,,ii #aaith ,,congress #ast ,session ,s4 #bjag ,,in ,,the ,,senate ,,of ,,the ,,united ,,states ,june #aj1 #bjbe ,mr4 ,sheehy introduced the following bill2 which was read twice and referred to the ,committee on ,finance ,a ,,bill ,to amend the ,internal ,revenue ,code of #aihf to provide for ,s corporation reform1 and for other purposes4 #a4 ,short title2 reference 7a7 ,short ,title ,this ,act may be cited as the ,s ,corporation ,modernization ,act of #bjbe4 7b7 ,amendment of #aihf ,code ,except as otherwise expressly provided1 whenever in this ,act an amendment or repeal is expressed in terms of an amendment to1 or repeal of1 a section or other provision1 the reference shall be considered to be made to a section or other provision of the ,internal ,revenue ,code of #aihf4 #b4 ,treatment of ,s corporation built-in gain amount upon death of shareholder 7a7 ,in general ,part ,,ii of subchapter ,s of chapter #a is amended by adding at the end the following3 #acfi4 ,treatment of ,s corporation built-in gain amount upon death of shareholder 7a7 ,in general ,a person holding stock in an electing ,s corporation the basis of which is determined under section #ajad7;a7 7hereafter in this section referred to as the shareholder7 shall be allowed a deduction with respect to the amortizable ,s corporation built-in gain amount4 ,except as provided under subsection 7b71 the amount of such deduction for any taxable year shall be determined by amortizing the amortizable ,s corporation built-in gain amount over the #ae-year period beginning with the month which includes the applicable valuation date4 7b7 ,deduction in case of disposition of ,s corporation property 7#a7 ,accelerated deduction in case of disposition of amortizable ,s corporation built-in gain property 7,a7 ,in general ,if there is a disposition of any amortizable ,s corporation built-in gain property1 then the deduction allowed under subsection 7a7 with respect to any stock 7determined without regard to paragraph 7#b77 for the taxable year of the shareholder in which or with which the taxable year of the ,s corporation which includes the date of such disposition ends1 shall 7except as otherwise provided in this section7 not be less than the lesser of-- 7i7 the pro rata share of the gain recognized on such disposition1 or 7ii7 the amount determined under subsection 7c77#a77;,b7 by only taking into account such property4 7,b7 ,overall allowance not increased ,except as provided in paragraph 7#b71 no deduction shall be allowed under subsection 7a7 with respect to any stock for any taxable year to the extent that such deduction 7when added to the deductions attributable to amortizable ,s corporation built-in gain property so allowed for all prior taxable years7 exceeds the amortizable ,s corporation built-in gain amount with respect to such stock4 7#b7 ,additional deduction in case of disposition of nonamortizable ,s corporation built-in gain property 7,a7 ,in general ,if there is a disposition of any nonamortizable ,s corporation built-in gain property1 then the amount allowable as deduction under subsection 7a7 with respect to any stock for the taxable year of the shareholder in which or with which the taxable year of the ,s corporation which includes the date of disposition ends1 shall be increased by the lesser of-- 7i7 the pro-rata share of the gain recognized on such disposition1 or 7ii7 the amount determined under subsection 7c77#a77;,b7 by only taking into account such property4 7,b7 ,limitation ,subparagraph 7,a7 shall not apply with respect to any stock for any taxable year to the extent that such increase 7when added to the increased deductions so allowed under subparagraph 7,a7 for all prior taxable years7 exceeds the non-amortizable ,s corporation built-in gain amount with respect to such stock4 7c7 ,definitions and special rules ,for purposes of this section-- 7#a7 ,s corporation built-in gain amount ,the term ,s corporation built-in gain amount means the lesser of-- 7,a7 the excess 7if any7 of-- 7i7 the basis of the stock referred to in subsection 7a7 as determined under section #ajad7;a71 over 7ii7 the adjusted basis of