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Bankruptcy-Tax accounting, tax returns and congressional revision: H.R. 9973

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Estate Planning: Significant recent developments concerning estate planning (part IV)

American Institute of Certified Public Accountants

Tax Adviser 
Volume 9 Issue 7 Article 9 
1978 
subject index 12 months ended June 1978 
American Institute of Certified Public Accountants 
Follow this and additional works at: https://egrove.olemiss.edu/tax_adviser 
 Part of the Accounting Commons, and the Taxation Commons 
Recommended Citation 
American Institute of Certified Public Accountants (1978) "subject index 12 months ended June 1978," 
Tax Adviser: Vol. 9: Iss. 7, Article 9. 
Available at: https://egrove.olemiss.edu/tax_adviser/vol9/iss7/9 
This Article is brought to you for free and open access by the Archival Digital Accounting Collection at eGrove. It 
has been accepted for inclusion in Tax Adviser by an authorized editor of eGrove. For more information, please 
contact egrove@olemiss.edu. 
subject index
12 months ended
 
June 1978
Accounting methods and periods
At-risk rules
master record leases. 78:120.
percentage depletion. 78:338.
Cash-basis
taxpayer's use of credit cards. 77:728.
12-month prepayment of 
rent
 allocable to 
two years. 78:309.
Change of 
method new 10-year spread rules. 77:492, 599.
Sec. 481 adjustment accelerated by incorp.
 
77:691.
Change of period
loss in preceding year and automatic change.
 
78:95.
Conformity rule, see "Inventories, LIFO."
 
Installment sales
interspousal stock sale. 77:598.
relationship to ADR system. 77:662.
sale of receivables prior to adoption of
 
method. 78:143.
Sec. 453 election, substitution of escrow after
 
date of sale. 77:695.
LIFO, see "Inventories."
Accumulated earnings tax
Effect of stock dividends. 77:727.
Reasonable business needs irrelevant to hold
 
ing 
company's
 credit. 77:763.
Affiliated corporations
 
See "Consolidated returns."
Bad debts
Shareholder-employee loans to corp. 77:628.
Basis
Decedents' estates, successive, planning for.
 
78:145.
IRS ruling and Yoc Heating case. 77:491.
Recapture provision on Sec. 334(b)(2) liquida
­
tion. 78:96.
Capital gains and losses
Foreclosure, abandonment, and settlement, the
 
effects on mortgagors. 78:68.
Patents and know-how, transferring. 77:687.
Short sales, creating an ordinary deduction.
 
78:273.
Worthless securities. 78:102.
Charitable contributions
Corporate gifts of inventory. 77:413.
50% ceiling election, on original return. 77:569.
Private foundation, see "Private foundations."
Consolidated returns
CRCO rules
new Sec. 382(a). 78:340.
"old members." 78:341.
Recent developments. 78:132.
Subsidiary status when stock is pledged. 78:
 
279.
Corporate divisions
See "Reorganizations and corporate divisions."
The contents of TTA from the date
 
of Inception 
(Jan.
 1970) are indexed  
in the Accountants’ Index, a publi
­cation of the American Institute of
 Certified Public Accountants.
Corporations
Controlled
reallocation of income. 77:572.
surtax 
exemption
brother-sister, validity of regs. 77:632, 758.
Double taxation of dividends. 77:516.
GmbHs and SRLs, tax status of. 78:231.
Multiple, definitions and applications. 77:396.
Possessions corps., Puerto Rico joint ventures.
 
77:534.
Sec. 482
interest income can be "created." 78:177.
parent's guarantee of sub.'s loans. 78:148.
Subchapter C 
procedures,
 complying with. 78:  
231.
Subchapter
 S. see "Subchapter S corporations."
Credits against tax
Foreign taxes paid
Canadian withholding on 1977 interest in
­
come. 78:226.
carryback 
adjustment,
 tentative. 78:339.
contested taxes, treatment of. 78:225.
credit limitation after '76 Act. 77:580.
oil taxes as foreign "income" or "in lieu
 
of" taxes. 78:252.
Sec. 861 regs., planning. 77:706.
Sec. 905(c), fluctuating exchange rates. 78:
 
225.
Investment
carrybacks and 
carryovers.
 77:659.
pass through to multiple lessees. 78:225.
reselection of used Sec. 38 property on re
 
capture. 77:661.
Sec. 38 property, greenhouses. 78:57.
New jobs credit. 77:537; 78:335, 336.
Deferred compensation plans
ERISA
adopting and amending plans
 
appeal procedures. 77:621.
 revised filing instructions. 77:432.
alienation of retirement benefits, final regs.
 
