ELIMINATION OF EXPIRED OR OBSOLETE INVESTMENT TAX CREDIT PROVISIONS.

SEC. 11813. ELIMINATION OF EXPIRED OR OBSOLETE INVESTMENT TAX CREDIT PROVISIONS. (a) General Rule.— Subpart E of part IV of subchapter A of chapter 1 is amended to read as follows: “Subpart E— Rules for Computing Investment Credit “Sec. 46. Amount of credit. “Sec. 47. Rehabilitation credit. “Sec. 48. Energy credit; reforestation credit. “Sec. 49. At-risk rules. “Sec. 50. Other special rules. “SEC. 46. AMOUNT OF CREDIT. 8383 So in original. Probably should be “For”.For purposes of section 38, the amount of the investment credit determined under this section for any taxable year shall be the sum of— “(1) the rehabilitation credit, “(2) the energy credit, and “(3) the reforestation credit. “SEC. 47. REHABILITATION CREDIT. “(a) General Rule.— For purposes of section 46, the rehabilitation credit for any taxable year is the sum of— “(1) 10 percent of the qualified rehabilitation expenditures with respect to any qualified rehabilitated building other than a certified historic structure, and “(2) 20 percent of the qualified rehabilitation expenditures with respect to any certified historic structure. 104 STAT. 1388–537 “(b) When Expenditures Taken Into Account.— “(1) In general.— Qualified rehabilitation expenditures with respect to any qualified rehabilitated building shall be taken into account for the taxable year in which such qualified rehabilitated building is placed in service. “(2) Coordination with subsection (d).— The amount which would (but for this paragraph) be taken into account under paragraph (1) with respect to any qualified rehabilitated building shall be reduced (but not below zero) by any amount of qualified rehabilitation expenditures taken into account under subsection (d) by the taxpayer or a predecessor of the taxpayer (or, in the case of a sale and leaseback described in section 50(a)(2)(C), by the lessee), to the extent any amount so taken into account has not been required to be recaptured under section 50(a). “(c) Definitions.— For purposes of this section— “(1) Qualified rehabilitated building.— “(A) In general.— The term ‘qualified rehabilitated building’ means any building (and its structural components) if— “(i) such building has been substantially rehabilitated, “(ii) such building was placed in service before the beginning of the rehabilitation, “(iii) in the case of any building other than a certified historic structure, in the rehabilitation process— “(I) 50 percent or more of the existing external walls of such building are retained in place as external walls, “(II) 75 percent or more of the existing external walls of such building are retained in place as internal or external walls, and “(III) 75 percent or more of the existing internal structural framework of such building is retained in place, and “(iv) depreciation (or amortization in lieu of depreciation) is allowable with respect to such building. “(B) Building must be first placed in service before 1936.— In the case of a building other than a certified historic structure, a building shall not be a qualified rehabilitated building unless the building was first placed in service before 1936. “(C) Substantially rehabilitated defined.— “(i) In general.— For purposes of subparagraph (A)(i), a building shall be treated as having been substantially rehabilitated only if the qualified rehabilitation expenditures during the 24-month period selected by the taxpayer (at the time and in the manner prescribed by regulation) and ending with or within the taxable year exceed the greater of— “(I) the adjusted basis of such building (and its structural components), or “(II) $5,000. The adjusted basis of the building (and its structural components) shall be determined as of the beginning of the 1st day of such 24-month period, or of the holding period of the building, whichever is later. For purposes 104 STAT. 1388–538of the preceding sentence, the determination of the beginning of the bolting period shall be made without regard to any reconstruction by the taxpayer in connection with the rehabilitation. “(ii) Special rule for phased rehabilitation.— In the case of any rehabilitation which may reasonably be expected to be completed in phases set forth in architectural plans and specifications completed before the rehabilitation begins, clause (i) shall be applied by substituting ‘60-month period’ for ‘24-month period’. “(iii) Lessees.— The Secretary shall prescribe by regulation rules for applying this subparagraph to lessees. “(D) Reconstruction.— Rehabilitation includes reconstruction. “(2) Qualified rehabilitation expenditure defined.— “(A) In general.— The term ‘qualified rehabilitation expenditure’ means any amount properly chargeable to capital account— “(i) for property for which depreciation is allowable under section 168 and which is— “(I) nonresidential real property, “(II) residential rental property, “(III) real property which has a class life of more than 12.5 years, or “(IV) an addition or improvement to property described in subclause (I), (II), or (III), and “(ii) in connection with the rehabilitation of a qualified rehabilitated building. “(B) Certain expenditures not included.— The term ‘qualified rehabilitation expenditure’ does not include— “(i) Straight line depreciation must be used.— Any expenditure with respect to which the taxpayer does not use the straight line method over a recovery period determined under subsection (c) or (g) of section 168. The preceding sentence shall not apply to any expenditure to the extent the alternative depreciation system of section 168(g) applies to such expenditure by reason of subparagraph (B) or (O of section 168(g)(D. “(ii) Cost of acquisition.— The cost of acquiring any building or interest therein. “(iii) Enlargements.— Any expenditure attributable to the enlargement of an existing building. “(iv) Certified historic structure, etc.— Any expenditure attributable to the rehabilitation of a certified historic structure or a building in a registered historic district, unless the rehabilitation is a certified rehabilitation (within the meaning of subparagraph (O). The preceding sentence shall not apply to a building in a registered historic district if— “(I) such building was not a certified historic structure, “(II) the Secretary of the Interior certified to the Secretary that such building is not of historic significance to the district, and “(III) if the certification referred to in subclause (II) occurs after the beginning of the rehabilitation 104 STAT. 1388–539of such building, the taxpayer certifies to the Secretary that, at the beginning of such rehabilitation, he in good faith was not aware of the requirements of subclause (II). “(v) Tax-exempt use property.