 
26 use 51 note. 
(1) SUBSECTION (b).—The amendments made by subsection (b) 
shall apply to amounts paid or incurred after April 30, 1983, to 
individuals beginning work for the employer after such date. 
(2) SUBSECTION (d).—The amendments made by subsection (d) 
shall apply to amounts paid or incurred after July 1, 1982, to 
individuals beginning work for the employer after such date. 
SEC. 234. ACCELERATED PAYMENT OF INCOME TAX BY CORPORATIONS. 
(a) INCREASE IN AMOUNT OF ESTIMATED TAX REQUIRED TO BE 
PAID.— 
(1) IN GENERAL.—Paragraph (1) of section 6655(b) (relating to 
26 USC 6655. 
amount of underpayment) is amended by striking out "80" each 
place it appears and inserting in lieu thereof "90". 
(2) 
CONFORMING AMENDMENT.—Paragraph 
(3) of section 
6655(d) (relating to exception to imposition of additional tax) is 
amended by striking out "80" and inserting in lieu thereof "90". 
(b) ELIMINATION OF ELECTION WITH RESPECT TO PAYMENT OF 
UNPAID TAXES.— 
(1) IN GENERAL.—Section 6152 (relating to installment pay- 
26 USC 6152. 
ments of tax) is amended by striking out subsections (a) and (b) 
and inserting in lieu thereof the following new subsections: 
"(a) PRIVILEGE TO ELECT TO MAKE FOUR INSTALLMENT PAYMENTS 
B
Y DECEDENT'S ESTATE.—A decedent's estate subject to the tax 
imposed by chapter 1 may elect to pay such tax in four equal 
installments. 
"(b) DATES PRESCRIBED FOR PAYMENT OF FOUR INSTALLMENTS.—In 
any case (other than payment of estimated income tax) in which the 
tax may be paid in four installments, the first installment shall be 
paid on the date prescribed for the payment of the tax, the second 
installment shall be paid on or before 3 months, the third install-
ment on or before 6 months, and the fourth installment on or before 
9 months, after such date.'". 
(2) Conforming amendments.— 
(A) Paragraph (2) of section 832(e) is amended by striking 
26 USC 832. 
out ", as if no election to make installment payments under 
(B) Subsection (b) of section 6081 is amended by striking 
26 USC 6081. 
out "or the first installment thereof required under section 
6152". 
(C) Section 6164 is amended— 
26 USC 6164. 
(i) by striking out the last sentence of subsection (c) 
and inserting in lieu thereof the following new sen-
tence: "If an extension of time under this section 
relates to only a part of the tax, the time for payment 
of the remainder shall be the date on which payment 
would have been required if such remainder had been 
the tax."; and 
(ii) by striking out paragraph (2) of subsection (g) and 
inserting in lieu thereof the following new paragraph: 
"(2) the time for payment of such amount shall be consid-
ered to be the date on which payment would have been 
required if there had been no extension with respect to such 
amount.". 
(c) AMOUNT OF ADDITION TO TAX.—Subsection (a) of section 6655 
26 USC 6655. 
(relating to addition to tax) is amended to read as follows: 
97-200 O—84—pt. 1 
18 : QL3 
96 STAT. 504 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(a) ADDITION TO TAX.—Except as provided in subsections (d) and 
(e), in the case of any underpayment of tax by a corporation— 
"(1) IN GENERAL.—There shall be added to the tax under 
chapter 1 for the taxable year an amount determined at the 
rate established under section 6621 on the amount of the under-
payment for the period of the underpayment. 
"(2) SPECIAL RULE WHERE CORPORATION PAID 80 PERCENT OR 
MORE OF TAX.—In any case in which there would be no under-
payment if subsection (b) were applied by substituting '80 per-
cent' for '90 percent" each place it appears, the addition to tax 
under paragraph (1) shall be equal to 75 percent of the amount 
otherwise determined under paragraph (1)." 
(d) ADDITIONAL EXCEPTION FROM PENALTY FOR UNDERPAYMENTS OF 
ESTIMATED INCOME TAX WHERE A CORPORATION H A S A RECURRING 
PATTERN OF SEASONAL INCOME.— 
26 use 6655. 
(1) IN GENERAL.—Section 6655 (relating to failure by corpora-
tion to pay estimated income tax) is amended by redesignating 
subsections (e), (f), (g), and (h) as subsections (f), (g), (h), and (i), 
respectively, and by inserting after subsection (d) the following 
new subsection: 
"(e) ADDITIONAL EXCEPTION FOR RECURRING SEASONAL INCOME.— 
"(1) IN GENERAL.—Notwithstanding the preceding subsections, 
the addition to the tax with respect to any underpayment of any 
installment shall not be imposed if the total amount of all 
payments of estimated tax made on or before the last date 
prescribed for the payment of such installment equals or 
exceeds 90 percent of the amount determined under paragraph 
(2). 
"(2) DETERMINATION OF AMOUNT.—The amount determined 
under this paragraph for any installment shall be determined 
in the following manner— 
"(A) take the taxable income for all months during,the 
taxable year preceding the filing month, 
"(B) divide such amount by the base period percentage for 
all months during the taxable year preceding the filing 
month, 
"(C) determine the tax on the amount determined under 
subparagraph (B), and 
"(D) multiply the tax computed under subparagraph (C) 
by the base period percentage for the filing month and all 
months during the taxable year preceding the filing month. 
"(8) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
subsection— 
"(A) BASE PERIOD PERCENTAGE.—The base period percent-
age for any period of months shall be the average percent 
which the taxable income for the corresponding months in 
each of the 3 preceding taxable years bears to the taxable 
income for the 8 preceding taxable years. 
"(B) FILING MONTH.—The term 'filing month' means the 
month in which the installment is required to be paid. 
"(C) LIMITATION ON APPLICATION OF SUBSECTION.—This 
subsection shall only apply if the base period percentage for 
any 6 consecutive months of the taxable year equals or 
exceeds 70 percent. 
"(D) REORGANIZATIONS, ETC.—The Secretary may by regu-
lations provide for the determination of the base period 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 505 
percentage in the case of reorganizations, new corporations, 
and other similar circumstances." 
(2) TECHNICAL AMENDMENT.—Subsection (f) of section 6655 (as 
26 USC 6655. 
redesignated by paragraph (D) is amended by striking out "(d), 
and (h)" and inserting in lieu thereof "(d), (e), and (i)" 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
^^^Y^^ ^^^^ 
apply to taxable years beginning after December 31, 1982. 
note. 
Subtitle C—Pensions 
PART I—CONTRIBUTION AND LOAN LIMITS 
SEC. 235. LOWKR CONTRIIU TIO.N AM) MKNKFIT I.I.MITS FOR CERT.4IN 
.\NNHTIKS, KTC. 
(a) LIMIT ON ANNUAL DEFINED BENEFIT LOWERED FROM $136,425 
TO $90,000; LIMIT ON ANNUAL 
DEFINED 
CONTRIBUTION 
LOWERED 
FROM $45,475 TO $30,000.— 
(1) DEFINED BENEFIT PLANS.—Subparagraph (A) of section 
415(b)(1) (relating to limitation for defined benefit plan) is 26 USC 415. 
amended by striking out "$75,000" and inserting in lieu thereof 
"$90,000". 
(2) DEFINED CONTRIBUTION PLANS.—Subparagraph (A) of sec-
tion 415(c)(1) (relating to limitation for defined 
contribution 
plan) is amended by striking out "$25,000" and inserting in lieu 
thereof "$30,000". 
(3) CONFORMING AMENDMENTS.— 
(A) Subparagraph (C) of section 415(b)(2) is amended by 
striking out "$75,000" each place it appears and inserting 
in lieu thereof "$90,000". 
(B) The last sentence of paragraph (7) of section 415(b) is 
amended by striking out "by substituting 
'37,500' for 
'75,000' " and inserting in lieu thereof "by substituting the 
greater of $68,212 or one-half the amount otherwise appli-
cable for such year under paragraph (1)(A) for '$90,000' ". 
(b) COST-OF-LIVING ADJUSTMENTS.— 
(1) ADJUSTMENT TO REFLECT ADJUSTMENTS 
MADE IN SOCIAL 
SECURITY BENEFIT PAYMENTS RATHER THAN PRIMARY INSURANCE 
AMOUNTS.—Paragraph (1) of section 415(d) (relating to cost-of-
living adjustments) is amended by striking out "primary insur-
ance amounts" and inserting in lieu thereof "benefit amounts". 
(2) FREEZE ON COST-OF-LIVING ADJUSTMENTS BEFORE JANUARY i, 
1986.— 
(A) IN GENERAL.—Subsection (d) of section 415 is amended 
by adding at the end thereof the following new paragraph: 
"(3) FREEZE ON ADJUSTMENT TO DEFINED CONTRIBUTION AND 
BENEFIT LIMITS.—The Secretary shall not make any adjustment 
under subparagraph (A) or (B) of paragraph (1) with respect to 
any year beginning after December 31, 1982, and before Janu-
ary 1, 1986." 
(B) CHANGE IN BASE PERIOD TO REFLECT CHANGE IN LIMITS 
AND FREEZE.—Paragraph (2) of section 415(d) (relating to 
base periods) is amended by striking out "1974" and insert-
ing in lieu thereof "1984". 
(3) CONFORMING AMENDMENTS TO DECREASE IN LIMITS.—Para-
graph (1) of section 415(d) is amended— 
96 STAT. 506 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(A) by striking out "$75,000" in subparagraph (A) and 
inserting in lieu thereof "$90,000", and 
(B) by striking out "$25,000" in subparagraph (B) and 
inserting in lieu thereof "$30,000". 
(c) LOWER LIMITS WHERE INDIVIDUAL IS COVERED BY BOTH DEFINED 
BENEFIT PLAN AND DEFINED CONTRIBUTION P L A N . — 
(1) SUM OF DEFINED BENEFIT PLAN FRACTION AND DEFINED 
CONTRIBUTION PLAN FRACTION CANNOT EXCEED 1.25 FOR DOLLAR 
LIMITS AND 1.4 FOR PERCENTAGE LIMITS.—Paragraph (1) of section 
26 use 415. 
415(e) (relating to limitation in case of defined benefit plan and 
defined contribution plan for same employee) is amended by 
striking out "1.4" and inserting in lieu thereof "1.0". 
(2) DEFINED BENEFIT AND CONTRIBUTION PLAN FRACTIONS.— 
(A) DEFINED BENEFIT PLAN FRACTION.—Subparagraph (B) 
of section 415(e)(2) (defining defined benefit plan fraction) is 
amended to read as follows: 
"(B) the denominator of which is the lesser of— 
"(i) the product of 1.25, multiplied by the dollar 
limitation in effect under subsection (b)(1)(A) for such 
year, or 
"(ii) the product of— 
"(I) 1.4, multiplied by 
"(II) the amount 
which may be taken 
into 
account under subsection (b)(1)(B) with respect to 
such individual under the plan for such year." 
(B) 
DEFINED 
CONTRIBUTION PLAN 
FRACTION.—Subpara-
graph (B) of section 415(e)(3) (defining defined contribution 
plan fraction) is amended to read as follows: 
"(B) the denominator of which is the sum of the lesser of 
the following amounts determined for such year and for 
each prior year of service with the employer: 
"(i) the product of 1.25, multiplied by the dollar 
limitation in effect under subsection (c)(1)(A) for such 
year (determined without regard to subsection (c)(6)), or 
"(ii) the product of— 
"(I) 1.4, multiplied by— 
"(II) the amount 
which may be taken 
into 
account under subsection (c)(1)(B) (or subsection (c) 
(7) or (8), if applicable) with respect to such individ-
ual under such plan for such year." 
(d) TRANSITION RULES FOR DEFINED CONTRIBUTION FRACTION.— 
Section 415(e) is amended by adding at the end thereof the following 
new paragraph: 
"(6) 
SPECIAL TRANSITION RULE FOR DEFINED CONTRIBUTION 
FRACTION F O R YEARS ENDING AFTER DECEMBER 3 1 , 1 9 8 2 . — 
"(A) IN GENERAL.—At the election of the plan administra-
tor, in applying paragraph (3) with respect to any year 
ending after December 31, 1982, the amount taken into 
account under paragraph (3)(B) with respect to each partici-
pant for all years ending before January 1, 1983, shall be an 
amount equal to the product of— 
"(i) the amount determined under paragraph (3)(B) 
(as in effect for the year ending in 1982) for the year 
ending in 1982, multiplied by 
"(ii) the transition fraction. 
"(B) TRANSITION FRACTION.—The term 'transition 
frac-
tion' means a fraction— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 507 
"(i) the numerator of which is the lesser of— 
"(I) $51,875, or 
"(II) 1.4, multiplied by 25 percent of the compen-
sation of the participant for the year ending in 
1981, and 
"(ii) the denominator of which is the lesser of— 
"(I) $41,500, or 
"(II) 25 percent of the compensation of the par-
ticipant for the year ending in 1981." 
(e) ACTUARIAL ADJUSTMENTS.— 
(1) ACTUARIAL ADJUSTMENTS FOR EARLY RETIREMENT MADE BY 
REFERENCE TO AGE 62 (INSTEAD OF 55).—Subparagraph (O of 
section 415(b)(2) (relating to adjustments where benefit begins 
26 USC 415. 
before age 55) is amended by striking out "55" each place it 
appears and inserting in lieu thereof "62". 
(2) $75,000 FLOOR ON ACTUARIAL ADJUSTMENT WHERE BENEFIT 
BEGINS BEFORE 62.—Subparagraph (C) of section 415(b)(2) is 
amended by adding at the end thereof the following new sen-
tence: "The reduction under this subparagraph shall not reduce 
the limitation of paragraph (1)(A) below— 
"(i) if the benefit begins at or after age 55, $75,000, or 
"(ii) if the benefit begins before age 55, the amount 
which is the equivalent of the $75,000 limitation for age 
55." 
(3) ACTUARIAL ADJUSTMENTS WHERE BENEFIT BEGINS AFTER AGE 
65.—Paragraph (2) of section 415(b) is amended by adding at the 
end thereof the following new subparagraph: 
"(D) ADJUSTMENT TO $90,OOO LIMITATION WHERE BENEFIT 
BEGINS AFTER AGE 65.—If the retirement income benefit 
under the plan begins after age 65, the determination as to 
whether the $90,000 limitation set forth in paragraph (1)(A) 
has been satisfied shall be made, in accordance with regula-
tions prescribed by the Secretary, by adjusting such benefit 
so that it is equivalent to such a benefit beginning at age 
65." 
(4) LIMITATIONS ON ACTUARIAL ADJUSTMENTS UNDER SECTION 
415(b)(2).—Paragraph (2) of section 415(b) is amended by 
adding at the end thereof the following new subparagraph: 
"(E) LIMITATION ON CERTAIN ASSUMPTIONS.— 
"(i) For purposes of adjusting any benefit under sub-
paragraph (B) or (C), the interest rate assumption shall 
not be less than the greater of 5 percent or the rate 
specified in the plan. 
"(ii) For purposes of adjusting any benefit 
under 
subparagraph (D), the interest rate assumption shall 
not be greater than the lesser of 5 percent or the rate 
specified in the plan. 
"(iii) For purposes of adjusting any benefit under 
subparagraph (B), (C), or (D), no adjustments 
under 
subsection (d)(1) shall be taken into account before the 
year for which such adjustment first takes 
effect." 
(f) LIMITATIONS ON DEDUCTIBILITY OF CONTRIBUTIONS.—Section 404 
95 Stat. 293 
(relating to contributions of an employer to an employee's trust, etc.) 
is amended by adding at the end thereof the following new subsec-
tion: 
"(j) SPECIAL RULES RELATING TO APPLICATION WITH SECTION 415.— 
96 STAT. 508 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(1) N o DEDUCTION IN EXCESS OF SECTION 415 LIMITATION.—In 
computing the amount of any deduction allowable under para-
graph (1), (2), (3), (4), (7), or (10) of subsection (a) for any year— 
"(A) in the case of a defined benefit plan, there shall not 
be taken into account any benefits for any year in excess of 
26 use 415. 
any limitation on such benefits under section 415 for such 
year, or 
"(B) in the case of a defined contribution plan, the 
amount of any contributions otherwise taken into account 
shall be reduced by any annual additions in excess of the 
limitation under section 415 for such year. 
"(2) N o ADVANCE FUNDING OF COST-OF-LIVING ADJUSTMENTS.— 
For purposes of clause (i), (ii) or (iii) of subsection (a)(1)(A), and 
in computing the full funding limitation, there shall not be 
taken into account any adjustments under section 415(d)(1) for 
any year before the year for which such adjustment first takes 
effect." 
26 u s e 415 note. 
(g) EFFECTIVE DATES.— 
(1) I N GENERAL.— 
(A) N E W PLANS.—In the case of any plan which is not in 
existence on July 1, 1982, the amendments made by this 
section shall apply to years ending after July 1, 1982. 
(B) EXISTING PLANS.— 
(i) In the case of any plan which is in existence on 
July 1, 1982, the amendments made by this section 
shall apply to years beginning after December 31, 1982. 
(ii) PLAN REQUIREMENTS.—A plan shall not be treated 
as failing to meet the requirements of section 401(a)(16) 
of the Internal Revenue Code of 1954 for any year 
beginning before January 1, 1984, merely because such 
plan provides for benefit or contribution limits which 
are in excess of the limitations under section 415 of 
such Code, as amended by this section. The preceding 
sentence shall not apply to any plan which provides 
such limits in excess of the limitation under section 415 
of such Code before such amendments. 
(2) AMENDMENTS RELATED TO COST-OF-LIVING ADJUSTMENTS.— 
(A) IN GENERAL.—Except as provided in subparagraph (B), 
the amendments made by subsection (b) shall apply to 
adjustments for years beginning after December 31, 1982. 
(B) ADJUSTMENT PROCEDURES.—The amendments made by 
subsections (b)(1) and (b)(2)(B) shall apply to adjustments for 
years beginning after December 31, 1985. 
(3) TRANSITION RULE WHERE THE SUM OF DEFINED CONTRIBU-
TION AND DEFINED BENEFIT PLAN FRACTIONS EXCEEDS 1.0.—In the 
case of a plan which satisfied the requirements of section 415 of 
the Internal Revenue Code of 1954 for the last year beginning 
before January 1, 1983, the Secretary of the Treasury or his 
delegate shall prescribe regulations under which an amount is 
subtracted from the numerator of the defined contribution plan 
fraction (not exceeding such numerator) so that the sum of the 
defined benefit plan fraction and the defined contribution plan 
fraction computed under section 415(e)(1) of the Internal Reve-
Ante, p. 506. 
nue Code of 1954 (as amended by the Tax Equity and Fiscal 
Responsibility Act of 1982) does not exceed 1.0 for such year. 
(4) RIGHT TO HIGHER ACCRUED DEFINED BENEFIT PRESERVED.— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 509 
(A) IN GENERAL.—In the case of an individual who is a 
participant before January 1, 1983, in a defined benefit plan 
which is in existence on July 1, 1982, and with respect to 
which the requirements of section 415 of such Code have 
been met for all years, if such individual's current accrued 
benefit under such plan exceeds the limitation of subsection 
(b) of section 415 of the Internal Revenue Code of 1954 (as 
amended by this section), then (in the case of such plan) for 
purposes of subsections (b) and (e) of such section, the 
limitation of such subsection (b) with respect to such indi-
vidual shall be equal to such current accrued benefit. 
(B) CURRENT ACCRUED BENEP^IT DEFINED.— 
(i) IN GENERAL.— For purposes of this paragraph, the 
term "current accrued benefit" means the individual's 
accrued benefit (at the close of the last year beginning 
before January 1, 1983) when expressed as an annual 
benefit (within the meaning of section 415(b)(2) of such 
26 USC 415. 
Code as in effect before the amendments made by this 
Act). 
(ii) SPECIAL RULE.—For purposes of determining the 
amount of any individual's current accrued benefit— 
(I) no change in the terms and conditions of the 
plan after July 1, 1982, and 
(II) no cost-of-living adjustment occurring after 
July 1, 1982, 
shall be taken into account. 
(5) SPECIAL RULE FOR COLLECTIVE BARGAINING AGREEMENTS.— 
In the case of a plan maintained on the date of the enactment of 
this Act pursuant to 1 or more collective bargaining agreements 
between employee representatives and 1 or more employers, the 
amendments made by this section and section 253 (relating to 
age 70 V2) shall not apply to years beginning before the earlier 
o f -
(A) 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), or 
(B) January 1, 1986. 
For purposes of subparagraph (A), any plan amendment made 
pursuant to a collective bargaining agreement relating to the 
plan which amends the plan solely to conform to any require-
ment added by this section and section 253 shall not be treated 
as a termination of such collective bargaining agreement. 
SKC. 2;jfi. LOANS TRKATKI) AS DI.STRIBl TIONS. 
(a) GENERAL RULE.—Section 72 (relating to annuities and certain 
95 Stat. 278. 
proceeds of endowment and life insurance contracts) is amended by 
redesignating subsection (p) as subsection (q) and by inserting after 
subsection (o) the following new subsection: 
"(p) LOANS TREATED AS DISTRIBUTIONS.—For purposes of this 
section — 
"(1) TREATMENT AS DISTRIBUTIONS.— 
"(A) LOANS.—If during any taxable year a participant or 
beneficiary receives (directly or indirectly) any amouiit as a 
loan from a qualified employer plan, such amount shall be 
treated as having been received by such individual as a 
distribution under such plan. 
96 STAT. 510 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(B) ASSIGNMENTS OR PLEDGES.—If during any taxable 
year a participant or beneficiary assigns (or agrees to 
assign) or pledges (or agrees to pledge) any portion of his 
interest in a qualified employer plan, such portion shall be 
treated as having been received by such individual as a loan 
from such plan. 
"(2) EXCEPTION FOR CERTAIN LOANS.— 
"(A) GENERAL RULE.—Paragraph (1) shall not apply to 
any loan to the extent that such loan (when added to the 
outstanding balance of all other loans from such plan 
whether made on, before, or after August 13, 1982), does not 
exceed the lesser o
f
— 
"(i) $50,000, or 
"(ii) Vz of the present value of the nonforfeitable 
accrued benefit of the employee under the plan (but not 
less than $10,000). 
"(B) REQUIREMENT THAT LOAN BE REPAYABLE WITHIN 5 
YEARS.— 
"(i) IN GENERAL.—Subparagraph (A) shall not apply 
to any loan unless such loan, by its terms, is required to 
be repaid within 5 years. 
"(ii) EXCEPTION FOR HOME LOANS.—Clause (i) shall not 
apply to any loan used to acquire, construct, recon-
struct, or substantially rehabilitate any dwelling unit 
which within a reasonable time is to be used (deter-
mined at the time the loan is made) as a principal 
residence of the participant or a member of the fam-
26 use 267. 
ily (within the meaning of section 267(c)(4)) of the 
participant. 
"(C) RELATED EMPLOYERS AND RELATED PLANS.—For pur-
poses of this paragraph— 
"(i) the rules of subsections (b), (c), and (m) of section 
414 shall apply, and 
"(ii) all plans of an employer (determined after the 
application of such subsections) shall be treated as 1 
plan. 
"(3) QUALIFIED EMPLOYER PLAN, ETC.—For purposes of this 
subsection, the term 'qualified employer plan' means any plan 
which was (or was determined to be) a qualified employer plan 
(as defined in section 219(e)(3) without regard to subparagraph 
(D) thereof). For purposes of this subsection, such term includes 
any government plan (as defined in section 219(e)(4)). 
"(4) 
SPECIAL RULES FOR LOANS, ETC., FROM CERTAIN CON-
TRACTS.—For purposes of this subsection, any amount received 
as a loan under a contract purchased under a qualified 
employer plan (and any assignment or pledge with respect to 
such a contract) shall be treated as a loan under such employer 
plan." 
O
t
)
) TECHNICAL AMENDMENTS.— 
95 Stat. 284. 
(1) Subsection (m) of section 72 is amended by striking out 
26 use 72. 
paragraphs (4) and (8). 
95 Stat. 278. 
(2) Subparagraph (A) of section 72(o)(3) is amended by striking 
out "subsection (m)(4) and (8)" and inserting in lieu thereof 
"subsection (p)". 
26 u s e 72 note. 
(c) EFFECTIVE D A T E . — 
(1) IN GENERAL.—The amendments made by this section shall 
apply to loans, assignments, and pledges made after August 13, 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 511 
1982. For purposes of the preceding sentence, the outstanding 
balance of any loan which is renegotiated, extended, renewed, 
or revised after such date shall be treated as an amount 
received as a loan on the date of such renegotiation, extension, 
renewal, or revision. 
(2) EXCEPTION FOR CERTAIN LOANS USED TO REPAY OUTSTANDING 
OBLIGATIONS.— 
(A) IN GENERAL.—Any qualified refunding loan shall not 
be treated as a distribution by reason of the amendments 
made by this section to the extent such loan is repaid before 
August 14, 1983. 
(B) QUALIFIED REFUNDING LOAN.—For purposes of subpar-
agraph (A), the term "qualified refunding loan" means any 
loan made after August 13, 1982, and before August 14, 
1983, to the extent such loan is used to make a required 
principal payment. 
(C) REQUIRED PRINCIPAL PAYMENT.—For purposes of sub-
paragraph (B), the term "required principal 
payment" 
means any principal repayment on a loan made under the 
plan which was outstanding on August 13, 1982, if such 
repayment is required to be made after August 13, 1982, 
and before August 14, 1983. 
PART II—REPEAL OF SPECIAL LIMITATIONS ON 
PLANS BENEFITING SELF-EMPLOYED INDI-
VIDUALS OR OWNER-EMPLOYEES 
SEC. 237. REPEAL OF SPECIAL QUALIFICATION REQUIREMENTS. 
(a) GENERAL RULE.—Subsection (d) of section 401 (relating to 
26 USC 401. 
additional requirements for qualifications of trusts and plans bene-
fiting owner-employees) is amended— 
(1) by striking out paragraphs (1) through (7), and 
(2) by redesignating paragraphs (9), (10), and (11) as para-
graphs (1), (2), and (3), respectively. 
(b) REPEAL OF LIMITATIONS ON AMOUNT OF COMPENSATION TAKEN 
INTO ACCOUNT AND ON CERTAIN DEFINED BENEFIT PLANS.—Para-
graphs (17) and (18) of section 401(a) are hereby repealed. 
(c) REPEAL OF EXCISE TAX ON EXCESS CONTRIBUTIONS FOR SELF-
EMPLOYED INDIVIDUALS.— 
(1) Section 4972 (relating to tax on excess contributions for 26 USC 4972. 
self-employed individuals) is hereby repealed. 
(2) The table of sections for chapter 43 is amended by striking 
out the item relating to section 4972. 
(d) PENALTY FOR PREMATURE 
WITHDRAWALS 
LIMITED TO K E Y 
EMPLOYEES IN TOP-HEAVY PLANS.— 
(1) Subparagraph (A) of section 72(m)(5) is amended— 
26 USC 72. 
(A) by striking out "an owner-employee" the first place it 
appears and inserting in lieu thereof "a key employee", 
(B) by striking out "while he was an owner-employee" 
and inserting in lieu thereof "while he was a key employee 
in a top-heavy plan", and 
(C) by striking, out "an owner-employee" in clause (ii) and 
inserting in lieu thereof "a key employee". 
(2) Paragraph (5) of section 72(m) is amended by adding at the 
end thereof the following new subparagraph: 
96 STAT. 512 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(C) For purposes of this paragraph, the terms 'key 
employee' and 'top-heavy plan' have the same meanings as 
when used in section 416." 
95 Stat. 284. 
(3) Paragraph (6) of section 72(m) is amended by striking out 
"except in applying paragraph (5),". 
(e) CONFORMING AMENDMENTS.— 
26 use 401. 
(1) Paragraph (10) of section 401(a) is amended to read as 
follows: 
"(10) OTHER REQUIREMENTS.— 
"(A) PLANS BENEFITING OWNER-EMPLOYEES.—In the case of 
any plan which provides contributions or benefits for 
employees some or all of whom are owner-employees (as 
defined in subsection (c)(3)), a trust forming part of such 
plan shall constitute a qualified trust under this section 
only if the requirements of subsection (d) are also met." 
26 use 404. 
(2) Paragraph (2) of section 404(a) is amended— 
(A) by striking out "(8), (11)" and inserting in lieu thereof 
"(8), (9), (11)", and 
(B) by striking out "section 401(a)(9), (10), (17), and (18), 
and of section 401(d) (other than paragraph (1))" and insert-
ing in lieu thereof "section 401(a)(10) and of section 401(d)". 
26 use 408. 
(3)(A) Paragraph (2) of section 408(a) (defining individual 
retirement account) is amended by striking out "as defined in 
section 401(d)(1)" and inserting in lieu thereof "as defined in 
subsection (n)". 
(B) Section 408 is amended by redesignating the subsection 
relating to cross references as subsection (o) and by insert-
ing immediately before such subsection the following new 
subsection: 
"(n) BANK.—For purposes of subsection (a)(2), the term 'bank' 
means— 
"(1) any bank (as defined in section 581), 
"(2) an insured credit union (within the meaning of section 
12 use 1752. 
101(6) of the Federal Credit Union Act), and 
"(3) a corporation which, under the laws of the State of its 
incorporation, is subject to supervision and examination by the 
Commissioner of Banking or other officer of such State in 
charge of the administration of the banking laws of such State." 
SEC. 238. REPEAL OF SPECIAL LIMITATIONS ON DEDUCTION FOR SELF-
EMPLOYED INDIVIDUALS AND SUBCHAPTER S CORPORA-
TIONS. 
(a) REPEAL OF LIMIT OF LOWER OF $15,000 OR 15 PERCENT OF 
26 use 404. 
EARNED INCOME.—Subsection (e) of section 404 (relating to special 
limitations for self-employed individuals) is amended to read as 
follows: 
"(e) CONTRIBUTIONS ALLOCABLE TO LIFE INSURANCE PROTECTION 
FOR SELF-EMPLOYED INDIVIDUALS.—In the case of a self-employed 
individual described in section 401(c)(1), contributions which are 
allocable (determined under regulations prescribed by the Secre-
tary) to the purchase of life, accident, health, or other insurance 
shall not be taken into account under this section." 
(b) REPEAL OF LIMITATIONS ON DEFINED BENEFIT PLANS.—Subsec-
26 use 401. 
tion (j) of section 401 (relating to defined benefit plans providing 
benefits for self-employed individuals and shareholder-employees) is 
hereby repealed. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 513 
(c) REPEAL OF LIMITATIONS APPLICABLE TO SUBCHAPTER S CORPORA-
TIONS.—Section 1379 is amended— 
26 USC 1379. 
(1) by striking out subsections (a) and (b), and 
(2) by redesignating subsections (c) and (d) as subsections (a) 
and (b), respectively. 
(d) TECHNICAL AMENDMENTS.— 
(1) Paragraph (1) of section 401(c)(1) (defining employee) is 
26 USC 401. 
amended to read as follows: 
"(1) SELF-EMPLOYED INDIVIDUAL TREATED AS EMPLOYEE.— 
"(A) IN GENERAL.—The term 'employee' includes, for any 
taxable year, an individual who is a self-employed individ-
ual for such taxable year. 
"(B) 
SELF-EMPLOYED 
INDIVIDUAL.—The 
term 
'self-
employed individual' means, with respect to any taxable 
year, an individual who has earned income (as defined in 
paragraph (2)) for such taxable year. To the extent provided 
in regulations prescribed by the Secretary, such term also 
includes, for any taxable year— 
"(i) an individual who would be a self-employed indi-
vidual within the meaning of the preceding sentence 
but for the fact that the trade or business carried on by 
such individual did not have net profits for the taxable 
year, and 
"(ii) an individual who has been a self-employed 
individual within the meaning of the preceding sen-
tence for any prior taxable year." 
(2) Subparagraph (A) of section 401(c)(2) (defining earned 
income) is amended by striking out "and" at the end of clause 
(iii), by striking out the period at the end of clause (iv) and 
inserting in lieu thereof ", and", and by adding at the end 
thereof the following new clause: 
"(v) with regard to the deductions allowed by sections 
404 and 405(c) to the taxpayer." 
(3) Subsection (j) of section 408 is amended to read as follows: 
26 USC 408. 
"(j) INCREASE IN MAXIMUM LIMITATIONS FOR SIMPLIFIED EMPLOYEE 
PENSIONS.—In the case of any simplified employee pension, subsec-
tions (a)(1) and (b)(2) of this section shall be applied by increasing the 
$2,000 amounts contained therein by the amount of the limitation in 
effect under section 415(c)(1)(A)." 
(4)(A) Paragraph (6) of section 408(k) is hereby repealed. 
(B) Paragraph (1) of section 408(k) is amended by striking out 
"(5), and (6)" and inserting in lieu thereof "and (5)". 
(C) Subparagraph (C) of section 408(kX3) is amended to read as 
follows: 
"(C) CONTRIBUTIONS MUST BEAR UNIFORM RELATIONSHIP TO 
T
O
T
A
L COMPENSATION.—For purposes of subparagraph (A), 
employer contributions to simplified employee pensions 
shall be considered discriminatory unless contributions 
thereto bear a uniform relationship to the total compensa-
tion (not in excess of the first $200,000) of each employee 
maintaining a simplified employee pension." 
(5) Paragraph (5) of section 415(c) (relating to application with 26 USC 415. 
section 404(e)) is hereby repealed. 
96 STAT. 514 
PUBLIC LAW 97-248—SEPT. 3, 1982 
SEC. 239. ALLOWANCE OF EXCLUSION OF DEATH BENEFIT FOR SELF-
EMPLOYED INDIVIDUALS. 
26 use 101. 
Paragraph (3) of section 101(b) (relating to self-employed individ-
ual not considered as employee) is amended to read as follows: 
"(3) TREATMENT OF SELF-EMPLOYED INDIVIDUALS.—For 
pur-
poses of this subsection— 
"(A) 
SELF-EMPLOYED 
INDIVIDUAL 
NOT 
CONSIDERED 
EMPLOYEE.—Except as provided in subparagraph (B), the 
term 'employee' does not include a self-employed individual 
described in section 401(c)(1). 
"(B) SPECIAL 
RULE FOR CERTAIN 
LUMP SUM DISTRIBU-
TIONS.—In the case of any lump sum distribution described 
in the second sentence of paragraph 
(2)(B), the term 
'employee' includes a self-employed individual described in 
section 401(c)(1)." 
SEC. 240. 
SPECIAL 
RULES 
FOR 
TOP-HEAVY 
PLANS. 
(a) GENERAL RULE.—Subpart B of part I of subchapter D of 
chapter 1 (relating to special rules) is amended by adding at the end 
thereof the following new section: 
26 u s e 416. 
"SEC. 416. SPECIAL RULES FOR TOP-HEAVY PLANS. 
"(a) GENERAL RULE.—A trust shall not constitute a qualified trust 
under section 401(a) for any plan year if the plan of which it is a 
part is a top-heavy plan for such plan year unless such plan meets— 
"(1) the vesting requirements of subsection (b), 
"(2) the minimum benefit requirements of subsection (c), and 
"(3) the limitation on compensation requirement of subsection 
(d). 
"(b) VESTING REQUIREMENTS.— 
"(1) I N GENERAL.—A plan satisfies the requirements of this 
subsection if it satisfies the requirements of either of the follow-
ing subparagraphs: 
"(A) 3-YEAR VESTING.—A plan satisfies the requirements 
of this subparagraph if an employee who has completed at 
least 3 years of service with the employer or employ-
ers maintaining the plan has a nonforfeitable right to 
100 percent of his accrued benefit derived from employer 
contributions. 
"(B) 6-YEAR GRADED VESTING.—A plan 
Satisfies the 
requirements of this subparagraph if an employee has a 
nonforfeitable right to a percentage of his accrued benefit 
derived from employer contributions determined under the 
following table: 
The nonforfeitable 
"Years of service 
percentage is: 
2 
20 
3 
40 
4 
60 
5 
80 
6 or more 
100 
"(2) CERTAIN RULES MADE APPLICABLE.—Except to the extent 
inconsistent with the provisions of this subsection, the rules of 
section 411 shall apply for purposes of this subsection. 
"(c) PLAN MUST PROVIDE MINIMUM BENEFITS.— 
"(1) DEFINED BENEFIT PLANS.— 
"(A) IN GENERAL.—A defined benefit plan meets the 
requirements of this subsection if the accrued 
benefit 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 515 
derived from employer contributions of each participant 
who is a non-key employee, when expressed as an annual 
retirement benefit, is not less than the applicable percent-
age of the participant's average compensation for years in 
the testing period. 
"(B) APPLICABLE PERCENTAGE.—For purposes of subpara-
graph (A), the term 'applicable percentage' means the 
lesser of— 
"(i) 2 percent multiplied by the number of years of 
service with the employer, or 
"(ii) 20 percent. 
"(C) YEARS OF SERVICE.—For purposes of this paragraph— 
"(i) IN GENERAL.—Except as provided in clause (ii), 
years of service shall be determined under the rules of 
paragraphs (4), (5), and (6) of section 411(a). 
26 USC 411. 
"(ii) EXCEPTION FOR YEARS DURING WHICH PLAN WAS 
NOT TOP-HEAVY.—A year of service with the employer 
shall not be taken into account under this paragraph 
if— 
"(I) the plan was not a top-heavy plan for any 
plan year ending during such year of service, or 
"(II) such year of service was completed in a plan 
year beginning before January 1, 1984. 
"(D) AVERAGE COMPENSATION FOR HIGH 5 YEARS.—For 
purposes of this paragraph— 
"(i) IN GENERAL.—A participant's testing period shall 
be the period of consecutive years (not exceeding 5) 
during which the participant had the greatest aggre-
gate compensation from the employer. 
"(ii) YEAR MUST BE INCLUDED IN YEAR OF SERVICE.— 
The years taken into account under clause (i) shall be 
properly adjusted for years not included in a year of 
service. 
"(iii) CERTAIN YEARS NOT TAKEN INTO ACCOUNT.— 
Except to the extent provided in the plan, a year shall 
not be taken into account under clause (i) if— 
"(I) such year ends in a plan year beginning 
before January 1, 1984, or 
"(II) such year begins after the close of the last 
year in which the plan was a top-heavy plan. 
"(E) ANNUAL RETIREMENT BENEFIT.—For purposes of this 
paragraph, the term 'annual retirement benefit' means a 
benefit payable annually in the form of a single life annuity 
(with no ancillary benefits) beginning at the normal retire-
ment age under the plan. 
"(2) DEFINED CONTRIBUTION PLANS.— 
"(A) IN GENERAL.—A defined contribution plan meets the 
requirements of the subsection if the employer contribution 
for the year for each participant who is a non-key employee 
is not less than 3 percent of such participant's compensa-
tion (within the meaning of section 415). 
"(B) SPECIAL RULE WHERE MAXIMUM CONTRIBUTION LESS 
THAN 3 PERCENT.— 
"(i) IN GENERAL.—The percentage referred to in sub-
paragraph (A) for any year shall not exceed the per-
centage at which contributions are made (or required to 
be made) under the plan for the year for the key 
96 STAT. 516 
PUBLIC LAW 97-248—SEPT. 3, 1982 
employee for whom such percentage is the highest for 
the year. 
"(ii) DETERMINATION OF PERCENTAGE.—The determi-
nation referred to in clause (i) shall be determined for 
each key employee by dividing the contributions for 
such employee by so much of his total compensation for 
the year as does not exceed $200,000. 
"(iii) TREATMENT OF AGGREGATION GROUPS.— 
"(I) For purposes of this subparagraph, all 
defined contribution plans required to be included 
in 
an 
aggregation 
group 
under 
subsection 
(g)(2)(A)(i) shall be treated as one plan. 
"(II) This subparagraph shall not apply to any 
plan required to be included in an aggregation 
group if such plan enables a defined benefit plan 
required to be included in such group to meet the 
26 use 401, 410. 
requirements of section 401(a)(4) or 410. 
"(C) CERTAIN AMOUNTS NOT TAKEN INTO ACCOUNT.—For 
purposes of this paragraph, any employer contribution 
attributable to a salary reduction or similar arrangement 
shall not be taken into account. 
"(d) NOT MORE THAN $200,000 IN A N N U A L COMPENSATION TAKEN 
INTO ACCOUNT.— 
"(1) I N GENERAL.—A plan meets the requirements of this 
subsection if the annual compensation of each employee taken 
into account under the plan does not exceed the first $200,000. 
"(2) COST-OF-LIVING ADJUSTMENTS.—The Secretary shall annu-
ally adjust the $200,000 amount contained in paragraph (1) of 
this subsection and in clause (ii) of subsection (c)(2)(B) in the 
same manner as he adjusts the dollar amount contained in 
section 415(c)(1)(A). 
"(e) PLAN 
MUST 
MEET 
REQUIREMENTS WITHOUT TAKING 
INTO 
ACCOUNT 
SOCIAL 
SECURITY 
AND SIMILAR 
CONTRIBUTIONS AND 
BENEFITS.—A top-heavy plan shall not be treated as meeting the 
requirement of subsection (b) or (c) unless such plan meets such 
requirement without taking into account contributions or benefits 
26 use 1401 
under chapter 2 (relating to tax on self-employment income), chap-
etseq. 
tej. 21 (relating to Federal Insurance Contributions Act), title II of 
26 use 3101 
^]^g Social Security Act, or any other Federal or State law. 
!o1^aV. -.m 
"(f) COORDINATION WHERE EMPLOYER H A S 2 OR MORE PLANS.—The 
Secretary shall prescribe such regulations as may be necessary or 
appropriate to carry out the purposes of this section where the 
employer has 2 or more plans including (but not limited to) regula-
tions to prevent inappropriate omissions or require duplication of 
minimum benefits or contributions. 
"(g) TOP-HEAVY PLAN DEFINED.—For purposes of this section— 
"(1) I N GENERAL.— 
"(A) PLANS NOT REQUIRED TO BE AGGREGATED.—Except as 
provided in subparagraph (B), the term 'top-heavy plan' 
means, with respect to any plan year— 
"(i) any defined benefit plan if, as of the determina-
tion date, the present value of the cumulative accrued 
benefits under the plan for key employees exceeds 60 
percent of the present value of the cumulative accrued 
benefits under the plan for all employees, and 
"(ii) any defined contribution plan if, as of the deter-
mination date, the aggregate of the accounts of key 
42 use 401. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 517 
employees under the plan exceeds 60 percent of the 
aggregate of the accounts of all employees under such 
plan. 
"(B) AGGREGATED PLANS.—Each plan of an 
employer 
required to be included in an aggregation group shall be 
treated as a top-heavy plan if such group is a top-heavy 
group. 
"(2) AGGREGATION.—For purposes of this subsection— 
"(A) AGGREGATION GROUP.— 
"(i) REQUIRED AGGREGATION.—The term 'aggregation 
group' means— 
"(I) each plan of the employer in which a key 
employee is a participant, and 
"(II) each other plan of the employer which 
enables any plan described in subclause (I) to meet 
the requirements of section 401(a)(4) or 410. 
26 USC 401, 410. 
"(ii) PERMISSIVE AGGREGATION.—The employer may 
treat any plan not required to be included in an aggre-
gation group under clause (i) as being part of such 
group if such group would continue to meet the require-
ments of sections 401(a)(4) and 410 with such plan being 
taken into account. 
"(B) TOP-HEAVY GROUP.—The term 
'top-heavy 
group' 
means any aggregation group if— 
"(i) the sum (as of the determination date) of— 
"(I) the present value of the cumulative accrued 
benefits for key employees under all defined bene-
fit plans included in such group, and 
"(II) the aggregate of the accounts of key employ-
ees under all defined contribution plans included 
in such group, 
"(ii) exceeds 60 percent of a similar sum determined 
for all employees. 
"(3) 
DISTRIBUTIONS 
DURING 
LAST 
5 
YEARS 
TAKEN 
INTO 
ACCOUNT.—For purposes of determining— 
"(A) the present value of the cumulative accrued benefit 
for any employee, or 
"(B) the amount of the account of any employee, 
such present value or amount shall be increased by the aggre-
gate distributions made with respect to such employee under 
the plan during the 5-year period ending on the determination 
date. 
"(4) OTHER SPECIAL RULES.—For purposes of this subsection— 
"(A) ROLLOVER CONTRIBUTIONS TO PLAN NOT TAKEN INTO 
ACCOUNT.—Except to the extent provided in regulations, 
any rollover contribution (or similar transfer) initiated by 
the employee and made after December 31, 1983, to a plan 
shall not be taken into account with respect to the trans-
feree plan for purposes of determining whether such plan is 
a top-heavy plan (or whether any aggregation group which 
includes such plan is a top-heavy group). 
"(B) BENEFITS NOT TAKEN INTO ACCOUNT IF EMPLOYEE 
CEASES TO BE KEY EMPLOYEE.—If any individual is a non-key 
employee with respect to any plan for any plan year, but 
such individual was a key employee with respect to such 
plan for any prior plan year, any accrued benefit for such 
96 STAT. 518 
PUBLIC LAW 97-248—SEPT. 3, 1982 
employee (and the account of such employee) shall not be 
taken into account. 
"(C) 
DETERMINATION DATE.—The 
term 
'determination 
date' means, with respect to any plan year— 
"(i) the last day of the preceding plan year, or 
"(ii) in the case of the first plan year of any plan, the 
last day of such plan year. 
"(D) YEARS.—To the extent provided in regulations, this 
section shall be applied on the basis of any year specified in 
such regulations in lieu of plan years. 
"(h) ADJUSTMENTS IN SECTION 415 LIMITS FOR TOP-HEAVY PLANS.— 
"(1) IN GENERAL.—In the case of any top-heavy plan, para-
Ante, p. 506. 
graphs (2)(B) and (3)(B) of section 415(e) shall be applied by 
substituting '1.0' for '1.25'. 
"(2) EXCEPTION WHERE BENEFITS FOR KEY EMPLOYEES DO NOT 
EXCEED 90 PERCENT OF TOTAL BENEFITS AND ADDITIONAL CONTRI-
BUTIONS ARE MADE FOR NON-KEY EMPLOYEES.—Paragraph (1) 
shall not apply with respect to any top-heavy plan if the 
requirements of subparagraphs (A) and (B) of this paragraph are 
met with respect to such plan. 
"(A) M I N I M U M BENEFIT REQUIREMENTS.— 
"(i) IN GENERAL.—The requirements of this subpara-
graph are met with respect to any top-heavy plan if 
such plan (and any plan required to be included in an 
aggregation group with such plan) meets the require-
ments of subsection (c) as modified by clause (ii). 
"(ii) MODIFICATIONS.—For purposes of clause (i)— 
"(I) paragraph (1)(B) of subsection (c) shall be 
applied by substituting '3 percent' for '2 percent', 
and by increasing (but not by more than 10 per-
centage points) 20 percent by 1 percentage point 
for each year for which such plan was taken into 
account under this subsection, and 
"(II) paragraph (2)(A) shall be applied by substi-
tuting '4 percent' for '3 percent'. 
"(B) BENEFITS FOR KEY EMPLOYEES CANNOT EXCEED 90 
PERCENT OF TOTAL BENEFITS.—A plan meets the require-
ments of this subparagraph if such plan would not be a top-
heavy plan if '90 percent' were substituted for '60 percent' 
each place it appears in paragraphs (1)(A) and (2)(B) of 
subsection (g). 
"(3) TRANSITION RULE.—If, but for this paragraph, paragraph 
(1) would begin to apply with respect to any top-heavy plan, the 
application of paragraph (1) shall be suspended with respect to 
any individual so long as there are no— 
"(A) employer contributions, forfeitures, or voluntary 
nondeductible contributions allocated to such individual, or 
"(B) accruals for such individual under the defined bene-
fit plan. 
"(4) COORDINATION WITH TRANSITIONAL RULE UNDER SECTION 
415.—In the case of any top-heavy plan to which paragraph (1) 
applies, section 415(e)(6)(B)(i) shall be applied by substituting 
'$41,500' for '$51,875'. 
"(i) DEFINITIONS.—For purposes of this section— 
"(1) KEY EMPLOYEE.— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 519 
"(A) I N GENERAL.—The term 'key employee' means any 
participant in an employer plan who, at any time during 
the plan year or any of the 4 preceding plan years, is— 
"(i) an officer of the employer, 
"(ii) 1 of the 10 employees owning (or considered as 
owning within the meaning of section 318) the largest 
26 USC 318. 
interests in the employer, 
"(iii) a 5-percent owner of the employer, or 
"(iv) a 1-percent owner of the employer having an 
annual compensation from the employer of more than 
$150,000. 
For purposes of clause (i), no more than 50 employees (or, if 
lesser, the greater of 3 or 10 percent of the employees) shall be 
treated as officers. 
"(B) PERCENTAGE OWNERS.— 
"(i) 5-PERCENT OWNER.—For purposes of this para-
graph, the term *5-percent owner' means— 
"(I) if the employer is a corporation, any person 
who owns (or is considered as owning within the 
meaning of section 318) more than 5 percent of the 
outstanding stock of the corporation or stock pos-
sessing more than 5 percent of the total combined 
voting power of all stock of the corporation, or 
"(II) if the employer is not a corporation, any 
person who owns more than 5 percent of the capi-
tal or profits interest in the employer. 
"(ii) 1-PERCENT OWNER.—For purposes of this para-
graph, the term '1-percent owner' means any person 
who would be described in clause (i) if '1 percent' were 
substituted for '5 percent' each place it appears in 
clause (i). 
"(iii) CONSTRUCTIVE OWNERSHIP RULES.—For purposes 
of this subparagraph and subparagraph (A)(ii)((II)— 
"(I) subparagraph (C) of section 318(a)(2) shall be 
applied by substituting '5 percent' for '50 percent', 
and 
"(II) in the case of any employer which is not a 
corporation, ownership in such employer shall be 
determined in accordance with regulations pre-
scribed by the Secretary which shall be based on 
principles similar to the principles of section 318 
(as modified by subclause (I)). 
"(C) AGGREGATION RULES DO NOT APPLY FOR PURPOSES OF 
DETERMINING 5-PERCENT OR 1-PERCENT OWNERS.—The r u l e s 
of subsections (b), (c), and (m) of section 414 shall not apply 
for purposes of determining ownership in the employer. 
"(2) NON-KEY EMPLOYEE.—The term 'non-key employee' means 
any employee who is not a key employee. 
"(3) 
SELF-EMPLOYED INDIVIDUALS.—In 
the 
case 
of a 
self-
employed individual described in section 401(c)(1)— 
"(A) such individual shall be treated as an employee, and 
"(B) such individual's earned income (within the meaning 
of section 401(c)(2)) shall be treated as compensation. 
"(4) TREATMENT OF EMPLOYEES COVERED BY COLLECTIVE BAR-
GAINING AGREEMENTS.—The requirements of subsections (b), (c), 
and (d) shall not apply with respect to any employee included in 
a unit of employees covered by an agreement which the Secre-
96 STAT. 520 
PUBLIC LAW 97-248—SEPT. 3, 1982 
tary of Labor finds to be a collective bargaining agreement 
between employee representatives and 1 or more employers if 
there is evidence that retirement benefits were the subject of 
good faith bargaining between such employee representatives 
and such employer or employers. 
"(5) TREATMENT OF BENEFICIARIES.—The terms 'employee' and 
'key employee' include their beneficiaries. 
"(6) TREATMENT OF SIMPLIFIED EMPLOYEE PENSIONS.— 
"(A) 
TREATMENT AS DEFINED CONTRIBUTION PLANS.—A 
simplified employee pension shall be treated as a defined 
contribution plan. 
"(B) 
ELECTION 
TO HAVE 
DETERMINATIONS 
BASED ON 
EMPLOYER CONTRIBUTIONS.—In the case of a simplified 
employee pension, at the election of the employer, para-
graphs (lXA)(ii) and (2)(B) of subsection (g) shall be applied 
by taking into account aggregate employer contributions in 
lieu of the aggregate of the accounts of employees." 
(b) 
QUALIFICATION REQUIREMENTS.—Paragraph (10) 
of section 
Ante, p. 512. 
401(a) (relating to other requirements) is amended by adding at the 
end thereof the following new subparagraph: 
"(B) TOP-HEAVY PLANS.— 
"(i) IN GENERAL.—In the case of any top-heavy plan, a 
trust forming part of such plan shall constitute a quali-
fied trust under this section only if the requirements of 
section 416 are met. 
"(ii) PLANS WHICH MAY BECOME TOP-HEAVY.—Except 
to the extent provided in regulations, a trust forming 
part of a plan (whether or not a top-heavy plan) shall 
constitute a qualified trust under this section only if 
such plan contains provisions— 
"(I) which will take effect if such plan becomes a 
top-heavy plan, and 
"(II) which meet the requirements of section 
416." 
(c) TECHNICAL AMENDMENTS.— 
26 use 414. 
(1) Subsections (b) and (c) of section 414 (relating to employees 
of controlled groups) are each amended by striking out "and 
415" and inserting in lieu thereof "415, and 416". 
(2) Paragraph (4) of section 414(m) (relating to employees of an 
affiliated service group) is amended by striking out "and 415" in 
subparagraph (B), and inserting in lieu there of "415, and 416". 
(d) CLERICAL AMENDMENT.—The table of sections for subpart B of 
part I of subchapter D of chapter 1 is amended by adding at the end 
thereof the following new item: 
"Sec. 416. Special rules for top-heavy plans." 
26 u s e 416 note. 
SEC. 241. EFFECTIVE DATES. 
(a) GENERAL RULE.—Except as provided in subsection (b), the 
amendments made by this part shall apply to years beginning after 
December 31, 1983. 
(b) 
ALLOWANCE OF EXCLUSION OF DEATH BENEFIT FOR SELF-
EMPLOYED INDIVIDUALS.—The amendment made by section 239 shall 
apply with respect to decedents dying after December 31, 1983. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 521 
PART III—OTHER REQUIREMENTS 
SEC. 242. REQUIRED DISTRIBUTIONS FOR QUALIFIED PLANS. 
(a) GENERAL RULE.—Paragraph (9) of section 401(a) (relating to 
^^ USC 401. 
requirements for qualification) is amended to read as follows: 
"(9) REQUIRED DISTRIBUTIONS.— 
"(A) BEFORE DEATH.—A trust forming part of a plan shall 
not constitute a qualified trust under this section unless the 
plan provides that the entire interest of each employee— 
"(i) either will be distributed to him not later than 
his taxable year in which he attains age 70 y2 or, in the 
case of an employee other than a key employee who is a 
participant in a top-heavy plan, in which he retires, 
whichever is the later, or 
"(ii) will be distributed, commencing not later than 
such taxable year— 
"(I) in accordance with regulations prescribed by 
the Secretary, over the life of such employee or 
over the lives of such employee and his spouse, or 
"(II) in accordance with such regulations, over a 
period not extending beyond the life expectancy of 
such employee or the life expectancy of such 
employee and his spouse. 
"(B) AFTER DEATH.—A trust forming part of a plan shall 
not constitute a qualified trust under this section unless the 
plan provides that if— 
"(i) an employee dies before his entire interest has 
been distributed to him, or 
"(ii) distribution has been commenced in accordance 
with subparagraph (A)(ii) to his surviving spouse and 
such surviving spouse dies before his entire interest has 
been distributed to such surviving spouse, 
his entire interest (or the remaining part of such interest if 
distribution thereof has commenced) will be distributed 
within 5 years after his death (or the death of his surviving 
spouse). The preceding sentence shall not apply if the distri-
bution of the interest of the employee has commenced and 
such distribution is for a term certain over a period permit-
ted under subparagraph (A)(ii)(II)." 
(b) EFFECTIVE DATE.— 
26 USC 401 note. 
(1) IN GENERAL.—The amendment made by subsection (a) 
shall apply to plan years beginning after December 31, 1983. 
(2) TRANSITION RULE.—A trust forming part of a plan shall not 
be disqualified under paragraph (9) of section 401(a) of the 
Internal Revenue Code of 1954, as amended by subsection (a), by 
reason of distributions under a designation (before January 1, 
1984) by any employee of a method of distribution— 
(A) which does not meet the requirements of such para-
graph (9), but 
(B) which would not have disqualified such trust under 
paragraph (9) of section 401(a) of such Code as in effect 
before the amendment made by subsection (a). 
SEC. 
243. REQUIRED DISTRIBUTIONS IN CASE OF INDIVIDUAL RETIRE-
MENT PLANS. 
(a) REQUIRED DISTRIBUTIONS AFTER DEATH.— 
96 STAT. 522 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(1) INDIVIDUAL RETIREMENT ACCOUNTS.—Paragraph (7) of sec-
26 use 408. 
tion 408(a) (defining individual retirement account) is amended 
to read as follows: 
"(7) I f -
"(A) an individual for whose benefit the trust is main-
tained dies before his entire interest has been distributed to 
him, or 
"(B) distribution has been commenced as provided in 
paragraph (6) to his surviving spouse and such surviving 
spouse dies before the entire interest has been distributed 
to such spouse, 
the entire interest (or the remaining part of such interest if 
distribution thereof has commenced) will be distributed within 5 
years after his death (or the death of the surviving spouse). The 
preceding sentence shall not apply if distributions over a term 
certain commenced before the death of the individual for whose 
benefit the trust was maintained and the term certain is for a 
period permitted under paragraph (6)." 
(2) INDIVIDUAL RETIREMENT ANNUITIES.—Paragraph (4) of sec-
tion 408(b) (defining individual retirement annuity) is amended 
to read as follows: 
"(4) I f -
"(A) the owner dies before his entire interest has been 
distributed to him, or 
"(B) distribution has been commenced as provided in 
paragraph (3) to his surviving spouse and such surviving 
spouse dies before the entire interest has been distributed 
to such spouse, 
the entire interest (or the remaining part of such interest if 
distribution thereof has commenced) will be distributed within 5 
years after his death (or the death of his surviving spouse). The 
preceding sentence shall not apply if distributions over a term 
certain commenced before the death of the owner and the term 
certain is for a period permitted under paragraph (3)." 
(b) TREATMENT OF INHERITED INDIVIDUAL RETIREMENT 
PLANS.— 
(1) DENIAL OF ROLLOVER TREATMENT.— 
(A) Paragraph (3) of section 408(d) (defining rollover con-
tributions) is amended by adding at the end thereof the 
following new subparagraph: 
"(C) 
DENIAL 
OF ROLLOVER 
TREATMENT 
FOR INHERITED 
ACCOUNTS, ETC.— 
"(i) IN GENERAL.—In the case of an inherited indi-
vidual retirement account or individual 
retirement 
annuity— 
"(I) this paragraph 
shall not apply to any 
amount received by an individual from such an 
account or annuity (and no amount 
transferred 
from such account or annuity to another individual 
retirement account or annuity shall be excluded 
from gross income by reason of such transfer), and 
"(II) such inherited account or annuity shall not 
be treated as an individual retirement account or 
annuity for purposes of determining whether any 
other amount is a rollover contribution. 
"(ii) INHERITED INDIVIDUAL RETIREMENT ACCOUNT OR 
ANNUITY.—An individual retirement account or indi-
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 523 
vidual retirement annuity shall be treated as inherited 
if— 
"(I) the individual for whose benefit the account 
or annuity is maintained acquired such account by 
reason of the death of another individual, and 
"(II) such individual 
was not the 
surviving 
spouse of such other individual." 
(B) Subparagraph (C) of section 409(b)(3) (relating to roll- 
26 USC 409. 
over into an individual retirement account or annuity or a 
qualified plan) is amended by adding at the end thereof the 
following new sentence: "This subparagraph shall not apply 
to any retirement bond if such bond is acquired by the 
owner by reason of the death of another individual and the 
owner 
was 
not 
the 
surviving 
spouse 
of such 
other 
individual." 
(2) DENIAL OF DEDUCTION FOR CONTRIBUTIONS TO INHERITED 
INDIVIDUAL RETIREMENT ACCOUNTS OR ANNUITIES.—Subsection 
(d) of section 219 (relating to other limitations and restrictions) 
95 Stat. 274. 
is amended by adding at the end thereof the following new 
paragraph: 
"(4) 
DENIAL 
OF DEDUCTION 
FOR AMOUNT 
CONTRIBUTED TO 
INHERITED ANNUITIES OR ACCOUNTS.—No deduction shall be 
allowed under this section with respect to any amount paid to 
an inherited individual retirement account or individual retire-
ment annuity (within the meaning of section 408(d)(3)(C)(ii))." 
(c) EFFECTIVE DATES.— 
26 USC 408 note. 
(1) SUBSECTION (a).—The amendments made by subsection (a) 
shall apply in the case of individuals dying after 
Decem-
ber 31, 1983. 
(2) SUBSECTION (b).—The amendments made by subsection (b) 
shall apply to taxable years beginning after December 31, 1983. 
SEC. 244, LIMITATION ON EXCLUSION FOR GROUP-TERM LIFE INSURANCE 
PURCHASED FOR EMPLOYEES. 
(a) GENERAL RULE.—Section 79 (relating to group-term life insur- 
26 USC 79. 
ance purchased for employees) is amended by adding at the end 
thereof the following new subsection: 
"(d) NONDISCRIMINATION REQUIREMENTS.— 
"(1) I N GENERAL.—In the case of a discriminatory group-term 
life insurance plan, paragraph (1) of subsection (a) shall not 
apply with respect to any key employee. 
"(2) DISCRIMINATORY GROUP-TERM LIFE INSURANCE PLAN.—For 
purposes of this subsection, the term 'discriminatory group-term 
life insurance plan' means any plan of an employer for provid-
ing group-term life insurance unless— 
"(A) the plan does not discriminate in favor of key 
employees as to eligibility to participate, and 
"(B) the type and amount of benefits available under the 
plan do not discriminate in favor of participants who are 
key employees. 
"(3) NONDISCRIMINATORY ELIGIBILITY CLASSIFICATION.— 
"(A) IN GENERAL.—A plan does not meet requirements of 
subparagraph (A) of paragraph (2) unless— 
"(i) such plan benefits 70 percent or more of all 
employees of the employer, 
"(ii) at least 85 percent of all employees who are 
participants under the plan are not key employees, 
96 STAT. 524 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(iii) such plan benefits such employees as qualify 
under a classification set up by the employer and found 
by the Secretary not to be discriminatory in favor of 
key employees, or 
"(iv) in the case of a plan which is part of a cafeteria 
plan, the requirements of section 125 are met. 
"(B) EXCLUSION OF CERTAIN EMPLOYEES.—For purposes 
of subparagraph (A), there may be excluded 
from 
consideration— 
"(i) employees who have not completed 3 years of 
service; 
"(ii) part-time or seasonal employees; 
"(iii) employees not included in the plan who are 
included in a unit of employees covered by an agree-
ment between employee representatives and one or 
more employers which the Secretary finds to be a 
collective bargaining agreement, if the benefits pro-
vided under the plan were the subject of good faith 
bargaining between such employee representatives and 
such employer or employers; and 
"(iv) employees who are nonresident aliens and who 
receive no earned income (within the meaning of sec-
tion 911(dX2)) from the employer which constitutes 
income from sources within the United States (within 
the meaning of section 861(a)(3)). 
"(4) NONDISCRIMINATORY BENEFITS.—A plan does not meet 
the requirements of paragraph (2)(B) unless all benefits 
available to participants who are key employees are availa-
ble to all other participants. 
"(5) SPECIAL RULE.—A plan shall not fail to meet the 
requirements of paragraph (2)(B) merely because the 
amount of life insurance on behalf of the employees under 
the plan bears a uniform relationship to the total compen-
sation or the basic or regular rate of compensation of such 
employees. 
"(6) KEY EMPLOYEE DEFINED.—For purposes of this subsec-
tion, the term 'key employee' has the meaning given to 
Ante, p. 514. 
such term by paragraph (1) of section 416(i), except that 
subparagraph (A)(iv) of such paragraph shall be applied by 
not taking into account employees described in paragraph 
(3)(B) who are not participants in the plan. 
"(7) CERTAIN CONTROLLED GROUPS, ETC.—All employees 
who are treated as employed by a single employer under 
subsection (b), (c), or (m) of section 414 shall be treated as 
employed by a single employer for purposes of this section." 
26 use 79 note. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1983. 
SEC. 245. LIMITATION ON ESTATE TAX EXCLUSIONS UNDER SECTION 2039. 
26 use 2039. 
(a) GENERAL RuLE.—Section 2039 (relating to annuities) is 
amended by adding at the end thereof the following new subsection: 
"(g) $100,000 LIMITATION ON EXCLUSIONS UNDER SUBSECTIONS (C) 
AND (e).—The aggregate amount excluded from the gross estate of 
any decedent under subsections (c) and (e) of this section shall not 
exceed $100,000." 
(b) TECHNICAL AMENDMENTS.—Subsections (c) and (e) of section 
2039 are each amended by striking out "Notwithstanding the provi-
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 525 
sions of this section" and inserting in lieu thereof "Subject to the 
limitation of subsection (g), notwithstanding any other provision of 
this section". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 2039 
apply to the estates of decedents dying after December 31, 1982. "
o
*
®
-
SEC. 246. ORGANIZATIONS PERFORMING MANAGEMENT FUNCTIONS. 
(a) GENERAL RULE.—Subsection (m) of section 414 (relating to 
26 USC 414. 
employees of an affiliated service group) is amended by redes-
ignating paragraphs (5) and (6) as paragraphs (6) and (7), 
respectively, and by inserting after paragraph (4) the following new 
paragraph: 
"(5) CERTAIN ORGANIZATIONS PERFORMING MANAGEMENT FUNC-
TIONS.—For purposes of this subsection, the term 'affiliated 
service group' also includes a group consisting o
f
— 
"(A) an organization the principal business of which is 
performing, on a regular and continuing basis, manage-
ment functions for 1 organization (or for 1 organization and 
other organizations related to such 1 organization), and 
"(B) the organization (and related organizations) for 
which such functions are so performed by the organization 
described in subparagraph (A). 
For purposes of this paragraph, the term 'related organizations' 
has the same meaning as the term 'related persons' when used 
in section 103(b)(6)(C)." 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 26 USC 414 note, 
shall apply to taxable years beginning after December 31, 1983. 
SEC. 247. EXISTING PERSONAL SERVICE CORPORATIONS MAY LIQUI-
DATE UNDER SECTION 333 DURING 1983 OR 1984. 
(a) IN GENERAL.—In the case of a complete liquidation of a per- 26 USC 333 note. 
sonal service corporation (within the meaning of section 535(c)(2)(B) 
of the Internal Revenue Code of 1954) during 1983 or 1984, the 
following rules shall apply with respect to any shareholder other 
than a corporation: 
(1) 'The determination of whether section 333 of such Code 
applies shall be made without regard to whether the corpora-
tion is a collapsible corporation to which section 341(a) of such 
Code applies. 
(2) No gain or loss shall be recognized by the liquidating 
corporation on the distribution of any unrealized receivable in 
such liquidation. 
(3)(A) Except as provided in subparagraph (C), any disposition 
by a shareholder of any unrealized receivable received in the 
liquidation shall be treated as a sale at fair market value of 
such receivable and any gain or loss shall be treated as ordinary 
gain or loss. 
(B) For purposes of subparagraph (A), the term "disposition" 
includes— 
(i) failing to hold the property in the trade or business 
which generated the receivables, and 
(ii) failing to hold a continuing interest in such trade or 
business. 
(C) For purposes of subparagraph (A), the term "disposition" 
does not include transmission at death to the estate of the 
decedent or transfer to a person pursuant to the right of such 
person to receive such property by reason of the death of the 
96 STAT. 526 
PUBLIC LAW 97-248—SEPT. 3, 1982 
decedent or by bequest, devise, or inheritance from the 
decedent. 
(4) Unrealized receivables distributed in the liquidation shall 
be treated as having a zero basis. 
(5) For purposes of computing earnings and profits, the liqui-
dating corporation shall not treat unrealized receivables distrib-
uted in the liquidation as an item of income. 
(b) UNREALIZED RECEIVABLES DEFINED.—For purposes of this sec-
tion, the term "unrealized receivables" has the meaning given such 
term by the first sentence of section 751(c) of such Code. 
SEC. 248. EMPLOYEE LEASING. 
26 use 414. 
(a) GENERAL RULE.—Section 414 (relating to definitions and spe-
cial rules) is amended by adding at the end thereof the following 
new subsection: 
"(n) EMPLOYEE LEASING.— 
"(1) IN GENERAL.—For purposes of the pension requirements 
listed in paragraph (3), except to the extent otherwise provided 
in regulations, with respect to any person (hereinafter in this 
subsection referred to as the 'recipient') for whom a leased 
employee performs services— 
"(A) the leased employee shall be treated as an employee 
of the recipient, but 
"(B) contributions or benefits provided by the leasing 
organization which are attributable to services performed 
for the recipient shall be treated as provided by the 
recipient. 
"(2) LEASED EMPLOYEE.—For purposes of paragraph (1), the 
term 'leased employee' means any person who provides services 
to the recipient i
f
— 
"(A) such services are provided pursuant to an agreement 
between the recipient and any other person (in this subsec-
tion referred to as the 'leasing organization'), 
"(B) such person has performed such services for the 
recipient (or for the recipient and related persons) on a 
substantially full-time basis for a period of at least 1 year, 
and 
"(C) such services are of a type historically performed, in 
the business field of the recipient, by employees. 
"(3) PENSION REQUIREMENTS.—For purposes of this subsection, 
the pension requirements listed in this paragraph are— 
"(A) paragraphs (3), (4), (7), and (16) of section 401(a), and 
Ante, p. 514. 
"(B) sections 408(k), 410, 411, 415, and 416. 
"(4) TIME WHEN LEASED EMPLOYEE IS FIRST CONSIDERED AS 
EMPLOYEE.—In the case of any leased employee, paragraph (1) 
shall apply only for purposes of determining whether the pen-
sion requirements listed in paragraph (3) are met for periods 
after the close of the 1-year period referred to in paragraph (2); 
except that years of service for the recipient shall be deter-
mined by taking into account the entire period for which the 
leased employee performed services for the recipient (or related 
persons). 
"(5) SAFE HARBOR.—This subsection shall not apply to any 
leased employee if such employee is covered by a plan which is 
maintained by the leasing organization if, with respect to such 
employee, such plan— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 527 
"(A) is a money purchase pension plan with a noninte-
grated employer contribution rate of at least 7 V-i percent, 
and 
"(B) provides for immediate participation and for full and 
immediate vesting. 
"(6) RELATED PERSONS.—For purposes of this subsection, the 
term 'related persons' has the same meaning as when used in 
section 103(b)(6)(C)." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
26 USC 414 note, 
shall apply to taxable years beginning after December 31, 1983. 
SEC. 
249. NONDISCRIMINATORY 
COORDINATION 
O F 
DEFINED 
CON-
TRIBUTION PLANS WITH OASDI. 
(a) IN GENERAL.—Section 401 (relating to qualified pension, profit- 
26 USC 401. 
sharing, stock bonus plans, etc.) is amended by redesignating subsec-
tion (1) as subsection (o), and by inserting after subsection (k) the 
following new subsection: 
"(1) NONDISCRIMINATORY COORDINATION OF DEFINED CONTRIBUTION 
PLANS WITH OASDI.— 
"(1) IN GENERAL.—Notwithstanding subsection 
(a)(5), 
the 
coordination of a defined contribution plan with OASDI meets 
the requirements of subsection (a)(4) only if the total contribu-
tions with respect to each participant, when increased by the 
OASDI contributions, bear a uniform relationship— 
"(A) to the total compensation of such employee, or 
"(B) to the basic or regular rate of compensation of such 
employee. 
"(2) DEFINITIONS.—For purposes of paragraph (1)— 
"(A) OASDI CONTRIBUTIONS.—The term 'OASDI contribu-
tions' means the product of— 
"(i) so much 
of the 
remuneration 
paid by 
the 
employer to the employee during the plan year as— 
"(I) constitutes wages (within the meaning of 
section 3121(a) without regard to paragraph (1) 
thereoO, and 
"(II) does not exceed the contribution and benefit 
base applicable under OASDI at the beginning of 
the plan year, multiplied by 
"(ii) the rate of tax applicable under section 3111(a) 
(relating to employer's OASDI tax) at the beginning of 
the plan year. 
In the case of an individual who is an employee within the 
meaning of subsection (c)(1), the preceding sentence shall be 
applied by taking into account his earned income (as 
defined in subsection (c)(2)). 
"(B) OASDI.—The term 'OASDI' means the system of old-
age, survivors, and disability insurance established under 
title II of the Social Security Act and the Federal Insurance 
Contributions Act. 
