Economic Recovery Tax Act of 1981 (P.L. 97-34)

"(B) prescribe such other tables as he determines necessary."

(C) Subsection (a) of section 3 (relating to tax tables for individuals) is amended by adding at the end thereof the following new paragraph:

(B) by striking out subparagraph (C).

"(B) be in such form, and provide for such amounts to be deducted and withheld, as the Secretary determines to be most appropriate to carry out the purposes of this chapter and to reflect the provisions of chapter 1 applicable to such periods.

"(B) the amendments made by section 101(a) of such Act, and such modifications shall take effect--

(B) by striking out paragraph (3), as redesignated by subparagraph (A), and inserting in lieu thereof the following:

(B) the sum of--

(B) the net capital gain for the taxable year taking into account only gain or loss from sales or exchanges occurring after June 9, 1981.

(B) a real estate investment trust,

(C) an electing small business corporation,

(D) a partnership,

(E) an estate or trust, and

(F) a common trust fund.

"(B) the qualified earned income of the spouse with the lower qualified earned income for such taxable year.

"(B) an amount equal to the sum of the deductions described in paragraphs (1), (2), (7), (9), (10), and (15) of section 62 to the extent such deductions are properly allocable to or chargeable against earned income described in subparagraph (A).

"(B) by not changing the rate applicable to any rate bracket as adjusted under subparagraph (A)(ii), and

"(C) by adjusting the amounts setting forth the tax to the extent necessary to reflect the adjustments in the rate brackets.

"(B) the CPI for the calendar year 1983.

(B) Clause (ii) of section 6012(a)(1)(A) is amended by striking out "$4,400" and inserting in lieu thereof "the sum of the exemption amount plus the zero bracket amount applicable to such an individual".

(C) Clause (iii) of section 6012(a)(1)(A) is amended by striking out "$5,400" and inserting in lieu thereof "the sum of twice the exemption amount plus the zero bracket amount applicable to a joint return".

(D) Paragraph (1) of section 6012(a) is amended by striking out "$1,000" each place it appears and inserting in lieu thereof "the exemption amount".

(E) Paragraph (1) of section 6012(a) is amended by adding at the end thereof the following new subparagraph:

"(D) For purposes of this paragraph--

(B) by striking out "$2,000" each place it appears and inserting in lieu thereof "twice the exemption amount", and

(C) by adding at the end thereof the following new sentence: "For purposes of this subparagraph, the term 'exemption amount' has the meaning given to such term by section 151(f)."

"(B) CERTAIN AMOUNTS NOT INCLUDED IN FOREIGN EARNED INCOME.--The foreign earned income for an individual shall not include amounts--

"(B) an amount equal to the product of--

"(B) SECOND FOREIGN HOUSEHOLD.--

"(B) LIMITATION.--For purposes of subparagraph (A), the limitation of this subparagraph is the excess of--

"(E) FOREIGN EARNED INCOME.--For purposes of this paragraph, an individual's foreign earned income for any taxable year shall be determined without regard to the limitation of subparagraph (A) of subsection (b)(2).

"(B) a citizen or resident of the United States and who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days in such period.

"(B) TAXPAYER ENGAGED IN TRADE OR BUSINESS.--In the case of a taxpayer engaged in a trade or business in which both personal services and capital are material income-producing factors, under regulations prescribed by the Secretary, a reasonable allowance as compensation for the personal services rendered by the taxpayer, not in excess of 30 percent of his share of the net profits of such trade or business, shall be considered as earned income.

"(B) leaves such foreign country after August 31, 1978--

"(B) such individual is held not subject as a resident of that country to the income tax of that country by its authorities with respect to such earnings, then such individual shall not be considered a bona fide resident of that country for purposes of paragraph (1)(A).

"(B) for married individuals filing separate returns.

(B) by striking out clause (ii), and

(C) by redesignating clause (iii) as clause (ii).

"(B) located, as near as practicable, in the vicinity of the place at which such individual renders services, and

"(C) furnished in a common area (or enclave) which is not available to the public and which normally accommodates 10 or more employees."

"(B) shall not exceed $300 for taxable years beginning in 1984.

(B) by inserting after subparagraph (B) the following new subparagraph:

"(C) the direct charitable deduction, and".

(B) by striking out the period at the end of paragraph (2) and inserting in lieu thereof ",and", and

(C) by adding at the end thereof the following new paragraph:

(B) by striking out "$4,000" and inserting in lieu thereof "$4,800".

(B) by striking out "$333" and inserting in lieu thereof "$400".

"(ii) a qualifying individual (not described in paragraph (1)(A)) who regularly spends at least 8 hours each day in the taxpayer's household."

"(ii) the requirements of subparagraph (B) are met.

"(ii) receives a fee, payment, or grant for providing services for any of the individuals (regardless of whether such facility is operated for profit)."

"(B) in the case of an employee who is married at the close of such taxable year, the lesser of--

"(B) INTEREST IN UNINCORPORATED TRADE OR BUSINESS.--The interest of an employee in a trade or business which is not incorporated shall be determined in accordance with regulations prescribed by the Secretary, which shall be based on principles similar to the principles which apply in the case of subparagraph (A).

(B) SOCIAL SECURITY ACT.--Subsection (q) of section 209 of the Social Security Act (defining wages) is amended by striking out "section 127" and inserting in lieu thereof "section 127 or 129".

"(B) GRANTS.--No deduction shall be allowable under subsection (a) for any expenses paid from any funds received under any Federal, State, or local program.

"(B) he shall be deemed to have expended for living expenses (in connection with his trade or business as a legislator) an amount equal to the sum of the amounts determined by multiplying each legislative day of such individual during the taxable year by the greater of--

"(B) the legislature was not in session but the physical presence of the individual was formally recorded at a meeting of a committee of such legislature.

"(ii) assign percentages generally determined in accordance with use of the 175 percent declining balance method (200 percent declining balance method in the case of low-income housing), switching to the method described in section 167(b)(1) at a time to maximize the deduction allowable under subsection (a).

"(ii) REAL PROPERTY.--In the case of 15-year real property the taxpayer shall make the election under subparagraph (A) on a property-by-property basis.

