1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 23 (B) CLARIFICATION OF RULES FOR RECAP TURE OF LOSSES WHERE AMOUNT AT RISK IS LESS THAN ZERO.-Subsection (d) of section 465 (defining loss) is amended by inserting before the period at the end thereof the following: "(determined without regard to subsection (e)(1)(A))". (C) CLARIFICATION OF LIMITATION ON RECAPTURE OF LOSSES.-Subparagraph (A) of section 465(e)(2) (relating to limitation on recapture of losses where amount at risk is less than zero) is amended by inserting "by reason of losses" after "with respect to the activity". (D) EXCLUSION FOR CERTAIN EQUIPMENT LEASING BY CLOSELY-HELD CORPORATIONS. (i) Subsection (c) of section 465 (relating to deductions limited to amount at risk) is amended by adding at the end thereof the following new paragraphs: "(4) EXCLUSION FOR CERTAIN EQUIPMENT LEASING BY CLOSELY-HELD CORPORATIONS. "(A) IN GENERAL.-In the case of a corporation described in subsection (a)(1)(C) actively engaged in equipment leasing— "(i) the activity of equipment leasing shall be treated as a separate activity, and 24 "(ii) subsection (a) shall not apply to losses from such activity. "(B) 50-PERCENT GROSS RECEIPTS TEST. For purposes of subparagraph (A), a corporation shall not be considered to be actively engaged in equipment leasing unless 50 percent or more of the gross receipts of the corporation for the taxable year is attributable, under regulations prescribed by the Secretary, to equipment leasing. TROLLED GROUP TREATED AS A SINGLE CORPO RATION. For purposes of subparagraph (A), the component members of a controlled group of corporations shall be treated as a single corporation. "(5) WAIVER OF CONTROLLED GROUP RULE WHERE THERE IS SUBSTANTIAL LEASING ACTIVI TY. "(A) IN GENERAL.-In the case of the component members of a qualified leasing group, paragraph (4) shall be applied "(i) by substituting '80 percent' for '50 percent' in subparagraph (B) thereof, and “(ii) as if paragraph (4) did not include subparagraph (C) thereof. 25 "(B) QUALIFIED LEASING GROUP.-For purposes of this paragraph, the term 'qualified leasing group' means a controlled group of corporations which, for the taxable year and each of the 2 immediately preceding taxable years, satisfied each of the following 3 requirements: "(i) AT LEAST 3 EMPLOYEES.-During the entire year, the group had at least 3 fulltime employees substantially all of the services of whom were services directly related to the equipment leasing activity of the qualified leasing members. "(ii) AT LEAST 5 SEPARATE LEASING TRANSACTIONS.—During the year, the qualified leasing members in the aggregate entered into at least 5 separate equipment leasing transactions. "(iii) AT LEAST $1,000,000 EQUIPMENT LEASING RECEIPTS.-During the year, the qualified leasing members in the aggregate had at least $1,000,000 in gross receipts from equipment leasing. The term 'qualified leasing group' does not in clude any controlled group of corporations to 26 which, without regard to this paragraph, para graph (4) applies. "(C) QUALIFIED LEASING MEMBER. -For purposes of this paragraph, a corporation shall be treated as a qualified leasing member for the tax able year only if for each of the taxable years referred to in subparagraph (B)— "(i) it is a component member of the controlled group of corporations, and "(ii) it meets the requirements of para graph (4)(B) (as modified by subparagraph (A)(i) of this paragraph). "(6) DEFINITIONS RELATING TO PARAGRAPHS (4) AND (5).—For purposes of paragraphs (4) and (5)— "(A) EQUIPMENT LEASING.-The 'equipment leasing' means term "(i) the leasing of equipment which is section 1245 property, and "(ii) the purchasing, servicing, and sell ing of such equipment. "(B) LEASING OF MASTER SOUND RECORD INGS, ETC., EXCLUDED.—The term 'equipment leasing' does not include the leasing of master sound recordings, and other similar contractural arrangements with respect to tangible or intangi 27 ble assets associated with literary, artistic, or musical properties. "(C) CONTROLLED GROUP OF CORPORA TIONS; COMPONENT MEMBER.-The terms 'con trolled group of corporations' and 'component member' have the same meanings as when used in section 1563. The determination of the taxable years taken into account with respect to any con trolled group of corporations shall be made in a manner consistent with the manner set forth in section 1563." 234 13 14 15 16 17 18 19 20 21 22 23 24 25 (A), the holding of real property (other than min eral property) shall be treated as a separate activity, and subsection (a) shall not apply to losses from such activity. For purposes of the preceding sentence, personal property and services which are incidental to making real property available as living accommodations shall be treated as part of the activity of holding such real property." (iii) Paragraph (5) of section 465(b) is amended by striking out "to which this sec |