CHARITABLE CONTRIBUTIONS.

SEC. 201. CHARITABLE CONTRIBUTIONS. (a) Limitations and Special Rules.— (1) In general.—Section 170 (relating to charitable, etc., contributions and gifts) is amended— (A) by redesignating subsections (h) and (i) as (i) and (j), respectively, and by redesignating subsection (d) as (h), and (B) by striking out subsections (a), (b), (c), (e), and (f) and inserting in lieu thereof the following: “(a) Allowance of Deduction.— “(1) General rule.—There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary or his delegate. “(2) Corporations on accrual basis.—In the case of a corporation reporting its taxable income on the accrual basis, if— “(A) the board of directors authorizes a charitable contribution during any taxable year, and “(B) payment of such contribution is made after the close of such taxable year and on or before the 15th day of the third month following the close of such taxable year, then the taxpayer may elect to treat such contribution as paid during such taxable year. The election may be made only at the time of the filing of the return for such taxable year, and shall be signified in such manner as the Secretary or his delegate shall by regulations prescribe. “(3) Future interests in tangible personal property.—For purposes of this section, payment of a charitable contribution which consists of a future interest in tangible personal property shall be treated as made only when all intervening interests in, and rights to the actual possession or enjoyment of, the property have expired or are held by persons other than the taxpayer or those standing in a relationship to the taxpayer described in section 83 Stat. 550 267(b). For purposes of the preceding sentence, a fixture which is intended to be severed from the real property shall be treated as tangible personal property. “(b) Percentage Limitations.— “(1) Individuals.—In the case of an individual, the deduction provided in subsection (a) shall be limited as provided in the succeeding subparagraphs. “(A) General rule.—Any charitable contribution to— “(i) a church or a convention or association of churches, “(ii) an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on, “(iii) an organization the principal purpose or functions of which are the providing of medical or hospital care or medical education or medical research, if the organization is a hospital, or if the organization is a medical research organization directly engaged in the continuous active conduct of medical research in conjunction with a hospital, and during the calendar year in which the contribution is made such organization is committed to spend such contributions for such research before January 1 of the fifth calendar year which begins after the date such contribution is made, “(iv) an organization which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501(a)) from the United States or any State or political subdivision thereof or from direct or indirect contributions from the general public, and which is organized and operated exclusively to receive, hold, invest, and administer property and to make expenditures to or for the benefit of a college or university which is an organization referred to in clause (ii) of this subparagraph and which is an agency or instrumentality of a State or political subdivision thereof, or which is owned or operated by a State or political subdivision thereof or by an agency or instrumentality of one or more States or political subdivisions, “(v) a governmental unit referred to in subsection (c)(1), “(vi) an organization referred to in subsection (c)(2) which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501(a)) from a governmental unit referred to in subsection (c)(1) or from direct or indirect contributions from the general public, “(vii) a private foundation described in subparagraph (E), or 83 Stat. 551 “(viii) an organization described in section 509(a)(2) or (3), shall be allowed to the extent that the aggregate of such contributions does not exceed 50 percent of the taxpayer’s contribution base for the taxable year. “(B) Other contributions.—Any charitable contribution other than a charitable contribution to which subparagraph (A) applies shall be allowed to the extent that the aggregate of such contributions does not exceed the lesser of— “(i) 20 percent of the taxpayer’s contribution base for the taxable year, or “(ii) the excess of 50 percent of the taxpayer’s contribution base for the taxable year over the amount of charitable contributions allowable under subparagraph (A) (determined without regard to subparagraph (D)). “(C) Unlimited deduction for certain individuals.—Subject to the provisions of subsections (f)(6) and (g), the limitations in subparagraphs (A), (B), and (D), and the provisions of subsection (e)(1)(B), shall not apply, in the case of an individual for a taxable year beginning before January 1, 1975, if in such taxable year and in 8 of the 10 preceding taxable years, the amount of the charitable contributions, plus the amount of income tax (determined without regard to chapter 2, relating to tax on self-employment income) paid during such year in respect of such year or preceding taxable years, exceeds the transitional deduction percentage (determined under subsection (f)(6)) of the taxpayer’s taxable income for such year, computed without regard to— “(i) this section, “(ii) section 151 (allowance of deductions for personal exemption), and “(iii) any net operating loss carryback to the taxable year under section 172. In lieu of the amount of income tax paid during any such year, there may be substituted for that year the amount of income tax paid in respect of such year, provided that any amount so included in the year in respect of which payment was made shall not be included in any other year. “(D) Special limitation with respect to contributions of certain capital gain property.