An Act to amend section 1372 of the Internal Revenue Code of 1954, relating to passive investment income
PL 91-683 (H.R.19627), enacted 01/12/1971

84 STAT. ] 
PUBLIC LAW 91-683-JAN. 12, 1971 
2067 
Consultation 
SEC. 4. No loan may be made or extended under this Act unless the 
Secretary of Defense, after consultation with the Joint Chiefs of 
Staff, determines tliat such loan or extension is in the best interest of 
the United States. The Secretary of Defense shall keep the Congress „o";°nca^;r""' 
currently advised of all loans made or extended under this Act. 
SEC. 5. The President may promulgate such rules and regulations as 
he deems necessary to carry out the provisions of this Act. 
Approved January 12, 1971. 
Rules and 
regulations* 
Public Law 91-683 
A N A C T 
January 12, 1971 
To amend section 1372 of the Internal Revenue Code of 1954, relating to passive 
[H. R. 19627] 
investment income. 
Taxes. 
Corporations, 
passive invest-
ment income. 
80 Stat. 114. 
Effective date. 
Conditions. 
Be it enacted by the Senate and House of Representatives 
of the 
United States of America in Congress assembled^ That (a) subpara-
graph (C) of section 1372(e) (5) of the Internal Revenue Code of 1954 
(relating to passive investment mcome of small business corporations) 
is amended by inserting at the end thereof the following new sentence : 26 us^c i372. 
"Gross receipts derived from sales or exchanges of stock or securities 
for purposes of this paragraph shall not include amounts received by 
an electing small business corporation which are treated under section 
331 (relating to corporate liquidations) as payments in exchange for 
stock where the electing small business corporation owned more than 
50 percent of each class of the stock of the liquidating corporation." 
(b) The amendment made by subsection (a) shall apply to taxable 
years of electing small business corporations ending after the date of 
the enactment of this Act. Such amendment shall also apply with 
respect to any taxable year ending before October 7,1970, but only if— 
(1) on such date the making of a refund or the allowance of 
a credit to the electing small business corporation is not prevented 
by any law^ or rule of law, and 
(2) within one year after the date of enactment of this Act and 
in such manner as the Secretary of the Treasury or his delegate 
prescribes by regulations— 
(A) the corporation elects to have such amendment so 
apply, and 
(B) all persons (or their personal representatives) who 
were shareholders of such corporation at any time during any 
taxable year beginning with the first taxable year to which 
this amendment applies and ending on or before the date of 
the enactment of this Act consent to such election and to the 
application of the amendment made by subsection (a). 
(c) If tne assessment of any deficiency in income tax resulting from 
deficiency 
the filing of such election for a taxable year ending before the date of ^^^^^^""^^ • 
such filing is prevented before the expiration of one year after the date 
of such filing by any law or rule of law, such deficiency (to the extent 
attributable to such election) may be assessed at any time prior to the 
expiration of such one-year period notwithstanding any law or rule of 
law which would otherwise prevent such assessment. 
(d) If the election of a corporation under subsection (a) of section 
1372 of the Internal Eevenue Code of 1954 would have been terminated 
^^ ^*^*- ^^^° 
because of the application of subsection (e) (5) of such section (before 
the amendment made by subsection (a) of this section) but for the 
election by such corporation under paragraph (2) of subsection (b) 
(and the consent of shareholders under such paragraph), such election 
under section 1372(a) of such code shall not be treated as terminated 
47-348 O - 72 - 47 (pt. 2) 
2068 
PUBLIC LAW 91-684-JAN. 12, 1971 
[84 STAT. 
for any year beginning before the date of the enactment of this Act as a 
result of— 
(1) such corporation filing its income tax return on a form 1120 
(instead of a form 1120S), or 
(2) a new shareholder not consenting to such election of such 
corporation in accordance with the requirements of subsection 
(e) (1) of such section 1372. 
Approved January 12, 1971. 
72 Stat. 1651. 
26 u s e 1372. 
Public Law 91-684 
January 12, 1971 
-^N ACT 
[H. R. 18549] 
To anieiKl sections 902(b) and 902(e) of the Internal Revenue Code of 1954 
to rednc-e the oO-percent requirement to 10 percent between first and second 
levels and to include third-level foreign corporations in the tax credit stnicture 
if the 10-percent test is met. 
Be it enacted hy the Senate and Hou^e of Representatwes 
of tlie 
ZT''^' 
^ 
United States of America in Congress assemhled. That section 902(b) 
r oreign corpora" 
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tions, foreign tax ot the Internal Revenue Code of 1954 is amended to read as follows: 
"%i^^^ 
,„„„ 
"(b) FOREIGN SUBSIDIARY OF FIRST AND SECOND FOREIGN CORPORA-
70 Stat. 1000, 
^ ' 
26 use 902. 
TION. 
*'(1) If the foreign corporation described in subsection (a) 
(hereinafter in this subsection referred to as the 'first foreign 
corporation") owns 10 percent or more of the voting stock of a 
second foreign corporation from which it receives dividends in 
any taxable year, it shall be deemed to have paid the same pro-
portion of any income, war profits, or excess profits taxes paid or 
deemed to be paid by such second foreign corporation to any 
foreign country or to any possession of the United States on or 
with respect to the accumulated profits of the corporation from 
which such dividends were paid which— 
"(A) for purposes of applying subsection (a)(1), the 
amount of such dividends bears to the amount of the 
accumulated profits (as defined in subsection (c) (1) (A)) of 
such second foreign corporation from which such dividends 
were paid in excess of such income, war profits, and excess 
profits taxes, or 
"(B) for purposes of applying subsection (a)(2), the 
amount of such dividends bears to the amount of the 
accumulated profits (as defined in subsection (c) (1) (B)) of 
such second foreign corporation from which such dividends 
were paid. 
"(2) If such first foreign corporation owns 10 percent or more 
of the voting stock of a second foreign corporation which, in 
turn, owns 10 percent or more of the voting stock of a third for-
eign corporation from which the second foreign corporation 
receives dividends in any taxable year, the second foreign corpora-
tion shall be deemed to have paid the same proportion of any 
income, war profits, or excess profits taxes paid by such third for-
eign corporation to any foreign country or to any possession of 
the United States on or with respect to the accumulated profits 
of the corporation from which such dividends were paid which— 
"(A) for purposes of applying subsection (a)(1), the 
amount of such dividends bears to the amount of the 
accumulated profits (as defined in subsection (c) (1) (A)) of 
such third foreign corporation from which such dividends 
were paid in excess of such income, war profits, and excess 
profits taxes, or