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OUTLINE SUMMARY OF PROVISIONS

The provisions included in H.R. 13270 can be briefly summarized as follows:

I. Tax Reform Provisions

1. Private Foundations. The permissible activities of private foundations desiring to preserve the benefits of tax exemption, as well as the tax benefits to their contributors, are substantially tightened to prevent self-dealing between the foundations and their substantial contributors, to require the distribution of income for charitable purposes, to limit their holdings of private businesses, to give assurance that their activities are restricted as provided by the exemption provisions of the tax laws, and to be sure that investments of these organizations are not jeopardized by financial speculation. In addition, these private foundations are called upon to make a small contribution, 72 percent of their investment income, toward the cost of government.

2. Tax Exempt Organizations, Generally.-The activities of exempt organizations generally are limited so that they cannot participate in debt-financed leaseback operations, wherein they, in effect, share their exemption with private businesses. Second, the unrelated business income tax is extended to virtually all tax-exempt organizations not previously covered by this tax, including churches. Third, the bill extends the regular corporate tax to the investment income of taxexempt organizations set up primarily for the benefit of their members, such as social clubs, fraternal beneficiary societies, etc.

3. Charitable Contributions.-Charitable contribution deductions are substantially restructured. The general charitable deduction limitation is increased to 50 percent but the so-called unlimited charitable deduction is phased out over a 5-year period. The extra tax benefits derived from charitable contributions of appreciated property, are restricted in the case of gifts to private foundations, gifts of ordinary income property, gifts of tangible personal property, gifts of future interests, and in the case of so-called bargain sales. Also, the 2-year charitable trust rule is repealed and a number of changes are made limiting charitable contribution deductions where there are gifts of the use of property and in the case of charitable remainder and charitable income trusts.

4. Farm Losses.-The deduction of farm losses is restricted in the case of those with farm losses of $25,000 or more and with incomes of over $50,000 from nonfarm sources. Other provisions of the bill, primarily relating to farm operations, provide for the recapture of depreciation upon the sale of livestock. the extension of the holding period for livestock, and a revision of the treatment in the case of hobby losses.

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5. Interest Deductions.-The deduction of interest on funds borrowed to carry investments is generally limited to investment income plus $25,000.

6. Moving Expenses.-Moving expense deductions are allowed when changing jobs for househunting trips, for temporary living expenses prior to locating a new home, and for the expenses of selling an old home or buying a new one.

7. Limit on Tax Preferences.-In those cases where tax preferences are not fully subject to tax, provision is made for a minimum tax on individuals having tax preferences in excess of their taxable income. The additional tax in this case is determined by adding to the regular income subject to tax, one-half of the tax preferences but only to the extent they exceed the regular income.

8. Allocation of Deductions. Where taxpayers have substantial taxfree income, provision is made to allocate itemized personal deductions between this tax-free income and the individual's taxable income. 9. Income Averaging.-The income averaging provision of present law is substantially simplified and also made more generally available. 10. Restricted Stock. In the case of so-called restricted stock plans, the interest in the property is taxed at the time of receipt, unless there is a substantial risk of forfeiture. In the latter event, the value of the property is taxed when the possibility of forfeiture is removed.

11. Deferred Executive Compensation.-Other deferred executive compensation is, in general, subject to tax rates as if taxed when earned, although the tax is not payable until the income is received.

12. Multiple Trusts.-In the case of accumulation trusts (including multiple trusts), the beneficiary, generally, is to be taxed on the distributions in substantially the same manner as if he had received these amounts of income when they were earned by the trust (taking into account any taxes paid by the trust on the income.)

13. Corporate Mergers.-In the case of corporate mergers, a number of changes are made. The principal change establishes tests to be used in determining when amounts cast in the form of "debt" have sufficient characteristics of "equity" to be denied the deduction of interest, where this so-called "debt" is used in the acquisition of other companies. Included among the other provisions is one which limits the availability of the installment method for reporting gains, where the debt can be readily traded on the market, and also where the installment payments are not spread relatively evenly over the period during which part of the debt is outstanding. Other restrictive changes are also made in the case of original issue discount and premiums paid on the repurchase by a corporation of its indebtedness which is convertible into its own stock.

14. Multiple Corporations.-Multiple surtax exemptions in the case of related corporations are withdrawn over an 8-year period.

