the organization owned all of the corporation's common stock and 80 percent of its other stock at all times on or after July 1, 1950. It is likely that these corporations have been liquidated since 1955, when this provision was enacted, because income from investments would be taxable if held in such a corporation, but would be tax-free if held by the exempt organization directly.

Subparagraph (B) amends a provision limiting the ability of a consolidated group to compute its personal holding company tax on a consolidated basis. The amendment strikes out an exception for groups of railroad corporations that would be eligible to file a consolidated return under the provisions of the 1939 Code before its amendment in 1942. It appears that this exception is no longer needed, since it would apply only to a group of railroad corporations that files consolidated returns and meets the five-or-fewer-shareholders test.

Subparagraph (C) amends a cross reference to conform to the amendment of section 7701 (a) (19) by the Tax Reform Act of 1969. Subparagraph (D) adds a U.S. Code citation to conform to current practice.

Sec. 1901 (a) (77) (amends sec. 545 of the Code)—undistributed personal holding company income

Subparagraph (A) strikes out a reference to repealed 1939 excess profits taxes. It also eliminates a provision permitting a personal holding company that deducted taxes on the cash basis during 1939 Code years to continue to do so until it makes an irrevocable election to use the accrual basis. It seems unlikely that a significant number of companies have not elected to accelerate their deductions by using the accrual basis.

Subparagraph (B) strikes out a provision allowing the deduction of amounts used or set aside to retire indebtedness incurred before 1934. It seems likely that virtually all of this indebtedness has now been retired.

Subparagraph (C) strikes out "the date of enactment of this subsection" in section 545 (c) (2) (A) and substitutes the exact date (February 26, 1976).

Sec. 1901 (a) (78) (amends sec. 547 of the Code)-deduction for deficiency dividends

This amendment deletes a 1954 Code effective date provision that is no longer needed.

Sec. 1901 (a) (79) (amends sec. 551 of the Code)-foreign personal holding companies

This clerical amendment inserts a word ("income") erroneously omitted from this section.

Sec. 1901 (a) (80) (amends sec. 556 of the Code)-undistributed foreign personal holding company income

This amendment deletes a reference to 1939 Code excess profits taxes that have been repealed.

Sec. 1901 (a) (81) (amends sec. 564 of the Code)-dividend carryover This amendment strikes out a transitional provision relating to dividend carryovers from pre-1954 Code years for purposes of computing the dividends-paid deduction of a personal holding company.

Subchapter H. Banking institutions

Sec. 1901(a) (82) (repeals sec. 583 of the Code)-deductions of dividends paid on certain preferred stock

This amendment strikes out provisions relating to deductions of dividends paid on certain preferred stock by banks or trust companies. It appears that none of this stock is now outstanding and that these provisions are no longer needed.

Sec. 1901(a) (83) (repeals sec. 592 of the Code)—deduction for repayment of certain loans

This paragraph repeals the provision allowing certain mutual savings banks to deduct certain repayments of pre-September 1, 1951, loans. All the loans described in the section have been repaid and therefore the provision is no longer applicable.

Sec. 1901(a) (84) (amends sec. 593 of the Code)-reserves for losses on loans

Subparagraph (A) strikes out the applicable percentages to be used by mutual savings banks in computing the addition to reserves for bad debts under the percentage of taxable income method for years 1969 through 1975.

Subparagraph (B) deletes the obsolete portions of paragraphs (2) through (5) of section 593 (c) which deal with the required allocation of the bad debts reserves of mutual savings banks on December 31, 1962.

Subparagraphs (C) and (D) strike out a transitional rule for a taxable year beginning in 1962 and ending in 1963 that deals with the treatment of bad debts reserves of mutual savings banks and make an internal conforming change.

Sec. 1901(a)(85) (repeals sec. 601 of the Code)—special deduction for bank affiliates

This paragraph repeals a special deduction allowed bank affiliates in computing the accumulated earnings tax and the personal holding company tax. The deduction is for the amount of earnings and profits required to be invested in a reserve of readily marketable assets under the Banking Act of 1933. This requirement was eliminated in 1966, and there is now no requirement that such a reserve be maintained.

