additional 3-percent block of stock, but he is required to report under subparagraph (B) when, on November 30, 1965, he acquires a 4-percent block of stock because the last two blocks of stock total more than 5 percent. Subsection (b) of section 6046, as amended by the bill as passed by the House, was the same as existing law. It provided that the information returns required by subsection (a) of section 6046 shall be in such form and shall set forth, in respect of the foreign corporation, such information as the Secretary of the Treasury or his delegate prescribes by forms or regulations as necessary for carrying out the provisions of the income tax laws. Your committee has added a provision which limits the information which may be required of persons described in subsection (a) (1) to the names and addresses of persons described in subsection (a)(2). Subsection (c) of section 6046 is amended by omitting the definition of "U.S. shareholder". The term "U.S. person", as used in sections 6038 and 6046, as amended by the bill, has the same substantive meaning as the term "U.S. shareholder" in existing section 6046. Subsection (d) of section 6046, as amended by the bill, provides limitation on the time for filing a return required by subsection (a of such section. Such return must be filed on or before the 90th day after the day on which, under any provision of section 6046(s), the U.S. citizen, resident, or person becomes liable to file such return. Your committee has redesignated subsection (e) of section 6046 ( amended by the bill as passed by the House) as subsection (f) and added a new subsection (e) which provides that no information shal be required to be furnished under section 6046 with respect to any foreign corporation, if the liability of the U.S. citizen, resident, or person to file a return under subsection (a) arises on or after January 1 1963, and before March 1, 1963, unless such information was required to be furnished under regulations which have been in effect since January 1, 1963 (but only if such regulations were prescribed befor December 1, 1962); or, if the liability of the U.S. citizen, resident, person to file a return under subsection (a) arises on or after March 1 1963, unless such information was required to be furnished under regulations which have been in effect for at least 90 days. Subsection (f) of section 6046, as amended by the bill, is a crossreference to section 7203, relating to willful failure to file a retur supply information, or pay tax. (c) Civil penalty for failure to file return.-Subsection (c) of sectio 20 of the bill amends subchapter B of chapter 68 (relating to assessa penalties) by adding new section 6679. Subsection (a) of section 6679, similar in purpose to section 66 (relating to failure to file information returns with respect to certa foreign trusts) as added by section 7(g) of the bill, provides that addition to any criminal penalty provided by law, any person required to file a return under section 6046 who fails to file such return at the time provided in section 6046, or who files a return which does n show the information required pursuant to such section, must pars penalty of $1,000, unless it is shown that such failure is due to reaso able cause. Subsection (b) of section 6679 provides that subchapter B of cha ter 63 (relating to deficiency procedure for income, estate, and taxes) is inapr le in respect of the assessment or collection of a penalty in (d) Technical amendments.-Subsection (d) of section 20 of the bill contains technical amendments adding a cross-reference to section 318 of the code and conforming the appropriate table of sections to the change in the heading of section 6046. (e) Effective date.-Under subsection (e) of section 20 of the bill, section 6038 of the code as amended by the bill is to apply with respect to annual accounting periods of foreign corporations beginning after December 31, 1962, and section 6046 of the code as amended by the bill is to take effect on January 1, 1963. Under subsection (e) (1), existing section 6038 will continue to apply in respect of a foreign corporation or foreign subsidiary whose annual accounting period begins before January 1, 1963. For example, assume that D, a domestic corporation, has a taxable year beginning July 1, 1963, and ending June 30, 1964. F, a foreign corporation controlled by D, has an annual accounting period beginning January 1, 1963, and ending December 31, 1963. FS, a foreign subsidiary of F, has an annual accounting period beginning April 1, 1962, and ending March 31, 1963. Under the effective date provision, information with respect to FS's annual accounting period beginning April 1, 1962, and ending March 31, 1963, is to be furnished under existing law, and information with respect to F's annual accounting period beginning January 1, 1963, and ending December 31, 1963, is to be furnished under section 5038 as amended by the bill. SECTION 21. EXPENDITURES BY FARMERS FOR CLEARING LAND Section 21 of the bill, which is a new section added to the bill as passed by the House, amends the Internal Revenue Code of 1954 by adding a new section 182, relating to the tax treatment of expendiures by farmers for clearing land. Subsection (a) of section 182 permits farmers to elect to treat as deductible expenses, rather than as nondeductible improvements to property, expenditures for clearing land if such expenditures are for he purpose of making the land suitable for use in farming. Subsection (b) of section 182 limits the deduction under subsection a) for any taxable