PUBLIC LAW 100-647—NOV. 10, 1988 102 STAT. 3675

"(i) CLOSELY HELD PASS-THRU ENTITIES.—This para-
graph shall not apply to any closely held pass-thru
entity.

"(ii) FOREIGN CONTRACTS.—This paragraph shall not
apply to any contract unless substantially all of the
income from such contract is from sources in the
United States.

"(C) OTHER DEFINITIONS.—For purposes of this para-
graph—

"(i) HIGHEST RATE.—The term 'highest rate' means—
"(I) the highest rate of tax specified in section 11,
or

"(II) if at all times during the year involved more
than 50 percent of the interests in the entity are
held by individuals directly or through 1 or more
other pass-thru entities, the highest rate of tax
specified in section 1.

"(ii) PASS-THRU ENTITY.—The term 'pass-thru entity'
means any—

"(I) partnership,
"(II) S corporation, or
"(III) trust.

"(iii) CLOSELY HELD PASS-THRU ENTITY.—The term
'closely held pass-thru entity' means any pass-thru
entity if, at any time during any taxable year For which
there is income under the contract, 50 percent or more
(by value) of the beneficial interests in such entity are
held (directly or indirectly) by or for 5 or fewer persons.
For purposes of the preceding sentence, rules similar to
the constructive ownership rules of section 1563(e) shall
apply."
(e) EFFECTIVE DATES.— 26 use 460 note.

(1) SUBSECTIONS (a), (b), AND (c) .—

(A) IN GENERAL.—Except as otherwise provided in this
paragraph, the amendments made by subsections (a), (b),
and (c) shall apply to contracts entered into on or after
June 21,1988.

(B) BINDING BIDS.—The amendments made by subsections
(a), (b), and (c) shall not apply to any contract resulting from
the acceptance of a bid made before June 21, 1988. The
preceding sentence shall apply only if the bid could not
have been revoked or altered at any time on or after
June 21, 1988.

(C) SPECIAL RULE FOR CERTAIN SHIP CONTRACTS.—The
amendments made by subsections (a), (b), and (c) shall not
apply in the case of a qualified ship contract (as defined in
section 10203(bX2XB) of the Revenue Act of 1987).

(2) SUBSECTION (d).—The amendment made by subsection (d)
shall apply as if included in the amendments made by section
804 of the Reform Act; except that such amendment shall not
apply to any contract completed in a taxable year ending before
the date of the enactment of this Act, if the due date (deter-
mined with regard to extensions) for the return for such year is
before such date of enactment.

(d) STUDY.—The Secretary of the Treasury or his delegate shall
conduct a study of the revenue realization method of accounting for
long-term contracts and of improvements to the percentage of

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