Subchapter I. Natural resources

Sec. 1901 (a) (86) (amends sec. 613A of the Code)-depletion for oil and natural gas from secondary or tertiary processes

Subparagraph (A) eliminates a reference to a subparagraph of the Code that was deleted by Public Law 94-12, the Tax Reduction Act of 1975 (sec. 613(b) (1) (A) of the Code). The present section 613 (b) (1) (A) was, prior to that act, section 613 (b) (1) (B).

Sec. 1901 (a) (87) (amends sec. 614 of the Code)-definition of property

These amendments strike out complex and seldom used provisions relating to recapture of taxes saved by delaying an election to aggregate mineral properties from the date of first exploration to the date of development of the mine.

Sec. 1901 (a) (88) (repeals sec. 615 of the Code)-pre-1970 exploration expenditures

This amendment repeals section 615 of the Code, which provided a deduction for certain mineral exploration expenditures paid or incurred before January 1, 1970. Although a taxpayer could elect under section 615 (b) to defer the deduction of such pre-1970 expenditures until the units of produced ores or minerals discovered by reason of such expenditures were sold, it is believed that no such elections are in effect.

Conforming amendments include the addition of a new subsection (i) to section 617 of the Code. This new subsection (i) preserves the rules (formerly set forth in section 615 (g) (2)) which provide that amounts deducted under section 615 with respect to mineral property by the transferor of such property will be subject to recapture by the transferee in certain circumstances under section 617.

Sec. 1901 (a) (89) (amends sec. 617 of the Code)-deduction and recapture of certain mining exploration expenditures

This amendment strikes out a provision allowing the revocation without consent of an election if the revocation was made within 3 months after the month in which final regulations were published under section 617(a) of the Code. Such regulations were published on June 30, 1972, so this provision is no longer needed.

Sec. 1901 (a) (90) (repeals sec. 632 of the Code)-maximum tax on sales of certain oil or gas properties

This amendment strikes out a provision (sec. 632) which limits to 3? percent the tax on sales of oil or gas properties the principal value of which has been demonstrated by prospecting or discovery done by the taxpayer himself. To qualify, the taxpayer must be an individual, not a corporation.

This provision was enacted in 1918 to encourage oil and gas development and to lower the tax rate on such a sale in view of the years that might be consumed in discovery work prior to such a sale. This provision was deleted in 1934, but reinstated in 1936 to encourage individuals in competition with corporations and because Congress believed that the 1934 deletion had discouraged sales of such properties.

Before 1969 this section was probably seldom used because the 25percent alternative capital gain rate was lower than the maximum tax rate under section 632. In the Tax Reform Act of 1969, Congress increased the maximum capital gain tax rate for individuals to 35 percent. Congress did not then intend to create a preference rate which is less than the general maximum capital gain rate.

Subchapter J. Estates, trusts, beneficiaries, and dependents Sec. 1901 (a) (91) (amends sec. 691 of the Code)—income in respect of decedents

This amendment strikes out a reference to an obsolete effective date provision (sec. 683 of the Code). That effective date provision is eliminated by the amendment of section 683 by section 2131 (e) of the Act.

Sec. 1901 (a) (92) (amends sec. 692 of the Code)-members of the Armed Forces dying during an induction period

This is a clerical amendment changing "on" to "of" in the heading of the section.

Subchapter K. Partners and partnerships

Sec. 1901 (a) (93) (amends sec. 751 of the Code)—properties to be treated as unrealized receivables.

This amendment eliminates a clerical error which retained an unnecessary word ("or") in a listing of Code sections.

