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"(B) determine the amount of the overpayment, and

"(C) apply, credit, or refund such overpayment in a manner similar to the manner provided in subsection (b). "(3) CONSOLIDATED RETURNS.-The provisions of subsection (c) shall apply to an adjustment under this subsection to the same extent and manner as the Secretary may by regulations provide.".

(b) TECHNICAL AND CONFORMING AMENDMENTS.—

(1)(A) The heading for section 6411 is amended by inserting "AND REFUND" after "CARRYBACK”.

(B) The table of sections for subchapter B of chapter 65 is amended by inserting "and refund" after "carryback" in the item relating to section 6411.

(2) Paragraph (3) of section 6213(b) (relating to assessments arising out of tentative carryback adjustments) is amended

(A) by inserting "OR REFUND" after "CARRYBACK" in the heading; and

(B) by inserting "or the amount described in section 1341(b)(1)" after "carryback".

(3) Subsection (m) of section 6501 (relating to tentative carryback adjustment period) is amended by inserting "and refund” after "carryback" the first place it appears.

(c) EFFECTIVE DATE.-The amendments made by this section shall apply to tentative refund claims filed on and after the date of the enactment of this Act.

Subtitle B-Estate and Gift Tax Provisions

SEC. 511. REDUCTION OF VALUE TAKEN INTO ACCOUNT FOR ESTATE TAX PURPOSES WHERE SPOUSE OF DECEDENT MATERIALLY PARTICIPATED IN FARM OF OTHER BUSINESS

(a) IN GENERAL.-Section 2040 (relating to joint interests) is amended by adding at the end thereof the following new subsection: "(c) VALUE WHERE SPOUSE OF DECEDENT MATERIALLY PARTICIPATED IN FARM OR OTHER BUSINESS.

"(1) IN GENERAL.-Notwithstanding subsections (a), in the case of an eligible joint interest in section 2040(c) property, the value included in the gross estate with respect to such interest by reason of this section shall be

"(A) the value of such interest, reduced by
"(B) the sum of-

"(i) the section 2040(c) value of such interest, and "(ii) the adjusted consideration furnished by the decedent's spouse.

“(2) LIMITATIONS.—

"(A) AT LEAST 50 PERCENT OF VALUE TO BE INCLUDED.— Paragraph (1) shall in no event result in the inclusion in the decedent's gross estate of less than 50 percent of the value of the eligible joint interest.

"(B) AGGREGATE REDUCTION.-The aggregate decrease in the value of the decedent's gross estate resulting from the application of this subsection shall not exceed $500,000. "(3) ELIGIBLE JOINT INTEREST DEFINED.-For purposes of paragraph (1) the term 'eligible joint interest' means any interest in property held by the decedent and the decedent's spouse as joint tenants or as tenants by the entirety, but only if—

"(A) such joint interest was created by the decedent, the decedent's spouse, or both, and

"(B) in the case of a joint tenancy, only the decedent and the decedent's spouse are joint tenants.

"(4) SECTION 2040(C) PROPERTY DEFINED.-For purposes of paragraph (1), the term 'section 2040(c) property' means any interest in any real or tangible personal property which is devoted to use as a farm or used for farming purposes (within the meaning of paragraphs (4) and (5) of section 2032A(e)) or is used in any other trade or business.

"(5) SECTION 2040(C) VALUE.-For purposes of paragraph (1), the term 'section 2040(c) value' means

"(A) the excess of the value of the eligible joint interest over the adjusted consideration furnished by the decedent, the decedent's spouse, or both, multiplied by

"(B) 2 percent for each taxable year in which the spouse materially participated in the operation of the farm or other trade or business but not to exceed 50 percent.

"(6) ADJUSTED CONSIDERATION.-For the purpose of this subsection, the term 'adjusted consideration' means

"(A) the consideration furnished by the individual concerned (not taking into account any consideration in the form of income or gain from the business of which the section 2040(c) property is a part) determined under rules similar to the rules set forth in subsection (a), and

"(B) an amount equal to the amount of interest which the consideration referred to in subparagraph (A) would have earned over the period in which it was invested in the farm or other business if it had been earning interest throughout such period at 6 percent simple interest.

"(7) MATERIAL PARTICIPATION.-For purposes of paragraph (1), material participation shall be determined in a manner similar to the manner used for purposes of paragraph (1) of section 1402(a) (relating to net earnings from self-employment).

"(8) VALUE.-For purposes of this subsection, except where the context clearly indicates otherwise, the term 'value' means value determined without regard to this subsection.

(9) ELECTION TO HAVE SUBSECTION APPLY.-This subsection shall apply with respect to a joint interest only if the estate of the decedent elects to have this subsection apply to such interest. Such an election shall be made not later than the time prescribed by section 6075(a) for filing the return of tax imposed by section 2001 (including extensions thereof), and shall be made in such manner as the Secretary shall by regulations prescribe."

