
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC543]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
   Subchapter G--Corporations Used to Avoid Income Tax on Shareholders
 
                   PART II--PERSONAL HOLDING COMPANIES
 
Sec. 543. Personal holding company income


(a) General rule

    For purposes of this subtitle, the term ``personal holding company 
income'' means the portion of the adjusted ordinary gross income which 
consists of:

                         (1) Dividends, etc.

        Dividends, interest, royalties (other than mineral, oil, or gas 
    royalties or copyright royalties), and annuities. This paragraph 
    shall not apply to--
            (A) interest constituting rent (as defined in subsection 
        (b)(3)),
            (B) interest on amounts set aside in a reserve fund under 
        section 511 or 607 of the Merchant Marine Act, 1936 (46 U.S.C. 
        App. 1161 or 1177),
            (C) active business computer software royalties (within the 
        meaning of subsection (d)), and
            (D) interest received by a broker or dealer (within the 
        meaning of section 3(a)(4) or (5) of the Securities and Exchange 
        Act of 1934) in connection with--
                (i) any securities or money market instruments held as 
            property described in section 1221(a)(1),
                (ii) margin accounts, or
                (iii) any financing for a customer secured by securities 
            or money market instruments.

                              (2) Rents

        The adjusted income from rents; except that such adjusted income 
    shall not be included if--
            (A) such adjusted income constitutes 50 percent or more of 
        the adjusted ordinary gross income, and
            (B) the sum of--
                (i) the dividends paid during the taxable year 
            (determined under section 562),
                (ii) the dividends considered as paid on the last day of 
            the taxable year under section 563(d) (as limited by the 
            second sentence of section 563(b)), and
                (iii) the consent dividends for the taxable year 
            (determined under section 565),

    equals or exceeds the amount, if any, by which the personal holding 
    company income for the taxable year (computed without regard to this 
    paragraph and paragraph (6), and computed by including as personal 
    holding company income copyright royalties and the adjusted income 
    from mineral, oil, and gas royalties) exceeds 10 percent of the 
    ordinary gross income.

                 (3) Mineral, oil, and gas royalties

        The adjusted income from mineral, oil, and gas royalties; except 
    that such adjusted income shall not be included if--
            (A) such adjusted income constitutes 50 percent or more of 
        the adjusted ordinary gross income,
            (B) the personal holding company income for the taxable year 
        (computed without regard to this paragraph, and computed by 
        including as personal holding company income copyright royalties 
        and the adjusted income from rents) is not more than 10 percent 
        of the ordinary gross income, and
            (C) the sum of the deductions which are allowable under 
        section 162 (relating to trade or business expenses) other 
        than--
                (i) deductions for compensation for personal services 
            rendered by the shareholders, and
                (ii) deductions which are specifically allowable under 
            sections other than section 162,

        equals or exceeds 15 percent of the adjusted ordinary gross 
        income.

                       (4) Copyright royalties

        Copyright royalties; except that copyright royalties shall not 
    be included if--
            (A) such royalties (exclusive of royalties received for the 
        use of, or right to use, copyrights or interests in copyrights 
        on works created in whole, or in part, by any shareholder) 
        constitute 50 percent or more of the ordinary gross income,
            (B) the personal holding company income for the taxable year 
        computed--
                (i) without regard to copyright royalties, other than 
            royalties received for the use of, or right to use, 
            copyrights or interests in copyrights in works created in 
            whole, or in part, by any shareholder owning more than 10 
            percent of the total outstanding capital stock of the 
            corporation,
                (ii) without regard to dividends from any corporation in 
            which the taxpayer owns at least 50 percent of all classes 
            of stock entitled to vote and at least 50 percent of the 
            total value of all classes of stock and which corporation 
            meets the requirements of this subparagraph and 
            subparagraphs (A) and (C), and
                (iii) by including as personal holding company income 
            the adjusted income from rents and the adjusted income from 
            mineral, oil, and gas royalties,

        is not more than 10 percent of the ordinary gross income, and
            (C) the sum of the deductions which are properly allocable 
        to such royalties and which are allowable under section 162, 
        other than--
                (i) deductions for compensation for personal services 
            rendered by the shareholders,
                (ii) deductions for royalties paid or accrued, and
                (iii) deductions which are specifically allowable under 
            sections other than section 162,

        equals or exceeds 25 percent of the amount by which the ordinary 
        gross income exceeds the sum of the royalties paid or accrued 
        and the amounts allowable as deductions under section 167 
        (relating to depreciation) with respect to copyright royalties.