"(C) REMUNERATION.—The term 'remuneration' means— 
"(i) total compensation, or 
"(ii) basic or regular rate of compensation, 
whichever is used in determining contributions or benefits 
under the plan. 
"(8) DETERMINATION OF COMPENSATION, ETC, OF SELF-EMPLOYED 
INDIVIDUALS.—For purposes of this subsection, in the case of an 
96 STAT. 528 
PUBLIC LAW 97-248—SEPT. 3, 1982 
individual who is an employee within the meaning of subsection 
(c)(1)-
"(A) his total compensation shall include his earned 
income (as defined in subsection (c)(2)), and 
"(B) his basic or regular rate of compensation shall be 
determined (under regulations prescribed by the Secretary) 
with respect to that portion of his earned income which 
bears the same ratio to his earned income as the basic or 
regular compensation of the employees under the plan 
(other than employees within the meaning of subsection 
(c)(1)) bears to the total compensation of such employees." 
26 use 401 note. 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
apply to plan years beginning after December 31,1983. 
SEC. 250. AUTHORITY OF SECRETARY TO ALLOCATE INCOME AND 
DEDUCTIONS IN THE CASE OF CERTAIN CORPORATIONS. 
(a) IN GENERAL.—Part IX of subchapter B of chapter 1 (relating to 
items not deductible) is amended by adding after section 269 the 
following new section: 
26 use 269A. 
"SEC. 269A. PERSONAL SERVICE CORPORATIONS FORMED OR AVAILED OF 
TO AVOID OR EVADE INCOME TAX. 
"(a) GENERAL RULE.—If— 
"(1) substantially all of the services of a personal service 
corporation are performed for (or on behalf of) 1 other corpora-
tion, partnership, or other entity, and 
"(2) the principal purpose for forming, or availing of, such 
personal service corporation is the avoidance or evasion of 
Federal income tax by reducing the income of, or securing the 
benefit of any expense, deduction, credit, exclusion, or other 
allowance for, any employee-owner which would not otherwise 
be available, 
then the Secretary may allocate all income, deductions, credits, 
exclusions, and other allowances between such personal service 
corporation and its employee-owners, if such allocation is necessary 
to prevent avoidance or evasion of Federal income tax or clearly to 
reflect the income of the personal service corporation or any of its 
employee-owners. 
"(b) Definitions.—For purposes of this section— 
"(1) PERSONAL SERVICE CORPORATION.—The term 'personal 
service corporation' means a corporation the principal activity 
of which is the performance of personal services and such 
services are substantially performed by employee-owners. 
"(2) EMPLOYEE-OWNER.—The term 'employee-owner' means 
any employee who owns, on any day during the taxable year, 
more than 10 percent of the outstanding stock of the personal 
service corporation. For purposes of the preceding sentence, 
section 318 shall apply, except that '5 percent' shall be substi-
tuted for '50 percent' in section 318(a)(2)(C). 
"(3) RELATED PERSONS.—All related persons (within the mean-
ing of section 103(b)(6)(C)) shall be treated as 1 entity." 
(b) CLERICAL AMENDMENT.—The table of sections for part IX of 
subchapter 1 is amended by inserting after the item relating to 
section 269 the following new item: 
"Sec. 269A. Personal service corporations formed or availed of to avoid or 
evade income tax." 
PUBLIC LAW 97-248-SEPT. 3, 1982 
96 STAT. 529 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 use 269A 
apply to taxable years beginning after December 31,1982. 
^°^^-
PART IV—MISCELLANEOUS 
SEC. 251. CHURCH PLANS. 
(a) EXCLUSION ALLOWANCE.— 
(1) ELECTION TO HAVE SECTION 415 RULES APPLY.—Subpara-
graph (B) of section 403(b)(2) (relating to exclusion allowance) is 
26 USC 403. 
amended by striking out "(under section 415)" and inserting in 
lieu thereof "(under section 415 without regard to section 
415(c)(8))". 
(2) YEARS OF SERVICE.—Section 403(b)(2) is amended by adding 
at the end thereof the following new subparagraphs: 
"(C) NUMBER OF YEARS OF SERVICE FOR DULY ORDAINED, 
COMMISSIONED, OR LICENSED MINISTERS OR LAY EMPLOYEES.— 
For purposes of this subsection and section 415(c)(4)(A)— 
"(i) all years of service by— 
"(I) a duly ordained, commissioned, or licensed 
minister of a church, or 
"(II) a lay person, 
as an employee of a church, a convention or association 
of churches, including an organization described in 
section 414(e)(3)(B)(ii), shall be considered as years of 
service for 1 employer, and 
"(ii) all amounts contributed for annuity contracts by 
each such church (or convention or association of 
churches) or such organization during such years for 
such minister or lay person shall be considered to have 
been contributed by 1 employer. 
For purposes of the preceding sentence, the terms 'church' 
and 'convention or association of churches' have the same 
meaning as when used in section 414(e). 
"(D) ALTERNATIVE EXCLUSION ALLOWANCE.— 
"(i) IN GENERAL.—In the case of any individual 
described in subparagraph (C), the amount determined 
under subparagraph (A) shall not be less than the 
lesser o
f
— 
"(I) $3,000, or 
"(II) the 
includible 
compensation 
of 
such 
individual, 
"(ii) SUBPARAGRAPH NOT TO APPLY TO INDIVIDUALS 
WITH ADJUSTED GROSS INCOME ovElR $17,000.—This Sub-
paragraph shall not apply with respect to any taxable 
year to any individual whose adjusted gross income for 
such taxable year (determined separately and without 
regard to any community property laws) exceeds 
$17,000. 
"(iii) SPECIAL RULE FOR FOREIGN MISSIONARIES.—In 
the case of an individual described in subparagraph 
(C)(i) performing services outside the United States, 
there shall be included as includible compensation for 
any year under clause (i)(II) any amount contributed 
during such year by a church (or convention or associ-
ation of churches) for an annuity contract with respect 
to such individual." 
96 STAT. 530 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(b) RETIREMENT INCOME ACCOUNTS PROVIDED BY CHURCHES, ETC.— 
26 use 403. 
Section 403(b) is amended by adding at the end thereof the following 
new paragraph: 
"(9) RETIREMENT INCOME ACCOUNTS PROVIDED BY CHURCHES, 
ETC.— 
"(A) AMOUNTS PAID TREATED AS CONTRIBUTIONS.—For pur-
poses of this title— 
"(i) a retirement income account shall be treated as 
an annuity contract described in this subsection, and 
"(ii) amounts paid by an employer described in para-
graph (1)(A) to a retirement income account shall be 
treated as amounts contributed by the employer for an 
annuity contract for the employee on whose behalf 
such account is maintained. 
"(B) RETIREMENT INCOME ACCOUNT.—For purposes of this 
paragraph, the term 'retirement income account' means a 
defined contribution program established or maintained by 
a church, a convention or association of churches, including 
an organization described in section 414(e)(3)(A), to provide 
benefits under section 403(b) for an employee described in 
paragraph (1) or his beneficiaries." 
(c) CONTRIBUTION LIMITATIONS.— 
(1) APPLICATION OF SECTION 4 1 5 ( C ) ( 4 ) TO CHURCH PLANS.— 
26 use 415. 
Paragraph (4) of section 415(c) (relating to special election for 
section 403(b) contracts) is amended— 
(A) by striking out "or a home health service agency" 
each place it appears and inserting in lieu thereof "a home 
health service agency, or a church, convention or associ-
ation of churches, or an organization described in section 
414(e)(3)(B)(ii)", 
(B) by inserting "(as determined for purposes of section 
403(b)(2))" after "service for the employer" in subparagraph 
(A), 
(C) by adding at the end of subparagraph (D) the following 
new clause: 
"(iv) For purposes of this paragraph, the terms 
'church' and 'convention or association of churches' 
have the same meaning as when used in section 
414(e).", and 
(D) by striking out "AND HOME HEALTH SERVICE AGENCIES" 
in the heading and inserting in lieu thereof ", HOME HEALTH 
SERVICE AGENCIES, AND CERTAIN CHURCHES, ETC.". 
(2) TOTAL ANNUAL ADDITIONS.—Section 415(c) (relating to limi-
tation on defined contribution plan) is amended by adding at 
the end thereof the following paragraph: 
"(8) CERTAIN CONTRIBUTIONS BY CHURCH PLANS NOT TREATED AS 
EXCEEDING LIMITS.— 
"(A) ALTERNATIVE EXCLUSION ALLOWANCE.—Any contribu-
tion or addition with respect to any participant, 
when 
expressed as an annual addition, which is allocable to the 
Ante, p. 529. 
application of section 403(b)(2)(D) to such participant for 
such year, shall be treated as not exceeding the limitations 
of paragraph (1). 
"(B) CONTRIBUTIONS NOT IN EXCESS OF $40,OOO ($IO,OOO PER 
YEAR).— 
"(i) I N GENERAL.—Notwithstanding any other provi-
sion of this subsection, at the election of a participant 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 531 
who is an employee of a church, a convention or associ-
ation of churches, including an organization described 
in section 414(e)(3)(B)(ii), contributions and other addi-
tions for an annuity contract or retirement income 
account described in section 403(b) with respect to such 
participant, when expressed as an annual addition to 
such participant's account, shall be treated as not 
exceeding the limitation of paragraph (1) if such annual 
addition is not in excess of $10,000. 
"(ii) 
$40,000 
AGGREGATE 
LIMITATION.—The 
total 
amount of additions with respect to any participant 
which may be taken into account for purposes of this 
subparagraph for all years may not exceed $40,000. 
"(iii) No ELECTION IF PARAGRAPH (4) (A) ELECTION 
MADE.—No election may be made under this subpara-
graph for any year if an election is made under para-
graph (4)(A) for such year. 
"(C) A N N U A L ADDITION.—For purposes of this paragraph, 
the term 'annual addition' has the meaning given such 
term by paragraph (2)." 
(3) CONFORMING AMENDMENT.—Section 403(b)(2)(B) (relating to 
26 USC 403. 
exclusion allowance) is amended by striking out "and home 
health service agencies" and inserting in lieu thereof "home 
health service agencies, and certain churches, etc." 
(d) CORRECTION PERIOD FOR CHURCH 
PLANS.—A church 
plan 
26 USC 403 note, 
(within the meaning of section 414(e) of the Internal Revenue Code 
of 1954) shall not be treated as not meeting the requirements of 
section 401 or 403 of such Code if— 
(1) by reason of any change in any law, regulation, ruling, or 
otherwise such plan is required to be amended to meet such 
requirements, and 
(2) such plan is so amended at the next earliest church 
convention or such other time as the Secretary of the Treasury 
or his delegate may prescribe. 
(e) EFFECTIVE DATES.— 
26 USC 403 note. 
(1) I N GENERAL.—Except as provided in this subsection, the 
amendments made by this section shall apply to taxable years 
beginning after December 31, 1981. 
(2) RETIREMENT INCOME ACCOUNTS.—The amendments made 
by subsection (b) shall apply to taxable years beginning after 
December 31, 1974. 
(3) SECTION 4 1 5 AMENDMENTS.—The amendments made by 
subsection (c) shall apply to years beginning after December 31, 
1981. 
(4) CORRECTION PERIOD.—The amendment made by subsection 
(d) shall take effect on July 1, 1982. 
(5) SPECIAL RULE FOR EXISTING DEFINED BENEFIT ARRANGE-
MENTS.—Any defined benefit arrangement which is established 
by a church or a convention or association of churches (includ-
ing an organization described in section 414(e)(3)(B)(ii) of the 
Internal Revenue Code of 1954) and which is in effect on the 
date of the enactment of this Act shall not be treated as failing 
to meet the requirements of section 403(b)(2) of such Code 
merely because it is a defined benefit arrangement. 
96 STAT. 532 
PUBLIC LAW 97-248—SEPT. 3, 1982 
SF:C. 
2
5
2
. 
DKFERRKD 
COMPENSATION PLANS 
FOR 
STATE 
JUDGES. 
26 use 457 note. 
Subsection (c) of section 131 of the Revenue Act of 1978 is 
amended by adding at the end thereof the following new paragraph: 
"(3) DEFERRED COMPENSATION PLANS FOR STATE JUDGES.— 
"(A) IN GENERAL.—The amendments made by this section 
shall not apply to any qualified State judicial plan. 
"(B) QUALIFIED STATE JUDICIAL PLAN.—For purposes of 
subparagraph (A), the term 'qualified State judicial plan' 
means any retirement plan of a State for the exclusive 
benefit of judges or their beneficiaries if— 
"(i) such plan has been continuously in existence 
since December 31, 1978, 
"(ii) under such plan, all judges eligible to benefit 
under the plan— 
"(I) are required to participate, and 
"(II) are required to contribute the same fixed 
percentage of their basic or regular rate of compen-
sation as judge, 
"(iii) under such plan, no judge has an option as to 
contributions or benefits the exercise of which would 
affect the amount of includible compensation, 
"(iv) the retirement payments of a judge under the 
plan are a percentage of the compensation of judges of 
that State holding similar positions, and 
"(v) the plan during any year does not pay benefits 
with respect to any participant which exceed the limi-
tations of section 415(b) of the Internal Revenue Code of 
1954." 
SEC. 
2.^1. PROFIT-SHARING 
PLAN CONTRIBUTIONS ON BEHALF OF 
DISABLED. 
26 use 415. 
(a) IN GENERAL.—Paragraph (3) of section 415(c) (defining partici-
pant's compensation) is amended to read as follows: 
"(3) PARTICIPANT'S COMPENSATION.—For purposes of 
para-
graph (D— 
"(A) IN GENERAL.—The term 'participant's compensation' 
means the compensation of the participant 
from the 
employer for the year. 
"(B) SPECIAL RULE FOR SELF-EMPLOYED INDIVIDUALS.—In 
the case of an employee within the meaning of section 
401(c)(1), subparagraph (A) shall be applied by substituting 
'the participant's earned income (within the meaning of 
section 401(c)(2) but determined without regard to any 
exclusion under section 911)' for 'compensation of the par-
ticipant from the employer'. 
"(C) SPECIAL RULES FOR PERMANENT AND TOTAL DISABIL-
ITY.—In the case of a participant— 
"(i) who is permanently and totally disabled (as 
defined in section 105(d)(4)), 
"(ii) who is not an officer, owner, or highly compen-
sated, and 
"(iii) with respect to whom the employer elects, at 
such time and in such manner as the Secretary may 
prescribe, to have this subparagraph apply, 
the term 'participant's compensation' means the compensa-
tion the participant would have received for the year if the 
participant was paid at the rate of compensation 
paid 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 533 
immediately before becoming permanently and totally dis-
abled. This subparagraph shall only apply if contributions 
made with respect to such participant are nonforfeitable 
when made." 
(b) DEDUCTIBILITY.—Subparagraph (B) of section 404(a)(3) (relating 
26 USC 404. 
to limits on deductible contributions to stock bonus and profit-
sharing trusts) is amended by adding at the end thereof the follow-
ing: "The term 'compensation otherwise paid or accrued during the 
taxable year to all employees' shall include any amount with respect 
to which an election under section 415(c)(3)(C) is in effect, but only to 
the extent that any contribution with respect to such amount is 
nonforfeitable." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 404 note, 
apply to taxable years beginning after December 31, 1981. 
SEC. 254. EXEMPTION FOR TRUSTS WHICH INCLUDE GOVERNMENTAL 
PLANS. 
(a) IN GENERAL.—Section 401(a) (relating to requirements of quali- 26 USC 401. 
fication for qualified pension, profit-sharing, and stock bonus plans) 
is amended by inserting immediately after paragraph (23) the fol-
lowing new paragraph: 
"(24) Any group trust which otherwise meets the require-
ments of this section shall not be treated as not meeting such 
requirements on account of the participation or inclusion in 
such trust of the moneys of any plan or governmental unit 
described in section 805(d)(6)." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC 401 note. 
shall apply with respect to taxable years beginning after December 
31, 1981. 
Subtitle D—Taxation of Life Insurance 
Companies and Annuities 
PART I—COINSURANCE ARRANGEMENTS 
Subpart A—Modified Coinsurance Contracts 
SEC. 255. REPEAL OF OPTIONAL TREATMENT OF POLICIES REINSURED 
UNDER MODIFIED COINSURANCE CONTRACTS. 
(a) REPEAL OF SECTION 820.—Section 820 (relating to optional 
26 USC 820. 
treatment of policies reinsured under modified coinsurance con-
tracts) is repealed. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 811 (relating to dividends to policyholders) is 26 USC 811. 
amended by adding at the end thereof the following new 
subsection: 
"(c) SPECIAL RULE FOR DIVIDENDS TO POLICYHOLDERS UNDER REIN-
SURANCE CONTRACTS.—If, under the terms of a conventional coinsur-
ance contract, a life insurance company (hereinafter referred to as 
'the reinsurer') is obligated to reimburse another life insurance 
company (hereinafter referred to as 'the reinsured') for dividends to 
policyholders on the policies reinsured, the amount of the deduction 
for dividends reimbursed shall, for purposes of section 809(d)(12), be Post, p. 534. 
equal to the amount of dividends to policyholders— 
"(1) which were paid by the reinsured, and 
96 STAT. 534 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(2) with respect to which the reinsurer reimbursed the rein-
sured under the terms of such contract. 
The amount determined under the preceding sentence shall be 
properly adjusted to reflect the adjustments under subsection (b)(1)." 
26 use 809. 
(2) The first sentence of section 809(c)(1) (relating to premi-
ums) is amended to read as follows: "The gross amount of 
premiums and other consideration, including— 
"(A) advance premiums, 
"(B) deposits, 
"(C) fees, 
"(D) assessments, 
"(E) consideration in respect of assuming liabilities under 
contracts not issued by the taxpayer, and 
"(F) the amount of dividends to policyholders reimbursed 
to the taxpayer by a reinsurer in respect of reinsured 
policies, 
on insurance and annuity contracts (including contracts supple-
mentary thereto); less return premiums, and premiums and 
other consideration arising out of reinsurance ceded." 
(3) Section 809(d)(3) (relating to dividends to policyholders) is 
amended by inserting ", other than the deduction provided 
under paragraph (12)" before the period at the end thereof. 
(4) Section 809(d) (relating to deductions in computing gain 
and loss from operations) is amended by adding after paragraph 
(11) thereof the following new paragraph: 
"(12) DIVIDENDS REIMBURSED.—The deduction for the amount 
of dividends to policyholders reimbursed by the taxpayer to 
another insurance company in respect of policies the taxpayer 
Ante, p. 533. 
has reinsured (determined under section 811(c))." 
(5) The table of sections for subpart E of part I of subchapter L 
of chapter 1 is amended by striking out the item relating to 
Ante, p. 533. 
section 820. 
26 u s e 809 note. 
(c) EFFECTIVE D A T E S . — 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to taxable years 
beginning after December 31, 1981. 
(2) RULES APPLICABLE TO TAXABLE YEARS BEGINNING BEFORE 
JANUARY 1, 1982.— 
(A) IN GENERAL.—In the case of any taxable year begin-
ning before January 1, 1982— 
(i) any determination as to whether any contract met 
the requirements of subsection (b) of section 820 of the 
Internal Revenue Code of 1954 (as in effect before its 
repeal by this section) shall be made solely by reference 
to the terms of the contract, and 
(ii) the treatment of such contract under subsection 
(c) of such section 820 shall be made in accordance with 
the regulations under such section which were in effect 
on December 31, 1981. 
(B) PARAGRAPH NOT TO APPLY IF FRAUD INVOLVED.—The 
provisions of subparagraph (A) shall not apply with respect 
to any deficiency which the Secretary of the Treasury or his 
delegate establishes was due to fraud with intent to evade 
tax. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 535 
SEC. 256. SPECIAL ACCOUNTING 
RULES RELATING TO REPEAL OF 26 USC 809 note. 
SECTION 820. 
(a) IN GENERAL.—For purposes of subchapter L of chapter 1 of the 
Internal Revenue Code of 1954, the provisions of this section shall 
apply to any contract— 
(1) which was in effect on December 31, 1981, and 
(2) to which section 820(a)(1) of such Code (as in effect before 
its repeal by section 255(a)) applied. 
(b) TREATMENT OF RESERVES AND ASSETS.—Except as provided in 
subsections (c) and (d), the reserves on the contract described in 
subsection (a) and the assets in relation to such reserves shall— 
(1) as of the beginning of taxable year 1982, be treated as the 
reserves and assets of the reinsurer (and not the reinsured), and 
(2) as of the end of taxable year 1982, be treated as the 
reserves and assets of the reinsured (and not the reinsurer). 
(c) ALLOCATION OF CERTAIN SECTION 820(c) ITEMS.—Any amount 
described in paragraphs (1), (2), (4), and (5) of section 820(c) of such 
Code (as so in effect) with respect to any contract described in 
subsection (a) shall, beginning with taxable year 1982, be taken into 
account by the reinsured and the reinsurer in the same manner as 
such amounts would be taken into account under a modified coin-
surance contract to which section 820(a)(1) of such Code (as so in 
effect) does not apply. 
(d) AMOUNTS TREATED AS RETURNED UNDER THE CONTRACT.— 
(1) IN GENERAL.—For taxable year 1982— 
(A) in the case of the reinsurer, there shall be allowed as 
a deduction for ordinary and necessary business expenses 
under section 809(d)(ll) of such Code an amount equal to 
the termination amount (and such amount shall not other-
wise be taken into account in determining gain or loss from 
operations under section 809 of such Code), and 
(B) in the case of the reinsured, the gross amount under 
section 809(c)(3) of such Code shall be increased by the 
termination amount. 
(2) ADJUSTMENT FOR RESERVES OF REINSURED.—For purposes of 
subsections (a) and (b) of section 810 of such Code, the amount 
taken into account as of the close of taxable year 1982 by the 
reinsured shall be reduced for such taxable year (but not for 
purposes of determining such amount at the beginning of the 
next succeeding taxable year) by the excess (if any) of— 
(A) the reserves on the contract as of January 1, 1982 
(determined under the reinsured's method of computing 
reserves for tax purposes), over 
(B) the termination amount. 
This paragraph shall not apply to any portion of any policies 
with respect to which the taxpayer is both the reinsured and the 
reinsurer under contracts to which this section applies. 
(3) TERMINATION AMOUNT.—For purposes of this subsection, 
the term "termination amount" means the amount under the 
contract which the reinsurer would have returned to the rein-
sured upon termination of the contract if the contract had been 
terminated as of January 1, 1982. 
(4) CERTAIN AMOUNTS NOT TAKEN INTO ACCOUNT UNDER SEC-
TION 809(d)(5).—Any amount treated as the reserves of the 
reinsured by reason of subsection (b)(2) shall not be taken into 
97-200 O—84—pt, 1 
19 : QL3 
96 STAT. 536 
PUBLIC LAW 97-248—SEPT. 3, 1982 
account under section 809(dX5) of the Internal Revenue Code of 
1954. 
(e) 3-YEAR INSTALLMENT PAYMENT OF TAXES OWED BY REINSURER 
RESULTING FROM REPEAL OF SECTION 820.— 
(1) IN GENERAL.—That portion of any tax imposed under 
chapter 1 of such Code (reduced by the sum of the credits 
26 use 31. 
allowable under subpart A of part IV of such chapter) on a 
reinsurer for taxable year 1982 which is attributable to the 
excess (if any) of— 
(A) any decrease in reserves for such taxable year by 
reason of subsection (b), over 
(B) the amount allowable as a deduction for such taxable 
year by reason of subsection (d)(1)(A), 
may, at the election of the reinsurer, be paid in 3 equal annual 
installments. 
(2) TIME FOR PAYMENTS.— 
(A) IN GENERAL.—The 3 installments under paragraph (1) 
shall be paid on March 15 of 1983, 1984, and 1985. 
(B) FIRST INSTALLMENT MAY BE MADE IN 2 PAYMENTS.—The 
reinsurer may elect to pay one-half of the installment due 
March 15, 1983, on June 15, 1983. 
(3) ACCELERATION OF PAYMENTS.—If— 
(A) an election is made under paragraph (1), and 
(B) before the tax attributable to such excess is paid in 
full any installment under this section is not paid on or 
before the date fixed by this section for its payment, 
then the extension of time for payment of tax provided in this 
subsection shall cease to apply, and any portion of the tax 
payable in installments shall be paid on notice and demand 
from the Secretary of the Treasury or his delegate. 
(4) PRORATION OF DEFICIENCY TO INSTALLMENTS.—If an election 
is made under paragraph (1) and a deficiency attributable to the 
excess has been assessed, the deficiency shall be prorated to 
such installments. 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 part of, such install-
ment. The part of the deficiency so prorated to any installment 
the date for payment of which has arrived shall be paid on 
notice and demand from the Secretary of the Treasury or his 
delegate. This paragraph 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. 
(5) BOND MAY BE REQUIRED.—If an election is made under this 
section, section 6165 of the Internal Revenue Code of 1954 shall 
apply as though the Secretary of the Treasury or his delegate 
were extending the time for payment of the tax. 
(6) EXTENSION OF PERIOD OF LIMITATIONS.—The running of any 
period of limitations for the collection of the tax with respect to 
which an election is made under paragraph (1) shall be 
suspended for the period during which there are any unpaid 
installments of such tax. 
(7) INTEREST ON INSTALLMENTS.—Rules similar to the rules of 
section 6601(b)(2) of such Code (without regard to the last sen-
tence thereof) shall apply with respect to any tax for which an 
election is made under paragraph (1). 
(f) SPECIAL RULE ALLOWING REINSURED T O REVOKE AN ELECTION 
Ante, p. 533. 
UNDER SECTION 820.— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 537 
(1) IN GENERAL.—In any case in which— 
(A) a taxpayer is the reinsured under any contract— 
(i) which took effect in 1980 or 1981, and 
(ii) with respect to which an election under section 
820 of the Internal Revenue Code of 1954 was made, 
Ante, p. 533. 
(B) the taxpayer has a loss from operations or its gain 
from operations (determined without regard to any deduc-
tion under paragraphs (3), (5), and (6) of section 809(d) of 
such Code) for the taxable year in which such contract took 
effect does not exceed the taxpayer's taxable investment 
income for such taxable year, 
(C) such contract was not a contract with a person who, 
during the taxable year in which such contract took effect, 
was a member of the same affiliated group (determined 
under section 1504 of such Code without regard to subsec-
tion (b)) of which the taxpayer is a member, and 
(D) the taxpayer makes an election under this subsection 
within 6 months after the date of the enactment of this Act, 
then the provisions of paragraph (2) shall apply. 
(2) RULES WHICH APPLY IF THIS SUBSECTION APPLIES.—In any 
case described in paragraph (1)— 
(A) the taxpayer shall, for all taxable years, be treated as 
not having made an election under section 820 of such Code 
with respect to the contract described in paragraph (1), but 
(B) all other parties to the contract shall be treated as 
having made such election with respect to such contract for 
all taxable years. 
(g) TAXABLE YEAR 1982.—For purposes of this section, the term 
"taxable year 1982" means, with respect to any taxpayer, the first 
taxable year of the taxpayer beginning after December 31, 1981. 
(h) REGULATIONS.—The Secretary of the Treasury or his delegate 
shall prescribe such regulations as may be necessary or appropriate 
to carry out the purposes of this section. 
Subpart B—Other Reinsurance Agreements 
SEC. 257. DENIAL OF INTEREST DEDUCTION ON INDEBTEDNESS INCURRED 
IN CONNECTION WITH REINSURANCE AGREEMENTS. 
(a) I N GENERAL.—Section 805(e) (relating to interest paid) is 
26 USC 805. 
amended by adding at the end thereof the following new sentence: 
"For purposes of this subpart, the interest paid for any taxable year 
shall not include any interest paid or accrued after December 31, 
1981, by a ceding company (or its affiliates) to any person in 
connection with a reinsurance agreement (other than interest on 
account of delay in making periodic settlements of income and 
expense items under the terms of the agreement)." 
(b) SPECIAL TRANSITIONAL RULE WHERE AT LEAST 20 PERCENT OF 26 USC 805 note. 
THE LIABILITIES REINSURED ARE PAID IN CASH, ETC.—The amend-
ment made by subsection (a) shall not apply with respect to any 
interest paid or incurred by a ceding company to a person who is a 
member of the same affiliated group (within the meaning of section 
1504 of the Internal Revenue Code of 1954) on indebtedness evi-
denced by a note— 
(1) which was entered into after December 31, 1981, with 
respect to a reinsurance contract under the terms of which an 
amount not less than 20 percent of the amounts reinsured was 
96 STAT. 538 
PUBLIC LAW 97-248—SEPT. 3, 1982 
paid in cash to the reinsurer on the effective date of such 
contract, 
(2) at least 40 percent of the principal of which had been paid 
by the ceding company in cash as of July 1, 1982, and 
(3) the remaining balance of which is paid in cash before 
January 1, 1983. 
SEC. 258. ALLOCATION OF INCOME, ETC. IN THE CASE OF OTHER REIN-
SURANCE AGREEMENTS. 
26 use 818. 
(a) IN GENERAL.—Section 818 (relating to accounting provisions) is 
amended by adding at the end thereof the following new subsection: 
"(g) ALLOCATION IN CASE OF REINSURANCE AGREEMENT INVOLVING 
TAX AVOIDANCE OR EVASION.—In the case of 2 or more related 
persons (within the meaning of section 1239(b)) who are parties to a 
reinsurance agreement, the Secretary may— 
"(1) allocate between or among such persons income (whether 
investment income, premium, or otherwise), deductions, assets, 
reserves, credits, and other items related to such agreement, or 
"(2) recharacterize any such items, 
if he determines that such allocation or recharacterization is neces-
sary to reflect the proper source and character of the taxable income 
(or any item described in paragraph (1) relating to such taxable 
income) of each such person.". 
26 use 818 note. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to agreements entered into after the date of the enact-
ment of this Act. 
PART II—2-YEAR TEMPORARY PROVISIONS RELATING TO 
TAXATION OF LIFE INSURANCE COMPANIES 
SEC. 259. INCREASE IN AMOUNT OF DIVIDEND DEDUCTION ALLOWED; 
PENSION PLAN RESERVES. 
26 use 809. 
(a) INCREASE IN LIMITATION.—Section 809(f) (relating to limitation 
on certain deductions) is amended to read as follows: 
"(fi LIMITATION ON CERTAIN DEDUCTIONS.— 
"(1) IN GENERAL.—The amount of the deductions under para-
graphs (3), (5), and (6) of subsection (d) shall not exceed the 
greater o
f
— 
"(A) $1,000,000, plus the amount (if any) by which— 
"(i) the gain from operations for the taxable year 
(computed without regard to such deductions), exceeds 
"(ii) the taxable investment income for the taxable 
year, or 
"(B) if the taxpayer elects for any taxable year, the 
amount determined under paragraph (2). 
"(2) 
ALTERNATIVE 
LIMITATION.—The amount 
determined 
under this paragraph for any taxable year shall be equal to the 
sum o
f
— 
"(A) that portion of the deduction under subsection (d)(3) 
which is allocable to any contract described in section 
805(d), and 
"(B) an amount equal to the sum o
f
— 
"(i) so much of the base amount as does not exceed 
$1,000,000, plus 
"(ii) in the case o
f
— 
"(I) a mutual life insurance company, 77.5 per-
cent of the base amount, or 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 539 
"(II) a stock life insurance company, 85 percent 
of the base amount. 
"(3) REDUCTION IN $1,000,000 AMOUNT FOR LARGE INSURERS.—If 
the sum of the deductions under paragraphs (3), (5), and (6) of 
subsection (d) exceeds $4,000,000, then each of the $1,000,000 
amounts in paragraphs (1) and (2) shall be reduced (but not 
below zero) by the amount which bears the same ratio to 
$1,000,000 as— 
"(A) the amount of such excess bears to, 
"(B) $4,000,000. 
"(4) BASE AMOUNT.—For purposes of paragraph (2)(B), the 
term 'base amount' means the excess o
f
— 
"(A) the amount of the deductions under paragraphs (3) 
and (5) of subsection (d) for the taxable year, over 
"(B) the amount determined under paragraph (2)(A) for 
such taxable year. 
"(5) APPLICATION OF LIMITATION.—The limitation provided by 
paragraph (1) shall apply first to the amount of the deduction 
under subsection (d)(3), then to the amount of the deduction 
under subsection (d)(5), and finally to the amount of the deduc-
tion under subsection (d)(6)." 
(b) $1,000,000 LIMITATION TO BE APPORTIONED AMONG MEMBERS OF 
SAME CONTROLLED GROUP.—Section 1561(a) (relating to limitations 
26 USC 1561. 
on certain multiple tax benefits in the case of certain controlled 
corporations) is amended— 
(1) by striking out "and" at the end of paragraph (2), 
(2) by striking out the period at the end of paragraph (3) and 
inserting in lieu thereof a comma and "and", 
(3) by inserting after paragraph (3) the following new 
paragraph: 
"(4) one $1,000,000 amount (adjusted as provided in section 
809(f)(3)) for purposes of computing the limitation under para- 
-^ra^^. P- 538. 
graph (1) or (2) of section 809(f).", and 
(4) by striking out "(2) and (3)" and inserting in lieu thereof 
"(2), (3), and (4)". 
(c) CONFORMING AMENDMENTS.—Section 1561(b) (relating to cer-
tain short taxable years) is amended— 
(1) by striking out "and" at the end of paragraph (2), 
(2) by striking out the comma at the end of paragraph (3) and 
inserting in lieu thereof a comma and "and", 
(3) by inserting after paragraph (3) the following new 
paragraph: 
"(4) the amount (adjusted as provided in section 809(f)(3)) to be 
used in computing the limitation under paragraph (1) or (2) of 
section 809(f),", and 
(4) by striking out "(2), or (3)" and inserting in lieu thereof 
"(2), (3), or (4)". 
SEC. 260. COMPUTATION OF AMOUNT OF LIFE INSURANCE RESERVES. 
(a) RESERVES ON CONTRACTS ON WHICH CERTAIN INTEREST Is GUAR-
ANTEED BEYOND THE END OF THE TAXABLE YEAR.—Section 818 (relat- 
Ante, p. 538. 
ing to accounting provisions), as amended by section 258(a), is 
amended by adding at the end thereof the following new subsection: 
"(h) METHOD OF COMPUTING RESERVES ON CONTRACT WHERE INTER-
EST Is GUARANTEED BEYOND END OF TAXABLE YEAR.—For purposes 
of this part (other than section 801), interest payable under any 
contract which is computed at a rate which— 
96 STAT. 540 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(1) is in excess of the lowest rates which are assumed under 
such contract for any period in calculating the reserves under 
section 810(c) for the contract under which such interest is 
payable, and 
"(2) is guaranteed beyond the end of the taxable year on 
which the reserves are being computed, 
shall be taken into account in computing the reserves with respect 
to such contract as if such interest were guaranteed only up to the 
end of the taxable year." 
(b) PROHIBITION AGAINST DEDUCTION OF INTEREST IN EXCESS OF 
26 u s e 805. 
AMOUNT CREDITED TO GROUP PENSION POLICYHOLDERS.—Section 805 
(relating to the determination of policy and other contract liabil-
ity requirements) is amended by adding at the end thereof the 
following: 
"(g) SPECIAL LIMITATION FOR GROUP PENSION CONTRACTS.—The 
amount determined under paragraphs (2) and (3) of subsection (a) for 
policy and other contract liability requirements for group pension 
contracts shall not exceed the amount actually credited to the 
policyholders whether such crediting is through premium rate com-
putations, reserve increases, excess interest, experience rate credits, 
policyholder dividends or otherwise. The Secretary shall prescribe 
such regulations as may be necessary to carry out the purposes of 
this subsection." 
26 u s e 805 note. 
(c) PROHIBITION A G A I N S T CHANGING THE QUALIFICATION S T A T U S OF 
LIFE INSURANCE COMPANIES.—For any taxable year ending before 
January 1, 1984, a taxpayer shall not be treated as other than a life 
insurance company (as defined in section 801(a) of such Code) 
because of the effect of amounts held under contracts which would 
be described in section 805(d) of the Internal Revenue Code of 1954, 
except for the fact that such contracts do not contain permanent 
annuity purchase rate guarantees. 
SEC. 261. MODIFICATION OF MENGE FORMULA. 
26 use 805. 
Subparagraph (B) of section 805(c)(1) (defining adjusted life insur-
ance reserves rate) is amended to read as follows: 
"(B) 0.9 raised to the power of n where n is the number 
(positive or negative) determined by subtracting— 
"(i) 100 times the average rate of interest assumed by 
the taxpayer in calculating such reserves, from 
"(ii) 100 times the adjusted reserves rate." 
SEC. 262. CONSOLIDATED RETURNS TO BE COMPUTED ON A BOTTOM 
LINE BASIS. 
26 u s e 818. 
Subsection (f) of section 818 (relating to computation on consoli-
dated 
returns of policyholders' share of investment 
yield) is 
amended to read as follows: 
"(f) SPECIAL RULES FOR CONSOLIDATED RETURN COMPUTATIONS.— 
For purposes of this part, in the case of a life insurance company 
filing or required to file a consolidated return under section 1501 for 
a taxable year, the following rules shall apply: 
"(1) POLICYHOLDERS' SHARE OF INVESTMENT YIELD.—The com-
putation of the policyholders' share of investment yield under 
subparts B and C (including all determinations and computa-
tions incident thereto) shall be made as if such company were 
not filing a consolidated return. 
"(2) LIFE INSURANCE COMPANY TAXABLE INCOME.— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 541 
"(A) IN GENERAL.—The amount of the consolidated life 
insurance company taxable income under paragraphs (1) 
and (2) of section 802(b) shall be determined by taking into 26 USC 802. 
account the life insurance company taxable income (includ-
ing any case where deductions exceed income) of each life 
insurance company which is a member of the group (as 
computed separately under such paragraphs). 
"(B) CERTAIN AMOUNTS COMPUTED SEPARATELY.—For pur-
poses of subparagraph (A), the determination of a life insur-
ance company's taxable investment income and gain or loss 
from operations (after applying the limitation provided by 
section 809(f)) shall be made without regard to the taxable 
investment income or gain or loss from operations of any 
other such company. 
"(3) CONSOLIDATED NET CAPITAL GAIN.—If there is a consoli-
dated net capital gain, then the partial tax referred to in section 
802(a)(2)(A) shall be computed on— 
"(A) the consolidated life insurance company taxable 
income, reduced (but not below the sum of the amounts 
determined under section 802(b)(3)) by 
"(B) the amount of such consolidated net capital gain." 
SEC. 263. EFFECTIVE DATES; SPECIAL RULES APPLICABLE TO TRANS-
ACTIONS BEFORE EFFECTIVE DATE. 
(a) EFFECTIVE DATES.— 
26 USC 805 note. 
(1) I N GENERAL.—Except as provided in this subsection, the 
amendments made by this part shall apply to taxable years 
beginning after December 31, 1981, and before January 1, 1984. 
(2) GROUP PENSION CONTRACTS.—The amendments made by 
section 260(b) shall apply to taxable years beginning 
after 
December 31, 1982, and before January 1, 1984. 
(3) RESERVES ON CONTRACTS WHERE INTEREST GUARANTEED FOR 
EXTENDED PERIODS.— 
(A) IN GENERAL.—The amendment 
made by section 
260(a) shall apply to reserves computed for taxable years 
beginning after December 31, 1981, and before January 1, 
1984, with respect to guarantees made after July 1, 1982, 
and before January 1, 1984. 
(B) SPECIAL RULE RELATING TO RESERVES.—If, for any tax-
able year beginning before January 1, 1982— 
(i) a taxpayer increased reserves pursuant to section 
810(c)(4) of the Internal Revenue Code of 1954 to reflect 
interest guaranteed beyond the end of such taxable 
year, and 
(ii) the Federal income tax liability of such taxpayer 
for all taxable years would be the same if such liability 
was computed with or without regard to such reserves, 
then such reserves shall, as of the beginning of the first 
taxable year of the taxpayer beginning after December 31, 
1981, be recomputed as if section 818(h) of such Code (as Ante,p.5S9. 
added by this Act) applied to such reserves. If this subpara-
graph applies to any taxpayer, subparagraph (A) shall be 
applied with respect to such taxpayer by striking out "after 
July 1, 1982, and". 
(b) SPECIAL RULES FOR CERTAIN TRANSACTIONS IN TAXABLE YEARS 
BEGINNING BEFORE JANUARY 1, 1982.— 
(1) CERTAIN INTEREST AND PREMIUMS.— 
96 STAT. 542 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(A) IN GENERAL.—In the case of any taxable year begin-
ning before January 1, 1982, if a taxpayer, on his return of 
tax for such taxable year, treated— 
(i) any amount described in subparagraph (B) as an 
amount which was not a dividend to policyholders 
(within the meaning of section 811 of the Internal 
26 use 811. 
Revenue Code of 1954), or 
(ii) any amount described in subparagraph (C) as not 
Ante, p. 534. 
described in section 809(c)(1), 
then such amounts shall be so treated for purposes of the 
Internal Revenue Code of 1954. 
(B) CERTAIN INTEREST.—An amount is described in this 
subparagraph if such amount is in the nature of interest 
accrued for the taxable year on an insurance or annuity 
contract pursuant to— 
(i) an interest rate guaranteed or fixed before the 
period of payment of such amount begins, or 
(ii) any other method (fixed before such 
period 
begins) the terms of which during the period are 
beyond the control and are independent of the experi-
ence of the company, whether or not the interest rate 
or other method was guaranteed or fixed for any speci-
fied period of time. 
(C) AMOUNTS NOT TREATED AS PREMIUMS.—An amount is 
described in this subparagraph if such amount represents 
the difference between— 
(i) the amount of premiums received or mortality 
charges made under rates fixed in advance of the pre-
mium or mortality charge due date, and 
(ii) the maximum 
premium or mortality 
charge 
which could be charged under the terms of the insur-
ance or annuity contract. 
(D) No INFERENCE.—The provisions of this paragraph 
shall constitute no inference with respect to the treatment 
of any item in taxable years beginning after December 31, 
1981. 
(2) CONSOLIDATED RETURNS.—The provisions of section 818(0 of 
such Code, as amended by section 262, shall apply to any 
taxable year beginning before January 1, 1982, if the taxpayer 
filed a consolidated return before July 1, 1982 for such taxable 
year under section 1501 of such Code which, on such date 
(determined without regard to any amended return filed after 
June 30, 1982), was consistent with the provisions of section 
818(f) of such Code, as so amended. In the case of a taxable year 
beginning in 1981, the preceding sentence shall be applied by 
substituting "September 16" for "July 1" and "September 15" 
for "June 30". 
(3) TAXABLE YEARS WHERE PERIOD OF LIMITATION HAS RUN.— 
This subsection shall not apply to any taxable year with respect 
to which the statute of limitations for filing a claim for credit or 
refund has expired under any provision of law or by operation 
of law. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 543 
PART III—EXCESS INTEREST; AMOUNTS RECEIVED UNDER 
ANNUITY CONTRACTS; FLEXIBLE PREMIUM CONTRACTS; 
COMPUTATION OF RESERVES 
SKC. 264. ALLOWANC E OF DKDUCTION FOR KXCKSS INTKRKST. 
(a) IN GENERAL.—Subsection (e) of section 805 (defining interest 
26 USC 805. 
paid) is amended by adding at the end thereof the following new 
paragraph: 
"(5) QUALIFIED GUARANTEED INTEREST.—Qualified guaranteed 
interest (within the meaning of subsection (f))". 
(b) QUALIFIED GUARANTEED INTEREST DEFINED.—Section 805 (relat-
ing to policy and other contract liability requirements) is amended 
by adding at the end thereof the following new subsection: 
"(D 
QUALIFIED 
GUARANTEED 
INTEREST 
AND QUALIFIED 
CON-
TRACTS.—For purposes of this section— 
"(1) IN GENERAL.—The term 'qualified guaranteed 
interest' 
means any amount in the nature of interest for the taxable year 
on qualified contracts, but only if such amount is determined 
pursuant to— 
"(A) a stated rate of interest which is guaranteed— 
"(i) before the beginning of the period for which the 
interest accrues, and 
"(ii) for a period of not less than 12 months (or for a 
period ending not earlier than the close of the taxable 
year in which the contract was issued), or 
"(B) a rate or rates of interest which— 
"(i) meet the requirements of clause (i) of subpara-
graph (A), and 
"(ii) is determined under a formula or other method 
the terms of which— 
"(I) during the period referred to in subpara-
graph (A)(ii) may not be changed by the taxpayer, 
and 
"(II) are independent of the experience of the 
taxpayer. 
"(2) 
QUALIFIED 
CONTRACT.—The 
term 
'qualified 
contract' 
means any annuity contract (other than any contract described 
in subsection (d)) which— 
"(A) involves (at the time the qualified interest is credited 
under the contract) life contingencies, 
"(B) provides no right under State law for the policy-
holder to participate 
in the divisible 
surplus of the 
taxpayer, and 
"(C) provides that the taxpayer may from time to time 
credit amounts in the nature of interest in excess of 
amounts computed on the basis of any rate or rates guaran-
teed in the contract at the time it was entered into. 
"(8) SPECIAL RULE I-^OR PARTICIPATING CONTRACTS.— 
"(A) IN GENERAL.—In the case of an annuity contract 
which is not a qualified contract solely because it fails to 
satisfy the requirements of subparagraph (B) of paragraph 
(2), such contract shall be treated as a qualified contract 
and the amount taken into account as qualified guaranteed 
intei-est with respect to such contract shall be equal to the 
sum of— 
96 STAT. 544 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(i) the amount of interest which would be assumed 
in calculating reserves with respect to such contract 
under section 810(c) if such interest were not taken into 
account under subsection (e), plus 
"(ii) 92.5 percent of the excess of— 
"(I) the amount of qualified guaranteed interest 
(determined without regard to this paragraph and 
as if such contract were a qualified contract), over 
"(II) the amount determined under clause (i). 
"(B) INTEREST NOT OTHERWISE TAKEN INTO ACCOUNT.—No 
deduction shall be allowed under any other provision of this 
part for the 7.5 percent of the excess described in subpara-
graph (A)(ii) which is not treated as qualified guaranteed 
interest." 
(c) CONFORMING AMENDMENTS.— 
26 use 805. 
(1) Subparagraph (A) of section 805(c)(1) (defining adjusted life 
insurance reserves) is amended by inserting "or reserves on any 
qualified contract" after "pension plan reserves". 
26 use 809. 
(2) Paragraph (2) of section 809(a) (defining required interest) 
is amended— 
(A) by inserting "the amount of qualified 
guaranteed 
Ante, p. 543. 
interest (within the meaning of section 805(D(1)) and" after 
"the sum of; and 
(B) by adding at the end thereof the following 
new 
sentence: 
"For purposes of subparagraphs (A) and (B), reserves on quali-
Ante, p. 543. 
fied 
contracts (within the meaning of section 805(f)(2)) shall not 
be taken into account." 
(3) Paragraph (1) of section 809(e) (relating to modification of 
interest deduction) is amended by inserting "qualified guaran-
teed interest (within the meaning of section 805(0(1) or" after 
"allowed for". 
26 u s e 805 note. 
(d) EFFECTIVE D A T E S . — 
(1) IN GENERAL.—The amendments made by this section shall 
apply to taxable years beginning after December 31, 1981. 
(2) GUARANTEES FOR LESS THAN 12 MONTHS.— 
(A) MONEYS HELD BEFORE AUGUST 14, 1982.—The require-
ments of subparagraph (A)(ii) or (B)(ii)(l) of section 805(f)(1) 
of the Internal Revenue Code of 1954 (as added by subsec-
tion (b)) shall not apply to any moneys held under any 
contract on August 13, 1982 (and any interest on such 
moneys after such date). 
(B) CONTRACTS ENTERED INTO AFTER AUGUST 13, 1982, AND 
BEFORE JANUARY 1, 1983.—A Contract entered into after 
August 13, 1982, and before J a n u a r y 1, 1983, shall be 
treated as meeting the requirements of subparagraph (A)(ii) 
or (B)(ii)(I) of such Code if it meets such requirements on the 
first contract anniversary date. 
SKC. 2
f
i
.
-
>
. TRKATMKNT OF A
.
M
O I NTS RK( KIVKI) INDKR ANM ITY 
CONTRACTS BKFORK ANNIITY STARTIN(; I)ATK. 
26 use 72. 
(a) IN GENERAL.—Subsection (e) of section 72 (relating to amounts 
not received as annuities) is amended to read as follows: 
"(e) AMOUNTS NOT RECEIVED AS ANNUITIES.— 
"(1) APPLICATION OF SUBSECTION.— 
"(A) IN GENERAL.—This subsection shall apply to any 
amount which— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 545 
"(i) is received under an annuity, endowment, or life 
insurance contract, and 
"(ii) is not received as an annuity, 
if no provision of this subtitle (other than this subsection) 
applies with respect to such amount. 
"(B) 
DIVIDENDS.—For 
purposes of this 
section, any 
amount received which is in the nature of a dividend or 
similar distribution shall be treated as an amount not 
received as an annuity. 
"(2) GENERAL RULE.—Any amount to which this subsection 
applies— 
"(A) if received on or after the annuity starting date, 
shall be included in gross income, or 
"(B) if received before the annuity starting date— 
"(i) shall be included in gross income to the extent 
allocable to income on the contract, and 
"(ii) shall not be included in gross income to the 
extent allocable to the investment in the contract. 
"(3) ALLOCATION OF AMOUNTS TO INCOME AND INVESTMENT.— 
For purposes of paragraph (2)(B)— 
"(A) ALLOCATION TO INCOME.—Any amount to which this 
subsection applies shall be treated as allocable to income on 
the contract to the extent that such amount does not exceed 
the excess (if any) of— 
"(i) the cash value of the contract (determined with-
out regard to any surrender 
charge) 
immediately 
before the amount is received, over 
"(ii) the investment in the contract at such time. 
"(B) ALLOCATION TO INVESTMENT.—Any amount to which 
this subsection applies shall be treated as allocable to 
investment in the contract to the extent that such amount 
is not allocated to income under subparagraph (A). 
"(4) SPECIAL RULES FOR APPLICATION OF PARAGRAPH (2)(B).— 
For purposes of paragraph (2)(B)— 
"(A) LOANS TREATED AS DISTRIBUTIONS.—If, during any 
taxable year, an individual— 
"(i) receives (directly or indirectly) any amount as a 
loan under any contract to which this 
subsection 
applies, or 
"(ii) assigns or pledges (or agrees to assign or pledge) 
any portion of the value of any such contract, 
such amount or portion shall be treated as received under 
the contract as an amount not received as an annuity. 
"(B) 
TREATMENT 
OF 
POLICYHOLDER 
DIVIDENDS.—Any 
amount described in paragraph (1)(B) shall not be included 
in gross income under paragraph (2)(B)(i) to the extent such 
amount is retained by the insurer as a premium or other 
consideration paid for the contract. 
"(5) RETENTION OF EXISTING RULES IN CERTAIN CASES.— 
"(A) IN GENERAL.—In any case to which this paragraph 
applies— 
"(i) paragraphs (2)(B) and (4)(A) shall not apply, and 
"(ii) if paragraph (2)(A) does not apply, 
the amount shall be included in gross income, but only to 
the extent it exceeds the investment in the contract. 
"(B) EXISTING CONTRACTS.—This paragraph shall apply to 
contracts entered into before August 14, 1982. Any amount 
96 STAT. 546 
PUBLIC LAW 97-248—SEPT. 3, 1982 
allocable to investment in the contract after August 13, 
1982, shall be treated as from a contract entered into after 
such date. 
"(C) CERTAIN 
LIFE 
INSURANCE AND ENDOWMENT CON-
TRACTS.—Except to the extent prescribed by the Secretary 
by regulations, this paragraph shall apply to any amount 
not received as an annuity which is received under a life 
insurance or endowment contract. 
"(D) CONTRACTS UNDER QUALIFIED PLANS.—This 
para-
graph shall apply to any amount received— 
"(i) from a trust described in section 401(a) which is 
exempt from tax under section 501(a), 
"(ii) from a contract— 
"(I) purchased by a trust described in clause (i), 
"(II) purchased as part of a plan described in 
section 403(a), 
"(III) described in section 403(b), or 
"(IV) provided for employees of a life insurance 
company 
under 
a 
plan 
described 
in 
section 
805(d)(3), or 
"(iii) from an individual retirement account or an 
individual retirement annuity. 
"(E) 
FULL 
REFUNDS, 
SURRENDERS, 
REDEMPTIONS, AND 
MATURITIES.—This paragraph shall apply to— 
"(i) any amount received, whether in a single sum or 
otherwise, under a contract in full discharge of the 
obligation under the contract which is in the nature of 
a refund of the consideration paid for the contract, and 
"(ii) any amount received under a contract on its 
complete surrender, redemption, or maturity. 
In the case of any amount to which the preceding sentence 
applies, the rule of paragraph (2)(A) shall not apply. 
"(6) INVESTMENT IN THE CONTRACT.—For purposes of this sub-
section, the investment in the contract as of any date is— 
"(A) the aggregate amount of premiums or other consid-
eration paid for the contract before such date, minus 
"(B) the aggregate amount received under the contract 
before such date, to the extent that such amount was 
excludable from gross income under this subtitle or prior 
income tax laws." 
(b) 5-PERCENT PENALTY FOR CERTAIN PREMATURE DISTRIBUTIONS.— 
95 Stat. 278. 
(1) IN GENERAL.—Section 72 (relating to annuities; certain 
proceeds of endowment and life insurance contracts) is amended 
by redesignating subsection (q) as subsection (r) and by adding 
after subsection (p) the following new subsection: 
"(q) 5-PERCENT PENALTY FOR PREMATURE DISTRIBUTIONS FROM 
ANNUITY CONTRACTS.— 
"(1) IMPOSITION OF PENALTY.— 
"(A) IN GENERAL.—If any taxpayer receives any amount 
under an annuity contract, the taxpayer's tax under this 
chapter for the taxable year in which such amount is 
received shall be increased by an amount equal to 5 percent 
of the portion of such amount includible in gross income 
which is properly allocable to any investment in the annu-
ity contract made during the 10-year period ending on the 
date such amount was received by the taxpayer. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(B) ALLOCATION ON FIRST-IN, FIRST-OUT BASIS.—For pur-
poses of subparagraph (A), the amount includible in gross 
income shall be allocated to the earliest investment in the 
contract with respect to which amounts have not been 
previously fully allocated under this paragraph. 
"(2) SUBSECTION NOT TO APPLY TO CERTAIN DISTRIBUTIONS.— 
This subsection shall not apply to any distribution— 
"(A) made on or after the date on which the taxpayer 
attains age 59 Vz, 
"(B) made to a beneficiary (or to the estate of an annu-
itant) on or after the death of an annuitant, 
"(C) attributable to the taxpayer's becoming disabled 
within the meaning of subsection (m)(7), 
"(D) which is one of a series of substantially equal 
periodic payments made for the life of a taxpayer or over a 
period extending for at least 60 months after the annuity 
starting date, 
"(E) from a plan, contract, account, trust, or annuity 
described in subsection (e)(5)(D), or 
"(F) allocable to investment in the contract 
before 
August 14, 1982." 
(2) CONFORMING AMENDMENTS.— 
(A) Each of the following provisions are amended by 
inserting "section 72(q)(l) (relating to 5-percent tax on pre- Ante, p. 546. 
mature 
distributions 
under 
annuity 
contracts)," 
after 
"owner-employees)": 
(i) Section 46(a)(4), 
26 USC 46. 
(ii) Section 50A(a)(3), 
26 USC 50A. 
(iii) Section 53(a), 
26 USC 53. 
(iv) Section 901(a). 
26 USC 901. 
(B) Subparagraph (A) of section 1302(a)(2) is amended by 26 USC 1302. 
inserting "or (q)(l)" after "section 72(m)(5)". 
(C) Paragraph (1) of section 1304(e) is amended— 
26 USC 1304. 
(i) by inserting "or section 72(q)(l) (relating to 
5-percent tax on premature distributions under annuity 
p 
contracts)" after "owner-employees)", and 
(ii) by inserting "or (q)(l)'^ after "Section 72(m)(5)" in 
the heading thereof, 
(c) EFFECTIVE DATES.— 
26 use 72 note. 
(1) SUBSECTION (a).—The amendments made by subsection (a) 
shall take effect on August 13,1982. 
(2) SUBSECTION (b).—The amendments made by subsection (b) 
shall apply to distributions after December 31,1982. 
SEC. 266. FLEXIBLE PREMIUM CONTRACTS. 
(a) I N GENERAL.—Section 101 (relating to exclusion from gross 
26 USC lOi. 
income for certain death benefits) is amended by adding at the end 
thereof the following new subsection: 
"(f) 
PROCEEDS OF FLEXIBLE PREMIUM CONTRACTS PAYABLE BY 
REASON OF DEATH.— 
"(1) I N GENERAL.—Any amount paid by reason of the death of 
the insured under a flexible premium life insurance contract 
shall be excluded from gross income only if— 
"(A) under such contract— 
"(i) the sum of the premiums paid under such con-
tract does not at any time exceed the guideline pre-
mium limitation as of such time, and 
96 STAT. 548 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(ii) any amount payable by reason of the death of 
the insured (determined without regard to any quali-
fied additional benefit) is not at any time less than the 
applicable percentage of the cash value of such contract 
at such time, or 
"(B) by the terms of such contract, the cash value of such 
contract may not at any time exceed the net single 
premium with respect to the amount payable by reason of 
the death of the insured (determined without regard to any 
qualified additional benefit) at such time. 
"(2) GUIDELINE PREMIUM LIMITATION.—For purposes of this 
subsection— 
"(A) GUIDELINE PREMIUM LIMITATION.—The term 'guide-
line premium limitation' means, as of any date, the greater 
of— 
"(i) the guideline single premium, or 
"(ii) the sum of the guideline level premiums to such 
date. 
"(B) GUIDELINE SINGLE PREMIUM.—The term 
'guideline 
single premium' means the premium at issue with respect 
to future benefits under the contract (without regard to any 
qualified 
additional benefit), and with respect to any 
charges for qualified additional benefits, at the time of a 
determination under subparagraph (A) or (E) and which is 
based on— 
"(i) the mortality and other charges 
guaranteed 
under the contract, and 
"(ii) interest at the greater of an annual effective rate 
of 6 percent or the minimum rate or rates guaranteed 
upon issue of the contract. 
"(C) GUIDELINE LEVEL PREMIUM.—The term 
'guideline 
level premium' means the level annual amount, payable 
over the longest period permitted under the contract (but 
ending not less than 20 years from date of issue or not later 
f 
than age 95, if earlier), computed on the same basis as the 
guideline single premium, except that subparagraph (B)(ii) 
shall be applied by substituting '4 percent' for '6 percent'. 
"(D) COMPUTATIONAL RULES.—In computing the guideline 
single premium or guideline level premium under subpara-
graph (B) or (O— 
"(i) the excess of the amount payable by reason of the 
death of the insured (determined without regard to any 
qualified additional benefit) over the cash value of the 
contract shall be deemed to be not greater than such 
excess at the time the contract was issued, 
"(ii) the maturity date shall be the latest maturity 
date permitted under the contract, but not less than 20 
years after the date of issue or (if earlier) age 95, and 
"(iii) the amount of any endowment benefit (or sum 
of endowment benefits) shall be deemed not to exceed 
the least amount payable by reason of the death of the 
insured (determined without regard to any qualified 
additional benefit) at any time under the contract. 
"(E) ADJUSTMENTS.—The guideline single premium and 
guideline level premium shall be adjusted in the event of a 
change in the future benefits or any qualified additional 
benefit under the contract which was not reflected in any 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 549 
guideline single premiums or guideline level premium pre-
viously determined. 
"(3) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of 
this subsection— 
"(A) FLEXIBLE PREMIUM LIFE INSURANCE CONTRACT.—The 
terms 'flexible premium life insurance contract' and 'con-
tract' mean a life insurance contract (including any quali-
fied additional benefits) which provides for the payment of 
one or more premiums which are not fixed by the insurer as 
to both timing and amount. Such terms do not include that 
portion of any contract which is treated under State law as 
providing any annuity benefits other than as a settlement 
option. 
"(B) PREMIUMS PAID.—The term 'premiums paid' means 
the premiums paid under the contract less any amounts 
(other than amounts includible in gross income) to which 
section 72(e) applies. If, in order to comply with the require-
ments of paragraph (1)(A), any portion of any premium paid 
during any contract year is returned by the insurance 
company (with interest) within 60 days after the end of a 
contract year— 
"(i) the amount so returned (excluding interest) shall 
be deemed to reduce the sum of the premiums paid 
under the contract during such year, and 
"(ii) notwithstanding the provisions of section 72(e), 
the amount of any interest so returned shall be includi-
ble in the gross income of the recipient. 
"(C) APPLICABLE PERCENTAGE.—The term 'applicable per-
centage' means— 
"(i) 140 percent in the case of an insured with an 
attained age at the beginning of the contract year of 40 
or less, and 
"(ii) in the case of an insured with an attained age of 
more than 40 as of the beginning of the contract year, 
140 percent reduced (but not below 105 percent) by one 
percent for each year in excess of 40. 
"(D) CASH VALUE.—The cash value of any contract shall 
be determined without regard to any deduction for any 
surrender charge or policy loan. 
"(E) QUALIFIED ADDITIONAL BENEFITS.—The term 'quali-
fied additional benefits' means any— 
"(i) guaranteed insurability, 
"(ii) accidental death benefit, 
"(iii) family term coverage, or 
"(iv) waiver of premium. 
"(F) PREMIUM PAYMENTS NOT DISQUALIFYING CONTRACT.— 
The payment of a premium which would result in the sum 
of the premiums paid exceeding the guideline premium 
limitation shall be disregarded for purposes of paragraph 
(l)(A)(i) if the amount of such premium does not exceed the 
amount necessary to prevent the termination of the con-
tract without cash value on or before the end of the con-
tract year. 
"(G) N E T SINGLE PREMIUM.—In computing the net single 
premium under paragraph (1)(B)— 
"(i) the mortality basis shall be that guaranteed 
under the contract (determined by reference to the 
96 STAT. 550 
PUBLIC LAW 97-248—SEPT. 3, 1982 
most recent mortality table allowed under all State 
laws on the date of issuance), 
"(ii) interest shall be based on the greater o
f
— 
"(I) an annual effective rate of 4 percent (3 per-
cent for contracts issued before July 1, 1983), or 
"(ID the minimum rate or rates guaranteed upon 
issue of the contract, and 
"(iii) the computational rules of paragraph (2)(D) 
shall apply, except that the maturity date referred to in 
clause (ii) thereof shall not be earlier than age 95. 
"(H) CORRECTION OF ERRORS.—If the taxpayer establishes 
to the satisfaction of the Secretary that— 
"(i) the requirements described in paragraph (1) for 
any contract year was not satisfied due to reasonable 
error, and 
"(ii) reasonable steps are being taken to remedy the 
error, 
the Secretary may waive the failure to satisfy such 
requirements. 
"(I) REGULATIONS.—The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out 
the purposes of this subsection. ' 
26 use 101. 
(b) CONFORMING AMENDMENT.—Paragraph (1) of section 101(a) 
(relating to proceeds of life insurance contracts payable by reason of 
death) is amended by striking out "and in subsection (d)" and 
inserting in lieu thereof ", subsection (d), and subsection (f)". 
26 u s e 101 note. 
(c) EFFECTIVE D A T E S . — 
(1) IN GENERAL.—The amendments made by this section shall 
apply to contracts entered into before January 1, 1984. 
(2) SPECIAL RULE FOR CONTRACTS ENTERED INTO BEFORE JANU-
ARY 1, 1983.—Any contract entered into before January 1, 1983, 
which meets the requirements of section 101(f) of the Internal 
Ante, p. 547. 
Revenue Code of 1954 on the date which is 1 year after the date 
of the enactment of this Act shall be treated as meeting the 
requirements of such section for any period before the date on 
which such contract meets such requirements. Any death bene-
fits paid under a flexible premium life insurance contract 
(within the meaning of section 101(f)(3)(A) of such Code) before 
the date which is 1 year after such date of enactment shall be 
excluded from gross income. 
(3) SPECIAL RULE FOR CERTAIN CONTRACTS.—Any contract 
entered into before January 1, 1983, shall be treated as meeting 
the requirements of subparagraph (A) of section 101(f)(1) of such 
Code if such contract would meet such requirements if section 
103(0(2)(C) of such Code were applied by substituting "3 per-
cent" for "4 percent". 
SEC. 267. REDUCTION IN APPROXIMATE REVALUATION METHOD OF 
COMPUTING RESERVES. 
(a) REDUCTION FROM $21 PER $1,000 TO $19 PER $1,000 IN DETER-
MINING APPROXIMATE REVALUATION OF CERTAIN RESERVES COM-
PUTED O
N PRELIMINARY TERM BASIS.— 
26 use 818. 
(1) IN GENERAL.—Subparagraph (A) of section 818(c)(2) (relat-
ing to approximate revaluation of reserves computed on pre-
liminary term basis) is amended— 
(A) by striking out "$21" and inserting in lieu thereof 
"$19", and 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 551 
(B) by striking out "2.1 percent" and inserting in lieu 
thereof "1.9 percent". 
(2) TAXPAYER ALLOWED TO ELECT OUT OF APPROXIMATE REVALU-
ATION.—The last sentence of section 818(c) (relating to life 
26 USC 818. 
insurance reserves computed on preliminary term basis) is 
amended— 
(A) by inserting "or in effect for a taxable year beginning 
in 1981" after "1958" the first place it appears, and 
(B) by inserting "or 1981, whichever is applicable" after 
"1958" the second place it appears. 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 818 note. 
apply to taxable years beginning after December 31, 1981, but only 
with respect to reserves established under contracts entered into 
after March 31, 1982. 
PART IV—UNDERPAYMENTS OF ESTIMATED TAX FOR 1982 
SEC. 268. UNDERPAYMENTS OF ESTIMATED TAX FOR 1982. 
26 USC 802 note. 
No addition to the tax shall be made under section 6655 of the 
Internal Revenue Code of 1954 (relating to failure by corporation to 
pay estimated income tax) for any period before December 15, 1982, 
with respect to any underpayment of estimated tax by a taxpayer 
with respect to any tax imposed by section 802(a), to the extent that 
such underpayment was created or increased by any provisions of 
this subtitle. 
Subtitle E—Employment Taxes 
PART I—IN GENERAL 
SEC. 269. TREATMENT OF REAL ESTATE AGENTS AND DIRECT SELLERS. 
(a) GENERAL RULE.—Chapter 25 of the Internal Revenue Code of 
1954 is amended by adding at the end thereof the following new 
section: 
"SEC. 3508. TREATMENT OF REAL ESTATE AGENTS AND DIRECT SELLERS. 
26 USC 3508. 
"(a) GENERAL RULE.—For purposes of this title, in the case of 
services performed as a qualified real estate agent or as a direct 
seller— 
"(1) the individual performing such services shall not be 
treated as an employee, and 
"(2) the person for whom such services are performed shall 
not be treated as an employer. 
"(b) DEFINITIONS.—For purposes of this section— 
"(1) QUALIFIED REAL ESTATE AGENT.—The term 'qualified real 
estate agent' means any individual who is a sales person i
f
— 
"(A) such individual is a licensed real estate agent, 
"(B) substantially all of the remuneration (whether or not 
paid in cash) for the services performed by such individual 
as a real estate agent is directly related to sales or other 
output (including the performance of services) rather than 
to the number of hours worked, and 
"(C) the services performed by the individual are per-
formed pursuant to a written contract between such indi-
vidual and the person for whom the services are performed 
and such contract provides that the individual will not be 
96 STAT. 552 
PUBLIC LAW 97-248—SEPT. 3, 1982 
treated as an employee with respect to such services for 
Federal tax purposes. 
"(2) DIRECT SELLER.—The term 'direct seller' means any 
person i
f
— 
"(A) such person— 
"(i) is engaged in the trade or business of selling (or 
soliciting the sale of) consumer products to any buyer 
on a buy-sell basis, a deposit-commission basis, or any 
similar basis which the Secretary prescribes by regula-
tions, for resale (by the buyer or any. other person) in 
the home or otherwise than in a permanent retail 
establishment, or 
"(ii) is engaged in the trade or business of selling (or 
soliciting the sale of) consumer products in the home or 
otherwise than in a permanent retail establishment, 
"(B) substantially all the remuneration (whether or not 
paid in cash) for the performance of the services described 
in subparagraph (A) is directly related to sales or other 
output (including the performance of services) rather than 
to the number of hours worked, and 
"(C) the services performed by the person are performed 
pursuant to a written contract between such person and the 
person for whom the services are performed and such 
contract provides that the person will not be treated as an 
employee with respect to such services for Federal tax 
purposes. 
"(3) 
COORDINATION 
WITH 
RETIREMENT 
PLANS 
FOR SELF-
EMPLOYED.—This section shall not apply for purposes of subtitle 
A to the extent that the individual is treated as an employee 
under section 401(c)(1) (relating to self-employed individuals)." 
(b) AMENDMENT OF SOCIAL SECURITY ACT.—Section 210 of the 
42 use 410. 
Social Security Act is amended by adding at the end thereof the 
following new subsection: 
"Treatment of Real Estate Agents and Direct Sellers 
"(p) Notwithstanding any other provision of this title, the rules of 
Ante, p. 551. 
section 3508 of the Internal Revenue Code of 1954 shall apply for 
purposes of this title." 
(c) INDEFINITE EXTENSION OF PROVISIONS RELATING TO EMPLOY-
MENT STATUS FOR EMPLOYMENT TAXES.— 
26 use 3401 
(1) TERMINATION OF CERTAIN EMPLOYMENT TAX LIABILITY.— 
"°*^- 
(A) Subparagraph (A) of section 530(a)(1) of the Revenue 
26 use 3401 
Act of 1978 (relating to termination of certain employment 
"°*'®- 
tax liability for periods before July 1, 1982) is amended by 
striking out "ending before July 1, 1982". 
(B) Paragraph (3) of section 530(a) of such Act is amended 
by striking out "and before July 1, 1982,". 
(C) The subsection heading of subsection (a) of section 530 
of such Act is amended by striking out "FOR PERIODS 
BEFORE JULY 1, 1982". 
(2) 
PROHIBITION 
AGAINST 
REGULATIONS 
AND RULINGS ON 
EMPLOYMENT STATUS.—Subsection (b) of section 530 of such Act 
is amended— 
(A) by striking out "July 1, 1982 (or, if earlier,", and 
(B) by striking out "taxes)" and inserting in lieu thereof 
"taxes . 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 553 
(3) CERTAIN REGULATIONS, ETC., PERMITTED.—Nothing in sec- 
26 USC 3508 
tion 530 of the Revenue Act of 1978 shall be construed to 
note. 
prohibit the implementation of the amendments made by this 
26 USC 3401 
section. 
(d) CLERICAL AMENDMENT.—The table of sections for chapter 25 of 
such Code is amended by adding at the end thereof the following 
new item: 
"Sec. 8.508. Treatment of real estate agents and direct sellers." 
(e) EFFECTIVE DATES.— 
26 USC 3508 
(1) IN GENERAL.—Except as provided in paragraph (2), the ^°^^-
amendments made by this section shall apply to services per-
formed after December 31, 1982. 
(2) SUBSECTION (O.—The amendments made by subsection (c) 
shall take effect on July 1, 1982. 
SEC. 270. SIMPLIFIED 
PROCEDURE FOR DETERMINING 
AMOINT OF 
EMPLOYMENT TAXES. 
(a) IN GENERAL.—Chapter 25 (relating to general provisions relat-
ing to employment taxes), as amended by section 271, is amended by 
adding at the end thereof the following new section: 
"SEC. 3.509. DETERMINATION OF EMPLOYERS LIABILITY FOR CERTAIN 
26 USC 3509. 
EMPLOYMENT TAXES. 
"(a) IN GENERAL.—If any employer fails to deduct and withhold 
any tax under chapter 24 or subchapter A of chapter 21 with respect 
26 USC 3401 et 
to any employee by reason of treating such employee as not being an 
^^9. 3101. 
employee for purposes of such chapter or subchapter, the amount of 
the employer's liability for— 
"(1) WITHHOLDING TAXES.—Tax under chapter 24 for such 
year with respect to such employee shall be determined as if the 
amount required to be deducted and withheld were equal to 1.5 
percent of the wages (as defined in section 3401) paid to such 
employee. 
