1 sections (a) and (b) shall apply to payments made after De2 cember 31, 1963, on account of sales or exchanges of property 3 occurring after June 30, 1963, other than any sale or ex4 change made pursuant to a binding written contract (includ5 ing an irrevocable written option) entered into before July 1, 6 1963.

7 SEC. 216 226. PERSONAL HOLDING COMPANIES.

8 (a) PERSONAL HOLDING COMPANY TAX RATE.9 Section 541 (relating to imposition of personal holding 10 company tax) is amended by striking out "tax equal to" 11 and all that follows and inserting in lieu thereof: "tax equal 12 to 70 percent of the undistributed personal holding company 13 income."

14 (b) DEFINITION OF PERSONAL HOLDING COMPANY.— 15 Paragraph (1) of section 542 (a) (relating to the gross 16 income requirement for personal holding company purposes) 17 is amended to read as follows:

"(1) ADJUSTED ORDINARY GROSS INCOME REQUIREMENT.-At least 60 percent of its adjusted ordinary gross income (as defined in section 543 (b) (2)) for the taxable year is personal holding company income (as defined in section 543 (a)), and".

(c) EXCLUDED CORPORATIONS.

(1) DOMESTIC BUILDING AND LOAN ASSOCIATIONS.-Paragraph (2) of section 542 (c) (relating to

1

2

3

4

5

67 00

corporations excepted from the definition of personal holding company) is amended to read as follows:

"(2) a bank as defined in section 581, or a domestic building and loan association within the meaning of section 7701 (a) (19) without regard to subparagraphs (D) and (E) thereof;".

(2) LENDING AND FINANCE COMPANIES.-Sec

8 tion 542 (c) is amended by striking out paragraphs (6), 9 (7), (8), and (9), by renumbering paragraphs (10)

and (11) as paragraphs (7) and (8), and by insert

ing after paragraph (5) the following new paragraph:

"(6) a lending or finance company if—

"(A) 60 percent or more of its ordinary gross income (as defined in section 543 (b) (1)) is derived directly from the active and regular conduct of a lending or finance business;

"(B) the personal holding company income for the taxable year (computed without regard to income described in subsection (d) (3) and income derived directly from the active and regular conduct of a lending or finance business, and computed by including as personal holding company income the entire amount of the gross income from rents, royalties, produced film rents, and compen

sation for use of corporate property by sharehold

ers), plus the interest described in section 543

(b)(2)(C), is not more than 20 percent of the

ordinary gross income;

"(C) the sum of the deductions which are directly allocable to the active and regular conduct of its lending or finance business equals or

exceeds the sum of

"(i) 15 percent of so much of the ordinary gross income derived therefrom as does not exceed $500,000, plus

"(ii) 5 percent of so much of the ordinary gross income derived therefrom as exceeds $500,000 but not $1,000,000; and

"(D) the loans to a person who is a shareholder in such company during the taxable year by or for whom 10 percent or more in value of its outstanding stock is owned directly or indirectly

(including, in the case of an individual, stock owned

by members of his family as defined in section 544 (a) (2)), outstanding at any time during such year

do not exceed $5,000 in principal amount;".

(3) SPECIAL RULES FOR SECTION 542(c)(6).—Sec

tion 542 is amended by adding at the end thereof the following new subsection:

1

"(d) SPECIAL RULES FOR APPLYING SUBSECTION

2 (c) (6).

23

"(1) LENDING OR FINANCE BUSINESS DEFINED.—

"(A) IN GENERAL.-Except as provided in subparagraph (B), for purposes of subsection (c) (6), the term 'lending or finance business' means

a business of

"(i) making loans, er

"(ii) purchasing or discounting accounts receivable, notes, or installment obligations: obligations, or

“(ii) rendering services or making facilities available to another corporation which is engaged in the lending or finance business (within the meaning of this subparagraph), but only if such other corporation and the corporation

rendering services or making facilities available are members of the same affiliated group (as defined in section 1504).

"(B) EXCEPTIONS.-For purposes of subparagraph (A), the term 'lending or finance business'

does not include the business of

“(i) making loans, or purchasing or dis

counting accounts receivable, notes, or install

ment obligations, if (at the time of the loan, purchase, or discount) the remaining maturity exceeds 60 months, or

“(ii) making loans evidenced by, or purchasing, certificates of indebtedness issued in a

series, under a trust indenture, and in registered form or with interest coupons attached.

For purposes of clause (i), the remaining maturity shall be treated as including any period for which there may be a renewal or extension under the terms of an option exercisable by the borrower.

"(2) BUSINESS DEDUCTIONS.-For purposes of subsection (c) (6) (C), the deductions which may be taken into account shall include only

"(A) deductions which are allowable only by reason of section 162 or section 404, except there shall not be included any such deduction in respect

of compensation for personal services rendered by shareholders (including members of the shareholder's family as described in section 544 (a) (2)), and

"(B) deductions allowable under section 167, and deductions allowable under section 164 for

real property taxes, but in either case only to the extent that the property with respect to which such