AMENDMENTS AFFECTING DISC.

SEC. 1101. AMENDMENTS AFFECTING DISC. (a) In General.— Section 995 (relating to taxation of DISC income to shareholders) is amended— (1) in paragraph (1) of subsection (b) thereof, by redesignating subparagraphs (D) and (E) as subparagraphs (F) and (G), respectively, by striking out “and (C)” in subparagraph (F)(as so redesignated) and inserting in lieu thereof “(C), (D), and (E)”, and by inserting after subparagraph (C) the following new subparagraphs: “(D) 50 percent of the taxable income of the DISC for the taxable, year attributable to military property, “(E) the taxable income for the taxable year attributable to base period export gross receipts (as defined in subsection (e)),”; (2) in paragraph (2)(B) of subsection (b) thereof, by striking out “more than the number” and inserting in lieu thereof “more than twice the number”; (3) by adding at the end of subsection (b) thereof the following new paragraph: “(3) Taxable income attributable to military property.— “(A) In general.— For purposes of paragraph (1)(D), taxable income of a DISC for the taxable year attributable to military property shall be determined by only taking into account— “(i) the gross income of the DISC for the taxable year which is attributable to military property, and “(ii) the deductions which are properly apportioned or allocated to such income. “(B) Military property.— For purposes of subparagraph (A), the term ‘military property’ means any property which is an arm, ammunition, or implement of war designated in the munitions list published pursuant to the Military Security Act of 1954 (22 U.S.C. 1934).”; and (4) by adding at the end thereof the following new subsections: “(e) Definitions and Special Rules Relating to Computation of Taxable Income Attributable to Base Period Export Gross Receipts.— “(1) Taxable income attributable to babe period export gross receipts.— For purposes of this section, the taxable income attributable to base period export gross receipts shall be an amount equal to that portion of the adjusted taxable income of a DISC which— “(A) the amount of the adjusted base period export gross receipts, bears to “(B) the amount of the export gross receipts of the DISC for the taxable year. “(2) Adjusted taxable income.— For purposes of this section, the term ‘adjusted taxable income’ means the income of a DISC for the taxable year, reduced by the amounts described in subparagraphs (A), (B), (C), and (D) of paragraph (1) of subsection (b). 90 STAT. 1656 “(3) Adjusted base period export gross receipts.— For purposes of this section, the term ‘adjusted base period export gross receipts’ means 67 percent of the average of the export gross receipts of the DISC for taxable years during the base period (as defined in paragraph (5)). For purposes of the preceding sentence, if any property would not qualify during the taxable year as export property by reason of section 993(c)(2), gross receipts from such property shall be excluded from export gross receipts during the taxable years in the base period. “(4) Export gross receipts.— For purposes of this section, the term ‘export gross receipts’ means— “(A) qualified export receipts described in subparagraphs (A), (B), (C), (G), and (H) of section 993(a)(1), reduced by “(B) 50 percent of such qualified export receipts which are attributable to military property (as defined in subsection (b)(3)(B)). ‘ “(5) Base period.— For purposes of paragraph (3) — “(A) for any taxable year beginning before 1980, the base period shall he the taxable years beginning in 1972, 1973, 1974, and 1975, and “(B) for any taxable year beginning in any calendar year after 1979. the base period shall be the taxable years beginning in the fourth, fifth, sixth, and seventh calendar years preceding such calendar year. “(6) No base period year.— If a DISC did not have a taxable year beginning in a calendar year specified in paragraph (5), then, for purposes of computing the adjusted base period export gross receipts, such DISC is deemed to have a taxable year and export gross receipts of zero for that year. “(7) Short taxable year.— The Secretary shall prescribe such regulations as he deems necessary with respect to a short taxable year for purposes of computing base period export gross receipts of a DISC, or a short taxable year in which deemed distributions (as described in subsection (b)) are made, including the circumstances under which the short taxable year shall be annualized, and the proper method of annualization. “(8) Controlled group.— If more than one member of a controlled group (as defined in section 993(a)(3)) for the taxable year qualifies as a DISC, then subsection (b)(1)(E), this subsection, and subsection (f) shall each be applied in a manner provided by regulations prescribed by the Secretary by aggregating the export gross receipts and taxable income of such DISCs for the taxable year and by aggregating the export gross receipts of such DISCs for each taxable year in the base period. “(9) Special rule where the ownership of disc stock and the trade or business giving rise to export gross receipts of the disc are separated.