the plan if they so desire. Plans covered by the amendment will be permitted to enroll new participants. This amendment remedies an oversight which occurred during the enactment of Section 401(k) (in the Revenue Act of 1978) when the money-purchase type of cash or deferred arrangement was inadvertently overlooked. [Attachment] PROPOSED AMENDMENT Paragraph (1) of Section 401(k) is amended to read as follows: A profit sharing or stock bonus plan, or a money purchase pension plan which was in existence on November 19, 1979, shall not be considered as not satisfying the requirements of subsection (a) merely because the plan includes a qualified cash or deferred arrangement. Paragraph (2) of Section 401(k) is amended to read as follows: A qualified cash or deferred arrangement is any arrangement that is part of a profit sharing, stock bonus, or money purchase pension plan which meets the requirements of subsection (a)— (A) under which a covered employee may elect to have the employer make payments as contributions to a trust under the plan on behalf of the employee, or to the employee directly in cash (in the case of a money purchase pension plan, in which amounts of salary reduction are to be treated as employer contributions, not more than 10 percent of the employee's compensation for the plan year may be subject to such an election); . . . NATIONAL COUNCIL OF FARMER COOPERATIVES, Re Technical Corrections Act of 1979 (H.R. 2797)-Rules for New Jobs Credit for Hon. HARRY F. BYRD, Jr., Chairman, Subcommittee on Taxation and Debt Management, Senate Finance Committee, Dirksen Senate Office Building, Washington, D.C. DEAR CHAIRMAN BYRD: The National Council of Farmer Cooperatives wishes to call the Subcommittee's attention to an omission in the Technical Corrections Act of 1979 relating to the availability of new jobs credit for cooperatives. The Technical Corrections Act of 1979 as passed by the House on July 16, 1979 contains a provision designed to allow any WIN or jobs credits of a cooperative to be determined in the same way that investment tax credits are determined under the amendment contained in the Revenue Act of 1978. Prior to the amendment, special rules applied to cooperatives for purposes of determining the amounts of investment credit, WIN credit, and jobs credit available to them. The 1978 Act revised the rules pertaining to investment credit for cooperatives by removing the reference to cooperatives formerly found in Section 46(e) of the Code, and by creating a new Section 46(h) which provides for pass through of unused credits by the cooperative to its patrons. These new rules apply to taxable years ending after October 31, 1978. The House Ways and Means Committee Report on H.R. 2797 explained the reasons for the technical amendment relating to cooperative WIN and jobs credits as follows: While the Act revised the rules pertaining to the investment credit for cooperatives, no change was made in the rules pertaining to the WIN and jobs tax credits for cooperatives. The Congress intended that the rules for determining the amounts of WIN and jobs credits for cooperatives should be the same as the new rules for determining the amount of investment credit for cooperatives. (Emphasis supplied.) In order to implement the intent of the technical amendment, three sections of the Internal Revenue Code require modification, namely Section 50B(f) (WIN credit), Section 52(f) (targeted jobs credit), and Section 52(h) (new jobs credit). However, the amending language of H.R. 2797 presently states that only Sections 50B(f) (WIN credit) and 52(f) (targeted jobs credit) are each amended by striking out "section 46(e)" and inserting in lieu thereof "subsections (e) and (h) of section 46." Inexplicably, no reference is made to the third provision, Section 52(h) (new jobs credit). The new investment tax credit rules for cooperatives apply to tax years ending after October 31, 1978. For example, a cooperative whose tax year ends November 1, 1978 or later is entitled to claim investment tax credits for any qualified property placed in service during the previous twelve months. We believe the Ways and Means Committee clearly intended that jobs credits available under Section 52(h) be treated in the same manner. That is, jobs credits earned in a taxable year ending after October 31, 1978 should be fully available on the same basis as investment tax credits. In view of the declared intent of Congress to conform the WIN and jobs credits of cooperatives to the newly enacted investment credit rules, and the above-mentioned explanation contained in the Ways and Means Committee Report, it seems clear that failure to include