— “(I) In general.— Any expenditure in connection with the rehabilitation of a building which is allocable to the portion of such property which is (or may reasonably be expected to be) tax-exempt use property (within the meaning of section 168(h)). “(II) Clause not to apply for purposes of paragraph (i)(c).— This clause shall not apply for purposes of determining under paragraph (1)(C) whether a building has been substantially rehabilitated. “(vi) Expenditures of lessee.— Any expenditure of a lessee of a building if, on the date the rehabilitation is completed, the remaining term of the lease (determined without regard to any renewal periods) is less than the recovery period determined under section 168(c). “(C) Certified rehabilitation.— For purposes of subparagraph (B), the term ‘certified rehabilitation’ means any rehabilitation of a certified historic structure which the Secretary of the Interior has certified to the Secretary as being consistent with the historic character of such property or the district in which such property is located. “(D) Non residential real property; residential rental property; class life.— For purposes of subparagraph (A), the terms ‘nonresidential real property,’ ‘residential rental property,’ and ‘class life’ have the respective meanings given such terms by section 168. “(3) Certified historic structure defined.— “(A) In general.— The term ‘certified historic structure’ means any building (and its structural components) which— “(i) is listed in the National Register, or “(ii) is located in a registered historic district and is certified by the Secretary of the Interior to the Secretary as being of historic significance to the district. “(B) Registered historic district.— The term ‘registered historic district’ means— “(i) any district listed in the National Register, and “(ii) any district— “(I) which is designated under a statute of the appropriate State or local government, if such statute is certified by the Secretary of the Interior to the Secretary as containing criteria which will substantially achieve the purpose of preserving and rehabilitating buildings of historic significance to the district, and “(II) which is certified by the Secretary of the Interior to the Secretary as meeting substantially all of the requirements for the listing of districts in the National Register. “(d) Progress Expenditures.— “(1) In general.— In the case of any building to which this subsection applies, except as provided in paragraph (3)— 104 STAT. 1388–540 “(A) if such building is self-rehabilitated property, any qualified rehabilitation expenditure with respect to such building shall be taken into account for the taxable year for which such expenditure is properly chargeable to capital account with respect to such building, and “(B) if such building is not self-rehabilitated property, any qualified rehabilitation expenditure with respect to such building shall be taken into account for the taxable year in which paid. “(2) Property to which subsection applies.— “(A) In general.— This subsection shall apply to any building which is being rehabilitated by or for the taxpayer if— “(i) the normal rehabilitation period for such building is 2 years or more, and “(ii) it is reasonable to expect that such building will be a qualified rehabilitated building in the hands of the taxpayer when it is placed in service. Clauses (i) and (ii) shall be applied on the basis of facts known as of the close of the taxable year of the taxpayer in which the rehabilitation begins (or, if later, at the close of the first taxable year to which an election under this subsection applies). “(B) Normal rehabilitation period.— For purposes of subparagraph (A), the term ‘normal rehabilitation period’ means the period reasonably expected to be required for the rehabilitation of the building— “(i) beginning with the date on which physical work on the rehabilitation begins (or, if later, the first day of the first taxable year to which an election under this subsection applies), and “(ii) ending on the date on which it is expected that the property will be available for placing in service. “(3) Special rules for applying paragraph (i).— For purposes of paragraph (1)— “(A) Component parts, etc.— Property which is to be a component part of, or is otherwise to be included in, any building to which this subsection applies shall be taken into account— “(i) at a time not earlier than the time at which it becomes irrevocably devoted to use in the building, and “(ii) as if (at the time referred to in clause (i)) the taxpayer had expended an amount equal to that portion of the cost to the taxpayer of such component or other property which, for purposes of this subpart, is properly chargeable (during such taxable year) to cap-ital account with respect to such building. “(B) Certain borrowing disregarded.— Any amount borrowed directly or indirectly by the taxpayer from the person rehabilitating the property for him shall not be treated as an amount expended for such rehabilitation. “(C) Limitation for buildings which are not self-rehabilitated.— “(i) In general.— In the case of a building which is not self-rehabilitated, the amount taken into account under paragraph (1)(B) for any taxable year shall not exceed the amount which represents the portion of the 104 STAT. 1388–541overall cost to the taxpayer of the rehabilitation which is properly attributable to the portion of the rehabilitation which is completed during such taxable year. “(ii) Carry-over of certain amounts.— In the case of a building which is not a self-rehabilitated building, if for the taxable year— “(I) the amount which (but for clause (i)) would have been taken into account under paragraph (1)(B) exceeds the limitation of clause (i), then the amount of such excess shall be taken into account under paragraph (1)(B) for the succeeding taxable year, or “(II) the limitation of clause (i) exceeds the amount taken into account under paragraph (1)(B), then the amount of such excess shall increase the limitation of clause (i) for the succeeding taxable year. “(D) Determination of percentage of completion.— The determination under subparagraph (C)(i) of the portion of the overall cost to the taxpayer of the rehabilitation which is properly attributable to rehabilitation completed during any taxable year shall be made, under regulations prescribed by the Secretary, on the basis of engineering or architectural estimates or on the basis of cost accounting records. Unless the taxpayer establishes otherwise by clear and convincing evidence, the rehabilitation shall be deemed to be completed not more rapidly than ratably over the normal rehabilitation period. “(E) No progress expenditures for certain prior periods.