— “(i) In the case of charitable contributions of capital gain property to which subsection (e)(1)(B) does not apply, the total amount of contributions of such property which may be taken into account under subsection (a) for any taxable year shall not exceed 30 percent of the taxpayer’s contribution base for such year. For purposes of this subsection, contributions of capital gain property to which this paragraph applies shall be taken into account after all other charitable contributions. “(ii) If charitable contributions described in subparagraph (A) of capital gain property to which clause (i) applies exceeds 30 percent of the taxpayer’s contribution base for any taxable year, such excess shall be treated, in a manner consistent with the rules of subsection (d)(1), as a charitable contribution of capital gain property to which clause (i) applies in each of the 5 succeeding taxable years in order of time. 83 Stat. 552 “(iii) At the election of the taxpayer (made at such time and in such manner as the Secretary or his delegate prescribes by regulations), subsection (e)(1) shall apply to all contributions of capital gain property (to which subsection (e)(1)(B) does not otherwise apply) made by the taxpayer during the taxable year. If such an election is made, clauses (i) and (ii) shall not apply to contributions of capital gain property made during the taxable year, and, in applying subsection (d)(1) for such taxable year with respect to contributions of capital gain property made in any prior contribution year for which an election was not made under this clause, such contributions shall be reduced as if subsection (e)(1) had applied to such contributions in the year in which made. “(iv) For purposes of this subparagraph, the term ‘capital gain property’ means, with respect to any contribution, any capital asset the sale of which at its fair market value at the time of the contribution would have resulted in gain which would have been long-term capital gain. For purposes of the preceding sentence, any property which is property used in the trade or business (as defined in section 1231(b)) shall be treated as a capital asset. “(E) Certain private foundations.—The private foundations referred to in subparagraph (A)(vii) and subsection (e)(1)(B) are— “(i) a private operating foundation (as defined in section 4942(j)(3)), “(ii) any other private foundation (as defined in section 509(a)) which, not later than the 15th day of the third month after the close of the foundation’s taxable year in which contributions are received, makes qualifying distributions (as defined in section 4942(g), without regard to paragraph (3) thereof), which are treated, after the application of section 4942(g)(3), as distributions out of corpus (in accordance with section 4942(h)) in an amount equal to 100 percent of such contributions, and with respect to which the taxpayer obtains adequate records or other sufficient evidence from the foundation showing that the foundation made such qualifying distributions, and “(iii) a private foundation all of the contributions to which are pooled in a common fund and which would be described in section 509(a)(3) but for the right of any substantial contributor (hereafter in this clause called ‘donor’) or his spouse to designate annually the recipients, from among organizations described in paragraph (1) of section 509(a), of the income attributable to the donor’s contribution to the fund and to direct (by deed or by will) the payment, to an organization described in such paragraph (1), of the corpus in the common fund attributable to the donor’s contribution; but this clause shall apply only if all of the income of the common fund is required to be (and is) distributed to one or more organizations described in such paragraph (1) not later than the 15th day of the third month after the close of the taxable year in which the income is realized by the fund and only if 83 Stat. 553 all of the corpus attributable to any donor’s contribution to the fund is required to be (and is) distributed to one or more of such organizations not later than one year after his death or after the death of his surviving spouse if she has the right to designate the recipients of such corpus. “(F) Contribution base defined.—For purposes of this section, the term ‘contribution base’ means adjusted gross income (computed without regard to any net operating loss carryback to the taxable year under section 172). “(2) Corporations.—In the case of a corporation, the total deductions under subsection (a) for any taxable year shall not exceed 5 percent of the taxpayer’s taxable income computed without regard to— “(A) this section, “(B) part VIII (except section 248), “(C) any net operating loss carryback to the taxable year under section 172, “(D) section 922 (special deduction for Western Hemisphere trade corporations), and “(E) any capital loss carryback to the taxable year under section 1212(a)(1). “(c) Charitable Contribution Defined.—For purposes of this section, the term ‘charitable contribution’ means a contribution or gift to or for the use of— “(1) A State, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes. “(2) A corporation, trust, or community chest, fund, or foundation— “(A) created or organized in the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States; “(B) organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals; “(C) no part of the net earnings of which inures to the benefit of any private shareholder or individual; and “(D) no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office. A contribution or gift by a corporation to a trust, chest, fund, or foundation shall be deductible by reason of this paragraph only if it is to be used within the United States or any of its possessions exclusively for purposes specified in subparagraph (B). “(3) A post or organization of war veterans, or an auxiliary unit or society of, or trust or foundation for, any such post or organization— “(A) organized in the United States or any of its possessions, and “(B) no part of the net earnings of which inures to the benefit of any private shareholder or individual. 