Sec. 1901 (a) (94) (repeals sec. 771 of the Code)-effective date provision of subchapter K

This provision deletes the obsolete effective date provisions (generally, December 31, 1954) for subchapter K of chapter 1 (relating to partners and partnerships). The repeal of Code section 771(b) (1) (relating to adoption of taxable year) does not require any existing partner or partnership to change to a different taxable year or change his (or its) manner of reporting income. Thus, for example, if an existing partnership adopted a fiscal year beginning before April 2, 1954, and an individual who subsequently becomes a principal partner in that partnership adopts a taxable year that is different from that of the partnership, the repeal of section 771(b)(1) by the bill does not require either the principal partner or that partnership to change to the taxable year of the other.

Subchapter L. Insurance companies

Sec. 1901 (a) (95) (amends sec. 80% of the Code)-tax on life insurance companies

Subparagraph (A) deletes an obsolete effective date provision (taxable years beginning after December 31, 1957) relating to the imposition of tax on a life insurance company.

Subparagraph (B) deletes an obsolete effective date provision (taxable years beginning after December 31, 1961) relating to the alternative tax in the case of capital gains of a life insurance company.

Subparagraph (C) deletes an obsolete special rule for computing the tax for a taxable year of a life insurance company beginning in 1959 or 1960.

Sec. 1901 (a) (96) (amends sec. 804 of the Code)—taxable investment

income

Subparagraph (A) strikes out a special rule which, in effect, provides for any adjustment necessary to prevent a life insurance company from being taxed on tax-exempt interest or dividends qualifying for a dividend received deduction. This special rule is surplusage because the basic life insurance company tax provisions have been held to prevent the imposition of tax on these items.

Subparagraph (B) strikes out an internal effective date provision (taxable years beginning after December 31, 1958) relating to the computation of life insurance company gross investment income.

79-667 O - 77 - 32

Sec. 1901 (a) (97) (amends sec. 805 of the Code)-policy and other contract liability requirements

Subparagraph (A) strikes out an obsolete provision pertaining to the earnings rate of life insurance companies for taxable years beginning before January 1, 1958.

Subparagraph (B) strikes out a parenthetical clause which provides that the adjusted basis of certain assets which a life insurance company must take into account in computing its taxable income is determined without regard to the fair market value of the assets on December 31, 1958. This clause was surplusage when enacted and continues to be surplusage since the adjusted basis of these assets is not affected by their fair market value on December 31, 1958.

Subparagraph (C) strikes out traditional rules, relating to the amount taken into account as pension plan reserves, for taxable years beginning after December 31, 1957, and before January 1, 1961. Sec. 1901 (a) (98) (amends sec. 809 of the Code)—gain and loss from operations

Subparagraph (A) strikes out a special rule which, in effect, provides for any adjustments necessary to prevent a life insurance company from being taxed on tax-exempt interest or dividends qualifying for a dividends received deduction. This special rule is surplusage because the basic life insurance company tax provisions have been held to prevent the imposition of tax on these items.

Subparagraphs (B) and (C) strike out obsolete provisions relating to certain deductions for distributions made during the period 1958 through 1962.

Sec. 1901 (a) (99) (amends sec. 812 of the Code)-operations loss deduction

This amendment strikes out obsolete transitional rules relating to years before 1958 to which operating losses of a life insurance company could be carried. An obsolete internal effective date (taxable years beginning after December 31, 1958) is also deleted.

Sec. 1901 (a) (100) (amends sec. 817 of the Code)-rules relating to certain gains and losses

These amendments strike out special rules relating to capital losses of life insurance companies incurred in taxable years beginning before January 1, 1959, and reinsurance transactions of life insurance companies occurring in 1958.

Sec. 1901 (a) (101) (amends sec. 818 of the Code)-accounting pro

visions

This amendment deletes transitional rules applicable to changes in a life insurance company's method of accounting from its taxable year 1957 to its taxable year 1958.

Sec. 1901 (a) (102) (amends sec. 819 of the Code)—foreign life insurance companies

Subparagraph (A) strikes out a transitional rule for taxable years beginning before January 1, 1959.

Subparagraphs (B) and (C) make internal conforming amend

ments.