INCREASE IN INVESTMENT CREDIT.

SEC. 301. INCREASE IN INVESTMENT CREDIT. (a) Increase of Investment Credit.— Paragraph (1) of section 46(a) (determining the amount of tile investment credit) is amended to read as follows: “(1) General rule.— “(A) Ten percent credit.— Except as otherwise provided in this paragraph, in the case of a property described in subparagraph (D), the amount of the credit allowed by section 38 for the taxable year shall be an amount equal to 16 percent of the qualified investment (as determined under subsections (c) and (d)). “(B) Eleven percent credit.— Except as otherwise provided in this paragraph, in the case of a corporation which elects to have the provisions of this subparagraph apply, the amount of the credit allowed by section 38 for the taxable year with respect to property described in subparagraph (D) shall be an amount equal to 11 percent of the qualified investment (as determined under subsections (c) and (d)). An election may not be made to have the provisions of this subparagraph apply for the taxable year unless the corporation meets the requirements of section 301(d) of the Tax Reduction Act of 1975. An election by a corporation to have the provisions of this subparagraph apply shall be made at such time, in such form, and in such manner as the Secretary or his delegate may prescribe. “(C) Seven percent credit.— Except as otherwise provided in this paragraph, the amount of credit allowed by section 38 for the taxable year shall be an amount equal to 7 percent of the qualified in vestment (as determined under subsections (c) and (d)). “(D) Transition at rules.— The provisions of subparagraphs (A) and (B) shall apply only to— “(i) property to which subsection (d) does not apply, the construction, reconstruction, or erection of which is completed by the taxpayer after January 21, 1975, but only to the extent of the basis thereof attributable to the construction, reconstruction, or erection after January 21, 1975, and before January 1, 1977. “(ii) property to which subsection (d) does not apply, acquired by the taxpayer after January 21, 1975, and before January 1, 1977, and placed in service by the taxpayer before January 1, 1977, and “(iii) property to which subsection (d) applies, but only to the extent of the qualified investment (as determined under subsections (c) and (d)) with respect to qualified progress expenditures made after January 21, 1975, and before January 1, 1977.” (b) Public Utility Property.— (1) Determination of qualified investment.— Subparagraph (A) of section 46(e)(3) (relating to determination of qualified investment in the case of public utility property) is amended to read as follows: “(A) To the extent that subsection (a)(1)(C) applies to property which is public utility property, the amount of the qualified investment shall be % of the amount determined under paragraph (1).”. 89 STAT. 37 (2) Increase in 50-percent limitation.— Section 46(a) (relating to determination of amount of credit) is amended by adding at the end thereof the following new paragraph: “(6) Alternative Limitation tn the Case of Certain Utilities.— “(A) In general.— If, for a taxable year ending after calendar year 1974 and before calendar year 1981, the amount of the qualified investment of the taxpayer which is attributable to public utility property is 25 percent or more of his aggregate qualified investment, then subparagraph (C) of paragraph (2) of this subsection shall be applied by substituting for 50 percent his applicable percentage for such year. “(B) Applicable percentage.— The applicable percentage of any taxpayer for any taxable year is— “(i) 50 percent, plus “(ii) that portion of the tentative percentage for the taxable year which the taxpayer’s amount of qualified investment which is public utility property bears to his aggregate qualified investment. If the proportion referred to in clause (ii) is 75 percent or more, the applicable percentage of the taxpayer for the year shall be 50 percent plus the tentative percentage for such year. “(C) Tentative percentage.— For purposes of subparagraph (B), the tentative percentage shall be determined under the following table: “If the taxable year ends in: The tentative percentage is: 1975 or 1976 50 1977 40 1978 30 1979 20 1980 10 “(D) Public utility property defined.— For purposes of this paragraph, the term ‘public utility property’ has the meaning given to such term by the first sentence of subsection (c)(3)(B).” (3) Limitation tn case of certain regulated companies.— Section 46(f), as redesignated by section 302(a) of this Act (relating to limitation in case of certain regulated companies), is amended by adding at the end thereof the following new paragraph: “(8) Prohibition of immediate flowthrough.