An act to amend the Internal Revenue Code of 1954 with respect to the determination of second tier taxes, and for other purposes.
PL 96-596 (H.R.5391), enacted 12/24/1980

PUBLIC LAW 96-596—DEC. 24, 1980 
94 STAT. 3469 
Public Law 96-596 
96th Congress 
An Act 
To amend the Internal Revenue Code of 1954 with respect to the determination of 
second tier taxes, 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. AMENDMENT OF 1954 CODE. 
Except as otherwise expressly provided, whenever in this Act an 
amendment or repeal is expressed in terms of an amendment to, or 
repeal of, a section or other provision, the reference shall be consid-
ered to be made to a section or other provision of the Internal 
Revenue Code of 1954. 
SEC. 2. DETERMINATION OF SECOND TIER TAXES. 
(a) DATE FOR DETERMINING AMOUNT OF SECOND TIER TAXES.— 
(1) SUBSTITUTION OF TAXABLE PERIOD FOR CORRECTION PERIOD.— 
The following provisions are each amended by striking out 
"correction period" and inserting in lieu thereof "taxable 
period": 
(A) Section 4941(b)(1) (relating to additional taxes on self-
dealer). 
(B) Section 4941(e)(2)(B) (defining amount involved). 
(C) Section 4942(b) (relating to additional tax on failure to 
distribute income). 
(D) Section 4943(b) (relating to additional tax on excess 
business holdings). 
(E) Section 4944(b)(1) (relating to additional taxes on 
investment which jeopardizes charitable purpose). 
(F) Section 4945(b)(1) (relating to adclitional taxes on tax-
able expenditures). 
(G) Section 4951(b)(1) (relating to additional taxes on self-
dealer). 
(H) Section 4951(e)(2)(B) (defining amount involved). 
(I) Section 4952(b)(1) (relating to additional taxes on tax-
able expenditures). 
(J) Section 4971(b) (relating to additional tax on failure to 
meet minimum funding standards). 
(K) Section 4975(b) (relating to additional taxes on dis-
qualified persons). 
(L) Section 4975(f)(4)(B) (defining amount involved). 
(2) DEFINITION OF TAXABLE PERIOD.— 
(A) Paragraph (1) of section 4941(e) (defining taxable 
period) is amended to read as follows: 
"(1) TAXABLE PERIOD.—The term 'taxable period' means, with 
respect to any act of self-dealing, the period beginning with the 
date on which the act of self-dealing occurs and ending on the 
earliest of— 
"(A) the date of mailing a notice of deficiency with respect 
to the tax imposed by subsection (a)(1) under section 6212, 
Dec. 24, 1980 
[H.R. 5391] 
Internal 
Revenue Code of 
1954, 
amendment. 
26 u s e 1 et seq. 
26 use 
4941-4945, 4951, 
4952, 4971, 4975. 
94 STAT. 3470 
PUBLIC LAW 96-596—DEC. 24, 1980 
"(B) the date on which the tax imposed by subsection (aXD 
is assessed, or 
"(C) the date on which correction of the act of self-dealing 
is completed." 
26 use 4942. 
(B) Paragraph (1) of section 4942(j) is amended to read as 
follows: 
"(1) TAXABLE PERIOD.—The term 'taxable period' means, with 
respect to the undistributed income for any taxable year, the 
period beginning with the first day of the taxable year and 
ending on the earlier of— 
"(A) the date of mailing of a notice of deficiency with 
respect to the tax imposed by subsection (a) under section 
6212, or 
"(B) the date on which the tax imposed by subsection (a) is 
26 use 4943. 
(C) Paragraph (2) of section 4943(d) is amended to read as 
follows: 
"(2) TAXABLE PERIOD.—The term 'taxable period' means, with 
respect to any excess business holdings of a private foundation in 
a business enterprise, the period beginning on the first day on 
which there are excess holdings and ending on the earlier of^ 
"(A) the date of mailing of a notice of deficiency with 
respect to the tax imposed by subsection (a) under section 
6212 in respect of such holdings, or 
"(B) the date on which the tax imposed by subsection (a) in 
respect of such holdings is assessed.' 
