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TITLE 26-INTERNAL REVENUE CODE (D) exploring for, or exploiting, oil and gas resources as a trade or business or for the production of income. (2) Separate activities For purposes of this section, a taxpayer's activity with respect to each- (A) film or video tape, (B) section 1245 property which is leased or held for leasing, (C) farm, or (D) oil and gas property (as defined under section 614), shall be treated as a separate activity. A part- ner's interest in a partnership or a sharehold- er's interest in an electing small business cor- poration shall be treated as a single activity to the extent that the partnership or an electing small business corporation is engaged in activities described in any subparagranh of this paragraph. (d) Definition of loss For purposes of this section, the term "loss" means the excess of the deductions allowable under this chapter for the taxable year (deter- mined without regard to this section) and allo- cable to an activity to which this section applies over the income received or accrued by the tax- payer during the taxable year from such activ- ity. (Added Pub. L. 94-455, title II, § 204(a), Oct. 4, 1976, 90 Stat. 1531.) EF-cvEz DATE AND TRANSrrIONAL RuLES Section 204(c) of Pub. L. 94-455 provided that: "(1) In general.-Except as provided in paragraphs (2) and (3), the amendments made by this section [adding this section and amending analysi preced- ing section 461 of this title] shall apply to losses at- tributable to amounts paid or incurred in taxable years beginning after December 31, 1975. For pur- poses of this subsectiorz, any amount allowed or al- lowable for depreciatioin or amortization for any period shall be treated as an amount paid or in- curred in such period. "(2) Special transitional rules for movies and video tapes.- "(A) In general.-In the case of any activity de- scribed in section 465(c)(1)(A) of the Internal Rev- enue Code of 1954 [subsec. (c)(1)(A) of this sec- tion], the amendments made by this section shall not apply to- "(i) deductions for depreciation or amortiza- tion with respect to property the principal pro- duction of which began before September 11, 1975, and for the purchase of which there was on September 11, 1975, and at all times thereafter a binding contract, and "(ii) deductions attributable to producing or distributing property the principal production of which began before September 11, 1975. "(B) Exception for certain agreements where principal photography begin before 1976.-In the case of any activity described in section 465(c)(1)(A) of the Internal Revenue Code of 1954 [subsec. (c)(1)(A) of this section], the amendments made by this section shall not apply to deductions attributable to the producing of a film the princi- pal photography of which began on or before De- cember 31, 1975, if- "(i) on September 10, 1975, there was an agree- ment with the director or a principal motion pic- ture star, or on or before September 10, 1975, there had been expended (or committed to the production) an amount not less than the lower of $100,000 or 10 percent of the estimated costs of producing the film, and "(ii) the production takes place in the United States. Subparagraph (A) shall apply only to taxpayers who held their interests on September 10, 1975. Subpara- graph (B) shall apply only to taxpayers who held their interests on December 31, 1975. "(3) Special transitional rules for leasing activi- ties.- "(A) Rule for leases other than operating leases.-In the case of any activity described in sec- tion 465(c)(1)(B) of the Internal Revenue Code of 1954 (subsec. (c)(1)(B) of this section], the amend- ments made by this section shall not apply with re- spect to- "(i) leases entered into before January 1, 1976, and "(i) leases where the property was ordered by the lessor or lessee before January 1, 1976. "(B) Holding of interests for purposes of subpar- agraph (A)--Subparagraph (A) shall apply only to taxpayers who held their interests in the property on December 31, 1975. "(C) Special rule for operating leases.-In the case of a lease described in section 46(e)(3)(B) of the Internal Revenue Code of 1954 [section 46(e)(3)(B) of this title]- "(i) subparagraph (A) shall be applied by sub- stituting 'May 1. 1976' for 'January 1, 1976' each place it appears therein, and "(if) subparagraph (B) shall be applied by sub. stituting 'April 30, 1976' for 'December 31, 1975'." SECTION REuERRED TO IN OTHER SECTIONS This section is referred to in section 704 of this title. SUBPART D-INVENTORIES Sec. 471. General rule for inventories. 472. Last-in, first-out inventories. § 471. General rule for inventories Whenever in the opinion of the Secretary the use of inventories is necessary in order clearly to determine the income of any taxpayer, in- ventories shall be taken by such taxpayer on such basis as the Secretary may prescribe as conforming as nearly as may be to the best ac- counting practice in the trade or business and as most clearly reflecting the income. (Aug. 16, 1954, ch. 736, 68A Stat. 159; Oct. 4, 1976, Pub. L. 94-455, title XIX, § 1906(b)(13)(A), 90 Stat. 1834.) AMENDMENTS 1976-Pub. L. 94-455 struck out "or his delegate" fol- lowing "Secretary" wherever appearing. CROSS RarEzRNczs Basis of property included in inventory, see section 1013 of this title. LIFO inventory, taxability of corporation on distri- bution, see section 311 of this title. SETION R17EIM TO IN OTHR SECTIONs This section is referred to in sections 311, 472 of this title. § 472. Last-in, first-out inventories (a) Authorization A taxpayer may use the method provided in subsection (b) (whether or not such method has been prescribed under section 471) in inventory- ing goods specified in an application to use such Page 37/0