AMENDMENTS RELATED TO TITLE II OF THE REFORM ACT.

SEC. 1002. AMENDMENTS RELATED TO TITLE II OF THE REFORM ACT. (a) Amendments Related to Section 201 of the Reform Act.— (1) Subsection (d) of section 1250 of the 1986 Code is amended by striking out paragraph (11), (2) Subparagraph (B) of section 201(d)(14) of the Reform Act is amended by striking out “section 168(c)(2)(F)” and inserting in lieu thereof “within the meaning of section 168(c)(2)(F)”. 102 STAT. 3353 (3) Paragraph (4) of section 312(k) of the 1986 Code is amended by striking out “paragraphs (1) and (3)” and inserting in lieu thereof “paragraph (1/, (4) Paragraph (4) of section 46(e) of the 1986 Code is amended— (A) by striking out “168(j)(6)” in subparagraph (B) and inserting in lieu thereof “168(i)(3)”, (B) by striking out “paragraphs (8) and (9) of section 168(j)” in subparagraph (D) and inserting in lieu thereof “paragraphs (5) and (6) of section 168(h)”, (C) by striking out “168(j)” in subparagraph (E) and inserting in lieu thereof “168(h)”, and (D) by striking out “168(j)(4)” in subparagraph (E) and inserting in lieu thereof “168(h)(2)”. (5) Clause (i) of section 168(d)(3)(A) of the 1986 Code is amended by striking out “and which are”. (6) (A) Subparagraph (B) of section 168(f)(5) of the 1986 Code is amended— (i) by striking out “1st full taxable year” in clause (ii) and inserting in lieu thereof “1st taxable year”, and (ii) by striking out “or” at the end of clause (i), by striking out the period at the end of clause (ii) and inserting in lieu thereof ‘, or’, and by adding at the end thereof the following new clause: “(iii) any property to which this section (as amended by the Tax Reform Act of 1986) applied in the hands of the transferor.” (B) Paragraph (5) of section 168(f) of the 1986 Code is amended by adding at the end thereof the following new subparagraph: “(C) Special rule.—In the case of any property to which this section would apply but for this paragraph, the depreciation deduction under section 167 shall be determined under the provisions of this section as in effect before the amendments made by section 201 of the Tax Reform Act of 1986.” (7) (A) Subparagraph (A) of section 168(i)(7) of the 1986 Code is amended by adding at the end thereof the following new sentence: “In any case where this section as in effect before the amendments made by section 201 of the Tax Reform Act of 1986 applied to the property in the hands of the transferor, the reference in the preceding sentence to this section shall be treated as a reference to this section as so in effect.” (B) Subparagraph (B) of section 168(i)(7) of the 1986 Code is amended to read as follows: “(B) Transactions covered.— The transactions described in this subparagraph are— “(i) any transaction described in section 332, 351, 361, 371(a), 374(a), 721, or 731, and “(ii) any transaction between members of the same affiliated group during any taxable year for which a consolidated return is made by such group. Subparagraph (A) shall not apply in the case of a termination of a partnership under section 708(b)(1)(B) ” (C) Subparagraph (D) of section 168(i)(7) of the 1986 Code is hereby repealed (8) Subparagraph (B) of section 168(h)(2) of the 1986 Code is amended to read as follows: 102 STAT. 3354 “(B) Exception for certain property subject to united states tax and used by foreign person or entity.— Clause (iii) of subparagraph (A) shall not apply with respect to any property if more than 50 percent of the gross income for the taxable year derived by the foreign person or entity from the use of such property is— “(i) subject to tax under this chapter, or “(ii) included under section 951 in the gross income of a United States shareholder for the taxable year with or within which ends the taxable year of the controlled foreign corporation in which such income was derived. For purposes of the preceding sentence, any exclusion or exemption shall not apply for purposes of determining the amount of the gross income so derived, but shall apply for purposes of determining the portion of such gross income subject to tax under this chapter.” (9) Subsection (a) of section 178 of the 1986 Code is amended by striking out “the deduction allowable to a lessee of a lease for any taxable year for amortization under section 167, 169, 179, 185, 190, 193, or 194” and inserting in lieu thereof “the deduction allowable to a lessee for exhaustion, wear and tear, obsolescence, or amortization”. (10) Subparagraph (A) of section 280F(d)(3) of the 1986 Code is amended by striking out “any recovery deduction” and inserting in lieu thereof “any depreciation deduction”. (11) (A) Paragraph (2) of section 168(b) of the 1986 Code is amended to read as follows: “(2) 150 percent declining balance method in certain cases—Paragraph (1) shall be applied by substituting ‘150 percent’ for ‘200 percent’ in the case of— “(A) any 15-year or 20-year property, or “(B) any property (other than property described in paragraph (3)) with respect to which the taxpayer elects under paragraph (5) to have the provisions of this paragraph apply.” (B) Paragraph (5) of section 168(b) of the 1986 Code is amended by striking out “under paragraph (3)(C)” and inserting in lieu thereof “under paragraph (2)(B) or (3)(C)”. (C) Subsection (c) of section 168 of the 1986 Code is amended to read as follows: “(c) Applicable Recovery Period.— For purposes of this section— “(1) In general.—Except as provided in paragraph (2), the applicable recovery period shall be determined in accordance with the following table: “In the case of: The applicable recovery period is: 3-year property 3 years 5-year property 5 years 7-year property 7 years 10-year property 10 years 15-year property 5 years 20-year property 20 years Residential rental property 27.5 years Nonresidential real property 31.5 years. ”(2) Property for which 150 percent method elected.—In the case of property to which an election under subsection (b)(2)(B) applies, the applicable recovery period shall be determined under the table contained in subsection (g)(2)(C).” 102 STAT. 3355 (12) Clause (i) of section 56(a)(1)(C) of the 1986 Code is amended by striking out “do not apply” and inserting in lieu thereof “do not apply by reason of section 203, 204, or 251(d) of such Act”. (13) The heading of paragraph (24) of section 381(c) of the 1986 Code is amended by striking out “recovery allowance for recovery property” and inserting in lieu thereof “depreciation deduction”. (14) Paragraph (5) of section 48(a) of the 1986 Code is amended— (A) by striking out “168(j)(4)(C)” and inserting in lieu thereof “168(h)(2)(C)”, (B) by striking out “168(j)(4)(A)(iii)” and inserting in lieu thereof “168(h)(2)(A)(iii)”, (C) by striking out “168(j)(4)(B)” and inserting in lieu thereof “168(h)(2)(B)”, (D) by striking out “168(j)(6)” and inserting in lieu thereof “168(i)(3)”, (E) by striking out “168(j)(3)(C)(ii)” and inserting in lieu thereof “168(h)(1)(C)(ii)”, (F) by striking out “paragraphs (8) and (9) of section 168(j)” and inserting in lieu thereof “paragraphs (5) and (6) of section 168(h)”, and (G) by striking out subparagraph (E) and inserting in lieu thereof the following: “(E) Cross reference.— “For provision providing special rules for the application of this paragraph and paragraph (4), see section 168(h).“ (15) The last sentence of section 46(e)(3) of the 1986 Code is amended— (A) by striking out “recovery property (within the meaning of section 168)” and inserting in lieu thereof “property to which section 168 applies”, (B) by striking out “present class life” and inserting in lieu thereof “class life”, and (C) by striking out “168(g)(2)” and inserting in lieu thereof “168(i)(I)”. (16) (A) Subsection (s) of section 48 of the 1986 Code is amended by adding at the end thereof the following new paragraph: (9) Termination.—This subsection shall not apply to any property placed in service after December 31, 1985, unless such property is transition property (as defined in section 49(e)(1)).” (B) Paragraph (4) of section 168(f) of the 1986 Code is amended to read as follows: (4) Sound recordings.—Any works which result from the fixation of a series of musical, spoken, or other sounds, regard-less of the nature of the material (such as discs, tapes, or other phonorecordings) in which such sounds are embodied.” (17) Paragraph (7) of section 46(c) of the 1986 Code is amended— (A) by striking out “recovery property” and inserting in lieu thereof “property to which section 168 applies”, (B) by striking out “168(c)” each place it appears and inserting in lieu thereof “168(e)”, 102 STAT. 3356 (C) by striking out “168(f)(3)(B)” and inserting in lieu thereof “168(f)(3)(B) (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986)”, and (D) by striking out “recovery property” in the paragraph heading and inserting in lieu thereof “property to WHICH SECTION 168 APPLIES”. (18) Paragraph (1) of section 47(d) of the 1986 Code is amended by striking out “section 48(c)(8)(C) and inserting in lieu thereof “section 46(c)(8)(C)”. (19) Paragraph (1) of section 179(d) of the 1986 Code is amended by striking out “recovery property” and inserting in lieu thereof “tangible property (to which section 168 applies)”. (20) Section 48 of the 1986 Code is amended by redesignating the subsection (s) relating to cross references as subsection (t). (21) Clause (v) of section 168i(e)(3)(B) of the 1986 Code is amended by striking out “any property” and inserting in lieu thereof “any section 1245 property”. (22) The last sentence of section 167(1)(3)(G) of the 1986 Code is amended by striking out “section 168(e)(3)(C)” and inserting in lieu thereof “section 168(i)(9)(B)”. (23) (A) Subparagraph (B) of section 168(d)(3) of the 1986 Code is amended to read as follows: “(B) Certain property not taken into account.