INCREASE IN HOLDING PERIOD REQUIRED FOR CAPITAL GAIN OR LOSS TO BE LONG TERM.

SEC. 1402. INCREASE IN HOLDING PERIOD REQUIRED FOR CAPITAL GAIN OR LOSS TO BE LONG TERM. (a) Increase in Two Steps From 6 Months to 1 Year.— (1) Taxable years beginning in 1977.— Effective with respect to taxable years beginning in 1977, paragraphs (1), (2), (3), and (4) of section 1222 (relating to other terms relating to capital gains and losses) are each amended by striking out “6 months” and inserting in lieu thereof “9 months”. (2) Taxable years beginning after 1977.— Effective with respect to taxable years beginning after December 31, 1977, paragraphs (1), (2), (3), and (4) of section 1222 are each amended by striking out “9 months” and inserting in lieu thereof “1 year”. (b) Conforming Amendments.— (1) Taxable years beginning in 1977.— Effective with respect to taxable years beginning in 1977, the following provisions are each amended by striking out “6 months” each place it appears and inserting in lieu thereof “9 months”: (A) Paragraph (1)(B) of section 166(d) (relating to non-business debts). (B) Subsection (a) of section 341 (relating to treatment of gain to shareholders in the case of collapsible corporations). (C) Paragraph (2) of subsection (a) of section 402 (relating to capital gains treatment for certain distributions in the case of a beneficiary of an exempt employees’ trust) and subparagraph (L) of paragraph (4) of section 402(e) (relating to election to treat pre–1974 participation as post–1973 participation) . (D) Subparagraph (A) of section 403(a)(2) (relating to capital gains treatment for certain distributions in the case of a beneficiary under a qualified annuity plan). 90 STAT. 1732 (E) Paragraph (1) of section 423 (a) (relating to employee stock purchase plans). (F) Paragraph (1) of subsection (a) and paragraphs (1) and (2) of subsection (c) of section 424 (relating to restricted stock options). (G) Paragraph (2) of section 582(c) (relating to capital gains of banks). (H) Subparagraphs (A) and (B) of section 584(c)(1) (relating to inclusions in taxable income of participants in common trust funds). (I) Section 631 (relating to gain or loss in the case of timber, coal, or domestic iron ore). (J) Paragraphs (3) and (4) of section 642(c) (relating to charitable deductions for certain trusts). (K) Section 644 (relating to special holding period rules for gain on property transferred to trust at less than fair market value). (L) Paragraphs (1) and (2) of section 702(a) (relating to income and credits of partner). (M) Subparagraph (A) of section 817(a)(1) (relating to certain gains and losses in the case of life insurance companies). (N) Subparagraph (B) of paragraph (3) and paragraph (4), of section 852(h) (relating to taxation or shareholders of regulated investment companies). (O) Subparagraph (A) of section 856(c)(4) (relating to definition of real estate investment trust). (P) Subparagraph (B) of paragraph (3), and paragraph (5), of section 857(b) (relating to taxation of shareholders of real estate investment trusts). (Q) Paragraph (11) of section 1223 (relating to holding period of property). (R) Section 1231 (relating to property used in the trade or business and involuntary conversions). (S) Paragraph (2) of section 1232(a) (relating to sale or exchange in the case of bonds and other evidences of indebtedness). (T) Subsections (b), (d), and (e) of section 1233 (relating to gains and losses from short sales). (U) Paragraph (1) of section 1234(b) (relating to special rule for gain on lapse of an option granted as part of a straddle), as amended by this Act. (V) Subsection (a) of section 1235 (relating to sale or exchange of patents). (W) Paragraph (4) of section 1246(a) (relating to holding period in the case of gain on foreign investment company stock). (X) Subsection (i) of section 1247 (relating to loss on sale or exchange of certain stock in the case of foreign investment companies electing to distribute income currently). (Y) Subsection (b), and subparagraph (C) of subsection (f)(3), of section 1248 (relating to gain from certain sales or exchanges of stock in certain foreign corporations). (Z) Paragraph (1) of section 1251(e)(defining farm recapture property). (2) Taxable years beginning after 1977.— Effective with respect to taxable years beginning after December 31, 1977, each 90 STAT. 1733provision referred to in paragraph (1) is amended by striking out “9 months” each place it appears and inserting in lieu thereof “1 year”. (3) Technical amendment.— Effective with respect to taxable years beginning after December 31, 1976, section 631(a) (relating to gain or loss in the case of timber) is amended by striking out “before the beginning of such year”. (c) Transitional Rule fob Certain Installment Obligations.— in the case of amounts received from sales or other dispositions of capital assets pursuant to binding contracts, including sales or other dispositions the income from which is returned on the basis and in die manner prescribed in section 453(a)(1) of the Internal Revenue Code of 1954, if the gain or loss was treated as long-term for the taxable year for which the amount was realized, such gain or loss shall be treated as long-term for the taxable year for which the gain or loss is returned or otherwise recognized. (d) Retention of 6-Month Period for Futures Transactions in Commodities.— Section 1222 (relating to other terms relating to capital gains and losses) is amended by adding at the end thereof the following new sentence: “For purposes of this subtitle, in the case of futures transactions in any commodity subject to the rules of a board of trade or commodity exchange, the length of the holding period taken into account under this section or under any other section amended by section 1402 of the Tax Reform Act of 1976 shall be determined without regard to the amendments made by subsections (a) and (b) of such section 1402.”