AVERAGING.

SEC. 232. AVERAGING. (a) General Rule.—Part I of subchapter Q of chapter 1 is amended to read as follows: “PART I—INCOME AVERAGING “Sec. 1301. Limitation on tax. “Sec. 1302. Definition of averagable income; related definitions. “Sec. 1303. Eligible individuals. “Sec. 1304. Special rules. “Sec. 1305. Regulations. 78 Stat. 106 “SEC. 1301. LIMITATION ON TAX. “If an eligible individual has averagable income for the computation year, and if the amount of such income exceeds $3,000, then the tax imposed by section 1 for the computation year which is attributable to averagable income shall be 5 times the increase in tax under such section which would result, from adding 20 percent of such income to the sum of— “(1) 133⅓ percent of average base period income, and “(2) the amount (if any) of the average base period capital gain net income. “SEC. 1302. DEFINITION OF AVERAGABLE INCOME; RELATED DEFINITIONS. “(a) Averagable Income.—For purposes of this part— “(1) In general.—The term ‘averagable income’ means the amount (if any) by which adjusted taxable income exceeds 133⅓ percent of average base period income. “(2) Adjustment in certain cases for capital gains.—If— “(A) the average base period capital gain net income, exceeds “(B) the capital gain net income for the computation year, then the term ‘averagable income’ means the amount determined under paragraph (1), reduced by an amount equal to such excess. “(b) Adjusted Taxable Income.—For purposes of this part, the term ‘adjusted taxable income’ means the taxable income for the computation year, decreased by the sum of the following amounts: “(1) Capital gain net income for the computation year.—The amount (if any) of the capital gain net income for the computation year. “(2) Income attributable to gifts, bequests, etc.— “(A) In general.—The amount of net income attributable to an interest in property where such interest was received by the taxpayer as a gift, bequest, devise, or inheritance during the computation year or any base period year. This paragraph shall not apply to gifts, bequests, devises, or inheritances between husband and wife if they make a joint return, or if one of them makes a return as a surviving spouse (as defined in section 2(b)), for the computation year. “(B) Amount of net income.—Unless the taxpayer otherwise establishes to the satisfaction of the Secretary or his delegate, the amount of net income for any taxable year attributable to an interest described in subparagraph (A) shall be deemed to be 6 percent of the fair market value of such interest (as determined in accordance with the provisions of chapter 11 or chapter 12, as the case may be). “(C) Limitation.—This paragraph shall apply only if the sum of the net incomes attributable to interests described in subparagraph (A) exceeds $3,000. “(D) Net income.—For purposes of this paragraph, the term ‘net income’ means, with respect to any interest, the excess of— “(i) items of gross income attributable to such interest, over “(ii) the deductions properly allocable to or chargeable against such items. For purposes of computing such net income, capital gains and losses shall not be taken into account. “(3) Wagering income.—The amount (if any) by which the gains from wagering transactions for the computation year exceed the losses from such transactions. 78 Stat. 107 “(4) Certain amounts received by owner-employees.—The amount (if any) to which section 72 (m) (5) (relating to penalties applicable to certain amounts received by owner-employees) applies. “(c) Average Base Period Income.—For purposes of this part— “(1) In general.—The term ‘average base period income’ means one-fourth of the sum of the base period incomes for the base period. “(2) Base period income.—The base period income for any taxable year is the taxable income for such year first increased and then decreased (but not below zero) in the following order: “(A) Taxable income shall be increased by an amount equal to the excess of— “(i) the amount excluded from gross income under section 911 (relating to earned income from sources without the United States) and subpart T) of part III of subchapter N (sec. 931 and following, relating to income from sources within possessions of the United States), over “(ii) the deductions which would have been properly allocable to or chargeable against such amount but for the exclusion of such amount from gross income. “(B) Taxable income shall be decreased by the capital gain net income. “(C) If the decrease provided by paragraph (2) of subsection (b) applies to the computation year, the taxable income shall be decreased under the rules of such paragraph (2) (other than the limitation contained in subparagraph (C) thereof). “(d) Capital Gain Net Income, Etc.—For purposes of this part— “(1) Capital gain net income.—The term ‘capital gain net income’ means the amount equal to 50 percent of the excess of the net long-term capital gain over the net short-term capital loss. “(2) Average babe period capital gain net income.