refunded issue were used to provide a qualified public facility.

"(B) QUALIFIED PUBLIC FACILITY DEFINED. For purposes of subparagraph (A), the term 'qualified public facility' means facilities described in subparagraph (C) or (D) of paragraph (4) which are generally available to the general public.' (b) OBLIGATION MAY NOT BE HELD BY SUBSTANTIAL USER-Paragraph (8) of section 103(b) (as redesignated by subsection (a)) is amended by striking out "and (6)" and inserting in lieu thereof "(6), and (7)".

(c) EFFECTIVE DATE.-The amendments made by this section shall apply to obligations issued after the date of the enactment of this Act.

PART II-OTHER TAX-EXEMPT BOND PROVISIONS

SEC. 336. DECLARATORY JUDGMENT PROCEDURE FOR JUDICIAL REVIEW OF DETERMINATIONS RELATING TO GOVERNMENTAL OBLIGATIONS.

(a) IN GENERAL.-Part IV of subchapter C of chapter 76 (relating to declaratory judgments) is amended by adding at the end thereof the following new section:

"SEC. 7478. DECLARATORY JUDGMENTS RELATING TO STATUS OF CERTAIN GOVERNMENTAL OBLIGATIONS.

"(a) CREATION OF REMEDY.-In a case of actual controversy involving

"(1) a determination by the Secretary whether prospective obligations are described in section 103(a), or

"(2) a failure by the Secretary to make a determination with respect to any matter referred to in paragraph (1),

upon the filing of an appropriate pleading, the Tax Court may make a declaration whether such prospective obligations are described in section 103(a). Any such declaration shall have the force and effect of a decision of the Tax Court and shall be reviewable as such. "(b) LIMITATIONS.—

"(1) PETITIONER.—A pleading may be filed under this section only by the prospective issuer.

"(2) EXHAUSTION OF ADMINISTRATIVE REMEDIES.-The court shall not issue a declaratory judgment or decree under this section in any proceeding unless it determines that the petitioner has exhausted all available administrative remedies within the Internal Revenue Service. A petitioner shall be deemed to have exhausted its administrative remedies with respect to a failure of the Secretary to make a determination with respect to an issue of obligations at the expiration of 180 days after the date on which the request for such determination was made if the petitioner has taken, in a timely manner, all reasonable steps to secure such determination.

"(3) TIME FOR BRINGING ACTION.-If the Secretary sends by certified or registered mail notice of his determination as described in subsection (a)(1) to the petitioner, no proceeding may be initiated under this section unless the pleading is filed before the 91st day after the date of such mailing.

(b) AUTHORITY OF TAX COURT TO ASSIGN PROCEEDINGS TO COMMISSIONERS.

(1) IN GENERAL.-Subsection (c) of section 7456 (relating to commissioners of the Tax Court) is amended by adding at the end thereof the following new sentence: "The chief judge may assign

proceedings under sections 7428, 7476, 7477, and 7478 to be heard by the commissioners of the court, and the court may authorize a commissioner to make the decision of the court with respect to such proceedings, subject to such conditions and review as the court may by rule provide."

(2) TECHNICAL AMENDMENTS.—

(A) Section 7476 is amended by striking out subsection (c) and by redesignating subsections (d) and (e) and subsections (c) and (d), respectively.

(B) Section 7477 is amended by striking out subsection (c). (c) TECHNICAL AND CONFORMING AMENDMENTS.—

(1) Paragraph (1) of section 7482(b) (relating to venue for appeal of decision of Tax Court) is amended

(A) by striking out "provided in paragraph (2)" in paragraph (1) and inserting in lieu thereof "provided in paragraphs (2) and (3)", and

(B) by adding at the end thereof the following new paragraph:

"(3) DECLARATORY JUDGMENT ACTIONS RELATING TO STATUS OF CERTAIN GOVERNMENTAL OBLIGATIONS.-In the case of any decision of the Tax Court in a proceeding under section 7478, such decision may only be reviewed by the Court of Appeals for the District of Columbia."

(2) The table of sections for part IV of subchapter C of chapter 76 is amended by adding at the end thereof the following new item:

"Sec. 7478. Declaratory judgments relating to status of certain governmental obligations.' (d) EFFECTIVE DATE.-The amendments made by this section shall apply to requests for determinations made after December 31, 1978.

SEC. 337. DISPOSITION OF AMOUNTS GENERATED BY ADVANCE REFUNDING OF CERTAIN GOVERNMENTAL OBLIGATIONS.

