(i) the taxpayer makes an election under section 466 of the Internal Revenue Code of 1954 for his first taxable year ending after December 31, 1978, and

(ii) for a continuous period of 1 or more taxable years each of which ends on or before December 31, 1978, the taxpayer used the method of accounting with respect to any type of discount coupons which was reasonably similar to the method of accounting provided by section 1.451-4 of the Income Tax Regulations,

then the taxpayer may make an election under this paragraph to have the method of accounting which he used for such continuous period treated as a valid method of accounting with respect to each such type of discount coupons for such period for purposes of the Internal Revenue Code of 1954. A taxpayer may make an election under this paragraph with respect to only one such continuous period. (B) CERTAIN AMOUNTS TO WHICH METHOD OF ACCOUNTING APPLIES.-An accounting method which the taxpayer used for the period described in subparagraph (A) may include

(i) costs of the type permitted by section 1.451-4 of the Income Tax Regulations to be included in the estimated average cost of redeeming coupons, plus

(ii) any amount designated or referred to on the coupon payable by the taxpayer to the person who allowed the discount on a sale by such person to the user of the coupon.

(C) SUSPENSE ACCOUNT NOT REQUIRED IN CERTAIN CASES.-A taxpayer whose election under this paragraph applies to all types of discount coupons which he issued during the continuous period referred to in subparagraph (A)(ii) shall not be required to establish a suspense account under section 466(e) of the Internal Revenue Code of 1954.

(D) RULES RELATING TO ELECTION UNDER THIS SUBSECTION.— An election under this paragraph may be made only before the expiration of the period for making an election under section 466 of the Internal Revenue Code of 1954 for the taxpayer's first taxable year ending after December 31, 1978. An election under this paragraph shall be made in such a manner and form as the Secretary of the Treasury or his delegate may by regulations prescribe. For purposes of the Internal Revenue Code of 1954, such an election shall be treated as a method of accounting, except that the approval of the Secretary of the Treasury or his delegate to the making of the election may not be required.

TITLE IV-CAPITAL GAINS; MINIMUM
TAX; MAXIMUM TAX

Subtitle A-Capital Gains

SEC. 401. REPEAL OF ALTERNATIVE TAX ON CAPITAL GAINS OF INDIVIDUALS.

(a) GENERAL RULE.-Section 1201 (relating to alternative tax) is amended

(1) by striking out subsections (b) and (c),

(2) by redesignating subsection (d) as subsection (b), and (3) by amending the section heading to read as follows: "SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS.".

(b) CONFORMING AMENDMENTS.

(1) Paragraph (1) of section 3(b) is amended by striking out subparagraph (B) and by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively.

(2) Subsection (a) of section 5 is amended by striking out paragraph (3) and by redesignating paragraphs (4) and (5) as paragraphs (3) and (4), respectively.

(3) Paragraph (1) of section 871(b) is amended by striking out "section 1, 402(e)(1), or 1201(b)" and inserting in lieu thereof "section 1 or 402(e)(1)".

(4) Paragraph (1) of section 911(d) is amended

(A) by striking out "section 1 or section 1201" each place it appears and inserting in lieu thereof "section 1", and

(B) by striking out "(whichever is applicable)" each place it appears.

(5) Subsection (b) of section 1304 is amended

(A) by adding "and" at the end of paragraph (2),

(B) by striking out paragraph (3), and

(C) by redesignating paragraph (4) as paragraph (3).

(6) The table of sections for part I of subchapter P of chapter 1 is amended by striking out the item relating to section 1201 and inserting in lieu thereof the following:

"Sec. 1201. Alternative tax for corporations."

(c) EFFECTIVE DATE.-The amendments made by this section shall apply to taxable years beginning after December 31, 1978.

SEC. 402. INCREASED CAPITAL GAINS DEDUCTION FOR INDIVIDUALS.

(a) GENERAL RULE.-Section 1202 (relating to deduction for capital gains) is amended to read as follows:

"SEC. 1202. DEDUCTION FOR CAPITAL GAINS.

"(a) IN GENERAL.-If for any taxable year a taxpayer other than a corporation has a net capital gain, 60 percent of the amount of the net capital gain shall be a deduction from gross income.

"(b) ESTATES AND TRUSTS.-In the case of an estate or trust, the deduction shall be computed by excluding the portion (if any) of the gains for the taxable year from sales or exchanges of capital assets which, under sections 652 and 662 (relating to inclusions of amounts in gross income of beneficiaries of trusts), is includible by the income beneficiaries as gain derived from the sale or exchange of capital assets.