—The term ‘average base period capital gain net income’ means one-fourth of the sum of the capital gain net incomes for the base period. For purposes of the preceding sentence, the capital gain net income for any base period year shall not exceed the base period income for such year computed without regard to subsection (c)(2)(B). “(e) Other Related Definitions.—For purposes of this part— “(1) Computation year.—The term ‘computation year means the taxable year for which the taxpayer chooses the benefits of this part. “(2) Base period.—The term ‘base period’ means the 4 taxable years immediately preceding the computation year. “(3) Base period year.—The term ‘base period year’ means any of the 4 taxable years immediately preceding the computation year. “(4) Joint return.—The term ‘joint return’ means the return of a husband and wife made under section 6013. “SEC. 1303. ELIGIBLE INDIVIDUALS. “(a) General Rule.—Except as otherwise provided in this section, for purposes of this part the term ‘eligible individual’ means any individual who is a citizen or resident of the United States throughout the computation year. “(b) Nonresident Alien Individuals.—For purposes of this part, an individual shall not be an eligible individual for the computation 78 Stat. 108year if, at any time during such year or the base period, such individual was a nonresident alien. “(c) Individuals Receiving Support From Others.— “(1) In general.—For purposes of this part, an individual shall not be an eligible individual for the computation year if, for any base period year, such individual (and his spouse) furnished less than one-half of his support. “(2) Exceptions.—Paragraph (1) shall not apply to any computation year if— “(A) such year ends after the individual attained age 25 and, during at least 4 of his taxable years beginning after he attained age 21 and ending with his computation year, he was not a full-time student, “(B) more than one-half of the individual’s adjusted taxable income for the computation year is attributable to work performed by him in substantial part during 2 or more of the base period years, or “(C) the individual makes a joint return for the computation year and not more than 25 percent of the aggregate adjusted gross income of such individual and his spouse for the computation year is attributable to such individual. In applying subparagraph (C), amounts which constitute earned income (within the meaning of section 911(b)) and are community income under community property laws applicable to such income shall be taken into account as if such amounts did not constitute community income. “(d) Student Defined.—For purposes of this section, the term ‘student’ means, with respect to a taxable year, an individual who during each of 5 calendar months during such taxable year— “(1) was a full-time student at an educational institution (as defined in section 151(e)(4)); or “(2) was pursuing a full-time course of institutional on-farm training under the supervision of an accredited agent of an educational institution (as defined in section 151(e)(4)) or of a State or political subdivision of a State. “SEC. 1304. SPECIAL RULES. “(a) Taxpayer Must Choose Benefits.—This part shall apply to the taxable year only if the taxpayer chooses to nave the benefits of this part for such taxable year. Such choice may be made or changed at any time before the expiration of the period prescribed for making a claim for credit or refund of the tax imposed by this chapter for the taxable year. “(b) Certain Provisions Inapplicable.—If the taxpayer chooses the benefits of this part for the taxable year, the following provisions shall not apply to him for such year: “(1) section 3 (relating to optional tax if adjusted gross income is less than $5,000), “(2) section 72(n) (2) (relating to limitation of tax in case of certain distributions with respect to contributions by self-employed individuals), “(3) section 911 (relating to earned income from sources without the United States), and “(4) subpart D of part III of subchapter N (sec. 931 and following, relating to income from sources within possessions of the United States). “(c) Failure of Certain Married Individuals To Make Joint Return, Etc.— “(1) Application of subsection.—Paragraphs (2), (3) and (4) of this subsection shall apply in the case of any individual 78 Stat. 109who was married for any base period year or the computation year; except that— “(A) such paragraphs shall not apply in respect of a base period year if— “(i) such individual and his spouse make a joint return, or such individual makes a return as a surviving spouse (as defined in section 2(b)), for the computation year, and “(ii) such individual was not married to any other spouse for such base period year, and “(B) paragraph (4) shall not apply in respect of the computation year if the individual and his spouse make a joint return for such year. “(2) Minimum base period income.—For purposes of this part, the base period income of an individual for any base period year shall not be less than 50 percent of the base period income which would result from combining his income and deductions for such year— “(A) with the income and deductions for such year of the individual who is his spouse for the computation year, or “(B) if greater, with the income and deductions for such year of the individual who was his spouse for such base period year. “(3) Minimum base period capital gain net income.