— No qualified rehabilitation expenditures shall be taken into account under this subsection for any period before the first day of the first taxable year to which an election under this subsection applies. “(F) No progress expenditures for property for year it is placed in service, etc.— In the case of any building, no qualified rehabilitation expenditures shall be taken into account under this subsection for the earlier of— “(i) the taxable year in which the building is placed in service, or “(ii) the first taxable year for which recapture is required under section 50(a)(2) with respect to such property, or for any taxable year thereafter. “(4) Self-rehabilitated building.— For purposes of this subsection, the term ‘self-rehabilitated building’ means any building if it is reasonable to believe that more than half of the qualified rehabilitation expenditures for such building will be made directly by the taxpayer. “(5) Election.— This subsection shall apply to any taxpayer only if such taxpayer has made an election under this paragraph. Such an election shall apply to the taxable year for which made and all subsequent taxable years. Such an election, once made, may be revoked only with the consent of the Secretary. “SEC. 48. ENERGY CREDIT; REFORESTATION CREDIT. “(a) Energy Credit.— 104 STAT. 1388–542 “(1) In general.— For purposes of section 46, the energy credit for any taxable year is the energy percentage of the basis of each energy property placed in service during such taxable year. “(2) Energy percentage.— “(A) In general.— Except as provided in subparagraph (B), the energy percentage is 10 percent. “(B) Termination.— Effective with respect to periods after December 31, 1991, the energy percentage is zero. For purposes of the preceding sentence, rules similar to the rules of section 48(m) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply. “(C) Coordination with rehabilitation credit.— The energy percentage shall not apply to that portion of the basis of any property which is attributable to qualified rehabilitation expenditures. “(3) Energy property.— For purposes of this subpart, the term ‘energy property’ means any property— “(A) which is— “(i) equipment which uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat, or “(ii) equipment used to produce, distribute, or use energy derived from a geothermal deposit (within the meaning of section 613(e)(2)), but only, in the case of electricity generated by geothermal power, up to (but not including) the electrical transmission stage, “(B) (i) the construction, reconstruction, or erection of which is completed by the taxpayer, or “(ii) which is acquired by the taxpayer if the original use of such property commences with the taxpayer, “(C) with respect to which depreciation (or amortization in lieu of depreciation) is allowable, and “(D) which meets the performance and quality standards (if any) which— “(i) have been prescribed by the Secretary by regulations (after consultation with the Secretary of Energy), and “(ii) are in effect at the time of the acquisition of the property. The term ‘energy property’ shall not Include any property which is public utility property (as defined in section 46(f)(5) as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990). “(4) Special rule for property financed by subsidized energy financing or industrial development bonds.— “(A) Reduction of basis.— For purposes of applying the energy percentage to any property, if such property is financed in whole or in part by— “(i) subsidized energy financing, or “(ii) the proceeds of a private activity bond (within the meaning of section 141) the interest on which is exempt from tax under section 103, the amount taken into account as the basis of such property shall not exceed the amount which (but for this subpara-104 STAT. 1388–543graph) would be so taken into account multiplied by the fraction determined under subparagraph (B). “(B) Determination of fraction.— For purposes of subparagraph (A), the fraction determined under this subparagraph is 1 reduced by a fraction— “(i) the numerator of which is that portion of the basis of the property which is allocable to such financing or proceeds, and “(ii) the denominator of which is the basis of the property. “(C) Subsidized energy financing.— For purposes of subparagraph (A), the term ‘subsidized energy financing’ means financing provided under a Federal, State, or local program a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy. “(5) Certain progress expenditure rules made applicable.— Rules similar to the rules of subsections (c)(4) and (d) of section 46 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply for purposes of this subsection. “(b) Reforestation Credit.— “(1) In general.— For purposes of section 46, the reforestation credit for any taxable year is 10 percent of the portion of the amortizable basis of any qualified timber property which was acquired during such taxable year and which is taken into account under section 194 (after the application of section 194(b)(D). “(2) Definitions.— For purposes of this subpart, the terms ‘amortizable basis’ and ‘qualified timber property’ have the respective meanings given to such terms by section 194. “SEC. 49. AT-RISK RULES. “(a) General Rule.— “(1) Certain nonrecourse financing excluded from credit base.— “(A) Limitation.— The credit base of any property to which this paragraph applies shall be reduced by the non-qualified nonrecourse financing with respect to such credit base (as of the close of the taxable year in which placed in service). “(B) Property to which paragraph applies.— This paragraph applies to any property which— “(i) is placed in service during the taxable year by a taxpayer described in section 465(a)(D, and “(ii) is used in connection with an activity with respect to which any loss is subject to limitation under section 465. “(C) Credit base defined.— For purposes of this paragraph, the term ‘credit base’ means— “(i) the portion of the basis of any qualified rehabilitated building attributable to qualified rehabilitation expenditures, “(ii) the basis of any energy property, and “(iii) the amortizable basis of any qualified timber property. “(D) Nonqualified nonrecourse financing.— 104 STAT. 1388–544 “(i) In general.