"(c) TAXABLE YEARS WHICH INCLUDE NOVEMBER 1, 1978.-If for any taxable year beginning before November 1, 1978, and ending after October 31, 1978, a taxpayer other than a corporation has a net capital gain, the deduction under subsection (a) shall be the sum of— "(1) 60 percent of the lesser of

"(A) the net capital gain for the taxable year, or

"(B) the net capital gain taking into account only sales and exchanges after October 31, 1978, plus

"(2) 50 percent of the excess of

"(A) the net capital gain for the taxable year, over

"(B) the amount of net capital gain taken into account under paragraph (1).”

(b) TECHNICAL AMENDMENTS.—

(1) Subparagraph (A) of section 57(a) (9) (relating to treatment of capital gains for purposes of the minimum tax) is amended to read as follows:

“(A) INDIVIDUALS.-In the case of a taxpayer other than a corporation, an amount equal to the net capital gain deduction for the taxable year determined under section 1202." (2) Subparagraph (B) of section 170(e)(1) (relating to charitable deduction for contributions of capital gain property) is amended by striking out "50 percent" and inserting in lieu thereof "40 percent".

(c) EFFECTIVE DATES:

(1) The amendments made by subsections (a) and (b)(1) shall apply to taxable years ending after October 31, 1978.

(2) The amendment made by subsection (b)(2) shall apply to contributions made after October 31, 1978.

SEC. 403. REDUCTION OF ALTERNATIVE CAPITAL GAINS TAX FOR CORPORATIONS.

(a) GENERAL RULE.-Paragraph (2) of section 1201(a) (relating to alternative tax for corporations) is amended by striking out "30 percent" and inserting in lieu thereof "28 percent".

(b) TRANSITIONAL RULE.-Section 1201 is amended by adding at the end thereof the following new subsection:

"(c) TAXABLE YEARS WHICH INCLUDE JANUARY 1, 1979.-If for any taxable year beginning before January 1, 1979, and ending after December 31, 1978, a corporation has a net capital gain, then subsection (a) shall be applied by substituting for the language of paragraph (2) the following:

"(2)(A) a tax of 28 percent of the lesser of—

"(i) the net capital gain for the taxable year, or

"(ii) the net capital gain taking into account only sales and exchanges after December 31, 1978, plus

"(B) a tax of 30 percent of the excess of

"(i) the net capital gains for the taxable year, over "(ii) the amount of net capital gain taken into account under subparagraph (A)."

(c) CONFORMING AMENDMENTS.—

(1) Subparagraph (B) of section 170(e)(1) (relating to charitable deduction for contributions of capital gain property) is amended by striking out "621⁄2 percent" and inserting in lieu thereof "28/46".

(2) Subparagraph (B) of section 528(b)(2) (relating to tax imposed on certain homeowners associations) is amended to read as follows:

"(B) an amount determined as provided in section 1201(a) on such gain."

(3) Clause (ii) of section 857(b)(3)(A) (relating to tax on real estate investment trusts) is amended by striking out "a tax of 30 percent of" and inserting in lieu thereof "a tax determined at the rate provided in section 1201(a) on”.

(4) Subsection (b) of section 904 (relating to taxable income for computing the limitation on foreign tax credits) is amended

(A) by striking out "three-eighths" wherever it appears and inserting in lieu thereof "the rate differential portion"; and

(B) by striking the period at the end of subparagraph (D) of paragraph (3), inserting in lieu thereof a comma, and insert

ing immediately thereafter the following new paragraph to read as follows:

"(E) RATE DIFFERENTIAL PORTION.-The 'rate differential portion' of foreign source net capital gain, net capital gain, or the excess of net capital gain from sources within the United States over net capital gain, as the case may be, is the same proportion of such amount as the excess of the highest rate of tax specified in section 11(b) over the alternative rate of tax under section 1201(a) bears to the highest rate of tax specified in section 11(b)."

(d) EFFECTIVE DATES.

(1) The amendments made by subsections (a) and (b) shall apply to taxable years ending after December 31, 1978.

(2) The amendment made by paragraph (1) of subsection (c) shall apply to gifts made after December 31, 1978.

(3) The amendments made by paragraphs (2), (3), and (4) of subsection (c) shall take effect on the date of the enactment of this Act.

SEC. 404. ONE-TIME EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE BY INDIVIDUAL WHO HAS ATTAINED AGE 55.

(a) GENERAL RULE.-The section heading and subsections (a) and (b) section 121 are amended to read as follows:

"SEC. 121. ONE-TIME EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE BY INDIVIDUAL WHO HAS ATTAINED AGE 55.