such stock immediately before the death of the decedent1 or 7,b7 the pro rata share 7determined as of the applicable valuation date7 of-- 7i7 the aggregate fair market value of all property held by the ,s corporation which is amortizable ,s corporation built-in gain property or nonamortizable ,s corporation built-in gain property1 over 7ii7 the aggregate adjusted basis of all such property held by the ,s corporation as of such date4 7#b7 ,amortizable ,s corporation built-in gain property ,the term amortizable ,s corporation built-in gain property means1 as of the applicable valuation date1 the ,s corporation property that is of a character subject to depreciation or amortization4 7#c7 ,amortizable ,s corporation built-in gain amount ,the term amortizable ,s corporation built-in gain amount means the pro rata share of the portion of the ,s corporation built-in gain amount that is attributable to amortizable ,s corporation built-in gain property4 7#d7 ,non-amortizable ,s corporation built-in gain property ,the term non-amortizable ,s corporation built-in gain property means1 as of the applicable valuation date1 the ,s corporation property that is not of a character subject to depreciation or amortization 7other than an equity interest in an electing ,s corporation partnership74 7#e7 ,non-amortizable ,s corporation built-in gain amount ,the term non-amortizable ,s corporation built-in gain amount means the pro rata share of the portion of the ,s corporation built-in gain amount that is attributable to non-amortizable ,s corporation built-in gain property4 7#f7 ,special rule for partnership interests ,if an electing ,s corporation owns1 directly or indirectly1 an equity interest in an electing ,s corporation partnership1 including a lower-tier electing ,s corporation partnership1 the amortizable ,s corporation built-in gain property and the non-amortizable ,s corporation built-in gain property shall include the electing ,s corporation's distributive share of such property held by the partnership4 ,rules similar to the rules under paragraphs 7#a71 7#b71 7#c71 7#d71 and 7#e7 of this subsection shall apply to determine the electing ,s corporation's distributive share of the amortizable ,s corporation built-in gain property and the non-amortizable ,s corporation built-in gain property held by such partnership for purposes of this section4 ,for purposes of subsection 7b71 a disposition of an interest in an electing ,s corporation partnership shall be treated as a disposition of the electing ,s corporation's distributive share of the property held by such partnership4 7#g7 ,electing ,s corporation ,the term electing ,s corporation means1 with respect to any shareholder1 any ,s corporation which elects the application of this section with respect to such shareholder at such time and in such form and manner as the ,secretary may prescribe4 7#h7 ,electing ,s corporation partnership ,the term electing ,s corporation partnership means1 with respect to any shareholder1 any equity interest in a partnership owned directly or indirectly by the electing ,s corporation1 including a lower-tier partnership1 for which the ,s corporation elects the application of this section with respect to such shareholder at such time and in such form and manner as the ,secretary may prescribe4 7#i7 ,applicable valuation date ,the term applicable valuation date means-- 7,a7 in the case of a decedent with respect to which the executor of the decedent's estate elects the application of section #bjcb1 the date months after the decedent's death1 and 7,b7 in the case of any other decedent1 the date of the decedent's death4 7d7 ,recharacterization of gains as ordinary income to extent of deduction ,if-- 7#a7 stock of an ,s corporation with respect to which a deduction was allowed under this section1 7#b7 amortizable ,s corporation built-in gain property with respect to which a deduction was allowed under subsection 7b77#a71 or 7#c7 nonamortizable ,s corporation built-in gain property with respect to which a deduction was allowed under subsection 7b77#b71 is disposed of at a gain 7determined without regard to whether or not such