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SHORT TITLE

Section 1(a) of Pub. L. 92-178, Dec. 10, 1971, 85 Stat. 497, provided that: "This Act [which enacted sections 40, 41, 50, 50A, 50B, 188, 991-997, 218, 383, 4464, 6686, 7216, 9001-9013, and 9021 of this title and also sections 4 (d) (5), 21(e), 48(a) (2) (B) (viii)–(x), (3) (C), (7)−(9), 46(b) (3), (c) (3) (C), (d) (3), (e), 56(a)(2)(iv), (v), 57(a) (10), 103 (c) (4) (G), 141(e), 144(a)(4), 163(d) (7), (m), 183 (e), 246(d), 263(f), 301(b) (1) (D), (d) (3), 381(c) (24), 642(a) (3), (1), 861(a)(2) (D), (e), 862(c), 904(f) (5), 971(a)(3), 1014(d), 1441 (c) (8), 1504 (b) (7), 3402(f) (1) (G), (7), 4063 (a) (6), (7), 4071(e), 6011(e), 6331(d), 6416(b) (2) (S), 6501(g) (3), (o), 6511(d) (7), 6601(e) (4), and 6611(f) (4) of this title; amended sections 46(b) (1), (5), (6), (c) (2), (3) (A), (B), 47(a) (6) (A), 48(a)(1), (a) (1) (B) (ii), (iii), (5), (6), (d), 49(a), (b), (d), 56(c) (1), 57(b) (1), (2) (C), (c), 58(g) (2), 103 (c) (4), (E), (F), (c) (6) (F) (iii), 141 (b), (c), 144(a) (1) (2), 151, 162(c), (c) (2), (3), 163 (d) (1) (B), (3) (C), (4) (A) (i), 214, 263 (e), 301(b) (1) (B), (d) (2), 642 (f), 665(g), 703(b), 871(a)(1)(A), (C), 881(a)(1), (3), 901(d), 904(f), (f) (1), (3), 922, 931(a), 1082(a)(2) (B), 1245(a)(2), (3) (B) (ii), (iii), (D), 1250 (b) (3), 1251(b) (2) (B), 1441(b), 1442, 3402(a), (b)(1)(c)(6), (m) (1) (B), (2) (A), (D), (3), 4061(a), (b) (2), 4221 (c), 4222 (d), 6012 (a) (1), 6013(b) (3) (A), (c) (6), 6015(a), 6072(b), 6096(a), 6411, 6416(b) (2) (R), (g), 6501(n), and 7422(f) (1) of this title; renumbered as sections 42 and 219 former sections 40 and 218 of this title; enacted provisions set out as notes under sections 4, 38, 41, 46-48, 50A, 57, 58, 103, 141, 144, 151, 162, 167, 183, 188, 214, 263, 301, 383, 665, 861, 871, 921, 970, 991, 1251, 3402 4061, 4464, 3402, 4061, 6012, 6013, 6015, 6096, 6331, 6654, 7216, 7422, and 9001 of this title and section 1232a of Title 15; repealed sections 46(c) (4), 47 (a) (4), (5), 169 (h), and 6412(a)(1) of this title and sections 1232a of Title 15, and 971-973 of Title 31; and repealed provisions set out as notes under sections 141, 151, 3402, 6012, and 6013 of this title] may be cited as the 'Revenue Act of 1971'."

SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in section 6361 of this title.

§ 3. Optional tax tables for individuals.

SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in section 144 of this title.

§ 4. Rules for optional tax.

(d) Certain other taxpayers ineligible. Section 3 shall not apply to

(1) a nonresident alien individual;

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§35. Partially tax-exempt interest received by individuals.

SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 41, 50A of this title.

§ 37. Retirement income.

SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 41, 50A of this title.

§ 38. Investment in certain depreciable property.

