MULTIPLE CORPORATIONS.

SEC. 401. MULTIPLE CORPORATIONS. (a) In General.— (1) Section 1561 (relating to surtax exemptions in case of certain controlled corporations) is amended to read as follows: “SEC. 1561. LIMITATIONS ON CERTAIN MULTIPLE TAX BENEFITS IN THE CASE OF CERTAIN CONTROLLED CORPORATIONS. “(a) General Rule.—The component members of a controlled group of corporations on a December 31 shall, for their taxable years which include such December 31, be limited for purposes of this subtitle to— “(1) one $25,000 surtax exemption under section 11(d), “(2) one $100,000 amount for purposes of computing the accumulated earnings credit under section 535(c) (2) and (3), and “(3) one $25,000 amount for purposes of computing the limitation on the small business deduction of life insurance companies under sections 804(a)(4) and 809(d)(10). The amount specified in paragraph (1) shall be divided equally among the component members of such group on such December 31 unless all of such component members consent (at such time and in such manner as the Secretary or his delegate shall by regulations prescribe) to an apportionment plan providing for an unequal allocation of such amount. The amounts specified in paragraphs (2) and (3) shall be 83 Stat. 600 divided equally among the component members of such group on such December 31 unless the Secretary or his delegate prescribes regulations permitting an unequal allocation of such amounts. “(b) Certain Short Taxable Years.—If a corporation has a short taxable year which does not include a December 31 and is a component member of a controlled group of corporations with respect to such taxable year, then for purposes of this subtitle— “(1) the surtax exemption under section 11(d), “(2) the amount to be used in computing the accumulated earnings credit under section 535(c) (2) and (3), and “(3) the amount to be used in computing the limitation on the small business deduction of life insurance companies under sections 804(a)(4) and 809(d)(10), of such corporation for such taxable year shall be the amount specified in subsection (a)(1), (2), or (3), as the case may be, divided by the number of corporations which are component members of such group on the last day of such taxable year. For purposes of the preceding sentence, section 1563(b) shall be applied as if such last day were substituted for December 31.” (2) Section 1562 (relating to privilege of groups to elect multiple surtax exemptions) is repealed. (3) The table of sections for part II of subchapter B of chapter 6 is amended by striking out the items relating to sections 1561 and 1562 and inserting in lieu thereof the following: “Sec. 1561. Limitations on certain multiple tax benefits in the case of certain controlled corporations.” (b) Transitional Rules for Controlled Groups of Corporations.— (1) Part II of subchapter B of chapter 6 (relating to certain controlled corporations) is amended by adding at the end thereof the following new section: “SEC. 1564. TRANSITIONAL RULES IN THE CASE OF CERTAIN CONTROLLED CORPORATIONS. “(a) Limitation on Additional Benefits.— “(1) In general.—With respect to any December 31 after 1969 and before 1975, the amount of— “(A) each additional $25,000 surtax exemption under section 1562 in excess of the first such exemption, “(B) each additional $100,000 amount under section 535(c) (2) and (3) in excess of the first such amount, and “(C) each additional $25,000 limitation on the small business deduction of life insurance companies under sections 804(a)(4) and 809(d)(10) in excess of the first such limitation, otherwise allowed to the component members of a controlled group of corporations for their taxable years which include such December 31 shall be reduced to the amount set forth in the following schedule: “Taxable years including— Surtax exemption Amount under sec. 535(c)(2) and (3) Small business deduction limitation Dec. 31, 1970 $20,833 $83,333 $20,833 Dec. 31, 1971 16,667 66,667 16,667 Dec. 31, 1972 12,500 50,000 12,500 Dec. 31, 1973 8,333 33,333 8,333 Dec. 31, 1974 4,167 16,667 4,167 83 Stat. 601 “(2) Election.—With respect to any December 31 after 1969 and before 1975, the component members of a controlled group of corporations shall elect (at such time and in such manner as the Secretary or his delegate shall by regulations prescribe) which component member of such group shall be allowed for its taxable year which includes such December 31 the surtax exemption, the amount under section 535(c) (2) and (3), or the small business deduction limitation which is not reduced under paragraph (1). “(b) Dividends Received by Corporations.— “(1) General rule.