Page 57

TITLE 26-INTERNAL REVENUE CODE ditures therefor are properly chargeable to capital account with respect to the proper- ty. (6) Election An election under this subsection may be made at such time and in such manner as the Secretary may by regulations prescribe. Such an election shall apply to the taxable year for which made and to all subsequent taxable years. Such an election, once made, may not be revoked except with the consent of the Secretary. (7) Transitional rules The qualified investment taken into ac- count under this subsection for any taxable year beginning before January 1, 1980, with respect to any property shall be (in lieu of the full amount) an amount equal to the sum of- (A) the applicable percentage of the full amount determined under the following table: For a taxable year The applicable beginning in: percentage is: 1974 or 1975 .................................................... 20 1976 ................................................................. 40 1977 ................................................................. 60 1978 ................................................................. 80 1979 .................................................................. 100; plus (B) in the case of any property to which this subsection applied for one or more pre- ceding taxable years, 20 percent of the full amount for each such preceding taxable year. For purposes of this paragraph, the term "full amount", when used with respect to any property for any taxable year, means the amount of the qualified investment for such property for such year determined under this subsection without regard to this paragraph. (e) Limitations with respect to certain persons (1) In general In the case of- (A) an organization to which section 593 applies, (B) a regulated investment company or a real estate investment trust subject to tax- ation under subchapter M (see. 851 and fol- lowing), and (C) a cooperative organization described in section 1381(a), the qualified investment and the $25,000 amount specified under subparagraphs (A) and (B) of subsection (a)(3) shall equal such person's ratable share of such items. (2) Ratable share For purposes of paragraph (1), the ratable share of any person for any taxable year of the items described therein shall be- (A) in the case of an organization referred to in paragraph (1)(A), 50 percent thereof, (B) in the case of a regulated investment company or a real estate Investment trust, the ratio (i) the numerator of which is its taxable income and (ii) the denominator of which is its taxable income computed with- out regard to the deduction for dividends paid provided by section 852(b)(2)(D) or 857(b)(2)(B), as the case may be, and (C) in the case of a cooperative organiza- tion, the ratio (I) the numerator of which is its taxable income and (ii) the denominator of which Is its taxable income increascd by amounts to which section 1382(b) or (c) ap- plies and similar amounts the tax treatment of which is determined without regard to subchapter T (sec. 1381 and following). For purposes of subparagraph (B) of the pre- ceding sentence, the term "taxable income" means in the case of a regulated investment company its investment company taxable income (within the meaning of section 852(b)(2)), and in the case of a real estate in- vestment trust its real estate investment trust taxable income (within the meaning of sec- tion 857(b)(2)) determined without regard to any deduction for capital gains dividends (as defined in section 857(b)(3)(C) and by exclud- ing any net capital gain. (3) Noneorporate lessors A credit shall be allowed by section 38 to a person which is not a corporation with re- spect to property of which such person is the lessor only if- (A) the property subject to the lease has been manufactured or produced by the lessor, or (B) the term of the lease (taking into ac- count options to renew) is less than 50 per- cent of the useful life of the property, and for the period consisting of the first 12 months after the date on which the proper- ty is transferred to the lessee the sum of the deductions with respect to such proper- ty which are allowable to the lessor solely by reascn of section 162 (other than rents and reimbursed amounts with respect to such property) exceeds 15 percent of the rental income produced by such property. In the case of property of which a partner- ship is the lessor, the credit otherwise al- lowable under section 38 with respect to such property to any partner which is a cor- poration shall be allowed notwithstanding the first sentence of this paragraph. For purposes of this paragraph, an electing small business corporation (as defined in section 1371) shall be treated as a person which is not a corporation. (f) Limitation in case of certain regulated companies (1) General rule Except as otherwise provided in this subsec- tion, no credit shall be allowed by section 38 with respect to any property described in sec- tion 50 which is public utility property (as de- fined In paragraph (5)) of the taxpayer- (A) Cost of service reduction If the taxpayer's cost of service for rate- making purposes is reduced by reason of any portion of the credit allowable by sec- tion 38 (determined without regard to this subsection); or (B) Rate base reduction If the base to which the taxpayer's rate of return for ratemaking purposes is applied is reduced by reason of any portion of the Page 57