(b) EFFECTIVE DATE.-The amendement made by subsection (a) shall apply with respect to estates of decedents dying after December 31, 1978.

SEC. 512. TREATMENT OF CERTAIN INTERESTS HELD BY DECEDENT'S FAMILY FOR PURPOSES OF THE EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX PROVIDED BY SECTION 6166.

(a) INTEREST HELD BY MEMBER OF DECEDENT'S FAMILY TREATED AS HELD BY DECEDENT.-Paragraph (2) of section 6166(b) (relating to definitions and special rules) is amended by adding at the end thereof the following new subparagraph:

"(D) CERTAIN INTERESTS HELD BY MEMBERS OF DECEDENT'S FAMILY.-All stock and all partnership interests held by the decedent or by any member of his family (within the mean

ing of section 267(c)(4)) shall be treated as owned by the decedent."

(b) ELECTION FOR PURPOSES OF THE 20-PERCENT REQUIREMENTS WITH RESPECT TO PARTNERSHIP INTERESTS AND STOCK WHICH IS NOT READILY TRADABLE.-Subsection (b) of section 6166 (relating to definitions and special rules) is amended by adding at the end thereof the following new paragraph:

"(7) PARTNERSHIP INTERESTS AND STOCK WHICH IS NOT READILY

TRADABLE.

"(A) IN GENERAL.-If the executor elects the benefits of this paragraph (at such time and in such manner as the Secretary shall by regulations prescribe), then

"(i) for purposes of paragraph (1)(B)(i) or (1)(C)(i) (whichever is appropriate) and for purposes of subsection (c), any capital interest in a partnership and any non-readily-tradable stock which (after the application of paragraph (2)) is treated as owned by the decedent shall be treated as included in determining the value of the decedent's gross estate,

"(ii) the executor shall be treated as having selected under subsection (a)(3) the date prescribed by section 6151(a), and

"(iii) section 6601(j) (relating to 4-percent rate of interest) shall not apply.

"(B) NON-READILY-TRADABLE STOCK DEFINED.-For purposes of this paragraph, the term 'non-readily-tradable stock' means stock for which, at the time of the decedent's death, there was no market on a stock exchange or in an over-thecounter market."

(c) EFFECTIVE DATE.-The amendments made by this section shall apply with respect to the estates of decedents dying after the date of the enactment of this Act.

SEC. 513. SUBORDINATION OF SPECIAL LIENS FOR ADDITIONAL ESTATE TAX ATTRIBUTABLE TO FARM, ETC., VALUATION.

(a) GENERAL RULE.-Subsection (d) of section 6325 (relating to subordination of lien) is amended by striking out "or" at the end of paragraph (1), by striking out the period at the end of paragraph (2) and inserting in lieu thereof ", or", and by adding at the end thereof the following new paragraph:

"(3) in the case of any lien imposed by section 6324B, if the Secretary determines that the United States will be adequately secured after such subordination.”

(b) EFFECTIVE DATE.-The amendments made by subsection (a) shall apply with respect to the estates of decedents dying after December 31, 1976.

SEC. 514. AMENDMENT OF GOVERNING INSTRUMENTS TO MEET REQUIREMENTS FOR GIFTS OF SPLIT INTEREST TO CHARITY.

(a) CHARITABLE LEAD TRUSTS AND CHARITABLE REMAINDER TRUSTS IN THE CASE OF ESTATE TAX.-The first sentence of paragraph (3) of section 2055(e) is amended to read as follows: "In the case of a will executed before December 31, 1977, or a trust created before such date, if a deduction is not allowable at the time of the decedent's death because of the failure of an interest in property which passes from the decedent to a person, or for a use, described in subsection (a) to meet the requirements of subparagraph (A) or (B) of paragraph (2) of this subsection, and if the governing instrument is amended or

conformed on or before December 31, 1978, or, if later, on or before the 30th day after the date on which judicial proceedings begun on or before December 31, 1978 (which are required to amend or conform the governing instrument), become final, so that interest is in a trust which meets the requirements of such subparagraph (a) or (B) (as the case may be), a deduction shall nevertheless be allowed."

(b) CHARITABLE LEAD TRUSTS AND CHARItable RemainDER TRUSTS IN THE CASE OF INCOME AND Gift Taxes.-Under regulations prescribed by the Secretary of the Treasury or his delegate, in the case of trusts created before December 31, 1977, provisions comparable to section 2055(e)(3) of the Internal Revenue Code of 1954 (as amended by subsection (a)) shall be deemed to be included in sections 170 and 2522 of the Internal Revenue Code of 1954.

SEC. 515. DEFERRAL OF CARRYOVER BASIS RULES.

