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TITLE 26-INTERNAL REVENUE CODE (i) the numerator of which is the number of calendar years of active partici- pation by the employee in such plan after December 31, 1973, and (ii) the denominator of which is the number of calendar years of active partici- pation by the employee in such plan. (F) Employee For purposes of this subsection and sub- section (a)(2), except as otherwise provided in subparagraph (A), the term "employee" includes an individual who is an employee within the meaning of section 401(c)(1) and the employer of such individual is the person treated as his employer under sec- tion 401(c)(4). (G) Community property laws The provisions of this subsection, other than paragraph (3), shall be applied with- out regard to community property laws. (H) Minimum period of service For purposes of this subsection (but not for purposes of subsection (a)(2) or section 403(a)(2)(A)), no amount distributed to an employee from or under a plan may be treated as a lump sum distributed under subparagraph (A) unless he has been a par- ticipant in the plan for 5 or more taxable years before the taxable year in which such amounts are distributed. (I) Amounts subject to penalty This subsection shall not apply to amounts described in clause (ii) of subpara- graph (A) of section 72(m)(5) to the extent that section 72(m)(5) applies to such amounts. (Q) Unrealized appreciation of employer securi- ties In the case of any distribution including securities -,. the employer corporation which, without regard to the requirement of subparagraph (H), would be treated as a lump sum distribution under subparagraph (A), there shall be excluded from gross income the net unrealized appreciation at- tributable to that part of the distribution which consists of securities of the employer corporation so distributed. In the case of any such distribution or any lump sum dis- tribution including securities of the employ- er corporation, the amount of net unrea- lized appreciation of such securities and the resulting adjustments to the basis of such securities shall be determined under regula- tions prescribed by the Secretary. (K) Securities For purposes of this subsection, the terms securities and securities of the employer corporation have the respective meanings provided by subsection (a)(3). L) Election to treat pre-1973 participation as post-1973 participation For purposes of subparagraph (E), subsec- tion (a)(2), and section 403(a)(2), if a tax- payer elects (at the time and in the manner provided under regulations prescribed by the Secretary), all calendar years of an em- ployee's active participation in all plans in which the employee has been an active par- ticipant shall be considered years of active participation by such employee after De- cember 31, 1973. An election made under this subparagraph, once made, shall be ir- revocable and shall apply to all lump-sum distributions received by the taxpayer with respect to the employee. This subparagraph shall not apply if the taxpayer received a lump-sum distribution in a previous taxable year of the employee beginning after De- cember 31, 1975, unless no portion of such lump-sum distribution was treated under subsection (a)(2) or section 403(a)(2) as gain from the sale or exchange of a capital asset held for more than 9 months. (Aug. 16, 1954, ch. 736, 68A Stat. 135; Apr. 22, 1960, Pub. L. 86-437, §§ 1, 2(a), 74 Stat. 79; Oct. 10, 1962, Pub. L. 87-792, § 4(c), 76 Stat. 825; Feb. 26, 1964, Pub. L. 88-272, title II, §§ 221(c)(1), 232(e)(1)-(3), 78 Stat. 75, 111; Dec. 30, 1969, Pub. L. 91-172, title III, §321(b)(1), title V, 515(a)(1), 83 Stat. 590, 643; Sept. 2, 1974, Pub. L. 93-406, title II, §§ 2002(g)(5), 2005(a), (b)(1), (c)(1), (2). 88 Stat. 968, 987, 990, 991: Apr. 15, 1976, Pub. L. 94-267, § 1(a), 90 Stat. 365: Oct. 4, 1976, Pub. L. 94-455, title XIV, § 1402(b)(1)(C), title XV, § 1512(a), title XIX, §§ 1901(a)(57)(A)- (C)(i), 1906(b)(13)(A), 90 Stat. 1731, 1732, 1742, 1773, 1774, 1834.) TAXABLE YEARs ArrR 1977 Subsecs. (a)(2) and (e)(4)(L) of this sec- tion amended by Pub. L. 94-455, title XIV, § 1402(b)(2), Oct. 4, 1976, 90 Stat. 1732, effec- tive for tax.able years beginning after Dec. 31, 1977, by substituting "1 year" for "9 months". AMENDMENTS 1976-Subsec. (a)(1). Pub. L. 94-455, § 1906(b)(13)(A), struck out "or his delegate" following "Secretary". Subsec. (a)(2). Pub. L. 94-455, §§ 1402(b)(1)(C), 1906(b)(13)(A), provided that "6 months" would be changed to "9 months" for taxable years beginning in 1977 and struck out "or his delegate" following "Secre- tary". Subsec. (a)(4). Pub. L. 94-455, § 1901(a)(57)(A), sub- stituted "basic pay" for "basic salary", "civil service re- tirement laws" for "Civil Service Retirement Act (5 U.S.C. 2251)". and "section 8331(3) of title 5, United States Code" for "section 1(d) of such Act". Subsec. (a)(5). Pub. L. 94-267. § 1(a)(2), substituted "a payment" for "the lump-sum distribution". Subsec. (a)(5)(A). Pub. L. 94-267, § 1(a)(1), restruc- tured provision by adding cl. (1) and designating exist- ing provision as cl. (i1). Subsec. (a)(6). Pub. L. 94-267. § 1(a)(3), added par. (a)(6). Subsec. (a)(6)(A), Pub. L. 94-455. § 1906(b)(13)(A), struck out "or his delegate" following "Secretary". Subsec. (d). Pub. L. 94-455, § 1901(a)(57)(B), struck out subsec. (d) which related to certain trust agree- ments made before Oct. 21, 1942. Subsec. (e)(2). Pub. L. 94-455, § 1906(b)(13)(A), struck out "or his delegate" following "Secretary". Subsec. (e)(4)(A). Pub. L. 94-455, § 1901(a)(57)(C)(i), substituted "Except for purposes of subsection (a)(2) and section 403(a)(2)" for "For purposes of this sub- paragraph". Subsec. (e)(4)(B), (J). Pub. L. 94-455, § 1906(b)(13)(A). struck out "or his delegate" following "Secretary". Page 300 § 402