88 STAT. 986 26 USC 401, Ante, po 979. 26 USC 404. Pub. Law 93-406 - 158 September 2, 1974 plan and a defined contribution plan maintained by the same employer, and the sum of the defined benefit plan fraction and the defined contribution plan fraction for the year during which such date occurs exceeds 1.4, the sum of such fractions may continue to exceed 1.4 if (A) the defined benefit plan fraction is not increased, by amendment of the plan or otherwise, after the date of enactment of this Act, and (B) no contributions are made under the defined contribution plan after such date. A trust which is part of a pension, profit-sharing, or stock bonus plan described in the preceding sentence shall not be treated as not constituting a qualified trust under section 401(a) of the Internal Revenue Code of 1954 on account of the provisions of section 415(e) of such Code, as long as it is described in the preceding sentence of this subsection. (b) LIMIT ON EMPLOYER DEDUCTIONS.—The second sentence of section 404 (a) (3) (A), (relating to limits on deductible contributions) is amended by striking out beneficiaries under the plan.” and inserting in lieu thereof “beneficiaries under the plan, but the amount so deductible under this sentence in any one succeeding taxable year together with the amount so deductible under the first sentence of this subparagraph shall not exceed 25 percent of the compensation otherwise paid or accrued during such taxable year to the beneficiaries under the plan.”. (c) CERTAIN ANNUITY AND Bond PURCHASE PLANS.— (1) Section 404(a) (2) (relating to the general rule for deduction for employee annuities) is amended by striking out “(15)” and inserting in lieu thereof "(15), (16), and (19)” and by striking out “(a) (9) and (10)” and inserting in lieu thereof “(a) (9), (10), (17), and (18)". (2) Section 405 (a) (1) (relating to requirements for qualified bond purchase plans) is amended by striking out "and (8)," and inserting in lieu thereof “(8), (16), and (19)”. (3) Section 805(d) (1) (C) (relating to pension plan reserves) is amended by striking out "and (15)" and inserting in lieu thereof "(15), (16), and (19)". (4) Section 403(b)(2) (relating to exclusion allowance) is amended to read as follows: “(2) EXCLUSION ALLOWANCE. “(A) IN GENERAL.—For purposes of this subsection, the exclusion allowance for any employee for the taxable year is an amount equal to the excess, if any.of “(i) the amount determined by multiplying 20 percent of his includible compensation by the number of years of service, over "(ii) the aggregate of the amounts contributed by the employer for annuity contracts and excludible from the gross income of the employee for any prior taxable year. “(B) ELECTION TO HAVE ALLOWANCE DETERMINED UNDER SECTION 415 RULES.- In the case of an employee who makes an election under section 415 (c)(4)(D) to have the provisions of section 415 (c)(4)(C) (relating to special rule for section 403(b) contracts purchased by educational institutions, hospitals, and home health service agencies) apply, the exclusion allowance for any such employee for the taxable year is the amount which could be contributed (under section 415) by his employer under a plan described in section 403 (a) if the 26 USC 415 September 2, 1974 - 159 - Pub. Law 93-406 88 STAT. 987 annuity contract for the benefit of such employee were treated as a defined contribution plan maintained by the employer.”. (d) EFFECTIVE DATE. (1) GENERAL RULE. --The amendments made by this section shall note. apply to years beginning after December 31, 1975. The Secretary of the Treasury shall prescribe such regulations as may be necessary to carry out the provisions of this paragraph. (2) TRANSITION RULE FOR DEFINED BENEFIT PLANS.