83 Stat. 554 “(4) In the case of a contribution or gift by an individual, a domestic fraternal society, order, or association, operating under the lodge system, but only if such contribution or gift is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. “(5) A cemetery company owned and operated exclusively for the benefit of its members, or any corporation chartered solely for burial purposes as a cemetery corporation and not permitted by its charter to engage in any business not necessarily incident to that purpose, if such company or corporation is not operated for profit and no part of the net earnings of such company or corporation inures to the benefit of any private shareholder or individual. For purposes of this section, the term ‘charitable contribution’ also means an amount treated under subsection (h) as paid for the use an organization described in paragraph (2), (3), or (4). “(d) Carryovers of Excess Contributions.— “(1) Individuals.— “(A) In general.—In the case of an individual, if the amount of charitable contributions described in subsection (b)(1)(A) payment of which is made within a taxable year (hereinafter in this paragraph referred to as the ‘contribution year’) exceeds 50 percent (30 percent, in the case of a contribution year beginning before January 1, 1970) of the taxpayer’s contribution base for such year, such excess shall be treated as a charitable contribution described in subsection (b)(1)(A) paid in each of the 5 succeeding taxable years in order of time, but, with respect to any such succeeding taxable year, only to the extent of the lesser of the two following amounts: “(i) the amount by which 50 percent of the taxpayer’s contribution base for such succeeding taxable year exceeds the sum of the charitable contributions described in subsection (b)(1)(A) payment of which is made by the taxpayer within such succeeding taxable year (determined without regard to this subparagraph) and the charitable contributions described in subsection (b)(1)(A) payment of which was made in taxable years before the contribution year which are treated under this subparagraph as having been paid in such succeeding taxable year; or “(ii) in the case of the first succeeding taxable year, the amount of such excess, and in the case of the second, third, fourth, or fifth succeeding taxable year, the portion of such excess not treated under this subparagraph as a charitable contribution described in subsection (b)(1)(A) paid in any taxable year intervening between the contribution year and such succeeding taxable year. “(B) Special rule for net operating loss carryovers.—In applying subparagraph (A), the excess determined under subparagraph (A) for the contribution year shall be reduced to the extent that such excess reduces taxable income (as computed for purposes of the second sentence of section 172(b)(2)) and increases the net operating loss deduction for a taxable year succeeding the contribution year. “(2) Corporations.— “(A) In general.—Any contribution made by a corporation in a taxable year (hereinafter in this paragraph referred 83 Stat. 555 to as the ‘contribution year’) in excess of the amount deductible for such year under subsection (b)(2) shall be deductible for each of the 5 succeeding taxable years in order of time, but only to the extent of the lesser of the two following amounts: (i) the excess of the maximum amount deductible for such succeeding taxable year under subsection (b)(2) over the sum of the contributions made in such year plus the aggregate of the excess contributions which were made in taxable years before the contribution year and which are deductible under this subparagraph for such succeeding taxable year; or (ii) in the case of the first succeeding taxable year, the amount of such excess contribution, and in the case of the second, third, fourth, or fifth succeeding taxable year, the portion of such excess contribution not deductible under this subparagraph for any taxable year intervening between the contribution year and such succeeding taxable year. “(B) Special rule for net operating loss carryovers.—For purposes of subparagraph (A), the excess of— “(i) the contributions made by a corporation in a taxable year to which this section applies, over “(ii) the amount deductible in such year under the limitation in subsection (b)(2), shall be reduced to the extent that such excess reduces taxable income (as computed for purposes of the second sentence of section 172(b)(2)) and increases a net operating loss carryover under section 172 to a succeeding taxable year. “(e) Certain Contributions of Ordinary Income and Capital Gain Property.— “(1) General rule.—The amount of any charitable contribution of property otherwise taken into account under this section shall be reduced by the sum of— “(A) the amount of gain which would not have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution), and “(B) in the case of a charitable contribution— “(i) of tangible personal property, if the use by the donee is unrelated to the purpose or function constituting the basis for its exemption under section 501 (or, in the case of a governmental unit, to any purpose or function described in subsection (c)), or “(ii) to or for the use of a private foundation (as defined in section 509(a)), other than a private foundation described in subsection (b)(1)(E), 50 percent (62½ percent, in the case of a corporation) of the amount of gain which would have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution). For purposes of applying this paragraph (other than in the case of gain to which section 617(d)(1), 1245(a), 1250(a), 1251(c), or 1252(a) applies), property which is property used in the trade or business (as defined in section 1231(b)) shall be treated as a capital asset. “(2) Allocation of basis.