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H.R. 2166 (94th): Tax Reduction Act

The text of the bill below is as of Mar 29, 1975 (Passed Congress).


89 STAT. 26                          PUBLIC LAW 94-12—MAR. 29, 1975

                   Public Law 94-12
                   94th Congress
                                                       An Act
 Mar. 29, 1975     To amend the Internal Kevenue Code of 1954 to provide for a refund of 1874
  [H.R. 2166]        individual income taxes, to increase the low income allowance and the per-
                     centage standard deduction, to provide a credit for personal exemptions and
                     a credit for certain earned income, to increase the investment credit and the
                     surtax exemption, to reduce percentage depletion for oil and gas, and for other
                     purposes.

                    Be it enacted hy the Senate and House of Representatives                of the
Tax Reduction      United States of America in Congress assembled,
Act of 1975.
                   SEC. 1. SHORT TITLE; TABLE OF CONTENTS.
26 u s e 1 note.      (a) SHORT TITLE.—This Act may be cited as the "Tax Reduction
                   Act of 1975".
                      (b) TABLE OF CONTENTS.—
                   Sec. 1. Short title; table of contents.
                   Sec. 2. Amendment of 1954 Code.
                           TITLE I—REFUND OF 1974 INDIVIDUAL INCOME TAXES
                   Sec. 101. Refund of 1974 individual income taxes.
                   Sec. 102. Refunds disregarded in the administration of Federal programs and
                               federally assisted programs.
                           TITLE II—REDUCTIONS IN INDIVIDUAL INCOME TAXES
                   Sec. 201. Increase in low income allowance.
                   Sec. 202. Increase in percentage standard deduction.
                   Sec. 203. Credit for personal exemptions.
                   Sec. 204. Credit for certain earned Income.
                   Sec. 205. Withholding tax.
                   Sec. 206. Increase in income limitation applicable to child and dependent care
                               deduction.
                   Sec. 207. Extension of period for replacing old residence for purposes of non-
                               recognition of gain under section 1034.
                   Sec. 208. Credit for purchase of new principal residence.
                   Sec. 209. Effective dates.
                              TITLE III—CERTAIN CHANGES IN BUSINESS TAXES
                   Sec. 301. Increase in investment credit.
                   Sec. 302. Allowance of investment credit where construction of property will
                               take more than 2 years.
                   Sec. 303. Change in corporate tax rates and increase in surtax exemption.
                   Sec. 304. Increase in minimum accumulated earnings credit from $100,000 to
                               $150,000.
                   Sec. 305. Effective dates.
                     TITLE IV—CHANGES AFFECTING INDIVIDUALS AND BUSINESSES
                   Sec. 401. Federal welfare recipient employment incentive tax credit.
                   Sec. 402. Time when contributions deemed made to certain pension plans.
                                       TITLE V—PERCENTAGE DEPLETION
                   Sec. 501. Limitations on percentage depletion for oil and gas.
                   TITLE VI—TAXATION OF FOREIGN OIL AND GAS INCOME AND OTHER
                                        FOREIGN INCOME
                   Sec. 601. Limitations on foreign tax credit for taxes paid in connection with
                               foreign oil and gas income.
                   Sec. 602. Taxation of earnings and profits of controlled foreign corporations and
                               their shareholders.
                   Sec. 603. Denial of DISC benefits with respect to energy resources and other
                               products.
                   Sec. 604. Treatment for purposes of the investment credit of certain property
                               used in international or territorial waters.

PUBLIC LAW 94-12—MAR. 29, 1975 89 STAT. 27 TITLE VII—MISCELLANEOUS PROVISIONS Sec. 701. Certain unemployment compensation. Sec. 702. Special payment to recipients of benefits under certain retirement and survivor benefit programs. SEC. 2. AMENDMENT OF 1954 CODE. Except as otherwise expressly provided, whenever in this A c t a n amendment or repeal is expressed in terms of an amendment to, or repeal of. a section or other provision, the reference shall be con- sidered to be made to a section or other provision of the I n t e r n a l Revenue Code of 1954. 26 USC 1 et seq. TITLE I—REFUND OF 1974 INDIVIDUAL INCOME TAXES SEC. 101. REFUND OF 1974 INDIVIDUAL INCOME TAXES. (a) I N GENERAL.—Subchapter B of chapter 65 (relating to rules of special application in the case of abatements, credits, and refunds) is amended by a d d i n g at the end thereof the following new section: "SEC. 6428. REFUND OF 1974 INDIVIDUAL INCOME TAXES. 26 USC 6428. " (a) GENERAL R U L E . — E x c e p t as otherwise provided in this section, each individual shall be treated as having made a payment against the t a x imposed by chapter 1 for his first taxable year beginning in 1974 26 USC 1. in an amount equal to 10 percent of the amount of his liability for tax for such taxable year. " ( b ) M I N I M U M P A Y M E N T . — T h e amount treated as paid by reason of this section shall not be less t h a n the lesser of— " ( 1 ) the amount of the taxpayer's liability for tax for his first taxable year beginning in 1974, or " (2) $100 ($50 in the case of a married individual filing a sepa- rate r e t u r n ) . "(c) MAXIMUM PAYMENT.— " ( 1 ) I N GENERAL.—The amount treated as paid by reason of this section shall not exceed $200 ($100 in the case of a married individual filing a separate r e t u r n ) . " (2) LIMITATION BASED ON ADJUSTED GROSS INCOME.—The excess (if any) of— " ( A ) t h e amount which would (but for this p a r a g r a p h ) be treated as paid by reason of this section, over " ( B ) the applicable minimum payment provided by sub- section ( b ) , shall be reduced (but not below zero) by an amount which bears the same ratio to such excess as the adjusted gross income for the taxable year in excess of $20,000 bears to $10,000. I n the case of a m a r r i e d individual filing a separate return, the preceding sen- tence shall be applied by substituting '$10,000' for '$20,000' and by substituting'$5,000'for'$10,000'. " ( d ) LIABILITY FOR T A X . — F o r purposes of this section, the liability for tax for the taxable year shall be the sum of— " (1) the tax imposed by chapter 1 for such year, reduced by the sum of the credits allowable under— " ( A ) section 33 (relating to foreign tax c r e d i t ) , 26 USC 33. " ( B ) section 37 jrelating to retirement income), 26 USC 37. " ( C ) section 38 (relating to investment in certain depreci- 26 USC 38. able p r o p e r t y ) , " ( D ) section 40 (relating to expenses of work incentive 26 USC 40. p r o g r a m s ) , and
89 STAT. 2 8 PUBLIC LAW 94-12—MAR. 2 9 , 1975 26 u s e 41. " ( E ) section 41 (relating t o contributions to candidates for public office), plus 26 u s e 3102, " (2) the t a x on amounts described in section 3102(c) or 3202(c) 3202. which are required to be shown on the taxpayer's r e t u r n of t h e chapter 1 t a x for t h e taxable year. "(e) D A T E P A Y M E N T DEEMED M A D E . — T h e p a y m e n t p r o v i d e d by this section shall be deemed made on whichever of t h e following dates is the l a t e r : " ( 1 ) the date presciibed by law (determined without exten- 26 u s e 1 et seq. sions) for filing t h e return of t a x under chapter 1 for the taxable year, or " (2) the date on which the t a x p a y e r files his return of t a x under chapter 1 for the taxable year. *'(f) J O I N T R E T U R N . — F o r purposes of this .section, in the case of a joint return under section 6013 both spouses shall be treated as one individual. " ( g ) MARITAL STATUS.—The determination of m a r i t a l status for purposes of this section shall be made under section 143. " ( h ) CERTAIN PERSONS N O T ELIGIBLE.—This section shall not a p p l y to a n y estate or trust, n o r shall it apply t o a n y nonresident alien individual." 26 u s e 6611 (b) No INTEREST ON INDIVIDUAL INCOME T A X R E F U N D S FOR 1974 note. REFUNDED W I T H I N 60 D A Y S A F T E R R E T U R N I S F I L E D . — I n a p p l y i n g 26 u s e 6611. section 6611(e) of t h e I n t e r n a l Revenue Code of 1954 (relating to income t a x refund within 45 days after r e t u r n is filed) in t h e case of any overpayment of tax imposed by subtitle A of such Code by a n indi- vidual (other t h a n a n estate or t r u s t and other t h a n a nonresident alien individual) for a taxable year beginning in 1974, "60 d a y s " shall be substituted for "45 d a y s " each place it appears in such section 6611(e). (c) CLERICAL A M E N D M E N T . — T h e table of sections for such sub- chapter B is amended by a d d i n g a t t h e end thereof t h e following new item: "Sec. 6428. Refund of 1974 individual income taxes." 26 u s e 6428 SEC. 102. REFUNDS DISREGARDED IN THE ADMINISTRATION OF FED- note. ERAL PROGRAMS AND FEDERALLY ASSISTED PROGRAMS. A n y payment considered to have been made by a n y individual by Ante, p. 27. reason of section 6428 of t h e I n t e r n a l Revenue Code of 1954 shall not be taken into account as income or receipts for purposes of determining the eligibility of such individual or any other individual for benefits or assistance, or t h e amount or extent of benefits or assistance, under any Federal p r o g r a m or under a n y State or local p r o g r a m financed in whole or in p a r t with Federal funds. TITLE II—REDUCTIONS IN INDIVIDUAL INCOME TAXES SEC. 201. INCREASE IN LOW INCOME ALLOWANCE. 26 u s e 141. ( a ) I N GENERAL.—Subsection (c) of section 141 (relating t o low income allowance) is amended to read as follows: " ( c ) L o w INCOME ALLOWANCE.—The low income allowance is— " ( 1 ) $1,900 in the case of— 26 u s e 6013. " ( A ) a joint r e t u r n under section 6013, or 26 u s e 2. " ( B ) a surviving spouse (as defined i n section 2 ( a ) ) , " ( 2 ) $1,600 in t h e case of an individual who is n o t m a r r i e d a n d who is not a surviving spouse (as so defined), or " ( 3 ) $950 i n t h e case of a married individual filing a separate return."
PUBLIC LAW 94-12—MAR. 29, 1975 89 STAT. 29 (b) CHANGE IN FILING REQUIREMENTS TO REFLECT INCREASE IN Low INCOME ALLOWANCE.—So much of paragraph (1) of section 6012(a) (relating to persons required to make returns of income) as 26 USC 6012. precedes subparagraph (C) thereof is amended to read as follows: "(1) (A) Every individual having for the taxable year a gross income of $750 or more, except that a return shall not be required of an individual (other than an individual referred to in section 142(b))— 26 USC 142. "(i) who is not married (determined by applying section 143), is not a surviving spouse (as defined in section 2 ( a ) ) , 26 USC 143, 2. and for the taxable year has a gross income of less than $2,350, "(ii) who is a surviving spouse (as so defined) and for the taxable year has a gross income of less than $2,650, or "(iii) who is entitled to make a joint return under section 6013 and whose gross income, when combined with the gross 26 USC 6013. income of his spouse, is, for the taxable year, less than $3,400 but only if such individual and his spouse, at the close of the taxable year, had the same household as their home. Clause (iii) shall not apply if for the taxable year such spouse makes a separate return or any other taxpayer is entitled to an exemption for such spouse under section 151 (e). 26 USC 151. "(B) The amount specified in clause (i) or (ii) of subparagraph (A) shall be increased by $750 in the case of an individual entitled to an additional personal exemption under section 151(c) (1), and the amount specified in clause (iii) of subparagraph (A) shall be increased by $750 for each additional personal exemption to which the individual or his spouse is entitlea under section 151(c);". (c) CHANGE IN OPTIONAL TAX TABLES.—Section 3 (relating to 26 USC 3. optional tax tables) is amended by striking out "$10,000" and by inserting in lieu thereof "$15,000". SEC. 202. INCREASE IN PERCENTAGE STANDARD DEDUCTION. (a) INCREASE.—Subsection (b) of section 141 (relating to percentage 26 USC 141. standard deduction) is amended to read as follows: "(b) PERCENTAGE STANDARD DEDUCTION.—The percentage standard deduction is an amount equal to 16 percent of adjusted gross income but not to exceed— " (1) $2,600 in the case of— " (A) a joint return under section 6013, or "(B) a surviving spouse (as defined in section 2 ( a ) ) , "(2) $2,300 in the case of an individual who is not married and who is not a surviving spouse (as so defined), or "(3) $1,300 in the case of a married individual filing a separate return." (b) CONFORMING AMENDMENT.—Subparagraph (B) of section 3402 (m) (1) (relating to withholding allowances based on itemized deduc- 26 USC 3402. tions) is amended to read as follows: "(B) an amount equal to the lesser of (i) 16 percent of his estimated wages, or (ii) $2,600 ($2,300 in the case of an indi- vidual who is not married (| within the meaning of section 143) and who is not a surviving spouse (as defined in section 2(a)))." SEC. 203. TAX CREDIT FOR PERSONAL EXEMPTIONS. (a) I N GENERAL.^—Subpart A of part VI of subchapter A of chapter 1 (relating to credits allowable agamsttax) is amended by redesignat- ing section 42 as section 43 and by inserting after section 41 the follow- 26 USC 42. ing new section:
89 STAT. 30 PUBLIC LAW 94-12—MAR. 29, 1975 26 u s e 42. "SEC. 42. CREDIT FOR PERSONAL EXEMPTIONS. " ( a ) GENERAL R U L E . — I n t h e case of an individual, there shall be allowed as a credit against the t a x imposed by this chapter for the tax- able year $30, multiplied by each exemption for which t h e t a x p a y e r is entitled for t h e taxable year under subsection (b) or (e) of sec- 26 u s e 151. tion 151. " ( b ) APPLICATION W I T H O T H E R CREDITS.—The credit allowed by subsection ( a ) shall not exceed the amount of t h e t a x imposed by this chapter for the taxable year. I n determining the credits allowed under— 26 u s e 33. " (1) section 33 (relating to foreign t a x c r e d i t ) , 26 u s e 37. " ^2) section 37 (relating t o retirement income), 26 u s e 38. "(3J section 38 (relating to investment in certain depreciable property). 26 u s e 40. " ( 4 ) section 40 (relating to expenses of work incentive pro- grams), and 26 u s e 41. " ( 5 ) section 41 (relating t o contributions to candidates for public office), the t a x imposed by this chapter shall (before any other reductions) be reduced by the credit allowed by this section." (b) T E C H N I C A L AND CLERICAL A M E N D M E N T S . — (1) T h e table of sections for such subpart is amended by strik- ing out the last item a n d inserting in lieu thereof t h e following: "Sec. 42. Credit for personal exemptions. "Sec. 43. Overpayments of tax." 26 u s e 56. (2) Section 56(a) (2) (relating to imposition of minimum t a x ) is amended by striking out " a n d " a t t h e end of clause ( i v ) , by striking out " ; a n d " a t the end of clause (v) a n d inserting in lieu thereof ", and", a n d by inserting after clause ( v ) the follow- ing new clause: Supra. " ( v i ) section 42 (relating to credit for personal exemp- tions) ; a n d " . (3) Section 56(c) (1) (relating t o t a x carryovers) is amended by sti-iking out " a n d " at the end of s u b p a r a g r a p h ( D ) , by striking out "exceed" at the end of s u b p a r a g r a p h ( E ) and inserting in lieu thereof "and", a n d by inserting after s u b p a r a g r a p h ( E ) t h e fol- lowing new s u b p a r a g r a p h : " ( F ) section 42 (relating t o credit for personal exemp- tions) , exceed". 26 u s e 6096. (4) Section 6096 (b) (relating to designation of income tax pay- ments t o Presidential Election Campaign F u n d ) is amended by striking out " a n d 4 1 " a n d inserting in lieu thereof " 4 1 , a n d 42". SEC. 204. CREDIT FOR CERTAIN EARNED INCOME. (a) ALLOWANCE o r CREDIT.—Subpart A of p a r t I V of subchapter A of chapter 1 (relating to credits against t a x ) is amended by redesig- n a t i n g section 43 as section 44, a n d by inserting after section 42 t h e following new section: 26 u s e 43. "SEC. 43. EARNED INCOME. " ( a ) ALLOWANCE OF CitEDiT.—In t h e case of an eligible individual, there shall be allowed as a credit against the tax imposed by this chap- ter for t h e taxable year an amount equal t o 10 percent of so much of the earned income for the taxable year as does not exceed $4,000. " ( b ) LIMITATION.—The amount of t h e credit allowable to a tax- payer under subsection ( a ) for a n y taxable year shall be reduced ( b u t not below zero) by an amount equal to 10 percent of so much of the adjusted gross income (or, if greater, t h e earned income) of t h e tax- payer for the taxable year as exceeds $4,000.