"(iii) CONVENTION.--Under regulations prescribed by the Secretary, the half-year convention shall apply to any election, with respect to any recovery property (other than 15-year real property) with respect to which an election is made under this paragraph.

"(B) held for the production of income.

"(C) 10-YEAR PROPERTY.--The term '10-year property' means--

"(E) 15-YEAR PUBLIC UTILITY PROPERTY.--The term '15-year public utility property' means public utility property (other than section 1250 class property or 3-year property) with a present class life of more than 25 years.

"(B) ADJUSTMENT TO BASIS.--Except as provided under regulations prescribed by the Secretary under subsection (f)(7), if any recovery property (other than 15-year real property or property with respect to which an election under subparagraph (A) is made) is disposed of, the unadjusted basis of such property shall cease to be taken into account in determining any recovery deduction allowable under subsection (a) as of the beginning of the taxable year in which such disposition occurs.

"(C) DISPOSITION INCLUDES RETIREMENT.--For purposes of this sub-paragraph, the term 'disposition' includes retirement.

"(B) for the first taxable year for which a deduction would (but for this election) be allowable under this section with respect to such property in the hands of the taxpayer, the property is properly depreciated under the unit-of-production method or any method of depreciation not expressed in a term of years (other than the retirement-replacement-betterment method).

"(B) USE OF NORMALIZATION METHOD DEFINED.--For purposes of subparagraph (A), in order to use a normalization method of accounting with respect to any public utility property--

"(B) SECTION 1250 CLASS PROPERTY.--The term 'recovery property' does not include section 1250 class property acquired by the taxpayer after December 31, 1980, if--

"(D) RELATED PERSON DEFINED--Except as provided in subparagraph (E), for purposes of this paragraph a person (hereinafter referred to as the related person) is related to any person if--

"(E) LIQUIDATION OF SUBSIDIARY, ETC.--For purposes of this paragraph, a corporation is not a related person to the taxpayer--

"(G) REDUCTION IN UNADJUSTED BASIS.--In the case of an acquisition of property described in subparagraph (B) or (C), the unadjusted basis of the property under subsection (d) shall be reduced to the extent that such property acquired is not recovery property.

"(H) SPECIAL RULES FOR PROPERTY PLACED IN SERVICE BEFORE CERTAIN PERCENTAGES TAKE EFFECT.--Under regulations prescribed by the Secretary--

"(C) EXCEPTION FOR SUBSTANTIAL IMPROVEMENTS.--

"(B) MADE ON RETURN.--Any election under this section shall be made on the taxpayer's return of the tax imposed by this chapter for the taxable year concerned.

"(C) REVOCATION ONLY WITH CONSENT.--Any election under this section, once made, may be revoked only with the consent of the Secretary.

"(D) QUALIFIED LEASED PROPERTY DEFINED.--For purposes of subparagraph (A), the term 'qualified leased property' means recovery property (other than a qualified rehabilitated building within the meaning of section 48(g)(1)) which is--

"(G) REGULATIONS.--The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this paragraph, including (but not limited to) regulations consistent with such purposes which limit the aggregate amount of (and timing of) deductions and credits in respect of qualified leased property to the aggregate amount (and the timing) allowable without regard to this paragraph.

"(H) CROSS REFERENCE.--

"For special recapture in cases where lessee acquires qualified leased property, see section 1245.

"(B) TRANSFERS COVERED.--The transactions described in this subparagraph are--

"(D) EXCEPTION.--This paragraph shall not apply to any transaction to which subsection (e)(4) applies.

"(B) for the allocation of the deduction allowable under subsection (a) among allocation units.

"(D) EXISTING BOILER OR BURNER.--The term 'existing boiler or burner' means a boiler or burner which was placed in service before January 1, 1981.

"(E) REPLACEMENT OF EXISTING BOILER OR BURNER.--A boiler or burner shall be treated as replacing a boiler or burner if the taxpayer certifies that the boiler or burner which is to be replaced--

"(B) any other horse which is more than 12 years old at such time.

"(B) be made on the taxpayer's return of the tax imposed by this chapter for the taxable year.

"(B) the property is not acquired by one component member of a controlled group from another component member of the same controlled group, and

"(C) the basis of the property in the hands of the person acquiring it is not determined--

(B) by striking out the period at the end of subparagraph (G) and inserting in lieu thereof a semicolon and "or", and

(C) by adding at the end thereof the following new subparagraph:

"(H) expenditures for which a deduction is allowed under section 179."

"(B) the Secretary shall apportion the dollar limitation contained in subsection (b)(1) among the component members of such controlled group in such manner as he shall by regulations prescribe.

"(B) 15-year real property which is described in section 168(f)(2).

"(C) 15-year real property with respect to which an election under subsection (b)(3) of section 168 to use a different recovery percentage is in effect, and

"(D) 15-year real property which is described in clause (i), (ii), (iii), or (iv) of section 1250(a)(1)(B).

"(B) the lessee acquires such property, the recomputed basis of the lessee under this subsection shall be determined by taking into account any adjustments which would be taken into account in determining the recomputed basis of the lessor.

(B) by striking out "10" and inserting in lieu thereof "18", and

(C) by striking out "9" and inserting in lieu thereof "17".

(B) by striking out "6" and inserting in lieu thereof "14".

(C) The amendments made by subsection (c)(3) of section 207 shall apply to unused credit years ending after September 30, 1980.

"(B) in the case of 3-year property (within the meaning of section 168(c)), 60 percent.

"(B) APPLICABLE PERCENTAGE.--

"(B) AMOUNT AT RISK.--

"(D) QUALIFIED PERSON.--For purposes of this paragraph, the term 'qualified person' means any person--

"(F) SPECIAL RULES FOR CERTAIN ENERGY PROPERTY.--

"(B) INCREASES TO BE TAKEN INTO ACCOUNT.--For purposes of subparagraphs (A) and (C), the amount which a taxpayer has at risk with respect to the property shall be treated as increased by the sum of the cash and the fair market value of property (other than property with respect to which the taxpayer is not at risk) used during the taxable year to reduce the principal sum of any amount with respect to which the taxpayer is not at risk.