ACCOUNTING FOR INVESTMENT CREDIT IN CERTAIN FINANCIAL
REPORTS AND REPORTS TO FEDERAL AGENCIES
Pub. L. 92-178, title I, § 101 (c), Dec. 10, 1971, 85 Stat.
499, provided that:

"(1) In general.-It was the intent of Congress in enacting, in the Revenue Act of 1962, the investment credit allowed by section 38 of the Internal Revenue Code of 1954 [this section], and it is the intent of the Congress in restoring that credit in this Act [section 50 of this title], to provide an incentive for modernization and growth of private industry. Accordingly, notwithstanding any other provision of law, on and after the date of the enactment of this Act [Dec. 10, 1971)—

"(A) no taxpayer shall be required to use, for purposes of financial reports subject to the jurisdiction of any Federal agency or reports made to any Federal agency, any particular method of accounting for the credit allowed by such section 38 [this section],

"(B) a taxpayer shall disclose, in any such report, the method of accounting for such credit used by him for purposes of such report, and

"(C) a taxpayer shall use the same method of accounting for such credit in all such reports made by him, unless the Secretary of the Treasury or his delegate consents to a change to another method.

"(2) Exceptions.-Paragraph (1) shall not apply to taxpayers who are subject to the provisions of section 46(e) of the Internal Revenue Code of 1954 (as added by section 105 (c) of this Act) [section 46 (e) of this title] or to section 203 (e) of the Revenue Act of 1964 (as modified by section 105 (e) of this Act) [set out as note under this section]."

TREATMENT OF INVESTMENT CREDIT BY FEDERAL REGULATORY AGENCIES

Section 203 (e) of Pub. L. 88-272, the Revenue Act of 1964 (set out as note hereunder), not applicable to public utility property to which section 46 (e) of this title applies, see section 105 (e) of Pub. L. 92-178, set out as a note under section 46 of this title.

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 41, 46, 50A, 861 of this title.

§ 39. Certain uses of gasoline, special fuels, and lubricating oil.

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 6362 of this title.

§ 40. Expenses of work incentive programs. (a) General rule.

There shall be allowed, as a credit against the tax imposed by this chapter, the amount determined under subpart C of this part.

(b) Regulations.

The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this section and subpart C. (Added Pub. L. 92-178, title VI, § 601(a), Dec. 10, 1971, 85 Stat. 553.)

EFFECTIVE DATE

Section applicable to taxable years beginning after Dec. 31, 1971, see section 601(f) of Pub. L. 92-178, set out as a note under section 50A of this title.

(2) Candidate.

SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 50A, 56, 381 of this title.

§ 41. Contributions to candidates for public office. (a) General rule.

In the case of an individual, there shall be allowed, subject to the limitations of subsection (b), as a credit against the tax imposed by this chapter for the taxable year, an amount equal to one-half of all political contributions, payment of which is made by the taxpayer within the taxable year.

(b) Limitations.

(1) Maximum credit.

The credit allowed by subsection (a) for a taxable year shall be limited to $12.50 ($25 in the case of a joint return under section 6013).

(2) Application with other credits.

The credit allowed by subsection (a) shall not exceed the amount of the tax imposed by this chapter for the taxable year reduced by the sum of the credits allowable under section 33 (relating to foreign tax credit), section 35 (relating to partially tax-exempt interest), section 37 (relating to retirement income), and section 38 (relating to investment in certain depreciable property). (3) Verification.

The credit allowed by subsection (a) shall be allowed, with respect to any political contribution, only if such political contribution is verified in such manner as the Secretary or his delegate shall prescribe by regulations.

(c) Definitions.

For purposes of this section

(1) Political contribution.

The term "political contribution" means a contribution or gift of money to

(A) an individual who is a candidate for nomination or election to any Federal, State, or local elective public office in any primary, general, or special election, for use by such individual to further his candidacy for nomination or election to such office;

(B) any committee, association, or organization (whether or not incorporated) organized and operated exclusively for the purpose of influencing, or attempting to influence, the nomination or election of one or more individuals who are candidates for nomination or election to any Federal, State, or local elective public office, for use by such committee, association, or organization to further the candidacy of such individual or individuals for nomination or election to such office;

(C) the national committee of a national political party;

(D) the State committee of a national political party as designated by the national committee of such party; or

(E) a local committee of a national political party as designated by the State committee of such party designated under subparagraph (D).

The term "candidate" means, with respect to any Federal, State, or local elective public office, an individual who

(A) has publicly announced that he is a candidate for nomination or election to such office; and

(B) meets the qualifications prescribed by law to hold such office.

(3) National political party.