gain is recognized and reduced by any amount of gain which is treated as ordinary income under any other provision of this subtitle71 the amount of such gain 7or the shareholder's pro rata share of such gain in the case of property described in paragraph 7#b7 or 7#c77 shall be treated as gain which is ordinary income 7and shall be recognized notwithstanding any other provision of this subtitle7 to the extent of the excess of the aggregate deductions allowable under this section with respect to such stock for the taxable year of such disposition and all prior taxable years over the amounts taken into account under this subsection for all prior taxable years4 7e7 ,termination of deduction ,no deduction shall be allowed under subsection 7a7 with respect to any stock in an electing ,s corporation with respect to any period beginning after the earlier of-- 7#a7 the date on which the corporation's election under section #acfb terminates1 or 7#b7 the date on which the shareholder transfers such stock to any other person4 7f7 ,treatment of certain transfers 7#a7 ,distributions from estates or trusts ,notwithstanding any other provision of this section1 in the case of a distribution of stock from an estate or trust to a beneficiary1 the beneficiary 7and not the estate or trust7 shall be treated as the shareholder to which this section applies with respect to periods after such distribution4 7#b7 ,certain transfers involving spouses ,notwithstanding any other provision of this section1 in the case of a transfer described in section1 the transferee 7and not the transferor7 shall be treated as the shareholder to which this section applies with respect to periods after such transfer4 7#c7 ,gifts ,notwithstanding any other provision of this section1 in the case of a gift1 the donee 7and not the donor7 shall be treated as the shareholder to which this section applies with respect to periods after such gift4 7#d7 ,transfers to trusts ,notwithstanding any other provision of this section1 in the case of a transfer to a trust1 the trust 7and not the transferor7 shall be treated as the shareholder to which this section applies with respect to periods after such transfer4 7g7 ,treatment of income in respect of the decedent 7#a7 ,adjustment to built-in gain of property held by s corporation ,for purposes of subsection 7c77#a77;,b71 the fair market value of any property taken into account under subparagraph 7,b77i7 thereof shall be decreased by any amount of income in respect of the decedent with respect to such property to which section #fia applies4 ,for purposes of subsections 7b77#a77;,a7 and 7b77#b77;,a71 the gain recognized on the disposition of such property shall be reduced by such amount4 7#b7 ,adjustment to basis of s corporation stock ,for adjustment to basis of ,s corporation stock1 see section #acfg7;b77#d77;,b74 7h7 ,reporting ,except as otherwise provided by the ,secretary1 for purposes of section #fjcg1 the amounts determined under subsections 7b77#a71 7b77#b71 7c77#a77;,b71 7c77#c71 7c77#e71 7c77#f71 7d77#b71 and 7d77#c7 shall be treated as items of the corporation and the pro rata share determined under such subsection shall be furnished to the shareholder under section #fjcg7;b74 4 7b7 ,adjustment to basis of stock 7#a7 ,in general ,section #acfg7;a77#b7 is amended by striking and at the end of subparagraph 7,d71 by striking the period at the end of subparagraph 7,e7 and inserting 1 and1 and by inserting after subparagraph 7,e7 the following new subparagraph3 7,f7 the amount of the shareholder's deduction under section #acfi4 4 7#b7 ,adjustment not taken into account in determining treatment of distributions ,section #acfh is amended-- 7,a7 in subsection 7d77#a71 by inserting 7other than subsection 7a77#b77;,f7 thereof7 after section #acfg1 and 7,b7 in subsection 7e77#a77;,a7-- 7i7 by striking this title and the phrase and inserting this title1 the phrase1 and 7ii7 by inserting 1 and no adjustment shall be made under section #acfg7;a77#b77;,f7 after section #acfg7;a77#b74 7c7 ,clerical amendment ,the table of sections for part ,,ii of subchapter ,s of chapter #a is amended by adding