    For purposes of this subsection, the term ``copyright royalties'' 
    means compensation, however designated, for the use of, or the right 
    to use, copyrights in works protected by copyright issued under 
    title 17 of the United States Code and to which copyright protection 
    is also extended by the laws of any country other than the United 
    States of America by virtue of any international treaty, convention, 
    or agreement, or interests in any such copyrighted works, and 
    includes payments from any person for performing rights in any such 
    copyrighted work and payments (other than produced film rents as 
    defined in paragraph (5)(B)) received for the use of, or right to 
    use, films. For purposes of this paragraph, the term ``shareholder'' 
    shall include any person who owns stock within the meaning of 
    section 544. This paragraph shall not apply to active business 
    computer software royalties.

                       (5) Produced film rents

            (A) Produced film rents; except that such rents shall not be 
        included if such rents constitute 50 percent or more of the 
        ordinary gross income.
            (B) For purposes of this section, the term ``produced film 
        rents'' means payments received with respect to an interest in a 
        film for the use of, or right to use, such film, but only to the 
        extent that such interest was acquired before substantial 
        completion of production of such film. In the case of a producer 
        who actively participates in the production of the film, such 
        term includes an interest in the proceeds or profits from the 
        film, but only to the extent such interest is attributable to 
        such active participation.

            (6) Use of corporate property by shareholder

            (A) Amounts received as compensation (however designated and 
        from whomever received) for the use of, or the right to use, 
        tangible property of the corporation in any case where, at any 
        time during the taxable year, 25 percent or more in value of the 
        outstanding stock of the corporation is owned, directly or 
        indirectly, by or for an individual entitled to the use of the 
        property (whether such right is obtained directly from the 
        corporation or by means of a sublease or other arrangement).
            (B) Subparagraph (A) shall apply only to a corporation which 
        has personal holding company income in excess of 10 percent of 
        its ordinary gross income.
            (C) For purposes of the limitation in subparagraph (B), 
        personal holding company income shall be computed--
                (i) without regard to subparagraph (A) or paragraph (2),
                (ii) by excluding amounts received as compensation for 
            the use of (or right to use) intangible property (other than 
            mineral, oil, or gas royalties or copyright royalties) if a 
            substantial part of the tangible property used in connection 
            with such intangible property is owned by the corporation 
            and all such tangible and intangible property is used in the 
            active conduct of a trade or business by an individual or 
            individuals described in subparagraph (A), and
                (iii) by including copyright royalties and adjusted 
            income from mineral, oil, and gas royalties.

                   (7) Personal service contracts

            (A) Amounts received under a contract under which the 
        corporation is to furnish personal services; if some person 
        other than the corporation has the right to designate (by name 
        or by description) the individual who is to perform the 
        services, or if the individual who is to perform the services is 
        designated (by name or by description) in the contract; and
            (B) amounts received from the sale or other disposition of 
        such a contract.

    This paragraph shall apply with respect to amounts received for 
    services under a particular contract only if at some time during the 
    taxable year 25 percent or more in value of the outstanding stock of 
    the corporation is owned, directly or indirectly, by or for the 
    individual who has performed, is to perform, or may be designated 
    (by name or by description) as the one to perform, such services.

                       (8) Estates and trusts

        Amounts includible in computing the taxable income of the 
    corporation under part I of subchapter J (sec. 641 and following, 
    relating to estates, trusts, and beneficiaries).

(b) Definitions

    For purposes of this part--

                      (1) Ordinary gross income

        The term ``ordinary gross income'' means the gross income 
    determined by excluding--
            (A) all gains from the sale or other disposition of capital 
        assets,
            (B) all gains (other than those referred to in subparagraph 
        (A)) from the sale or other disposition of property described in 
        section 1231(b), and
            (C) in the case of a foreign corporation all of the 
        outstanding stock of which during the last half of the taxable 
        year is owned by nonresident alien individuals (whether directly 
        or indirectly through foreign estates, foreign trusts, foreign 
        partnerships, or other foreign corporations), all items of 
        income which would, but for this subparagraph, constitute 
        personal holding company income under any paragraph of 
        subsection (a) other than paragraph (7) thereof: \1\
---------------------------------------------------------------------------
    \1\ So in original. The colon probably should be a period.
---------------------------------------------------------------------------

                 (2) Adjusted ordinary gross income

        The term ``adjusted ordinary gross income'' means the ordinary 
    gross income adjusted as follows:

        (A) Rents

            From the gross income from rents (as defined in the second 
        sentence of paragraph (3) of this subsection) subtract the 
        amount allowable as deductions for--
                (i) exhaustion, wear and tear, obsolescence, and 
            amortization of property other than tangible personal 
            property which is not customarily retained by any one lessee 
            for more than three years,
                (ii) property taxes,
                (iii) interest, and
                (iv) rent,

        to the extent allocable, under regulations prescribed by the 
        Secretary, to such gross income from rents. The amount 
        subtracted under this subparagraph shall not exceed such gross 
        income from rents.