PUBLIC LAW 94-12—MAR. 29, 1975 89 STAT. 31 "(c) DEFINITIONS.—For purposes of this section— "(1) ELIGIBLE INDIVIDUAL.—The term 'eligible individual' means an individual who, for the taxable year— " (A) maintains a household (within the meaning of section 214(b) (3)) in the United States which is the principal place 26 USC 214. of abode of that individual and of a child of that individual with respect to whom he is entitled to claim a deduction under section 151(e) (1) (B) (relating to additional exemption for 26 USC 151. dependents), and " ( B ) is not entitled to exclude any amount from gross income under section 911 (relating to earned income from 26 USC 911. sources without the United States) or section 931 (relating to 26 USC 931. income from sources within the possessions of the United States). "(2) E A R N E D INCOME.— " (A) The term 'earned income' means— "(i) wages, salaries, tips, and other employee compen- sation, plus "(ii) the amount of the taxpayer's net earnings from self-employment for the taxable year (within the mean- ing of section 1402 ( a ) ) . 26 USC 1402. "(B) For purposes of subparagraph (A) — "(i) except as provided in clause (ii), any amount shall be taken into account only if such amount is includi- ble in the gross income of the taxpayer for the taxable year, " (ii) the earned income of an individual shall be com- puted without regard to any community property laws, " (iii) no amount received as a pension or annuity shall be taken into account, and "(iv) no amount to which section 871(a) applies 26 USC 871. (relating to income of nonresident alien individuals not connected with United States business) shall be taken into account. "(d) MARRIED INDIVIDUALS.—In the case of an individual who is married (within the meaning of section 143), this section shall apply 26 USC 143. only if a joint return is filed for the taxable year under section 6013. 26 USC 6013. "(e) TAXABLE YEAR MUST B E FULL TAXABLE YEAR.—Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months." (b) R E F U N D T o B E MADE W H E R E CREDIT EXCEEDS LIABILITY FOR TAX.— (1) Section 6401(b) (relating to excessive credits) is 26 USC 6401. amended— (A) by inserting "43 (relating to earned income credit)," before "and 667(b)"; and ^««e, p. 30. (B) by striking out "and 39" and inserting in lieu thereof a comma and ", 39, and 43". 26 USC 39. (2) Section 6201(a)(4) (relating to assessment authority) is 26 USC 6201. amended by— (A) inserting "or 43" after "section 39" in the caption of such section; and (B) striking out "oil)," and inserting in lieu thereof "oil) or section 43 (relating to earned income),".
89 STAT. 32 PUBLIC LAW 94-12—MAR. 29, 1975 (c) CLERICAL A M E N D M E N T . — T h e table of sections for such subpart is amended by striking out the last item a n d inserting in lieu thereof the following: "Sec. 43. Credit for certain earned income. "Sec. 44. Overpayments of tax." SEC. 205. WITHHOLDING TAX. (a) KEQUIREMENT OF WITHHOLDING.—Subsection (a) of section 26 u s e 3402. 3402 (relating to income t a x collected at source) is amended to read as follows: "(a) REQUIREMENT OF W I T H H O L D I N G . — E x c e p t as otherwise p r o - vided in this section, every employer making payment of wages shall deduct a n d withhold upon such wages a t a x determined i n accordance with tables prescribed by t h e Secretary or his delegate. T h e tables so prescribed shall be t h e same as the tables contained in this subsection as in effect on J a n u a r y 1, 1975, except t h a t t h e amounts set forth as amounts of income t a x to be withheld with respect to wages paid after A p r i l 30, 1975, and before J a n u a r y 1, 1976, shall reflect t h e full cal- endar year effect for 1975 of the amendments made by sections 201, 202, 203, a n d 204 of t h e T a x Reduction A c t of 1975. F o r purposes of "The amount of applying such tables, t h e term 'the amount of wages' means the amount wages." by which t h e wages exceed t h e number of withholding exemptions claimed, multiplied by the amount of one such exemption as shown in the table in subsection (b) ( 1 ) . " (b) CONFORMING A M E N D M E N T . — S e c t i o n 3402(c) (6) (relating to wage bracket withholding) is amended by striking out "table 7 con- tained in subsection ( a ) " a n d inserting i n lieu thereof "the table for an annual payroll period prescribed p u r s u a n t to subsection ( a ) " . SEC. 206. INCREASE IN INCOME LIMITATION APPLICABLE TO CHILD AND DEPENDENT CARE DEDUCTION. 26 u s e 214. Section 214 (relating to expenses for household a n d dependent care services necessary for gainful employment) is amended by striking out "$18,000" each place it appears in subsection ( d ) a n d inserting in lieu thereof "$35,000". SEC. 207. EXTENSION OF PERIOD FOR REPLACING OLD RESIDENCE FOR PURPOSES OF NONRECOGNITION OF GAIN UNDER SECTION 1034. ( a ) O N E - Y E A R PERIOD INCREASED TO 18 M O N T H S . — (1) Subsections ( a ) , ( c ) ( 4 ) , ( c ) ( 5 ) , ( d ) , a n d ( h ) of section 26 u s e 1034. 1034 (relating t o nonrecognition of gain on sale or exchange of residence) are each amended by striking out "1 year" each place it appears a n d inserting in lieu thereof "18 months". (2) Subsection (c) (5) of section 1034 is amended by striking out "one y e a r " and inserting in lieu thereof "18 months". (b) 18-MoNTii PERIOD FOR CONSTRUCTING N E W RESIDENCE INCREASED TO 2 YEARS.—Subsection (c) (5) of section 1034 is amended by strik- ing out "18 m o n t h s " and inserting in lieu thereof "2 years". SEC. 208. CREDIT FOR PURCHASE OF NEW PRINCIPAL RESIDENCE. ( a ) ALLOWANCE OF C R E D I T . — S u b p a r t A of p a r t I V of subchapter A of chapter 1 (relating to credits allowed) is amended by redesignating section 44 as section 45 a n d by inserting after section 43 tlie following new section: 26 u s e 44. "SEC. 44. PURCHASE OF NEW PRINCIPAL RESIDENCE. " ( a ) GENERAL R U L E . — I n t h e case of an individual there is allowed, as a credit against the tax imposed by this chapter for the taxable year, an amount equal to 5 percent of t h e purchase price of a new principal residence purchased or constructed by the taxpayer.
PUBLIC LAW 94-12—MAR. 2 9 , 1975 89 STAT. 3 3 " ( b ) LIMITATIONS.— " ( 1 ) M A X I M U M CREDIT.—The credit allowed under subsection (a) may not exceed $2,000. " ( 2 ) LIMITATION TO ONE RESIDENCE.—The credit under this sec- tion shall be allowed with respect to only one residence of t h e taxpayer. " ( 3 ) MARRIED INDIVIDUALS.—In t h e case of a h u s b a n d a n d wife who file a joint return under section 6013, t h e amount specified 26 USC 6013. under p a r a g r a p h (1) shall apply to the joint return. I n the case of a married individual filing a separate return, p a r a g r a p h (1) shall be applied by substituting '$1,000' for '$2,000'. "(4) CERTAIN OTHER TAXPAYERS.—In the case of individuals to whom p a r a g r a p h (3) does not apply who together purchase the same new principal residence for use as their principal residence, the amount of t h e credit allowed under subsection ( a ) shall be allocated among such individuals as prescribed by t h e Secretary or his delegate, b u t the sum of t h e amounts allowed to such indi- viduals shall n o t exceed $2,000 with respect t o t h a t residence. "(5) APPLICATION W I T H OTHER CREDITS.—The credit allowed by subsection ( a ) shall not exceed the amount of the tax imposed by this chapter for t h e taxable year, reduced by t h e sum of t h e credits allowable under sections 33, 37, 38, 40, 41, a n d 42. 26 USC 33, 37, " (c) D E F I N I T I O N S . — F o r purposes of this section— 38, 40, 41, 42. " ( 1 ) N E W PRINCIPAL RESIDENCE.—The t e r m 'new p r i n c i p a l resi- dence' means a principal residence (within the meaning of section 1034), t h e original use of which commences with t h e taxpayer, 26 USC 1034. and includes, without being limited to, a single family structure, a residential unit i n a condominium or cooperative housing p r o j - ect, and a mobile home. " ( 2 ) PURCHASE PRICE.—The term 'purchase price' means t h e adjusted basis of t h e new principal residence on t h e date of t h e acquisition thereof. " ( 3 ) PURCHASE.—The term 'purchase' means any acquisition of property, but only if— " ( A ) t h e property is not acquired from a person whose relationship t o t h e person acquiring it would result i n t h e disallowance of losses under section 267 or 707(b) (but, in 26 USC 267, applying section 267 (b) a n d (c) for purposes of this section, ^^^* p a r a g r a p h (4) of section 267(c) shall be treated as providing t h a t the family of an individual shall include only his spouse, ancestors, and lineal descendants), and " ( B ) t h e basis of t h e property in t h e hands of the person acquiring it is not determined— " ( i ) i n whole o r i n p a r t by reference t o t h e adjusted basis of such property in t h e hands of the person from whom acquired, or " ( i i ) under section 1014(a) (relating t o property 26 USC 1014. acquired from a decedent). " ( d ) RECAPTURE FOR CERTAIN DISPOSITIONS.— " ( 1 ) I N GENERAL.—Except as provided in p a r a g r a p h s (2) a n d ( 3 ) , if t h e taxpayer disposes of property with respect to the purchase of which a credit was allowed under subsection ( a ) a t any time within 36 months after the date on which he acquired it (or, in t h e case of construction by the taxpayer, on the d a y on which he first occupied i t ) as his principal residence, then the t a x imposed under this chapter for t h e taxable year in which termi-
89 STAT. 3 4 PUBLIC LAW 94-12—MAR. 29, 1975 tiates the replacement period under p a r a g r a p h (2) with respect to the disposition is increased by an amount equal to the amount allowed as a credit for the purchase of such property. " ( 2 ) ACQUISITION OF NEW RESIDENCE.—If, in connection w i t h a disposition described in p a r a g r a p h (1) and within the applicable Ante, p. 32. period prescribed in section 1034, the taxpayer purchases or con- structs a new principal residence, then the provisions of p a r a g r a p h (1) shall not apply a n d the t a x imposed by this chapter for the taxable year following the taxable year during which disposition occurs is increased by an amount which bears the same ratio to the amount allowed as a credit for t h e purchase of t h e old residence as ( A ) t h e adjusted sales price of t h e old residence (within 26 u s e 1034. the meaning of section 1034), reduced (but not below zero) by the taxpayer's cost of purchasing t h e new residence (within t h e meaning of such section) bears to ( B ) the adjusted sales price of the old residence. " ( 3 ) D E A T H o r OWNER; CASXIALTY LOSS; INVOLUNTARY CONVER- SION; ETC.—The provisions of p a r a g r a p h (1) do not apply to— " ( A ) a disposition of a residence made on account of t h e death of any individual having a legal or equitable interest therein occurring d u r i n g t h e 36 month period to which ref- erence is made under such p a r a g r a p h , " ( B ) a disposition of the old residence if it is substantially or completely destroyed by a casualty described in section 26 u s e 165. 165(c)(3) or compulsorily a n d involuntarily converted 26 u s e 1033. (within the meaning of section 1 0 3 3 ( a ) ) , or " ( C ) a disposition p u r s u a n t to a settlement in a divorce o r legal separation proceeding where the other spouse retains the residence as principal residence. " ( e ) PROPERTY TO W H I C H SECTION A P P L I E S . — " ( 1 ) I N GENERAL.—The provisions of this section apply to a new principal residence— " ( A ) the construction of Avhich began before March 26, 1975, " ( B ) which is acquired and occupied by the taxpayer after March 12, 1975, a n d before J a n u a r y 1, 1977, a n d " ( C ) if not constructed by t h e taxpayer, which w a s acquired by t h e taxpayer under a binding contract entered into by the taxpayer before J a n u a r y 1,1976. "(2) SELF-CONSTRUCTED PROPERTY BEGUN BEFORE MARCH I3, 10 7 5.—In the case of property the construction of which was begun by the taxpayer before March 13,1975, only t h a t portion of the basis of such property properly allocable t o construction after March 12, 1975, shall be taken into account in determining the amount of the credit allowable under subsection ( a ) . " ( 3 ) BINDING CONTRACT.—For purposes of this subsection, a contract for the purchase of a residence which is conditioned upon the purchaser's obtaining a loan for the purchase of the residence (including conditions as to t h e amount or interest rate of such loan) is not considered non-binding on account of t h a t condition. "(4) CERTIFICATION MUST BE ATTACHED TO RETURN.—This sec- tion shall not apply to any residence (other t h a n a residence con- structed by the taxpayer) unless there is attached to the return of t a x on which the credit is claimed a certification by t h e seller, in accordance with regulations prescribed by the Secretary o r his delegate, t h a t the purchase price is t h e lowest price at which t h e residence was ever offered for sale."
PUBLIC LAW 94-12—MAR. 29, 1975 89 STAT. 35 (b) SUITS TO RECOVER AMOUNTS or PRICE INCREASES.—If— (1) any person certifies under section 44(e) (4) of the Internal Revenue Code of 1954 t h a t the price for which a residence was Ante, p. 32. sold is the lowest price at which the residence was ever offered for sale, and (2) the price for which the residence Avas sold exceeded the lowest price at which the residence was ever offered for sale, such person shall be liable to the purchaser of such residence in an amount equal to three times the amount of such excess. The United States district courts shall have jurisdiction of suits to recover such amounts without regard to any other provision of law. I n any suit brought under this subsection in which judgment is entered for the purchaser, he shall also be entitled to recover a reasonable attorney's fee. (c) D E N I A L OF DEDUCTION.—Notwithstanding the provisions of sec- tion 162 or 212 of the I n t e r n a l Revenue Code of 1954, no deduction 26 USC 162, shall be allowed in computing taxable income for two-thirds of any 212. amount paid or incurred on a judgment entered against any person in a suit brought under subsection ( b ) . (d) T E C H N I C A L AND CLERICAL A M E N D M E N T S . — (1) The table of sections for such subpart is amended by strik- ing out the last item and inserting in lieu thereof the following: "Sec. 44. Credit for purchase of new principal residence. "Sec. 45. Overpayments of tax." (2) Section 56(a) (2) (relating to imposition of minimum t a x ) 26 USC 56. is amended by striking out " a n d " at the end of clause ( v ) , by striking out " ; a n d " at the end of clause (vi) and inserting in lieu thereof ", and", and by inserting after clause (vi) the following new clause: " ( v i i ) section 44 (relating to credit for purchase of new principal residence); and". (3) Section 56(c) (1) (relating to tax carryovers) is amended by striking out " a n d " at the end of s u b p a r a g r a p h ( E ) , by striking out "exceed" at the end of s u b p a r a g r a p h ( F ) and inserting in lieu thereof "and", and by inserting after s u b p a r a g r a p h ( F ) the fol- lowing new s u b p a r a g r a p h : " ( G ) section 44 (relating to credit for purchase of new principal residence), exceed". (4) Section 6096(b) (relating to designation of income tax pay- 26 USC 6096. ments to Presidential Election Campaign F u n d ) is amended by striking out "and 42" and inserting in lieu thereof "42, and 44". SEC. 209. EFFECTIVE DATES. (a) SECTIONS 201, 202 ( a ) , AND 203.—The amendments made by sec- 26 USC 42 note, tions 201, 2 0 2 ( a ) , and 203 shall apply to taxable years ending after December 31, 1974. Such amendments shall cease to apply to taxable years ending after December 31,1975. (b) SECTION 204.—The amendments made by section 204 shall 26 USC 43 note, apply to taxable years beginning after December 31, 1974, and before J a n u a r y 1,1976. (c) SECTIONS 202(b) AND 205.—The amendments made by sections 26 USC 3402 202(b) and 205 shall apply to wages paid after A p r i l 30, 1975, and note, before J a n u a r y 1,1976. (d) SECTION 206.—The amendments made by section 206 apply to 26 USC 214 note, taxable years beginning after the date of enactment of this Act. (e) SECTION 207.—The amendments made by section 207 shall apply 26 USC 1034 to old residences (within the meaning of section 1034 of the Internal note. Revenue Code of 1954) sold or exchanged after December 31,1974, in 26 USC 1034. taxable years ending after such date.