"(C) MANNER IN WHICH TAKEN INTO ACCOUNT.--For purposes of determining the amount of credit allowed under section 38 and the amount of credit subject to the early disposition rules under section 47, an increase in a taxpayer's qualified investment in property (determined under subparagraph (B)) shall be deemed to be additional qualified investment made by the taxpayer in the year in which the property referred to in subparagraph (A) was first placed in service. However, the credit determined by taking into account the increase in qualified investment under this paragraph shall be considered a credit earned in the taxable year of such increase."

"(B) CREDIT RECAPTURE AMOUNT.--For purposes of this paragraph, the term 'credit recapture amount' means an amount equal to the excess (if any) of--

"(E) SPECIAL RULE FOR CERTAIN DISPOSITIONS.--

"(G) ADDITIONAL INTEREST.--In the case of any increase in tax under paragraph (1) by reason of the application of this paragraph, there shall be added to such tax interest on such tax (determined under section 6621) as if the increase in tax under paragraph (1) was for the taxable year in which the property was placed in service."

"(B) RECAPTURE PERCENTAGE.--For purposes of subparagraph (A), the recapture percentage shall be determined in accordance with the following table:

"(D) LIMITATION.--The tax for the taxable year shall be increased under subparagraph (A) only with respect to the credits allowed under section 38 which were used to reduce tax liability. In the case of credits not so used to reduce tax liability, the carrybacks and carryovers under section 46(b) shall be appropriately adjusted.

"(E) DEFINITIONS AND SPECIAL RULES.--

"(D) COORDINATION WITH PARAGRAPHS (1) AND (5).--If, after property is placed in service, there is a disposition or other cessation described in paragraph (1), or a disposition, cessation, or change in expected use described in paragraph (5), then paragraph (1) or (5), as the case may be, shall be applied as if any credit, which was allowable by reason of section 46(d) and which has not been required to be recaptured before such disposition, cessation, or change in use were allowable for the taxable year the property was placed in service."

(B) Paragraph (6) of section 47(a) (as redesignated by paragraph (1) of this subsection) is amended by striking out "paragraph (1) or (3)" and inserting in lieu thereof "paragraph (1), (3), or (5)".

(C) Subparagraph (B) of section 47(a)(7) (as redesignated by paragraph (1)) is amended by striking out "paragraph (5)" and inserting in lieu thereof "paragraph (6)".

"(II) of a United States person (other than a corporation described in subclause (I)) but only if the rolling stock is not leased to one or more foreign persons for periods aggregating more than 12 months in any 24-month period;".

"(iii) DEFINITIONS.--

"(C) SUBSTANTIALLY REHABILITATED DEFINED.--

"(B) CERTAIN DISPOSITIONS.--If during any taxable year there is a recapture amount determined with respect to any qualified building the basis of which was reduced under subparagraph (a), the basis of such building (immediately before the event resulting in such recapture) shall be increased by an amount equal to such recapture amount. For purposes of the preceding sentence, the term 'recapture amount' means any increase in tax (or adjustment in carrybacks or carryovers) determined under section 47(a)(5)."

(B) Paragraph (2) of section 57(a) (relating to items of tax preference) is amended by striking out "or 191".

(C) Section 280B (relating to demolition of certain historic structures) is amended--

(E) Subparagraph (B) of section 1082(a)(2) (relating to basis for determining gain or loss) is amended by striking out "188, or 191" and inserting in lieu thereof "or 188".

(F) Paragraph (2) of section 1245(a) (relating to gain from dispositions of certain depreciable property) and paragraph (4) of section 1250(b) (relating to gain from dispositions of certain depreciable realty) are each amended by inserting "(as in effect before its repeal by the Economic Recovery Tax Act of 1981)" after "191" each place it appears.

(G) Subsection (a) of section 1016 (relating to adjustments to basis) is amended--

(B) such building meets the requirements of paragraph (1) of section 48(g) of the Internal Revenue Code of 1954 (as in effect on the day before the date of enactment of this Act) but does not meet the requirements of such paragraphs (1) (as amended by this Act).

"(B) MARRIED INDIVIDUALS.--In the case of a husband or wife who files a separate return, the limitation under subparagraph (A) shall be $75,000 ($62,500 for taxable years beginning in 1981, 1982, 1983, 1984). This subparagraph shall not apply if the spouse of the taxpayer has no used section 38 property which may be taken into account as qualified investment for the taxable year of such spouse which ends within or with the taxpayer's taxable year.

"(C) CONTROLLED GROUPS.--In the case of a controlled group, the amount specified under subparagraph (A) shall be reduced for each component member of the group by apportioning such amount among the component member of such group in accordance with their respective amounts of used section 38 property which may be taken into account."

"(B) contract research expenses.

"(C) SUPPLIES.--The term 'supplies' means any tangible property other than--

"(B) PREPAID AMOUNTS.--If any contract research expenses paid or incurred during any taxable year are attributable to qualified research to be conducted after the close of such taxable year, such amount shall be treated as paid or incurred during the period during which the qualified research is conducted.

"(B) TRANSITIONAL RULES.--Subparagraph (A) shall be applied--

"(B) any other organization which--

"(B) basic research in the social sciences or humanities.

"(B) QUALIFIED FUND.--For purposes of subparagraph (A), the term 'qualified fund' means any organization which--

"(B) ALLOCATION IN THE CASE OF PARTNERSHIPS.--In the case of partnerships, the credit shall be allocated among partners under regulations prescribed by the Secretary.

"(B) DISPOSITIONS.--If, after June 30, 1980--

"(C) INCREASE IN BASE PERIOD.--If during any of the 3 taxable years following the taxable year in which a disposition to which subparagraph (B) applies occurs, the disposing taxpayer (or a person with whom the taxpayer is required to aggregate expenditures under paragraph (1)) reimburses the acquiring person (or a person required to so aggregate expenditures with such person) for research on behalf of the taxpayer, then the amount of qualified research expenses of the taxpayer for the base period for such taxable year shall be increased by the lesser of--

"(B) the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of section 1563.