—For purposes of this part, the capital gain net income of any individual for any base period year shall not be less than 50 percent of the capital gain net income which would result from combining his capital gain net income for such year (determined without regard to this paragraph) with the capital gain net income for such year (similarly determined) of the individual with whom he is required by paragraph (2) to combine his income and deductions for such year. “(4) Community income attributable to services.—In the case of amounts which constitute earned income (within the meaning of section 911(b)) and are community income under community property laws applicable to such income— “(A) the amount taken into account for any base period year for purposes of determining base period income shall not be less than the amount which would be taken into account if such amounts did not constitute community income, and “(B) the amount taken into account for purposes of determining adjusted taxable income for the computation year shall not exceed the amount which would be taken into account if such amounts did not constitute community income. “(5) Marital status.—For purposes of this subsection, section 143 shall apply in determining whether an individual is married for any taxable year. “(d) Dollar Limitations in Case of Joint Returns.—In the case of a joint return, the $3,000 figure contained in section 1301 shall be applied to the aggregate averagable income, and the $3,000 figure contained in section 1302(b) (2) (C) shall be applied to the aggregate net incomes. “(e) Special Rules Where There Are Capital Gains.— “(1) Treatment of capital gains in computation year.—In the case of any taxpayer who has capital gain net income for the computation year, the tax imposed by section 1 for the computation year which is attributable to the amount of such net income shall he computed— 78 Stat. 110 “(A) by adding so much of the amount thereof as does not exceed average base period capital gain net income above 133⅓ percent of average base period income, and “(B) by adding the remainder (if any) of such net income above the 20 percent of the averagable income as taken into account for purposes of computing the tax imposed by section 1 (and above the amounts (if any) referred to in subsection (f)(1)). “(2) Computation of alternative tax.—In the case of any taxpayer who has capital gain net income for the computation year, section 1201 (b) shall be treated as imposing a tax equal to the tax imposed by section 1, reduced by the amount (if any) by which— “(A) the tax imposed by section 1 and attributable to the capital gain net income for the computation year (determined under paragraph (1)), exceeds “(B) an amount equal to 25 percent of the excess of the net long-term capital gain over the net short-term capital loss. “(f) Treatment of Certain Other Items.— “(1) Gift or wagering income.—The tax imposed by section 1 for the imputation year which is attributable to the amounts subtracted from taxable income under paragraphs (2) and (3) of section 1302(b) shall equal the increase in tax under section 1 which results from adding such amounts above the 20 percent of the averagable income as taken into account for purposes of computing the tax imposed thereon by section 1. “(2) Section 72(m) (5).—Section 72(m) (5) (relating to penalties applicable to certain amounts received by owner-employees) shall be applied as if this part had not been enacted. “(3) Other items.—Except as otherwise provided in this part, the order and manner in which items of income shall be taken into account in computing the tax imposed by this chapter on the income of any eligible individual to whom section 1301 applies for any computation year shall be determined under regulations prescribed by the Secretary or his delegate. “(g) Short Taxable Years.—In the case of any computation year or base period year which is a short, taxable year, this part, shall be applied in the manner provided in regulations prescribed by the Secretary or his delegate. “SEC. 1305. REGULATIONS. “The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this part.” (b) Repeal of Section” 72(e) (3).—Section 72(e)(3) (relating to limit, on tax attributable to receipt of lump sum) is hereby repealed. (c) Amendment of Section 144.—Section 144 (relating to election of standard deduction) is amended by adding after subsection (c) (as added by 112(c) (2) of this Act) the following new subsection: “(d) Individuals Electing Income Averaging.—In the case of a taxpayer who chooses to have the benefits of part I of subchapter Q (relating to income averaging) for the taxable year— “(1) subsection (a) shall not apply for such taxable year, and “(2) the standard deduction shall be allowed if the taxpayer so elects in his return for such taxable year. The Secretary or his delegate shall by regulations prescribe the manner of signifying such election in the return. If the taxpayer on making his return fails to signify, in the manner so prescribed, his election to take the standard deduction, such failure shall be considered his election not to take the standard deduction.” 