89 STAT. 36 PUBLIC LAW 94-12—MAR. 29, 1975 TITLE III—CERTAIN CHANGES IN BUSINESS TAXES SEC. 301. INCREASE IN INVESTMENT CREDIT. (a) INCREASE OF INVESTMENT C R E D I T . — P a r a g r a p h (1) of section 46 26 u s e 46. (a) (determining the amount of the investment credit) is amended to read as follows: " (1) GENERAL RULE.— " ( A ) T E N PERCENT CREDIT.—Except as otherwise provided in this p a r a g r a p h , in the case of a property described in sub- p a r a g r a p h ( D ) , the amount of t h e credit allowed by section 38 for the taxable year shall be an amount equal to 10 percent of the qualified investment (as determined under subsections (c) and ( d ) ) . "(B) ELEVEN PERCENT CREDIT.—Except as otherwise pro- vided in this p a r a g r a p h , in the case of a corporation which elects to have the provisions of this s u b p a r a g r a p h apply, the 26 u s e 38. amount of the credit allowed by section 38 for the taxable year with respect to p r o p e r t y described in s u b p a r a g r a p h ( D ) shall be an amount equal to 11 percent of the qualified investment (as determined under subsections (c) and ( d ) ) . A n election may not be made to have the provisions of this s u b p a r a g r a p h apply for the taxable year unless the corporation meets the requirements of section 301(d) of tlie T a x Reduction Act of Supra. 1975. A n election by a corporation to have the provisions of this s u b p a r a g r a p h apply shall be made a t such time, in such form, and in such manner as the Secretary or his delegate may prescribe. " ( C ) SEVEN PERCENT CREDIT.—Except as otherwise provided in this p a r a g r a p h , the amount of credit allowed by section 38 for the taxable year shall be an amount equal to 7 percent of the qualified investment (as determined under subsections (c) and ( d ) ) . " ( D ) TRANSITIONAL RULES.—The provisions of subpara- g r a p h s ( A ) and ( B ) shall apply only to— " ( i ) property to which subsection ( d ) does not apply, the construction, reconstruction, or erection of which is completed by the t a x p a y e r after J a n u a r y 21, 1975, but only to the extent of the basis thereof attributable to the construction, reconstruction, or erection after J a n u - ary 21,1975, and before J a n u a r y 1,1977. " ( i i ) property to which subsection ( d ) does not apply, acquired by the taxpayer after J a n u a r y 21, 1975, and before J a n u a r y 1, 1977, and placed in service by the tax- payer before J a n u a r y 1.1977, and " ( i i i ) property to which subsection ( d ) applies, but only to the extent of the qualified investment (as deter- mined under subsections (c) and ( d ) ) wdth respect to qualified progress expenditures made after J a n u a r y 21, 1975, and before J a n u a r y 1,1977." (b) P U B L I C U T I L I T Y PROPERTY.— (1) DETERMINATION OF QUALIFIED INVESTMENT.—Subparagraph 26 u s e 46. ( A ) of section 4 6 ( c ) ( 3 ) (relating to determination of qualified investment in the case of public utility p r o p e r t y ) is amended to read as follows: " ( A ) T o the extent t h a t subsection (a) (1) (C) applies to property which is public utility property, t h e amount of the qualified investment shall be fj of the amount determined under p a r a g r a p h ( 1 ) . " .
PUBLIC LAW 94-12—MAR. 2 9 , 1975 89 STAT. 37 (2) INCREASE IN SO-PERCENT LIMITATION.—Section 46(a) 26 USC 46. (relating to determination of amount of credit) is amended by adding at the end thereof the folloAving new p a r a g r a p h : " ( 6 ) ALTERNATIVE L I M I T A T I O N I N THE CASE or CERTAIN U T I L I T I E S . — " ( A ) I N GENERAL.—If, for a taxable year ending after calendar year 1974 and before calendar year 1981, the amount of the qualified investment of the taxpayer which is attribut- able t o public utility property is 25 percent or more of his aggregate qualified investment, then subparagraph ( C ) of p a r a g r a p h (2) of this subsection shall be applied by sub- stituting for 50 percent his applicable percentage for such year. " ( B ) APPLICABLE PERCENTAGE.—The applicable percentage of any taxpayer for any taxable year is— " (i) 50 percent, plus " ( i i ) t h a t portion of t h e tentative percentage for t h e taxable year which t h e taxpayer's amount of qualified investment which is public utility property bears to his aggregate qualified investment. I f the proportion referred to in clause (ii) is 75 percent or more, t h e applicable percentage of the taxpayer for the year shall be 50 percent plus t h e tentative percentage for such year. "(C) TENTATIVE PERCENTAGE.—For purposes of s u b p a r a - g r a p h ( B ) , t h e tentative percentage shall be determined under the following t a b l e : "If the taxable year The tentative ends in: percentage is: 1975 or 1976 50 1977 40 1978 30 1979 20 1980 10 "(I)) PUP.LTC T'''TLT'T PROPEPTY DEFINED. F o P purpOSCS of this p a r a g r a p h , t h e term 'public utility property' has the m e a n m g given to such term by the first sentence of subsec- tion ( c ) ( 3 ) ( B ) . " (3) L I M I T A T I O N I N (I\SE OF CERTAIN REGULATED COMPANIES.— Section 46 ( f ) , as redesignated by section 302 (a) of this Act (relat- Post, p. 40. ing to limitation h^ c^°o '-" ror*'f\'r^ rejjulated companies), is amended by a d d i n g at t h e end thereof t h e following new paragraph: "(8) PROHIBITION o r IMMEDIATE FLOWTHROUGH.—An election made under p a r a g r a p h (3) shall apply only to the amount of the credit allowable under section 38 with respect t o public utility 26 USC 38. property (within the meanin^r of subsection ( a ) ( 6 ) ( D ) ) deter- mined as if the T a x Keduction Act of 1975 had not been enacted. A n y t a x p a y e r who had timely made an election under p a r a g r a p h (3) may, a t his own option and AA'ithout regard to any requirement imposed by an agency described in subsection ( c ) ( 3 ) ( B ) , elect within 90 days after the date of the enactment of the T a x Reduc- tion Act of 1975 (in such manner as the Secretary or his delegate Ante, p. 26. shall prescribe) to have the provisions of p a r a g r a p h (3) apply with respect t o t h e amount of t h e credit allowable under section 38 with respect to such property which is in excess of the amount determined under the preceding sentence. I f such taxpayer does not make such an election, p a r a g r a p h (1) or (2) (whichever p a r a - g r a p h is applicable without regard to this p a r a g r a p h ) shall apply to such excess credit, except t h a t if neither p a r a g r a p h (1) n o r (2)
89 STAT. 3 8 PUBLIC LAW 94-12—MAR. 29, 1975 is applicable (without regard to this p a r a g r a p h ) , p a r a g r a p h (1) shall apply unless the taxpayer elects (in such manner as the Sec- retary or his delegate shall prescribe) within 90 days after the date Ante, p. 26. of the enactment of the T a x Reduction Act of 1975 to have the provisions of p a r a g r a p h (2) apply. T h e provisions of this para- g r a p h shall not be applied to disallow such excess credit before the first final determination which is inconsistent with such requirements is made, determined in t h e same manner as under paragraph (4)." 26 u s e 46 note. (4) EFFECTIVE DATES.—The amendment made by p a r a g r a p h (1) of this subsection shall apply to property placed in service after J a n u a r y 21, 1975, in taxable years ending after J a n u a r y 21, 1975. The amendments made by p a r a g r a p h s (2) a n d (3) shall apply t o taxable years ending after December 31,1974. (c) INCREASE F R O M $50,000 TO $100,000 OF DOLLAR LIMITATION ON USED PROPERTY.— 26 u s e 48. (1) I N GENERAL.—Paragraph (2) of subsection 48(c) (relating 26 u s e 38. to dollar limitation in case of used section 38 property) is amended— ( A ) by striking out "$50,000" each place i t appears a n d inserting in lieu thereof "$100,000", and ( B ) by striking out "$25,000" and inserting in lieu thereof "$50,000". 26 u s e 48 note. (£) EFFECTIVE DATE.—The amendments made by p a r a g r a p h (1) shall apply only to taxable years beginning after December 31, 1974, and before J a n u a r y 1,1977. 26 u s e 46 note. (d) P L A N REQUIREMENTS FOR TAXPAYERS ELECTING 1 1 - P E R C E N T CREDIT.—In order to meet the requirements of this subsection— Employee stock ^^^ j ^ corporation (hereinafter in this subsection referred to as ownership plan. ^j^g "employer") must establish an employee stock ownership plan (described in p a r a g r a p h ( 2 ) ) which is funded by transfers of employer securities in accordance with the provisions of para- g r a p h (6) a n d which meets all other requirements of this subsection. (2) T h e plan referred to in p a r a g r a p h ( I ) must be a defined contribution plan established in writing which— (A) is a stock bonus plan, a stock bonus and a money pur- chase pension plan, or a profit-sharing plan, ( B ) is designed to invest primarily in employer securities, and (C) meets such other requirements (similar to require- ments applicable to employee stock ownership plans as defined 26 u s e 4975. in section 4975(e) (7) of the I n t e r n a l Revenue Code of 1954) as t h e Secretary of the Treasury or his delegate m a y prescribe. (3) T h e plan must provide for the allocation of all employer securities transferred to it or purchased by it (because of the requirements of section 4 6 ( a ) ( 1 ) ( B ) of t h e I n t e r n a l Revenue Ante, p. 36. Code of 1954) t o the account of each participant (who was a par- ticipant at any time during t h e plan year, whether or not he is a participant a t t h e close of t h e plan year) as of t h e close of each plan year in an amount which bears substantially t h e same pro- portion to the amount of all such securities allocated to all partici- pants in the plan for t h a t plan year as the amount of compensation paid to such participant (disregarding any compensation in excess of the first $100,000 per year) bears to the compensation paid to all such participants d u r i n g t h a t year (disregarding any compensa- tion in excess of the first $100,000 with respect to any p a r t i c i p a n t ) .
PUBLIC LAW 94-12—MAR. 29, 1975 89 STAT. 39 Notwithstanding the first sentence of this paragraph, the alloca- tion to participants' accounts may be extended over whatever period may be necessary to comply with the requirements of sec- tion 415 of the Internal Revenue Code of 1954. 26 use 415. (4) The plan must provide that each participant has a nonfor- feitable right to any stock allocated to his account under para- graph (3), and that no stock allocated to a participant's account may be distributed from that account before the end of the eighty- fourth month beginning after the month in which the stock is allocated to the account except in the case of separation from the service, death, or disability. (5) The plan must provide that each participant is entitled to direct the plan as to the manner in which any employer securities allocated to the account of the participant are to be voted. (6) On making a claim for credit, adjustment, or refund under section 38 of the Internal Revenue Code of 1954, the employer 26 use 38. states in such claim that it agrees, as a condition of receiving any such credit, adjustment, or refund, to transfer employer securities forthwith to the plan having an aggregate value at the time of the claim of 1 percent of the amount of the qualified investment (as determined under section 46 (c) and (d) of such Code) of the tax- Post, p. 40. payer for the taxable year. For purposes of meeting the require- ments of this paragraph, a transfer of cash shall be treated as a transfer of employer securities if the cash is, under the plan, used to purchase employer securities. (7) Notwithstanding any other provision of law to the contrary, if the plan does not meet the requirements of section 401 of the Internal Revenue Code of 1954— 26 use 401. (A) stock transferred under paragraph (6) and allocated to the account of any participant under paragraph (3) and dividends thereon shall not be considered income of the par- ticipant or his beneficiary under the Internal Revenue Code of 1954 until actually distributed or made available to the 26 u s e 1 et seq. participant or his beneficiary and, at such time, shall be taxable under section 72 of such Code (treating the par- 26 use 72. ticipant or his beneficiary as having a basis of zero in the contract), (B) no amount shall be allocated to any participant in excess of the amount which might be allocated if the plan met the requirements of section 401 of such Code, and (C) the plan must meet the requirements of sections 410 and 415 of such Code. 26 use 410, (8) If the amount of the credit determined under section 46(a) 415. (1) (B) of the Internal Revenue Code of 1954, is recaptured in Ante, p. 36. accordance with the provisions of such Code, the amounts trans- ferred to the plan under this subsection and allocated under the plan shall remain in the plan or in participant accounts, as the case may be and continue to be allocated in accordance with the origi- nal plan agreement. (9) For purposes of this subsection, the term— (A) "employer securities" means common stock issued by "Employer the employer or a corporation which is in control of the securities." employer (within the meaning of section 368(c) of the Internal Revenue Code of 1954) with voting power and 26 u s e 368. dividend rights no less favorable than the voting power and dividend rights of other common stock issued by the employer or such controlling corporation, or securities issued by the employer or such controlling corporation, convertible into such stock, and
89 STAT. 40 PUBLIC LAW 94-12—MAR. 29, 1975 "Value." (B) "value" means the average of closing prices of the employer's securities, as reported by a national exchange on which securities are listed, for the 20 consecutive trading days immediately preceding the date of transfer or allocation of such securities or, in the case of securities not listed on a national exchange, the fair market value as determined in good faith and in accordance with regulations issued by the Secretary of the Treasury or his delegate. Regulations and (10) The Secretary of the Treasury or his delegate shall pre- reports. scribe such regulations and require such reports as may be neces- sary to carry out the provisions of this subsection. Penalty. (11) If the employer fails to meet any requirement imposed under this subsection or under any obligation undertaken to com- ply with the requirement of this subsection, he is liable to the United States for a civil penalty of an amount equal to the amount involved in such failure. The preceding sentence shall not apply if the taxpayer corrects such failure (as determined by the Secre- tary of the Treasury or his delegate) within 90 days after notice "Amount thereof. For purposes of this paragraph, the term "amount involved." involved" means an amount determined by the Secretary or his delegate, but not in excess of 1 percent of the qualified investment Ante, p. 36. ©f the taxpayer for the taxable year under section 46(a) (1)(B) and not less than the product of one-half of one percent of such amount multiplied by the number of months (or parts thereof) during which such failure continues. The amount of such pen- alty may be collected by the Secretary of the Treasury in the same manner in which a deficiency in the payment of Federal income tax may be collected. (12) Notwithstanding any provision of the Internal Revenue 26 u s e 1 et seq. Code of 1954 to the contrary, no deductions shall be allowed under 26 use 162, section 162, 212, or 404 of such Code for amounts transferred to 212, 404. an employee stock ownership plan and taken into account under this subsection. SEC. 302. ALLOWANCE OF INVESTMENT CREDIT WHERE CONSTRUC- TION OF PROPERTY WILL TAKE MORE THAN 2 YEARS. 26 use 46. (a) GENERAL RULE.—Section 46 (relating to amount of credit) is amended by redesignating subsections (d) and (e) as subsections (e) and (f), respectively, and by inserting after subsection (c) the follow- ing new subsection: "(d) QUALIFIED PROGRESS EXPENDITURES.— "(1) I N GENERAL.—In the case of any taxpayer who has made an election under paragraph (6), the amount of his qualified investment for the taxable year (^determined under subsection (c) without regard to this subsection) shall be increased by an amount equal to his aggregate qualified progress expenditures for the taxable year with respect to progress expenditure property. "(2) PROGRESS EXPENDITURE PROPERTY DEFINED.— "(A) I N GENERAL.—For purposes of this subsection, the term 'progress expenditure property' means any property which is being constructed by or for the taxpayer and which— "(i) has a normal construction period of two years or more, and 26 use 38. "(ii) it is reasonable to believe will be new section 38 property having a useful life of 7 years or more in the hands of the taxpayer when it is placed in service. Clauses (i) and (ii) of the preceding sentence shall be applied on the basis of facts known at the close of the taxable
