may be, shall be treated as the loss corporation (whether or not such corporation is a loss corporation). The reduction, if any, so determined under paragraph (2) shall be applied to the losses of such controlled corporation. "(B) TRIANGULAR REORGANIZATIONS.-Except as otherwise provided in paragraph (5), if the shareholders of the loss corporation (immediately before the reorganization) own, as a result of the reorganization, stock in a corporation controlling the acquiring corporation, such shareholders shall be treated as owning (immediately after the reorganization) a percentage of the total fair market value of the participating stock and of all the stock of the acquiring corporation owned by the controlling corporation equal to the percentage of the total fair market value of the participating stock and of all the stock, respectively, of the controlling corporation owned by such shareholders. "(4) SPECIAL RULES. For purposes of applying paragraph (1) (B) "(A) CERTAIN RELATED TRANSACTIONS.-If, immediately before the reorganization "(i) one or more shareholders of the loss corporation own stock of such corporation which such shareholder acquired during the 36-month period ending on the date of the acquisition in a transaction described in paragraph (1) or in subsection (a) (1) (C) (unless excepted by subsection (a) (5)), and "(ii) such shareholders own more than 50 percent of the total fair market value of the stock of another corporation a party to the reorganization, or any such shareholder is a corporation controlled by another corporation a party to the reorganization, then such shareholders shall not be treated as shareholders of the loss corporation with respect to such stock. "(B) CERTAIN PRIOR OWNERSHIP OF LOSS CORPORATION.—If, immediately before the reorganization, the acquiring or acquired corporation owns stock of the loss corporation, then paragraph (1)(B) shall be applied by treating the shareholders of the loss corporation as owning an additional amount of the total fair market value of the participating stock and of all the stock of the acquiring corporation, as a result of owning stock in the loss corporation, equal to the total fair market value of the participating stock and of all the stock, respectively, of the loss corporation owned (immediately before the reorganization) by the acquiring or acquired corporation. This subparagraph shall not apply to stock of the loss corporation owned by the acquiring or acquired corporation if such stock was acquired by such corporation within the 36-month period ending on the date of the reorganization in a transaction described in subsection (a) (1) (C) (unless excepted by subsection (a) (5)); or to a reorganization described in section 368 (a) (1) (B) or (C) to the extent the 26 USC 368. acquired corporation does not distribute the stock received by it to its own shareholders. "(C) CERTAIN ASSET ACQUISITIONS.-If a loss corporation receives stock of the acquiring corporation in a reorganization described in section 368 (a)(1)(C) and does not distribute such stock to its shareholders, paragraph (1)(B) shall be applied by treating the shareholders of the loss corporation as owning (immediately after the reorganization) such undistributed stock in proportion to the fair market value of the stock which such shareholders own in the loss corporation. "(5) CERTAIN STOCK-FOR-STOCK REORGANIZATIONS.-In the case of a reorganization described in section 368 (a)(1)(B) in which the acquired corporation is a loss corporation "(A) STOCK WHICH IS EXCHANGED.-Paragraphs (1) (B) and (2) shall be applied by reference to the ownership of stock of the loss corporation (rather than the acquiring corporation) immediately after the reorganization. Shareholders of the loss corporation who exchange stock of the loss corporation shall be treated as owning (immediately after the reorganization) a percentage of the total fair market value of the participating stock and of all the stock of the loss corporation acquired in the exchange by the acquiring corporation which is equal to the percentage of the total fair market value of the participating stock and of all the stock, respectively, of the acquiring corporation owned (immediately after the reorganization) by such shareholders. "(B) STOCK WHICH IS NOT EXCHANGED.-Stock of the loss corporation owned by shareholders immediately before the reorganization which was not exchanged in the reorganization shall be taken into account in applying paragraph (1) (B). For purposes of the preceding sentence, the acquiring corporation (or a corporation controlled by the acquiring corporation) shall not be treated as a shareholder of the loss corporation with respect to stock of the loss corporation acquired in a transaction described in paragraph (1), or in subsection (a) (1) (C) (unless excepted by subsection (a) (5)), during the 36-month period ending on the date of the exchange. "(C) TRIANGULAR EXCHANGES.