— “(A) In general.— If, at any time after the beginning of the base period, there has been a separation of the ownership of the stock in the DISC from the ownership of the trade or business which (during the base period) produced the export gross receipts of the DISC, then the persons who own the trade or business during the taxable year shall be treated as having had additional export gross receipts during the base period attributable to such trade or business. 90 STAT. 1657 “(B) Exceptions.— Subparagraph (A) shall not apply— “(i) where the stock in the DISC and the trade or business are owned throughout the taxable year by members of the same controlled group, and “(ii) to the extent that the taxpayer’s ownership of the stock in the DISC for the taxable year is proportionate to his ownership during the taxable year of the trade or business. “(10) DISC base period attributed through shareholders in certain cases.— “(A) In general.— If— “(i) any person owns 5 percent or more of the stock of a DISC (hereinafter in this paragraph referred to as ‘first DISC’), and “(ii) such person at any time during the base period of the first DISC owned 5 percent or more of the stock of a second DISC, then, to the extent provided in such regulations as the Secretary may prescribe to prevent circumvention of the application of subsection (b)(1)(E), an amount equal to such shareholder’s share of the base period export gross receipts of the second DISC shall be added to the base period export gross receipts of the first DISC. “(B) Ownership of stock.— For purposes of subparagraph (A), the ownership of stock shall be determined under section 318. “(f) Small DISCs.— “(1) Adjusted taxable income of $100,000 or less.— If a DISC has adjusted taxable income of $106,000 or less for a taxable year, subsection (b)(1)(E) shall not apply with respect to such year. “(2) Special rule.— If a DISC has adjusted taxable income of more than $100,000 for a taxable year, then the amount taken into account under subsection (b)(1)(E) shall be deemed to be an amount equal to the excess (if any) of— “(A) the amount which would (but for this paragraph) be taken into account under subsection (b)(1)(E), over “(B) twice the excess (if any) of $150,000 over the adjusted taxable income. “(g) Certain Transfers of DISC Assets.— If— “(1) a corporation owns, directly or indirectly, all of the stock of a subsidiary and a DISC, “(2) the subsidiary has been engaged in the active conduct of a trade or business (within the meaning of section 355(b)) throughout the 5-year period ending on the date of the transfer and continues to be so engaged thereafter, and “(3) during the taxable year of the subsidiary in which its stock is transferred and its preceding taxable year, such trade or business gives rise to qualified export receipts of the subsidiary and the DISC, then, under such terms and conditions as the Secretary by regulations shall prescribe, transfers of assets, stock, or both, will be deemed to be a reorganization within the meaning of section 368, a transaction to which section 355 applies, an exchange of stock to which section 351 applies, or a combination thereof. The preceding sentence shall apply only to the extent that the transfer or transfers involved are for the purpose of preventing the separation of the ownership of the stock in 90 STAT. 1658the DISC from the ownership of the trade or business which (during the base period) produced the export gross receipts of the DISC.” (b) Amendment of Section 993(c)(2).— Section 993(e)(2)(re1at-iug to property excluded from export property) is amended— (1) by striking out “or” at the end of subparagraph (B), and (2) by striking out “under section 611” in subparagraph (C) and inserting in lieu thereof “under section 613 or 613A”, (c) Amendments to Section 993(d).— Section 993(d) (relating to definition of producer’s loans) is amended— (1) by inserting in paragraph (1)(C) immediately after “export property”, the following: “determined without regard to subparagraph (C) or (D) of subsection (c)(2),”. (2) by inserting in paragraph (2) immediately after “of property which would be export property” the following: “(determined without regard to subparagraph (C) or (D) of subsection (c)(2))”. (d) Recapture of Accumulated DISC Income on Disposition of Stock in a DISC or Former DISC.— (1) Section 995(c) is amended to read as follows: “(c) Gain on Disposition of Stock in a DISC.— “(1) In general.