PUBLIC LAW 94-12—MAR. 2 9 , 1975 8 9 STAT. 4 1 year of t h e taxpayer in which construction begins (or,^ if later, at the close of the first taxable year to which an election under this subsection applies). " ( B ) NORMAL CONSTRUCTION PERIOD.—For purposes of sub- p a r a g r a p h ( A ) , t h e term 'normal construction period' means the period reasonably expected to be required for t h e con- struction of t h e property— " ( i ) beginning with the date on which physical work on t h e construction begins (or, if later, t h e first d a y of the first taxable year to which an election under this subsection applies), a n d " ( i i ) ending on t h e date on which it is expected t h a t the property will be available for placing in service. " (3) QUALIFIED PROGRESS EXPENDITURES DEEINED.—For purposes of this subsection— "(A) SELF-CONSTRUCTED PROPERTY.—In t h e case of any self-constructed property, t h e term 'qualified progress expend- itures' means t h e amount which, for purposes of this sub- p a r t , is, properly chargeable ( d u r i n g such taxable year) t o capital account with respect to such property. "(B) NON-SELF-CONSTRUCI'ED PROPERTY.—In the case of non-self-constructed property, the term 'qualified progress expenditures' means the lesser of— " ( i ) t h e amount paid d u r i n g t h e taxable year t o another person for the construction of such property, or " ( i i ) t h e amount which represents t h a t proportion of the overall cost t o the taxpayer of t h e construction by such other person which is properly attributable to t h a t portion of such construction which is completed d u r i n g such taxable year. "(4) SPECIAL RULES FOR APPLYING PARAGRAPH ( 3 ) . — F o r p u r - poses of p a r a g r a p h ( 3 ) — "(A) COMPONENT PARTS, E T C . — P r o p e r t y which is t o be a component p a r t of, or is otherwise t o be included in, any progress expenditure property shall be taken into account— " ( i ) a t a time n o t earlier t h a n t h e time a t which it becomes irrevocably devoted to use in t h e progress expenditure property, a n d " ( i i ) as if ( a t t h e time referred t o in clause ( i ) ) t h e t a x p a y e r h a d expended an amount equal to t h a t portion of t h e cost to t h e taxpayer of such component or other property which, for purposes of this subpart, is properly chargeable ( d u r i n g such taxable year) to capital account with respect to such property. " ( B ) CERTAIN BORROWINGS DISREGARDED.—Any a m o u n t bor- rowed directly or indirectly b y t h e taxpayer from t h e person constructing t h e property for h i m shall not be treated as a n amount expended for such construction. " ( C ) CERTAIN UNUSED EXPENDITURES CARRIED OVER.—In t h e case of non-self-constructed property, if for t h e taxable year— " ( i ) t h e amount under clause (i) of p a r a g r a p h (3) ( B ) exceeds t h e amount under clause (ii) of p a r a g r a p h (3) ( B ) , then t h e amount of such excess shall be taken into account under such clause (i) for t h e succeeding taxable year, or " ( i i ) t h e amount under clause (ii) of p a r a g r a p h (3) ( B ) exceeds t h e amount under clause ( i ) of p a r a g r a p h
89 STAT. 42 PUBLIC LAW 94-12—MAR. 29, 1975 (3) ( B ) , then t h e amount of such excess shall be taken into account under such clause (ii) for t h e succeeding taxable year. "(D) DEITIRMINATION OF PKRCENTAGE OF COMPLETION.—In the case of non-self-constructed property, t h e determination under p a r a g r a p h (3) ( B ) (ii) of the proportion of the overall cost to t h e taxpayer of t h e construction of any property which is properly attributable to construction completed dur- ing a n y taxable year shall be made, under regulations pre- scribed by t h e Secretary or his delegate, on t h e basis of engineering or architectural estimates or on t h e basis of cost accounting records. Unless the taxpayer establishes otherwise by clear a n d convincing evidence, t h e con'^truction shall be deemed to be completed not more rapidly t h a n ratably over the normal construction period. " ( E ) No QUALIFIED PROGRESS EXPENDITURES FOR CERTAIN PRIOR PERIODS.—In the case of any property, no qualified progress expenditures shall be taken into account under this subsection for any period before J a n u a r y 22,1975 (or, if later, before the first day of the first taxable year to which an elec- tion under this subsection applies). " ( F ) No QUALIFIED PROGRESS EXPENDITURES FOR PROPERTY FOR YEAR IT IS PLACED IN SERVICE, ETC.—In t h e case of any property, no qualified progress expenditures shall be taken into account under this subsection for the earlier of— " ( i ) t h e taxable year in which t h e property is placed in service, or " ( i i ) t h e first taxable year for which recapture is Post, p . 4^. required under section 4 7 ( a ) ( 3 ) with respect t o such property, or for any taxable year thereafter. " ( 5 ) O T H E R D E F I N I T I O N S . — F o r purposes of this subsection— " ( A ) SELF-CONSTRUCTED PROPERTY.—The t e r m 'self-con- structed property' means property more t h a n half of t h e construction expenditures for which it is reasonable to believe will be made directly by the taxpayer. "(B) NON-SELF-CONSTRUCTED PROPERTY.—The t e r m 'non- self-constructed property' means property which is not self- constructed property. " ( C ) CONSTRUCTION, ETC.—The term 'construction' includes reconstruction and erection, a n d t h e term 'constructed' includes reconstructed and erected. "(D) O N L Y CONSTRUCTION OF SECTION 38 PROPERTY TO BE TAKEN INTO ACCOUNT.—Construction shall be taken into account only if, for purposes of this subpart, expenditures therefor are properly chargeable to capital account with respect to the property. " ( 6 ) ELECTION.—A election under this subsection may be made at such time a n d in such manner as t h e Secretary or his delegate may by regulations prescribe. Such a n election shall apply to t h e taxable year for which made a n d to all subsequent taxable years. Such an election, once made, may not be revoked except with the consent of the Secretary or his delegate. " (7) TRANSITIONAL RULES.—The qualified investment taken into account under this subsection for any taxable year beginning before J a n u a r y 1, 1980, with respect to any property shall be ( i n lieu of the full amount) an amount equal to the sum of—
PUBLIC LAW 94-12—MAR. 29, 1975 89 STAT. 4 3 " ( A ) t h e applicable percentage of t h e full amount determined under the following t a b l e : "For a taxable year The applicable beginning in: percentage i s : 1974 or 1975 20 1976 40 1977 60 1978 80 1979 100; plus " ( B ) in t h e case of any property t o which this subsection applied for one or more preceding taxable years, 20 percent of the full amount for each such preceding taxable year. F o r purposes of this p a r a g r a p h , the term 'full amount', when used "Full amount, with respect to any property for any taxable year, means t h e amount of the qualified investment for such property for such year determined under this subsection without regard to this paragraph.-' (b) CONFORMING A M E N D M E N T S . — (1) A M E N D M E N T OF SECTION 4 6 ( C ) .—Section 46 (c) ( r e l a t i n g to 26 USC 46. qualified investment) is amended by adding a t the end thereof the folloAving new p a r a g r a p h : " ( 4 ) COORDINATION W I T H SUBSECTION ( d ) . — T h e amount which would (but for this p a r a g r a p h ) be treated as qualified investment under this subsection with respect to any property shall be reduced (but not below zero) by any amount treated by the taxpayer or a predecessor of the taxpayer (or, in the case of a sale and leaseback described in section 4 7 ( a ) ( 3 ) ( C ) , by the lessee) as qualified Infra- investment with respect t o such property under subsection ( d ) , to the extent the amount so treated has not been required to be recap- tured by reason of section 47(a) ( 3 ) . " (2) DISPOSITION, ETC.— ( A ) Subsection ( a ) of section 47 (relating to certain dis- 26 USC 47. positions, etc., of section 38 property) is amended by redesig- n a t i n g p a r a g r a p h (3) as p a r a g r a p h (4) a n d by inserting after p a r a g r a p h (2) the following new p a r a g r a p h : " ( 3 ) PROPERTY CEASES TO BE PROGRESS EXPENDITURE PROPERTY.— " ( A ) I N GENERAL.—If during a n y taxable year any prop- erty taken into account in determining qualified investment under section 46 (d) ceases (by reason of sale or other disposi- Ante, p. 40. tion, cancellation or abandonment of contract, or otherwise) to be, with respect t o the taxpayer, property Avhich, when placed in service, will be new section 38 property, then the tax under this chapter for such taxable year shall be increased by an amount equal t o t h e aggregate decrease in t h e credits allowed under section 38 for all prior taxable years which would have resulted solely from reducing to zero the quali- fied investment taken into account with respect to such property. "(B) CERTAIN EXCESS CREDIT RECAPTURED.—Any amount which would have been applied as a reduction of the qualified investment in property by reason of p a r a g r a p h (4) of sec- tion 46(c) but for t h e fact that a reduction under such para- g r a p h cannot reduce qualified investment below zero shall be treated as a n amount required t o be recaptured under sub- p a r a g r a p h ( A ) for the taxable year in which the property is placed i n service. " ( C ) CERTAIN SALES AND LEASEBACKS.—Under regulations prescribed by the Secretary or his delegate, a sale by, a n d
89 STAT. 44 PUBLIC LAW 94-12—MAR. 29, 1975 leaseback to, a taxpayer who, when the property is placed in 26 u s e 48. service, will be a lessee to whom section 4 8 ( d ) applies shall not be treated as a cessation described in sulaparagraph (A) to the extent t h a t the qualified investment w^hich will be passed t h r o u g h to the lessee u n d e r section 4 8 ( d ) with respect to such property is not less t h a n the qualified progress expenditures properly taken into account by the lessee with respect to such property. " ( D ) COORDINATION WITH PARAGRAPH (i).—If, after p r o p - erty is placed in service, there is a disposition or other cessa- tion described in p a r a g r a p h ( 1 ) , p a r a g r a p h (1) shall be applied as if any credit which was allowable by reason of Ante, p. 40. Section 4 6 ( d ) and which has not been required to be recap- tured before such cessation were allowable for the taxable year the property was placed in service." (c) CLERICAL A M E N D M E N T S . — Ante, p. 43. (1) P a r a g r a p h (4) of section 4 7 ( a ) (as redesignated by sub- section ( b ) ( 2 ) ( A ) of this section) is amended by striking out " p a r a g r a p h ( 1 ) " and insertino- in lieu thereof " p a r a g r a p h (1) or (3)". (2) P a r a g r a p h s (5) and (6) (B) of section 4 7 ( a ) are each amended by striking out " p a r a g r a p h ( 3 ) " and inserting in lieu thereof " p a r a g r a p h ( 4 ) " . 26 u s e 48. (3) P a r a g r a p h s (1) and (2) of section 4 8 ( d ) are each amended by striking out "section 4 6 ( d ) ( 1 ) " and inserting in lieu thereof "section 46 ( e ) ( 1 ) " . 26 u s e SOB. (4) Subsection (f) of section 50B is amended by striking out "section 4 6 ( d ) " and inserting in lieu thereof "section 4 6 ( e ) " . SEC. 303. CHANGE IN CORPORATE TAX RATES AND INCREASE IN SUR- TAX EXEMPTION. 26 u s e 11. (a) TAX RATES.—Section 11(b) (relating to corporate normal t a x ) is amended to read as follows: " ( b ) NORMAL T A X . — T h e normal tax is equal to— " ( 1 ) in the case of a taxable year ending before J a n u a r y 1, 1975, or after December 31,1975, 22 percent of the taxable income, and " ( 2 ) in the case of a taxable year ending after December 31, 1974, and before J a n u a r y 1,1976, the sum of— " ( A ) 20 percent of so much of the taxable income as does- not exceed $25,000, plus " ( B ) 22 percent of so much of the taxable income as exceeds $25,000.". (b) SURTAX EXEMPTION.—Section 11 (d) (relating to surtax exemp- tion) is amended by striking out "$25,000" and inserting in lieu thereof "$50,000". (c) T E C H N I C A L AND CONFORMING A M E N D M E N T S . — 26 u s e 1561. (1) P a r a g r a p h (1) of section 1561(a) (as in effect for taxable years beginning after December 31,1974) (relating to limitations on certain multiple tax benefits in the case of certain controlled corporations) is amended by striking out "$25,000" and inserting 26 u s e 11 note. in lieu thereof "$50,000". I n a p p l y i n g subsection (b) (2) of sec- tion 11, the first $25,000 of taxable income and the second $25,000 of taxable income shall each be allocated among the component members of a controlled group of corporations in the same manner as the surtax exemption is allocated. 26 u s e 12. (2) P a r a g r a p h (7) of section 12 (relating to cross references for t a x on corporations) is amended by striking out "$25,000" and inserting in lieu thereof "$50,000".
PUBLIC LAW 94-12—MAR. 29, 1975 89 STAT, 45 (3) Section 962(c) (relating to surtax exemj^tion for indi- 26 u s e 962. viduals electing to be subject to t a x at corporate rates) is amended by striking out "$25,000" a n d inserting in lieu thereof "$50,000". SEC. 304. INCREASE IN MINIMUM ACCUMULATED EARNINGS CREDIT FROM $100,000 TO $150,000. (a) INCREASE.—Paragraphs (2) and (3) of section 535(c) (relating 26 USe 535. to accumulated earnings credit) are each amended by striking out "$100,000" and inserting in lieu thereof "$150,000". (b) CONFORMING AMENDMENTS.—Sections 243 ( b ) ( 3 ) ( C ) ( i ) (relat- 26 u s e 243. ing to qualifying dividends for purposes of the dividends received deduction), 1551 (a) (relating to disallowance of surtax exemption and 26 u s e 1551 accumulated earnings credit) and 1561(a) (2) (relating to limitations 26 u s e 1561. on certain multiple t a x benefits in the case of certain controlled cor- porations) are each amended by striking out "$100,000" and inserting in lieu thereof "$150,000". SEC. 305. EFFECTIVE DATES. (a) SECTION 302.—The amendments made by section 302 shall apply 26 u s e 46 note. to taxable years ending after December 31.1974. (b) SECTION 303.— (1) I N GENERAL.—The amendments made b y section 303 shall 26 u s e 11 note. apply to taxable years ending after December 31,1974. T h e amend- ments made by subsections (b) and (c) of such section shall cease to a p p l y for taxable years ending after December 31,1975. (2) CHANGES TOEATED AS CHANGES I N TAX RATE.—Section 21 26 u s e 21. (relating to change in rates d u r i n g taxable year) is amended by a d d i n g at the end thereof the following new subsection: " ( f ) INCREASE I N SURTAX E X E M P T I O N . — I n a p p l y i n g subsection ( a ) to a taxable year of a taxpayer which is not a calendar year, the change made by section 303(b) of the T a x Reduction Act of 1975 in section 11(d) (relating to corporate surtax exemption) shall be treated as a Ante, p. 44. change in a rate of t a x . " (c) SECTION 304.—The amendments made by section 304 apply to 26 u s e 535 note. taxable years beginning after December 31,1974. TITLE IV—CHANGES AFFECTING INDI- VIDUALS AND BUSINESSES SEC. 401. FEDERAL WELFARE RECIPIENT EMPLOYMENT INCENTIVE TAX CREDIT. (a) I N GENERAL.— (1) Section 50A ( a ) (relating to determination of amount of 26 u s e 50A. credit) is amended by a d d i n g at the end thereof the following new paragraph: "(6) LIMITATION WITH RESPECT TO NONBUSINESS ELIGIBLE EMPLOYEES.—Notwithstanding p a r a g r a p h ( 1 ) , the credit allowed by section 40 with respect to Federal welfare recipient employment 26 u s e 40. incentive expenses paid or incurred by the taxpayer d u r i n g the taxable year to an eligible employee whose services are not per- formed in connection with a t r a d e or business of the taxpayer shall not exceed $1,000." (2) Section 50A (c) (2) ( A ) (relating t o amount of credit) is amended—• ( A ) by striking out " o r " at the end of clause ( i i ) , ( B ) by striking out t h e period a t t h e end of clause (iii) and inserting in lieu thereof a comma a n d "or", a n d
89 STAT. 46 PUBLIC LAW 94-12—MAR. 29, 1975 (C) by inserting at the end thereof the following new clause: "(iv) a termination of employment of an individual with respect to whom Federal welfare recipient employ- ment incentive expenses (as described in section 50B infra. (a)(2)) are taken into account under subsection (a)." 26 use SOB. (3) Section 50B(a) (relating to definitions; special rules) is amended to read as follows: "(a) WORK INCENTIVE PROGRAM EXPENSES.— " (1) I N GENERAL.—For purposes of this subpart, the term 'work incentive program expenses' means the sum of— " (A) the amount of waj^es paid or incurred by the taxpayer for services rendered during the first 12 months of employ- ment (whether or not consecutive) of employees who are cei'tified by the Secretary of Labor as— "(i) having been placed in employment under a work incentive program established under section 432(b) (1) 42 use 632. of the Social Security Act, and "(ii) not having displaced any individual from employment, plus " ( B ) the amount of Federal welfare recipient employment incentive expenses paid or incurred by the taxpayer during the taxable year. "(2) DEFINITION.—For purposes of this section, the term 'Fed- eral welfare recipient employment incentive expenses' means the amount of wages paid or incurred by the taxpayer for services rendered to the taxpayer before July 1, 1976, by an eligible employee. "(3) EXCLUSION.—No item taken into account under paragraph (1) (A) shall be taken into account under paragraph (1) (B), No item taken into account under paragraph (1) (B) shall be taken into account under paragraph 1 (A)." (4) Section 50B(c) is amended— (A) by striking out "subsection ( a ) " in paragraph (1) and inserting in lieu thereof "subsection ( a ) ( 1 ) ( A ) " , and (B) by striking out "subsection ( a ) " in paragraph (4) and inserting in lieu thereof "subsection (a) (1) (A)". (5) Section 50B is amended by redesignating subsection (g) as (h) and by inserting immediately after subsection (f) the following new subsection: "(g) ELIGIBLE EMPLOYEE.— "(1) ELIGIBLE EMPLOYEE.—For purposes of subsection (a)(1) (B), the term 'eligible employee' means an individual— "(A) who has been certified by the appropriate agency of State or local government as being eligible for financial 42 use 601. assistance under part A of title IV of the Social Security Act and as having continuously received such financial assistance during the 90 day period which immediately precedes the date on which such individual is hired by the taxpayer, "(B) who has been employed by the taxpayer for a period in excess of 30 consecutive days on a substantially full-time basis, "(C) who has not displaced any other individual from employment by the taxpayer, and "(D) who is not a migrant worker. The term 'eligible employee' includes an employee of the taxpayer whose services are not performed in connection with a trade or business of the taxpayer.