"(B) SPECIAL RULE FOR PASS-THROUGH OF CREDIT.--In the case of an individual who--

"(B) LIMITATION.--The amount of the unused credit which may be added under subparagraph (A) for any preceding or succeeding taxable year shall not exceed the amount by which the limitation provided by paragraph (1) for such taxable year exceeds the sum of--

(B) Subsection (c) of section 381 (relating to items of the distributor or transferor corporation) is amended by adding at the end thereof the following new paragraph:

(B) Section 6411 (relating to quick refunds in respect of tentative carryback adjustments) is amended--

(B) DEFINITIONS.--For purposes of the preceding sentence, the terms "qualified research expenses" and "base period" have the meanings given to such terms by section 44F of the Internal Revenue Code of 1954 (as added by this section).

"(B) QUALIFIED RESEARCH CONTRIBUTIONS.--For purposes of this paragraph, the term 'qualified research contribution' means a charitable contribution by a corporation of tangible personal property described in paragraph (1) of section 1221, but only if--

"(D) CORPORATION.--For purposes of this paragraph, the term 'corporation' shall not include--

"(B) CERTAIN SERVICE CORPORATIONS.--In the case of a corporation the principal function of which is the performance of services in the field of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, subparagraph (A) shall be applied by substituting '$150,000' for '$250,000'."

"(B) A trust which was described in subparagraph (A) immediately before the death of the deemed owner and which continues in existence after such death, but only for the 60-day period beginning on the day of the deemed owner's death. If a trust is described in the preceding sentence and if the entire corpus of the trust is includible in the gross estate of the deemed owner, the preceding sentence shall be applied by substituting '2-year period' for '60-day period'.

"(C) A trust with respect to stock transferred to it pursuant to the terms of a will, but only for the 60-day period beginning on the day on which such stock is transferred to it.

"(D) A trust created primarily to exercise the voting power of stock transferred to it.

"(B) In the case of a trust described in subparagraph (B) of paragraph (1), the estate of the deemed owner shall be treated as the shareholder.

"(C) In the case of a trust described in subparagraph (C) of paragraph (1), the estate of the testator shall be treated as the shareholder.

"(D) In the case of a trust described in subparagraph (D) of paragraph (1), each beneficiary of the trust shall be treated as a shareholder."

"(B) for purposes of section 678(a), the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an electing small business corporation with respect to which the election under paragraph (2) is made.

"(B) MANNER AND TIME OF ELECTION.--An election under this paragraph shall be made--

"(D) GRACE PERIOD.--An election under this paragraph shall be effective up to 60 days before the date of the election.

"(B) all of the income of which is distributed currently to one individual who is a citizen or resident of the United States, and

"(C) the terms of which require that--

"(B) CONTROLLED GROUP DEFINED.--For purposes of subparagraph (A), persons shall be treated as being members of a controlled group if such persons would be treated as a single employer under the regulations prescribed under section 52(b).

"(B) PERIOD TO WHICH ELECTION APPLIES.--The election under this section shall apply--

"(B) the aggregate dollar value of the taxpayer's inventory as of the beginning of the first taxable year--

"(C) the first taxable year for which an election under this section is in effect or after such election ceases to apply (as the case may be) shall be treated as a new base year in accordance with procedures provided by regulations under section 472."

"(ii) deposits in the transferor which become, as a result of the transfer, deposits in the transferee shall be treated as stock of the acquiring corporation owned as a result of owning stock of the loss corporation, and

"(iii) the fair market value of the outstanding stock of the acquiring corporation shall include the amount of deposits in the acquiring corporation immediately after the reorganization."

"(B) such disposition is a sale or exchange with respect to which a loss (if sustained) would be recognized to such individual,

"(B) AMOUNT CARRIED TO EACH YEAR.--The amount of the unused limit carryover from any calendar year which may be taken into account in any succeeding calendar year shall be the amount of such carryover reduced by the amount of such carryover which was used in prior calendar years.

"(C) SPECIAL RULES.--For purposes of subparagraph (B)--

"(B) the employee has a right to receive property at the time of exercise of the option, or

"(C) the option is subject to any condition not inconsistent with the provisions of subsection (b).

(B) by inserting "422A(a)(1)," after "section "422A(a)(1)," in subsection (b).

(B) by inserting "incentive stock option," after "qualified stock option," in subsection (b)(1), and

(C) by adding at the end of subsection (c) the following new paragraph:

(B) ELECTION AND DESIGNATION OF OPTIONS.--In the case of an option granted before January 1, 1981, the amendments made by this section shall apply only if the corporation granting such option elects (in the manner and at the time prescribed by the Secretary of the Treasury or his delegate) to have the amendments made by this section apply to such option. The aggregate fair market value (determined at the time the option is granted) of the stock for which any employee was granted options (under all plans of his employer corporation and its parent and subsidiary corporations) to which the amendments made by this section apply by reason of this subparagraph shall not exceed $50,000 per calendar year and shall not exceed $200,000 in the aggregate.

"(B) not transferable."

"(I) an involuntarily terminated CETA employee.".

"(B) having been placed in employment under a work incentive program established under section 432(b)(1) of the Social Security Act.

(iii) Paragraphs (3)(A)(ii), (4)(C), and (7)(B) of section 51(d) are each amended by striking out "paragraph (9)" and inserting in lieu thereof "paragraph (11).

(B) by striking out ", and" at the end of subparagraph (C) and inserting in lieu thereof a period, and

(C) by striking out subparagraph (D).

"(B) if the taxpayer is an estate or trust, is a grantor, beneficiary, or fiduciary of the estate or trust, or is an individual who bears any of the relationships described in paragraphs (1) through (8) of section 152(a) to a grantor, beneficiary, or fiduciary of the estate or trust, or

"(C) is a dependent (described in section 152(a)(9)) of the taxpayer, or, if the taxpayer is a corporation, of an individual described in subparagraph (A), or, if the taxpayer is an estate or trust, of a grantor, beneficiary, or fiduciary of the estate or trust.