— If— “(A) a shareholder disposes of stock in a DISC or former DISC any gain recognized on such disposition shall be included in gross income as a dividend to the extent provided in paragraph (2), “(B) stock of a DISC or former DISC is disposed of in a transaction in which the separate corporate existence of the DISC or former DISC is terminated other than by a mere change in place of organization, however effected, any gain realized on the disposition of such stock in the transaction shall be recognized notwithstanding any other provision of this title to the extent provided in paragraph (2) and to the extent so recognized shall be included in gross income as a dividend, or “(C) a shareholder distributes, sells, or exchanges stock in a DISC or former DISC in a transaction to which section 311, 336, or 337 applies, then an amount equal to the excess of the fair market value of such stock over its adjusted basis in the hands of the shareholder shall, notwithstanding any provision of this title, be included in gross income of the shareholder as a dividend to the extent provided in paragraph (2). “(2) Amount included.— The amounts described in paragraph (1) shall be included in gross income as a dividend to the extent of the accumulated DISC income of the DISC or former DISC which is attributable to the stock disposed of and which was accumulated in taxable years of such corporation during the period or periods the stock disposed of was held by the shareholder which disposed of such stock.” (2) Interest in a partnership holding stock in a disc.— The last sentence of section 751(c) (relating to unrealized receivables) is amended— (A) by striking out “(as defined in section 617(f)(2)),” and inserting in lieu thereof “(as defined in section 617(f)(2), stock in a DISC (as described in section 992(a)),” and (B) by striking out “617(d)(1), 1245(a),” and inserting in lieu thereof “617(d)(1), 995(c), 1245(a),”. 90 STAT. 1659 (e) Rules for Allocating Distributions Made To Meet Qualification Requirements.— Paragraph (2) of section 996(a) (relating to rules for actual distributions and certain deemed distributions) is amended by adding at the end thereof the following new sentence: “In the case of any amount of any actual distribution made pursuant to section 992(c) which is required to satisfy the condition of section 992(a)(1)(A), the preceding sentence shall apply to one-half of such amount, and paragraph (1) shall apply to the remaining one-half of such amount.” (f) Amendment of Section 603(b) of Tax Reduction Act of 1975.— Section 603(b) of the Tax Reduction Act of 1975 (relating to effective date) is amended to read as follows: “(b) Effective Dates.— “(1) In general.— Except as provided in paragraph (2), the amendments made by subsection (a) shall apply to sales, exchanges, and other dispositions made after March 18, 1975, in taxable years ending after such date. “(2) Binding contract.— The amendments made by subsection (a) shall not apply to sales, exchanges, and other dispositions made after March 18, 1975, but before Starch 19, 1980, if such sales, exchanges, and other dispositions are made pursuant to a fixed contract. The term ‘fixed contract’ means a contract winch was, on March 18, 1975, and is at all times thereafter binding on the DISC or a taxpayer which was a member of the same controlled group (within the meaning of section 993(a)(3) of the Internal Revenue Code of 1954) as the DISC, which was entered into after the date on which the DISC qualified as a DISC and the DISC and the taxpayer became members of the same controlled group, and under which the price and quantity of the products sold, exchanged, or otherwise disposed of cannot be increased.” (g) Effective Dates.— (1) For subsections (a) and (e).— The amendments made by subsections (a) and (e) shall apply to taxable years beginning after December 31, 1975. (2) For subsection (b).— The amendments made by subsection (b) shall apply to sales, exchanges, and other dispositions made after March 18, 1975, in taxable years ending after such date. (3) For subsections (c) and (f).— The amendments made by subsections (c) and (f) shall apply to taxable years ending after March 18, 1975. (4) For subsection (d).— The amendments made by subsection (d) shall apply to sales, exchanges, or other dispositions after December 31, 1975, in taxable years ending after such date. (5) Proration of babe period in case of fixed contracts.— For purposes of determining adjusted base period export gross receipts (under section 995(e)(3) of the Internal Revenue Code of 1954, as amended by this section), if any DISC has export gross receipts from export property by reason of paragraph (2) of section 603(b) of the Tax Reduction Act of 1975, then the export gross receipts of such DISC for the taxable years of the base period shall be increased by an amount equal to the amount of gross receipts which were excluded from export gross receipts during each taxable year of the base period by reason of the last sentence of section 993(e)(3) of such Code multiplied by a fraction, the numerator of which is the amount of the gross receipts in the taxable year which are export, gross receipts by reason of 90 STAT. 1660paragraph (2) of section 603(b) of the Tax Reduction Act of 1975 and the denominator of which is the amount of total gross receipts which are excluded from export gross receipts in the taxable year by reason of subparagraph (C) or (D) of paragraph (2) of section 993(c)(determined without regard to paragraph (2) of section 603(b) of the Tax Reduction Act of 1975).