— For purposes of subparagraph (A), there shall not be taken into account— “(i) any nonresidential real property and residential rental property, and “(ii) any other property placed in service and dis-posed of during the same taxable year.” (B) Clause (ii) of section 168(d)(3)(B) of the 1986 Code (as added by subparagraph (A)) shall apply to taxable years banning after March 31, 1988, unless the taxpayer elects, at such time and in such manner as the Secretary of the Treasury or his delegate may prescribe, to have such clause apply to taxable years beginning on or before such date. (24) Subsection (a) of section 167 of the 1986 Code is amended by striking out the last sentence. (25) Subparagraph (B) of section 46(d)(1) of the 1986 Code is amended— (A) by striking out “recovery property (within the meaning of section 168)” in clause (i) and inserting in lieu thereof “property to which section 168 applies”, and (B) by striking out “which is not recovery property (within the meaning of section 168)” in clause (ii) and inserting in lieu thereof “to which section 168 does not apply”. (26) (A) Subparagraph (E) of section 47(a)(5) of the 1986 Code is amended by adding at the end thereof the following new clause: “(v) Treatment as recovery property.—Any reference in this paragraph to recovery property shall be treated as including a reference to any property to which section 168 (as amended by the Tax Reform Act of 1986) applies,” (B) Subparagraph (D) of section 47(a)(5) of the 1986 Code is amended by striking out the last sentence. 102 STAT. 3357 (C) Clause (iii) of section 47(a)(5)(E) of the 1986 Code is amended by striking out “section 168(c)” and inserting in lieu thereof “section 168(e)”. (27) Subparagraph (A) of section 47(a)(9) of the 1986 Code is amended by striking out “section 168(j)(4)(C)” and inserting in lieu thereof “section 168(h)(2)”. (28) Clause (i) of section 47(d)(3)(C) of the 1986 Code is amended— (A) by striking out “present class life (as defined in section 168(g)(2))” and inserting in lieu thereof “class life (as defined in section 168(i)(1))”, and (B) by striking out “no present class life” and inserting in lieu thereof “no class life”. (29) Paragraph (1) of section 48(a) of the 1986 Code is amended by striking out “recovery property (within the meaning of section 168)” in the material following subparagraph (G) and inserting in lieu thereof “property to which section 168 applies”. (30) Subparagraph (C) of section 48(1)(2) of the 1986 Code is amended by striking out “which is recovery property (within the meaning of section 168)” and inserting in lieu thereof “to which section 168 applies”. (31) Subsection (d) of section 167 of the 1986 Code is amended by striking out “recovery property defined in section 168” and inserting in lieu thereof “property to which section 168 applies”, (b) Amendments Related to Section 202 of the Reform Act — (1) Paragraph (3) of section 179(b) of the 1986 Code is amended to read as follows: “(3) Limitation based on income from trade or business.— “(A) In general.— The amount allowed as a deduction under subsection (a) for any taxable year (determined after the application of paragraphs (1) and (2)) shall not exceed the aggregate amount of taxable income of the taxpayer for such taxable year which is derived from the active conduct by the taxpayer of any trade or business during such tax-able year. “(B) Carryover of disallowed deduction.— The amount allowable as a deduction under subsection (a) for any tax-able year shall be increased by the lesser of— “(i) the aggregate amount disallowed under subparagraph (A) for all prior taxable years (to the extent not previously allowed as a deduction by reason of this subparagraph), or “(ii) the excess (if any) of— “(I) the limitation of paragraphs (1) and (2) (or if lesser, the aggregate amount of taxable income referred to in subparagraph (A)), over “(II) the amount allowable as a deduction under subsection (a) for such taxable year without regard to this subparagraph. “(C) Computation of taxable income.—For purposes of this paragraph, taxable income derived from the conduct of a trade or business shall be computed without regard to the deduction allowable under this section.” (2) Paragraph (1) of section 280F(d) of the 1986 Code is amended by striking out “subsections (a) and (b)” and inserting in lieu thereof “subsections (a) and (b), and the limitation of paragraph (3) of this subsection,”, 102 STAT. 3358 (c) Amendments Related to Section 203 of the Reform Act.— (1) Subparagraph (B) of section 203(a)(1) of the Reform Act is amended by adding at the end thereof the following new sentence: “No election may be made under this subparagraph with respect to property to which section 168 of the Internal Revenue Code of 1986 would not apply by reason of section 168(f)(5) of such Code if such property were placed in service after December 31, 1986.” (2) Subsection (d) of section 203 of the Reform Act is amended— (A) by striking out “the case of any taxable year” and inserting in lieu thereof “the case of any taxable year beginning before October 1, 1987”, and (B) by adding at the end thereof the following new sentence: “The preceding sentence shall only apply to property which would be taken into account if such amendments did apply” (3) Notwithstanding section 203 of the Reform Act, the amendments made by section 201 of the Reform Act shall apply to any real property which was acquired before January 1, 1987, and was converted on or after such date from personal use to a use for which depreciation is allowable. (4) Paragraph (1) of section 203(b) of the Reform Act is amended by adding at the end thereof the following new sentence: “For purposes of this paragraph, all members of the same affiliated group of corporations (within the meaning of section 1504 of the Internal Revenue Code of 1986) filing a consolidated return shall be treated as one taxpayer.” (5) Paragraph (1) of section 203(c) of the Reform Act is amended by striking out “Subparagraph” and inserting in lieu thereof “Except as otherwise provided in this subsection or section 204, subparagraph”. (6) Clause (i) of section 203(b)(2)(C) of the Reform Act is amended by striking out “shall be the class life” and inserting in lieu thereof “applies shall be the class life”. (7) Paragraph (3) of section 203(b) of the Reform Act is amended— (A) by inserting before the comma at the end of subparagraph (A) “(or would have met such requirements if placed in service by such person)”, and (B) by inserting “, or is leased to such person,” before “not later than”. (8) Paragraph (2) of section 203(a) of the Reform Act is amended to read as follows: “(2) Section 202.— “(A) In general.—The amendments made by section 202 shall apply to property placed in service after December 31, 1986, in taxable years ending after such date. “(B) Special rule for fiscal years including January 1, 1987.— In the case of any taxable year (other than a calendar year) which includes January 1, 1987, for purposes of applying the amendments made by section 202 to property placed in service during such taxable year and after December 31, 1986— “(i) the limitation of section l79(b)(1) of the Internal Revenue Code of 1986 (as amended by section 202) shall 102 STAT. 3359be reduced by the aggregate deduction under section 179 {as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) for section 179 property placed in service during such taxable year andbefore January 1, 1987. “(ii) the limitation of section 179(b)(2) of such Code (as so amended) shall be applied by taking into account the cost of all section 179 property placed in service during such taxable year, and “(iii) the limitation of section 179(b)(3) of such Code shall be applied by taking into account the taxable income for the entire taxable year reduced by the amount of any deduction under section 179 of such Code for property placed in service during such taxable year and before January 1, 1987.” (d) Amendments Related to Section 204 of the Reform Act.— (1) Subparagraph (B) of section 204(a)(1) of the Reform Act is amended by striking out “and” at the end of clause (ii), by striking out the period at the end of clause (iii) and inserting in lieu thereof “, and”, and by inserting after clause (iii) the following new clause: “(iv) described in subparagraph (F) or (H).” (2) Subparagraph (C) of section 204(a)(1) of the Reform Act is amended by striking out the last sentence and inserting in lieu thereof the following: “For purposes of this subparagraph, section 203(b)(2) shall be applied by substituting ‘January 1, 1994’ for ‘January 1, 1991’ each place it appears.” (3) Subparagraph (E) of section 204(a)(1) of the Reform Act is amended by striking out the last sentence and inserting in lieu thereof the following: “For purposes of this subparagraph, section 203(b)(2) shall be applied by substituting ‘January 1, 1998’ for ‘January 1, 1991’ each place it appears.” (4) Subparagraph (F) of section 204(a)(1) of the Reform Act is amended— (A) by striking out “paragraph” and inserting in lieu thereof “subparagraph”, (B) by striking out “, or” at the end of clause (iii) and inserting in lieu thereof a period, and (C) by striking out so much of clause (iv) as precedes subclause (I) thereof and inserting in lieu thereof the following: “A project is also described in this subparagraph if it is a mixed-use development which is—”. (5) The last sentence of section 204(a)(1)(F) of the Reform Act is amended— (A) by striking out “subsection (b)(2)” and inserting in lieu thereof “section 203(b)(2)”, and (B) by striking out “1993” and inserting in lieu thereof “1998”. (6) Subparagraph (H) of section 204(a)(1) of the Reform Act is amended by striking out “July 1, 1986” and inserting in lieu thereof “June 30, 1986”. (7) (A) Paragraph (4) of section 204(a) of the Reform Act is amended to read as follows: “(4) Property treated under prior tax acts.