(a) GENERAL RULE.-The payment to a charitable organization or a refund profit held in a trust fund or escrow arrangement, or held by an underwriter or other person under a qualified agreement in accordance with that agreement

(1) shall not cause the refunding obligations out of which the refund profit arose to be treated as arbitrage bonds (within the meaning of section 103(c) of the Internal Revenue Code of 1954) and

(2) may be paid without penalty imposed on the issuer of such obligations.

(b) RULE FOR GOVERNMENTS WHICH HAVE ALREADY PAID ARBITRAGE PROFITS TO THE UNITED STATES.-In the case of a State or local government which, before January 1, 1977

(1) requested in writing a rule by the Internal Revenue Service with respect to the tax consequences of paying refund profit to charitable organizations,

(2) failed to receive a favorable ruling and did not pay the refund profit to a charitable organization, and

which accounted to the United States for refund profit by direct payment to the United States, or by the purchase of low-interest United States obligations, the Secretary of the Treasury shall pay, out of any amounts in the Treasury not otherwise appropriated, an amount equal to the refund profit for which the State or local government has accounted to the United States. Amounts paid to a State or local government under this subsection shall be distributed

to such charitable organizations within 90 days after the date on which the payment is received by the State or local government in the same manner as if the refund profit had not been paid to the United States and met the requirements of subsection (a).

(c) DEFINITIONS.-For purposes of this section

(1) REFUND PROFIT.-The term "refund profit" means interest, profit, or other amounts generated by, or arising out of, the advance refunding, before September 24, 1976, of an obligation of a State or local government described in section 103 of such Code. (2) CHARITABLE ORGANIZATION.-The term "charitable organization" means an organization described in section 501(c)(3) of such Code and exempt from taxation under section 501(a) of such Code other than an organization described in section 509(a) of such Code.

(3) QUALIFIED AGREEMENT.-The term "qualified agreement" means an agreement (whether or not enforceable) which provides for, or contemplates, the payment of refund profit to one or more charitable organizations.

(4) LOW-INTEREST UNITED STATES OBLIGATIONS.-The term "lowinterest United States obligations" means United States obligations which bear an interest rate lower than the highest rate of interest borne by public debt securities generally available for purchase at the time such obligations were purchased.

Subtitle E-Small Business Provisions

PART I-PROVISIONS RELATING TO SUBCHAPTER S

SEC. 341. SUBCHAPTER S CORPORATIONS ALLOWED 15 SHAREHOLDERS. (a) GENERAL RULE.-Paragraph (1) of section 1371(a) (defining small business corporation) is amended to read as follows:

"(1) have more than 15 shareholders;".

(b) TECHNICAL AMENDMENTS.—

(1) Section 1371 is amended by striking out subsection (e) and by redesignating subsection (f) as subsection (e).

(2) Paragraph (2) of section 1371(a) is amended by striking out "subsection (f)" and inserting in lieu thereof "subsection (e)".

SEC. 342. PERMITTED SHAREHOLDERS OF SUBCHAPTER S CORPORATIONS.

(a) HUSBAND And Wife TreaATED AS ONE INDIVIDUAL.-Subsection (c) of section 1371 (relating to stock owned by husband and wife) is amended to read as follows:

"(c) STOCK OWNED BY HUSBAND AND WIFE.-For purposes of subsection (a)(1), a husband and wife (and their estates) shall be treated as one shareholder."

(b) GRANTOR OF GRANTOR TRUST TREATED AS THE SHAREHOLDER.— Subsection (e) of section 1371 (as redesignated by section 331(b)(1) of this Act) is amended by inserting after the first sentence the following new sentence: "In the case of a trust described in paragraph (1), the grantor shall be treated as the shareholder."

SEC. 343. EXTENSION OF PERIOD FOR MAKING SUBCHAPTER S ELECTIONS.

(a) GENERAL RULE.-Subsection (c) of section 1372 (relating to when and how subchapter S election may be made) is amended to read as follows:

"(c) WHEN AND How Made.—

“(1) IN GENERAL.-An election under subsection (a) may be

made by a small business corporation for any taxable year"(A) at any time during the preceding taxable year, or "(B) at any time during the first 75 days of the taxable

year.

"(2) TREATMENT OF CERTAIN LATE ELECTIONS.-If

"(A) a small business corporation makes an election under subsection (a) for any taxable year, and

"(B) such election is made after the first 75 days of the taxable year and on or before the last day of such taxable year,

then such election shall be treated as made for the following taxable year.

"(3) MANNER OF MAKING ELECTION.-An election under subsection (a) shall be made in such manner as the Secretary shall prescribe by regulations.'

(b) TECHNICAL AMENDMENTS.

(1) The second sentence of section 1372(a) is amended to read as follows: "Such election shall be valid only if all persons who are shareholders in such corporation on the day on which such election is made consent to such election."