"(2) EMPLOYEE SOCIAL SECURITY TAX.—Taxes under subchapter 
A of chapter 21 with respect to such employee shall be deter-
mined as if the taxes imposed under such subchapter were 20 
percent of the amount imposed under such subchapter without 
regard to this subparagraph. 
"(b) EMPLOYER'S LIABILITY INCREASED WHERE EMPLOYER 
DISRE-
GARDS REPORTING REQUIREMENTS.— 
"(1) IN GENERAL.—In the case of an employer who fails to 
meet the applicable requirements of section 6041(a), 6041A, or 
Pos^, p. 601. 
6051 with respect to any employee, unless such failure is due to 
reasonable cause and not willful neglect, subsection (a) shall be 
applied with respect to such employee— 
"(A) by substituting '3 percent' for '1.5 percent' in para-
graph (1); and 
"(B) by substituting '40 percent' for '20 percent' in para-
graph (2). 
"(2) APPLICABLE REQUIREMENTS.—For purposes of paragraph 
(1), the term 'applicable requirements' means the requirements 
described in paragraph (1) which would be applicable consistent 
with the employer's treatment of the employee as not being an 
employee for purposes of chapter 24 or subchapter A of chapter 
21. 
"(c) SECTION NOT T O APPLY IN CASES OF INTENTIONAL 
DISRE-
GARD.—This section shall not apply to the determination of the 
96 STAT. 554 
PUBLIC LAW 97-248—SEPT. 3, 1982 
employer's liability for tax under chapter 24 or subchapter A of 
26 use 3401 et 
chapter 21 if such liability is due to the employer's intentional 
seq, 3101. 
disregard of the requirement to deduct and withhold such tax. 
"(d) SPECIAL RULES.—For purposes of this section— 
"(1) DETERMINATION OF LIABILITY.—If the amount of any lia-
bility for tax is determined under this section— 
"(A) the employee's liability for tax shall not be affected 
by the assessment or collection of the tax so determined, 
"(B) the employer shall not be entitled to recover from 
the employee any tax so determined, and 
"(C) sections 3402(d) and section 6521 shall not apply. 
"(2) SECTION NOT TO APPLY WHERE EMPLOYER DEDUCTS WAGE 
BUT NOT SOCIAL SECURITY TAXES.—This section shall not apply to 
any employer with respect to any wages i
f
— 
"(A) the employer deducted and withheld any amount of 
the tax imposed by chapter 24 on such wages, but 
"(B) failed to deduct and withhold the amount of the tax 
imposed by subchapter A of chapter 21 with respect to such 
wages. 
"(3) SECTION NOT TO APPLY TO CERTAIN STATUTORY EMPLOY-
EES.—This section shall not apply to any tax under subchapter 
A of chapter 21 with respect to an individual described in 
subsection (d)(3) of section 3121 (without regard to whether such 
individual is described in paragraph (1) or (2) of such 
subsection).", 
(b) CONFORMING AMENDMENT.—The table of sections for chapter 
25 is amended by adding at the end thereof the following new item: 
"Sec. 3509. Determination of employer's liability for certain employment 
taxes." 
26 u s e 3509 
(c) EFFECTIVE DATE.—The amendment made by this section shall 
"°*®- 
take effect on the date of the enactment of this Act, except that such 
amendments shall not apply to any assessment made before Janu-
ary 1,1983. 
PART 
II—FEDERAL 
UNEMPLOYMENT 
TAX 
Subpart A—Increase in Federal Unemployment Tax 
SEC. 271. INCREASE IN FEDERAL UNEMPLOYMENT TAX WAGE BASE AND 
RATE. 
26 use 3306. 
(a) INCREASE IN WAGE BASE.—Paragraph (1) of section 3306(b) 
(defining wages) is amended by striking out "$6,000" each place it 
appears and inserting in lieu thereof "$7,000". 
(b) INCREASE IN RATE.— 
26 use 3301. 
(1) IN GENERAL.—Paragraph (1) of section 3301 (relating to 
rate of unemployment tax) is amended by striking out "3.4 
percent" and inserting in lieu thereof "3.5 percent". 
(2) TECHNICAL AMENDMENTS.— 
(A) Subparagraph (C) of section 901(c)(3) of the Social 
42 use 1101. 
Security Act is amended to read as follows: 
"(C) Each estimate of net receipts under this paragraph shall be 
based upon (i) a tax rate of 0.5 percent in the case of any calendar 
year for which the rate of tax under section 3301 of the Federal 
26 use 3301. 
Unemployment Tax Act is 3.2 percent, and (ii) a tax rate of 0.8 
percent in the case of any calendar year for which the rate of tax 
under such section is 3.5 percent." 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 555 
(B) Paragraph (1) of section 905(b) of such Act is amended 42 USC 1105. 
by amending the last sentence to read as follows: "In the 
case of any month after March 1983 and before April 1 of 
the first calendar year to which paragraph (2) of section 
3301 of the Federal Unemployment Tax Act applies, the 26 USC 3301. 
first sentence of this paragraph shall be applied by substi-
tuting '40 percent' for 'one-tenth'." 
(C) Subsection (b) of section 6157 is amended by striking 26 USC 6157. 
out "0.7 percent" and inserting in lieu thereof "0.8 
percent". 
(c) INCREASE IN RATE FOR 1985 AND THEREAFTER.— 
(1) IN GENERAL.—Section 3301 (as amended by subsection (b)) 
is amended— 
(A) by striking out "3.5 percent" and inserting in lieu 
thereof "6.2 percent", and 
(B) by striking out "3.2 percent" and inserting in lieu 
thereof "6.0 percent". 
(2) INCREASE IN AMOUNT OF STATE CREDIT.— 
(A) Subsection (b) of section 3302 (relating to additional 
26 USC 3302. 
credit) is amended by striking^ out "2.7%" and inserting in 
lieu thereof "5.4%". 
(B) Paragraph (1) of section 3302(d) (relating to rate of tax 
deemed to be 3 percent) is amended by striking out "3 
percent" each place it appears and inserting in lieu thereof 
"6 percent". 
(3) TECHNICAL AMENDMENTS.— 
(A) Paragraph (2) of section 3302(c) is amended by strik-
ing out "10 percent" each place it appears in subparagraph 
(A) and inserting in lieu thereof "5 percent". 
(B) Paragraph (3) of section 3302(c) is amended by striking 
out "15 percent" and inserting in lieu 
thereof 
"IV2 
percent". 
(C) Subsection (b) of section 6157 is amended by striking 
26 USC 6157. 
out "0.5 percent" each place it appears and inserting in lieu 
thereof "0.6 percent". 
(D) Subparagraph (C) of section 901(c)(3) of the Social 
Security Act (as amended by subsection (b)) is amended— 
Ante, p. 554. 
(i) by striking out "0.5 percent" and inserting in lieu 
thereof "0.6 percent"; 
(ii) by striking out "3.2 percent" and inserting in lieu 
thereof "6.0 percent"; and 
(iii) by striking out "3.5 percent" and inserting in lieu 
thereof "6.2 percent", 
(b) EFFECTIVE DATES.— 
(1) SUBSECTIONS (a) AND (b).—The amendments made by sub- 26 USC 3301 
sections (a) and (b) shall apply to remuneration paid after ^°^^-
December 31, 1982. 
(2) SUBSECTION (C).—The amendments made by subsection (c) 26 USC 3301 
shall apply to remuneration paid after December 31, 1984. ^°^^-
(3) TRANSITIONAL RULE FOR CERTAIN EMPLOYEES.— 
26 USC 3302 
(A) IN GENERAL.—Notwithstanding section 3303 of the note. 
Internal Revenue Code of 1954, in the case of taxable years 
beginning after December 31, 1984, and before January 1, 
1989, 
a taxpayer shall be allowed the additional credit 
under section 3302(b) of such Code with respect to any Supra. 
employee covered by a qualified specific industry provision 
96 STAT. 556 
PUBLIC LAW 97-248—SEPT. 3, 1982 
if the requirements of subparagraph (B) are met with 
respect to such employee. 
(B) REQUIREMENTS.—The requirements of this subpara-
graph are met for any taxable year with respect to any 
employee covered by a specific industry provision if the 
amount of contributions required to be paid for the taxable 
year to the unemployment fund of the State with respect to 
such employee are not less than the product of the required 
rate multiplied by the wages paid by the employer during 
the taxable year. 
(C) REQUIRED RATE.—For purposes of subparagraph (B), 
the required rate for any taxable year is the sum of— 
(i) the rate at which contributions were required to 
be made under the specific industry provision as in 
effect on August 10, 1982, and 
(ii) the applicable percentage of the excess of 5.4 
percent over the rate described in clause (i). 
(D) APPLICABLE PERCENTAGE.—For purposes of subpara-
graph (C), the term "applicable percentage" means— 
(i) 20 percent in the case of taxable year 1985, 
(ii) 40 percent in the case of taxable year 1986, 
(iii) 60 percent in the case of taxable year 1987, and 
(iv) 80 percent in the case of taxable year 1988. 
(E) QUALIFIED SPECIFIC INDUSTRY PROVISION.—For 
pur-
poses of this paragraph, the term, "qualified specific indus-
try provision" means a provision contained in a State 
unemployment compensation law (as in effect on August 10, 
1982)— 
(i) which applies to employees in a specific industry 
or to an otherwise defined type of employees, and 
(ii) under which employers may elect to make contri-
butions at a specified rate (without experience rating) 
which exceeds 2.7 percent. 
Subpart B—Other Financing Provisions 
SKC. 272. CREDIT REDUCTION NOT TO APPLY WHEN STATE MAKES 
CERTAIN REPAYMENTS. 
95 Stat. 876. 
(a) GENERAL RuLE.—Section 3302 (relating to credits against 
unemployment tax) is amended by adding at the end thereof the 
following new subsection: 
"(g) CREDIT REDUCTION NOT To APPLY W H E N STATE MAKES CER-
TAIN REPAYMENTS.— 
"(1) IN GENERAL.—In the case of any State which meets 
requirements of paragraph (2) with respect to any taxable year, 
subsection (c)(2) shall not apply to such taxable year; except that 
such taxable year (and January 1 of such taxable year) shall 
(except as provided in subsection (f)(3)) be taken into account for 
purposes of applying subsection (c)(2) to succeeding taxable 
years. 
"(2) REQUIREMENTS.—The requirements of this paragraph are 
met by any State with respect to any taxable year if the 
Secretary of Labor determines that— 
"(A) the repayments during the 1-year period ending on 
November 9 of such taxable year made by such State of 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 557 
advances under title XII of the Social Security Act are not 42 USC 1321. 
less than the sum o
f
— 
"(i) the potential additional taxes for such taxable 
year, and 
(ii) any advances made to such State during such 
1-year period under such title XII, 
"(B) there will be sufficient amounts in the State unem-
ployment fund to pay all compensation during the 3-month 
period beginning on November 1 of such taxable year with-
out receiving any advance under title XII of the Social 
Security Act, and 
"(C) there is a net increase in the solvency of the State 
unemployment compensation system for the taxable year 
attributable to changes made in the State law after the date 
on which the first advance taken into account in determin-
ing the amount of the potential additional taxes was made 
(or, if later, after the date of the enactment of this subsec-
tion) and such net increase equals or exceeds the potential 
additional taxes for such taxable year. 
"(3) DEFINITIONS.—For purposes of paragraph (2)— 
"(A) POTENTIAL ADDITIONAL TAXES.—The term 'potential 
additional taxes' means, with respect to any State for any 
taxable year, the aggregate amount of the additional tax 
which would be payable under this chapter for such taxable 
year by all taxpayers subject to the unemployment compen-
sation law of such State for such taxable year if paragraph 
(2) of subsection (c) had applied to such taxable year and 
any preceding taxable year without regard to this subsec-
tion but with regard to subsection (f). 
"(B) TREATMENT OF CERTAIN REDUCTIONS.—Any reduction 
in the State's balance under section 901(d)(1) of the Social 
Security Act shall not be treated as a repayment made by 42 USC 1101. 
such State. 
"(4) REPORTS.—The Secretary of Labor may require a State to 
furnish such information at such time and in such manner as 
may be necessary for purposes of paragraph (2)." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC 3302 
shall apply to taxable years beginning after December 31, 1982. ^°^-
SEC. 273. LIMITATION ON FIFTH YEAR CREDIT REDUCTION. 
(a) GENERAL RULE.—Paragraph (2) of section 3302(c) (relating to 26 USC 3302. 
limit on total credits) is amended by adding at the end thereof the 
following new sentence: "Subparagraph (C) shall not apply with 
respect to any taxable year to which it would otherwise apply (but 
subparagraph (B) shall apply to such taxable year) if the Secretary 
of Labor determines (on or before November 10 of such taxable year) 
that the State meets the requirements of subsection (f)(2)(B) for such 
taxable year." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC 3302 
shall apply to taxable years beginning after December 31, 1982. "°*®-
SEC. 274. DEFERRAL OF INTEREST IN CASE OF CERTAIN STATES WITH 
HIGH UNEMPLOYMENT RATES. 
(a) GENERAL RULE.—Paragraph (3) of section 1202(b) of the Social 
Security Act is amended by adding at the end thereof the following 95 Stat. 879. 
new subparagraph: 
'^2 USC 1322. 
96 STAT. 558 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(C)(i) In the case of any State which meets the requirements of 
clause (ii) for any calendar year, any interest otherwise required to 
be paid under this subsection during such calendar year shall be 
paid as follows— 
"(I) 25 percent of the amount otherwise required to be paid on 
or before any day during such calendar year shall be paid on or 
before such day; and 
"(II) 25 percent of the amount otherwise required to be paid 
on or before such day shall be paid on or before the correspond-
ing day in each of the 3 succeeding calendar years. 
Any interest the time for payment of which is deferred under this 
subparagraph shall bear interest in the same manner as if it were 
an advance made on the day on which it would have been required 
to be paid but for this subparagraph. 
"(ii) A State meets the requirements of this clause for any calen-
dar year if the rate of insured unemployment (as determined for 
purposes of section 203 of the Federal-State Extended Unemploy-
26 use 3304 
ment Compensation Act of 1970) under the State law of the period 
"°t^- 
consisting of the first 6 months of the preceding calendar year 
equaled or exceeded 7.5 percent." 
42 use 1322 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
^°^- 
shall apply to interest required to be paid after December 31, 1982. 
SEC. 
2
7
5
. 
REQUIRED REPAYMENTS FROM EXTENDED UNEMPLOYMENT 
COMPENSATION 
ACCOUNT. 
42 use 1105. 
Subsection (d) of section 905 of the Social Security Act is amended 
by inserting after the second sentence the following new sentence: 
"Repayments under the preceding sentence shall be made whenever 
the Secretary of the Treasury (after consultation with the Secretary 
of Labor) determines that the amount then in the account exceeds 
the amount necessary to meet the anticipated payments from the 
account during the next 3 months." 
SEC. 276. TREATMENT OF CERTAIN SERVICES PERFORMED BY STUDENTS. 
(a) STUDENT INTERNS.— 
26 use 3306. 
(1) IN GENERAL.—Subparagraph (C) of section 3306(c)(10) 
(defining employment) is amended by striking out "under the 
age of 22". 
26 use 3306 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
note. 
shall apply with respect to services performed after the date of 
the enactment of this Act. 
(b) FULL TIME STUDENTS EMPLOYED BY SUMMER CAMPS.— 
(1) SERVICE BY FULL TIME STUDENTS.—Subsection (c) of section 
26 use 3306. 
3306 (defining employment) is amended— 
(A) by striking out "or" at the end of paragraph (18), 
(B) by striking out the period at the end of paragraph (19) 
and inserting in lieu thereof "; or", and 
(C) by adding at the end thereof the following new para-
graph: 
"(20) service performed by a full time student (as defined in 
subsection (q)) in the employ of an organized camp— 
"(A) if such camp— 
"(i) did not operate for more than 7 months in the 
calendar year and did not operate for more than 
7 months in the preceding calendar year, or 
"(ii) had average gross receipts for any 6 months in 
the preceding calendar year which were not more than 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 559 
33 V
b percent of its average gross receipts for the 
other 6 months in the preceding calendar year; and 
"(B) if such full time student performed services in the 
employ of such camp for less than 13 calendar weeks in 
such calendar year." 
(2) FULL TIME STUDENT DEFINED.—Section 3306 is amended by 
26 USC 3306. 
adding at the end thereof the following new subsection: 
"(q) FULL TIME STUDENT.—For purposes of subsection (c)(20), an 
individual shall be treated as a full time student for any period— 
"(1) during which the individual is enrolled as a full time 
student at an educational institution, or 
"(2) which is between academic years or terms if— 
"(A) the individual was enrolled as a full time student at 
an educational institution for the immediately preceding 
academic year or term, and 
"(B) there is a reasonable assurance that the individual 
will be so enrolled for the immediately succeeding academic 
year or term after the period described in subparagraph 
(A)." 
(3) EFFECTIVE DATE.—The amendments made by this subsec- 26 USC 3306 
tion shall apply to remuneration paid after December 31, 1982, '^°^^-
and before January 1, 1984. 
SEC. 277. TREATMENT OF CERTAIN ALIEN FARM WORKERS. 
Subparagraph (B) of section 3306(c)(1) (defining employment) is 26 USC 3306. 
amended by striking out "January 1, 1982" and inserting in lieu 
thereof "January 1, 1984". 
PART III—MEDICARE COVERAGE 
SEC. 278. MEDICARE COVERAGE OF. AND APPLICATION OF HOSPITAL 
INSURANCE TAX TO, FEDERAL EMPLOYMENT. 
(a) 
APPLICATION 
OF HOSPITAL 
INSURANCE 
TAX TO FEDERAL 
EMPLOYMENT.— 
(1) IN GENERAL.—Section 3121 (relating to definitions for pur- 26 USC 3121. 
poses of the Federal Insurance Contributions Act) is amended 
by adding at the end thereof the following new subsection: 
"(u) 
APPLICATION 
OF HOSPITAL 
INSURANCE 
TAX TO FEDERAL 
EMPLOYMENT.— 
"(1) IN GENERAL.—For purposes of the taxes imposed by sec-
tions 3101(b) and 3111(b)— 
"(A) paragraph (6) of subsection (b) shall be applied with-
out regard to subparagraphs (A), (B), and (C)(i), (ii), and (vi) 
thereof, and 
"(B) paragraph (5) of subsection (b) (and the provisions of 
law referred to therein) shall not apply. 
"(2) MEDICARE QUALIFIED FEDERAL EMPLOYMENT.—For 
pur-
poses of this chapter, the term 'medicare qualified 
Federal 
employment' means service which— 
"(A) is employment (as defined in subsection (b)) with the 
application of paragraph (1), but 
"(B) would not be employment (as so defined) without the 
application of paragraph (1)." 
(2) CONFORMING AMENDMENT TO SELF-EMPLOYMENT TAX.—Sec-
tion 1402(b) (relating to self-employment income) is amended in 26 USC 1402. 
the second sentence by striking out "and" before "(B)" and by 
inserting before the period the following: ", and (C) includes, but 
96 STAT. 560 
PUBLIC LAW 97-248—SEPT. 3, 1982 
only with respect to the tax imposed by section 1401(b), remu-
neration paid for medicare qualified Federal employment (as 
Ante, p. 559. 
defined in section 3121(u)(2)) which is subject to the taxes 
imposed by sections 3101(b) and 3111(b)". 
(3) CONFORMING AMENDMENT TO FEDERAL SERVICE.—Section 
3122 (relating to federal service) is amended in the first sen-
tence by inserting "including service which is medicare quali-
fied Federal employment (as defined in section 3121(u)(2))," 
after "wholly owned by the United States,", 
(b) ENTITLEMENT TO HOSPITAL INSURANCE BENEFITS.— 
(1) 
DEFINITION 
OF MEDICARE 
QUALIFIED 
FEDERAL 
EMPLOY-
42 use 410. 
MENT.—Section 210 of the Social Security Act is amended by 
adding at the end thereof the following new subsection: 
"Medicare Qualified Federal Employment 
42 use 426, 
"(p) For purposes of sections 226 and 226A, the term 'medicare 
^^^~^- 
qualified Federal employment' means any service which would con-
stitute 'employment' as defined in subsection (a) of this section but 
for the application of the provisions of— 
"(1) subparagraph (A), (B), or (C)(i), (ii), or (vi) of subsection 
(a)(6), or 
"(2) subsection (a)(5).". 
(2) ENTITLEMENT TO HOSPITAL INSURANCE BENEFITS.— 
(A) FOR INDIVIDUALS AGE 65 OR OLDER.—Section 226(a)(2) 
42 use 426. 
of the the Social Security Act is amended— 
(i) by inserting "(A)" after "(2)"; 
(ii) by striking out "or is a qualified railroad retire-
ment beneficiary," at the end of subparagraph (A); and 
(iii) by inserting after subparagraph (A) the following 
new subparagraphs: 
"(B) is a qualified railroad retirement beneficiary, or 
"(C)(i) would meet the requirements of subparagraph (A) upon 
filing application for the monthly insurance benefits involved if 
medicare qualified Federal employment (as defined in section 
Supra. 
210(p)) were treated as employment (as defined in section 210(a)) 
for purposes of this title, and (ii) files an application, in conform-
ity with regulations of the Secretary, for hospital insurance 
42 use 1395c. 
benefits under part A of title XVIII,". 
(B) ENTITLEMENT FOR DISABLED INDIVIDUALS.— 
(i) IN GENERAL.—Section 226(b)(2) of the Social Secu-
rity Act is amended by striking out "(B)" and all that 
follows through "1974," and adding at the end the 
following: 
"(B) is, and has been for not less than 24 months, a disabled 
qualified railroad retirement beneficiary, within the meaning of 
45 use 231f. 
section 7(d) of the Railroad Retirement Act of 1974, or 
"(C)(i) has filed an application, in conformity with regulations 
of the Secretary, for hospital insurance benefits under part A of 
title XVIII pursuant to this subparagraph, and 
"(ii) would meet the requirements of subparagraph (A) (as 
determined under the disability criteria, including reviews, 
applied under this title), including the requirement that he has 
been entitled to the specified benefits for 24 months, if— 
"(I) medicare qualified Federal employment (as defined in 
section 210(p)) were treated as employment (as defined in 
section 210(a)) for purposes of this title, and 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 561 
"(II) the filing of the application under clause (i) of this 
subparagraph were deemed to be the filing of an applica-
tion for the disability-related benefits referred to in clause 
(i), (ii), or (iii) of subparagraph (A),". 
(ii) CLARIFICATION OF PERIOD OF ENTITLEMENT.—Sec-
tion 226(b) of such Act is further amended by adding 42 USC 426. 
after the first sentence the following new sentence: "In 
applying the previous sentence in the case of an indi-
vidual described in paragraph (2)(C), the 'twenty-fifth 
month of his entitlement' refers to the first month 
after the twenty-fourth month of entitlement to speci-
fied benefits referred to in paragraph (2)(C) and 'notice 
of termination of such entitlement' refers to a notice 
that the individual would no longer be determined to 
be entitled to such specified benefits under the condi-
tions described in that paragraph.". 
(C) ENTITLEMENT FOR INDIVIDUALS WITH END-STAGE RENAL 
DISEASE.—Paragraph (1) of section 226A(a) of the Social 
Security Act is amended to read as follows: 
42 USC 426-1. 
"(1)(A) is fully or currently insured (as such terms are defined 
in section 214), or would be fully or currently insured if (i) his 
service as an employee (as defined in the Railroad Retirement 
Act of 1974) after December 31, 1936, were included within the 45 USC 231t. 
meaning of the term 'employment' for purposes of this title, and 
(ii) his medicare qualified Federal employment (as defined in 
section 210(p)) were included within the meaning of the term Ante, p. 560. 
'employment' for purposes of this title; 
"(B)(i) is entitled to monthly insurance benefits under this 
title, (ii) is entitled to an annuity under the Railroad Retire-
ment Act of 1974, or (iii) would be entitled to a monthly 
insurance benefit under this title if medicare qualified Federal 
employment (as defined in 210(p)) after December 31, 1982, were 
included within the meaning of the term 'employment' for 
purposes of this title; or 
"(C) is the spouse or dependent child (as defined in regula-
tions) of an individual described in subparagraph (A) or (B);". 
(3) 
CONFORMING AMENDMENT.—Section 
1811 
of 
the 
Social 
Security Act is amended— 
42 USC 1395c. 
(A) by inserting "(or would be eligible for such benefits if 
certain Federal employment were covered 
employment 
under such title)" after "title II of this Act" in clause (1), 
and 
(B) by inserting "(or would have been so entitled to such 
benefits 
if certain 
Federal 
employment 
were 
covered 
employment under such title)" after "title II of this Act" in 
clause (2). 
(4) NOTICE TO INDIVIDUALS WHO ARE PROSPECTIVE MEDICARE 
BENEFICIARIES BASED ON FEDERAL EMPLOYMENT.—Section 226 
of 
such Act is amended by redesignating subsection (g) as subsec- 42 USC 426. 
tion (h) and by inserting after subsection (f) the following new 
subsection: 
"(g) The Secretary and Director of the Office of Personnel Man-
agement shall jointly prescribe and carry out procedures designed to 
assure that all individuals who perform medicare qualified Federal 
employment are fully informed with respect to (1) their eligibility or 
potential eligibility for hospital insurance benefits (based on such 
employment) under part A of title XVIII, (2) the requirements for 42 USC 1395c. 
96 STAT. 562 
PUBLIC LAW 97-248—SEPT. 3, 1982 
5 use 8301 et 
seq. 
26 use 3121 
note. 
42 use 426 note. 
42 u s e 1395c. 
42 use 426 note. 
42 use 426, 
426-1, 1395c. 
Ante, pp. 560, 
561. 
42 use 401. 
42 use 402. 
42 use 423. 
and conditions of such eligibility, and (3) the necessity of timely 
application as a condition of entitlement under subsection (b)(2)(C), 
giving particular attention to individuals who apply for an annuity 
under chapter 83 of title 5, United States Code, or under another 
similar Federal retirement program, and whose eligibility for such 
an annuity is or would be based on a disability.". 
(c) EFFECTIVE DATES.— 
(1) HOSPITAL INSURANCE TAXES.—The amendments made by 
subsection (a) shall apply to remuneration paid after December 
31, 1982. 
(2) MEDICARE COVERAGE.— 
(A) IN GENERAL.—The amendments made by subsection 
(b) are effective on and after January 1, 1983, and the 
amendments made by paragraph (3) of that subsection 
apply to remuneration (for medicare qualified Federal 
employment) paid after December 31, 1982. 
(B) TREATMENT OF CURRENT DISABILITIES.—For purposes of 
establishing entitlement to hospital insurance benefits 
under part A of title XVIII of the Social Security Act 
pursuant to the amendments made by subsection (b) or the 
provisions of subsection (d), no individual may be consid-
ered to be under a disability for any period before January 
1, 1983. 
(d) TRANSITIONAL PROVISIONS.— 
(1) IN GENERAL.—For purposes of sections 226, 226A, and 1811 
of the Social Security Act, in the case of any individual— 
(A) who performs service both during January 1983, and 
before January 1, 1983, which constitutes medicare quali-
fied Federal employment (as defined in section 210(p) of 
such Act) and 
(B) who would be entitled, under section 226(a)(2)(C), 
226(b)(2)(C), 226A(a)(l)(A)(ii), or 226A(a)(l)(B)(iii) of such Act, 
to hospital insurance benefits under part A of title XVIII of 
such Act but for the failure to include medicare qualified 
Federal employment (as so defined) within the meaning of 
the term "employment" for purposes of title II of such Act 
for remuneration paid before January 1, 1983, 
the individual's medicare qualified Federal employment (as so 
defined) performed before January 1, 1983, for which remunera-
tion was paid before such date, shall be considered to be 
"employment" (as so defined), but only for the purpose of 
providing such entitlement. 
(2) ELIGIBILITY OF OTHER PERSONS.—Any individual who is 
entitled to hospital insurance benefits under part A of title 
XVIII of the Social Security Act by reason of the application of 
paragraph (1) of this subsection, shall be deemed to be entitled 
to an old-age benefit under section 202 of such Act, or a disabil-
ity benefit under section 223 of such Act, for purposes of deter-
mining eligibility for such hospital insurance benefits for any 
other person. In applying this paragraph, any such other person 
who would be entitled to a monthly benefit under section 202 of 
such Act if such individual (to whom paragraph (1) applies) were 
entitled to such old-age or disability benefit, shall be deemed to 
be entitled to such monthly benefit, but only for purposes of 
determining such person's eligibility for hospital insurance 
benefits. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 563 
(3) APPROPRIATIONS.—There are authorized to be appropriated 
to the Federal Hospital Insurance Trust Fund from time to time 
such sums as the Secretary of Health and Human Services 
deems necessary for any fiscal year, on account of— 
(A) payments made or to be made during such fiscal year 
from such Trust Fund with respect to individuals who are 
entitled to benefits under title XVIII of the Social Security 
Act solely by reason 
of paragraph 
(1) or (2) of this 42 USC1395. 
subsection, 
(B) the additional adminstrative expenses resulting or 
expected to result therefrom, and 
(C) any loss in interest to such Trust Fund resulting from 
the payment of those amounts, 
in order to place such Trust Fund in the same position at the 
end of such fiscal year as it would have been in if this subsection 
had not been enacted. 
Subtitle F—Excise Taxes 
PART I—AIRPORT AND AIRWAY 
SEC. 279. TAX ON FUEL USED IN NONCOMMERCIAL AVIATION. 
(a) IMPOSITION OF TAX.— 
(1) GASOLINE FUELS.—Paragraph (3) of subsection 
4041(c) 26 USC 404L 
(relating to rate of tax) is amended by striking out "3 cents a 
gallon" and inserting in lieu thereof "8 cents a gallon (10V2 
cents a gallon in the case of any gasoline with respect to which a 
tax is imposed under section 4081 at the rate set forth in 
subsection (b) thereoO". 
(2) NoNGASOLiNE FUELS.—Paragraph (1) of subsection 4041(c) 
(relating to tax on fuel used in noncommercial aviation) is 
amended by striking out "7 cents" and inserting in lieu thereof 
"14 cents". 
(3) TERMINATION.—Paragraph (5) of section 4041(c) is amended 
to read as follows: 
"(5) TERMINATION.—The taxes imposed by paragraphs (1) and 
(2) shall apply during the period beginning on September 1, 
1982, and ending on December 31, 1987." 
(b) CERTAIN HELICOPTERS.— 
(1) EXEMPTION.—Section 4041 (relating to tax on special fuels) 
is amended by adding at the end thereof the following new 
subsection: 
"(1) EXEMPTION FOR CERTAIN HELICOPTER USES.—No tax shall be 
imposed under this section on any liquid sold for use in, or used in, a 
helicopter for the purpose of— 
"(1) transporting individuals, equipment, or supplies in the 
exploration for, or the development or removal of, hard miner-
als, or 
"(2) the planting, cultivation, cutting or transportation of, or 
caring for, trees (including logging operation), 
but only if the helicopter does not take off from, or land at, a facility 
eligible for assistance under the Airport and Airway Development 
Act of 1970, or otherwise use services provided pursuant to the 49 USC 1701 
Airport and Airway Improvement Act of 1982 during such use." ^°^^-
(2) REFUND OF TAX.— Subsection (d) of section 6427 (relating to ^°^^' P- ^'^^• 
fuels not used for taxable purposes) is amended— 
^^ ^^^ ^^^'^-
96 STAT. 564 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(A) by inserting "or is used in a helicopter for a purpose 
described in section 4041(1)," after "section 4041(h)(2)(C),"; 
and 
(B) by inserting "or in Certain Helicopters" after "Muse-
ums" in the caption thereof. 
26 use 4041 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
take effect on September 1, 1982. 
SEC. 280. TAX ON TRANSPORTATION BY AIR. 
26 use 4261. 
(a) TRANSPORTATION OF PERSONS.—Section 4261 (relating to impo-
sition of tax) is amended by striking out subsection (e) and inserting 
in lieu thereof the following new subsections: 
"(e) EXEMPTION FOR CERTAIN HELICOPTER USES.—No tax shall be 
imposed under subsection (a) or (b) on air transportation by helicop-
ter for the purpose of— 
"(1) transporting individuals, equipment, or supplies in the 
exploration for, or the development or removal of, hard miner-
als, or 
"(2) the planting, cultivation, cutting, or transportation of, or 
caring for, trees (including logging operations), 
but only if the helicopter does not take off from, or land at, a facility 
eligible for assistance under the Airport and Airway Development 
49 use 1701 
Act of 1970, or otherwise use services provided pursuant to the 
Posfp 671 
Airport and Airway Improvement Act of 1982 during such use. 
' • 
"(f) TERMINATION.—The taxes imposed by this section shall apply 
with respect to transportation beginning after August 31, 1982, and 
before January 1, 1988." 
26 use 4271. 
(b) TRANSPORTATION OF PROPERTY.—Subsection (d) of section 4271 
is amended to read as follows: 
"(d) TERMINATION.—The tax imposed by subsection (a) shall apply 
with respect to transportation beginning after August 31, 1982, and 
before January 1, 1988." 
(c) REPEAL OF CERTAIN TERMINATED TAXES.— 
26 u s e 
(1) I N GENERAL.—Subchapter E of chapter 36 is hereby 
4491-4494. 
repealed. 
(2) CONFORMING AMENDMENTS.— 
(A) The table of subchapters for chapter 36 is amended by 
striking out the item relating to subchapter E. 
26 use 4281. 
(B) Section 4281 (relating to small aircraft on nonestab-
lished lines) is amended— 
(i) by striking out "(as defined in section 4492(b))", 
and 
(ii) by adding at the end thereof the following new 
sentence: "For purposes of the preceding sentence, the 
term 'maximum certificated takeoff weight' means the 
maximum such weight contained in the type certificate 
or airworthiness certificate." 
26 use 6156. 
(C) Subsection (a) of section 6156 is amended by striking 
out "or 4491". 
(D) Paragraph (2) of section 6156(e) is amended by strik-
ing out "in the case of the tax imposed by section 4481". 
(E) The section heading for section 6156 is amended by 
striking out "AND CIVIL AIRCRAFT". 
(F) The table of sections for subchapter A of chapter 62 is 
amended by striking out "and civil aircraft" in the item 
relating to section 6156. 
Repeal. 
(G) Section 6426 is hereby repealed. 
26 u s e 6426. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 565 
(H) The table of sections for subchapter B of chapter 65 is 
amended by striking out the item relating to section 6426. 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 4261 
apply with respect to transportation beginning after August 31, "°*'^-
1982; except that such amendments shall not apply to any amount 
paid on or before such date. 
SEC. 281. EXTENSION OF AIRPORT AND AIRWAY TRUST FUND. 
(a) GENERAL RULE.—Subchapter A of chapter 98 (relating to Trust 
Fund Code) is amended by adding at the end thereof the following 
new section: 
"SEC. 9302. AIRPORT AND AIRWAY TRUST FUND. 
26 USC 9502. 
"(a) CREATION OF TRUST FUND.—There is established in the Treas-
ury of the United States a trust fund to be known as the 'Airport 
and Airway Trust Fund', consisting of such amounts as may be 
appropriated or credited to the Airport and Airway Trust Fund as 
provided in this section or section 9602(b). 
"(b) TRANSFER TO AIRPORT AND AIRWAY TRUST FUND OF AMOUNTS 
EQUIVALENT TO CERTAIN TAXES.—There is hereby appropriated to 
the Airport and Airway Trust Fund— 
"(1) amounts equivalent to the taxes received in the Treasury 
after August 31, 1982, and before January 1, 1988, under subsec-
tions (c) and (d) of section 4041 (taxes on aviation fuel) and 
under sections 4261 and 4271 (taxes on transportation by air); 
"(2) amounts determined by the Secretary of the Treasury to 
be equivalent to the taxes received in the Treasury after August 
31, 1982, and before January 1, 1988, under section 4081, with 
respect to gasoline used in aircraft; and 
"(3) amounts determined by the Secretary of the Treasury to 
be equivalent to the taxes received in the Treasury after August 
31, 1982, and before January 1, 1988, under paragraphs (2) and 
(3) of section 4071(a), with respect to tires and tubes of the types 
used on aircraft. 
"(c) 
APPROPRIATION OF ADDITIONAL SUMS.—There are 
hereby 
authorized to be appropriated to the Airport and Airway Trust Fund 
such additional sums as may be required to make the expenditures 
referred to in subsection (d) of this section. 
"(d) EXPENDITURES FROM AIRPORT AND AIRWAY TRUST FUND.— 
"(1) AIRPORT AND AIRWAY PROGRAM.—Amounts in the Airport 
and Airway Trust Fund shall be available, as provided by 
appropriation Acts, for making expenditures before October 1, 
1987, to meet those obligations of the United States— 
"(A) incurred under title I of the Airport and Airway 
Development Act of 1970 or of the Airport and Airway 
49 USC 1701. 
Development Act Amendments of 1976 or of the Aviation 
49 USC 1701 
Safety and Noise Abatement Act of 1979 or under the Fiscal ^a^fjc 
Year 1981 Airport Development Authorization Act or the note.^ 
provisions of the Airport and Airway Improvement Act of 95 Stat. 622. 
1982 (as such Acts were in effect on the date of the enact- Post, p. 671. 
ment of the Airport and Airway Improvement Act of 1982); 
"(B) heretofore or hereafter incurred under the Federal 
Aviation Act of 1958, as amended (49 U.S.C. 1301 et seq.), 
which are attributable to planning, research and develop-
ment, construction, or operation and maintenance of— 
"(i) air traffic control, 
"(ii) air navigation. 
49 USC 2101 
96 STAT. 566 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(iii) communications, or 
"(iv) supporting services, 
for the airway system; or 
"(C) for those portions of the administrative expenses of 
the Department of Transportation which are attributable to 
activities described in subparagraph (A) or (B). 
"(2) TRANSFERS FROM AIRPORT AND AIRWAY TRUST FUND ON 
ACCOUNT OF CERTAIN REFUNDS.—The Secretary of the Treasury 
shall pay from time to time from the Airport and Airway Trust 
Fund into the general fund of the Treasury amounts equivalent 
to the amounts paid after August 31, 1982, in respect of fuel 
used in aircraft, under section 6420 (relating to amounts paid in 
respect of gasoline used on farms, 6421 (relating to amounts 
paid in respect of gasoline used for certain nonhighway pur-
poses), or 6427 (relating to fuels not used for taxable purposes). 
"(3) TRANSFERS FROM THE AIRPORT AND AIRWAY TRUST FUND ON 
ACCOUNT OF CERTAIN SECTION 39 CREDITS.—The Secretary of the 
Treasury shall pay from time to time from the Airport and 
Airway Trust Fund into the general fund of the Treasury 
amounts equivalent to the credits allowed under section 39 with 
respect to fuel used after August 31, 1982. Such amounts shall 
be transferred on the basis of estimates by the Secretary of the 
Treasury, and proper adjustments shall be made in amounts 
subsequently transferred to the extent prior estimates were in 
excess of or less than the credits allowed.". 
(b) REPEAL OF SECTION 208 OF THE AIRPORT AND AIRWAY REVENUE 
ACT OF 1970.—Section 208 of the Airport and Airway Revenue Act of 
49 use 1742. 
1970 is hereby repealed. 
(c) CONFORMING AMENDMENTS.— 
(1) The table of sections for subchapter A of chapter 98 is 
amended to read as follows: 
"Sec. 9501. Black Lung Disability Trust Fund. 
"Sec. 9502. Airport and Airway Trust Fund.". 
26 use 9501. 
(2) The section heading for section 9501 (relating to establish-
ment of Black Lung Disability Trust Fund) is amended to read 
as follows: 
"SEC. 9501. BLACK LUNG DISABILITY TRUST FUND.". 
26 use 9502 
(d) EFFECTIVE DATE.— 
"°*'®- 
(1) IN GENERAL.—The amendments made by this section shall 
take effect on September 1, 1982. 
(2) SAVINGS PROVISIONS.—The Airport and Airway Trust Fund 
established by the amendments made by this section shall be 
treated for all purposes of law as the continuation of the Airport 
and Airway Trust Fund established by section 208 of the Air-
Supra, 
port and Airway Revenue Act of 1970. Any reference in any law 
to the Airport and Airway Trust Fund established by such 
section 208 shall be deemed to include a reference to the Airport 
and Airway Trust Fund established by the amendments made 
by this section. 
SEC. 281A. TECHNICAL PROVISIONS RELATING TO TAX ON TRANSPORTA-
TION OF PERSONS BY AIR. 
(a) TECHNICAL MODIFICATIONS TO TRANSPORTATION OF PASSENGERS 
B
Y AIR.— 
(1) LONGER LAYOVER PERMITTED TO QUALIFY AS UNINTERRUPTED 
INTERNATIONAL AIR TRANSPORTATION.—Paragraph (3) of section 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 567 
4262(c) (defining uninterrupted international air transportation) 
is amended by striking out "6 hours" each place it appears and 
inserting in lieu thereof "12 hours". 
(2) AUTHORITY TO WAIVE 225-MILE ZONE PROVISIONS.—Section 
4262 (defining taxable transportation) is amended by adding at 
the end thereof the following new subsection: 
"(e) AUTHORITY TO WAIVE 225-MILE ZONE PROVISIONS.— 
"(1) IN GENERAL.—If the Secretary of the Treasury determines 
that Canada or Mexico has entered into a qualified agreement— 
"(A) the Secretary shall publish a notice of such determi-
nation in the Federal Register, and 
"(B) effective with respect to transportation beginning 
after the date specified in such notice, to the extent pro-
vided in the agreement, the term '225-mile zone' shall not 
include part or all of the country with respect to which such 
determination is made. 
"(2) TERMINATION OF WAIVER.—If a determination was made 
under paragraph (1) with respect to any country and the Secre-
tary of the Treasury subsequently determines that the agree-
ment is no longer in effect or that the agreement is no longer a 
qualified agreement— 
"(A) the Secretary shall publish a notice of such determi-
nation in the Federal Register, and 
"(B) subparagraph (B) of paragraph (1) shall cease to 
apply with respect to transportation beginning after the 
date specified in such notice. 
"(3) QUALIFIED AGREEMENT.—For purposes of this subsection, 
the term 'qualified agreement' means an agreement between 
the United States and Canada or Mexico (as the case may be)— 
"(A) setting forth that portion of such country which is 
not to be treated as within the 225-mile zone, and 
"(B) providing that the tax imposed by such country on 
transportation described in subparagraph (A) will be at a 
level v/hich the Secretary of the Treasury determines to be 
appropriate. 
"(4) 
REQUIREMENT THAT AGREEMENT BE SUBMITTED TO CON-
GRESS.—No notice may be published under paragraph (1)(A) 
with respect to any qualified agreement before the date 90 days 
after the date on which a copy of such agreement was furnished 
to the Committee on Ways and Means of the House of Repre-
sentatives and the Committee on Finance of the Senate." 
(3) EFFECTIVE DATE.—The amendments made by this subsec-
tion shall apply to transportation beginning after August 31, 
1982. 
(b) 
MANNER 
IN 
WHICH 
TAX ON 
TRANSPORTATION 
BY AIR 
Is 
REQUIRED TO B E SHOWN ON AIRLINE TICKETS.— 
(1) GENERAL RULE.—Subsection (a) of section 7275 (relating to 
penalty for offenses relating to certain airline tickets and adver-
tising) is amended to read as follows: 
"(a) TICKETS.—In the case of transportation by air all of which is 
taxable transportation (as defined in section 4262), the ticket for 
such transportation shall show the total of— 
"(1) the amount paid for such transportation, and 
"(2) the taxes imposed by subsections (a) and (b) of section 
4261.". 
26 use 4262. 
26 use 4262. 
Publication 
in Federal 
Register. 
Publication 
in Federal 
Register. 
26 use 4262 
note. 
26 use 7275. 
97-200 O—84—pt. 1 
20 : QL3 
96 STAT. 568 
PUBLIC LAW 97-248—SEPT. 3, 1982 
26 use 7275 
(2) EFFECTIVE DATE.—The amendment made by subsection (a) 
^°^^- 
shall apply with respect to transportation beginning after the 
date of the enactment of this Act. 
PART II—COMMUNICATIONS SERVICES 
SEC. 282. EXTENSION OF EXCISE TAX ON COMMUNICATIONS SERVICES. 
26 use 4251. 
(a) I N GENERAL.—Section 4251 (relating to imposition of tax on 
communications services) is amended by striking out subsections (a) 
and (b) and inserting the following new subsections: 
"(a) TAX IMPOSED.— 
"(1) I N GENERAL.—There is hereby imposed on amounts paid 
for communications services a tax equal to the applicable per-
centage of amounts so paid. 
"(2) PAYMENT OF TAX.—The tax imposed by this section shall 
be paid by the person paying for such services. 
"(b) DEFINITIONS.—"For purposes of subsection (a)— 
"(1) COMMUNICATIONS SERVICES.—"The term 'communications 
services' means— 
"(A) local telephone service; 
"(B) toll telephone service; and 
"(C) teletypewriter exchange service. 
"(2) APPLICABLE PERCENTAGE.—"The term 'applicable percent-
age' means— 
"With respect to amounts paid pur-
suant to bills first rendered— 
The percentage is— 
During 1983, 1984, or 1985 
3 
During 1986 or thereafter 
0.". 
26 use 4251 
(b) EFFECTIVE DATE.—"The amendment made by subsection (a) 
^^^^- 
shall apply with respect to amounts paid for communications serv-
ices pursuant to bills first rendered after December 31, 1982. 
PART III—CIGARETTES 
SEC. 2
8
3
. 
INCREASE 
IN 
TAX 
ON 
CIGARETTES. 
26 use 5701. 
(a) RATE OF TAX.—Subsection (b) of section 5701 (relating to rate of 
tax on cigarettes) is amended— 
(1) by striking out "$4" in paragraph (1) and inserting in lieu 
thereof "$8"; and 
(2) by striking out "$8.40" in paragraph (2) and inserting in 
lieu thereof "$16.80". 
26 use 5701 
(b) FLOOR STOCKS.— 
note. 
(1) IMPOSITION OF TAX.—On cigarettes manufactured in or 
imported into the United States which are removed before 
January 1, 1983, and held on such date for sale by any person, 
there shall be imposed the following taxes: 
(A) SMALL CIGARETTES.—On cigarettes, weighing not more 
than 3 pounds per thousand, $4 per thousand; 
(B) LARGE CIGARETTES.—On cigarettes, weighing 
more 
than 3 pounds per thousand, $8.40 per thousand; except 
that, if more than 6V2 inches in length, they shall be 
taxable at the rate prescribed for cigarettes weighing not 
more than 3 pounds per thousand, counting each 2% 
inches, or fraction thereof, of the length of each as one 
cigarette. 
(2) LIABILITY FOR TAX AND METHOD OF PAYMENT.— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 569 
(A) LIABILITY FOR TAX.—A person holding cigarettes on 
January 1, 1983, to which any tax imposed by paragraph (1) 
applies shall be liable for such tax. 
(B) METHOD OF PAYMENT.—The tax imposed by paragraph 
(1) shall be treated as a tax imposed under section 5701 and 
shall be due and payable on January 18, 1983 in the same 
manner as the tax imposed under such section is payable 
with respect to cigarettes removed on January 1, 1983. 
(3) CIGARETTE.—For purposes of this subsection, the term 
"cigarette" shall have the meaning given to such term by 
subsection (b) of section 5702 of the Internal Revenue Code of 
1954. 
(4) EXCEPTION FOR RETAILERS.—The taxes imposed by para-
graph (1) shall not apply to cigarettes in retail stocks held on 
January 1, 1983, at the place where intended to be sold at retail. 
(c) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
26 USC 5701 
apply with respect to cigarettes removed after December 31, 1982 ^°^^-
and before October 1, 1985. 
PART 
IV—TAPS 
ADJUSTMENT 
ELIMINATED 
SEC. 284. ELIMINATION OF THE TAPS ADJUSTMENT. 
(a) IN GENERAL. Subsection (d) of section 4996 (relating to Alaskan 
26 USC 4996. 
oil from Sadlerochit reservior) is amended to read as follows: 
"(d) ALASKAN OIL FROM SADLEROCHIT RESERVOIR.—For purposes of 
this chapter— 
"(1) REMOVAL 
PRICE DETERMINED ON MONTHLY 
BASIS.—The 
removal price of Sadlerochit oil removed during any calendar 
month shall be the average of the producer's removal prices for 
such month. 
"(2) SADLEROCHIT OIL DEFINED.—The term 'Sadlerochit oil' 
means crude oil produced from the Sadlerochit reservoir in the 
Prudhoe Bay oilfield.". 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
26 USC 4996 
apply with respect to oil removed after December 31, 1982. 
note. 
Subtitle G—Miscellaneous 
SEC. 28.5. TWO-YEAR EXTENSION OF EXCLUSION FROM GROSS INCOME OF 
NATIONAL RESEARCH SERVICE AWARDS. 
Paragraph (2) of section 161(b) of the Revenue Act of 1978 (relating 
26 USC 117 note. 
to exclusion from gross income for national research service awards) 
is amended by striking out "1981" and inserting in lieu thereof 
"1983". 
SEC. 286. SPECIAL RULES FOR CERTAIN AMATEUR SPORTS ORGANI-
Z A T I O N S . 
(a) SPECIAL RULES.—Section 501 is amended by redesignating sub- 
26 USC 5()1. 
section (j) as subsection (k) and by inserting after subsection (i) the 
following new subsection: 
"(j) SPECIAL 
RULES FOR CERTAIN 
AMATEUR 
SPORTS 
ORGANIZA-
TIONS.— 
"(1) I N GENERAL.—In the case of a qualified amateur sports 
organization— 
96 STAT. 570 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(A) the requirement of subsection (c)(3) that no part of 
its activities involve the provision of athletic facilities or 
equipment shall not apply, and 
"(B) such organization shall not fail to meet the require-
ments of subsection (c)(3) merely because its membership is 
local or regional in nature. 
"(2) QUALIFIED AMATEUR SPORTS ORGANIZATION DEFINED.—For 
purposes of this subsection, the term 'qualified amateur sports 
organization' means any organization organized and operated 
exclusively to foster national or international amateur sports 
competition if such organization is also organized and operated 
primarily to conduct national or international competition in 
sports or to support and develop amateur athletes for national 
or international competition in sports." 
(b) DEFINITION OF CHARITABLE CONTRIBUTION.—(1) Subsection (c) of 
26 use 170. 
section 170 (defining charitable contribution) is amended by adding 
at the end of paragraph (2) the following new sentence: "Rules 
Ante, p. 569. 
similar to the rules of section 501(j) shall apply for purposes of this 
paragraph.". 
26 use 2055. 
(2) Subsection (a) of section 2055 (relating to transfers for public, 
charitable, and religious uses) is amended by adding at the end 
thereof the following new sentence: "Rules similar to the rules of 
section 501(j) shall apply for purposes of paragraph (2).". 
26 use 2522. 
(3) Subsection (a) of section 2522 (relating to charitable and similar 
gifts) is amended by adding at the end thereof the following new 
sentence: "Rules similar to the rules of section 501(j) shall apply for 
purposes of paragraph (2).". 
26 use 501 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
take effect on October 5, 1976. 
SEC. 
2
8
7
. 
NEW 
JERSEY 
GENERAL 
REVENUE 
SHARING 
ALLOCATION. 
(a) IN GENERAL.—Subsection (e) of section 109 of the State and 
Local Fiscal Assistance Act of 1972 (31 U.S.C. 1228) (defining general 
tax effort factor) is amended by inserting at the end thereof the 
following new paragraph: 
"(3) 
NEW JERSEY FRANCHISE AND GROSS RECEIPTS TAXES.— 
"(A) The New Jersey Franchise and Gross Receipts Taxes 
(N.J. Rev. Stat. 54:30A-18.1) transferred to a unit of local 
government within the State in the years beginning Janu-
ary 1 of 1980, 1981, and 1982 shall be deemed to be an 
adjusted tax of such units for purposes of paragraph 
(2)(A)(i). 
"(B) The provisions of subparagraph (A) shall be given 
effect for quarterly payments made for quarters beginning 
after December 31, 1982, only if the Governor of the State of 
New Jersey notifies the Secretary that, prior to January 1, 
1983, the State amended the New Jersey Franchise and 
Gross Receipts Taxes statute to provide for collection and 
retention of such taxes by units of local government for 
years beginning as of January 1, 1983. 
"(C) Notwithstanding the limitation in subparagraph (B), 
the provisions of subparagaph (A) shall be given effect with 
respect to the quarterly payment to be made for the quarter 
beginning October 1, 1982.". 
31 use 1228 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
''°'^- 
be effective after September 30, 1982. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 571 
SEC. 
288. ILLEGAL PAYMENTS TO GOVERNMENT OFFICIALS OR 
EMPLOYEES. 
(a) IN GENERAL.—Paragraph (1) of section 162(c) (relating to illegal 
26 USC 162. 
payments to Government officials or employees) is amended— 
(1) by striking out "would be unlawful under the laws of the 
United States if such laws were applicable to such payment and 
to such official or employee" and inserting in lieu thereof "is 
unlawful under the Foreign Corrupt Practices Act of 1977", and 
15 USC 78a note. 
(2) by striking out "(or would be unlawful under the laws of 
the United States)" and inserting in lieu thereof "(or is unlaw-
ful under the Foreign Corrupt Practices Act of 1977)". 
(b) COORDINATION WITH SUBPART F.— 
(1) Subsection (a) of section 952 is amended by adding at the 
26 USC 952. 
end thereof the following new sentence: 
"The payments referred to in paragraph (4) are payments which 
would be unlawful under the Foreign Corrupt Practices Act of 1977 
if the payor were a United States person." 
(2) Subsection (a) of section 964 is amended by adding at the 26 USC 964. 
end thereof the following new sentence: "The payments referred 
to in the preceding sentence are payments which would be 
unlawful under the Foreign Corrupt Practices Act of 1977 if the 
payor were a United States person." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 162 note. 
apply to payments made after the date of the enactment of this Act. 
SEC. 289. DEBT MANAGEMENT PROVISIONS. 
(a) 
DETERMINATION BY SECRETARY OF INVESTMENT YIELD ON 
UNITED STATES SAVINGS BOND.— 
(1) Subsection (b) of section 22 of the Second Liberty Bond Act 
(31 U.S.C. 757c) is amended— 
(A) by amending paragraph (3) to read as follows: 
"(3) The Secretary of the Treasury, with the approval of the 
President, may fix the investment yield on any United States 
savings bond. The Secretary of the Treasury, with the approval 
of the President, may provide for increases and decreases in the 
investment yield on any outstanding United States savings 
bond; except that the investment yield on any bond for the 
period held may not be decreased below the minimum yield for 
such period guaranteed at the time of its issuance."; 
(B) by striking out "the Secretary of the Treasury may 
prescribe: Provided" and all that follows down through the 
end of the second sentence of paragraph (1) of such subsec-
tion and inserting in lieu thereof "the Secretary of the 
Treasury may prescribe."; 
(C) by striking out "and shall be expressed in terms of 
their maturity value" in the third sentence of paragraph (1) 
of such subsection; and 
(D) by striking out "higher rates which are consistent" 
and inserting in lieu thereof "rates which are consistent" in 
subparagraph (B) of paragraph (2) of such subsection. 
(2) The second sentence of section 22A(b)(l) of such Act is 
amended by striking out "the Secretary of the Treasury may 
prescribe" and all that follows down through the end thereof 
and inserting in lieu thereof "the Secretary of the Treasury 
may prescribe.". 
(b) TRANSITIONAL RULE.—In the case of any savings bond issued 
before the 30th day after the date of the enactment of this Act, for 
31 USC 757C-2. 
31 USC 757c 
note. 
96 STAT. 572 
PUBLIC LAW 97-248—SEPT. 3, 1982 
31 use 757c, 
purposes of sections 22 and 22A of the Second Liberty Bond Act, the 
'^^'^^-^- 
minimum yield guaranteed for the period held shall be the sched-
uled investment yield for such period as in effect on such 30th day. 
(c) LIMIT ON OUTSTANDING BONDS.—Effective on the date of the 
enactment of this Act, the last sentence of the second paragraph of 
the first section of the Second Liberty Bond Act (31 U.S.C. 752) is 
amended by striking out "$70,000,000,000" and inserting in lieu 
thereof "$110,000,000,000". 
SEC. 290. JEFFERSON COUNTY MENTAL HEALTH CENTER. 
(a) IN GENERAL.—The Secretary is authorized and directed to pay, 
out of any money in the Treasury not otherwise appropriated, to the 
Jefferson County Mental Health Center, Incorporated, of Lakewood, 
Colorado, the sum of $50,000 in full settlement of all claims of the 
center against the United States for repayment of amounts the 
center erroneously refunded to its employees for social security 
contributions in the period after December 31, 1971, and prior to 
May 14, 1975, pursuant to instructions by the Internal Revenue 
Service. 
(b) LIMITATION.—No part of the amount appropriated in subsec-
tion (a) in excess of 10 per centum shall be paid, delivered to, or 
received by any agent or attorney on account of services rendered in 
connection with this claim, and the same shall be unlawful, any 
contract to the contrary notwithstanding. Any person violating the 
provisions of this subsection shall be guilty of a misdemeanor and, 
upon conviction thereof be fined any sum not exceeding $1,000. 
SEC. 29L ALASKA NATIVE CORPORATIONS. 
Paragraph (2) of subsection (d) of section 4994 of subpart B of 
26 use 4994. 
chapter 45 (relating to windfall profit tax on domestic crude oil; 
categories of oil) is amended by striking "under" the first time it 
appears and inserting in lieu thereof "pursuant to". 
SEC. 292. AWARDING OF COSTS AND CERTAIN FEES. 
(a) IN GENERAL.—Subchapter B of chapter 76 (relating to proceed-
ings by taxpayers and third parties) is amended by redesignating 
26 use 743L 
section 7430 as section 7431 and by inserting after section 7429 the 
following new section: 
26 u s e 7430. 
"SEC. 7430. AWARDING OF COURT COSTS AND CERTAIN FEES. 
"(a) IN GENERAL.—In the case of any civil proceeding which is— 
"(1) brought by or against the United States in connection 
with the determination, collection, or refund of any tax, inter-
est, or penalty under this title, and 
"(2) brought in a court of the United States (including the Tax 
Court), 
the prevailing party may be awarded a judgment for reasonable 
litigation costs incurred in such proceeding. 
"(b) LIMITATIONS.— 
"(1) MAXIMUM DOLLAR AMOUNT.—The amount of reasonable 
litigation costs which may be awarded under subsection (a) with 
respect to any prevailing party in any civil proceeding shall not 
exceed $25,000. 
"(2) 
REQUIREMENT 
THAT 
ADMINISTRATIVE 
REMEDIES 
BE 
EXHAUSTED.—A judgment for reasonable litigation costs shall 
not be awarded under subsection (a) unless the court determines 
that the prevailing party has exhausted the administrative 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 573 
remedies available to such party within the Internal Revenue 
Service. 
"(3) ONLY COSTS ALLOCABLE TO THE UNITED STATES.—An award 
under subsection (a) shall be made only for reasonable litigation 
costs which are allocable to the United States and not to any 
other party to the action or proceeding. 
"(4) EXCLUSION OF DECLARATORY JUDGMENT PROCEEDINGS.— 
"(A) IN GENERAL.—No award for reasonable litigation 
costs may be made under subsection (a) with respect to any 
declaratory judgment proceeding. 
"(B) EXCEPTION FOR SECTION 
501(C)(3) 
DETERMINATION 
REVOCATION 
PROCEEDINGS.—Subparagraph 
(A) shall 
not 
apply to any proceeding which involves the revocation of a 
determination that the organization is described in section 
501(c)(3). 
"(c) DEFINITIONS.—For purposes of this section— 
"(1) REASONABLE LITIGATION COSTS.— 
"(A) IN GENERAL.—The term 'reasonable litigation costs' 
includes— 
"(i) reasonable court costs, 
"(ii) the reasonable expenses of expert witnesses in 
connection with the civil proceeding, 
"(iii) the reasonable cost of any study, analysis, engi-
neering report, test, or project which is found by the 
court to be necessary for the preparation of the party's 
case, and 
"(iv) reasonable fees paid or incurred for the services 
of attorneys in connection with the civil proceeding. 
"(B) ATTORNEY'S FEES.—In the case of any proceeding in 
the Tax Court, fees for the services of an individual 
(whether or not an attorney) who is authorized to practice 
before the Tax Court shall be treated as fees for the services 
of an attorney. 
"(2) PREVAILING PARTY.— 
"(A) IN GENERAL.—The term 'prevailing party' means any 
party to any proceeding described in subsection (a) (other 
than the United States or any creditor of the taxpayer 
involved) which— 
"(i) establishes that the position of the United States 
in the civil proceeding was unreasonable, and 
"(ii)(I) has substantially prevailed with respect to the 
amount in controversy, or 
"(II) has substantially prevailed with respect to the 
most significant issue or set of issues presented. 
"(B) 
DETERMINATION AS TO PREVAILING 
PARTY.—Any 
determination under subparagraph (A) as to whether a 
party is a prevailing party shall be made— 
"(i) by the court, or 
"(ii) by agreement of the parties. 
"(3) CIVIL ACTIONS.—The term 'civil proceeding' includes a 
civil action. 
"(d)| MULTIPLE ACTIONS.—For purposes of this section, in the case 
of— 
"(1) multiple actions which could have been joined or consoli-
dated, or 
96 STAT. 574 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(2) a case or cases involving a return or returns of the same 
taxpayer (including joint returns of married individuals) which 
could have been joined in a single proceeding in the same court, 
such actions or cases shall be treated as one civil proceeding regard-
less of whether such joinder or consolidation actually occurs, unless 
the court in which such action is brought determines, in its discre-
tion, that it would be inappropriate to treat such actions or cases as 
joined or consolidated for purposes of this section. 
"(e) RIGHT OF APPEAL.—An order granting or denying an award 
for reasonable litigation costs under subsection (a), in whole or in 
part, shall be incorporated as a part of the decision or judgment in 
the case and shall be subject to appeal in the same manner as the 
decision or judgment. 
"(f) TERMINATION.—This section shall not apply to any proceeding 
commenced after December 31, 1985." 
(b) PENALTY FOR USING TAX COURT PROCEEDINGS FOR DELAY; 
PENALTY FOR FRIVOLOUS OR GROUNDLESS PROCEEDING.—The first 
26 use 6673. 
sentence of section 6673 (relating to damages assessable by institut-
ing proceedings before the Tax Court merely for delay) is amended 
to read as follows: "Whenever it appears to the Tax Court that 
proceedings before it have been instituted or maintained by the 
taxpayer primarily for delay or that the taxpayer's position in such 
proceedings is frivolous or groundless, damages in an amount not in 
excess of $5,000 shall be awarded to the United States by the Tax 
Court in its decision.". 
(c) APPLICATION WITH TITLE 28.—Section 2412 of title 28, United 
States Code, is amended by adding at the end thereof the following 
new subsection: 
"(e) The provisions of this section shall not apply to any costs, fees, 
and other expenses in connection with any proceeding to which 
section 7430 of the Internal Revenue Code of 1954 applies (deter-
mined without regard to subsections (b) and (f) of such section). 
Nothing in the preceding sentence shall prevent the awarding under 
subsection (a) of section 2412 of title 28, United States Code, of costs 
enumerated in section 1920 of such title (as in effect on October 1, 
1981).". 
(d) CONFORMING AMENDMENTS.— 
(1) The table of sections for subchapter B of chapter 76 is 
amended by striking out the item relating to section 7430 and 
inserting the following new items: 
"Sec. 7430. Awarding of court costs and certain fees. 
"Sec. 7431. Cross references.". 
26 use 6673. 
(2)(A) The section heading of section 6673 is amended by 
striking out "MERELY FOR DELAY." and inserting in lieu thereof 
"PRIMARILY FOR DELAY, ETC.". 
(B) The table of sections for subchapter B of chapter 68 is 
amended by striking out "merely for delay." in the item relat-
ing to section 6673 and inserting in lieu thereof "primarily for 
delay, etc.". 
26 u s e 7430 
(e) EFFECTIVE D A T E S . — 
note. 
(1) I^f GENERAL.—The amendments made by this section shall 
apply to civil actions or proceedings commenced after February 
28, 1983. 
(2) PENALTY.—The amendments made by subsections (b) and 
(d)(2) shall apply to any action or proceeding in the Tax Court 
commenced after December 31, 1982. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 575 
SEC. 293. TREATMENT OF CERTAIN LENDING OR FINANCE BUSINESSES 
FOR 
PURPOSES OF THE TAX ON PERSONAL 
HOLDING 
COMPANIES. 
(a) REMOVAL OF LIMITATION ON AMOUNT OF ORDINARY 
GROSS 
INCOME 
FROM 
LENDING 
OR 
FINANCE 
BUSINESS 
TAKEN 
INTO 
ACCOUNT.—Clause (ii) of section 542(c)(6)(C) (relating to exceptions 
26 USC 542. 
from definition of personal holding company) is amended by striking 
out "but not $1,000,000". 
(b) CHANGES IN DEFINITION OF LENDING OR FINANCE BUSINESS.— 
Clause (i) of section 542(d)(1)(B) (relating to exceptions from defini-
tion of lending or finance business) is amended to read as follows: 
"(i) making loans, or purchasing or discounting 
accounts receivable, notes, or installment obligations, if 
(at the time of the loan, purchase, or discount) the 
remaining maturity exceeds 144 months; unless— 
"(I) the loans, notes, or installment obligations 
are evidenced or secured by contracts of condi-
tional sale, chattel mortgages, or chattel lease 
agreements arising out of the sale of goods or 
services in the course of the borrower's or transfer-
or's trade or business, or 
"(II) the loans, notes, or installment obligations 
are made or acquired by the taxpayer and meet the 
requirements of subparagraph (C), or". 
(c) INDEFINITE MATURITY CREDIT TRANSACTIONS.—Paragraph (1) of 
section 542(d) (relating to special rules) is amended by adding at the 
end thereof the following new subparagraph: 
"(C) 
INDEFINITE 
MATURITY 
CREDIT 
TRANSACTIONS.—For 
purposes of subparagraph (B)(i), a loan, note, or installment 
obligation meets the requirements of this subparagraph if it 
is made under an agreement— 
"(i) under which the creditor agrees to make loans or 
advances (not in excess of an agreed upon maximum 
amount) from time to time to or for the account of the 
debtor upon request, and 
"(ii) under which the debtor may repay the loan or 
advance in full or in installments." 
(d) E F F E C T I V E D A T E S . — 
26 USC 542 note. 
(1) SUBSECTION (a).—The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1981. 
(2) SUBSECTIONS (b) AND (C).—The amendments made by 
subsections (b) and (c) shall apply to taxable years beginning 
after December 31, 1980. 
SEC. 294. ADDITIONAL REFUNDS RELATING TO REPEAL OF EXCISE TAX 
ON BUSES. 
(a) TIME FOR FILING CLAIM.—Subparagraph (C) of section 231(c)(2) 
of the Energy Tax Act of 1978 (relating to refunds with respect to 26 USC 4063 
certain consumer purchases) is amended by striking out "the first 
"°^®-
day of such 10th calendar month" and inserting in lieu thereof 
"December 31, 1982". 
(b) PROCEDURE FOR PASSING THROUGH REFUND.—Subparagraph (A) 
of section 231(c)(2) of such Act is amended by inserting before the 
semicolon ", or, in lieu of evidence of reimbursement, he makes such 
reimbursement simultaneously with the receipt of such a refund 
under an arrangement satisfactory to such Secretary which assures 
such simultaneous reimbursement". 
96 STAT. 576 
PUBLIC LAW 97-248—SEPT. 3, 1982 
TITLE III—TAXPAYER COMPLIANCE 
Subtitle A—Withholding on Interest and 
Dividends 
SEC. 301. WITHHOLDING ON INTEREST AND DIVIDENDS. 
Chapter 24 (relating to collection of income tax at source on 
wages) is amended by adding at the end thereof the following new 
subchapter: 
"Subchapter B—Withholding From Interest and Dividends 
"Sec. 3451. Income tax collected at source on interest, dividends, and 
patronage dividends. 
"Sec. 3452. Exemptions from withholding. 
"Sec. 3453. Payor defined. 
"Sec. 3454. Definitions of interest, dividend, and patronage dividend. 
"Sec. 3455. Other definitions and special rules. 
"Sec. 3456. Administrative provisions. 
26 use 3451. 
«SEC. 3451. INCOME TAX COLLECTED AT SOURCE ON INTEREST, DIVI-
DENDS. AND PATRONAGE DIVIDENDS. 
"(a) REQUIREMENT OP WITHHOLDING.—Except as otherwise pro-
vided in this subchapter, the payor of any interest, dividend, or 
patronage dividend shall withhold a tax equal to 10 percent of the 
amount of the payment. 
"(b) SPECIAL RULES.— 
"(1) TIME OF WITHHOLDING.—Except as otherwise provided in 
this subchapter, for purposes of this subchapter— 
"(A) any payment of interest, dividend, or patronage 
dividend shall be treated as made, and 
"(B) the tax imposed by this section shall be withheld, 
at the time such interest, dividend, or patronage dividend is 
paid or credited. 
"(2) PAYEE UNKNOWN.—If a payor is unable to determine the 
person to whom any interest, dividend, or patronage dividend is 
payable or creditable, the tax under this section shall be with-
held at the time withholding would be required under para-
graph (1) if the payee were known and were an individual. 
"(3) AMOUNT OF DIVIDEND, ETC., UNKNOWN.— 
"(A) IN GENERAL.—If the payor is unable to determine the 
portion of a distribution which is a dividend, the tax under 
this section shall be computed on the gross amount of the 
distribution. To the extent provided in regulations, a simi-
lar rule shall apply in the case of interest and patronage 
dividends. 
"(B) DISTRIBUTIONS WHICH ARE NOT DIVIDENDS.—To the 
extent provided in regulations, this section shall not apply 
to the extent that the portion of a distribution which is not 
a dividend may reasonably be estimated. 
"(4) WITHHOLDING FROM ALTERNATIVE SOURCE.—The Secretary 
shall prescribe regulations setting forth the circumstances 
under which the tax imposed by this section may be paid from 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 577 
an account or source other than the payment which gives rise to 
the liability for tax. 
"(c) LIABILITY FOR PAYMENT.— 
"(1) PAYOR LIABLE.—Except as otherwise provided in this 
subchapter, the payor— 
"(A) shall be liable for the payment of the tax imposed by 
this section which such payor is required to withhold under 
this section, and 
"(B) shall not be liable to any person (other than the 
United States) for the amount of any such payment. 
"(2) RELIANCE ON EXEMPTION CERTIFICATES.—The payor shall 
not be liable for the payment of tax imposed by this section 
which such payor is required to withhold under this section if— 
"(A) such payor fails to withhold such tax, and 
"(B) such failure is due to reasonable reliance on an 
exemption certificate delivered to such payor under section 
3452(f) which is in effect with respect to the payee at the 
time such tax is required to be withheld under this section. 
SEC. 3452. EXEMPTIONS FROM WITHHOLDING. 
26 USC 3452. 
"(a) IN GENERAL.—Section 3451 shall not apply with respect to— 
"(1) any payment to an exempt individual, 
"(2) any payment to an exempt recipient, 
"(3) any minimal interest payment, or 
"(4) any qualified consumer cooperative payment. 
"(b) EXEMPT INDIVIDUALS.— 
"(1) IN GENERAL.—For purposes of this section, the term 
'exempt individual' means any individual— 
"(A) who is described in paragraph (2), and 
"(B) with respect to whom an exemption certificate is in 
effect. 
"(2) INDIVIDUALS DESCRIBED IN THIS PARAGRAPH.—An indi-
vidual is described in this paragraph if— 
"(A) such individual's income tax liability for the preced-
ing taxable year did not exceed $600 ($1,000 in the case of a 
joint return under section 6013), or 
"(B)(i) such individual is 65 or older, and 
"(ii) such individual's income tax liability for the preced-
ing taxable year did not exceed $1,500 ($2,500 in the case of 
a joint return under section 6013). 
"(3) SPECIAL RULE FOR MARRIED PERSONS.—A husband and wife 
shall each be treated as satisfying the requirements of para-
graph (2)(B)(i) if— 
"(A) either spouse is 65 or older, and 
"(B) such husband and wife made a joint return under 
section 6013 for the preceding taxable year. 