— The amendments made by section 201 shall not apply— 102 STAT. 3360 “(A) to property described in section 12(c)(2) (as amended by the Technical and Miscellaneous Revenue Act of 1988), 31(g)(5), or 31(g)(17)(J) of the Tax Reform Act of 1984, “(B) to property described in section 209(d)(1)(B) of the Tax Equity and Fiscal Responsibility Act of 1982, as amended by the Tax Reform Act of 1984, and “(C) to property described in section 216(b)(3) of the Tax Equity and Fiscal Responsibility Act of 1982.” (B) Paragraph (2) of section 12(c) of the Tax Reform Act of 1984 is amended by striking out “which is placed in service before January 1, 1988”. (8) Subparagraph (K) of section 204(a)(5) of the Reform Act is amended— (A) by striking out “either” in the matter preceding clause (i), (B) by striking out “super calendar” in clause (i) and inserting in lieu thereof “supercalendered”, (C) by striking out “were incurred” in clause (i) and inserting in lieu thereof “was incurred”, and (D) by inserting “the project” before “involves” in clause (v). (9) Paragraph (5) of section 204(a) of the Reform Act is amended by adding at the end thereof the following new subparagraph: “(Z) A project is described in this subparagraph if— “(i) such project involves a fiber optic network of at least 475 miles, passing through Minnesota and Wisconsin; and “(ii) before January 1, 1986, at least $15,000,000 was expended or committed for electronic equipment or fiber optic cable to be used in constructing the network.” (10) (A) Paragraph (8) of section 204(a) of the Reform Act is amended by striking out the period at the end of subparagraph (C) and inserting in lieu thereof a comma, and by adding at the end thereof the following new subparagraphs: “(D) a bond volume carryforward election was made for the facility and the facility is for Chattanooga, Knoxville, or Kingsport, Tennessee, or “(E) such facility is to serve Haverhill, Massachusetts.” (B) Paragraph (8) of section 204(a) of the Reform Act is amended by striking out “, and section 203(c),”. (11) Paragraph (10) of section 204(a) of the Reform Act is amended— (A) by striking out “either” in the material preceding subparagraph (A), (B) by striking out “wastewater treatment facility” in subparagraph (C) and inserting in lieu thereof “wastewater treatment facility serving Greenville, South Carolina”, and (C) by striking out “the letter of intent and service agreement described in subparagraph (A)(2) of this paragraph” in subparagraph (D) and inserting in lieu thereof “such letter of intent and service agreement”. (12) Paragraph (11) of section 204(a) of the Reform Act is amended— 102 STAT. 3361 (A) by striking out “Kansas, Florida, Georgia, or Texas” in subparagraph (A) and inserting in lieu thereof “the United States”, (B) by striking out “the purchase” in subparagraph (C) and inserting in lieu thereof “the purchaser”, and (C) by striking out the last sentence. (13) Paragraph (14) of section 204(a) of the Reform Act is amended by striking out the period at the end of subparagraph (E) and inserting in lieu thereof a comma, and by inserting after subparagraph (E) the following: “(F) the project has a planned scheduled capacity of approximately 38,000 kilowatts, the project property is placed in service before January 1, 1991, and the project is operated, established, or constructed pursuant to certain agreements, the negotiation of which began before 1986, with public or municipal utilities conducting business in Massachusetts, or “(G) the Board of Regents of Oklahoma State University took official action on July 25, 1986, with respect to the project. In the case of the project described in subparagraph (F), section 203(b)(2)(A) shall be applied by substituting ‘January 1, 1991’ for ‘January 1, 1989’.” (14) Paragraph (15) of section 204(a) of the Reform Act is amended— (A) by adding “located in New Mexico” after “to a project”, (B) by striking out “$72,000” and inserting in lieu thereof “$72,000,000”, and (C) by striking out the last sentence and inserting in lieu thereof the following: “For purposes of this paragraph, section 203(b)(2) shall be applied by substituting ‘January 1, 1996’ for ‘January 1, 1991’ each place it appears.” (15) Paragraph (24) of section 204(a) of the Reform Act is amended by adding at the end thereof the following new subparagraphs: “(E) The amendments made by section 201 shall not apply to the Muskegon, Michigan, Cross-Lake Ferry project having a projected cost of approximately $7,200,000. “(F) The amendments made by section 201 shall not apply to a new automobile carrier vessel, the contract price for which is no greater than $28,000,000, and which will be constructed for and placed in service by OSG Car Carriers, Inc., to transport, under the United States flag and with an American crew, foreign automobiles to North America in a case where negotiations for such transportation arrangements commenced in 1985, and definitive transportation contracts were awarded before June 1986.” (16) Paragraph (25) of section 204(a) of the Reform Act is amended by striking out “wood energy products” and inserting in lieu thereof “wood energy projects”. (17) Paragraph (27) of section 204(a) of the Reform Act is amended— (A) in subparagraph (B), by striking out “525,000” and inserting in lieu thereof “540,000”, (B) in subparagraph (C)— 102 STAT. 3362 (i) by striking out “$32,000,000” and inserting in lieu thereof “$22,000,000”, and (ii) by striking out “before” and inserting in lieu thereof “on”, (C) in subparagraph (D), by striking out “and 7th Avenue”, and (D) in subparagraph (H), by striking out “$62,000” and inserting in lieu thereof “$62,600,000”. (18) Paragraph (27) of section 204(a) of the Reform Act is amended by adding at the end thereof the following: “(I) A 600,000 square foot mixed use building known as Flushing Center with respect to which a letter of intent was executed on March 26, 1986. In the case of the building described in subparagraph (I), section 203(b)(2)(A) shall be applied by substituting ‘January 1, 1993’ for the applicable date which would otherwise apply.” (19) Paragraph (31) of section 204(a) of the Reform Act is amended by striking out “$10,200,000” and inserting in lieu thereof “$10,500,000” (20) Paragraph (32) of section 204(a) of the Reform Act is amended— (A) in subparagraph (A)— (i) by striking out “July 30, 1984” and inserting in lieu thereof “December 26, 1985”, (ii) by striking out “February 28, 1985” and inserting in lieu thereof ‘July 2, 1986”, and (iii) by striking out “on June 17, 1985” and inserting in lieu thereof “in May 1985”, (B) in subparagraph (B)— (i) by striking out “August 30, 1984” and inserting in lieu thereof “December 26, 1985”, (ii) by striking out “May 4, 1985” and inserting in lieu thereof “July 2, 1986”, and (iii) by striking out “on July 3, 1985” and inserting in lieu thereof “in July 1985”, (C) in subparagraph (E)— (i) by striking out “$2,200,000” and inserting in lieu thereof “$5,000,000”, (ii) by striking out “on January 27, 1986” and insert ing “in 1986”, and (iii) by inserting “in Masontown, Pennsylvania,” after “plant”, (D) by amending subparagraph (K) to read as follows: “(K) A 250 megawatt coal-fired electric plant in north-eastern Nevada estimated to cost $600,000,000 and known as the Thousand Springs project, on which the Sierra Pacific Power Company, a subsidiary of Sierra Pacific Re-sources, began in 1980 work to design, finance, construct, and operate (and section 203(b)(2) shall be applied with respect to such plant by substituting ‘January 1, 1995’ for ‘January 1, 1991’),”, (E) in subparagraph (L), by inserting “in connection with” after “housing”, (F) by amending subparagraph (M) to read as follows: “(M) property which is part of the Kenosha Downtown Redevelopment Project and which is financed with the proceeds of bonds issued pursuant to section 1317(6)(W),”, 102 STAT. 3363 (G) in subparagraph (0), by striking out “New Orleans, Louisiana” and inserting in lieu thereof “Pensacola, Florida”, and (H) in subparagraph (S)— (i) by inserting “to be” before “placed”, (ii) by inserting “Coal” before “Company”, (iii) by inserting “(or any subsidiary thereof)” after “Company”, and (iv) by striking out “on December 31, 1985” and inserting in lieu thereof “by December 31, 1985”. (21) Subparagraph (D of section 204(a)(32) of the Reform Act is amended to read as follows: “(T) a portion of a fiber optics network placed in service by LDX NET after December 31, 1988, but only to the extent the cost of such portion does not exceed $25,000,000,”. (22) Subparagraph (U) of section 204(a)(32) of the Reform Act is amended by striking out “placed in service” and inserting in (23) Subparagraph (X) of section 204(a)(32) of the Reform Act is amended by striking out “the home rule city and the State housing finance agency adopted inducement resolutions on December 20, 1985” and inserting in lieu thereof “the home rule city on December 4, 1985, and the State housing finance agency on December 20, 1985, adopted inducement resolutions”. (24) Subparagraph (C) of paragraph (33) of section 204(a) of the Reform Act is amended to read as follows: “(C) (i) a waste-to-energy project in Derry, New Hampshire, costing approximately $60,000,000, and “(ii) a waste-to-energy project in Manchester, New Hampshire, costing approximately $60,000,000,”. (25) Paragraph (33) of section 204(a) of the Reform Act is amended by striking out “and” at the end of subparagraph (J), by striking out the period at the end of subparagraph (K) and inserting in lieu thereof “, and”, and by inserting after subparagraph (K) the following: “(L) a cogeneration facility to be built at a paper company in Turners Falls, Massachusetts, with respect to which a letter of intent was executed on behalf of the paper company on September 26, 1985.” (26) Subsection (a) of section 204 of the Reform Act is amended by adding at the end thereof the following new paragraphs: “(34) The amendments made by section 201 shall not apply to an approximately 240,000 square foot beverage container manufacturing plant located in Batesville, Mississippi, or plant equipment used exclusively on the plant premises if— “(A) a 2-year supply contract was signed by the taxpayer and a customer on November 1, 1985, “(B) such contract further obligated the customer to purchase beverage containers for an additional 5-year period if physical signs of construction of the plant are present before September 1986, “(C) ground clearing for such plant began before August 1986, and “(D) construction is completed, the equipment is in-stalled, and operations are commenced before July 1, 1987. 