The following provisions are each amended by striking out "December 31, 1976" and inserting in lieu thereof "December 31, 1979": (1) the caption and text of section 1014(d) (relating to basis of property acquired from the decedent);

(2) section 1016(a)(23) (relating to adjustments to basis);

(3) the heading of section 1023 (relating to carryover basis for certain property);

(4) section 1023(a) (relating to general rule for carryover basis); (5) the item relating to section 1023 in the table of sections for part II of subchapter Ŏ of chapter I; and

(6) section 2005(f)(1) of the Tax Reform Act of 1976 (relating to effective dates for carryover basis provisions).

Subtitle C-Other Excise Tax Provisions

SEC. 520. REDUCTION OF ADMINISTRATION TAX ON PRIVATE FOUNDATIONS.

(a) IN GENERAL.-Subsection (a) of section 4940 (relating to excise tax based on investment income) is amended by striking out "4 percent" and inserting in lieu thereof "2 percent.

(b) EFFECTIVE DATE.-The amendment made by the first section of this Act shall apply to taxable years beginning after September 30, 1977.

SEC. 521. EXCISE TAX ON CERTAIN GAMING DEVICES.

(a) INCREASE IN CREDIT FOR STATE TAX.-Paragraph (2) of section 4464(b) (relating to limitations on the credit for State-imposed taxes) is amended by striking out "80 percent" in the heading and text thereof and inserting in lieu thereof "95 percent".

(b) REPEAL OF OCCUPATIONAL TAX.-Subchapter B of chapter 36 is repealed.

(c) CONFORMING AMENDMENTS.—

(1) Section 4402(2) (relating to exemptions from taxes on wagering) is amended to read as follows:

"(2) COIN-OPERATED DEVICES.-On any wager placed in a coinoperated device (as defined in section 4462 as in effect for years beginning before July 1, 1980), or on any amount paid, in lieu of inserting a coin, token, or similar object, to operate a device described in section 4462(a)(2) (as so in effect), or".

(2) Subsection (a) of section 4901 (relating to payment of occupational tax) is amended by striking out "or 4461(a)(1) (coinoperated gaming devices)".

(d) EFFECTIVE DATES.

(1) The amendment made by subsection (a) shall apply with respect to years ending June 30, 1979, and June 30, 1980. (2) The amendments made by subsections (b) and (c) shall apply with respect to years beginning after June 30, 1980.

SEC. 522. TREATMENT OF CERTAIN PRIVATE FOUNDATIONS FOR PURPOSES OF SECTION 4942.

(a) GENERAL RULE.-Subsection (j) of section 4942 (relating to other definitions) is amended by adding at the end thereof the following new paragraph:

"(6) CERTAIN ELDERLY CARE FACILITIES.-For purposes of this section (but no other provisions of this title), the term 'operating foundation' includes any organization which, on May 26, 1969, and at all times thereafter before the close of the taxable year, operated and maintained as its principal functional purpose facilities for the long-term care, comfort, maintenance, or education of permanently and totally disabled persons, elderly persons, needy widows, or children but only if such organization meets the requirements of paragraph (3)(B)(ii).”

(b) EFFECTIVE DATE.-The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1969.

Subtitle D-Income Tax Provisions

SEC. 530. CONTROVERSIES INVOLVING WHETHER INDIVIDUALS ARE EMPLOYEES FOR PURPOSES OF THE EMPLOYMENT TAXES.

(a) TERMINATION OF CERTAIN EMPLOYMENT TAX LIABILITY FOR PERIODS BEFORE 1980.

(1) IN GENERAL.-If

(A) for purposes of employment taxes, the taxpayer did not treat an individual as an employee for any period ending before January 1, 1980, and

(B) in the case of periods after December 31, 1978, all Federal tax returns (including information returns) required to be filed by the taxpayer with respect to such individual for such period are filed on a basis consistent with the taxpayer's treatment of such individual as not being an employee,

then, for purposes of applying such taxes for such period with respect to the taxpayer, the individual shall be deemed not to be an employee unless the taxpayer had no reasonable basis for not treating such individual as an employee.

(2) STATUTORY STANDARDS PROVIDING ONE METHOD OF SATISFYING THE REQUIREMENTS OF PARAGRAPH (1).—For purposes of paragraph (1), a taxpayer shall in any case be treated as having a reasonable basis for not treating an individual as an employee for a period if the taxpayer's treatment of such individual for such period was in reasonable reliance on any of the following:

(A) judicial precedent, published rulings, technical advice with respect to the taxpayer, or a letter ruling to the taxpayer;

(B) a past Internal Revenue Service audit of the taxpayer in which there was no assessment attributable to the treatment (for employment tax purposes) of the individuals holding positions substantially similar to the position held by this individual; or

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