PUBLIC LAW 94-12—MAR. 29, 1975 89 STAT. 47 " ( 2 ) MIGRANT WORKER.—For purposes of p a r a g r a p h ( 1 ) , the t e r m ' m i g r a n t worker' means an individual who is employed for services for which the customary period of employment by one employer is less t h a n 30 days if the n a t u r e of such services requires t h a t such individual travel from place to place over a short period of time." (b) EFFECTIVE D A T E . — T h e amendments made by this section with 26 USC 50A respect to federal welfare recipient employment incentive expenses "ot^- shall apply to such expenses paid or incurred by a t a x p a y e r to an eligible employee whom such t a x p a y e r hires after the date of the enactment of this Act. SEC. 402. TIME WHEN CONTRIBUTIONS DEEMED MADE TO CERTAIN PENSION PLANS. Section 1017 of the Employee Retirement Income Security A c t of 1974 (relating to effective dates for funding, etc., provisions of t h a t 26 USC 410 note. Act) is amended— (1) in subsection (b) by striking out " ( c ) t h r o u g h ( h ) , " and inserting in lieu thereof " (c) t h r o u g h ( i ) , " ; and (2) by adding at the end thereof the following new subsection: " ( i ) CONTRIBUTIONS TO H . R . 10 P T ^ N S . — N o t w i t h s t a n d i n g subsec- tions (b) and (c) ( 2 ) , in the case of a plan in existence on J a n u a r y 1, 1974, the amendment made by section 1013(c)(2) of this Act shall 88 Stat. 914. apply, with respect to a plan which provides contributions or benefits 26 USC 412. for employees some or all of whom are employees within the meaning of section 401(c) (1) of the Internal Revenue Code of 1954, for plan 26 USC 401. years beginning after December 31, 1974, but only if the employer (within the meaning of section 401 (c) (4) of such Code) elects in such manner and a t such time as the Secretary of the Treasury or his dele- gate shall by regulations prescribe, to have such amendment so apply. A n y election made under this subsection, once made, shall be irrevocable." TITLE V—PERCENTAGE DEPLETION SEC. 501. LIMITATIONS ON PERCENTAGE DEPLETION FOR OIL AND GAS. (a) I N G E N E R A L . — P a r t I of subchapter I of chapter 1 (relati)ig to n a t u r a l resources) is amended by inserting after section 613 the follow- i n g new section: "SEC. 613A. LIMITATIONS ON PERCENTAGE DEPLETION IN CASE OF 26 USC 613A. OIL AND GAS WELLS. " ( a ) GENERAL R U L E . — E x c e p t as otherwise provided in this sec- tion, the allowance for depletion under section 611 with respect to any 26 USC 611. oil or gas well shall be computed without regard to section 613. 26 USC 613. "(b) E X E M P T I O N FOR CERTAIN DOMESTIC G A S WEI^LS.— " ( 1 ) I N GENERAL.—The allowance for depletion under section 611 shall be computed in accordance with section 613 with respect to— " ( A ) regulated natural gas, " ( B ) n a t u r a l gas sold under a fixed contract, and " ( C ) any geothermal deposit in the United States or in a possession of the United States which is determined to be a gas well within the meaning of section 613(b) (1) ( A ) , and 22 percent shall be deemed to be specified in subsection (b) of section 613 for purposes of subsection (a) of that section.
89 STAT. 4 8 PUBLIC LAW 94-12—MAR. 29, 1975 " ( 2 ) D E F I N I T I O N S . — F o r purposes of this subsection— ''(A) NATURAL GAS SOLD UNDER A FIXED CONTRACT.—The term 'natural gas sold under a fixed contract' means domestic natural gas sold by the producer under a contract, in effect on F e b r u a r y 1, 1975, a n d a t all times thereafter before such sale, under which t h e price for such gas cannot be adjusted to reflect t o any extent t h e increase in liabilities of the seller for tax under this chapter by reason of the repeal of percent- age depletion for gas. Price increases after F e b r u a r y 1,1975, shall be presumed to take increases in t a x liabilities into account unless t h e taxpayer demonstrates t o t h e contrary by clear and convincing evidence. " ( B ) KEGULATED NATURAL GAS.—The t e r m ' r e g u l a t e d n a t u - ral g a s ' means domestic natural gas produced a n d sold by t h e producer, before J u l y 1, 1976, subject t o t h e jurisdiction of t h e Federal Power Commission, t h e price for which h a s not been adjusted to reflect t o any extent t h e increase in liability of t h e seller for t a x under this chapter by reason of t h e repeal of percentage depletion for gas. Price increases after F e b r u a r y 1, 1975, shall be presumed t o take increases in t a x liabilities into account unless t h e t a x p a y e r demon- strates t h e contrary by clear a n d convincing evidence. "(c) EXEMPTION FOR INDEPENDENT PRODUCERS AND ROYALTY OWNERS.— " ( 1 ) I N GENERAL.—Except as provided in subsection ( d ) , t h e 26 u s e 611. allowance for depletion under section 611 shall be computed i n 26 u s e 613. accordance with section 613 with respect to— " ( A ) so much of t h e taxpayer's average daily production of domestic crude oil as does not exceed the taxpayer's deplet- able oil q u a n t i t y ; and " ( B ) so much of the taxpayer's average daily production of domestic n a t u r a l gas as does not exceed t h e taxpayer's depletable n a t u r a l gas q u a n t i t y ; and t h e applicable percentage (determined in accordance with the table contained in p a r a g r a p h ( 5 ) ) shall be deemed t o be specified i n subsection ( b ) of section 613 for purposes of sub- section ( a ) of t h a t section. " ( 2 ) AVERAGE DAILY PRODUCTION.—For purposes of p a r a g r a p h " ( A ) t h e taxpayer's average daily production of domestic crude oil or n a t u r a l gas for any taxable year, shall be deter- mined by dividing his aggregate production of domestic crude oil or n a t u r a l gas, as t h e case may be, d u r i n g the tax- able year by t h e number of days i n such taxable year, a n d " ( B ) in t h e case of a taxpayer holding a partial interest in t h e production from a n y property (including a n interest held in a partnership) such taxpayer's production shall be considered t o be t h a t amount of such production determined by multiplying the total production of such property by t h e t a x p a y e r s percentage participation in the revenues from such property. I n applying this p a r a g r a p h , there shall not be taken into account any production of crude oil or n a t u r a l gas resulting from second- a r y or tertiary processes (as defined i n regulations prescribed by the Secretary o r his delegate). " (3) DEPLETABLE OIL QUANTITY.— " ( A ) I N GENERAL.—For purposes of p a r a g r a p h ( 1 ) , t h e taxpayer's depletable oil quantity shall be equal t o —
PUBLIC LAW 94-12—MAR. 2 9 , 1975 89 STAT, 4 9 " ( i ) the tentative quantity determined under the table contained in subparagraph ( B ) , reduced (but not below zero) by " (ii) the taxpayer's average daily secondary or tertiary production for the taxable year. "(B) P H A S E - O U T TABLE.—For purposes of subparagraph (A)- "In the case of production The tentative quantity during the calendar year: in barrels is: 1975 2, 000 1976 1, 800 1977 1, 600 1978 1, 400 1979 1, 200 1980 and thereafter 1, 000 " ( 4 ) D A I L Y DEPLETABLE NATURAL GAS Q U A N T I T Y . — F o r purposes of p a r a g r a p h ( 1 ) , the depletable natural gas quantity of any taxpayer for any taxable year shall be equal t o 6,000 cubic feet multiplied by t h e number of barrels of the taxpayer's depletable oil quantity t o which t h e taxpayer elects to have this p a r a g r a p h apply. T h e taxpayer's depletable oil quantity for any taxable year shall be reduced by t h e number of barrels with respect t o which an election under this p a r a g r a p h applies. Such election shall be made at such time a n d in such manner as the Secretary or his delegate shall by regulations prescribe. " ( 5 ) APPLICABLE PERCENTAGE.—For purposes of paragraph (1)- "In the case of production The applicable during the calendar year: percentage is: 1975 22 1976 22 1977 22 1978 22 1979 22 1980 22 1981 20 1982 18 1983 16 1984 and thereafter 15 " ( 6 ) O I L AND NATURAL GAS RESULTING FROM SECONDARY OR TER- TIARY PROCESSES.— " ( A ) I N GENERAL.—Except as provided in subsection ( d ) , the allowance for depletion under section 611 shall be com- 26 USC 611. puted in accordance with section 613 with respect to— ^6 USC 613. " (i) so much of the taxpayer's average daily secondary or tertiary production of domestic crude oil as does not exceed t h e taxpayer's depletable oil quantity (deter- mined with regard to p a r a g r a p h ( 3 ) ( A ) ( i i ) ) ; a n d " ( i i ) so much of t h e taxpayer's average daily second- ary or tertiary production of domestic natural gas as does not exceed the taxpayer's depletable natural gas quantity (determined without regard to p a r a g r a p h (3) ( A ) ( i i ) ) ; and 22 percent shall be deemed to be specified in subsection (b) of section 613 for purposes of subsection ( a ) of t h a t section. " ( B ) AVERAGE DAILY SECONDARY OR TERTIARY PRODUCTION.— F o r purposes of this subsection— " ( i ) the taxpayer's average daily secondary or tertiary production of domestic crude oil or natural gas for any taxable year shall be determined by dividing his aggre- gate production of domestic crude oil or natural gas, as
89 STAT. 50 PUBLIC LAW 9 4 - 1 2 - - M A R . 2 9 , 1975 the case m a y be, resulting from secondary or t e r t i a r y processes d u r i n g the taxable year by the number of days in such taxable year, and " ( i i ) in the case of a taxpayer holding a partial inter- est in the production from any property (including any interest held in any partnership) such taxpayer's pro- duction shall be considered to be t h a t amount of such production determined by multiplying the total produc- tion of such property by the taxpayer's percentage par- ticipation i n the revenues from such property. " ( C ) TERMINATION.—This p a r a g r a p h shall not apply after December 31,1983. " (7) SPECIAL RULES.— " ( A ) PRODUCTION OF CRUDE OIL I N EXCESS o r DEPLETABLE OIL QUANTITY.—If t h e taxpayer's average daily production of domestic crude oil exceeds h i s depletable oil quantity, t h e allowance under p a r a g r a p h (1) ( A ) with respect to oil pro- duced during t h e taxable year from each property in the United States shall be t h a t amount which bears the same ratio to the amount of depletion which would have been.allowable 26 u s e 613. under section 613(a) for all of t h e taxpayer's oil produced from such property d u r i n g t h e taxable year (computed as if section 613 applied to all of such production a t t h e rate specified in p a r a g r a p h (5) or ( 6 ) , as the case m a y be) as his depletable oil quantity bears to t h e aggregate number of barrels representing the average daily production of domestic crude oil of the taxpayer for such year. " ( B ) PRODUCTION o r NATURAL GAS I N EXCESS OF DEPLETABLE NATURAL GAS QUANTITY.—If the taxpayer's average daily pro- duction of domestic n a t u r a l gas exceeds his depletable n a t u r a l gas quantity, the allowance under p a r a g r a p h (1) ( B ) with respect to natural gas produced during the taxable year from each property i n t h e United States shall be t h a t amount which bears t h e same ratio to the amount of depletion which would have been allowable under section 613(a) for all of the taxpayers n a t u r a l gas produced from such property d u r i n g the taxable year (computed as if section 613 applied t o all of such production a t t h e rate specified in p a r a g r a p h (5) or (6), as t h e case m a y be) as t h e amount of his depletable n a t u r a l g a s quantity in cubic feet bears t o t h e aggregate number of cubic feet representing the average daily produc- tion of domestic n a t u r a l g a s of t h e t a x p a y e r for such year. "(C) TAXABLE INCOME FROM T H E PROPERTY.—If b o t h oil and gas are produced from t h e property d u r i n g t h e taxable year, for purposes of subparagraphs ( A ) a n d ( B ) the tax- able income from t h e property, in applying t h e 50-percent limitation in section 6 1 3 ( a ) , shall be allocated between t h e oil production a n d t h e gas production in proportion to the gross income d u r i n g the taxable year from each. " ( D ) PARTNERSHIPS.—In t h e case of a partnership, t h e depletion allowance i n the case of oil a n d gas wells t o which this subsection applies shall be computed separately by t h e partners and not by the partnership. "(E) SECONDARY OR TERTIARY PRODUCTION.—If the t a x p a y e r has production from secondary or tertiary recovery processes d u r i n g t h e taxable year, this p a r a g r a p h (under regulations prescribed by the Secretary or his delegate) shall be applied separately with respect to such production.