78:244.
audit exemption and remedial amendmen;
 
period. 78:39.
benefits and contributions
employer's deduction for prior service
 
cost. 78:43.
reversions of contributions to employer.
 
77:570.
Schedule SSA instructions. 77:560.
sole proprietorship and successor corp, as
 
commonly controlled businesses. 78:96.
timely, Sec. 404(a)(6). 78:143.
discrimination, permitted and prohibited.
 
77:644.
disqualifying operational error, retroactive
 
cure. 77:751.
distributions, timing. 78:279.
ESOP
an update. 77:476.
contributions maximized by profit-sharing
 
plan credit carryovers. 78:97.
final regs. 78:260.
excise tax election. 77:431.
extensions. 77:560,621.
forms, see "Forms in use."
 
H.R. 10 plans. 78:142, 272.
 individual retirement plans. 77:491, 536, 621,
 725; 78:41, 229, 314.
post-retirement 
death
 benefits. 78:38.
lump sum distributions ('76 Act). 77:411, 629;
 78:97.
minimum participation standards. 77:685.
model plans. 77:621.
PBGC annual reports. 78:46.
prohibited transaction
Keogh plan to corporate plan. 77:601.
retiring employees, planning for distribu
­
tions. 77:730.
Dependents
Capital items as "support." 77:633.
Child support, attribution of by custodial par
­
ent's spouse. 78:373.
Depreciation
Class life ADR
automated systems approach. 78:17.
Sec. 1250 property, application to. 77:658.
"service assets" of restaurants. 77:599.
SYD method and first-year convention. 77:414.
Historic structures, rehabilitation 
expenditures. 
78:42.
Intangible drilling costs, effect of minimum tax
 
on. 77:678.
Sec. 179, property converted from personal 
to business use. 78:123.
DISC
Definitions of terms, regs. 77:743.
Dividends, final regs. 77:495.
Filing requirements, final regs. 78:244.
Liquidation of or distribution by corp, with
 
DISC subs. 77:659.
Sec. 993(c)(1)(B), destination 
test.
 77:729.
'76 Act changes. 78:324.
Employees' plans and trusts
See "Deferred 
compensation
 plans."
Employment taxes
Withholding
deferred compensation payments. 77:661.
IRS assessments, resisting. 77:538.
lunch paid on day trips. 77:439.
 
payments to foreign insurers. 77:413.
saving taxes with "totalization agreements."
 
78:147.
taxes accrued prior to acquisition, liability
 
of owner. 77:440.
Self-employment tax, limited partner's share 
of 
income or loss. 78:232.
ERISA
See "Deferred compensation plans."
Estate planning
Income in respect of decedent, deferred com
­
pensation. 78:224.
Planning after 'lb Act. 77:405.
Recent 
developments.
 77:416, 462; 78:150, 206,
287, 346.
Estate tax
Administration expense
interest on 
decedent's
 obligations. 78:180.
interest on deferred tax payment. 77:504, 731.
Carryover basis rules
fax planning. 77:388.
temp. regs, may conflict with Code. 77:660.
Flower bonds
offsetting gains. 78:279.
valued on basis of estate tax. 78:371.
Forms, see "Forms in use."
Inter vivos gifts, advantages of. 78:43.
Medical expenses, deductibility of under Sec.
213 as Sec. 2053 claim. 78:59.
'76 Act, orphan's exclusion. 77:597.
Sec. 2013 credit. 77:508; 78:271.
Sec. 2032 value is FMV. 77:571.
Sec. 2037
employment contract as "transfer." 78:251.
reversion, valuation of. 77:692.
Estates and trusts
See "Trusts and estates."
Exempt organizations
Community development authority. 77:573.
Condominium management ass'ns. 77:727.
'76 Act. 78:164.
Sec. 501(c)(3), promoting business in deterio
 
rated area. 77:503.
444 THE 
TAX
 ADVISER, JULY 1978
1
: Subject index, 12 months ended June 1978
Published by eGrove, 1978
Unrelated income rules
 
churches. 77:602.
 nonmember's use, deduction of losses. 77:
 487.
Expenses
Business
abortive acquisition. 77:631.
commitment fees. 77:596.
foreign conventions. 77:720.
grassroots lobbying. 78:375.
job counseling. 78:374.
liquidating, trustee's, vs. reorg. bankruptcy.
 
77:630.
meals, mandatory contribution. 78:245.
parent's payment of sub.'s debt. 77:489.
 
rebates, illegal. 77:630.
renting personal residence. 77:597.
 
sale-leaseback. 78:368.
Sec. 162(c) and illegal rebates. 78:253.
Interest, see "Interest income & expense."
 
