amount by which the limitation imposed by subsection (a) (3) for such taxable year exceeds the sum of the amounts which, by reason of this subsection, are carried to such taxable year and are attributable to taxable years preceding the unused credit year. (3) Subparagraph (A) of section 46 (c) (3) (relating to public 26 USC 46. utility property) is amended by striking out "subsection (a) (1) (C)" and inserting in lieu thereof "subsection (a) (2) (C)”. (4) Paragraph (1) of section 46(e) (relating to limitations with respect to certain persons) is amended by striking out "subsection (a) (2)" and inserting in lieu thereof "subsection (a) (3)". (5) The first sentence of section 46 (f) (8) (relating to prohibition of immediate flowthrough of investment credit) is amended by inserting after "the Tax Reduction Act of 1975" the following: "and the Tax Reform Act of 1976". (6) Subsection (f) of section 48 (relating to estates and trusts) 26 USC 48. is amended by striking out "section 46 (a) (2)" and inserting in lieu thereof "section 46 (a) (3)". (7) Section 301(d) of the Tax Reduction Act of 1975 is 26 USC 46 note. amended by striking out "section 46 (a) (1) (B)" each place it appears and inserting in lieu thereof "section 46 (a) (2) (B)". (c) EFFECTIVE DATE.-The amendments made by this section shall 26 USC 46 note. apply to taxable years beginning after December 31, 1975. SEC. 803. EMPLOYEE STOCK OWNERSHIP PLANS; STUDY OF EXPANDED STOCK OWNERSHIP. (a) AMENDMENT OF THE INTERNAL REVENUE CODE OF 1954.-Sec tion 46 (f) (relating to limitation in case of certain regulated com- 26 USC 46. panies) is amended by adding at the end thereof the following new paragraph: "79) SPECIAL RULE FOR ADDITIONAL CREDIT.-If the taxpayer makes an election under subparagraph (B) of subsection (a) (2), for a taxable year beginning after December 31, 1975, then, notwithstanding the prior paragraphs of this subsection, no credit shall be allowed by section 38 in excess of the amount which would be allowed without regard to the provisions of subparagraph (B) of subsection (a) (2) if— "(A) the taxpayer's cost of service for ratemaking purposes or in its regulated books of account is reduced by reason of any portion of such credit which results from the transfer of employer securities or cash to an employee stock ownership plan which meets the requirements of section 301 (d) of the Tax Reduction Act of 1975; "(B) the base to which the taxpayer's rate of return for ratemaking purposes is applied is reduced by reason of any portion of such credit which results from a transfer described in subparagraph (A) to such employee stock ownership plan; or "(C) any portion of the amount of such credit which results from a transfer described in subparagraph (A) to such employee stock ownership plan is treated for ratemaking purposes in any way other than as though it had been contributed by the taxpayer's common shareholders." (b) SPECIAL RULES. (1) Paragraph (4) of section 46 (f) is amended (A) by striking out "paragraphs (1) and (2)" in subparagraph (A) and inserting in lieu thereof "paragraphs (1), (2), and (9)"; 26 USC 401. Infra. 26 USC 415. 26 USC 46 note. (B) by striking out "paragraph (1) or (2)" each place it appears in subparagraph (A) and inserting in lieu thereof "paragraph (1), (2), or (9)"; and (C) by striking out "paragraph (2)," in subparagraph (B) (ii) and inserting in lieu thereof "paragraph (2) or the election described in paragraph (9),". (2) Section 401(a) (relating to qualified pension, etc., plans) is amended by adding after paragraph (20) the following new paragraph: "(21) A trust forming part of an employee stock ownership plan which satisfies the requirements of section 301 (d) of the Tax Reduction Act of 1975 shall not fail to be considered a permanent program merely because employer contributions under the plan are determined solely by reference to the amount of credit which would be allowable under section 46 (a) if the employer made the transfer described in subsection (d) (6) or (e) (3) of section 301 of the Tax Reduction Act of 1975." (3) Section 1504(a) is amended by striking out "dividends." at the end thereof and inserting in lieu thereof "dividends, employer securities within the meaning of section 301 (d) (9) (A) of the Tax Reduction Act of 1975, or qualifying employer securities within the meaning of section 4975 (e) (8) while such securi-` ties are held under an employee stock ownership plan which meets the requirements of section 301 (d) of such Act or section 4975 (e) (7), respectively." (4) Section 415(e) (5) is amended by striking out "For purposes of this subsection," and inserting in lieu thereof "For purposes of this section,". (c) PLAN REQUIREMENTS FOR TAXPAYERS ELECTING ADDITIONAL CREDIT.