— For purposes of this paragraph and paragraph (2), the term ‘nonqualified nonrecourse financing’ means any nonrecourse financing which is not qualified commercial financing. “(ii) Qualified commercial financing.— For purposes of this paragraph, the term ‘qualified commercial financing’ means any financing with respect to any property if— “(I) such property is acquired by the taxpayer from a person who is not a related person, “(II) the amount of the nonrecourse financing with respect to such property does not exceed 80 percent of the credit base of such property, and “(III) such financing is borrowed from a qualified person or represents a loan from any Federal, State, or local government or instrumentality thereof, or is guaranteed by any Federal, State, or local government. Such term shall not include any convertible debt. “(iii) Nonrecourse financing.— For purposes of this subparagraph, the term ‘nonrecourse financing’ includes— “(I) any amount with respect to which the tax-payer is protected against loss through guarantees, stop-loss agreements, or other similar arrangements, and “(II) except to the extent provided in regulations, any amount borrowed from a person who has an interest (other than as a creditor) in the activity in which the property is used or from a related person to a person (other than the taxpayer) having such an interest. In the case of amounts borrowed by a corporation from a shareholder, subclause (II) shall not apply to an interest as a share-holder. “(iv) Qualified person.— For purposes of this paragraph, the term ‘qualified person’ means any person which is actively and regularly engaged in the business of lending money and which is not— “(I) a related person with respect to the tax-payer, “(II) a person from which the taxpayer acquired the property (or a related person to such person), or “(III) a person who receives a fee with respect to the taxpayer’s investment in the property (or a related person to such person). “(v) Related person.— For purposes of this subparagraph, the term ‘related person’ has the meaning given such term by section 465(b)(3)(C). Except as otherwise provided in regulations prescribed by the Secretary, the determination of whether a person is a related person shall be made as of the close of the taxable year in which the property is placed in service. “(E) Application to partnerships and s corporations.— For purposes of this paragraph and paragraph (2)— 104 STAT. 1388–545 “(i) In general.— Except as otherwise provided in this subparagraph, in the case of any partnership or S corporation, the determination of whether a partner s or shareholder’s allocable share of any financing is nonqualified nonrecourse financing shall be made at the partner or shareholder level. “(ii) Special rule for certain recourse financing of s corporation.— A shareholder of an S corporation shall be treated as liable for his allocable share of any financing provided by a qualified person to such corporation if— “(I) such financing is recourse financing (determined at the corporate level), and “(II) such financing is provided with respect to qualified business property of such corporation, “(iii) Qualified business property.— For purposes of clause (ii), the term ‘qualified business property’ means any property if— “(I) such property is used by the corporation in the active conduct of a trade or business, “(II) during the entire 12-month period ending on the last day of the taxable year, such corporation had at least 3 full-time employees who were not owner-employees (as defined in section 465(c)(7)(E)(i)) and substantially all the services of whom were services directly related to such trade or business, and “(III) during the entire 12-month period ending on the last day of such taxable year, such corporation had at least 1 full-time employee substantially all of the services of whom were in the active management of the trade or business. “(iv) Determination of allocable share.— The determination of any partner’s or shareholder’s allocable share of any financing shall be made in the same manner as the credit allowable by section 38 with respect to such property. “(F) Special rules for energy property.— Rules similar to the rules of subparagraph (F) of section 46(c)(8) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply for purposes of this paragraph. “(2) Subsequent decreases in nonqualified nonrecourse financing with respect to the property.— “(A) In general.— If, at the close of a taxable year following the taxable year in which the property was placed, in service, there is a net decrease in the amount of non-qualified nonrecourse financing with respect to such property, such net decrease shall be taken into account as an increase in the credit base for such property tn accordance with subparagraph (C). “(B) Certain transactions not taken into account.— For purposes of this paragraph, nonqualified nonrecourse financing shall not be treated as decreased through the surrender or other use of property financed by nonqualified nonrecourse financing. “(C) Manner in which taken into account.— 104 STAT. 1388–546 “(i) Credit determined by reference to taxable year property placed in service.— For purposes of determining the amount of credit allowable under section 38 and the amount of credit subject to the early disposition or cessation rules under section 50(a), any increase in a taxpayer’s credit base for any property by reason of this paragraph shall be taken into account as if it were property placed in service by the taxpayer in the taxable year in which the property referred to in subparagraph (A) was first placed in service. “(ii) Credit allowed for year of decrease in non-qualified nonrecourse financing.— Any credit allow-able under this subpart for any increase in qualified investment by reason of this paragraph shall be treated as earned during the taxable year of the decrease in the amount of nonqualified nonrecourse financing. “(b) Increases in Nonqualified Nonrecourse Financing.— “(1) In general.— If, as of the close of the taxable year, there is a net increase with respect to the taxpayer in the amount of nonqualified nonrecourse financing (within the meaning of subsection (a)(l)) with respect to any property to which subsection (a)(1) applied, then the tax under this chapter for such taxable year shall be increased by an amount equal to the aggregate decrease in credits allowed under section 38 for all prior taxable years which would have resulted from reducing the credit base (as defined in subsection (a)(l)(O) taken into account with respect to such property by the amount of such net increase. For purposes of determining the amount of credit subject to the early disposition or cessation rules of section 50(a), the net increase in the amount of the nonqualified nonrecourse financing with respect to the property shall be treated as reducing the property’s credit base in the year in which the property was first placed in service. “(2) Transfers of debt more than 1 year after initial borrowing not treated as increasing nonqualified nonrecourse financing.