(B) by striking out "any year" in paragraphs (1) and (2) and inserting in lieu thereof "any taxable year".

(B) the remainder shall be distributed under performance standards prescribed by the Secretary of Labor.

(B) ELIGIBLE WORK INCENTIVE EMPLOYEES.--The amendments made by subsection (b)(2)(A) to the extent relating to the designation of eligible work incentive employees (within the meaning of section 51(d)(9) of the Internal Revenue Code of 1954) as members of a targeted group and subsection (b)(2)(B)(ii) shall apply to taxable years beginning after December 31, 1981. In the case of an eligible work incentive employee, subsections (a) and (b) of section 51 of such Code shall be applied for taxable years beginning after December 31, 1981, as if such employees had been members of a targeted group for taxable years beginning before January 1, 1982.

(C) COOPERATIVE EDUCATION PROGRAM PARTICIPANTS.--The amendments made by subsection (b)(4) shall apply to wages paid or incurred after December 31, 1981, in taxable years ending after such date.

(D) DESIGNATED LOCAL AGENCY.--The amendments made by subsection (f)(1) shall take effect on the date 60 days after the date of the enactment of this Act.

(B) SPECIAL RULE FOR INDIVIDUALS WHO BEGAN WORK FOR THE EMPLOYER BEFORE 45TH DAY BEFORE DATE OF ENACTMENT.--In the case of any individual (other than an individual described in section 51(d)(8) of the Internal Revenue Code of 1954) who began work for the employer before the date 45 days before the date of the enactment of this Act, paragraph (15) of section 51(d) of the Internal Revenue Code of 1954 (as added by subsection (c)(1)) shall be applied by substituting "July 23, 1981," for the day on which such individual begins work for the employer.

(C) INDIVIDUALS WHO BEGIN WORK FOR EMPLOYER WITHIN 45 DAYS BEFORE OR AFTER DATE OF ENACTMENT.--In the case of any individual (other than an individual described in section 51(d)(8) of the Internal Revenue Code of 1954) who begins work for the employer during the 90-day period beginning with the date 45 days before the date of the enactment of this Act, and in the case of an individual described in section 51(d)(8) of such Code who begins work before the end of such 90-day period, paragraph (15) of section 51(d) of such Code (as added by subsection (c)(1)) shall be applied by substituting "the last day of the 90-day period beginning with the date 45 days before the date of the enactment of this Act" for the day on which such individual begins work for the employer.

"(ii) the tenants occupy units in the property as their principal residence and the program provides for sale of the units to tenants demonstrating home ownership responsibility; and

"(iii) leasing and sale of such units are pursuant to a program in which the sum of the taxable income, if any, from leasing of each such unit, for the entire period of such leasing, and the amount realized from sale or other disposition of a unit, if sold, normally does not exceed the excess of the taxpayer's cost basis for such unit of property, before adjustment under section 1016 for deductions under section 167, over the net tax benefits realized by the taxpayer, consisting of the tax benefits realized by the taxpayer, consisting of the tax benefits from such deductions under section 167 minus the tax incurred on such taxable income from leasing, if any."

"(ii) such item is a qualified plan award."

"(B) AVERAGE AMOUNT OF AWARDS.--An item shall not be treated as a qualified plan award for any taxable year if the average cost of all items awarded under all plans described in subparagraph (A) of the taxpayer during the taxable year exceeds $400.

"(C) MAXIMUM AMOUNT PER ITEM.--An item shall not be treated as a qualified plan award under this paragraph to the extent that the cost of such item exceeds $1,600."

(B) ADJUSTMENT TO BASIS.--Under regulations prescribed by the Secretary of the Treasury or his delegate, proper adjustment shall be made to the basis of the stock or other assets in the manner provided by such regulations to take into account any allocation under subparagraph (A).

"(B) the aggregate amount received by the taxpayer which was excludable under subsection (a) for any prior taxable year.

"(B) which has a maturity of 1 year,

"(C) which has an investment yield equal to 70 percent of the average investment yield for the most recent auction (before the week in which the certificate is issued) of United States Treasury bills with maturities of 52 weeks, and

"(D) which is made available in denomination of $500'

"(B) 75 percent of the qualified net savings for the calendar quarter.

"(B) any secured or unsecured qualified home improvement loan (within the meaning of section 103A(1)(6) without regard to the $15,000 limit),

"(C) any mortgage (within the meaning of section 103A(1)(1)) on a single-family or multifamily residence which is insured or guaranteed by the Federal, State, or local government or any instrumentality thereof,

"(D) any loan to acquire a mobile home,

"(E) any construction loan for the construction or rehabilitation of a single-family or multifamily residence,

"(F) the purchase of mortgages secured by single-family or multifamily residences on the secondary market but only to the extent the amount of such purchases exceed the amount of sales of such mortgages by an institution,

"(G) the purchase of securities issued or guaranteed by the Federal National Mortgage Association, the Government National Mortgage Association, or the Federal Home Loan Mortgage Corporation, or securities issued by any other person if such securities are secured by mortgages originated by a qualified institution, but only to the extent the amount of such purchases exceed the amount of sales of such securities by an institution, and

"(H) any loan for agricultural purposes.

"(B) 10 percent of the excess of--

"(B) the amounts withdrawn or redeemed in connection with the accounts and certificates described in subparagraph (A).

"(B) there shall be included in gross income for the taxable year of redemption the amount of any interest on such certificate excluded under subsection (a) for any preceding taxable year.

"(B) CERTIFICATES ACQUIRED BY ESTATE FROM DECEDENT.--In the case of a depository institution tax-exempt savings certificate acquired by an estate by reason of the death of the decedent--

(B) section 643(a)(7),

(C) section 702(a)(5).

"(B) amounts (whether or not designated as interest) paid, in respect of deposits, investment certificates, or withdrawable or repurchasable shares, by--

"(E) interest attributable to participation shares in a trust established and maintained by a corporation established pursuant to Federal law, and

"(F) interest paid by an insurance company under an agreement to pay interest on--

"(B) the amount of such deduction allowed with respect to interest paid or accrued on indebtedness incurred in--

"(B) the aggregate dividends received by such company during such taxable year are less than 75 percent of its gross income.