(2) Subparagraph (A) of section 1372(e)(1) is amended to read as follows:

"(A) An election under subsection (a) made by a small business corporation shall terminate if any person who was not a shareholder in such corporation on the day on which the election is made becomes a shareholder in such corporation and affirmatively refuses (in such manner as the Secretary may by regulations prescribe) to consent to such election on or before the 60th day after the day on which he acquires the stock."

(3) Subparagraph (C) of section 1372(e)(1) is amended by inserting "(or, if later, the first taxable year for which such election would otherwise have been effective)" after "in the corporation".

SEC. 344. EFFECTIVE DATE.

The amendments made by this part shall apply to taxable years beginning after December 31, 1978.

PART II-OTHER PROVISIONS

SEC. 345. SMALL BUSINESS CORPORATION STOCK.

(a) INCREASE TO $1,000,000 AMOUNT OF STOCK POTENTIALLY SUBJECT TO ORDINARY LOSS TREATMent; Removal OF EQUITY Capital Test.— Subsection (c) of section 1244 (relating to losses on small business stock) is amended by striking out paragraph (2) and inserting in lieu thereof the following:

"(3) SMALL BUSINESS CORPORATION DEFINED.—

"(A) IN GENERAL.-For purposes of this section, a corporation shall be treated as a small business corporation if the aggregate amount of money and other property received by the corporation for stock, as a contribution to capital, and as paid-in surplus, does not exceed $1,000,000. The determination under the preceding sentence shall be made as of the time of the issuance of the stock in question but shall include amounts received for such stock and for all stock theretofore issued.

"(B) AMOUNT TAKEN INTO ACCOUNT WITH RESPECT TO PROPERTY. For purposes of subparagraph (A), the amount taken into account with respect to any property other than money

shall be the amount equal to the adjusted basis to the corporation of such property for determining gain, reduced by any liability to which the property was subject or which was assumed by the corporation. The determination under the preceding sentence shall be made as of the time the property was received by the corporation."

(b) INCREASE IN MAXIMUM AMOUNT TREATED AS ORDINARY LOSS FOR ANY TAXABLE YEAR.-Subsection (b) of section 1244 is amended(1) by striking out "$25,000" in paragraph (1) and inserting in lieu thereof "$50,000", and

(2) by striking out "$50,000" in paragraph (2) and inserting in lieu thereof "$100,000".

(c) REMOVAL OF REQUIREMENT THAT STOCK ISSUANCE BE PURSUANT TO PLAN.-Subsection (c) of section 1244 (defining section 1244 stock) is amended by striking out paragraph (1) and inserting in lieu thereof the following new paragraphs:

"(1) IN GENERAL.-For purposes of this section, the term 'section 1244 stock' means common stock in a domestic corporation if

"(A) at the time such stock is issued, such corporation was a small business corporation,

"(B) such stock was issued by such corporation for money or other property (other than stock and securities), and

"(C) such corporation, during the period of its 5 most recent taxable years ending before the date the loss on such stock was sustained, derived more than 50 percent of its aggregate gross receipts from sources other than royalties, rents, dividends, interests, annuities, and sales or exchanges of stocks or securities.

"(2) RULES FOR APPLICATION OF PARAGRAPH (1)(C).—

"(A) PERIOD TAKEN INTO ACCOUNT WITH RESPECT TO NEW CORPORATIONS.-For purposes of paragraph (1)(C), if the corporation has not been in existence for 5 taxable years ending before the date the loss on the stock was sustained, there shall be substituted for such 5-year period

"(i) the period of the corporation's taxable years ending before such date, or

"(ii) if the corporation has not been in existence for 1 taxable year ending before such date, the period such corporation has been in existence before such date. "(B) GROSS RECEIPTS FROM SALES OF SECURITIES.-For purposes of paragraph (1)(C), gross receipts from the sales or exchanges of stock or securities shall be taken into account only to the extent of gains therefrom.

"(C) NONAPPLICATION WHERE DEDUCTIONS EXCEED GROSS INCOME.-Paragraph (1)(C) shall not apply with respect to any corporation if, for the period taken into account for purposes of paragraph (1)(C), the amount of the deductions allowed by this chapter (other than by sections 172, 243, 244, and 245) exceeds the amount of gross income.'

(d) TECHNICAL Amendments.-Paragraph (2) of section 1244(d) (relating to special rules) is amended

(1) by striking out "subparagraph (E)" and inserting in lieu thereof "subparagraph (C)", and

(2) by striking out "paragraphs (1)(E) and (2)(A)" and inserting in lieu thereof "paragraphs (1)(C) and (3)(A)".

(e) EFFECTIVE DATE.-The amendments made by this section shall apply to stock issued after the date of the enactment of this Act.