Section 52(h) in the amending language was merely an oversight. Therefore, the National Council urges the inclusion of Section 52(h) in the amendment related to Section 316 of the Revenue Act of 1978. The amendment would then read as follows: (4) Amendment Related to Section 316 of the Act. Sections 50B(f), 52(f) and 52(h) are each amended by striking out "section 46(e)" and inserting in lieu thereof "subsections (e) and (h) of section 46." The National Council appreciates this opportunity to submit its views on H.R. 2797. Sincerely, JAMES S. KRZYMINSKI, LAW OFFICES OF PAUL H. DELANEY, Jr., Hon. MICHAEL STERN, Staff Director, Committee on Finance, Dirksen Senate Office Building, Washington, D.C. DEAR MR. STERN: In accordance with the Press Release of the Subcommittee on Taxation and Debt Management of the Committee on Finance (sometimes hereinafter referred to as the "Subcommittee") of October 16, 1979 regarding the Subcommittee's public hearings on the Technical Corrections Act of 1979, we request that the enclosed memorandum, submitted on behalf of Cargill Leasing Corporation, be made a part of the record of the Subcommittee's hearings. As requested in the Subcommittee's Press Release, we wish to confirm our support for Section 102(a)(1)(D) of the House Bill concerning an exception for substantial leasing activities. More specifically, the House Ways and Means Committee report on H.R. 2979, the Technical Corrections Act of 1979, relates the following with respect to privately held firms engaged in substantial equipment leasing: 1 "d. Waiver of controlled group rule where there is substantial leasing activity (sec. 102(a)(1)(D) of the bill and sec. 465 (c) of the Code.) PRESENT LAW Prior to the Revenue Act of 1978, the only types of corporations to which the at risk rules (sec. 465) applied where subchapter S corporations and personal holding companies. The Act extended the application of the at risk rules to certain closely held corporations (even though they would not qualify as personal holding companies and had not made subchapter S elections). However, the Act contains an exception to the at risk limitations for closely held corporations actively engaged in equipment leasing operations. To qualify for this exception, more than 50 percent of a corporation's gross receipts must be derived from equipment leasing. In order to prevent abuse, the Act provided that the 50 percent test is to be applied to the total gross receipts of all the members of a controlled group of corporations. REASONS FOR CHANGE The Act applies the at risk limitations to a number of substantial active equipment leasing operations. This has occurred because the gross receipts from equipment leasing of some members of a controlled group of corporations, while substantial in an absolute sense, constitute less than 50 percent of the total gross receipts of all the members of the controlled group. In many of these situations, some of the corporations in the group have significant active leasing activities (as measured by employees, receipts, and number_of_transactions). The committee concluded that members of a closely held controlled group of corporations which are substantially See Report of the Committee on Ways and Means, United States House of Representatives on H.R. 2797, 96th Cong., 1st Sess., pp. 33 and 34, June 7, 1979. involved in equipment leasing should be exempted from the at risk rules. [Emphasis supplied.] EXPLANATION OF PROVISION Under the bill, if certain tests are met, the leasing gross receipts percentage requirement is not to be applied to the total gross receipts of the controlled group.2 Instead, the gross receipts requirement, increased to 80 percent, is to be applied separately to each member corporation of the controlled group. The provisions of the amendment are applied to the quantum of certain activities of the "qualified leasing members" of the controlled group of corporations. A corporation is a qualified leasing member if in the current and each of the immediately preceding two taxable years (1) it is a component member of the controlled group of corporations, and (2) 80 percent or more of its gross receipts is attributable to equipment leasing. The controlled group 50 percent requirement would be waived, and instead, an 80 percent gross receipt corporation-by-corporation requirement would apply, if the qualified leasing members (if any) meet the following tests for the current and two immediately preceding taxable years: (1) The controlled group had at least three full time employees, substantially all of the services of whom were directly related to the equipment leasing activities of the qualified leasing