"(B) the entire amount of such dividend shall be treated as interest if the aggregate interest received by such company during the taxable year equals or exceeds 75 percent of its gross income, or

"(C) if subparagraphs (A) and (B) do not apply, a portion of such dividend shall be treated as a dividend (and a portion of such dividend shall be treated as interest) based on the portion of the company's gross income which consists of aggregate dividends or aggregate interest, as the case may be. For purposes of the preceding sentence, gross income and aggregate interest received shall each be reduced by so much of the deduction allowable by section 163 for the taxable year as does not exceed aggregate interest received for the taxable year.

"(B) The term 'aggregate dividends received' includes only dividends received from domestic corporations other than dividends described in section 116(b)(2) (relating to dividends excluded from gross income). In determining the amount of any dividend for purposes of this subparagraph, the rules provided in section 116(c)(2) (relating to certain distributions) shall apply.

"(C) The term 'aggregate interest received' includes only interest described in section 128(c)(1)."

"(B) if subparagraph (A) does not apply, the portion of such dividend which bears the same ratio to the amount of such dividend as the aggregate interest received bears to gross income shall be treated as interest.

"(B) gross income and aggregate interest received shall each be reduced by so much of the deduction allowable by section 163 for the taxable year (other than for interest on mortgages on real property owned by the real estate investment trust) as does not exceed aggregate interest received by the taxable year, and

"(C) gross income shall be reduced by the sum of the taxes imposed by paragraphs (4), (5), and (6) of section 857(b).

"(B) an amount equal to the compensation includible in the individual's gross income for such taxable year.

"(C) SPECIAL RULE FOR APPLYING SUBPARAGRAPH (A)(ii).--In the case of an employee who is an officer, shareholder, or owner-employee described in section 408(k)(3), the $7,500 amount specified in subparagraph (A)(ii) shall be reduced by the amount of tax taken into account with respect to such individual under subparagraph (D) of section 408(k)(3).

"(B) the amount of the qualified voluntary employee contributions for the taxable year.

"(C) INDIVIDUALS TO WHOM PARAGRAPH APPLIES.--This paragraph shall apply to an individual if--

"(B) whose spouse has no compensation (determined without regard to section 911) for such taxable year,

"(B) any amount paid in cash for the taxable year by or on behalf of such individual for his benefit to an individual retirement plan.

"(C) DESIGNATION.--For purposes of determining whether or not an individual has made a designation described in subparagraph (A)(ii) with respect to any contribution during any calendar year under a qualified employer plan or government plan, such individual shall be treated as having made such designation if he notifies the plan administrator of such plan, not later than the earlier of--

"(B) an annuity plan described in section 403(a),

"(C) a qualified bond purchase plan described in section 405(a),

"(D) a simplified employee pension (within the meaning of section 408(k)), and

"(E) a plan under which amounts are contributed by an individual's employer for an annuity contract described in section 403(b).

"(B) QUALIFIED EMPLOYER OR GOVERNMENT PLANS.--For purposes of this section, if a qualified employer or government plan elects to have the provisions of this subparagraph apply, a taxpayer shall be deemed to have made a voluntary contribution to such plan on the last day of the preceding calendar year (if, without regard to this paragraph, such contribution may be made on such date) if the contribution is made by April 15 of the calendar year or such earlier time as is provided by the plan administrator.

"(B) such amount is received by the employee before the employee attains the age of 59-1/2, and

"(C) such amount is not attributable to such employee's becoming disabled (within the meaning of subsection (m)(7)), then the employee's tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the amount so received to the extent that such amount is includible in gross income. For purposes of this title, any tax imposed by this paragraph shall be treated as a tax imposed by subsection (m)(5)(B).

"(B) PURCHASE OF LIFE INSURANCE.--To the extent any amount of accumulated deductible employee contributions of an employee are applied to the purchase of life insurance contracts, such amount shall be treated as distributed to the employee in the year so applied.

"(B) ACCUMULATED DEDUCTIBLE EMPLOYEE CONTRIBUTIONS.--The term 'accumulated deductible employee contributions' means the deductible employee contributions--

"(D) GOVERNMENT PLAN.--The term 'government plan' has the meaning given such term by section 219(e)(4).

(B) Section 408(b) (defining individual retirement annuity).

(C) Section 408(j) (relating to increase in maximum limitations for simplified employee pensions).

(D) Section 409(a)(4) (defining retirement bond).

"(B) an annuity contract described in section 403(b),

"(C) a simplified employee pension described in section 408(k), or

"(D) a plan described in section 405(a),

"(B) in the case of--

"(C) QUALIFIED DISTRIBUTION.--The term 'qualified distribution' means any distribution of an excess contribution which meets requirements similar to the requirements of subparagraphs (A), (B), and (C) of section 408(d)(4). In the case of such a distribution, the rules of the last sentence of section 408(d)(4) shall apply."

"(B) QUALIFIED BOND.--For purpose of this paragraph, the term 'qualified bond' means any bond described in subsection (b) which is distributed under a qualified bond purchase plan or from a trust described in section 401(a) which is exempt from tax under section 501(a)."

"(B) any rug or antique,

"(C) any metal or gem,

"(D) any stamp or coin,

"(E) any alcoholic beverages, or

"(F) any other tangible personal property specified by the Secretary for purposes of this subsection."

"(B) only if the shareholder elects to have this subsection apply to such shares.

"(B) SPECIAL RULES.--For purposes of subparagraph (A)--

"(C) MEMBERS OF AFFILIATED GROUP.--For purposes of subparagraph (B), the purchase by any corporation which is a member of the same affiliated group (as defined in paragraph (3)(C)(i)) as the distributing corporation of common stock in any corporation which is a member of such group from any person (other than a member of such group) shall be treated as a purchase by the distributing corporation of its common stock.

"(D) WAIVER OF SUBPARAGRAPH (B) WHERE THERE IS BUSINESS PURPOSE.--Under regulations prescribed by the Secretary, subparagraph (B) shall not apply where the distributing corporation establishes that there was a business purpose for the purchase of the stock and such purchase is not inconsistent with the purposes of this subsection.