102 STAT. 3364 “(35) The amendments made by section 201 shall not apply to any property which is part of the multifamily housing at the Columbia Point Project in Boston, Massachusetts. A project shall be treated as not described in the preceding sentence and as not described in section 252(f)(1)(D) unless such project includes at substantially all times throughout the compliance period (within the meaning of section 42(i)(1) of the Internal Revenue Code of 1986), a facility which provides health services to the residents of such project for fees commensurate with the ability of such individuals to pay for such services. “(36) The amendments made by section 201 shall not apply to any ethanol facility located in Blair, Nebraska, if— “(A) in July of 1984 an initial binding construction con-tract was entered into for such facility, “(B) in June of 1986, certain Department of Energy recommended contract changes required a change of contractor, and “(C) in September of 1986, a new contract to construct such facility, consistent with such recommended changes, was entered into. “(37) The amendments made by section 201 shall not apply to any property which is part of a sewage treatment facility if, prior to January 1, 1986, the City of Conyers, Georgia, selected a privatizer to construct such facility, received a guaranteed maximum price bid for the construction of such facility, signed a letter of intent and began substantial negotiations of a service agreement with respect to such facility. “(38) The amendments made by section 201 shall not apply to— “(A) a $28,000,000 wood resource complex for which construction was authorized by the Board of Directors on August 9, 1985, “(B) an electrical cogeneration plant in Bethel, Maine which is to generate 2 megawatts of electricity from the burning of wood residues, with respect to which a contract was entered into on July 10, 1984, and with respect to which $200,000 of the expected $2,000,000 cost had been commit-ted before June 15, 1986, “(C) a mixed income housing project in Portland, Maine which is known as the Back Bay Tower and which is expected to cost $17,300,000, “(D) the Eastman Place project and office building in Rochester, New York, which is projected to cost $20,000,000, with respect to which an inducement resolution was adopted in December 1986, and for which a binding contract of $500,000 was entered into on April 30, 1986, “(E) the Marquis Two project in Atlanta, Georgia which has a total budget of $72,000,000 and the construction phase of which began under a contract entered into on March 26, 1986. “(F) a 166-unit continuing care retirement center in New Orleans, Louisiana, the construction contract for which was signed on February 12, 1986, and is for a maximum amount not to exceed $8,500,000, “(G) the expansion of the capacity of an oil refining facility in Rosemont, Minnesota from 137,000 to 207,000 102 STAT. 3365barrels per day which is expected to be completed by December 31, 1990, and “(H) a project in Ransom, Pennsylvania which will burn coal waste (known as ‘culm’) with an approximate cost of $64,000,000 and for which a certification from the Federal Energy Regulatory Commission was received on March 11, 1986. “(39) The amendments made by section 201 shall not apply to any facility for the manufacture of an improved particle board if a binding contract to purchase such equipment was executed March 3, 1986, such equipment will be placed in service by January 1, 1988, and such facility is located in or near Moncure, North Carolina.” (27) Subsection (b) of section 204 of the Reform Act is amended by inserting “(as amended by the Tax Reform Act of 1984)” immediately before the period at the end thereof. (28) Subparagraph (A) of section 204(c)(1) of the Reform Act is amended by inserting “located in Pennsylvania and” before “constructed pursuant”. (29) Paragraph (3) of section 204(c) of the Reform Act is amended— (A) by striking out “for the applicable date” and inserting in lieu thereof “(or, in the case of a project described in subparagraph (B), by substituting ‘April 1, 1992’) for the applicable date”, (B) by striking out “before April 1, 1986” in subparagraph (A) and inserting in lieu thereof “on or before April 1, 1986”, and (C) by adding at the end thereof the following: “In the case of an aircraft described in subparagraph (A), section 203(b)(1)(A) shall be applied by substituting ‘April 1, 1986’ for ‘March 1, 1986’ and section 49(e)(1)(B) of the Internal Revenue Code of 1986 shall not apply.” (30) (A) Paragraph (4) of section 204(c) of the Reform Act is amended by striking out all that precedes subparagraph (L) and inserting in lieu thereof the following: “(4) The amendments made by section 201 shall not apply to a limited amount of the following property or a limited amount of property set forth in a submission before September 16, 1986, by the following taxpayers: “(A) Arena project, Michigan, but only with respect to $78,000,000 of investments. “(B) Campbell Soup Company, Pennsylvania, California, North Carolina, Ohio, Maryland, Florida, Nebraska, Michigan, South Carolina, Texas, New Jersey, and Delaware, but only with respect to $9,329,000 of regular investment tax credits. “(C) The Southeast Overtown/Park West development, Florida, but only with respect to $200,000,000 of investments. “(D) Equipment placed in service and operated by Leggett and Platt before July 1, 1987, but only with respect to $2,000,000 of regular investment tax credits, and subsections (c) and (d) of section 49 of the Internal Revenue Code of 1986 shall not apply to such equipment. “(E) East Bank Housing Project. 102 STAT. 3366 “(F) $1,561,216 of investments by Standard Telephone Company. “(G) Five aircraft placed in service before January 1, 1987, by Presidential Air. “(H) A rehabilitation project by Ann Arbor Railroad, but only with respect to $2,900,000 of investments. “(I) Property that is part of a cogeneration project located in Ada, Michigan, but only with respect to $30,000,000 of investments. “(J) Anchor Store Project, Michigan, but only with respect to $21,000,000 of investments. “(K) A waste-fired electrical generating facility of Biogen Power, but only with respect to $34,000,000 of investments.” (B) Paragraph (4) of section 204(c) of the Reform Act is amended by striking out all that follows subparagraph (L) and inserting in lieu thereof the following: “(M) Interests of Samuel A. Hardage (whether owned individually or in partnership form). “(N) Two aircraft of Mesa Airlines with an aggregate cost of $5,723,484. “(O) Yarn-spinning equipment used at Spray Cotton Mills, but only with respect to $3,000,000 of investments. “(P) 328 units of low-income housing at Angelus Plaza, but only with respect to $20,500,000 of investments. “(Q) One aircraft of Continental Aviation Services with a cost of approximately $15,000,000 that was purchased pursuant to a contract entered into during March of 1983 and that is placed in service by December 31, 1988.” (31) Paragraph (29) of section 204(a) of the Reform Act is amended— (A) by striking out “January 18” in subparagraph (A) and inserting in lieu thereof “January 25”, and (B) by striking out “law suits filed on June 22, 1984, and November 21, 1985” in subparagraph (B) and inserting in lieu thereof “a law suit filed on October 25, 1985”. (32) Subparagraph (J) of section 204(a)(33) of the Reform Act, as amended by paragraph (25), is amended to read as follows: “(J) A 25.85 megawatt alternative energy facility located in Deblois, Maine, with respect to which certification by the Federal Energy Regulatory Commission was made on April 3, 1986,”. (33) Paragraph (3) of section 204(c) of the Reform Act is amended— (A) by inserting “and” at the end of subparagraph (B), (B) by striking out subparagraph (C), and (C) by redesignating subparagraph (D) as subparagraph (O. (34) Subclause (E)(I) of section 204(a)(5)(J)(ii) of the Reform Act is amended to read as follows: “(II) the Board of Directors of an automobile manufacturer approved a written plan for the conversion of existing facilities to produce new models of a vehicle not currently produced in the United States, such facilities will be placed in service by July 1, 1987, and such Board action occurred in July 1985 with respect to a $602,000,000 expendi-102 STAT. 3367ture, a $438,000,000 expenditure, and a $321,000,000 expenditure.” (35) Subparagraph (T) of section 204(a)(5) of the Reform Act is amended to read as follows: “(T) A project is described in this subparagraph if it is a plant facility on Alaska’s North Slope which is placed in service before January 1, 1988, and— “(i) the approximate cost of which is $675,000,000, of which approximately $400,000,000 was spent on off-site construction, “(ii) the approximate cost of which is $445,000,000, of which approximately $400,000,000 was spent on off-site construction and more than 50 percent of the project cost was spent prior to December 31, 1985, or “(iii) the approximate cost of which is $375,000,000, of which approximately $260,000,000 was spent on off-site construction.” (e) Amendments Relating to Section 211 of the Reform Act.— (1) Paragraph (1) of section 49(d) of the 1986 Code is amended to read as follows: (1) In general.— In the case of periods after December 31, 1985, with respect to so much of the credit determined under section 46(a) with respect to transition property as is attributable to the regular investment credit (as defined in subsection (c)(5)(B))— “(A) paragraphs (1), (2), and (7) of section 48(q) and section 48(d)(5) shall be applied by substituting TOO percent’ for ‘50 percent’ each place it appears, and “(B) sections 48((j)(4) and 196(d) shall not apply.” (2) Subparagraph (B) of section 49(c)(4) of the 1986 Code is amended to read as follows: “(B) No carryback for years straddling july 1, 1987; gross up of carryforwards.— In any case to which paragraph (3) applies— “(i) the amount of the reduction under paragraph (3) may not be carried back to any taxable year, but “(ii) there shall be added to the carryforwards from the taxable year (before applying paragraph (2)) an amount equal to the amount which bears the same ratio to the carryforwards from such taxable year (determined without regard to this clause) as— “(I) the applicable percentage, bears to “(II) 1 minus the applicable percentage.” (3) Clause (i) of section 49(c)(5)(B) of the 1986 Code is amended to read as follows: “(i) In general.