at the end the following new item3 ,sec4 #acfi4 ,treatment of ,s corporation built-in gain amount upon death of shareholder4 4 7d7 ,effective date ,the amendments made by this section shall apply with respect to decedents dying after the date of the enactment of this ,act1 in taxable years ending after such date4 #c4 ,modifications to ,s corporation passive investment income rules 7a7 ,increased percentage limit ,section #acge7;a77#b7 is amended by striking #be percent and inserting #fj percent4 7b7 ,repeal of excessive passive income as a termination event ,section #acfb7;d7 is amended by striking paragraph 7#c74 7c7 ,conforming amendments 7#a7 ,section #acge7;b7 is amended by striking paragraphs 7#c7 and 7#d7 and inserting the following new paragraph3 7#c7 ,passive investment income defined 7,a7 ,in general ,except as otherwise provided in this paragraph1 the term passive investment income means gross receipts derived from royalties1 rents1 dividends1 interest1 and annuities4 7,b7 ,exception for interest on notes from sales of inventory ,the term passive investment income shall not include interest on any obligation acquired in the ordinary course of the corporation's trade or business from its sale of property described in section #abba7;a77#a74 7,c7 ,treatment of certain lending or finance companies ,if the ,s corporation meets the requirements of section #edb7;c77#f7 for the taxable year1 the term passive investment income shall not include gross receipts for the taxable year which are derived directly from the active and regular conduct of a lending or finance business 7as defined in section #edb7;d77#a774 7,d7 ,treatment of certain dividends ,if an ,s corporation holds stock in a ,c corporation meeting the requirements of section #aejd7;a77#b71 the term passive investment income shall not include dividends from such ,c corporation to the extent such dividends are attributable to the earnings and profits of such ,c corporation derived from the active conduct of a trade or business4 7,e7 ,exception for banks1 etc ,in the case of a bank 7as defined in section #eha7 or a depository institution holding company 7as defined in section #c7w77#a7 of the ,federal ,deposit ,insurance ,act 7#ab ,u4,s4,c4 #ahac7w77#a7771 the term passive investment income shall not include-- 7i7 interest income earned by such bank or company1 or 7ii7 dividends on assets required to be held by such bank or company1 including stock in the ,federal ,reserve ,bank1 the ,federal ,home ,loan ,bank1 or the ,federal ,agricultural ,mortgage ,bank or participation certificates issued by a ,federal ,intermediate ,credit ,bank4 7,f7 ,gross receipts from the sales of certain assets ,for purposes of this paragraph-- 7i7 ,capital assets other than stock and securities ,in the case of dispositions of capital assets 7other than stock and securities71 gross receipts from such dispositions shall be taken into account only to the extent of capital gain net income therefrom4 7ii7 ,stock and securities ,in the case of sales or exchanges of stock or securities1 gross receipts shall be taken into account only to the extent of the gain therefrom4 7,g7 ,coordination with section #acgd ,the amount of passive investment income shall be determined by not taking into account any recognized built-in gain or loss of the ,s corporation for any taxable year in the recognition period4 ,terms used in the preceding sentence shall have the same respective meanings as when used in section #acgd4 4 7#b7 7,a7 ,section #bf7;b77#b77;,j7 is amended by striking #be percent and inserting #fj percent4 7,b7 ,section #acge7;b77#a77;,a77i7 is amended by striking #be percent and inserting #fj percent4 7,c7 ,the heading for section #acge is amended by striking #be percent and inserting #fj percent4 7,d7 ,the item relating to section #acge in the table of sections for part ,,iii of subchapter ,s of chapter #a is amended by striking #be percent and inserting #fj percent4 7#c7 ,section #ajdb7;c77#d77;,a77i7 is amended by striking section #acfb7;d77#c77;,c7 and inserting section #acge7;b77#c74 7#d7 ,section #acfb7;f77#a77;,b7 is amended by striking paragraph 