—For purposes of paragraph (1), in the case of a charitable contribution of less than the taxpayer’s entire interest in the property contributed, the taxpayer’s adjusted 83 Stat. 556 basis in such property shall be allocated between the interest contributed and any interest not contributed in accordance with regulations prescribed by the Secretary or his delegate. “(f) Disallowance of Deduction in Certain Cases and Special Rules.— “(1) In general.—No deduction shall be allowed under this section for a contribution to or for the use of an organization or trust described in section 508(d) or 4948(c)(4) subject to the conditions specified in such sections. “(2) Contributions of property placed in trust.— “(A) Remainder interest.—In the case of property transferred in trust, no deduction shall be allowed under this section for the value of a contribution of a remainder interest unless the trust is a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664) or a pooled income fund (described in section 642(c)(5)). “(B) Income interests, etc.—No deduction shall be allowed under this section for the value of any interest in property (other than a remainder interest) transferred in trust unless the interest is in the form of a guaranteed annuity or the trust instrument specifies that the interest is a fixed percentage distributed yearly of the fair market value of the trust property (to be determined yearly) and the grantor is treated as the owner of such interest for purposes of applying section 671. If the donor ceases to be treated as the owner of such an interest for purposes of applying section 671, at the time the donor ceases to be so treated, the donor shall for purposes of this chapter be considered as having received an amount of income equal to the amount of any deduction he received under this section for the contribution reduced by the discounted value of all amounts of income earned by the trust and taxable to him before the time at which he ceases to be treated as the owner of the interest. Such amounts of income shall be discounted to the date of the contribution. The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this subparagraph. “(C) Denial of deduction in case of payments by certain trusts.—In any case in which a deduction is allowed under this section for the value of an interest in property described in subparagraph (B), transferred in trust, no deduction shall be allowed under this section to the grantor or any other person for the amount of any contribution made by the trust with respect to such interest. “(D) Exception.—This paragraph shall not apply in a case in which the value of all interests in property transferred in trust are deductible under subsection (a). “(3) Denial of deduction in case of certain contributions of partial interests in property.— “(A) In general.—In the case of a contribution (not made by a transfer in trust) of an interest in property which consists of less than the taxpayer’s entire interest in such property, a deduction shall be allowed under this section only to the extent that the value of the interest contributed would be allowable as a deduction under this section if such interest had been transferred in trust. For purposes of this subparagraph, a contribution by a taxpayer of the right to use property shall be treated as a contribution of less than the taxpayer’s entire interest in such property. 83 Stat. 557 “(B) Exceptions.—Subparagraph (A) shall not apply to a contribution of— “(i) a remainder interest in a personal residence or farm, or “(ii) an undivided portion of the taxpayer’s entire interest in property. “(4) Valuation of remainder interest in real property.—For purposes of this section, in determining the value of a remainder interest in real property, depreciation (computed on the straight line method) and depletion of such property shall be taken into account, and such value shall be discounted at a rate of 6 percent per annum, except that the Secretary or his delegate may prescribe a different rate. “(5) Reduction for certain interest.—If, in connection with any charitable contribution, a liability is assumed by the recipient or by any other person, or if a charitable contribution is of property which is subject to a liability, then, to the extent necessary to avoid the duplication of amounts, the amount taken into account for purposes of this section as the amount of the charitable contribution— “(A) shall be reduced for interest (i) which has been paid (or is to be paid) by the taxpayer, (ii) which is attributable to the liability, and (iii) which is attributable to any period after the making of the contribution, and “(B) in the case of a bond, shall be further reduced for interest (i) which has been paid (or is to be paid) by the taxpayer on indebtedness incurred or continued to purchase or carry such bond, and (ii) which is attributable to any period before the making of the contribution. The reduction pursuant to subparagraph (B) shall not exceed the interest (including interest equivalent) on the bond which is attributable to any period before the making of the contribution and which is not (under the taxpayer’s method of accounting) includible in the gross income of the taxpayer for any taxable year. For purposes of this paragraph, the term ‘bond’ means any bond, debenture, note, or certificate or other evidence of indebtedness. “(6) Partial reduction of unlimited deduction.— “(A) In general.—If the limitations in subsections (b)(1)(A) and (B) do not apply because of the application of subsection (b)(1)(C), the amount otherwise allowable as a deduction under subsection (a) shall be reduced by the amount by which the taxpayer’s taxable income computed without regard to this subparagraph is less than the transitional income percentage (determined under subparagraph (C)) of the taxpayer’s adjusted gross income. However, in no case shall a taxpayer’s deduction under this section be reduced below the amount allowable as a deduction under this section without the applicability of subsection (b)(1)(C). “(B) Transitional deduction percentage.