year to $5,000, or to 25 percent of the taxable ncome derived from farming during the taxable year, whichever mount is the lesser. For purposes of such 25-percent limitation, the erm "taxable income derived from farming" means the gross income of the taxpayer derived from farming during the taxable year, that s, the gross income of the taxpayer from the production of crops, ruits, or other agricultural products or from livestock, reduced by he allowable deductions which are attributable to the business of arming other than the deduction allowed by section 182. Thus, all of the ordinary and necessary expenses paid or incurred in the busiess of farming, including amounts allowed as deductions by sections 75 and 180 for soil and water conservation expenditures and for ime and fertilizer expenditures, respectively, but not including the mount allowed as a deduction by section 182 for expenditures for learing land, should be deducted from gross income derived from arming in computing the taxable income derived from farming for urposes of applying the 25-percent limitation on the amount deductble as an expenditure for clearing farm land. The term "clearing of land" is defined in subsection (c)(1) of section 182 to include, but is not limited to, the eradication of trees, stumps, and brush, the treatment or moving of earth, and the diversion of streams and watercourses. Your committee's amendment has application only in respect of expenditures paid or incurred in the clearing of land for the purpose of making such land suitable for use in farming. The term "land suitable for use in farming" means land which as a result of the clearing of land, as described above, is suitable for use by the taxpayer or his tenant for the production of crops, fruits, or other agricultural products or for the sustenance of livestock. Subsection (d)(1) of section 182 provides that the expenditures to which section 182(a) applies do not include expenditures for the purchase, construction, installation, or improvement of structures, appliances, or facilities which are of a character which is subject to the allowance for depreciation. In addition, such expenditures do not include any expense which is deductible under any other section of the code. Subsection (d) (2) of section 182 provides that expenditures to which section 182(a) applies shall include a reasonable allowance for depreciation with respect to property which is used in the clearing of land for the purpose of making such land suitable for use in farming and which if used in a trade or business, would be property subject to the allowance for depreciation. Under present law such deprecis tion must be capitalized. Such subsection (d) (2) further provides that to the extent an amount representing a reasonable allowance for depreciation with respect to property used in clearing land is treated as an expenditure to which subsection (a) applies, such expend iture shall, for purposes of chapter 1 of the 1954 Code, be treated as amount allowed under section 167 for depreciation of such property. Under this provision, proper adjustment to the basis of such property would be made under section 1016(a) of the 1954 Code. Subsection (e) of section 182 provides that the taxpayer shall make the election to deduct his expenditures for clearing his land within the time prescribed by law (including extensions thereof) for filing return for any taxable year in which he pays or incurs such expendi tures, and that such election shall be made in such manner as the Secretary of the Treasury or his delegate may by regulations prescribe. Once the election is made for any taxable year such election may not be revoked without the consent of the Secretary of the Treasury or his delegate. SECTION 22. CHARITABLE CONTRIBUTIONS MADE FROM INCOME ATTRIBUTABLE TO SEVERAL TAXABLE YEARS Section 22 of the bill, which is a new section added to the bill as passed by the House, amends section 1307 of the Internal Revenue Code of 1954 by adding a new subsection (e) thereto. Section 130 relates to rules applicable to part I of subchapter Q of such code which part relates to income attributable to several taxable years. Part I of subchapter Q provides a limitation with respect to the tax imposed on certain amounts received or accrued by an individus taxpayer during a taxable year. The tax attributable to any suc amount for the taxable year in which it is received or accrued is, in ge eral, not to be greater than the aggregate increases in taxes which would have resulted if the amour d been included in the taxpayers come, on an allocated basis, over the period specified in the applible section of such part I. It is the present position of the Internal Revenue Service that in ›mputing tax in accordance with part I of subchapter Q the adjusted oss income for the taxable year in which the amount was received accrued shall be computed without regard to that portion of such nount which is allocated to other taxable years. (See, Internal evenue Mimeograph 43, 1952-2 C.B. 112.) The amounts allowable deductions under section 170, relating to charitable, etc., contribuons and gifts, and under section 213, relating to medical, dental, etc., xpenses, are based upon percentages of adjusted gross income. The mputation of adjusted gross income without including that portion the amount received or accrued which is allocated to other taxable ears results in a determination of adjusted gross income which is less an would be the case if adjusted gross income for the taxable year in hich the amount was received or accrued were