members; (2) the qualified leasing members, in the aggregate, entered into at least five separate equipment leasing transactions;3 and (3) the qualified leasing members, in the aggregate, had at least $1,000,000 of equipment leasing gross receipts. Based on the considerations set forth above, we support the subject provision of the Technical Corrections Act of 1979 as passed by the House. Thank you very much for your consideration. Respectfully submitted. PAUL H. DELANEY, Jr. Of course, if the controlled group meets the 50 percent gross receipts requirement of section 465(c)(4), this new provision would not apply. It is contemplated that separate written lease agreements with the same lessee pertaining to items of equipment which are related parts of what is in substance a single lease "package" would be treated as one equipment leasing transaction. 55-169 - 80 23 BEFORE THE SUBCOMMITTEE ON TAXATION AND DEBT MANAGEMENT COMMITTEE ON FINANCE UNITED STATES SENATE APPLYING THE "AT RISK" PROVISIONS OF SECTION 465 TO CARGILL LEASING CORPORATION, A CLOSELY INTRODUCTION The Revenue Act of 1978 amended the "at risk" provisions of Section 465 of the Internal Revenue Code in an attempt to broaden the categories of taxpayers and transactions which would be subject to such provisions. One of the categories of taxpayers generally sought to be covered is closely held corporations. Because the Act provided that the Section 318 stock ownership attribution rules are to be applied in determining whether a corporation is closely held, Cargill Leasing Corporation is not presently subject to the limitations on losses prescribed by the at risk provisions. Section 102 (a) (1) (A) of the Technical Corrections Act of 1979 (HR 2797) would, however, substitute the stock ownership attribution rules of Section 544 for the rules of Section 318. If this proposed change becomes law, Cargill Leasing Corporation would become subject to the at risk provisions of the Code while its publicly owned competitors engaged in the same activities would not. The ultimate consequence of this result would be to remove Cargill Leasing Corporation from the leasing business. Cargill Leasing Corporation does not believe it should be subject to the at risk provisions of Section 465 for the following reasons: I CARGILL LEASING CORPORATION IS A CORPORATION ACTIVELY ENGAGED IN II III IV V CARGILL LEASING CORPORATION'S ACTIVITIES ARE IDENTICAL TO THE ACTIVITIES CONGRESS HAS RECOGNIZED THE NEED FOR AN EXEMPTION FROM THE AT RISK RULES AS A MATTER OF TAX POLICY, THE AT RISK RULES OF SECTION 465 OUGHT NOT THERE IS A LEGISLATIVE ALTERNATIVE TO THE PRESENT STATUTORY SCHEME VI THE LEGISLATIVE HISTORY OF THE REVENUE ACT OF 1978 INDICATES THAT AN ACTIVE LEASING CORPORATION WAS NOT INTENDED TO BE SUBJECT TO THE AT RISK RULES 1 CARGILL LEASING IS A CORPORATION ACTIVELY ENGAGED IN LEASING EQUIPMENT Cargill Leasing Corporation, a 100% owned subsidiary of Cargill, Incorporated, was formed in 1973 for the purpose of leasing equipment in what the industry identifies as the middle market. Briefly, that market is Section 38 property with a value of $50-$500M. It is now and has been Cargill's intention to build an operating unit with outside offices that could administer itself, borrow money for its own account and produce a profit on its audited financial statements. Presently, Cargill Leasing has four offices located in Cincinnati, Milwaukee, Kansas City and Minneapolis and more than twenty employees. the most recent fiscal year, Cargill Leasing wrote approximately $13MM of lease volume of which $2MM was from leveraged leases. That volume and its existing portfolio generated $5751 of net profits after taxes on its operating statements. For Its lease volume, for the most part, is produced by seven marketing personnel calling on equipment vendors and corporate and individual lessees who sell or use equipment common to the following industries: Agriculture Transportation Production Machine Tools Cargill Leasing participates in two broad categories of equipment leasing; "nonrecourse leveraged leasing" and "single investor leasing." During the early years of both leases, the tax deductions available to the lessor exceed the rentals and through the filing of a consolidated tax return provide a tax benefit to the Cargill, Incorporated group for which Cargill Leasing is compensated by Cargill, Incorporated. Cargill Leasing currently has about $10 million of equipment on Ieveraged lease to railroads and trucking lessees. Some of the companies against whom Leasing competes in the leveraged lease market are ITEL Corporation (San Francisco), Matrix Leasing Corporation (a subsidiary of |