The term "national political party" means

(A) in the case of contributions made during a taxable year of the taxpayer in which the electors of President and Vice President are chosen, a political party presenting candidates or electors for such offices on the official election ballot of ten or more States, or

(B) in the case of contributions made during any other taxable year of the taxpayer, a political party which met the qualifications described in subparagraph (A) in the last preceding election of a President and Vice President. (4) State and local.

The term "State" means the various States and the District of Columbia; and the term "local" means a political subdivision or part thereof, or two or more political subdivisions or parts thereof, of a State.

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referred to as "unused credit year"), such excess shall be

(A) an investment credit carryback to each of the 3 taxable years preceding the unused credit year, and

(B) an investment credit carryover to each of the 7 taxable years following the unused credit year,

and shall be added to the amount allowable as a credit by section 38 for such years, except that such excess may be a carryback only to a taxable year ending after December 31, 1961. The entire amount of the unused credit for an unused credit year shall be carried to the earliest of the 10 taxable years to which (by reason of subparagraphs (A) and (B)) such credit may be carried, and then to each of the other 9 taxable years to the extent that, because of the limitation contained in paragraph (2), such unused credit may not be added for a prior taxable year to which such unused credit may be carried. In the case of an unused credit for an unused credit year ending before January 1, 1971, which is an investment credit carryover to a taxable year beginning after December 31, 1970 (determined without regard to this sentence), this paragraph shall be applied by substituting "10 taxable years" for "7 taxable years" in subparagraph (B) and by substituting "13 taxable years" for "10 taxable years" and "12 taxable years" for "9 taxable years" in the preceding sentence.

(3) Special rules for carryovers from pre-1971 unused credit years.

The extent to which an investment credit carryover from an unused credit year ending before January 1, 1971, may be added under paragraph (1) for a taxable year beginning after December 31, 1970, shall be determined without regard to paragraph (2) (A). In determining the excess under paragraph (1) for any taxable year beginning after December 31, 1970, the limitation provided by subsection (a) (2) for such taxable year shall be reduced by the investment credit carryovers from such unused credit years (to the extent such unused credit may not be added for a prior taxable year).

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(5) Certain taxable years ending in 1969, 1970, or 1971.

The amount which may be added under this subsection for any taxable year beginning after December 31, 1968, and ending after April 18, 1969, and before January 1, 1972, shall not exceed 20 percent of the higher of

(A) the aggregate of the investment credit carrybacks and investment credit carryovers to the taxable year, or

(B) the highest amount computed under subparagraph (A) for any preceding taxable year which began after December 31, 1968, and ended after April 18, 1969.

In the case of a taxable year ending after August 15, 1971, and before January 1, 1972, the percentage contained in the preceding sentence shall be increased by 6 percentage points for each month

(or portion thereof) in the taxable year after August 15, 1971.

(6) Additional 3-year carryover period in certain

cases.

Any portion of an investment credit carryback or carryover to any taxable year beginning after December 31, 1968, and ending after April 18, 1969, and before January 1, 1971, which

(A) may be added under this subsection under the limitations provided by paragraph (2), and

(B) may not be added under the limitation provided by paragraph (5),

shall be an investment credit carryover to each of the 3 taxable years following the 7th taxable year after the unused credit year, and shall (subject to the provisions of paragraphs (1), (2), and (5)) be added to the amount allowable as a credit by section 38 for such years.

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For purposes of this subpart, the useful life of any property shall be the useful life used in computing the allowance for depreciation under section 167 for the taxable year in which the property is placed in service.

(3) Public utility property.

(A) In the case of section 38 property which is public utility property, the amount of the qualified investment shall be of the amount determined under paragraph (1).

(B) For purposes of subparagraph (A), the term "public utility property" means property used predominantly in the trade or business of the furnishing or sale of

(i) electrical energy, water, or sewage disposal services,

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(iii) telephone service, telegraph service by means of domestic telegraph operations (as defined in section 222(a) (5) of the Communications Act of 1934, as amended; 47 U.S.C., sec. 222(a) (5)), or other communication services (other than international telegraph service),

if the rates for such furnishing or sale, as the case may be, have been established or approved by a State or political subdivision thereof, by an agency or instrumentality of the United States, or by a public service or public utility commission or other similar body of any State or political subdivision thereof. Such term also means communication property of the type used by persons

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engaged in providing telephone or microwave communication services to which clause (iii) applies, if such property is used predominantly for communication purposes.