        (B) Mineral royalties, etc.

            From the gross income from mineral, oil, and gas royalties 
        described in paragraph (4), and from the gross income from 
        working interests in an oil or gas well, subtract the amount 
        allowable as deductions for--
                (i) exhaustion, wear and tear, obsolescence, 
            amortization, and depletion,
                (ii) property and severance taxes,
                (iii) interest, and
                (iv) rent,

        to the extent allocable, under regulations prescribed by the 
        Secretary, to such gross income from royalties or such gross 
        income from working interests in oil or gas wells. The amount 
        subtracted under this subparagraph with respect to royalties 
        shall not exceed the gross income from such royalties, and the 
        amount subtracted under this subparagraph with respect to 
        working interests shall not exceed the gross income from such 
        working interests.

        (C) Interest

            There shall be excluded--
                (i) interest received on a direct obligation of the 
            United States held for sale to customers in the ordinary 
            course of trade or business by a regular dealer who is 
            making a primary market in such obligations, and
                (ii) interest on a condemnation award, a judgment, and a 
            tax refund.

        (D) Certain excluded rents

            From the gross income consisting of compensation described 
        in subparagraph (D) of paragraph (3) subtract the amount 
        allowable as deductions for the items described in clauses (i), 
        (ii), (iii), and (iv) of subparagraph (A) to the extent 
        allocable, under regulations prescribed by the Secretary, to 
        such gross income. The amount subtracted under this subparagraph 
        shall not exceed such gross income.

                   (3) Adjusted income from rents

        The term ``adjusted income from rents'' means the gross income 
    from rents, reduced by the amount subtracted under paragraph (2)(A) 
    of this subsection. For purposes of the preceding sentence, the term 
    ``rents'' means compensation, however designated, for the use of, or 
    right to use, property, and the interest on debts owed to the 
    corporation, to the extent such debts represent the price for which 
    real property held primarily for sale to customers in the ordinary 
    course of its trade or business was sold or exchanged by the 
    corporation; but such term does not include--
            (A) amounts constituting personal holding company income 
        under subsection (a)(6),
            (B) copyright royalties (as defined in subsection (a)(4)),
            (C) produced film rents (as defined in subsection 
        (a)(5)(B)),
            (D) compensation, however designated, for the use of, or the 
        right to use, any tangible personal property manufactured or 
        produced by the taxpayer, if during the taxable year the 
        taxpayer is engaged in substantial manufacturing or production 
        of tangible personal property of the same type, or
            (E) active business computer software royalties (as defined 
        in subsection (d)).

      (4) Adjusted income from mineral, oil, and gas royalties

        The term ``adjusted income from mineral, oil, and gas 
    royalties'' means the gross income from mineral, oil, and gas 
    royalties (including production payments and overriding royalties), 
    reduced by the amount subtracted under paragraph (2)(B) of this 
    subsection in respect of such royalties.

(c) Gross income of insurance companies other than life insurance 
        companies

    In the case of an insurance company other than a life insurance 
company, the term ``gross income'' as used in this part means the gross 
income, as defined in section 832(b)(1), increased by the amount of 
losses incurred, as defined in section 832(b)(5), and the amount of 
expenses incurred, as defined in section 832(b)(6), and decreased by the 
amount deductible under section 832(c)(7) (relating to tax-free 
interest).

(d) Active business computer software royalties

                           (1) In general

        For purposes of this section, the term ``active business 
    computer software royalties'' means any royalties--
            (A) received by any corporation during the taxable year in 
        connection with the licensing of computer software, and
            (B) with respect to which the requirements of paragraphs 
        (2), (3), (4), and (5) are met.