—The term ‘regular investment credit’ means the credit determined under section 46(a) to the extent attributable to the regular percentage.” (4) Paragraph (1) of section 211(e) of the Reform Act is amended by adding at the end thereof the following new sentence: “Section 49(c) of the Internal Revenue Code of 1986 (as added by subsection (a)) shall apply to taxable years ending after June 30, 1987, and to amounts carried to such taxable years.” (5) Paragraph (4)(A) of section 211(e) of the Reform Act is amended— 102 STAT. 3368 (A) by striking out “Paragraphs (c) and (d) of section 49 of the Internal Revenue Code of 1954” and inserting in lieu thereof “Subsections (c) and (d) of section 49 of the Internal Revenue Code of 1986”, and (B) by striking out “1935” and inserting in lieu thereof “1985” (6) Paragraph (4)(B) of section 211(e) of the Reform Act is amended by striking out “shall be treated as transition property” and inserting in lieu thereof “shall be treated as transition property and subsections (c) and (d) of section 49 of such Code shall not apply to such property”. (7) Paragraph (4) of section 211(e) of the Reform Act is amended by adding at the end thereof the following new subparagraphs: “(C) Any solid waste disposal facility which will process and incinerate solid waste of one or more public or private entities including Dakota County, Minnesota, and with respect to which a bond carryforward from 1985 was elected in an amount equal to $12,500,000 shall be treated as transition property within the meaning of section 49(e) of the Internal Revenue Code of 1986. “(D) For purposes of section 49 of such Code, the following property shall be treated as transition property: “(i) 2 catamarans built by a shipbuilder incorporated in the State of Washington in 1964, the contracts for which were signed on April 22, 1986 and November 12, 1985, and 1 barge built by such shipbuilder the contract for which was signed on August 7, 1985. “(ii) 2 large passenger ocean-going United States flag cruise ships with a passenger rated capacity of up to 250 which are built by the shipbuilder described in clause (i), which are the first such ships built in the United States since 1952, and which were designed at the request of a Pacific Coast cruise line pursuant to a contract entered into in October 1985. This clause shall apply only to that portion of the cost of each ship which does not exceed $40,000,000. “(iii) Property placed in service during 1986 by Satellite Industries, Inc., with headquarters in Minneapolis, Minnesota, to the extent that the cost of such property does not exceed $1,950,000. “(E) Subsections (c) and (d) of section 49 of such Code shall not apply to property described in section 204(a)(4) of this Act.” (8) (A) Subsection (d) of section 38 is amended to read as follows: “(d) Ordering Rules.—For purposes of sections 46(f), 47(a), 196(a), and any other provision of this title where it is necessary to as-certain the extent to which the credits determined under any section referred to in subsection (b) are used in a taxable year or as a carryback or carryforward— “(1) In general.—The order in which such credits are used shall be determined on the basis of the order in which they are listed in subsection (b) as of the close of the taxable year in which the credit is used. “(2) Components of investment credit.—The order in which credits attributable to a percentage referred to in section 46(a)102 STAT. 3369 are used shall be determined on the basis of the order in which such percentages are listed in section 46(a) as of the close of the taxable year in which the credit is used. “(3) Credits no longer listed.— For purposes of this sub-section— “(A) the credit allowable by section 40, as in effect on the day before the date of the enactment of the Tax Reform Act of 1984, (relating to expenses of work incentive programs) and the credit allowable by section 41(a), as in effect on the day before the date of the enactment of the Tax Reform Act of 1986, (relating to employee stock ownership credit) shall be treated as referred to in that order after the last paragraph of subsection (b), and “(B) the employee plan percentage (as defined in section 46(a)(2)(E), as in effect on the day before the date of the enactment of the Tax Reform Act of 1984) shall be treated as referred to after section 46(a)(2).” (B) Subparagraph (C) of section 49(c)(5) of the 1986 Code is hereby repealed. (C) The amendments made by this paragraph shall apply to taxable years beginning after December 31, 1983, and to carrybacks from such years. (f) Amendments Related to Section 212 of the Reform Act.— (1) Paragraph (2) of section 212(f) of the Reform Act is amended by striking out so much of such paragraph as precedes subparagraph (A) and insert in lieu thereof the following: (2) Special rule.—In the case of the LTV Corporation, in lieu of the requirements of paragraph (1)—”. (2) Subclause (I) of section 212(f)(2)(B)(i) of the Reform Act is amended by striking out “such involvement begins” and inserting in lieu thereof “when the corporation receives the refund”. (3) Subsection (g) of section 212 of the Reform Act is amended by adding at the end thereof the following new paragraph: “(3) Special rule for restructuring.—In the case of any corporation, any restructuring shall not limit, increase, or otherwise affect the benefits which would have been available under this section but for such restructuring.” (4) Section 212 of the Reform Act is amended by adding at the end thereof the following new subsection: “(h) Tentative Refunds.—Rules similar to the rules of section 6425 of the Internal Revenue Code of 1986 shall apply to any overpayment resulting from the application of this section.” (5) Subparagraph (B) of section 212(g)(2) of the Reform Act is amended by striking out “determined under” and inserting in lieu thereof “determined for periods before January 1, 1986, under”. (6) Section 212(f) of the Reform Act is amended by adding at the end thereof the following new paragraph: (3) In the case of a qualified corporation, no offset to any refund under this section may be made by reason of any tax imposed by section 4971 of the Internal Revenue Code of 1986 (or any interest or penalty attributable to any such tax), and the date on which any such refund is to be paid shall be determined without regard to such corporation’s status under title 11, United States Code.” (g) Amendment Related to Section 213 of the Reform Act.—Subparagraph (B) of section 213(e)(2) of the Reform Act is amended102 STAT. 3370by striking out “determined under” and inserting in lieu thereof “determined for periods before January 1, 1986, under”. (h) Amendments Related to Section 231 of the Reform Act,— (1) Subsection (g) of section 41 of the 1986 Code is amended by adding at the end thereof the following new sentence: “If the amount determined under subsection (a) for any taxable year exceeds the limitation of the preceding sentence, such amount may be carried to other taxable years under the rules of section 39; except that the limitation of the preceding sentence shall be taken into account in lieu of the limitation of section 38(c) in applying section 39.” (2) Subsection (c) of section 6411 of the 1986 Code is amended by striking out “unused research credit,”. (3) Section 936(h)(5)(C)(i)(IV)(c) of the 1986 Code is amended— (A) by striking out “section 30” and inserting in lieu thereof “section 41”, and (B) by striking out “section 30(c)” and inserting in lieu thereof “section 41(f)”. (i) Amendments Related to Sections 241 and 242 of the Reform Act.— (1) Section 167 of the 1986 Code is amended by redesignating subsection (r) as subsection (s) and by inserting after subsection (q) the following new subsection: “(r) Trademark or Trade Name Expenditures Not Depreciable.— “(1) In general.—No depreciation deduction shall be allow-able under this section (and no depreciation or amortization deduction shall be allowable under any other provision of this subtitle) with respect to any trademark or trade name expenditure. “(2) Trademark or trade name expenditure.— For purposes of this subsection, the term ‘trademark or trade name expenditure’ means any expenditure which is directly connected with the acquisition, protection, expansion, registration (Federal, State, or foreign), or defense of a trademark or trade name.” (2) (A) Paragraph (1) of section 168(c) of the 1986 Code (as amended by section 102(a) is amended by adding at the end thereof the following new item: “Any railroad grading or tunnel bore 50 years.” (B) (i) Paragraph (3) of section 168(b) of the 1986 Code is amended by redesignating subparagraph (C) as subparagraph (D) and by inserting after subparagraph (B) the following new subparagraph: “(C) Any railroad grading or tunnel bore,” (ii) Paragraph (5) of section 168(b) of the 1986 Code (as amended by section 102(a)) is amended by striking out “(3)(C)” and inserting in lieu thereof “(3)(D)”. (C) Subsection (e) of section 168 of the 1986 Code is amended by adding at the end thereof the following new paragraph: “(4) Railroad grading or tunnel bore.— The term ‘railroad grading or tunnel bore’ means all improvements resulting from excavations (including tunneling), construction of embankments, clearings, diversions of roads and streams, sodding of slopes, and from similar work necessary to provide, construct, reconstruct, alter, protect, improve, replace, or restore a road-bed or right-of-way for railroad track,” 102 STAT. 3371 (D) Paragraph (2) of section 168(d) of the 1986 Code is amended by striking out “and” at the end of subparagraph (A), by inserting “and” at the end of subparagraph (B), and by inserting after subparagraph (B) the following new subparagraph: “(C) any railroad grading or tunnel bore,”. (E) Clause (i) of section 168(d)(3)(B) of the 1986 Code (as amended by section 102(a)) is amended by striking out “and residential rental property” and inserting in lieu thereof “residential rental property, and railroad grading or tunnel bore”. (F) The table contained in paragraph (2)(C) of section 168(g) of the 1986 Code is amended by adding at the end thereof the following new item: “(iv)Any railroad grading or tunnel bore50 years.” (G) Subparagraph (E) of section 168(i)(1) of the 1986 Code is amended by adding at the end thereof the following new clause: “(iii) Special rule for railroad grading or tunnel bores.