PUBLIC LAW 94-12—MAR. 29, 1975 89 STAT. 51 " (8) BUSINESSES UNDER COMMON CONTROL ; MEMBERS o r T H E SAME FAMILY. " ( A ) COMPONENT MEMBERS OF CONTROLLED GROUP TREATED AS ONE TAXPAYER.—For purposes of this subsection, persons who are members of t h e same controlled group of corporations shall be treated as one taxpayer. "(B) AGGREGATION OF BUSINESS ENTITIES UNDER COMMON CONTROL.—If 50 percent or more of the beneficial interest in two or more corporations, trusts, or estates is owned by t h e same or related persons (taking into account only persons who own a t least 5 percent of such beneficial interest), t h e tentative quantity determined under t h e table in p a r a g r a p h (3) ( B ) shall be allocated among all such entities in propor- tion to the respective production of domestic crude oil d u r i n g the period in question by such entities. " ( C ) ALLOCATION AMONG MEMBERS OF T H E SAME F A M I L Y . — I n t h e case of individuals who are members of t h e same family, t h e tentative quantity determined under the table in p a r a g r a p h (3) ( B ) shall be allocated among such individuals in proportion t o t h e respective production of domestic crude oil d u r i n g the period in question by such individuals. " ( D ) D E F I N I T I O N AND SPECIAL RULES.—For purposes of t h i s paragraph— " ( i ) t h e term 'controlled group of corporations' h a s the meaning given to such term by section 1563(a), except 26 USC 1563. t h a t section 1563(b) (2) shall not apply a n d except t h a t 'more t h a n 50 percent' shall be substituted for ' a t least 80 percent' each place it appears in section 1563 ( a ) , " ( i i ) a person is a related person t o another person if such persons a r e members of the same controlled g r o u p of corporations or if the relationship between such per- sons would result in a disallowance of losses under section 267 or 7 0 7 ( b ) , except t h a t for this purpose the family of 26 USC 267, an individual includes only his spouse a n d minor chil- ^O^- dren, " ( i i i ) t h e family of an individual includes only h i s spouse and minor children, and " (iv) each 6,000 cubic feet of domestic n a t u r a l gas shall be treated as 1 barrel of domestic crude oil. " (9) TRANSFER OF OIL OR GAS PROPERTY.— " ( A ) I n t h e case of a transfer (including t h e subleasing of a lease) after December 31, 1974 of a n interest (including an interest in a partnership or trust) in a n y proven oil or g a s property, p a r a g r a p h (1) shall not apply to the transferee (or sublessee) with respect t o production of crude oil or natural gas attributable t o such interest, a n d such production shall not be taken into account for any computation by t h e trans- feree (or sublessee) under this subsection. A property shall be treated as a proven oil or gas property if a t the time of the transfer t h e principal value of t h e property h a s been demonstrated by prospecting or exploration or discovery work. " ( B ) S u b p a r a g r a p h ( A ) shall not apply in t h e case of— " (i) a transfer of property a t death, or " ( i i ) t h e transfer i n a n exchange t o which section 351 26 USC 351. applies if following t h e exchange t h e tentative quantity
89 STAT. 52 PUBLIC LAW 94-12—MAR. 2 9 , 1 9 7 5 determined u n d e r t h e table contained i n p a r a g r a p h (3) ( B ) is allocated under p a r a g r a p h (8) between the t r a n s - feror and transferee. " ( 1 0 ) SPECIAL RUUE FOR FISCAL YEAR TAXPAYERS.—In a p p l y i n g this subsection to a taxable year which is n o t a calendar year, each portion of such taxable year which occurs d u r i n g a single calendar year shall be treated as if i t were a short taxable year. "(11) CERTAIlSr PRODUCTION NOT TAKEN INTO ACCOUNT.—In a p p l y i n g this subsection, there shall n o t be taken into account t h e production of n a t u r a l g a s with respect t o which subsection (b) applies. " ( d ) LIMITATIONS ON APPLICATION OF SUBSECTION ( C ) . — " ( 1 ) L I M I T A T I O N BASED ON TAXABLE I N C O M E . — T h e deduction for the taxable year attributable t o t h e application of subsection (C) shall n o t exceed 65 percent of t h e taxpayer's taxable income for the year computed without regard t o — ( A ) depletion with respect t o production of oil a n d g a s subject t o t h e provisions of subsection ( c ) , " ( B ) a n y n e t operating loss carryback t o t h e taxable year 26 u s e 172. under section 172, and " ( C ) any capital loss carryback to t h e taxable year under 26 u s e 1212. section 1212. I f an amount is disallowed as a deduction for the taxable year by reason of application of t h e preceding sentence, t h e disallowed amount shall be treated as an amount allowable as a deduction under subsection (c) for the following taxable year, subject t o t h e application of t h e preceding sentence t o such taxable year. F o r purposes of basis adjustments a n d determining whether cost depletion exceeds percentage depletion with respect to the produc- tion from a property, any amount disallowed as a deduction on t h e application of this p a r a g r a p h shall be allocated to t h e respective properties from which t h e oil or ^as was produced i n proportion t o the percentage depletion otherwise allowable to such properties u n d e r subsection ( c ) . " ( 2 ) RETAILERS EXCLUDED.—Subsection (c) shall not a p p l y in the case of any t a x p a y e r Avho directly, or t h r o u g h a related person, sells oil or n a t u r a l gas, or any product derived from oil or n a t u r a l gas— " ( A ) t h r o u g h any retail outlet operated by t h e taxpayer or a related person, or " ( B ) t o any person— " ( i ) obligated u n d e r a n agreement o r contract w i t h the t a x p a y e r or a related person to use a t r a d e m a r k , t r a d e name, o r service m a r k o r name owned by such t a x p a y e r o r a related person, in m a r k e t i n g or distributing oil or natu- ral gas or any product derived from oil or n a t u r a l gas, or " (ii) given authority, p u r s u a n t to an agreement or con- tract with the t a x p a y e r or a related person, t o occupy any retail outlet owned, leased, or in any way controlled by t h e t a x p a y e r o r a related person. " ( 3 ) RELATED PERSON.—For purposes of this subsection, a per- son is a related person with respect t o t h e taxpayer if a significant ownership interest i n either t h e taxpayer or such person is held by t h e other, or if a t h i r d person h a s a significant ownership interest in both the t a x p a y e r a n d such person. F o r purposes of the
PUBLIC LAW 94-12—MAR. 2 9 , 1975 89 STAT. 53 preceding sentence, the term 'significant ownership interest' "Significant means— ownership " ( A ) with respect t o any corporation, 5 percent or more in interest." value of t h e outstanding stock of such corporation, " ( B ) with respect to a partnership, 5 percent or more interest in t h e profits or capital of such partnership, a n d " ( C ) with respect t o an estate or trust, 5 percent or more of the beneficial interests in such estate or trust. " ( 4 ) CERTAIN REFINERS EXCLUDED.—If the t a x p a y e r or a related person engages in t h e refining of crude oil, subsection (c) shall not apply to such t a x p a y e r if on any d a y d u r i n g t h e taxable year the refinery runs of t h e taxpayer and such person exceed 50,000 barrels. " (e) D E F I N I T I O N S . — F o r purposes of this section— " ( 1 ) CRUDE OIL.—The term 'crude oil' includes a n a t u r a l gas liquid recovered from a gas well in lease separators or field facilities. " ( 2 ) NATURAL GAS.—The term 'natural gas' means any product (other t h a n crude oil) of an oil or gas well if a deduction for depletion is allowable under section 611 with respect to such 26 u s e 611. product. " (3) DOMESTIC.—The t e r m 'domestic' refers to production from an oil or gas well located in the United States or in a possession of t h e United States. " ( 4 ) BARREL.—The term 'barrel' means 42 United States gallons." (b) T E C H N I C A L A M E N D M E N T S . — (1) Section 613(d) (relating to percentage depletion) is 26 u s e 613. amended to read as follows: " ( d ) D E N I A L OF PERCENTAGE DEPLETION I N CASE OF O I L AND G A S W E L L S . — E x c e p t as provided in section 613A, in the case of any oil or Ante, p. 47. gas well, t h e allowance for depletion shall be computed without refer- ence to this section." (2) Section 613_(b) is amended— ( A ) by striking out s u b p a r a g r a p h ( A ) of p a r a g r a p h (1) and redesignating s u b p a r a g r a p h s ( B ) and ( C ) as subpara- g r a p h s ( A ) and ( B ) , respectively, ( B ) by striking out " ( 1 ) ( C ) " each place it appears in p a r a g r a p h s ( 3 ) , ( 4 ) , a n d (7) and inserting in lieu thereof " ( 1 ) ( B ) " , and (C) by amending t h e last sentence of p a r a g r a p h ( 7 ) — (i) by striking out " o r " at t h e end of clause ( A ) , (ii) by striking out the period at the end of clause ( B ) and inserting in lieu thereof " ; or", and (iii) by adding a t the end thereof the following new clause: " ( C ) oil a n d gas wells." (3) Section 703 (a) (2) (relating to deductions not allowable 26 USC 703,. to a partnership) is amended by striking out " a n d " a t the end of s u b p a r a g r a p h ( E ) , by striking out t h e period at the end of subparagraph ( F ) and inserting in lieu ", a n d " , a n d by a d d i n g at the end thereof the following new s u b p a r a g r a p h : " ( G ) t h e deduction for depletion under section 611 with respect to oil and gas production subject to the provisions of section 6 1 3 A ( c ) . " ^ (c) EFFECTIVE DATES.—The amendments made by this section shall 26 USC 613A take effect on J a n u a r y 1,1975, and shall apply to taxable years ending note. after December 31, 1974.
89 STAT. 54 PUBLIC LAW 94-12—MAR. 29, 1975 TITLE VI—TAXATION OF FOREIGN OIL AND GAS AND OTHER FOREIGN INCOME SEC. 691. LIMITATIONS ON FOREIGN TAX CREDIT FOR TAXES PAID IN CONNECTION WITH FOREIGN OIL AND GAS INCOME. (a) I N GENPIRAL.—Subpart A of p a r t I I I of subchapter N of chap- ter 1 (relating t o foreign tax credit) is amended by adding at the end thereof the following new section: 26 u s e 907. "SEC. 907. SPECIAL RULES IN CASE OF FOREIGN OIL AND GAS INCOME. "(a) REDUCTION I N A M O U N T ALLOWED AS FOREIGN T A X U N D E R S E C - 26 u s e 901. TiON 901.—In applying section 901, t h e amount of any income, w a r profits, and excess profits taxes paid or accrued (or deemed to have been paid) during the taxable year with respect to foreign oil and gas extraction income which would (but for this subsection) be taken into account for purposes of section 901 shall be reduced by t h e amount (if any) by which t h e amount of such taxes exceeds the product of— " ( 1 ) t h e amount of t h e foreign oil a n d gas extraction income for the taxable year, multiplied by " ( 2 ) the percentage which is— " ( A ) in taxable years ending i n 1975, 110 percent of, " ( B ) in taxable years ending in 1976, 105 percent of, a n d " ( C ) in taxable years ending after 1976, 2 percentage points above, the sum of the normal tax rate and the surtax rate for the taxable year 26 u s e 11. specified in section 11. 26 u s e 904. "(b) APPLICATION OF SECTION 904 L I M I T A T I O N , — T h e provisions of section 904 shall be applied separately with respect to— " (1) foreign oil related income, and " (2) other taxable income. W i t h respect to foreign oil related income, the overall limitation pro- vided by section 9 0 4 ( a ) ( 2 ) shall apply a n d t h e per-country limita- tion provided by section 904(a) (1) shall not apply. " ( c ) FOREIGN INCOME D E F I N I T I O N S AND SPECIAL R U L E S . — F o r p u r - poses of this section— " ( 1 ) FOREIGN OIL AND GAS EXTRACTION INCOME.—The t e r m 'for- eign oil a n d gas extraction income' means t h e taxable income derived from sources without the United States and its possessions from— " ( A ) the extraction (by the t a x p a y e r or any other person) of minerals from oil or gas wells, or " ( B ) the sale or exchange of assets used by t h e taxpayer in t h e t r a d e or business described in s u b p a r a g r a p h ( A ) . "(2) FOREIGN OIL RELATED INCOME.—The t e r m 'foreign oil related income' means t h e taxable income derived from sources outside t h e United States a n d its possessions from— " (A) the extraction (by the taxpayer or any other person) of minerals from oil or gas wells, " ( B ) the processing of such minerals into their primary products, " ( C ) t h e transportation of such minerals or p r i m a r y products, " ( D ) t h e distribution or sale of such minerals or p r i m a r y products, or " ( E ) t h e sale or exchange of assets used by t h e taxpayer in t h e t r a d e or business described in s u b p a r a g r a p h ( A ) , (B),(C),or(D).
PUBLIC LAW 94-12—MAR. 29, 1975 89 STAT. 55 "(3) DIVIDENDS, INTEREST, PARTNERSHIP DISTRIBUTION, ETC.— T h e term 'foreign oil a n d gas extraction income' a n d t h e term 'foreign oil related income' include— " ( A ) dividends a n d interest from a foreign corporation in respect of which taxes are deemed paid by t h e taxpayer under section 902, 26 USC 902. " ( B ) dividends from a domestic corporation which are treated under section 861(a) (2) (A) as income from sources 26 USC 861. without the United States, " ( C ) amounts with respect to which taxes are deemed paid under section 9 6 0 ( a ) , and 26 USC 960. " ( D ) t h e taxpayer's distributive share of t h e income of partnerships, to the extent such dividends, interest, amounts, or distributive share is attributable to foreign oil and gas extraction income, or to foreign oil related income, as the case m a y b e ; except that interest described in subparagraph ( A ) a n d dividends described in s u b p a r a g r a p h ( B ) shall not be taken into account in computing foreign oil a n d gas extraction income b u t shall be taken into account in computing foreign oil-related income. " ( 4 ) CERTAIN LOSSES.—If for any foreign country for any tax- able year the taxpayer would have a net operating loss if only items from sources within such country (including deductions properly apportioned or allocated thereto) which relate t o t h e extraction of minerals from oil or gas wells were taken into account, such items— " ( A ) shall not be taken into account in computing foreign oil and gas extraction income for such year, but " ( B ) shall be taken into account in computing foreign oil related income for such year. "(d) DISREGARD OF CERTAIN POSTED PRICES, E T C . — F o r purposes of this chapter, in determining the amount of taxable income in the case of foreign oil a n d gas extraction income, if the oil or gas is dis- posed of, or is acquired other t h a n from the government of a foreign country, a t a posted price (or other pricing arrangement) which differs from t h e fair market value for such oil or gas, such fair mar- ket value shall be used in lieu of such posted price (or other pricing arrangement). " ( e ) TRANSITIONAL R U L E S . — " ( 1 ) TAXABLE YEARS ENDING AFTER DECEMBER S I , 1974.—In applying subsections ( d ) a n d (e) of section 904 for purposes of 26 USC 904. determining t h e amount which may be carried over from a tax- able year ending before J a n u a r y 1, 1975, to any taxable year ending after December 31,1974— " ( A ) subsection ( a ) of this section shall be deemed to have been in effect for such prior taxable year and for all taxable years thereafter, a n d " ( B ) the carryover from such prior year shall be divided (effective as of t h e first d a y of t h e first taxable year ending after December 31,1974) into— " (i) a foreign oil related carryover, and " ( i i ) another carryover, on t h e basis of the proportionate share of the foreign oil related income, or t h e other taxable income, as the case m a y be, of the total taxable income taken into account in comput- ing the amount of such carryover. " ( 2 ) TAXABLE YEARS ENDING AFTER DECEMBER 31, 1975.—In applying subsections ( d ) a n d (e) of section 904 for purposes of determining t h e amount which m a y be carried over from a tax-
89 STAT. 56 PUBLIC LAW 94-12—MAR. 2 9 , 1975 able year ending before J a n u a r y 1, 1976. to any taxable year end- ing after December 81.1975, if the per-country limitation provided 26 u s e 904. by section 9 0 4 ( a ) ( 1 ) applied to such prior taxable year and to the taxpayer's last taxable year ending before J a n u a r y 1, 1976, then in the case of any foreign oil related carryover— " ( A ) the first sentence of section 9 0 4 ( e ) ( 2 ) shall not apply, b u t " ( B ) such amount may not exceed the amount which could have been used in such "succeeding taxable year if the per- country limitation continued to apply. " ( f ) RECAPTURE OF FOREIGN O I L RELATED L O S S . — " (1) GENERAL RULE.—For purposes of this subpart, in the case of any taxpayer who sustains a foreign oil related loss for any taxable year— " ( A ) t h a t portion of the foreign oil related income for each succeeding taxable year which is equal to the lesser of— " ( i ) the amount of such loss (to the extent not used under this p a r a g r a p h in prior y e a r s ) , or " ( i i ) 50 percent of the foreign oil related income for such succeeding taxable year, shall be treated as income from sources within the United States (and n o t as income from sources without the United States), a n d " ( B ) the amount of the income, w a r profits, and excess profits taxes paid or accrued (or deemed to have been paid) to a foreign country for such succeeding taxable year with respect to foreign oil related income shall be reduced by an amount which bears the same proportion to the total amount of such foreign taxes as t h e amount treated as income from sources within the United States under s u b p a r a g r a p h ( A ) bears to the total foreign oil related income for such succeed- ing taxable year. F o r purposes of this chapter, the amount of any foreign taxes for which credit is denied under s u b p a r a g r a p h ( B ) of the preceding sentence shall not be allowed as a deduction for any taxable year. F o r purposes of this subsection, foreign oil related income shall be determined without regard to this subsection. " ( 2 ) FOREIGN OIL RELATED LOSS DEFINED.—For purposes of t h i s subsection, t h e term 'foreign oil related loss' means t h e amount by which t h e gross income for the taxable year from sources without the United States a n d its possessions (whether or not the taxpayer chooses t h e benefits of this subpart for such taxable year) taken into account in determining t h e foreign oil related income for such year is exceeded by t h e sum of the deductions properly apportioned or allocated thereto, except t h a t there shall not be taken into account— " ( A ) any net operating loss deduction allowable for such 26 u s e 172. year under section 172(a) or any capital loss carrybacks and 26 u s e 1212. carryovers to such year under section 1212, a n d " ( B ) any— " ( i ) foreign expropriation loss for such year, as defined in section 172(k) ( 1 ) , o r " ( i i ) loss for such year which arises from fire, storm, shipwreck, or other casualty, or from theft, to t h e extent such loss is not compensated for by insurance or otherwise. " ( 3 ) DISPOSITIONS.— " ( A ) I N GENERAL.—For purposes of this chapter, if prop- erty used in a trade or business described in subparagraph
PUBLIC LAW 94-12—MAR. 29, 1975 89 STAT. 57 ( A ) , ( B ) , ( C ) , or ( D ) of subsection (c) (2) is disposed of d u r i n g a n y taxable year— " (i) the taxpayer notwithstanding any other provision of this chapter (other t h a n p a r a g r a p h ( 1 ) ) shall be deemed to have received and recognized foreign oil related income in t h e taxable year of the disposition, by reason of such disposition, in an amount equal to the lesser of the excess of the fair market value of such property over the taxpayer's adjusted basis in such property or the remaining amount of the foreign oil related losses which were not used under p a r a g r a p h (1) for such taxable year or any prior taxable year, and " ( i i ) p a r a g r a p h (1) shall be applied with respect to such income by substituting '100 percent' for '50 percent'. " ( B ) DISPOSITION DEFINED.—For purposes of this subsec- tion, t h e term 'disposition' includes a sale, exchange, distri- bution, or gift of property, whether or not gain or loss is recognized on the transfer. " ( C ) EXCEPTIONS.—Notwithstanding s u b p a r a g r a p h ( B ) , the term 'disposition' does not include— " ( i ) a disposition of property which is not a material factor in the realization of income by the taxpayer, or " ( i i ) a disposition of property to a domestic corpora- tion in a distribution or transfer described in section 381(a). 26 u s e 381. " ( g ) W E S T E R N H E M I S P H E R E TRADE CORPORATIONS W H I C H A R E M E M - BERS OF AN AFFILIATED GROUP.—If a Western Hemisphere t r a d e cor- poration is a member of an affiliated group for the taxable year, then in applying section 901, the amount of any income, war profits, and 26 USC 901. excess p r o n t s taxes paid or accrued (or deemed to have been paid) d u r i n g the taxable year with respect to foreign oil and gas extraction income which would (but for this section and section 1503(b)) be 26 USC 1503. taken into account for purposes of section 901 shall be reduced by the greater of— " ( 1 ) the reduction with respect to such taxes provided by sub- section ( a ) of this section, or " ( 2 ) the reduction determined under section 1503(b) by applying section 1503(b) separately with respect to such taxes, but not by both such reductions." (b) CERTAIN P A Y M E N T S N O T T O B E CONSIDERED AS TAXES.—Section 901 is amended by redesignating subsection (f) as subsection ( g ) , and by a d d i n g after subsection (e) the following new subsection: "(f) CERTAIN P A Y M E N T S FOR O I L OR G A S N O T CONSIDERED AS TAXES.—Notwithstanding subsection (b) and sections 902 and 960, the 26 USC 902, amount of any income, or profits, and excess profits taxes paid or ^^O. accrued d u r i n g the taxable year to any foreign country in connection with the purchase and sale of oil or gas extracted in such country is not to be considered as tax for purposes of section 275 (a) and this section 26 USC 275. if— " ( 1 ) the t a x p a y e r has no economic interest in the oil or gas to which section 611 (a) applies, and 26 USC 611. " ( 2 ) either such purchase or sale is at a price which differs from the fair market value for such oil or gas at the time of such pur- chase or sale." (c) CLERICAL A M E N D M E N T . — T h e table of sections for subpart A of p a r t I I I of subchapter N of chapter 1 is amended by adding at the end thereof t h e following new i t e m : "Sec. 907. Special rules in case of foreign oil and gas income."
