CHANGE IN DEFINITION OF TAXABLE INCOME TO REFLECT CHANGE IN TAX RATES AND TABLES.

SEC. 102. CHANGE IN DEFINITION OF TAXABLE INCOME TO REFLECT CHANGE IN TAX RATES AND TABLES. (a) Taxable Income Defined.—Section 63 (defining taxable income) is amended to read as follows: “SEC. 63. TAXABLE INCOME DEFINED. “(a) Corporations.—For purposes of this subtitle, in the case of a corporation, the term ‘taxable income’ means gross income minus the deductions allowed by this chapter. “(b) Individuals.—For purposes of this subtitle, in the case of an individual, the term ‘taxable income’ means adjusted gross income— “(1) reduced by the sum of— “(A) the excess itemized deductions, and “(B) the deductions for personal exemptions provided by section 151, and “(2) increased (in the case of an individual for whom an unused zero bracket amount computation is provided by subsection (e)) by the unused zero bracket amount (if any). “(c) Excess Itemized Deductions.—For purposes of this subtitle, the term ‘excess itemized deductions’ means the excess (if any) of— “(1) the itemized deductions, over “(2) the zero bracket amount. “(d) Zero Bracket Amount.—For purposes of this subtitle, the term ‘zero bracket amount’ means— “(1) $3,200 in the case of— “(A) a joint return under section 6013, or “(B) a surviving spouse (as defined in section 2(a)), “(2) $2,200 in the case of an individual who is not married and who is not a surviving spouse (as so defined), “(3) $1,600 in the case of a married individual filing a separate return, or “(4) zero in any other case. “(e) Unused Zero Bracket Amount.— “(1) Individuals for whom computation must be made.— A computation for the taxable year shall be made under this subsection for the following individuals: “(A) a married individual filing a separate return where either spouse itemizes deductions, “(B) a nonresident alien individual. “(C) a citizen of the United States entitled to the benefits of section 931 (relating to income from sources within possessions of the United States), and “(D) an individual with respect to whom a deduction under section 151 (e) is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins. 91 STAT. 136 “(2) Computation.— For purposes of this subtitle, an individual’s unused zero bracket amount for the taxable year is an amount equal to the excess (if any) of— “(A) the zero bracket amount, over “(B) the itemized deductions. In the case of an individual referred to in paragraph (1) (D), if such individual’s earned income (as defined in section 011(b)) exceeds the itemized deductions, such earned income shall be substituted for the itemized deductions in subparagraph (B). “(f) Itemized Deductions.—For purposes of this subtitle, the term ‘itemized deductions’ means the deductions allowable by this chapter other than— “(1) the deductions allowable in arriving at adjusted gross income, and “(2) the deductions for personal exemptions provided by section 151. “(g) Election to Itemize.— “(1) In general.—Unless an individual makes an election under this subsection for the taxable year, no itemized deduction shall be allowed for the taxable year. For purposes of this subtitle, the determination of whether a deduction is allowable under this chapter shall be made without regard to the preceding sentence. “(2) Who may elect.—Except as provided in paragraph (3), an individual may make an election under this subsection for the taxable year only if such individual’s itemized deductions exceed the zero bracket amount. “(3) Certain individuals treated as electing to itemize.—An individual who has an unused zero bracket amount (as determined under subsection (e) (2)) shall be treated as having made an election under this subsection for the taxable year. “(4) Time and manner of election.—Any election under this subsection shall be made on the taxpayer’s return, and the Secretary shall prescribe the manner of signifying such election on the return. “(5) Change of treatment.— Under regulations prescribed by the Secretary, a change of treatment with respect to the zero bracket amount and itemized deductions for any taxable year may be made after the filing of the return for such year. If the spouse of the taxpayer filed a separate return for any taxable year corresponding to the taxable year of the taxpayer, the change shall not be allowed unless, in accordance with such regulations— “(A) the spouse makes a change of treatment with respect to the zero bracket amount and itemized deductions, for the taxable year covered in such separate return, consistent with the change of treatment sought by the taxpayer, and “(B) the taxpayer and his spouse consent in writing to the assessment, within such period as may be agreed on with the Secretary, of any deficiency, to the extent attributable to such change of treatment, even though at the time of the filing of such consent the assessment of such deficiency would otherwise be prevented by the operation of any law or rule of law. 91 STAT. 137 This paragraph shall not apply if the tax liability of the taxpayer’s spouse, for the taxable year corresponding to the taxable year of the taxpayer, has been compromised under section 7122. “(h) Marital Status.—For purposes of this section, marital status shall be determined under section 143.” (b) Technical and Conforming Amendments.— (1) Section 161 (relating to allowance of deductions) is amended by striking out “section 63(a)” and inserting in lieu thereof “section 63”. (2) Subsection (d) of section 172 (relating to modifications in determining not operating loss) is amended by adding at the end thereof the following new paragraph: “(8) Zero bracket amount.