-Section 301 (d) of the Tax Reduction Act of 1975 is amended (1) by adding at the end of paragraph (3) the following sentence: "For purposes of this paragraph, the amount of compensation paid to a participant for a year is the amount of such participant's compensation within the meaning of section 415 (c)(3) of such Code for such year.", (2) by striking out paragraph (6) and inserting in lieu thereof the following: "(6) On making a claim for credit, adjustment, or refund under section 38 of the Internal Revenue Code of 1954, the employer states in such claim that it agrees, as a condition of receiving any such credit, adjustment, or refund "(A) in the case of a taxable year beginning before January 1, 1977, to transfer employer securities forthwith to the plan having an aggregate value at the time of the claim of 1 percent of the amount of the qualified investment (as determined under section 46 (c) and (d) of such Code) of the taxpayer for the taxable year, and "(B) in the case of a taxable year beginning after December 31, 1976 "(i) to transfer employer securities to the plan having an aggregate value at the time of the claim of 1 percent of the amount of the qualified investment (as determined under section 46 (c) and (d) of such Code) of the employer for the taxable year, "(ii) except as provided in clause (iii), to effect the transfer not later than 30 days after the time (including extensions) for filing its income tax return for a taxable year, and P. "(iii) in the case of an employer whose credit (as determined under section 46(a)(2) (B) of such Code) Ante, 1580. for a taxable year beginning after December 31, 1976, exceeds the limitations of paragraph (3) of section 46 (a). of such Code "(I) to effect that portion of the transfer allocable to investment credit carrybacks of such excess credit at the time required under clause (ii) for the unused credit year (within the meaning of section 46(b) of such Code), and (II) to effect that portion of the transfer allocable to investment credit carryovers of such excess credit at the time required under clause (ii) for the taxable year to which such portion is carried over. For purposes of meeting the requirements of this paragraph, (3) by deleting paragraph (8) and inserting in lieu thereof the following: "(8) (A) Except as provided in subparagraph (B) (iii), if the amount of the credit determined under section 46(a)(2)(B) of the Internal Revenue Code of 1954 is recaptured or redetermined in accordance with the provisions of such Code, the amounts transferred to the plan under this subsection and subsection (e) and allocated under the plan shall remain in the plan or in participant accounts, as the case may be, and continue to be allocated in accordance with the plan. "(B) If the amount of the credit determined under section 46 (a) (2) (B) of the Internal Revenue Code of 1954 is recaptured in accordance with the provisions of such Code "(i) the employer may reduce the amount required to be transferred to the plan under paragraph (6) of this subsection, or under paragraph (3) of subsection (e), for the current taxable year or any succeeding taxable years by the portion of the amount so recaptured which is attributable to the contribution to such plan, "(ii) notwithstanding the provisions of paragraph (12), the employer may deduct such portion, subject to the limita tions of section 404 of such Code (relating to deductions for 26 USC 404. contributions to an employees' trust or plan), or "(iii) if the requirements of subsection (f) (1) are met, the employer may withdraw from the plan an amount not in excess of such portion. "(C) If the amount of the credit claimed by an employer for a prior taxable year under section 38 of the Internal Revenue Code of 1954 is reduced because of a redetermination which becomes final during the taxable year, and the employer transferred amounts to a plan which were taken into account for purposes of this subsection for that prior taxable year, then 29 USC 1103. "(i) the employer may reduce the amount it is required to transfer to the plan under paragraph (6) of this subsection, or under paragraph (3) of subsection (e), for the taxable year or any succeeding taxable year by the portion of the amount of such reduction in the credit or increase in tax which is attributable to the contribution to such plan, or "(ii) notwithstanding the provisions of paragraph (12), the employer may deduct such portion subject to the limitations of section 404 of such Code.", (4) by striking out "in control of the employer (within the meaning of section 368 (c) of the Internal Revenue Code of 1954)”" in paragraph (9) (A) and inserting in lieu thereof "a member of a controlled group of corporations which includes the employer (within the meaning of section 1563 (a) of the Internal