computed without reard to part I of subchapter Q. A lower adjusted gross income figure r the taxable year decreases the allowable deduction for charitable ontributions and increases the allowable medical deduction. New subsection (e) provides that an individual who receives or ccrues in a taxable year an amount to which part I of subchapter applies may elect (in such manner and at such time as the Secrery of the Treasury or his delegate prescribes by regulations) to apply le provisions of subsection (e) in computing his tax liability under ich part. If the taxpayer so elects, the amount received or accrued hall be reduced, for the purposes of computing his tax liability under ich part I with respect to such amount, by an amount (1) which ears the same ratio to the amount of his allowable charitable deducon for the taxable year in which the amount was received or accrued computed without regard to pt. I of subch. Q) as (2) the amount eceived or accrued during the taxable year to which part I applies ears to the adjusted gross income for such year (computed without egard to pt. I of subch. Q). The last sentence of new subsection (e) provides that no portion f the amount received or accrued to which part I of subchapter Q pplies shall (for purposes of computing the limitation on tax under uch part) be taken into account for purposes of computing the limitaon under section 170(b)(1) of the code for the taxable year in which he amount to which such part applies is received or accrued. Example.-Assume the following facts with respect to individual I who elects to have the new subsection (e) apply) for the taxable year 963: 1) Amount received or accrued to which pt. I of subch. Q applies. 3) Deductible charitable contributions (determined without regard to $12,000 16,000 1,600 Assume further that, for purposes of computing the limitation on ax under part I of subchapter Q, the $12,000 amount is to be proated in equal amounts to the taxable years 1960, 1961, 1962, and 963. Under the first sentence of the new subsection (e), for purposes of omputing the tax liability of the taxpayer under part I, the $12,000 3 reduced by $1,200 (that portion of the $1,600 deductible charitable ontributions which $12,000 is of $16,000 The remainder, $10,800, is then prorated at the rate of $2,700 per year to 1960, 1961, 1962. and 1963. Under the last sentence of the new subsection (e), for purposes computing the limitation on tax under part I, the $12,000 amount is not to be taken into account for 1963 for purposes of computing the limitation under section 170(b) (1) on the amount deductible for charitable contributions during 1963. Thus, for this purpose, the adjusted gross income is to be treated as being $4,000 (the amount remaining after excluding $12,000 from $16,000). SECTION 23. EFFECTIVE DATE OF SECTION 1371(c) Section 23 of the bill, which is a new section added to the bill s passed by the House, relates to the effective date of section 1371(e of the Internal Revenue Code of 1954. (a) In general.-Subsection (a) of section 23 of the bill provides that section 1371 (c) of the code, which was added by section 2(a) of the Act of September 23, 1959 (Public Law 86-376), shall (notwithstanding the provisions of the first sentence of sec. 2(d) of such Act also apply to taxable years beginning after December 31, 1957, and before January 1, 1960. Section 1371 (c) provides that stock which is community property of a husband and wife (or the income from which is community income) under the applicable community property law of a State, or is held by a husband and wife as joint tenants tenants by the entirety, or tenants in common, shall be treated as owned by one shareholder. The first sentence of section 2(d) o Public Law 86-376 provides that section 1371 (c) is to apply to taxable years beginning after December 31, 1959. Under your committe amendment, if the provisions of subsections (b) and (c) of section 25 of the bill are met, section 1371 (c) will now be applicable for all taxable years for which a corporation may elect to be taxed as an electing small business corporation under subchapter S (secs. 1371-1377) d the code. The enactment of this new effective date for section 1371(c) doe not relax or otherwise change the requirements of any of the provisions of subchapter S. Thus, in order to be eligible to be treated as electing small business corporation for years beginning after December 31, 1957, and before January 1, 1960, a "small business corporation must have filed a timely election for such year in accordance with section 1372 and in the manner prescribed by the Secretary of the Treasury or his delegate by regulations. Such election must have beer valid in all respects except that by reason of counting a husband and wife owning stock of a corporation in the specified joint forms or $ community property as two shareholders, the corporation failed to meet the requirement that a small business corporation must have 100 fewer shareholders. Furthermore, shareholder consents to such ele tions must have been filed in the prescribed time and manner. How ever, the Commissioner has announced that he will consider, upor request, the granting of extensions of time for the filing of consents certain cases under section 1.9100-1 of the Income Tax Regulations If all the requirements, except the 10-or-fewer-shareholder require ment, had been met for taxable years beginning after December 31 1957, and before January 1, 1960, and the effect of applying the ne effective date of section 1371(c) is to reduce the number of sharehold |