"(4) SPECIAL RULE FOR CERTAIN TRUSTS DISTRIBUTING CUR-
RENTLY.—Under regulations, a trust— 
"(A) the terms of which provide that all of its income is 
required to be distributed currently, and 
"(B) all the beneficiaries of which are individuals 
described in paragraph (2) or organizations described in 
subsection (c)(2)(B), 
shall be treated as an individual described in paragraph (2). 
"(5) INCOME TAX LIABILITY.—For purposes of this subsection, 
the term 'income tax liability' means the amount of the tax 
imposed by subtitle A for the taxable year, reduced by the sum 
96 STAT. 578 
PUBLIC LAW 97-248—SEPT. 3, 1982 
of the credits allowable against such tax (other than credits 
26 use 31, 39, 
allowable by sections 31, 39, and 43). 
^^- 
"(c) EXEMPT RECIPIENTS.— 
"(1) I N GENERAL.—For purposes of this section, the term 
'exempt recipient' means any person described in paragraph 
( 2 ) -
"(A) with respect to whom an exemption certificate is in 
effect, or 
"(B) who is described in regulations prescribed by the 
Secretary which permit exemption from withholding with-
out certification. 
"(2) PERSONS DESCRIBED IN THIS PARAGRAPH.—A person is 
described in this paragraph if such person is— 
"(A) a corporation, 
"(B) an organization exempt from taxation under section 
501(a) or an individual retirement plan, 
"(C) the United States or a State, 
"(D) a foreign government or international organization, 
"(E) a foreign central bank of issue, 
"(F) a dealer in securities or commodities required to 
register as such under the laws of the United States or a 
State, 
"(G) a real estate investment trust (as defined in section 
856), 
"(H) an entity registered at all times during the taxable 
15 use 80a-51. 
year under the Investment Company Act of 1940, 
"(I) a common trust fund (as defined in section 584(a)), 
"(J) a nominee or custodian (except as otherwise provided 
in regulations), 
"(K) to the extent provided in regulations— 
"(i) a financial institution, 
"(ii) a broker, or 
"(iii) any other person specified in such regulations, 
who collects any interest, dividend, or patronage divi-
dend for the payee or otherwise acts as a middleman 
between the payor and payee, or 
"(L) any trust which— 
"(i) is exempt from tax under section 664(c), or 
"(ii) is described in section 4947(a)(1). 
"(3) PAYOR MAY REQUIRE CERTIFICATION.—A person described 
in paragraph (1)(B) shall not be treated as an exempt recipient 
for purposes of this section with respect to any payment of such 
payor if— 
"(A) an exemption certificate is not in effect with respect 
to such person, and 
"(B) the payor does not treat such person as an exempt 
recipient. 
"(d) MINIMAL INTEREST PAYMENTS.— 
"(1) IN GENERAL.—For purposes of this section, the term 
'minimal interest payment' means any payment of interest— 
"(A) with respect to which an election by the payor made 
under paragraph (3) is in effect, and 
"(B) which— 
"(i) does not exceed $150, and 
"(ii) if determined for a 1-year period would not 
exceed $150. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 579 
"(2) AGGREGATION OF PAYMENTS TO SAME PAYEE.—To the 
extent provided in regulations prescribed by the Secretary, 
payments of interest by a payor to the same payee shall be 
aggregated for purposes of applying paragraph (1)(B). 
"(3) ELECTION.— 
"(A) I N GENERAL.—Any payor may make an election 
under this paragraph with respect to any type of interest 
payments. 
'(B) EFFECTIVE UNTIL REVOKED.—Except as provided in 
regulations prescribed by the Secretary, an election made 
by any person under this paragraph shall remain in effect 
until revoked by such person. 
"(C) TIME AND MANNER.—Any election or revocation of an 
election made under this paragraph shall be made at such 
time and in such manner as the Secretary shall prescribe 
by regulations. 
"(e) QUALIFIED CONSUMER COOPERATIVE PAYMENT.—For purposes 
of this section, the term 'qualified consumer cooperative payment' 
means any payment by a cooperative which is exempt from report-
ing requirements under section 6044(a) by reason of section 6044(c). 
"(f) EXEMPTION CERTIFICATES.— 
"(1) I N GENERAL.— 
"(A) DELIVERY.—An exempt individual or exempt recipi-
ent may deliver an exemption certificate to a payor at any 
time. Such certificate shall be in such form and contain 
such information as the Secretary shall prescribe. 
"(B) CHANGE OF STATUS.—Any person who ceases to be an 
exempt individual or exempt recipient shall, not later than 
the close of the 10th day after the date of such cessation, 
notify each payor with whom such person has an exemption 
certificate of such change in status. No notice shall be 
required under the preceding sentence with respect to any 
payor if it reasonably appears that the person will not 
thereafter 
receive a payment of interest, dividends, or 
patronage dividends from such payor. 
"(2) EFFECTIVENESS OF CERTIFICATES.— 
"(A) GENERAL RULE.—Except as otherwise provided in 
regulations prescribed by the Secretary, an exemption cer-
tificate shall be effective until— 
"(i) revoked, or 
"(ii) notice of change in status is provided pursuant 
to paragraph (1)(B). 
"(B) W H E N 
CERTIFICATE TAKES EFFECT.—The Secretary 
shall prescribe regulations setting forth— 
"(i) the day on which a filed exemption certificate 
shall be considered effective, and 
"(ii) the circumstances under which a payor shall 
treat an exemption certificate as having ceased to be 
effective where the Secretary has determined that the 
person described therein is not an exempt individual or 
exempt recipient. 
"SEC. 3453. PAYOR DEFINED. 
26 USC 3453. 
"(a) GENERAL RULE.—Except as otherwise provided in this sub-
chapter, for purposes of this subchapter, the term 'payor' means the 
person paying or crediting the interest, dividend, or patronage 
dividend. 
96 STAT. 580 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(b) CERTAIN MIDDLEMEN TREATED AS PAYORS.—For purposes of 
this subchapter— 
"(1) IN GENERAL.—To the extent provided in regulations— 
"(A) any custodian for, or nominee of, the payee, 
"(B) any corporate trustee of a trust which is the payee, 
or 
"(C) any person which collects the payment for the payee 
or otherwise acts as a middleman between the payor and 
the payee, 
shall be treated as a payor with respect to the payment. 
"(2) RECEIPT TREATED AS PAYMENT.—To the extent provided in 
regulations, any person treated as a payor under paragraph (1) 
shall be treated as having paid the interest, dividend, or patron-
age dividend when such person received such amount. 
"(c) AGENTS, ETC.—In the case of— 
"(1) a 
fiduciary or agent with respect to the payment or 
crediting of any interest, dividend, or patronage dividend, or 
"(2) any other person who has the control, receipt, custody, 
or disposal of, or pays or credits any interest, dividend, or 
patronage dividend for any payor, 
the Secretary, under regulations prescribed by him, may designate 
such fiduciary, agent, or other person as a payor with respect to 
such payment or crediting for purposes of this subchapter. 
"(d) TREATMENT OF PERSONS TO W H O M 
SUBSECTION (b) OR (C) 
APPLIES.—Any person treated as a payor under subsection (b) or 
(O— 
"(1) shall perform such acts as are required of a payor (within 
the meaning of subsection (a)) and as may be specified by the 
Secretary, and 
"(2) shall be treated as a payor for all provisions of law 
(including penalties) applicable in respect to a payor (within the 
meaning of subsection (a)). 
"(e) RELIEF FROM DOUBLE WITHHOLDING.—The Secretary may by 
regulations provide that where any person is treated as a payor 
under subsection (b) or (c) with respect to any payment, any other 
person who (but for this subsection) would be treated as a payor with 
respect to such payment shall be relieved from the requirements of 
this subchapter to the extent provided in such regulations. 
"(f) LIABILITY OF THIRD PARTIES PAYING OR PROVIDING INTEREST, 
DIVIDENDS, OR PATRONAGE DIVIDENDS.—To the extent provided in 
regulations prescribed by the Secretary, rules similar to the rules of 
section 3505 (relating to liability of third parties paying or providing 
for wages) shall apply for purposes of this subchapter. For purposes 
of the preceding sentence, the last sentence of subsection (b) of 
section 3505 shall be applied by substituting '10 percent' for '25 
percent'. 
26 u s e 3454. 
"SEC. 3454. DEFINITIONS OF INTEREST, DIVIDEND, AND PATRONAGE 
DIVIDEND. 
"(a) INTEREST DEFINED.—For purposes of this subchapter— 
"(1) GENERAL RULE.—The term 'interest' means— 
"(A) interest on any obligation in registered form or of a 
type offered to the public, 
"(B) interest on deposits with persons carrying on the 
banking business, 
"(C) amounts (whether or not designated as interest) paid 
by a mutual savings bank, savings and loan association. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 581 
building and loan association, cooperative bank, homestead 
association, credit union, industrial loan association or 
bank, or similar organization, in respect of deposits, invest-
ment certificates, or withdrawable or repurchasable shares, 
"(D) interest on amounts held by an insurance company 
under an agreement to pay interest thereon, 
"(E) interest on deposits with brokers (as defined in sec-
tion 6045(c)), and 
Post, p. 600. 
"(F) interest paid on amounts held by investment compa-
nies (as defined in section 3 of the Investment Company Act 
of 1940 (15 U.S.C. 80a-3)) and on amounts invested in other 
pooled funds or trusts. 
'(2) EXCEPTIONS.—The term 'interest' does not include— 
"(A) interest on any obligation issued by a natural 
person, 
"(B) interest on any obligation if such interest is exempt 
from taxation under section 103(a) or if such interest is 
exempt from tax (without regard to the identity of the 
holder) under any other provision of law, 
"(C) any amount paid on a depository institution tax-
exempt certificate (as defined in section 128(c)(1) (as in 95 Stat. 267. 
effect for taxable years beginning before January 1, 1985)), 
"(D) any amount which is subject to withholding under 
subchapter A of chapter 3 (relating to withholding of tax on 
nonresident aliens and foreign corporations) by the person 
paying such amount, 
"(E) any amount which would be subject to withholding 
under subchapter A of chapter 3 by the person paying such 
amount but for the fact that— 
"(i) such amount is income from sources outside the 
United States, 
"(ii) the payor thereof is excepted from the applica-
tion of section 1441(a) by reason of section 1441(c) or a 
tax treaty, or 
"(iii) such amount is original issue discount (within 
the meaning of section 1232(b)(1)), 
"(F) any amount which is exempt from tax under— 
"(i) section 892 (relating to income of foreign govern-
ments and of international organizations), or 
"(ii) section 895 (relating to income derived by a 
foreign central bank of issue from obligations of the 
United States or from bank deposits), 
"(G) except to the extent otherwise provided in regula-
tions, any amount paid by— 
"(i) a foreign government or international organiza-
tion or any agency or instrumentality thereof, 
"(ii) a foreign central bank of issue, 
"(iii) a foreign corporation not engaged in trade or 
business in the United States, 
"(iv) a foreign corporation, the interest payments of 
which would be exempt from withholding under sub-
chapter A of chapter 3 if paid to a person who is not a 
United States person, or 
"(v) a partnership not engaged in a trade or business 
in the United States and composed in whole of nonresi-
dent aliens, individuals and persons described in clause 
(i), (ii), or (iii). 
96 STAT. 582 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(H) any amount on which the person making payment is 
required to withhold a tax under section 1451 (relating to 
tax-free covenant bonds), or would be so required but for 
section 1451(d) (relating to benefit of personal exemptions), 
and 
"(I) except to the extent otherwise provided in regula-
tions, any amount not described in the foregoing provisions 
of this paragraph which is paid outside the United States 
and is income from sources outside the United States. 
"(3) ADJUSTMENT FOR PENALTY BECAUSE OF PREMATURE WITH-
DRAWAL OF FUNDS FROM TIME SAVINGS ACCOUNTS OR DEPOSITS.— 
To the extent provided in regulations, the amount of any inter-
est on a time savings account, certificate of deposit, or similar 
class of deposits shall be appropriately reduced for purposes of 
this suchapter by the amount of any penalty imposed for the 
premature withdrawal of funds. 
"(b) DIVIDEND DEFINED.—For purposes of this subchapter— 
"(1) GENERAL RULE.—The term 'dividend' means— 
"(A) any distribution by a corporation which is a dividend 
(as defined in section 316), and 
"(B) any payment made by a stockbroker to any person as 
a substitute for a dividend (as so defined). 
"(2) SUBCHAPTER S DISTRIBUTIONS AFTER CLOSE OF YEAR.—The 
term 'dividend' includes any distribution described in section 
1375(f) (relating to distributions by electing small business cor-
porations after the close of the taxable year). 
"(3) EXCEPTIONS.—The term 'dividend' shall not include— 
"(A) any amount paid as a distribution of stock described 
95 Stat. 287. 
in section 305(e)(2)(A) (relating to reinvestment of dividends 
in stock of public utilities), 
"(B) any amount which is treated as a taxable dividend by 
reason of section 302 (relating to redemptions of stock), 306 
(relating to disposition of certain stock), 356 (relating to 
receipt of additional consideration in connection with cer-
tain reorganizations), or 1081(e)(2) (relating to certain distri-
butions pursuant to order of the Securities and Exchange 
Commission), 
"(C) any amount described in subparagraph (D), (E), or (F) 
of subsection (a)(2), 
"(D) to the extent provided in regulations, any amount 
paid by a foreign corporation not engaged in a trade or 
business in the United States, 
"(E) any amount which is a capital gain dividend distrib-
uted by— 
"(i) a regulated investment company (as defined in 
section 852(b)(3)(C)), or 
"(ii) a real estate investment trust (as defined in 
section 857(b)(3)(C)), 
"(F) any amount which is an exempt-interest dividend of 
a regulated investment company (as defined in section 
852(b)(5)(A)), 
"(G) any amount paid or treated as paid by a regulated 
investment company during a year if, under regulations 
prescribed by the Secretary, it is anticipated that at least 95 
percent of the dividends paid or treated as paid during such 
year (not including capital gain distributions) will be 
exempt-interest dividends, and 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 583 
"(H) any amount described in section 1373 (relating to 
undistributed taxable income of electing small business 
corporations). 
"(c) PATRONAGE DIVIDEND.—For purposes of this subchapter— 
"(1) IN GENERAL.—The term 'patronage dividend' means— 
"(A) the amount of any patronage dividend (as defined in 
section 1388(a)) which is paid in money, qualified written 
notice of allocation, or other property (except a nonqualified 
written notice of allocation), 
"(B) any amount, described in section 1382(c)(2)(A) (relat-
ing to certain nonpatronage distributions), which is paid in 
money, qualified written notice of allocation, or other prop-
erty (except nonqualified written notice of allocation) by an 
organization exempt from tax under section 521 (relating to 
exemption of farmers' cooperatives from tax), and 
"(C) any amount paid in money or other property (except 
written notice of allocation) in redemption of a nonqualified 
written notice of allocation attributable to any source 
described in subparagraph (A) or (B). 
"(2) EXCEPTIONS.—The term 'patronage dividend' shall not 
include any amount described in subparagraph (D), (E), or (F) of 
subsection (a)(2). 
"(3) SPECIAL RULES.—In determining the amount of any 
patronage dividend— 
"(A) property (other than a written notice of allocation) 
shall be taken into account at its fair market value, 
"(B) a qualified written notice of allocation described in 
section 1388(c)(1)(A) shall be taken into account at its stated 
dollar amount, and 
"(C) a patronage dividend part of which is a qualified 
written notice of allocation described in section 1388(c)(1)(B) 
(and not in section 1388(c)(1)(A)) shall be taken into account 
only if 50 percent or more of such dividend is paid in money 
or by a qualified check, and any such qualified written 
notice of allocation which is taken into account after the 
application of this subparagraph shall be taken into 
account at its stated dollar amount. 
"(4) DEFINITIONS.—For purposes of this subsection— 
"(A) 
QUALIFIED WRITTEN NOTICE OF ALLOCATION.—The 
term 'qualified written notice of allocation' has the mean-
ing given to such term by section 1388(c). 
"(B) NONQUALIFIED WRITTEN NOTICE OF ALLOCATION.—The 
term 'nonqualified written notice of allocaton' has the 
meaning given to such term by section 1388(d). 
"(C) QUALIFIED CHECK.—The term 'qualified check' has 
the meaning given to such term by section 1388(c)(4). 
•SEC. 3455. OTHER DEFINITIONS AND SPECIAL RULES. 
26 USC 3455 
"(a) DEFINITIONS.—For purposes of this subchapter— 
"(1) PERSON.—The term 'person' includes any governmental 
unit and any agency or instrumentality thereof and any inter-
national organization. 
"(2) STATE.—The term 'State' means a State, the District of 
Columbia, a possession of the United States, any political subdi-
vision of any of the foregoing, and any wholly owned agency or 
instrumentality of any one or more of the foregoing. 
96 STAT. 584 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(3) UNITED STATES.—The term 'United States' means the 
United States and any wholly owned agency or instrumentality 
thereof. 
"(4) FOREIGN GOVERNMENT.—The term 'foreign government' 
means a foreign government, a political subdivision of a foreign 
government, and any wholly owned agency or instrumentality 
of any one or more of the foregoing. 
"(5) INTERNATIONAL ORGANIZATION.—The term 'international 
organization' means an international organization and any 
wholly owned agency or instrumentality thereof. 
"(6) NONRESIDENT ALIEN.—The term 'nonresident alien indi-
vidual' includes an alien resident of Puerto Rico. 
"(7) WITHHOLD, ETC., INCLUDE DEDUCT.—The terms 'withhold', 
'withholding', and 'withheld' include deduct, deducting, and 
deducted. 
"(b) TREATMENT OF ORIGINAL ISSUE DISCOUNT.— 
"(1) IN GENERAL.—Except as provided in paragraphs (2) and 
Ante, p. 576. 
(3) the tax imposed by section 3451 shall apply to the amount of 
original issue discount on any obligation which is includible in 
the gross income of the holder during the calendar year. Any 
such amount shall be treated as a payment for purposes of this 
subchapter. 
"(2) TRANSFERRED OBLIGATIONS.— 
"(A) IN GENERAL.—In the case of original issue discount 
on any obligation which has been transferred from the 
original holder, the tax imposed by section 3451 shall apply 
to such original issue discount as if the subsequent holder 
were the original holder. 
"(B) SPECIAL RULE FOR SHORT-TERM OBLIGATIONS.—In the 
case of any obligation with a fixed maturity date not 
exceeding 1 year from the date of issue which has been 
transferred from the original holder, if any subsequent 
purchaser establishes the date on which, and the purchase 
price at which, he acquired such obligation, the amount of 
original issue discount on such obligation shall be deter-
mined (subject to such regulations as the Secretary may 
prescribe) as if it were issued on the date such subsequent 
purchaser acquired such obligation for an issue price equal 
to the purchase price at which such subsequent purchaser 
acquired such obligation. 
"(3) LIMITATION ON AMOUNT WITHHELD.— 
"(A) IN GENERAL.—The amount of tax imposed by section 
3451 on the original issue discount on any obligation which 
is required to be withheld under section 3451(a) in any 
calendar year shall not exceed the amount of cash paid with 
respect to such obligation during such calendar year. 
"(B) AUTHORITY OF SECRETARY TO ELIMINATE LIMITATION IN 
CERTAIN CASES.—If the Secretary determines by regulations 
that a type of obligation is frequently used to avoid the 
purposes of this subchapter, subparagraph (A) shall not 
apply with respect to original issue discount on any obliga-
tion of such type which is issued more than 30 days after 
the first date on which such regulations are published in 
the Federal Register. 
"(C) 
PAYMENTS 
FROM 
WHICH 
WITHHOLDING 
IS TO BE 
MADE.—Except to the extent otherwise provided in regula-
tions, the tax imposed by section 3451 with respect to 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 585 
original issue discount for any calendar year shall be with-
held from each cash payment made with respect to such 
obligation during such calendar year in the proportion 
which the amount of such payment bears to the aggregate 
of such payments. 
"(4) ORIGINAL ISSUE DISCOUNT DEFINED.—For purposes of this 
subsection, the term 'original issue discount' has the meaning 
given such term by section 1232(b)(1). 
"SEC. 3456. ADMINISTRATIVE PROVISIONS. 
26 USC 3456. 
"(a) RETURN AND PAYMENT BY GOVERNMENTAL UNITS.—If the 
payor of any payment subject to withholding under section 3451 is 
the United States or a State, or an agency or instrumentality 
thereof, the return of the tax withheld under this subchapter shall 
be made by the officer or employee having control of the payment of 
the amount subject to withholding or by any officer or employee 
appropriately designated to make such withholding. 
"(b) A N N U A L WITHHOLDING BY FINANCIAL INSTITUTIONS.— 
"(1) IN GENERAL.—Under regulations prescribed by the Secre-
tary, a financial institution described in subparagraph (B) or (C) 
of section 3454(a)(1) may elect to defer withholding of the tax Ante, p. 580. 
imposed by section 3451 during any calendar year on interest 
paid on savings accounts, interest-bearing checking accounts, 
and similar accounts until a date which is not later than the 
last day of such year. 
"(2) CONDITION FOR ELECTION.—The regulations 
prescribed 
under paragraph (1) shall provide that an election under such 
paragraph is conditional on agreement by the person making 
the election— 
"(A) that the balance in any account subject to such 
election shall at no time be less than an amount equal to 
the tax under section 3451 which would have been withheld 
as of such time if such election were not in effect, and 
"(B) that if an account subject to such election is closed 
before the date on which the tax under section 3451 would 
(but for this subparagraph) be withheld as a result of such 
an election, the tax shall be withheld before the time of 
closing such account. 
"(c) TAX PAID BY RECIPIENT.—If a payor, in violation of the 
provisions of this subchapter, fails to withhold the tax imposed 
under section 3451, and thereafter the tax against which such tax 
may be credited is paid, the tax so required to be withheld shall not 
be collected from the payor; but this subsection shall in no case 
relieve the payor from liability for any penalties or additions to the 
tax otherwise applicable in respect of such failure to withhold. 
"(d) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposes 
of this subchapter." 
SEC. 302. CREDIT AGAINST TAX. 
(a) IN GENERAL.—Section 31 (relating to tax withheld on wages) is 26 USC 31. 
amended to read as follows: 
"SEC. 31. TAX WITHHELD ON WAGES, INTEREST. DIVIDENDS. AND 
PATRONAGE DIVIDENDS. 
"(a) WAGE WITHHOLDING.—The amount withheld under section 
3402 as tax on the wages of any individual shall be allowed to the 
96 STAT. 586 
PUBLIC LAW 97-248—SEPT. 3, 1982 
recipient of the income as a credit against the tax imposed by this 
subtitle. 
"(b) 
WITHHOLDING FROM INTEREST, DIVIDENDS, AND PATRONAGE 
DIVIDENDS.—The amount withheld under section 3451 as tax on 
interest, dividends, and patronage dividends shall be allowed to the 
recipient of the income as a credit against the tax imposed by this 
subtitle. 
"(c) CREDIT FOR SPECIAL REFUNDS OF SOCIAL SECURITY TAX.—The 
Secretary may prescribe regulations providing for the crediting 
against the tax imposed by this subtitle of the amount determined 
by the taxpayer or the Secretary to be allowable under section 
6413(c) as a special refund of tax imposed on wages. The amount 
allowed as a credit under such regulations shall, for purposes of this 
subtitle, be considered an amount withheld at source as tax under 
section 3402. 
"(d) YEAR FOR W H I C H CREDIT ALLOWED.— 
"(1) IN GENERAL.—Except as otherwise provided in paragraph 
(2), any credit allowed by this section shall be allowed for the 
taxable year beginning in the calendar year in which the 
amount was withheld (or, in the case of subsection (c), in which 
the wages were received). If more than 1 taxable year begins in 
a calendar year, such amount shall be allowed as a credit for the 
last taxable year so beginning. 
"(2) SPECIAL RULE FOR CERTAIN DISTRIBUTIONS OF SUBCHAPTER S 
CORPORATIONS.—The amount withheld with respect to a distri-
bution by an electing small business corporation (within the 
meaning of section 1371(b)) which is treated as a distribution of 
such corporation's undistributed taxable income for the preced-
ing year under section 1375(f)(1) shall be allowed as a credit for 
the taxable year of the recipient beginning in the calendar year 
in which the preceding year of the corporation ends." 
(b) TREATMENT OF ESTATES AND TRUSTS.— 
26 use 643. 
(1) IN GENERAL.—Section 643 (relating to definitions applica-
ble to estates and trusts) is amended by adding at the end 
thereof the following new subsection: 
"(d) 
COORDINATION WITH WITHHOLDING ON INTEREST AND DIVI-
DENDS.—Except to the extent otherwise provided in regulations, this 
subchapter shall be applied with respect to payments subject to 
withholding under subchapter B of chapter 24— 
"(1) by allocating between the estate or trust and its benefici-
aries any credit allowable under section 31(b) (on the basis of 
their respective shares of interest, dividends, and patronage 
dividends taken into account under this subchapter), 
"(2) by treating each beneficiary to whom such credit is 
allocated as if an amount equal to such credit had been paid to 
him by the estate or trust, and 
"(3) by allowing the estate or trust a deduction in an amount 
equal to the credit so allocated to beneficiaries." 
26 use 661. 
(2) TECHNICAL AMENDMENT.—Subsection (a) of section 
661 
(relating to deduction for estates and trusts 
accumulating 
income or distributing corpus) is amended by adding at the end 
thereof the following new sentence: "For purposes of paragraph 
(1), the amount of distributable net income shall be computed 
without the deduction allowed by section 642(c)." 
26 use 6413 
(c) CONFORMING AMENDMENT.—Paragraph (1) of section 6413(c) 
is amended by striking out "section 31(b)" and inserting in lieu 
thereof "section 31(c)". 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 587 
SFX:. 303. RETURNS 
REGARDING 
PAYMENTS 
OF DIVIDENDS AND 
PAYMENTS OF INTEREST. 
(a) DIVIDENDS.— 
(1) IN GENERAL.—Paragraph (1) of subsection 6042(a) (relating 
26 USC 6042. 
to returns regarding payments of dividends) is amended— 
(A) by striking out "or" at the end of subparagraph (A), 
(B) by inserting "or" at the end of subparagraph (B), 
(C) by inserting after subparagraph (B) the following new 
subparagraph: 
"(C) who is required to withhold tax under section 3451 ^nte, p. 576. 
on any payment of dividends,", 
(D) by striking out the period at the end thereof, and 
(E) by inserting the following at the end thereof ", and, in 
the case of a payment upon which tax is withheld, the 
amount of tax withheld." 
(2) STATEMENTS.—Section 6042(c) (relating to statements to be 
furnished to persons with respect to whom information is fur-
nished) is amended— 
(A) by striking out "and" at the end of paragraph (1), 
(B) by striking out the period at the end of paragraph (2) 
and inserting in lieu thereof ", and", 
(C) by inserting 
after 
paragraph 
(2) the 
following 
paragraph: 
"(3) the amount of tax withheld under section 3451.", and 
(D) by striking out "No statement" in the last sentence 
thereof and inserting in lieu thereof "Except in the case of 
a return required by reason of subparagraph (C) of subsec-
tion (a)(1), no statement". 
(3) 
DUPLICATE 
FILED 
WITH 
SECRETARY.—Section 
6042 
is 
amended by adding at the end thereof the following new 
subsection: 
"(e) DUPLICATE OF SUBSECTION (C) STATEMENT MAY B E REQUIRED 
To B E FILED WITH SECRETARY.—A duplicate of any statement made 
pursuant to subsection (c) which is required to set forth an amount 
withheld under section 3451 shall, when required by regulations 
prescribed by the Secretary, be filed with the Secretary." 
(b) INTEREST.—Section 6049 (relating to returns regarding pay- Post, p. 591. 
ments of interest) is amended by adding at the end thereof the 
following new subsection: 
"(e) DUPLICATE OF SUBSECTION (C) STATEMENT MAY B E REQUIRED 
To B E FILED WITH SECRETARY.—A duplicate of any statement made 
pursuant to subsection (c) which is required to set forth an amount 
withheld under section 3451 shall, when required by regulations 
prescribed by the Secretary, be filed with the Secretary." 
SEC. 301. RETURNS REGARDING PAYMENTS OF PATRONAGE DIVIDENDS. 
(a) IN GENERAL.—Paragraph (1) of subsection 6044(a) is amended 
26 USC 6044. 
to read as follows: 
"(1) IN GENERAL.—Except as otherwise provided in this sec-
tion, every cooperative to which part I of subchapter T of 
chapter 1 applies which— 
"(A) makes payments of amounts described in subsection 
(b) aggregating $10 or more to any person during any 
calendar year, or 
"(B) is required to withhold any tax under section 3451, 
shall make a return according to the forms or regulations 
prescribed by the Secretary, setting forth the aggregate amount 
96 STAT. 588 
PUBLIC LAW 97-248—SEPT. 3, 1982 
of such payments, the name and address of the person to whom 
paid, and the amount of tax withheld." 
(b) AMOUNTS SUBJECT TO REPORTING.—Paragraph (1) of section 
26 use 6044. 
6044(b) (relating to amounts subject to reporting) is amended by 
striking out "under subsection (a)", and by inserting "under para-
graph (1)(A) or (2) of subsection (a)". 
(c) STATEMENTS.—Section 6044(e) (relating to statements to be 
furnished to persons with respect to whom information is furnished) 
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 ", and" in lieu thereof, 
(3) by inserting after paragraph (2) the following paragraph: 
"(3) the amount of tax withheld under section 3451. , and 
(4) by striking out "No statement" in the last sentence thereof 
and inserting in lieu thereof "Except in the case of a return 
required by reason of subparagraph (B) of subsection (a)(1), no 
statement'. 
(d) DuPUCATE FILED WITH SECRETARY.—Section 6044 is amended 
by adding at the end thereof the following new subsection: 
"(f) DUPUCATE OF SUBSECTION (e) STATEMENT MAY BE REQUIRED TO 
BE FILED WITH SECRETARY.—A duplicate of any statement made 
pursuant to subsection (e) which is required to set forth an amount 
withheld under section 3451 shall, when required by regulations 
prescribed by the Secretary, be filed with the Secretary." 
SEC. 305. DENIAL OF DEDUCTION FOR CERTAIN TAXES. 
(a) No DEDUCTION FOR TAX WITHHELD AT SOURCE ON INTEREST, 
DIVIDENDS, AND PATRONAGE DIVIDENDS.—Paragraph (1) of section 
26 use 275. 
275(a) (relating to denial of deduction for certain taxes) 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 inserting after subparagraph (C) the following subpara-
graph: 
"(D) the tax withheld at source on interest, dividends, and 
patronage dividends under section 3451." 
(b) No DEDUCTION OF TAXES WITHHELD ON INTEREST AND DIVI-
DENDS IN DETERMINING TAXABLE INCOME.—Subsection (b) of section 
26 use 3502. 
3502 (relating to the nondeductibility of taxes in computing taxable 
income) is amended— 
(1) by striking out "under chapter 24" and inserting in lieu 
thereof "under subchapter A of chapter 24", and 
(2) by adding at the end thereof the following new subsection: 
"(c) The tax withheld under subchapter B of chapter 24 shall not 
be allowed as a deduction in computing taxable income under 
subtitle A either to the person withholding the tax or to the 
recipient of the amounts subject to withholding." 
SEC. 306. PENALTIES. 
26 use 6682. 
(a) CIVIL PENALTY.—Paragraph (1) of section 6682(a) (relating to 
false information with respect to withholding) is amended by insert-
ing "or section 3452(fKl)(A)" after "section 3402". 
26 use 7205. 
(b) CRIMINAL PENALTY.—Section 7205 (relating to fraudulent with-
holding exemption certificate or failure to supply information) is 
amended— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 589 
(1) by striking out "Any individual" and inserting in lieu 
thereof "(a) WITHHOLDING ON WAGES.—Any individual", and 
(2) by adding at the end thereof the following new subsection: 
"(b) 
WITHHOLDING OF INTEREST AND DIVIDENDS.—Any 
person 
who— 
"(1) willfully files an exemption certificate with any payor 
under section 3452(D(1)(A), which is known by him to be fraudu- 
•Ante, p. 577. 
lent or to be false as to any material matter, or 
"(2) is required to furnish notice under section 3452(f)(l(B), 
and willfully fails to furnish such notice in the manner and at 
the time required pursuant to section 3452(0(1 )(B) or the regula-
tions prescribed thereunder, 
shall, in lieu of any penalty otherwise provided, upon conviction 
thereof, be fined not more than $500, or imprisoned not more than 1 
year, or both." 
SKC. 307. CONFORMING AND CLP:RICAL AMENDMENTS. 
(a) CONFORMING AMENDMENTS.— 
(1) Paragraph (3) of section 274(e) (relating to disallowance of 
26 USC 274. 
certain entertainment, etc., expenses) is amended by inserting 
"subchapter A o f before "chapter 24". 
(2) Section 3403 (relating to liability for tax) is amended by 26 USC 3403. 
striking out "this chapter" and inserting in lieu thereof "this 
subchapter". 
(3) Paragraph (4) of section 3507(d) (relating to advance pay- 
26 USC 3507. 
ment of earned income credit) is amended by inserting "sub-
chapter A o f before "chapter 24". 
(4) Subchapter (B) of section 6013(g)(1) (relating to joint 
26 USC 6013. 
returns of income tax by husband and wife) is amended by 
striking out "(relating to wage withholding)" and by inserting 
in lieu thereof "(relating to withholding on wages, interest, 
dividends, and patronage dividends)" and by striking out "of 
wages". 
(5) Paragraph (1) of section 6013(h) is amended by striking out 
"(relating to wage withholding)" and inserting in lieu thereof 
"(relating to withholding on wages, interest, dividends, and 
patronage dividends)" and by striking out "of wages". 
(6) Paragraph (1) of section 6015(j) (relating to declaration of 95 Stat. 345. 
estimated income tax by individuals) is amended by striking out 
", as defined in section 3401(a)," and inserting in lieu thereof 
"(as defined in section 3401(a)) , or to the interest, dividends, 
and patronage dividends (as defined in section 3454),". 
(7) Subparagraph (A) of section 6051(f)(1) (relating to receipts 
26 USC 6051. 
for employees) is amended by inserting "subchapter A o f 
before "chapter 24". 
(8) Paragraph (2) of section 6365(c) (relating to definitions and 26 USC 6365. 
special rules for purposes of the collection of State individual 
income taxes) is amended by inserting ", interest, dividends, and 
patronage dividends" before "paid on or after such date". 
(9) Subsection (b) of section 6401 (relating to amounts treated 
26 USC 6401. 
as overpayments) is amended by inserting ", interest, dividends, 
and patronage dividends" after "tax withheld on wages". 
(10) Paragraph (1) of section 6413(a) (relating to special credit 
26 USC 6413. 
and refund rules applicable to certain employment taxes) is 
amended by striking out "or 3402 is paid with respect to any 
payment of remuneration," and inserting in lieu thereof "3402 
96 STAT. 590 
PUBLIC LAW 97-248—SEPT. 3, 1982 
or 3451 is paid with respect to any payment of remuneration, 
interest, dividends, or other amounts,". 
26 use 6413. 
(11) Subsection (b) of section 6413 is amended— 
(A) by striking from the heading of such subsection the 
words "OF CERTAIN EMPLOYMENT TAXES", and 
(B) by striking out "or 3402 is paid or deducted with 
respect to any payment of remuneration" and inserting in 
lieu thereof "3402 or 3451 is paid or deducted with respect 
to any payment of remuneration, interest, dividends, or 
other amount". 
(12) The heading for section 6413 is amended to read as 
follows: 
"SEC. 6413. SPECIAL RULES APPLICABLE TO CERTAIN TAXES UNDER SUB-
TITLE C." 
(13) The table of sections for subchapter B of chapter 65 is 
amended by striking out the item relating to section 6413 and 
inserting in lieu thereof the following: 
"Sec. 6413. Special rules applicable to certain taxes under subtitle C." 
26 use 6654. 
(14) Subsections (e)(1) and (g)(3) of section 6654 (relating to 
failure by individuals to pay estimated income tax) are amended 
by inserting ", interest, dividends, and patronage dividends" 
after "tax withheld at source on wages". 
26 use 7215. 
(15) The last sentence of section 7215(b) (relating to offenses 
with respect to collected taxes) is amended to read as follows: 
"For purposes of paragraph (2), a lack of funds existing immedi-
ately after the payment of wages or amounts subject to with-
holding under subchapter B of chapter 24 (whether or not 
created by the payment of such wages or amounts) shall not be 
considered to be circumstances beyond the control of a person." 
26 use 7654. 
(16) Subsection (d) of section 7654 (relating to coordination of 
United States and Guam individual income taxes) is amended 
by inserting "subchapter A o f before "chapter 24". 
26 use 7701. 
(17)^ Section 7701(a)(16) (defining the term 
"withholding 
agent") is amended by striking out "or 1461" and inserting in 
lieu thereof "1461 or 3451". 
(b) CLERICAL AMENDMENTS.— 
(1) The heading of subtitle C is amended to read as follows: 
"Subtitle C—Employment Taxes and 
Collection of Income Tax at Source". 
(2) The table of subtitles for the Internal Revenue Code of 
1954 is amended by striking out the item relating to subtitle C 
and inserting in lieu thereof the following: 
"SUBTITLE C. Employment taxes and collection of income tax at source." 
(3) 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 31 and inserting in lieu thereof the following: 
"Sec. 31. Tax withheld on wages, interest, dividends, and patronage divi-
dends." 
(4) Chapter 24 is amended by striking out the chapter heading 
and inserting in lieu thereof the following: 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 591 
"CHAPTER 24—COLLECTION OF INCOME TAX AT 
SOURCE 
"SUBCHAPTER A. Withholding from wages. 
"SUBCHAPTER B. Withholding from interest and dividends. 
"Subchapter A—Withholding From Wages'*. 
(5) The heading for chapter 25 is amended to read as follows: 
"CHAPTER 25—GENERAL PROVISIONS RELATING 
TO EMPLOYMENT TAXES AND COLLECTION OF 
INCOME TAXES AT SOURCE". 
(6) The table of chapters for subtitle C is amended by striking 
out the items relating to chapters 24 and 25 and inserting in 
lieu thereof the following: 
"CHAPTER 24. Collection of income tax at source. 
"CHAPTER 25. General provisions relating to employment taxes and collec-
tion of income taxes at source." 
SEC. 308. EFFECTIVE DATES; SPECIAL RULES. 
26 USC 3451 
note. 
(a) IN GENERAL.—Except as otherwise provided in this section, the 
amendments made by this part shall apply to payments of interest, 
dividends, and patronage dividends paid or credited after June 30, 
1983. 
(b) DELAY IN APPLICATION TO CERTAIN PAYORS.—The Secretary of 
the Treasury shall prescribe such regulations which delay (but not 
beyond December 31, 1983) the application of some or all of the 
provisions of subchapter B of chapter 24 of the Internal Revenue 
Code of 1954 to any payor until such time as such payor is able to 
comply without undue hardship with the requirements of such 
provisions. 
(c) TEMPORARY RULE FOR CERTAIN WITHHOLDING EXEMPTIONS.— 
Until regulations are prescribed by the Secretary of the Treasury or 
his delegate under section 3452(c)(1)(B) of the Internal Revenue Code 
^"^^' P- ^'^'^• 
of 1954 (as added by this part), the payor may treat any person 
whose name reasonably indicates that such person is described in 
paragraph (2) of section 3452(c) of such Code (other than subpara-
graph (J) or (K) thereof) as an exempt recipient. 
(d) DELAY IN MAKING DEPOSITS.—The time for making deposits 
under section 6302 of the Internal Revenue Code of 1954 of the tax 
imposed by section 3451 of such Code which is withheld by any 
person shall, to the extent provided in regulations, take into account 
the cost to such person of instituting a withholding system in order 
to comply with subchapter B of chapter 24 of such Code. 
Subtitle B—Improved Information Reporting 
PART 
I—EXPANDED 
REPORTING 
SEC. 309. REPORTING OF INTEREST. 
(a) GENERAL RULE.—Section 6049 (relating to returns regarding 
26 USC 6049. 
payments of interest) is amended to read as follows: 
96 STAT. 592 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"SKC. 6019. RETURNS REGARDING PAYMENTS OF INTEREST. 
"(a) REQUIREMENT OF REPORTING.—Every person— 
"(1) who makes payments of interest (as defined in subsection 
(b)) aggregating $10 or more to any other person during any 
calendar year, 
"(2) who receives payments of interest (as so defined) as a 
nominee and who makes payments aggregating $10 or more 
during any calendar year to any other person with respect to 
the interest so received, or 
"(3) who is required under subchapter B of chapter 24 to 
withhold tax on the payment of any interest, 
shall make a return according to the forms or regulations prescribed 
by the Secretary, setting forth the aggregate amount of such pay-
ments, tax deducted and withheld, and the name and address of the 
person to whom paid or from whom withheld. 
"(b) INTEREST DEFINED.— 
"(1) GENERAL RULE.—For purposes of subsection (a), the term 
'interest' means— 
"(A) interest on any obligation— 
"(i) issued in registered form, or 
"(ii) of a type offered to the public, 
other than any obligation with a maturity (at issue) of not 
more than 1 year which is held by a corporation, 
"(B) interest on deposits with persons carrying on the 
banking business, 
"(C) amounts (whether or not designated as interest) paid 
by a mutual savings bank, savings and loan association, 
building and loan association, cooperative bank, homestead 
association, credit union, industrial loan association or 
bank, or similar organization, in respect of deposits, invest-
ment certificates, or withdrawable or repurchasable shares, 
"(D) interest on amounts held by an insurance company 
under an agreement to pay interest thereon, 
"(E) interest on deposits with brokers (as defined in sec-
Post, p. 600. 
tion 6045 (c)), 
"(F) interest paid on amounts held by investment compa-
nies (as defined in section 3 of the Investment Company Act 
of 1940 (15 U.S.C. 80a-3)) and on amounts invested in other 
pooled funds or trusts, and 
"(G) to the extent provided in regulations prescribed by 
the Secretary, any other interest (which is not described in 
paragraph (2)). 
"(2) EXCEPTIONS.—For purposes of subsection (a), the term 
'interest' does not include— 
"(A) interest on any obligation issued by a natural 
person, 
"(B) interest on any obligation if such interest is exempt 
from tax under section 103(a) or if such interest is exempt 
from tax (without regard to the identity of the holder) 
under any other provision of law, 
"(C) except to the extent otherwise provided in regula-
tions— 
"(i) any amount paid to any person referred to in 
Ante, p. 577. 
paragraph (2) of section 3452(c) (other than subpara-
graphs (J) and (K) thereof), or 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 593 
"(ii) any amount described in section 3454(a){2)(D) or 
(E), 
"(D) except to the extent otherwise provided in regula-
tions, any amount not described in subparagraph (C) of this 
paragraph which is income from sources outside the United 
States or which is paid by— 
"(i) a foreign government or international organiza-
tion or any agency or instrumentality thereof, 
"(ii) a foreign central bank of issue, 
"(iii) a foreign corporation not engaged in a trade or 
business in the United States, 
"(iv) a foreign corporation, the interest payments of 
which would be exempt from withholding under sub-
chapter A of chapter 3 if paid to a person who is not a 
United States person, or 
"(v) a partnership not engaged in a trade or business 
in the United States and composed in whole of nonresi-
dent alien individuals and persons described in clause 
(i), (ii), or (iii), and 
"(E) any amount on which the person making payment is 
required to deduct and withhold a tax under section 1451 
(relating to tax-free 
covenant bonds), or would be so 
required but for section 1451(d) (relating to benefit of per-
sonal exemptions). 
"(3) 
PAYMENTS BY UNITED STATES NOMINEES, ETC., OF UNITED 
STATES PERSON.—If, within the United States, a United States 
person— 
"(A) collects interest (or otherwise acts as a middleman 
between the payor and payee) from 
a foreign 
person 
described in paragraph (2)(D) or collects interest from a 
United States person which is income from sources outside 
the United States for a second person who is a United 
States person, or 
"(B) makes payments of such interest to such second 
United States person, 
notwithstanding paragraph (2)(D), such payment shall be sub-
ject to the requirements of subsection (a) with respect to such 
second United States person. 
"(c) STATEMENTS TO BE FURNISHED TO PERSONS WITH RESPECT TO 
WHOM INFORMATION IS FURNISHED.— 
"(1) IN GENERAL.—Every person making a return under sub-
section (a) shall furnish to each person whose name is set forth 
in such return a written statement showing— 
"(A) the name and address of the person making such 
return, 
"(B) the aggregate amount of payments to, or the aggre-
gate amount includible in the gross income of, the person as 
shown on such return, and 
"(C) the aggregate amount of tax deducted and withheld 
with respect to such person under subchapter B of chapter 
24. 
"(2) STATEMENT MUST BE FURNISHED ON OR BEFORE JANUARY 
31.—The written statement required under the preceding sen-
tence 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. 
96 STAT. 594 
P U B L I C L A W 97-248—SEPT. 3, 1982 
"(3) N o STATEMENT REQUIRED WHERE INTEREST IS LESS THAN 
$10.—No statement with respect to payments of interest to any 
person shall be required to be furnished to any person under 
this subsection if the aggregate amount of payments to such 
person shown on the return made with respect to paragraph (1) 
or (2), as the case may be, of subsection (a) is less than $10, 
"(d) 
DEFINITIONS AND SPECIAL RULES.—For 
purposes 
of 
this 
section— 
"(1) PERSON.—The term 'person' includes any governmental 
unit and any agency or instrumentality thereof and any inter-
national 
organization and any agency or instrumentality 
thereof. 
"(2) 
OBLIGATION.—The 
term 
'obligation' 
includes 
bonds, 
debentures, notes, certificates, and other evidences of indebted-
ness. 
"(3) PAYMENTS BY GOVERNMENTAL UNITS.—In the case of pay-
ments made by any governmental unit or any agency or instru-
mentality thereof, the officer or employee having control of the 
payment of interest (or the person appropriately designated for 
purposes of this section) shall make the returns and statements 
required by this section. 
"(4) FINANCIAL INSTITUTIONS, BROKERS, ETC., COLLECTING INTER-
EST MAY BE SUBSTITUTED FOR PAYOR.—To the extent and in the 
manner provided by regulations, in the case of any obligation— 
"(A) a financial institution, broker, or other person speci-
fied in such regulations which collects interest on such 
obligation for the payee (or otherwise acts as a middleman 
between the payor and the payee) shall comply with the 
requirements of subsections (a) and (c), and 
"(B) no other person shall be required to comply with the 
requirements of subsections (a) and (c) with respect to any 
interest on such obligation for which reporting is required 
pursuant to subparagraph (A). 
"(5) INTEREST ON CERTAIN OBLIGATIONS MAY BE TREATED ON A 
TRANSACTIONAL BASIS.— 
"(A) IN GENERAL.—To the extent and in the manner 
provided in regulations, this section shall apply 
with 
respect to— 
"(i) any person described in paragraph (4)(A), and 
"(ii) in the case of any United States savings bonds, 
any Federal agency making payments thereon, 
on any transactional basis rather than on an annual aggre-
gation basis. 
"(B) SEPARATE RETURNS AND STATEMENTS.—If subpara-
graph (A) applies to interest on any obligation, the return 
under subsection (a) and the statement furnished 
under 
subsection (c) with respect to such transaction may be made 
separately, but any such statement shall be furnished to 
the payee at such time as the Secretary may prescribe by 
regulations but not later than January 31 of the next 
calendar year. 
"(C) STATEMENT TO PAYEE REQUIRED IN CASE OF TRANSAC-
TIONS INVOLVING $10 OR MORE.—In the case of any transac-
tion to which this paragraph applies which involves the 
payment of $10 or more of interest, a statement of the 
transaction may be provided to the payee of such interest in 
lieu of the statement required under subsection (c). Such 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 595 
statement shall be provided during January of the year 
following the year in which such payment is made. 
"(6) TREATMENT OF ORIGINAL ISSUE DISCOUNT.— 
"(A) IN GENERAL.—Original issue discount on any obliga-
tion shall be reported— 
"(i) as if paid at the time it is includible in gross 
income under section 1232A (except that for such pur- 
Ante, p. 496. 
pose the amount reportable with respect to any subse-
quent holder shall be determined as if he were the 
original holder), and 
"(ii) if section 1232A does not apply to the obligation, 
at maturity (or, if earlier, on redemption). 
In the case of any obligation not in registered form issued 
before January 1, 1983, clause (ii) and not clause (i) shall 
apply. 
"(B) ORIGINAL ISSUE DISCOUNT.—For purposes of this para-
graph, the term 'original issue discount' has the meaning 
given to such term by section 1232(b)(1).". 
(b) TECHNICAL AMENDMENTS.— 
(1) Subsection (a) of section 6041 (relating to information at 
26 USC 6041. 
source) is amended— 
(A) by striking out "6049(a)(1)" and inserting in lieu 
thereof "6049(a)", and 
(B) by striking out "6045, 6049(a)(2), or 6049(a)(3)" and 
inserting in lieu thereof "or 6045". 
(2) Subsection (b) of section 6652 (relating to failure to file 
95 Stat. 343. 
certain information returns) is amended by adding "or" at the 
end of paragraph (1) and by striking out paragraphs (3) and (4). 
(3) Paragraph (1) of section 6678 is amended by striking out 
26 USC 6678. 
"6049(a)(1)" and inserting in lieu thereof "6049(a)". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 6049 
apply to amounts paid (or treated as paid) after December 31, 1982. "°*®-
SP:C. 310. OBLIGATIONS REQUIRED TO BE REGISTERED. 
(a) UNITED STATES OBLIGATIONS.—The Second Liberty Bond Act is 
amended by adding at the end thereof the following new section: 
"SEC. 28. (a) Every registration-required obligation of the United 
31 USC 757c-5. 
States (or of any agency or instrumentality thereof) shall be in 
registered form. 
"(b) For purposes of this section— 
"(1) Except as provided in paragraph (2), the term 'registra-
tion-required obligation' means any obligation other than an 
obligation which— 
"(A) is not of a type offered to the public, or 
"(B) has a maturity (at issue) of not more than 1 year. 
"(2) The term 'registration-required obligation' shall not 
include any obligation i
f
— 
"(A) there are arrangements reasonably designed to 
ensure that such obligation will be sold (or resold in connec-
tion with the original issue) only to a person who is not a 
United States person, and 
"(B) in the case of an obligation not in registered form— 
"(i) interest on such obligation is payable only 
outside the United States and its possessions, and 
"(ii) on the face of such obligation there is a state-
ment that any United States person who holds such 
96 STAT. 596 
PUBLIC LAW 97-248—SEPT. 3, 1982 
obligation will be subject to limitations under the 
United States income tax laws. 
"(c)(1) For purposes of subsection (a), a book entry obligation shall 
be treated as in registered form if the right to principal of, and 
stated interest on, such obligation may be transferred only through 
a book entry consistent with regulations prescribed by the Secretary 
of the Treasury. 
"(2) The Secretary of the Treasury shall prescribe such regula-
tions as may be necessary to carry out the purpose of subsection (a) 
where there is a nominee or chain of nominees.". 
(b) OTHER OBLIGATIONS.— 
(1) OBLIGATIONS MUST BE IN REGISTERED FORM TO BE TAX-
95 Stat. 350. 
EXEMPT.—Section 103 (relating to interest on certain govern-
mental obligations) is amended by redesignating subsection (j) 
as subsection (k) and by inserting after subsection (i) the follow-
ing new subsection: 
"(j) 
OBLIGATIONS MUST BE IN REGISTERED FORM TO BE TAX-
EXEMPT.— 
"(1) IN GENERAL.—Nothing in subsection (a) or in any other 
provision of law shall be construed to provide an exemption 
from Federal income tax for interest on any registration-
required obligation unless the obligation is in registered form. 
"(2) REGISTRATION-REQUIRED OBLIGATION.—The term 'registra-
tion-required obligation* means any obligation other than an 
obligation which— 
"(A) is not of a type offered to the public, 
"(B) has a maturity (at issue) of not more than 1 year, or 
"(C) is described in section 163(f)(2)(B). 
"(3) SPECIAL RULES.— 
"(A) BOOK ENTRIES PERMITTED.—For purposes of para-
graph (1), a book entry obligation shall be treated as in 
registered form if the right to the principal of, and stated 
interest on, such obligation may be transferred only 
through a book entry consistent with regulations prescribed 
by the Secretary. 
"(B) NOMINEES.—The Secretary shall prescribe such regu-
lations as may be necessary to carry out the purpose of 
paragraph (1) where there is a nominee or chain of 
nominees." 
(2) DENIAL OF DEDUCTION FOR INTEREST IF OBLIGATION NOT IN 
Ante, p. 498. 
REGISTERED FORM.—Section 163 (relating to deduction for inter-
est) is amended by redesignating subsection (f) as subsection (g) 
and by inserting after subsection (e) the following new 
subsection: 
"(f) DENIAL OF DEDUCTION FOR INTEREST ON CERTAIN OBLIGATIONS 
NOT IN REGISTERED FORM.— 
"(1) IN GENERAL.—Nothing in subsection (a) or in any other 
provision of law shall be construed to provide a deduction for 
interest on any registration-required obligation unless such obli-
gation is in registered form. 
"(2) 
REGISTRATION-REQUIRED OBLIGATION.—For purposes 
of 
this section— 
"(A) IN GENERAL.—The term 'registration-required obliga-
tion' means any obligation (including any obligation issued 
by a governmental entity) other than an obligation which— 
"(i) is issued by a natural person, 
"(ii) is not of a type offered to the public, 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 597 
"(iii) has a maturity (at issue) of not more than 1 
year, or 
"(iv) is described in subparagraph (B). 
"(B) CERTAIN OBLIGATIONS NOT INCLUDED.—An obligation 
is described in this subparagraph if— 
"(i) there are arrangements reasonably designed to 
ensure that such obligation will be sold (or resold in 
connection with the original issue) only to a person who 
is not a United States person, and 
"(ii) in the case of an obligation not in registered 
form— 
"(I) interest on such obligation is payable only 
outside the United States and its possessions, and 
"(II) on the face of such obligation there is a 
statement that any United States person who holds 
such obligation will be subject to limitations under 
the United States income tax laws. 
"(C) AUTHORITY TO INCLUDE OTHER OBLIGATIONS.—Clauses 
(ii) and (iii) of subparagraph (A), and subparagraph (B), 
shall not apply to any obligation if— 
"(i) such obligation is of a type which the Secretary 
has determined by regulations to be used frequently in 
avoiding Federal taxes, and 
"(ii) such obligation is issued after the date on which 
the regulations referred to in clause (i) take effect. 
"(3) BOOK ENTRIES PERMITTED, ETC.—For purposes of this sub-
section, rules similar to the rules of section 103(j)(3) shall 
95 Stat. 350. 
apply." 
(3) DENIAL OF EARNINGS AND PROFITS ADJUSTMENT FOR INTER-
EST ON REGISTRATION-REQUIRED OBLIGATIONS NOT IN REGISTERED 
FORM.—Section 312 (relating to earnings and profits) is amended 
26 USC 312. 
by adding at the end thereof the following new subsection: 
"(m) No ADJUSTMENT FOR INTEREST PAID ON CERTAIN REGISTRA-
TION-REQUIRED OBLIGATIONS N O T IN REGISTERED FORM.—The earn-
ings and profits of any corporation shall not be decreased by any 
interest with respect to which a deduction is not or would not be 
allowable by reason of section 163(f), unless at the time of issuance 
the issuer is a foreign corporation that is not a controlled foreign 
corporation (within the meaning of section 957), a foreign invest-
ment company (within the meaning of section 1246(b)), or a foreign 
personal holding company (within the meaning of section 552) and 
the issuance did not have as a purpose the avoidance of section 163(f) 
of this subsection". 
(4) EXCISE TAX ON ISSUERS OF REGISTRATION-REQUIRED OBLIGA-
TIONS WHICH ARE NOT IN REGISTERED FORM.— 
(A) IN GENERAL.—Subtitle D (relating to miscellaneous 
excise taxes) is amended by adding after chapter 38 the 
following new chapter: 
"CHAPTER 39—REGISTRATION-REQUIRED 
OBLIGATIONS 
"Sec. 4701. Tax on issuer of refjistration-required obligation not in regis-
tered form. 
96 STAT. 598 
PUBLIC LAW 97-248—SEPT. 3, 1982 
26 u s e 4701. 
"SEC. 4701. TAX ON ISSUER OF REGISTRATION-REQUIRED OBLIGATION 
NOT IN REGISTERED FORM. 
"(a) IMPOSITION OF TAX.—In the case of any person who issues a 
registration-required obUgation, which is not in registered form, 
there is hereby imposed on such person on the issuance of such 
obligation a tax in an amount equal to the product of^ 
"(1) 1 percent of the principal amount of such obligation, 
multiplied by 
"(2) the number of calendar years (or portions thereof) during 
the period beginning on the date of issuance of such obligation 
and ending on the date of maturity. 
"(b) DEFINITIONS.—For purposes of this section— 
"(1) REGISTRATION-REQUIRED OBLIGATION.—The term 'registra-
tion-required obligation' has the same meaning as when used in 
section 163(f), except that such term shall not include any 
obligation required to be registered under section 103(j). 
"(2) REGISTERED FORM.—The term 'registered form' has the 
same meaning as when used in section 163(f)." 
(B) CONFORMING AMENDMENT.—The table of chapters for 
subtitle D is amended by inserting after chapter 38 the 
following: 
"CHAPTER 39. Registration-required obligations." 
(5) DENIAL OF DEDUCTION FOR LOSSES ON CERTAIN OBLIGATIONS 
Ante, p. 422. 
NOT IN REGISTERED FORM.—Section 165 (as amended by this Act) 
is amended by redesignating subsection (j) as subsection (k) and 
by inserting after subsection (i) the following new subsection: 
"(j) DENIAL OF DEDUCTION FOR LOSSES ON CERTAIN OBLIGATIONS 
NOT IN REGISTERED FORM.— 
"(1) IN GENERAL.—Nothing in subsection (a) or in any other 
provision of law shall be construed to provide a deduction for 
any loss sustained on any registration-required 
obligation 
unless such obligation is in registered form (or the issuance of 
such obligation was subject to tax under section 4701). 
"(2) DEFINITIONS.—For purposes of this subsection— 
"(A) REGISTRATION-REQUIRED OBLIGATION.—The term 'reg-
istration-required obligation' has the meaning given to such 
term by section 163(0(2) except that clause (iv) of subpara-
graph (A), and subparagraph (B), of such section shall not 
apply. 
"(B) REGISTERED FORM.—The term 'registered form' has 
the same meaning as when used in section 163(0. 
"(3) EXCEPTIONS.—The Secretary may, by regulations, provide that 
this subsection and subsection (d) of section 1232 shall not apply 
with respect to obligations held by any person i
f
— 
"(A) such person holds such obligations in connection with a 
trade or business outside the United States, 
"(B) such person holds such obligations as a broker dealer 
(registered under Federal or State law) for sale to customers in 
the ordinary course of his trade or business, 
"(C) such person complies with reporting requirements with 
respect to ownership, transfers, and payments as the Secretary 
may require, or 
"(D) such person promptly surrenders the obligation to the 
issuer for the issuance of a new obligation in registered form. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 599 
but only if such obligations are held under arrangements provided 
in regulations or otherwise which are designed to assure that such 
obligations are not delivered to any United States person other than 
a person described in subparagraph (A), (B), or (C)." 
(6) DENIAL OF CAPITAL GAIN TREATMENT FOR GAINS ON CERTAIN 
OBLIGATIONS NOT IN REGISTERED FORM.—Section 1232 (relating to 26 use 1232. 
bonds and other evidences of indebtedness) is amended by redes-
ignating subsection (d) as subsection (e) and by inserting after 
subsection (c) the following new subsection: 
"(d) DENIAL OF CAPITAL GAIN TREATMENT FOR GAINS ON CERTAIN 
OBLIGATIONS NOT IN REGISTERED FORM.— 
"(1) IN GENERAL.—If any registration-required obligation is 
not in registered form, any gain on the sale or other disposition 
of such obligation shall be treated as ordinary income (unless 
the issuance of such obligation was subject to tax under section 
4701). 
"(2) DEFINITIONS.—For purposes of this subsection— 
"(A) REGISTRATION-REQUIRED OBLIGATION.—The term 'reg-
istration-required obligation' has the meaning given to such 
term by section 163(f)(2) except that clause (iv) of subpara-
graph (A), and subparagraph (B), of such section shall not 
apply. 
"(B) REGISTERED FORM.—The term 'registered form' has 
the same meaning as when used in section 163(0." 
(c) TECHNICAL AMENDMENTS.— 
(1) Subparagraph (A) of section 103(b)(4) (relating to certain 
26 USC 103. 
exempt activities) is amended by striking out "if each obligation 
issued pursuant to the issue is in registered form and". 
(2)(A) Paragraph (1) of section 103(h) (relating to certain 
obligations must be in registered form and not guaranteed or 
subsidized under an energy program) is amended by striking out 
subparagraph (A) and by redesignating subparagraphs (B) and 
(C) as subparagraphs (A) and (B), respectively. 
(B) The subsection heading for subsection (h) of section 103 is 
amended by striking out "MUST BE IN REGISTERED FORM AND 
NOT" and inserting in lieu thereof "MUST NOT BE". 
(3)(A) Subsection 0') of section 103A (relating to other require- 26 USC 103A. 
ments) is amended by striking out paragraph (1) and by 
redesignating paragraphs (2) and (3) as paragraphs (1) and (2), 
respectively. 
(B) Subparagraph (B) of section 103A(c)(2) (defining qualified 
mortgage issue) is amended by striking out "and (0 and para-
graphs (2) and (3) of subsection (j)" and inserting in lieu thereof 
"(f), and (J)". 
(C) Subparagraph (C) of section 103A(c)(2) is amended by 
striking out ", and paragraph (1) of subsection (j)". 
(D) Subparagraph (C) of section 103A(c)(3) (defining qualified 
veterans' mortgage bond) is amended by striking out "subsec-
tion (j)(2)" and inserting in lieu thereof "subsection (j)(l)". 
(4) Subparagraph (A) of section 103A(c)(3) (defining qualified 
veterans' mortgage bond) is amended by striking out "in regis-
tered form". 
(d) EFFECTIVE DATES.— 
26 USC 103 note. 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by this section shall apply to 
obligations issued after December 31, 1982. 
97-200 O—84—pt. 1 
21 : QL3 
96 STAT. 600 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(2) LONG-TERM U.S. OBLIGATIONS.—The amendment made by 
subsection (a) shall apply to obligations issued after the date of 
the enactment of this Act under the first section of the Second 
31 use 752. 
Liberty Bond Act. 
(3) EXCEPTION FOR CERTAIN WARRANTS, ETC.—The amendments 
made by subsection (b) shall not apply to any obligations issued 
after December 31, 1982, on the exercise of a warrant or the 
conversion of a convertible obligation if such warrant or obliga-
tion was offered or sold outside the United States without 
15 use 77a. 
registration under the Securities Act of 1933 and was issued 
before August 10, 1982. A rule similar to the rule of the preced-
ing sentence shall also apply in the case of any regulations 
issued under section 163(f)(2)(C) of the Internal Revenue Code of 
1954 (as added by this section) except that the date on which 
such regulations take effect shall be substituted for "August 10, 
1982". 
SEC. 311. RETURNS OF BROKERS. 
(a) GENERAL RULE.— 
26 use 6045. 
(1) RETURNS.—Section 6045 (relating to returns of brokers) is 
amended to read as follows: 
"SEC. 6045. RETURNS OF BROKERS. 
"(a) GENERAL RULE.—Every person doing business as a broker 
shall, when required by the Secretary, make a return, in accordance 
with such regulations as the Secretary may prescribe, showing the 
name and address of each customer, with such details regarding 
gross proceeds and such other information as the Secretary may by 
forms or regulations require with respect to such business. 
"(b) STATEMENTS TO BE FURNISHED TO CUSTOMERS.—Every person 
making a return under subsection (a) shall furnish to each customer 
whose name is set forth in such return a written statement 
showing— 
"(1) the name and address of the person making such return, 
and 
"(2) the information shown on such return with respect to 
such customer. 
The written statement required under the preceding sentence shall 
be furnished to the customer on or before January 31 of the year 
following the calendar year for which the return under subsection 
(a) was made. 
"(c) DEFINITIONS.—For purposes of this section— 
"(1) BROKER.—The term 'broker' includes— 
"(A) a dealer, 
"(B) a barter exchange, and 
"(C) any other person who (for a consideration) regularly 
acts as a middleman with respect to property or services. 
"(2) CUSTOMER.—The term 'customer' means any person for 
whom the broker has transacted any business. 
"(3) BARTER EXCHANGE.—The term 'barter exchange' means 
any organization of members providing property or services who 
jointly contract to trade or barter such property or services." 
26 use 6678. 
(2) PENALTY.—Paragraph (1) of section 6678 (relating to pen-
alty for failure to furnish certain statements) is amended— 
(A) by inserting "6045(b)," after "6044(e),", and 
(B) by inserting "6045(a)," after "6044(a)(1),". 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 601 
26 use 6045 
note. 
(b) BARTER EXCHANGE TREATED AS THIRD-PARTY RECORDKEEPER.— 
Paragraph (3) of section 7609(a) (defining third-party recordkeeper) 
26 USC 7609. 
is amended by striking out "and" at the end of subparagraph (E), by 
striking out the period at the end of subparagraph (F) and inserting 
in lieu thereof "; and", and by adding at the end thereof the 
following new subparagraph: 
"(G) any 
barter 
exchange 
(as defined 
in 
section 
6045(c)(3))." 
(c) EFFECTIVE DATES.— 
(1) SUBSECTION (a).—The amendments made by subsection (a) 
shall take effect on the date of the enactment of this Act, except 
that— 
(A) regulations relating to reporting by commodities and 
securities brokers shall be issued under section 6045 of the 
Internal Revenue Code of 1954 (as amended by this Act) 
within 6 months after the date of the enactment of this Act, 
and 
(B) such regulations shall not apply to transactions occur-
ring before January 1,1983. 
(2) SUBSECTION (b) .—The amendments made by subsection (b) 26 USC 7609 
shall apply to summonses served after December 31, 1982. "°*^-
SEC. 312. INFORMATION REPORTING REQUIREMENTS FOR PAYMENTS OF 
REMUNERATION FOR SERVICES AND DIRECT SALES. 
(a) GENERAL RULE.—Subpart B of part III of subchapter A of 
chapter 61 (relating to information concerning transactions with 
other persons) is amended by inserting after section 6041 the follow-
ing new section: 
SEC. 6041A. RETURNS REGARDING PAYMENTS OF REMUNERATION FOR 
26 USC 6041A. 
SERVICES AND DIRECT SALES. 
"(a) RETURNS REGARDING REMUNERATION FOR SERVICES.—If— 
"(1) any service-recipient engaged in a trade or business pays 
in the course of such trade or business during any calendar year 
remuneration to any person for services performed by such 
person, and 
"(2) the aggregate of such remuneration paid to such person 
during such calendar year is $600 or more, 
then the service-recipient shall make a return, according to the 
forms or regulations prescribed by the Secretary, setting forth the 
aggregate amount of such payments and the name and address of 
the recipient of such payments. For purposes of the preceding "Service-
sentence, the term 'service-recipient' means the person for whom ''^cipient. 
the service is performed. 
"(b) DIRECT SALES OF $5,000 OR MORE.— 
"(1) IN GENERAL.—If— 
"(A) any person engaged in a trade or business in the 
course of such trade or business during any calendar year 
sells consumer products to any buyer on a buy-sell basis, a 
deposit-commission basis, or any similar basis which the 
Secretary prescribes by regulations, for resale (by the buyer 
or any other person) in the home or otherwise than in a 
permanent retail establishment, and 
"(B) the aggregate amount of the sales to such buyer 
during such calendar year is $5,000 or more, 
96 STAT. 602 
P U B L I C L A W 97-248—SEPT. 3, 1982 
then such person shall make a return, according to the forms or 
regulations prescribed by the Secretary, setting forth the name 
and address of the buyer to whom such sales are made. 
"(2) DEFINITIONS.—For purposes of paragraph (1)— 
"(A) BUY-SELL BASIS.—A transaction is on a buy-sell basis 
if the buyer performing the services is entitled to retain 
part or all of the difference between the price at which the 
buyer purchases the product and the price at which the 
buyer sells the product as part or all of the buyer's remu-
neration for the services, and 
"(B) DEPOSIT-COMMISSION BASIS.—A transaction is on a 
deposit-commission basis if the buyer performing the serv-
ices is entitled to retain part or all of a purchase deposit 
paid by the consumer in connection with the transaction as 
part or all of the buyer's remuneration for the services. 
"(c) 
CERTAIN 
SERVICES N O T INCLUDED.—No 
return 
shall 
be 
required under subsection (a) or (b) if a statement with respect to the 
services is required to be furnished under section 6051, 6052, or 6053. 
"(d) APPLICATIONS TO GOVERNMENTAL UNITS.— 
"(1) TREATED AS PERSONS.—The term 'person' includes any 
governmental unit (and any agency or instrumentality thereof). 
"(2) SPECIAL RULES.—In the case of any payment by a govern-
mental entity or any agency or instrumentality thereof— 
"(A) subsection (a) shall be applied without regard to the 
trade or business requirement contained therein, and 
"(B) any return under this section shall be made by the 
officer or employee having control of the payment or appro-
priately designated for the purpose of making such return. 
"(e) STATEMENTS T O B E FURNISHED TO PERSONS WITH RESPECT TO 
W H O M INFORMATION IS REQUIRED T O B E FURNISHED.—Every person 
required to make a return under subsection (a) or (b) shall furnish to 
each person whose name is required to be set forth in such return a 
written statement showing— 
"(1) the name and address of the person required to make 
such return, and 
"(2) in the case of subsection (a), the aggregate amount of 
payments to the person required to be shown on 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. 
"(f) RECIPIENT T O FURNISH NAME, ADDRESS, AND IDENTIFICATION 
NUMBER; INCLUSION ON RETURN.— 
"(1) FURNISHING OF INFORMATION.—Any person with respect 
to whom a return or statement is required under this section to 
be made by another person shall furnish to such other person 
his name, address, and identification number at such time and 
in such manner as the Secretary may prescribe by regulations. 
"(2) INCLUSION ON RETURN.—The person to whom an identifi-
cation number is furnished under paragraph (1) shall include 
such number on any return which such person is required to file 
under this section and to which such identification 
number 
relates." 
95 Stat. 344. 
(b) PENALTY FOR FAILURE TO FILE STATEMENT.—Section 6678(1) 
(relating to failure to file statement) is amended— 
(1) by inserting "6041A(e)," after "6041(d),", and 
(2) by inserting "6041A(a) or (b)," after "6041(a),". 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 603 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 6041A 
apply to payments and sales made after December 31, 1982. 
^°^-
SEC. 313. STATE AND LOCAL INCOME TAX REFUNDS. 
(a) IN GENERAL.—Subpart B of part III of subchapter A of chapter 
61 (relating to information concerning transactions with other per-
sons) is amended by adding at the end thereof the following new 
section: 
"SEC. 6050E. STATE AND LOCAL INCOME TAX REFUNDS. 
26 USC 6050E. 
"(a) REQUIREMENT OF REPORTING.—Every person who, with respect 
to any individual, during any calendar year makes payments of 
refunds of State or local income taxes (or allows credits or offsets 
with respect to such taxes) aggregating $10 or more shall make a 
return according to forms or regulations prescribed by the Secretary 
setting forth the aggregate amount of such payments, credits, or 
offsets, and the name and address of the individual with respect to 
whom such payment, credit, or offset was made. 
"(b) STATEMENTS TO BE FURNISHED TO INDIVIDUALS WITH RESPECT 
T
O WHOM INFORMATION Is FURNISHED.—Every person making a 
return under subsection (a) shall furnish to each individual whose 
name is set forth in such return a written statement showing— 
"(1) the name of the State or political subdivision thereof, and 
"(2) the aggregate amount shown on the return of refunds, 
credits, and offsets to the individual. 
The written statement required under the preceding sentence shall 
be furnished to the individual during January of the calendar year 
following the calendar year for which the return under subsection 
(a) was made. 
"(c) PERSON DEFINED.—For purposes of this section, the term 
'person' means the officer or employee having control of the pay-
ment of the refunds (or the allowance of the credits or offsets) or the 
person appropriately designated for purposes of this section." 