— An election made under paragraph (3) shall apply only to the amount of the credit allowable under section 38 with respect, to public utility property (within the meaning of subsection (a)(6)(D)) determined as if the Tax Reduction Act of 1975 had not been enacted. Any taxpayer who had timely made an election under paragraph (3) may, at his own option and without regard to any requirement imposed by an agency described in subsection (c)(3)(B), elect within 90 days after the date of the enactment of the Tax Reduction Act of 1975 (in such manner as the Secretary or his delegate shall prescribe) to have the provisions of paragraph (3) apply with respect to the amount of the credit allowable under section 38 with respect to such property which is in excess of the amount determined under the preceding sentence. If such taxpayer does not make such an election, paragraph (1) or (2) (whichever paragraph is applicable without regard to this paragraph) shall apply to such excess credit, except that if neither paragraph (1) nor (2)89 STAT. 38 is applicable (without regard to this paragraph), paragraph (1) shall apply unless t he taxpayer elects (in such manner as the Secretary or his delegate shall prescribe) within 90 days after the date of the enactment of the Tax Reduction Act of 1975 to have the provisions of paragraph (2) apply. The provisions of this paragraph shall not be applied to disallow such excess credit before the first final determination which is inconsistent with such requirements is made, determined in the same manner as under paragraph (4).” (4) Effective rates.— The amendment made by paragraph (1) of this subsection shall apply to property placed in service after January 21, 1975, in taxable years ending after January 21, 1975. The amendments made by paragraphs (2) and (3) shall apply to taxable years ending after December 31, 1974. (c) Increase From $50,000 to $100,000 of Dollar Limitation on Used Property.— (1) In general.— Paragraph (2) of subsection 48(c) (relating to dollar limitation in case of used section 38 property) is amended— (A) by striking out “$50,000” each place it appears and inserting in lieu thereof “$100,000”, and (B) by striking out “$25,000” and inserting in lieu thereof “$50,000” (2) Effective date.— The amendments made by paragraph (1) shall apply only to taxable years beginning after December 31, 1974, and before January 1, 1977. (d) Plan Requirements for Taxpayers Electing 11-Percent Credit.— In order to meet the requirements of this subsection— (1) A corporation (hereinafter in this subsection referred to as the “employer”) must establish an employee stock ownership plan (described in paragraph (2)) which is funded by transfers of employer securities in accordance with the provisions of paragraph (6) and which meets all other requirements of this subsection. (2) The plan referred to in paragraph (1) must be a defined contribution plan established In writing which— (A) is a stock bonus plan, a stock bonus and a money purchase pension plan, or a profit-sharing plan, (B) is designed to invest primarily in employer securities, and (C) meets such other requirements (similar to requirements applicable to employee stock ownership plans as defined in section 4975(e)(7) of the Internal Revenue Code of 1954) as the Secretary of the Treasury or his delegate may prescribe, (3) The plan must provide for the allocation of all employer securities transferred to it or purchased by it (because of the requirements of section 46(a)(1)(B) of the Internal Revenue Code of 1954) to the account of each participant (who was a participant at any time during the plan year, whether or not he is a participant at the close of the plan year) as of the close of each plan year in an amount which bears substantially the same proportion to the amount of all such securities allocated to all participants in the plan for that plan year as the amount of compensation paid to such participant (disregarding any compensation in excess of the first $100,000 per year) bears to the compensation paid to all such participants during that year (disregarding any compensation in excess of the first $100,000 with respect to any participant).89 STAT. 39 Notwithstanding the first sentence of this paragraph, the allocation to participants’ accounts may be extended over whatever period may be necessary to comply with the requirements of section 415 of the Internal Revenue Code of 1954. (4) The plan must provide that each participant has a nonforfeitable right to any stock allocated to his account under paragraph (3), and that no stock allocated to a participant’s account may be distributed from that account before the end of the eighty-fourth month beginning after the month in which