26 use 4944. 
(D) Paragraph (1) of section 4944(e) is amended to read as 
follows: 
"(1) TAXABLE PERIOD.—The term 'taxable period' means, with 
respect to any investment which jeopardizes the carrying out of 
exempt purposes, the period beginning with the date on which 
the amount is so invested and ending on the earliest of^ 
"(A) the date of mailing of a notice of deficiency with 
respect to the tax imposed by subsection (a)(1) under section 
6212, 
"(B) the date on which the tax imposed by subsection (a)(1) 
is assessed, or 
"(C) the date on which the amount so invested is removed 
from jeopardy." 
26 use 4945. 
(E) Paragraph (2) of section 4945(i) is amended to read as 
follows: 
"(2) TAXABLE PERIOD.—The term 'taxable period' means, with 
respect to any taxable expenditure, the period beginning with 
the date on which the taxable expenditure occurs and ending on 
the earlier of— 
"(A) the date of mailing a notice of deficiency with respect 
to the tax imposed by subsection (aXD under section 6212, or 
"(B) the date on which the tax imposed by subsection (a)(1) 
is dSS6SS6d 
26 use 4951. 
(F) Paragraph (1) of section 4951(e) is amended to read as 
follows: 
"(1) TAXABLE PERIOD.—The term 'taxable period' means, with 
respect to any act of self-dealing, the period beginning with the 
date on which the act of self-dealing occurs and ending on the 
earliest of— 
"(A) the date of mailing a notice of deficiency with respect 
to the tax imposed by subsection (a)(1) under section 6212, 
PUBLIC LAW 96-596—DEC. 24, 1980 
94 STAT. 3471 
"(B) the date on which the tax imposed by subsection (aXD 
is assessed, or 
"(C) the date on which correction of the act of self-dealing 
is completed." 
(G) Paragraph (2) of section 4952(e) is amended to read as 26 use 4952. 
follows: 
"(2) TAXABLE PERIOD.—The term 'taxable period' means, with 
respect to any taxable expenditure, the period beginning with 
the date on which the taxable expenditure occurs and ending on 
the earlier of— 
"(A) the date of mailing a notice of deficiency with respect 
to the tax imposed by subsection (a)(1) under section 6212, or 
"(B) the date on which the tax imposed by subsection (a)(1) 
IS 3SSGSS^Q 
(H) Paragraph (3) of section 4971(c) is amended to read as 26 use 4971. 
follows: 
"(3) TAXABLE PERIOD.—The term 'taxable period' means, with 
respect to an accumulated funding deficiency, the period begin-
ning with the end of the plan year in which there is an 
accumulated funding deficiency and ending on the earlier of— 
"(A) the date of mailing of a notice of deficiency with 
respect to the tax imposed by subsection (a), or 
'(B) the date on which the tax imposed by subsection (a) is 
(I) Paragraph (2) of section 4975(f) is amended to read as 26 USC 4975. 
follows: 
"(2) TAXABLE PERIOD.—The term 'taxable period' means, with 
respect to any prohibited transaction, the period beginning with 
the date on which the prohibited transaction occurs and ending 
on the earliest of— 
"(A) the date of mailing a notice of deficiency with respect 
to the tax imposed by subsection (a) under section 6212, 
"(B) the date on which the tax imposed by subsection (a) is 
assessed, or 
"(C) the date on which correction of the prohibited transac-
tion is completed." 
(3) TECHNICAL AMENDMENTS.— 
(A) Subsection (e) of section 4941 is amended by striking 26 use 4941. 
out paragraph (4). 
(B) Subsection 0') of section 4942 is amended— 
26 use 4942. 