(b) CONFORMING AMENDMENT.—The table of sections for subpart B 
of part III of subchapter A of chapter 61 is amended by adding at the 
end thereof the following new item: 
"Sec. 6050E. State and local income tax refunds." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 6050E 
apply to payments of refunds, and credits and offsets made, after 
December 31, 1982. 
note. 
SEC. 314. EMPLOYER REPORTING WITH RESPECT TO TIPS. 
(a) IN GENERAL.—Section 6053 (relating to reporting of tips) is 
26 USC 6053. 
amended by adding at the end thereof the following new subsection: 
"(c) REPORTING REQUIREMENTS RELATING TO CERTAIN LARGE FOOD 
O
R BEVERAGE ESTABLISHMENTS.— 
"(1) REPORT TO SECRETARY.—In the case of a large food or 
beverage establishment, each employer shall report to the Sec-
retary, at such time and manner as the Secretary may prescribe 
by regulation, the following information with respect to each 
calendar year: 
"(A) The gross receipts of such establishment from the 
provision of food and beverages (other than nonallocable 
receipts). 
"(B) The aggregate amount of charge receipts (other than 
nonallocable receipts). 
96 STAT. 604 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(C) The aggregate amount of charged tips shown on such 
charge receipts. 
"(D) The sum of— 
"(i) the aggregate amount reported by employees to 
the employer under subsection (a), plus 
"(ii) the amount the employer is required to report 
26 use 6051. 
under section 6051 with respect to service charges of 
less than 10 percent. 
"(E) With respect to each employee, the amount allocated 
to such employee under paragraph (3). 
"(2) 
FURNISHING 
OF 
STATEMENT 
TO 
EMPLOYEES.—Each 
employer described in paragraph (1) shall furnish, in such 
manner as the Secretary may prescribe by regulations, to each 
employee of the large food or beverage establishment a written 
statement for each calendar year showing the following infor-
mation: 
"(A) The name and address of such employer. 
"(B) The name of the employee. 
"(C) The amount allocated to the employee under para-
graph (3) for all payroll periods ending within the calendar 
year. 
Any statement under this paragraph shall be furnished to the 
employee during January of the calendar year following the 
calendar year for which such statement is made. 
"(3) EMPLOYEE ALLOCATION OF 8 PERCENT OF GROSS RECEIPTS.— 
"(A) IN GENERAL.—For purposes of paragraphs (1)(E) and 
(2)(C), the employer of a large food or beverage establish-
ment shall allocate (as tips for purposes of the requirements 
of this subsection) among employees performing services 
during any payroll period who customarily receive tip 
income an amount equal to the excess of— 
"(i) 8 percent of the gross receipts (other than nonal-
locable receipts) of such establishment for the payroll 
period, over 
"(ii) the aggregate amount reported by such employ-
ees to the employer under subsection (a) for such 
period. 
"(B) METHOD OF ALLOCATION.—The employer shall allo-
cate the amount under subparagraph (A)— 
"(i) on the basis of a good faith agreement by the 
employer and the employees, or 
"(ii) in the absence of an agreement under clause (i), 
in the manner determined 
under regulations pre-
scribed by the Secretary. 
"(C) 
T H E SECRETARY 
MAY LOWER 
THE PERCENTAGE 
REQUIRED TO BE ALLOCATED.—The Secretary may reduce (but 
not below 5 percent) the percentage of gross 
receipts 
required to be allocated under subparagraph (A) where he 
determines that the percentage of gross receipts constitut-
ing tips is less than 8 percent. 
"(4) LARGE FOOD OR BEVERAGE ESTABLISHMENT.—For purposes 
of this subsection, the term 'large food or beverage establish-
ment' means any trade or business (or portion thereof)— 
"(A) which provides food or beverages, 
"(B) with respect to which the tipping of employees serv-
ing food or beverages by customers is customary, and 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 605 
"(C) which normally employed more than 10 employees 
on a typical business day during the preceding calendar 
year. 
For purposes of subparagraph (C), rules similar to the rules of 
subsections (a) and (h) of section 52 shall apply under regula-
tions prescribed by the Secretary. 
"(5) EMPLOYER NOT TO BE LIABLE FOR WRONG ALLOCATIONS.— 
The employer shall not be liable to any person if any amount is 
improperly allocated under paragraph (3)(B) if such allocation is 
done in accordance with the regulations prescribed under para-
graph (3)(B). 
"(6) NoNALLOCABLE RECEIPTS DEFINED.—For purposes of this 
subsection, the term 'nonallocable receipts' means receipts 
which are allocable to— 
"(A) carry 
out sales, or 
"(B) services with respect to which a service charge of 10 
percent or more is added. 
"(7) APPLICATION TO NEW BUSINESSES.—The Secretary shall 
prescribe regulations for the application of this subsection to 
new businesses." 
(b) PENALTY FOR FAILURE TO FURNISH STATEMENT.—Subparagraph 
(D) of section 6678(3) is amended by striking out "section 6053(b)" 
and inserting in lieu thereof "subsection (b) or (c) of section 6053(c)." 
(c) STUDY OF TIP COMPLIANCE.—The Secretary of the Treasury or 
his delegate shall submit before January 1, 1987, to the Committee 
on Ways and Means of the House of Representatives and to the 
Committee on Finance of the Senate a report with respect to tip 
compliance in the food and beverage service industry. Such study 
shall include, but not be limited to, an analysis of tipping patterns, 
tip-sharing arrangements, and tip compliance patterns. 
(d) CONFORMING AMENDMENT.—The last sentence of section 6001 
(relating to notice or regulations requiring records, statements, and 
special returns) is amended by inserting ", records necessary to 
comply with section 6053(c)," after "charge receipts". 
(e) EFFECTIVE DATES.— 
(1) IN GENERAL.—The amendments made by this section shall 
apply to calendar years beginning after December 31, 1982. 
(2) SPECIAL RULE FOR 1983.—For purposes of section 6053(c) of 
the Internal Revenue Code of 1954, in the case of payroll periods 
ending before April 1, 1983, an employer must only report with 
respect to such periods— 
(A) amounts described in subparagraphs (A), (B), (C), and 
(D) of section 6053(c)(1) of such Code, and 
(B) the name, and identification number, wages paid to, 
and tips reported by, each tipped employee. 
95 Stat. 343. 
Report to 
congressional 
committees. 
26 use 6053 
note. 
26 use 6001. 
26 use 6053 
note. 
PART II—PROVISIONS TO IMPROVE REPORTING 
GENERALLY 
SEC. 315. INCREASED PENALTIES FOR FAILURE TO FILE INFORMATION 
RETURN OR TO FURNISH STATEMENT. 
(a) IN GENERAL.—Subsection (a) of section 6652 (relating to failure 
26 USC 6652. 
to file certain information returns, etc.) is amended to read as 
follows: 
"(a) RETURNS RELATING TO INFORMATION AT SOURCE, PAYMENTS OF 
DIVIDENDS, ETC., AND CERTAIN TRANSFERS OF STOCK.— 
96 STAT. 606 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(1) IN GENERAL.—In the case of each failure— 
"(A) to file a statement of the amount of payments to 
another person required by— 
"(i) section 6041 (a) or (b) (relating to certain informa-
tion at source), 
"(ii) section 6042(a)(1) (relating to payments of 
dividends), 
"(iii) section 6044(a)(1) (relating to payments of 
patronage dividends), 
Ante, p. 592. 
"(iv) section 6049(a) (relating to payments of interest), 
"(v) section 6050A(a) (relating to reporting require-
ments of certain fishing boat operators), or 
Ante, pp. 587, 
"(vi) section 6042(e), 6044(0, 6049(e), or 6051(d) (relat-
^^^ 
ing to information returns with respect to income tax 
withheld), or 
"(B) to make a return required by— 
Ante, p. 601. 
"(i) subsection (a) or 0)) of section 6041A (relating to 
returns of direct sellers). 
Ante, p. 600. 
"(ii) section 6045 (relating to returns of brokers), 
"(iii) section 6052(a) (relating to reporting payment of 
wages in the form of group term life insurance), or 
*(iv) section 6053(cXl) (relating to reporting with 
respect to certain tips), 
on the date prescribed therefor (determined 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, there shall 
be paid (upon notice and demand by the Secretary and in the 
same manner as tax), by the person failing to file a statement 
referred to in subparagraph (A) or failing to make a return 
referred to in subparagraph (B), $50 for each such failure, but 
the total amount imposed on the delinquent person for all such 
failures during any calendar year shall not exceed $50,000. 
"(2) PENALTY IN CASE OP INTENTIONAL DISREGARD.—If 1 or 
more failures to which paragraph (1) applies are due to inten-
tional disregard of the filing requirement, then with respect to 
such failures— 
"(A) the penalty imposed under paragraph (1) shall not be 
less than an amount equal to— 
"(i) in the case of a return not described in clauses (ii) 
and (iii), 10 percent of the aggregate amount of the 
items required to be reported, 
"(ii) in the case of a return required to be filed by 
section 6045, 5 percent of the gross proceeds required to 
be reported, and 
"(iii) in the case of a return required to be filed by 
section 6041A01)), $100 for each such failure, and 
"(B) the $50,000 limitation under paragraph (1) shall not 
apply." 
(b) INCREASE IN ADDITION TO TAX FOR FAILURE To FILE CERTAIN 
RETURNS OR STATEMENTS IN CONNECTION WITH PLANS OF DEFERRED 
26 use 6652. 
COMPENSATION.—Subsection (0 of section 6652 (relating to informa-
tion required in connection with certain plans of deferred compensa-
tion) is amended— 
(1) by striking out "$10" and inserting in lieu thereof "$25", 
and 
(2) by striking out "$5,000" and inserting in lieu thereof 
"$15,000". 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 607 
(c) INCREASE IN CIVIL PENALTY FOR FAILURE TO FURNISH CERTAIN 
STATEMENTS.—Section 6678 (relating to failure to furnish certain 
26 use 6678. 
statements) is amended— 
(1) by striking out "$10" and inserting in lieu thereof "$50", 
and 
(2) by striking out "$25,000" and inserting in lieu thereof 
"$50,000". 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 6652 
apply with respect to returns or statements the due date for the "°*®-
filing of which (without regard to extensions) is after December 31, 
1982. 
SEC. 316. INCREASE IN CIVIL PENALTY O
N FAILURE TO SUPPLY IDENTI-
FYING NUMBERS. 
(a) IN GENERAL.—Subsection (a) of section 6676 (relating to failure 
26 USC 6676. 
to supply identifying numbers) is amended to read as follows: 
"(a) CIVIL PENALTIES.— 
"(1) IN GENERAL.—If any person who is required by regula-
tions prescribed under section 6109— 
"(A) to include his taxpayer identification number in any 
return, statement, or other document, 
"(B) to furnish his taxpayer identification number to 
another person, or 
"(C) to include in any return, statement, or other docu-
ment made with respect to another person the taxpayer 
identification number of such other person, 
fails to comply with such requirement at the time prescribed by 
such regulations, such person shall, unless it is shown that such 
failure is due to reasonable cause and not to willful neglect, pay 
a penalty of $5 for each such failure described in subparagraph 
(A) and $50 for each such failure described in subparagraph (B) 
or (C), except that the total amount imposed on such person for 
all such failures during any calendar year shall not exceed 
$50,000. 
"(2) TAXPAYER IDENTIFICATION NUMBER DEFINED.—The term 
'taxpayer identification number' means the identifying number 
assigned to a person under section 6109." 
(b) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 6676 
apply with respect to returns the due date for the filing of which "°^®-
(without regard to extensions) is after December 31, 1982. 
SEC. 317. EXTENSION OF WITHHOLDING TO CERTAIN PAYMENTS WHERE 
IDENTIFYING NUMBER NOT FURNISHED OR INACCURATE. 
(a) IN GENERAL.—Section 3402 (relating to withholding at source) 26 USC 3402. 
is amended by adding at the end thereof the following new 
subsection: 
"(s) EXTENSION OF WITHHOLDING TO CERTAIN PAYMENTS WHERE 
IDENTIFYING NUMBER NOT FURNISHED OR INACCURATE.— 
"(1) IN GENERAL.—If, in the case of any backup withholding 
payment— 
"(A) the payee fails to furnish his taxpayer identification 
number to the payor, or 
"(B) the Secretary notifies the payor that the number 
furnished by the payee is incorrect, 
then the payor shall deduct and withhold from such payment a 
tax equal to 15 percent of such payment. 
"(2) PERIOD FOR WHICH WITHHOLDING IS IN EFFECT.— 
96 STAT. 608 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(A) FAILURE TO FURNISH NUMBER.—In the case of any 
failure described in subparagraph (A) of paragraph (1), 
paragraph (1) shall apply to any backup withholding pay-
ment made during the period during which the taxpayer 
identification number has not been furnished. 
"(B) NOTIFICATION OF INCORRECT NUMBER.—In any case 
where there is a notification described in subparagraph (B) 
of paragraph (1), paragraph (1) shall apply to any backup 
withholding payment made— 
"(i) after the close of the 15th day after the day on 
which the payor was so notified, and 
"(ii) before the payee furnishes another taxpayer 
identification number. 
"(C) 15-DAY GRACE PERIODS.— 
"(i) AFTER CORRECTION.—Unless the payor otherwise 
elects, paragraph (1) shall also apply to any backup 
withholding payment made after the close of the period 
described in subparagraph (A) or (B) (as the case may 
be) and before the 16th day after the close of such 
period. 
"(ii) AFTER NOTIFICATION.—If the payor so elects, 
paragraph (1) shall also apply to any backup withhold-
ing payment made during the 15-day period described 
in clause (i) of subparagraph (B). 
"(3) BACKUP WITHHOLDING PAYMENTS.— 
"(A) IN GENERAL.—For purposes of this subsection, the 
term 'backup withholding payment' means any payment of 
a kind, and to a payee, required to be shown on a return 
required under— 
"(i) section 6041 (a) or (b) (relating to certain informa-
tion at source), 
"(ii) section 6041A(a) (relating to returns regarding 
payments to nonemployees), 
"(iii) 
section 
6042(a) 
(relating 
to payments of 
dividends), 
"(iv) section 6044 (relating to returns 
regarding 
patronage dividends) but only to the extent of pay-
ments of money. 
Ante, p. 600. 
"(v) section 6045 (relating to returns of brokers), 
Ante, p. 592. 
"(vi) section 6049(a) (relating to payments of interest), 
or 
"(vii) section 6050A (relating to reporting require-
ments of certain fishing boat operators), but only to the 
extent of payments of the proceeds of the catch. 
"(B) SPECIAL RULE.—For purposes of this subsection, the 
determination of whether any payment is of a kind 
required to be shown on a return described in subparagraph 
(A) shall be made without regard to any minimum amount 
which must be paid before a return is required. 
"(4) PAYMENTS MUST AGGREGATE $600 BEFORE WITHHOLDING 
REQUIRED FROM PAYMENTS DESCRIBED IN SECTION 6041(a) O
R 
6041 A.—In the case of any payment which is of a kind required 
to be shown on a return required under section 6041(a) or 
Ante, p. 601. 
6041A(a) and which is made during any calendar year, no 
amount shall be deducted and withheld with respect to such 
payment unless— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 609 
"(A) the aggregate amount of such payment and all 
previous such payments to the payee involved during such 
calendar year equals or exceeds $600, 
"(B) the payor was required under section 6041(a) or 
6041A(a) to file a return for the preceding calendar year 
with respect to payments to the payee involved, or 
"(C) during the preceding calendar year the payor made 
backup withholding payments to the payee with respect to 
which amounts were required to be deducted and withheld 
under paragraph (1). 
"(5) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
subsection— 
"(A) OBVIOUSLY INCORRECT NUMBER.—A payee shall be 
treated as failing to furnish his taxpayer 
identification 
number if the number furnished 
does not contain the 
proper number of digits. 
"(B) PAYEE 
FURNISHES 2 INCORRECT NUMBERS.—If 
the 
payee furnishes a payor 2 incorrect numbers, the payor 
shall, after receiving notice of the second incorrect number, 
treat the payee as not having furnished another taxpayer 
identification number under paragraph (2)(B)(ii) until the 
day on which the payor receives notification from the 
Secretary that a correct taxpayer identification number has 
been furnished. 
"(C) EXCEPTION FOR PAYMENTS TO CERTAIN PAYEES.—Para-
graph (1) shall not apply to any payment made to— 
"(i) the United 
States 
(as defined 
in 
section 
3455(a)(3)), 
Ante, p. 583. 
"(ii) any State (as defined in section 3455(a)(2)), 
"(iii) an organization which is exempt from taxation 
under section 501(a), 
"(iv) any foreign government (as defined in section 
3455(a)(4)) or international organization (as defined in 
section 3455(a)(5)), or 
"(v) any other person specified in regulations. 
"(D) TAXPAYER IDENTIFICATION NUMBER.—The term 'tax-
payer identification number' means the identifying number 
assigned to a person under section 6109. 
"(E) 
AMOUNTS 
FOR WHICH 
WITHHOLDING 
OTHERWISE 
REQUIRED.—No tax shall be deducted or withheld under this 
subsection with respect to any amount for which withhold 
ing is otherwise required by this title. 
"(F) EXEMPTION WHILE WAITING FOR NUMBER.—The Secre-
tary shall prescribe regulations for exemptions from the tax 
imposed by paragraph (1) during periods during which a 
person is waiting for receipt of a taxpayer 
identification 
number. 
"(G) NOMINEES.—In the case of a backup withholding 
payment described in clause (i) or (v) of paragraph (3)(A) to 
a nominee, in the manner provided in regulations, both the 
nominee and the ultimate payee shall be treated as the 
payee. 
"(H) REQUIREMENT OF NOTICE TO PAYEE.—Whenever the 
Secretary notifies a payor under paragraph (1)(B) that the 
taxpayer identification number furnished by any payee is 
incorrect, the Secretary shall at the same time furnish a 
96 STAT. 610 
PUBLIC LAW 97-248—SEPT. 3, 1982 
copy of such notice to the payor, and the payor shall 
promptly furnish such copy to the payee. 
"(I) REQUIREMENT OF NOTICE TO SECRETARY.—If the Secre-
tary notifies a payor under paragraph (1)(B) that the tax-
payer identification number furnished by any payee is 
incorrect and such payee subsequently furnishes another 
taxpayer identification number to the payor, the payor 
shall promptly notify the Secretary of the other taxpayer 
identification number so furnished. 
"(J) COORDINATION WITH OTHER SECTIONS.—For purposes 
of section 31, this chapter (other than subsection (n) of this 
section), and so much of subtitle F (other than section 7205) 
as relates to this chapter, payments which are subject to 
withholding under this subsection shall be treated as if they 
were wages paid by an employer to an employee." 
26 use 3402 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
^°^- 
shall apply to payments made after December 31, 1983. 
SEC. 318. MINIMUM PENALTY FOR EXTENDED FAILURE TO FILE. 
26 use 6651. 
(a) IN GENERAL.—Subsection (a) of section 6651 (relating to failure 
to file tax return or to pay tax) is amended by adding at the end 
thereof the following new sentence: 
"In the case of a failure to file a return of tax imposed by chapter 1 
within 60 days of the date prescribed for filing of such return 
(determined with regard to any extensions of time for filing), unless 
it is shown that such failure is due to reasonable cause and not due 
to willful neglect, the addition to tax under paragraph (1) shall not 
be less than the lesser of $100 or 100 percent of the amount required 
to be shown as tax on such return." 
(b) CONFORMING AMENDMENTS.—Section 6651(c)(1) (relating to 
additions under more than one paragraph) is amended— 
(1) by adding at the end of subparagraph (A) the following 
new sentence: "In any case described in the last sentence of 
subsection (a), the amount of the addition under paragraph (1) 
of subsection (a) shall not be reduced under the preceding 
sentence below the amount provided in such last sentence.", 
and 
(2) by inserting "(determined without regard to the last sen-
tence of such subsection)" after "paragraph (1) of subsection (a)" 
in subparagraph (B). 
26 use 6651 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to returns the due date for filing of which (including exten-
sions) is after December 31, 1982. 
note. 
SEC. 319. INFORMATION RETURNS. 
26 use 6011. 
Section 6011 (relating to general requirement of return, state-
ment, or list) is amended by redesignating subsection (e) as subsec-
tion (f) and by inserting after subsection (d) the following new 
subsection: 
"(e) REGULATIONS REQUIRING RETURNS ON MAGNETIC TAPE, ETC.— 
The Secretary shall prescribe regulations providing standards for 
determining which returns must be filed on magnetic media or in 
other machine-readable form. The Secretary may not require 
returns of any tax imposed by subtitle A on individuals, estates, and 
trusts to be other than on paper forms supplied by the Secretary. In 
prescribing such regulations, the Secretary shall take into account 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 611 
(among other relevant factors) the ability of the taxpayer to comply 
at a reasonable cost with such a filing requirement." 
Subtitle C—Abusive Tax Shelters, Etc.; Sub-
stantial Underpayments; False Documents; 
Frivolous Returns 
PART 
I—ABUSIVE 
TAX 
SHELTERS, 
ETC. 
SEC. 320. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS, ETC. 
(a) GENERAL RULE.—Subchapter B of chapter 68 (relating to 
assessable penalties) is amended by adding at the end thereof the 
following new section: 
"SEC. 6700. PROMOTING ABUSIVE TAX SHELTERS, ETC. 
26 USC 6700. 
"(a) IMPOSITION OF PENALTY.—Any person who— 
"(IXA) organizes (or assists in the organization of)— 
"(i) a partnership or other entity, 
"(ii) any investment plan or arrangement, or 
"(iii) any other plan or arrangement, or 
"(B) participates in the sale of any interest in an entity or 
plan or arrangement referred to in subparagraph (A), and 
"(2) makes or furnishes (in connection with such organization 
or sale)— 
"(A) a statement with respect to the allowability of any 
deduction or credit, the excludability of any income, or the 
securing of any other tax benefit by reason of holding an 
interest in the entity or participating in the plan or 
arrangement which the person knows or has reason to 
know is false or fraudulent as to any material matter, or 
"(B) a gross valuation overstatement as to any material 
matter, 
shall pay a penalty equal to the greater of $1,000 or 10 percent 
of the gross income derived or to be derived by such person from 
such activity. 
"(b) RULES RELATING TO PENALTY FOR GROSS VALUATION OVER-
STATEMENTS.— 
"(1) GROSS VALUATION OVERSTATEMENT DEFINED.—For pur-
poses of this section, the term 'gross valuation overstatement' 
means any statement as to the value of any property or services 
if— 
"(A) the value so stated exceeds 200 percent of the 
amount determined to be the correct valuation, and 
"(B) the value of such property or services is directly 
related to the amount of any deduction or credit allowable 
under chapter 1 to any participant. 
"(2) AUTHORITY TO WAIVE.—The Secretary may waive all or 
any part of the penalty provided by subsection (a) with respect 
to any gross valuation overstatement on a showing that there 
was a reasonable basis for the valuation and that such valuation 
was made in good faith. 
"(c) PENALTY IN ADDITION TO OTHER PENALTIES.—The penalty 
imposed by this section shall be in addition to any other penalty 
provided by law." 
96 STAT. 612 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(b) CLERICAL AMENDMENT.—The table of sections for subchapter B 
of chapter 68 is amended by adding at the end thereof the following 
new item: 
"Sec. ()700. Promoting abusive tax shelters, etc." 
26 use 6700 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
^°^- 
take effect on the day after the date of the enactment of this Act. 
SEC. 321. ACTION TO ENJOIN PROMOTERS OF ABUSIVE TAX SHELTERS, 
ETC. 
(a) GENERAL RULE.—Subchapter A of chapter 76 (relating to civil 
actions by the United States) is amended by redesignating section 
26 use 7409. 
7408 as section 7409 and by inserting after section 7407 the following 
new section: 
26 use 7408. 
"SEC. 7408. ACTION TO ENJOIN PROMOTERS OF ABUSIVE TAX SHELTERS. 
ETC. 
"(a) AUTHORITY TO SEEK INJUNCTION.—A civil action in the name 
of the United States to enjoin any person from further engaging in 
conduct subject to penalty under section 6700 (relating to penalty for 
promoting abusive tax shelters, etc.) 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 such person resides, has his principal place of business, or has 
engaged in conduct subject to penalty under section 6700. 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 person. 
"(b) ADJUDICATION AND DECREE.—In any action under subsection 
(a), if the court finds— 
"(1) that the person has engaged in any conduct subject to 
penalty under section 6700 (relating to penalty for promoting 
abusive tax shelters, etc.), and 
"(2) that injunctive relief is appropriate to prevent recurrence 
of such conduct, 
the court may enjoin such person from engaging in such conduct or 
in any other activity subject to penalty under section 6700. 
"(c) CITIZENS AND RESIDENTS OUTSIDE THE UNITED STATES.—If any 
citizen or resident of the United States does not reside in, and does 
not have his principal place of business in, any United States 
judicial district, such citizen or resident shall be treated for purposes 
of this section as residing in the District of Columbia." 
(b) CLERICAL AMENDMENT.—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. 7408. Action to enjoin promoters of abusive tax shelters, etc. 
"Sec. 7409. Cross references." 
26 use 7408 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
"°^- 
take effect on the day after the date of the enactment of this Act. 
SEC. 322. PROCEDURAL RULES APPLICABLE TO PENALTIES UNDER 
SECTIONS 6700. 6701, A
N
D 6702. 
(a) GENERAL RULE.—Subchapter B of chapter 68 (relating to 
assessable penalties) is amended by adding at the end thereof the 
following new section: 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 613 
"SEC. 6703. RULES APPLICABLE TO PENALTIES UNDER SECTIONS 6700, 26 USC 6703. 
6701, AND 6702. 
"(a) BURDEN OF PROOF.—In any proceeding involving the issue of 
whether or not any person is liable for a penalty under section 6700, 
6701, or 6702, the burden of proof with respect to such issue shall be 
on the Secretary. 
"(b) DEFICIENCY PROCEDURES NOT TO APPLY.—Subchapter B of 
chapter 63 (relating to deficiency procedures) shall not apply with 
respect to the assessment or collection of the penalties provided by 
sections 6700, 6701, and 6702. 
"(c) EXTENSION OF PERIOD OF COLLECTION WHERE PERSON PAYS 15 
PERCENT OF PENALTY.— 
"(1) IN GENERAL.—If, within 30 days after the day on which 
notice and demand of any penalty under section 6700, 6701, or 
6702 is made against any person, such person pays an amount 
which is not less than 15 percent of the amount of such penalty 
and files a claim for refund 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 prosecuted 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) PERSON MUST BRING SUIT IN 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 section 6700, 6701, or 6702 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 person fails to begin a 
proceeding in the appropriate United States district court for 
the determination of his liability for such penalty, paragraph (1) 
shall cease to apply with respect to such penalty, effective 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 
COLLECTION.—The running of the period of limitations provided 
in 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." 
(b) CLERICAL AMENDMENT.—The table of sections for subchapter B 
of chapter 68 is amended by adding at the end thereof the following 
new section: 
"Sec. 6703. Rules applicable to penalties under sections 6700, 6701, and 
6702." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 6703 
take effect on the day after the date of the enactment of this Act. ^°^^-
PART II—SUBSTANTIAL UNDERPAYMENT; FALSE 
DOCUMENTS; FRIVOLOUS RETURNS; ETC. 
SEC. 323. PENALTY FOR SUBSTANTIAL UNDERSTATEMENT. 
(a) IN GENERAL.—Subchapter A of chapter 68 (relating to addi-
tions to tax and additional amounts) is amended by redesignating 
section 6661 as section 6662 and by inserting after section 6660 the 26 USC 6662. 
following new section: 
96 STAT. 614 
PUBLIC LAW 97-248—SEPT. 3, 1982 
26 use 6661. 
"SEC. 6661. SUBSTANTIAL UNDERSTATEMENT OF LIABILITY. 
"(a) ADDITION TO TAX.—If there is a substantial understatement of 
income tax for any taxable year, there shall be added to the tax an 
amount equal to 10 percent of the amount of any underpayment 
attributable to such understatement. 
"(b) DEFINITION AND SPECIAL RULE.— 
"(1) SUBSTANTIAL UNDERSTATEMENT.— 
"(A) IN GENERAL.—For purposes of this section, there is a 
substantial understatement of income tax for any taxable 
year if the amount of the understatement for the taxable 
year exceeds the greater of— 
"(i) 10 percent of the tax required to be shown on the 
return for the taxable year, or 
"(ii) $5,000. 
"(B) SPECIAL RULE FOR CORPORATIONS.—In the case of a 
corporation other than an electing small business corpora-
tion (as defined in section 1371(b)) or a personal holding 
company (as defined in section 542), paragraph (1) shall be 
applied by substituting '$10,000' for '$5,000'. 
"(2) UNDERSTATEMENT.— 
"(A) IN GENERAL.—For purposes of paragraph (1), the 
term 'understatement' means the excess of— 
"(i) the amount of the tax required to be shown on 
the return for the taxable year, over 
"(ii) the amount of the tax imposed which is shown 
on the return. 
"(B) REDUCTION FOR UNDERSTATEMENT DUE TO POSITION OF 
TAXPAYER O
R DISCLOSED ITEM.—The amount of the under-
statement under subparagraph (A) shall be reduced by that 
portion of the understatement which is attributable to— 
"(i) the tax treatment of any item by the taxpayer if 
there is or was substantial authority for such treat-
ment, or 
"(ii) any item with respect to which the relevant facts 
affecting the item's tax treatment are adequately dis-
closed in the return or in a statement attached to the 
return. 
"(C) SPECIAL RULES IN CASES INVOLVING TAX SHELTERS.— 
"(i) IN GENERAL.—In the case of any item attributable 
to a tax shelter— 
"(I) subparagraph (B)(ii) shall not apply, and 
"(II) subparagraph (B)(i) shall not apply unless 
(in addition to meeting the requirements of such 
subparagraph) the taxpayer reasonably believed 
that the tax treatment of such item by the tax-
payer was more 
likely 
than 
not the proper 
treatment. 
"(ii) TAX SHELTER.—For purposes of clause (i), the 
term 'tax shelter' means— 
"(I) a partnership or other entity, 
"(II) any investment plan or arrangement, or 
"(III) any other plan or arrangement, 
if the principal purpose of such partnership, entity, 
plan, or arrangement is the avoidance or evasion of 
Federal income tax. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 615 
"(3) COORDINATION WITH PENALTY IMPOSED BY SECTION 6659.— 
For purposes of determining the amount of the addition to tax 
assessed under subsection (a), there shall not be taken into 
account that portion of the substantial understatement on 
which a penalty is imposed under section 6659 (relating to 95 Stat. 341. 
addition to tax in the case of valuation overstatements). 
"(c) AUTHORITY TO WAIVE.—The Secretary may waive all or any 
part of the addition to tax provided by this section on a showing by 
the taxpayer that there was reasonable cause for the understate-
ment (or part thereof) and that the taxpayer acted in good faith." 
(b) CONFORMING AMENDMENT.—The table of sections for sub-
chapter A of chapter 68 is amended by striking out the last item and 
inserting in lieu thereof the following: 
"Sec. 6661. Substantial understatement of liability. 
"Sec. 6662. Applicable rules." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 6661 
apply to returns the due date (determined without regard to exten- "°^®-
sion) for filing of which is after December 31,1982. 
SEC. 324. PENALTIES FOR DOCUMENTS UNDERSTATING TAX LIABILITY. 
(a) GENERAL RULE.—Subchapter B of chapter 68 (relating to 
assessable penalties) is amended by inserting after section 6700 the 
following new section: 
"SEC. 6701. PENALTIES FOR AIDING AND ABETTING UNDERSTATEMENT OF 
26 USC 6701. 
TAX LIABILITY. 
"(a) IMPOSITION OF PENALTY.—Any person— 
"(1) who aids or assists in, procures, or advises with respect to, 
the preparation or presentation of any portion of a return, 
affidavit, claim, or other document in connection with any 
matter arising under the internal revenue laws, 
"(2) who knows that such portion will be used in connection 
with any material matter arising under the internal revenue 
laws, and 
"(3) who knows that such portion (if so used) will result in an 
understatement of the liability for tax of another person, 
shall pay a penalty with respect to each such document in the 
amount determined under subsection (b). 
"(b) AMOUNT OF PENALTY.— 
"(1) IN GENERAL.—Except as provided in paragraph (2), the 
amount of the penalty imposed by subsection (a) shall be $1,000. 
"(2) CORPORATIONS.—If the return, affidavit, claim, or other 
document relates to the tax liability of a corporation, the 
amount of the penalty imposed by subsection (a) shall be 
$10,000. 
"(3) ONLY i PENALTY PER PERSON PER PERIOD.—If any person is 
subject to a penalty under subsection (a) with respect to any 
document relating to any taxpayer for any taxable period (or 
where there is no taxable period, any taxable event), such 
person shall not be subject to a penalty under subsection (a) 
with respect to any other document relating to such taxpayer 
for such taxable period (or event). 
"(c) ACTIVITIES OF SUBORDINATES.— 
"(1) IN GENERAL.—For purposes of subsection (a), the term 
'procures' includes— 
"(A) ordering (or otherwise causing) a subordinate to do 
an act, and 
96 STAT. 616 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(B) knowing of, and not attempting to prevent, participa-
tion by a subordinate in an act. 
"(2) SUBORDINATE.—For purposes of paragraph (1), the term 
'subordinate' means any other person (whether or not a direc-
tor, officer, employee, or agent of the taxpayer involved) over 
whose activities the person has direction, supervision, or 
control. 
"(d) TAXPAYER NOT REQUIRED TO HAVE KNOWLEDGE.—Subsection 
(a) shall apply whether or not the understatement is with the 
knowledge or consent of the persons authorized or required to 
present the return, affidavit, claim, or other document. 
"(e) CERTAIN ACTIONS NOT TREATED AS AID OR ASSISTANCE.—For 
purposes of subsection (a)(1), a person furnishing typing, reproduc-
ing, or other mechanical assistance with respect to a document shall 
not be treated as having aided or assisted in the preparation of such 
document by reason of such assistance. 
"(f) PENALTY IN ADDITION TO OTHER PENALTIES.— 
"(1) IN GENERAL.—Except as provided by paragraph (2), the 
penalty imposed by this section shall be in addition to any other 
penalty provided by law. 
"(2) COORDINATION WITH RETURN PREPARER PENALTIES.—No 
penalty shall be assessed under subsection (a) or (b) of section 
6694 on any person with respect to any document for which a 
penalty is assessed on such person under subsection (a)." 
(b) CLERICAL AMENDMENT.—The table of sections for subchapter B 
of chapter 68 is amended by inserting after the item relating to 
section 6700 the following new item: 
"Sec. 6701. Penalties for aiding and abetting understatement of tax 
liability." 
26 use 6701 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
^°^^- 
take effect on the day after the date of the enactment of this Act. 
(d) CROSS REFERENCE.— 
For provisions relating to burden of proof and prepayment forum, see 
section 6703 of the Internal Revenue Code of 1954, as added by section 333 
of this Act. 
SEC. 325. FRAUD PENALTY. 
26 use 6653. 
(a) GENERAL RULE.—Subsection (b) of section 6653 (relating to 
fraud penalty) is amended to read as follows: 
"(b) FRAUD.— 
"(1) IN GENERAL.—If any part of any underpayment (as 
defined in subsection (c)) of tax required to be shown on a return 
is due to fraud, there shall be added to the tax an amount equal 
to 50 percent of the underpayment. 
"(2) 
ADDITIONAL AMOUNT FOR PORTION ATTRIBUTABLE TO 
FRAUD.—There shall be added to the tax (in addition to the 
amount determined under paragraph (1)) an amount equal to 50 
percent of the interest payable under section 6601— 
"(A) with respect to the portion of the underpayment 
described in paragraph (1) which is attributable to fraud, 
and 
"(B) for the period beginning on the last day prescribed 
by law for payment of such underpayment (determined 
without regard to any extension) and ending on the date of 
the assessment of the tax (or, if earlier, the date of the 
payment of the tax). 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 617 
"(3) No NEGLIGENCE ADDITION WHEN THERE IS ADDITION FOR 
FRAUD.—The addition to tax under this subsection shall be in 
lieu of any amount determined under subsection (a). 
"(4) SPECIAL RULE FOR JOINT RETURNS.—In the case of a joint 
return under section 6013, this subsection shall not apply with 
respect to the tax of the spouse unless some part of the under-
payment is due to the fraud of such spouse." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC 6653 
shall apply with respect to taxes the last day prescribed by law for "° ^' 
payment of which (determined without regard to any extension) is 
after the date of enactment of this Act. 
SEC. 326. PENALTY FOR FRIVOLOUS RETURNS. 
(a) GENERAL RULE.—Subchapter B of chapter 68 (relating 
to 
assessable penalties) is amended by inserting after section 6701 the 
following new section: 
"SEC. 6702. FRIVOLOUS INCOME TAX RETURN. 
26 USC 6702. 
"(a) CIVIL PENALTY.—If— 
"(1) any individual files what purports to be a return of the 
tax imposed by subtitle A but which— 
"(A) does not contain information on which the substan-
tial correctness of the self-assessment may be judged, or 
"(B) contains information that on its face indicates that 
the self-assessment is substantially incorrect; and 
"(2) the conduct referred to in paragraph (1) is due to— 
"(A) a position which is frivolous, or 
"(B) a desire (which appears on the purported return) to 
delay or impede the administration of Federal income tax 
laws, 
then such individual shall pay a penalty of $500. 
"(b) PENALTY IN ADDITION TO OTHER PENALTIES.—The penalty 
imposed by subsection (a) shall be in addition to any other penalty 
provided by law." 
(b) CLERICAL AMENDMENT.—The table of sections for subchapter B 
of chapter 68 is amended by inserting after the item relating to 
section 6701 the following new item: 
"Sec. ()702. Frivolous income tax return." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 6702 
apply with respect to documents filed after the date of the enact- 
"°*'^" 
ment of this Act. 
(d) CROSS REFERENCE.— 
For provisions relating to burden of proof and prepayment forum, .see 
section 67().'J of the Internal Revenue Code of 19.^4, as added by section 33.3 
of this Act. 
SEC. 327. RELIEF FROM CRIMINAL PENALTY FOR FAILURE TO FILE ESTI-
.MATED TAX WHERE TAXPAYER FALLS WITHIN STATUTORY 
EXCEPTIONS. 
Section 7203 (relating to willful failure to file return, supply 
26 USC 7203. 
information, or pay tax) is amended by adding at the end thereof the 
following new sentence: "In the case of any person with respect to 
whom there is a failure to pay any estimated tax, this section shall 
not apply to such person with respect to such failure if there is no 
addition to tax under section 6654 or 6655 with respect to such 
failure." 
96 STAT. 618 
PUBLIC LAW 97-248—SEPT. 3, 1982 
SEC. 328. ADJUSTMENTS TO ESTIMATED TAX PROVISIONS. 
(a) WAIVER OF PENALTY WHERE INDIVIDUAL DID N O T H A V E TAX 
LIABILITIES FOR PRECEDING TAXABLE YEAR.— 
95 Stat. 346. 
(1) Section 6654 (relating to failure by individual to pay 
estimated tax) is amended by redesignating subsection (h) as 
subsection (i) and by inserting after subsection (g) the following 
new subsection: 
"(h) EXCEPTION WHERE N O TAX LIABILITY FOR PRECEDING TAXABLE 
YEAR.—No addition to tax shall be imposed under subsection (a) for 
any taxable year if— 
"(1) the individual did not have any liability for tax for the 
preceding taxable year, 
"(2) the preceding taxable year was a taxable year of 12 
months, and 
"(3) the individual was a citizen or resident of the United 
States throughout the preceding taxable year." 
(2) Subsection (g) of section 6654 is amended by striking out 
"and (f)" and inserting in lieu thereof "(f), and (h)". 
(b) ELIMINATION OF REQUIREMENTS T O FILE DECLARATIONS OF ESTI-
MATED TAX.— 
95 Stat. 345. 
(1) Section 6015 (relating to declaration of estimated income 
tax by individuals) is amended by adding at the end thereof the 
following new subsection: 
"(k) TERMINATION.—No declaration shall be required under this 
section for any taxable year beginning after December 31, 1982." 
26 use 6073. 
(2) Section 6073 (relating to time for filing declarations of 
estimated income tax by individuals) is amended by adding at 
the end thereof the following new subsection: 
"(f) TERMINATION.—This section shall not apply to any taxable 
year beginning after December 31, 1982." 
26 use 6153. 
(3) Section 6153 (relating to installment payments of esti-
mated income tax by individuals) is amended by striking out 
subsection (g) and inserting in lieu thereof the following: 
"(g) SPECIAL RULES FOR TAXABLE YEARS BEGINNING AFTER 1982.— 
In the case of taxable years beginning after 1982— 
"(1) this section shall be applied as if the requirements of 
sections 6015 and 6073 remained in effect, and 
"(2) the amount of the estimated tax taken into account under 
this section shall be determined under rules similar to the rules 
of subsections (b) and (d) of section 6654." 
26 use 6015 
(c) EFFECTIVE DATE.—The amendments made by this section 
^°^^- 
shall apply to taxable years beginning after December 31, 1982. 
SEC. 329. INCREASES IN CERTAIN CRIMINAL FINES. 
26 u s e 7201. 
(a) ATTEMPT TO EVADE OR DEFEAT TAX.—Section 7201 (relating to 
attempt to evade or defeat tax) is amended by striking out "$10,000" 
and inserting in lieu thereof "$100,000 ($500,000 in the case of a 
corporation)". 
(b) WILLFUL FAILURE TO FILE RETURN, SUPPLY INFORMATION, OR 
26 use 7203. 
PAY TAX.—Section 7203 (relating to willful failure to file return, 
supply information, or pay tax) is amended by striking out "$10,000" 
and inserting in lieu thereof "$25,000 ($100,000 in the case of a 
corporation)". 
26 use 7206. 
(c) FRAUD AND FALSE STATEMENTS.—Section 7206 (relating to fraud 
and false statements) is amended by striking out "$5,000" and 
inserting in lieu thereof "$100,000 ($500,000 in the case of a 
corporation)". 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 619 
(d) FRAUDULENT RETURNS, STATEMENTS, OR OTHER DOCUMENTS.— 
Section 7207 (relating to fraudulent returns, statements, or other 26 USC 7207. 
documents) is amended by striking out "$1,000" each place it 
appears and inserting in lieu thereof "$10,000 ($50,000 in the case of 
a corporation)". 
(e) EFFECTIVE DATE.—The amendments made by this section shall ^^^^^^ ^^^^ 
apply to offenses committed after the date of the enactment of this 
Act. 
note. 
SEC. 330. SPECIAL RULES WITH RESPECT TO CERTAIN CASH. 
(a) IN GENERAL.—Subchapter A of chapter 70 (relating to jeop-
ardy) is amended by adding at the end thereof the following new 
part: 
"PART III—SPECIAL RULES WITH RESPECT TO CERTAIN 
CASH 
"Sec. 6867. Presumptions where owner of large amount of cash is not 
identified. 
"SEC. 6867. PRESUMPTIONS WHERE OWNER OF LARGE AMOUNT OF CASH 26 USC 6867. 
IS NOT IDENTIFIED. 
"(a) GENERAL RULE.—If the individual who is in physical posses-
sion of cash in excess of $10,000 does not claim such cash— 
"(1) as his, or 
"(2) as belonging to another person whose identity the Secre-
tary can readily ascertain and who acknowledges ownership of 
such cash, 
then, for purposes of sections 6851 and 6861, it shall be presumed 
that such cash represents gross income of a single individual for the 
taxable year in which the possession occurs, and that the collection 
of tax will be jeopardized by delay. 
"(b) RULES FOR ASSESSING.—In the case of any assessment result-
ing from the application of subsection (a)— 
"(1) the entire amount of the cash shall be treated as taxable 
income for the taxable year in which the possession occurs, 
"(2) such income shall be treated as taxable at a 50-percent 
rate, and 
"(3) except as provided in subsection (c), the possessor of the 
cash shall be treated (solely with respect to such cash) as the 
taxpayer for purposes of chapters 63 and 64 and section 
7429(a)(1). 
"(c) EFFECT OF LATER SUBSTITUTION OF TRUE OWNER.—If, after an 
assessment resulting from the application of subsection (a), such 
assessment is abated and replaced by an assessment against the 
owner of the cash, such later assessment shall be treated for pur-
poses of all laws relating to lien, levy and collection as relating back 
to the date of the original assessment. 
"(d) DEFINITIONS.—For purposes of this section— 
"(1) CASH.—The term 'cash' includes any cash equivalent. 
"(2) CASH EQUIVALENT.—The term 'cash equivalent' means— 
"(A) foreign currency, 
"(B) any bearer obligation, and 
"(C) any medium of exchange which— 
"(i) is of a type which has been frequently used in 
illegal activities, and 
96 STAT. 620 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(ii) is specified as a cash equivalent for purposes of 
this part in regulations prescribed by the Secretary. 
"(3) VALUE OF CASH EQUIVALENT.—Any cash equivalent shall 
be taken into account— 
"(A) in the case of a bearer obligation, at its face amount, 
and 
"(B) in the case of any other cash equivalent, at its fair 
market value." 
(b) CLERICAL AMENDMENT.—The table of parts for such subchapter 
A is amended by adding at the end thereof the following new item: 
"Part III. Special rules with respect to certain cash." 
26 use 6867 
(c) EFFECTIVE DATE.—The amendments made by subsections (a) 
"°**- 
and (b) shall take effect on the day after the date of the enactment of 
this Act. 
Subtitle D—Administrative Summons 
SEC. 331. SPECIAL PROCEDURES FOR THIRD-PARTY SUMMONSES. 
26 use 7609. 
(a) PROCEEDING To QuASH.—Paragraph (2) of section 7609(b) (relat-
ing to right to intervene; right to stay compliance) is amended to 
read as follows: 
"(2) PROCEEDING TO QUASH.— 
"(A) IN GENERAL.—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 begin a proceed-
ing to quash such summons not later than the 20th day 
after the day such notice is given in the manner provided in 
subsection (a)(2). In any such proceeding, the Secretary may 
seek to compel compliance with the summons. 
"(B) REQUIREMENT OF NOTICE TO PERSON SUMMONED AND 
TO SECRETARY.—If any person begins a proceeding under 
subparagraph (A) with respect to any summons, not later 
than the close of the 20-day period referred to in subpara-
graph (A) such person shall mail by registered or certified 
mail a copy of the petition to the person summoned and to 
such office as the Secretary may direct in the notice 
referred to in subsection (a)(1). 
"(C) INTERVENTION; ETC.—Notwithstanding any other law 
or rule of law, the person summoned shall have the right to 
intervene in any proceeding under subparagraph (A). Such 
person shall be bound by the decision in such proceeding 
(whether or not the person intervenes in such proceeding).' 
(b) RESTRICTION ON EXAMINATION.—Subsection (d) of section 7609 
(relating to restriction on examination of records) is amended to 
read as follows: 
"(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 close of the 23rd day after the day notice with 
respect to the summons is given in the manner provided in 
subsection (a)(2), or 
"(2) where a proceeding under subsection (b)(2)(A) was begun 
within the 20-day period referred to in such subsection and the 
requirements of subsection (b)(2)(B) have been met, except in 
accordance with an order of the court having jurisdiction of 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 621 
such proceeding or with the consent of the person beginning the 
proceeding to quash." 
(c) JURISDICTION.—Subsection (h) of section 7609 (relating to juris- 
26 USC 7609. 
diction of district court) is amended to read as follows: 
"(h) JURISDICTION OF DISTRICT COURT; ETC.— 
"(1) JURISDICTION.—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 any pro-
ceeding brought under subsection (b)(2), (f), or (g). An order 
denying the petition shall be deemed a final order which may be 
appealed. 
"(2) 
SPECIAL RULE FOR PROCEEDINGS UNDER SUBSECTIONS 
(f) 
AND (g).—The determinations required to be made under sub-
sections (f) and (g) shall be made ex parte and shall be made 
solely on the petition and supporting affidavits. 
"(3) PRIORITY.—Except as to cases the court considers of 
greater importance, a proceeding brought for the enforcement 
of any summons, or a proceeding under this section, and 
appeals, takes precedence on the docket over all other cases 
and shall be assigned for hearing and decided at the earliest 
practicable date." 
(d) CONFORMING AMENDMENTS.— 
(1) Paragraph (1) of section 7609(a) is amended— 
(A) by striking out "14th day" and inserting in lieu 
thereof "23rd day", and 
(B) by striking out the last sentence and inserting in lieu 
thereof the following: "Such notice shall be accompanied by 
a copy of the summons which has been served and shall 
contain an explanation of the right under subsection (b)(2) 
to bring a proceeding to quash the summons." 
(2) The subsection heading for subsection (b) of section 7609 is 
amended to read as follows: 
"(b) RIGHT TO INTERVENE; RIGHT TO PROCEEDING TO QUASH.—". 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 7609 
apply to summonses served after December 31, 1982. 
note. 
SEC. 332. DUTY OF THIRD-PARTY RECORDKEEPER. 
(a) GENERAL RULE.—Section 7609 (relating to special procedures 
Supra. 
for third-party summonses) is amended by adding at the end thereof 
the following new subsection: 
"(i) DUTY OF THIRD-PARTY RECORDKEEPER.— 
"(1) RECORDKEEPER MUST ASSEMBLE RECORDS AND BE PREPARED 
TO PRODUCE RECORDS.—On receipt of a summons described in 
subsection (c), the third-party recordkeeper shall proceed to 
assemble the records requested, or such portion thereof as the 
Secretary may prescribe, and shall be prepared to produce the 
records pursuant 
to the summons 
on the day on 
which 
the records are to be examined. 
"(2) 
SECRETARY MAY GIVE RECORDKEEPER CERTIFICATE.—The 
Secretary may issue a certificate to the third-party 
record-
keeper that the period prescribed for beginning a proceeding to 
quash a summons has expired and that no such proceeding 
began within such period, or that the taxpayer consents to the 
examination. 
"(3) 
PROTECTION 
FOR 
RECORDKEEPER 
WHO 
DISCLOSES.—Any 
third-party recordkeeper, or agent or employee thereof, making 
a disclosure of records pursuant to this section in good-faith 
96 STAT. 622 
PUBLIC LAW 97-248—SEPT. 3, 1982 
reliance on the certificate of the Secrtetary or an order of a 
court requiring production of records shall not be liable to any 
customer or other person for such disclosure." 
26 use 7609 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
^°^- 
shall apply to summonses served after December 31, 1982. 
SP:C. 33.3. LIMITATION ON USE OF ADMINISTRATIVE SI MMONS. 
26 use 7602. 
(a) IN GENERAL.—Section 7602 (relating to examination of books 
and witnesses) is amended by striking out "For the purpose" and 
inserting in lieu thereof "(a) AUTHORITY To SUMMON, ETC.—For the 
purpose" and by adding at the end thereof the following new 
subsections: 
"(b) PURPOSE MAY INCLUDE INQUIRY INTO OFFENSE.—The purposes 
for which the Secretary may take any action described in paragraph 
(1), (2), or (3) of subsection (a) include the purpose of inquiring into 
any offense connected with the administration or enforcement of the 
internal revenue laws. 
"(c) No 
ADMINISTRATIVE SUMMONS 
W H E N 
THERE 
IS JUSTICE 
DEPARTMENT REFERRAL.— 
"(1) LIMITATION OF AUTHORITY.—No summons may be issued 
under this title, and the Secretary may not begin any action 
under section 7604 to enforce any summons, with respect to any 
person if a Justice Department referral is in effect with respect 
to such person. 
"(2) JUSTICE DEPARTMENT REFERRAL IN EFFECT.—For purposes 
of this subsection— 
"(A) IN GENERAL.—A Justice Department referral is in 
effect with respect to any person if— 
"(i) the Secretary has recommended to the Attorney 
General a grand jury investigation of, or the criminal 
prosecution of, such person for any offense connected 
with the administration or enforcement of the internal 
revenue laws, or 
"(ii) any request is made under section 6103(h)(3)(B) 
for the disclosure of any return or return information 
(within the meaning of section 6103(b)) relating to such 
person. 
"(B) TERMINATION.—A Justice Department referral shall 
cease to be in effect with respect to a person when— 
"(i) the Attorney General notifies the Secretary, in 
writing, that— 
"(I) he will not prosecute such person for any 
offense 
connected 
with the administration or 
enforcement of the internal revenue laws, 
"(II) he will 
not authorize 
a 
grand 
jury 
investigation of such person with respect to such 
an offense, or 
"(III) he will discontinue such a grand jury 
investigation, 
"(ii) a final disposition has been made of any criminal 
proceeding pertaining to the enforcement of the inter-
nal revenue laws which was instituted by the Attorney 
General against such person, or 
"(iii) the Attorney General notifies the Secretary, in 
writing, that he will not prosecute such person for any 
offense connected with the administration or enforce-
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 623 
ment of the internal revenue laws relating to the 
request described in subparagraph (A)(ii). 
"(3) TAXABLE YEARS, ETC., TREATED SEPARATELY.—For purposes 
of this subsection, each taxable period (or, if there is no taxable 
period, each taxable event) and each tax imposed by a separate 
chapter of this title shall be treated separately." 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) ^6 use 7602 
shall take effect on the day after the date of the enactment of this 
Act. 
note. 
Subtitle E—Withholding on Pensions and 
Other Retirement Income 
SEC. 334. WITHHOLDING ON PENSIONS. ANNUITIES, AND CERTAIN OTHER 
DEFERRED INCOME. 
(a) IN GENERAL.—Chapter 24 (relating to collection of income tax 
at source on wages) is amended by adding at the end thereof the 
following new section: 
"SEC. 3405. SPECIAL RULES FOR PENSIONS, ANNUITIES. AND CERTAIN 
26 USC 3405. 
OTHER DEFERRED INCOME. 
"(a) PENSIONS, ANNUITIES, ETC.— 
"(1) WITHHOLDING AS IF PAYMENT WERE WAGES.—The payor of 
any periodic payment (as defined in subsection (d)(2)) shall 
withhold from such payment the amount which would be 
required to be withheld from such payment if such payment 
were a payment of wages by an employer to an employee for the 
appropriate payroll period. 
"(2) ELECTION OF NO WITHHOLDING.—An individual may elect 
to have paragraph (1) not apply with respect to periodic pay-
ments made to such individual. Such an election shall remain in 
effect until revoked by such individual. 
"(3) WHEN ELECTION TAKES EFFECT.—Any election under this 
subsection (and any revocation of such an election) shall take 
effect as provided by subsection (f)(3) of section 3402 for with-
holding exemption certificates. 
"(4) AMOUNT WITHHELD WHERE NO WITHHOLDING EXEMPTION 
CERTIFICATE IN EFFECT.—In the case of any payment with 
respect to which a withholding exemption certificate is not in 
effect, the amount withheld under paragraph (1) shall be deter-
mined by treating the payee as a married individual claiming 3 
withholding exemptions. 
"(b) NONPERIODIC DISTRIBUTION.— 
"(1) WITHHOLDING.—The payor of any nonperiodic distribu-
tion (as defined in subsection (d)(3)) shall withhold from such 
distribution the amount determined under paragraph (2). 
"(2) AMOUNT OF WITHHOLDING.— 
"(A) DISTRIBUTIONS WHICH ARE NOT QUALIFIED TOTAL DIS-
TRIBUTIONS.—In the case of any nonperiodic distribution 
which is not a qualified total distribution, the amount 
withheld under paragraph (1) shall be the amount deter-
mined by multiplying such distribution by 10 percent. 
"(B) QUALIFIED TOTAL DISTRIBUTIONS.—In the case of any 
nonperiodic distribution which is a qualified total distribu-
tion, the amount withheld under paragraph (1) shall be 
96 STAT. 624 
PUBLIC LAW 97-248—SEPT. 3, 1982 
determined under tables (or other computational proce-
dures) prescribed by the Secretary which are based on the 
amount of tax which would be imposed on such distribution 
under section 402(e) if the recipient elected to treat such 
distribution as a lump-sum distribution (within the mean-
ing of section 402(e)(4)(A)). 
"(C) SPECIAL RULE FOR DISTRIBUTIONS BY REASONS OF 
DEATH.—In the case of any distribution described in subpar-
agraph (B) from or under any plan or contract described in 
section 401(a), 403(a), or 403(b) which is made by reason of a 
participant's death, the Secretary, in prescribing tables or 
procedures under paragraph (1), shall take into account the 
exclusion from gross income provided by section 101(b) 
(whether or not allowable). 
"(3) ELECTION OF NO WITHHOLDING.— 
"(A) IN GENERAL.—An individual may elect not to have 
paragraph (1) apply 
with 
respect to any nonperiodic 
distribution. 
"(B) SCOPE OF ELECTION.—An election under 
subpara-
graph (A)— 
"(i) except as provided in clause (ii), shall be on a 
distribution-by-distribution basis, or 
"(ii) to the extent provided in regulations, may apply 
to subsequent nonperiodic distributions made by the 
payor to the payee under the same arrangement. 
"(c) LIABILITY FOR WITHHOLDING.— 
"(1) IN GENERAL.—Except as provided in paragraph (2), the 
payor of a designated distribution (as defined in subsection 
(d)(1)) shall withhold, and be liable for, payment of the tax 
required to be withheld under this section. 
"(2) PLAN ADMINISTRATOR LIABLE IN CERTAIN CASES.— 
"(A) IN GENERAL.—In the case of any plan to which this 
paragraph applies, paragraph (1) shall not apply and the 
plan administrator shall withhold, and be liable for, pay-
ment of the tax unless the plan administrator— 
"(i) directs the payor to withhold such tax, and 
"(ii) provides the payor with such information as the 
Secretary may require by regulations. 
"(B) PLANS TO WHICH PARAGRAPH APPLIES.—This para-
graph applies to any plan described in, or which at any time 
has been determined to be described in— 
"(i) section 401(a), 
"(ii) section 403(a), or 
26 use 46 note. 
"(iii) section 301(d) of the Tax Reduction Act of 1975. 
"(d) 
DEFINITIONS AND SPECIAL 
RULES.—For 
purposes 
of 
this 
section— 
"(1) DESIGNATED DISTRIBUTION.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the term 'designated distribution' means any distribu-
tion or payment from or under— 
"(i) an employer deferred compensation plan, 
"(ii) an individual retirement plan (as defined in 
section 7701(a)(37)), or 
"(iii) a commercial annuity. 
"(B) 
EXCEPTIONS.—The term 
'designated 
distribution' 
shall not include— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 625 
"(i) any amount which is wages without regard to 
this section, and 
"(ii) the portion of a distribution or payment which it 
is reasonable to beheve is not mcludible in gross 
income. 
"(2) PERIODIC PAYMENT.—The term 'periodic payment' means 
a designated 
distribution which is an annuity or similar 
periodic payment. 
"(3) NoNPERiODic DISTRIBUTION.—The term 'nonperiodic dis-
tribution' means any designated distribution which is not a 
periodic payment. 
"(4) QUALIFIED TOTAL DISTRIBUTION.— 
"(A) I N GENERAL.—The term 'qualified total distribution' 
means any distribution which— 
"(i) is a designated distribution, 
"(ii) it is reasonable to believe is made within 1 
taxable year of the recipient, 
"(iii) is made under a plan described in section 401(a), 
or 403(a), and 
"(iv) consists of the balance to the credit of the 
employee under such plan. 
"(B) 
SPECIAL 
RULE 
FOR 
ACCUMULATED 
DEDUCTIBLE 
EMPLOYEE CONTRIBUTIONS.—For purposes of subparagraph 
(A), accumulated deductible employee contributions (within 
the meaning of section 72(o)(5)(B)) shall be treated sepa- 
95 Stat. 278. 
rately in determining if there has been a qualified total 
distribution. 
"(5) EMPLOYER DEFERRED COMPENSATION PLAN.—The 
term 
'employer deferred compensation plan' means any pension, 
annuity, profit-sharing, or stock bonus plan or other plan defer-
ring the receipt of compensation. 
"(6) COMMERCIAL ANNUITY.—The term 'commercial annuity' 
means an annuity, endowment, or life insurance contract issued 
by an insurance company licensed to do business under the laws 
of any State. 
"(7) PLAN ADMINISTRATOR.—The term 'plan administrator' has 
the meaning given such term by section 414(g). 
"(8) MAXIMUM AMOUNT WITHHELD.—The maximum amount to 
be withheld under this section on any designated distribution 
shall not exceed the sum of the amount of money and the fair 
market value of other property (other than employer securities 
of the employer corporation (within the meaning of section 
402(a)(3))) received in the distribution. 
"(9) SEPARATE ARRANGEMENTS TO BE TREATED SEPARATELY.—If 
the payor has more than 1 arrangement under which desig-
nated distributions may be made to any individual, each such 
arrangement shall be treated separately. 
"(10) TIME AND MANNER OF ELECTION.— 
"(A) IN GENERAL.—Any election and any revocation 
under this section shall be made at such time and in such 
manner as the Secretary shall prescribe. 
"(B) PAYOR 
REQUIRED TO NOTIFY 
PAYEE OF RIGHTS TO 
ELECT.— 
"(i) PERIODIC PAYMENTS.—The payor of any periodic 
payment— 
"(I) shall transmit to the payee notice of the 
right to make an election under subsection (a) not 
96 STAT. 626 
PUBLIC LAW 97-248—SEPT. 3, 1982 
earlier than 6 months before the first of such 
payments and not later than when making the 
first of such payments, 
"(II) if such a notice is not transmitted under 
subclause (I) when making such 
first 
payment, 
shall transmit such a notice when making such 
first payment, and 
"(III) shall transmit to payees, not less fre-
quently than once each calendar year, notice of 
their rights to make elections under subsection (a) 
and to revoke such elections, 
"(ii) NoNPERiODic DISTRIBUTIONS.—The payor of any 
nonperiodic distribution shall transmit to the payee 
notice of the right to make any election provided in 
subsection (b) at the time of the distribution (or at such 
earlier time as may be provided in regulations). 
"(iii) NOTICE.—Any notice transmitted pursuant to 
this subparagraph shall be in such form and contain 
such information as the Secretary shall prescribe. 
"(11) WITHHOLDING INCLUDES DEDUCTION.—The terms 'with-
holding', 'withhold', and 'withheld' include 'deducting', 'deduct', 
and 'deducted'. 
"(e) WITHHOLDING T O B E TREATED AS WAGE WITHHOLDING UNDER 
SECTION 3402 FOR OTHER PURPOSES.—For purposes of this chapter 
(and so much of subtitle F as relates to this chapter)— 
"(1) any designated distribution (whether or not an election 
under this section applies to such distribution) shall be treated 
as if it were wages paid by an employer to an employee with 
respect to which there has been withholding under section 3402, 
and 
"(2) in the case of any designated distribution not subject to 
withholding under this section by reason of an election under 
this section, the amount withheld shall be treated as zero." 
26 use 6047. 
(b) FiLiNG OF REPORTS.—Section 6047 (relating to information 
concerning certain trusts and annuity and bond purchase plans) is 
amended by redesignating subsection (e) as subsection (f) and by 
inserting after subsection (d) the following new subsection: 
"(e) REPORTS BY EMPLOYERS, PLAN ADMINISTRATORS, ETC.— 
"(1) IN GENERAL.—The Secretary shall by forms or regulations 
require that— 
"(A) the employer maintaining, or the plan administrator 
(within the meaning of section 414(g)) of, a plan from which 
designated distributions (as defined in section 3405(d)(1)) 
may be made, and 
"(B) any person issuing any contract under which desig-
nated distributions (as so defined) may be made, 
make returns and reports regarding such plan (or contract) to 
the Secretary, to the participants and beneficiaries of such plan 
(or contract), and to such other persons as the Secretary may by 
regulations prescribe. 
"(2) FORM, ETC., OF REPORTS.—Such reports shall be in such 
form, made at such time, and contain such information as the 
Secretary may prescribe by forms or regulations." 
(c) PENALTY FOR FAILURE T O KEEP RECORDS NECESSARY TO COMPLY 
WITH REPORTING REQUIREMENTS OF SECTION 6047(e).— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 627 
(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. 6704. FAILURE TO KEEP RECORDS NECESSARY TO MEET REPORTING 
26 USC 6704. 
REQUIREMENTS UNDER SECTION 6047(e). 
"(a) LIABILITY FOR PENALTY.—Any person who— 
"(1) has a duty to report or may have a duty to report any 
information under section 6047(e), and 
"(2) fails to keep such records as may be required by regula-
tions prescribed under section 6047(e) for the purpose of provid-
ing the necessary data base for either current reporting or 
future reporting, 
shall pay a penalty for each calendar year for which there is any 
failure to keep such records. 
"(b) AMOUNT OF PENALTY.— 
"(1) IN GENERAL.—The penalty of any person for any calendar 
year shall be $50, multiplied by the number of individuals with 
respect to whom such failure occurs in such year. 
"(2) MAXIMUM AMOUNT.—The penalty under this section of 
any person for any calendar year shall not exceed $50,000. 
"(c) EXCEPTIONS.— 
"(1) REASONABLE CAUSE.—No penalty shall be imposed by this 
section on any person for any failure which is shown to be due 
to reasonable cause and not to willful neglect. 
"(2) INABILITY TO CORRECT PREVIOUS FAILURE.—No 
penalty 
shall be imposed by this section on any failure by a person if 
such failure is attributable to a prior failure which has been 
penalized under this section and with respect to which the 
person has made all reasonable efforts to correct the failure. 
"(3) PRE-1983 FAILURES.—No penalty shall be imposed by this 
section on any person for any failure which is attributable to a 
failure occurring before January 1, 1983, if the person has made 
all reasonable efforts to correct such pre-1983 failure." 
(2) CLERICAL AMENDMENT.—The table of sections for sub-
chapter B of chapter 68 is amended by adding at the end thereof 
the following new section: 
"Sec. 6704. Failure to keep records necessary to meet reporting requirements 
under section 6047(e)." 
(d) COORDINATION 
WITH VOLUNTARY 
WITHHOLDING ON CERTAIN 
PAYMENTS OTHER 
THAN WAGES.—Subsection (o) of section 3402 
26 USC 3402. 
(relating to extension of withholding to certain payments other than 
wages) is amended by adding at the end thereof the following new 
paragraph: 
"(6) COORDINATION WITH WITHHOLDING ON DESIGNATED DISTRI-
BUTIONS UNDER SECTION 3405.—This subsection shall not apply 
to any amount which is a designated distribution (within the 
meaning of section 3405(d)(1))." 
(e) EFFECTIVE DATES.— 
26 USC 3405 
(1) AMENDMENT MADE BY SUBSECTIONS (a) AND (dt.—Except as ^°^^-
provided in paragraph (4), the amendment made by subsections 
(a) and (d) shall apply to payments or other distributions made 
after December 31, 1982. 
(2) AMENDMENTS MADE BY SUBSECTION (b).—Except as pro-
vided in paragraph (4), the amendments made by subsection (b) 
shall take effect on January 1, 1983. 
96 STAT. 628 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(3) AMENDMENTS MADE BY SUBSECTION (C).—The amendments 
made by subsection (c) shall take effect on January 1, 1985. 
(4) PERIODIC PAYMENTS BEGINNING BEFORE JANUARY i, 1983.— 
For purposes of section 3405(a) of the Internal Revenue Code of 
1954, in the case of periodic payments beginning before Janu-
ary 1, 1983, the first periodic payment after December 31, 1982, 
shall be treated as the first such periodic payment. 
Regulations. 
(5) DELAY IN APPLICATION.—The Secretary of the Treasury 
shall prescribe such regulations which delay (but not beyond 
June 30, 1983) the application of some or all of the amendments 
made by this section with respect to any payor until such time 
as such payor is able to comply without undue hardship with 
the requirements of such provisions. 
(6) WAIVER OF PENALTY.—No penalty shall be assessed under 
section 6672 with respect to any failure to withhold as required 
by the amendments made by this section if such failure was 
before July 1, 1983, and if the person made a good faith effort to 
comply with such withholding requirements. 
SEC. 33.5. PARTIAL ROLLOVERS OF IRA DISTRIBUTIONS PERMITTED. 
(a) GENERAL RULE.— 
26 use 408. 
(1) Paragraph (3) of section 408(d) is amended by adding at the 
end thereof the following new subparagraph: 
"(C) PARTIAL ROLLOVERS PERMITTED.— 
"(i) IN GENERAL.—If any amount paid or distributed 
out of an individual retirement account or individual 
retirement annuity would meet the requirements of 
subparagraph (A) but for the fact that the entire 
amount was not paid into an eligible plan as required 
by clause (i), (ii), or (iii) of subparagraph (A), such 
amount shall be treated as meeting the requirements of 
subparagraph (A) to the extent it is paid into an eligible 
plan referred to in such clause not later than the 60th 
day referred to in such clause. 
"(ii) ELIGIBLE PLAN.—For purposes of clause (i), the 
term 'eligible plan' means any account, annuity, bond, 
contract, or plan referred to in subparagraph (A)." 
26 use 409. 
(2) Paragraph (3) of section 409(b) is amended by adding at the 
end thereof the following new subparagraph: 
"(D) PARTIAL ROLLOVERS PERMITTED.—Rules similar to the 
rules of section 408(d)(3)(C) shall apply for purposes of 
subparagraph (C)." 
26 use 408 note. 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply to distributions made after December 31, 1982, in taxable 
years ending after such date. 
Subtitle F—Transactions Outside the United 
States or Involving Foreign Persons 
SEC. 336. JURISDICTION OF COURT AND ENFORCEMENT OF SUMMONS IN 
CASE OF PERSONS RESIDING OUTSIDE THE UNITED STATES. 
26 u s e 7701. 
(a) GENERAL RULE.—Subsection (a) of section 7701 (relating to 
definitions) is amended by adding at the end thereof the following 
new paragraph: 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 629 
"(38) PERSONS RESIDING OUTSIDE UNITED STATES.—If any citizen 
or resident of the United States does not reside in (and is not 
found in) any United States judicial district, such citizen or 
resident shall be treated as residing in the District of Columbia 
for purposes of any provision of this title relating to— 
"(A) jurisdiction of courts, or 
"(B) enforcement of summons." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
26 USC 7701 
shall take effect on the day after the date of the enactment of this 
note. 
Act. 
SEC. 337. ADMISSIBILITY 
OF EVIDENCP] MAINTAINED 
IN FOREIGN 
COUNTRIES. 
(a) GENERAL RULE.—Part III of subchapter N of chapter 1 (relating 
to income from sources without the United States) is amended by 
adding at the end thereof the following new subpart: 
"Subpart I—Admissibility of Documentation Maintained in 
Foreign Countries 
"Sec. 982. Admissibility of documentation maintained in foreign countries. 
"SEC. 982. ADMISSIBILITY OF DOCUMENTATION MAINTAINED IN FOREIGN 
26 USC 982. 
COUNTRIES. 
"(a) GENERAL RULE.—If the taxpayer fails to substantially comply 
with any formal document request arising out of the examination of 
the tax treatment of any item (hereinafter in this section referred to 
as the 'examined item') before the 90th day after the date of the 
mailing of such request on motion by the Secretary, any court 
having jurisdiction of a civil proceeding in which the tax treatment 
of the examined item is an issue shall prohibit the introduction by 
the taxpayer of any foreign-based documentation covered by such 
request. 
"(b) REASONABLE CAUSE EXCEPTION.— 
"(1) IN GENERAL.—Subsection (a) shall not apply with respect 
to any documentation if the taxpayer establishes that the fail-
ure to provide the documentation as requested by the Secretary 
is due to reasonable cause. 
"(2) FOREIGN NONDISCLOSURE LAW NOT REASONABLE CAUSE.— 
For purposes of paragraph (1), the fact that a foreign jurisdic-
tion would impose a civil or criminal penalty on the taxpayer 
(or any other person) for disclosing the requested documenta-
tion is not reasonable cause. 
"(c) FORMAL DOCUMENT REQUEST.—For purposes of this section— 
"(1) FORMAL DOCUMENT REQUEST.—The term 'formal docu-
ment request' means any request (made after the normal 
request procedures have failed to produce the requested docu-
mentation) for the production of foreign-based documentation 
which is mailed by registered or certified mail to the taxpayer 
at his last known address and which sets forth— 
"(A) the time and place for the production of the docu-
mentation, 
"(B) a statement of the reason the documentation previ-
ously produced (if any) is not sufficient, 
"(C) a description of the documentation being sought, and 
"(D) the consequences to the taxpayer of the failure to 
produce the documentation described in subparagraph (C). 