—In the case of an individual who was an active participant in a defined benefit plan before October 3, 1973, if (A) the annual benefit (within the meaning of section 415(b)(2) of the Internal Revenue Code of 1954) payable Ante, p. 979. to such participant on retirement does not exceed 100 percent of his annual rate of compensation on the earlier of (i) October 2, 1973, or (ii) the date on which he separated from the service of the employer, (1) such annual benefit is no greater than the annual benefit which would have been payable to such participant on retirement if (i) all the terms and conditions of such plan in existence on such date liad remained in existence until such retireinent, and (ii) his compensation taken into account for any period after October 2, 1973, had not exceeded his annual rate of compensation on such date, and (C) in the case of a participant who separated from the service of the employer prior to October 2, 1973, such annual benefit is no greater than his vested accrued benefit as of the date he separated from the service, then such annual benefit shall be treated as not exceeding the limitation of subsection (b) of section 415 of the Internal Revenue (ode of 1951. SEC. 2005. TAXATION OF CERTAIN LUMP SUM DISTRIBUTIONS. (a) TREATMENT OF TOTAL DISTRIBUTIONS.-Section 402(e) (relat- 26 USC 402. ing to certain plan terminations) is amended to read as follows: *(e) Tax on LUMP Sum DISTRIBUTIONS.(1) IMPOSITION OF SEPARATE TAX on LUMP SUM DISTRIBUTIONS.-- “(A) SEPARATE TAX.—There is hereby imposed a tax (in the amount determined under subparagraph (B)) on the ordinary income portion of a lump sum distribution. “(B) AMOUNT OF Tax.—The amount of tax imposed by subparagraph (A) for any taxable year shall be an amount equal to the amount of the initial separate tax for such taxable year multiplied by a fraction, the numerator of which is the ordinary income portion of the lump sum distribution for the taxable year and the denominator of which is the total taxable amount of such distribution for such year. “(C) INITIAL SEPARATE TAX.—The initial separate tax for - “(ii) the minimum distribution allowance. 6 Pub. Law 93-406 - 160 - September 2, 1974 88 STAT. 988 “(D) MINIMUM DISTRIBUTION ALLOWANCE.-For purposes of this paragraph, the minimum distribution allowance for the taxable year is an amount equalto “(i) the lesser of $10,000 or one-half of the total taxable amount of the lump sum distribution for the tasable year, reduced (but not below zero) by, “(ii) 20 percent of the amount (if any) by which such total taxable amount exceeds $20,000. “(E) LIABILITY FOR TAX.—The recipient shall be liable for the tax imposed by this paragraph. “(2) MULTIPLE DISTRIBUTIONS AND DISTRIBUTIONS OF ANNUITY CONTRACTS. - In the case of any recipient of a lump sum distribution for the taxable year with respect to whom during the 6-taxable-year period ending on the last day of the taxable year there has been one or more other lump sum distributions after December 31, 1973, or if the distribution (or any part thereof) is an annuity contract, in computing the tax imposed by paragraph (1) (A), the total taxable amounts of all such distributions during such 6-taxable-year period shall be aggregated, but the amount of tax so computed shall be reduced (but not below zero) by the sum of "(A) the amount of the tax imposed by paragraph (1) (A) paid with respect to such other distributions, plus "(B) that portion of the tax on the aggregated total tax able amounts which is attributable to annuity contracts. For purposes of this paragraph, a beneficiary of a trust to which a lump sum distribution is made shall be treated as the recipient of such distribution if the beneficiary is an employee (including 26 USC 401. an employee within the meaning of section 401(c)(1)) with re spect to the plan under which the distribution is made or if the beneficiary is treated as the owner of such trust for purposes of 26 USC 671. subpart E of part I of subchapter J. In the case of the distribu tion of an annuity contract, the taxable amount of such distribution shall be deemed to be the current actuarial value of the contract, determined on the date of such distribution. In the case of a lump sum distribution with respect to any individual which is made only to two or more trusts, the tax imposed by paragraph (1)(A) shall be computed as if such distribution was made to a single trust, but the liability for such tax shall be apportioned among such trusts according to the relative amounts received by Regulations. each. The Secretary or his delegate shall prescribe such regula tions as may be necessary to carry out the purposes of this paragraph. “(3) ALLOWANCE OF DEDUCTION.—The ordinary income portion of a lump sum distribution for the taxable year shall be allowed as a deduction from gross income for such taxable year, but only to the extent included in the taxpayer's gross income for such taxable year. “(4) DEFINITIONS AND SPECIAL RULES.— “(A) LUMPSUM DISTRIBUTION.