100 STAT. 2290
PUBLIC LAW 99-514—OCT. 22, 1986
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"(A) are received by a corporation engaged in the active conduct of the trade or business of developing, manufacturDiAit ing, or producing computer software, and "(B) are attributable to computer software which—
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ffio. "(i) is developed, manufactured, or produced by such s** ' ' corporation (or its predecessor) in connection with the trade or business described in subparagraph (A), or ^' "(ii) is directly related to such trade or business. "(3) ROYALTIES MUST CONSTITUTE AT LEAST 50 PERCENT OF
' • INCOME.—The requirements of this paragraph are met if the - royalties described in paragraph (1) constitute at least 50 perV cent of the ordinary gross income of the corporation for the taxable year. ,iA .'
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<'(4) DEDUCTIONS UNDER SECTIONS I 6 2 AND 174 RELATING TO ROYALTIES MUST EQUAL OR EXCEED 25 PERCENT OF ORDINARY GROSS INCOME.—
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"(A) jj^ GENERAL.—The requirements of this paragraph are met if— . "(i) the sum of the deductions allowable to the corsisrta a poration under sections 162, 174, and 195 for the taxable year which are properly allocable to the trade or business described in paragraph (2) equals or exceeds
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25 percent of the ordinary gross income of such cor4 / nn*' V poration for such taxable year, or .; "(ii) the average of such deductions for the 5-taxable year period ending with such taxable year equals or
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exceeds 25 percent of the average ordinary gross income of such corporation for such period. V ^'iw.' If a corporation has not been in existence during the 5taxable year period described in clause (ii), then the period of existence of such corporation shall be substituted for f..^; such 5-taxable year period. "(B) DEDUCTIONS ALLOWABLE UNDER SECTION 162.—For
t- ^,. purposes of subparagraph (A), a deduction shall not be f,.., treated as allowable under section 162 if it is specifically allowable under another section. •v6ir \ "(^) LIMITATION ON ALLOWABLE DEDUCTIONS.—For purposes of subparagraph (A), no deduction shall be taken into ,jj^«!,^ account with respect to compensation for personal services rendered by the 5 individual shareholders holding the larg-pri est percentage (by value) of the outstanding stock of the .;:,,c; corporation. For purposes of the preceding sentence— "(i) individuals holding less than 5 percent (by value) of the stock of such corporation shall not be taken into fjn-•;*.jt account, and lovoi /r. "^") stock deemed to be owned by a shareholder solely by attribution from a partner under section 544(a)(2) shall be disregarded. "(5) DIVIDENDS MUST EQUAL OR EXCEED EXCESS OF PERSONAL .£.j, H O L D I N G C O M P A N Y I N C O M E OVER 10 PERCENT OF ORDINARY GROSS
INCOME.—
,'<4i ' "(A) IN GENERAL.—The requirements of this paragraph •. rj are inet if the sum of— t -sr.,' "(i) the dividends paid during the taxable year (determined under section 562),
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