96 STAT. 630 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(2) PROCEEDING TO QUASH.— 
"(A) IN GENERAL.—Notwithstanding any other law or rule 
of law, any person to whom a formal document request is 
mailed shall have the right to begin a proceeding to quash 
such request not later than the 90th day after the day such 
request was mailed. In any such proceeding, the Secretary 
may seek to compel compliance with such request. 
"(B) JURISDICTION.—The United States district court for 
the district in which the person (to whom the formal docu-
ment request is mailed) resides or is found shall have 
jurisdiction to hear any proceeding brought under subpara-
graph (A). An order denying the petition shall be deemed a 
final order which may be appealed. 
"(C) SUSPENSION OF 90-DAY PERIOD.—The running of the 
90-day period referred to in subsection (a) shall be sus-
pended 
during any period during which a jproceeding 
brought under subparagraph (A) is pending. 
"(d) 
DEFINITIONS 
AND SPECIAL 
RULES.—For 
purposes 
of 
this 
section— 
"(1) 
FOREIGN-BASED 
DOCUMENTATION.—The 
term 
'foreign-
based documentation' means any documentation which is out-
side the United States and which may be relevant or material to 
the tax treatment of the examined item. 
"(2) DOCUMENTATION.—The term 'documentation' 
includes 
books and records. 
"(3) FOREIGN-CONNECTED.—An item shall be treated as for-
eign-connected if— 
"(A) such item is directly or indirectly from a source 
outside the United States, or 
"(B) such item (in whole or in part)— 
"(i) purports to arise outside the United States, or 
"(ii) is otherwise dependent on transactions occurring 
outside the United States. 
"(4) AUTHORITY TO EXTEND 90-DAY PERIOD.—The Secretary, and 
any court having jurisdiction over a proceeding under subsec-
tion 
(c)(2), may extend the 90-day 
period 
referred 
to in 
subsection (a). 
"(e) SUSPENSION OF STATUTE OF LIMITATIONS.—If any person takes 
any action as provided in subsection (c)(2), the running of any period 
of limitations under section 6501 (relating to the assessment and 
collection of tax) or under section 6531 (relating to criminal prosecu-
tions) with respect to such person shall be suspended for the period 
during which the proceeding under such subsection, and appeals 
therein, are pending." 
(b) CLERICAL AMENDMENT.—The table of subparts for part III of 
subchapter N of chapter 1 is amended by adding at the end thereof 
the following new item: 
"Subpart 
L Admissibility of documentation 
maintained 
in 
foreign 
countries." 
26 use 982 note. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to formal document requests (as defined in 
section 982(c)(1) of the Internal Revenue Code of 1954, as added by 
this section) mailed after the date of the enactment of this Act. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 631 
SEC. 338. PENALTY FOR FAILURE TO FURNISH INFORMATION WITH 
RESPECT TO CERTAIN P OREIGN CORPORATIONS. 
(a) I N GENERAL.—Section 6038 (relating to information 
with 
26 USC 6038. 
respect to certain foreign corporations) is amended by redesignating 
subsections (b), (c), and (d) as subsections (c), (d), and (e), respectively, 
and by inserting after subsection (a) the following new subsection: 
"(b) DOLLAR PENALTY FOR FAILURE T O FURNISH INFORMATION.— 
"(1) IN GENERAL.—If any person fails to furnish, within the 
time prescribed under paragraph (2) of subsection (a), any infor-
mation with respect to any foreign corporation required under 
paragraph (1) of subsection (a), such person shall pay a penalty 
of $1,000 for each annual accounting period with respect to 
which such failure exists. 
"(2) INCREASE IN PENALTY WHERE FAILURE CONTINUES AFTER 
NOTIFICATION.—If any failure described in paragraph (1) contin-
ues for more than 90 days after the day on which the Secretary 
mails notice of such failure to the United States person, such 
person shall pay a penalty (in addition to the amount required 
under paragraph (1)) of $1,000 for each 30-day period (or fraction 
thereof) during which such failure continues with respect to any 
annual accounting period after the expiration of such 90-day 
period. The increase in any penalty under this paragraph shall 
not exceed $24,000." 
(b) COORDINATION 
WITH 
EXISTING 
REDUCTION IN FOREIGN TAX 
CREDIT.—Subsection (c) of section 6038 (as redesignated by subsec-
tion (a)) is amended— 
(1) by inserting "and sub.section (b)" after "subsection" in 
paragraph (3)(B), and 
(2) by redesignating paragraph (3) as paragraph (4) and by 
inserting after paragraph (2) the following new paragraph: 
"(3) COORDINATION WITH SUBSECTION (b).—The amount of the 
reduction which (but for this paragraph) would be made under 
paragraph (1) with respect to any annual accounting period 
shall be reduced by the amount of the penalty imposed by 
subsection (b) with respect to such period." 
(c) TECHNICAL AMENDMENTS.— 
(1) The subsection heading of subsection (c) of section 6038 (as 
redesignated by subsection (a)) is amended to read as follows: 
"(c) PENALTY OF REDUCING FOREIGN TAX CREDIT.—". 
(2) Paragraph (1) of section 6038(a) is amended by striking out 
"within the meaning of subsection (d)(1)" and inserting in lieu 
thereof "within the meaning of subsection (e)(1)". 
(3) The last sentence of paragraph (1) of section 6038(c) (as 
redesignated by subsection (a)) is amended by inserting "of such 
failure" after "notice". 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 6038 
apply with respect to information for annual accounting periods 
"°*'^-
ending after the date of the enactment of this Act. 
SEC. 339. INFORMATION REQUIREMENTS WITH RESPECT TO CERTAIN FOR 
EIGN-OWNED CORPORATIONS. 
(a) GENERAL RULE.—Subpart A of part III of subchapter A of 
chapter 61 is amended by inserting after section 6038 the following 
new section: 
97-200 O—84—pt. 1 
22 : QL3 
96 STAT. 632 
PUBLIC LAW 97-248—SEPT. 3, 1982 
26 u s e 6038A. 
"SEC. 6038A. INFORMATION WITH RESPECT TO CERTAIN FOREIGN-OWNED 
CORPORATIONS. 
"(a) REQUIREMENT.—If, at any time during a taxable year, a 
corporation (hereinafter in this section referred to as the 'reporting 
corporation')— 
"(1) is a domestic corporation or is a foreign corporation 
engaged in trade or business within the United States, and 
"(2) is controlled by a foreign person, 
such corporation shall furnish, at such time and in such manner as 
the Secretary shall by regulations prescribe, the information 
described in subsection (b). 
"(b) REQUIRED INFORMATION.—For purposes of subsection (a), the 
information described in this subsection is such information as the 
Secretary may prescribe by regulations relating to— 
"(1) the name, principal place of business, nature of business, 
and country or countries in which organized or resident, of each 
corporation which— 
"(A) is a member of the same controlled group as the 
reporting corporation, and 
"(B) had any transaction with the reporting corporation 
during its taxable year, 
"(2) the manner in which the reporting corporation is related 
to each corporation referred to in paragraph (1), and 
"(3) transactions between the reporting corporation and each 
foreign corporation which is a member of the same controlled 
group as the reporting corporation. 
"(c) DEFINITIONS.—For purposes of this section— 
"(1) CONTROL.—The term 'control' has the meaning given to 
such term by section 6038(d)(1); except that 'at least 50 percent' 
shall be substituted for 'more than 50 percent' each place it 
appears in such section. 
"(2) CONTROLLED GROUP.—The term 'controlled group' means 
any controlled group of corporations within the meaning of 
section 1563(a); except that— 
"(A) 'at least 50 percent' shall be substituted— 
"(i) for 'at least 80 percent' each place it appears in 
section 1563(a)(1), and 
"(ii) for 'more than 50 percent' each place it appears 
in section 1563(a)(2)(B), and 
"(B) the determination shall be made without regard 
to subsections (a)(4) and (e)(3)(C) of section 1563. 
"(3) FOREIGN PERSON.—The term 'foreign person' means any 
person who is not a United States person. For purposes of the 
preceding sentence, the term 'United States person' has the 
meaning given to such term by section 7701(a)(30); except that 
any individual who is a citizen of any possession of the United 
States (but not otherwise a citizen of the United States) and who 
is not a resident of the United States shall not be treated as a 
United States person. 
"(d) PENALTY FOR FAILURE TO FURNISH INFORMATION.— 
"(1) IN GENERAL.—If a reporting corporation fails to furnish 
(within the time prescribed by regulations) any information 
described in subsection (b), such corporation shall pay a penalty 
of $1,000 for each taxable year with respect to which such 
failure occurs. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 633 
"(2) INCREASE IN PENALTY WHERE FAILURE CONTINUES AFTER 
NOTIFICATION.—If any failure described in paragraph (1) contin-
ues for more than 90 days after the day on which the Secretary 
mails notice of such failure to the reporting corporation, such 
corporation shall pay a penalty (in addition to the amount 
required under paragraph (1)) of $1,000 for each 30-day period 
(or fraction thereof) during which such failure continues after 
the expiration of such 90-day period. The increase in any 
penalty under this paragraph shall not exceed $24,000. 
"(3) REASONABLE CAUSE.—For purposes of this subsection, the 
time prescribed by regulations to furnish information (and the 
beginning of the 90-day period after notice by the Secretary) 
shall be treated as not earlier than the last day on which (as 
shown to the satisfaction of the Secretary) reasonable cause 
existed for failure to furnish the information. 
"(e) CROSS REFERENCE.— 
"P^or provisions relating to criminal penalties for violation of this sec-
tion, see section 7203." 
(b) CLERICAL AMENDMENT.—The table of sections for subpart A of 
part III of subchapter A of chapter 61 is amended by inserting the 
following new item after the item relating to section 6038: 
"Sec. 6038A. Information with respect to certain foreign-owned 
corpora-
tions." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 6038A 
apply to taxable years beginning after December 31, 1982. 
"°*'^-
Sf:C. 340. RETURNS WITH RESPECT TO FOREIGN PERSONAL HOLDING 
COMPANIES. 
(a) GENERAL RULE.—Section 6035 (relating to returns of officers, 
26 USC 6035. 
directors, and shareholders of foreign personal holding companies) is 
amended to read as follows: 
"SEC. 6035. RETURNS OF OFFICERS, DIRECTORS, AND SHAREHOLDERS OF 
FOREIGN PERSONAL HOLDING COMPANIES. 
"(a) GENERAL RULE.—Each United States citizen or resident who 
is an officer, director, or 10-percent shareholder of a corporation 
which was a foreign personal holding company (as defined in section 
552) for any taxable year shall file a return with respect to such 
taxable year setting forth— 
"(1) the shareholder information required by subsection (b), 
"(2) the income information required by subsection (c), and 
"(3) such other information with respect to such corporation 
as the Secretary shall by forms or regulations prescribe as 
necessary for carrying out the purposes of this title. 
"(b) SHAREHOLDER INFORMATION.—The shareholder 
information 
required by this subsection with respect to any taxable year shall 
be— 
"(1) the name and address of each person who at any time 
during such taxable year held any share in the corporation, 
"(2) a description of each class of shares and the total number 
of shares of such class outstanding at the close of the taxable 
year, 
"(8) the number of shares of each class held by each person, 
and 
"(4) any changes in the holdings of shares during the taxable 
year. 
96 STAT. 634 
PUBLIC LAW 97-248—SEPT. 3, 1982 
For purposes of paragraphs (1), (3), and (4), the term 'share' includes 
any security convertible into a share in the corporation and any 
option granted by the corporation with respect to any share in the 
corporation. 
"(c) INCOME INFORMATION.—The income information required by 
this subsection for any taxable year shall be the gross income, 
deductions, credits, taxable income, and undistributed foreign per-
sonal holding company income of the corporation for the taxable 
year. 
"(d) TIME AND M A N N E R 
FOR FURNISHING 
INFORMATION.—The 
information required under subsection (a) shall be furnished at such 
time and in such manner as the Secretary shall by forms and 
regulations prescribe. 
"(e) DEFINITION AND SPECIAL RULES.— 
"(1) 10-PERCENT SHAREHOLDER.—For purposes of this section, 
the term '10-percent shareholder' means any individual who 
owns directly or indirectly (within the meaning of section 554) 
10 percent or more in value of the outstanding stock of a foreign 
corporation. 
"(2) TIME FOR MAKING DETERMINATIONS.— 
"(A) I N GENERAL.—Except as provided in subparagraph 
(B), the determination of whether any person is an officer, 
director, or 10-percent shareholder with respect to any 
foreign corporation shall be made as of the date on which 
the return is required to be filed. 
"(B) SPECIAL RULE.—If after the application of subpara-
graph (A) no person is required to file a return under 
subsection (a) with respect to any foreign corporation for 
any taxable year, the determination of whether any person 
is an officer, 
director, or 10-percent shareholder 
with 
respect to such foreign corporation shall be made on the 
last day of such taxable year on which there was such a 
person who was a United States citizen or resident. 
"(3) 2 OR MORE PERSONS REQUIRED TO FURNISH INFORMATION 
WITH RESPECT TO SAME FOREIGN CORPORATION.—If, b u t for this 
paragraph, 2 or more persons would be required to furnish 
information under subsection (a) with respect to the same ibr-
eign corporation for the same taxable year, the Secretary may 
by regulations provide that such information shall be required 
only from 1 person." 
(b) APPLICATION OF PENALTY.— 
26 use 6679. 
(1) Subsection (a) of section 6679 is amended by striking out 
"section 6046" and inserting in lieu thereof "section 6035 or 
6046". 
(2) The section heading for section 6679 is amended to read as 
follows: 
"SEC. 6679. FAILURE TO FILE RETURNS OR SUPPLY INFORMATION UNDER 
SECTION 6035 OR 6046." 
(3) The item relating to section 6679 in the table of sections 
for subchapter B of chapter 68 is amended to read as follows: 
"Sec. 6679. Failure to file returns or supply information under section (
J
O
;
}
"
) 
or 6046." 
26 use 6035 
(c) EFFECTIVE DATE.—The amendment made by this section shall 
^°^^- 
apply to taxable years of foreign corporations beginning after the 
date of the enactment of this Act. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 635 
SEC. 341. AUTHORITY TO DELAY DATE FOR FILING CERTAIN RETURNS 
RELATING 
TO FOREIGN 
CORPORATIONS AND FOREIGN 
TRUSTS. 
(a) FOREIGN CORPORATIONS.—Subsection (d) of section 6046 (relat- 
26 USC 6046. 
ing to time for filing returns as to organization or reorganization of 
foreign corporations and as to acquisitions of their stock) is amended 
by inserting before the period at the end thereof the following: "(or 
on or before such later day as the Secretary may by forms or 
regulations prescribe)". 
(b) FOREIGN TRUSTS.—Subsection (a) of section 6048 (relating to 
26 USC 6048. 
returns as to certain foreign trusts) is amended by inserting "(or on 
or before such later day as the Secretary may by regulations pre-
scribe)" after "the 90th day". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 6046 
apply to returns filed after the date of the enactment of this Act. 
"°^®-
SEC. 342. WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN 
26 USC 1441 
. CORPORATIONS. 
'^o*^® 
Not later than 2 years after the date of the enactment of this Act, 
the Secretary of the Treasury or his delegate shall prescribe regula-
tions establishing certification procedures, refund procedures, or 
other procedures which ensure that any benefit of any treaty relat-
ing to withholding of tax under sections 1441 and 1442 of the 
Internal Revenue Code of 1954 is available only to persons entitled 
to such benefit. 
SEC. 
343. TECHNICAL AMENDMENT RELATING TO PENALTY UNDER 
SECTION 905(c). 
(a) GENERAL RULE.—Subsection (c) of section 905 (relating to 
26 USC 905. 
adjustments on payment of accrued taxes) is amended by striking 
out the last sentence. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
26 USC 905 note, 
shall have the same effect as if the last sentence of section 905(c) had 
never been enacted. 
Subtitle G—Modification of Interest Provisions 
SEC. 344. INTEREST COMPOUNDED DAILY. 
(a) IN GENERAL.—Subchapter C of chapter 67 (relating to determi-
nation of rate of interest) is amended by adding at the end thereof 
the following new section: 
"SEC. 6622. INTEREST COMPOUNDED DAILY. 
26 USC 6622. 
"(a) GENERAL RULE.—In computing the amount of any interest 
required to be paid under this title or sections 1961(c)(1) or 2411 of 
title 28, United States Code, by the Secretary or by the taxpayer, or 
any other amount determined by reference to such amount of 
interest, such interest and such amount shall be compounded daily. 
"(b) 
EXCEPTION FOR PENALTY FOR FAILURE T O FILE ESTIMATED 
TAX.—Subsection (a) shall not apply for purposes of computing the 
amount of any addition to tax under section 6654 or 6655." 
(b) CONFORMING AMENDMENTS.— 
(1) Section 6601(e) (relating to applicable rules) is amended by 
26 USC 6601. 
striking out paragraph (2) and redesignating paragraphs (3) and 
(4) as paragraphs (2) and (3), respectively. 
96 STAT. 636 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(2) The table of sections for subchapter C of chapter 67 is 
amended by inserting after section G621 the following new item: 
"Sec. 6622. Interest compounded daily." 
(3)(A) The heading for subchapter C of chapter 67 is amended 
by inserting "; Compounding of Interest" after "Rate". 
(B) The item relating to subchapter C in the table of sub-
chapters for chapter 67 is amended by inserting "; compounding 
of interest" after "rate". 
26 use 6622 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
^°^^- 
apply to interest accruing after December 31, 1982. 
SKC. Si-y. DETERMINATION OF RATE OF INTEREST TO BE MADE SEMI-
ANNUAI.LY. 
26 use 6621. 
(a) IN GENERAL.—Subsection (b) of section 6621 (relating to deter-
mination of rate of interest) is amended to read as follows: 
"(b) ADJUSTMENT OF INTEREST RATE.— 
"(1) ESTABLISHMENT OF ADJUSTED RATE.—If the adjusted prime 
rate charged by banks (rounded to the nearest full percent)— 
"(A) during the 6-month period ending on September 30 
of any calendar year, or 
"(B) during the 6-month period ending on March 31 of 
any calendar year, 
differs from the interest rate in effect under this section on 
either such date, respectively, then the Secretary shall estab-
lish, within 15 days after the close of the applicable 6-month 
period, an adjusted rate of interest equal to such adjusted prime 
rate. 
"(2) EFFECTIVE DATE OF ADJUSTMENT.—Any adjusted rate of 
interest established under paragraph (1) shall become effec-
tive— 
"(A) on January 1 of the succeeding year in the case of an 
adjustment attributable to paragraph (1)(A), and 
"(B) on July 1 of the same year in the case of an adjust-
ment attributable to paragraph(l)(B)." 
26 use 6621 
(b) EFFECTIVE DATE.—The amendment made by this section shall 
^°^- 
apply to adjustments taking effect on January 1, 1983. 
SEC. 
:U6. RESTRICTIONS ON PAYMENT OF INTEREST FOR CERTAIN 
PERIODS. 
(a) INTEREST WITH 
RESPECT TO DELINQUENT 
RETURNS.—Section 
26 use 6611. 
6611(b) (relating to period for which interest on refunds is paid) is 
amended by adding at the end thereof the following new paragraph: 
"(3) LATE.RETURNS.—Notwithstanding paragraph (1) or (2) in 
the case of a return of tax which is filed after the last date 
prescribed for filing such return (determined with regard to 
extensions), no interest shall be allowed or paid for any day 
before the date on which the return is filed." 
(b) No INTEREST IF RETURN NOT IN PROCESSIBLE FORM.—Section 
6611 (relating to interest on overpayments) is amended by redes-
ignating subsection (i) as subsection (j) and by adding after subsec-
tion (h) the following new subsection: 
"(i) No INTEREST UNTIL RETURN IN PROCESSIBLE FORM.— 
"(1) For purposes of subsections (b)(3), (e), and (h), a return 
shall not be treated as filed until it is filed in processible form. 
"(2) For purposes of paragraph (1), a return is in a processible 
form if— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 637 
"(A) such return is filed on a permitted form, and 
"(B) such return contains— 
"(i) the taxpayer's name, address, and identifying 
number and the required signature, and 
"(ii) sufficient required information (whether on the 
return or on required attachments) to permit the math-
ematical verification of tax liability shown on the 
return." 
(c) MODIFICATION OF INTEREST IN THE CASE OF CARRYBACKS.— 
(1) OVERPAYMENTS.— 
(A) Paragraph (1) of section 6611(f) (relating to refund of 26 USC 6611. 
income tax caused by carryback or adjustment for unused 
deductions) is amended by striking out "the close of the 
taxable year" and inserting in lieu thereof "the filing date 
for the taxable year". 
(B) Subparagraph (A) of section 6611(0(2) is amended by 
striking out "the close o f each place it appears and insert-
ing in lieu thereof "the filing date for". 
(C) Subsection (D of section 6611 is amended by redes-
ignating paragraph (3) as paragraph (4) and by inserting 
after paragraph (2) the following new paragraph: 
"(3) SPECIAL RULES FOR PARAGRAPHS (i) AND (2).— 
"(A) FILING DATE.—For purposes of this subsection, the 
term 'filing date' means the last date prescribed for filing 
the return of tax imposed by subtitle A for the taxable year 
(determined without regard to extensions). 
"(B) COORDINATION WITH SUBSECTION (e).— 
"(i) IN GENERAL.—FOR PURPOSES OF SUBSECTION (e) — 
"(I) any overpayment described in paragraph (1) 
or (2) shall be treated as an overpayment for the 
loss year, and 
"(II) such 
subsection 
shall be applied 
with 
respect to such overpayment by treating the return 
for the loss year as not filed before claim for such 
overpayment is filed. 
"(ii) Loss YEAR.—For purposes of this subparagraph, 
the term 'loss year' means— 
"(I) in the case of a carryback of a net operating 
loss or net capital loss, the taxable year in which 
such loss arises, and 
"(II) in the case of a credit carryback, the taxable 
year in which such credit carryback arises (or, with 
respect to any portion of a credit carryback from a 
taxable year attributable to a net operating loss 
carryback, a capital loss carryback, or other credit 
carryback from a subsequent taxable year, such 
subsequent taxable year)." 
(D) Subsection (g) of section 6611 is amended by striking 
out "the close of the taxable year" and inserting in lieu 
thereof "the filing date (as defined in subsection (f)(3)) for 
the taxable year". 
(2) UNDERPAYMENTS.— 
(A) Paragraph (1) of section 6601(d) (relating to income 
26 USC 6601. 
tax reduced by carryback for adjustment for certain unused 
deductions) is amended by striking out "the last day of the 
taxable year" and inserting in lieu thereof "the filing date 
for the taxable year". 
96 STAT. 638 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(B) Subparagraph (A) of section 6601(d)(2) is amended by 
striking out "the last day of the" each place it appears and 
inserting in lieu thereof "the filing date for". 
(C) Subsection (d) of section 6601 is amended by adding at 
the end thereof the following new paragraph: 
"(4) FILING DATE.—For purposes of this subsection, the term 
'filing date' has the meaning given to such term by section 
6611(f)(3)(A)." 
26 use 6611 
(d) EFFECTIVE DATES.— 
"°*®" 
(1) IN GENERAL.—The amendments made by subsections (a) 
and (b) shall apply to returns filed after the 30th day after the 
date of the enactment of this Act. 
(2) SUBSECTION (C).—The amendments made by subsection (c) 
shall apply to interest accruing after the 30th day after the date 
of the enactment of this Act. 
Subtitle H—Taxpayer Safeguard Amendments 
SP]C. 347. INCREASE IN CERTAIN EXEMPTIONS FROM LEVY. 
(a) GENERAL RULE.— 
(1) FUEL, PROVISIONS, FURNITURE, AND PERSONAL EFFECTS.— 
26 use 6334. 
Paragraph (2) of section 6334(a) (relating to property exempt 
from levy) is amended by striking out "$500" and inserting in 
lieu thereof "$1,500". 
(2) BOOKS AND TOOLS OF A TRADE, BUSINESS, OR PROFESSION.— 
Paragraph (3) of section 6334(a) is amended by striking out 
"$250" and inserting in lieu thereof "$1,000". 
(3) WAGES, SALARY, OR OTHER INCOME.—Paragraph (1) of sec-
tion 6334(d) (relating to exempt amount of wages, salary, or 
other income) is amended— 
(A) by striking out "$50" and inserting in lieu thereof 
"$75", and 
(B) by striking out "$15" and inserting in lieu thereof 
"$25". 
26 use 6334 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
"°^®- 
shall apply to levies made after December 31, 1982. 
SEC. 348. REQUIRED RELEASE OF LIEN. 
26 use 6325. 
(a) GENERAL RuLE.—So much of subsection (a) of section 6325 
(relating to release of lien) as precedes paragraph (1) thereof is 
amended to read as follows: 
"(a) RELEASE OF LIEN.—Subject to such regulations as the Secre-
tary may prescribe, the Secretary shall issue a certificate of release 
of any lien imposed with respect to any internal revenue tax not 
later than 30 days after the day on which—". 
26 use 6325 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
^°^- 
shall apply with respect to liens— 
(1) which are filed after December 31, 1982, 
(2) which are satisfied after December 31, 1982, or 
(3) with respect to which the taxpayer after December 31, 
1982, requests the Secretary of the Treasury or his delegate to 
issue a certificate of release on the grounds that the liability 
was satisfied or legally unenforceable. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 639 
SKC. 349. REQUIREMENT OF TIMELY NOTICE OF LEVY. 
(a) GENERAL RULE.—Section 6331 (relating to levy and distraint) is 26 USC 633L 
amended by redesignating subsection (e) as subsection (f) and by 
striking out subsection (d) and inserting in lieu thereof the following 
new subsections: 
"(d) REQUIREMENT OF NOTICE BEFORE LEVY.— 
"(1) IN GENERAL.—Levy may be made under subsection (a) 
upon the salary or wages or other property of any person with 
respect to any unpaid tax only after the Secretary has notified 
such person in writing of his intention to make such levy. 
"(2) 10-DAY REQUIREMENT.—The notice required under para-
graph (1) shall be— 
"(A) given in person, 
"(B) left at the dwelling or usual place of business of such 
person, or 
"(C) sent by certified or registered mail to such person's 
last known address, 
no less than 10 days before the day of the levy. 
"(3) JEOPARDY.—Paragraph (1) shall not apply to a levy if the 
Secretary has made a finding under the last sentence of subsec-
tion (a) that the collection of tax is in jeopardy. 
"(e) CONTINUING LEVY ON SALARY AND WAGES.— 
"(1) EFFECT OF LEVY.—The effect of a levy on salary or wages 
payable to or received by a taxpayer shall be continuous from 
the date such levy is first made until the liability out of which 
such levy arose is satisfied or becomes unenforceable by reason 
of lapse of time. 
"(2) RELEASE AND NOTICE OF RELEASE.—With respect to a levy 
described in paragraph (1), the Secretary shall promptly release 
the levy 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." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC 6331 
shall apply to levies made after December 31, 1982. 
note. 
SEC. 349A. EXTENSION OF PERIOD FOR REDEMPTION OF REAL PROPERTY. 
(a) GENERAL RULE.—Paragraph (1) of section 6337(b) (relating to 26 USC 6337. 
period for redemption of real estate after sale) is amended by 
striking out "120 days" and inserting in lieu thereof "180 days". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC 6337 
shall apply with respect to property sold after the date of the "°^®-
enactment of this Act. 
SEC. 350. AMOUNT OF DAMAGES IN CASE OF WRONGFUL LEVY. 
(a) GENERAL RULE.—Subparagraph (C) of section 7426(b)(2) (relat- 
26 USC 7426. 
ing to amount of damages) is amended to read as follows: 
"(C) if such property was sold, grant a judgment for an 
amount not exceeding the greater of— 
"(i) the amount received by the United States from the 
sale of such property, or 
"(ii) the fair market value of such property immediately 
before the levy." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC 7426 
shall apply with respect to levies made after December 31, 1982. "°t®-
96 STAT. 640 
PUBLIC LAW 97-248—SEPT. 3, 1982 
Subtitle I—Other Provisions 
SEC. 351. DISALLOWANCE OF DEDUCTIONS RELATING TO NARCOTICS 
TRAFFICKING. 
(a) IN GENERAL.—Part IX 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 280E. 
"SEC. 280E. EXPENDITURES IN CONNECTION WITH THE ILLEGAL SALE OF 
DRUGS. 
"No deduction or credit shall be allowed for any amount paid or 
incurred during the taxable year in carrying on any trade or 
business if such trade or business (or the activities which comprise 
such trade or business) consists of trafficking in controlled sub-
stances (within the meaning of schedule I and II of the Controlled 
21 use 812. 
Substances Act) which is prohibited by Federal law or the law of any 
State in which such trade or business is conducted." 
(b) CONFORMING AMENDMENT.—The table of sections for part IX of 
subchapter B of chapter 1 of such Code is amended by adding at the 
end thereof the following new item: 
"Sec. 280E. Expenditures in connection with the illegal sale of drugs." 
26 use 280E 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
^°^- 
apply to amounts paid or incurred after the date of the enactment of 
this Act in taxable years ending after such date. 
SEC. 352. SENSE OF CONGRESS WITH RESPECT TO PROVIDING OF ADDI 
TIONAL FUNDS TO INTERNAL REVENUE SERVICE. 
It is the sense of the Congress that there be appropriated for the 
use of the Internal Revenue Service to provide additional staff— 
(1) for fiscal year 1983, the amounts proposed in the Presi-
dent's budget for fiscal year 1983, and 
(2) such amounts in excess of the amount requested for such 
purpose in the President's proposed budgets as may be neces-
sary to provide sufficient improved enforcement to increase 
revenues by $1 billion in fiscal year 1984 and $2 billion in fiscal 
year 1985. 
26 use 6011 
SEC. 353. REPORT ON FORMS. 
Not later than June 30, 1983, the Secretary of the Treasury or his 
delegate shall study and report to the Congress methods of modify-
ing the design of the forms used by the Internal Revenue Service to 
achieve greater accuracy in the reporting of income and the match-
ing of information reports and returns with the returns of tax 
imposed by chapter 1 of the Internal Revenue Code of 1954. 
SEC. 354. EXEMPTION OF VETERANS' ORGANIZATIONS. 
26 use 501. 
(a) IN GENERAL.—Paragraph (19) of section 501(c) (relating to 
exemption of veterans' organizations) is amended— 
(1) by striking out "war veterans" the first place it appears 
and inserting in lieu thereof "past or present members of the 
Armed Forces of the United States", and 
(2) by amending subparagraph (B) to read as follows: 
"(B) at least 75 percent of the members of which are past 
or present members of the Armed Forces of the United 
States and substantially all of the other members of which 
are individuals who are cadets or are spouses, widows, or 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 641 
widowers of past or present members of the Armed Forces 
of the United States or of cadets, and". 
(b) ASSOCIATIONS ORGANIZED BEFORE 1880.—Subsection (c) of sec-
tion 501 (relating to exempt organizations) is amended by adding at 
26 USC 501. 
the end thereof the following new paragraph: 
"(23) any association organized before 1880 more than 25 
percent of the members of which are present or past members of 
the Armed Forces and a principal purpose of which is to provide 
insurance and other benefits to veterans or their dependents." 
(c) EFFECTIVE DATE.—The amendments made by subsections (a) 26 USC 501 note. 
and (b) shall apply to taxable years beginning after the date of the 
enactment of this Act. 
SEC. 355. AMENI)MP:NT T O COMMl NIC A T I O N S ACT OF 1934. 
Title III of the Communications Act of 1934 is amended by insert-
ing immediately after section 330 therein the following new section: 
"VERY HIGH FREQUENCY STATIONS 
"SEC. 331. It shall be the policy of the Federal Communications 
47 USC 331. 
Commission to allocate channels for very high frequency commer-
cial television broadcasting in a manner which ensures that not less 
than one such channel shall be allocated to each State, if technically 
feasible. In any case in which licensee of a very high frequency 
commercial television broadcast station notifies the Commission to 
the effect that such licensee will agree to the reallocation of its 
channel to a community within a State in which there is allocated 
no very high frequency commercial television broadcast channel at 
the time such notification, the Commission shall, notwithstanding 
any other provision of law, order such reallocation and issue a 
license to such licensee for that purpose pursuant to such notifica-
tion for a term of not to exceed 5 years as provided in section 307(d) 
of the Communications Act of 1934." 
47 USC 307. 
SEC. 356. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND RETURN 
INFORMATION. 
(a) IN GENERAL.— Subsection (i) of section 6103 (relating to disclo- 
26 USC 6103. 
sure to Federal officers or employees for administration of Federal 
laws not relating to tax administration) is amended by redesignating 
paragraph (6) as paragraph (7) and by striking out paragraphs (1), 
(2), (3), (4), and (5) and inserting in lieu thereof the following: 
"(1) DISCLOSURE OF RETURNS AND RETURN INFORMATION FOR 
USE IN CRIMINAL INVESTIGATIONS.— 
"(A) IN GENERAL.—Except as provided in paragraph (6), 
any return or return information with respect to any speci-
fied taxable period or periods shall, pursuant to and upon 
the grant of an ex parte order by a Federal district court 
judge or magistrate under subparagraph (B), be open (but 
only to the extent necessary as provided in such order) to 
inspection by, or disclosure to, officers and employees of any 
Federal agency who are personally and directly engaged 
in— 
"(i) preparation for any judicial or administrative 
proceeding pertaining to the enforcement of a specifi-
cally designated Federal criminal statute (not involving 
tax administration) to which the United States or such 
agency is or may be a party. 
96 STAT. 642 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(ii) any investigation which may result in such a 
proceeding, or 
"(iii) any Federal grand jury proceeding pertaining to 
enforcement of such a criminal statute to which the 
United States or such agency is or may be a party, 
solely for the use of such officers and employees in such 
preparation, investigation, or grand jury proceeding. 
"(B) APPLICATION FOR ORDER.—The Attorney General, the 
Deputy Attorney General, the Associate Attorney General, 
any Assistant Attorney General, any United States attor-
ney, any special prosecutor appointed under section 593 of 
title 28, United States Code, or any attorney in charge of a 
criminal division organized crime strike force established 
pursuant to section 510 of title 28, United States Code, may 
authorize an application to a Federal district court judge or 
magistrate for the order referred to in subparagraph (A). 
Upon such application, such judge or magistrate may grant 
such order if he determines on the basis of the facts submit-
ted by the applicant that— 
"(i) there is reasonable cause to believe, based upon 
information believed to be reliable, that a specific 
criminal act has been committed, 
"(ii) there is reasonable cause to believe that the 
return or return information is or may be relevant to a 
matter relating to the commission of such act, and 
"(iii) the return or return information is sought 
exclusively for use in a Federal criminal investigation 
or proceeding concerning such act, and the information 
sought to be disclosed cannot reasonably be obtained, 
under the circumstances, from another source. 
"(2) DISCLOSURE OF RETURN INFORMATION OTHER THAN TAX-
PAYER RETURN INFORMATION FOR USE IN CRIMINAL INVESTIGA-
TIONS.— 
"(A) IN GENERAL.—Except as provided in paragraph (6), 
upon receipt by the Secretary of a request which meets the 
requirements of subparagraph (B) from the head of any 
Federal agency or the Inspector General thereof, or, in the 
case of the Department of Justice, the Attorney General, 
the Deputy Attorney General, the Associate Attorney Gen-
eral, any Assistant Attorney General, the Director of the 
Federal Bureau of Investigation, the Administrator of the 
Drug Enforcement Administration, any United States 
attorney, any special prosecutor appointed under section 
593 of title 28, United States Code, or any attorney in 
charge of a criminal division organized crime strike force 
established pursuant to section 510 of title 28, United States 
Code, the Secretary shall disclose return information (other 
than taxpayer return information) to officers and employ-
ees of such agency who are personally and directly engaged 
in— 
"(i) preparation for any judicial or administrative 
proceeding described in paragraph (l)(A)(i), 
"(ii) any investigation which may result in such a 
proceeding, or 
"(iii) any grand jury proceeding described in para-
graph (l)(A)(iii), 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 643 
solely for the use of such officers and employees in such 
preparation, investigation, or grand jury proceeding. 
"(B) REQUIREMENTS.—A request meets the requirements 
of this subparagraph if the request is in writing and sets 
forth— 
"(i) the name and address of the taxpayer with 
respect to whom the requested return 
information 
relates; 
"(ii) the taxable period or periods to which such 
return information relates; 
"(iii) the statutory authority under which the pro-
ceeding or investigation described in subparagraph (A) 
is being conducted; and 
"(iv) the specific reason or reasons why such disclo-
sure is, or may be, relevant to such proceeding or 
investigation. 
"(C) TAXPAYER IDENTITY.—For purposes of this paragraph, 
a taxpayer's identity shall not be treated as taxpayer 
return information. 
"(3) DISCLOSURE O F R E T U R N I N F O R M A T I O N TO A P P R I S E APPROPRI-
ATE 
OFFICIALS 
OF 
CRIMINAL 
ACTIVITIES 
OR 
EMERGENCY 
CIRCUMSTANCES. — 
"(A) POSSIBLE VIOLATIONS OF FEDERAL CRIMINAL LAW.— 
"(i) I N GENERAL.—Except as provided in paragraph 
(6), the Secretary may disclose in writing return infor-
mation (other than taxpayer return information) which 
may constitute evidence of a violation of any Federal 
criminal law (not involving tax administration) to the 
extent necessary to apprise the head of the appropriate 
Federal agency charged with the responsibility of 
enforcing such law. The head of such agency may 
disclose 
such 
return 
information 
to officers and 
employees of such agency to the extent necessary to 
enforce such law. 
"(ii) TAXPAYER IDENTITY.—If there is return informa-
tion (other than taxpayer return information) which 
may constitute evidence of a violation by any taxpayer 
of any Federal criminal law (not involving tax adminis-
tration), such taxpayer's identity may also be disclosed 
under clause (i). 
"(B) EMERGENCY CIRCUMSTANCES.— 
"(i) DANGER OF DEATH OR PHYSICAL INJURY.—Under 
circumstances involving an imminent danger of death 
or physical injury to any individual, the Secretary may 
disclose return information to the extent necessary to 
apprise 
appropriate 
officers or employees of any 
Federal or State law enforcement 
agency of such 
circumstances. 
"(ii) FLIGHT FROM FEDERAL PROSECUTION.—Under cir-
cumstances involving the imminent flight of any indi-
vidual from Federal prosecution, the Secretary may 
disclose return information to the extent necessary to 
apprise 
appropriate 
officers or employees of any 
Federal law enforcement agency of such circumstances. 
"(4) USE OF CERTAIN DISCLOSED RETURNS AND RETURN INFORMA-
TION IN JUDICIAL OR ADMINISTRATIVE PROCEEDINGS.— 
96 STAT. 644 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(A) RETURNS AND TAXPAYER RETURN INFORMATION.— 
Except as provided in subparagraph (C), any return or 
taxpayer return information obtained under paragraph (1) 
may be disclosed in any judicial or administrative proceed-
ing pertaining to enforcement of a specifically designated 
Federal criminal statute or related civil forfeiture (not 
involving tax administration) to which the United States or 
a Federal agency is a party— 
"(i) if the court finds that such return or taxpayer 
return information is probative of a matter in issue 
relevant in establishing the commission of a crime or 
the guilt or liability of a party, or 
"(ii) to the extent required by order of the court 
pursuant to section 3500 of title 18, United States Code, 
18 use app. 
or rule 16 of the Federal Rules of Criminal Procedure. 
"(B) RETURN INFORMATION (OTHER THAN TAXPAYER RETURN 
INFORMATION).—Except as provided in subparagraph (C), 
any return information (other than taxpayer return infor-
mation) obtained under paragraph (1), (2), or (3)(A) may be 
disclosed in any judicial or administrative proceeding per-
taining to enforcement of a specifically designated Federal 
criminal statute or related civil forfeiture (not involving tax 
administration) to which the United States or a Federal 
agency is a party. 
"(C) CONFIDENTIAL INFORMANT; IMPAIRMENT OF INVESTIGA-
TIONS.—No return or return information shall be admitted 
into evidence under subparagraph (A)(i) or (B) if the Secre-
tary determines and notifies the Attorney General or his 
delegate or the head of the Federal agency that such admis-
sion would identify a confidential informant or seriously 
impair a civil or criminal tax investigation. 
"(D) 
CONSIDERATION OF CONFIDENTIALITY POLICY.—In 
ruling upon the admissibility of returns or return informa-
tion, and in the issuance of an order under subparagraph 
(A)(ii), the court 
shall 
give due consideration to 
congressional policy favoring the confidentiality of returns 
and return information as set forth in this title. 
"(E) REVERSIBLE ERROR.—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 the proceeding. 
"(5) DISCLOSURE TO LOCATE FUGITIVES FROM JUSTICE.— 
"(A) IN GENERAL.—Except as provided in paragraph (6), 
the return of an individual or return information with 
respect to such individual shall, pursuant to and upon the 
grant of an ex parte order by a Federal district court judge 
or magistrate under subparagraph (B), be open (but only to 
the extent necessary as provided in such order) to inspec-
tion by, or disclosure to, officers and employees of any 
Federal agency exclusively for use in locating such 
individual. 
"(B) APPLICATION FOR ORDER.—Any person described in 
paragraph (1)(B) may authorize an application to a Federal 
district court judge or magistrate for an order referred to in 
subparagraph (A). Upon such application, such judge or 
magistrate may grant such order if he determines on the 
basis of the facts submitted by the applicant that— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 645 
"(i) a Federal arrest warrant relating to the commis-
sion of a Federal felony offense has been issued for an 
individual who is a fugitive from justice, 
"(ii) the return of such individual or return informa-
tion with respect to such individual is sought exclu-
sively for use in locating such individual, and 
"(iii) there is reasonable cause to believe that such 
return or return information may be relevant in deter-
mining the location of such individual. 
"(6) CONFIDENTIAL INFORMANTS; IMPAIRMENT OF INVESTIGA-
TIONS.—The Secretary shall not disclose any return or return 
information under paragraph (1), (2), (3)(A), (5), or (7) if the 
Secretary determines (and, in the case of a request for disclo-
sure pursuant to a court order described in paragraph (1)(B) or 
(5)(B), certifies to the court) that such disclosure would identify 
a confidential informant or seriously impair a civil or criminal 
tax investigation.". 
(b) CONFORMING AMENDMENTS.— 
(1) Subsection (p) of section 6103 (relating to procedure and 
26 USC 6103. 
recordkeeping) is amended— 
(A) by striking out "(6)(A)(ii)" in paragraph (3XA) and 
inserting in lieu thereof "(7)(A)(ii)", 
(B) by striking out "(d)" in paragraph (3)(C)(i) and insert-
ing in lieu thereof "(d), (i)(3XB)(i),", 
(C) by striking out "such requests" in 
paragraph 
(3)(C)(i)(II) and inserting in lieu thereof "such requests or 
otherwise", 
(D) by striking out "(i)(l), (2), or (5)" each place it appears 
in paragraph (4) and inserting in lieu thereof "(i)(l), (2), (3), 
or (5)", 
(E) by striking out "(d)" each place it appears in para-
graph (4) and inserting in lieu thereof "(d), (i)(3)(B)(i),", and 
(F) by striking out "subsection (i)(6)(A)(ii)" in paragraph 
(6)(B)(i) 
and 
inserting 
in 
lieu 
thereof 
"subsection 
(i)(7)(A)(ii)". 
(2) Paragraph (2) of section 7213(a) (relating to unauthorized 
26 USC 7213. 
disclosure of information) is amended by striking out "(d)" and 
inserting in lieu thereof "(d), (i)(3)(B)(i),". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 6103 
take effect on the day after the date of the enactment of this Act. 
"°^-
SEC. 357. CIVIL DAMAGES AGAINST UNITED STATES FOR UNAUTHORIZED 
DISCLOSURES BY AN EMPLOYEE. 
(a) IN GENERAL.—Subchapter B of chapter 76 (relating to proceed-
ings by taxpayers and third parties) is amended by redesignating 
section 7431 as section 7432 and inserting after section 7430 the 
26 USC 7432. 
following new section: 
"SEC. 7431. CIVIL DAMAGES FOR UNAUTHORIZED DISCLOSURE OF 
26 USC 7431 
RETURNS AND RETURN INFORMATION. 
"(a) IN GENERAL.— 
"(1) DISCLOSURE BY EMPLOYEE OF UNITED STATES.—If any offi-
cer or employee of the United States knowingly, or by reason of 
negligence, discloses any return or return information with 
respect to a taxpayer in violation of any provision of section 
6103, such taxpayer may bring a civil action for damages 
96 STAT. 646 
PUBLIC LAW 97-248—SEPT. 3, 1982 
against the United States in a district court of the United 
States. 
"(2) DISCLOSURE BY A PERSON WHO IS NOT AN EMPLOYEE OF 
UNITED STATES.—If any person who is not an officer or employee 
of the United States knowingly, or by reason of negligence, 
discloses any return or return information with respect to a 
taxpayer in violation of any provision of section 6103, such 
taxpayer may bring a civil action for damages against such 
person in a district court of the United States. 
"(b) No LIABILITY FOR GOOD FAITH BUT ERRONEOUS INTERPRETA-
TION.—No liability shall arise under this section with respect to any 
disclosure which results from a good faith, but erroneous, interpre-
tation of section 6103. 
"(c) DAMAGES.—In any action brought under subsection (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 o
f
— 
"(1) the greater o
f
— 
"(A) $1,000 for each act of unauthorized disclosure of a 
return or return information with respect to which such 
defendant is found liable, or 
"(B) the sum o
f
— 
"(i) the actual damages sustained by the plaintiff as a 
result of such unauthorized disclosure, plus 
"(ii) in the case of a willful disclosure or a disclosure 
which is the result of gross negligence, punitive dam-
ages, plus 
"(2) the costs of the action. 
"(d) PERIOD FOR BRINGING ACTION.—Notwithstanding any other 
provision of law, an action to enforce any liability created under this 
section may be brought, without regard to the amount in contro-
versy, at any time within 2 years after the date of discovery by the 
plaintiff of the unauthorized disclosure. 
"(e) RETURN; RETURN INFORMATION.—For purposes of this section, 
the terms 'return' and 'return information' have the respective 
meanings given such terms in section 6103(b)." 
(b) CONFORMING AMENDMENTS.— 
Repeal. 
(1) Section 7217 (relating to civil damages for unauthorized 
26 use 7217. 
disclosure of returns and return 
information) is hereby 
repealed. 
(2) The table of sections for part I of subchapter A of chapter 
75 is amended by striking out the item relating to section 7217. 
(3) The table of sections for subchapter B of chapter 76 is 
amended by striking out the item relating to section 7431 and 
inserting in lieu thereof the following: 
"Sec. 7431. Civil damages for unauthorized disclosure of returns and return 
information. 
"Sec. 7432. Cross references." 
26 use 7431 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
"°*'®- 
apply with respect to disclosures made after the date of enactment 
of this Act. 
SEC. 358. DISCLOSURE FOR USE IN CERTAIN AUDITS B
Y GENERAL 
ACCOUNTING OFFICE. 
Ante, p. 641. 
(a) IN GENERAL.—Paragraph (7) of section 6103(i) (relating to 
disclosure to Comptroller General), as redesignated by section 396(a), 
is amended by redesignating subparagraph (B) as subparagraph (C) 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 647 
and by inserting after subparagraph (A) the following new subpara-
graph: 
"(B) AUDITS OF OTHER AGENCIES.— 
"(i) IN GENERAL.—Nothing in this section shall pro-
hibit any return or return information obtained under 
this title by any Federal agency (other than an agency 
referred to in subparagraph (A)) for use in any program 
or activity from being open to inspection by, or disclo-
sure to, officers and employees of the General Account-
ing Office if such inspection or disclosure is— 
"(I) for purposes of, and to the extent necessary 
in, making an audit authorized by law of such 
program or activity, and 
"(II) pursuant to a written request by the Comp-
troller General of the United States to the head of 
such Federal agency, 
"(ii) INFORMATION FROM SECRETARY.—If the Comptrol-
ler General of the United States determines that the 
returns or return information available under clause (i) 
are not sufficient for purposes of making an audit of 
any program or activity of a Federal agency (other than 
an agency referred to in subparagraph (A)), upon writ-
ten request by the Comptroller General to the Secre-
tary, returns and return information (of the type 
authorized by subsection (1) or (m) to be made available 
to the Federal agency for use in such program or 
activity) shall be open to inspection by, or disclosure to, 
officers and employees of the General 
Accounting 
Office for the purpose of, and to the extent necessary 
in, making such audit. 
"(iii) REQUIREMENT OF NOTIFICATION UPON COMPLE-
TION OF AUDIT.—Within 90 days after the completion of 
an audit with respect to which returns or return infor-
mation were opened to inspection or disclosed under 
clause (i) or (ii), the Comptroller General of the United 
States shall notify in writing the Joint Committee on 
Taxation 
of such 
completion. 
Such 
notice 
shall 
include— 
"(I) a description of the use of the returns and 
return information by the Federal agency involved, 
"(II) such recommendations with respect to the 
use of returns and return information by such 
Federal agency as the Comptroller General deems 
appropriate, and 
"(III) a statement on the impact of any such 
recommendations on confidentiality of returns and 
return information and the administration of this 
title. 
"(iv) CERTAIN RESTRICTIONS MADE APPLICABLE.—The 
restrictions contained in subparagraph (A) on the dis-
closure of any returns or return information open to 
inspection or disclosed under such subparagraph shall 
also apply to returns and return information open to 
inspection or disclosed under this subparagraph." 
96 STAT. 648 
PUBLIC LAW 97-248—SEPT. 3, 1982 
26 u s e 6103. 
26 u s e 6103 
note. 
Tax Treatment 
of Partnership 
Items Act of 
1982. 
(b) CONFORMING AMENDMENTS.— 
(1) Subparagraph (A) of section 6103(i)(7) of such Code (as 
redesignated by this Act) is amended by striking out "subpara-
graph (B)" and inserting in lieu thereof "subparagraph (C)". 
(2) Subparagraph (C) of section 6103(i)(7) of such Code (as 
redesignated by this Act) is amended by striking out "subpara-
graph (A)" and inserting in lieu thereof "subparagraph (A) or 
(B)'^. 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
take effect on the day after the date of the enactment of this Act. 
TITLE IV—TAX TREATMENT OF 
PARTNERSHIP ITEMS 
26 u s e 1 note. 
26 u s e 6221. 
26 u s e 6222. 
SEC. 401. SHORT TITLE. 
This title may be cited as the 
Items Act of 1982". 
'Tax Treatment of Partnership 
SEC. 402. TAX TREATMENT OF PARTNERSHIP ITEMS. 
(a) GENERAL RULE.—Chapter 63 (relating to assessment) is 
amended by adding at the end thereof the following new subchapter: 
"Subchapter C—Tax Treatment of Partnership Items 
"Sec. 6221. Tax treatment determined at partnership level. 
"Sec. 6222. Partner's return must be consistent with partnership return or 
Secretary notified of inconsistency. 
"Sec. 6228. Notice to partners of proceedings. 
"Sec. 6224. Participation in administrative proceedings; waivers; agree-
ments. 
"Sec. 6225. Assessments made only after partnership level proceedings are 
completed. 
"Sec. 6226. Judicial review of final partnership administrative adjust-
ments. 
"Sec. 6227. Administrative adjustment requests. 
"Sec. 6228. Judicial review where administrative adjustment request is not 
allowed in full. 
"Sec. 6229. Period of limitations for making assessments. 
"Sec. 6280. Additional administrative provisions. 
"Sec. 62.S1. Definitions and special rules. 
"Sec. 6282. Extension of subchapter to windfall profit tax. 
"SEC. 6221. TAX TREATMENT DETERMINED AT PARTNERSHIP LEVEL. 
"Except as otherwise provided in this subchapter, the tax treat-
ment of any partnership item shall be determined at the partner-
ship level. 
"SEC. 6222. PARTNER'S RETl'RN MUST BE CONSISTENT WITH PARTNER-
SHIP 
RETURN 
OR 
SECRETARY 
NOTIFIED 
OF 
INCONSISTENCY. 
"(a) IN GENERAL.—A partner shall, on the partner's return, treat 
a partnership item in a manner which is consistent with the treat-
ment of such partnership item on the partnership return. 
"(b) NOTIFICATION OF INCONSISTENT TREATMENT.— 
"(1) IN GENERAL.—In the case of any partnership item, i
f
— 
"(A)(i) the partnership has filed a return but the part-
ner's treatment on his return is (or may be) inconsistent 
with the treatment of the item on the partnership return, 
or 
"(ii) the partnership has not filed a return, and 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 649 
"(B) the partner files with the Secretary a statement 
identifying the inconsistency, 
subsection (a) shall not apply to such item. 
"(2) PARTNER RECEIVING INCORRECT INFORMATION.—A partner 
shall be treated as having complied with subparagraph (B) of 
paragraph (1) with 
respect to a partnership 
item if the 
partner— 
"(A) demonstrates to the satisfaction of the Secretary 
that the treatment of the partnership item on the partner's 
return is consistent with the treatment of the item on the 
schedule furnished to the partner by the partnership, and 
"(B) elects to have this paragraph apply with respect to 
that item. 
"(c) EFFECT OF FAILURE T O NOTIFY.—In any case— 
"(1) described in paragraph (l)(A)(i) of subsection (b), and 
"(2) in which the partner does not comply with paragraph 
(1)(B) of subsection (b), 
section 6225 shall not apply to any part of a deficiency attributable 
to any computational adjustment required to make the treatment of 
the items by such partner consistent with the treatment of the items 
on the partnership return. 
"(d) ADDITION TO TAX FOR FAILURE T O COMPLY WITH SECTION.— 
"F'or addition to tax in the case of a partner's intentional or negligent 
disregard of requirements of this section, see section 6653(a). 
"SEC. 6223. NOTICE TO PARTNERS OF PROCEEDINGS. 
26 USC 6228. 
"(a) SECRETARY MUST GIVE PARTNERS NOTICE OF BEGINNING AND 
COMPLETION OF ADMINISTRATIVE PROCEEDINGS.—The Secretary shall 
mail to each partner whose name and address is furnished to the 
Secretary notice of— 
"(1) the beginning of an administrative proceeding at the 
partnership level with respect to a partnership item, and 
"(2) the final partnership administrative adjustment resulting 
from any such proceeding. 
A partner shall not be entitled to any notice under this subsection 
unless the Secretary has received (at least 30 days before it is mailed 
to the tax matters partner) sufficient information to enable the 
Secretary to determine that such partner is entitled to such notice 
and to provide such notice to such partner. 
"(b) SPECIAL RULES FOR PARTNERSHIP WITH 
MORE THAN 100 
PARTNERS.— 
"(1) PARTNER WITH LESS THAN i PERCENT INTEREST.—Except as 
provided in paragraph (2), subsection (a) shall not apply to a 
partner if— 
"(A) the partnership has more than 100 partners, and 
"(B) the partner has a less than 1 percent interest in the 
profits of the partnership. 
"(2) SECRETARY MUST GIVE NOTICE TO NOTICE GROUP.—If a 
group of partners in the aggregate having a 5 percent or more 
interest in the profits of a partnership so request and designate 
one of their members to receive the notice, the member so 
designated shall be treated as a partner to whom subsection (a) 
applies. 
"(c) INFORMATION BASE FOR SECRETARY'S NOTICES, ETC.—For pur-
poses of this subchapter— 
96 STAT. 650 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(1) INFORMATION ON PARTNERSHIP RETURN.—Except as pro-
vided in paragraphs (2) and (3), the Secretary shall use the 
names, addresses, and profits interests shown on the partner-
ship return. 
"(2) USE OF ADDITIONAL INFORMATION.—The Secretary shall 
use additional information furnished to him by the tax matters 
partner or any other person in accordance with regulations 
prescribed by the Secretary. 
"(3) SPECIAL RULE WITH RESPECT TO INDIRECT PARTNERS.—If 
any information furnished to the Secretary under paragraph (1) 
or (2)— 
"(A) shows that a person has a profits interest in the 
partnership by reason of ownership of an interest through 1 
or more pass-thru partners, and 
"(B) contains the name, address, and profits interest of 
such person, 
then the Secretary shall use the name, address, and profits 
interest of such person with respect to such partnership interest 
(in lieu of the names, addresses, and profits interests of the pass-
thru partners). 
"(d) PERIOD FOR MAILING NOTICE.— 
"(1) NOTICE OF BEGINNING OF PROCEEDINGS.—The Secretary 
shall mail the notice specified in paragraph (1) of subsection (a) 
to each partner entitled to such notice not later than the 120th 
day before the day on which the notice specified in paragraph 
(2) of subsection (a) is mailed to the tax matters partner. 
"(2) NOTICE OF FINAL PARTNERSHIP ADMINISTRATIVE ADJUST-
MENT.—The Secretary shall mail the notice specified in para-
graph (2) of subsection (a) to each partner entitled to such notice 
not later than the 60th day after the day on which the notice 
specified in such paragraph (2) was mailed to the tax matters 
partner. 
"(e) EFFECT OF SECRETARY'S FAILURE TO PROVIDE NOTICE.— 
"(1) APPLICATION OF SUBSECTION.— 
"(A) IN GENERAL.—This subsection applies where the Sec-
retary has failed to mail any notice specified in subsection 
(a) to a partner entitled to such notice within the period 
specified in subsection (d). 
"(B) SPECIAL RULES FOR PARTNERSHIPS WITH MORE THAN 
100 PARTNERS.—For purposes of subparagraph (A), any part-
ner described in paragraph (1) of subsection (b) shall be 
treated as entitled to notice specified in subsection (a). The 
Secretary may provide such notice— 
"(i) except as provided in clause (ii), by mailing notice 
to the tax matters partner, or 
"(ii) in the case of a member of a notice group which 
qualifies under paragraph (2) of subsection (b), by mail-
ing notice to the partner designated for such purpose 
by the group. 
"(2) PROCEEDINGS FINISHED.—In any case to which this subsec-
tion applies, if at the time the Secretary mails the partner 
notice of the proceeding— 
"(A) the period within which a petition for review of a 
final partnership administrative adjustment under section 
6226 may be filed has expired and no such petition has been 
filed, or 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 651 
"(B) the decision of a court in an action begun by such a 
petition has become final, 
the partner may elect to have such adjustment, such decision, or 
a settlement agreement described in paragraph (2) of section 
6224(c) with respect to the partnership taxable year to which 
the adjustment relates apply to such partner. If the partner 
does not make an election under the preceding sentence, the 
partnership items of the partner for the partnership taxable 
year to which the proceeding relates shall be treated as non-
partnership items. 
"(3) PROCEEDINGS STILL GOING ON.—In any case to which this 
subsection applies, if paragraph (2) does not apply, the partner 
shall be a party to the proceeding unless such partner elects— 
"(A) to have a settlement agreement described in para-
graph (2) of section 6224(c) with respect to the partnership 
taxable year to which the proceeding relates apply to the 
partner, or 
"(B) to have the partnership items of the partner for the 
partnership taxable year to which the proceeding relates 
treated as nonpartnership items. 
"(f) ONLY ONE NOTICE OF FINAL PARTNERSHIP ADMINISTRATIVE 
ADJUSTMENT.—If the Secretary mails a notice of final partnership 
administrative adjustment for a partnership taxable year with 
respect to a partner, the Secretary may not mail another such notice 
to such partner with respect to the same taxable year of the same 
partnership in the absence of a showing of fraud, malfeasance, or 
misrepresentation of a material fact. 
"(g) TAX MATTERS PARTNER MUST KEEP PARTNERS INFORMED OF 
PROCEEDINGS.—To the extent and in the manner provided by regula-
tions, the tax matters partner of a partnership shall keep each 
partner informed of all administrative and judicial proceedings for 
the adjustment at the partnership level of partnership items. 
"(h) PASS-THRU PARTNER REQUIRED TO FORWARD NOTICE.— 
"(1) IN GENERAL.—If a pass-thru partner receives a notice 
with respect to a partnership proceeding from the Secretary, 
the tax matters partner, or another pass-thru partner, the pass-
thru partner shall, within 30 days of receiving that notice, 
forward a copy of that notice to the person or persons holding 
an interest (through the pass-thru partner) in the profits or 
losses of the partnership for the partnership taxable year to 
which the notice relates. 
"(2) PARTNERSHIP AS PASS-THRU PARTNER.—In the case of a 
pass-thru partner which is a partnership, the tax matters part-
ner of such partnership shall be responsible for forwarding 
copies of the notice to the partners of such partnership. 
"SEC. 6224. PARTICIPATION IN ADMINISTRATIVE PROCEEDINGS; WAIVERS; 
26 USC 6224. 
AGREEMENTS. 
"(a) PARTICIPATION IN ADMINISTRATIVE PROCEEDINGS.—Any part-
ner has the right to participate in any administrative proceeding 
relating to the determination 
of partnership 
items at 
the 
partnership level. 
"(b) PARTNER MAY WAIVE RIGHTS.— 
"(1) IN GENERAL.—A partner may at any time waive— 
"(A) any right such partner has under this subchapter, 
and 
96 STAT. 652 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(B) any restriction under this subchapter on action by 
the Secretary. 
"(2) FORM.—Any waiver under paragraph (1) shall be made by 
a signed notice in writing filed with the Secretary, 
"(c) SETTLEMENT AGREEMENT.—In the absence of a showing of 
fraud, malfeasance, or misrepresentation of fact— 
"(1) BINDS ALL PARTIES.—A settlement agreement between the 
Secretary and 1 or more partners in a partnership with respect 
to the determination of partnership items for any partnership 
taxable year shall (except as otherwise provided in such agree-
ment) be binding on all parties to such agreement with respect 
to the determination of partnership items for such partnership 
taxable year. An indirect partner is bound by any such agree-
ment entered into by the pass-thru partner unless the indirect 
partner has been identified as provided in section 6223(c)(3). 
"(2) OTHER PARTNERS HAVE RIGHT TO ENTER INTO CONSISTENT 
AGREEMENTS.—If the Secretary enters into a settlement agree-
ment with any partner with respect to partnership items for 
any partnership taxable year, the Secretary shall offer to any 
other partner who so requests settlement terms for the partner-
ship taxable year which are consistent with those contained in 
such settlement agreement. Except in the case of an election 
under paragraph (2) or (3) of section 6223(e) to have a settlement 
agreement described in this paragraph apply, this paragraph 
shall apply with respect to a settlement agreement entered into 
with a partner before notice of a final partnership administra-
tive adjustment is mailed to the tax matters partner only if 
such other partner makes the request before the expiration of 
150 days after the day on which such notice is mailed to the tax 
matters partner. 
"(3) TAX MATTERS 
PARTNER MAY BIND 
CERTAIN OTHER 
PARTNERS.— 
"(A) IN GENERAL.—A partner who is not a notice partner 
(and not a member of a notice group described in subsection 
(b)(2) of section 6223) shall be bound by any settlement 
agreement— 
"(i) which is entered into by the tax matters partner, 
and 
"(ii) in which the tax matters partner expressly 
states that such agreement shall bind the other 
partners. 
"(B) EXCEPTION.—Subparagraph (A) shall not apply to 
any partner who (within the time prescribed by the Secre-
tary) files a statement with the Secretary providing that 
the tax matters partner shall not have the authority to 
enter into a settlement agreement on behalf of such 
partner. 
26 u s e 6225. 
"SEC. 6225. ASSESSMENTS MADE ONLY AFTER PARTNERSHIP LEVEL 
PROCEEDINGS ARE COMPLETED. 
"(a) RESTRICTION ON ASSESSMENT AND COLLECTION.—Except as 
otherwise provided in this subchapter, no assessment of a deficiency 
attributable to any partnership item may be made (and no levy or 
proceeding in any court for the collection of any such deficiency may 
be made, begun, or prosecuted) before— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 653 
"(1) the close of the 150th day after the day on which a notice 
of a final partnership administrative adjustment was mailed to 
the tax matters partner, and 
"(2) if a proceeding is begun in the Tax Court under section 
6226 during such 150-day period, the decision of the court in 
such proceeding has become final. 
"(b) PREMATURE ACTION MAY B E ENJOINED.—Notwithstanding 
section 7421(a), any action which violates subsection (a) may be 
enjoined in the proper court. 
"(c) LIMIT WHERE N O PROCEEDING BEGUN.—If no proceeding under 
section 6226 is begun with respect to any final partnership adminis-
trative adjustment during the 150-day period described in subsection 
(a), the deficiency assessed against any partner with respect to the 
partnership items to which such adjustment relates shall not exceed 
the amount determined in accordance with such adjustment. 
"SP]C. 6226. JUDICIAL REVIEW O
P
^ FINAL PARTNERSHIP ADMINISTRATIVE 
26 USC 6226. 
ADJUSTMENTS. 
"(a) PETITION BY TAX MATTERS PARTNER.—Within 90 days after 
the day on which a notice of a final partnership administrative 
adjustment is mailed to the tax matters partner, the tax matters 
partner may file a petition for a readjustment of the partnership 
items for such taxable year with— 
"(1) the Tax Court, 
"(2) the district court of the United States for the district in 
which the partnership's principal place of business is located, or 
"(3) the Claims Court. 
"(b) PETITION BY PARTNER OTHER THAN TAX MATTERS PARTNER.— 
"(1) IN GENERAL.—If the tax matters partner does not file a 
readjustment petition under subsection (a) with respect to any 
final partnership administrative adjustment, any notice partner 
(and any 5-percent group) may, within 60 days after the close of 
the 90-day period set forth in subsection (a), file a petition for a 
readjustment of the partnership items for the taxable year 
involved with any of the courts described in subsection (a). 
"(2) PRIORITY OF THE TAX COURT ACTION.—If more than 1 
action is brought under paragraph (1) with respect to any 
partnership for any partnership taxable year, the first such 
action brought in the Tax Court shall go forward. 
"(3) PRIORITY OUTSIDE THE TAX COURT.—If more than 1 action 
is brought under paragraph (1) with respect to any partnership 
for any taxable year but no such action is brought in the Tax 
Court, the first such action brought shall go forward. 
"(4) DISMISSAL OF OTHER ACTIONS.—If an action is brought 
under paragraph (1) in addition to the action which goes for-
ward under paragraph (2) or (3), such action shall be dismissed. 
"(5) TAX MATTERS PARTNER MAY INTERVENE.—The tax matters 
partner may intervene in any action brought 
under 
this 
subsection. 
"(c) PARTNERS TREATED AS PARTIES.—If an action is brought under 
subsection (a) or (b) with 
respect to a partnership for any 
partnership taxable year— 
"(1) each person who was a partner in such partnership at 
any time during such year shall be treated as a party to such 
action, and 
"(2) the court having jurisdiction of such action shall allow 
each such person to participate in the action. 
96 STAT. 654 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(d) PARTNER MUST HAVE INTEREST IN OUTCOME.— 
"(1) IN ORDER TO BE PARTY TO ACTION.—Subsection (c) shall not 
apply to a partner after the day on which— 
"(A) the partnership items of such partner for the part-
nership taxable year became nonpartnership items by 
reason of 1 or more of the events described in subsection (b) 
of section 6231, or 
"(B) the period within which any tax attributable to such 
partnership items may be assessed against that partner 
expired. 
"(2) To FILE PETITION.—No partner may file a readjustment 
petition under subsection (b) unless such partner would (after 
the application of paragraph (1) of this subsection) be treated as 
a party to the proceeding. 
"(e) JURISDICTIONAL REQUIREMENT FOR BRINGING ACTION IN DIS-
TRICT COURT OR CLAIMS COURT.— 
"(1) IN GENERAL.—A readjustment petition under this section 
may be filed in a district court of the United States or the 
Claims Court only if the partner filing the petition deposits with 
the Secretary, on or before the day the petition is filed, the 
amount by which the tax liability of the partner would be 
increased if the treatment of partnership items on the partner's 
return were made consistent with the treatment of partnership 
items on the partnership return, as adjusted by the final part-
nership administrative adjustment. In the case of a petition 
filed by a 5-percent group, the requirement of the preceding 
sentence shall apply to each member of the group. The court 
may by order provide that the jurisdictional requirements of 
this paragraph are satisfied where there has been a good faith 
attempt to satisfy such requirements and any shortfall in the 
amount required to be deposited is timely corrected. 
"(2) REFUND ON REQUEST.—If an action brought in a district 
court of the United States or in the Claims Court is dismissed by 
reason of the priority of a Tax Court action under paragraph (2) 
of subsection (b), the Secretary shall, at the request of the 
partner who made the deposit, refund the amount deposited 
under paragraph (1). 
"(3) INTEREST PAYABLE.—Any amount deposited under para-
graph (1), while deposited, shall not be treated as a payment of 
26 use 6601 et 
tax for purposes of this title (other than chapter 67). 
**9- 
"(f) SCOPE OF JUDICIAL REVIEW.—A court with which a petition is 
filed in accordance with this section shall have jurisdiction to 
determine all partnership items of the partnership for the partner-
ship taxable year to which the notice of final partnership adminis-
trative adjustment relates and the proper allocation of such items 
among the partners. 
"(g) DETERMINATION OF COURT REVIEWABLE.—Any determination 
by a court under this section shall have the force and effect of a 
decision of the Tax Court or a final judgment or decree of the 
district court or the Claims Court, as the case may be, and shall be 
reviewable as such. Only the tax matters partner, a notice partner, 
or a 5-percent group may seek review of a determination by a court 
under this section. 
"(h) EFFECT OF DECISION DISMISSING ACTION.—If an action brought 
under this section is dismissed (other than under paragraph (4) of 
subsection (b)), the decision of the court dismissing the action shall 
be considered as its decision that the notice of final partnership 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 655 
administrative adjustment is correct, and an appropriate order shall 
be entered in the records of the court. 
"SFX:. 6227. ADMINISTRATIVE ADJUSTMENT REQUESTS. 
26 USC 6227. 
"(a) GENERAL RULE.—A partner may file a request for an 
administrative adjustment of partnership items for any partnership 
taxable year at any time which is— 
"(1) within 3 years after the later of— 
"(A) the date on which the partnership return for such 
year is filed, or 
"(B) the last day for filing the partnership return for such 
year (determined without regard to extensions), and 
"(2) before the mailing to the tax matters partner of a notice 
of final partnership administrative adjustment with respect to 
such taxable year. 
"(b) REQUESTS BY TAX MATTERS PARTNER ON BEHALF OF PARTNER-
SHIP.— 
"(1) SUBSTITUTED RETURN.—If the tax matters partner— 
"(A) files a request for an administrative adjustment, and 
"(B) asks that the treatment shown on the request be 
substituted for the treatment of partnership items on the 
partnership return to which the request relates, 
the Secretary may treat the changes shown on such request as 
corrections of mathematical or clerical errors appearing on the 
partnership return. 
"(2) REQUESTS NOT TREATED AS SUBSTITUTED RETURNS.— 
"(A) IN GENERAL.—If the tax matters partner files an 
administrative adjustment request on behalf of the partner-
ship which is not treated as a substituted return under 
paragraph (1), the Secretary may, with respect to all or any 
part of the requested adjustments— 
"(i) without conducting any proceeding, allow or 
make to all partners the credits or refunds arising from 
the requested adjustments, 
"(ii) conduct a partnership proceeding under this 
subchapter, or 
"(iii) take no action on the request. 
"(B) EXCEPTIONS.—Clause (i) of subparagraph (A) shall 
not apply with respect to a partner after the day on which 
the partnership items become nonpartnership items by 
reason of 1 or more of the events described in subsection (b) 
of section 6231. 
Post,p.ms. 
"(3) REQUEST MUST SHOV^T EFFECT ON DISTRIBUTIVE SHARES.— 
The tax matters partner shall furnish with any administrative 
adjustment request on behalf of the partnership revised sched-
ules showing the effect of such request on the distributive 
shares of the partners and such other information as may be 
required under regulations. 
"(c) OTHER REQUESTS.—If any partner files a request for an admin-
istrative adjustment (other than a request described in subsection 
(b)), the Secretary may— 
"(1) process the request in the same manner as a claim for 
credit or refund with respect to items which are not partnership 
items, 
"(2) assess any additional tax that would result from the 
requested adjustments, 
96 STAT. 656 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(3) mail to the partner, under subparagraph (A) of section 
6231(b)(1) (relating to items becoming nonpartnership items), a 
notice that all partnership items of the partner for the partner-
ship taxable year to which such request relates shall be treated 
as nonpartnership items, or 
"(4) conduct a partnership proceeding. 
26 use 6228. 