"(a) GENERAL RULE.-At the election of the taxpayer, gross income does not include gain from the sale or exchange of property if"(1) the taxpayer has attained the age of 55 before the date of such sale or exchange, and

"(2) during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as his principal residence for periods aggregating 3 years or more.

"(b) LIMITATIONS.—

“(1) Dollar LIMITATION.-The amount of the gain excluded from gross income under subsection (a) shall not exceed $100,000 ($50,000 in the case of a separate return by a married individual).

"(2) APPLICATION TO ONLY 1 SALE OR EXCHANGE.-Subsection (a) shall not apply to any sale or exchange by the taxpayer if an election by the taxpayer or his spouse under subsection (a) with respect to any other sale or exchange is in effect.

"(3) ADDITIONAL ELECTION IF PRIOR SALE WAS MADE ON OR BEFORE JULY 26, 1978.-In the case of any sale or exchange after July 26, 1978, this section shall be applied by not taking into account any election made with respect to a sale or exchange on or before such date."

(b) TACKING OF HOLDING PERIOD IN CASE OF INVOLUNTARY CONVERSIONS.-Subsection (d) of section 121 (relating to special rules) is amended by adding at the end thereof the following new paragraph:

"(8) PROPERTY ACQUIRED AFTER INVOLUNTARY CONVERSION.-If the basis of the property sold or exchanged is determined (in whole or in part) under subsection (b) of section 1033 (relating to basis of property acquired through involuntary conversion), then the holding and use by the taxpayer of the converted property shall be treated as holding and use by the taxpayer of the property sold or exchanged."

(c) TECHNICAL AND CONFORMING AMENDMENTS.—

(1) Paragraph (2) of section 121(d) is amended by striking out "8-year period" and inserting in lieu thereof "5-year period". (2) Paragraph (5) of section 121(d) is amended

(A) by striking out "8-year period" and inserting in lieu thereof "5-year period", and

(B) by striking out "5 years" and inserting in lieu thereof "3 years".

(3) The table of sections for part III of subchapter B of chapter 1 is amended by striking out the item relating to section 121 and inserting in lieu thereof the following:

"Sec. 121. One-time exclusion of gain from sale of principal residence by individual who has attained age 55."

(4) Paragraph (3) of section 1033(g) (relating to cross references) is amended to read as follows:

"(3) For one-time exclusion from gross income of gain from involuntary conversion of principal residence by individual who has attained age 55, see section 121."

(5) Subsection (k) of section 1034 (relating to cross references) is amended to read as follows:

"(k) CROSS REFERENCE.—

"For one-time exclusion from gross income of gain from sale of principal residence by individual who has attained age 55, see section 121.” (6) Section 1038(e)(1)(A) is amended by striking out "relating to gain from sale or exchange of residence of an individual who has attained age 65" and inserting in lieu thereof "relating to onetime exclusion of gain from sale of principal residence by individual who has attained age 55".

(7) Section 1250(d)(7)(B) is amended by striking out "relating to gains from sale or exchange of residence of individual who has attained the age of 65" and inserting in lieu thereof "relating to one-time exclusion of gain from sale of principal residence by individual who has attained age 55".

(8) Section 6012(c) is amended by striking out "relating to sale of residence by individual who has attained age 65" and inserting in lieu thereof "relating to one-time exclusion of gain from sale of principal residence by individual who has attained age 55". (d) EFFECTIVE Date.

(1) IN GENERAL.-The amendments made by this section shall apply to sales or exchanges after July 26, 1978, in taxable years ending after such date.

(2) TRANSITIONAL RULE.-In the case of a sale or exchange of a residence before July 26, 1981, a taxpayer who has attained age 65 on the date of such sale or exchange may elect to have section 121 of the Internal Revenue Code of 1954 applied by substituting "8-year period" for "5-year period" and "5 years" for "3 years" in subsections (a), (d)(2), and (d)(5) of such section.

SEC. 405. WAIVER OF CERTAIN 18-MONTH RULES OF SECTION 1034 WHEN SALE OF RESIDENCE IS CONNECTED WITH COMMENCING WORK AT NEW PLACE.

(a) IN GENERAL.-Subsection (d) of section 1034 (relating to sale or exchange of residence) is amended to read as follows:

“(1) IN GENERAL.-Subsection (a) shall not apply with respect to the sale of the taxpayer's residence if within 18 months before the date of such sale the taxpayer sold at a gain other property