— In the case of any property which is a railroad grading or tunnel bore— “(I) such property shall be treated as an assigned property, “(II) the recovery period applicable to such property shall be treated as an assigned item, and “(III) clause (ii) of subparagraph (D) shall not apply.” (H) The table contained in subparagraph (A) of section 467(e)(3) of the 1986 Code is amended by adding at the end thereof the following new item: Any railroad grading or tunnel bore50 years.” (I) Paragraph (3) of section 1245(a) of the 1986 Code is amended by striking out “or” at the end of subparagraph (D), by striking out the period at the end of subparagraph (E), and inserting in lieu thereof “, or”, and by adding at the end thereof the following new subparagraph: “(F) any railroad grading or tunnel bore (as defined in section 168(e)(4)).” (j) Amendments Related to Section 243 of the Reform Act.— (1) Section 243 of the Reform Act (related to deduction of bus and freight forwarder operating authority) is amended by redesignating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection: “(d) Application of Section 334(b)(2).—For purposes of subsections (a) and (b), the reference to section 334(b)(2) in section 266(c)(2)(A)(u) of the Economic Recovery Tax Act of 1981 shall be a reference to such section as in effect before its repeal.” (2) The heading of subparagraph (A) of section 243(b)(2) of the Reform Act is amended by striking out “to begin in 1987”. (k) Amendments Related to Section 251 of the Reform Act — (1) Paragraph (2)(B) of section 251(d) of the Reform Act is amended by striking out clause (i) and redesignating clauses (ii) and (iii) as clauses (i) and (ii), respectively. (2) Subparagraph (P) of section 251(d)(3) of the Reform Act is amended by striking out “San Francisco” and inserting lieu thereof “San Jose, California”. (3) Paragraph (4) of section 251(d) of the Reform Act is amended— 102 STAT. 3372 (A) by striking out “Lakeland marbel Arcade” in subparagraph (K) and inserting in lieu thereof “Marble Arcade office building”, (B) by striking out “and” at the end of subparagraph (Y), and (C) by striking out subparagraph (Z) and inserting in lieu thereof the following: “(Z) the BigelowHartford Carpet Mill in Enfield, Connecticut, “(AA) properties abutting 125th street in New York County from 7 th Avenue west to Morningside and the pier area on the Hudson River at the end of such 125th Street, “(BB) the City of Los Angeles Central Library project pursuant to an agreement dated December 28, 1983, “(CC) the Warehouse Row project in Chattanooga, Tennessee, “(DD) any project described in section 204(a)(1)(F) of this Act, “(EE) the Wood Street Commons project in Pittsburgh, Pennsylvania, “(FF) any project described in section 803(d)(6) of this Act, “(GG) Union Station, Indianapolis, Indiana, “(HH) the Mattress Factory project in Pittsburgh, Pennsylvania, “(II) Union Station in Providence, Rhode Island, “(JJ) South Pack Plaza, Asheville, North Carolina, “(KK) Old Louisville Trust Project, Louisville, Kentucky, “(LL) Stewarts Rehabilitation Project, Louisville, Kentucky, “(MM) Bernheim Officenter, Louisville, Kentucky, “(NN) Springville Mill Project, Rockville, Connecticut, and “(OO) the D.J. Stewart Company Building, State and Main Streets, Rockford, Illinois.” (4) Subsection (d) of section 251 of the Reform Act is amended by striking out paragraph (6) and inserting in lieu thereof the following: “(6) Expensing of rehabilitation expenses for the frankford arsenal.—In the case of any expenditures paid or incurred in connection with improvements (including repairs and maintenance) of the Frankford Arsenal pursuant to a contract and partnership agreement during the 8-year period specified in the contract or agreement, all such expenditures to be made during the period 1986 through and including 1993 shall— “(A) be treated as made (and allowable as a deduction) during 1986, “(B) be treated as qualified rehabilitation expenditures made during 1986, and “(C) be allocated in accordance with the partnership agreement regardless of when the interest in the partner-ship was acquired, except that— “(i) if the taxpayer is not the original holder of such interest, no person (other than the taxpayer) had claimed any benefits by reason of this paragraph. 102 STAT. 3373 “(ii) no interest under section 6611 of the 1986 Code on any refund of income taxes which is solely attributable to this paragraph shall be paid for the period— “(I) beginning on the date which is 45 days after the later of April 15, 1987, or the date on which the return for such taxes was filed, and “(II) ending on the date the taxpayer acquired the interest in the partnership, and “(iii) if the expenditures to be made under this provision are not paid or incurred before January 1, 1994, then the tax imposed by chapter 1 of such Code for the taxpayer’s last taxable year beginning in 1993 shall be increased by the amount of the tax benefits by reason of this paragraph which are attributable to the expenditures not so paid or incurred. “(7) Special rule.—In the case of the rehabilitation of the Willard Hotel in Washington, D.C., section 205(c)(1)(B)(ii) of the Tax Equity and Fiscal Responsibility Act of 1982 shall be applied by substituting ‘1987’ for ‘1986’.” (5) Subparagraph (B) of section 251(d)(3) of the Reform Act is amended by striking out “Pontabla” and inserting in lieu thereof “Pontalba”. (6) Subparagraph (T) of section 251(d)(4) of the Reform Act is amended by striking out “Louisville” and inserting in lieu thereof “Covington”. (l) Amendments Related to Section 252 of the Reform Act.— (1) (A) Subparagraph (A) of section 42(b)(2) of the 1986 Code is amended by striking out “for the month” and all that follows and inserting in lieu thereof “for the earlier of— “(i) the month in which such building is placed in service, or “(ii) at the election of the taxpayer— “(I) the month in which the taxpayer and the housing credit agency enter into an agreement with respect to such building (which is binding on such agency, the taxpayer, and all successors in interest) as to the housing credit dollar amount to be allocated to such building, or “(II) in the case of any building to which subsection (h)(4)(B) applies, the month in which the tax-exempt obligations are issued. A month may be elected under clause (ii) only if the election is made not later than the 5th day after the close of such month. Such an election, once made, shall be irrevocable.” (B) Clause (ii) of section 42(b)(2)(C) of the 1986 Code is amended by striking out “the month in which the building was placed in service” and inserting in lieu thereof “the month applicable under clause (i) or (ii) of subparagraph (A)”. (2) (A) Subparagraph (A) of section 42(c)(2) of the 1986 Code (defining qualified low-income building) is amended to read as follows: “(A) which is part of a qualified low-income housing project at all times during the period— “(i) beginning on the 1st day in the compliance period on which such building is part of such a project, and “(ii) ending on the last day of the compliance period with respect to such building, and”. 102 STAT. 3374 (B) Paragraph (1) of section 42(f) of the 1986 Code (defining credit period) is amended by striking out “beginning with” and all that follows and inserting in lieu thereof “beginning with— “(A) the taxable year in which the building is placed in service, or “(B) at the election of the taxpayer, the succeeding tax-able year, but only if the building is a qualified low-income building as of the close of the 1st year of such period. The election under subparagraph (B), once made, shall be irrevocable.” (3) Clause (ii) of section 42(d)(2)(D) of the 1986 Code is amended to read as follows: “(ii) Special rules for certain transfers.— For purposes of determining under subparagraph (B)(ii) when a building was last placed in service, there shall not be taken into account any placement in service— “(I) in connection with the acquisition of the building in a transaction in which the basis of the building in the hands of the person acquiring it is determined in whole or in part by reference to the adjusted basis of such building in the hands of the person from whom acquired, “(II) by a person whose basis in such building is determined under section 1014(a) (relating to property acquired from a decedent), “(III) by any governmental unit or qualified non-profit organization (as defined in subsection (h)(5)) if the requirements of subparagraph (B)(ii) are met with respect to the placement in service by such unit or organization and all the income from such property is exempt from Federal income taxation, or “(IV) by any person who acquired such building by foreclosure (or by instrument in lieu of fore-closure) of any purchase-money security interest held by such person if the requirements of subparagraph (B)(ii) are met with respect to the placement in service by such person and such building is resold within 12 months after the date such building is placed in service by such person after such foreclosure.” (4) Paragraph (3) of section 42(d) of the 1986 Code is amended to read as follows: “(3) Eligible basis reduced where disproportionate standards for units.— “(A) In general.—Except as provided in subparagraph (B), the eligible basis of any building shall be reduced by an amount equal to the portion of the adjusted basis of the building which is attributable to residential rental units in the building which are not low-income units and which are above the average quality standard of the low-income units in the building. “(B) Exception where taxpayer elects to exclude excess costs.— “(i) In general.— Subparagraph (A) shall not apply with respect to a residential rental unit in a building which is not a low-income unit if— 102 STAT. 3375 “(I) the excess described in clause (ii) with respect to such unit is not greater than 15 percent of the cost described in clause (ii)(H), and “(II) the taxpayer elects to exclude from the eligible basis of such building the excess described in clause (ii) with respect to such unit. “(ii) Excess.