"SEC. 6228. JUDICIAL REVIEW WHERE ADMINISTRATIVE ADJUSTMENT 
REQUEST IS NOT ALLOWED IN FULL. 
"(a) REQUEST ON BEHALF OF PARTNERSHIP.— 
"(1) IN GENERAL.—If any part of an administrative adjustment 
request filed by the tax matters partner under subsection (b) of 
section 6227 is not allowed by the Secretary, the tax matters 
partner may file a petition for an adjustment with respect to the 
partnership items to which such part of the request relates 
with— 
"(A) the Tax Court, 
"(B) the district court of the United States for the district 
in which the principal place of business of the partnership 
is located, or 
"(C) the Claims Court. 
"(2) PERIOD FOR FILING PETITION.— 
"(A) IN GENERAL.—A petition may be filed under para-
graph 
(1) 
with 
respect 
to 
partnership 
items 
for 
a 
partnership taxable year only— 
"(i) after the expiration of 6 months from the date of 
filing of the request under section 6227, and 
"(ii) before the date which is 2 years after the date of 
such request. 
"(B) No PETITION AFTER NOTICE OF BEGINNING OF ADMINIS-
TRATIVE PROCEEDING.—No petition 
may be 
filed 
under 
paragraph (1) after the day the Secretary mails to the 
partnership a notice of the beginning of an administrative 
proceeding with respect to the partnership taxable year to 
which such request relates. 
"(C) 
FAILURE BY SECRETARY TO ISSUE TIMELY NOTICE OF 
ADJUSTMENT.—If the Secretary— 
"(i) mails the notice referred to in subparagraph (B) 
before the expiration of the 2-year period referred to in 
clause (ii) of subparagraph (A), and 
"(ii) fails to mail a notice of final partnership admin-
istrative adjustment with respect to the partnership 
taxable year to which the request relates before the 
expiration of the period described in section 6229(a) 
(including any extension by agreement), 
subparagraph (B) shall cease to apply with respect to such 
request, and the 2-year period referred to in clause (ii) of 
subparagraph (A) shall not expire before the date 6 months 
after the expiration of the period described in section 
6229(a) (including any extension by agreement). 
"(D) EXTENSION OF TIME.—The 2-year period described in 
subparagraph (A)(ii) shall be extended for such period as 
may be agreed upon in writing between the tax matters 
partner and the Secretary. 
"(3) COORDINATION WITH ADMINISTRATIVE ADJUSTMENT.— 
"(A) ADMINISTRATIVE ADJUSTMENT BEFORE FILING OF PETI-
TION.—No petition may be filed under this subsection after 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 657 
the Secretary mails to the tax matters partner a notice of 
final partnership administrative adjustment for the part-
nership taxable year to which the request under subsection 
(b) of section 6227 relates. 
"(B) 
ADMINISTRATIVE 
ADJUSTMENT 
AFTER 
FILING BUT 
BEFORE HEARING OF PETITION.—If the Secretary mails to the 
tax matters partner a notice of final partnership adminis-
trative adjustment for the partnership taxable year to 
which the request under section 6227 relates after the filing 
of a petition under this subsection but before the hearing of 
such petition, such petition shall be treated as an action 
brought under section 6226 with respect to that administra-
tive adjustment, except that subsection (e) of section 6226 
shall not apply. 
"(C) NOTICE MUST BE BEFORE EXPIRATION OF STATUTE OF 
LIMITATIONS.—A notice of final partnership administrative 
adjustment for the partnership taxable year shall be taken 
into account under subparagraphs (A) and (B) only if such 
notice is mailed before the expiration of the period pre-
scribed by section 6229 for making assessments of tax 
attributable to partnership items for such taxable year. 
"(4) PARTNERS TREATED AS PARTY TO ACTION.— 
"(A) IN GENERAL.—If an action is brought by the tax 
matters partner under paragraph (1) with respect to any 
request for an adjustment of a partnership item for any 
taxable year— 
"(i) each person who was a partner in such partner-
ship at any time during the partnership taxable year 
involved shall be treated as a party to such action, and 
"(ii) the court having jurisdiction of such action shall 
allow each such person to participate in the action. 
"(B) PARTNERS MUST HAVE INTEREST IN OUTCOME.—For 
purposes of subparagraph (A), rules similar to the rules of 
paragraph (1) of section 6226(d) shall apply. 
"(5) SCOPE OF JUDICIAL REVIEW.—Except in the case described 
in subparagraph (B) of paragraph (3), a court with which a 
petition is filed in accordance with this subsection shall have 
jurisdiction to determine only those partnership items to which 
the part of the request under section 6227 not allowed by the 
Secretary relates and those items with respect to which the 
Secretary asserts adjustments as offsets to the adjustments 
requested by the tax matters partner. 
"(6) DETERMINATION OF COURT REVIEWABLE.—Any determina-
tion by a court under this subsection shall have the force and 
effect of a decision of the Tax Court or a final judgment or 
decree of the district court or the Claims Court, as the case may 
be, and shall be reviewable as such. Only the tax matters 
partner, a notice partner, or a 5-percent group may seek review 
of a determination by a court under this subsection. 
'(b) OTHER REQUESTS.— 
"(1) NOTICE PROVIDING THAT ITEMS BECOME NONPARTNERSHIP 
ITEMS.—If the Secretary mails to a partner, under subparagraph 
(A) of section 
6231(b)(1) (relating to items ceasing to be 
partnership items), a notice that all partnership items of the 
partner for the partnership taxable year to which a timely 
request for administrative adjustment under subsection (c) of 
section 6227 relates shall be treated as nonpartnership items— 
96 STAT. 658 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(A) such request shall be treated as a claim for credit or 
refund of an overpayment attributable to nonpartnership 
items, and 
"(B) the partner may bring an action under section 7422 
with respect to such claim at any time within 2 years of the 
mailing of such notice. 
"(2) OTHER CASES.— 
"(A) IN GENERAL.—If the Secretary fails to allow any part 
of an administrative adjustment request filed under subsec-
tion (c) of section 6227 by a partner and paragraph (1) does 
not apply— 
"(i) such partner may, pursuant to section 7422, begin 
a civil action for refund of any amount due by reason of 
the adjustments described in such part of the request, 
and 
"(ii) on the beginning of such civil action, the part-
nership items of such partner for the partnership tax-
able year to which such part of such request relates 
shall be treated as nonpartnership items for purposes 
of this subchapter. 
"(B) PERIOD FOR FILING PETITION.— 
"(i) I N GENERAL.—An action may be begun under 
subparagraph (A) with respect to an administrative 
adjustment 
request for a partnership taxable year 
only— 
"(I) after the expiration of 6 months from the 
date of filing of the request under section 6227, and 
"(II) before the date which is 2 years after the 
date of filing of such request. 
"(ii) 
EXTENSION 
OF 
TIME.—The 
2-year 
period 
described in subclause (II) of clause (i) shall be extended 
for such period as may be agreed upon in writing 
between the partner and the Secretary. 
"(C) ACTION BARRED AFTER PARTNERSHIP PROCEEDING HAS 
BEGUN.—No petition may be filed under subparagraph (A) 
with respect to an administrative adjustment request for a 
partnership taxable year after the Secretary mails to the 
partnership a notice of the beginning of a partnership 
proceeding with respect to such year. 
"(D) FAILURE BY SECRETARY TO ISSUE TIMELY NOTICE OF 
ADJUSTMENT.—If the Secretary— 
"(i) mails the notice referred to in subparagraph (C) 
before the expiration of the 2-year period referred to in 
clause (i) (II) of subparagraph (B), and 
"(ii) fails to mail a notice of final partnership admin-
istrative adjustment with respect to the partnership 
taxable year to which the request relates before the 
expiration of the period described in section 6229(a) 
(including any extension by agreement), 
subparagraph (C) shall cease to apply with respect to such 
request, and the 2-year period referred to in clause (i) (II) of 
subparagraph (B) shall not expire before the date 6 months 
after the expiration of the period described in section 
6229(a) (including any extension by agreement). 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 659 
"SEC. 6229. PERIOD OF LIMITATIONS FOR MAKING ASSESSMENTS. 
26 USC 6229. 
"(a) GENERAL RULE.—Except as otherwise provided in this section, 
the period for assessing any tax imposed by subtitle A with respect 
to any person which is attributable to any partnership item (or 
affected item) for a partnership taxable year shall not expire before 
the date which is 3 years after the later o
f
— 
"(1) the date on which the partnership return for such taxable 
year was filed, or 
"(2) the last day for filing such return for such year (deter-
mined without regard to extensions). 
"(b) EXTENSION BY AGREEMENT.— 
"(1) IN GENERAL.—The period described in subsection (a) 
(including an extension period under this subsection) may be 
extended— 
"(A) with respect to any partner, by an agreement 
entered into by the Secretary and such partner, and 
"(B) with respect to all partners, by an agreement entered 
into by the Secretary and the tax matters partner (or any 
other person authorized by the partnership in writing to 
enter into such an agreement), 
before the expiration of such period. 
"(2) COORDINATION WITH SECTION 6501 (c) (4).—Any agreement 
under section 6501(c)(4) shall apply with respect to the period 
described in subsection (a) only if the agreement expressly 
provides that such agreement applies to tax attributable to 
partnership items. 
"(c) SPECIAL RULE IN CASE OF FRAUD, ETC.— 
"(1) FALSE RETURN.—If any partner has, with the intent to 
evade tax, signed or participated directly or indirectly in the 
preparation of a partnership return which includes a false or 
fraudulent item— 
"(A) in the case of partners so signing or participating in 
the preparation of the return, any tax imposed by subtitle 
A which is attributable to any partnership item (or affected 
item) for the partnership taxable year to which the return 
relates may be assessed at any time, and 
"(B) in the case of all other partners, subsection (a) shall 
be applied with respect to such return by substituting '6 
years' for '3 years'. 
"(2) SUBSTANTIAL OMISSION OF INCOME.—If any partnership 
omits from gross income an amount properly includible therein 
which is in excess of 25 percent of the amount of gross income 
stated in its return, subsection (a) shall be applied by substitut-
ing '6 years' for '3 years'. 
"(3) No RETURN.—In the case of a failure by a partnership to 
file a return for any taxable year, any tax attributable to a 
partnership item (or affected item) arising in such year may be 
assessed at any time. 
"(4) RETURN FILED BY SECRETARY.—For purposes of this sec-
tion, a return executed by the Secretary under subsection (b) of 
section 6020 on behalf of the partnership shall not be treated as 
a return of the partnership. 
"(d) 
SUSPENSION 
WHEN 
SECRETARY 
MAKES 
ADMINISTRATIVE 
ADJUSTMENT.—If notice of a final partnership administrative adjust-
ment with respect to any taxable year is mailed to the tax matters 
96 STAT. 660 
PUBLIC LAW 97-248—SEPT. 3, 1982 
partner, the running of the period specified in subsection (a) (as 
modified by other provisions of this section) shall be suspended— 
"(1) for the period during which an action may be brought 
under section 6226 (and, if an action with respect to such 
administrative adjustment is brought during such period, until 
the decision of the court in such action becomes final), and 
"(2) for 1 year thereafter. 
"(e) UNIDENTIFIED PARTNER.—If— 
"(1) the name, address, and taxpayer identification number of 
a partner are not furnished on the partnership return for a 
partnership taxable year, and 
"(2)(A) the Secretary, before the expiration of the period 
otherwise provided under this section with respect to such 
partner, mails to the tax matters partner the notice specified in 
paragraph (2) of section 6223(a) with respect to such taxable 
year, or 
"(B) the partner has failed to comply with subsection (b) of 
section 6222 (relating to notification of inconsistent treatment) 
with respect to any partnership item for such taxable year, 
the period for assessing any tax imposed by subtitle A which is 
attributable to any partnership item (or affected item) for such 
taxable year shall not expire with respect to such partner before the 
date which is 1 year after the date on which the name, address, and 
taxpayer identification number of such partner are furnished to the 
Secretary. 
"(f) ITEMS BECOMING NONPARTNERSHIP ITEMS.—If, before the expi-
ration of the period otherwise provided in this section for assessing 
any tax imposed by subtitle A with respect to the partnership items 
of a partner for the partnership taxable year, such items become 
nonpartnership items by reason of 1 or more of the events described 
in subsection (b) of section 6231, the period for assessing any tax 
imposed by subtitle A which is attributable to such items (or any 
item affected by such items) shall not expire before the date which is 
1 year after the date on which the items become nonpartnership 
items. 
26 u s e 6230. 
"SEC. 6230. ADDITIONAL ADMINISTRATIVE PROVISIONS. 
"(a) NORMAL DEFICIENCY PROCEEDINGS DO NOT APPLY TO COMPU-
TATIONAL ADJUSTMENTS.—Subchapter B of this chapter shall not 
apply to the assessment or collection of any computational 
adjustment. 
"(b) MATHEMATICAL AND CLERICAL ERRORS APPEARING ON PART-
NERSHIP RETURN.— 
"(1) IN GENERAL.—Section 6225 shall not apply to any adjust-
ment necessary to correct a mathematical or clerical error (as 
defined in section 6213(g)(2)) appearing on the partnership 
return. 
"(2) EXCEPTION.—Paragraph (1) shall not apply to a partner if, 
within 60 days after the day on which notice of the correction of 
the error is mailed to the partner, such partner files with the 
Secretary a request that the correction not be made. 
"(c) CLAIMS ARISING OUT OF ERRONEOUS COMPUTATIONS, ETC.— 
"(1) IN GENERAL.—A partner may file a claim for refund on 
the grounds that— 
"(A) the Secretary erroneously computed any computa-
tional adjustment necessary— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 661 
"(i) to make the partnership items on the partner's 
return consistent with the treatment of the partnership 
items on the partnership return, or 
"(ii) to apply to the partner a settlement, a final 
partnership administrative adjustment, or the decision 
of a court in an action brought under section 6226 or 
section 6228(a), or 
"(B) the Secretary failed to allow a credit or to make a 
refund to the partner in the amount of the overpayment 
attributable to the application to the partner of a settle-
ment, a final partnership administrative adjustment, or the 
decision of a court in an action brought under section 6226 
or section 6228(a) (or erroneously computed the amount of 
any such credit or refund). 
"(2) TIME FOR FILING CLAIM.— 
"(A) UNDER PARAGRAPH (i) (A).—Any claim under para-
graph (1)(A) shall be filed within 6 months after the day on 
which the Secretary mails the notice of computational 
adjustment to the partner. 
"(B) UNDER PARAGRAPH (i) (B).—Any claim under para-
graph (1)(B) shall be filed within 2 years after whichever of 
the following days is appropriate: 
"(i) the day on which the settlement is entered into, 
"(ii) the day on which the period during which an 
action may be brought under section 6226 with respect 
to the final partnership administrative adjustment 
expires, or 
"(iii) the day on which the decision of the court 
becomes final. 
"(3) SUIT IF CLAIM NOT ALLOWED.—If any portion of a claim 
under paragraph (1) is not allowed, the partner may bring suit 
with respect to such portion within the period specified in 
subsection (a) of section 6532 (relating to periods of limitations 
on refund suits). 
"(4) No REVIEW OF SUBSTANTIVE ISSUES.—For purposes of any 
claim or suit under this subsection, the treatment of partner-
ship items on the partnership return, under the settlement, 
under the final partnership administrative adjustment, or 
under the decision of the court (whichever is appropriate) shall 
be conclusive. 
"(d) SPECIAL RULES WITH RESPECT TO CREDITS OR REFUNDS ATTRIB-
UTABLE T
O PARTNERSHIP ITEMS.— 
"(1) IN GENERAL.—Except as otherwise provided in this sub-
section, no credit or refund of an overpayment attributable to a 
partnership item (or an affected item) for a partnership taxable 
year shall be allowed or made to any partner after the expira-
tion of the period of limitation prescribed in section 6229 with 
respect to such partner for assessment of any tax attributable to 
such item. 
"(2) ADMINISTRATIVE ADJUSTMENT REQUEST.—If a request for 
an administrative adjustment under section 6227 with respect 
to a partnership item is timely filed, credit or refund of any 
overpayment attributable to such partnership item (or an 
affected item) may be allowed or made at any time before the 
expiration of the period prescribed in section 6228 for bringing 
suit with respect to such request. 
96 STAT. 662 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(3) CLAIM UNDER SUBSECTION (C).—If a timely claim is filed 
under subsection (c) for a credit or refund of an overpayment 
attributable to a partnership item (or affected item), credit or 
refund of such overpayment may be allowed or made at any 
time before the expiration of the period specified in section 6532 
(relating to periods of limitations on suits) for bringing suit with 
respect to such claim. 
"(4) TIMELY SUIT.—Paragraph (1) shall not apply to any credit 
or refund of any overpayment attributable to a partnership 
item (or an item affected by such partnership item) if a partner 
brings a timely suit with respect to a timely administrative 
adjustment request under section 6228 or a timely claim under 
subsection (c) relating to such overpayment. 
"(5) OVERPAYMENTS REFUNDED WITHOUT REQUIREMENT THAT 
PARTNER FILE CLAIM.—In the case of any overpayment by a 
partner which is attributable to a partnership item (or an 
affected item) and which may be refunded under this sub-
chapter, to the extent practicable credit or refund of such 
overpayment shall be allowed or made without any requirement 
that the partner file a claim therefor. 
"(6) SUBCHAPTER B OF CHAPTER 66 NOT APPLICABLE.—Sub-
26 use 6511. 
chapter B of chapter 66 (relating to limitations on credit or 
refund) shall not apply to any credit or refund of an overpay-
ment attributable to a partnership item (or an affected item). 
"(e) TAX MATTERS PARTNER REQUIRED TO FURNISH NAMES OF 
PARTNERS TO SECRETARY.—If the Secretary mails to any partnership 
the notice specified in paragraph (1) of section 6223(a) with respect 
to any partnership taxable year, the tax matters partner shall 
furnish to the Secretary the name, address, profits interest, and 
taxpayer identification number of each person who was a partner in 
such partnership at any time during such taxable year. If the tax 
matters partner later discovers that the information furnished to 
the Secretary was incorrect or incomplete, the tax matters partner 
shall furnish such revised or additional information as may be 
necessary. 
"(f) FAILURE OF TAX MATTERS PARTNER, ETC., TO FULFILL RESPON-
SIBILITY DOES NOT AFFECT APPLICABILITY OF PROCEEDING.—The 
failure of the tax matters partner, a pass-thru partner, the repre-
sentative of a notice group, or any other representative of a partner 
to provide any notice or perform any act required under this sub-
chapter or under regulations prescribed under this subchapter on 
behalf of such partner does not affect the applicability of any 
proceeding or adjustment under this subchapter to such partner. 
"(g) DATE DECISION OF COURT BECOMES FINAL.—For purposes of 
section 6229(d)(1) and section 6230(c)(2)(B), the principles of section 
7481(a) shall be applied in determining the date on which a decision 
of a district court or the Claims Court becomes final. 
"(h) EXAMINATION AUTHORITY NOT LIMITED.—Nothing in this sub-
chapter shall be construed as limiting the authority granted to the 
Ante, p. 622. 
Secretary under section 7602. 
"(i) TIME AND MANNER OF FILING STATEMENTS, MAKING ELEC-
TIONS, ETC.—Except as otherwise provided in this subchapter, 
each— 
"(1) statement, 
"(2) election, 
"(3) request, and 
"(4) furnishing of information. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 66^ 
shall be filed or made at such time, in such manner, and at such 
place as may be prescribed in regulations. 
"(j) PARTNERSHIPS HAVING PRINCIPAL PLACE OF BUSINESS OUTSIDE 
THE UNITED STATES.—For purposes of sections 6226 and 6228, a 
principal place of business located outside the United States shall be 
treated as located in the District of Columbia. 
"(k) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary to carry out the purposes of this 
subchapter. Any reference in this subchapter to regulations is a 
reference to regulations prescribed by the Secretary. 
"(1) COURT RULES.—Any action brought under any provision of 
this subchapter shall be conducted in accordance with such rules of 
practice and procedure as may be prescribed by the Court in which 
the action is brought. 
"SEC. 6231. DEFINITIONS AND SPECIAL RULES. 
26 USC 6231. 
"(a) DEFINITIONS.—For purposes of this subchapter— 
"(1) PARTNERSHIP.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), the term 'partnership' means any partnership required 
to file a return under section 6031(a). 
"(B) EXCEPTION FOR SMALL PARTNERSHIPS.— 
"(i) IN GENERAL.—The term 'partnership' shall not 
include any partnership i
f
— 
"(I) such partnership has 10 or fewer partners 
each of whom is a natural person (other than a 
nonresident alien) or an estate, and 
"(II) each partner's share of each partnership 
item is the same as his share of every other item. 
For purposes of the preceding sentence, a husband and 
wife (and their estates) shall be treated as 1 partner, 
"(ii) ELECTION TO HAVE SUBCHAPTER APPLY.—A part-
nership (within the meaning of subparagraph (A)) may 
for any taxable year elect to have clause (i) not apply. 
Such election shall apply for such taxable year and all 
subsequent taxable years unless revoked with the con-
sent of the Secretary. 
"(2) PARTNER.—The term 'partner' means— 
"(A) a partner in the partnership, and 
"(B) any other person whose income tax liability under 
subtitle A is determined in whole or in part by taking into 
account directly or indirectly partnership items of the part-
nership. 
"(3) PARTNERSHIP ITEM.—The term 'partnership item' means, 
with respect to a partnership, any item required to be taken 
into account for the partnership's taxable year under any provi-
sion of subtitle A to the extent regulations prescribed by the 
Secretary provide that, for purposes of this subtitle, such item is 
more appropriately determined at the partnership level than at 
the partner level. 
"(4) NONPARTNERSHIP ITEM.—The term 'nonpartnership item' 
means an item which is (or is treated as) not a partnership item. 
"(5) AFFECTED ITEM.—The term 'affected item' means any 
item to the extent such item is affected by a partnership item. 
"(6) COMPUTATIONAL ADJUSTMENT.—The term 'computational 
adjustment' means the change in the tax liability of a partner 
which properly reflects the treatment under this subchapter of 
97-200 O-84-pt. 1 
23 : QL3 
96 STAT. 664 
PUBLIC LAW 97-248—SEPT. 3, 1982 
a partnership item. All adjustments required to apply the 
results of a proceeding with respect to a partnership under this 
subchapter to an indirect partner shall be treated as computa-
tional adjustments. 
"(7) TAX MATTERS PARTNER.—The tax matters partner of any 
partnership is— 
"(A) the general partner designated as the tax matters 
partner as provided in regulations, or 
"(B) if there is no general partner who has been so 
designated, the general partner having the largest profits 
interest in the partnership at the close of the taxable year 
involved (or, where there is more than 1 such partner, the 1 
of such partners whose name would appear first in an 
alphabetical listing). 
If there is no general partner designated under subparagraph 
(A) and the Secretary determines that it is impracticable to 
apply subparagraph (B), the partner selected by the Secretary 
shall be treated as the tax matters partner. 
"(8) NOTICE PARTNER.—The term 'notice partner' means a 
partner who, at the time in question, would be entitled to notice 
under subsection (a) of section 6223 (determined without regard 
to subsections (b)(2) and (e)(1)(B) thereof). 
"(9) 
PASS-THRU 
PARTNER.—The term 
'pass-thru 
partner' 
means a partnership, estate, trust, electing small business cor-
poration, nominee, or other similar person through whom other 
persons hold an interest in the partnership with respect to 
which proceedings under this subchapter are conducted. 
"(10) INDIRECT PARTNER.—The term 'indirect partner' means a 
person holding an interest in a partnership through 1 or more 
pass-thru partners. 
"(11) 5-PERCENT GROUP.—A 5-percent group is a group of 
partners who for the partnership taxable year involved had 
profits interests which aggregated 5 percent or more. 
"(12) HUSBAND AND WIFE.—Except to the extent otherwise 
provided in regulations, a husband and wife who have a joint 
interest in a partnership shall be treated as 1 person. 
"(b) ITEMS CEASE TO BE PARTNERSHIP ITEMS IN CERTAIN CASES.— 
"(1) IN GENERAL.—For purposes of this subchapter, the part-
nership items of a partner for a partnership taxable year shall 
become nonpartnership items as of the date— 
"(A) the Secretary mails to such partner a notice that 
such items shall be treated as nonpartnership items, 
"(B) the partner files suit under section 6228(b) after the 
Secretary fails to allow an administrative 
adjustment 
request with respect to any of such items, 
"(C) the Secretary enters into a settlement agreement 
with the partner with respect to such items, or 
"(D) such change occurs under subsection (e) of section 
6223 (relating to effect of Secretary's failure to provide 
notice) or under subsection (c) of this section. 
"(2) CIRCUMSTANCES IN WHICH NOTICE IS PERMITTED.—The Sec-
retary may mail the notice referred to in subparagraph (A) of 
paragraph (1) to a partner with respect to partnership items for 
a partnership taxable year only i
f
— 
"(A) such partner— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 665 
"(i) has complied with subparagraph (B) of section 
6222(b)(1) (relating to notification of inconsistent treat-
ment) with respect to one or more of such items, and 
"(ii) has not, as of the date on which the Secretary 
mails the notice, filed a request for administrative 
adjustments which would make the partner's treat-
ment of the item or items with respect to which the 
partner complied with subparagraph (B) of section 
6222(b)(1) consistent with the treatment of such item or 
items on the partnership return, or 
"(B)(i) such partner has filed a request under section 
6227(b) for administrative adjustment of one or more of 
such items, and 
"(ii) the adjustments requested would not make such 
partner's treatment of such items consistent with the treat-
ment of such items on the partnership return. 
"(3) NOTICE MUST BE MAILED BEFORE BEGINNING OF PARTNER-
SHIP PROCEEDING.—Any notice to a partner under subparagraph 
(A) of paragraph (1) with respect to partnership items for a 
partnership taxable year shall be mailed before the day on 
which the Secretary mails to the tax matters partner a notice of 
the beginning of an administrative proceeding at the partner-
ship level with respect to such items. 
"(c) REGULATIONS WITH RESPECT TO CERTAIN SPECIAL ENFORCE-
MENT AREAS.— 
"(1) APPLICABILITY OF SUBSECTION.—This subsection applies in 
the case o
f
— 
"(A) assessments under section 6851 (relating to termina-
tion assessments of income tax) or section 6861 (relating to 
jeopardy assessments of income, estate, gift, and certain 
excise taxes), 
"(B) criminal investigations, 
"(C) indirect methods of proof of income, 
"(D) foreign partnerships, and 
"(E) other areas that the Secretary determines by regula-
tion to present special enforcement considerations. 
"(2) ITEMS MAY BE TREATED AS NONPARTNERSHIP ITEMS.—To the 
extent that the Secretary determines and provides by regula-
tions that to treat items as partnership items will interfere with 
the effective and efficient enforcement of this title in any case 
described in paragraph (1), such items shall be treated as non-
partnership items for purposes of this subchapter. 
"(3) SPECIAL RULES.—The Secretary may prescribe by regula-
tion such special rules as the Secretary determines to be neces-
sary to achieve the purposes of this subchapter in any case 
described in paragraph (1). 
"(d) TIME FOR DETERMINING PARTNER'S PROFITS INTEREST IN PART-
NERSHIP.— 
"(1) IN GENERAL.—For purposes of section 6223(b) (relating to 
special rules for partnerships with more than 100 partners) and 
paragraph (11) of subsection (a) (relating to 5-percent group), the 
interest of a partner in the profits of a partnership for a 
partnership taxable year shall be determined— 
"(A) in the case of a partner whose entire interest in the 
partnership is liquidated, sold, or exchanged during such 
partnership taxable year, as of the moment immediately 
before such liquidation, sale, or exchange, or 
96 STAT. 666 
P U B L I C L A W 97-248—SEPT. 3, 1982 
"(B) in the case of any other partner, as of the close of the 
partnership taxable year. 
Regulations. 
"(2) INDIRECT PARTNERS.—The Secretary shall prescribe regu-
lations consistent with the principles of paragraph (1) to be 
applied in the case of indirect partners. 
"(e) EFFECT OF JUDICIAL DECISIONS IN CERTAIN 
PROCEEDINGS.— 
"(1) DETERMINATIONS AT PARTNER LEVEL.—No judicial deter-
mination with respect to the income tax liability of any partner 
not conducted under this subchapter shall be a bar to any 
adjustment in such partner's income tax liability 
resulting 
from— 
"(A) a proceeding with respect to partnership items under 
this subchapter, or 
"(B) a proceeding with respect to items which become 
nonpartnership items— 
"(i) by reason of 1 or more of the events described in 
subsection (b), and 
"(ii) after the appropriate time for including such 
items in any other proceeding with respect to nonpart-
nership items. 
"(2) PROCEEDINGS UNDER SECTION 6228 (a).—No judicial deter-
mination in any proceeding under subsection (a) of section 6228 
with respect to any partnership item shall be a bar to any 
adjustment in any other partnership item. 
"(f) SPECIAL RULE FOR LOSSES AND CREDITS OF FOREIGN PARTNER-
SHIPS.—Except to the extent otherwise provided in regulations, in 
the case of any partnership the tax matters partner of which resides 
outside the United States or the books of which are maintained 
outside the United States, no loss or credit shall be allowable to any 
partner unless section 6031 is complied with for the partnership's 
taxable year in which such deduction or credit arose at such time as 
the Secretary prescribes by regulations. 
26 use 6232. 
"SEC. 6232. EXTENSION OF SUBCHAPTER TO WINDFALL PROFIT TAX. 
"(a) INCLUSION AS PARTNERSHIP ITEM.—For purposes of applying 
this subchapter to the tax imposed by chapter 45 (relating to the 
windfall profit tax), the term 'partnership item' means any item 
relating to the determination of the tax imposed by chapter 45 to the 
extent regulations prescribed by the Secretary provide that, for 
purposes of this subtitle, such item is more appropriately deter-
mined at the partnership level than at the partner level. 
"(b) SEPARATE APPLICATION.—This subchapter shall be applied 
separately with respect to— 
"(1) partnership items described in subsection (a), and 
"(2) partnership items described in section 6231(a)(3). 
"(c) PARTNERSHIP AUTHORIZED T O ACT FOR PARTNERS.— 
26 use 4986 et 
"(1) I N GENERAL.—For purposes of chapter 45 and so much of 
*^9- 
this subtitle as relates to chapter 45, to the extent and in the 
manner provided in regulations, a partnership shall be treated 
as authorized to act for each partner with respect to the deter-
mination, assessment, or collection of the tax imposed by chap-
ter 45. 
"(2) PARTNERS ENTITLED TO 5 PERCENT OR MORE OF INCOME MAY 
ELECT OUT OF SUBSECTION.—Paragraph (1) shall not apply to any 
partnership if partners entitled to 5 percent or more of the 
income of the partnership elect (at the time and in the manner 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 6' 
provided in regulations) not to have paragraph (1) apply to the 
partnership. 
"(3) PARTNER'S RIGHTS PRESERVED.—Nothing in paragraph (1) 
shall be construed to take away from any person any right 
granted to such person by the foregoing sections of this sub-
chapter." 
(b) CLERICAL AMENDMENT.—The table of subchapters for chapter 
63 is amended by adding at the end thereof the following: 
"SUBCHAPTER C. Tax treatment of partnership items." 
(c) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) Section 702 (relating to income and credits of partner) is 26 USC 702. 
amended by inserting at the end thereof the following new 
subsection: 
"(d) CROSS REFERENCE.— 
"For rules relating to procedures for determining the tax treatment of 
partnership items see subchapter C of chapter 63 (section 6221 and 
following)." 
(2) Subsection (h) of section 6213 (relating to certain cross 26 USC 6213. 
references 
with 
respect to restrictions on assessment) is 
amended by inserting at the end thereof the following new 
paragraph: 
"(4) For provision that this subchapter shall not apply in the case of 
computational adjustments attributable to partnership items, see section 
6230(a)." 
(3) Section 6216 (relating to certain cross references with 
26 USC 6216. 
respect to assessments) is amended by inserting at the end 
thereof the following new paragraph: 
"(4) For procedures relating to partnership items, see subchapter C." 
(4) Section 6422 (relating to certain cross references with 
26 USC 6422. 
respect to credits and refunds) is amended by inserting at the 
end thereof the following new paragraph: 
"(15) For special rules in the case of a credit or refund attributable to 
partnership items, see section 6227 and subsections (c) and (d) of section 
6230." 
(5) Subsection (o) of section 6501 (relating to limitations on 26 USC 6501. 
assessment and collection) is amended to read as follows: 
"(o) SPECIAL RULES FOR PARTNERSHIP ITEMS.—For extension of 
period in the case of partnership items (as defined in section 
6231(a)(3)), see section 6229." 
(6) Section 6504 (relating to certain cross references with 
26 USC 6504. 
respect to limitations on assessments) is amended by inserting 
at the end thereof the following new paragraph: 
"(12) Assessments of tax attributable to partnership items, see section 
6229." 
(7) Subsection (g) of section 6511 (relating to limitations on 26 USC 6511. 
credit or refund) is amended to read as follows: 
"(g) SPECIAL RULE FOR CLAIMS W I T H RESPECT TO PARTNERSHIP 
ITEMS.—In the case of any tax imposed by subtitle A with respect to 
any person which is attributable to any partnership item (as defined 
in section 6231(a)(3)), the provisions of section 6227 and subsections 
Ante, pp. 663, 
655. 
96 STAT. 668 
PUBLIC LAW 97-248—SEPT. 3, 1982 
Ante, p. 660. 
(c) and (d) of section 6230 shall apply in lieu of the provisions of this 
subchapter." 
26 use 6512. 
(8) Subsection (a) of section 6512 (relating to limitations in 
case of petition to Tax Court) is amended by striking out the 
period at the end of paragraph (3) and inserting in lieu thereof 
", and", and by inserting at the end thereof the following new 
paragraph: 
"(4) As to overpayments attributable to partnership items, in 
accordance with subchapter C of chapter 63." 
(9) Paragraph (2) of section 6512(b) (relating to limit on 
amount of credit or refund) is amended by striking out "(c), (d), 
or (g)" each place it appears and inserting in lieu thereof "(c), or 
(d)". 
26 use 6515. 
(10) Section 6515 (relating to certain cross references with 
respect to limitations on credit or refund) is amended by insert-
ing at the end thereof the following new paragraph: 
"(7) Refunds or credits attributable to partnership items, see section 
6227 and subsections (c) and (d) of section 6230." 
26 use 7422. 
(H) Section 7422 (relating to civil actions for refund) is 
amended by redesignating subsection (h) thereof as subsection 
(i) and by inserting after subsection (g) the following new 
subsection: 
"(h) SPECIAL RULE FOR ACTIONS WITH RESPECT TO PARTNERSHIP 
ITEMS.—No action may be brought for a refund attributable to 
Ante, p. 663. 
partnership items (as defined in section 6131(a)(3)) except as pro-
Ante, p. 656. 
vided in section 6228(b) or section 6230(c)." 
26 use 7451. 
(12) Section 7451 (relating to fee for filing petition) is amended 
by adding "or for judicial review under section 6226 or section 
6228(a)" at the end thereof. 
26 use 7456. 
(13) Subsection (c) of section 7456 (relating to Tax Court 
Commissioners) is amended by inserting "6226, 6228(a)," before 
"7428". 
26 use 7459. 
(14) Subsection (c) of section 7459 (relating to date of decision) 
is amended by inserting "or in the case of an action brought 
under section 6226 or section 6228(a)" after "or under section 
7428". 
26 use 7482. 
(15) Paragraph (1) of section 7482(b) (relating to venue for 
review of Tax Court decisions) is amended— 
(A) by striking out "or" at the end of subparagraph (D), 
(B) by striking out the period at the end of subparagraph 
(E) and inserting in lieu thereof ", or", 
(C) by adding after subparagraph (E) the following new 
subparagraph: 
"(F) in the case of a petition under section 6226 or 6228(a), 
the principal place of business of the partnership,", and 
(D) by inserting ", or the petition under section 6226 or 
6228(a)," after "or 7477". 
26 use 7485. 
(16) Section 7485 (relating to bond to stay assessment and 
collection) is amended by redesignating subsection (b) as subsec-
tion (c) and inserting after subsection (a) the following new 
subsection: 
"(b) BOND IN CASE OF APPEAL OF DECISION UNDER SECTION 6226 OR 
SECTION 6228(a).—The condition of subsection (a) shall be satisfied if 
a partner duly files notice of appeal from a decision under section 
6226 or 6228(a) and on or before the time the notice of appeal is filed 
with the Tax Court,*a bond in an amount fixed by the Tax Court is 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 669 
filed, and with surety approved by the Tax Court, conditioned upon 
the payment of deficiencies attributable to the partnership items to 
which that decision relates as finally determined, together with any 
interest, additional amounts, or additions to the tax provided by law. 
Unless otherwise stipulated by the parties, the amount fixed by the 
Tax Court shall be based upon its estimate of the aggregate of such 
deficiencies." 
(17) Subsection (e) of section 1346 of title 28, United States 
Code (relating to jurisdiction of district courts with the United 
States as defendant) is amended by striking out "section 7426 or 
section" and inserting in lieu thereof "section 6226, 6228(a), 
7426, or". 
(18)(A) Chapter 91 of title 28, United States Code (relating to 
Claims Court), is amended by adding at the end thereof the 
following new section: 
"§ 1508. Jurisdiction for certain partnership proceedings 
28 USC 1508. 
"The Claims Court shall have jurisdiction to hear and to render 
judgment upon any petition under section 6226 or 6228(a) of the 
Internal Revenue Code of 1954." 
^nte, pp. 653, 
(B) The section analysis of chapter 91 of title 28, United States ^^^• 
Code (relating to Claims Court) is amended by adding at the end 
thereof the following new item: 
"1508. Jurisdiction for certain partnership proceedings." 
SEC. 403. REQUIREMENT THAT STATEMENT BE FURNISHED TO PARTNER. 
(a) GENERAL RULE.—Section 6031 (relating to return of partner- 26 USC 6031. 
ship income) is amended by adding at the end thereof the following 
new subsection: 
"(b) COPIES TO PARTNERS.—Each partnership required to file a 
return under subsection (a) for any partnership taxable year shall 
(on or before the day on which the return for such taxable year was 
filed) furnish to each person who is a partner at any time during 
such taxable year a copy of such information shown on such return 
as may be required by regulations." 
(b) CONFORMING AMENDMENT.—Section 6031 is amended by strik-
ing out "Every partnership" and inserting in lieu thereof the 
following: 
"(a) GENERAL RULE.—Every partnership". 
SEC. 404. RETURNS REQUIRED FROM ALL PARTNERSHIPS WITH UNITED 
26 USC 6031 
STATES PARTNERS. 
note. 
Except as hereafter provided in regulations prescribed by the 
Secretary of the Treasury or his delegate, nothing in section 6031 of 
the Internal Revenue Code of 1954 shall be treated as excluding any 
partnership from the filing requirements of such section for any 
taxable year if the income tax liability under subtitle A of such Code 26 USC 1. 
of any United States person is determined in whole or in part by 
taking into account (directly or indirectly) partnership items of such 
partnership for such taxable year. 
SEC. 405. RETURN REQUIREMENT FOR UNITED STATES PERSONS HAVING 
INTEREST IN FOREIGN PARTNERSHIPS. 
(a) IN GENERAL.—Subpart B of part III of subchapter A of chapter 
61 (relating to information concerning transactions with other per-
sons) is amended by inserting after section 6046 the following new 
section: 
96 STAT. 670 
PUBLIC LAW 97-248—SEPT. 3, 1982 
26USC6046A. 
"SEC. 6046A. RETURNS AS TO INTERESTS IN FOREIGN PARTNERSHIPS. 
"(a) REQUIREMENT OF RETURN.—Any United States person, except 
to the extent otherwise provided by regulations— 
"(1) who acquires any interest in a foreign partnership, 
"(2) who disposes of any portion of his interest in a foreign 
partnership, or 
"(3) whose proportional interest in a foreign partnership 
changes substantially, 
shall file a return. 
"(b) FORM AND CONTENTS OF RETURN.—Any return required by 
subsection (a) shall be in such form and set forth such information 
as the Secretary shall by regulations prescribe. 
"(c) TIME FOR FILING RETURN.—Any return required by subsection 
(a) shall be filed on or before the 90th day (or on or before such later 
day as the Secretary may by regulations prescribe) after the day on 
which the United States person becomes liable to file such return. 
"(d) CROSS REFERENCE.— 
"For provisions relating to penalties for violations of this section, see 
sections 6679 and 7203." 
(b) PENALTY.— 
26 use 6679. 
Subsection (a) of section 6679 (relating to failure to file returns as 
to organization or reorganization of foreign corporations and acqui-
sitions of their stock) is amended by striking out "section 6046" and 
inserting in lieu thereof "section 6046 or 6046A". 
(c) CLERICAL AMENDMENTS.— 
(1) The table of sections for subpart B of part III of subchapter 
A of chapter 61 is amended by inserting after the item relating 
to section 6046 the following new item: 
"Sec. 6046A. Returns as to interests in foreign partnerships." 
(2) The section heading of section 6679 is amended to read as 
follows: 
"SEC. 6679. FAILURE TO FILE RETURNS WITH RESPECT TO FOREIGN COR-
PORATIONS OR FOREIGN PARTNERSHIPS." 
(3) The table of sections for subchapter B of chapter 68 is 
amended by striking out the item relating to section 6679 and 
inserting in lieu thereof the following: 
"Sec. 6679. Failure to file returns with respect to foreign corporations or 
foreign partnerships." 
26 u s e 6231 
SEC. 406. SPECIAL RULE FOR CERTAIN INTERNATIONAL SATELLITE 
note. 
PARTNERSHIPS. 
Subchapter C of chapter 63 of the Internal Revenue Code of 1954 
(relating to tax treatment of partnership items), section 6031 of such 
Code (relating to returns of partnership income), and section 6046A 
of such Code (relating to returns as to interest in foreign partner-
ships) shall not apply to the International Telecommunications 
Satellite Organization, the International Maritime Satellite Organi-
zation, and any organization which is a successor of either of such 
organizations. 
26 u s e 6221 
SEC. 407. EFFECTIVE DATES. 
(a)(1) Except as provided in paragraph (2), the amendments made 
by sections 402, 403, and 404 shall apply to partnership taxable 
years beginning after the date of the enactment of this Act. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 671 
(2) Section 6232 of the Internal Revenue Code of 1954 shall apply 
to periods after December 31, 1982. 
(3) The amendments made by sections 402, 403, and 404 shall 
apply to any partnership taxable year (or in the case of section 6232 
of such Code, to any period) ending after the date of the enactment 
of this Act if the partnership, each partner, and each indirect 
partner requests such application and the Secretary of the Treasury 
or his delegate consents to such application. 
(b) The amendments made by section 405 shall apply with respect 
to acquisitions or dispositions of, or substantial changes in, interests 
in foreign partnerships occurring after the date of the enactment of 
this Act. 
26 u s e 6046A 
note. 
TITLE V—AIRPORT AND AIRWAY 
IMPROVEMENT 
Airport and 
Airway 
Improvement 
Act of 1982. 
SECTION 501. SHORT TITLE. 
This title may be cited as the "Airport and Airway Improvement 
Act of 1982". 
SEC. 502. DECLARATION OF POLICY. 
(a) IN GENERAL.—The Congress hereby finds and declares that— 
(1) the safe operation of the airport and airway system will 
continue to be the highest aviation priority; 
(2) the continuation of airport and airway improvement pro-
grams and more effective management and utilization of the 
Nation's airport and airway system are required to meet the 
current and projected growth of aviation and the requirements 
of interstate commerce, the Postal Service, and the national 
defense; 
(3) this title should be administered in a manner to provide 
adequate 
navigation 
aids 
and 
airport 
facilities, 
including 
reliever airports and reliever heliports, for points where sched-
uled commercial air service is provided; 
(4) this title should be administered in a manner consistent 
with a comprehensive airspace system plan to maximize the use 
of safety facilities, with highest priority for commercial service 
airports, including but not limited to, the goal of installing, 
operating, and maintaining, to the extent possible under availa-
ble funds and given other safety needs, a precision approach 
system and a full approach light system for each primary 
runway, grooving, or friction treatment of all primary and 
secondary runways, a nonprecision instrument approach for all 
secondary runways, runway end identifier lights on all runways 
that do not have an approach light system, electronic or visual 
vertical guidance on all runways, runway edge lighting and 
marking, and radar approach coverage for all airport terminal 
areas; 
(5) all airport and airway programs should be administered in 
a manner consistent with the provisions of sections 102 and 103 
of the Federal Aviation Act of 1958, with due regard for the 
goals expressed therein of fostering competition, preventing 
unfair methods of competition in air transportation, maintain-
ing essential air transportation, and preventing unjust 
and 
discriminatory practices; 
49 u s e 2201 
note. 
49 u s e 2201. 
49 u s e 1302, 
1303. 
96 STAT. 672 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(6) reliever airports make an important contribution to the 
efficient operation of the airport and airway system, and special 
emphasis should be given to their development; 
(7) aviation facilities should be constructed and operated with 
due regard to minimizing current and projected noise impacts 
on nearby communities; 
(8) the Federal administrative requirements placed upon air-
port sponsors can be reduced and simplified through the use of a 
single project application to cover all airport improvement proj-
ects contained in the airport's annual expenditure program; and 
(9) it is in the national interest to develop in metropolitan 
areas an integrated system of airports designed to provide 
expeditious access and maximum safety. 
(b) 
TRANSPORTATION PLANNING.—It is declared to 
be 
in 
the 
national interest to encourage and promote the development of 
transportation systems embracing various modes of transportation 
in a manner that will serve the States and local communities 
efficiently and effectively. To accomplish this objective, the Secre-
tary shall cooperate with State and local officials in the develop-
ment of airport plans and programs which are formulated on the 
basis of overall transportation needs and coordinated with other 
transportation planning with due consideration to comprehensive 
long-range land-use and access plans and overall social, economic, 
environmental, system performance, and energy conservation goals 
and objectives. The process shall be continuing, cooperative, and 
comprehensive to the degree appropriate based on the complexity of 
the transportation problems. 
49 u s e 2202. 
SEC. 503. DP^PMNITIONS. 
(a) IN GENERAL.—As used in this title— 
(1) "Airport" means any area of land or water which is used, 
or intended for use, for the landing and takeoff of aircraft, and 
any appurtenant areas which are used, or intended for use, for 
airport buildings or other airport facilities or rights-of-way, 
together with all airport buildings and facilities located thereon. 
(2) "Airport development" means any of the following activi-
ties, if undertaken by the sponsor, owner or operator of a public-
use airport: 
(A) any work involved in constructing, reconstructing, 
repairing, or improving a public-use airport or portion 
thereof, including— 
(i) the removal, lowering, relocation, and marking 
and lighting of airport hazards; and 
(ii) the preparation of plans and specifications, 
including field investigations incidental thereto; 
(B) any acquisition or installation at or by a public-use 
airport o
f
— 
(i) navigation and other aids (including, but not 
limited to, precision approach systems) used by aircraft 
for landing at or taking off from such airport, including 
any necessary site preparation thereby required; 
(ii) safety or security equipment required by the 
Secretary by rule or regulation for the safety or secu-
rity of persons and property at such airport, or specifi-
cally approved by the Secretary as contributing 
significantly to the safety or security of persons and 
property at such airport; 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 673 
(iii) snow removal equipment; 
(iv) aviation-related weather reporting equipment; or 
(v) equipment to measure runway surface friction; 
and 
(C) any acquisition of land or of any interest therein, or of 
any easement through or other interest in airspace, includ-
ing land for future airport development, which is necessary 
to permit any airport development described in subpara-
graph (A) or (B) of this paragraph or to remove, mitigate, 
prevent, or limit the establishment of airport hazards. 
(3) "Airport hazard" means any structure or object of natural 
growth located on or in the vicinity of a public-use airport, or 
any use of land near such an airport, which obstructs the 
airspace required for the flight of aircraft in landing or taking 
off at such airport or is otherwise hazardous to such landing or 
taking off of aircraft. 
(4) "Airport planning" means planning as defined by such 
regulations as the Secretary shall prescribe, and includes inte-
grated airport system planning. 
(5) "Commercial service airport" means a public airport 
which is determined by the Secretary to enplane annually 2,500 
or more passengers and receive scheduled passenger service of 
aircraft. 
(6) "Government aircraft" means aircraft owned and operated 
by the United States. 
(7) "Integrated airport system planning" means the initial as 
well as continuing development for planning purposes of infor-
mation and guidance to determine the extent, type, nature, 
location, and timing of airport development needed in a specific 
area to establish a viable, balanced, and integrated system of 
public-use airports. It includes identification of system needs, 
development of estimates of systemwide development costs, and 
the conduct of such studies, surveys, and other planning actions, 
including those related to airport access, as may be necessary to 
determine the short-, intermediate-, and long-range aeronauti-
cal demands required to be met by a particular system of 
airports. It also includes the establishment by a State of stand-
ards, other than standards for safety of approaches, for airport 
development at public-use airports which are not 
primary 
airports. 
(8) "Landing area" means that area used or intended to be 
used for the landing, takeoff, 
or surface 
maneuvering of 
aircraft. 
(9) "Passengers enplaned" means domestic, territorial, and 
international revenue passenger enplanements in the States in 
scheduled and nonscheduled service of aircraft in intrastate, 
interstate, and foreign commerce as shall be determined by the 
Secretary pursuant to such regulations as the Secretary may 
prescribe. 
(10) 
"Planning 
agency" 
means 
any 
planning 
agency 
designated by the Secretary which is authorized by the laws of 
the State or States or political subdivisions concerned to engage 
in areawide planning for the areas in which assistance under 
this title is to be used. 
(11) "Primary airport" means a commercial service airport 
which is determined by the Secretary to have .01 percent or 
96 STAT. 674 
PUBLIC LAW 97-248—SEPT. 3, 1982 
more of the total number of passengers enplaned annually at all 
commercial service airports. 
(12) "Project" means a project (or separate projects submitted 
together) for the accomplishment of airport development or 
airport planning, including the combined submission of all proj-
ects which are to be undertaken at an airport in a fiscal year. 
(13) "Project costs" means any costs involved in accomplish-
ing a project. 
(14) "Project grant" means a grant of funds by the Secretary 
to a sponsor for the accomplishment of one or more projects, 
(15) "Public agency" means a State or any agency of a State, a 
municipality or other political subdivision of a State, a tax-
supported organization, or an Indian tribe or pueblo. 
(16) "Public airport" means any airport which is used or to be 
used for public purposes, under the control of a public agency, 
the landing area of which is publicly owned. 
(17) "Public-use airport" means— 
(A) any public airport, 
(B) any privately owned reliever airport, and 
(C) any privately owned airport which is determined by 
the Secretary to enplane annually 2,500 or more passengers 
and receive scheduled passenger service of aircraft, 
which is used or to be used for public purposes. 
(18) "Reliever airport" means an airport designated by the 
Secretary as having the function of relieving congestion at a 
commercial service airport and providing more general aviation 
access to the overall community. 
(19) "Reliever heliport" means a heliport designated by the 
Secretary as having the function of relieving congestion at a 
commercial service airport, by means of diverting potential 
fixed-wing enplaned passengers to helicopter carriers. 
(20) "Secretary" means the Secretary of Transportation. 
(21) "Sponsor" means (A) any public agency which, either 
individually or jointly with one or more other public agencies, 
submits to the Secretary, in accordance with this title, an 
application for financial assistance, and (B) any private owner 
of a public-use airport who submits to the Secretary, in accord-
ance with this title, an application for financial assistance for 
such airport. 
(22) "State" means a State of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, the Virgin 
Islands, American Samoa, the Government of the Northern 
Mariana Islands, the Trust Territory of the Pacific Islands, and 
Guam. 
(23) "Trust Fund" means the Airport and Airway Trust Fund 
established by section 9502 of the Internal Revenue Code of 
Ante, p. 565. 
1954. 
(24) "United States share" means that portion of the project 
costs of projects for airport development or airport planning 
approved pursuant to section 509 of this title which is to be paid 
from funds made available for the purposes of this title. 
(b) AMOUNTS MADE AVAILABLE.—Whenever in this title reference 
is made to the amount made available for a fiscal year under section 
505 of this title, such reference shall mean the amount made 
available for obligation under subsection (a) of section 505 for that 
fiscal year as reduced or limited by any Act of Congress enacted 
after the date of enactment of this title. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 675 
SEC. 504. NATIONAL AIRPORT AND AIRWAY SYSTEM PLANS. 
49 USC 2203 
(a) FORMULATION OF AIRPORT PLAN.—Not later than two years 
after the date of enactment of this title and every two years thereaf-
ter, the Secretary shall publish the status of the existing national 
airport system plan to provide for the development of public-use 
airports in the United States. The plan shall include the type and 
estimated cost of eligible airport development considered by the 
Secretary to be necessary to provide a safe, efficient, and integrated 
system of public-use airports to anticipate and meet the needs of 
civil aeronautics, to meet requirements in support of the national 
defense as determined by the Secretary of Defense, and to meet 
identified needs of the Postal Service. Airport development identi-
fied by this plan shall not be limited to the requirements of any 
classes or categories of public-use airports. In reviewing and revising 
the plan, the Secretary shall consider the needs of all segments of 
civil aviation, and take into consideration, among other things, the 
relationship of each airport to (1) the rest of the transportation 
system in the particular area, (2) the forecasted technological devel-
opments in aeronautics, and (3) developments forecasted in other 
modes of intercity transportation. After the date of enactment of 
this title, the revised national airport system plan shall be known as 
the national plan of integrated airport systems. 
(b) FORMULATION OF AIRWAY PLAN.—(1) The Administrator of the 
Federal Aviation Administration shall prepare (subject to the 
requirements of section 506(f) of this title) and submit to the Con-
gress, not later than ninety days after the date of enactment of this 
title, a national airways system plan. The Administrator shall 
review, revise, and publish such plan before the beginning of each 
fiscal year thereafter. The plan shall set forth, for a ten-year period, 
the research, engineering, and development programs and the facili-
ties and equipment considered by the Administrator necessary for a 
system of airways, air traffic services, and navigation aids which 
will meet the forecasted needs of civil aeronautics, meet require-
ments in support of the national defense as determined by the 
Secretary of Defense, and provide the highest degree of safety in air 
commerce. In addition, such plan shall set forth— 
(A) for the first two years of the plan, detailed annual esti-
mates of (i) the number, type, location, and cost of acquisition, 
operation, and maintenance of required facilities and services, 
(ii) the cost of research, engineering, and development required 
to improve safety, system capacity, and efficiency, and (iii) 
manpower levels required for all the activities described in this 
subparagraph; 
(B) for the third, fourth, and fifth years of the plan, estimates 
of the total cost of each major program for such three-year 
period, and any additional major research programs, acquisition 
of systems and facilities, and changes in manpower levels that 
may be required to meet long-range objectives and that may 
have significant impact on future funding requirements; and 
(C) a ten-year investment plan which considers long-range 
objectives considered by the Administrator to be necessary to 
ensure that safety is given the highest priority in providing for 
a safe and efficient airway system and to meet the current and 
projected growth of aviation and the requirements of interstate 
commerce, the Postal Service, and the national defense. 
96 STAT. 676 
PUBLIC LAW 97-248—SEPT. 3, 1982 
Report to 
Congress. 
49 u s e 2204. 
Grants. 
49 u s e 1711, 
1713. 
49 u s e 2104. 
(2) On or before the first day of April of each year the Secretary 
shall report to the Congress on the operations of the national 
airways system during the last completed fiscal year. The report 
shall include a review of the operations of the Federal Aviation 
Administration, including, but not limited to, a detailed report on 
programs intended to improve the safety of flight operations and the 
capacity and efficiency of the national airways system, any signifi-
cant problems encountered in these programs, a summary of funds 
committed in each major program area, and a report on amounts 
appropriated but not expended for such programs. 
(c) CONSULTATION WITH FEDERAL AND PUBLIC AGENCIES AND AVI-
ATION COMMUNITY.—In reviewing and revising the national airport 
system plan, the Secretary shall consult, to the extent feasible and 
as appropriate, with other Federal and public agencies, and with the 
aviation community. 
(d) 
CONSULTATION WITH 
DEPARTMENT OF DEFENSE.—(1) 
The 
Department of Defense shall make domestic military airports and 
airport facilities available for civil use to the maximum extent 
feasible. In advising the Secretary of national defense requirements 
pursuant to subsection (a) of this section, the Secretary of Defense 
shall indicate the extent to which domestic military airports and 
airport facilities will be available for civil use. 
(2) Not later than 180 days after the date of enactment of this 
title, the Comptroller General shall submit to the Congress an 
evaluation of the feasibility of making domestic military airports 
and airport facilities available for joint civil and military use to the 
maximum extent compatible with national defense requirements. 
With respect to those military airports determined to be most 
feasible for joint civil and military use, such evaluation shall include 
an estimate of the costs and the development requirements involved 
in making such airports available for joint civil and military use. 
(3) Not later than 1 year after the date of enactment of this title, 
the Secretary of Defense and the Secretary of Transportation shall 
submit to the Congress a plan for making domestic military airports 
and airport facilities available for joint civil and military use to the 
maximum extent compatible with national defense requirements. 
The plan shall recommend public-sector civil sponsors in the case of 
each joint use proposed in the plan. 
SEC. 505. AIRPORT IMPROVEMENT PROGRAM. 
(a) AIRPORT DEVELOPMENT AND AIRPORT PLANNING.—In order to 
maintain a safe and efficient nationwide system of public-use air-
ports to meet the present and future needs of civil aeronautics, the 
Secretary is authorized to make grants from the Trust Fund for 
airport development and airport planning by project grants in 
accordance with the provisions of this title. The aggregate amounts 
which shall be available after September 30, 1981, to the Secretary 
for such grants and for grants for airport noise compatibility plan-
ning under section 103(b) of the Aviation Safety and Noise Abate-
ment Act of 1979 and for carrying out noise compatibility programs 
or parts thereof under section 104(c) of such Act shall be 
$450,000,000 for fiscal year 1982; $1,050,000,000 for the fiscal years 
ending before October 1, 1983; $1,843,500,000 for the fiscal years 
ending before October 1, 1984; $2,755,500,000 for the fiscal 
years ending before October 1, 1985; $3,772,500,000 for the fiscal 
years ending before October 1, 1986; and $4,789,700,000 for the fiscal 
years ending before October 1, 1987. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 677 
(b) OBLIGATIONAL AUTHORITY.—(1) The Secretary is authorized to 
incur obUgations to make grants from funds made available under 
subsection (a) of this section, and such authority shall exist with 
respect to funds available for the making of grants for any fiscal 
year or part thereof pursuant to subsection (a) immediately after 
such funds are apportioned pursuant to section 507(a) of this title. 
No such obligation shall be incurred by the Secretary after Septem-
ber 30, 1987, except that nothing in this section shall preclude the 
obligation by grant agreement of apportioned funds which remain 
available pursuant to section 508(a) of this title after such date. 
(2) No obligation shall be incurred by the Secretary for airport 
development at a privately owned public-use airport unless the 
Secretary receives appropriate assurances that such airport will 
continue to function as a public-use airport during the economic life 
(which in no case shall be less than ten years) of any facility at such 
airport that was developed with Federal financial assistance under 
this title. 
(c) NOISE ABATEMENT PROJECTS T O B E CONSIDERED AS AIRPORT 
DEVELOPMENT FOR FISCAL YEAR 1982.—For purposes of amounts 
apportioned for fiscal year 1982, airport development shall be con-
sidered to include any of the following activities, if undertaken by 
the sponsor, owner, or operator of a public-use airport: 
(1) any acquisition or installation of the following items for 
improving noise compatibility at a public-use airport: 
(A) noise suppressing equipment, physical barriers, or 
landscaping, for the purpose of diminishing the effect of 
aircraft noise on any area adjacent to such airport; and 
(B) land, including land associated with future airport 
development, or any interest therein, or any easement 
through or other interest in airspace, necessary to insure 
that such land is used only for purposes which are compati-
ble with the noise levels attributable to the operation of 
such airport; and 
(2) any project to carry out an approved airport noise compati-
bility program, or part thereof, approved by the Secretary 
pursuant to section 104(b) of the Aviation Safety and Noise 
Abatement Act of 1979. 
49 USC 2104. 
SKC. .-)()6. AIRWAY IMFROVKMENT PR()(]RAIV1. 
49 USC 220.5. 
(a) AIRWAY FACILITIES AND EQUIPMENT.—For the purposes of 
Appropriation 
acquiring, establishing, and improving air navigation facilities under 
authorization, 
section 307(b) of the Federal Aviation Act of 1958 (49 U.S.C. 1348(b)), 
there is authorized to be appropriated from the Trust Fund for fiscal 
years beginning after September 30, 1981, aggregate amounts not to 
exceed $261,000,000 for fiscal year 1982; $986,000,000 for the fiscal 
years ending before October 1, 1983; $2,379,000,000 for the fiscal 
years 
ending 
before 
October 
1, 1984; $3,786,000,000 for the 
fiscal 
years ending before October 1, 1985; $5,163,000,000 for 
the fiscal years ending before October 1, 1986; and $6,327,000,000 for 
the fiscal years ending before October 1, 1987. Amounts appropriated 
under the authorizations in this subsection shall remain available 
until expended. 
(2) The costs of site preparation work associated with acquisition, 
establishment, or improvement of air navigation facilities by the 
Secretary pursuant to section 307(b) of the Federal Aviation Act of 
1958 shall be charged to appropriated funds available to the Secre- 
49 USC 1348. 
tary for that purpose pursuant to paragraph (1) of this subsection. 
96 STAT. 678 
PUBLIC LAW 97-248—SEPT. 3, 1982 
Nothing in this title shall preclude the Secretary from providing, in 
a grant agreement or other agreement with an airport owner or 
sponsor, for the performance of such site preparation work in 
connection with airport development, subject to payment or reim-
bursement for such site preparation work by the Secretary from 
such appropriated funds. 
(b) RESEARCH, ENGINEERING AND DEVELOPMENT, AND DEMONSTRA-
TIONS.—The Secretary is authorized to carry out under section 312 
(49 U.S.C. 1353) of the Federal Aviation Act of 1958 such demonstra-
tion projects as the Secretary determines necessary in connection 
Appropriation 
with research and development activities under section 312. For 
authorization. 
research, engineering and development, and demonstration projects 
and activities under section 312, there is authorized to be appropri-
ated from the Trust Fund $72,000,000 for fiscal year 1982; 
$134,000,000 for fiscal year 1983 (of which not more than $16,800,000 
is authorized to be appropriated for facilities, engineering and devel-
opment); $286,000,000 for fiscal year 1984 (of which not more than 
$24,700,000 is authorized to be appropriated for facilities, engineer-
ing and development); $269,000,000 for fiscal year 1985 (of which not 
more than $23,100,000 is authorized to be appropriated for facilities, 
engineering and development); $215,000,000 for fiscal year 1986 (of 
which not more than $22,700,000 is authorized to be appropriated for 
facilities, engineering and development); and $193,000,000 for fiscal 
year 1987 (of which not more than $22,000,000 is authorized to be 
appropriated for facilities, engineering and development). Amounts 
appropriated under the authorizations in this subsection shall 
remain available until expended. 
(c) OTHER EXPENSES.—(1) The balance of the moneys available in 
the Trust Fund may be appropriated for (A) costs of services pro-
vided under international agreements relating to the joint financing 
of air navigation services which are assessed against the United 
States Government, and (B) direct costs incurred by the Secretary to 
flight check, operate, and maintain air navigation facilities referred 
to in subsection (a) of this section in a safe and efficient manner. 
(2) The amount appropriated from the Trust Fund for the pur-
poses of clauses (A) and (B) of paragraph (1) of this subsection for 
fiscal year 1982 may not exceed $800,000,000, and for any fiscal year 
beginning after September 30, 1982, and ending before October 1, 
1987, may not exceed the amount made available for purposes of 
section 5()5 for that fiscal year multiplied by a factor equal to 2.44 in 
the case of fiscal year 1983; 1.57 in the case of fiscal year 1984; 1.39 
in the case of fiscal year 1985; 1.28 in the case of fiscal year 1986; 
and 1.34 in the case of fiscal year 1987. The amount authorized to be 
appropriated from the Trust Fund under this paragraph for any 
fiscal year shall be reduced by an amount equal to two times the 
excess, if any, of (A) the portion of the amount authorized to be 
appropriated under subsection (a) of this section for such fiscal year 
which was not authorized to be appropriated for any previous fiscal 
year, over (B) the amount appropriated under such subsection for 
such fiscal year. 
(d) WEATHER SERVICES.—The Secretary is authorized to reimburse 
the National Oceanic and Atmospheric Administration from the 
funds authorized in subsection (c) for fiscal years beginning after 
September 30, 1982, for the cost of providing the Federal Aviation 
Administration with weather reporting services. Expenditures for 
the purposes of carrying out this subsection shall be limited to 
$26,700,000 for fiscal year 1988; $28,r)(i9,0()0 for fiscal year 1984; 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 679 
$30,569,000 for fiscal year 1985; $32,709,000 for fiscal year 1986; and 
$34,998,000 for fiscal year 1987. 
(e) PRESERVATION OF FUNDS AND PRIORITY FOR AIRPORT AND 
AIRWAY PROGRAMS.—(1) Notwithstanding any other provision of law 
to the contrary, no amounts may be appropriated from the Trust 
Fund to carry out any program or activity under the Federal 
Aviation Act of 1958, except programs or activities referred to in 
49 USC 1301 
this section. 
"°*®-
(2) Amounts equal to the amounts authorized for each fiscal year 
by section 505 of this title and subsections (a), (b), and (d) and the 
third sentence of section (c) of this section shall remain available in 
the Trust Fund until appropriated for the purposes described in 
such subsections. 
(3) No amounts in the Trust Fund may be appropriated for any 
fiscal year to carry out administrative expenses of the Department 
of Transportation or of any unit thereof except to the extent author-
ized by subsection (c) of this section. 
(4) No provision of law, except for a statute enacted after the date 
of enactment of this title which expressly limits the application of 
this paragraph, shall impair the authority of the Secretary to 
obligate to an airport by grant agreement in any fiscal year the 
unobligated balance of amounts which were apportioned in prior 
fiscal years and which remain available for approved airport devel-
opment projects pursuant to section 508(a) of this title, in addition to 
the amounts authorized for that fiscal year by section 505. 
(5) No provision of law shall be construed as authorizing the 
Secretary to obligate or expend any amounts appropriated from the 
Trust Fund for the purposes described in subsection (c) in any fiscal 
year after 
September 30, 1987, unless the provision 
expressly 
amends the provisions of and the formulas in subsection (c) of this 
section. 
(f) TRANSMITTAL OF BUDGET ESTIMATES.—Whenever the Adminis-
trator of the Federal Aviation Administration submits or transmits 
any budget estimate, budget request, supplemental budget estimate, 
or other budget information, legislative recommendation, or com-
ment on legislation to the Secretary, the President of the United 
States, or to the Office of Management and Budget pertaining to 
funds authorized in subsection (a) or (b) of this section, it shall 
concurrently transmit a copy thereof to the Speaker of the House of 
Representatives, the Committees on Public Works and Transporta-
tion and Appropriations of the House of Representatives, the Presi-
dent of the Senate, and the Committees on Commerce, Science, and 
Transportation and Appropriations of the Senate. 
SEC. 507. APPORTIONMENT OF FUNDS. 
49 USC 2206. 
(a) APPORTIONMENT.—On the first day of each fiscal year for which 
any amount is authorized to be obligated for the purposes of section 
505 of this title, the amount made available for that year under such 
section and not previously apportioned shall be apportioned by the 
Secretary as follows: 
(1) PRIMARY AIRPORTS.— 
(A) To the sponsor of each primary airport, as follows: 
(i) $6 for each of the first fifty thousand passengers 
enplaned at that airport; 
(ii) $4 for each of the next fifty thousand passengers 
enplaned at that airport; 
96 STAT. 680 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(iii) $2 for each of the next four hundred thousand 
passengers enplaned at that airport; and 
(iv) $0.50 for each additional passenger enplaned at 
that airport. 
(B) In each of the fiscal years 1984 through 1987, the 
Secretary shall apportion an amount to the sponsor of each 
primary airport in addition to whatever amount is appor-
tioned to such airport under the formula set forth in sub-
paragraph (A). The additional apportionment 
shall be 
calculated by determining the amount such airport is to be 
apportioned under the formula in subparagraph (A) and 
then increasing that amount by 10 percent for fiscal year 
1984, 20 percent for fiscal year 1985, 25 percent for fiscal 
year 1986, and 30 percent for fiscal year 1987. 
(C) The Secretary shall not apportion less than $200,000 
nor more than $12,500,000 under this paragraph to an 
airport sponsor for any primary airport for any fiscal year. 
(D) In no event shall the total amount of all apportion-
ments under this paragraph for any fiscal year exceed 50 
percent of the amount authorized to be obligated for such 
fiscal year for the purposes of section 505 of this title. In 
any case in which an apportionment would be reduced by 
the preceding sentence, the Secretary shall for such fiscal 
year reduce the apportionment to each sponsor of a pri-
mary airport under this paragraph proportionately so that 
such 50 percent amount is achieved. 
(E) If any Act of Congress has the effect of limiting or 
reducing the amount authorized or available to be obligated 
for any fiscal year for the purposes of section 505 of this 
title, the total amount of all apportionments under this 
paragraph for such fiscal year shall not exceed 50 percent of 
such limited or reduced amount. In any case in which an 
apportionment would be reduced by the preceding sentence, 
the Secretary shall for such fiscal year reduce the appor-
tionment to each sponsor of a primary airport under this 
paragraph proportionately so that such 50 percent amount 
is achieved. 
(2) APPORTIONMENTS TO STATES.—To the States, there shall be 
apportioned for each of the fiscal years beginning after Septem-
ber 30, 1981, and ending before October 1, 1987, 12 percent of 
the amount made available under section 505 for such fiscal 
year, as follows: 
(A) INSULAR AREAS.—For airports other than 
primary 
airports, one percent of such amounts to Guam, American 
Samoa, the Government of the Northern Mariana Islands, 
the Trust Territory of the Pacific Islands, and the Virgin 
Islands. 
(B) STATES.—For airports other than primary airports 
and other than airports described in section 508(d)(3), one-
half of the remaining 99 per centum to the States (other 
than those to which subparagraph (A) of this paragraph 
applies) in the proportion which the population of each such 
State bears to the total population of all such States and 
one-half of the remaining 99 per centum to the States (other 
than those to which subparagraph (A) of this paragraph 
applies) in the proportion which the area of each such State 
bears to the total area of all such States. As used in this 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 681 
paragraph, the term "population" means the population 
according to the latest decennial census of the United 
States and the term "area" includes both land and water. 
(3) DISCRETIONARY FUND.—Any amounts not apportioned 
under paragraphs (1), (2), and (4) of this subsection shall consti-
tute a discretionary fund to be distributed at the discretion of 
the Secretary (subject to the limitations set forth in section 
508(d) of this title) for such grants for any of the purposes for 
which funds are made available under section 505 as the Secre-
tary considers most appropriate for carrying out the purposes of 
this title. 
(4) Notwithstanding any other provision of this subsection, for 
any fiscal year for which funds are made available under 
section 505 of this title the Secretary may apportion funds for 
airports in the State of Alaska in the same manner in which 
funds were apportioned in fiscal year 1980 under section 15(a) of 
the Airport and Airway Development Act of 1970. In no event 
Post, p. 695. 
shall the total amount apportioned for such airports under this 
paragraph for any fiscal year be less than the minimum 
amounts that were required to be apportioned to such airports 
in fiscal year 1980 under section 15(a)(3)(A) of such Act. In no 
event shall a primary airport be apportioned less under this 
paragraph for a fiscal year than it would be apportioned for 
such fiscal year under paragraph (1) of this subsection. In no 
event shall the amount of funds apportioned under this para-
graph which are expended at any commercial service airport in 
the State of Alaska during a fiscal year exceed 110 percent of 
the amount apportioned to such airport for such fiscal year. 
Nothing in this paragraph shall be construed as prohibiting the 
Secretary from making additional project grants to airports in 
the State of Alaska from the discretionary fund established in 
paragraph (3) of this subsection. 
(b) PASSENGERS ENPLANED.—For purposes of determining appor-
tionments for any fiscal year under paragraph (1) of subsection (a) of 
this section, the number of passengers enplaned at an airport shall 
be based on the number of passengers enplaned at such airport 
during the preceding calendar year. 