—If— “(A) an election of a controlled group of corporations (as defined in paragraph (1), or in so much of paragraph (4) as relates to paragraph (1), of section 1563(a)) under section 1562(a) (relating to privilege of a controlled group of corporations to elect to have each of its component members make its returns without regard to section 1561) was made on or before April 22, 1969, and “(B) such election is effective with respect to the taxable year of each component member of such group which includes December 31, 1969, then, with respect to a dividend distributed on or before December 31, 1977, out of earnings and profits of a taxable year which includes a December 31 after 1969 and before 1975, subsections (a)(3) and (b) of section 243 (relating to dividends received by corporations) shall be applied to such component members comprising an affiliated group (as defined in section 243(b)(5)) in the manner set forth in paragraph (2). “(2) Special rules.— “(A) An election under section 243(b)(2) may be made for a taxable year which includes a December 31 after 1969 and before 1975, notwithstanding that an election under section 1562(a) is in effect for the taxable year. “(B) Section 243(b)(1)(B)(ii) shall not apply with respect to a dividend distributed on or before December 31, 1977, out of earnings and profits of a taxable year which includes a December 31 after 1969 and before 1975 for which an election under section 1562(a) is in effect, and in lieu of the percentage specified in section 243(a)(3) with respect to such dividend, the percentage shall be the percentage set forth in the following schedule: “If the dividend is distributed out of the earnings and profits of the distributing corporation’s taxable year which includes— The percentage shall be— December 31, 1970 87½ percent. December 31, 1971 90 percent. December 31, 1972 92½ percent. December 31, 1973 95 percent. December 31, 1974 97½ percent. “(C) For taxable years which include a December 31 after 1969 for which an election under section 1562(a) is in effect, section 243(b)(3)(C)(v) shall not be applied to limit the number of surtax exemptions. “(c) Certain Short Taxable Years.—If— “(1) a corporation has a short taxable year beginning after December 31, 1969, and ending before December 31, 1974, which does not include a December 31, and 83 Stat. 602 “(2) such corporation is a component member of a controlled group of corporations with respect to such taxable year (determined by applying section 1563(b) as if the last day of such taxable year were substituted for December 31), then subsections (a) and (b) shall be applied as if the last day of such taxable year were the nearest December 31 to such day.” (2) (A) The first sentence of section 1562(b)(1) is amended by striking out “$25,000” and inserting in lieu thereof “the amount of such corporation’s surtax exemption for such taxable year”. (B) Section 11(d) is amended by striking out “section 1561” and inserting in lieu thereof “section 1561 or 1564”. (C) Section 535(c)(5) is amended by striking out “section 1551” and inserting in lieu thereof “section 1551, and for limitation on such credit in the case of certain controlled corporations see sections 1561 and 1564”. (D) Section 804 is amended by adding after subsection (c) the following new subsection: “(d) Cross Reference.— “For reduction of the $25,000 amount provided in subsection (a)(4) in the case of certain controlled corporations, see sections 1561 and 1564.” (E) The table of sections for part II of subchapter B of chapter 6 is amended by adding at the end thereof the following: “Sec. 1564. Transitional rules in the case of certain controlled corporations.” (c) Brother-Sister Controlled Groups.—Section 1563(a)(2) is amended to read as follows: “(2) Brother-sister controlled group.—Two or more corporations if 5 or fewer persons who are individuals, estates, or trusts own (within the meaning of subsection (d)(2)) stock possessing— “(A) at least 80 percent of the total combined voting power of all classes of stock entitled to vote or at least 80 percent of the total value of shares of all classes of the stock of each corporation, and “(B) more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock of each corporation, taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation.” (d) Excluded Stock Rules.— (1) Section 1563(c)(2)(A) is amended by striking out “or” at the end of clause (ii); by striking out “stock.” at the end of clause (iii) and inserting in lieu thereof “stock, or”; and by adding after clause (iii) the following new clause: “(iv) stock in the subsidiary corporation owned (within the meaning of subsection (d)(2)) by an organization (other than the parent corporation) to which section 501 (relating to certain educational and charitable organizations which are exempt from tax) applies and which is controlled directly or indirectly by the parent corporation or subsidiary corporation, by an individual, estate, or trust that is a principal stockholder (within the meaning of clause (ii)) of the parent corporation, by an officer of the parent corporation, or by any combination thereof.” 