—For purposes of applying subsection (b)(1)(C), the term ‘transitional deduction percentage’ means— “(i) in the case of a taxable year beginning before 1970, 90 percent, and “(ii) in the case of a taxable year beginning in— 1970 80 percent 1971 74 percent 1972 68 percent 1973 62 percent 1974 56 percent. 83 Stat. 558 “(C) Transitional income percentage.—For purposes of applying subparagraph (A), the term ‘transitional income percentage’ means, in the case of a taxable year beginning in— 1970 20 percent 1971 26 percent 1972 32 percent 1973 38 percent 1974 44 percent.” (2) Conforming amendments.— (A) Section 170(g) (relating to application of unlimited charitable deduction) is amended by striking out “subsection (b)(5)” each place it appears and inserting in lieu thereof “subsection (d)(1)”, and by striking subparagraph (B) of paragraph (2). (B) Section 545(b)(2) (relating to adjustments to personal holding company taxable income) and section 556 (b)(2) (relating to adjustments to foreign personal holding company taxable income) are each amended— (i) by striking out “section 170(b)(1)(A) and (B)” in the first sentence and inserting in lieu thereof “section 170(b)(1)(A), (B), and (D)”; (ii) by striking out “section 170(b)(2) and (5)” in the first sentence and inserting in lieu thereof “section 170(b)(2) and (d)(1)”; (iii) by striking out “‘adjusted gross income’” in the second sentence and inserting in lieu thereof “‘contribution base’”; and (iv) by striking out “the first sentence of section 170(b)(2) and (5)” in the second sentence and inserting in lieu thereof “section 170(b)(2) and (d)(1)”. (C) Section 809(e)(3) (relating to modifications of deductions for life insurance companies) is amended— (i) by striking out “the first sentence of” in subparagraph (A); and (ii) by striking out “section 170(b)(3)” in subparagraph (B) and inserting in lieu thereof “section 170(d)(2)(B)”. (b) Charitable Contributions by Estates and Trusts.—Subsection (c) of section 642 (relating to deduction for amounts paid or permanently set aside for a charitable purpose) is amended to read as follows: “(c) Deduction for Amounts Paid or Permanently Set Aside for a Charitable Purpose.— “(1) General rule.—In the case of an estate or trust (other then a trust meeting the specifications of subpart B), there shall be allowed as a deduction in computing its taxable income (in lieu of the deduction allowed by section 170(a), relating to deduction for charitable, etc., contributions and gifts) any amount of the gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, paid for a purpose specified in section 170(c) (determined without regard to section 170(c)(2)(A)). If a charitable contribution is paid after the close of such taxable year and on or before the last day of the year following the close of such taxable year, then the trustee or administrator may elect to treat such contribution as paid during such taxable year. The election shall be made at such time and in such manner as the Secretary or his delegate prescribes by regulations. 83 Stat. 559 “(2) Amounts permanently set aside.—In the case of an estate, and in the case of a trust (other than a trust meeting the specifications of subpart B) required by the terms of its governing instrument to set aside amounts which was— “(A) created on or before October 9, 1969, if— “(i) an irrevocable remainder interest is transferred to or for the use of an organization described in section 170(c), or “(ii) the grantor is at all times after October 9, 1969, under a mental disability to change the terms of the trust; or “(B) established by a will executed on or before October 9, 1969, if— “(i) the testator dies before October 9, 1972, without having republished the will after October 9, 1969, by codicil or otherwise, “(ii) the testator at no time after October 9, 1969, had the right to change the portions of the will which pertain to the trust, or “(iii) the will is not republished by codicil or otherwise before October 9, 1972, and the testator is on such date and at all times thereafter under a mental disability to republish the will by codicil or otherwise, there shall also be allowed as a deduction in computing its taxable income any amount of the gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, permanently set aside for a purpose specified in section 170(c), or is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, or for the establishment, acquisition, maintenance, or operation of a public cemetery not operated for profit. In the case of a trust, the preceding sentence shall apply only to gross income earned with respect to amounts transferred to the trust before October 9, 1969, or transferred under a will to which subparagraph (B) applies. “(3) Pooled income funds.—In the case of a pooled income fund (as defined in paragraph (5)), there shall also be allowed as a deduction in computing its taxable income any amount of the gross income attributable to gain from the sale of a capital asset held for more than 6 months, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, permanently set aside for a purpose specified in section 170(c). “(4) Adjustments.—To the extent that the amount otherwise allowable as a deduction under this subsection consists of gain from the sale or exchange of capital assets held for more than 6 months, proper adjustment shall be made for any deduction allowable to the estate or trust under section 1202 (relating to deduction for excess of capital gains over capital losses). In the case of a trust, the deduction allowed by this subsection shall be subject to section 681 (relating to unrelated business income). “(5) Definition of pooled income fund.