Medical
indoor pool. 77:622.
Sales 
tax
 in constructing building. 78:149.
Foreign income and taxpayers
Controlled corps., sale of foreign sub. 77:411.
Intercompany pricing, examination by IRS. 78:
 
196.
Irish operations, planning for. 78:233, 281.
Sec. 367, new rules. 77:600.
Sec. 911 rules
AICPA comments. 77:426.
the death blow for. 77:551.
WHTC, timing of switchover. 77:486.
Foreign taxes
Credit 
for,
 see "Credits against tax."
Forms in use
Form 1065. 78:274.
Form 1120, Question G. 78:131.
Spotlighted Forms, 709, 706, 1040 ES—77:495;
 
706NA, W-2 and W-3, 3520A—77:560. 5006
 and 1065—78:115. 5500 and 5500-C, and em-
 oloyee benefit application 
forms
—78:175, 176,  
367.
W-2—78:245.
Freedom of Information Act
See "Infernal Revenue Service."
Gains and losses
At-risk rules
master record "lease." 78:120.
 
percentage depletion. 78:338.
Capital assets, artistic work and the carryover
­
basis problem. 78:229.
Capital gains and losses, see "Capital gains
 
and losses."
Exchanges, delivery of like-kind promised in
 
future, Sec. 1031. 77:662.
Foreclosure, abandonment, and settlement, the
 
effect on mortgagors. 78:68.
Futures trading, deductibility of artificial
 
losses. 77:535, 574.
Inventory casualty, disaster election. 77:441.
Involuntary conversions of property
 
delinquent 
tax
 sales. 78:58.  
similar property, determination of. 77:567.
 optional renewal periods added 
to
 lease  
term. 78:370.
Like-kind exchanges, distributed property. 77:
 
757.
Liquidation of partnership interest compen
­
sated by insurance proceeds. 78:378.
Sec. 274 and sale of nonbusiness property. 78:
 
185.
Sec. 482 allocation, constructive dividends in
 
kind. 77:412.
Gifts
See "Exempt income" and "Charitable contri
­
butions."
Gift tax
Exemption
determination of. 78:275.
reduction of. 78:275.
Family "sale" for annual notes, IRS position.
 
77:694.
Inter vivos gifts, advantages of. 78:43.
Marital deduction, effect on estate 
tax.
 77-731.
Marital gifts by moderate-sized estates. 78:94.
Sec. 2513 election not made by signing 
other 
spouse's name. 78:316.
Transfer to trustee with discretion to distribute
 
assets to grantor. 78:122.
Gross income
Alimony payments. 77:409, 743.
Annuities
tax deferral of interest on contracts. 78:231.
Capital construction fund. 77:541.
Discharge of indebtedness
exchange of old bonds for new with lower
 
face
 value. 78:184.
Donor's gift subject to 
payment
 of gift taxes.  
78:248.
Exclusion, see "Exempt income."
Fellowship
 grants. 77:728.
Residence sale by senior citizen. 78:277.
Sec. 83
educational benefit plan. 78:315.
Sec. 119
 
applicability of to executive's Tokyo resi
­dence. 77:754.
trooper's cash meal allowances. 78:116, 342.
 
Strike penalty withheld from teacher's salary.
78:312.
Vacation pay plan. 77:415.
Insurance
Company
foreign captive, Sec. 4371 
tax.
 78:147.
Life insurance
group term, Sec. 79 restrictions. 77:511.
 
innovations in planning. 78:40.
Sec. 801. 77:432.
Interest income and expense
Investment interest
exempt,
 IDB capital expenditure of $5 mil ­
lion issue exemption. 78:276.
lease escalation clause and 15% 
test.
 77:661.
Internal Revenue Service
See also "Procedure and administration."
 
ADP in IRS, Ruttie speaks of change. 78:99.
 Freedom of Information and Privacy Acts, ef
­fect of on enforcement. 78:363.
Information returns program. 78:359.
Interview with Kurtz. 77:672.
Litigation, reimbursement of legal fees. 77:595.
Model tax treaty. 77:432.
Non-pro rata distributions, IRS position on.
 