7#b7 or 7#c7 of subsection 7d7 and inserting subsection 7d77#b74 7d7 ,effective ,date ,the amendments made by this section shall apply to taxable years beginning after ,december #ca1 #bjbd4 #d4 ,nonresident alien individuals permitted as ,s corporation shareholders 7a7 ,in general ,section #acfa7;b77#a7 is amended by adding and at the end of subparagraph 7,b71 by striking subparagraph 7,c71 and by redesignating subparagraph 7,d7 as subparagraph 7,c74 7b7 ,gain or loss of nonresident aliens from sale or exchange of ,s corporation stock ,section #hfd7;c7 is amended by adding at the end the following new paragraph3 7#i7 ,gain or loss of nonresident aliens from sale or exchange of ,s corporation stock 7,a7 ,in general ,notwithstanding any other provision of this subtitle1 if a nonresident alien individual owns1 directly or indirectly1 stock of an ,s corporation which is engaged in any trade or business within the ,united ,states1 gain or loss on the sale or exchange of all 7or any portion of7 such stock shall be treated as effectively connected with the conduct of such trade or business to the extent such gain or loss does not exceed the amount determined under subparagraph 7,b74 7,b7 ,amount treated as effectively connected ,the amount determined under this subparagraph with respect to any ,s corporation stock sold or exchanged-- 7i7 in the case of any gain on the sale or exchange of the ,s corporation stock1 is-- 7,i7 the portion of the shareholder's pro rata share of the amount of gain which would have been effectively connected with the conduct of a trade or business within the ,united ,states if the ,s corporation had sold all of its assets at their fair market value as of the date of the sale or exchange of such stock1 or 7,,ii7 zero if no gain on such deemed sale would have been so effectively connected1 and 7ii7 in the case of any loss on the sale or exchange of the ,s corporation stock1 is-- 7,i7 the portion of the shareholder's pro rata share of the amount of loss on the deemed sale described in clause 7i77,i7 which would have been so effectively connected1 or 7,,ii7 zero if no loss on such deemed sale would have been so effectively connected4 7,c7 ,application of certain other rules ,except as otherwise provided by the ,secretary1 rules similar to the rules of subparagraphs 7,c71 7,d71 and 7,e7 of paragraph 7#h7 shall apply for purposes of this paragraph4 4 7c7 ,withholding tax ,subchapter ,a of chapter #c is amended by adding at the end the following new section3 #addg4 ,withholding tax on nonresident alien ,s corporation shareholder's pro rata share of effectively connected income 7a7 ,in general ,if-- 7#a7 an ,s corporation has effectively connected taxable income for any taxable year1 and 7#b7 any shareholder of such ,s corporation is a nonresident alien1 such ,s corporation shall pay a withholding tax under this section at such time and in such manner as the ,secretary may provide4 7b7 ,amount of withholding tax ,the amount of the withholding tax payable by any ,s corporation under subsection 7a7 shall be equal to the product of-- 7#a7 the highest rate of tax specified in section #a1 multiplied by 7#b7 the aggregate pro rata shares of the effectively connected taxable income of such ,s corporation with respect to shareholders who are nonresident aliens4 7c7 ,effectively connected taxable income ,for purposes of this section1 the term effectively connected taxable income means the taxable income of the ,s corporation which is effectively connected 7or treated as effectively connected7 with the conduct to a trade or business in the ,united ,states4 ,for purposes of the preceding sentence1 the ,s corporation shall be allowed a deduction for depletion with respect to oil and gas wells but the amount of such deduction shall be determined without regard to sections #fac and #fac;,a4 7d7 ,treatment of nonresident alien shareholders 7#a7 ,allowance of credit ,each nonresident alien who is a shareholder of an ,s corporation shall be allowed a credit under section #cc for such shareholder's share of the withholding tax paid by the ,s corporation under this section4 ,such credit