SEC. 508. USE OF APPORTIONED AND DISCRETIONARY FUNDS; MIS- 49 USC 2207. 
C E L L A N E O U S CONDITIONS. 
(a) DURATION OF AVAILABILITY OF APPORTIONED AMOUNTS.—Each 
amount apportioned under paragraph (1), (2), or (4) of section 507(a) 
of this title shall be available for obligation under such apportion-
ment during the fiscal year for which it was first authorized to be 
obligated and the two fiscal years immediately following. Any 
amount so apportioned which has not been obligated within such 
time shall be added to the discretionary fund established by section 
507(a)(3) of this title. 
(b) TRANSFER OF CERTAIN APPORTIONMENTS OF PRIMARY AIR-
PORTS.—(1) Funds apportioned to a sponsor under section 507(a)(1) of 
this title may be used for any of the purposes for which funds are 
made available under section 505 at any public-use airport of such 
sponsor which is in the national plan of integrated airport systems. 
(2) A sponsor may enter into an agreement with the Secretary 
whereby the sponsor waives receipt of all or part of the funds 
apportioned to it under such section on the condition that the 
Secretary make the waived amount available for any of the purposes 
96 STAT. 682 
PUBLIC LAW 97-248—SEPT. 3, 1982 
for which funds are made available under section 505 to the sponsor 
of another public-use airport which is a part of the same State or 
geographical area as the airport of the sponsor making the waiver. 
(c) STATES.—Funds apportioned to a State under section 507(a)(2) 
shall be available for any of the purposes for which funds are made 
available under section 505 to airports described in section 507(a)(2) 
which are located in such State. Each sponsor of such an airport 
may apply to the Secretary for grants from funds apportioned to 
such State. 
(d) GENERAL LIMITATIONS.—(1) Not less than 10 percent of the 
funds made available under section 505 for any fiscal year shall be 
distributed to reliever airports during such fiscal year. 
(2) Not less than 8 percent of the funds made available under 
section 505 for any fiscal year shall be obligated during such fiscal 
year (A) for airport noise compatibility planning under section 
49 use 1711, 
103(b) of the Aviation Safety and Noise Abatement Act of 1979 and 
1^13- 
for carrying out noise compatibility programs or parts thereof under 
49 use 2104. 
section 104(c) of such Act, and (B) in the case of fiscal year 1982, for 
any of the purposes set forth in section 505(c) of this title. 
(3) Not less than 5.5 percent of the funds made available under 
section 505 for any fiscal year shall be distributed during such fiscal 
year to— 
(A) commercial service airports which are not primary 
airports, 
(B) public airports (other than commercial service airports) 
which were eligible for Federal assistance from funds appor-
tioned under section 15(a)(3) of the Airport and Airway Develop-
Post, p. 695. 
ment Act of 1970, and to which section 15(a)(3)(A)(I) of such Act 
applied during fiscal year 1981, and 
(C) public airports (other than commercial service airports) 
which were eligible for Federal assistance from funds appor-
tioned under section 15(a)(3) of the Airport and Airway Develop-
ment Act of 1970, and to which section 15(a)(3)(A)(II) of such Act 
applied during fiscal year 1981. 
No amounts obligated from the funds apportioned under paragraph 
(4) of section 507(a) shall be counted as part of the 5.5 percent 
required to be distributed under this paragraph for each fiscal year. 
(4) Not less than one percent of the funds made available under 
section 505 for any fiscal year shall be distributed to planning 
agencies for the purpose of integrated airport system planning 
during such fiscal year. 
(5) If the Secretary determines that he will not be able to distrib-
ute the amount of funds required to be distributed under paragraph 
(1), (2), (3), or (4) of this subsection for any fiscal year because the 
number of qualified applications submitted in compliance with this 
title is insufficient to meet such amount, the portion of such amount 
the Secretary determines will not be distributed shall be available 
for obligation during such fiscal year for other airports and for other 
purposes authorized by section 505 of this title. 
49 u s e 2208. 
SEC. 509. SUBMISSION AND APPROVAL OF PROJECT GRANT APPLICA-
TIONS. 
(a) SUBMISSION.—(1) Subject to the provisions of this subsection, 
(A) any public agency, or two or more public agencies acting jointly, 
or (B) any sponsor of a public-use airport, or two or more such 
sponsors acting jointly, may submit to the Secretary a project grant 
application for one or more projects, in a form and containing such 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 683 
information as the Secretary may prescribe, setting forth the project 
proposed to be undertaken. No project grant application shall pro-
pose airport development or airport planning except in connection 
with public-use airports included in the current national plan of 
integrated airport systems prepared pursuant to section 504 of this 
title. Nothing in this subsection shall authorize the submission of a 
project grant application by any public agency which is subject to 
the law of any State if the submission of such application by the 
public agency is prohibited by the law of that State. All proposed 
airport development shall be in accordance with standards estab-
lished or approved by the Secretary, including, but not limited to, 
standards for site location, airport layout, site preparation, paving, 
lighting, and safety of approaches. 
(2) Notwithstanding any provision of this title, the sponsor of any 
airport may submit a project-grant application for airport develop-
ment (including noise compatibility projects) to the Secretary within 
180 days after the date of enactment of this title, and the Secretary 
may incur obligations to fund such projects, in accordance with the 
provisions of this title, from funds available for obligation pursuant 
to section 507(a), i
f
— 
(A) a project-grant application or preapplication for such 
project was submitted to the Secretary before September 30, 
1980; or 
(B) the project was carried out after September 30, 1980, and 
before the date of enactment of this title. 
(b) APPROVAL.—(1) No project grant application may be approved 
by the Secretary unless the Secretary is satisfied that— 
(A) the project is reasonably consistent with plans (existing at 
the time of approval of the project) of public agencies authorized 
by the State in which such airport is located to plan for the 
development of the area surrounding the airport and will con-
tribute to the accomplishment of the purposes of this title; 
(B) sufficient funds are available for that portion of the 
project costs which are not to be paid by the United States 
under this title; 
(C) the project will be completed without undue delay; 
(D) the sponsor which submitted the project grant application 
has legal authority to engage in the project as proposed; and 
(E) all project sponsorship requirements prescribed by or 
under the authority of this title have been or will be met. 
(2) No project grant application for airport development may be 
approved by the Secretary unless the sponsor, a public agency, or 
the United States or an agency thereof holds good title, satisfactory 
to the Secretary, to the landing area of the airport or site therefor, 
or gives assurance satisfactory to the Secretary that good title will 
be acquired. 
(3) No project grant application for airport development may be 
approved by the Secretary which does not include provision for (A) 
land required for the installation of approach light systems; (B) 
touchdown zone and centerline runway lighting; or (C) high inten-
sity runway lighting, when it is determined by the Secretary that 
any such item is required for the safe and efficient use of the airport 
by aircraft, taking into account the type and volume of traffic 
utilizing the airport. 
(4) No project grant application for airport development may be 
approved unless the Secretary is satisfied that fair consideration has 
96 STAT. 684 
PUBLIC LAW 97-248—SEPT. 3, 1982 
been given to the interest of communities in or near which the 
project may be located. 
(5) It is declared to be national policy that airport development 
projects authorized pursuant to this title shall provide for the 
protection and enhancement of the natural resources and the qual-
ity of the environment of the Nation. In implementing this policy, 
the Secretary shall consult with the Secretary of the Interior and 
the Administrator of the Environmental Protection Agency with 
regard to any project included in a project grant application involv-
ing airport location, a major runway extension, or runway location 
which may have a significant impact on natural resources including, 
but not limited to, fish and wildlife, natural, scenic, and recreation 
assets, water and air quality, and other factors affecting the environ-
ment, and shall authorize no such project found to have significant 
adverse effect unless the Secretary shall render a finding, in writ-
ing, following a full and complete review, which shall be a matter of 
public record, that no feasible and prudent alternative exists and 
that all reasonable steps have been taken to minimize such adverse 
effect. 
(6)(A) No project grant application for airport development involv-
ing the location of an airport, an airport runway, or a major runway 
extension may be approved by the Secretary unless the sponsor of 
the project certifies to the Secretary that there has been afforded 
the opportunity for public hearings for the purpose of considering 
the economic, social, and environmental effects of the airport or 
runway location and its consistency with the goals and objectives of 
such planning as has been carried out by the community. 
(B) When hearings are held under subparagraph (A) of this para-
graph, the project sponsor shall, when requested by the Secretary, 
submit a copy of the transcript to the Secretary. 
(7)(A) No project grant application for a project involving airport 
location, a major runway extension, or runway location may be 
approved unless the Governor of the State in which such project is 
to be located certifies in writing to the Secretary that there is 
reasonable assurance that the project will be located, designed, 
constructed, and operated so as to comply with applicable air and 
water quality standards. In any case where such standards have not 
been approved and where applicable air and water quality standards 
have been promulgated by the Administrator of the Environmental 
Protection Agency, certification shall be obtained from such Admin-
istrator. Notice of certification or refusal to certify shall be provided 
within sixty days after the project application has been received by 
the Secretary. 
(B) The Secretary shall condition approval of any such project 
grant application on compliance during construction and operation 
with applicable air and water quality standards. 
(8) Notwithstanding any other provision of law, the Secretary may 
approve an application for an airport development project (other 
than an airport development project to which paragraph (7)(A) 
applies) at an existing airport without requiring the preparation of 
an environmental impact statement with respect to noise for such 
project i
f
— 
(A) completion of the project would allow existing aircraft 
operations at the airport that involve aircraft that do not 
comply with the noise standards prescribed for "stage 2" air-
craft in section 36.1 of title 14, Code of Federal Regulations, to 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 685 
be replaced by aircraft operations involving aircraft that do 
comply with such standards; and 
(B) the project complies with all other statutory and adminis-
trative requirements imposed under this title. 
(9) In establishing priorities for the distribution of funds available 
pursuant to section 507 of this title, the Secretary may give priority 
to approval of projects that are consistent with integrated airport 
system plans. 
(c) STATE STANDARDS.—The Secretary is authorized to approve 
standards, other than standards for safety of approaches, estab-
lished by a State for airport development at public-use airports in 
such State which are not primary airports, and, upon such approval, 
such State standards shall be the standards applicable to such 
airports in lieu of any comparable standard established under sub-
section (a) of this section. State standards approved under this 
subsection may be revised from time to time, as the State or the 
Secretary determines necessary, subject to approval of such revi-
sions by the Secretary. 
(d) ACCEPTANCE OF CERTIFICATION.—The Secretary is authorized in 
connection with any project to require a certification from a sponsor 
that such sponsor will comply with all of the statutory and adminis-
trative requirements imposed on such sponsor under this title in 
connection with such project. Acceptance by the Secretary of a 
certification from a sponsor may be rescinded by the Secretary at 
any time. Nothing in this subsection shall affect or discharge any 
responsibility or obligation of the Secretary under any other Federal 
law, including, but not limited to, the National 
Environmental 
Policy Act of 1969 (42 U.S.C. 4321 et seq.), section 4(0 of the 
Department of Transportation Act (49 U.S.C. 1652), title VI of the 49 USC 1653. 
Civil Rights Act of 1964 (42 U.S.C. 2000b), title VIII of the Act of 42 USC 2000d. 
April 11, 1968 (42 U.S.C. 3601 et seq.), and the Uniform Relocation 
Assistance and Real Property Acquisition Policies Act of 1970 (42 
U.S.C. 4601 et seq.). 
(e) REQUIREMENT OF NOTICE.—Each sponsor to which funds are 
apportioned under section 507(a)(1) of this title shall notify the 
Secretary, by such time and in a form containing such information 
as the Secretary may prescribe, of the fiscal year in which it intends 
to apply, by project grant application, for such funds. If a sponsor 
does not provide such notification, the Secretary may defer approval 
of any application for such funds until the fiscal year immediately 
following the fiscal year in which such application is submitted. 
SEC. 510. UNITED STATES SHARE OF PROJECT COSTS. 
49 USC 2209. 
(a) GENERAL PROVISION.—Except as otherwise provided in this 
title, the United States share of allowable project costs payable on 
account of any project contained in an approved project grant 
application submitted in accordance with this title shall be 90 
percent of the allowable project costs. 
(b) PROJECTS AT CERTAIN PRIMARY AIRPORTS.—In the case of pri-
mary airports enplaning 0.25 percent or more of the total number of 
passengers enplaned annually at all commercial service airports, 
the United States share of allowable project costs payable on 
account of any project contained in an approved project grant 
application shall be 75 per centum of the allowable project costs. 
(c) PROJECTS IN PUBLIC LAND STATES.—In the case of any State 
containing unappropriated and unreserved public lands and nontax-
able Indian lands (individual and tribal) exceeding 5 percent of the 
96 STAT. 686 
PUBLIC LAW 97-248—SEPT. 3, 1982 
total area of all lands therein, the United States share under 
subsection (a) or (b) shall be increased by whichever is the smaller of 
the following percentages thereof: (1) 25 percent, or (2) a percentage 
equal to one-half of the percentage that the area of all such lands in 
that State is of its total area. In no event shall such United States 
share, as increased by this subsection, exceed the greater of (A) the 
percentage share determined under subsection (a) or (b) of this 
section, or (B) the percentage share applying on June 30, 1975, as 
determined under subsection 1703) of the Airport and Airway Devel-
Post, p. 695. 
opment Act of 1970. 
49 use 2210. 
SEC. 511. PROJECT SPONSORSHIP. 
(a) SPONSORSHIP.—As a condition precedent to approval of an 
airport development project contained in a project grant application 
submitted under this title, the Secretary shall receive assurances, in 
writing, satisfactory to the Secretary, that— 
(1) the airport to which the project relates will be available for 
public use on fair and reasonable terms and without unjust 
discrimination, including the requirement that (A) each air 
carrier using such airport (whether as a tenant, nontenant, or 
subtenant of another air carrier tenant) shall be subject to such 
nondiscriminatory and substantially comparable rates, fees, 
rentals, and other charges and such nondiscriminatory and 
substantially comparable rules, regulations, and conditions as 
are applicable to all such air carriers which make similar use of 
such airport and which utilize similar facilities, subject to rea-
sonable classifications such as tenants or nontenants, and com-
bined passenger and cargo flights or all cargo flights, and such 
classification or status as tenant shall not be unreasonably 
withheld by any airport provided an air carrier assumes obliga-
tions substantially similar to those already imposed on tenant 
air carriers, and (B) each fixed-based operator at any airport 
shall be subject to the same rates, fees, rentals, and other 
charges as are uniformly applicable to all other fixed-based 
operators making the same or similar uses of such airport 
utilizing the same or similar facilities, and (C) each air carrier 
using such airport shall have the right to service itself or to use 
any fixed-base operator that is authorized by the airport or 
permitted by the airport to serve any air carrier at such airport; 
(2) there will be no exclusive right for the use of the airport by 
any person providing, or intending to provide, aeronautical 
services to the public. For purposes of this paragraph, the 
providing of services at an airport by a single fixed-based opera-
tor shall not be construed as an exclusive right if it would be 
unreasonably costly, burdensome, or impractical for more than 
one fixed-based operator to provide such services, and if allow-
ing more than one fixed-based operator to provide such services 
would require the reduction of space leased pursuant to an 
existing agreement between such single fixed-based operator 
and such airport; 
(3) the airport and all facilities thereon or connected there-
with will be suitably operated and maintained, with due regard 
to climatic and flood conditions; 
(4) the aerial approaches to the airport will be adequately 
cleared and protected by removing, lowering, relocating, mark-
ing, or lighting or otherwise mitigating existing airport hazards 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 687 
and by preventing the establishment or creation of future air-
port hazards; 
(5) appropriate action, including the adoption of zoning laws 
has been or will be taken, to the extent reasonable, to restrict 
the use of land adjacent to or in the immediate vicinity of the 
airport to activities and purposes compatible with normal air-
port operations, including landing and takeoff of aircraft; 
(6) all of the facilities of the airport developed with Federal 
financial assistance and all those usable for landing and takeoff 
of aircraft will be available to the United States for use by 
Government aircraft in common with other aircraft at all times 
without charge, except, if the use by Government aircraft is 
substantial, charge may be made for a reasonable share, propor-
tional to such use, of the cost of operating and maintaining the 
facilities used; 
(7) the airport operator or owner will furnish without cost to 
the Federal Government for use in connection with any air 
traffic control or navigation activities, or weather-reporting and 
communication activities related to air traffic control, any areas 
of land or water, or estate therein, or rights in buildings of the 
sponsor as the Secretary considers necessary or desirable for 
construction at Federal expense of space or facilities for such 
purposes; 
(8) all project accounts and records will be kept in accordance 
with a standard system of accounting prescribed by the Secre-
tary after consultation with appropriate public agencies; 
(9) the airport operator or owner will maintain a fee and 
rental structure for the facilities and services being provided 
the airport users which will make the airport as self-sustaining 
as possible under the circumstances existing at that particular 
airport, taking into account such factors as the volume of traffic 
and economy of collection, except that no part of the Federal 
share of an airport development or airport planning project for 
which a grant is made under this title or under the Federal 
Airport Act or the Airport and Airway Development Act of 1970 49 USC 1101 
shall be included in the rate base in establishing fees, rates, and "ote, posf, p. 695. 
charges for users of that airport; 
(10) the airport operator or owner will submit to the Secretary 
such annual or special airport financial and operations reports 
as the Secretary may reasonably request; 
(11) the airport and all airport records will be available for 
inspection by any duly authorized agent of the Secretary upon 
reasonable request; 
(12) all revenues generated by the airport, if it is a public 
airport, will be expended for the capital or operating costs of the 
airport, the local airport system, or other local facilities which 
are owned or operated by the owner or operator of the airport 
and directly related to the actual transportation of passengers 
or property: Provided, however, That if covenants or assurances 
in debt obligations previously issued by the owner or operator of 
the airport, or provisions in governing statutes controlling the 
owner or operator's financing, provide for the use of the rev-
enues from any of the airport owner or operator's facilities, 
including the airport, to support not only the airport but also 
the airport owner or operator s general debt obligations or other 
facilities, then this limitation on the use of all other revenues 
generated by the airport shall not apply; and 
96 STAT. 688 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(13) the airport operator or owner who receives a grant for the 
purchase of land for noise compatibility purposes which is 
conditioned on the disposal of the acquired land at the earliest 
practicable time will, subject to the retention or reservation of 
any interest or right therein necessary to insure that such land 
is used only for purposes which are compatible with the noise 
levels of the operation of the airport, use its best efforts to so 
dispose of such land. The proceeds of such dispositions shall be 
(A) refunded to the United States for the Trust Fund on a basis 
proportionate to the United States share of the cost of acquisi-
tion of such land, or (B) reinvested in an approved project, 
pursuant to such regulations as the Secretary shall prescribe. 
(b) COMPLIANCE.—To insure compliance with this section, the 
Secretary shall prescribe such project sponsorship requirements, 
consistent with the terms of this title, as the Secretary considers 
necessary. Among other steps to insure such compliance, the Secre-
tary is authorized to enter into contracts with public agencies on 
behalf of the United States. Whenever the Secretary obtains from a 
sponsor any area of land or water, or estate therein, or rights in 
buildings of the sponsor and constructs space or facilities thereon at 
Federal expense, the Secretary is authorized to relieve the sponsor 
from any contractual obligation entered into under this title, the 
49 use 1101 
Airport and Airway Development Act of 1970, or the Federal Air-
note, posf, p. 695. port Act to provide free space in airport buildings to the Federal 
Government to the extent the Secretary finds that space no longer 
required for the purposes set forth in paragraph (7) of subsection (a) 
of this section. 
(c) CONSULTATION.—In making a decision to undertake any airport 
development project under this title, each sponsor of an airport shall 
undertake reasonable consultations with affected parties using the 
airport at which such project is proposed. 
49 use 2211. 
SEC. 512. GRANT AGREEMENTS. 
(a) OFFER AND ACCEPTANCE.—Upon approving a project grant 
application, the Secretary, on behalf of the United States, shall 
transmit to the sponsor or sponsors of the application an offer to 
make a grant for the United States share of allowable project costs. 
An offer shall be made upon such terms and conditions as the 
Secretary considers necessary to meet the requirements of this title 
and any regulations prescribed thereunder. Each offer shall state a 
definite amount as the maximum obligation of the United States 
payable from funds authorized by this title, and shall stipulate the 
obligations to be assumed by the sponsor or sponsors. In any case 
where the Secretary approves a project grant application for a 
project which will not be completed in one fiscal year, the offer 
shall, upon request of the sponsor, provide for the obligation of funds 
apportioned or to be apportioned to the sponsor pursuant to section 
507(3X1) of this title for such fiscal years (including future fiscal 
years) as may be necessary to pay the United States share of the cost 
of such project. If and when an offer is accepted in writing by the 
sponsor, the offer and acceptance shall comprise an agreement 
constituting an obligation of the United States and of the sponsor. 
Unless and until an agreement has been executed, the United States 
may not pay, nor be obligated to pay, any portion of the costs which 
have been or may be incurred. 
(b) MAXIMUM OBLIGATION OF THE UNITED STATES.—When an offer 
is accepted in writing by a sponsor, the amount stated in the offer as 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 689 
the maximum obligation of the United States may not be increased, 
except that— 
(1) in the case of any project for airport development (other 
than a project for land acquisition), the maximum obligation of 
the United States may be increased by not more than 10 
percent; and 
(2) in the case of any acquisition of land or interests in land, 
the maximum obligation of the United States may be increased 
by an amount not to exceed 50 percent of the total increase in 
allowable project costs attributable to such acquisition in land 
or interests therein, based upon current credible appraisals. 
(c) Notwithstanding any other provision of law, in the case of 
grants made under the Airport and Airway Development Act of 
1970 the maximum obligation of the United States may be increased Post, p. 695. 
by not more than 10 percent, and any such increase may be paid for 
only from funds recovered by the United States from other grants 
made under that Act. 
SEC. 513. PROJECT COSTS. 
49 USC 2212. 
(a) ALLOWABLE PROJECT COSTS.—Except as provided in section 514 
of this title, the United States may not pay, or be obligated to pay, 
from amounts appropriated to carry out the provisions of this title, 
any portion of a project cost incurred in carrying out a project for 
airport development or airport planning unless the Secretary has 
first determined that the cost is allowable. A project cost is allow-
able i
f
— 
(1) it was a necessary cost incurred in accomplishing an 
approved project in conformity with the terms and conditions of 
the grant agreement entered into in connection with the proj-
ect, including any costs incurred by a recipient in connection 
with any audit required by the Secretary pursuant to section 
518(b) of this title; 
(2) it was incurred subsequent to the execution of the grant 
agreement with respect to the project, and in connection with 
airport development or airport planning accomplished under 
the project after the execution of the agreement. However, the 
allowable costs of a project for airport development may include 
any necessary costs of formulating the project (including the 
costs of field surveys and the preparation of plans and specifica-
tions, the acquisition of land or interests therein or easements 
through or other interests in airspace, and any necessary 
administrative or other incidental costs incurred by the sponsor 
specifically in connection with the accomplishment of the 
project for airport development, which would not have been 
incurred otherwise) which were incurred prior to the execution 
of the grant agreement and subsequent to May 13, 1946, and the 
allowable costs of a project for airport planning may include 
any necessary and direct costs associated with developing the 
project work scope which were incurred subsequent to May 13, 
1946; 
(3) in the opinion of the Secretary it is reasonable in amount, 
and if the Secretary determines that a project cost is unreason-
able in amount, the Secretary may allow as an allowable project 
cost only so much of such project cost as the Secretary deter-
mines to be reasonable, except that in no event may the Secre-
tary allow project costs in excess of the definite amount stated 
96 STAT. 690 
PUBLIC LAW 97-248—SEPT. 3, 1982 
in the grant agreement except to the extent authorized by 
section 512(b); and 
(4) it has not been incurred in any project for airport planning 
or airport development for which Federal assistance has been 
granted. 
The Secretary is authorized to prescribe such regulations, including 
regulations with respect to the auditing of project costs, as the 
Secretary considers necessary to accomplish the purposes of this 
section. 
(b) TERMINAL DEVELOPMENT.—(1) Notwithstanding any other pro-
vision of this title, upon certification by the sponsor of any commer-
cial service airport that such airport has, on the date of submittal of 
the project grant application, all the safety equipment required for 
certification of such airport under section 612 of the Federal Avi-
49 use 1432. 
ation Act of 1958 and all the security equipment required by rule or 
regulation, and has provided for access to the passenger enplaning 
and deplaning area of such airport to passengers enplaning or 
deplaning from aircraft other than air carrier aircraft, the Secre-
tary may approve, as allowable project costs of a project for airport 
development at such airport, terminal development (including mul-
timodal terminal development) in nonrevenue-producing public-use 
areas if such project cost is directly related to the movement of 
passengers and baggage in air commerce within the boundaries of 
the airport, including, but not limited to, vehicles for the movement 
of passengers between terminal facilities or between terminal facili-
ties and aircraft. 
(2) Not more than the greater of (A) $200,000, or (B) 60 percent of 
the sums apportioned under section 507(a)(1) of this title to the 
sponsor of a primary airport for any fiscal year may be obligated for 
project costs allowable under paragraph (1) of this subsection. Not 
more than $200,000 of the sums to be distributed at the discretion of 
the Secretary under section 507(a)(3) for any fiscal year may be used 
by the sponsor of a commercial service airport which is not a 
primary airport for project costs allowable under paragraph (1) of 
this subsection. 
(3) Not more than $25,000,000 may be obligated for project costs 
allowable under paragraph (1) of this subsection in any fiscal year at 
commercial service airports which were not eligible for assistance 
for terminal development during the fiscal year ending Septem-
ber 30, 1980, under section 20(b) of the Airport and Airway Develop-
Post, p. 695. 
ment Act of 1970. 
(4) Sums apportioned under section 507(a) and made available to 
the sponsor of an air carrier airport (within the meaning of section 
Post, p. 695. 
11(1) of the Airport and Airway Development Act of 1970, as in 
effect immediately before the date of enactment of this paragraph) 
at which terminal development was carried out on or after July 1, 
1970, and before July 12, 1976, shall be available, subject to the 
limitations contained in paragraph (2) of this subsection, for the 
immediate retirement of the principal of bonds or other evidences of 
indebtedness the proceeds of which were used for that part of the 
terminal development at such airport the cost of which would be 
allowable under paragraph (1) of this subsection if incurred after the 
effective date of this paragraph, subject to the following conditions: 
(A) That such sponsor submit the certification required under 
paragraph (1) of this subsection. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 691 
(B) That the Secretary determine that no project for airport 
development at such airport outside the terminal area will be 
deferred if such sums are used for such retirement. 
(C) That no funds available for airport development under 
this title will be obligated for any project for additional terminal 
development at such airport for a period of three years begin-
ning on the date any such sums are used for such retirement. 
(5) Notwithstanding any other provisions of this title, the United 
States share of project costs allowable under paragraph (1) of this 
subsection shall not exceed 50 percent. 
(6) The Secretary shall approve project costs allowable under 
paragraph (1) of this subsection under such terms and conditions as 
may be necessary to protect the interests of the United States. 
(c) COSTS NOT ALLOWED.—Except as provided in subsection (b) of 
this section, the following are not allowable project costs: (1) the cost 
of construction of that part of an airport development project 
intended for use as a public parking facility for passenger auto-
mobiles; or (2) the cost of construction, alteration, or repair of a 
hangar or of any part of an airport building except such of those 
buildings or parts of buildings intended to house facilities or activi-
ties directly related to the safety of persons at the airport. 
SP:C. 514. PAYMENTS UNDER GRANT AGREEMENTS. 
49 USC 2213. 
The Secretary, after consultation with the sponsor with which a 
project grant agreement has been entered into, may determine the 
times and amounts in which payments shall be made under the 
terms of such agreement. Payments in an aggregate amount not to 
exceed 90 percent of the United States share of the total estimated 
allowable project costs may be made from time to time in advance of 
accomplishment of the airport project to which the payments relate, 
if the sponsor certifies to the Secretary that the aggregate expendi-
tures to be made from the advance payments will not at any time 
exceed the cost of the airport development work which has been 
performed up to that time. If the Secretary determines that the 
aggregate amount of payments made under a project grant agree-
ment at any tim.e exceeds the United States share of the total 
allowable project costs, the United States shall be entitled to recover 
the excess. If the Secretary finds that any airport development to 
which the advance payments relate has not been accomplished 
within a reasonable time or the project is not completed, the United 
States may recover any part of the advance payment for which the 
United States received no benefit. Payments under a project grant 
agreement shall be made to the official or depository authorized by 
law to receive public funds and designated by the sponsor. 
SEC. 515. PERFORMANCE OF CONSTRUCTION WORK. 
49 USC 2214. 
(a) REGULATIONS.—The construction work on any project for air-
port development contained in an approved project grant applica-
tion submitted in accordance with this title shall be subject to 
inspection and approval by the Secretary and shall be in accordance 
with regulations prescribed by the Secretary. Such regulations shall 
require such cost and progress reporting by the sponsor or sponsors 
of such project as the Secretary shall deem necessary. No such 
regulation shall have the effect of altering any contract in connec-
tion with any project entered into without actual notice of the 
regulation. 
96 STAT. 692 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(b) MINIMUM RATES OF WAGES.—All contracts in excess of $2,000 
for work on projects for airport development approved under this 
title which involve labor shall contain provisions establishing mini-
mum rates of wages, to be predetermined by the Secretary of Labor, 
in accordance with the Davis-Bacon Act, as amended (40 U.S.C. 
276a—276a-5), which contractors shall pay to skilled and unskilled 
labor, and such minimum rates shall be stated in the invitation for 
bids and shall be included in proposals or bids for the work. 
(c) VETERANS PREFERENCE.—All contracts for work under project 
grants for airport development approved under this title which 
involve labor shall contain such provisions as are necessary to 
insure that, in the employment of labor (except in executive, admin-
istrative, and supervisory positions), preference shall be given to 
veterans of the Vietnam era and disabled veterans. However, this 
preference shall apply only where the individuals are available and 
qualified to perform the work to which the employment relates. For 
the purposes of this subsection— 
(1) a Vietnam-era veteran is an individual who served on 
active duty as defined by section 101(21) of title 38 of the United 
States Code in the Armed Forces for a period of more than 180 
consecutive days any part of which occurred during the period 
beginning August 5, 1964, and ending May 7, 1975, and who was 
separated from the Armed Forces under honorable conditions; 
and 
(2) a disabled veteran is an individual described in section 
2108(2) of title 5 of the United States Code. 
49 u s e 2215. 
SKC. 516. VShl OF (JOVERNMKNT-OWNEI) LANDS. 
(a) REQUESTS FOR USE.—Subject to the provisions of subsection (c) 
of this section, whenever the Secretary determines that use of any 
lands owned or controlled by the United States is reasonably neces-
sary for carrying out a project under this title at a public airport, or 
for the operation of any public airport, including lands reasonably 
necessary to meet future development of an airport in accordance 
with the national plan of integrated airport systems, the Secretary 
shall file with the head of the department or agency having control 
of the lands a request that the necessary property interests therein 
be conveyed to the public agency sponsoring the project in question 
or owning or controlling the airport. The property interest may 
consist of the title to, or any other interest in, land or any easement 
through or other interest in airspace. 
(b) MAKING OF CONVEYANCES.—Upon receipt of a request from the 
Secretary under this section, the head of the department or agency 
having control of the lands in question shall determine whether the 
requested conveyance is inconsistent with the needs of the depart-
ment or agency, and shall notify the Secretary of the determination 
within a period of four months after receipt of the Secretary's 
request. If the department or agency head determines that the 
requested conveyance is not inconsistent with the needs of that 
department or agency, the department or agency head is hereby 
authorized and directed, with the approval of the Attorney General 
of the United States, and without any expense to the United States, 
to perform any acts and to execute any instruments necessary to 
make the conveyance requested. A conveyance may be made only on 
the condition that, at the option of the Secretary, the property 
interest conveyed shall revert to the United States in the event that 
the lands in question are not developed for airport purposes or used 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 693 
in a manner consistent with the terms of the conveyance. If only a 
part of the property interest conveyed is not developed for airport 
purposes, or used in a manner consistent with the terms of the 
conveyance, only that particular part shall, at the option of the 
Secretary, revert to the United States. 
(c) EXEMPTION OF CERTAIN LANDS.—Unless otherwise specifically 
provided by law, the provisions of subsections (a) and (b) of this 
section shall not apply with respect to lands owned or controlled by 
the United States within any national park, national monument, 
national recreation area, or similar area under the administration 
of the National Park Service; within any unit of the National 
Wildlife Refuge System or similar area under the jurisdiction of the 
United States Fish and Wildlife Service; or within any national 
forest or Indian reservation. 
SEC. 517. FALSE STATEMENTS. 
49 USC 2216. 
Any officer, agent, or employee of the United States, or any 
officer, agent, or employee of any public agency, or any person, 
association, firm, or corporation who, with intent to defraud the 
United States— 
(1) knowingly makes any false statement, false representa-
tion, or false report as to the character, quality, quantity, or cost 
of the material used or to be used, or the quantity or quality of 
the work performed or to be performed, or the costs thereof, in 
connection with the submission of plans, maps, specifications, 
contracts, or estimates of project costs for any project submitted 
to the Secretary for approval under this title; 
(2) knowingly makes any false statement, false representa-
tion, or false report or claim for work or materials for any 
project approved by the Secretary under this title; or 
(3) knowingly makes any false statement or false representa-
tion in any report or certification required to be made under 
this title; 
shall, upon conviction thereof, be punished by imprisonment for not 
to exceed five years or by a fine of not to exceed $10,000, or by both. 
SEC. 518. ACCESS TO RECORDS. 
49 USC 2217. 
(a) RECORDKEEPING REQUIREMENTS.—Each recipient of a grant 
under this title shall keep such records as the Secretary may 
prescribe, including records which fully disclose the amount and the 
disposition by the recipient of the proceeds of the grant, the total 
cost of the plan or program in connection with which the grant is 
given or used, and the amount and nature of that portion of the cost 
of the plan or program supplied by other sources, and such other 
records as will facilitate an effective audit. The Secretary shall Review, 
annually review the reporting and recordkeeping requirements 
under this title to insure that such requirements are kept to the 
minimum level necessary for the proper administration of this title. 
(b) AUDIT AND EXAMINATION.—The Secretary and the Comptroller 
General of the United States, or any of their duly authorized 
representatives, shall have access for the purpose of audit and 
examination to any books, documents, papers, and records of the 
recipient that are pertinent to grants received under this title. The 
Secretary may require, as a condition to receipt of a grant under 
this title, that an appropriate audit be conducted by a recipient. 
(c) AUDIT REPORTS.—In any case in which an independent audit is 
made of the accounts of a recipient of a grant under this title 
96 STAT. 694 
PUBLIC LAW 97-248—SEPT. 3, 1982 
relating to the disposition of the proceeds of such grant or relating 
to the plan or program in connection with which the grant was 
given or used, the recipient shall file a certified copy of such audit 
with the Comptroller General of the United States not later than six 
months following the close of the fiscal ^ear for which the audit was 
Report to 
made. On or before April 15 of each year the Comptroller General 
Cbngress. 
shall report to the Congress describing the results of each audit 
conducted or reviewed by him under this section during the preced-
ing fiscal year. The Comptroller General shall prescribe such regula-
tions as are deemed necessary to carry out the provisions of this 
subsection. 
(d) WITHHOLDING INFORMATION.—Nothing in this section shall 
authorize the withholding of information by the Secretary or the 
Comptroller General of the United States, or any officer or employee 
under the control of either of them, from the duly authorized 
committees of the Congress, 
49 u s e 2218. 
SEC. 519. GENERAL POWERS. 
The Secretary is empowered to perform such acts, to conduct such 
investigations and public hearings, to issue and amend such orders, 
and to make and amend such regulations and procedures, pursuant 
to and consistent with the provisions of this title, as the Secretary 
considers necessary to carry out the provisions of, and to exercise 
and perform the Secretary's powers and duties, under this title. 
49 u s e 2219. 
SEC. 520. CIVIL RIGHTS. 
The Secretary shall take affirmative action to assure that no 
person shall, on the grounds of race, creed, color, national origin, or 
sex, be excluded from participating in any activity conducted with 
funds received from any grant made under this title. The Secretary 
shall promulgate such rules as the Secretary deems necessary to 
carry out the purposes of this section and may enforce this section, 
and any rules promulgated under this section, through agency and 
department provisions and rules which shall be similar to those 
established and in effect under title VI of the Civil Rights Act of 
42 use 2000d. 
1964. The provisions of this section shall be considered to be in 
addition to and not in lieu of the provisions of title VI of the Civil 
Rights Act of 1964. 
49 u s e 2220. 
SEC. 521. REPORTS TO CONGRESS. 
On or before the first day of April of each year the Secretary shall 
make a report to the Congress describing his operations under this 
title during the preceding fiscal year. The report shall include a 
detailed statement of the airport development accomplished, the 
status of each project undertaken, the allocation of appropriations, 
and an itemized statement of expenditures and receipts. 
49 u s e 2221. 
SEC. 522. REPORT ON ABILITY OF AIRPORTS TO FINANCE AIRPORT 
DEVELOPMENT NEEDS. 
(a) SUBMISSION TO CONGRESS.—Not later than 1 year after the date 
of enactment of this title, the Secretary shall submit to the Congress 
a report on whether, and to what extent, those airports which have 
the ability to finance their capital and operating needs without 
Federal assistance should be made ineligible to receive Federal 
assistance for airport development and airport planning under this 
title. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 695 
(b) CONSIDERATIONS.—The study shall consider, among 
other 
things: (1) what effect, if any, making such airports ineligible for 
such Federal assistance would have on the national airport system; 
(2) whether airports which are made ineligible for assistance, or 
voluntarily withdraw from the program, should be permitted to 
collect a passenger facility charge; (3) how such a passenger facility 
charge could be collected in order to minimize any cost and 
inconvenience for passengers, airports, and air carriers; (4) the 
extent to which such a program would permit a reduction in Federal 
taxes on air transportation; (5) whether the net effect of such a 
program would lower or increase the cost of air transportation to 
passengers on our Nation's air carriers; and (6) whether the Con-
gress should implement such a program prior to the expiration of 
this title. 
(c) CONSULTATION.—In conducting the study, the Secretary shall 
consult with airport operators, air carriers, and representatives of 
any other groups which may be substantially affected by such a 
program. 
SEC. 523. REPEALS; EFFECTIVE 
DATE; SAVING PROVISIONS: AND 
SEPARABILITY. 
(a) REPEAL.—Sections 1 through 30 of the Airport and Airway 
Development Act of 1970 (49 U.S.C. 1701-1730) are repealed on the 
date of enactment of this title. 
(b) EFFECTIVE DATE.—This title and the amendments made by this 
49 USC 2201 
title shall take effect on the date of enactment of this title. 
"°*^' 
(c) SAVING PROVISIONS.—(1) All orders, determinations, rules, reg- 
49 USC 2201 
ulations, permits, contracts, certificates, licenses, grants, rights, and "°*® 
privileges which have been issued, made, granted, or allowed to 
become effective by the President, the Secretary, or any court of 
competent jurisdiction or any provision of the Airport and Airway 
Development Act of 1970 or the Federal Airport Act which are in Supra, 49 USC 
effect at the time this title takes effect, are continued in effect 
l^^l "°^®-
according to their terms until modified, terminated, superseded, set 
aside, or repealed by the Secretary or by any court of competent 
jurisdiction, or by operation of law. 
(2) Notwithstanding any other provision of this title, amounts 
apportioned before October 1, 1981, pursuant to section 15(a)(3) of 
the Airport and Airway Development Act of 1970, which have not 
49 USC 1715. 
been obligated by grant agreement before that date, shall remain 
available for obligation, for the duration of time specified in section 
15(a)(5) of that Act, in accordance with the provisions of that Act 
(other than the second sentence of section 14(b)(2)), to the same 
49 USC 1714. 
extent as though that Act had not been repealed. 
(d) SEPARABILITY.—If any provision of this title or the application 
49 USC 2201 
thereof to any person or circumstance is held invalid, the remainder 
"°*^-
of the title and the application of the provision to other persons or 
circumstances is not affected thereby. 
SEC. ,'524. MISCELLANEOUS AMENDMENTS. 
(a)(1) Section 308(a) of the Federal Aviation Act of 1958 (49 U.S.C. 
1349(a)) is amended by adding at the end thereof the following new 
sentence: "For purposes of the preceding sentence, the providing of 
services at an airport by a single fixed-based operator shall not be 
construed as an exclusive right if it would be unreasonably costly, 
burdensome, or impractical for more than one fixed-based operator 
to provide such services, and if allowing more than one fixed-based 
97-200 O—84—pt. 1 
24 : QL3 
96 STAT. 696 
PUBLIC LAW 97-248—SEPT. 3, 1982 
operator to provide such services would require the reduction of 
space leased pursuant to an existing agreement between such single 
fixed-based operator and such airport.". 
(2) Section 313(c) of the Federal Aviation Act of 1958 (49 U.S.C. 
1354(c)) is amended by inserting "the Airport and Airway Improve-
Ante,ip.6n. 
ment Act of 1982," after "this Act," the first place it appears. 
(3) Section 1109(e) of the Federal Aviation Act of 1958 (49 U.S.C. 
1509(e)) is amended by striking out "Airport and Airway Develop-
ment Act of 1970" and inserting in lieu thereof "Airport and Airway 
Improvement Act of 1982". 
(b) The Aviation Safety and Noise Abatement Act of 1979 is 
amended as follows: 
49 use 2101. 
(1) Section 101(1) is amended to read as follows: 
"(1) the term 'airport* means any public-use airport (as 
defined by section 503(17) of the Airport and Airway Improve-
ment Act of 1982);". 
(2) Section 101(2) is amended to read as follows: 
"(2) the term 'airport operator' means, in the case of an 
airport serving air carriers certificated by the Civil Aeronautics 
Board, any person holding a valid certificate issued pursuant to 
section 612 of the Federal Aviation Act of 1958 (49 U.S.C. 1432) 
to operate an airport, and, in the case of any other airport, the 
person operating such airport; and". 
49 use 2103. 
(3) Section 103(b) is amended to read as follows: 
49 use 1711, 
"(b)(1) The Secretary is authorized to incur obligations to make 
^^^^- 
grants from funds made available under section 505 of the Airport 
and Airway Improvement Act of 1982 for airport noise compatibility 
planning to sponsors of airports. The United States share of any 
airport noise compatibility planning grant under this section shall 
be that percent for which a project for airport development at that 
airport would be eligible under section 510 of the Airport and 
Airway Improvement Act of 1982. 
"(2) For purposes of this Act, the term 'airport noise compatibility 
planning' means the development for planning purposes of informa-
tion necessary to prepare and submit (A) the noise exposure map 
and related information pursuant to subsection (a) of this section, 
including any cost associated with obtaining such information, or (B) 
a noise compatibility program for submission pursuant to section 
104 of this Act". 
49 use 2104. 
(4) Section 104(c)(1) is amended by striking out "subsection (e) of 
this section" in the first sentence and inserting in lieu thereof 
"section 505 of the Airport and Airway Improvement Act of 1982". 
The last sentence of section 104(c)(1) is amended to read as follows: 
"All of the provisions of the Airport and Airway Improvement Act 
of 1982 applicable to project grants made under section 505 of that 
Act (except section 510 of that Act relating to United States share of 
project costs) shall be applicable to any grant made under this Act, 
unless the Secretary determines that any provision of such Act of 
1982 is inconsistent with, or unnecessary to carry out, the purposes 
of this Act.". 
49 use 2108. 
(5) Section 108 is amended by striking out "(1) airport noise 
compatibility planning carried out with grants made under section 
13 of the Airport and Airway Development Act of 1970, and (2)" and 
inserting in lieu thereof "airport noise compatibility planning and". 
(c) Section 13(g)(1) of the Surplus Property Act of 1944 (50 App. 
U.S.C. 1622(g)(1)) is amended by striking out "Airport and Airway 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 697 
Development Act of 1970" and inserting in lieu thereof "Airport and 
Airway Improvement Act of 1982". 
Ante, v. mi. 
(d) Section 24 of the Airport and Airway Development Act Amend- Appropriation 
ments of 1976 (49 U.S.C. 1356a) is amended by striking out subsec- authorization. 
tion (c) and inserting in lieu thereof the following: 
"(c)(1) There is authorized to be appropriated out of the Airport 
and Airway Trust Fund for amounts expended before the date 
specified in paragraph (2) of this subsection not to exceed 
$15,000,000. No such amounts shall be appropriated prior to Septem-
ber 30,1981. 
"(2) No compensation shall be paid by the Secretary of Transpor-
tation under this section for amounts expended after the date which 
is 180 days after the date of enactment of the International Air 
Transportation Competition Act of 1979.". 
49 USC 1301 
(e) Section 31 of the Airport and Airway Development Act of 1970 
49^usc 1731 
is amended by striking out "this title" and inserting in lieu thereof 
"the Airport and Airway Improvement Act of 1982", by inserting Ante, p. 671. 
"under such Act" after "airport development project", and by 
inserting "(as defined by section 11(8) of the Airport and Airway 
Development Act of 1970, as in effect on the date of enactment of 49 USC 1711. 
this section)" after "general aviation airport". 
(f) The last sentence of section 612(b) of the Federal Aviation Act 
of 1958 (49 U.S.C. 1432(b)) is amended by inserting "(1)" immediately 
after the words "relating to" and by inserting the following immedi-
ately before the period at the end thereof: "and (2) such grooving or 
other friction treatment for primary and secondary runways as the 
Secretary determines to be necessary". 
SEC. 525. SAFETY CERTIFICATION OF AIRPORTS. 
(a) Section 612(a) of the Federal Aviation Act of 1958 (49 U.S.C. 
1432(a)) is amended to read as follows: 
"POWER TO ISSUE 
"SEC. 612. (a) The Administrator is empowered to issue airport 
operating certificates to, and establish minimum safety standards 
for the operation of, airports that serve any scheduled or unsched-
uled passenger operation of air carrier aircraft designed for more 
than 30 passenger seats.". 
(b) Section 612(b) of such Act (49 U.S.C. 1432(b)) is amended by 
striking out "serving air carriers certificated by the Civil Aeronau-
tics Board" in the first sentence and inserting in lieu thereof "which 
is described in subsection (a) and which is required by the Adminis-
trator, by rule, to be certificated". 
(c) Section 612(c) of such Act (49 U.S.C. 1432(c)) is amended by 
striking out "air carrier airport enplaning annually less than one-
quarter of 1 percent of the total number of passengers enplaned at 
all air carriers airports" and inserting in lieu thereof "airport 
described in subsection (a)(1) enplaning annually less than one-
quarter of 1 percent of the total number of passengers enplaned at 
all airports described in subsection (a)(1)". 
(d) Section 610(a)(8) of such Act (49 U.S.C. 1430(a)(8)) is amended to 
read as follows: 
"(8) For any person to operate an airport without an airport 
operating certificate required by the Administrator pursuant to 
section 612, or in violation of the terms of any such certificate; 
and". 
committees. 
96 STAT. 698 
PUBLIC LAW 97-248—SEPT. 3, 1982 
49 u s e 2222. 
SEC. 526. CONTRACTING AUTHORITY. 
In the powers granted under section 519 of this title, the Secre-
tary, in entering into a contract or other agreement with any State 
or political subdivision thereof for the' purpose of permitting such 
State or subdivision to operate any airport facility within such State 
or subdivision shall insure that such contract or agreement contain, 
among others, a provision relieving the United States of any and all 
liability for the payment of any claim or other obligation arising out 
of or in connection with acts or omissions of employees of such State 
or political subdivision in the operation of any such airport facility. 
49 u s e 2223. 
SEC. 527. STUDY OF AIRPORT ACCESS. 
(a) The Secretary shall appoint a task force, as provided in subsec-
tion (b), to study the problems of allocating the use of airport 
facilities and airspace (including, but not limited to, gate facilities, 
landing facilities, airspace slots, and ticketing and terminal space) 
among persons using or seeking to use such facilities. The task force 
shall make a study of present methods of allocating the use of 
airport facilities and airspace, and, if such action is determined to be 
appropriate, shall make recommendations for improving those 
methods and for resolving disputes with respect to the use of such 
Report to 
facilities. The task force shall report its findings and recommenda-
^°".^5.^?fi-'^^^ 
tions to the chairman of the Committee on Public Works and 
Transportation of the House of Representatives and the chairman of 
the Committee on Commerce, Science, and Transportation of the 
Senate not later than one hundred and twenty days after the task 
force first meets under subsection (c). 
(b) The task force shall consist of the Chairman of the Civil 
Aeronautics Board, who shall serve as chairman of the task force, 
and individuals appointed by the Secretary of Transportation not 
later than sixty days after the date of enactment of this 
title, including, but not limited to, a representative of each of the 
following: 
(1) the Department of Transportation; 
(2) the Department of Justice; 
(3) States; 
(4) owners and operators of airports, including those owners 
and operators of airports which do not restrict access, but which 
provide service to airports where access is currently restricted 
or is expected to be restricted in the future; 
(5) trunk air carriers; 
(6) regional air carriers (other than commuter air carriers); 
(7) charter air carriers; 
(8) commuter air carriers; 
(9) all-cargo air carriers; 
(10) general aviation; 
(11) financial institutions with an interest in the aviation 
industry; and 
(12) aviation consumer groups. 
(c) The task force shall meet, at the direction of the chairman, not 
later than thirty days after all its members have been appointed 
under subsection (b), and at such other times as may be necessary to 
complete the study required by this section. 
(d) The Secretary shall provide such staff and support services as 
may be necessary to assist the task force in completing the report 
required by this section. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 699 
SEC. .52S. FAKT-TIME OPERATION OF FLIGHT SERVICE STATIONS. 
49 USC 2224. 
(a) Beginning on the date of enactment of this title, the Secretary 
shall not close or operate on a part-time basis any flight service 
station except in accordance with this section. 
(b) During the period beginning on the date of enactment of this 
title and ending on September 30, 1983, the Secretary may provide 
for the part-time operation of not more than sixty existing flight 
service stations operated by the Federal Aviation Administration. 
The operation of a flight service station on a part-time basis shall be 
subject to the condition that during any period when a flight service 
station is part-timed, the service provided to airmen with respect to 
information relating to temperature, dewpoint, barometric pressure, 
ceiling, visibility, and wind direction and velocity for the area served 
by such station shall be as good as or better than the service 
provided when the station is open, and all such service shall be 
provided either by mechanical device or by contract with another 
party. 
(c) The Secretary may close not more than five existing flight 
service stations before October 1, 1983. After October 1, 1983, the 
Secretary may close additional flight service stations, but only if the 
service provided to airmen after the closure of such station with 
respect to information relating to temperature, dewpoint, baromet-
ric pressure, ceiling, visibility, and wind direction and velocity for 
the area served by such station is as good as or better than the 
service provided when the station was open and such service is 
provided either by mechanical device or by contract with another 
party. 
SEC. .'529. EXPLOSIVE DETECTION K-9 TEAMS. 
49 USC 2225. 
The Secretary shall provide by grant for the continuation of the 
Explosive Detection K-9 Team Training Program for the purpose of 
detecting explosives at airports and aboard aircraft. There is author-
ized to be appropriated out of the Airport and Airway Trust Fund 
for purposes of this section not more than $150,000 nor less than 
$130,000 for each fiscal year beginning after September 30, 1981, and 
ending before October 1, 1987. 
SEC. .530. RELEASE OF CERTAIN CONDITIONS. 
(a) CRYSTAL CITY, TEXAS.—(1) Notwithstanding section 16 of the 
Federal Airport Act (as in effect on January 3, 1949), the Secretary 
49 USC 1115 
of Transportation is authorized, subject to the provisions of section 4 "o^^-
of the Act of October 1, 1949 (50 App. U.S.C. WZ2c), and the 
provisions of paragraph (2) of this subsection, to grant releases from 
any of the terms, conditions, reservations, and restrictions contained 
in the deed of conveyance dated January 3, 1949, or any other deed 
of conveyance dated after such date and before the date of enact-
ment of this section, under which the United States conveyed 
certain property to Crystal City, Texas, for airport purposes. 
(2) Any release granted by the Secretary of Transportation under 
paragraph (1) of this subsection shall be subject to the following 
conditions: 
(A) Crystal City, Texas, shall agree that in conveying any 
interest in the property which the United States conveyed to 
the city by a deed described in paragraph (1) the city will receive 
an amount for such interest which is equal to the fair market 
value (as determined pursuant to regulations issued by such 
Secretary). 
96 STAT. 700 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(B) Any such amount so received by the city shall be used by 
the city for the development, improvement, operation, or main-
tenance of a public airport. 
(b) BROWN WOOD, TEXAS.—(1) Notwithstanding section 16 of the 
49 use 1115 
Federal Airport Act (as in effect on June 26, 1950), the Secretary of 
"°*'^- 
Transportation is authorized, subject to the provisions of section 4 of 
the Act of October 1, 1949 (50 App. U.S.C. 1622c), and the provisions 
of paragraph (2) of this subsection, to grant releases from any of the 
terms, conditions, reservations, and restrictions contained in the 
deeds of conveyance dated June 26, 1950, and April 1, 1963, under 
which the United States conveyed certain property to the city of 
Brownwood, Texas, for airport purposes. 
(2) Any release granted by the Secretary of Transportation under 
paragraph (1) of this subsection shall be subject to the following 
conditions: 
(A) The city of Brownwood, Texas, shall agree that in convey-
ing any interest in the property which the United States con-
veyed to the city by the deeds dated June 26, 1950, and April 1, 
1963, the city will receive an amount for such interest which is 
equal to the fair market value (as determined pursuant to 
regulations issued by such Secretary). 
(B) Any such amount so received by the city shall be used by 
the city for the development, improvement, operation, or main-
tenance of a public airport. 
(c) GRAND JUNCTION, COLORADO.—(1) Notwithstanding section 16 
of the Federal Airport Act (as in effect on September 14, 1951), the 
Secretary of Transportation is authorized, subject to the provisions 
of section 4 of the Act of October 1, 1949 (50 App. U.S.C. 1622c), and 
the provisions of paragraph (2) of this subsection, to grant releases 
from any of the terms, conditions, reservations, and restrictions 
contained in the deed of conveyance dated September 14, 1951, 
under which the United States conveyed certain property to the city 
of Grand Junction, Colorado, for airport purposes and the deed of 
conveyance dated March 24, 1975, under which the city of Grand 
Junction, Colorado, conveyed such property to the Walker Field 
Public Airport Authority. 
(2) Any release granted by the Secretary of Transportation under 
paragraph (1) of this subsection shall be subject to the following 
conditions: 
(A) The property for which releases are granted under this 
section shall not exceed a total of eighteen acres. 
(B) The Walker Field Public Airport Authority shall agree 
that in leasing, or conveying any interest in, the property for 
which releases are granted under this section, such Authority 
will receive an amount which is equal to the fair lease value or 
the fair market value, as the case may be (as determined 
pursuant to regulations issued by such Secretary). 
(C) Any such amount so received by the Walker Field Public 
Airport Authority, shall be used by such Authority for the 
development, improvement, operation, or maintenance of the 
Walker Field Public Airport. 
(d) NEWPORT, ARKANSAS.—(1) Notwithstanding section 16 of the 
Federal Airport Act (as in effect on December 17, 1947), the Secre-
tary of Transportation is authorized, subject to the provisions of 
section 4 of the Act of October 1, 1949 (50 App. U.S.C. 1622c), and the 
provisions of paragraph (2) of this subsection, to grant releases from 
any of the terms, conditions, reservations, and restrictions contained 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 701 
in the deed of conveyance dated December 17, 1947, or any other 
deed of conveyance dated after such date and before the date of 
enactment of this section, under which the United States conveyed 
certain property to Newport, Arkansas, for airport purposes. 
(2) Any release granted by the Secretary of Transportation under 
paragraph (1) of this subsection shall be subject to the following 
conditions: 
(A) Newport, Arkansas, shall agree that in conveying any 
interest in the property which the United States conveyed to 
the city by a deed described in paragraph (1) the city will receive 
an amount for such interest which is equal to the fair market 
value (as determined pursuant to regulations issued by such 
Secretary). 
(B) Any such amount so received by the city shall be used by 
the city for the development, improvement, operation, or main-
tenance of a public airport. 
SEC. 531. CONTINUATION OF CERTAIN CERTIFICATES. 
Notwithstanding any other provision of law or of any certificate 
issued by the Civil Aeronautics Board to the contrary, any certifi-
cate to engage in temporary air transportation which was issued 
under section 401(d)(8) of the Federal Aviation Act of 1958 or 49 USC1371. 
pursuant to the Trans-Atlantic Route Proceeding, CAB Docket 
Number 25908, and any certificate which was issued in the Califor-
nia/Southwest-Mexico Route Proceeding, CAB Docket Number 
32665, and which is in effect on the date of enactment of this title 
shall be effective for a period of two years beyond the period for 
which it was issued. 
SEC. 532. STATE TAXATION. 
(a) Section 1113(b) of the Federal Aviation Act of 1958 (49 U.S.C. 
1513(b)) is amended by striking out "Nothing" and inserting in lieu 
thereof "Except as provided in subsection (d) of this section, 
nothing". 
(b) Section 1113 of such Act is further amended by adding at the 
end thereof the following new subsection: 
"(d)(1) The following acts unreasonably burden and discriminate 
against interstate commerce and a State, subdivision of a State, or 
authority acting for a State or subdivision of a State may not do any 
of them: 
"(A) assess air carrier transportation property at a value that 
has a higher ratio to the true market value of the air carrier 
transportation property than the ratio that the assessed value 
of other commercial and industrial property of the same type in 
the same assessment jurisdiction has to the true market value 
of the other commercial and industrial property; 
"(B) levy or collect a tax on an assessment that may not be 
made under subparagraph (A) of this paragraph; or 
"(C) levy or collect an ad valorem property tax on air carrier 
transportation property at a tax rate that exceeds the tax rate 
applicable to commercial and industrial property in the same 
assessment jurisdiction. 
"(2) In this subsection— 
"(A) 'assessment' means valuation for a property tax levied by 
a taxing district; 
96 STAT. 702 
PUBLIC LAW 97-248—SEPT. 3, 1982 
"(B) 'assessment jurisdiction' means a geographical area in a 
State used in determining the assessed value of property for ad 
valorem taxation; 
"(C) 'air carrier transportation property' means property, as 
defined by the Civil Aeronautics Board, owned or used by an air 
carrier providing air transportation; 
"(D) 'commercial and industrial property' means property, 
other than transportation property and land used primarily for 
agricultural purposes or timber growing, devoted to a commer-
cial or industrial use and subject to a property tax levy; and 
"(E) 'State' shall include the Commonwealth of Puerto Rico, 
the Virgin Islands, Guam, the District of Columbia, the territor-
ies or possessions of the United States, and political agencies of 
two or more States. 
"(3) This subsection shall not apply to any in lieu tax which is 
wholly utilized for airport and aeronautical purposes.". 
TITLE VI—FEDERAL SUPPLEMENTAL 
COMPENSATION PROGRAM 
Federal 
Supplemental 
Compensation 
Act of 1982. 
26 u s e 3304 
note. 
Subtitle A—Extension of Benefits 
SHORT TITLE 
SEC. 601. This subtitle may be cited as the "Federal Supplemental 
Compensation Act of 1982". 
26 u s e 3304 
note. 
FEDERAL-STATE AGREEMENTS 
SEC. 602. (a) Any State which desires to do so may enter into and 
participate in an agreement with the Secretary of Labor (herein-
after in this title referred to as the "Secretary") under this subtitle. 
Any State which is a party to an agreement under this subtitle may, 
upon providing thirty days' written notice to the Secretary, termi-
nate such agreement. 
(b) Any such agreement shall provide that the State agency of the 
State will make payments of Federal supplemental compensation— 
(1) to individiuals who— 
(A) have exhausted all rights to regular compensation 
under the State law; 
(B) have no rights to compensation (including both regu-
lar compensation and extended compensation) with respect 
to a week under such law or any other State unemployment 
compensation law or to compensation under any other 
Federal law (and is not paid or entitled to be paid any 
additional compensation under any such State or Federal 
law); and 
(C) are not receiving compensation with respect to such 
week under the unemployment compensation law of 
Canada; 
(2) for any week of unemployment which begins in the indi-
vidual's period of eligibility, 
except that no payment of Federal supplemental compensation shall 
be made to any individual for any week of unemployment which 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 703 
begins more than two years after the end of the benefit year for 
which he exhausted his rights to regular compensation. 
(c) For purposes of subsection (b)(1)(A), an individual shall be 
deemed to have exhausted his rights to regular compensation under 
a State law when— 
(A) no payments of regular compensation can be made under 
such law because such individual has received all regular com-
pensation available to him based on employment or wages 
during his base period; or 
(B) his rights to such compensation have been terminated by 
reason of the expiration of the benefit year with respect to 
which such rights existed. 
(d) For purposes of any agreement under this subtitle— 
(1) the amount of the Federal supplemental compensation 
which shall be payable to any individual for any week of total 
unemployment shall be equal to the amount of the regular 
compensation (including dependents' allowances) payable to 
him during his benefit year under the State law for a week of 
total unemployment; and 
(2) the terms and conditions of the State law which apply to 
claims for extended compensation and to the payment thereof 
shall apply to claims for Federal supplemental compensation 
and the payment thereof; except where inconsistent with the 
provisions of this subtitle or with the regulations of the Secre-
tary promulgated to carry out this subtitle. 
Solely for purposes of paragraph (2), the amendment made by 
section 2404(a) of the Omnibus Budget Reconciliation Act of 1981 95 Stat. 875. 
shall be deemed to be in effect for all weeks beginning on or after 
26 USC 3304 
September 12, 1982. 
(e)(1) Any agreement under this subtitle with a State shall provide 
that the State will establish, for each eligible individual who files an 
application for Federal supplemental compensation, a Federal sup-
plemental compensation account with respect to such individual's 
benefit year. 
(2)(A) Except as otherwise provided in this paragraph, the amount 
established in such account for any individual shall be equal to the 
lesser o
f
— 
(i) 50 per centum of the total amount of regular compensation 
(including dependents' allowances) payable to him with respect 
to the benefit year (as determined under the State law) on the 
basis of which he most recently received regular compensation; 
or 
(ii) 6 times his average weekly benefit amount (as determined 
for purposes of section 202(b)(1)(C) of the Federal-State Extended 
Unemployment Compensation Act of 1970) for his benefit year. 
26 USC 3304 
(B) If an extended benefit period was in effect under the Federal-
State Extended Unemployment Compensation Act of 1970 in a State 
for any week which begins on or after June 1, 1982, and before the 
week for which the compensation is paid, subparagraph (A) shall be 
applied with respect to such State by substituting "10" for "6" in 
clause (ii) thereof. 
(C)(i) In the case of any State not described in subparagraph (B), 
subparagraph (A) shall be applied, only with respect to weeks during 
a high unemployment period, by substituting "8" for "6" in clause 
(ii) thereof. 
(ii), For purposes of clause (i), the term "high unemployment 
period" means, with respect to any State, the period— 
note. 
note. 
96 STAT. 704 
PUBLIC LAW 97-248—SEPT. 3, 1982 
(I) which begins with the third week after the first week in 
which the rate of insured unemployment in the State for the 
period consisting of such week and the immediately preceding 
12 weeks equals or exceeds 3.5 percent, and 
(II) which ends with the third week after the first week in 
which the rate of insured unemployment in the State for the 
period consisting of such week and the immediately preceding 
12 weeks is less than 3.5 percent; 
except that no high unemployment period shall last for a period of 
less than 4 weeks. 
(iii) For purposes of clause (ii), the rate of insured unemployment 
for any period shall be determined in the same manner as deter-
mined for purposes of section 203 of the Federal-State Extended 
26 use 3304 
Unemployment Compensation Act of 1970. 
"°*®- 
(f)(1) No Federal supplemental compensation shall be payable to 
any individual under an agreement entered into under this subtitle 
for any week beginning before whichever of the following is the 
later: 
(A) the week following the week in which such agreement is 
entered into; or 
(B) September 12, 1982. 
(2) No Federal supplemental compensation shall be payable to any 
individual under an agreement entered into under this subtitle for 
any week beginning after March 31, 1983. 
PAYMENTS TO STATES HAVING AGREEMENTS FOR THE PAYMENT OF 
FEDERAL SUPPLEMENTAL COMPENSATION 
26 use 3304 
SEC. 603. (a) There shall be paid to each State which has entered 
^°^- 
into an agreement under this subtitle an amount equal to 100 per 
centum of the Federal supplemental compensation paid to individ-
uals by the State pursuant to such agreement. 
(b) No payment shall be made to any State under this section in 
5 use 8501 et 
respect of compensation to the extent the State is entitled to reim-
^^^- 
bursement in respect of such compensation under the provisions of 
any Federal law other than this subtitle or chapter 85 of title 5 of 
the United States Code. A State shall not be entitled to any reim-
bursement under such chapter 85 in respect of any compensation to 
the extent the State is entitled to reimbursement under this subtitle 
in respect of such compensation. 
(c) Sums payable to any State by reason of such State's having an 
agreement under this subtitle shall be payable, either in advance or 
by way of reimbursement (as may be determined by the Secretary), 
in such amounts as the Secretary estimates the State will be enti-
tled to receive under this subtitle for each calendar month, reduced 
or increased, as the case may be, by any amount by which the 
Secretary finds that his estimates for any prior calendar month 
were greater or less than the amounts which should have been paid 
to the State. Such estimates may be made on the basis of such 
statistical sampling, or other method as may be agreed upon by the 
Secretary and the State agency of the State involved. 
FINANCING PROVISIONS 
26 use 3304 
SEC. 604. (a)(1) Funds in the extended unemployment compensa-
^o*T%n ^^(^K 
^^^^ account (as established by section 905 of the Social Security Act) 
of the Unemployment Trust Fund shall be used for the making of 
42 use 1105. 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 705 
payments to States having agreements entered into under this 
subtitle. 
(2) The Secretary shall from time to time certify to the Secretary 
of the Treasury for payment to each State the sums payable to such 
State under this subtitle. The Secretary of the Treasury, prior to 
audit or settlement by the General Accounting Office, shall make 
payments to the State in accordance with such certification, by 
transfers from the extended unemployment compensation account 
(as established by section 905 of the Social Security Act) to the 
42 USC 1105. 
account of such State in the Unemployment Trust Fund. 
(b) There are hereby authorized to be appropriated, without fiscal 
year limitation, to the extended unemployment compensation 
account, such sums as may be necessary to carry out the purposes of 
this subtitle. Amounts appropriated pursuant to the preceding sen-
tence shall not be required to be repaid. 
(c) There are hereby authorized to be appropriated from the 
general fund of the Treasury, without fiscal year limitation, such 
funds as may be necessary for purposes of assisting States (as 
provided in title III of the Social Security Act) in meeting the costs 42 USC. 501. 
of administration of agreements under this subtitle. 
DEFINITIONS 
SEC. 605. For purposes of this subtitle— 
26 USC 3304 
(1) the terms "com.pensation", "regular compensation", ^°^^-
"extended 
compensation", 
"base period", 
"benefit 
year", 
"State", "State agency", "State law", and "week" shall have the 
meanings assigned to them under section 205 of the Federal-
State Extended Unemployment Compensation Act of 1970; and 26 use 3304 
(2) the term "period of eligibility" means, with respect to any "^°^^' 
individual, any week which begins on or after September 12, 
1982, and begins before April 1, 1983; except that an individual 
shall not have a period of eligibility unless— 
(A) his benefit year ends on or after June 1, 1982, or 
(B) such individual was entitled to extended compensa-
tion for a week which begins on or after June 1, 1982. 
FRAUD AND OVERPAYMENTS 
SEC. 606. (a)(1) If an individual knowingly has made, or caused to 26 USC 3304 
be made by another, a false statement or representation of a ""^"^ 
material fact, or knowingly has failed, or caused another to fail, to 
disclose a material fact, and as a result of such false statement or 
representation or of such nondisclosure such individual has received 
an amount of Federal supplemental compensation under this sub-
title to which he was not entitled, such individual— 
(A) shall be ineligible for further Federal supplemental com-
pensation under this subtitle in accordance with the provisions 
of the applicable State unemployment compensation law relat-
ing to fraud in connection with a claim for unemployment 
compensation; and 
(B) shall be subject to prosecution under section 1001 of title 
18, United States Code. 
(2)(A) In the case of individuals who have received amounts of 
Federal supplemental compensation under this subtitle to which 
they were not entitled, the State is authorized to require such 
individuals to repay the amounts of such Federal supplemental 
96 STAT. 706 
P U B L I C L A W 97-248—SEPT. 3, 1982 
compensation to the State agency, except that the State agency may 
waive such repayment if it determines that— 
(i) the payment of such Federal Supplemental compensation 
was without fault on the part of any such individual, and 
(ii) such repayment would be contrary to equity and good 
conscience. 
(B) The State agency may recover the amount to be repaid, or any 
part thereof, by deductions from any Federal supplemental compen-
sation payable to such individual under this subtitle or from any 
unemployment compensation payable to such individual under any 
Federal unemployment compensation law administered by the State 
agency or under any other Federal law administered by the State 
agency which provides for the payment of any assistance or allow-
ance with respect to any week of unemployment, during the three-
year period after the date such individuals received the payment of 
the Federal supplemental compensation to which they were not 
entitled, except that no single deduction may exceed 50 per centum 
of the weekly benefit amount from which such deduction is made. 
(C) No repayment shall be required, and no deduction shall be 
made, until a determination has been made, notice thereof and an 
opportunity for a fair hearing has been given to the individual, and 
the determination has become final. 
(3) Any determination by a State agency under paragraph (1) or (2) 
shall be subject to review in the same manner and to the same 
extent as determinations under the State unemployment compensa-
tion law, and only in that manner and to that extent. 
Subtitle B—Taxation of Unemployment 
Compensation 
SEC. 611. TAXATION OF UNEMPLOYMENT COMPENSATION. 
(a) LOWERING BASE AMOUNT FROM $20,000 TO $12,000 (From 
$25,000 TO $18,000 IN CASE OF JOINT RETURN).—Subsection (b) of 
26 use 85. 
section 85 of the Internal Revenue Code of 1954 (defining base 
amount) is amended— 
(1) by striking out "$20,000" and inserting in lieu thereof 
"$12,000", and 
(2) by striking out "$25,000" and inserting in lieu thereof 
"$18,000". 
26 u s e 85 note. 
(b) EFFECTIVE D A T E S . — 
(1) COMPENSATION PAID AFTER 1981.—The amendments made 
by this section shall apply to payments of unemployment com-
pensation made after December 31, 1981, in taxable years 
ending after such date. 
(2) N O ADDITION TO TAX FOR UNDERPAYMENT OF ESTIMATED TAX 
ATTRIBUTABLE TO APPLICATION OF AMENDMENTS TO COMPENSATION 
PAID IN 1982.—No addition to tax shall be made under section 
6654 of the Internal Revenue Code of 1954 with respect to any 
underpayment to the extent such underpayment is attributable 
to unemployment compensation which is received during 1982 
and which (but for the amendments made by subsection (a)) 
would not be includable in gross income. 
(3) SPECIAL RULE FOR FISCAL YEAR TAXPAYERS.—In the case of a 
taxable year (other than a calendar year) which includes Janu-
ary 1, 1982— 
PUBLIC LAW 97-248—SEPT. 3, 1982 
96 STAT. 707 
(A) the amendments made by this section shall be applied 
by taking into account the entire amount of unemployment 
compensation received during such taxable year, but 
(B) the increase in gross income for such taxable year as a 
result of such amendments shall not exceed the amount of 
unemployment compensation paid after December 31, 1981. 
(4) UNEMPLOYMENT COMPENSATION DEFINED.—For purposes of 
this subsection, the term "unemployment compensation" has 
the meaning given to such term by section 85(c) of the Internal 
Revenue Code of 1954. 
Approved September 3, 1982. 
LEGISLATIVE HISTORY—H.R. 4961: 
HOUSE REPORTS: No. 97-404 (Comm. on Ways and Means) and No. 97-760 (Comm. 
of Conference). 
SENATE REPORTS: No. 97-494 Vols. 1 and 2 (Comm. on Finance) and No. 97-530 
(Comm. of Conference). 
CONGRESSIONAL RECORD: 
Vol. 127 (1981): Dec. 15, considered and passed House. 
Vol 128 (1982): July 19-22, considered and passed Senate, amended. 
Aug. 19, House and Senate agreed to conference report.