78:223.
Personnel. 77:432, 495, 621, 686; 78:245.
Practice before IRS, new regs. 77:559.
Questionable positions on returns, Kurtz com
­
ments. 77:496.
Regulations
 
final, see particular subiect.
Kintner regs, revoked. 77:743.
Sec. 7502 
metered
 mail reos. upheld. 78:250.  
Spotlighted. 77:431, 495. 559, 621, 684, 685,
 686; 78:115, 176, 244, 297, 366.
Remarks and comments by Assistant Commis
 
sioner Wolfe. 77:745.
Rulings, procedures, IRs, etc.
corp.'s estimated tax, penalty for underpay
­
ment. 77:659.
Spotlighted. 77:430, 431, 494, 558, 620, 684,
 
685, 742, 743; 78:46, 114, 115, 175, 243, 244,
 297, 366.
tardy response to request. 77:539.
Inventories
FIFO, denial of write downs. 77:657.
Full absorption 
costing 
recent rulings. 77:490.
 ten-year 
spread
 on untimely change. 78:147.
LIFO
 
computational procedures, analysis of. 78:4.
 conformity
interim reports, applicable to. 78:317.
 
preliminary financial statement using 
LIFO cost estimates. 77:443.
through business combinations. 78:232.
 
election
leaving affiliated group. 78:274.
timely without Form 970. 77:411.
valuing dollar-value pool with link-chain
 
method. 77:bb0.
wholesaler's natural business unit pool. 77:
 
488.
Overruns, planned. 77:b27.
Market value based on percentage write
­
downs in valuation. 78:56.
Involuntary conversion of property
See "Gains and losses."
Legislation
Bankruptcy, H.R. 9973. 78:298.
Pension reform, see "Deferred compensation
 
plans."
Proposed. 77:430, 494, 620, 684, 742; 78:114,
 
175, 243, 297.
Tax reform, see "Tax reform."
Tax Reform Act of '76, see particular subject
 
area.
liquidation of corporation
Non-pro 
rata,
 IRS position on. 78:227.
Partial
proceeds from redemption of Corn Products-
 
type stock. 78:93.
Sec. 243 dividend, purposely delayed distri
­
bution to corporate shareholder. 78:255.
Sec. 346 distribution. 78:56.
Secs. 331 and 311, conflict between. 78:229.
Sec. 337
avoidance of, after realization of losses. 77:
 
505.
Sub. acquired under Sec. 304. 78:182.
Losses, deductibility
See "Gains and losses.
Maximum and minimum tax
Maximum
Alimony, '76 Act's effect on. 77:409.
deferred compensation under '76 Act. 78:76.
 
payments under qualified plans and 
non­compete covenants. 78:44.
personal service net income, effect of sole
 
proprietorship loss on. 78:372.
77 Act's inadvertent effect on maxi-tax. 77:
 
485.
Minimum
Clifford trusts, using for corporate charit
­
able contributions. 78:223.
component depreciation tax trap. 78:277.
intangible drilling costs. 77:678.
NOLs, effect of election not to carryback.
 
78:340.
Sec. 162 vs. Sec. 275. 78:179.
Natural resources
Depletion, representative market price and the
 
meaning of "regularly." 78:226.
Oil and gas
drilling farm-out arrangements. 78:38.
Percentage depletion, see "Depreciation."
 
recent developments. 78:41.
Solid minerals, understanding the property unit
 
concept. 78:82.
Net operating losses
Bankruptcy, losses occurred during and prior
 
to. 78:318.
Carrybacks
application of rule to affiliated group. 77:
 
488.
Carryovers
Sec. 382 acquisitions. 77:586, 664.
effective dates of 76 Act changes. 78:336.
 
spin-off, available to transferor in. 77:499.
Oil and gas
See "Natural resources."
Option trading
Securities. 77:652.
Partners and partnerships
Allocations
tax
 shelter investments. 77:734.
Capital as income producing factor where ac
­tivities financed by bank loan. 78:52.
Elections, inapplicable to some 
partners
 be ­
cause of Sec. 743. 78:337.
Losses, pre-76 Act, retroactive allocation. 77:
 
437.
"Principals" of CPA firms, status of. 77:760.
Professional, adoption of fiscal 
year.
 77:658.
Sec. 751, 
the
 "collapsible partnership." 78:47.
Sec. 754 el ction, carryover bas:s rules. 78:339.
Tax-free exchange, general partnership inter
­
est. 78:379.
THE TAX ADVISER, JULY 1978 445
2
Tax Adviser, Vol. 9 [1978], Iss. 7, Art. 9
https://egrove.olemiss.edu/tax_adviser/vol9/iss7/9
Tax shelter interest, disposing of 
to
 create in ­
come. 78:278.
Pensions
See "Deferred compensation plans."
Personal holding company
Dividends
paid in appreciated property. 77:433, 730;
78:307.
received from possessions corp. 77:533.
Form 1120 PH, error. 78:42.
Possessions corp., used to liquidate. 77:534.
Personal residence
Rental of. 77:490.
Private foundations
50% charitable donees, qualifying as. 77:726.
Procedure and administration
See also "Forms in use," "Internal Revenue
 
Service" and "Returns."
Antiboycott guides. 77:743.
Award 
of
 attorney's fees
Tax Court cases. 77:506.
Estimated tax
corporate cash flow advantage possible. T1 ■.
 