— In the case of a taxpayer other than a corporation, the zero bracket amount shall be treated as a deduction allowed by this chapter. For purposes of subsection (c)— “(A) the deduction provided by the preceding sentence shall be in lieu of any itemized deductions of the taxpayer, and “(B) such sentence shall not apply to an individual who elects to itemize deductions.”. (3) Section 211 (relating to allowance of deductions) is amended by striking out “section 63(a)” and inserting in lieu thereof “section 63”. (4) Subparagraph (C) of section 402(e) (1) (relating to imposition of separate tax on lump sum distributions) is amended by striking out “amount equal to one-tenth of the excess of” and inserting in lieu thereof “amount equal to $2,200 plus one-tenth of the excess of”. (5) Clause (iii) of section 441(f)(2)(B) (relating to change in accounting period) is amended to read as follows: “(iii) if such change results in c. short period to which subsection (b) of section 443 applies, the taxable income for such short period shall be placed on an annual basis for purposes of such subsection by multiplying the gross income for such short period (minus the deductions allowed by this chapter for the short period, but only the adjusted amount of the deductions for personal exemptions as described in section 443(c)) by 365, by dividing the result by the number of days in the short period, and by adding the zero bracket amount, and the tax shall be the same part of the tax computed on the annual basis as the number of days in the short period is of 365 days.” (6) Paragraph (1) of section 443(b) (relating to computation of tax on change of annual accounting period) is amended to read as follows: “(1) General rule.—If a return is made under paragraph (1) of subsection (a), the taxable income for the short period shall be placed on an annual basis by multiplying the gross income for such short period (minus the deductions allowed by this chapter for the short period, but only the adjusted amount of the deductions for personal exemptions) by 12, dividing the result by the number of months in the short period, and adding the zero bracket91 STAT. 138 amount. The tax shall be the same part of the tax computed on the annual basis as the number of months in the short period is of 12 months.” (7) Paragraph (1) of section 613A(d) (relating to limitation on percentage depletion based on taxable-income) is amended by inserting “(reduced in the case of an individual by the zero bracket amount)” after “the taxpayer’s taxable income”. (8) Paragraph (2) of section 667(b) (relating to tax on amount deemed distributed by trust in preceding years) is amended to read as follows: “(2) Treatment of loss years.— For purposes of paragraph (1), the taxable income of the beneficiary for any taxable year shall be deemed to be not less than— “(A) in the case of a beneficiary who is an individual, the zero bracket amount for such year, or “(B) in the case of a beneficiary who is a corporation, zero.” (9) Subsection (b) of section 861 (relating to income from sources within the United States) is amended by adding at the end thereof the following new sentence: “In the case of an individual who does not itemize deductions, an amount equal to the zero bracket amount shall be considered a deduction which cannot definitely be allocated to some item or class of gross income.” (10) Subsection (b) of section 862 (relating to income from sources without the United States) is amended by adding at the end thereof the following new sentence: “In the case of an individual who does not itemize deductions, an amount equal to the zero bracket amount shall be considered a deduction which cannot definitely be allocated to some item or class of gross income.” (11) Subsection (a) of section 904 (relating to limitation on foreign tax credit) is amended by adding at the end thereof the following new sentence: “For purposes of the preceding sentence, in the case of an individual the entire taxable income shall be reduced by an amount equal to the zero bracket amount.” (12) Subparagraph (B) of section 911(d)(1) (relating to computation of tax where there is earned income from sources without the United States) is amended to read as follows: “(B) the tax imposed by section 1 or section 1201 (whichever is applicable) on the sum of— “(i) the amount of net excluded earned income, and “(ii) the zero bracket amount.” (13) Clause (i) of section 1034(b)(2)(C) (relating to limitations on sales price adjustment) is amended by striking out “section 63(a)” and inserting in lieu thereof “section 63”. (14) Subparagraph (A) of section 1211(b)(1) (relating to limitation on capital losses) is amended to read as follows: “(A) the taxable income for the taxable year reduced (but not below zero) by the zero bracket amount,”. (15) Section 1302(b) (defining average base period income) is amended by adding at the end thereof the following new paragraph: “(3) transitional rule for determining base period income.—The base period income (determined under paragraph (2)) for any taxable year beginning before January 1, 1977, shall be increased by the amount of the taxpayer’s zero bracket amount for the computation year.” 91 STAT. 139 (16) Subparagraph (A) of section 6654(d)(2) (relating to annualized taxable income) is amended to read as follows: “(A) The taxable income shall be placed on an annualized basis under regulations prescribed by the Secretary.”.