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TITLE 26-INTERNAL REVENUE CODE basis of any property disposed of it, by reason of section 47, such disposition in- volved an increase of tax or a reduction of the unused credit carrybacks or carryovers described in section 46(b). (C) Controlled group The term "controlled group" has the meaning assigned to such term by section 1563(a), except that the phrase "more than 50 percent" shall be substituted for the phrase "at least 80 percent" each place it appears in section 1563(a)(1). (d) Certain leased property (1) General rule A person (other than a person referred to in section 46(e)(1)) who is a lessor of property may (at such time, in such manner, and sub- ject to such conditions as are provided by reg- ulations prescribed by the Secretary) elect with respect to any new section 38 property (other than property described in paragraph (4)) to treat the lessee as having acquired such property for an amount equal to- (A) except as provided in subparagraph (B), the fair market value of such property, or (B) if the property is leased by a corpora- tion which Is a component member of a con- trolled group (within the meaning of sec- tion 46(a)(5)) to another corporation which is a component member of the same con- trolled group, the basis of such property to the lessor. (2) Special rule for certain short term leases (A) In general A person (other than a person referred to in section 46(e)(1)) who is a lessor of proper- ty described in paragraph (4) may (at such time, in such manner, and subject to such conditions as are provided by regulations prescribed by the Secretary) elect with re- spect to such property to treat the lessee as having acquired a portion of such property for the amount determined under subpara- graph (B). (B) Determinatiorc of lessee's investment The amount for which a lessee of proper- ty described in paragraph (4) shall be treat- ed as having acquired a portion of such property is an amount equal to a fraction, the numerator of which is the term of the lease and the denominator of which is the class life of the property leased (determined under section 167(m)), of the amount for which the lessee would be treated as having acquired the property under paragraph (1). (C) Determination of lessor's qualified invest- ment The qualified investment of a lessor of property described in paragraph (4) in any such property with respect to which he has made an election under this paragraph is an amount equal to his qualified investment in such property (as determined under section 46(c)) multiplied by a fraction equal to the excess of one over the fraction used under subparagraph (B) to determine the lessee's investment in such property. (3) Limitations The elections provided by paragraphs (1) and (2) may be made with respect to property which would be new section 38 property if ac- quired by the lessee. For purposes of the pre- ceding sentence and section 46(c), the'useful life of property in the hands of the lessee is the useful life of such property in the hands of the lessor. If a lessor makes the election provided by paragraph (1) with respect to any property, the lessee shall be treated for all purposes of this subpart as having acquired such property. If a lessor makes the election provided by paragraph (2) with respect to any property, the lessee shall be treated for all purposes of this subpart as having acquired a fractional portion of such property equal to the fraction determined under paragraph (2)(B) with respect to such property. (4) Property to which paragraph (2) applies Paragraph (2) shall apply only to property which- (A) is new section 38 property, (B) has a class life (determined under sec- tion 167(m)) in excess of 14 years, (C) is leased for a period which is less than 80 percent of its class life, and (D) is not leased subject to a net lease (within the meaning of section 57(c)(2)). (e) Subchapter S corporations In the case of an electing small business cor- poration (as defined in section 1371)- (1) the qualified investment for each tax- able year shall be apportioned pro rata among the persons who are shareholders of such corporation on the last day of such tax- able year; and (2) any person to whom any investment has been apportioned under paragraph (1) shall be treated (for purposes of this subpart) as the taxpayer with respect to such investment, and such investment shall not (by reason of such apportionment) lose its character as an investment in new section 38 property or used section 38 property, as the case may be. (f) Estates and trusts In the case of an estate or trust- (1) the qualified investment for any taxable year shall be apportioned between the estate or trust and the beneficiaries on the basis of the income of the estate or trust allocable to each, (2) any beneficiary to whom any investment has been apportioned under paragraph (1) shall be treated (for purposes of this subpart) as the taxpayer with respect to such invest- ment, and such investment shall not (by reason of such apportionment) lose its char- acter as an investment in new section 38 prop- erty or used section 38 property, as the case may be, and (3) the $25,000 amount specified under sub- paragraphs (A) and (B) of section 46(a)(3) ap- plicable to such estate or trust shall be re- duced to an amount which bears the same ratio to $25,000 as the amount of the quali- fied investment allocated to the estate or trust under paragraph (1) bears to the entire amount of the qualified investment. Page 71