MINIMUM TAX FOR TAX PREFERENCES.

SEC. 301. MINIMUM TAX FOR TAX PREFERENCES. (a) In General.—Subchapter A of chapter 1 (relating to determination of tax liability) is amended by adding at the end thereof the following new part: “PART VI—MINIMUM TAX FOR TAX PREFERENCES “Sec. 56. Imposition of tax. “Sec. 57. Items of tax preference. “Sec. 58. Rules for application of this part. “SEC. 56. IMPOSITION OF TAX. “(a) In General.—In addition to the other taxes imposed by this chapter, there is hereby imposed for each taxable year, with respect to the income of every person, a tax equal to 10 percent of the amount (if any) by which— “(1) the sum of the items of tax preference in excess of $30,000, is greater than “(2) the taxes imposed by this chapter for the taxable year (computed without regard to this part and without regard to the taxes imposed by sections 531 and 541) reduced by the sum of the credits allowable under— “(A) section 33 (relating to foreign tax credit), “(B) section 37 (relating to retirement income), and “(C) section 38 (relating to investment credit). “(b) Deferral of Tax Liability in Case of Certain Net Operating Losses.— “(1) In general.—If for any taxable year a person— “(A) has a net operating loss any portion of which (under section 172) remains as a net operating loss carryover to a succeeding taxable year, and “(B) has items of tax preference in excess of $30,000, 83 Stat. 581 then an amount equal to the lesser of the tax imposed by subsection (a) or 10 percent of the amount of the net operating loss carryover described in subparagraph (A) shall be treated as tax liability not imposed for the taxable year, but as imposed for the succeeding taxable year or years pursuant to paragraph (2). “(2) Year of liability.—In any taxable year in which any portion of the net operating loss carryover attributable to the excess described in paragraph (1)(B) reduces taxable income, the amount of tax liability described in paragraph (1) shall be treated as tax liability imposed in such taxable year in an amount equal to 10 percent of such reduction. “(3) Priority of application.—For purposes of paragraph (2), if any portion of the net operating loss carryover described in paragraph (1)(A) is not attributable to the excess described in paragraph (1)(B), such portion shall be considered as being applied in reducing taxable income before such other portion. “SEC. 57. ITEMS OF TAX PREFERENCE. “(a) In General.—For purposes of this part, the items of tax preference are— “(1) Excess investment interest.—The amount of the excess investment interest for the taxable year (as determined under subsection (b)). “(2) Accelerated depreciation on real property.—With respect to each section 1250 property (as defined in section 1250 (c)), the amount by which the deduction allowable for the taxable year for exhaustion, wear and tear, obsolescence, or amortization exceeds the depreciation deduction which would have been allowable for the taxable year had the taxpayer depreciated the property under the straight line method for each taxable year of its useful life (determined without regard to section 167(k)) for which the taxpayer has held the property. “(3) Accelerated depreciation on personal property subject to a net lease.—With respect to each item of section 1245 property (as defined in section 1245(a)(3)) which is the subject of a net lease, the amount by which the deduction allowable for the taxable year for exhaustion, wear and tear, obsolescence, or amortization exceeds the depreciation deduction which would have been allowable for the taxable year had the taxpayer depreciated the property under the straight line method for each taxable year of its useful life for which the taxpayer has held the property. “(4) Amortization of certified pollution control facilities.—With respect to each certified pollution control facility for which an election is in effect under section 169, the amount by which the deduction allowable for the taxable year under such section exceeds the depreciation deduction which would otherwise be allowable under section 167. “(5) Amortization of railroad rolling stock.—With respect to each unit of railroad rolling stock for which an election is in effect under section 184, the amount by which the deduction allowable for the taxable year under such section exceeds the depreciation deduction which would otherwise be allowable under section 167. “(6) Stock options.—With respect to the transfer of a share of stock pursuant to the exercise of a qualified stock option (as defined in section 422(b)) or a restricted stock option (as defined in 83 Stat. 582 section 424(b)), the amount by which the fair market value of the share at the time of exercise exceeds the option price. “(7) Reserves for losses on bad debts of financial institutions.