"(B) APPLICATION OF CEILING.--If, but for this subparagraph, a share of stock would, by reason of subparagraph (A), be treated as partly within this subsection and partly outside this subsection, such share shall be treated as outside this subsection.

"(B) the holding period shall begin on the date the dividend would (but for this subsection) be includible in income.

"(B) ORDINARY INCOME TREATMENT.--If any stock received as a qualified reinvested dividend is disposed of within 1 year after the date such stock is distributed, such disposition shall be treated as a disposition of property which is not a capital asset.

"(C) 5 PERCENT SHAREHOLDER DEFINED.--For purposes of subparagraph (B), the term '5 percent shareholder' means any individual who, immediately before the distribution, owns (directly or through the application of section 318)--

"(C) CONTROLLED GROUPS.--In the case of a controlled group of corporations, the $25,000 amount specified in subparagraph (A) shall be reduced for each component member of such group by apportioning $25,000 among the component members of such group in such manner as the Secretary shall by regulations prescribe. For purposes of the preceding sentence, the term 'controlled group of corporations' has the meaning assigned to such term by section 1563(a) (determined without regard to subsections (a)(4) and (e)(3)(C) of such section).

"(B) LIMITATION.--The amount of the unused credit which may be added under subparagraph (A) for any preceding or succeeding taxable year shall not exceed the amount by which the limitation provided under paragraph (1)(A) for such taxable year exceeds the sum of--

"(B) the base to which the taxpayer's rate of return for rate-making purposes is applied is reduced by reason of any portion of such credit which results from a transfer described in subparagraph (A) to such employee stock ownership plan; or

"(C) any portion of the amount of such credit which results from a transfer described in subparagraph (A) to such employee stock ownership plan is treated for rate-making purposes in any way other than as though it had been contributed by the taxpayer's common shareholders.

"(B) 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 prescribed by the Secretary."

(B) by inserting "or the credit allowed under section 44G (relating to the employee stock ownership credit)" after "basic employee plan credit" in subsection (b)(4),

(C) by inserting "or 44G(c)(1)(B)" after "section 48(n)(1)" in subsection (g),

(D) by inserting "or the credit allowed under section 44G (relating to employee stock ownership credit)" after "employee plan credit" in subsection (g),

(E) by inserting "or 44G(c)(1)(B)" after "section 48(n)(1)" in subsection (i)(1)(A),

(F) by inserting "section 44G(c)(1)(B), or" after "required under" in subsection (m),

(G) by inserting "or employee stock ownership credit" after "employee plan credit" in subsection (n)(2), and

(H) by adding at the end of subsection (n) the following new paragraph:

(B) by striking out "section 409A, or" in paragraph (1) and inserting in lieu thereof "section 409A with respect to a qualified investment made before January 1, 1983,",

(C) by inserting after paragraph (2) the following new paragraphs:

(B) Subsection (c) of section 381 (relating to items of the distributor or transferor corporation), as amended by this Act, is amended by adding at the end thereof the following new paragraph:

(B) Section 6411 (relating to quick refunds in respect of tentative carryback adjustments), as amended by this Act, is amended--

"(B) INTEREST PAYMENT.--Notwithstanding the provisions of paragraphs (3) and (7), if contributions are made to an employee stock ownership plan (described in subparagraph (A)) and such contributions are applied by the plan to the repayment of interest on a loan incurred for the purpose of acquiring qualifying employer securities (as described in subparagraph (A)), such contributions shall be deductible for the taxable year with respect to which such contributions are made as determined under paragraph (6)."

"(B) the sale of substantially all of the stock of a subsidiary of the employer, or

"(B) after acquiring securities of the employer, more than 10 percent of the total assets of the plan are securities of the employer,

(ii) by striking out paragraph (3) and inserting in lieu thereof the following:

"(B) FOR 1982.--In the case of decedents dying, and gifts made, in 1982, the substitution under this paragraph shall be as follows:

(B) by striking out "subsections (b) and (c)" in subsection (a) and inserting in lieu thereof "subsection (b)".

(C) Subparagraph (A) of section 691(c)(3) (relating to special rules for generation-skipping transfers) is amended by striking out "section 2602(c)(5)(C)" and inserting in lieu thereof "section 2602(c)(5)(B)".

"(B) joint tenants with right of survivorship, but only if the decedent and the spouse of the decedent are the only joint tenants."

(B) Section 2515 (relating to tenancies by the entirety in real property), section 2515A (relating to tenancies by the entirety in personal property), and subsection (c) of section 6019 (relating to gift tax return) are hereby repealed.

(C) The table of sections for subchapter B of chapter 12 (relating to transfers) is amended by striking out the items relating to sections 2515 and 2515A.

"(B) DEFINITIONS.--For purposes of subparagraph (A) --

"(B) for purposes of subsection (b)(1), no part of such property shall be considered as retained in the donor or transferred to any person other than the donee spouse.

"(B) in which the donee spouse has a qualifying income interest for life, and "(C) to which an election under this subsection applies.

"(B) under section 2523 by reason of subsection (f) thereof, and "(2) section 2519 (relating to dispositions of certain life estates) did not apply with respect to a disposition by the decedent of part or all of such property."

"(B) the total tax under this chapter which would have been payable if the value of such property had not been included in the gross estate.

(B) by reason of the death of the decedent property passes from the decedent or is acquired from the decedent under a will executed before the date which is 30 days after the date of the enactment of this Act, or a trust created before such date, which contains a formula expressly providing that the spouse is to receive the maximum amount of property qualifying for the marital deduction allowable by Federal law,

(C) the formula referred to in sub paragraph (B) was not amended to refer specifically to an unlimited marital deduction at any time after the date which is 30 days after the date of enactment of this Act, and before the death of the decedent, and

(D) the State does not enact a statute applicable to such estate which construes this type of formula as referring to the marital deduction allowable by Federal law as amended by subsection (a),

"(B) DISABLED DEFINED.--For purposes of subparagraph (A), an individual shall be disabled if such individual has a mental or physical impairment which renders him unable to materially participate in the operation of the farm or other business.

