SIMPLIFICATION OF ADJUSTED CURRENT EARNINGS PREFERENCE.

SEC. 7611. SIMPLIFICATION OF ADJUSTED CURRENT EARNINGS PREFERENCE. (a) Elimination of Book Limitations Applicable to Depreciation.— (1) In general— (A) Clause (i) of section 56(g)(4)(A) (relating to depreciation) is amended to read as follows: “(i) Property placed in service after 1989.—The depreciation deduction with respect to any property placed in service in a taxable year beginning after 1989 shall be determined under the alternative system of section 168(g),” (B) Subparagraph (A) of section 56(g)(4) is amended by striking clauses (v) and (vi) and by redesignating clause (vii) as clause (v). (2) Technical amendment.—Clause (iii) of section 56(g)(4)(A) is amended by inserting “and which is placed in service in a taxable year beginning before 1990” after “thereof) applies”. (b) Treatment of Certain Earnings and Profits Adjustments.— Subparagraph (D) of section 56(g)(4) is amended to read as follows: “(D) Certain other earnings and profits adjustments.— 103 STAT. 2372 “(i) Intangible drilling costs.—The adjustments provided in section 312(n)(2)(A) shall apply in the case of amounts paid or incurred in taxable years beginning after December 31, 1989. “(ii) Certain amortization provisions not to apply.—Sections 173 and 248 shall not apply to expenditures paid or incurred in taxable year beginning after December 31, 1989. “(iii) LIFO inventory adjustments.—The adjustments provided in section 312(n)(4) shall apply. “(iv) Installment sales.—In the case of any installment sale in a taxable year beginning after December 31, 1989, adjusted current earnings shall be computed as if the corporation did not use the installment method. The preceding sentence shall not apply to the applicable percentage (as determined under section 453A) of the gain from any installment sale with respect to which section 453A(a)(1) applies.” (c) Elimination of Book Limitation on Depletion.—Subparagraph (G) of section 56(g)(4) is amended to read as follows: “(G) Depletion.—The allowance for depletion with respect to any property placed in service in a taxable year beginning after 1989 shall be cost depletion determined under section 611.” (d) Treatment of Certain Dividends.—Clause (ii) of section 56(g)(4)(C) is amended to read as follows: “(ii) Special rule for certain dividends.— “(I) In general.—Clause (i) shall not apply to any deduction allowable under section 243 or 245 for any dividend which is a 100-percent dividend or which is received from a 20-percent owned corporation (as defined in section 243(c)(2)), but only to the extent such dividend is attributable to income of the paying corporation which is subject to tax under this chapter (determined after the application of sections 936 and 921). “(II) 100-percent dividend.—For purposes of the subclause (I), the term ‘100 percent dividend’ means any dividend if the percentage used for purposes of determining the amount allowable as a deduction under section 243 or 245 with respect to such dividend is 100 percent.” (e) Special Rule for Certain Dividends Received by Cooperatives.—Subparagraph (C) of section 56(g)(4) is amended by adding at the end thereof the following new clause: “(iv) Special rule for certain dividends received by certain cooperatives.—In the case of a cooperative described in section 927(a)(4), clause (i) shall not apply to any amount allowable as a deduction under section 245(c).” (f) Technical and Conforming Amendments.— (1) Clause (i) of section 56(g)(4)(H) is amended by striking “after the date of the enactment of the Tax Reform Act of 1986” and inserting “in a taxable year beginning after 1989”. (2) Clause (i) of section 56(g)(4)(B) is amended by adding at the end thereof the following new sentence: 103 STAT. 2373 “The preceding sentence shall not apply in the case of any amount excluded from gross income under section 108 (or the corresponding provisions of prior law).” (3) Clause (iii) of section 56(g)(4)(B) is hereby repealed. (4) Paragraph (5) of section 56(g) is amended by striking subparagraphs (A) and (C) and by redesignating subparagraphs (B) and (D) as subparagraphs (A) and (B), respectively. (5)(A) Clause (ii) of section 312(n)(2)(A) is amended by striking “in which the production from the well begins” and inserting “in which such amount was paid or incurred”. (B) Paragraph (1) of section 59(e) is amended by inserting before the period at the end thereof: “(or, in the case of a qualified expenditure described in paragraph (2)(C), over the 60-month period beginning with the month in which such expenditure was paid or incurred)”. (6) Subsection (i) of section 59 is amended— (A) by striking “interest shall” and inserting “any amount shall”, and (B) by striking “Interest” in the subsection heading and inserting “Amounts”. (g) Effective Dates.— (1) In general.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 1989. (2) Intangible drilling costs.—The amendments made by subsection (f)(5) shall apply to costs paid or incurred in taxable years beginning after December 31, 1989. (3) Regulations on earnings and profits rules.—Not later than March 15, 1991, the Secretary of the Treasury or his delegate shall prescribe initial regulations providing guidance as to which items of Income are included in adjusted current earnings under section 56(g)(4)(B)(1) of the Internal Revenue Code of 1986 and which items of deduction are disallowed under section 56(g)(4)(C) of such Code.