(C) In the case of any interest in a submarine cable circuit used to furnish telegraph service between the United States and a point outside the United States of a taxpayer engaged in furnishing international telegraph service (if the rates for such furnishing have been established or approved by a governmental unit, agency, instrumentality, commission, or similar body described in subparagraph (B)), the qualified investment shall not exceed the qualified investment attributable to so much of the interest of the taxpayer in the circuit as does not exceed 50 percent of all interests in the circuit.

(4) Repealed. Pub. L. 92–178, title I, § 107(a)(1), Dec. 10, 1971, 85 Stat. 507.

(d) Limitations with respect to certain persons.

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A credit shall be allowed by section 38 to a person which is not a corporation with respect to property of which such person is the lessor only if

(A) the property subject to the lease has been manufactured or produced by the lessor, or

(B) the term of the lease (taking into account options to renew) is less than 50 percent of the useful life of the property, and for the period consisting of the first 12 months after the date on which the property is transferred to the lessee the sum of the deductions with respect to such property which are allowable to the lessor solely by reason of section 162 (other than rents and reimbursed amounts with respect to such property) exceeds 15 percent of the rental income produced by such property. In the case of property of which a partnership is the lessor, the credit otherwise allowable under section 38 with respect to such property to any partner which is a corporation shall be allowed notwithstanding the first sentence of this paragraph. For purposes of this paragraph, an electing small business corporation (as defined in section 1371) shall be treated as a person which is not a corporation.

(e) Limitation in case of certain regulated companies. (1) General rule.

Except as otherwise provided in this subsection, no credit shall be allowed by section 38 with respect to any property described in section 50 which is public utility property (as defined in paragraph (5)) of the taxpayer

(A) Cost of service reduction.

If the taxpayer's cost of service for ratemaking purposes is reduced by reason of any portion of the credit allowable by section 38 (determined without regard to this subsection); or (B) Rate base reduction.

If the base to which the taxpayer's rate of return for ratemaking purposes is applied is reduced by reason of any portion of the credit

allowable by section 38 (determined without regard to this subsection).

Subparagraph (B) shall not apply if the reduction in the rate base is restored not less rapidly than ratably. If the taxpayer makes an election under this sentence within 90 days after the date of enactment of this paragraph in the manner prescribed by the Secretary or his delegate, the immediately preceding sentence shall not apply to property described in paragraph (5) (B) if any agency or instrumentality of the United States having jurisdiction for ratemaking purposes with respect to such taxpayer's trade or business referred to in paragraph (5) (B) determines that the natural domestic supply of the product furnished by the taxpayer in the course of such trade or business is insufficient to meet the present and future requirements of the domestic economy. (2) Special rule for ratable flow-through.

If the taxpayer makes an election under this paragraph within 90 days after the date of the enactment of this paragraph in the manner prescribed by the Secretary or his delegate, paragraph (1) shall not apply, but no credit shall be allowed by section 38 with respect to any property described in section 50 which is public utility property (as defined in paragraph (5)) of the taxpayer

(A) Cost of service reduction.

If the taxpayer's cost of service for ratemaking purposes or in its regulated books of account is reduced by more than a ratable portion of the credit allowable by section 38 (determined without regard to this subsection), or

(B) Rate base reduction.

If the base to which the taxpayer's rate of return for ratemaking purposes is applied is reduced by reason of any portion of the credit allowable by section 38 (determined without regard to this subsection).

(3) Special rule for immediate flow-through in certain cases.

In the case of property to which section 167(1) (2) (C) applies, if the taxpayer makes an election under this paragraph within 90 days after the date of the enactment of this paragraph in the manner prescribed by the Secretary or his delegate, paragraphs 1 and (2) shall not apply to such property.

(4) Limitation.

(A) In general.

The requirements of paragraphs (1) and (2) regarding cost of service and rate base adjustments shall not be applied to public utility property of the taxpayer to disallow the credit with respect to such property before the first final determination which is inconsistent with paragraph (1) or (2) (as the case may be) is put into effect with respect to public utility property (to which this subsection applies) of the taxpayer. Thereupon, paragraph (1) or (2) shall apply to disallow the credit with respect to public utility property (to which this subsection applies) placed in service by the taxpayer—

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