89 STAT. 58 PUBLIC LAW 94-12—MAR. 29, 1975 26 use907 note. ( d ) EFFECTIVE DATES.—The amendments made by this section shall apply to taxable years ending after December 31, 1974; except that— (1) the second sentence of section 907(b) shall apply to taxable years ending after December 31,1975, and Ante, p . 54:. (2) the provisions of section 907(f) shall apply t o losses sustained in taxable years ending after December 31, 1975. SEC. 602. TAXATION OF EARNINGS AND PROFITS OF CONTROLLED FOREIGN CORPORATIONS AND THEIR SHAREHOLDERS. ( a ) REPEAL OF M I N I M U M DISTRIBUTION EXCEPTION TO REQUIRE- MENT or CURRENT TAXATION OF SUBPART F I N C O M E . — 26 u s e 963. (1) REPEAL, OF M I N I M U M DISTRIBUTION PROVISIONS.—Section 963 (relating to receipt of minimum distributions by domestic corpo- rations) is hereby repealed. (2) CERTAIN DISTRIBUTIONS BY CONTROLLED FOREIGN CORPORA- TIONS TO REGULATED INVESTMENT COMPANIES TREATED AS DIVIDENDS. 26 u s e 851. Subsection (b) of section 851 (relating to limitations on definition of regulated investment company) is amended by a d d i n g at the end thereof the following new sentence: " F o r purposes of p a r a g r a p h ( 2 ) , there shall be treated as dividends 26 u s e 951. amounts included in gross income under section 951(a) (1) ( A ) ( i ) for 26 u s e 959. the taxable year to t h e extent that, under section 959(a) ( 1 ) , there is a distribution out of t h e earnings a n d profits of t h e taxable year which are attributable to the amounts so included." (3) CONFORMING AMENDMENTS.— ( A ) T h e table of sections for subpart F of p a r t I I I of sub- chapter N of chapter 1 is amended by striking out t h e item relating to section 963. (B) Subparagi^aph ( A ) (i) of section 951(a) (1) (relating to general rule for amounts included in gross income of United States shareholders) is amended by striking out "except as provided in section 963.". (b) LIMITATION ON D E F I N I T I O N OF FOREIGN B A S E COMPANY SALES 26 u s e 954. I N C O M E . — P a r a g r a p h (1) of section 954(d) (relating t o definition of foreign base company sales income) is amended by a d d i n g a t t h e end thereof the following new sentence: " F o r purposes of this subsection, personal property does not include agricultural commodities which are not grown in t h e United States in commercially marketable quantities." (c) REPEAL OF EXCEPTION TO REQUIREMENT OF CURRENT TAXATION OF SUBPART F INCOME FOR REINVESTMENT I N L E S S DEVELOPED C O U N - TRIES.— (1) REPEAL OF SECTION 954(b) ( 1 ) . — P a r a g r a p h (1) of subsec- tion (b) of section 954 (relating to exclusions a n d special rules r e g a r d i n g foreign base company income) is hereby repealed. (2) REPEAL OF SECTION 954(f).—Subsection (f) of section 954 (relating to increase in qualified investments in less developed countries) is hereby repealed. (3) A M E N D M E N T OF SECTION 951(a) (1) ( A ) ( i i ) . — C l a u s e (ii) of section 9 5 1 ( a ) ( 1 ) ( A ) is amended by striking out " ( d e t e r - 26 u s e 955. mined under section 9 5 5 ( a ) ( 3 ) ) " a n d inserting m lieu thereof " (determined under section 955 ( a ) ( 3 ) as in effect before t h e enact- ment of the T a x Reduction A c t of 1975)". (4) R E P E A L OF SECTION 9 5 1 ( a ) ( 3 ) . — P a r a g r a p h (3) of section 951(a) (relating t o limitation on p r o r a t a share of previously excluded subpart F income withdrawn from investment) is hereby repealed.
PUBLIC LAW 94-12—MAR. 29, 1975 89 STAT. 59 (5) R E P E A L OF SECTION 955.—Section 955 ( r e l a t i n g to with- 26 USC 955. d r a w a l of previously excluded subpart F income from qualified investment) is hereby repealed. (6) L E S S DEVELOPED COUNTRY CORPORATION DEFINED.—Subsec- tion (d) of section 902 is amended to read as follows: 26 USC 902. "(d) L E S S DEVELOPED COUNTRY CORPORATION D E F I N E D . — F o r p u r - poses of this section, t h e term 'less developed country corporation' means— " ( 1 ) a foreign corporation which, for its taxable year, is a less developed country corporation within the meaning of p a r a g r a p h (3) or ( 4 ) , and " ( 2 ) a foreign corporation which owns 10 percent or more of the total combined voting power of all classes of stock entitled to vote of a foreign corporation which is a less developed country corporation within the meaning of p a r a g r a p h ( 3 ) , and— " ( A ) 80 percent or more of the gross income of which for its taxable year meets the requirement of p a r a g r a p h (3) ( A ) , and " ( B ) 80 percent or more in value of the assets of which on each day of such vear consists of property described in para- g r a p h (3) ( B ) . A foreign corporation which is a less developed country corporation for its first taxable year beginning after December 31, 1962, shall, for purposes of this section, be treated as having been a less developed country corporation for each of its taxable years beginning before J a n u a r y 1, 1963. " ( 3 ) T h e term 'less developed country corporation' means a foreign corporation which during the taxable year is engaged in the active conduct of one or more trades or businesses and— " ( A ) 80 percent or more of the gross income of which for the taxable year is derived from sources within less developed countries; a n d " ( B ) 80 percent or more in value of the assets of which on each day of the taxable year consists of— " ( i ) property used in such trades or businesses a n d located in less developed countries, " ( i i ) money, a n d deposits with persons carrying on the banking business, " (iii) stock, and obligations which, at the time of their acquisition, have a m a t u r i t y of one year or more, of any other less develoj^ed country corporation, " ( i v ) an obligation of a less developed country, " ( v ) an investment which is required because of restrictions imposed by a less developed country, a n d " ( v i ) property describsd in section 956(b) ( 2 ) . 26 USC 956. F o r purposes of subparagraph ( A ) , t h e determination as to whether income is derived from sources within less developed countries shall be made under regulations prescribed by the Secre- t a r y or his delegate. " ( 4 ) T h e term 'less developed country corporation' also means a foreign corporation— " ( A ) 80 percent or more of t h e gross income of w^hich for the taxable year consists of— " ( i ) gross income derived from, or in connection with, the using ( o r h i r i n g or leasing for use) in foreign com- merce of aircraft or vessels registered under the laws of a less developed country, or from, or in connection with, the performance of services directly related to use of
89 STAT. 60 PUBLIC LAW 94-12—MAR. 29, 1975 such aircraft or vessels, or from the sale or exchange of such aircraft or vessels, and " ( i i ) dividends and interest received from foreign cor- porations which are less developed country corporations within the meaning of this p a r a g r a p h and 10 percent or more of the total combined voting power of all classes of stock of which are owned by the foreign corporation, and gain from the sale or exchange of stock or obligations of foreign corporations which are such less developed coun- t r y corporations, and " ( B ) 80 percent or more of the assets of which on each day of the taxable year consists of (i) assets used, or held for use, for or in connection with the production of income described in subparagraph ( A ) , and (ii) property described 26 u s e 956. in section 956(b) ( 2 ) . "Less developed " (5) Xhe term 'less developed country' means (in respect to any country. foreign corporation) any foreign country (other t h a n an area within the Sino-Soviet bloc) or any possession of the United States with respect to which, on the first day of the taxable year, there is in effect an Executive order by the President of the United States designating such country or possession as an economically less developed country for purposes of this section. F o r purposes of the preceding sentence, an overseas territory, department, prov- ince, or possession may be treated as a separate country. No designation shall be made under this p a r a g r a p h with respect to— Australia Luxembourg Austria Monaco Belgium Netherlands Canada New Zealand Denmark Norway France Union of South Africa Germany (Federal Re- San Marino public) Sweden Hong Kong Switzerland Italy United K i n g d o m Japan Liechtenstein iifter the President has designated any foreign country or any pos- session of the LTnited States as an economically less developed country for purposes of this section, he shall not terminate such designation (either by issuing an Executive order for t h a t purpose or by issuing an Executive order under the first sentence of this p a r a g r a p h which has the effect of terminating such designation) unless, at least 30 days prior to such termination, he has notified the Senate and the House of Representatives of his intention to terminate such designation. A n y 26 u s e 955. designation in effect on March 26, 1975, under section 955(c) (3) (as in effect before the enactment of the T a x Reduction Act of 1975) shall be treated as made under this p a r a g r a p h . " (7) CLERICAL AMENDMENT.—The table of sections for subpart F of p a r t I I I of subchapter N of chapter 1 is amended by striking out the item relating to section 955. (d) S H I P P I N G PROFITS OF CONTROLLED FOREIGN CORPORATION T o B E TAXED CURRENTLY E X C E P T TO E X T E N T REINVESTED I N S H I P P I N G OPERATIONS— (1) S H I P P I N G PROFITS INCLUDED I N GROSS INCOME OF UNITED STATES SHAREHOLDERS.— 26 u s e 954. ( A ) Section 954(a) (relating to foreign base company income) is amended by striking out " a n d " at the end of para-
PUBLIC LAW 94-12—MAR. 2 9 , 1975 8 9 STAT. 6 1 g r a p h ( 2 ) , by striking out the period at the end of p a r a g r a p h (3) and inserting in heu thereof ", and", and by adding at the end thereof the following new p a r a g r a p h : " (4) t h e foreign base company shipping income for the taxable year (determined under subsection (f) a n d reduced as provided in subsection ( b ) ( 5 ) ) . " ( B ) P a r a g r a p h (2) of section 954(b) is amended t o read 26 USC 954, as follows: "(2) EXCLUSION FOR REINVESTED SHIPPING I N C O M E . — F o r p u r - poses of subsection ( a ) , foreign base company income does n o t include foreign base company shipping income to the extent t h a t t h e amount of such income does n o t exceed t h e increase for t h e taxable year in qualified investments in foreign base company shipping operations of t h e controlled foreign corporation (as determined u n d e r subsection ( g ) ) . " (C) S u b p a r a g r a p h s ( A ) a n d ( B ) of section 9 5 4 ( b ) ( 3 ) are each amended by striking out " p a r a g r a p h s (1) and ( 5 ) " and inserting in lieu thereof " p a r a g r a p h s (2) a n d ( 5 ) " . ( D ) S u b p a r a g r a p h ( B ) of section 9 5 4 ( b ) ( 3 ) is amended by striking out " p a r a g r a p h s ( 1 ) , ( 2 ) , " and inserting in lieu thereof " p a r a g r a p h ( 2 ) , " . ( E ) P a r a g r a p h (5) of section 954(b) is amended by strik- i n g out " a n d t h e foreign base company services income" and inserting in lieu thereof " t h e foreign base company services income, and the foreign base company shipping income". ( F ) Section 954(b) is amended by adding at the end thereof the following new p a r a g r a p h : "(6) SPECIAL RULES FOR FOREIGN BASE COMPANY SHIPPING I N - COME.—Income of a corporation which is foreign base company s h i p p i n g income under p a r a g r a p h (4) of subsection (a) (deter- mined without regard to t h e exclusion under p a r a g r a p h (2) of this subsection) — " ( A ) shall not be considered foreign base company income of such corporation under a n y other p a r a g r a p h of subsection (a) a n d " ( B ) if distributed t h r o u g h a chain of ownership described under section 9 5 8 ( a ) , shall not be included in foreign base 26 USC 958. company income of another controlled foreign corporation in such chain." ( G ) Section 954 is amended by a d d i n g at the end thereof the following new subsections: "(f) FOREIGN B A S E COMPANY S H I P P I N G I N C O M E . — F o r purposes of subsection ( a ) ( 4 ) , t h e term 'foreign base company shipping income' means income derived from, or in connection with, t h e use (or h i r i n g or leasing for use) of a n y aircraft or vessel in foreign commerce, or from, or in connection with, t h e performance of services directly related to t h e use of a n y such aircraft, or vessel, or from the sale, exchange, o r other disposition of any such aircraft or vessel. Such term includes, but is not limited t o — " (1) dividends and interest received from a foreign corporation in respect of which taxes a r e deemed paid under section 902, a n d 26 USC 902. gain from the sale, exchange, or other disposition of stock or obli- gations of such a foreign corporation to t h e extent t h a t such divi- dends, interest, a n d gains are attributable t o foreign base company s h i p p i n g income, and " ( 2 ) t h a t portion of t h e distributive share of t h e income of a p a r t n e r s h i p attributable t o foreign base company shipping income.