— In the case of a financial institution to which section 585 or 593 applies, the amount by which the deduction allowable for the taxable year for a reasonable addition to a reserve for bad debts exceeds the amount that would have been allowable had the institution maintained its bad debt reserve for all taxable years on the basis of actual experience. “(8) Depletion.—With respect to each property (as defined in section 614), the excess of the deduction for depletion allowable under section 611 for the taxable year over the adjusted basis of the property at the end of the taxable year (determined without regard to the depletion deduction for the taxable year). “(9) Capital gains.— “(A) Individuals.—In the case of a taxpayer other than a corporation, an amount equal to one-half of the amount by which the net long-term capital gain exceeds the net short-term capital loss for the taxable year. “(B) Corporations.—In the case of a corporation, if the net long-term capital gain exceeds the net short-term capital loss for the taxable year, an amount equal to the product obtained by multiplying such excess by a fraction the numerator of which is the sum of the normal tax rate and the surtax rate under section 11, minus the alternative tax rate under section 1201(a), for the taxable year, and the denominator of which is the sum of the normal tax rate and the surtax rate under section 11 for the taxable year. In the case of a corporation to which section 1201(a) does not apply, the amount under this subparagraph shall be determined under regulations prescribed by the Secretary or his delegate in a manner consistent with the preceding sentence. Paragraph (1) shall apply only to taxable years beginning before January 1, 1972. Paragraphs (1) and (3) shall not apply to a corporation other than an electing small business corporation (as defined in section 1371(b)) and a personal holding company (as defined in section 542). “(b) Excess Investment Interest.— “(1) In general.—For purposes of paragraph (1) of subsection (a), the excess investment interest for any taxable year is the amount by which the investment interest expense for the taxable year exceeds the net investment income for the taxable year. “(2) Definitions.—For purposes of this subsection— “(A) Net investment income.—The term ‘net investment income’ means the excess of investment income over investment expenses. “(B) Investment income.—The term ‘investment income’ means— “(i) gross income from interest, dividends, rents, and royalties, “(ii) the net short-term capital gain attributable to the disposition of property held for investment, and “(iii) amounts treated under sections 1245 and 1250 as gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231, but only to the extent such income, gain, and amounts are not derived from the conduct of a trade or business. 83 Stat. 583 “(C) Investment expenses.—The term ‘investment expenses’ means the deductions allowable under sections 164(a)(1) or (2), 166, 167, 171, 212, 243, 244, 245, or 611 directly connected with the production of investment income. For purposes of this subparagraph, the deduction allowable under section 167 with respect to any property may be treated as the amount which would have been allowable had the taxpayer depreciated the property under the straight line method for each taxable year of its useful life for which the taxpayer has held the property, and the deduction allowable under section 611 with respect to any property may be treated as the amount which would have been allowable had the taxpayer determined the deduction under section 611 without regard to section 613 for each taxable year for which the taxpayer has held the property. “(D) Investment interest expense.—The term ‘investment interest expense’ means interest paid or accrued on indebtedness incurred or continued to purchase or carry property held for investment. For purposes of the preceding sentence, interest paid or accrued on indebtedness incurred or continued in the construction of property to be used in a trade or business shall not be treated as an investment interest expense. “(3) Property subject to net lease.—For purposes of this subsection, property which is subject to a net lease entered into after October 9, 1969, shall be treated as property held for investment, and not as property used in a trade or business. “(c) Net Leases.—For purposes of this section, property shall be considered to be subject to a net lease for a taxable year if— “(1) for such taxable year the sum of the deductions with respect to such property which are allowable solely by reason of section 162 is less than 15 percent of the rental income produced by such property, or “(2) the lessor is either guaranteed a specified return or is guaranteed in whole or in part against loss of income. “SEC. 58. RULES FOR APPLICATION OF THIS PART. “(a) Husband and Wife.