—The excess described in this clause with respect to any unit is the excess of— “(I) the cost of such unit, over “(II) the amount which would be the cost of such unit if the average cost per square foot of low-income units in the building were substituted for the cost per square foot of such unit. The Secretary may by regulation provide for the determination of the excess under this clause on a basis other than square foot costs.” (5) Subparagraph (A) of section 42(d)(5) of the 1986 Code is amended by inserting before the period “(increased, in the case of an existing building which meets the requirements of paragraph (2)(B), by the amounts described in paragraph (2)(A)(i)(II))”. (6) (A) Paragraph (5) of section 42(d) of the 1986 Code is amended by adding at the end thereof the following new subparagraph: “(C) Eligible basis not to include expenditures where 167 (k) elected.—The eligible basis of any building shall not include any portion of its adjusted basis which is attributable to amounts with respect to which an election is made under section 167(k).” (B) Subparagraph (A) of section 42(d)(5) of the 1986 Code is amended by striking out “subparagraph (B)” and inserting in lieu thereof “subparagraphs (B) and (Cr. (7) Subparagraph (A) of section 42(d)(6) of the 1986 Code is amended by inserting “or” at the end of clause (i), by striking out “, or” at the end of clause (ii) and inserting in lieu thereof a period, and by striking out clause (iii). (8) Clause (ii) of section 42(d)(6)(B) of the 1986 Code (defining federally assisted building) is amended by striking out “of 1934”. (9) (A) Paragraph (3) of section 42(f) of the 1986 Code is amended to read as follows: “(3) Determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period.— “(A) In general.— In the case of any building which was a qualified low-income building as of the close of the 1st year of the credit period, if— “(i) as of the close of any taxable year in the compliance period (after the 1st year of the credit period) the qualified basis of such building exceeds “(ii) the qualified basis of such building as of the close of the 1st year of the credit period, the applicable percentage which shall apply under subsection (a) for the taxable year to such excess shall be the percentage equal to ⅔ of the applicable percentage which (after the application of subsection (h)) would but for this paragraph apply to such basis. 102 STAT. 3376 “(B) 1st year computation applies.—A rule similar to the rule of paragraph (2)(A) shall apply to any increase in qualified basis to which subparagraph (A) applies for the 1st year of such increase.” (B) Paragraph (3) of section 42(b) of the 1986 Code is amended to read as follows: “(3) Cross references.— (A) For treatment of certain rehabilitation expenditures as separate new buildings, see subsection (e). “(B) For determination of applicable percentage for increases in qualified basis after the 1st year of the credit period, see subsection (f)(3). (C) For authority of housing credit agency to limit applicable percentage and qualified basis which may be taken into account under this section with respect to any building, see subsection (h)(6).” (10) Subparagraph (B) of section 42(g)(2) of the 1986 Code (defining gross rent) is amended by striking out “Federal rental assistance” and inserting in lieu thereof “rental assistance”. (11) Paragraph (2) of section 42(g) of the 1986 Code is amended by adding at the end thereof the following new subparagraph: “(C) Units where federal rental assistance is reduced as tenant’s income increases.— If the gross rent with respect to a residential unit exceeds the limitation under subparagraph (A) by reason of the fact that the income of the occupants thereof exceeds the income limitation applicable under paragraph (1), such unit shall, nevertheless, be treated as a rent-restricted unit for purposes of paragraph (1) if— “(i) a Federal rental assistance payment described in subparagraph (B)(i) is made with respect to such unit or its occupants, and “(ii) the sum of such payment and the gross rent with respect to such unit does not exceed the sum of the amount of such payment which would be made and the gross rent which would be payable with respect to such unit if— “(I) the income of the occupants thereof did not exceed the income limitation applicable under paragraph (1), and “(II) such units were rent-restricted within the meaning of subparagraph (A). The preceding sentence shall apply to any unit only if the result described in clause (ii) is required by Federal statute as of the date of the enactment of this subparagraph and as of the date the Federal rental assistance payment is made.” (12) Paragraph (3) of section 42(g) of the 1986 Code is amended to read as follows: “(3) Date for meeting requirements.— “(A) In general.—Except as otherwise provided in this paragraph, a building shall be treated as a qualified low-income building only if the project (of which such building is a part) meets the requirements of paragraph (1) not later than the close of the 12-month period beginning on the date the building is placed in service. “(B) Buildings which rely on later buildings for qualification.— “(i) In general.—In determining whether a building (hereinafter in this subparagraph referred to as the 102 STAT. 3377‘prior building’) is a qualified low-income building, the taxpayer may take into account 1 or more additional buildings placed in service during the 12-month period described in subparagraph (A) with respect to the prior building only if the taxpayer elects to apply clause (ii) with respect to each additional building taken into account. “(ii) Treatment of elected buildings—In the case of a building which the taxpayer elects to take into account under clause (i), the period under subparagraph (A) for such building shall end at the close of the 12-month period applicable to the prior building. “(iii) Date prior building is treated as placed in service.—For purposes of determining the credit period and the compliance period for the prior building, the prior building shall be treated for purposes of this section as placed in service on the most recent date any additional building elected by the taxpayer (with respect to such prior building) was placed in service. “(C) Special rule.— A building— “(i) other than the 1st building placed in service as part of a project, and “(ii) other than a building which is placed in service during the 12-month period described in subparagraph (A) with respect to a prior building which becomes a qualified low-income building, shall in no event be treated as a qualified low-income building unless the project is a qualified low-income housing project (without regard to such building) on the date such building is placed in service.” (13) Paragraph (4) of section 42(g) of the 1986 Code is amended by inserting before the period “; except that, in applying such provisions (other than section 142(d)(4)(B)(iii)) for such purposes, the term ‘gross rent’ shall have the meaning given such term by paragraph (2)(B) of this subsection”. (14) (A) Paragraph (1) of section 42(h) of the 1986 Code is amended to read as follows: “(1) Credit may not exceed credit amount allocated to building.— “(A) In general.—The amount of the credit determined under this section for any taxable year with respect to any building shall not exceed the housing credit dollar amount allocated to such building under this subsection. “(B) Time for making allocation.—Except in the case of an allocation which meets the requirements of subparagraph (C) or (D), an allocation shall be taken into account under subparagraph (A) only if it is made not later than the close of the calendar year in which the building is placed in service. “(C) Exception where binding commitment.— An allocation meets the requirements of this subparagraph if there is a binding commitment (not later than the close of the calendar year in which the building is placed in service) by the housing credit agency to allocate a specified housing credit dollar amount to such building beginning in a specified later taxable year. “(D) Exception where increase in qualified basis.— 102 STAT. 3378 “(i) In general.—An allocation meets the requirements of this subparagraph if such allocation is made not later than the close of the calendar year in which ends the taxable year to which it will 1st apply but only to the extent the amount of such allocation does not exceed the limitation under clause (ii). “(ii) Limitation.— The limitation under this clause is the amount of credit allowable under this section (with-out regard to this subsection) for a taxable year with respect to an increase in the qualified basis of the building equal to the excess of— (I) the qualified basis of such building as of the close of the 1st taxable year to which such allocation will apply, over “(II) the qualified basis of such building as of the close of the 1st taxable year to which the most recent prior housing credit allocation with respect to such building applied. “(iii) Housing credit dollar amount reduced by full allocation.— Notwithstanding clause (i), the full amount of the allocation shall be taken into account under paragraph (2).” (B) Clause (ii) of section 42(h)(6)(B) of the 1986 Code is hereby repealed. (15) Subparagraph (A) of section 42(h)(4) of the 1986 Code is amended by striking out “financed” and all that follows and inserting in lieu thereof “financed by any obligation the interest on which is exempt from tax under section 103 if— “(i) such obligation is taken into account under section 146, and “(ii) principal payments on such financing are applied within a reasonable period to redeem obligations the proceeds of which were used to provide such financing. (16) Paragraph (5) of section 42(h) of the 1986 Code is amended by redesignating subparagraph (D) as subparagraph (E) and by inserting after subparagraph (C) the following new subparagraph: “(D) Treatment of certain subsidiaries.— “(i) In general.—For purposes of this paragraph, a qualified nonprofit organization shall be treated as satisfying the material participation test of subparagraph (B) if any qualified corporation in which such organization holds stock satisfies such test. “(ii) Qualified corporation.