—For purposes of paragraph (3), a pooled income fund is a trust— “(A) to which each donor transfers property, contributing an irrevocable remainder interest in such property to or for the use of an organization described in section 170(b)(1)(A) (other than in clauses (vii) or (viii)), and retaining an income interest for the life of one or more beneficiaries (living at the time of such transfer), 83 Stat. 560 “(B) in which the property transferred by each donor is commingled with property transferred by other donors who have made or make similar transfers, “(C) which cannot have investments in securities which are exempt from the taxes imposed by this subtitle, “(D) which includes only amounts received from transfers which meet the requirements of this paragraph, “(E) which is maintained by the organization to which the remainder interest is contributed and of which no donor or beneficiary of an income interest is a trustee, and “(F) from which each beneficiary of an income interest receives income, for each year for which he is entitled to receive the income interest referred to in subparagraph (A) determined by the rate of return earned by the trust for such year. For purposes of determining the amount of any charitable contribution allowable by reason of a transfer of property to a pooled fund, the value of the income interest shall be determined on the basis of the highest rate of return earned by the fund for any of the 3 taxable years immediately preceding the taxable year of the fund in which the transfer is made. In the case of funds in existence less than 3 taxable years preceding the taxable year of the fund in which a transfer is made, the rate of return shall be deemed to be 6 percent per annum, except that the Secretary or his delegate may prescribe a different rate of return. “(6) Taxable private foundations.—In the case of a private foundation which is not exempt from taxation under section 501 (a) for the taxable year, the provisions of this subsection shall not apply and the provisions of section 170 shall apply.” (c) Two-Year Charitable Trusts.—Section 673(b) (relating to trusts where the income is payable to a charitable beneficiary for at least a two-year period) is repealed. (d) Disallowance of Estate and Gift Tax Deductions in Certain Cases.— (1) Estates of citizens or residents.—Subsection (e) of section 2055 (relating to disallowance of charitable deductions in certain cases) is amended to read as follows: “(e) Disallowance of Deductions in Certain Cases.— “(1) No deduction shall be allowed under this section for a transfer to or for the use of an organization or trust described in section 508(d) or 4948(c)(4) subject to the conditions specified in such sections. “(2) Where an interest in property (other than a remainder interest in a personal residence or farm or an undivided portion of the decedent’s entire interest in property) passes or has passed from the decedent to a person, or for a use, described in subsection (a), and an interest (other than an interest which is extinguished upon the decedent’s death) in the same property passes or has passed (for less than an adequate and full consideration in money or money’s worth) from the decedent to a person, or for a use, not described in subsection (a), no deduction shall be allowed under this section for the interest which passes or has passed to the person, or for the use, described in subsection (a) unless— “(A) in the case of a remainder interest, such interest is in a trust which is a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664) or a pooled income fund (described in section 642(c)(5)), or 83 Stat. 561 “(B) in the case of any other interest, such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair market value of the property (to be determined yearly).” (2) Estates of nonresidents not citizens.—Subparagraph (E) of section 2106(a)(2) (relating to disallowance of deductions in certain cases) is amended to read as follows: “(E) Disallowance of deductions in certain cases.—The provisions of section 2055 (e) shall be applied in the determination of the amount allowable as a deduction under this paragraph.” (3) Gift tax.—Subsection (c) of section 2522 (relating to disallowance of charitable deductions in certain cases) is amended to read as follows: “(c) Disallowance of Deductions in Certain Cases.— “(1) No deduction shall be allowed under this section for a gift to of for the use of an organization or trust described in section 508(d) or 4948(c)(4) subject to the conditions specified in such sections. “(2) Where a donor transfers an interest in property (other than a remainder interest in a personal residence or farm or an undivided portion of the donor’s entire interest in property) to a person, or for a use, described in subsection (a) or (b) and an interest in the same property is retained by the donor, or is transferred or has been transferred (for less than an adequate and full consideration in money or money’s worth) from the donor to a person, or for a use, not described in subsection (a) or (b), no deduction shall be allowed under this section for the interest which is, or has been transferred to the person, or for the use, described in subsection (a) or (b), unless— “(A) in the case of a remainder interest, such interest is in a trust which is a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664) or a pooled income fund (described in section 642(c)(5)), or “(B) in the case of any other interest, such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair market value of the property (to be determined yearly).” (4) Political Activities.