Revenue Code of 1954, determined without regard to section 1563 (a) (4) and (e) (3) (C) of such Code)", and (5) by adding at the end thereof the following new paragraphs: (13)(A) As reimbursement for the expense of establishing the plan, the employer may withhold from amounts due the plan for the taxable year for which the plan is established, or the plan may pay, so much of the amounts paid or incurred in connection with the establishment of the plan as does not exceed the sum of 10 percent of the first $100,000 that the employer is required to transfer to the plan for that taxable year under paragraph (6) (including any amounts transferred under subsection (e) 3)) and 5 percent of any amount in excess of the first $100,000 of such amount. "(B) As reimbursement for the expense of administering the plan, the employer may withhold from amounts due the plan, or the plan may pay, so much of the amounts paid or incurred during the taxable year as expenses of administering the plan as does not exceed the smaller of “(i)_ the sum of 10 percent of the first $100,000 and 5 percent of any amount in excess of $100,000 of the income from dividends paid to the plan with respect to stock of the employer during the plan year ending with or within the employer's taxable year, or (ii) $100,000. "(14) The return of a contribution made by an employer to an employee stock ownership plan designed to satisfy the requirements of this subsection or subsection (e) (or a provision for such a return) does not fail to satisfy the requirements of this subsection, subsection (e), section 401 (a) of the Internal Revenue Code of 1954, or section 403 (c) (1) of the Employee Retirement Income Security Act of 1974 if "(A) the contribution is conditioned under the plan upon determination by the Secretary of the Treasury that such plan meets the applicable requirements of this subsection, subsection (e), or section 401 (a) of such Code, "(B) the application for such a determination is filed with the Secretary not later than 90 days after the date on which the credit under section 38 is allowed, and "(C) the contribution is returned within one year after the date on which the Secretary issues notice to the employer that such plan does not satisfy the requirements of this subsection. subsection (e), or section 401 (a) of such Code." (d) PLAN REQUIREMENTS FOR TAXPAYERS ELECTING ADDITIONAL ONE-HALF PERCENT CREDIT.-Section 301 of the Tax Reduction Act of 1975 (relating to increase in investment credit) is amended by adding 26 USC 46 note. at the end thereof the following new subsections: "(e) PLAN REQUIREMENTS FOR TAXPAYERS ELECTING ADDITIONAL ONE-HALF PERCENT CREDIT. “(1) GENERAL RULE.-For purposes of clause (ii) of section 46 (a)(2) (B) of the Internal Revenue Code of 1954, the amount determined under this subsection for a taxable year is an amount equal to the sum of the matching employee contributions for the taxable year which meet the requirements of this subsection. "(2) ELECTION; BASIC PLAN REQUIREMENTS.-No amount shall be determined under this subsection for the taxable year unless the corporation elects to have this subsection apply for that year. A corporation may not elect to have the provisions of this subsection apply for a taxable year unless the corporation meets the requirements of subsection (d) and the requirements of this subsection. "(3) EMPLOYER CONTRIBUTION.-On making a claim for credit, adjustment, or refund under section 38 of the Internal Revenue Code of 1954, the employer shall state in such claim that the employer agrees, as a condition of receiving any such credit, adjustment, or refund attributable to the provisions of section 46 (a) (2) (B) (ii) of such Code, to transfer at the time described in subsection (d) (6) (B) employer securities (as defined in subsection (d) (9) (A)) to the plan having an aggregate value at the time of the transfer of not more than one-half of one percent of the amount of the qualified investment (as determined under subsections (c) and (d) of section 46 of such Code) of the taxpayer for the taxable year. For purposes of meeting the requirements of this paragraph, a transfer of cash shall be treated as a transfer of employer securities if the cash is, under the plan, used to purchase employer securities. "(4) REQUIREMENTS RELATING TO MATCHING EMPLOYEE CONTRI BUTIONS. "(A) An amount contributed by an employee under a plan described in subsection (d) for the taxable year may not be treated as a matching employee contribution for that taxable year under this subsection unless "(i) each employee who participates in the plan described in subsection (d) is entitled to make such a contribution, "(ii) the contribution is designated by the employee as "(iii) the contribution is in the form of an amount The |