78 Stat. 111 (d) Statute of Limitations.—Section 6511(d)(2)(B) (relating to special period of limitation with respect to net operating loss carrybacks) is amended to read as follows: “(B) Applicable rules.— “(i) If the allowance of a credit or refund of an overpayment of tax attributable to a net operating loss carryback is otherwise prevented by the operation of any law or rule of law other than section 7122, relating to compromises, such credit or refund may be allowed or made, if claim therefor is filed within the period provided in subparagraph (A) of this paragraph. If the allowance of an application, credit, or refund of a decrease in tax determined under section 6411(b) is otherwise prevented by the operation of any law or rule of law other than section 7122, such application, credit, or refund may be allowed or made if application for a tentative carryback adjustment is made within the period provided in section 6411(a). In the case of any such claim for credit or refund or any such application for a tentative carryback adjustment, the determination by any court, including the Tax Court, in any proceeding in which the decision of the court has become final, shall be conclusive except with respect to the net operating loss deduction, and the effect of such deduction, to the extent that such deduction is affected by a carryback which was not in issue in such proceeding. “(ii) A claim for credit or refund for a computation year (as defined in section 1302(e)(1)) shall be determined to relate to an overpayment attributable to a net operating loss carryback when such carryback relates to and base period year (as defined in section 1302(e) (3)).” (e) Technical Amendments.—The following provisions are amended by striking out “except that section 72(e) (3) shall not apply”: (1) The first sentence of section 402(a) (1) (relating to general rule for taxability of beneficiary of exempt trust). (2) The second sentence of section 402(b) (relating to taxability of beneficiary of non-exempt trust). (3) The second sentence of section 402(d) (relating to certain employees’ annuities). (4) Section 403(a)(1) (relating to the general rule for taxability of a beneficiary under a qualified annuity plan). (5) The second sentence of section 403(b) (1) (relating to general rule for taxability of beneficiary, etc.). (6) The second sentence of section 403(c) (relating to taxability of beneficiary under a nonqualified annuity). (f) Clerical Amendments.— (1) Subsection (f) of section 4 (relating to cross references to rules for optional tax) is amended by adding at the end thereof the following new paragraph: “(3) For rule that optional tax is not to apply if individual chooses the benefits of income averaging, see section 1304(b).” (2) Subsection (b) of section 5 (relating to cross references to special limitations on tax) is amended to read as follows: 78 Stat. 112 “(b) Special Limitations on Tax.— “(1) For limitation on surtax attributable to sales of oil or gas properties, see section 632. “(2) For limitation on tax in case of income of members of Armed Forces on death, see section 692. “(3) For limitation on tax where an individual chooses the benefits of income averaging, see section 1301. “(4) For computation of tax where taxpayer restores substantial amount held under claim of right, see section 1341. “(5) For limitation on surtax attributable to claims against the United States involving acquisitions of property, see section 1347.” (3) The table of parts for subchapter Q of chapter 1 is amended by striking out “Part I. Income attributable to several taxable years.” and inserting in lieu thereof “Part I. Income averaging.” (g) Effective Date.— (1) General rule.—Except as provided in paragraph (2), the amendments made by this section shall apply with respect to taxable years beginning after December 31, 1963. (2) Income from an employment.—If, in a taxable year beginning after December 31, 1963, an individual or partnership receives or accrues compensation from an employment (as defined by section 1301(b) of the Internal Revenue Code of 1954 as in effect, immediately before the enactment of this Act) and the employment, began before February 6, 1963, the tax attributable to such compensation may, at the election of the taxpayer, be computed under the provisions of sections 1301 and 1307 of such Code as in effect immediately before the enactment of this Act. If a taxpayer so elects (at such time and in such manner as the Secretary of the Treasury or his delegate by regulations prescribes), he may not choose or such taxable year the benefits provided by part I of subchapter Q of chapter 1 of such Code (relating to income averaging) as amended by this Act and (if he elects to have subsection (e) of such section 1307 apply) section 170(b) (5) of such Code as amended by this Act shall not apply to charitable contributions paid in such taxable year.