659.
Single level of appeal. 78:111.
Summons. 77:436; 78:181.
Unpaid taxes, treatment of. 77:559.
Real estate investment trusts
NOL deduction problem. 78:230.
Redemptions of stock
Partial redemption of preferred by shareholder
 
owning no common. 78:186.
Sec. 302
disproportionate. 77:626.
effect on E&P. 77:697.
relationship to Sec. 243 dividend. 77:625.
termination of interest. 78:97, 297.
waiver of family attribution rules. 77:690.
Sec. 305, periodic redemption of preferred not
 
dividend to common shareholder. 78:376.
Regulated investment company
Operating company, conversion of. 78:44, 143.
Reorganizations and corporate divisions
8
 
type  
meeting control requirement. 77:600.
Continuity of 
interest
 rule. 78:118.
D type. 77:568.
E type. 77:601.
F type. 77:489, 490, 565, 624; 78:61, 146, 313.
Investment company with mutual 
fund.
 77:359.
Sec. 355
business purpose required for distribution.
 
77:537.
Sec. 357
assumed obligations. 77:499, 540.
Returns
See also "Forms in 
use,"
 "Proc, and admin."
Consolidated returns, see "Consolidated re
 turns."
Credits and refunds, overpayment applied to
 
next year's estimated 
tax.
 77:761.
Divorces
marital status determined by state law. 77:
 
435.
Estimated tax payments, minimizing for sea
­
sonal businesses. 78:93.
Income averaging. 78:142.
Nonresident aliens, joint return elections. 78:98.
Penalties, Sec. 6672. 77:753.
Political organizations, filing requirements 
for. 
77:743.
Standard
 deduction for dual-status aliens. 78:  
227.
Social security (FICA)
See "Employment taxes."
Stock
Dividends
close corp.’s disallowed T&E expenditures.
 
78:250.
Options
 
disadvantages in declining market. 78:95.
Redemptions, see "Redemptions of stock."
 
Restricted stock, tax on "phantom" compen
 sation. 77:539.
Sec. 304, advantageous use by corporate seller
 
of stock. 78:227.
Sec. 306
avoiding the taint in a shift-of-control recap.
 
78:228.
no E&P in Sec. 351 exchange. 77:442.
preferred stock portion of Sec. 355 distribu
 
tion. 77:756.
Subchapter S corporations
Disaster losses and Sec. 165(h). 78:145.
NOL deduction and worthless stock loss, con
­
flict between. 78:310.
Sham terminations, determinations of by IRS.
 
78:144.
Shareholder's bankruptcy petition and subchap.
S status. 77:438.
10-shareholder rule, satisfaction of. 77:571.
Tax free exchanges
See "Gains and losses."
Tax practice
Civil liability, summary of. 78:330.
Practitioner's guide to mitigation. 77:452.
Using algebra to solve special tax problems.
78:219.
Tax reform
See also "Deferred compensation plans, ERISA."
AICPA testimony on President's '78 tax pro
­
gram. 78:246.
H.R. I 1055. 78:366.
'77 Act and income averaging. 78:141.
Simplification, ex.-Commissioner's views. 77:
 
561.
Technical Corrections Bill of 1977. 77:617.
Trusts and estates
See also "Estate planning.”
Claim of right, restoration of 
income
 reported  
by decedent. 77:762.
Distributions in kind, stepped-up basis. 78:276.
Grantor trusts
avoiding corporate limitations on charitable
 
contributi ns. 78:93.
termination on death of non-elderly grantor.
 
78:92.
Taxation of 
trust
 distributions. 78:22.
Withholding tax
See "Employment 
taxes."
446 THE TAX ADVISER, JULY 1978
3
: Subject index, 12 months ended June 1978
Published by eGrove, 1978


subject index 12 months ended June 1978

Thomas, Kenneth F.

Stromsem, William R.

Tax Adviser 
Volume 9 Issue 11 Article 6 
1978 
Washington Report: Capital gains provisions of the ’78 bill - an 
explanation 
Kenneth F. Thomas 
William R. Stromsem 
Follow this and additional works at: https://egrove.olemiss.edu/tax_adviser 
 Part of the Accounting Commons, and the Taxation Commons 
Recommended Citation 
Thomas, Kenneth F. and Stromsem, William R. (1978) "Washington Report: Capital gains provisions of the 
’78 bill - an explanation," Tax Adviser: Vol. 9: Iss. 11, Article 6. 
Available at: https://egrove.olemiss.edu/tax_adviser/vol9/iss11/6 
This Article is brought to you for free and open access by the Archival Digital Accounting Collection at eGrove. It 
has been accepted for inclusion in Tax Adviser by an authorized editor of eGrove. For more information, please 
contact egrove@olemiss.edu. 
Washington report
Editors: KENNETH F. THOMAS, CPA
 