       (2) Royalties must be received by corporation actively 
                    engaged in computer software business

        The requirements of this paragraph are met if the royalties 
    described in paragraph (1)--
            (A) are received by a corporation engaged in the active 
        conduct of the trade or business of developing, manufacturing, 
        or producing computer software, and
            (B) are attributable to computer software which--
                (i) is developed, manufactured, or produced by such 
            corporation (or its predecessor) in connection with the 
            trade or business described in subparagraph (A), or
                (ii) is directly related to such trade or business.

     (3) Royalties must constitute at least 50 percent of income

        The requirements of this paragraph are met if the royalties 
    described in paragraph (1) constitute at least 50 percent of the 
    ordinary gross income of the corporation for the taxable year.

       (4) Deductions under sections 162 and 174 relating to 
                royalties must equal or exceed 25 percent of 
                            ordinary gross income

        (A) In general

            The requirements of this paragraph are met if--
                (i) the sum of the deductions allowable to the 
            corporation under sections 162, 174, and 195 for the taxable 
            year which are properly allocable to the trade or business 
            described in paragraph (2) equals or exceeds 25 percent of 
            the ordinary gross income of such corporation for such 
            taxable year, or
                (ii) the average of such deductions for the 5-taxable 
            year period ending with such taxable year equals or exceeds 
            25 percent of the average ordinary gross income of such 
            corporation for such period.

        If a corporation has not been in existence during the 5-taxable 
        year period described in clause (ii), then the period of 
        existence of such corporation shall be substituted for such 5-
        taxable year period.

        (B) Deductions allowable under section 162

            For purposes of subparagraph (A), a deduction shall not be 
        treated as allowable under section 162 if it is specifically 
        allowable under another section.

        (C) Limitation on allowable deductions

            For purposes of subparagraph (A), no deduction shall be 
        taken into account with respect to compensation for personal 
        services rendered by the 5 individual shareholders holding the 
        largest percentage (by value) of the outstanding stock of the 
        corporation. For purposes of the preceding sentence--
                (i) individuals holding less than 5 percent (by value) 
            of the stock of such corporation shall not be taken into 
            account, and
                (ii) stock deemed to be owned by a shareholder solely by 
            attribution from a partner under section 544(a)(2) shall be 
            disregarded.

       (5) Dividends must equal or exceed excess of personal 
             holding company income over 10 percent of ordinary 
                                gross income

        (A) In general

            The requirements of this paragraph are met if the sum of--
                (i) the dividends paid during the taxable year 
            (determined under section 562),
                (ii) the dividends considered as paid on the last day of 
            the taxable year under section 563(d) (as limited by the 
            second sentence of section 563(b)), and
                (iii) the consent dividends for the taxable year 
            (determined under section 565),

        equals or exceeds the amount, if any, by which the personal 
        holding company income for the taxable year exceeds 10 percent 
        of the ordinary gross income of such corporation for such 
        taxable year.

        (B) Computation of personal holding company income

            For purposes of this paragraph, personal holding company 
        income shall be computed--
                (i) without regard to amounts described in subsection 
            (a)(1)(C),
                (ii) without regard to interest income during any 
            taxable year--
                    (I) which is in the 5-taxable year period beginning 
                with the later of the 1st taxable year of the 
                corporation or the 1st taxable year in which the 
                corporation conducted the trade or business described in 
                paragraph (2)(A), and
                    (II) during which the corporation meets the 
                requirements of paragraphs (2), (3), and (4), and

                (iii) by including adjusted income from rents and 
            adjusted income from mineral, oil, and gas royalties (within 
            the meaning of paragraphs (2) and (3) of subsection (a)).

           (6) Special rules for affiliated group members

        (A) In general

            In any case in which--
                (i) the taxpayer receives royalties in connection with 
            the licensing of computer software, and
                (ii) another corporation which is a member of the same 
            affiliated group as the taxpayer meets the requirements of 
            paragraphs (2), (3), (4), and (5) with respect to such 
            computer software,

        the taxpayer shall be treated as having met such requirements.

        (B) Affiliated group

            For purposes of this paragraph, the term ``affiliated 
        group'' has the meaning given such term by section 1504(a).