(i) by striking out paragraph (2), 
(ii) by striking out 'paragraph (5)" in paragraph 
(3)(B)(i) and inserting in lieu thereof "paragraph (4)", 
(iii) by redesignating paragraph (4) as paragraph (2), 
and 
(iv) by redesignating paragraphs (5) and (6) as para-
graphs (4) and (5), respectively. 
(C) Subsection (d) of section 4943 is amended by striking 26 use 4943. 
out paragraph (3) and by redesignating paragraph (4) as 
paragraph (3). 
(D) Subsection (e) of section 4944 is amended by striking 26 use 4944. 
out paragraph (3). 
(E) Subsection (e) of section 4951 is amended by striking 26 USC 4951. 
out paragraph (4) and by redesignating paragraph (5) as 
paragraph (4). 
(F) Subsection (f) of section 4975 is amended by striking out 26 USe 4975. 
paragraph (6). 
(4) CLERICAL AMENDMENTS.— 
94 STAT. 3472 
PUBLIC LAW 96-596—DEC. 24, 1980 
26 use 4942. 
(A) Clause (ii) of section 4942(g)(2)(C) is amended by strik-
ing out "the initial correction period provided in subsection 
(j)(2)" and inserting in lieu thereof "the correction period (as 
defined in section 4962(e))". 
26 use 4943. 
(B) Subparagraph (A) of section 4943(d)(3) (as redesignated 
by paragraph (3)(c)) is amended by striking out "4942(j)(5)" 
and inserting in lieu thereof "4942(j)(4)". 
26 use 6213. 
(C) Subsection (e) of section 6213 (relating to suspension of 
filing period for certain excise taxes) is amended by striking 
out "section 4941(e)(4)" and all that follows through the end 
of such subsection and inserting in lieu thereof "section 
Post, p. 3473. 
4962(e)." 
26 use 6503. 
(D) Subsection (g) of section 6503 (relating to suspension 
of running of period of limitation pending correction) is 
amended by striking out "section 4941(e)(4)" and all that 
follows through the end of such subsection and inserting in 
lieu thereof "section 4962(e)." 
(E) Section 6503 is amended by redesignating subsection (j) 
as subsection (i). 
26 use 6503 
(F) The amendments made by sections 1203(h)(1) and 
oa^i^n «r;AQ 
1601(f)(2) of the Tax Reform Act of 1976, and the amendment 
lb ubc b50d. 
^^^g ^^ section 362(d)(5) of the Revenue Act of 1978, shall be 
deemed to be amendments to section 6503(i) of the Internal 
Revenue Code of 1954 (as redesignated by subparagraph (E)). 
(b) TAX COURT TO DETERMINE WHETHER TAXABLE EVENT HAS BEEN 
26 use 6214. 
CORRECTED.—Subsection (c) of section 6214 (relating to determina 
tions by Tax Court) is amended by adding at the end thereof the 
following new sentence: "The Tax Court, in redetermining a defi-
Post, p. 3473. 
ciency of any second tier tax (as defined in section 4962(b)), shall make 
a determination with respect to whether the taxable event has been 
corrected." 
(c) ABATEMENT OF TAX WHERE THERE IS CORRECTION DURING 
CORRECTION PERIOD.— 
(1) IN GENERAL.—Chapter 42 is amended by adding at the end 
thereof the following new subchapter: 
"Subchapter C—Abatement of Second Tier Taxes Where There Is 
Correction During Correction Period 
"Sec. 4961. Abatement of second tier taxes where there is correction. 
"Sec. 4962. Definitions. 
26 u s e 4961. 
"SEC. 4961. ABATEMENT OF SECOND TIER TAXES WHERE THERE IS COR-
RECTION. 
"(a) GENERAL RULE.—If any taxable event is corrected during the 
correction period for such event, then any second tier tax imposed 
with respect to such event (including interest, additions to the tax, 
and additional amounts) shall not be assessed, and if assessed the 
assessment shall be abated, and if collected shall be credited or 
refunded as an overpayment. 
