Page:United States Statutes at Large Volume 100 Part 3.djvu/482

 100 STAT. 2290

PUBLIC LAW 99-514—OCT. 22, 1986

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"(A) are received by a corporation engaged in the active conduct of the trade or business of developing, manufacturDiAit ing, or producing computer software, and "(B) are attributable to computer software which— ffio. "(i) is developed, manufactured, or produced by such s** ' ' corporation (or its predecessor) in connection with the trade or business described in subparagraph (A), or ^' "(ii) is directly related to such trade or business. "(3) ROYALTIES MUST CONSTITUTE AT LEAST 50 PERCENT OF

' • INCOME.—The requirements of this paragraph are met if the - royalties described in paragraph (1) constitute at least 50 perV cent of the ordinary gross income of the corporation for the taxable year. ,iA .'
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<'(4) DEDUCTIONS UNDER SECTIONS I 6 2 AND 174 RELATING TO ROYALTIES MUST EQUAL OR EXCEED 25 PERCENT OF ORDINARY GROSS INCOME.—

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"(A) jj^ GENERAL.—The requirements of this paragraph are met if— . "(i) the sum of the deductions allowable to the corsisrta a poration under sections 162, 174, and 195 for the taxable year which are properly allocable to the trade or business described in paragraph (2) equals or exceeds 25 percent of the ordinary gross income of such cor4 / nn*' V poration for such taxable year, or .; "(ii) the average of such deductions for the 5-taxable year period ending with such taxable year equals or exceeds 25 percent of the average ordinary gross income of such corporation for such period. V ^'iw.' If a corporation has not been in existence during the 5taxable year period described in clause (ii), then the period of existence of such corporation shall be substituted for f..^; such 5-taxable year period. "(B) DEDUCTIONS ALLOWABLE UNDER SECTION 162.—For

t- ^,. purposes of subparagraph (A), a deduction shall not be f,.., treated as allowable under section 162 if it is specifically allowable under another section. •v6ir \ "(^) LIMITATION ON ALLOWABLE DEDUCTIONS.—For purposes of subparagraph (A), no deduction shall be taken into ,jj^«!,^ account with respect to compensation for personal services rendered by the 5 individual shareholders holding the larg-pri est percentage (by value) of the outstanding stock of the .;:,,c; corporation. For purposes of the preceding sentence— "(i) individuals holding less than 5 percent (by value) of the stock of such corporation shall not be taken into fjn-•;*.jt account, and lovoi /r. "^") stock deemed to be owned by a shareholder solely by attribution from a partner under section 544(a)(2) shall be disregarded. "(5) DIVIDENDS MUST EQUAL OR EXCEED EXCESS OF PERSONAL .£.j, H O L D I N G C O M P A N Y I N C O M E OVER 10 PERCENT OF ORDINARY GROSS

INCOME.—

,'<4i ' "(A) IN GENERAL.—The requirements of this paragraph •. rj are inet if the sum of— t -sr.,' "(i) the dividends paid during the taxable year (determined under section 562),

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