INCREASE IN ALTERNATIVE CAPITAL GAINS TAX.

SEC. 511. INCREASE IN ALTERNATIVE CAPITAL GAINS TAX. (a) Definition of Net Section 1201 Gain.—Section 1222 (relating to definition of terms applicable to capital gains and losses) is amended by adding at the end thereof the following new paragraph: “(11) Net section 1201 gain.—The term ‘net section 1201 gain’ means the excess of the net long-term capital gain for the taxable year over the net short-term capital loss for such year.” (b) Increase in Alternative Tax Rates.—Section 1201 (relating to alternative tax) is amended to read as follows: “SEC. 1201. ALTERNATIVE TAX. “(a) Corporations.—If for any taxable year a corporation has a net section 1201 gain, then, in lieu of the tax imposed by sections 11, 511, 821(a) or (c), and 831(a), there is hereby imposed a tax (if such tax is less than the tax imposed by such sections) which shall consist of the sum of a tax computed on the taxable income reduced by the amount of the net section 1201 gain, at the rates and in the manner as if this subsection had not been enacted, plus— 83 Stat. 636 “(1) in the case of a taxable year beginning before January 1, 1975— “(A) a tax of 25 percent of the lesser of— “(i) the amount of the subsection (d) gain, or “(ii) the amount of the net section 1201 gain, and “(B) a tax of 30 percent (28 percent in the case of a taxable year beginning after December 31, 1969, and before January 1, 1971) of the excess (if any) of the net section 1201 gain over the subsection (d) gain; and “(2) in the case of a taxable year beginning after December 31, 1974, a tax of 30 percent of the net section 1201 gain. “(b) Other Taxpayers.—If for any taxable year a taxpayer other than a corporation has a net section 1201 gain, then, in lieu of the tax imposed by sections 1 and 511, there is hereby imposed a tax (if such tax is less than the tax imposed by such sections) which shall consist of the sum of— “(1) a tax computed on the taxable income reduced by an amount equal to 50 percent of the net section 1201 gain, at the rates and in the manner as if this subsection had not been enacted, “(2) a tax of 25 percent of the lesser of— “(A) the amount of the subsection (d) gain, or “(B) the amount of the net section 1201 gain, and “(3) if the amount of the net section 1201 gain exceeds the amount of the subsection (d) gain, a tax computed as provided in subsection (c) on such excess. “(c) Computation of Tax on Capital Gain in Excess of Subsection (d) Gain.— “(1) In general.—The tax computed for purposes of subsection (b)(3) shall be the amount by which a tax determined under section 1 or 511 on an amount equal to the taxable income (but not less than 50 percent of the net section 1201 gain) for the taxable year exceeds a tax determined under section 1 or 511 on an amount equal to the sum of (A) the amount subject to tax under subsection (b)(1) plus (B) an amount equal to 50 percent of the subsection (d) gain. “(2) Limitation.—Notwithstanding paragraph (1), the tax computed for purposes of subsection (b)(3) shall not exceed an amount equal to the following percentage of the excess of the net section 1201 gain over the subsection (d) gain: “(A) 29½ percent, in the case of a taxable year beginning after December 31, 1969, and before January 1, 1971, or “(B) 32½ percent, in the case of a taxable year beginning after December 31, 1970, and before January 1, 1972. “(d) Subsection (d) Gain Defined.—For purposes of this section, the term ‘subsection (d) gain’ means the sum of the long-term capital gains for the taxable year arising— “(1) in the case of amounts received before January 1, 1975, from sales or other dispositions pursuant to binding contracts (other than any gain from a transaction described in section 631 or 1235) entered into on or before October 9, 1969, including sales or other dispositions the income from which is returned on the basis and in the manner prescribed in section 453(a)(1), “(2) in respect of distributions from a corporation made prior to October 10, 1970, which are pursuant to a plan of complete liquidation adopted on or before October 9, 1969, and 83 Stat. 637 “(3) in the case of a taxpayer other than a corporation, from any other source, but the amount taken into account from such other sources for the purposes of this paragraph shall be limited to an amount equal to the excess (if any) of $50,000 ($25,000 in the case of a married individual filing a separate return) over the sum of the gains to which paragraphs (1) and (2) apply. “(e) Cross References.— “For computation of the alternative tax— “(1) in the case of life insurance companies, see section 802(a)(2); “(2) in the case of regulated investment companies and their shareholders, see section 852(b)(3)(A) and (D); and “(3) in the case of real estate investment trusts, see section 857(b)(3)(A).” (c) Conforming Amendments.— (1) Section 802(a)(2)(B) (relating to alternative tax in case of capital gains of life insurance companies) is amended to read as follows: “(B) an amount determined as provided in section 1201(a) on such excess.” (2) Section 852(b)(3) (relating to method of taxation of regulated investment companies and their shareholders in the case of capital gains) is amended: (A) by striking out “of 25 percent of” in subparagraph (A) and inserting in lieu thereof “, determined as provided in section 1201(a), on”, (B) by adding at the end of subparagraph (C) the following new sentence: “For purposes of subparagraph (A)(ii), the deduction for dividends paid shall, in the case of a taxable year beginning before January 1, 1975, first be made from the amount subject to tax in accordance with section 1201(a)(1)(B), to the extent thereof, and then from the amount subject to tax in accordance with section 1201(a) (1)(A).”, (C) by striking out “of 25 percent” in subparagraph (D)(ii), and (D) by amending subparagraph (D)(iii) to read as follows: “(iii) The adjusted basis of such shares in the hands of the shareholder shall be increased, with respect to the amounts required by this subparagraph to be included in computing his long-term capital gains, by 75 percent of so much of such amounts as equals the amount subject to tax in accordance with section 1201(a)(1)(A) and by 70 percent (72 percent in the case of a taxable year beginning after December 31, 1969, and before January 1, 1971) of so much of such amounts as equals the amount subject to tax in accordance with section 1201(a)(1)(B) or (2).” (3) Section 857(b)(3) (relating to imposition of tax in the case of capital gains of real estate investment trusts) is amended: (A) by striking out “of 25 percent of” in subparagraph (A) and inserting in lieu thereof “, determined as provided in section 1201(a), on”, and (B) by adding at the end of subparagraph (C) the following new sentence: “For purposes of subparagraph (A)(ii), in the case of a taxable year beginning before January 1, 1975, the deduction for dividends paid shall first be made 83 Stat. 638 from the amount subject to tax in accordance with section 1201(a)(1)(B), to the extent thereof, and then from the amount subject to tax in accordance with section 1201(a)(1)(A).” (4) Section 1378 (relating to tax imposed on certain capital gains of an electing small business corporation) is amended: (A) by striking out “25 percent of” in subsection (b)(1) and inserting in lieu thereof “the tax, determined as provided in section 1201(a), on”, (B) by adding at the end of subsection (b) the following new sentence: “In applying section 1201(a)(1)(A) and (B) for purposes of paragraph (1), the $25,000 limitation shall first be deducted from the amount (determined without regard to this subsection) subject to tax in accordance with section 1201(a)(1)(B), to the extent thereof, and then from the amount (determined without regard to this subsection) subject to tax in accordance with section 1201(a)(1)(A).”, and (C) by striking out “25 percent of” in subsection (c)(3) and inserting in lieu thereof “a tax, determined as provided in section 1201(a), on”. (d) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 1969.