(Aug. 16, 1954, ch. 736, 68A Stat. 186; Pub. L. 86-435, Sec. 1(a), (b), 
Apr. 22, 1960, 74 Stat. 77; Pub. L. 87-403, Sec. 3(c), Feb. 2, 1962, 76 
Stat. 6; Pub. L. 88-272, title II, Sec. 225(d), (k)(2), Feb. 26, 1964, 
78 Stat. 81, 93; Pub. L. 88-484, Sec. 3(a), Aug. 22, 1964, 78 Stat. 598; 
Pub. L. 89-809, title I, Sec. 104(h)(2), title II, Sec. 206(a), (b), 
Nov. 13, 1966, 80 Stat. 1559, 1578, 1579; Pub. L. 94-455, title II, 
Sec. 211(a), title XIX, Secs. 1901(b)(32)(D), 1906(b)(13)(A), title XXI, 
Sec. 2106(a), Oct. 4, 1976, 90 Stat. 1544, 1800, 1834, 1902; Pub. L. 94-
553, Sec. 105(d), Oct. 19, 1976, 90 Stat. 2599; Pub. L. 97-248, title 
II, Sec. 222(e)(6), Sept. 3, 1982, 96 Stat. 480; Pub. L. 98-369, div. A, 
title VII, Sec. 712(i)(3), July 18, 1984, 98 Stat. 948; Pub. L. 99-514, 
title VI, Sec. 645(a)(1), (2), (4), title XVIII, Sec. 1899A(18), Oct. 
22, 1986, 100 Stat. 2289, 2291, 2959; Pub. L. 100-647, title I, 
Sec. 1010(f)(5), title VI, Sec. 6279(a), Nov. 10, 1988, 102 Stat. 3454, 
3754; Pub. L. 104-188, title I, Sec. 1704(t)(6), Aug. 20, 1996, 110 
Stat. 1887; Pub. L. 105-206, title VI, Sec. 6023(9), July 22, 1998, 112 
Stat. 825; Pub. L. 106-170, title V, Sec. 532(c)(2)(E), Dec. 17, 1999, 
113 Stat. 1930.)

                       References in Text

    Section 3(a)(4) and (5) of the Securities and Exchange Act of 1934, 
referred to in subsec. (a)(1)(D), is classified to section 78c(a)(4) and 
(5) of Title 15, Commerce and Trade.