WILLIAM R. STROMSEM, CPA
The capital gains provisions of the ’78 bill—
 
an explanation*
*The explanations of the provisions contained in this arti
­
cle have been excerpted from the Senate Finance Com
­mittee Report 
on
 H.R. 13511 except for the section on  
exclusion of gain 
on
 the sale of a residence. That sec ­
tion is excerpted from the Senate Finance Committee
 Report and from the Congressional Record, 10/10/78,
 
pp
. S. 17945-17950.
Introduction
The capital gains tax reductions contained in the
 
Revenue Bill of 1978 will undoubtedly be 
regarded as among the most significant aspects of this im
­portant piece of legislation. The House-passed
 capital gains tax provisions were reviewed by the
 authors in the September issue of The Tax Adviser.
 The House-passed provisions 
were
 considered by  
the Senate, which made several modifications, the
 differences between 
the
 bills were resolved in Con ­
ference, and Congress passed the tax bill.
Summary of the tax bill provisions
The bill would increase the percentage of long
­
term capital gains excluded from taxable income
 from 50% to 60% (and would impose an alterna
­tive minimum tax with rates of up to 25%). The
 current alternative 
tax
 of 25% on the first $50,000  
of capital gains for individuals would be repealed
 for taxable years beginning after Dec. 31, 1978.
 The maximum corporate capital gains tax rate
 would be reduced from 30% to 28%. A one-time,
 up to $100,000 exclusion of gain from the sale or
exchange of a principal residence would be pro
­
vided for those who are 55 years of age or 
older. The current rollover provision for gains on the sale
 of a principal residence would be broadened to
 assist people who must move in connection with
 their employment. Carryover of basis for 
heirs
 and  
assigns of a decedent 
(enacted
 by the Tax Reform  
Act of 1976) would be deferred through the end
 of 1979. Capital gains would be removed from tax
 preferences which reduce the amount of personal
 service income eligible for the 50% maximum tax.
In general, 
Congress
 passed the bill which had  
been passed by the Senate. For this reason, the
 following section includes detailed explanations of
 the Senate-passed capital gains provisions. The
 major differences between the Senate-passed bill
 and the bill which Congress passed are as follows:
•
 
The Senate had approved a capital gains de ­
duction of 70%, and 
C ngress
 passed a 60%  
capital gains deduction.
•
 
The repeal of the alternative tax for capital  
gains of individuals is made effective for taxable
 years beginning after December 31, 1978.
•
 
For the exclusion of gain on the sale of a resi ­
dence, the bill allows the exclusion to be used in
 conjunction with the rollover of gain provision, the
 period of occupancy is increased to 3 out of 5
 years, and those who are disabled are not eligible
 for this benefit until they otherwise qualify at age
 55.
•
 
For carryover of basis, the final bill does not  
allow an election to use the carryover rules for
 estates of decedents-dying after 1976 and prior to
 the date of enactment of 
the
 bill.
680 THE TAX ADVISER, NOVEMBER 1978
1
Thomas and Stromsem: Washington Report
Published by eGrove, 1978
Explanation of provisions
Capital gains provisions
Capital gains deduction for Individuals. The bill pro
­
vides that a noncorporate taxpayer may deduct from
 gross income 70 percent of the amount of any net capital
 gain for the taxable year. The remaining 30 percent of
 the net capital gain is includible in gross income and
 subject to tax at the otherwise applicable rates. The ex
­cluded 70 percent of any gain 
is
 classified as a tax  
preference for purposes of the alternative minimum tax,
 and with respect to post October 1, 1978, gains which
 are subject to the add-on minimum 
tax.The bill does not change the present law treatment of
 a noncorporate taxpayer’s capital losses.
As a transition rule, the bill generally provides that a
 
noncorporate taxpayer may deduct from gross income
 70 percent of the post-October, and one-half of the pre
­November, capital gains. These rules are intended to
 make the appropriate differentiation between pre- and
 post-effective date gains and losses.
The bill also coordinates the increased capital gains
 
deduction with the rules applicable to charitable contri
­butions of property. It provides that the amount of certain
 charitable contributions of capital gains property 
is
 to be  
reduced by 30, rather than 50, percent of the gain which
 would have been long-term capital gain if the property
 contributed had 
been
 sold by the taxpayer at its fair  
market value.
The provision 
is
 effective for taxable transactions oc ­
curring, and for installment payments received, after
 October 31, 1978.
For a taxable year ending after October 31, 1978 and
 