—In the case of a husband or wife who files a separate return for the taxable year, the $30,000 amount specified in section 56 shall be $15,000. “(b) Members of Controlled Groups.—In the case of a controlled group of corporations (as defined in section 1563(a)), the $30,000 amount specified in section 56 shall be divided equally among the component members of such group unless all component members consent (at such time and in such manner as the Secretary or his delegate prescribes by regulations) to an apportionment plan providing for an unequal allocation of such amount. “(c) Estates and Trusts.—In the case of an estate or trust— “(1) the sum of the items of tax preference for any taxable year of the estate or trust shall be apportioned between the estate trust and the beneficiaries on the basis of the income of the estate or trust allocable to each, and “(2) the $30,000 amount specified in section 56 applicable to such estate or trust shall be reduced to an amount which bears the same ratio to $30,000 as the portion of the sum of the items of tax preference allocated to the estate or trust under paragraph (1) bears to such sum. (d) Electing Small Business Corporations and Their Shareholders.— 83 Stat. 584 “(1) In general.—Except as provided in paragraph (2), the items of tax preference of an electing small business corporation (as defined in section 1371(b)) for each taxable year of the corporation shall be treated as items of tax preference of the shareholders of such corporation, and, except as provided in paragraph (2), shall not be treated as items of tax preference of such corporation. The sum of the items so treated shall be apportioned pro rata among such shareholders in a manner consistent with section 1374 (c)(1). For purposes of this paragraph, this part shall be treated as applying to such corporation. “(2) Certain capital gains.—If for a taxable year of an electing small business corporation a tax is imposed on the income of such corporation under section 1378, such corporation shall notwithstanding the provisions of section 1371(b)(1), be subject to the tax imposed by section 56, but computed only with reference to the item of tax preference set forth in section 57(a)(9)(B) to the extent attributable to gains subject to the tax imposed by section 1378. “(e) Participants in a Common Trust Fund.—The items of tax preference of a common trust fund (as defined in section 584(a)) for each taxable year of the fund shall be treated as items of tax preference of the participants of such fund and shall be apportioned pro rata among such participants. For purposes of this subsection, this part shall be treated as applying to such fund. “(f) Regulated Investment Companies, Etc.—In the case of a regulated investment company to which part I of subchapter M applies or a real estate investment trust to which part II of subchapter M applies— “(1) the item of tax preference set forth in section 57(a)(9) shall not be treated as an item of tax preference of such company or such trust for each taxable year to the extent that such item is attributable to amounts taken into account as income by the shareholders of such company under section 852(b)(3), or by the shareholders or holders of beneficial interests of such trust under section 857(b)(3), and “(2) the items of tax preference of such company or such trust for each taxable year (other than the item of tax preference set forth in section 57(a)(9) and, in the case of a real estate investment trust, the item of tax preference set forth in section 57(a) (2)) shall be treated as items of tax preference of the shareholders of such company, or the shareholders or holders of beneficial interests of such trust (and not as items of tax preference of such company or such trust), in the same proportion that the dividends (other than capital gain dividends) paid to each such shareholder, or holder of beneficial interest, bears to the taxable income of such company or such trust determined without regard to the deduction for dividends paid. “(g) Tax Preferences Attributable to Foreign Sources.— “(1) In general.—For purposes of section 56, the items of tax preference set forth in section 57(a) (other than in paragraphs (6) and (9) of such section) which are attributable to sources within any foreign country or possession of the United States shall be taken into account only to the extent that such items reduce the tax imposed by this chapter (other than the tax imposed by section 56) on income derived from sources within the United States. For purposes of the preceding sentence, items of tax preference shall be treated as reducing the tax imposed by this chapter before items which are not items of tax preference. 