83 Stat. 603 (2) Section 1563(c)(2)(B) is amended— (A) by striking out “a person who is an individual, estate, or trust (referred to in this paragraph as ‘common owner’) owns” and inserting in lieu thereof “5 or fewer persons who are individuals, estates, or trusts (referred to in this subparagraph as ‘common owners’) own”; (B) by striking out “or” at the end of clause (i); (C) by striking out in clause (ii) “such common owner”, “the common owner”, and “stock.” and inserting in lieu thereof “any of such common owners”, “any of the common owners”, and “stock, or”, respectively; and (D) by adding after clause (ii) the following new clause: “(iii) stock in such corporation owned (within the meaning of subsection (d)(2)) by an organization which section 501 (relating to certain educational and charitable organizations which are exempt from tax) applies and which is controlled directly or indirectly by such corporation, by an individual, estate, or trust that is a principal stockholder (within the meaning of subparagraph (A)(ii)) of such corporation, by an officer of such corporation, or by any combination thereof.” (e) Investment Credit.— (1) Section 46(a)(5) is amended to read as follows: “(5) Controlled groups.—In the case of a controlled group, the $25,000 amount specified under paragraph (2) shall be reduced for each component member of such group by apportioning $25,000 among the component members of such group in such manner as the Secretary or his delegate shall by regulations prescribe. For purposes of the preceding sentence, the term ‘controlled group’ has the meaning assigned to such term by section 1563(a).” (2) Section 48(c)(2)(C) is amended to read as follows: “(C) Controlled groups.—In the case of a controlled group, the $50,000 amount specified under subparagraph (A) shall be reduced for each component member of the group apportioning $50,000 among the component members of such group in accordance with their respective amounts of used section 38 property which may be taken into account.” (3) Section 48(c)(3)(C) is amended to read as follows: “(C) Controlled group.—The term ‘controlled group’ has the meaning assigned to such term by section 1563(a), except that the phrase ‘more than 50 percent’ shall be substituted for the phrase ‘at least 80 percent’ each place it appears in section 1563(a)(1).” (4) Section 48(d)(2) is amended to read as follows: “(2) if such property is leased by a corporation which is a component member of a controlled group (within the meaning of section 46(a)(5)) to another corporation which is a component member of the same controlled group, the basis of such property to the lessor.” (f) Additional First-Year Depreciation.—Section 179(d) is amended— (1) by amending paragraph (2)(B) to read as follows: “(B) the property is not acquired by one component member of a controlled group from another component member of the same controlled group, and”; and 83 Stat. 604 (2) by amending paragraphs (6) and (7) to read as follows: “(6) Dollar limitation of controlled group.—For purposes of subsection (b) of this section— “(A) all component members of a controlled group shall be treated as one taxpayer, and “(B) the Secretary or his delegate shall apportion the dollar limitation contained in such subsection (b) among the component members of such controlled group in such manner as he shall by regulations prescribe. “(7) Controlled group defined.—For purposes of paragraphs (2) and (6), the term ‘controlled group’ has the meaning assigned to it by section 1563 (a); except that, for such purposes, the phrase ‘more than 50 percent’ shall be substituted for the phrase ‘at least 80 percent’ each place it appears in section 1563(a)(1).” (g) Retroactive Termination of Section 1562 Elections.—If an affiliated group of corporations makes a consolidated return for the taxable year which includes December 31, 1970 (hereinafter in this subsection referred to as “1970 consolidated return year”), then on or before the due date prescribed by law (including any extensions thereof) for filing such consolidated return such affiliated group of corporations may terminate the election under section 1562 of the Internal Revenue Code of 1954 with respect to any prior December 31 which is included in a taxable year of any of such corporations from which there is a net operating loss carryover to the 1970 consolidated return year. A termination of an election under this subsection shall be valid only if it meets the requirements of sections 1562(c)(1) and 1562(e) of such Code (other than making the termination before the expiration of the 3-year period specified in section 1562(e)). (h) Effective Dates.— (1) The amendments made by subsection (a) shall apply with respect to taxable years beginning after December 31, 1974. (2) The amendments made by subsection (b) shall apply with respect to taxable years beginning after December 31, 1969. (3) The amendments made by subsections (c), (d), (e), and (f) shall apply with respect to taxable years ending on or after December 31, 1970.