15. Stock Dividends.-The rules applicable in determining when stock dividends become taxable are revised generally to provide for taxation where one group of stockholders, directly or indirectly, receives a disproportionate distribution in cash while the interests of the other shareholders in the corporation are increased.

16. Foreign Tax Credit.-The foreign tax credit is revised in two cts. T is provided that where losses of a cor sion on

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erating abroad are offset against domestic income (either of the same corporation or as the result of filing a consolidated return), subsequent earnings from the foreign operations to the extent of one-half of these earnings remaining after foreign tax, are to be recaptured until the tax benefit for the domestic operations derived in the case of the initial offset of the foreign losses is recovered. Secondly, a separate limitation under the foreign credit is provided in certain cases with respect to foreign mineral income.

17. Commercial Banks.-The tax advantages of commercial banks, relating to special reserves for bad debt losses on loans and to capital gains treatment for bonds held in their banking business are withdrawn.

18. Mutual Savings Banks and Savings and Loan Institutions.-The tax treatment of mutual savings banks and savings and loan associa tions is revised to reduce a series of tax advantages presently available to these financial institutions.

19. Depreciation in Case of Regulated Industries.-Action is taken generally to limit the depreciation which may be taken in the case of certain regulated industries, to straight line depreciation unless the appropriate regulatory agency permits the company in question to take accelerated depreciation and "normalize" its tax reduction. However, in the case of existing property, no faster depreciation may be taken than is presently taken. Companies already on "flow through" may not change without permission of their regulatory

agencies.

20. Use of Depreciation in Computing Earning and Profits.-In computing earnings and profits-which determine whether dividends are taxable or not-corporations are required to make the computation on the basis of straight line depreciation. As a result, this tax benefit cannot be passed on to stockholders.

21, Capital Gains of Corporations.-The alternative capital gas tax on corporations in increased from 25 to 30 percent.

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5. Interest Deductions.-The deduction of interest on funds borrowed to carry investments is generally limited to investment income plus $25,000.

6. Moving Expenses.-Moving expense deductions are allowed when changing jobs for househunting trips, for temporary living expenses prior to locating a new home, and for the expenses of selling an old home or buying a new one.

7. Limit on Tax Preferences.-In those cases where tax preferences are not fully subject to tax, provision is made for a minimum tax on individuals having tax preferences in excess of their taxable income. The additional tax in this case is determined by adding to the regular income subject to tax, one-half of the tax preferences but only to the extent they exceed the regular income.

8. Allocation of Deductions.-Where taxpayers have substantial taxfree income, provision is made to allocate itemized personal deductions between this tax-free income and the individual's taxable income.

9. Income Averaging. The income averaging provision of present law is substantially simplified and also made more generally available. 10. Restricted Stock. In the case of so-called restricted stock plans, the interest in the property is taxed at the time of receipt, unless there is a substantial risk of forfeiture. In the latter event, the value of the property is taxed when the possibility of forfeiture is removed.

11. Deferred Executive Compensation. Other deferred executive compensation is, in general, subject to tax rates as if taxed when earned, although the tax is not payable until the income is received.

12. Multiple Trusts.-In the case of accumulation trusts (including multiple trusts), the beneficiary, generally, is to be taxed on the distributions in substantially the same manner as if he had received these amounts of income when they were earned by the trust (taking into account any taxes paid by the trust on the income.)

13. Corporate Mergers.-In the case of corporate mergers, a number of changes are made. The principal change establishes tests to be used in determining when amounts cast in the form of "debt" have sufficient characteristics of "equity" to be denied the deduction of interest, where this so-called "debt" is used in the acquisition of other companies. Included among the other provisions is one which limits. the availability of the installment method for reporting gains, where the debt can be readily traded on the market, and also where the installment payments are not spread relatively evenly over the period during which part of the debt is outstanding. Other restrictive changes are also made in the case of original issue discount and premiums paid on the repurchase by a corporation of its indebtedness which is convertible into its own stock.

14. Multiple Corporations.-Multiple surtax exemptions in the case of related corporations are withdrawn over an 8-year period.

15. Stock Dividends.-The rules applicable in determining when stock dividends become taxable are revised generally to provide for taxation where one group of stockholders, directly or indirectly, receives a disproportionate distribution in cash while the interests of the other shareholders in the corporation are increased.

16. Foreign Tax Credit.-The foreign tax credit is revised in two respects. First, it is provided that where losses of a corporation op