"(C) COORDINATION WITH RECAPTURE.--For purposes of subsection (c)(6)(B)(i), if the requirements of paragraph (1)(C)(ii) are met with respect to any decedent by reason of subparagraph (A), the period ending on the date on which the continuous period taken into account under subparagraph (A) began shall be treated as the period immediately before the decedent's death.

"(B) SPECIAL RULE.--For the purposes of subparagraph (A), the determination of whether property is qualified real property with respect to the first decedent shall be made without regard to subparagraph (D) of paragraph (1) and without regard to whether an election under this section was made."

(B) CONFORMING AMENDMENTS.--

"(C) ELIGIBLE QUALIFIED HEIR.--For purposes of this paragraph, the term 'eligible qualified heir' means a qualified heir who--

(B) CONFORMING AMENDMENTS.--

"(B) EXCHANGES WHERE OTHER PROPERTY RECEIVED.--If an interest in qualified real property is exchanged for an interest in qualified exchange property and other property in a transaction which qualifies under section 1031, the amount of the tax imposed by subsection (c) by reason of such exchange shall be the amount of tax which (but for this subparagraph) would have been imposed on such exchange under subsection (c)(1), reduced by an amount which--

"(B) any tax imposed by subsection (c) by reason of the exchange shall be treated as a tax imposed on a partial disposition, and

"(C) paragraph (6) of subsection (c) shall be applied by treating material participation with respect to the exchanged property as material participation with respect to the qualified exchange property.

(B) by striking out paragraph (5).

"(B) the value of such interest determined under section 2032A(a).

"(B) INTEREST ON RECAPTURED AMOUNT.--If an election is made under this subsection with respect to any additional estate tax imposed under section 2032A(c)(1), for purposes of section 6601 (relating to interest on underpayments), the last section 6601 (relating to interest on underpayments), the last date prescribed for payment of such tax shall be deemed to be the last date prescribed for payment of the tax imposed by section 2001 with respect to the estate of the decedent (as determined for purposes of section 6601)."

"(B) QUALIFIED WOODLAND.--The term 'qualified woodland' means any real property which--

"(B) the spouse of such individual,

"(C) a lineal descendant of such individual, of such individual's spouse, or of a parent of such individual, or

"(D) the spouse of any lineal descendant described in subparagraph (C).

"(B) such property is acquired by any person from the estate, or

"(C) such property is acquired by any person from a trust (to the extent such property is includible in the gross estate of the decedent)."

(B) NONRECOGNITION OF GAIN.--The section heading and subsections (a) and (b) of section 1040 are amended to read as follows:

"(B) LIMITATION.--Subparagraph (A) shall not apply to the extent that the fair market value of the qualified replacement property (as of the date of its acquisition) exceeds the fair market value of the replaced property (as of the date of its disposition).

"(C) DEFINITIONS.--For purposes of this paragraph--

(B) TIMELY ELECTION REQUIRED.--Subparagraph (A) shall only apply in the case of an estate if a timely election under section 2032A was made with respect to such estate. If the time for making an election under section 2032A with respect to any estate would have otherwise expired after July 28, 1980, the time for making such election shall not expire before the date 6 months after the date of the enactment of this Act.

(C) REINSTATEMENT OF ELECTIONS.--If any election under section 2032A was revoked before the date of the enactment of this Act, such election may be reinstated within 6 months after the date of the enactment of this Act.

(D) STATUTE OF LIMITATIONS.--If on the date of the enactment of this Act (or at any time within 6 months after such date of enactment) the making of a credit or refund of any overpayment of tax resulting from the amendments described in subparagraph (A) is barred by any law or rule of law, such credit or refund shall nevertheless be made if claim therefor is made before the date 6 months after such date of enactment.

"(B) PAYMENT WITHIN 6 MONTHS.--If any payment of principal or interest under this section is not paid on or before the date determined under subparagraph (A) but is paid within 6 months of such date--

(B) by striking out "SECTIONS 6166 AND 6166A" in the subsection heading and inserting in lieu thereof "SECTION 6166".

(C) The table of sections for subchapter B of chapter 62 is amended by striking out the items relating to sections 6166 and 6166A and inserting in lieu thereof the following:

(C) The section heading for section 6324A is amended by striking out "OR 6166A".

(D) The table of sections for subchapter C of chapter 64 is amended by striking out "or 6166A" in the item relating to section 6324A.

"(B) WORK OF ART DEFINED.--For purposes of this paragraph, the term 'work of art' means any tangible personal property with respect to which there is a copyright under Federal law.

"(C) QUALIFIED CONTRIBUTION DEFINED.--For purposes of this paragraph, the term 'qualified contribution' means any transfer of property to a qualified organization if the use of the property by the organization is related to the purpose or function constituting the basis for its exemption under section 501.

"(D) QUALIFIED ORGANIZATION DEFINED.--For purposes of this paragraph, the term 'qualified organization' means any organization described in section 501(c)(3) other than a private foundation (as defined in section 509). For purposes of the preceding sentence, a private operating foundation (as defined in section 4942(j)(3)) shall not be treated as a private foundation."

"(B) section 2032A (relating to special valuation of certain farm, etc., real property),

"(C) section 6166 (relating to extension of time for payment of estate tax where estate consists largely of interest in closely held business), and "(D) subchapter C of chapter 64 (relating to lien for taxes)."

"(B) such property is acquired from the decedent by (or passes from the decedent to) the donor of such property (or the spouse of such donor),

"(B) TREATMENT OF CERTAIN PROPERTY SOLD BY ESTATE.--In the case of any appreciated property described in subparagraph (A) of paragraph (1) sold by the estate of the decedent or by a trust of which the decedent was the grantor, rules similar to the rules of paragraph (1) shall apply to the extent to the donor of such property (or the spouse of such donor) is entitled to the proceeds from such sale."

"(B) which is to a person or persons who would have received the property had the transferor made a qualified disclaimer (within the meaning of subsection (b)),