shall be allowed for the shareholder's taxable year in which 7or with which7 the ,s corporation taxable year 7for which such tax was paid7 ends4 7#b7 ,credit treated as distributed to shareholder ,except as provided in regulations1 a nonresident alien shareholder's share of any withholding tax paid by the ,s corporation under this section shall be treated as distributed to such shareholder by such ,s corporation on the earlier of-- 7,a7 the day on which such tax was paid by the ,s corporation1 or 7,b7 the last day of the ,s corporation's taxable year for which such tax was paid4 7e7 ,special rules for withholding on dispositions of ,s corporation stock 7#a7 ,in general ,except as provided in this subsection1 if any portion of the gain 7if any7 on any disposition of stock in an ,s corporation would be treated under section #hfd7;c77#i7 as effectively connected with the conduct of a trade or business within the ,united ,states1 the transferee shall be required to deduct and withhold a tax equal to #aj percent of the amount realized on the disposition4 7#b7 ,exception if nonforeign affidavit furnished2 other special rules ,except as otherwise provided by the ,secretary1 rules similar to the rules of paragraphs 7#b7 through 7#f7 of section #addf7;f7 shall apply for purposes of this subsection4 7f7 ,regulations ,the ,secretary shall prescribed such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section1 including regulations or other guidance providing-- 7#a7 that for purposes of section #ffee1 the withholding tax imposed under this section shall be treated as a tax imposed by section #aa and any ,s corporation required to pay such tax shall be treated as a corporation to which such section applies1 and 7#b7 appropriate adjustments in applying section #ffee with respect to such withholding tax4 4 7d7 ,conforming amendments 7#a7 ,section #acfa7;c77#b77;,b77v7 is amended by striking the last sentence4 7#b7 ,section #fdja7;b77#b7 is amended by inserting or #addg after section #addf4 7#c7 ,the table of sections for subchapter ,a of chapter #c is amended by adding at the end the following new item3 ,sec4 #addg4 ,withholding tax on nonresident alien ,s corporation shareholder's pro rata share of effectively connected income4 4 7e7 ,effective dates 7#a7 ,in general ,except as otherwise provided in this subsection1 the amendments made by this section shall apply to taxable years beginning after ,december #ca1 #bjbd4 7#b7 ,gain or loss2 withholding ,the amendments made by subsections 7b71 7c71 7d77#b71 and 7d77#c7 shall apply to sales1 exchanges1 and dispositions after ,december #ca1 #bjbd4 #e4 ,employees of a firm counted as a single shareholder toward shareholder limit of ,s corporation 7a7 ,in general ,subsection 7c7 of section #acfa is amended by adding at the end the following3 7#g7 ,employees treated as one shareholder 7,a7 ,in general ,for purposes of subsection 7b77#a77;,a71 there shall be treated as one shareholder all employees 7and their estates7 of a corporation and any wholly owned business entities 7as determined by the ,secretary7 of such corporation4 7,b7 ,employee defined ,for purposes of this paragraph1 the term employee means any individual that would be an employee described under paragraph 7#a7 or 7#b7 of section #caba7;d74 4 7b7 ,effective date ,the amendment made by this section shall apply to taxable years beginning after ,december #ca1 #bjbd4 #f4 ,expansion of ,s corporation eligible shareholders to include ,i,r,as 7a7 ,in ,general ,section #acfa7;c77#b77;,a77vi7 is amended to read as follows3 7vi7 ,a trust which constitutes an individual retirement account under section #djh7;a71 including one designated as a ,roth ,,ira under section #djh;,a4 4 7b7 ,sale of ,stock in ,,ira ,relating to ,s ,corporation ,election ,exempt ,from ,prohibited ,transaction ,rules ,section #dige7;d77#af7 is amended-- 7#a7 by striking subparagraphs 7,a7 and 7,b7 and by redesignating subparagraphs 7,c71 7,d71 7,e71 and 7,f7 as subparagraphs 7,a71 7,b71 7,c71 and 7,d71 respectively1 and 7#b7 by striking such bank or company in subparagraph 7,a7 7as so redesignated7 and inserting the issuer