— (A) Section 2055(a) (relating to transfers for public, charitable, and religious uses) is amended— (i) by striking out “and” before “no substantial part” in paragraph (2), and by inserting before the semicolon at the end of such paragraph “, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office”; and (ii) by striking out “and” before “no substantial part” in paragraph (3), and by inserting before the semicolon at the end of such paragraph “, and such trustee or trustees, or such fraternal society, order, or association, does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office”. (B) Section 2106(a)(2) (relating to transfers for public, charitable, and religious uses) is amended— 83 Stat. 562 (i) by striking out “and” before “no substantial part” in subparagraph (A)(ii), and by inserting before the semicolon at the end of such subparagraph “, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office”; and (ii) by striking out “and” before “no substantial part” in subparagraph (A)(iii), and by inserting before the semicolon at the end of such subparagraph “, and such trustee or trustees, or such fraternal society, order or association, does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office”. (C) Section 2522(a) (relating to charitable and similar gifts of citizens or residents) is amended by striking out “and” before “no substantial part” in paragraph (2), and by inserting before the semicolon at the end of such paragraph “, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office”. (D) Section 2522(b) (relating to charitable and similar gifts of nonresidents) is amended— (i) by striking out “and” before “no substantial part” in paragraph (2), and by inserting before the semicolon at the end of such paragraph “, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office”; and (ii) by inserting after “legislation” in paragraph (3) “, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office”. (e) Charitable Remainder Trusts.— (1) Subpart C of part I of subchapter J of chapter 1 (relating to estates and trusts which may accumulate income or which distribute corpus) is amended by adding at the end thereof the following new section: “SEC. 664. CHARITABLE REMAINDER TRUSTS. “(a) General Rule.—Notwithstanding any other provision of this subchapter, the provisions of this section shall, in accordance with regulations prescribed by the Secretary or his delegate, apply in the case of a charitable remainder annuity trust and a charitable remainder unitrust. “(b) Character of Distributions.—Amounts distributed by a charitable remainder annuity trust or by a charitable remainder unitrust shall be considered as having the following characteristics in the hands of a beneficiary to whom is paid the annuity described in subsection (d)(1)(A) or the payment described in subsection (d)(2)(A): “(1) First, as amounts of income (other than gains, and amounts treated as gains, from the sale or other disposition of capital assets) includible in gross income to the extent of such income of the trust for the year and such undistributed income of the trust for prior years; 83 Stat. 563 “(2) Second, as a capital gain to the extent of the capital gain of the trust for the year and the undistributed capital gain of the trust for prior years; “(3) Third, as other income to the extent of such income of the trust for the year and such undistributed income of the trust for prior years; and “(4) Fourth, as a distribution of trust corpus. For purposes of this section, the trust shall determine the amount of its undistributed capital gain on a cumulative net basis. “(c) Exemption From Income Taxes.—A charitable remainder annuity trust and a charitable remainder unitrust shall, for any taxable year, not be subject to any tax imposed by this subtitle, unless such trust, for such year, has unrelated business taxable income (within the meaning of section 512, determined as if part III of subchapter F applied to such trust). “(d) Definitions.— “(1) Charitable remainder annuity trust.—For purposes of this section, a charitable remainder annuity trust is a trust— “(A) from which a sum certain (which is not less than 5 percent of the initial net fair market value of all property placed in trust) is to be paid, not less often than annually, to one or more persons (at least one of which is not an organization described in section 170(c) and, in the case of individuals, only to an individual who is living at the time of the creation of the trust) for a term of years (not in excess of 20 years) or for the life or lives of such individual or individuals, “(B) from which no amount other than the payments described in subparagraph (A) may be paid to or for the use of any person other than an organization described in section 170(c), and “(C) following the termination of the payments described in subparagraph (A), the remainder interest in the trust is to be transferred to, or for the use of, an organization described in section 170(c) or is to be retained by the trust for such a use. “(2) Charitable remainder unitrust.—For purposes of this section, a charitable remainder unitrust is a trust— “(A) from which a fixed percentage (which is not less than 5 percent) of the net fair market value of its assets, valued annually, is to be paid, not less often than annually, to one or more persons (at least one of which is not an organization described in section 170(c) and, in the case of individuals, only to an individual who is living at the time of the creation of the trust) for a term of years (not in excess of 20 years) or for the life or lives of such individual or individuals, “(B) from which no amount other than the payments described in subparagraph (A) may be paid to or for the use of any person other than an organization described in section 170(c), and “(C) following the termination of the payments described in subparagraph (A), the remainder interest in the trust is to be transferred to, or for the use of, an organization described in section 170(c) or is to be retained by the trust for such a use. “(3) Exception.—Notwithstanding the provisions of paragraphs (2)(A) and (B), the trust instrument may provide that the trustee shall pay the income beneficiary for any year— “(A) the amount of the trust income, if such amount is less than the amount required to be distributed under paragraph (2)(A), and 83 Stat. 564 “(B) any amount of the trust income which is in excess of the amount required to be distributed under paragraph (2)(A), to the extent that (by reason of subparagraph (A)) the aggregate of the amounts paid in prior years was less than the aggregate of such required amounts. “(e) Valuation for Purposes of Charitable Contribution.