Page:United States Statutes at Large Volume 100 Part 3.djvu/359

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2167

"(ii) shall be added to the carryforwards from the taxable year before applying paragraph (2). "(5) DEFINITIONS AND SPECIAL RULES.—For purposes of this subsection— "(A) APPLICABLE PERCENTAGE.—The term 'applicable percentage' means, with respect to a taxable year beginning before and ending after July 1, 1987, the percentage which bears the same ratio to 35 percent as— "(i) the number of months in such taxable year after June 30, 1987, bears to "(ii) the number of months in such taxable year. "(B) REGULAR INVESTMENT CREDIT.—

"(i) IN GENERAL.—The term 'regular investment credit' has the meaning given such term by section 48(0). "(ii) EXCEPTION FOR TIMBER PROPERTY.—The term 'regular investment credit' shall not include any portion of the regular investment credit which is attributable to section 38 property described in section 48(a)(l)(F). "(C) PORTION OF CREDITS ATTRIBUTABLE TO REGULAR INVESTMENT CREDIT.—The portion of any current year busi-

ness credit or business credit carryforward which is attributable to the regular investment credit shall be determined on the basis that the regular investment credit is used first. '(d) FULL BASIS ADJUSTMENT.—

"(1) IN GENERAL.—In the case of periods after December 31, 1985, section 48(q) (relating to basis adjustment to section 38 property) shall be applied with respect to transaction property— "(A) by substituting '100 percent' for '50 percent' in paragraph (1), and "(B) without regard to paragraph (4) thereof (relating to election of reduced credit in lieu of basis adjustment). "(2) SPECIAL RULE FOR QUALIFIED PROGRESS EXPENDITURES.—If

the taxpayer made an election under section 48(q)(4) with respect to any qualified progress expenditures for periods before Januarv 1, 1986— ' (A) paragraph (1) shall not apply to the portion of the adjusted basis attributable to such expenditures, and '(B) such election shall not apply to such expenditures for periods after December 31, 1985. '(e) TRANSITION PROPERTY.—For purposes of this section— "(1) TRANSITION PROPERTY.—The term 'transition property' means any property placed in service after December 31, 1985, and to which the amendments made by section 201 of the Tax Reform Act of 1986 do not apply, except that in making such determination— "(A) section 203(a)(l)(A) of such Act shall be applied by substituting '1985' for '1986', "(B) sections 2030^X1) and 204(a)(3) of such Act shall be applied by substituting 'December 31, 1985' for 'March 1, 1986', "(C) in the case of transition property with a cltiss life of less than 7 years— "(i) section 203(b)(2) of such Act shall apply, and "(ii) in the case of property with a class life—

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