-For purposes of applying the rules in this paragraph, if the shareholders of the loss corporation receive stock of a corporation controlling the acquiring corporation, such shareholders shall be treated as owning a percentage of the participating stock and of all the stock of the acquiring corporation owned by the controlling corporation equal to the percentage of the total fair market value of the participating stock and of all the stock, respectively, which such shareholders own of the controlling corporation immediately after the reorganization. "(6) EXCEPTIONS.-The limitations in this subsection shall not apply- "(A) if the same persons own substantially all the stock of the acquiring corporation and of the other corporation in substantially the same proportions; or "(B) to a net operating loss carryover from a taxable year if the acquiring or acquired corporation owned at least 40 percent of the total fair market value of the participating stock and of all the stock of the loss corporation at all times during the last half of such taxable year. For purposes of subparagraph (A), if the acquiring or acquired corporation is controlled by another corporation, the shareholders of the controlling corporation shall be considered as also owning the stock owned by the controlling corporation in that proportion which the total fair market value of the stock which each shareholder owns in the controlling corporation bears to the total fair market value of all the stock in the controlling corporation. "(c) RULES RELATING TO STOCK.-For purposes of this section-"(1) The term 'stock' means all shares of stock, except stock "Stock." which "(A) is not entitled to vote, "(B) is fixed and preferred as to dividends and does not participate in corporate growth to any significant extent, "(C) has redemption and liquidation rights which do not exceed the paid-in capital or par value represented by such stock (except for a reasonable redemption premium in excess of such paid-in capital or par value), and "(D) is not convertible into another class of stock. "(2) The term 'participating stock' means stock (including "Participating common stock) which represents an interest in the earnings and stock." assets of the issuing corporation which is not limited to a stated amount of money or property or percentage of paid-in capital or par value, or by any similar formula. "(3) The Secretary shall prescribe regulations under which- Regulations. "(A) stock or convertible securities shall be treated as stock or participating stock, or (B) stock (however denoted) shall not be treated as stock or participating stock, by reason of conversion and call rights, rights in earnings and assets, priorities and preferences as to distributions of earnings or assets, and similar factors." (f) CONFORMING AMENDMENTS.— (1) AMENDMENT OF SECTION 368.-Section 368 (c) (relating to the definition of control) is amended by striking out "and this part," and inserting in lieu thereof "this part, and part V,”. 26 USC 368. (2) AMENDMENT OF SECTION 383.-Section 383 (relating to 26 USC 383. special limitations on certain carryovers) is amended to read as follows: "SEC. 383. SPECIAL LIMITATIONS ON UNUSED INVESTMENT CREDITS, WORK INCENTIVE PROGRAM CREDITS, FOREIGN TAXES, AND CAPITAL LOSSES. "In the case of a change of ownership of a corporation in the manner described in section 382 (a) or (b), the limitations provided in section Ante, p. 1599 382 in such cases with respect to net operating losses shall apply in the same manner, as provided under regulations prescribed by the Secretary, with respect to any unused investment credit of the corporation under section 46(b), to any unused work incentive program credit of the corporation under section 50A (b), to any excess foreign taxes of the corporation under section 904 (d), and to any net capital loss of the corporation under section 1212." (g) EFFECTIVE DATE.- (1) The amendments made by subsections (a), (b), (c), and (d) shall apply to losses incurred in taxable years ending after December 31, 1975. (2) For purposes of applying sections 382 (a) and 383 (as it relates to section 382(a)) of the Internal Revenue Code of 1954, as amended by subsections (e) and (f), the amendments made by subsections (e) and (f) shall take effect for taxable years beginning after June 30, 1978, except that the beginning of the taxable years specified in clause (ii) of section 382 (a) (1) (B) of Ante, p. 1582 Post, p. 1620. 26 USC 172 note. 26 USC 382 note. 26 USC 382 note. Ante, p. 1599. 46 USC 1177-1. 