—For purposes of determining the amount of any charitable contribution the remainder interest of a charitable remainder annuity trust or charitable remainder unitrust shall be computed on the basis that an amount equal to 5 percent of the net fair market value of its assets (or a greater amount, if required under the terms of the trust instrument) is to be distributed each year.” (2) The table of sections for subpart C of part I of subchapter J of chapter 1 (relating to estates and trusts which may accumulate income or which distribute corpus) is amended by adding at the end thereof: “Sec. 664. Charitable remainder trusts.” (f) Bargain Sales to Charitable Organizations.—Section 1011 (relating to adjusted basis for determining gain or loss) is amended— (1) by striking out “The” at the beginning and inserting in lieu thereof: “(a) General Rule.—The”, and (2) by adding at the end thereof the following new subsection: “(b) Bargain Sale to a Charitable Organization.—If a deduction is allowable under section 170 (relating to charitable contributions) by reason of a sale, then the adjusted basis for determining the gain from such sale shall be that portion of the adjusted basis which bears the same ratio to the adjusted basis as the amount realized bears to the fair market value of the property.” (g) Effective Dates.— (1) (A) Except as provided in subparagraphs (B) and (C), the amendments made by subsection (a) shall apply to taxable years beginning after December 31, 1969. (B) Subsections (e) and (f)(1) of section 170 of the Internal Revenue Code of 1954 (as amended by subsection (a)) shall apply to contributions paid after December 31, 1969, except that, with respect to a letter or memorandum or similar property described in section 1221(3) of such Code (as amended by section 514 of this Act), such subsection (e) shall apply to contributions paid after July 25, 1969. (C) Paragraphs (2), (3), and (4) of section 170(f) of such Code (as amended by subsection (a)) shall apply to transfers in trust and contributions made after July 31, 1969. (D) For purposes of applying section 170(d) of such Code (as amended by subsection (a)) with respect to contributions paid in a taxable year beginning before January 1, 1970, subsection (b)(1)(D), subsection (e), and paragraphs (1), (2), (3), and (4) of subsection (f) of section 170 of such Code shall not apply. (2) The amendments made by subsection (b) shall apply with respect to amounts paid, permanently set aside, or to be used for a charitable purpose in taxable years beginning after December 31, 1969, except that section 642(c)(5) of the Internal Revenue Code of 1954 (as added by subsection (b)) shall apply to transfers in trust made after July 31, 1969. (3) The amendment made by subsection (c) shall apply to transfers in trust made after April 22, 1969. 83 Stat. 565 (4) (A) Except as provided in subparagraphs (B) and (C), the amendments made by paragraphs (1) and (2) of subsection (d) shall apply in the case of decedents dying after December 31, 1969. (B) Such amendments shall not apply in the case of property passing under the terms of a will executed on or before October 9, 1969— (i) if the decedent dies before October 9, 1972, without having republished the will after October 9, 1969, by codicil or otherwise, (ii) if the decedent at no time after October 9, 1969, had the right to change the portions of the will which pertain to the passing of the property to, or for the use of, an organization described in section 2055 (a), or (iii) if the will is not republished by codicil or otherwise before October 9, 1972, and the decedent is on such date and at all times thereafter under a mental disability to republish the will by codicil or otherwise. (C) Such amendments shall not apply in the case of property transferred in trust on or before October 9, 1969— (i) if the decedent dies before October 9, 1972, without having amended after October 9, 1969, the instrument governing the disposition of the property, (ii) if the property transferred was an irrevocable interest to, or for the use of, an organization described in section 2055(a), or (iii) if the instrument governing the disposition of the property was not amended by the decedent before October 9, 1972, and the decedent is on such date and at all times thereafter under a mental disability to change the disposition of the property. (D) The amendment made by paragraph (3) of subsection (d) shall apply to gifts made after December 31, 1969, except that the amendments made to section 2522(c)(2) of the Internal Revenue Code of 1954 shall apply to gifts made after July 31, 1969. (E) The amendments made by paragraph (4) of subsection (d) shall apply to gifts and transfers made after December 31, 1969. (5) The amendment made by subsection (e) shall apply to transfers in trust made after July 31, 1969. (6) The amendments made by subsection (f) shall apply with respect to sales made after December 19, 1969. (h) Eligibility for Unlimited Charitable Deduction.— (1) Section 170(b)(1)(C) (relating to unlimited charitable deduction for certain individuals), as amended by subsection (a) of this section, is amended by adding at the end thereof the following new sentence: “In the case of a separate return for the taxable year by a married individual who previously filed a joint return with a former deceased spouse for any of the 10 preceding taxable years, the amount of charitable contributions and taxes paid for any such preceding taxable year, for which a joint return was filed with the former deceased spouse, shall be determined in the same manner as if the taxpayer had not remarried after the death of such former spouse.” (2) The amendment made by this subsection shall apply to taxable years beginning after December 31, 1968.