                               Amendments

    1999--Subsec. (a)(1)(D)(i). Pub. L. 106-170 substituted 
``1221(a)(1)'' for ``1221(1)''.
    1998--Subsec. (d)(5)(A)(ii). Pub. L. 105-206 substituted ``section 
563(d)'' for ``section 563(c)''.
    1996--Subsec. (a)(2)(B)(ii). Pub. L. 104-188 substituted ``563(d)'' 
for ``563(c)''.
    1988--Subsec. (a)(1)(D). Pub. L. 100-647, Sec. 6279(a), added 
subpar. (D).
    Subsec. (c). Pub. L. 100-647, Sec. 1010(f)(5), substituted ``other 
than life insurance companies'' for ``other than life or mutual'' in 
heading and ``other than a life insurance company'' for ``other than 
life or mutual'' in text.
    1986--Subsec. (a)(1)(B). Pub. L. 99-514, Sec. 1899A(18), substituted 
``46 U.S.C. App.'' for ``46 U.S.C.''.
    Subsec. (a)(1)(C). Pub. L. 99-514, Sec. 645(a)(1), added subpar. 
(C).
    Subsec. (a)(4). Pub. L. 99-514, Sec. 645(a)(4)(A), inserted ``This 
paragraph shall not apply to active business computer software 
royalties.''
    Subsec. (b)(3)(E). Pub. L. 99-514, Sec. 645(a)(4)(B), added subpar. 
(E).
    Subsec. (d). Pub. L. 99-514, Sec. 645(a)(2), added subsec. (d).
    1984--Subsec. (a)(1)(C). Pub. L. 98-369 struck out subpar. (C) 
providing for nonapplication of par. (1) to dividends to which section 
302(b)(4) would apply if the corporation were an individual.
    1982--(a)(1)(C). Pub. L. 97-248 added subpar. (C).
    1976--Subsec. (a)(1). Pub. L. 94-455, Sec. 1901(b)(32)(D), inserted 
in subpar. (B) ``(46 U.S.C. 1161 or 1177)'' after ``Merchant Marine Act, 
1936'', and struck out subpar. (C) relating to a dividend distribution 
of divested stock.
    Subsec. (a)(4). Pub. L. 94-553 struck out ``(other than by reason of 
section 2 or 6 thereof)'' after ``title 17 of the United States Code''.
    Subsec. (a)(5)(B). Pub. L. 94-455, Sec. 211(a), inserted ``In the 
case of a producer who actually participates in the production of the 
film, such term includes an interest in the proceeds or profits from the 
film, but only to the extent such interest is attributable to such 
active participation''.
    Subsec. (a)(6). Pub. L. 94-455, Sec. 2106(a), redesignated existing 
provisions as subpars. (a), (B), and (C) and, as redesignated, inserted 
in subpar. (A) ``tangible'' after ``right to use'' and in subpar. (C) 
inserted exclusions from income embodied in cl. (ii).
    Subsec. (b)(2)(A), (B), (D). Pub. L. 94-455, Sec. 1906(b)(13)(A), 
struck out ``or his delegate'' after ``Secretary''.
    1966--Subsec. (a)(2). Pub. L. 89-809, Sec. 206(b)(1), struck out 
provision that royalties received for the use of, or for the privilege 
of using, a patent, invention, model, or design, secret formula, 
process, or other similar property right be treated as rent if such 
property right is also used by the corporation receiving such royalties 
in the manufacture or production of tangible personal property held for 
lease to customers and if the amount constituting rent from such leases 
to customers meets the requirement of subparagraph (A).
    Subsec. (b)(1)(C). Pub. L. 89-809, Sec. 104(h)(2), added subpar. 
(C).
    Subsec. (b)(2)(D). Pub. L. 89-809, Sec. 206(b)(2), added subpar. 
(D).
    Subsec. (b)(3). Pub. L. 89-809, Sec. 206(a), struck out ``amounts 
constituting personal holding company income under subsection (a)(6), 
nor copyright royalties (as defined in subsection (a)(4)), nor produced 
film rents (as defined in subsection (a)(5)(B)).'' after ``but does not 
include'', and added subpars. (A) to (D).
    1964--Subsec. (a). Pub. L. 88-272, Sec. 225(d), amended subsec. (a) 
generally, and among other changes, substituted ``adjusted ordinary 
gross income'' for ``gross income'', provided, relative to rental 
income, that in addition to the 50-percent test of par. (2)(A), now 
applied on the basis of adjusted income from rents and adjusted ordinary 
gross income, a second test for exclusion shall be whether the sum on 
the dividends paid during the taxable year, the dividends paid on the 
last day of the year, and the consent dividends for the taxable year, 
equals or exceeds the amount by which the personal holding company 
income for the year exceeds 10 percent of the ordinary gross income, 
relative to mineral, oil, and gas royalties, that in addition to the 50-
percent test of par. (3)(A), now applied on the basis of adjusted 
ordinary gross income, and the 15-percent test of par. (3)(C), from 
which test have been excluded deductions ``specifically allowable under 
sections other than section 162'' and is also now applied on the basis 
of adjusted gross income, the royalties shall be excluded if the 
personal holding company income for the taxable year is not more than 10 
percent of the ordinary gross income, relative to copyright royalties, 
retained the 50-percent test as in par. (4)(A), making it applicable to 
ordinary gross income, included in the computation of the income for the 
taxable year the adjusted income from rents and the adjusted income from 
mineral, oil, and gas royalties, excluded from the sum of deductions 
allocable to royalties, deductions specifically allowable under sections 
other than 162, and changed the requirement that deductions constitute 
50 percent or more of gross income to provide that they must equal 25 
percent of ordinary gross income reduced by royalties paid and by 
depreciation deductions with respect to copyrights, relative to produced 
film rents, that they be treated on their own basis and not as rentals, 
and defined ``produced film rents'', relative to use of corporation 
property by shareholders, that personal holding company income includes 
copyright royalties and the adjusted income from mineral, oil, and gas 
royalties, eliminated gains from the sale or other disposition of any 
interest in an estate or trust, from the sale or exchange of stock or 
securities, and from futures transactions in any commodity, and also 
definition of ``rents''. See subsec. (b)(3).
    Subsec. (a)(2). Pub. L. 88-484 inserted sentence requiring royalties 
received for the use of, or for the privilege of using, a patent, 
invention, model, or design (whether or not patented), secret formula or 
process, or any other similar property right to be treated as rent, if 
such property right is also used by the corporation receiving such 
royalties in the manufacture or production of tangible personal property 
held for lease to customers, and if the amount (computed without regard 
to this sentence) constituting rent from such leases to customers meets 
the requirements of subparagraph (A).
    Subsec. (b). Pub. L. 88-272, Sec. 225(d), added subsec. (b). Former 
subsec. (b), which provided that gross income and personal holding 
company income determined with respect to transactions relating to gains 
from stock and security transactions, and with respect to transactions 
relating to gains from commodity transactions, should include only the 
excess of gains over losses from such transactions, was struck out.
    Subsec. (d). Pub. L. 88-272, Sec. 225(k)(2), struck out subsec. (d) 
which related to special adjustment on disposition of antitrust stock 
received as a dividend.
    1962--Subsec. (a)(1). Pub. L. 87-403 prescribed conditions making 
inapplicable the provisions of the paragraph to dividend distribution of 
divested stock.
    Subsec. (d). Pub. L. 87-403 added subsec. (d).
    1960--Subsec. (a)(1). Pub. L. 86-435, Sec. 1(b)(1), excluded 
copyright royalties.
    Subsec. (a)(6). Pub. L. 86-435, Sec. 1(b)(2), inserted sentence 
providing that copyright royalties constitute personal holding company 
income.
    Subsec. (a)(9). Pub. L. 86-435, Sec. 1(a), added par. (9).