26 USC 11. such Code, as so amended, shall be considered to be the later of: (A) the beginning of such taxable years, or (B) January 1, 1978. (3) Sections 382 (b) and 383 (as it relates to section 382(b)) of the Internal Revenue Code of 1954, as amended by subsections (e) and (f), shall apply (and such sections as in effect prior to such amendment shall not apply) to reorganizations pursuant to a plan of reorganization adopted by one or more of the parties thereto on or after January 1, 1978. For purposes of the preceding sentence, a corporation shall be considered to have adopted a plan of reorganization on the date on which a resolution of the board of directors is passed adopting the plan or recommending its adoption to the shareholders, or on the date on which the shareholders approve the plan of reorganization, whichever is earlier. SEC. 807. SMALL FISHING VESSEL CONSTRUCTION RESERVES. In addition to any other vessel which may be deemed an "eligible vessel" and a "qualified vessel" under section 607 of the Merchant Marine Act, 1936 (46 U.S.C. 1177), a commercial fishing vessel under five net tons but not under two net tons— (1) which is constructed in the United States and, if reconstructed, is reconstructed in the United States; (2) which is owned by a citizen of the United States; (3) which has a home port in the United States; and (4) which is operated in the commercial fisheries of the United States, shall be considered to be an "eligible vessel" and a "qualified vessel" for the purposes of such section 607. TITLE IX-SMALL BUSINESS PROVISIONS SEC. 901. EXTENSION OF CERTAIN CORPORATE INCOME TAX REDUC- (a) IN GENERAL.-Subsections (a), (b), (c), and (d) of section 11 (relating to tax imposed on corporations) are amended to read as follows: "(a) CORPORATIONS IN GENERAL.-A tax is hereby imposed for each taxable year on the taxable income of every corporation. The tax shall consist of a normal tax computed under subsection (b) and a surtax computed under subsection (c). "(b) NORMAL TAX.-The normal tax is equal to 66 "(1) in the case of a taxable year ending after December 31, 1977, 22 percent of the taxable income, and "(2) in the case of a taxable year ending after December 31, 1974, and before January 1, 1978, the sum of "(A) 20 percent of so much of the taxable income as does not exceed $25,000, plus "(B) 22 percent of so much of the taxable income as exceeds $25,000. (c) SURTAX.-The surtax is 26 percent of the amount by which the taxable income exceeds the surtax exemption for the taxable year. "(d) SURTAX EXEMPTION.-For purposes of this subtitle, the surtax exemption for any taxable year is "(1) $25,000 in the case of a taxable year ending after December 31, 1977, or "(2) $50,000 in the case of a taxable year ending after December 31, 1974, and before January 1, 1978, except that, with respect to a corporation to which section 1561 (relat- (1) IN GENERAL.-Section 821 (a) (1) (relating to mutual insur- "(A) in the case of a taxable year ending after December 31, 1977, 22 percent of the mutual insurance company taxable income, or 44 percent of the amount by which such taxable income exceeds $6,000, whichever is lesser, or "(B) in the case of a taxable year ending after December 31, 1974, and before January 1, 1978 "(i) 20 percent of so much of the mutual insurance. or 44 percent of the amount by which such taxable income (2) SMALL COMPANIES.-Section 821 (c) (1)(A) (relating to alternative tax for certain small companies) is amended to read as follows: "(A) NORMAL TAX.-A normal tax equal to "(i) in the case of a taxable year ending after December 31, 1977, 22 percent of the taxable investment income, or 44 percent of the amount by which such taxable income exceeds $3,000, whichever is lesser, or "(ii) in the case of a taxable year ending after December 31, 1974, and before January 1, 1978, 20 percent of so much of the taxable investment income as does not exceed $25,000, plus 22 percent of so much of the taxable investment income as exceeds $25,000, or 44 percent of the amount by which such taxable income exceeds $3,000, whichever is lesser; plus". (c) CONFORMING AMENDMENTS. 26 USC 821. (1) Section 1561 (a) (relating to certain multiple tax benefits 26 USC 1561. in the case of certain controlled corporations) is amended by adding at the end thereof the following new sentence: "In applying section 11(b) (2), the first $25,000 of taxable income and the second $25,000 of taxable income shall each be allocated among the component members of a controlled group of corporations in the same manner as the surtax exemption is allocated.' (2) Subsection (f) of section 21 (relating to change in surtax 26 USC 21. exemption treated as a change in a rate of tax) is amended by striking out "Tax Reduction Act of 1975" and all that follows and inserting in lieu thereof the following: "Tax Reduction Act of 1975 in the surtax exemption and any change under section 11 (d) 26 USC 1 note. in the surtax exemption shall be treated as a change in a rate of tax." (3) Section 6154 (relating to installment payments of estimated 26 USC 6154. income tax by corporations) is amended by striking out sub section (h). (d) EFFECTIVE DATES.-The amendment made by subsection (a) 26 USC 11 note. shall take effect on December 23, 1975. The amendments made by subsection (b) shall apply to taxable years ending after December 31, |