78 STAT. ]
PUBLIC LAW 88-272-FEB. 26, 1964
91
a deduction amounts used, or amounts irrevocably set aside (to the extent reasonable with reference to the size and terms of the indebtedness), to pay or retire qualified indebtedness. "(2) CORPORATIONS TO WHICH APPLICABLE.—This subsection shall apply only with respect to a corporation— " (A) which for at least one of the two most recent taxable years ending before the date of the enactment of this subsection was not a personal holding company under section 542, g^tl^^^^yl' ^^^' but would have been a personal holding company under sec- 26 USC S42. tion 542 for such taxable year if the law applicable for the first taxable year beginning after December 31, 1963, had been applicable to such taxable year, or " (B) to the extent that it succeeds to the deduction referred 26 USC 381. to in paragraph (1) by reason of section 381(c) (15). Post, p. 92. " (3) Q U A L I F I E D INDEBTEDNESS.—
" (A) IN GENERAL.—Except as otherwise provided in this paragraph, for purposes of this subsection the term 'qualified indebtedness' means— " (i) the outstanding indebtedness incurred by the taxpayer after December 31, 1933, and before January 1, 1964, and "(ii) the outstanding indebtedness incurred after December 31, 1963, for the purpose of making a payment or set-aside referred to in paragraph (1) in the same taxable year, but, in the case of such a payment or setaside which is made on or after the first day of the first taxable year beginning after December 31, 1963, only to the extent the deduction otherwise allowed in paragraph (1) with respect to such payment or set-aside is treated as nondeductible by reason of the election provided in paragraph (4). " (B) EXCEPTION.—For purposes of subparagraph (A), qualified indebtedness does not include any amounts which were, at any time after December 31, 1963, and before the payment or set-aside, owed to a person who at such time owned (or was considered as owning within the meaning of section 318(a)) more than 10 percent in value of the taxpayer's outstanding stock. "(C)
REDUCTION FOR AMOUNTS IRREVOCABLY SET ASIDE.—
For purposes of subparagraph (A), the qualified indebtedness with respect to a contract shall be reduced by amounts irrevocably set aside before the taxable yetir to pay or retire such indebtedness; and no deduction shall be allowed under paragraph (1) for payments out of amounts so set aside. "(4) ELECTION NOT TO DEDUCT.—A taxpayer may elect, under regulations prescribed by the Secretary or his delegate, to treat as nondeductible an amount otherwise deductible under paragraph (1); but only if the taxpayer files such election on or before the 15th day of the third month following the close of the taxable year with respect to which such election applies, designating therein the amounts which are to be treated as nondeductible and specifying the indebtedness (referred to in paragraph (3)(A) ( i i)) incurred for the puriK)se of making the payment or set-aside. " (5) LIMITATIONS.—The deduction otherwise allowed by this subsection for the taxable year shall be reduced by the. sum of—
26 USC ais.
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