"(b) SUPPLEMENTAL PROCEEDING.—If the determination by a court 
that the taxpayer is liable for a second tier tax has become final, such 
court shall have jurisdiction to conduct any necessary supplemental 
proceeding to determine whether the taxable event was corrected 
during the correction period. Such a supplemental proceeding may be 
begun only during the period which ends on the 90th day after the 
last day of the correction period. Where such a supplemental proceed-
ing has begun, the reference in the second sentence of section 6213(a) 
PUBLIC LAW 96-596—DEC. 24, 1980 
94 STAT. 3473 
to a final decision of the Tax Court shall be treated as including a 
final decision in such supplemental proceeding. 
"(c) SUSPENSION OF PERIOD OF COLLECTION FOR SECOND TIER TAX.— 
"(1) PROCEEDING IN DISTRICT COURT OR COURT OF CLAIMS.—If, 
not later than 90 days after the day on which the second tier tax 
is assessed, the first tier tax is paid in full and a claim for refund 
of the amount so paid is filed, no levy or proceeding in court for 
the collection of the second tier tax shall be made, begun, or 
prosecuted until a final resolution of a proceeding begun as 
provided in paragraph (2) (and of any supplemental proceeding 
with respect thereto under subsection (b)). Notwithstanding 
section 7421(a), the collection by levy or proceeding may be 
enjoined during the time such prohibition is in force by a 
proceeding in the proper court. 
"(2) SUIT MUST BE BROUGHT TO DETERMINE UABILITY.—If, within 
90 days after the day on which his claim for refund is denied, the 
person against whom the second tier tax was assessed fails to 
begin a proceeding described in section 7422 for the determina-
tion of his liability for such tax, paragraph (1) shall cease to apply 
with respect to such tax, effective on the day following the close 
of the 90-day period referred to in this paragraph. 
"(3) SUSPENSION OF RUNNING OF PERIOD OF UMITATIONS ON 
COLLECTION.—The running of the period of limitations provided 
in section 6502 on the collection by levy or by a proceeding in 
court with respect to any second tier tax 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. 
"(4) JEOPARDY COLLECTION.—If the Secretary makes a finding 
that the collection of the second tier tax is in jeopardy, nothing in 
this subsection shall prevent the immediate collection of such 
tax. 
"SEC. 4962. DEFINITIONS. 
26 USC 4962. 
"(a) FIRST TIER TAX.—For purposes of this subchapter, the term 
'first tier tax' means any tax imposed by subsection (a) of section 4941, 
4942,4943,4944,4945,4951,4952,4971, or 4975. 
"(b) SECOND TIER TAX.—For purposes of this subchapter, the term 
'second tier tax' means any tax imposed by subsection (b) of section 
4941,4942,4943,4944,4945,4951,4952,4971, or 4975. 
"(c) TAXABLE EVENT.—For purposes of this subchapter, the term 
'taxable event' means any act (or failure to act) giving rise to liability 
for tax under section 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4971, or 
4975. 
"(d) CORRECT.—For purposes of this subchapter— 
"(1) IN GENERAL.—Except as provided in paragraph (2), the 
term 'correct' has the same meaning as when used in the section 
which imposes the second tier tax. 
"(2) SPECIAL RULES.—The term 'correct' means— 
"(A) in the case of the second tier tax imposed by section 
4942(b), reducing the amount of the undistributed income to 
zero, 
"(B) in the case of the second tier tax imposed by section 
4943(b), reducing the amount of the excess business holdings 
to zero, and 
"(C) in the case of the second tier tax imposed by section 
4944, removing the investment from jeopardy. 
"(e) CORRECTION PERIOD.—For purposes of this subchapter— 
94 STAT. 3474 
PUBLIC LAW 96-596—DEC. 24, 1980 
"(1) IN GENERAL.—The term 'correction period' means, with 
respect to any taxable event, the period beginning on the date on 
which such event occurs and ending 90 days after the date of 
mailing under section 6212 of a notice of deficiency with respect 
to the second tier tax imposed on such taxable event, extended 
b y -
"(A) any period in which a deficiency cannot be assessed 
under section 6213(a) (determined without regard to the last 
sentence of section 4961(b)), and 
"(B) any other period which the Secretary determines is 
reasonable and necessary to bring about correction of the 
taxable event. 