the stock is allocated to the account except in the case of separation from the service, death, or disability. (5) The plan must provide that each participant, is entitled to direct the plan as to the manner in which any employer securities allocated to the account of the participant are to be voted. (6) On making a claim for credit, adjustment, or refund under section 38 of the Internal Revenue Code of 1954, the employer states in such claim that it agrees, as a condition of receiving any such credit, adjustment, or refund, to transfer employer securities forthwith to the plan having an aggregate value at the time of the claim of 1 percent of the amount of the qualified investment (as determined under section 46 (c) and (d) of such Code) of the taxpayer for the taxable year. For purposes of meeting the requirements of this paragraph, a transfer of cash shall be treated as a transfer of employer securities if the cash is, under the plan, used to purchase employer securities. (7) Notwithstanding any other provision of law to the contrary, if the plan does not meet the requirements of section 401 of the Internal Revenue Code of 1954— (A) stock transferred under paragraph (6) and allocated to the account of any participant under paragraph (3) and dividends thereon shall not be considered income of the participant or his beneficiary under the Internal Revenue Code of 1954 until actually distributed or made available to the participant or his beneficiary and, at such time, shall be taxable under section 72 of such Code (treating the participant or his beneficiary as having a basis of zero in the contract), (B) no amount shall be allocated to any participant in excess of the amount which might be, allocated if the plan met the requirements of section 401 of such Code, and (C) the plan must meet the, requirements of sections 410 and 415 of such Code. (8) If the amount of the credit determined under section 46(a)(1)(B) of the Internal Revenue Code of 1954, is recaptured in accordance with the profusions of such Code, the amounts transferred to the plan under this subsection and allocated under the plan shall remain in the plan or in participant accounts, as the case may be and continue to be allocated in accordance with the original plan agreement. (9) For purposes of this subsection, the term— (A) “employer securities” means common stock issued by the employer or a corporation which is in control of the employer (within the meaning of section 368(c) of the Internal Revenue Code of 1954) with voting power and dividend rights no less favorable than the voting power and dividend rights of other common stock issued by the employer or such controlling corporation, or securities issued by the employer or such controlling corporation, convertible into such stock, and 89 STAT. 40 (B) “value” means the average of closing prices of the employer’s securities, as reported by a national exchange on which securities are listed, for the 20 consecutive trading days immediately preceding the date of transfer or allocation of such securities or, in the case of securities not listed on a national exchange, the fair market value as determined in good faith and in accordance with regulations issued by the Secretary of the Treasury or his delegate. (10) The Secretary of the Treasury or his delegate shall prescribe such regulations and require such reports as may be necessary to carry out the provisions of this subsection. (11) If the employer fails to meet any requirement imposed under this subsection or under any obligation undertaken to comply with the requirement of this subsection, he is liable to the United States for a civil penalty of an amount equal to the amount involved in such failure. The preceding sentence shall not apply if the taxpayer corrects such failure (as determined by the Secretary of the Treasury or his delegate) within 90 days after notice thereof. For purposes of this paragraph, the term “amount involved” means an amount determined by the Secretary or his delegate, but not in excess of 1 percent of the qualified investment of the taxpayer for the taxable year under section 46(a)(1)(B) and not less than the product of one-half of one percent of such amount multiplied by the number of months (or parts thereof) during which such failure continues. The amount of such penalty may be collected by the Secretary of the Treasury in the same manner in which a deficiency in the payment of Federal income tax may be collected. (12) Notwithstanding any provision of the Internal Revenue Code of 1954 to the contrary, no deductions shall be allowed under section 162, 212, or 404 of such Code for amounts transferred to an employee stock ownership plan and taken into account under this subsection.