beginning before November 1, 1978, a transitional rule
 is provided. Under this rule, the new 70 percent exclusion
 will apply to the net capital gains in excess of any pre
­November capital losses taking into account only sales
 or exchanges (including short-term transactions) after
 October 31, 1978. In computing the post-October net
 gain, no capital loss carryover is taken into account.
Repeal of alternative tax 
for
 capital gains of individuals.  
The bill repeals 
the
 noncorporate alternative tax for capi ­
tal gains. This provision is effective for taxable years be
­ginning after October 31, 1978.
Corporate alternative tax for capital gains. The bill
 
reduces the corporate alternative tax rate from 30 to 28
 percent. This provision is effective for sales occurring,
 and installment payments received, after December 31,
 1978.
Exclusion of gain on sale of residence. The Senate-
 
passed bill provides a one-time exclusion of up to
 $100,000 of the gain from the sale or exchange of a
 principal residence for those who are 55 years of age
 or older or who are totally and permanently disabled.
The bill’s exclusion applies only with respect to gain
 
realized on the sale or exchange of a principal residence
 which the taxpayer has owned and occupied as his or
 her principal residence for a period aggregating two
 years out of the three-year period which immediately
precedes the sale. As under present law, the ownership
 
and occupancy rule may be satisfied only by the tax
­payer, or by the taxpayer’s spouse in the case of married
 individuals. However, the bill provides two exceptions to
 the generally applicable ownership and occupancy rule.
 The first exception is a limited transition rule which pro
­vides that individuals who can, or could have, satisfied
 the age, ownership and use requirements of present law
 (5 years or more out of the 8-year period which precedes
 the sale) will have until July 27, 1981, to qualify for the
 exclusion either under the 
new
 ownership and occupancy  
test or that of the present law. The second exception
 provides that the holding period of a condemned or
 involuntarily converted residence may 
be
 tacked on to  
that of a replacement residence for purposes of having
 gain on the sale of the latter property qualify for the
 exclusion. In all instances the actual use and occupancy
 requirements must be satisfied. Thus, only that period of
 time which the particular principal residence which 
is being sold or exchanged was owned and occupied by 
the taxpayer will be taken into account. The holding period for
 an old residence will not be taken into consideration even
 if gain on that residence’s sale had been rolled over into
 the new principal residence which is being sold.
For purpose of the exclusion contained in the Senate
 
bill, the definition of a taxpayer’s principal residence 
is that presently utilized in section 1034, rather than that
 currently contained in section 121. Therefore, whether
 property qualifies as an individual’s principal residence,
 or what portion of a large property qualifies, will depend
 upon the facts and circumstances in each case. Similarly,
 the facts and circumstances test 
is
 to apply to determine  
which residence 
is
 a taxpayer’s principal residence where  
he or she has owned and occupied more than one resi ­
dence for the two-year period preceding the sale in
 question. The provision also applies to condominiums and
 to stock of a tenant-shareholder of a cooperative housing
 corporation.
For purpose of the exclusion contained in the Senate
 
bill, the definition of permanently and totally disabled is
 that contained in section 105(d)(5).
The provisions of section 1033 (relating to involuntary
 
conversions) and 1034 (relating to rollover of gain on 
the sale of a principal residence) shall not apply to 
any
 sale  
or exchange of the principal residence with respect to
 which this election 
is
 made.
The Senate’s bill also provides that no amount of any
 gain realized on the sale or exchange of an individual’s
 principal residence, whether or not excludable under 
the bill, is a tax preference subject to the minimum tax, or
 to the alternative minimum tax. For this purpose, the
 definition of a taxpayer’s principal residence is that util
­ized in section 1034. 
Gain
 on the sale of a residence  
which 
is
 not the taxpayer’s principal residence remains  
an item of tax preference.
The exclusion would continue to be elective and would
 