"(2) SPECIAL RULES FOR WHEN TAXABLE EVENT OCCURS.—For 
purposes of paragraph (1), the taxable event shall be treated as 
occurring— 
"(A) in the case of section 4942, on the first day of the 
taxable year for which there was a failure to distribute 
income, 
"(B) in the case of section 4943, on the first day on which 
there are excess business holdings, 
"(C) in the case of section 4971, on the last day of the plan 
year in which there is an accumulated funding deficiency, 
and 
"(D) in any other case, the date on which such event 
occurred." 
(2) CIVIL ACTIONS FOR REFUNDS.—Paragraph (1) of section 
26 use 7422. 
7422(g) (relating to special rules for certain excise taxes imposed 
iSrf 
^t^ ^* 
by chapter 42 or 43) is amended to read as follows: 
sea., 4971 et sea. 
H/i \ r, 
^ 
(1) RIGHT TO BRING ACTIONS.— 
"(A) IN GENERAL.—With respect to any taxable event, 
payment of the full amount of the first tier tax shall 
constitute sufficient payment in order to maintain an action 
under this section with respect to the second tier tax. 
"(B) DEFINITIONS.—For purposes of subparagraph (A), the 
terms 'taxable event', 'first tier tax', and 'second tier tax' 
have the respective meanings given to such terms by section 
4962." 
(3) CLERICAL AMENDMENT.—The table of subchapters for chap-
ter 42 is amended by adding at the end thereof the following new 
item: 
"SUBCHAPTER C. Abatement of second tier taxes where there is correction 
during correction period." 
26 use 4961 
((J) EFFECTIVE DATES.— 
"°^" 
(1) FIRST TIER TAXES.—The amendments made by this section 
with respect to any first tier tax shall take effect as if included in 
the Internal Revenue Code of 1954 when such tax was first 
imposed. 
(2) SECOND TIER TAXES.—The amendments made by this section 
with respect to any second tier tax shall apply only with respect 
to taxes assessed after the date of the enactment of this Act. 
Nothing in the preceding sentence shall be construed to permit 
the assessment of a tax in a case to which, on the date of the 
enactment of this Act, the doctrine of res judicata applies. 
(3) FIRST AND SECOND TIER TAX.—For purposes of this subsec-
tion, the terms "first tier tax" and "second tier tax" have the 
respective meanings given to such terms by section 4962 of the 
26 use 4962. 
Internal Revenue Code of 1954. 
PUBLIC LAW 96-596—DEC. 24, 1980 
94 STAT. 3475 
SEC. 3. TREATMENT OF CERTAIN CHARITABLE TRUSTS FOR PURPOSES 
OF THE MINIMUM TAX. 
(a) GENERAL RULE.—Subparagraph (C) of section 570t))(2) (relating 26 use 57. 
to treatment of certain charitable contributions of trusts for purposes 
of the minimum tax) is amended by redesignating clauses (iv) and (v) 
as clauses (v) and (vi), respectively, and by inserting after clause (iii) 
the following new clause: 
"(iv) deductions allowable to a trust— 
"(I) all the income interests in which are devoted 
to one or more of the purposes described in section 
170(c) (determined without regard to section 
170(c)(2)(A)), 
"(II) all of the interests (other than income inter-
ests) in which are held bv a corporation, and 
"(III) the grantor of which is a corporation." 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 26 USC 57 note, 
shall apply to taxable years beginning after December 31, 1975. 
SEC. 4. EXCISE TAXES ON TIRES. 
(a) REDUCTIONS IN RATE OF TAX.— 
(1) IN GENERAL. 