— For purposes of paragraph (1), the amount of nonqualified nonrecourse financing (within the meaning of subsection (a)(lRD)) with respect to the taxpayer shall not be treated as increased by reason of a transfer of (or agreement to transfer) any evidence of any indebtedness if such transfer occurs (or such agreement is entered into) more than 1 year after the date such indebtedness was incurred. “(3) Special rules for certain energy property.— Rules similar to the rules of section 47(d)(3) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply for purposes of this subsection. “(4) Special rule.— Any increase in tax under paragraph (1) shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit allowable under sub-part A, B, D, or G. “SEC. 50. OTHER SPECIAL RULES. “(a) Recapture in Case of Dispositions, Etc.— Under regulations prescribed by the Secretary— “(1) Early disposition, etc.— “(A) General rule.— If, during any taxable year, investment credit property is disposed of, or otherwise ceases to 104 STAT. 1388–547be investment credit property with respect to the taxpayer, before the close of the recapture period, then the tax under this chapter for such taxable year shall be increased by the recapture percentage of the aggregate decrease in the cred-its allowed under section 38 for all prior taxable years which would have resulted solely from reducing to zero any credit determined under this subpart with respect to such property. “(B) Recapture percentage.— For purposes of subparagraph (A), the recapture percentage shall be determined in accordance with the following table: “If the property ceases to be investment credit property within— The recapture percentage is: (i) One full year after placed in service. 100 (ii) One full year after the close of the period described in clause (i) 80 (iii) One full year after the close of the period described in clause (ii) 60 (iv) One full year after the close of the period described in clause (iii) 40 (v) One full year after the close of the period described in clause (iv) 20 “(2) Property ceases to qualify for progress expenditures.— “(A) In general.— If during any taxable year any building to which section 47(d) applied ceases (by reason of sale or other disposition, cancellation or abandonment of con-tract, or otherwise) to be, with respect to the taxpayer, property which, when placed in service, will be a qualified rehabilitated building, then the tax under this chapter for such taxable year shall be increased by an amount equal to the aggregate decrease in the credits allowed under section 38 for all prior taxable years which would have resulted solely from reducing to zero the credit determined under this subpart with respect to such building. “(B) Certain excess credit recaptured.— Any amount which would have been applied as a reduction under paragraph (2) of section 47(b) but for the fact that a reduction under such paragraph cannot reduce the amount taken into account under section 47(b)(l) below zero shall be treated as an amount required to be recaptured under subparagraph (A) for the taxable year during which the building is placed in service. “(C) Certain sales and leasebacks.— Under regulations prescribed by the Secretary, a sale by, and leaseback to, a taxpayer who, when the property is placed in service, will be a lessee to whom the rules referred to in subsection (c)(4) apply shall not be treated as a cessation described in subparagraph (A) to the extent that the amount which will be passed through to the lessee under such rules with respect to such property is not less than the qualified rehabilitation expenditures properly taken into account by the lessee under section 47(d) with respect to such property. “(D) Coordination with paragraph (1).— If, after property is placed in service, there is a disposition or other cessation described in paragraph (1), then paragraph (1) shall be applied as if any credit which was allowable by 104 STAT. 1388–548reason of section 47(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. “(E) Special rules.— Rules similar to the rules of this paragraph shall apply in cases where qualified progress expenditures were taken into account under the rules referred to in section 48(a)(5)(A). “(3) Carrybacks and carryovers adjusted.— In the case of any cessation described in paragraph (1) or (2), the carrybacks and carryovers under section 39 shall be adjusted by reason of such cessation. “(4) Subsection not to apply in certain cases.— Paragraphs (1) and (2) shall not apply to— “(A) a transfer by reason of death, or “(B) a transaction to which section 381(a) applies. For purposes of this subsection, property shall not be treated as ceasing to be investment credit property with respect to the taxpayer by reason of a mere change in the form of conducting the trade or business so long as the property is retained in such trade or business as investment credit property and the tax-payer retains a substantial interest in such trade or business. “(5) Definitions and special rules.— “(A) Investment credit property.— For purposes of this subsection, the term ‘investment credit property’ means any property eligible for a credit determined under this subpart. “(B) Transfer between spouses or incident to divorce.— In the case of any transfer described in subsection (a) of section 1041— “(i) the foregoing provisions of this subsection shall not apply, and ’ “(ii) the same tax treatment under this subsection with respect to the transferred property shall apply to the transferee as would have applied to the transferor. “(C) Special rule.— Any increase in tax under paragraph (1) or (2) shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit allow-able under subpart A, B, D, or G. “(b) Certain Property Not Eligible.— No credit shall be determined under this subpart with respect to— “(1) Property used outside united states.— “(A) In general.— Except as provided in subparagraph (B), no credit shall be determined under this subpart with respect to any property which is used predominantly out-side the United States. “(B) Exceptions.