89 STAT. 62 PUBLIC LAW 94-12—MAR. 29, 1975 "(g) INCREASE I N QUALIFIED INVESTMENTS I N FOREIGN B A S E C O M - PANY S H I P P I N G OpEPtATioNS.—For purposes of subsection (b) ( 2 ) , the increase for any taxable year in qualified investments in foreign base company shipping operations of any controlled foreign corporation is the amount by which— " ( 1 ) the qualified investments in foreign base company ship- Infra. ping operations (as defined in section 9 5 5 ( b ) ) of the controlled foreign corporation at the close of the taxable year, exceed " ( 2 ) the qualified investments in foreign base company ship- p i n g operations (as so defined) of the controlled foreign corpora- tion at the close of the preceding taxable year." (2) A M O U N T S INCLUDED I N GROSS INCOME or UNITED STATES SHAREHOLDERS. Ante, p. 58. ( A ) S u b p a r a g r a p h ( A ) of section 951(a) (1) is amended by striking out " a n d " at the end of clause ( i ) , by striking out the semicolon at the end of clause (ii) and inserting in lieu thereof a comma, and by adding at the end thereof the follow- ing new clause: " ( i i i ) his pro r a t a share (determined under section 955(a) ( 3 ) ) of the corporation's previously excluded sub- p a r t F income withdrawn from foreign base company shipping operations for such year; and". ( B ) Section 951(a) is amended by inserting after para- g r a p h (2) the following new p a r a g r a p h : " ( 3 ) L I M I T A T I O N ON PRO RATA SHARE or PREVIOUSLY EXCLUDED SUBPART F INCOME WITHDRAWN FROM INVESTMENT. F o r p u r p O S e S of p a r a g r a p h ( l ) ( A ) ( i i i ) , the pro rata share of any United States shareholder of the previously excluded subpart F income of a controlled foreign corporation withdrawn from investment in foreign base company shipping operations shall not exceed an amount— " ( A ) which bears the same ratio to his p r o rata share of such income withdrawn (as determined under section 955(a) ( 3 ) ) for the taxable year, as " ( B ) the p a r t of such year during which the corporation is a controlled foreign corporation bears to the entire year." (3) WITHDRAWAL OF PREVIOUSLY EXCLUDED SUBPART F INCOME FROM QUAIiiriED INVESTMENT. ( A ) S u b p a r t F of p a r t I I I of subchapter N of chapter 1 is amended by inserting after section 954 the following new section: 26 u s e 955. "SEC. 955. WITHDRAWAL OF PREVIOUSLY EXCLUDED SUBPART F INC03IE FROM QUALIFIED INVESTMENT. "(a) GENERAL RULES.— " ( 1 ) A M O U N T WITHDRAWN.—For purposes of this subpart, the amount of previously excluded subpart F income of any controlled foreign corporation withdrawn from investment in foreign base company shipping operations for any taxable year is an amount equal to the decrease in the amount of qualified investments in foreign base company shipping operations of the controlled for- eign corporation for such year, but only to the extent t h a t the amount of such decrease does not exceed an amount equal to— " ( A ) the sum of the amounts excluded under section 954 Ante, p. 61. (b) (2) from the foreign base company income of such cor- poration for all prior taxable years, reduced by " ( B ) the sum of the amounts of previously excluded sub- p a r t F income withdrawn from investment in foreign base
PUBLIC LAW 94-12—MAR. 2 9 , 1975 89 STAT. 6 3 company shipping operations of such corporation determined under this subsection for all prior taxable years. "(2) DECREASE I N QUALIFIED INVESTMENTS.—For purposes of p a r a g r a p h ( 1 ) , the amount of the decrease in qualified investments in foreign base company sliipping operations of any controlled foreign corporation for any taxable year is the amount by which— " ( A ) the amount of qualified investments in foreign base company shipping operations of the controlled foreign corpo- ration a t the close of the preceding taxable year, exceeds " ( B ) the amount of qualified investments in foreign base company shipping operations of the conti'olled foreign corpo- ration a t the close of the taxable year, to the extent t h a t t h e amount of such decrease does not exceed the sum of the earnings a n d profits for the taxable year and t h e earnings a n d profits accumulated for prior taxable years begin- ning after December 31, 1975, a n d the amount of previously excluded s u b p a r t F income invested in less developed country corporations described in section 955 ( c ) ( 2 ) (as in effect before the enactment of the T a x Keduction Act of 1975) t o the extent attrib- Ante, p. 59. utable to earnings a n d profits accumulated for taxable years beginning after December 31, 1962. F o r purposes of this para- g r a p h , if qualified investments in foreign base company shipping operations are disposed of by the controlled foreign corporation d u r i n g t h e taxable year, the amount of t h e decrease in qualified investments in foreign base company shipping operations of such controlled foreign corporation for such year shall be reduced by an amount equal to t h e amount (if any) by which t h e losses on such dispositions d u r i n g such year exceed the gains on such dis- positions d u r i n g such year. " ( 3 ) P R O RATA SHARE o r AMOUNT WITHDRAWN.—In t h e case of any United States shareholder, the p r o rata share of the amount of previously excluded subpart F income of a n y controlled for- eign corporation withdrawn from investment in foreign base company shipping operations for any taxable year is his pro rata share of the amount determined under p a r a g r a p h ( 1 ) . " ( b ) QUALIFIED INVESTMENTS I N FoREioif BASE COMPANY S H I P P I N G OPERATIONS.— " ( 1 ) I N GENERAL.—For purposes of this subpart, the term 'qualified investments in foreign base company shipping opera- tions' means investments in— " ( A ) any aircraft or vessel used in foreign commerce, and " ( B ) other assets which a r e u?ed in connection with the performance of services directly related to the use of a n y such aircraft or vessel. Such term includes, b u t is n o t limited to, investments by a con- trolled foreign corporation in stock or obligations of another controlled foreign corporation which is a related person (within the meaning of section 9 5 4 ( d ) ( 3 ) ) a n d which holds assets 26 USC 954. described in the preceding sentence, but only to t h e extent that such assets are so used. "(2) QUALIFIED INVESTMENTS BY RELATED PERSONS.—For p u r - poses of determining t h e amount of qualified investments in foreign base company shipping operations, an investment (or a decrease in investment) in such operations by one or more con- trolled foreign corporations may, under regulations prescribed by t h e Secretary or his delegate, be treated as an investment (or a decrease in investment) by another corporation which is a con- trolled foreign corporation a n d is a related person (as defined
89 STAT. 6 4 PUBLIC LAW 9 4 - 1 2 — M A R . 2 9 , 1 9 7 5 26 u s e 954. in section 9 5 4 ( d ) ( 3 ) ) with respect to t h e corporation actually m a k i n g or Avithdrawing the investment. " ( 3 ) SPECIAL RULE.—For purposes of this subpart, a United States shareholder of a controlled foreign corporation may, under regulations prescribed by t h e Secretary or his delegate, elect to make t h e determinations u n d e r subsection ( a ) (2) of this section Ante, p. 61. a n d under subsection ( g ) of section 954 as of the close of the years following t h e years referred t o in such subsections, or as of the close of such longer period of time as such regulations may permit, in lieu of on the last d a y of such years. A n y election under this p a r a g r a p h made with respect to a n y taxable year shall apply t o such year a n d to all succeeding taxable years unless the Secretary or his delegate consents to t h e revocation of such election. " ( 4 ) A M O U N T ATTRIBUTABLE TO PROPERTY.—The a m o u n t t a k e n into account under this subpart with respect to any property described in p a r a g r a p h (1) shall be its adjusted basis, reduced by any liability to which such p r o p e r t y is subject, " ( 5 ) INCOME EXCLUDED UNDER PRIOR LAW.—Amounts invested in less developed country corporations described in section 955 26 u s e 955. (c) (2) (as in effect before t h e enactment of t h e T a x Reduction Act of 1975) shall be treated as qualified investments i n foreign base company shipping operations a n d shall n o t be treated as investments in less developed countries for purposes of section 951 Ante, p . 58. ( a ) (1) ( A ) ( i i ) . " ( B ) T h e table of sections of subpart F of p a r t I I I of sub- chapter N of chapter 1 is amended by inserting after t h e item relating to section 954 the following new i t e m : "Sec. 955. Withdrawal of previously excluded subpart F income from qualified investment." (e) EXCLUSION F R O M FOREIGN B A S E COMPANY I N C O M E W H E R E F O R - EIGN BASE COINIPANY I N C O M E I s L E S S T H A N 10 I'ERCENT o r GROSS I N C O M E . — P a r a g r a p h (3) of section 954(b) is amended by striking out "30 percent" each place it appears a n d inserting in lieu thereof "10 percent". 26use955 note. (f) EFFECTIVE D A T E . — T h e amendments made by this section shall apply t o taxable years of foreign corporations beginning after Decem- ber 3 1 , 1975, a n d t o taxable years of United States shareholders (within t h e meaning of 951(b) of the I n t e r n a l Revenue Code of 1954) within which or with which such taxable years of such foreign corpo- rations end. SEC. 603. DENIAL OF DISC BENEFITS WITH RESPECT TO ENERGY RESOURCES AND OTHER PRODUCTS. 26 u s e 993. ( a ) AMENDMENT OF SECTION 993 ( c ) ( 2 ) .—Section 993(c) (2) (relat- i n g t o property excluded from export p r o p e r t y ) is amended by strik- ing out " o r " a t t h e end of s u b p a r a g r a p h ( A ) , by striking out t h e period a t t h e end of s u b p a r a g r a p h ( B ) a n d inserting i n lieu thereof ", or", a n d by a d d i n g a t the end thereof t h e following: " ( C ) products of a character with respect to which a deduc- tion for depletion is allowable (including oil, g a s , coal, o r 26 u s e 611. uranium products) under section 611, or " ( D ) products t h e export of which is prohibited o r cur- tailed under section 4 ( b ) of t h e E x p o r t Administration A c t of 1969 (50 U.S.C. A p p . 2403(b)) t o effectuate t h e policy set 50 u s e app. forth i n p a r a g r a p h (2) ( A ) of section 3 of such A c t (relating 2402. t o t h e protection of t h e dbmestic economy). S u b p a r a g r a p h ( C ) shall not apply to any commodity or product a t least 50 percent of t h e fair market value of which is attributable t o manufacturing or processing, except t h a t s u b p a r a g r a p h ( C ) shall
PUBLIC LAW 94-12—MAR. 29, 1975 89 STAT. 65 apply to any p r i m a r y product from oil, gas, coal, or iiranium. F o r purposes of t h e preceding sentence, t h e t e r m 'processing' does not include extracting or handling, packing, packaging, g r a d i n g , storing, or t r a n s p o r t i n g . " (b) EFFECTIVE D A T E . — T h e amendments made by subsection ( a ) 26USC993note, shall apply to sales, exchanges, a n d other dispositions made after March 18,1975, in taxable years ending after such date. SEC. 604. TREATMENT FOR PURPOSES OF THE INVESTMENT CREDIT OF CERTAIN PROPERTY USED IN INTERNATIONAL OR TERRITORIAL WATERS. ( a ) A M E N D M E N T TO 1954 CODE.— 26 USC 1 et seq. (1) I N GENERAL.—Clause ( x ) of section 4 8 ( a ) (2) ( B ) (relating 26 USC 48. to p r o p e r t y used outside the United States) is amended by strik- ing out "territorial waters" a n d inserting in lieu thereof "terri- torial waters within t h e northern portion of t h e Western Hemisphere". (2) D E F I N I T I O N . — S u b p a r a g r a p h ( B ) of section 4 8 ( a ) ( 2 ) is amended by a d d i n g at the end thereof the following new sentence: " F o r purposes of clause ( x ) , the term 'northern portion of the Western Hemisphere' means the area lying west of the 30th merid- ian west of Greenwich, east of t h e international dateline, a n d north of the E q u a t o r , but not including any foreign coimtry which is a country of South America.". ( b ) EFFECTIVE D A T E . — 26 USC 48 note. (1) I N GENERAL.—The amendments made by subsection ( a ) shall apply to property, the construction, reconstruction, or erec- tion of which was completed after March 18, 1975, or t h e acquisi- tion of which by the taxpayer occurred after such date. (2) BINDING CONTRACT.—The amendments made by subsection (a) shall not apply t o property constructed, reconstructed, erected, or acquired pursuant to a contract which was on April 1, 1974, a n d at all times thereafter, binding on t h e taxpayer. (3) CERTAIN LEASE-BACK TRANSACTIONS, ETC.—Where a person who is a p a r t y to a binding contract described in p a r a g r a p h (2) transfers rights in such contract (or in the property to which such contract relates) t o another person b u t a p a r t y t o such con- tract retains a right to use the p r o p e r t y under a lease with such other person, then to t h e extent of the transferred rights such other person shall, for purposes of p a r a g r a p h ( 2 ) , succeed to t h e position of the transferor with respect t o such binding contract and such property. T h e preceding sentence shall apply, in any case in w^hich t h e lessor does n o t make an election under section 4 8 ( d ) of the I n t e r n a l Revenue Code of 1954, only if a p a r t y to such contract retains a right to use the property under a long- term lease. TITLE VII—MISCELLANEOUS PROVISIONS SEC. 701. CERTAIN UNEMPLOYMENT COMPENSATION. (a) A M E N D M E N T OF EMERGENCY U N E M P L O Y M E N T COMPENSATION A C T OF 1974.—Section 102(e) of the Emergency Unemployment Com- 26 USC 3304 pensation A c t of 1974 is amended— * note. (1) in p a r a g r a p h (2) thereof, by striking out " T h e a m o u n t " and inserting m lieu thereof " E x c e p t as provided in p a r a g r a p h (3), t h e a m o u n t " ; a n d
89 STAT. 6 6 PUBLIC LAW 94-12—MAR. 29, 1975 (2) by adding a t the end thereof the following new p a r a g r a p h : " ( 3 ) Effective only with respect to benefits for weeks of uneni- ployment ending before J u l y 1, 1975, t h e amount established in such account for a n y individual shall be equal to t h e lesser of— " ( A ) 100 p e r centum of the total amount of regular com- pensation (including dependents' allowances) payable to him with respect to t h e benefit year (as determined under the State law) on t h e basis of which he most recently received regular compensation; or " ( B ) twenty-six times his average weekly benefit amount (as determined for purposes of section 202(b) (1) (C) of the Federal-State Extended Unemployment Compensation A c t 26 u s e 3304 of 1970) for his benefit year." note (b) MODIFICATION o r AGREEMENTS.—The Secretary of L a b o r shall, 26 u s e 3304 at t h e earliest practicable date after t h e enactment of this Act, pro- note. pose t o each State with which he h a s in effect an agreement entered into p u r s u a n t t o section 102 of t h e Emergency Unemployment Com- 26 u s e 3304 pensation A c t of 1974 a modification of such agreement designed to note. cause payments of emergency compensation thereunder t o be made in t h e manner prescribed by such Act, as amended by subsection ( a ) of this section. Notwithstanding any provision of t h e Emergency 26 u s e 3304 Unemployment Compensation Act of 1974, if any such State shall fail note. or refuse, within a reasonable time after the date of the enactment of this Act, t o enter into such a modification of such agreement, the Sec- retary of Labor shall terminate such agreement. 42 u s e 402 note. SEC. 702. SPECIAL PAYMENT TO RECIPIENTS OF BENEFITS UNDER CERTAIN RETIREMENT AND SURVIVOR BENEFIT PRO- GRAMS. (a) P A Y M E N T . — T h e Secretary of the Treasury shall, at the earliest practicable date after t h e enactment of this Act, make a $50 payment to each individual, who for t h e month of March, 1975, was entitled (without regard to sections 202(j) (1) a n d 223(b) of title I I of the 42 u s e 402, Social Security A c t a n d without t h e application of section 5 ( a ) (ii) 423. of the Railroad Retirement Act of 1974) t o — 45 u s e 231d. (1) a monthly insurance benefit payable under title I I of t h e 42 u s e 401. Social Security Act, (2) a monthly annuity or pension payment under t h e Rail- 45 u s e 215 note. road Retirement A c t of 1935, t h e Railroad Retirement A c t of 45 u s e 228a, 1937, or the Railroad Retirement Act of 1974, or 231. (3) a benefit under t h e supplemental security income benefits 42 u s e 1381. p r o g r a m established by title X V I of the Social Security A c t ; except that, ( A ) such $50 payment shall be made only to individuals who were paid a benefit for March 1975 in a check issued no later t h a n August 31, 1975; ( B ) no such $50 payment shall be made t o any individual w h o is not a resident of t h e United States (as defined in 42 u s e 410. section 210(i) of t h e Social Security Act) ; a n d ( C ) if an individual is entitled under two or more of t h e programs referred t o i n clauses (1), ( 2 ) , a n d ( 3 ) , such individual shall be entitled to receive only one "Resident." such $50 payment. F o r purposes of this subsection, the term "resident" means an individual whose address of record for check payment purposes is located within the United States. (b) RECIPIENT InENTincATiON.—The Secretary of H e a l t h , Educa- tion, a n d Welfare a n d t h e Railroad Retirement Board shall provide the Secretary of the Treasury with such information and data as may be needed t o enable t h e Secretary of t h e Treasury t o ascertain which individuals are entitled to t h e payment authorized under subsection (a).
PUBLIC LAW 94-12—MAR. 29, 1975 89 STAT. 67 (c) COORDINATION W I T H OTHER FEDERAL PROGRAMS.—Any payment made by the Secretary of the Treasury under this section to any indi- vidual shall not be regarded as income (or, in the calendar year 1975, as a resource) of such individual (or of the family of which he is a member) for purposes of a n j Federal or State program which under- takes to furnish aid or assistance to individuals or families, where eligibility to receive such aid or assistance (or the amount of such aid or assistance) under such program is based on the need therefor of the individual or family involved. The requirement imposed by the pre- ceding sentence shall be treated as a condition for Federal financial participation in any State (or local) welfare program for any calen- dar quarter commencing after the date of enactment of this Act. (d) APPROPRIATIONS AUTHORIZATION.—There are hereby authorized to be appropriated, out of any funds in the Treasury not otherwise appropriated, such sums as may be necessary to carry out the provi- sions of this section. (e) PAYMENT NOT To B E CONSIDERED INCOME.—Payments made under this section shall not be considered as gross income for purposes of the Internal Revenue Code of 1954. 26 USC 1 et xeq. Approved March 29, 1975. LEGISLATIVE HISTORY: HOUSE REPORT No. 94-19 (Comm. on Ways and Means). SENATE REPORT No. 94-36 (Comm. on Finance). CONGRESSIONAL RECORD, Vol. 121 (1975): Feb. 27, considered and passed House. Mar. 18-22, considered and passed Senate, amended. Mar. 26, House and Senate agreed to conference report. WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 11, No. 14: Mar. 29, Presidential statement.