                    Effective Date of 1999 Amendment

    Amendment by Pub. L. 106-170 applicable to any instrument held, 
acquired, or entered into, any transaction entered into, and supplies 
held or acquired on or after Dec. 17, 1999, see section 532(d) of Pub. 
L. 106-170, set out as a note under section 170 of this title.


                    Effective Date of 1988 Amendment

    Amendment by section 1010(f)(5) of Pub. L. 100-647 effective, except 
as otherwise provided, as if included in the provision of the Tax Reform 
Act of 1986, Pub. L. 99-514, to which such amendment relates, see 
section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of 
this title.
    Section 6279(b) of Pub. L. 100-647 provided that: ``The amendments 
made by this section [amending this section] shall apply to interest 
received after the date of the enactment of this Act [Nov. 10, 1988], in 
taxable years ending after such date.''


                    Effective Date of 1986 Amendment

    Section 645(e) of Pub. L. 99-514 provided that: ``The amendments 
made by subsection (a) [amending this section and section 553 of this 
title] shall apply to royalties received before, on, and after December 
31, 1986.''


                    Effective Date of 1984 Amendment

    Amendment by Pub. L. 98-369 effective as if included in the 
provision of the Tax Equity and Fiscal Responsibility Act of 1982, Pub. 
L. 97-248, to which such amendment relates, see section 715 of Pub. L. 
98-369, set out as a note under section 31 of this title.


                    Effective Date of 1982 Amendment

    Amendment by Pub. L. 97-248 applicable to distributions after Aug. 
31, 1982, with exceptions for certain partial liquidations, see section 
222(f) of Pub. L. 97-248, set out as a note under section 302 of this 
title.


                    Effective Date of 1976 Amendments

    Amendment by Pub. L. 94-553 effective Jan. 1, 1978, see section 102 
of Pub. L. 94-553, set out as an Effective Date note preceding section 
101 of Title 17, Copyrights.
    Section 211(b) of Pub. L. 94-455 provided that: ``The amendment made 
by subsection (a) [amending this section] shall apply to taxable years 
ending on or after December 31, 1975.''
    Amendment by section 1901(b)(32)(D) of Pub. L. 94-455 applicable 
with respect to taxable years beginning after Dec. 31, 1976, see section 
1901(d) of Pub. L. 94-455, set out as a note under section 2 of this 
title.
    Section 2106(b) of Pub. L. 94-455 provided that: ``The amendment 
made by subsection (a) [amending this section] shall apply to taxable 
years beginning after December 31, 1976.''


                    Effective Date of 1966 Amendment

    Amendment by section 104(h)(2) of Pub. L. 89-809 applicable with 
respect to taxable years beginning after Dec. 31, 1966, see section 
104(n) of Pub. L. 89-809, set out as a note under section 11 of this 
title.
    Section 206(c) of Pub. L. 89-809 provided that: ``The amendments 
made by subsections (a) and (b) [amending this section] shall apply to 
taxable years beginning after the date of the enactment of this Act 
[Nov. 13, 1966]. Such amendments shall also apply, at the election of 
the taxpayer (made at such time and in such manner as the Secretary or 
his delegate may prescribe), to taxable years beginning on or before 
such date and ending after December 31, 1965.''


                    Effective Date of 1964 Amendments

    Section 3(b) of Pub. L. 88-484 provided that: ``The amendment made 
by subsection (a) [amending this section] shall apply to taxable years 
beginning after December 31, 1963.''
    Amendment by Pub. L. 88-272 applicable to taxable years beginning 
after Dec. 31, 1963, see section 225(l) of Pub. L. 88-272, set out as a 
note under section 316 of this title.