— Subparagraph (A) shall not apply to any property described in section 168(g)(4). “(2) Property used for lodging.— No credit shall be determined under this subpart with respect to any property which is used predominantly to furnish lodging or in connection with the furnishing of lodging. The preceding sentence shall not apply to— “(A) nonlodging commercial facilities which are available to persons not using the lodging facilities on the same basis as they are available to persons using the lodging facilities.8484 So in original. Probably should be “facilities;”. 104 STAT. 1388–549 “(B) property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accommodations is used by transients; “(C) a certified historic structure to the extent of that portion of the basis which is attributable to qualified rehabilitation expenditures; and “(D) any energy property. “(3) Property used by certain tax-exempt organization.— No credit shall be determined under this subpart with respect to any property used by an organization (other than a cooperative described in section 521) which is exempt from the tax imposed by this chapter unless such property is used predominantly in an unrelated trade or business the income of which is subject to tax under section 511. If the property is debt-financed property (as defined in section 514(b)), the amount taken into account for purposes of determining the amount of the credit under this subpart with respect to such property shall be that percentage of the amount (which but for this paragraph would be so taken into account) which is the same percentage as is used under section 514(a), for the year the property is placed in service, in computing the amount of gross income to be taken into account during such taxable year with respect to such property. If any qualified rehabilitated building is used by the tax-exempt organization pursuant to a lease, this paragraph shall not apply for purposes of determining the amount of the rehabilitation credit. “(4) Property used by governmental units or foreign persons or entities.— “(A) In general.— No credit shall be determined under this subpart with respect to any property used— “(i) by the United States, any State or political sub-division thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing, or “(ii) by any foreign person or entity (as defined in section 168(h)(2)(O), but only with respect to property to which section 168(h)(2)(A)(iii) applies (determined after the application of section 168(h)(2)(B)). “(B) Exception for short-term leases.— This paragraph and paragraph (3) shall not apply to any property by reason of use under a lease with a term of less than 6 months (determined under section 168(i)(3)). “(C) Exception for qualified rehabilitated buildings leased to governments, etc.— If any qualified rehabilitated building is leased to a governmental unit (or a foreign person or entity) this paragraph shall not apply for purposes of determining the rehabilitation credit with respect to such building. “(D) Special rules for partnerships, etc.— For purposes of this paragraph and paragraph (3), rules similar to the rules of paragraphs (5) and (6) of section 168(h) shall apply. “(E) Cross reference.— “For special rules for the application of this paragraph and paragraph (3), see section 168(h).” “(c) Basis Adjustment to Investment Credit Property.— 104 STAT. 1388–550 “(1) In general.— For purposes of this subtitle, if a credit is determined under this subpart with respect to any property, the basis of such property shall be reduced by the amount of the credit so determined. “(2) Certain dispositions.— If during any taxable year there is a recapture amount determined with respect to any property the basis of which was reduced under paragraph (1), the basis of such property (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 subsection (a). “(3) Special rule.— In the case of any energy credit or re-forestation credit— “(A) only 50 percent of such credit shall be taken into account under paragraph (1), and “(B) only 50 percent of any recapture amount attributable to such credit shall be taken into account under paragraph (2). “(4) Recapture of reductions.— “(A) In general.— For purposes of sections 1245 and 1250, any reduction under this subsection shall be treated as a deduction allowed for depreciation. “(B) Special rule for section 1250.— For purposes of section 1250(b), the determination of what would have been the depreciation adjustments under the straight line method shall be made as if there had been no reduction under this section. “(5) Adjustment in basis of interest in partnership or s corporation.— The adjusted basis of— “(A) a partner’s interest in a partnership, and “(B) stock in an S corporation, shall be appropriately adjusted to take into account adjustments made under this subsection in the basis of property held by the partnership or S corporation (as the case may be). “(d) Certain Rules Made Applicable.— For purposes of this sub-part, rules similar to the rules of the following provisions (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply: “(1) Section 46(e) (relating to limitations with respect to certain persons). “(2) Section 46(f) (relating to limitation in case of certain regulated companies). “(3) Section 46(h) (relating to special rules for cooperatives). “(4) Paragraphs (2) and (3) of section 48(b) (relating to special rule for sale-leasebacks). “(5) Section 48(d) (relating to certain leased property). “(6) Section 48(f) (relating to estates and trusts). “(7) Section 48(r) (relating to certain 501(d) organizations).” (b) Conforming Amendments.— (1) (A) Subclause (III) of section 29(b)(3)(A)(i) is amended by striking “section 48(1)(ii)(c)” and inserting “section 48(a)(4)(C)”. (B) Paragraph (4) of section 29(b) is amended by striking “section 47” each place it appears and inserting “section 49(b) or 50(a)”. 104 STAT. 1388–551 (C) Paragraph (3) of section 29(c) is amended to read as follows: “(3) Biomass.— The term ‘biomass’ means any organic material other than— “(A) oil and natural gas (or any product thereof), and “(B) coal (including lignite) or any product thereof.” (2) (A) Paragraph (1) of section 38(b) is amended by striking “section 46(a)” and inserting “section 46”. (B) Subsection (c) of section 38 is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2). (C) Subparagraph (C) of section 38(c)(2) (as redesignated by subparagraph (B)) is amended— (i) by inserting “(as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990)” after “46(e)(1)”, and (ii) by inserting “(as so in effect)” after “46(e)(2)”. (D) Subsection (d) of section 38 is amended— (i) by striking “sections 46(f), 47(a), 196(a), and any other provision” and inserting “any provision”, (ii) by amending paragraph (2) to read as follows: “(2) Components of investment credit.