REPEAL OF REQUIREMENT THAT BASIS OF SECTION 38 PROPERTY BE REDUCED BY 7 PERCENT; OTHER PROVISIONS RELATING TO INVESTMENT CREDIT.

SEC. 203. REPEAL OF REQUIREMENT THAT BASIS OF SECTION 38 PROPERTY BE REDUCED BY 7 PERCENT; OTHER PROVISIONS RELATING TO INVESTMENT CREDIT. (a) Repeal of Requirement that Basis be Reduced.— (1) In general.—Subsection (g) of section 48 (requiring that the basis of section 38 property be reduced by 7 percent of the qualified investment) is hereby repealed. (2) Increase in basis of property placed in service before january 1, 1964.— (A) The basis of any section 38 property (as defined in section 48(a) of the Internal Revenue Code of 1954) placed in service before January 1, 1964, shall be increased, under regulations prescribed by the Secretary of the Treasury or his delegate, by an amount equal to 7 percent of the qualified investment with respect to such property under section 46(c) of the Internal Revenue Code of 1954. If there has been any increase with respect to such property under section 48(g) (2) of such Code, the increase under (the preceding sentence shall be appropriately reduced therefor. (B) If a lessor made the election provided by section 48(d) of the Internal Revenue Code of 1954 with respect to properly placed in service before January 1, 1964— (i) subparagraph (A) shall not apply with respect to such property, but 78 Stat. 34 (ii) under regulations prescribed by the Secretary of the Treasury or his delegate, the deductions otherwise allowable under section 162 of such Code to the lessee for amounts paid to the lessor under the lease (or, if such lessee has purchased such property, the basis of such property) shall be adjusted in a manner consistent with subparagraph (A). (C) The adjustments under this paragraph shall be made as of the first day of the taxpayer’s first taxable year which begins after December 31, 1963. (3) Conforming amendments.— (A) The last sentence of section 48(d) (relating to certain leased property) is hereby repealed. (B) Section 181 (relating to deduction for certain unused investment credit.) is hereby repealed. (C) Section 1016(a) (19) (relating to adjustments to basis) is amended to read as follows: “(19) to the extent provided in section 48(g) and in section 203(a) (2) of the Revenue Act of 1964, in the case of property which is or has been section 38 property (as defined in section 48(a));” (D) The table of sections for part VI of subchapter B of chapter 1 is amended by striking out the following: “Sec. 181. Deduction for certain unused investment credit.” (4) Effective date.—Paragraphs (1) and (3) of this subsection shall apply— (A) in the case of property placed in service after December 31, 1963, with respect to taxable years ending after such date, and (B) in the case of property placed in service before January 1, 1964, with respect to taxable yen is beginning after December 31, 1963. (b) Basis of Certain Leased Property to Lessee.—Paragraphs (1) and (2) of section 48(d) (relating to certain leased property) are amended to read as follows: “(1) except as provided in paragraph (2), the fair market value of such property, or “(2) if such property is leased by a corporation which is a member of an affiliated group (within the meaning of section 46(a) (5)) to another corporation which is a member of the same affiliated group, the basis of such property to the lessor.” (c) Treatment of Elevators and Escalators for Purposes of the Investment Credit.—Section 48(a)(1) (relating to section 38 property) is amended— (1) by striking out the period at the end of subparagraph (B) and inserting in lieu thereof “, or”; and (2) by adding after subparagraph (B) the following new subparagraph: “(C) elevators and escalators, but only if— “(i) the construction, reconstruction, or erection of the elevator or escalator is completed by the taxpayer after June 30, 1963, or “(ii) the elevator or escalator is acquired after June 30, 1963, and the original use of such elevator or escalator commences with the taxpayer and commences after such date.” 78 Stat. 35 (d) Treatment of Elevators and Escalators For Purposes of Section 1245.—Section 1245(a) (relating to gain from dispositions of certain depreciable property) is amended— (1) by striking out so much of paragraph (2) as precedes the second sentence thereof and inserting in lieu thereof the following: “(2) Recomputed basis.—For purposes of this section, the term ‘recomputed basis’ means— “(A) with respect to any property referred to in paragraph (3) (A) or (B), its adjusted basis recomputed by adding thereto all adjustments, attributable to periods after December 31, 1961, or “(B) with respect to any property referred to in paragraph (3)(C), its adjusted basis recomputed by adding thereto all adjustments, attributable to periods after June 30, 1963, reflected in such adjusted basis on account of deductions (whether in respect of the same or other property) allowed or allowable to the taxpayer or to any other person for depreciation, or for amortization under section 168.”; (2) by striking out the period at the end of paragraph (3) (B) and inserting in lieu thereof “, or”; and (3) by adding at the end of paragraph (3) the following new subparagraph: “(C) an elevator or an escalator.” (e) Treatment of Investment Credit by Federal Regulatory Agencies.—It was the intent of the Congress in providing an investment credit under section 38 of the Internal Revenue Code of 1954, and it is the intent of the Congress in repealing the reduction in basis required by section 48(g) of such Code, to provide an incentive for modernization and growth of private industry (including that portion thereof which is regulated). Accordingly, Congress does not intend that any agency or instrumentality of the United States having jurisdiction with respect to a taxpayer shall, without the consent of the taxpayer, use— (1) in the case of public utility property (as defined in section 46(e)(3)(B) of the Internal Revenue Code of 1954), more than a proportionate part (determined with reference to the average useful life of the property with respect to which the credit was allowed) of the credit against tax allowed for any taxable year by section 38 of such Code, or (2) in the case of any other property, any credit against tax allowed by section 38 of such Code. to reduce such taxpayer’s Federal income taxes for the purpose of establishing the cost of service of the taxpayer or to accomplish a similar result by any other method. (f) Effective Dates.— (1) The amendments made by subsection (b) shall apply with respect to property possession of which is transferred to a lessee on or after the date of enactment of this Act. (2) The amendments made by subsection (c) shall apply with respect to taxable years ending after June 30, 1963. (3) The amendments made by subsection (d) shall apply with respect to dispositions after December 31, 1963, in taxable years ending after such date.