- For purposes of this 26 USC 403. section and section 403, the term “lump sum distribution' “(i) on account of the employee's death, “(iii) on account of the employee's separation from the service, or September 2, 1974 - 161 Pub. Law 93-406 88 STAT. 989 26 USC 72. “(iv) after the employee has become disabled (within the meaning of section 72(m) (7)) “(B) ELECTION OF LUMP SUM TREATMENT.-For purposes is (C) AGGREGATION OF CERTAIN TRUSTS AND PLANS.-For purposes of determining the balance to the credit of an employee under subparagraph (A)- (i) all trusts which are part of a plan shall be treated as a single trust, all pension plans maintained by the employer shall be treated as a single plan, all profitsharing plans maintained by the employer shall be treated as a single plan, and all stock bonus plans maintained by the employer shall be treated as a single plan, and “(ii) trusts which are not qualified trusts under sec- into account. “(i) the amounts considered contributed by the “(ii) the net unrealized appreciation attributable to rities of the employer corporation so distributed. Pub. Law 93-406 - 162 - September 2, 1974 88 STAT. 990 respect to a lump sum distribution, so much of the total taxable amount of such distribution as is equal to the product of such total taxable amount multiplied by a fraction “(i) the numerator of which is the number of calendar years of active participation by the employee in such plan after December 31, 1973, and **(ii) the denominator of which is the number of calendar years of active participation by the employee in such plan. "(F) EMPLOYEE.—For purposes of this subsection and subsection (a) (2), except as otherwise provided in subpara graph (A), the term “employee includes an individual who 26 USC 401. is an employee within the meaning of section 401(c)(1) and the employer of such individual is the person treated as bis employer under section 401(c)(4). (G) COMMUNITY PROPERTY LAWS.—The provisions of this subsection, other than paragraph (3), shall be applied without regard to community property laws. “(H) MINIMUM PERIOD OF SERVICE.—For purposes of this subsection (but not for purposes of subsection (a)(2) or section 405( a ) (2) (A)), no amount distributed to an employee from or under a plan may be treated as a lump sum distributed under subparagraph (A) unless he has been a participant in the plan for 5 or more taxable years before the taxable year in which such amounts are distributed. "(I) AMOUNTS SUBJECT TO PENALTY.—This subsection shall not apply to amounts described in clause (ii) of subparagraph (Ă) of section 72(m) (5) to the extent that section 72(m) (5) applies to such amounts. “(J) UNREALIZED APPRECIATION EMPLOYER SECURITIES.- In the case of any distribution including securities of the employer corporation which, without regard to the requirement of subparagraph (H), would be treated as a lump sum distribution under subparagraph (A), there shall be excluded from gross income the net unrealized appreciation attributable to that part of the distribution which consists of securities of the employer corporation so distributed. In the case of any such distribution or any Jump sum distribution including securities of the employer corporation, the amount of net unrealized appreciation of such securities and the resulting adjustments to the basis of such securities shall be determined under regulations prescribed by the Secretary or his delegate. "(K) SECURITIES.- For purposes of this subsection, the terms 'securities' and 'securities of the employer corporation have the respective meanings provided by subsection (a) (3).” (b) PASEOUT OF CAPITAL GAINS TREATMENT. (1) IN GENERAI.--Section 402(a) (2) (relating to capital gains treatment for certain distributions) is amended to read as follows: “(2) CAPITAL GUNS TREATMENT FOR PORTION OF LUMPSUM DISTRIBUTIONS.- In the case of an employee trust described in section 401(a), which is exempt from tax under section 501(a), so much of the total taxable amount (as defined in subparagraph (D) of subsection (e) (+)) of a lump sum distribution as is equal to the product of such total taxable amount multiplied by a fraction “(A) the numerator of which is the number of calendar years of active participation by the employee in such plan before January 1, 1974, and OF а |
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