— The order in which the credits listed in section 46 are used shall be determined on the basis of the order in which such credits are listed in section 46 as of the close of the taxable year in which the credit is used.”, and (iii) by amending subparagraph (B) of paragraph (3) to read as follows: “(B) the credit determined under section 46— “(i) to the extent attributable to the employee plan percentage (as defined in section 46(a)(2)(E) as in effect on the day before the date of the enactment of the Tax Reform Act of 1984) shall be treated as a credit listed after paragraph (1) of section 46, and “(ii) to the extent attributable to the regular percent-age (as defined in section 46(b)(1) as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall be treated as the first credit listed in section 46.” (3) Subsection (k) of section 42 is amended— (A) in paragraph (1)— (i) by striking “46(c)(8)” and inserting “49(a)(D”, (ii) by striking “46(c)(9)” and inserting “49(a)(2)”, and (iii) by striking “47(d)(D” and inserting “49(b)(D”, and (B) by striking “46(c)(8)(D)(iv)(II)” in paragraphs (2)(A)(ii) and (2)(D) and inserting “49(a)(l)(D)(iv)(II)”. (4) Subsection (e) of section 52 is amended by striking “section 46” and inserting “section 46 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990)”. (5) Paragraph (1) of section 55(c) is amended by striking “section 47” and inserting “section 49(b) or 50(a)”. (6) Subparagraph (B) of section 108(g)(l) is amended by striking “section 46(c)(8)(D)(iv)” and inserting “section 49(a)(l)(D)(iv)”. (7) Paragraph (4) of section 145(d) is amended— 104 STAT. 1388–552 (A) by striking “section 48(g)(l)(O” each place it appears and inserting “section 47(c)(l)(C)”, and (B) by striking “section 48(g)(l)(C)(i)” and inserting “section 47(c)(l)(C)(i)”. (8) Subparagraph (B) of section 147(d)(3) is amended by striking “section 48{g)(2)(B)” and inserting “section 47(c)(2)(B)”. (9) (A) Clause (vi) of section 168(e)(3)(B) is amended— (i) by striking “paragraph (S)(A)(viii), (3)(A)(I) or (4) of section 48(1)” in subclause (I) and inserting “subparagraph (A) of section 48(a)(3) (or would be so described if ‘solar and wind’ were substituted for ‘solar’ in clause (i) thereof)”, and (ii) by inserting “(as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990)” after “48(1)” in subclause (H). (B) (i) Subparagraph (D)(i) of section 168(e)(3) is amended by striking “section 48(p)” and inserting “subsection (i)(13)”. (ii) Subsection (i) of section 168 is amended by adding at the end thereof the following new paragraph: “(13) Single purpose agricultural or horticultural structure.— “(A) In general.— The term ‘single purpose agricultural or horticultural structure’ means— “(i) a single purpose livestock structure, and “(ii) a single purpose horticultural structure. “(B) Definitions.— For purposes of this paragraph— “(i) Single purpose livestock structure.— The term ‘single purpose livestock structure’ means any enclosure or structure specifically designed, constructed, and used— “(I) for housing, raising, and feeding a particular type of livestock and their produce, and “(II) for housing the equipment (including any replacements) necessary for the housing, raising, and feeding referred to in subclause (I). “(ii) Single purpose horticultural structure.— The term ‘single purpose horticultural structure’ means— “(I) a greenhouse specifically designed, constructed, and used for the commercial production of plants, and “(II) a structure specifically designed, constructed, and used for the commercial production of mushrooms. “(iii) Structures which include work space.— An enclosure or structure which provides work space shall be treated as a single purpose agricultural or horticultural structure only if such work space is solely for— “(I) the stocking, caring for, or collecting of live-stock or plants (as the case may be) or then-produce, “(II) the maintenance of the enclosure or structure, and “(III) the maintenance or replacement of the equipment or stock enclosed or housed therein. “(iv) Livestock.— The term ‘livestock’ includes poultry.” 104 STAT. 1388–553 (C) Paragraph (4) of section 168(g) is amended to read as follows: “(4) Exception for certain property used outside united states.— Subparagraph (A) of paragraph (1) shall not apply to— “(A) any aircraft which is registered by the Administrator of the Federal Aviation Agency and which is operated to and from the United States or is operated under contract with the United States; “(B) rolling stock which is used within and without the United States and which is— “(i) of a domestic railroad corporation providing transportation subject to subchapter I of chapter 105 of title 49, or “(ii) of a United States person (other than a corporation described in clause (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; “(C) any vessel documented under the laws of the United States which is operated in the foreign or domestic commerce of the United States; “(D) any motor vehicle of a United States person (as defined in section 7701(a)(30)) which is operated to and from the United States; “(E) any container of a United States person which is used in the transportation of property to and from the United States; “(F) any property (other than a vessel or an aircraft) of a United States person which is used for the purpose of exploring for, developing, removing, or transporting re-sources from the outer Continental Shelf (within the meaning of section 2 of the Outer Continental Shelf Lands Act, as amended and supplemented; (43 U.S.C. 1331)); “(G) any property which is owned by a domestic corporation (other than a corporation which has an election in effect under section 936) or by a United States citizen (other than a citizen entitled to the benefits of section 931 or 933) and which is used predominantly in a possession of the United States by such a corporation or such a citizen, or by a corporation created or organized in, or under the law of, a possession of the United States; “(H) any communications satellite (as defined in section 103(3) of the Communications Satellite Act of 1962, 47 U.S.C. 702(3)), or any interest therein, of a United States person; “(I) any cable, or any interest therein, of a domestic corporation engaged in furnishing telephone service to which section 168(i)(10)(C) applies (or of a wholly owned domestic subsidiary of such a corporation), if