(A) Section 4071(a)(1) is amended by striking out "10 cents" 26 USC 4071. 
and inserting "9.75 cents". 
(B) Section 4071(a)(2) is amended by striking out "5 cents" 
and inserting "4.875 cents". 
(C) Section 4071(d)(1) is amended by striking out "5 cents" 
and inserting "4.875 cents". 
(2) EFFECTIVE DATE.—The amendments made by this subsection 26 USC 4071 
shall apply on and after January 1,1981. 
"°^-
(b) DETERMINATION OF OVERPAYMENT.— 
26 use 407i 
(1) IN GENERAL.—The determination of the extent to which any ^°^-
overpayment of tax imposed by section 4071(a) (1) or (2) or section Supra. 
4071(b) has arisen by reason of an adjustment of a tire after the 
original sale pursuant to a warranty or guarantee, and the 
allowance of a credit or refund of any such overpayment, shall be 
determined in accordance with the principles set forth in regula-
tions and rulings relating thereto to the extent in effect on 
March 31,1978. 
(2) EFFECTIVE DATE.—This subsection shall apply to the adjust-
ment of any tire after March 31, 1978, and prior to January 1, 
1983. 
(c) TIRES AND INNER TUBES.— 
(1) IN GENERAL.—Paragraph (1) of section 6416(b) (relating to 26 USC 6416. 
price readjustments) is amended to read as follows: 
"(1) PRICE READJUSTMENTS.— 
"(A) IN GENERAL.—Except as provided in subparagraph (B) 
or (C), if the price of any article in respect of which a tax, 
based on such price, is imposed by chapter 32, is readjusted 
26 USC 4061 et 
by reason of the return or repossession of the article or a ®
^
^
-
covering or container, or by a bona fide discount, rebate, or 
allowance, including a readjustment for local advertising 
(but only to the extent provided in section 4216(e) (2) and (3)), 
the part of the tax proportionate to the part of the price 
repaid or credited to the purchaser shall be deemed to be an 
overpayment, 
"(B) FURTHER MANUFACTURE.—Subparagraph (A) shall not 
apply in the case of an article in respect of which tax was 
computed under section 4223(b)(2); but if the price for which 
94 STAT. 3476 
PUBLIC LAW 96-596—DEC. 24, 1980 
such article was sold is readjusted by reason of the return or 
repossession of the article, the part of the tax proportionate 
to the part of such price repaid or credited to the purchaser 
shall be deemed to be an overpayment. 
"(C) ADJUSTMENT OF TIRE PRICE.—No credit or refund of 
Ante, p. 3475. 
any tax imposed by section 4071(a) (1) or (2) or section 4071(b) 
shall be allowed or made by reason of an adjustment of a tire 
pursuant to a warranty or guarantee." 
26 use 6416 
(2) EFFECTIVE DATE.—The amendments made by this subsection 
note. 
shall apply to the adjustments of any tire sifter December 31, 
1982. 
SEC. 5. TAX TREATMENT OF PROCEEDS HELD IN TRUST FOR KLAMATH 
INDIAN TRIBE. 
25 use 564j 
(a) IN GENERAL.—The first section of the Act entitled "An Act to 
^^^- 
exclude from gross income gains from the condemnation of certain 
forest lands held in trust for the Klamath Indian Tribe", approved 
August 9,1975, is amended by striking out "gain resulting from" and 
inserting in lieu thereof "all amounts realized by the trust from". 
25 use 564j 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall 
'lote. 
apply to all amounts whether received before, on, or after the date of 
the enactment of 
this Act. 
Approved December 24, 1980. 
LEGISLATIVE HISTORY: 
HOUSE REPORT No. 96-912 (Comm. on Ways and Means). 
SENATE REPORT No. 96-1034 (Comm. on Finance). 
CONGRESSIONAL RECORD, Vol. 126 (1980): 
May 20, considered and passed House. 
Dec. 13, considered and passed Senate, amended; House agreed to Senate 
amendments with amendments; Senate agreed to House amendments.