of such stock4 7c7 ,effective ,date ,the amendments made by this section shall take effect on ,january #a1 #bjbf4 #g4 ,transfer of suspended losses incident to death 7a7 ,in general ,section #acff7;d77#b77;,b7 is amended by inserting 1 or any transfer incident to the death of the transferor1 after any transfer described in section #ajda7;a74 7b7 ,effective date ,the amendment made by this section shall apply to transfers incident to deaths occurring after the date of the enactment of this ,act4 #h4 ,repeal of inclusion in gross income of deferred compensation under nonqualified deferred compensation plans 7a7 ,in general ,subpart ,a of part ,i of subchapter ,d of chapter #a is amended by striking section #dji;,a 7and by striking the item relating to such section from the table of sections for such subpart74 7b7 ,conforming amendments 7#a7 ,section #bf7;b77#b7 is amended by striking subparagraph 7,v7 and by redesignating subparagraphs 7,w7 through 7,z7 as subparagraphs 7,v7 through 7,y71 respectively4 7#b7 ,section #dcj7;c77#g77;,d77iv77,i7 is amended by inserting as in effect before its repeal after section #dji;,a4 7#c7 7,a7 ,section #deg;,a is amended by redesignating subsections 7d7 and 7e7 as subsections 7e7 and 7f7 and by inserting after subsection 7c7 the following new subsection3 7d7 ,nonqualified deferred compensation plan ,for purposes of this section-- 7#a7 ,in general ,the term nonqualified deferred compensation plan means-- 7,a7 any plan that provides for the deferral of compensation1 other than-- 7i7 a qualified employer plan1 and 7ii7 any bona fide vacation leave1 sick leave1 compensatory time1 disability pay1 or death benefit plan1 and 7,b7 any plan that provides a right to compensation based on the appreciation in value of a specified number of equity units of the service recipient4 7#b7 ,qualified employer plan ,the term qualified employer plan means-- 7,a7 any plan1 contract1 pension1 account1 or trust described in subparagraph 7,a7 or 7,b7 of section #bai7;g77#e7 7without regard to subparagraph 7,a77iii771 7,b7 any eligible deferred compensation plan 7within the meaning of section #deg7;b771 and 7,c7 any plan described in section #dae7m74 7#c7 ,plan includes arrangements1 etc ,the term plan includes any agreement or arrangement1 including an agreement or arrangement that includes one person4 7#d7 ,treatment of earnings ,references to deferred compensation shall be treated as including references to income 7whether actual or notional7 attributable to such compensation or such income4 7#e7 ,aggregation rules ,except as provided by the ,secretary1 rules similar to the rules of subsections 7b7 and 7c7 of section #dad shall apply4 7#f7 ,treatment of qualified stock ,an arrangement under which an employee may receive qualified stock 7as defined in section #hc7;i77#b77 shall not be treated as a nonqualified deferred compensation plan with respect to such employee solely because of such employee's election1 or ability to make an election1 to defer recognition of income under section #hc7;i74 4 7,b7 ,section #deg;,a7e77#c71 as redesignated by subparagraph 7,a71 is amended to read as follows3 7#c7 #ab-month exception ,compensation shall not be treated as deferred for purposes of this section if the service provider receives payment of such compensation not later than #ab months after the end of the taxable year of the service recipient during which the right to the payment of such compensation is no longer subject to a substantial risk of forfeiture4 4 7,c7 ,section #deg;,a7e71 as redesignated by subparagraph 7,a71 is amended by striking paragraph 7#e74 7#d7 ,section #hgg;,a7g77#f7 is amended by striking #dji;,a7a77#a77;,b714 7#e7 ,section #cdja7;a7 is amended by striking the last sentence4 7#f7 ,section #fjda is amended by striking subsection 7g74 7#g7 ,section #fjea7;a7 is amended-- 7,a7 by striking paragraph 7#ac7 and redesginating paragraphs 7#ad7 through 7#ag7 as paragraphs 7#ac7 through 7#af71 respectively1 and 7,b7 by striking the last sentence4 7c7 ,effective date ,the amendments made by this section shall apply to taxable years beginning after ,december #ca1 #bjbe4