such cable is part of a submarine cable system which constitutes part of a communication link exclusively between the United States and one or more foreign countries; “(J) any property (other than a vessel or an aircraft) of a United States person which is used in international or territorial waters within the northern portion of the Western Hemisphere for the purpose of exploring for, develop-104 STAT. 1388–554ing, removing, or transporting resources from ocean waters or deposits under such waters; “(K) any property described in section 48(a)(3)(A)(iii) which is owned by a United States person and which is used in international or territorial waters to generate energy for use in the United States; and “(L) any satellite (not described in subparagraph (H)) or other spacecraft (or any interest therein) held by a United States person if such satellite or other spacecraft was launched from within the United States. For purposes of subparagraph (J), the term ‘northern portion of the Western Hemisphere’ means the area lying west of the 30th meridian west of Greenwich, east of the international dateline, and north of the Equator, but not including any foreign country which is a country of South America.” (10) Subparagraph (B) of section 170(h)(4) is amended by striking “section 48(g)(3)(B)” and inserting “section 47(c)(3)(B)”. (11) (A) Paragraph (1) of section 179(d) is amended by striking “section 38 property” and inserting “section 1245 property (as defined in section 1245(a)(3))”. (B) Paragraph (5) of section 179(d) is amended to read as follows: “(5) Section not to apply to certain noncorporate lessors.— This section shall not apply to any section 179 property which is purchased by a person who is not a corporation and with respect to which such person is the lessor unless— “(A) the property subject to the lease has been manufactured or produced by the lessor, or “(B) the term of the lease (taking into account options to renew) is less than 50 percent of the class life of the property (as defined in section 168U)(1)), and for the period consisting of the first 12 months after the date on which the property is transferred to the lessee the sum of the deductions with respect to such property which are allowable to the lessor solely by reason of section 162 (other than rents and reimbursed amounts with respect to such property) exceeds 15 percent of the rental income produced by such property.” (12) (A) Paragraph (1) of section 196(c) is amended— (i) by striking “section 46(a)” and inserting “section 46”, and (ii) by striking “section 48(q)” and inserting “section 50(c)”. (B) Paragraph (1) of section 196(d) is amended— (i) by striking “section 46(a)” and inserting “section 46”, and (ii) by striking “other than a credit to which section 48(q)(3) applies” and inserting “other than the rehabilitation credit”. (13) (A) Subsection (a) of section 280F is amended— (i) by striking paragraphs (1) and (4) and redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively, and (ii) by striking “the credit determined under section 46(a) or” in paragraph (2)(B) (as redesignated by clause (i)). 104 STAT. 1388–555 (B) Subsection (b) of section 280F is amended by striking paragraph (1) and redesignating the following paragraphs accordingly. (C) The paragraph heading for paragraph (1) of section 280F(c) is amended by striking “credits and”. (D) Subparagraph (A) of section 280F(d)(3) is amended by striking “the amount of any credit allowable under section 38 to the employee or”. (E) The section heading of section 280F is amended by striking “INVESTMENT TAX CREDIT AND”. (F) The table of sections for part IX of subchapter B of chapter 1 is amended by striking “investment credit and” in the item relating to section 280F. (14) Paragraph (5) of section 312(k) is amended by striking “section 48(q)” and inserting “section 50(c)”. (15) Subparagraph (D) of section 465(b)(6) is amended by striking “46(c)(8)(D)(iv)” each place it appears and inserting “49(a)(l)(D)(iv)” (16) (A) Paragraphs (3)(B) and (6)(B)(ii) of section 469(i) are each amended by striking “rehabilitation investment credit (within the meaning of section 48(o))” and inserting “rehabilitation credit determined under section 47”. (B) Paragraph (1) of section 469(k) is amended by striking “rehabilitation investment credit (within the meaning of section 48(o))” and inserting “rehabilitation credit determined under section 47”. (17) Subparagraph (A) of section 861(e)(1) is amended by striking “which is section 38 property (or would be section 38 property but for section 48(a)(5)” and inserting “which is section 1245 property (as defined in section 1245(a)(3))”. (18) Subparagraph (B) of section 865(c)(3) is amended by striking “section 48(a)(2)(B)” and inserting “section 168(g)(4)”. (19) Paragraph (21) of section 1016(a) is amended by striking “section 48(q)” and inserting “ssection 50(c)”. (20) Subparagraph (A) of section 1033(g)(3) is amended by striking “with respect to which the investment credit determined under section 46(a) is or has been claimed or”. (21) Subparagraph (D) of section 1245(a)(3) is amended by striking “section 48(p)” and inserting “section 168(i)(13)”. (22) Subsection (b) of section 1274A is amended by inserting “, as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990” after “section 48(b)”. (23) Subsection (d) of section 1371 is amended— (A) by striking “section 47(b)” in paragraph (1) and inserting “section 50(a)(4)”, and (B) by striking “section 47” in paragraphs (2) and (3) and inserting “section 49(b) or 50(a)”. (24) Section 1388 is amended by striking subsection (k). (25) Subparagraph (B) of section 1503(e)(3) is amended by striking “section 48(q)” and inserting “section 50(c)”. (26) The table of subparts for part IV of subchapter A of chapter 1 is amended by striking the item relating to subpart E and inserting the following: “Subpart E. Rules for computing investment credit.” (c) Effective Date.— 104 STAT. 1388–556 (1) In general.— Except as provided in paragraph (2), the amendments made by this section shall apply to property placed in service after December 31, 1990. (2) Exceptions.— The amendments made by this section shall not apply to— (A) any transition property (as defined in section 49(e) of the Internal Revenue Code of 1986 (as in effect on the day before the date of the enactment of this Act), (B) any property with respect to which qualified progress expenditures were previously taken into account under section 46(d) of such Code (as so in effect), and (C) any property described in section 46(b)(2)(C) of such Code (as so in effect).