—For purposes of clause (ii), the term ‘qualified corporation’ means any corporation if 100 percent of the stock of such corporation is held by 1 or more qualified nonprofit organizations at all times during the period such corporation is in existence.” (17) Subparagraph (D) of section 42(h)(6) of the 1986 Code is amended to read as follows: “(D) Credit reduced if allocated credit dollar amount is less than credit which would be allowable without regard to placed in service convention, etc.— “(i) In general.—The amount of the credit determined under this section with respect to any building 102 STAT. 3379shall not exceed the clause (ii) percentage of the amount of the credit which would (but for this subparagraph) be determined under this section with respect to such building. “(ii) Determination of percentage.— For purposes of clause (i), the clause (ii) percentage with respect to any building is the percentage which— “(I) the housing credit dollar amount allocated to such building bears to “(II) the credit amount determined in accordance with clause (iii). “(iii) Determination of credit amount.— The credit amount determined in accordance with this clause is the amount of the credit which would (but for this subparagraph) be determined under this section with respect to the building if— “(I) this section were applied without regard to paragraphs (2)(A) and (3)(B) of subsection (f), and “(II) subsection (f)(3)(A) were applied without regard to ‘the percentage equal to ⅔ of.” (18) Paragraph (6) of section 42(h) of the 1986 Code is amended by adding at the end thereof the following new subparagraph: “(E) Housing credit agency to specify applicable percentage and maximum qualified basis.—In allocating a housing credit dollar amount to any building, the housing credit agency shall specify the applicable percentage and the maximum qualified basis which may be taken into account under this section with respect to such building. The applicable percentage and maximum qualified basis so specified shall not exceed the applicable percentage and qualified basis determined under this section without regard to this subsection.” (19) (A) Subparagraph (A) of section 42(i)(2) of the 1986 Code is amended— (i) by inserting “or any prior taxable year” after “such taxable year”, (ii) by striking out “there is outstanding” and inserting in lieu thereof “there is or was outstanding’, and (iii) by striking out “are used” and inserting in lieu thereof “are or were used”. (B) Subparagraph (B) of section 42(i)(2) of the 1986 Code is amended to read as follows: “(B) Election to reduce eligible basis by balance of loan or proceeds of obligations.— A loan or tax-exempt obligation shall not be taken into account under subparagraph (A) if the taxpayer elects to exclude from the eligible basis of the building for purposes of subsection (d)— “(i) in the case of a loan, the principal amount of such loan, and “(ii) in the case of a tax-exempt obligation, the proceeds of such obligation.” (C) Paragraph (2) of section 42(i) of the 1986 Code is amended by redesignating subparagraph (C) as subparagraph (D) and by inserting after subparagraph (B) the following new subparagraph: “(C) Special rule for subsidized construction financing.— Subparagraph (A) shall not apply to any tax-exempt 102 STAT. 3380obligation or below market Federal loan used to provide construction financing for any building if— “(i) such obligation or loan (when issued or made) identified the building for which the proceeds of such obligation or loan would be used, and “(ii) such obligation is redeemed, and such loan is repaid, before such building is placed in service.” (D) Subparagraph (D) of section 42(i)(2) of the 1986 Code is amended by striking out “subparagraph (A)” and inserting in lieu thereof “this paragraph”. (20) Paragraph (4) of section 42(j) of the 1986 Code is amended by adding at the end thereof the following new subparagraph: “(F) No recapture where de minimis changes in floor space.— The Secretary may provide that the increase in tax under this subsection shall not apply with respect to any building if— “(i) such increase results from a de minimis change in the floor space fraction under subsection (c)(1), and “(ii) the building is a qualified low-income building after such change. (21) Clause (i) of section 42(j)(5)(B) of the 1986 Code is amended to read as follows: “(i) more than ½ the capital interests, and more than ½ the profit interests, in which are owned by a group of 35 or more partners each of whom is a natural person or an estate, and”. (22) Paragraph (6) of section 42(j) of the 1986 Code is amended— (A) by inserting “(OR interest therein)” after “building” in the heading, and (B) by inserting “or an interest therein” after “disposition of a building” in the text. (23) Subparagraph (B) of section 42(k)(2) of the 1986 Code is amended by inserting before the period at the end thereof the following: “, except that this subparagraph shall not apply in the case of a federally assisted building described in subsection (d)(6)(B) if— “(i) a security interest in such building is not permitted by a Federal agency holding or insuring the mortgage secured by such building, and “(ii) the proceeds from the financing (if any) are applied to acquire or improve such building.” (24) (A) Subsection (1) of section 42 of the 1986 Code is amended by redesignating paragraph (2) as paragraph (3) and by inserting after paragraph (1) the following new paragraph: (2) Annual reports to the secretary.— The Secretary may require taxpayers to submit an information return (at such time and in such form and manner as the Secretary prescribes) for each taxable year setting forth— “(A) the qualified basis for the taxable year of each qualified low-income building of the taxpayer, “(B) the information described in paragraph (1)(C) for the taxable year, and “(C) such other information as the Secretary may require. The penalty under section 6652(j) shall apply to any failure to submit the return required by the Secretary, under the preceding sentence on the date prescribed therefor.” 102 STAT. 3381 (B) The subsection heading of subsection (1) of section 42 is amended to read as follows: “(l) Certifications and Other Reports to Secretary.—”, (25) Paragraph (1) of section 42(n) of the 1986 Code is amended by inserting before the period at the end thereof the following: “, and, except for any building described in paragraph (2)(B), subsection (h)(4) shall not apply to any building placed in service after 1989”. (26) Subsection (d) of section 39 of the 1986 Code is amended by adding at the end thereof the following new paragraph: “(4) No carryback of low-income housing credit before 1987.—No portion of the unused business credit for any taxable year which is attributable to the credit determined under section 42 (relating to low-income housing credit) may be carried back to a taxable year ending before January 1, 1987.” (27) Paragraph (1) of section 55(c) of the 1986 Code (defining regular tax) is amended by striking out “section 42(j) ” and inserting in lieu thereof “subsection (j) or (k) of section 42”. (28) Subparagraph (A) of section 252(f)(1) of the Reform Act is amended by striking out “and” at the end of clause (i), by striking out the period at the end of clause (ii) and inserting in lieu thereof a comma, and by inserting after clause (ii) the following new clauses: “(iii) the eligible basis of such building shall be treat-ed, for purposes of section 42(h)(4)(A) of such Code, as if it were financed by an obligation the interest on which is exempt from tax under section 103 of such Code and which is taken into account under section 146 of such Code, and “(iv) the amendments made by section 803 shall not apply.” (29) Subparagraph (E) of section 252(f)(1) of the Reform Act is amended by striking out “maximum annual additional credit” and inserting in lieu thereof “maximum present value of additional credits”. (30) Subparagraph (E) of section 252(f)(2) of the Reform Act is amended by adding at the end thereof the following new sentence: “The preceding sentence shall apply to any building only to the extent of the portion of the additional housing credit dollar amount (allocated to such agency under subparagraph (A)) allocated to such building.” (31) Subsection (f) of section 252 of the Reform Act is amended by adding at the end thereof the following new paragraph: “(5) Transitional rule.— In the case of any rehabilitation expenditures incurred with respect to units located in the neighborhood strategy area within the community development block grant program in Ft. Wayne, Indiana— “(A) the amendments made by this section shall not apply, and “(B) paragraph (1) of section 167(k) of the Internal Revenue Code of 1986, shall be applied as if it did not contain the phrase ‘and before January 1, 1987’. The number of units to which the preceding sentence applies shall not exceed 150.” (32) Subsection (g) of section 42 of the 1986 Code is amended by adding at the end thereof the following new paragraph: 102 STAT. 3382 “(6) Special rule where de minimis equity contribution.— Property shall not be treated as failing to be residential rental property for purposes of this section merely because the occupant of a residential unit in the project pays (on a voluntary basis) to the lessor a de minimis amount to be held toward the purchase by such occupant of a residential unit in such project if— “(A) all amounts so paid are refunded to the occupant on the cessation of his occupancy of a unit in the project, and “(B) the purchase of the unit is not permitted until after the close of the compliance period with respect to the building in which the unit is located. Any amount paid to the lessor as described in the preceding sentence shall be included in gross rent under paragraph (2) for purposes of determining whether the unit is rent-restricted.” (m) Amendments Related to Section 261 of the Reform Act.— (1) Subparagraph (A) of section 7518(g)(6) of the 1986 Code, is amended by striking out “section 1(i)” and inserting in lieu thereof “section 1(j)”. (2) Subparagraph (A) of section 607(h)(6) of the Merchant Marine Act, 1936 is amended by striking out “section 1(i)” and inserting in lieu thereof “section l(j)”.