be available only once in a lifetime. It would be struc
­tured similar to the present law, but with an increase in
 the numerator from $35,000 to $100,000. (This numerator
 over the adjusted sales price, multiplied by the gain
 realized yields the gain which may 
be
 excluded.)
This provision is effective for sales and exchanges after
 July 26, 1978.
THE TAX ADVISER, 
NOVEMBER
 1978 681
2
Tax Adviser, Vol. 9 [1978], Iss. 11, Art. 6
https://egrove.olemiss.edu/tax_adviser/vol9/iss11/6
Rollover ot gain on sale of residence. The bill gener
­
ally provides for the rollover of gain realized on the sale
 of more than one principal residence where an individual
 relocates for employment purposes more than once
 within a period beginning 18 months from the time that
 his or her first principal residence is sold. Taxpayers
 generally will be allowed the benefits of this multiple
 rollover provision where there was a reasonable expecta
­tion at the time of the relocation that the taxpayer would
 be employed, or remain, at the new location for a sub
­stantial period of time.
Thus, where the taxpayer 
is
 entitled to deduct moving  
expenses with respect to a relocation falling within the
 18-month period, the 18-month limitation of present law
 generally would not apply. In such a situation, the mul
­tiple rollover provision would be available so as to allow
 the nonrecognition of gain 
on
 the sale of a principal  
residence occupied by the taxpayer if, 
in
 fact, the tax ­
payer subsequently relocated within.the 18-month period
 for employment purposes and acquired a new principal
 residence. However, 
in
 order to qualify for such treat ­
ment, a sale must 
be
 in connection with the commence ­
ment of work by the taxpayer as an employee or as a
 self-employed individual at a 
new
 principal place of  
work and the taxpayer must satisfy both the geographic
 and length of employment requirements for deductibility
 of moving expenses 
(secs.
 217(c) and 217 (d)). In applying  
the moving expense test to a residence sold within the
 18-month limitation period, the residence sold is treated
 as the "former residence.”
In addition, a sale which meets the requirements of the
 
bill will be treated as terminating the 18-month period
and starting another 18-month period. Thus, the personal
 residence receiving rollover treatment under the bill will
 constitute a new residence with respect to the prior roll
­over sale and an old residence for purposes of its sale.
Where the multiple rollover provision applies, the basis
 
of each succeeding residence 
is
 to be reduced by the  
amount of gain not recognized on the sale of the prior
 residence.
The operation of the provision 
is
 illustrated by the fol ­
lowing example:
A taxpayer sells his old residence on January 15, 1978,
 
and purchases a new residence on February 15, 1978.
 In July 1978, taxpayer’s employer permanently transfers
 him or her to a new principal place of work 1,000 miles
 from the taxpayer’s former principal place of work and
 former principal residence. On August 15, 1978, taxpayer
 sells his new residence purchased February 15, 1978. On
 September 1, 1978, taxpayer purchases and uses a sec
­ond new residence at his new principal place of work.
Since the August 15, 1978, sale occurred within 18
 
months of the January 15, 1978 sale, the 18-month limi
­tation provision of section 1034(d) would in general apply.
 However, since the August 15, 1978 sale was in connec
­tion with the commencement of work by the taxpayer as
 an employee in a 
new
 principal place of work and since  
the taxpayer satisfies the conditions of section 217(c), the
 18-month limitation would not apply to the August 15 sale,
 and the taxpayer would be eligible for nonrecognition
 treatment on that sale. In addition, that sale is treated
 as the last sale in one 18-month period and the first sale
 
in
 the next 18-month period. Thus, the residence sold  
August 15 
is
 treated as the last new residence used  
within the “18-month” period following the January 15,
 1978, sale of the taxpayer’s old residence, and as an old
 residence for purposes of the running of the next 18-
 month limitation period.
If, however, the taxpayer’s transfer to a new principal
 
place of work was a temporary transfer which he reason
­ably could have expected to last only 26 weeks, the pro
­visions of the bill would 
be
 inapplicable and the gain  
realized on the August 15,1978, sale would be recognized.
This provision is effective for sales and exchanges of
 
personal residences after July 26, 1978.
Postponement of effective date of carryover basis pro
­
visions. The bill postpones the effective date of the carry
­over basis provisions so that they will only apply to
 property acquired from decedents dying after December
 31, 1979. For property passing or acquired from a dece
­dent dying before January 1, 1980, the basis of property
 will be its fair market value at the date of the decedent’s
 death or at the applicable valuation date if the alternate
 valuation provision is elected for estate tax purposes.
With respect to property passing or acquired from de
­
cedents dying after 1976 and before the date of enact
­ment of the bill, the carryover basis provisions may be
 elected by the executor of an estate. If elected, the
 basis of all property considered to pass from the dece
­dent, including jointly owned property passing by sur
­vivorship, would be determined under the carryover
 basis provision. The election is to 
be
 irrevocably made  
no later than 120 days after the date of enactment of  
the bill and in such manner as prescribed by the Secre
­tary of the Treasury.
The amendments are to take effect as if included in
 
the Tax Reform Act of 1976. Thus, the postponement
 applies to property passing or acquired from a decedent
 dying after December 31, 1976, and before January 1,
 1980. ns
682 THE TAX ADVISER, NOVEMBER 1978
3
Thomas and Stromsem: Washington Report
Published by eGrove, 1978


Washington Report: Capital gains provisions of the ’78 bill - an explanation

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