OTHER CHANGES IN CAPITAL GAINS TREATMENT.

SEC. 516. OTHER CHANGES IN CAPITAL GAINS TREATMENT. (a) Sales of Term Interests.—Section 1001 (relating to determination of amount of and recognition of gain or loss) is amended by adding at the end thereof the following new subsection: “(e) Certain Term Interests.— “(1) In general.—In determining gain or loss from the sale or other disposition of a term interest in property, that portion of the adjusted basis of such interest which is determined pursuant to section 1014 or 1015 (to the extent that such adjusted basis is a portion of the entire adjusted basis of the property) shall be disregarded. “(2) Term interest in property defined.—For purposes of paragraph (1), the term ‘term interest in property’ means— “(A) a life interest in property, “(B) an interest in property for a term of years, or “(C) an income interest in a trust. “(3) Exception.—Paragraph (1) shall not apply to a sale or other disposition which is a part of a transaction in which the entire interest in property is transferred to any person or persons.” (b) Certain Casualty Losses Under Section 1231.—Section 1231 (a) (relating to property used in the trade or business and involuntary conversions) is amended by striking out all that follows paragraph (1) and inserting in lieu thereof the following: “(2) losses (including losses not compensated for by insurance or otherwise) upon the destruction, in whole or in part, theft or seizure, or requisition or condemnation of (A) property used in the trade or business or (B) capital assets held for more than 6 months shall be considered losses from a compulsory or involuntary conversion. In the case of any involuntary conversion (subject to the provisions of this subsection but for this sentence) arising from fire, storm, shipwreck, or other casualty, or from theft, of any property used in the trade or business or of any capital asset held for more than 6 months, this subsection shall not apply to such conversion (whether resulting in gain or loss) if during the taxable year the recognized losses from such conversions exceed the recognized gains from such conversions.” 83 Stat. 647 (c) Transfers of Franchises, Trademarks and Trade Names.— (1) In general.—Part IV of subchapter P of chapter 1 (relating to special rules for determining capital gains and losses) is amended by adding after section 1252 (added by section 214 of this Act) the following new section: “SEC. 1253. TRANSFERS OF FRANCHISES, TRADEMARKS, AND TRADE NAMES. “(a) General Rule.—A transfer of a franchise, trademark, or trade name shall not be treated as a sale or exchange of a capital asset if the transferor retains any significant powder, right, or continuing interest with respect to the subject matter of the franchise, trademark, or trade name. “(b) Definitions.—For purposes of this section— “(1) Franchise.—The term “franchise” includes an agreement which gives one of the parties to the agreement the right to distribute, sell, or provide goods, services, or facilities, within a specified area. “(2) Significant power, right, or continuing interest.—The term ‘significant power, right, or continuing interest’ includes, but is not limited to, the following rights with respect to the interest transferred: “(A) A right to disapprove any assignment of such interest, or any part thereof. “(B) A right to terminate at will. “(C) A right to prescribe the standards of quality of products used or sold, or of services furnished, and of the equipment and facilities used to promote such products or services. “(D) A right to require that the transferee sell or advertise only products or services of the transferor. “(E) A right to require that the transferee purchase substantially all of his supplies and equipment from the transferor. “(F) A right to payments contingent on the productivity, use, or disposition of the subject matter of the interest transferred, if such payments constitute a substantial element under the transfer agreement. “(3) Transfer.—The term ‘transfer’ includes the renewal of a franchise, trademark, or trade name. “(c) Treatment of Contingent Payments by Transferor.—Amounts received or accrued on account of a transfer, sale, or other disposition of a franchise, trademark, or trade name which are contingent on the productivity, use, or disposition of the franchise, trademark, or trade name transferred shall be treated as amounts received or accrued from the sale or other disposition of property which is not a capital asset. “(d) Treatment of Payments by Transferee.— “(1) Contingent payments.—Amounts paid or incurred during the taxable year on account of a transfer, sale, or other disposition of a franchise, trademark, or trade name which are contingent on the productivity, use, or disposition of the franchise, trademark, or trade name transferred shall be allowed as a deduction under section 162(a) (relating to trade or business expenses). “(2) Other payments.—If a transfer of a franchise, trademark, or trade name is not (by reason of the application of subsection (a)) treated as a sale or exchange of a capital asset, any 83 Stat. 648 payment not described in paragraph (1) which is made in discharge of a principal sum agreed upon in the transfer agreement shall be allowed as a deduction— “(A) in the case of a single payment made in discharge of such principal sum, ratably over the taxable years in the period beginning with the taxable year in which the payment is made and ending with the ninth succeeding taxable year or ending with the last taxable year beginning in the period of the transfer agreement, whichever period is shorter; “(B) in the case of a payment which is one of a series of approximately equal payments made in discharge of such principal sum, which are payable over— “(i) the period of the transfer agreement, or “(ii) a period of more than 10 taxable years, whether ending before or after the end of the period of the transfer agreement, in the taxable year in which the payment is made; and “(C) in the case of any other payment, in the taxable year or years specified in regulations prescribed by the Secretary or his delegate, consistently with the preceding provisions of this paragraph. “(e) Exception.—This section shall not apply to the transfer of a franchise to engage in professional football, basketball, baseball, or other professional sport.” (2) Conforming Amendments.— (A) Section 162(h) (as redesignated by section 902) is amended by striking out “for” and inserting in lieu thereof “(1) for”, and by adding at the end thereof the following: “(2) For special rule relating to the treatment of payments by a transferee of a franchise, trademark, or trade name, see section 1253.” (B) Section 1016(a) (relating to adjustments to basis) is amended by striking out the period at the end of paragraph (21) and inserting in lieu thereof a semicolon, and by inserting after paragraph (21) the following new paragraph: “(22) for amounts allowed as deductions for payments made on account of transfers of franchises, trademarks, or trade names Under section 1253(d)(2).” (C) The table of sections for part IV of subchapter P of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 1253. Transfers of franchises, trademarks, and trade names.” (d) Effective Dates.— (1) The amendment made by subsection (a) shall apply to sales or other dispositions after October 9, 1969. (2) The amendment made by subsection (b) shall apply to taxable years beginning after December 31, 1969. (3) The amendments made by subsection (c) shall apply to transfers after December 31, 1969, except that section 1253(d)(1) of the Internal Revenue Code of 1954 (as added by subsection (c)) shall, at the election of the taxpayer (made at such time and in such manner as the Secretary or his delegate may by regulations prescribe), apply to transfers before January 1, 1970, but only with respect to payments made in taxable years ending after December 31, 1969, and beginning before January 1, 1980.