83 Stat. 585 “(2) Capital gains and stock options.—For purposes of section 56, the items of tax preference set forth in paragraphs (6) and (9) of section 57(a) which are attributable to sources within any foreign country or possession of the United States shall not be taken into account if, under the tax laws of such country or possession— “(A) in the case of the item set forth in paragraph (6) of section 57(a), preferential treatment is not accorded transfers of shares of stock pursuant to stock options described in such paragraph, and “(B) in the case of the item set forth in paragraph (9) of section 57(a), preferential treatment is not accorded gain from the sale or exchange of capital assets (or property treated as capital assets).” (b) Technical and Conforming Amendments.— (1) The table of parts for subchapter A of chapter 1 is amended by adding at the end thereof the following new item: “Part VI. Minimum tax for tax preferences.” (2) Section 5(a) (relating to cross references to other rates of tax on individuals, etc.) is amended by adding at the end thereof the following new paragraph: “(5) For minimum tax for tax preferences, see section 56.” (3) Section 12 (relating to cross references relating to tax on corporations) is amended by adding at the end thereof the following new paragraph: “(8) For minimum tax for tax preferences, see section 56.” (4) Section 46(a)(3) (relating to liability for tax for determining amount of investment credit) is amended by inserting “section 56 (relating to minimum tax for tax preferences),” before “section 531”. (5) Section 51(b)(1) (relating to adjusted tax for purposes of tax surcharge) is amended by inserting “section 56,” after “this section,”. (6) Section 443 (relating to returns for a period of less than 12 months) is amended by redesignating subsection (d) as subsection (e) and inserting after subsection (c) the following new subsection: “(d) Adjustment in Exclusion for Computing Minimum Tax for Tax Preferences.—If a return is made for a short period by reason of subsection (a), then the $30,000 amount specified in section 56 (relating to minimum tax for tax preferences), modified as provided by section 58, shall be reduced to the amount which bears the same ratio to such specified amount as the number of days in the short period bears to 365.” (7) Section 453(c)(3) (relating to rule for change from accrual to installment basis) is amended by inserting “, other than by section 56,” after “prior revenue laws)”. (8) Section 511 (relating to tax on unrelated business income of charitable, etc., organizations) is amended by adding after subsection (c) (as added by section 121(a)(3) of this Act) the following new subsection: “(d) Tax Preferences.—The tax imposed by section 56 shall apply to an organization subject to tax under this section with respect to Items of tax preference which enter into the computation of unrelated business taxable income.” (9) The last sentence of section 901(a) (relating to allowance of credit for taxes of foreign countries and of possessions of the United States) is amended by inserting “against the tax imposed 83 Stat. 586 by section 56 (relating to minimum tax for tax preferences),” after “not be allowed”. (10) Section 1373(c) (relating to definition of “undistributed taxable income) is amended by striking out “tax imposed by section 1378(a)” and inserting in lieu thereof “taxes imposed by sections 56 and 1378(a)”. (11) Section 1375(a)(3) (relating to reduction for taxes imposed) is amended— (A) by striking out “tax imposed by section 1378” in the heading of such section and inserting in lieu thereof “taxes imposed”; and (B) by striking out “tax imposed by section 1378(a) on the income of” in the text of such section and inserting in lieu thereof “taxes imposed by sections 56 and 1378(a) on”. (12) Section 6015(c) (relating to definition of estimated tax) is amended by inserting after “taxable year” in paragraph (1) “(other than the tax imposed by section 56)”. (13) Section 6654(f) (relating to definition of tax) is amended by inserting after “chapter 1” in paragraph (1) “(other than by section 56)”. (c) Effective Date.—The amendments made by this section shall apply to taxable years ending after December 31, 1969. In the case of a taxable year beginning in 1969 and ending in 1970, the tax imposed by section 56 of the Internal Revenue Code of 1954 (as added by subsection (a)) shall be an amount equal to the tax imposed by such section (determined without regard to this sentence) multiplied by a fraction— (1) the numerator of which is the number of days in the taxable year occurring after December 31, 1969, and (2) the denominator of which is the number of days in the entire taxable year.