                    Effective Date of 1962 Amendment

    Amendment by Pub. L. 87-403 applicable only with respect to 
distributions made after Feb. 2, 1962, see section 3(g) of Pub. L. 87-
403, set out as a note under section 312 of this title.


                    Effective Date of 1960 Amendment

    Section 2 of Pub. L. 86-435 provided that: ``The amendments made by 
the first section of this Act [amending this section and sections 544 
and 553 of this title] shall apply only with respect to taxable years 
beginning after December 31, 1959.''


               Treatment of Certain Bank Holding Companies

    Section 6280 of Pub. L. 100-647 provided that:
    ``(a) General Rule.--For purposes of subtitle A of the 1986 Code, 
the term `personal holding company income' shall not include any 
dividend received by a qualified bank holding company from a 25-percent 
owned bank during any taxable year ending in 1989 or 1990.
    ``(b) $3,000,000 Limitation.--The aggregate amount excluded from the 
personal holding company income of any qualified bank holding company 
under subsection (a) for the taxable year shall not exceed $3,000,000.
    ``(c) Qualified Bank Holding Company.--For purposes of this section, 
the term `qualified bank holding company' means any bank holding company 
(as defined in section 2(a) of the Bank Holding Company Act of 1956 [12 
U.S.C. 1841(a)]) if 80 percent or more (by value) of the assets of such 
company at all times during the taxable year consist of stock in 1 or 
more 25-percent owned banks.
    ``(d) 25-Percent Owned Bank.--For purposes of this section, the term 
`25-percent owned bank' means any bank (as defined in section 581 of the 
1986 Code) if at least 25 percent of the stock of such bank (by vote and 
value) is owned by the bank holding company.''


   Special Rules for Broker-Dealers, Royalties Received by Qualified 
  Taxpayer, and Treatment of Active Business Computer Royalties for S 
                          Corporation Purposes

    Section 645(b)-(d) of Pub. L. 99-514 provided that:
    ``(b) Special Rules for Broker-Dealers.--In the case of a broker-
dealer which is part of an affiliated group which files a consolidated 
Federal income tax return, the common parent of which was incorporated 
in Nevada on January 27, 1972, the personal holding company income 
(within the meaning of section 543 of the Internal Revenue Code of 1986) 
of such broker-dealer, shall not include any interest received after the 
date of the enactment of this Act [Oct. 22, 1986] with respect to--
        ``(1) any securities or money market instruments held as 
    inventory,
        ``(2) margin accounts, or
        ``(3) any financing for a customer secured by securities or 
    money market instruments.
    ``(c) Special Rule for Royalties Received by Qualified Taxpayer.--
        ``(1) In general.--Any qualified royalty received or accrued in 
    taxable years beginning after December 31, 1981, by a qualified 
    taxpayer shall be treated in the same manner as a royalty with 
    respect to software is treated under the amendments made by this 
    section [amending this section and section 553 of this title].
        ``(2) Qualified taxpayer.--For purposes of this subsection, a 
    qualified taxpayer is any taxpayer incorporated on September 7, 
    1978, which is engaged in the trade or business of manufacturing 
    dolls and accessories.
        ``(3) Qualified royalty.--For purposes of this subsection, the 
    term `qualified royalty' means any royalty arising from an agreement 
    entered into in 1982 which permits the licensee to manufacture and 
    sell dolls and accessories.
    ``(d) Special Rule for Treatment of Active Business Computer 
Royalties for S Corporation Purposes.--In the case of a taxpayer which 
was incorporated on May 3, 1977, in California and which elected to be 
taxed as an S corporation for its taxable year ending on December 31, 
1985, any active business computer royalties (within the meaning of 
section 543(d) of the Internal Revenue Code of 1986 as added by this 
Act) which are received by the taxpayer in taxable years beginning after 
December 31, 1984, shall not be treated as passive investment income 
(within the meaning of section 1362(d)(3)(D)) for purposes of subchapter 
S of chapter 1 of such Code.''


           Plan Amendments Not Required Until January 1, 1989

    For provisions directing that if any amendments made by subtitle A 
or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or title XVIII 
[Secs. 1800-1899A] of Pub. L. 99-514 require an amendment to any plan, 
such plan amendment shall not be required to be made before the first 
plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. 
L. 99-514, as amended, set out as a note under section 401 of this 
title.

                  Section Referred to in Other Sections

    This section is referred to in sections 542, 544, 545, 553, 864, 
992, 1202, 2057, 6501 of this title.
